<PAGE>
As filed with the Securities and Exchange Commission on October 28, 1997
Registration No. 333-35251
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
AMENDMENT NO. 1
TO
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------------------------
BANKAMERICA MANUFACTURED HOUSING
CONTRACT TRUST
(Issuer of the Certificates)
Bank of America National Trust Bank of America, FSB
and Savings Association
(Originators of the Trusts Described Herein)
United States United States
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
94-1687665 91-0221850
(I.R.S. Employer Identification Number) (I.R.S. Employer Identification Number)
555 California Street 555 California Street
San Francisco, California 94104 San Francisco, California 94104
(415) 622-3530 (415) 622-2220
(Address, including zip code, and telephone number,
including area code, of each registrant's principal executive offices)
Cheryl A. Sorokin
BankAmerica Corporation
Bank of America Center
555 California Street
San Francisco, California 94104
(415) 622-3530
(Name, address, including zip code,
and telephone number, including area code, of agent for service)
Copies to:
Mark R. Levie, Esq. Andrea B. Goldenberg, Esq.
Orrick, Herrington & Sutcliffe LLP Bank of America National
Old Federal Reserve Building Trust and Savings Association
400 Sansome Street 555 South Flower Street
San Francisco, CA 94111 Los Angeles, California 90071
(415) 392-1122 (213) 228-5678
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement
If any of the securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box: [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
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Proposed maximum Proposed maximum Amount of
Title of securities Amount to be offering price aggregate registration
to be registered registered per unit* offering price fee(2)(3)
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BankAmerica Manufactured Housing $2,000,000,000.00 100% $2,000,000,000.00 $606,424.27*
Contract Trust Pass-Through
Certificates (1), (2)
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</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
(1) This Registration Statement also registers an indeterminate amount of
securities to be sold by BancAmerica Securities, Inc. in market making
transactions, where required.
(2) $8,684,000 securities are being carried forward and $2,994.48 of
the filing fee is associated with the securities being carried forward
and was previously paid with the earlier registration statement.
(3) $398.79 was filed on September 9, 1997.
---------
Pursuant to Rule 429 of the Securities and Exchange Commission's Rules
and Regulations under the Securities Act of 1933, as amended, the Prospectus and
Prospectus Supplement contained in this Registration Statement also relates to
Registrant's registration statement No. 333-3200 as previously filed by the
Registrant on Form S-3.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Subject to Completion, Dated [______], 199[_]
[FORM OF PROSPECTUS SUPPLEMENT]
PRELIMINARY PROSPECTUS SUPPLEMENT DATED [ ]
(To Prospectus dated [ ], 199[ ])
$[ ] (Approximate)
BankAmerica Manufactured Housing Contract Trust [ ]
Senior/Subordinate Pass-Through Certificates, Series 199[ ]-[ ]
<TABLE>
<CAPTION>
========================== ============================ ====================== ==============================
Initial Class Certificate Pass-Through Rate Final Scheduled Distribution
Balance Date(2)
-------------------------- ---------------------------- ---------------------- ------------------------------
<S> <C> <C> <C>
Class A....................$[ ]
-------------------------- ---------------------------- ---------------------- ------------------------------
[Class A-IO................$[ ] ]
-------------------------- ---------------------------- ---------------------- ------------------------------
Class M....................$[ ] (1)
-------------------------- ---------------------------- ---------------------- ------------------------------
Class B....................$[ ] (1)
========================== ============================ ====================== ==============================
</TABLE>
(1) [The Pass-Through Rate is subject to a maximum rate equal
to the weighted average of the Net Contract Rates (as defined
herein) in the Contract Pool.]
(2) Determined as described under "Prepayment and Yield
Considerations - Final Distribution Date"; the Final
Distribution Date could occur significantly earlier.
(Distributions payable on the 10th day of each month beginning in [ ], 199[ ])
[Bank of America National Trust and Savings Association, Seller];
Bank of America, FSB, acting through its division,
BankAmerica Housing Services, [Seller and] Servicer
The BankAmerica Manufactured Housing Contract Trust [ ] Senior/Subordinate Pass-
Through Certificates, Series 199[ ]-[ ] (the "Certificates") will represent
interests in a pool (the "Contract Pool") of [actuarial] manufactured housing
installment sales contracts and installment loan agreements (the "Contracts")
and certain
(cover continued on next page)
For a discussion of significant matters affecting investments in the Offered
Certificates (defined herein), see "Risk Factors" herein at page ____ and in the
Prospectus at page ___.
- -------------------------------------------------------------------------------
PROCEEDS FROM THE ASSETS IN THE TRUST FUND WILL BE THE ONLY SOURCE OF
PAYMENT ON THE CERTIFICATES, AND THE CERTIFICATES WILL NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF BANK OF AMERICA, BANK OF AMERICA, FSB, THEIR PARENT
CORPORATION, BANKAMERICA CORPORATION, OR AFFILIATES THEREOF, SUBJECT TO CERTAIN
EXCEPTIONS DESCRIBED UNDER "RISK FACTORS" HEREIN AND IN THE PROSPECTUS. NEITHER
THE CERTIFICATES NOR THE UNDERLYING CONTRACTS OR COLLECTIONS THEREON WILL BE
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY
OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Proceeds to
Price to Public Underwriting Seller(s)
(1) Discount (1) (2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A-1 Certificates............................................. % % %
[Class A-IO Certificates........................................... $__ % $__]
Class M Certificates............................................... % % %
Class B Certificates..............................................% % % %
- -----------------------------------------------------------------------------------------------------------------------
Total.............................................................. $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from [ ], 199[ ].
Accrued Interest will be calculated on the Class A-IO Certificates on
the basis of a Notional Principal Amount [equal to the Pool Scheduled
Principal Balance.]
(2) Before deducting expenses payable by the Seller[s], estimated to be
$ .
----------------------
The Offered Certificates are offered subject to prior sale, when, as and if
issued by the Trust Fund and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of the
Offered Certificates will be made in book-entry form only through the Same Day
Funds Settlement system of The Depository Trust Company on or about [ ], 199[ ].
----------------------
[UNDERWRITER]
----------------------
The date of this Prospectus Supplement is [ ], 199[ ]
<PAGE>
related property (the Contracts and such related property being referred to as
the "Trust Fund"). The Contracts will be conveyed to the Trust Fund by Bank of
America National Trust and Savings Association ("Bank of America") or Bank of
America, FSB or both of them. Each Contract was [either (i)] originated or
purchased by Bank of America, FSB, acting through its division, BankAmerica
Housing Services, or by Security Pacific Financial Services of California, Inc.
("SPFSC"), a wholly owned subsidiary of Bank of America, in each case on an
individual basis in the ordinary course of its business [or (ii) purchased by
Bank of America, FSB, SPFSC, or any combination thereof, in bulk from other
lenders or finance companies (including from affiliates of the Sellers), from
governmental agencies or instrumentalities or from other entities.] Bank of
America, FSB will serve as servicer of the Contracts (together with any
successor servicer, the "Servicer"), performing those duties through its
division, BankAmerica Housing Services. The term "approximate," with respect to
the aggregate principal amount of any Certificates or Contracts, means that the
amount is subject to a 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 [ ], 199[ ] attached hereto (the "Prospectus").
The Certificates will consist of [two] classes of senior certificates
designated as the [Class A-1 Certificates and the Class A-IO Certificates]
(collectively, the "Class A Certificates" or the "Senior Certificates"), two
classes of subordinate certificates designated as the Class M Certificates and
the Class B Certificates (collectively, the "Subordinate Certificates") and one
class representing the residual interest (the "Class R Certificates"). Only the
Class A Certificates, the Class M Certificates and the Class B Certificates
(collectively, the "Offered Certificates") are being offered hereby. The Class
B-2 Certificates and the Class R Certificates have not been registered under the
Securities Act and are not being offered hereby. The Class A Certificates, the
Class M Certificates and Class B Certificates will evidence in the aggregate
approximate initial [ ]%, [ ]% and [ ]% undivided interests in the Contract
Pool, respectively. The rights of the holders (the "Certificateholders") of the
Class B Certificates to receive distributions of principal and/or interest are
subordinated as described herein to the rights of the Class A and Class M
Certificateholders and the rights of the Class M Certificateholders to receive
distributions of principal and/or interest are subordinated as described herein
to such rights of the Class A Certificateholders, and the rights of the Class R
Certificateholders to receive distributions of principal and/or interest are
subordinated as described herein to such rights of the Class M, the Class B and
the Class A Certificateholders. See "Description of the Certificates --
Subordination" herein and "Credit and Liquidity Enhancement" in the Prospectus.
Distributions of principal and/or interest on the Certificates will be
made to the holders of the Certificates on the 10th day of each month (or if the
10th day is not a business day, the next business day) (each, a "Distribution
Date"), beginning in [ ], 199[ ]. [The Class A-IO Certificates will not have a
principal balance and will not be entitled to distributions of principal but
will be entitled to distributions of interest as described herein.] The Offered
Certificates will have the respective [fixed] Pass-Through Rates specified
above. See "Description of the Certificates" herein.
The yields to maturity of the Offered Certificates may vary from the
anticipated yields to the extent such Certificates are purchased at a discount
or premium and to the extent the rate and timing of payments thereon are
sensitive to the rate and timing of principal payments (including prepayments)
of the Contracts. [The yield to maturity of the Class A-IO Certificates will be
extremely sensitive to the rate and timing of principal payments (including
prepayments) of the Contracts.] Certificateholders should consider, in the case
of any offered Certificates purchased at a discount, the risk that a lower than
anticipated rate of principal payment could result in an actual yield that is
lower than the anticipated yield and, in the case of any Offered Certificates
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield that is lower than the
anticipated yield. [Holders of the Class A-IO Certificates should carefully
consider the risk that a rapid rate of principal payments on the contracts will
have a negative effect on the yield thereon and could result in the failure of
such holders to recover their initial investments.] See "Risk Factors" 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. The
Offered Certificates will represent "regular interests" in the REMIC. See
"Certain Federal Income Tax Consequences" herein and in the Prospectus.
-----------
The underwriters named herein (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. See "Risk Factors" herein and in the Prospectus.
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. Terms used and not otherwise defined herein have the
respective meanings ascribed to such terms in the Prospectus.
S-2
<PAGE>
This Prospectus Supplement may be used by BancAmerica Securities, Inc.,
an affiliate of the Seller[s] and Servicer, in connection with offers and sales
related to market making transactions in the Offered Certificates. BancAmerica
Securities, Inc. may act as principal or agent in such transactions. Such sales
will be made at prices related to prevailing market prices at the time of the
sale.
Until ninety 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.
No dealer, salesman or person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this Prospectus Supplement or the accompanying
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by any Seller or Underwriter. This
Prospectus Supplement and the accompanying Prospectus do not constitute an offer
to sell or a solicitation of an offer to buy any of the securities offered
hereby and thereby in any state or jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such state or jurisdiction.
Neither the delivery of this Prospectus Supplement, the accompanying Prospectus
nor any sale made hereunder and thereunder shall, under any circumstances,
create any implication that information herein or therein is correct as of any
time subsequent to the date hereof or thereof or that there has been no change
in the affairs of the Sellers since such dates.
S-3
<PAGE>
---------
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
<S> <C>
Terms of the Offered Certificates.................................................. S-5
Risk Factors....................................................................... S-14
The Contract Pool.................................................................. S-15
The Sellers........................................................................ S-21
Prepayment and Yield Considerations................................................ S-24
Description of the Certificates.................................................... S-31
Certain Federal Income Tax Consequences............................................ S-43
ERISA Considerations............................................................... S-45
Ratings............................................................................ S-47
Legal Investment................................................................... S-47
Method of Distribution............................................................. S-48
Use of Proceeds.................................................................... S-49
Legal Matters...................................................................... S-49
Index of Significant Definitions................................................... S-50
Appendix A......................................................................... A-1
Prospectus
Incorporation of Certain Documents by Reference.................................... 1
Additional Information............................................................. 1
Reports to Certificateholders...................................................... 1
Summary of Terms................................................................... 2
Risk Factors....................................................................... 8
The Contract Pools................................................................. 11
The Sellers........................................................................ 14
Prepayment and Yield Considerations................................................ 21
Description of the Certificates.................................................... 23
Credit and Liquidity Enhancement................................................... 34
Certain Federal Income Tax Consequences............................................ 37
Other Tax Consequences............................................................. 58
Restrictions on Transfer of REMIC Residual Certificates............................ 58
Tax-Exempt Investors............................................................... 58
Legal Investment................................................................... 58
ERISA Considerations............................................................... 59
Certain Legal Aspects of the Contracts............................................. 61
Ratings............................................................................ 67
Method of Distribution............................................................. 67
Use of Proceeds.................................................................... 68
Legal Matters...................................................................... 68
Other Considerations............................................................... 68
Index of Significant Definitions................................................... 70
</TABLE>
---------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF CERTIFICATES,
INCLUDING ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "METHOD OF
DISTRIBUTION."
S-4
<PAGE>
TERMS OF THE OFFERED 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 and not otherwise defined herein
have the respective meanings assigned them in the Prospectus or elsewhere in
this Prospectus Supplement. Reference is made to the "Index of Significant
Definitions" herein for the location of the definitions of certain capitalized
terms.
<TABLE>
<S> <C>
Securities Offered...................... BankAmerica Manufactured Housing Contract Trust [ ] Senior/Subordinate Pass-Through
Certificates, Series 199[ ]-[ ] (the "Certificates"), Class A-1 and Class A-IO
Certificates (collectively, the "Class A Certificates" or "Senior Certificates") Class M
Certificates (the "Class M Certificates") and Class B Certificates (the "Class B
Certificates" and, together with the Class M Certificates, "Subordinate Certificates").
The residual interest is evidenced by the Class R Certificates (the "Class R
Certificates"). The Class R Certificates are not being offered hereby.
The Class A Certificates are senior to the Class M Certificates to the extent described
herein, the Class M Certificates are senior to the Class B Certificates to the extent
described herein, and the Class B Certificates are senior to the Class R Certificates to
the extent described herein. The Class A Certificates, the Class M Certificates and the
Class B Certificates are sometimes referred to herein collectively as the
"Series 199[ ]-[ ] Regular Certificates." The Class R Certificates are sometimes
referred to herein as the "Series 199[ ]-[ ] Residual Certificates."
The Seller[s]........................... Either Bank of America National Trust
and Savings Association ("Bank of America") or Bank
of America, FSB, or both of them.
Servicer................................ Bank of America, FSB (together with
any successor servicer under the Agreement (defined
below), the "Servicer"), acting
through its division, BankAmerica Housing Services .
Trustee................................. [ ] (the "Trustee").
Cut-off Date............................ [ ], 199[ ].
Cut-off Date Pool Principal Balance..... $[ ] (Approximate, subject
to a variance of plus or minus 5%).
Initial Class A Certificate Balance $[ ] (Approximate, subject
(other than Class A-IO Certificates).. to a variance of plus or minus 5%).
Initial Class A-IO Notional Principal $[ ] (Approximate, subject
Amount................................ to a variance of plus or minus 5%).
Initial Class M Certificate Balance..... $[ ] (Approximate, subject
to a variance of plus or minus 5%).
Initial Class B Certificate Balance..... $[ ] (Approximate, subject
to a variance of plus or minus 5%).
Class A Pass-Through Rate [ ]%, calculated on the basis
of a 360-day year comprised of twelve 30-day months.
Class A-IO Pass-Through Rate............ [ ]%, calculated on the basis
of a 360-day year comprised of twelve 30-day months.
Class M Pass-Through Rate............... [ ]%, [subject to a maximum
rate equal to the weighted average of the Net Contract
Rate on the Contracts in the Contract
Pool] calculated on the basis of a
360-day year comprised of twelve
30-day months.
Class B Pass-Through Rate............... [ ]%, [subject to a maximum rate
equal to the weighted average of the
Net Contract Rate on the Contracts in
the Contract Pool] calculated on the
basis of a 360-day year comprised of
twelve 30-day months.
Distribution Date....................... The 10th day of each month (or if
such 10th day is not a business day,
the next succeeding business day),
commencing in [ ], 199[ ]. The first
Distribution Date is [ ], 199[ ] (the
"First Distribution Date").
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Collection Period....................... With respect to any Distribution
Date, the calendar month prior to the
month in which such Distribution Date
occurs (each, a "Collection Period").
Agreement............................... The Pooling and Servicing Agreement,
dated as of [ ], 199[ ] (the
"Agreement"), by and among Bank of
America, Bank of America, FSB, or
both of them, in each case as Seller,
Bank of America, FSB, as Servicer,
and the Trustee.
The Contract Pool....................... The Contract Pool is comprised of [fixed] rate [actuarial] manufactured housing
installment sales contracts and installment loan agreements (collectively, the
"Contracts"), in each case secured by a new or used manufactured home (each manufactured
home securing a Contract being referred to herein as a "Manufactured Home"). Some of the
Contracts are secured by a lien on real estate. Each Contract was [either (i)] originated
or purchased by either Bank of America, Bank of America, FSB, acting through its division,
BankAmerica Housing Services, or Security Pacific Financial Services of California, Inc.
("SPFSC"), a wholly owned subsidiary of Bank of America, in each case on an individual
basis in the ordinary course of its business [or (ii) purchased by Bank of America, Bank
of America, FSB, acting through its division, BankAmerica Housing Services, SPFSC or any
combination thereof as part of bulk purchases of manufactured housing contracts from other
private lenders or finance companies, or from governmental agencies or instrumentalities
or from other entities]. Neither the Contracts nor any collections thereon will be insured
or guaranteed by any governmental agency or instrumentality.
As of the Cut-off Date, the Contract Pool consists of approximately [ ] Contracts having
an aggregate unpaid principal balance of approximately $[ ]. The Contracts, as of their
origination, were secured by Manufactured Homes located in [ ] states and the District of
Columbia and have been selected by [Bank of America, FSB] from the manufactured housing
installment sale contracts and installment loan portfolios of [Bank of America,] Bank of
America, FSB [and SPFSC, in each case] on the basis of the criteria specified in the
Agreement (as defined herein). Monthly payments of principal and interest on the Contracts
will be due on various days (each, a "Due Date") throughout each month. As of the Cut-off
Date, the Contract Rates on the Contracts ranged from [ ]% to [ ]%, with a weighted
average of approximately [ ]%. As of the Cut-off Date, the Contracts had a weighted
average original term to maturity of approximately [ ] months and a weighted average
remaining term to maturity of approximately [ ] months. The final scheduled payment date
on the Contract with the latest maturity is in [ ] 20[ ]. The Contracts were originated
from 19[ ] through 19[ ], inclusive. See "The Contract Pool" and "Prepayment and Yield
Considerations" herein for a detailed description of the Contracts.
In addition to the security interest on the Manufactured Home, certain of the Contracts
(the "Land Home Contracts" and "Land-in-Lieu Contracts") will be secured by a mortgage or
deed of trust on the real estate on which the Manufactured Home is located. Land Home and
Land-in-Lieu Contracts in the aggregate comprise approximately [ ] in dollars of the
Contract Pool as of the Cut-off Date. See "The Contract Pools" in the Prospectus.
Description of Certificates............. The Certificates evidence undivided interests in the Contract Pool and certain other
property held in trust for the benefit of the Certificateholders (the Contracts and such
other property being collectively referred to as the "Trust Fund"). The Class A
Certificates are Senior Certificates and the Class M Certificates and the Class B
Certificates are Subordinate Certificates, all as described herein. The Class M
Certificates are a "mezzanine" Class of Certificates as described in the Prospectus. The
Residual Interest is evidenced by the Class R Certificates. The Offered Certificates will
be offered in denominations of [$1,000] and integral multiples of [one dollar] in excess
thereof. The undivided percentage interest (the "Percentage Interest") evidenced by a
Certificate of any Class (other than a [Class A-IO or a] Class R Certificate) in the
distributions to the related Class will be equal to the percentage obtained by dividing
the original denomination of such Certificate by the initial Certificate
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Balance of such Class of Certificates.
Non-Recourse Obligations................ Neither Bank of America nor Bank of America, FSB nor any of their affiliates will have
any obligations with respect to the Offered Certificates except, in the case of the
Sellers, for obligations arising from certain representations and warranties of Bank of
America and Bank of America, FSB, as the case may be, with respect to the Contracts sold
by it in the Contract Pool and, in the case of Bank of America, FSB, for certain
contractual servicing obligations, each as further described herein. SUBJECT ONLY TO THE
FOREGOING EXCEPTIONS, THE OFFERED CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF BANK OF AMERICA OR BANK OF AMERICA, FSB, THEIR PARENT CORPORATION,
BANKAMERICA CORPORATION, OR ANY AFFILIATE THEREOF, AND ASSETS IN THE TRUST FUND WILL
CONSTITUTE THE ONLY SOURCE OF FUNDS FOR PAYMENT ON THE OFFERED CERTIFICATES. None of the
Certificates will include the benefit of a guarantee or limited guarantee of one or more
of the Sellers or an affiliate thereof (see "Credit and Liquidity Enhancement-- Credit
Facilities" in the Prospectus). NONE OF THE OFFERED CERTIFICATES NOR THE UNDERLYING
CONTRACTS OR ANY COLLECTIONS THEREON WILL BE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR BY ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
Record Date............................. The last business day preceding the
Distribution Date.
Distributions........................... Distributions to the holders of the Series 199[ ]-[ ] Regular Certificates of interest
and/or principal, will be made first to the holders of the Senior Certificates and second
to the holders of the Subordinate Certificates. Within each Class of Certificates, such
distributions will be applied first to the payment of interest and then to the payment of
principal. The funds available in the Certificate Account (as hereinafter defined) for
distribution on a Distribution Date (the "Available Distribution Amount," as further
defined herein under "Description of the Certificates--Payments on the Contracts;
Certificate Account") will be applied in the amounts and the order of priority set forth
below.
Distributions of interest and principal to holders of each Class of Certificates[, other
than the Class A-IO Certificates,] will be made on each Distribution Date in an amount
equal to their respective Percentage Interests multiplied by the aggregate amount
distributed to such Class of Certificates on such Distribution Date. [Interest will be
calculated on the Class A-IO Certificates on the basis of a "Notional Principal Amount"
[equal to the Pool Scheduled Principal Balance, as defined below]. Reference to the
Notional Principal Amount of the Class A-IO Certificates is only for convenience in
certain calculations and does not represent the right to receive any distribution
allocable to principal.] Distributions will be made on each Distribution 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 [Chicago] [or] [New York
City].
Priorities. On each Distribution Date, the Available Distribution Amount will be
distributed in the following amounts and in the following order of priority:
(i) to the Class A Certificateholders, the Class A Interest Distribution Amount[, payment
to be distributed among the Class A-1 and Class A-IO Certificates pro rata based on
entitlement];
(ii) to the Class A Certificateholders [(other than the Class A-IO Certificateholders),]
the Formula Principal Distribution Amount until the Class A Certificate Balance is reduced
to zero;
(iii) to the Class M Certificateholders, the Class M Interest Distribution Amount;
(iv) to the Class M Certificateholders, any remaining Formula Principal Distribution
Amount
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
after distribution under clause (ii) above until the Class M Certificate Balance is
reduced to zero;
(v) to the Class B Certificateholders, the Class B Interest Distribution Amount;
(vi) to the Class B Certificateholders, any remaining Formula Principal Distribution
Amount after distributions under clause (iv) above until the Class B Certificate Balance
is reduced to zero; and
(vii) to the Class R Certificateholders, any remaining Available Distribution Amount.
Definitions. As to any Distribution Date, the "Class A Interest Distribution Amount" is
equal to the sum of (i) one month's interest at the Class A Pass-Through Rate on the Class
A Certificate Balance or Notional Principal Amount, as the case may be, and (ii) any
previously undistributed shortfalls in interest due to the Class A Certificateholders in
respect of prior Distribution Dates; the "Class M Interest Distribution Amount" is equal
to the sum of (i) one month's interest at the Class M Pass-Through Rate on the Class M
Certificate Balance and (ii) any previously undistributed shortfalls in interest due to
the Class M Certificateholders in respect of prior Distribution Dates; the "Class B
Interest Distribution Amount" is equal to the sum of (i) one month's interest at the Class
B Pass-Through Rate on the Class B Certificate Balance and (ii) any previously
undistributed shortfalls in interest due to the Class B Certificateholders in respect of
prior Distribution Dates. Any shortfall in interest due to Certificateholders will, to the
extent legally permissible, bear interest at the related Class A, Class M or Class B Pass-
Through Rate.
The "Formula Principal Distribution Amount" in respect of a Distribution Date equals the
sum of (a) the Total Regular Principal Amount (as defined below) for such Distribution
Date and (b) any previously undistributed shortfalls in the distribution of the Total
Regular Principal Amount in respect of prior Distribution Dates.
The "Total Regular Principal Amount" on each Distribution Date is the sum of (i) the
Scheduled Principal Reduction Amount (defined below) for such Distribution Date, (ii) the
Scheduled Principal Balance (defined below) of each Contract which, during the related
Collection Period, was purchased by Bank of America or Bank of America, FSB, as the case
may be, on account of certain breaches of representations and warranties made by it in the
Agreement, (iii) all partial prepayments received during such related Collection Period,
(iv) the Scheduled Principal Balance of each Contract that was prepaid in full during such
related Collection Period and (v) the Scheduled Principal Balance of each Contract that
became a Liquidated Contract (defined below) during such related Collection Period.
The "Scheduled Principal Balance" of a Contract for any Distribution Date is its principal
balance as of the Due Date in the Collection Period immediately preceding such
Distribution Date, after giving effect to all previous partial prepayments, all previous
scheduled principal payments (whether or not paid) and the scheduled principal payment due
on such Due Date, but without giving effect to any adjustment due to bankruptcy or similar
proceedings. The "Scheduled Principal Reduction Amount" for any Distribution Date is an
approximate calculation (performed on an aggregate basis rather than on a Contract-by-
Contract basis) of the scheduled payments of principal due during the related Collection
Period. Both of these terms are more fully described herein under "Description of the
Certificates -- Distributions" herein.
The "Pool Scheduled Principal Balance" for any Distribution Date is equal to the Cut-off
Date Pool Principal Balance less the aggregate of the Total Regular Principal Amounts for
all prior Distribution Dates.
In general, a "Liquidated Contract" is a defaulted Contract as to which all amounts that
the Servicer expects to recover relating to such Contract ("Liquidation Proceeds") have
been received. A Liquidated Contract includes any defaulted Contract in respect of which
the
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related Manufactured Home has been realized upon and disposed of and the proceeds of
such disposition have been received.
The "Certificate Balance" for any Class as of any Distribution Date is the Initial
Certificate Balance of that Class less all amounts previously distributed to
Certificateholders of that Class on account of principal; The "Senior Certificate Balance"
as of any Distribution Date is the sum of the Certificate Balances of the Senior
Certificates immediately prior to such Distribution Date. The "Subordinate Certificate
Balance" as of any Distribution Date is the sum of the Class M Certificate Balance and the
Class B Certificate Balance immediately prior to such Distribution Date. In no event shall
the aggregate distributions of principal to the holders of the Senior Certificates and
Subordinate Certificates exceed the Initial Senior Certificate Balance and the Initial
Subordinate Certificate Balance, respectively.
[Reserve Account.......................] [On the Closing Date, the Trustee shall establish an account (the "Reserve Account") for
the benefit of the Certificateholders. The Reserve Account shall have an initial balance
of zero on the Closing Date. Commencing on the Distribution Date which is the earlier of
(a) the Distribution Date in [ ] and (b) the first Distribution Date on which the
percentage equivalent of a fraction, the numerator of which is the Pool Scheduled
Principal Balance (after giving effect to distributions with respect to principal) for
such Distribution Date and the denominator of which is the Cut-off Date Pool Principal
Balance, is less than 25%, the Trustee shall make a deposit into the Reserve Account up to
the Reserve Account Cap. On each Distribution Date, the Trustee will withdraw from the
Reserve Account an amount (the "Reserve Account Draw Amount") equal to the lesser of (a)
the amount then on deposit in the Reserve Account and (b) the amount by which the
aggregate of amounts due to Certificateholders in clauses (i) to (vi) under
"Distributions" above exceeds the Available Distribution Amount on such Distribution Date
and distribute such amount, together with the Available Distribution Amount. ]
[Funds in the Reserve Account will be invested in Eligible Investments by the Trustee, and
the net investment earnings, if any, will be paid to the Class R Certificateholders.
"Eligible Investments" means one or more common trust funds, collective investment trusts
or money market funds acceptable to [the rating agency] (as evidenced by a letter from
[the rating agency] to such effect) or, if no such trusts or funds are acceptable to [the
rating agency], any other obligations acceptable to [the rating agency].
On any Distribution Date, any funds on deposit in the Reserve Account in excess of the
Reserve Account Cap (after giving effect to any Reserve Account Draw Amount paid to the
Certificateholders on such date) will be withdrawn from the Reserve Account and paid to
the Class R Certificateholders.
Amounts paid to the Class R Certificateholders pursuant to the two immediately preceding
paragraphs will not be available to offset shortfalls in distributions to holders of other
Classes of Certificates.
The Reserve Account is intended to enhance the likelihood of regular receipt by the
holders of the Series 199[ ]-[ ] Regular Certificates of the full amount of the
distributions due them and to afford such holders protection against losses on Liquidated
Contracts, but no assurance can be given that the Reserve Account will be sufficient for
such purpose.
The "Reserve Account Cap" shall be (i) as to any Distribution Date (after giving effect to
distributions due thereon) after the Closing Date and until none of the Offered
Certificates remain outstanding, $[ ] (which is 0.5% of the Cut-off Date Pool Principal
Balance) and (ii) as to any Distribution Date (after giving effect to distributions due
thereon) after none of the Offered Certificates remain outstanding, the lesser of the then
outstanding Class B-[ ] Certificate Balance and $[ ] (which is 0.5% of the Cut-off Date
Pool Principal Balance).
Subordination of the Subordinate The rights of the holders of the Subordinate Certificates to receive distributions of
available
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Certificates........................... Amounts in the Trust Fund will be subordinate, to the extent described herein, to such
rights of the holders of the Senior Certificates. This subordination is intended to
enhance the likelihood of regular receipt by the holders of the Senior Certificates of the
full amount of interest and principal distributable thereon and to afford such holders
protection against losses on Liquidated Contracts. Similarly, the rights of the holders of
the Class B Certificates to receive distributions due them from available amounts in the
Trust Fund will be subordinated, to the extent described herein, to such rights of the
holders of the Class M Certificates. Subject to the subordination of the Subordinate
Certificates to the Senior Certificates, this subordination of the Class B Certificates to
the Class M Certificates is intended to enhance the likelihood of regular receipt by the
holders of the Class M Certificates of the full amount of the distributions due them and
to afford such holders protection against losses on Liquidated Contracts.
The protection afforded to the holders of Senior Certificates by means of the
subordination of the Subordinate Certificates and to the holders of the Class M
Certificates by the subordination of the Class B Certificates will be accomplished by the
application of the Available Distribution Amount in the order specified under
"Distributions" above. Accordingly, in the event that the Available Distribution Amount on
any Distribution Date is not sufficient to permit the distribution of the amount of
interest and the specified portion of the Formula Principal Distribution Amount due to the
holders of the Senior Certificates, the subordination of the Subordinate Certificates will
protect the Senior Certificateholders by the right of such Certificateholders to receive
distributions of the Available Distribution Amount in respect of interest and the Formula
Principal Distribution Amount that would otherwise have been distributable to the
Certificateholders of any Class subordinate in priority of distribution to such Class,
until any shortfall in distributions to the holders of the related senior Class or Classes
of Certificates in respect thereof has been satisfied, to the extent described herein. See
"Description of the Certificates --Distributions" and "Description of the Certificates --
Subordination" herein.
Losses on Liquidated Contracts.......... As described above, the Total Regular Principal Amount distributable to the holders of the
Series 199[ ]-[ ] Regular Certificates on each Distribution Date includes the Scheduled
Principal Balance of each Contract that became a Liquidated Contract during the
immediately preceding Collection Period. The Liquidation Proceeds, net of (i) certain
expenses incurred to liquidate such Liquidated Contract, (ii) all accrued and unpaid
interest thereon and (iii) all Monthly Advances (as defined below) required to be made in
respect of such Liquidated Contract (the "Net Liquidation Proceeds"), may be less than the
Scheduled Principal Balance of such Liquidated Contract. Under such circumstances, the
loss on the Liquidated Contract, in the amount of the deficiency between the Net
Liquidation Proceeds and the Scheduled Principal Balance of such Liquidated Contract, may
be covered to the extent of the amount (the "Excess Interest"), if any, by which the
interest collected on nondefaulted Contracts during the same Collection Period exceeds
interest distributions due to the holders of the Series 199[ ]-[ ] Regular Certificates
and the Monthly Servicing Fee.
The effect of any losses on Liquidated Contracts during a Collection Period in excess of
the aggregate of Excess Interest generally will be to reduce the Pool Scheduled Principal
Balance below the aggregate Certificate Balance (excluding the Class R Certificates) on
the related Distribution Date. In the event the Pool Scheduled Principal Balance falls
below the aggregate Certificate Balance on any Distribution Date, shortfalls and/or losses
will arise with respect to the Certificates, which shortfalls and/or losses will be borne
by the Class B Certificateholders, the Class M Certificateholders and the Senior
Certificateholders, in that order.
Monthly Advances........................ For each Distribution Date, the Servicer will be obligated to make an advance (a "Monthly
Advance") equal to the lesser of (i) delinquent scheduled payments of principal and
interest on the Contracts that were due in the preceding Collection Period and (ii) the
amount, if any, by which scheduled distributions of principal and interest due on the
Series 199[ ]-[ ]
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Regular Certificates exceeds certain amounts on deposit in the Certificate Account (as
hereinafter defined) as of the last day of the immediately preceding Collection Period,
except to the extent, in the Servicer's judgment, such advance would not be recoverable
from related late payments, Liquidation Proceeds or otherwise. Advances are reimbursable
to the Servicer as described herein under "Description of the Certificates --Advances."
Security Interests in the Manufactured
Homes; Transfer of Contracts and
Security Interests; Repurchase or
Substitution Obligations.............. In connection with the issuance of the Certificates, each of Bank of America and Bank of
America, FSB will convey to the Trustee all of their respective interests in the
Contracts. The certificates of title for the Manufactured Homes will show Bank of
America, FSB as the lienholder, and the UCC financing statements, where applicable, will
show Bank of America, FSB as secured party. Because of the expense and administrative
inconvenience involved, neither the certificates of title for the Manufactured Homes nor
the UCC financing statements evidencing the security interest in such Manufactured Homes
will be notated or amended, as the case may be, to change the lienholder specified
therein to the Trustee. Similarly, Bank of America, FSB will not record an assignment to
the Trustee of the mortgage or deed of trust securing each Land Home and Land-in-Lieu
Contract. In some states, in the absence of such a notation or amendment or recordation
of assignment, the assignment to the Trustee of the security interest in the Manufactured
Homes or the mortgage or deed of trust securing a Land Home or Land-in-Lieu Contract may
not be effective against creditors of Bank of America, FSB. However, the Seller[s] will
not be obligated to repurchase or substitute a Contract solely on the basis of the
failure by Bank of America, FSB to cause any such notation or amendment to be made with
respect to a document of title or UCC financing statement relating to a Manufactured
Home, except under certain limited specified circumstances described herein under
"Description of the Certificates -- Conveyance of Contracts." Under the Agreement, the
Seller[s] will agree to repurchase, or at its option substitute another contract for, a
Contract sold by it if it has failed to perfect a first-priority security interest in
such Manufactured Home or in the event of certain violations of federal and state
consumer protection laws applicable to creditors or assignees of the Contracts, unless
such failure does not materially and adversely affect the Trustee's interest in the
Contract or such failure has been cured. Under certain federal and state laws governing
the perfection of security interests in manufactured homes and enforcement of rights to
realize upon the value of manufactured homes, the Trustee's security interest in a
Manufactured Home could be rendered subordinate to the interest of other parties if the
Manufactured Home (that does not secure a Land Home or Land-in-Lieu Contract) has been
affixed to real estate or is relocated to another state without reperfection of the
security interest. See "Risk Factors-- Security Interest in the Manufactured Homes;
Transfer of Contracts and Security Interest" and "Certain Legal Aspects of the Contracts
--Security Interests in the Manufactured Homes" in the Prospectus. Bank of America, FSB,
as Servicer, will maintain possession of the Contract documents, and the Seller[s] will
stamp or cause to be stamped each Contract with a legend indicating that the Contract has
been assigned to the Trustee.
Optional Termination and Termination
Auction............................... The Servicer has the option to purchase from the Trust Fund all Contracts then
outstanding and all other property in the Trust Fund on any Distribution Date after the
First Distribution Date if, among other conditions, the Pool Scheduled Principal Balance
is less than 10% of the Cut-off Date Pool Principal Balance. See "Description of the
Certificates -- Optional Termination and Termination Auction" herein. During that period,
the Servicer also may direct the Trustee to conduct a Termination Auction for the sale of
all Contracts then outstanding in the Trust Fund, and, in any event, if the Servicer has
not exercised the option call within 90 days of the first Distribution Date when the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal Balance,
the Servicer shall direct the Trustee to conduct a Termination Auction. See "Description
of the Certificates -- Optional Termination and Termination Auction" herein. Any early
termination of the Trust Fund and early retirement of the Certificates that results from
the Servicer's exercise of the option call or a successful Termination Auction may have
an effect on an investor's yield on such
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Certificates. See "Prepayment and Yield Considerations" herein and in the Prospectus.
Registration of 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 "Certificateholders" shall reflect the rights of
beneficial owners of the Offered Certificates ("Certificate Owners") as they may
indirectly exercise such rights through DTC and participating members thereof, except as
otherwise specified herein. See "Risk Factors" and "Description of the Certificates--
Global Certificates" in the Prospectus and "Description of the Certificates-- General"
and "Description of the Certificates--Distributions" herein.
Federal Income Tax Consequences......... For federal income tax purposes, one or more elections will be made to treat certain
assets of the Trust Fund as a real estate mortgage investment conduit ("REMIC"). The
Series 199[ ]-[ ] Regular 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 Series
199[ ]-[ ] Residual Certificates will be treated as the "residual interest" in the REMIC
for federal income tax purposes. Holders of the Series 199[ ]-[ ] Regular Certificates
that would otherwise report income under a cash method of accounting will be required to
include in income interest on the Series 199[ ]-[ ] Regular Certificates (including
original issue discount ("OID"), if any) in accordance with an accrual method of
accounting.
The Offered Certificates, depending on their respective issue prices, may be
issued with OID for federal income tax purposes.
See "Certain Federal Income Tax Consequences" herein and in the Prospectus.
ERISA Considerations.................... Senior Certificates. Subject to the conditions and discussion set forth herein, the Class
A Certificates may be purchased by employee benefit or other plans that are subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and/or
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"). See "ERISA
Considerations" herein and in the Prospectus.
Subordinate Certificates. Unless the opinion referred to under "ERISA Considerations
[Class M and] Class B Certificates" is delivered to the Trustee, 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 Class M or] the Class B Certificates as such actions may give rise
to a non-exempt prohibited transaction under ERISA or Section 4975 of the Code. However,
an insurance company investing assets of its general account may purchase and hold [the
Class M or] the Class B Certificates if it delivers the required certification to the
Trustee. See "ERISA Considerations" herein and in the Prospectus.
Legal Investment........................ The [Senior and Class M Certificates] at the time of issuance will qualify as "mortgage
related securities" under the Secondary Mortgage Market Enhancement Act of 1984, as
amended ("SMMEA") and, as such, will constitute legal investments for certain types of
investors to the extent provided in SMMEA. Such institutions should consult their own
legal advisors in determining whether and to what extent the [Senior Certificates and the
Class M Certificates] constitute legal investments for such investors.
Because [the Class B Certificates] will not, at the time of issuance, be rated in one of
the two highest rating categories of [ ], [the Class B Certificates] will not constitute
"mortgage related securities" for purposes of SMMEA. Accordingly, many institutions with
legal authority to invest in more highly rated securities based on first mortgage loans
may not be legally authorized to invest in [the Class B Certificates]. No representation
is made as to any regulatory requirements or considerations (including without limitation
regulatory capital or permissible investment requirements) applicable to the purchase of
[the Class B Certificates] by banks, savings and loan associations or other financial
institutions. Such
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institutions should consult their own legal advisors in determining whether and to what
extent the Offered Certificates constitute legal investments for such investors. See
"Legal Investment" herein and in the Prospectus.
Rating.................................. It is a condition to the issuance of the Offered Certificates that the Senior
Certificates be rated "[ ]," that the Class M Certificates be rated at least "[ ]" and
that the Class B Certificates be rated at least "[ ]" by [ ]. The Seller[s] [has][have]
not requested ratings on the Offered Certificates by any rating agency other than [ ].
However, there can be no assurance as to whether any other rating agency will rate any or
all of the Offered 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 rating assigned to such
Certificates by [ ]. See "Ratings" herein and in the Prospectus.
A security rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time.
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RISK FACTORS
The discussion under "Risk Factors" in the Prospectus should be read
carefully in connection with a decision to invest in any of the Offered
Certificates. The following discussion supplements, and does not replace or
supersede the discussion under "Risk Factors" in the Prospectus, unless the
context expressly so provides.
1. Limited Liquidity. Only the Offered Certificates are being offered hereby.
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 will develop for the Offered Certificates or, if it does develop, that it
will provide the holders of either Class of Offered Certificates with liquidity
of investment or that it will remain for the term of such Class of Offered
Certificates.
The Class B Certificates will not constitute "mortgage related
securities" for purposes of SMMEA. Accordingly, many institutions with legal
authority to invest in SMMEA securities will not be able to invest in the Class
B Certificates, limiting the market for such securities.
2. Distributions of Principal. The yield to maturity on the Class M and the
Class B Certificates will be affected by the rate at which Contracts become
Liquidated Contracts and the severity of ensuing losses on such Liquidated
Contracts and the timing thereof. [For any Distribution Date on which the Senior
Certificate Balance has not been reduced to zero, the Senior Certificateholders
(other than the Class A-IO Certificateholders) will receive all payments of
principal that are made on the Contracts.] It is not possible to predict the
timing of the occurrence of the Distribution Date, if any, on which the Senior
Certificate Balance will be reduced to zero, which occurrences will be affected
by the rate of voluntary prepayments in addition to prepayments due to default
and subsequent liquidation. Prepayment on Contracts may be influenced by a
variety of economic, geographic, social and other factors, including
repossessions, aging, seasonality, market interest rates, changes in housing
needs, job transfers and unemployment. See "Prepayment and Yield Considerations"
herein and in the Prospectus.
3. No Recourse. Neither Bank of America nor Bank of America, FSB nor any of
their affiliates will have any obligations with respect to the Offered
Certificates except, in the case of the Seller[s], for obligations arising from
certain representations and warranties of Bank of America or Bank of America,
FSB, as the case may be, with respect to the Contracts sold by it in the
Contract Pool and, in the case of Bank of America, FSB, for certain contractual
servicing obligations, each as further described herein. SUBJECT ONLY TO THE
FOREGOING EXCEPTIONS, THE OFFERED CERTIFICATES WILL NOT REPRESENT INTERESTS IN
OR OBLIGATIONS OF BANK OF AMERICA OR BANK OF AMERICA, FSB, THEIR PARENT
CORPORATION, BANKAMERICA CORPORATION, OR ANY AFFILIATE THEREOF, AND ASSETS IN
THE TRUST FUND WILL CONSTITUTE THE ONLY SOURCE OF FUNDS FOR PAYMENT ON THE
OFFERED CERTIFICATES. None of the Certificates will include the benefit of a
guarantee or limited guarantee of one or more of the Sellers or an affiliate
thereof (see "Credit and Liquidity Enhancement -- Credit Facilities" in the
Prospectus). NONE OF THE OFFERED CERTIFICATES NOR THE UNDERLYING CONTRACTS OR
ANY COLLECTIONS THEREON WILL BE INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR BY ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
4. Subordination of Class M and Class B Certificates. The rights of the holders
of the Class M Certificates to receive distributions of available amounts in the
Trust Fund will be subordinate, to the extent described herein, to the rights of
the holders of the Senior Certificates. Consequently, if shortfalls and/or
losses arise with respect to the Certificates, they will be borne by the Class M
Certificateholders before they are borne by the Senior Certificateholders. The
rights of the holders of the Class B Certificates to receive distributions of
available amounts in the Trust Fund will be subordinate, to the extent described
herein, to the rights of the holders of the Class M certificates. Consequently,
if shortfalls and/or losses arise with respect to the Certificates, they will be
borne by the Class B Certificateholders before they are borne by the Class M
Certificateholders. To the extent that any shortfalls and/or losses remain after
the Certificate Balance of the Class B Certificates and the Class M
Certificates has been reduced to zero, they will be borne by the Class A
Certificateholders.
[5. Prepayments May Affect Pass-Through Rates. The Pass-Through Rate for some of
the Certificates on any Distribution Date may be adjusted so as not to exceed
the weighted average of the Net Contract Rates in the Contract Pool. The "Net
Contract Rate" of a Contract equals the rate of interest borne by such Contract
minus the
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Annual Servicing Rate. Disproportionate prepayments (including prepayments due
to liquidations and repurchases by the Seller[s] as required or permitted by the
Agreement) of Contracts with Net Contract Rates in excess of the initial Pass-
Through Rates (each an "Initial Pass-Through Rate") for such Certificates will
increase the possibility that the Pass-Through Rate for such Classes of
Certificates will be adjusted to an amount lower than the related Initial Pass-
Through Rate. There is no mechanism to compensate Holders of such Classes of
Certificates for any such reduction. Any difference between interest at the
actual Pass-Through Rate and interest at the Initial Pass-Through Rate will not
constitute a shortfall, and any such difference will be foregone permanently.]
[6. Interest-only Certificates. Because amounts distributable to the holders of
interest-only Certificates consist entirely of interest, the yield to maturity
of the interest-only Certificates will be extremely sensitive to the repurchase,
prepayment and default experience of the Contracts and prospective investors
should fully consider the associated risks, including the risk that such
investors may not fully recover their initial investment. [In addition,
investors in the interest-only Certificates should be aware that the Servicer
may exercise a right to repurchase all remaining contracts and other property in
the Trust Fund or direct the Trustee to conduct a Termination Auction for the
sale of all Contracts then outstanding in the Trust Fund after the first
Distribution Date when the Pool Scheduled Principal Balance is less than 10% of
the Cut-Off Date Pool Principal Balance and certain other conditions exist.] See
"Prepayment and Yield Considerations" herein.]
RECENT DEVELOPMENTS
[Bank of America, FSB recently announced its intention to sell the operating
business of its BankAmerica Housing Services division. Bank of America, FSB does
not expect that the sale of the BankAmerica Housing Services division will be
completed until the first quarter of 1998. There can be no assurance that a sale
will in fact be consummated.]
[The administration of the servicing functions for the Contracts and the
Manufactured Homes is performed by the BankAmerica Housing Services division by
personnel employed by it. It is anticipated that if the BankAmerica Housing
Services division is sold, the purchaser would act as a successor servicer.
However, under the terms of the Agreement, the Servicer may transfer servicing
only if, among other things, the rating on the certificates will not be
withdrawn or downgraded as a result of such transfer and if the successor to the
Servicer agrees to assume all of the duties of the Servicer to be performed
under the Agreement. In the event that any such successor does not meet the
conditions set forth in the Agreement, it is anticipated that Bank of America,
FSB would delegate its duties as Servicer to such successor but would remain the
Servicer of record under the Agreement and, therefore, primarily responsible
for the servicing functions thereunder.]
THE CONTRACT POOL
Each Contract was purchased or originated by Bank of America, FSB,
acting through its division, BankAmerica Housing Services, or by SPFSC, in each
case on an individual basis in the ordinary course of its business. A
description of the general practices of Bank of America, FSB and SPFSC with
respect to the origination or purchase of manufactured housing contracts similar
to the Contracts is set forth in the Prospectus under "The Sellers -- Loan
Originations" and "The Sellers -- Underwriting Policies."
On the date of initial issuance of the Offered Certificates, the
Seller[s] will convey to the Trust Fund the Contracts owned by it immediately
prior to such conveyance. The Contract Pool in the Trust Fund will consist of
such Contracts. Bank of America, FSB, acting through its division, BankAmerica
Housing Services, as Servicer, will obtain and maintain possession of all
Contract documents.
Approximately [ ]% of the Contracts (by outstanding principal balance
as of the Cut-off Date) will be sold by Bank of America, FSB and approximately [
]% will be sold by Bank of America. [Approximately [ ]% of the Contracts in the
Contract Pool were purchased by Bank of America from SPFSC immediately prior to
its conveyance of such Contracts to the Trust Fund.] Subject to several
exceptions, the Contracts being sold by Bank of America will have one or both of
the following attributes: (i) the amount financed is more than 90% but not more
than 95% of the Value (defined below) of any Manufactured Home and (ii) the
original term to maturity is more than 20 years but not more than 30 years.
The Contracts are all [fixed rate, actuarial Contracts]. [Some of the
Contracts in the Contract Pool are secured by a lien on real estate. None of the
Contracts was (i) purchased in bulk from an unrelated third party, (ii) is
insured in whole or in part or guaranteed in whole or in part, as applicable, by
the Veterans Administration, the Federal Housing Administration or by any other
governmental entity or instrumentality, (iii) is amortized using the "simple
interest" amortization method or (iv) has a variable Contract Rate or a Contract
Rate which steps up on particular dates.]
Management of Bank of America, FSB estimates that in excess of [ ]% of
the Manufactured Homes are used as primary residences by the Obligors under the
Contracts secured by such Manufactured Homes.
As of the Cut-off Date, the Contract Rates on the Contracts ranged from
[ ]% to [ ]%. The weighted average Contract Rate of the Contracts as of the
Cut-off Date was approximately [ ]%. As of the Cut-off Date, the Contracts had
remaining scheduled maturities of at least [ ] months but not more than [ ]
months, and original scheduled maturities of at least [ ] months but not more
than [ ] months. As of the Cut-off Date, the Contracts had a weighted average
remaining term to maturity of approximately [ ] months, and a weighted average
original term to scheduled maturity of approximately [ ] months. The average
outstanding principal balance of the Contracts as of the
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Cut-off Date was approximately $[ ] and the outstanding principal balances of
the Contracts as of the Cut-off Date ranged from approximately $[ ] to $[ ] The
weighted average loan-to-value ratio for the Contracts at origination was
approximately [ ]% and the loan-to-value ratio of the Contracts at origination
ranged from [ ]% to [ ]%. "Value" is equal to the total buyer's cost of the
manufactured home (including taxes, insurance and any prepaid finance charges or
closing costs that are financed). For Land Home and Land-in-Lieu Contracts,
"Value" is equal to (i) the value of the real property as determined by
appraisal or tax assessment, plus the total buyer's cost of the manufactured
home (as indicated above), plus the cost of improvements to the land or (ii) in
the case of a manufactured home that is already located on the land, the final
appraised value of the land and manufactured home together. The underwriting
practices of the BankAmerica Housing Services division of Bank of America, FSB,
regarding loan-to-value ratios of Contracts it originates or purchases are set
forth in the Prospectus under "The Sellers -- Loan Originations" and "The
Sellers --Underwriting Policies." Manufactured homes, unlike site-built homes,
generally Housing Services division'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. Certain statistical information relating to the average percentage of
principal recovered upon liquidation of certain manufactured housing contracts
is set forth herein and in the Prospectus under "The Sellers -- Delinquency and
Loan Loss/Repossession Experience." Such statistical information is included
herein and therein only for illustrative purposes. There is no assurance that
the Contracts have characteristics that are similar to the manufactured housing
contracts to which such statistical information relates. In addition, the
percentage recovery of principal on liquidation of manufactured housing
contracts historically has been adversely 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
percentage of principal recovered upon liquidation of defaulted Contracts will
be similar to any statistical information contained herein. See "The Sellers --
Delinquency and Loan Loss/Repossession Experience" herein and in the
Prospectus.
The Contracts are secured by Manufactured Homes located in [ ] states
and the District of Columbia; approximately [ ]% of the Contracts by outstanding
principal balance as of the Cut-off Date were secured by Manufactured Homes
located in [ ], [ ]% in [ ], [ ]% in [ ], [ ]% in [ ], [ ]% in [ ], [ ]% in [ ]
and [ ]% in [ ]. No other state represented more than 5% (by outstanding
principal balance as of the Cut-off Date) of the Contracts.
Approximately [ ]% of the Contracts by outstanding principal balance as
of the Cut-off Date are secured by Manufactured Homes which were new at the time
the related Contracts were originated, and approximately [ ]% of the Contracts
by outstanding principal balance as of the Cut-off Date are secured by
Manufactured Homes which were used at the time the related Contracts were
originated.
Approximately [ ]% (by principal balance) of the Contracts are Land
Home Contracts or Land-in-Lieu Contracts. The Land Home Contracts or
Land-in-Lieu Contracts will be secured by either first mortgages or deeds of
trust on the real estate on which the Manufactured Home is located, depending
upon the prevailing practice in the state in which the underlying property is
located. See "Certain Legal Aspects of the Contracts--Land Home or Land-in-Lieu
Contracts" in the Prospectus.
Set forth below is a description of certain additional characteristics
of the Contracts:
S-16
<PAGE>
Geographical Distribution of Manufactured Homes as of Origination
<TABLE>
<CAPTION>
Number of Aggregate Principal % of Contract Pool By
Contracts Balance Outstanding Outstanding Principal Balance As
State As of Cut-off Date As of Cut-off Date of Cut-off Date (1)
- ----- ------------------ ------------------ -------------------
<S> <C> <C> <C>
Alabama................................
Arizona................................
Arkansas...............................
California.............................
Colorado...............................
Connecticut............................
Delaware...............................
District of Columbia...................
Florida................................
Georgia................................
Idaho..................................
Illinois...............................
Indiana................................
Iowa...................................
Kansas.................................
Kentucky...............................
Louisiana..............................
Maine..................................
Maryland...............................
Massachusetts..........................
Michigan...............................
Minnesota..............................
Mississippi............................
Missouri...............................
Montana................................
Nebraska...............................
Nevada.................................
New Hampshire..........................
New Jersey.............................
New Mexico.............................
New York...............................
North Carolina.........................
North Dakota...........................
Ohio...................................
Oklahoma...............................
Oregon.................................
Pennsylvania...........................
South Carolina.........................
South Dakota...........................
Tennessee..............................
Texas..................................
Utah...................................
Vermont................................
Virginia...............................
Washington.............................
West Virginia..........................
Wisconsin..............................
Wyoming................................
Total.............................
</TABLE>
- -----
(1) Entries may not add to 100.00% due to rounding.
S-17
<PAGE>
Years of Origination of Contracts
<TABLE>
<CAPTION>
% of Contract Pool
Aggregate Principal Balance By Outstanding
Number of Contracts Outstanding Principal Balance
Year of Origination As of Cut-off Date As of Cut-off Date As of Cut-off Date (1)
- ------------------------ ------------------ ------------------ ----------------------
<S> <C> <C> <C>
1993...................................
1994...................................
1995...................................
1996...................................
1997...................................
Total.............................
</TABLE>
- -----
(1) Entries may not add to 100.00% due to rounding.
Distribution of Original Principal Balances of Contracts (1)
<TABLE>
<CAPTION>
% of Contract Pool
Aggregate Principal Balance By Outstanding
Number of Contracts Outstanding Principal Balance
Original Contract Amount As of Cut-off Date As of Cut-off Date As of Cut-off Date (2)
- ------------------------ ------------------ ------------------ ----------------------
<S> <C> <C> <C>
$0 - 5,000.............................
$5,001 - 7,500.........................
$7,501 - 10,000........................
$10,001 - 12,500.......................
$12,501 - 15,000.......................
$15,001 - 17,500.......................
$17,501 - 20,000.......................
$20,001 - 22,500.......................
$22,501 - 25,000.......................
$25,001 - 27,500.......................
$27,501 - 30,000.......................
$30,001 - 32,500.......................
$32,501 - 35,000.......................
$35,001 - 40,000.......................
$40,001 - 45,000.......................
$45,001 - 50,000.......................
$50,001 - 55,000.......................
$55,001 - 60,000.......................
$60,001 - 65,000.......................
$65,001 - 70,000.......................
$70,001 - 75,000.......................
$75,001 - 80,000.......................
Total.............................
</TABLE>
- -----
(1) The greatest original Contract principal balance is $[ ], which
represents [ ]% of the outstanding principal balance of the Contracts
as of the Cut-off Date.
(2) Entries may not add to 100.00% due to rounding.
S-18
<PAGE>
Distribution of Original Loan-to-Value Ratios
<TABLE>
<CAPTION>
% of Contract Pool
Aggregate Principal Balance By Outstanding
Number of Contracts Outstanding Principal Balance
Loan-to-Value Ratio (1) As of Cut-off Date As of Cut-off Date As of Cut-off Date (2)
- ----------------------- ------------------ ------------------ ----------------------
<S> <C> <C> <C>
Less than or equal to 50%..............
51-60%.................................
61-70%.................................
71-80%.................................
81-85%.................................
86-90%.................................
91-95%.................................
Total.............................
</TABLE>
- -----
(1) Rounded to the nearest 1%. The definition of "Value" is set forth under
"The Contract Pool" 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 at 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.
(2) Entries may not add to 100.00% due to rounding.
Distribution of Contract Rates
<TABLE>
<CAPTION>
% of Contract Pool
Aggregate Principal Balance By Outstanding
Number of Contracts Outstanding Principal Balance
Ranges of Contracts by Contract Rate As of Cut-off Date As of Cut-off Date As of Cut-off Date (1)
- ------------------------------------ ------------------ ------------------ ----------------------
<S> <C> <C> <C>
10.25-10.49%...........................
10.50-10.74%...........................
10.75-10.99%...........................
11.00-11.24%...........................
11.25-11.49%...........................
11.50-11.74%...........................
11.75-11.99%...........................
12.00-12.24%...........................
12.25-12.49%...........................
Total.............................
</TABLE>
- -----
(1) Entries may not add to 100.00% due to rounding.
S-19
<PAGE>
Remaining Months to Maturity
<TABLE>
<CAPTION>
% of Contract Pool
Aggregate Principal Balance By Outstanding
Number of Contracts Outstanding Principal Balance
Months Remaining as of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date (1)
- ----------------------------------- ------------------ ------------------ ----------------------
<S> <C> <C> <C>
Greater than 15 and less than or equal
to 30................................
Greater than 31 and less than or equal
to 60................................
Greater than 61 and less than or equal
to 90................................
Greater than 91 and less than or equal
to 120...............................
Greater than 121 and less than or equal
to 150...............................
Greater than 151 and less than or equal
to 180...............................
Greater than 181 and less than or equal
to 210...............................
Greater than 211 and less than or equal
to 240...............................
Greater than 241 and less than or equal
to 300...............................
Greater than 301 and less than or equal
to 360...............................
Total.............................
</TABLE>
- ----
(1) Entries may not add to 100.00% due to rounding.
S-20
<PAGE>
THE SELLERS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading "The
Sellers."
The volume of manufactured housing contracts originated by SPHSI (the
business predecessor of the BankAmerica Housing Services division of Bank of
America, FSB, as described in the Prospectus under "The Sellers -- BankAmerica
Housing Services") or by Bank of America, FSB, acting through its BankAmerica
Housing Services division, or purchased from dealers on an individual basis by
SPHSI or by Bank of America, FSB, acting through its BankAmerica Housing
Services Division, for the periods indicated below and certain other information
at the end of such periods are as follows:
Contracts Originated or Purchased on an Individual Basis
(Dollars in Thousands)
Year Ended December 31,
-----------------------
<TABLE>
<CAPTION>
[ ] Quarter
ended
1992 1993 1994 1995 1996 [ ], 1997
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of Contracts $758,757 $873,227 $1,248,346 $2,586,896 $2,990,081 $______
Purchased (1)(2).......................
Number of Contracts Purchased (1)........ 32,752 35,645 46,865 87,407 91,033 ______
Average Contract Size (2)................ $23.2 $24.5 $26.6 $29.6 $32.8 ______
Weighted Average Contract Rate (2)....... 11.55% 10.03% 10.68% 10.04% 9.52% ____%
Number of Regional Offices (3)........... 23 26 35 38 40 _____
</TABLE>
- -----
(1) Does not include any portfolios acquired in bulk from third parties.
Includes only contracts originated by SPHSI or by Bank of America, FSB,
acting through its division BankAmerica Housing Services, or purchased
from dealers.
(2) As of period end.
(3) Includes regional offices in the United States originating or
purchasing manufactured housing contracts as of the end of the time
period.
The following table shows the size of the portfolio of manufactured
housing contracts serviced (including contracts already in repossession) by
SPHSI and now by Bank of America, FSB through the manufactured housing regional
office system of its division, BankAmerica Housing Services, as of the dates
indicated:
Size of Serviced Portfolio
(Dollars in Thousands)
Year Ended December 31,
-----------------------
<TABLE>
<CAPTION>
[ ] Quarter
ended
1992 1993 1994 1995 1996 [ ], 1997
---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C>
Unpaid Principal Balance of $4,028,114 $4,337,902 $4,877,858 $6,739,285 $8,660,898 $_________
Contracts Being Serviced......
Average Contract Unpaid Principal $18.6 $19.0 $19.8 $22.2 $24.4 $_________
Balance.......................
Number of Contracts Being Serviced 216,714 228,452 246,572 303,739 355,664 _________
</TABLE>
S-21
<PAGE>
Delinquency Experience
The following table sets forth the delinquency experience since 1992 of
manufactured housing contracts serviced through SPHSI's and now by Bank of
America, FSB through the manufactured housing regional office system of its
division, BankAmerica Housing Services (other than contracts already in
repossession as of the dates indicated):
Delinquency Experience
Year Ended December 31,
-----------------------
<TABLE>
<CAPTION>
[ ] Quarter
ended
1992 1993 1994 1995 1996 [ ], 1997
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts Outstanding (1)............... 215,544 227,411 245,432 302,455 354,081 ________
Number of Contracts Delinquent (2)................
30-59 days........................................ 2,317 1,992 2,599 4,408 5,883 ________
60-89 days........................................ 540 469 633 974 1,460 ________
90 days or more................................... 640 641 739 1,179 1,743 ________
-----
Total Contracts Delinquent........................ 3,497 3,102 3,971 6,561 9,086 ________
Delinquencies as a Percentage of Contracts 1.62% 1.36% 1.62% 2.17% 2.57% ______%
Outstanding (3).................................
</TABLE>
- -----
(1) Excludes contracts already in repossession.
(2) 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.
Excludes contracts already in repossession.
(3) By number of contracts, as of period end.
S-22
<PAGE>
Loan Loss/Repossession Experience
The following table sets forth the loan loss/repossession experience of
manufactured housing contracts serviced through SPHSI's and now by Bank of
America, FSB through the manufactured housing regional office system of its
division, BankAmerica Housing Services (including contracts already in
repossession), as of the dates indicated:
Loan Loss/Repossession Experience
(Dollars in Thousands)
Year Ended December 31,
-----------------------
<TABLE>
<CAPTION>
[ ] Quarter
ended
1992 1993 1994 1995 1996 [ ], 1997
---- ---- ---- ---- ---- ------------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts Serviced (1) 216,714 228,452 246,572 303,739 355,664 _________
Principal Balance of Contracts Being $4,028,114 $4,337,902 $4,877,858 $6,739,285 $8,660,898 _________
Serviced (1)..................
Average Principal Recovery Upon 47.25% 45.61% 47.61% 50.92% 50.08% _______%
Liquidation (2)...............
Contract Liquidations (3)....... 2.93% 2.51% 2.19% 2.04% 2.49% _______%
Net Losses (4):
Dollars........................ $75,435 $70,510 $63,601 $69,864 $107,996 ________
Percentage (5)................. 1.87% 1.63% 1.30% 1.04% 1.25% ______%
Contracts in Repossession....... 1,170 1,041 1,140 1,284 1,583 ________
</TABLE>
- -----
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the outstanding principal balance of contracts that
were liquidated during the applicable period, based on the gross
amounts recovered upon liquidation less any liquidation proceeds
applied to unpaid interest accrued through the date of liquidation and
after the payment of repossession and other liquidation expenses.
(3) Number of contracts liquidated during the period as a percentage of the
total number of contracts being serviced as of period end.
(4) The calculation of net loss includes unpaid interest accrued through
the date of liquidation and all repossession and other liquidation
expenses.
(5) The aggregate net loss amount as a percentage of the principal balance
of contracts being serviced as of period end.
Bank of America, FSB's Management's Discussion and Analysis of Delinquency,
Repossession and Loan Loss Experience
The delinquency, repossession and loan loss experience exhibited by the
foregoing tables for the periods referenced therein are for illustrative
purposes only and there is no assurance that the delinquency, repossession or
loan loss experience of any Contracts sold to the Trust Fund will be similar to
that set forth above. Management believes the increase in the percentage net
losses in 1996 over 1995, and again in the first quarter of 1997 (when
annualized) over 1996, is due primarily to the seasoning of the portfolio.
Management has not observed any material economic development in the general
business environment of the country, or in local areas where Bank of America,
FSB, acting through its division, BankAmerica Housing Services, originates its
manufactured housing contracts, which has unfavorably affected portfolio
performance in relation to delinquencies, repossessions and loan losses during
this period. However, the delinquency, loan loss and repossession experience of
manufactured housing contracts historically has been adversely affected by a
downturn 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 repossession. Information regarding the geographic
location, at origination, of the
S-23
<PAGE>
Manufactured Homes securing the Contracts in the Contract Pool is set forth
under "The Contract Pool" herein.
PREPAYMENT AND YIELD CONSIDERATIONS
The general prepayment and yield considerations discussed in the
Prospectus under "Prepayment and Yield Considerations" should be read carefully
in connection with a decision to invest in any of the Offered Certificates. The
following discussion supplements, and does not replace or supersede the
discussion under "Prepayment and Yield Considerations" in the Prospectus, unless
the context expressly so provides.
The Contracts had maturities at origination ranging from [ ] months to
[ ] 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 average life and the maturity of the
Offered Certificates. Bank of America, FSB does not maintain statistics with
respect to the rate of prepayment of manufactured housing contracts in its
servicing portfolio, except for contracts in certain pools of manufactured
housing contracts sold by SPHSI [and contracts in certain pools of manufactured
housing contracts sold by Bank of America, FSB, Bank of America or SPFSC, as the
case may be,] for which at least eighteen months of prepayment information is
available, as described in Appendix A to this Prospectus Supplement. Any pool of
contracts, including the Contract Pool, might include contracts with contract
rates that are generally higher or lower, in absolute terms or in comparison to
prevailing rates, than the contract rates of the contracts from which are
derived certain historical statistical data set forth in Appendix A. As a
result, the prepayment experience of the contracts contained in any contract
pool, including the Contract Pool, might be faster or slower than the prepayment
experience of the contracts reflected in the historical data. In addition,
although management of the BankAmerica Housing Services division is aware of
limited publicly available information relating to historical rates of
prepayment on manufactured housing contracts, management of BankAmerica Housing
Services believes that such information is not necessarily indicative of the
rate of prepayment that may be expected to be exhibited by the Contracts.
Nevertheless, management of BankAmerica Housing Services anticipates that a
number of Contracts will be prepaid in full in each year during which the
Offered Certificates are outstanding. See "Prepayment and Yield Considerations
- -- Prepayment Considerations," "Description of the Certificates -- Optional and
Mandatory Repurchase; Optional Termination" and "Certain Legal Aspects of the
Contracts -- Transfers of Manufactured Homes; Enforceability of Restrictions on
Transfer" in the Prospectus [and "Description of the Certificates -- Optional
Termination and Termination Auction" herein] for a discussion of certain factors
that may influence prepayments, including homeowner mobility, general and
regional economic conditions, prevailing interest rates, provisions in the
Contracts prohibiting the owner from selling the Manufactured Home without the
prior consent of the holder of the related Contract, the early termination of
the Trust Fund pursuant to a successful Termination Auction and the option of
the Servicer (whether or not Bank of America, FSB remains the Servicer) to
purchase the Contracts and any other property constituting the Trust Fund or to
direct the Trustee to solicit bids for an auction at which to sell the Contracts
and any other property constituting the Trust Fund. In addition, repurchases of
Contracts on account of certain breaches of representations and warranties as
described below under "Description of the Certificates -- Conveyance of
Contracts" will have the effect of prepaying such Contracts and therefore will
affect the average life of the Certificates.
The allocation of distributions to the Certificateholders in accordance
with the Agreement will have the effect of accelerating the amortization of
certain of the Classes of the Series 199[ ]-[ ] Regular Certificates and
delaying the amortization of certain other Classes of the Series 199[ ]-[ ]
Regular Certificates from the amortization that otherwise would be applicable if
distributions in respect of the Total Regular Principal Amount were made pro
rata according to the outstanding principal balances of the Series 199[ ]-[ ]
Regular Certificates. If a purchaser of Offered Certificates in a Class of
Offered Certificates purchases them at a discount and calculates its anticipated
yield to maturity based on an assumed rate of distributions of principal on such
Class of Offered Certificates that is faster than the rate actually realized,
such purchaser's actual yield to maturity will be lower than the yield so
calculated by such purchaser. See "Description of the Certificates --
Distributions" herein and "Prepayment and Yield Considerations" in the
Prospectus.
The Class A-IO Certificates, which pay interest only, are extremely
sensitive to the repurchase, prepayment and default experience of the Contracts.
If principal distributions on the Contracts occur at a rate faster than
anticipated at the time of purchase, the purchaser's actual yield to maturity
could be significantly lower than that assumed at the time of purchase. A Class
A-IO Certificateholder could, under some prepayment scenarios, fail to recoup
the original investment. See "--Sensitivity of the Class A-IO Certificates."
S-24
<PAGE>
There can be no assurance that the delinquency or repossession
experience set forth under "The Sellers -- Delinquency and Loan
Loss/Repossession Experience" will be representative of the results that may be
experienced with respect to the Contracts. See "Prepayment and Yield
Considerations" in the Prospectus for a discussion of the effect delinquencies
and repossessions on the Contracts would have on the average life of the
Certificates.
The expected final scheduled payment date on the Contract with the
latest maturity is in [ ].
The last scheduled Distribution Dates for the Series 199[ ]-[ ] Regular
Certificates are set forth on the cover of this Prospectus Supplement. However,
the actual last Distribution Date for each such Class of Offered Certificates
could occur significantly earlier than such scheduled Distribution Dates. In
particular, when the Pool Scheduled Principal Balance falls below 10% of the
Cut-off Date Pool Principal Balance and certain other conditions are met, the
Trust Fund could be terminated pursuant to the Servicer's exercise of an option
call or pursuant to a successful Termination Auction. See "Description of the
Certificates -- Optional Termination and Termination Auction" herein. Either of
these events, if they occur, would result in the early retirement of the then
outstanding Certificates.
As described herein under "Description of the Certificates --
Subordination" and "Description of the Certificates -- Losses on Liquidated
Contracts," to the extent that, on any Distribution Date, the Available
Distribution Amount is not sufficient to permit a full distribution of the Total
Regular Principal Amount to the holders of any Class of Offered Certificates
(other than the Class A-IO Certificates), the effect will be to cause the
Offered Certificates (other than the Class A-IO Certificates) to be amortized
more slowly than they otherwise would have been amortized, and losses on
Liquidated Contracts and delinquencies on the Contracts (if not covered by
Monthly Advances) will be borne by the holders of such Class of Offered
Certificates in the manner described thereunder and as described below.
In the event there is a sufficiently large number of delinquencies on
the Contracts in any Collection Period that were not covered by Monthly Advances
as described herein, the amounts distributed to the holders of the Offered
Certificates could be less than the amount of principal and/or interest that
otherwise would be payable on such Certificates on the related Distribution
Date. In such event, even if delinquent payments on the Contracts were
eventually recovered upon liquidation, if the amounts received do 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
Available Distribution Amounts might not be available to provide, in the case of
the Offered Certificates other than the Class A-IO Certificates, for aggregate
distributions equal to the sum of their initial outstanding Certificate Balances
plus accrued interest thereon, and in the case of the Class A-IO Certificates,
for aggregate distributions equal to the accrued interest thereon, thereby
reducing the effective yield on such Certificates.
Obligors are not required to pay interest on the Contracts after the
date of full prepayment of principal or the date of a partial prepayment of
principal (to the extent of such partial prepayment). As a result, partial or
full prepayments in advance of the related Due Dates for such Contracts in any
Collection Period will reduce the amount of interest received from the related
Obligors during such Collection Period to less than one month's interest.
However, when a partial prepayment is made on a Contract or a Contract is
prepaid in full during any Collection Period, but after the Due Date for such
Contract in such Collection Period, the effect will be to increase the amount of
interest received from the related Obligor during such Collection Period to more
than one month's interest. If a sufficient amount of partial prepayments are
made or a sufficient number of Contracts are prepaid in full in a given
Collection Period in advance of their respective Due Dates, interest received on
all of the Contracts during that Collection Period, after netting out the
Monthly Servicing Fee (and other expenses of the Trust Fund), may be less than
the interest payable on the Senior and/or Subordinate Certificates on the
related Distribution Date. As a result, the Available Distribution Amount for
the related Distribution Date may not be sufficient to distribute the interest
on the Offered Certificates in the full amount set forth herein under
"Description of the Certificates -- Distributions" and to make a full
distribution of the Total Regular Principal Amount to the Senior (other than the
Class A-IO) and/or Subordinate Certificateholders. Although no assurance can be
given in this matter, Bank of America, FSB does not anticipate that the net
shortfall of interest caused by partial prepayments or prepayments in full in
any Collection Period would be great enough, in the absence of delinquencies or
liquidation losses, to reduce the Available Distribution Amount for a
Distribution Date below the amount that would have been required to be
distributed to the holders of the Offered Certificates on that Distribution Date
in the absence of such prepayment interest shortfalls.
S-25
<PAGE>
Because the Contracts are [actuarial] Contracts, the outstanding
principal balances thereof will reduce, for purposes of accrual of interest
thereon, by a precomputed amortization amount on each Due Date whether or not
the Scheduled Payment for such Due Date is received in advance of or subsequent
to such Due Date, except as described above with respect to prepayments. See
"The Contract Pools" in the Prospectus. Thus, the effect of delinquent Scheduled
Payments, even if they are ultimately paid by the Obligor, will be to reduce the
yields on such Contracts below their respective Contract Rates (because interest
will not have accrued on the principal portion of any Scheduled Payment while it
is delinquent). If the Servicer does not make an advance with respect to such
delinquent Contracts as described herein, the result will be to reduce the
effective yield to the Trust Fund derived from such Contracts to a yield below
their Contract Rates. Under certain circumstances, such yield reductions could
cause the aggregate yield to the Trust Fund derived from the Contract Pool to be
insufficient to support the distribution of interest on the Offered
Certificates, after netting out other expenses of the Trust Fund.
The table below sets forth with respect to each pool of contracts
described in Appendix A to this Prospectus Supplement (a) the initial aggregate
principal balance (calculated as of the first day of the month of the sale), (b)
the weighted average contract rate ("WAC") of the contracts in the pool as of
the first day of the month of the sale of such pool, (c) the weighted average
remaining term to maturity ("WAM") of the contracts in the pool as of the first
day of the month of the sale of such pool, (d) the estimated average age of the
pool as of the first day of the month of the sale of such pool, (e) the
aggregate principal balance of such pool as of [ ], 199[ ], (f) the WAC of the
contracts in the pool as of [ ], 199[ ] and (g) the percentage of the Prepayment
Model (as described in "-- Weighted Average Life of the Offered Certificates"
below) for the life of each pool through [ ], 199[ ]. The prepayment performance
of the contract pools described in the following table is not indicative of the
prepayment performance of the Contracts in the Trust Fund, and no assurance can
be given that the prepayment performance of the Contracts in the Trust Fund will
correspond with the prepayment performance of any of the pools described below
or in Appendix A to this Prospectus Supplement.
<TABLE>
<CAPTION>
Aggregate Estimated Percentage of
Original Original WAM Average Age Aggregate the Prepayment
Month and Year of Sale Principal Balance Original WAC (months) at Sale Principal Model(1)
(months) Balance WAC(1)
<S> <C> <C> <C> <C> <C> <C> <C>
September 1988......... $106,635,430 13.44% 178 5
December 1988.......... 104,666,978 13.35 184 4
May 1989............... 105,629,211 13.84 185 4
September 1989......... 125,140,010 13.10 184 8
November 1989.......... 105,106,711 13.14 192 2
March 1990............. 140,369,133 13.48 186 5
June 1990.............. 149,153,886 13.61 188 4
September 1990......... 176,504,848 13.79 185 5
December 1990.......... 176,277,296 13.69 189 5
March 1991............. 115,743,068 13.46 187 12
June 1991.............. 139,806,805 13.21 192 3
September 1991......... 150,531,673 13.11 196 3
December 1991.......... 150,837,421 12.76 193 3
March 1992............. 140,964,598 12.10 192 3
June 1992.............. 175,780,463 12.21 191 3
October 1992........... 175,970,703 11.57 198 3
May 1995............... 124,994,111 10.93 227 13
November 1995.......... 125,209,123 10.63 225 14
</TABLE>
- -----
(1) As of [ ], 199[ ]
S-26
<PAGE>
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
is repaid to the investor. The weighted average life of an Offered Certificate,
other than the Class A-IO Certificates, is determined by (i) multiplying the
amount of each cash distribution in reduction of the Certificate Balance of such
Certificate by the number of years from the date of issuance of such Certificate
to the stated Distribution Date, (ii) adding the results, and (iii) dividing the
sum by the Initial Certificate Balance of such Certificate. The weighted average
life of the Offered Certificates, other than the Class A-IO 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 (other
than from scheduled amortization) 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 [ ]% per annum of the then unpaid principal
balance of such Contracts in the first month of the life of the Contracts and an
additional [ ]% per annum in each month thereafter (for example, [ ]% per annum
in the third month) until the [ ]th month. Beginning in the [ ]th month and in
each month thereafter during the life of the Contracts, 100% of the Prepayment
Model assumes a constant prepayment rate of [ ]% per annum.
As used in the following table, "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; "150% of the Prepayment Model" assumes the Contracts will
prepay at rates equal to 150% of the Prepayment Model assumed prepayment rates;
"170% of the Prepayment Model" assumes the Contracts will prepay at rates equal
to 170% of the Prepayment Model assumed prepayment rates; "200% of the
Prepayment Model" assumes the Contracts will prepay at rates equal to 200% of
the Prepayment Model assumed prepayment rates; "250% of the Prepayment Model"
assumes the Contracts will prepay at rates equal to 250% of the Prepayment Model
assumed prepayment rates; and "300% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 300% 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 such contracts include changes in obligors'
housing needs, job transfers, unemployment and obligors' net equity in the
manufactured homes. In the case of mortgage loans secured by site-built homes,
in general, if prevailing interest rates fall significantly below the interest
rates on such mortgage loans, the mortgage loans are likely to be subject to
higher prepayment rates than if prevailing interest rates remained at or above
the rates borne by such mortgage loans. Conversely, if prevailing interest rates
rise above the interest rates on such mortgage loans, the rate of prepayment
would be expected to decrease. In the case of manufactured housing contracts,
however, because the outstanding principal balances are, in general, 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 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.
The percentages and weighted average lives in the following tables were
determined using the following assumptions (the "Structuring Assumptions") (i)
scheduled interest and principal payments on the Contracts are received in a
timely manner and prepayments are made at the indicated percentages of the
Prepayment Model set forth in the tables, (ii) the Servicer does not exercise
its right of optional termination described above but the Trust Fund is
S-27
<PAGE>
terminated pursuant to a Termination Auction as described in "Description of the
Certificates--Optional Termination and Termination Auction" herein, (iii) the
Contracts, as of the Cut-off Date, will be grouped into [four] groups having the
additional characteristics set forth in the table entitled "Assumed Contract
Characteristics" below, (iv) the Class A-1 Certificates initially represent [ ]%
of the entire ownership interest in the Trust Fund and have a Class A
Pass-Through Rate of [ ]% per annum, the Class A-IO Certificates have a
Pass-Through Rate of [ ]% per annum, the Class M Certificates initially
represent [ ]% of the entire ownership interest in the Trust Fund and have a
Class M Pass-Through Rate of [ ]% per annum and the Class B Certificates
initially represent [ ]% of the entire ownership interest in the Trust Fund and
have a Class B Pass-Through Rate of [ ]% per annum, (v) no interest shortfalls
will arise in connection with prepayment in full of the Contracts, (vi) there
will be no repurchases of any Contracts due to a breach in a representation or
warranty with respect thereto, and (vii) a servicing fee of [ ]% per annum will
be paid to the Servicer. The tables assume that there are no losses or
delinquencies on the Contracts. No representation is made that losses or
delinquencies on the Contracts will be experienced at the rate assumed in the
preceding sentence or at any other rate.
Assumed Contract Characteristics
<TABLE>
<CAPTION>
Original Remaining
Current Term to Maturity Term to Maturity
Pool Principal Balance Contract Rate (Months) (Months)
- ---- ----------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1..................................
2..................................
3..................................
4..................................
Total or weighted average..........
</TABLE>
Since the tables were prepared on the basis of the Structuring
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 Initial Certificate Balance of each Class of Offered
Certificates outstanding and weighted average lives of such 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 Offered Certificates may be
made earlier or later than as indicated in the tables.
It is not likely that Contracts will prepay at any constant percentage
of the 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 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 [ ] months.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the Structuring Assumptions, the following tables indicate the
resulting weighted average lives of the Offered Certificates and sets forth the
percentage of the Initial Class A Certificate Balance, the Initial Class M
Certificate Balance and the Initial Class B Certificate Balance that would be
outstanding after each of the dates shown at the indicated percentages of the
Prepayment Model.
S-28
<PAGE>
Percent of the Initial Class A Certificate Balance at the
Respective Percentages of the Prepayment Model
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
-----------------------------------
Date 0% 100% 150% 170% 200% 250% 300%
- ---- --- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................... 100 100 100 100 100 100 100
[ ], 19[ ] (first distribution date)...............................
[ ], 19[ ] (anniversary of first distribution date)................
[ ], 19[ ].........................................................
[ ], 19[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
Weighted Average Life (years)................................................
</TABLE>
Percent of the Initial Class M Certificate Balance at the
Respective Percentages of the Prepayment Model
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
-----------------------------------
Date 0% 100% 150% 170% 200% 250% 300%
- ---- --- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................... 100 100 100 100 100 100 100
[ ], 19[ ] (first distribution date)...............................
[ ], 19[ ] (anniversary of first distribution date)................
[ ], 19[ ].........................................................
[ ], 19[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
Weighted Average Life (years)................................................
</TABLE>
Percent of the Initial Class B Certificate Balance at the
Respective Percentages of the Prepayment Model
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
-----------------------------------
Date 0% 100% 150% 170% 200% 250% 300%
- ---- --- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........................................................... 100 100 100 100 100 100 100
[ ], 19[ ] (first distribution date)...............................
[ ], 19[ ] (anniversary of first distribution date)................
[ ], 19[ ].........................................................
[ ], 19[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
[ ], 20[ ].........................................................
Weighted Average Life (years)................................................
</TABLE>
S-29
<PAGE>
[Sensitivity Of The Class A-IO Certificates
[The yield to maturity of the Class A-IO Certificates will be highly
sensitive to the principal prepayment, repurchase and default experience of the
Contracts. Investors should carefully consider the risk that a rapid rate of
principal prepayments on the Contracts or repurchases of Contracts will have an
adverse effect on the yield to investors in the Class A-IO Certificates and,
under certain scenarios, could result in the failure of such investors to
recover their initial investments. The yield to holders of the Class A-IO
Certificates would also be adversely affected in the event that the Servicer
exercises the right under the Pooling and Servicing Agreement to repurchase all
remaining Contracts in the Trust Fund and thereby effect the early termination
of the Certificates, or if there is a successful Termination Auction, as
described in "Description of the Certificates--Optional Termination and
Termination Auction" herein.
[The following table (the "Yield Table") demonstrates the sensitivity
of the pre-tax yields on the Class A-IO Certificates to various constant rates
of prepayment by projecting the aggregate payments of interest on such
Certificates and the corresponding pre-tax yields on a corporate bond equivalent
("CBE") basis, assuming distributions on the Contracts are made as set forth in
the Pooling and Servicing Agreement. The Yield Table is also based on the
assumption set forth above under "Description of the Certificates--Weighted
Average Life of the Offered Certificates."
[Pre-Tax Yields on the Class A-IO Certificates
<TABLE>
<CAPTION>
Percentage of Prepayment Assumption
---------------------------------------------------------------------------------------------------
Assumed
Purchase Price 0% 50% 75% 100% 150% 200%
---------------- -------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$[ ] [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
$[ ] [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
$[ ] [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
$[ ] [ ]% [ ]% [ ]% [ ]% [ ]% [ ]%
</TABLE>
- -----------------
[The pre-tax yields set forth in the preceding table were calculated by
determining the monthly discount rates which, when applied to the assumed
streams of cash flows to be paid on the Class A-IO Certificates, would cause the
discounted present value of such assumed stream of cash flows to the Closing
Date to equal the assumed purchase prices (which include accrued interest), and
converting such monthly rates to CBE rates. Such calculation does not take into
account the interest rates at which funds received by holders of the Class A-IO
Certificates may be reinvested and consequently does not purport to reflect the
return on any investment in the Class A-IO Certificates when such reinvestment
rates are considered.
[It is highly unlikely that the Contracts will prepay at the same rate
until maturity or that all of the Contracts will prepay at the same rate or
time. As a result of these factors, the pre-tax yield on the Class A-IO
Certificates is likely to differ from those shown in such tables, even if all of
the Contracts prepay at the indicated percentages of the prepayment assumption.
No representation is made as to the actual rate of principal payments on the
Contracts (or the Contract Rates thereon) for any period or over the life of the
Class A-IO Certificates or as to the yield on the Class A-IO Certificates.
Investors must make their own decisions as to the appropriate prepayment
assumptions to be used in deciding whether to purchase the Class A-IO
Certificates.]
S-30
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement (the "Agreement"). A form of the Pooling and Servicing Agreement will
be made available to prospective investors upon request (made to the Servicer at
the address specified in the Prospectus under "Incorporation of Certain
Documents by Reference") and will be filed with the Securities and Exchange
Commission after the initial issuance of the Certificates as exhibits to a
Current Report on Form 8-K. Reference is made to the Prospectus for additional
information regarding the terms and conditions of the Agreement. The following
discussion supplements, and does not replace or supersede the discussion under
"Description of the Certificates" in the Prospectus, unless the context
otherwise provides.
Set forth below are summaries of the specific terms and provisions
pursuant to which the Certificates will be issued. The following summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the Agreement. When particular
provisions or terms used in the Agreement are referred to, the actual provisions
(including definitions of terms) are incorporated by reference.
General
[All the Offered Certificates initially will be issuable in one or more
Global Certificates registered in the name of Cede as the nominee of DTC.
Ownership in Offered Certificates represented by such Global Certificates will
only be available in the form of book-entries on the records of DTC and
participating members thereof. All references to "holders" or
"Certificateholders," and to authorized denominations, when used with respect to
the Offered Certificates issued as Global Certificates, shall reflect the rights
of beneficial owners of the Offered Certificates ("Certificate Owners"), and
limitations thereof, as they may be indirectly exercised through DTC and its
participating members, except as otherwise specified herein. See "Description of
the Certificates -- Global Certificates" in the Prospectus. See the Prospectus
under "Description of the Certificates -- Global Certificates" for a description
of the circumstances in which Definitive Certificates in the future may be
issued. Any Offered Certificates issued as Definitive Certificates will be
transferable and exchangeable at the corporate trust office of the Trustee at
its Corporate Trust Department in [ ] or, if it so elects, at the office of an
agent in [New York, New York]. 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 Offered Certificates will be issued in fully registered form only,
in denominations equal to [$1,000] or any integral multiple of [one dollar] in
excess thereof. The "Percentage Interest" of a Certificate of a Class (other
than a [Class A-IO or ]Class R Certificate) is the percentage obtained from
dividing the original denomination of such Certificate by the Initial
Certificate Balance of the Certificates of that Class.
The Trust Fund includes (i) the Contract Pool, including certain rights
to receive payments on the Contracts on and after the Cut-off Date, (ii) the
amounts held from time to time in the "Certificate Account" (as described below
under "-- Payment on Contracts; 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, (iv) the obligations
of Bank of America and Bank of America, FSB, under certain conditions, to
repurchase Contracts sold by it with respect to which certain representations
and warranties have been breached and not cured and (v) the proceeds of all
insurance policies described herein.
Bank of America or Bank of America, FSB or both will convey the
Contracts to the Trustee. See "The Contract Pool" herein and "-- Conveyance of
Contracts" below. Bank of America, FSB, acting through its division, BankAmerica
Housing Services, 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, interest or both to the holders of the
Certificates will be made on the 10th day of each month, or, if such day is not
a business day, the next succeeding business day (each, a "Distribution Date")
beginning in [ ], 199[ ], to the persons in whose names the Certificates are
registered at the close of business on the last business day preceding each
Distribution Date (the "Record Date").
S-31
<PAGE>
Pass-Through Rates
The Pass-Through Rates for the Class [ ] and Class [ ] Certificates
will be [ ] and [ ] respectively.
[The Pass-Through Rate for each of the Certificates of Class [ ] on any
Distribution Date will be adjusted so as not to exceed the weighted average of
the Net Contract Rates of the Contracts in the Contract Pool at the beginning of
the month preceding the month of such Distribution Date. The "Net Contract Rate"
of a Contract equals the rate of interest borne by such Contract minus the
Annual Servicing Rate. The Annual Servicing Rate" is equal to [ ]%. The weighted
average Net Contract Rate of the Contract Pool as of the Cut-off Date was
approximately [ ]%.]
[The Class [ ] Pass-Through Rate on each Distribution Date will be [ ]%
per annum, subject to a maximum rate equal to the weighted average of the Net
Contract Rates on the Contracts in the Contract Pool, computed on the basis of a
360-day year of twelve 30-day months. In all but the most unusual prepayment
scenarios, it is anticipated that the Class [ ] Pass-Through Rate will remain at
the initial rate of [ ]%. However, disproportionate prepayments of Contracts
with higher Net Contract Rates will lower the weighted average Net Contract Rate
on the outstanding Contracts remaining in the Contract Pool. If a larger
principal amount of Contracts having Contract Rates equal to or higher than [ ]%
were to prepay while a proportionate principal amount of the Contracts having
Contract Rates lower than [ ]% did not prepay, to such a great extent that the
weighted average Net Contract Rate fell below the initial Class [ ] Pass-Through
Rate of [ ]%, then the Class [ ] Pass-Through Rate would automatically be
reduced to a level equal to the weighted average of the Net Contract Rates on
the Contracts remaining in the Contract Pool. Of the initial Contracts, [ ]% by
aggregate principal balance as of the Cut-off Date had Contract Rates equal to
or higher than [ ]%.]
Conveyance of Contracts
On the date of initial issuance of the Certificates, Bank of America
and Bank of America, FSB will convey to the Trustee, without recourse, all
right, title and interest of Bank of America and Bank of America, FSB in and to
the Contracts, and all rights under the standard hazard insurance policies on
the related Manufactured Homes. The conveyance of the Contracts to the Trustee
will include a conveyance of all rights to receive Scheduled Payments thereon
that were due on or after the Cut-off Date, even if received prior to the
Cut-off Date, as well as all rights to any payments received on or after the
Cut-off Date (other than late receipts of Scheduled Payments that were due prior
to the Cut-off Date). The Contracts will be described on a schedule attached to
the Agreement (the "Contract Schedule"). The Contract Schedule will include the
principal balance of each Contract as of the Cut-off Date, the amount of each
Scheduled Payment due on each Contract as of the Cut-off Date, the Contract Rate
on each Contract (determined as of the Cut-off Date) and the maturity date of
each Contract. Prior to the conveyance of the Contracts to the Trustee, the
operations department of the BankAmerica Housing Services division of Bank of
America, FSB will be required to complete a review of all of the originals of
the Contracts, the certificates of title to, or other evidence of a perfected
security interest in, the Manufactured Homes, any related mortgages and any
assignments or modifications of the foregoing (collectively, the "Contract
Files") confirming the accuracy of the Contract Schedule delivered to the
Trustee. Any Contract discovered not to agree with such schedule in a manner
that is materially adverse to the interests of the Certificateholders will be
repurchased by Bank of America or Bank of America, FSB, as applicable, or
replaced with another Contract, except that if the discrepancy relates to the
principal balance of a Contract (determined as described above), Bank of America
or Bank of America, FSB, as applicable, may, under certain conditions, deposit
cash in the Certificate Account in an amount sufficient to offset such
discrepancy. The Trustee will not review the Contract Files.
The Servicer will hold, as custodian and agent on behalf of the
Trustee, the original Contracts and copies of documents and instruments relating
to each Contract and the security interest in the Manufactured Home, and real
property, if any, relating to each Contract. See "Risk Factors -- Security
Interests in the Manufactured Homes; Transfer of Contracts and Security
Interests" and "Certain Legal Aspects of the Contracts -- Security Interests in
Manufactured Homes" and "Land Home and Land-in-Lieu Contracts" in the Prospectus
for discussion of the consequences of the Servicer maintaining possession of the
original Contracts and the security interest in the related Manufactured Homes
and real property securing such Contracts, if any. In order to give notice of
the Trustee's right, title and interest in and to the Contracts, a UCC-1
financing statement identifying the Trustee as the secured party and identifying
all the Contracts as collateral will be filed in the appropriate office in the
appropriate states. The Contracts will be stamped or
S-32
<PAGE>
otherwise marked to reflect their assignment to the Trustee. To the extent that
the Contracts do not constitute "chattel paper" within the meaning of the UCC as
in effect in the applicable jurisdictions or to the extent that the Contracts do
constitute chattel paper and a subsequent purchaser is able to take physical
possession of the Contracts without notice of such assignment, the Trustee's
interest in the Contracts could be defeated. See "Certain Legal Aspects of the
Contracts" in the Prospectus.
Bank of America, Bank of America, FSB or both of them, as applicable,
will make certain representations and warranties to the Trustee with respect to
each Contract sold by it, as of the Closing Date (unless expressly stated
otherwise), including the following: (a) as of the Cut-off Date, no Contract is
more than 59 days delinquent; (b) no provision of such Contract has been waived,
altered or modified in any respect, except by instruments or documents
identified in the related Contract File; (c) such 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 or
by general equity principles); (d) such Contract is not subject to any right of
rescission, set-off, counterclaim or defense; (e) such Contract is covered by
hazard insurance described under "Description of the Certificates -- Servicing
Compensation and Payment of Expenses; Certain Matters Regarding the Servicer --
A. Hazard Insurance Policies" in the Prospectus; (f) such Contract was either
(i) originated by a manufactured housing dealer acting, to the knowledge of Bank
of America, FSB, in the regular course of its business and purchased on an
individual basis by Bank of America, FSB, acting through its division
BankAmerica Housing Services, in the ordinary course of its business, [or] (ii)
originated by Bank of America, FSB, acting through its BankAmerica Housing
Services, in the ordinary course of its business [or (iii) purchased by Bank of
America, Bank of America, FSB, acting through its BankAmerica Housing Services,
or by SPFSC, or any combination thereof, as part of bulk purchases of
manufactured housing contracts from other private lenders or finance companies,
or from governmental agencies or instrumentalities or from other entities]; (g)
such Contract was neither originated in nor 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) such Contract complies with all requirements of law; (i) such
Contract has not been satisfied or subordinated in whole or in part or rescinded
and the Manufactured Home securing such Contract has not been released from the
lien of such Contract; (j) such Contract creates a valid and enforceable
first-priority security interest in favor of Bank of America, FSB in the
Manufactured Home and real property securing such Contract, if any; (k) such
security interest has been assigned to the Trustee, and, after such assignment,
the Trustee has a valid and perfected first-priority security interest in the
Manufactured Home and real property securing such Contract, if any; (l) such
Contract has not been sold, assigned or pledged to any other person, and prior
to the transfer of the Contracts to the Trustee, Bank of America or Bank of
America, FSB, as the case may be, had good and marketable title to such Contract
sold by it, free and clear of any encumbrance, equity, loan, pledge, charge,
claim or security interest, and it was the sole owner thereof and had full right
to transfer such Contract to the Trustee; (m) as of the Cut-off Date, there was
no default, breach, violation or event permitting acceleration under such
Contract and no event which, with notice and the expiration of any grace or cure
period, would constitute such a default, breach, violation or event permitting
acceleration (except payment delinquencies permitted by clause (a) above), and
Bank of America or Bank of America, FSB, as the case may be, has not waived any
of the foregoing; (n) as of the Closing Date (as defined below), there were, to
the knowledge of Bank of America or of Bank of America, FSB, as applicable, no
liens or claims which have been filed for work, labor or materials affecting a
Manufactured Home or real property securing such Contract, which are or may be
liens prior to or equal with or subordinate to the lien of such Contract; (o)
such Contract is a fully-amortizing loan with a [fixed] Contract Rate and
provides for level payments over the term of such Contract; (p) such 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 information contained in the Contract
Schedule with respect to such Contract is true and correct; (r) there is only
one original of such Contract; (s) such Contract did not have a loan-to-value
ratio at origination greater than 100%; (t) 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 unless it is subject to a
Land-in-Lieu or Land Home Contract and as of the Closing Date such Manufactured
Home is, to the knowledge of Bank of America or Bank of America, FSB, as
applicable, free of damage and in good repair; (u) such Contract is a "qualified
mortgage" under Section 860G(a)(3) of the Code; (v) the related Manufactured
Home is a "manufactured home" within the meaning of Section 5402(6) of Title 42
of the United States Code and, as to each Contract sold by Bank of America or
Bank of America, FSB to the Trust Fund, Bank of America, FSB is a federally
chartered savings bank as of the time of such Contract's origination as required
under Section 3(a)(41)(A)(ii) of the Exchange Act; (w) such Contract is secured
by a "single family residence" within the meaning of Section 25(e)(10) of the
Code; (x) such
S-33
<PAGE>
Contract has been stamped to indicate its assignment to the Trustee within 60
days of the Closing Date and (y) the Contract with the lowest Contract Rate has
a Contract Rate of [ ]% and the Contract with the highest Contract Rate has a
Contract Rate of [ ]%. Under the terms of the Agreement, and subject to the
relevant Seller's option to effect a substitution with respect to Contracts sold
by it as described in the last paragraph under this subheading, Bank of America
or Bank of America, FSB, as the case may be, will be obligated to repurchase, at
the price described below, any Contract sold by it within 90 days after Bank of
America or Bank of America, FSB, as the case may be, becomes aware, or after
Bank of America's or Bank of America, FSB' receipt of written notice from the
Trustee or the Servicer, of a breach of any representation or warranty of Bank
of America or Bank of America, FSB, as the case may be, in the Agreement that
materially and adversely affects the Trust Fund's interest in any Contract it
sold thereto unless such breach has been cured.
Notwithstanding the foregoing, neither Bank of America nor Bank of
America, FSB will be required to repurchase or substitute any Contract relating
to a Manufactured Home and real property securing such Contract, if any, located
in any jurisdiction on account of a breach of the representation and warranty
described in clause (k) above solely on the basis of the failure by Bank of
America or Bank of America, FSB, as applicable, to cause a notation to be made
on any document of title relating to any such Manufactured Home or to execute
any transfer instrument relating to any such Manufactured Home or real property,
if any (other than a notation or transfer instrument necessary to show Bank of
America or Bank of America, FSB as lienholder or legal title holder) unless (i)
a court of competent jurisdiction has adjudged that, because of such failure,
the Trustee does not have a perfected first-priority security interest in such
related Manufactured Home or (ii)(A) the Servicer has received written advice of
counsel to the effect that a court of competent jurisdiction has held that,
solely because of a substantially similar failure on the part of a pledgor or
assignor of manufactured housing contracts (who has perfected the assignment or
pledge of such contracts), a perfected first-priority security interest was not
created in favor of the pledgee or assignee in a related manufactured home which
is located in such jurisdiction and which is subject to the same laws regarding
the perfection of security interests therein applicable to the Manufactured
Homes located in such jurisdiction and (B) the Servicer shall not have completed
all appropriate remedial action with respect to such Manufactured Home within
180 days after receipt of such written advice. Any such advice will be from
counsel selected by the Servicer on a non-discriminatory basis from among the
counsel used by the Servicer in its general business in the jurisdiction in
question. The Servicer will have no ongoing obligation to seek advice with
respect to the matters described in clause (ii) above. However, the Servicer is
required to seek advice with respect to such matters whenever information comes
to the attention of its counsel which causes such counsel to determine that a
holding of the type described in clause (ii)(A) might exist. If any counsel
selected by the Servicer informs the Servicer that no holding of the type
described in clause (ii)(A) exists, such advice will be conclusive and binding
on the parties to the Agreement pursuant to which a Trustee has an interest in
any Contracts in the applicable jurisdiction as of the applicable date. If any
holding described above which would give rise to a repurchase obligation on the
part of Bank of America or Bank of America, FSB, as applicable, were to result
from proceedings brought by a receiver or conservator of Bank of America or Bank
of America, FSB, it is likely that such receiver or conservator would also
reject the resulting repurchase obligation.
The repurchase obligation described above generally constitutes the
sole remedy available to the Trustee and the Certificateholders for a breach of
a representation or warranty under the Agreement with respect to the Contracts.
The repurchase price for any Contract will be equal to the remaining principal
balance of such Contract as of the beginning of the month of repurchase, plus
accrued and unpaid interest from the Due Date with respect to which the Obligor
last made a payment to the Due Date occurring in the Collection Period during
which such Contract is repurchased.
In lieu of repurchasing a Contract as specified above, during the
two-year period following the date of the initial issuance of the Certificates
(the "Closing Date"), Bank of America, FSB or, where applicable, Bank of
America, may, at its option, substitute an Eligible Substitute Contract (as
defined below) for the Contract that it is otherwise obligated to repurchase
(referred to herein as the "Replaced Contract"). An "Eligible Substitute
Contract" is a Contract that satisfies, as of the date of its substitution, the
representations and warranties specified in the Agreement, has a Scheduled
Principal Balance that is not greater than the Scheduled Principal Balance of
the Replaced Contract as of the beginning of the month in which such
substitution takes place, has a Contract Rate that is at least equal to the
Contract Rate of the Replaced Contract, has a remaining term to scheduled
maturity that is not greater than the remaining term to scheduled maturity of
the Replaced Contract and has not been delinquent for more than 31 days as to
any Scheduled
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<PAGE>
Payment due in the twelve months prior to its substitution. Bank of America, FSB
or Bank of America, as applicable, 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 as of the beginning of the month in which
substitution takes place exceeds the Scheduled Principal Balance of the Contract
it sold being substituted as of the beginning of the month.
Payments on the Contracts; Certificate Account
The Trustee will initially establish and maintain an account (the
"Certificate Account") 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, long-term deposits or long-term unsecured senior
debt has a rating of [ ] by [ ][and [ ] by [ ] (if rated by [ ])] in the case of
commercial paper or in one of the two highest rating categories by [ ] [and] [ ]
(if rated by [ ])] in the case of long-term deposits or long-term unsecured
senior debt, and which is subject to examination by federal or state authorities
or a depository institution otherwise acceptable to [ ] and [ ] (an "Eligible
Institution"). The funds in the Certificate Account are required to be invested
by the Trustee in common trust funds, collective investment trusts or Eligible
Investments that will mature not later than the business day preceding the
applicable Distribution 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; certificates of deposit, time
deposits and bankers' acceptances sold by eligible financial institutions;
commercial paper rated [ ] by [ ] [and [ ] by [ ] (if rated by [ ])]; money
market funds acceptable to [ ] [and [ ]] (as evidenced by a letter from [ ] [and
[ ]] to such effect); and other obligations acceptable to [ ] [and [ ]].
All payments in respect of principal and interest on the Contracts
received [during any Collection Period] by the Servicer (exclusive of Scheduled
Payments due prior to the Cut-off Date), including Liquidation Proceeds (net of
Liquidation Expenses, as defined below), are required to be paid into the
Certificate Account not later than the second business day following receipt
thereof. [Notwithstanding the foregoing, for as long as Bank of America, FSB
remains the Servicer under the Pooling and Servicing Agreement and Bank of
America, FSB maintains a short-term rating of at least [ ] from [the rating
agency], which is currently the case, the Servicer need not deposit collections
into the Certificate Account within two business days of receipt but may use for
its own benefit all such collections until the related Distribution Date without
an obligation to pay interest or any other investment return thereon, it being
understood that any benefit to Bank of America, FSB from this arrangement shall
be additional servicing compensation. While such rating is maintained, on or
prior to each Distribution Date, the Servicer will deposit in the Certificate
Account amounts which are to be included in the funds available for the related
Distribution Date. [Amounts deposited in the Certificate Account may be invested
in Permitted Investments (as described in the Pooling and Servicing Agreement)
maturing no later than the related Distribution Date.]]
[At any time that the short-term rating of Bank of America, FSB does
not satisfy the rating requirements specified above, Bank of America, FSB may
continue to hold collections prior to distribution as described above so long as
it causes to be maintained an irrevocable letter of credit or surety bond or
other credit enhancement instrument in form and substance satisfactory to the
rating agency, issued by a depository institution or insurance company having a
rating on its short-term obligations of at least [ ] and long-term obligations
of at least [ ] by [the rating agency] or other ratings if approved by [the
rating agency] and providing that the Trustee may draw thereon in the event that
Bank of America, FSB, as Servicer, fails to make any deposit or payment required
under the Pooling and Servicing Agreement.]
Amounts received as late payment fees, extension fees, assumption fees
or similar fees may be retained by the Servicer as part of its servicing fees.
See "-- Servicing Compensation; Certain Other Matters Regarding the Servicer"
below. In addition, the amount paid by Bank of America, FSB or Bank of America
for any Contract repurchased by it as a result of a breach of a representation
or warranty under the Agreement, and amounts required to be deposited upon
substitution of an Eligible Substitute Contract because of a breach of a
representation or warranty (which amounts will be treated as partial principal
prepayments), as described under "-- Conveyance of Contracts" above, are
required to be paid into the Certificate Account.
On the third business day prior to each Distribution Date (the
"Determination Date"), the Servicer will
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<PAGE>
determine the Available Distribution Amount and the amounts to be distributed on
the Certificates on such Distribution Date. The "Available Distribution Amount"
for any Distribution Date is the sum of (a) the Monthly Advance for such
Distribution Date (as defined below under "-- Advances") and (b) the amount in
the Certificate Account on the close of business on the last day of the
immediately preceding Collection Period, less the sum of (i) any repossession
profits (of which there are expected to be a de minimis amount) on defaulted
Contracts, (ii) payments on Contracts that have been repurchased as a result of
a breach of a representation or warranty that are received during or after the
month of repurchase, (iii) Excess Contract Payments (as defined below) and any
other payments not required to be distributed to Certificateholders on the
related Distribution Date, (iv) reimbursements to the Servicer in the amount of
expenses incurred in connection with the liquidation of a Contract ("Liquidation
Expenses") and certain taxes and insurance premiums advanced by the Servicer in
respect of Manufactured Homes (as described below under "-- Advances"), (v)
reimbursements to the Servicer for Nonrecoverable Advances in respect of
Contracts and Monthly Advances to the extent permitted by the Agreement (as
described below under "-- Advances") and (vi) the Monthly Servicing Fee (as
hereinafter defined).
An "Excess Contract Payment" is a payment received on a Contract that
is in excess of the Scheduled Payment (or, generally, an integral multiple
thereof) on such Contract, is not a partial principal prepayment or prepayment
in full and is not part of any Liquidation Proceeds. Excess Contract Payments
will be held by the Trustee in the Certificate Account and may be applied as
described under "-- Advances" below.
The Trustee or its paying agent will withdraw funds from the
Certificate Account on each Distribution Date (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 or Bank of America or Bank of America, FSB as permitted by
the Agreement and described in subclauses (i), (ii), (iv), (v) and (vi) of
clause (b) in the second preceding paragraph.
Distributions
Distributions to the holders of the Series 199[ ]-[ ] Regular
Certificates will be applied first to the holders of the Senior Certificates,
second to the holders of the Class M Certificates and then to the holders of the
Class B Certificates. The Available Distribution Amount for each Distribution
Date will be applied in the amounts and the order of priority set forth below.
Distributions of principal and interest to holders of each Class of
Certificates[, other than the Class A-IO Certificates,] will be made on each
Distribution Date in an amount equal to their respective Percentage Interests
multiplied by the aggregate amount distributed to such Class of Certificates on
such Distribution Date. [Interest will be calculated on the Class A-IO
Certificates on the basis of a "Notional Principal Amount" [equal to the Pool
Scheduled Principal Balance]. Reference to the Notional Principal Amount of the
Class A-IO Certificates is solely for convenience in certain calculations and
does not represent the right to receive any distribution allocable to
principal.] Interest on each Class of the Series 199[ ]-[ ] Regular Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months.
Each distribution with respect to book-entry certificates 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 its participants in accordance with DTC's
rules. See "Description of the Certificates -- Global Certificates" below.
Priorities. On each Distribution Date, the Available Distribution
Amount will be distributed in the following amounts and in the following order
of priority:
(i) to the Class A Certificateholders, the Class A
Interest Distribution Amount, payment to be distributed among the Class A-1
and Class A-IO Certificates pro rata, based on entitlement;
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<PAGE>
(ii) to the Class A Certificateholders (other than the Class
A-IO Certificateholders), the Formula Principal Distribution Amount
until the Class A Certificate Balance is reduced to zero.
(iii) to the Class M Certificateholders, the Class M
Interest Distribution Amount;
(iv) to the Class M Certificateholders, any remaining Formula
Principal Distribution Amount after distribution under clause (ii)
above until the Class M Certificate Balance is reduced to zero;
(v) to the Class B Certificateholders, the Class B
Interest Distribution Amount;
(vi) to the Class B Certificateholders, any remaining Formula
Principal Distribution Amount after distributions under clause (iv)
above until the Class B Certificate Balance is reduced to zero; and
(vii) to the Class R Certificateholders, any remaining
Available Distribution Amount.
The Class A-IO Certificates are interest-only and are not entitled to receive
distributions of principal, but the Notional Principal Amount decreases as the
Certificate Balance of all Senior Certificates is reduced
Definitions. As to any Distribution Date, the "Class A Interest
Distribution Amount" is equal to the sum of (i) one month's interest at the
Class A Pass-Through Rate on the Class A Certificate Balance or Notional
Principal Amount, as the case any be, and (ii) any previously undistributed
shortfalls in interest due to the Class A Certificateholders in respect of prior
Distribution Dates; the "Class M Interest Distribution Amount" is equal to the
sum of (i) one month's interest at the Class M Pass-Through Rate on the Class M
Certificate Balance and (ii) any previously undistributed shortfalls in interest
due to the Class M Certificateholders in respect of prior Distribution Dates;
the "Class B Interest Distribution Amount" is equal to the sum of (i) one
month's interest at the Class B Pass-Through Rate on the Class B Certificate
Balance and (ii) any previously undistributed shortfalls in interest due to the
Class B Certificateholders in respect of prior Distribution Dates. Any shortfall
in interest due to Certificateholders will, to the extent legally permissible,
bear interest at the related Class A-1, Class A-IO, Class M or Class B
Pass-Through Rate.
The "Formula Principal Distribution Amount" in respect of a
Distribution Date equals the sum of (a) the Total Regular Principal Amount for
such Distribution Date and (b) any previously undistributed shortfalls in the
distribution of the Total Regular Principal Amount in respect of prior
Distribution Dates.
The "Total Regular Principal Amount" on each Distribution Date is the
sum of (i) the Scheduled Principal Reduction Amount (defined below) for such
Distribution Date, (ii) the Scheduled Principal Balance (defined below) of each
Contract which, during the related Collection Period, was purchased by Bank of
America or Bank of America, FSB, as the case may be, on account of certain
breaches of representations and warranties made by it in the Agreement, (iii)
all partial prepayments received during such related Collection Period, (iv) the
Scheduled Principal Balance of each Contract that was prepaid in full during
such related Collection Period and (v) the Scheduled Principal Balance of each
Contract that became a Liquidated Contract (defined below) during such related
Collection Period.
The "Scheduled Principal Balance" of a Contract for any Distribution
Date is its principal balance as of the Due Date in the Collection Period
immediately preceding such Distribution Date, after giving effect to all
previous partial prepayments, all previous scheduled principal payments (whether
or not paid) and the scheduled principal payment due on such Due Date, but
without giving effect to any adjustment due to bankruptcy or similar
proceedings. The "Scheduled Principal Reduction Amount" for any Distribution
Date is an approximate calculation (performed on an aggregate basis rather than
on a Contract-by-Contract basis) of the scheduled payments of principal due
during the related Collection Period. Both of these terms are more fully
described herein under "-- Distributions" above.
The "Pool Scheduled Principal Balance" for any Distribution Date is
equal to the Cut-off Date Pool Principal Balance less the aggregate of the Total
Regular Principal Amounts for all prior Distribution Dates.
In general, a "Liquidated Contract" is a defaulted Contract as to which
all amounts that the Servicer expects to recover relating to such Contract
("Liquidation Proceeds") have been received. A Liquidated Contract includes any
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<PAGE>
defaulted Contract in respect of which the related Manufactured Home has been
realized upon and disposed of and the proceeds of such disposition have been
received.
The "Certificate Balance" for any Class as of any Distribution Date is
the Initial Certificate Balance of that Class less all amounts previously
distributed to Certificateholders of that Class on account of principal. In no
event shall the aggregate distributions of principal to the holders of the
Senior and Subordinate Certificates exceed the Initial Senior Certificate
Balance and the Initial Subordinate Certificate Balance, respectively.
[Reserve Account]
[On the Closing Date, the Trustee shall establish an account (the
"Reserve Account") for the benefit of the Certificateholders. The Reserve
Account shall have an initial balance of zero on the Closing Date. Commencing on
the Distribution Date which is the earlier of (a) the Distribution Date in [ ]
and (b) the first Distribution Date on which the percentage equivalent of a
fraction, the numerator of which is the Pool Scheduled Principal Balance (after
giving effect to distribution with respect to principal) for such Distribution
Date and the denominator of which is the Cut-off Date Pool Principal Balance, is
less than or equal to 25%, the Trustee shall make a deposit into the Reserve
Account up to the Reserve Account Cap. On each Distribution Date, the Trustee
will withdraw from the Reserve Account an amount (the "Reserve Account Draw
Amount") equal to the lesser of (a) the amount then on deposit in the Reserve
Account and (b) the amount by which the aggregate of amounts due to
Certificateholders in clauses (i) through (vi) under "Distributions" above
exceeds the Available Distribution Amount on such Distribution Date and
distribute such amount, together with the Available Distribution Amount.]
[Funds in the Reserve Account will be invested in Eligible Investments
as directed by the Trustee, and the net investment earnings, if any, will be
paid to the Class R Certificateholders. "Eligible Investments" means one or more
common trust funds, collective investment trusts or money market funds
acceptable to [the rating agency] (as evidenced by a letter from [the rating
agency] to such effect or, if no such trusts or funds are acceptable to [the
rating agency] any other obligations acceptable to [the rating agency].]
[On any Distribution Date, any funds on deposit in the Reserve Account
in excess of the Reserve Account Cap (after giving effect to any Reserve Account
Draw Amount paid to the Certificateholders on such date) will be withdrawn from
the Reserve Account and paid to the Class R Certificateholders.]
[Amounts paid to the Class R Certificateholders pursuant to the two
immediately preceding paragraphs will not be available to offset shortfalls in
distributions to holders of other Classes of Certificates.]
[The Reserve Account is intended to enhance the likelihood of regular
receipt by the holders of the Series 199[ ]-[ ] Regular Certificates of the full
amount of the distributions due them and to afford such holders protection
against losses on Liquidated Contracts, but no assurance can be given that the
Reserve Account will be sufficient for such purpose.]
[The "Reserve Account Cap" shall be (i) as to any Distribution Date
(after giving effect to distributions due thereon) after the Closing Date and
until none of the Offered Certificates remain outstanding, $[ ] (which is 0.5%
of the Cut-off Date Pool Principal Balance) and (ii) as to any Distribution Date
(after giving effect to distributions due thereon) after none of the Offered
Certificates remain outstanding, the lesser of the then outstanding Class B-[ ]
Certificate Balance and $[ ] (which is 0.5% of the Cut-off Date Pool Principal
Balance).]
Subordination
The rights of the holders of the Subordinate Certificates to receive
distributions of available amounts in the Trust Fund will be subordinate, to the
extent described herein, to such rights of the holders of the Senior
Certificates. This subordination is intended to enhance the likelihood of
regular receipt by the holders of the Senior Certificates of the full amount of
interest and principal distributable thereon and to afford such holders
protection against losses on Liquidated Contracts.
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<PAGE>
Similarly, the rights of the holders of the Class B Certificates to
receive distributions due them from available amounts in the Trust Fund will be
subordinated, to the extent described herein, to such rights of the holders of
the Class M Certificates. Subject to the subordination of the Subordinate
Certificates to the Senior Certificates, this subordination of the Class B
Certificates to the Class M Certificates is intended to enhance the likelihood
of regular receipt by the holders of the Class M Certificates of the full amount
of the distributions due them and to afford such holders protection against
losses on Liquidated Contracts.
The protection afforded to the holders of Senior Certificates by means
of the subordination of the Subordinate Certificates and to the Class M
Certificateholders by the subordination of the Class B Certificates (in each
case, to the extent described herein) will be accomplished by the application of
the Available Distribution Amount in the order specified under "Distributions"
above. Accordingly, in the event that the Available Distribution Amount on any
Distribution Date is not sufficient to permit the distribution of the amount of
interest and the specified portion of the Formula Principal Distribution Amount
due to the holders of any Class of Certificates, the subordination is intended
to protect such Certificateholders by the right of such Certificateholders to
receive distributions of the Available Distribution Amount in respect of
interest and the Formula Principal Distribution Amount that would otherwise have
been distributable to the Certificateholders of any Class subordinate in
priority of distribution to such Class, until any shortfall in distributions to
the holders of the related senior Class or Classes of Certificates in respect
thereof has been satisfied, to the extent described herein.
Losses on Liquidated Contracts
As described above, the Total Regular Principal Amount distributable to
the holders of the Series 199[ ]-[ ] Regular Certificates on each Distribution
Date includes the Scheduled Principal Balance of each Contract that became a
Liquidated Contract during the immediately preceding Collection Period. The
Liquidation Proceeds, net of (i) certain expenses incurred to liquidate such
Liquidated Contract, (ii) all accrued and unpaid interest thereon and (iii) all
Monthly Advances required to be made in respect of such Liquidated Contract (the
"Net Liquidation Proceeds"), may be less than the Scheduled Principal Balance of
such Liquidated Contract. Under such circumstances, the loss on the Liquidated
Contract during a Collection Period, in the amount of the deficiency between the
Net Liquidation Proceeds and the Scheduled Principal Balance of such Liquidated
Contract, may be covered to the extent of the amount (the "Excess Interest"), if
any, by which the interest collected on nondefaulted Contracts during the same
Collection Period exceeds interest distributions due to holders of the Series
199[ ]-[ ] Regular Certificates and the Monthly Servicing Fee.
The effect of any losses on Liquidated Contracts during a Collection
Period in excess of the aggregate of Excess Interest generally will be to cause
shortfalls, losses or both with respect to the Certificates, which shortfalls or
losses will be borne by the Class B Certificateholders, the Class M
Certificateholders and the Class A Certificateholders, in that order.
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<PAGE>
Example of Distributions
The following chart sets forth an example of the flow of funds on the
Certificates for the Distribution Date occurring in [August 1997]:
<TABLE>
<S> <C> <C>
[June 30] ...................................(A) Cut-off Date.
[July 1-31]..................................(B) Servicer receives scheduled
payments on the
Contracts and any principal
prepayments made by
Obligors and applicable
interest thereon.
[August 8]...................................(C) Record Date.
[August 6]...................................(D) Determination Date.
[August 11]..................................(E) Distribution Date.
(Distribution Date is the 10th
day of each month or, if the
10th day is not a
business day, the next
business day.)
Succeeding months follow the pattern of (B) through (E).
</TABLE>
- -----
(A) The Cut-off Date Pool Principal Balance on [June 30, 1997] will be
computed as described under "-- Conveyance of Contracts" above.
(B) Scheduled Payments, principal prepayments and Liquidation Proceeds (net
of Liquidation Expenses) and amounts for the repurchase of Contracts
may be received at any time during this period and will be distributed
to Certificateholders on [August 11, 1997]. When a partial prepayment
is made or 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 [June 10, 1996]
are described under "-- Payments on Contracts; Certificate Account"
above.
(C) Distributions on [August 11, 1997] will be made to Certificateholders
of record at the close of business on [August 8, 1997].
(D) On [August 6, 1997] (three business days prior to the Distribution
Date), the Servicer will determine the amounts of principal and
interest which will be passed through on [August 11, 1997] to
Certificateholders.
(E) On [August 11, 1997], the amounts determined on [August 6, 1997] will
be distributed to Certificateholders.
Advances
For each Distribution Date, the Servicer will be obligated to make an
advance (a "Monthly Advance") equal to the lesser of (i) delinquent scheduled
payments of principal and interest on the Contracts that were due in the
preceding Collection Period and (ii) the amount, if any, by which scheduled
distributions of principal and interest due on the Series 199[ ]-[ ] Regular
Certificates exceeds the amount specified in clause (b) of the definition of
Available Distribution Amount (as set forth above under "-- Payments on
Contracts; Certificate Account"), except to the extent, in the Servicer's
judgment, such advance would not be recoverable from related late payments,
Liquidation Proceeds or otherwise (a "Nonrecoverable Advance").
The aggregate amount of any additional advances made by the Servicer
that have not been reimbursed to the Servicer as described below is referred to
herein as the "Outstanding Amount Advanced." The Servicer may apply any Excess
Contract Payments in the Certificate Account (rather than its own funds) to make
all or a portion of a Monthly Advance, but must replace such Excess Contract
Payments to the extent required to make scheduled payments on the related
Contracts. In addition, upon the determination that a Nonrecoverable Advance has
been made in respect of a Contract, the Servicer will reimburse itself (but only
to the extent of the Outstanding Amount Advanced) out of funds in the
Certificate Account for the delinquent Scheduled Payments on such Contract or
out of any other funds in the Certificate Account.
In making Monthly Advances, the Servicer will be attempting to maintain
a regular flow of scheduled interest and principal to the Series 199[ ]-[ ]
Regular Certificateholders rather than to guarantee or insure against losses.
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
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<PAGE>
advanced are reimbursable to the Servicer as provided in the Agreement.
Reports to Certificateholders
The Trustee will include with each distribution to a Certificateholder
a statement as of the related Distribution Date setting forth, among other
things:
(a) the aggregate amount distributed on each Class of
Certificates on such Distribution Date;
(b) the amount of such distribution on each Class of
Certificates which constitutes principal;
(c) the amount of such distribution on each Class of
Certificates which constitutes interest;
(d) the remaining Certificate Balance;
(e) the Monthly Servicing Fee payable on such
Distribution Date and the amount of any other fees
payable out of the Trust Fund;
(f) the number of and aggregate unpaid principal
balance of Contracts with payments delinquent
31 to 59, 60 to 89, and 90 or more
days, respectively;
(g) the number of Contracts that were repurchased or
replaced by a Seller in accordance with the Agreement during the prior
Collection Period, identifying such Contracts and (i) the Repurchase
Price of such Contracts and (ii) the amount, if any, paid by such
Seller due to the differences, if any, between the remaining principal
balances of the replaced Contracts and the Eligible Substitute
Contracts;
(h) the aggregate principal balances of all Contracts
that are not Liquidated Contracts and in respect of which the related
Manufactured Homes have been repossessed or foreclosed upon;
(i) the aggregate liquidation losses (less costs of
liquidation) realized by the Trust Fund through the Collection Period
immediately preceding such Distribution Date, expressed in dollars;
(j) the aggregate liquidation losses (less costs of
liquidation) realized by the Trust Fund through the Collection Period
immediately preceding such Distribution Date, expressed as a percentage
of the Cut-off Date Pool Principal Balance;
(k) the amount of any Monthly Advance for such
Distribution Date and the aggregate amount of Monthly Advances that
remain outstanding as of such Distribution Date;
(l) the weighted average Contract Rate for the Contract
Pool for the Collection Period immediately preceding the month of such
Distribution Date; and
(m) the number of Manufactured Homes currently held by
the Servicer due to repossessions and the aggregate principal balance
of the related defaulted Contracts.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish a report to each holder of a Series 199[
]-[ ] Regular Certificate of record at any time during such calendar year as to
the aggregate of amounts reported pursuant to clauses (a) and (b) above for such
calendar year.
Optional Termination and Termination Auction
The Agreement provides that on any Distribution Date after the
Distribution Date on which the Pool Scheduled Principal Balance is less than 10%
of the Cut-off Date Pool Principal Balance, the Servicer will have the option to
repurchase, upon giving notice mailed no later than the 10th day of the month
next preceding the month of the
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<PAGE>
exercise of such option, all outstanding Contracts at a price equal to the
greater of (a) the sum of (x) 100% of the Scheduled Principal Balance of each
Contract (other than any Contract as to which the related Manufactured Home has
been acquired and not yet disposed of and whose fair market value is included
pursuant to clause (y) below) as of the final Distribution Date, and (y) the
fair market value of such acquired property (as determined by the Servicer), and
(b) the aggregate fair market value (as determined by the Servicer) of all of
the assets of the Trust Fund, plus, in the case of both clause (a) and (b), an
amount sufficient to reimburse Certificateholders for any shortfall in interest
due thereto in respect of prior Distribution Dates. Notwithstanding the
foregoing, the Servicer's option shall not be exercisable if there will not be
distributed to the Class A Certificateholders an amount equal to the Class A
Certificate Balance together with any shortfall in interest due to the Class A
Certificateholders in respect of prior Distribution Dates and one month's
interest on the Class A Certificate Balance [or the Notional Principal Amount,
as the case may be,] at the Class A Pass-Through Rate, to the Class M
Certificateholders an amount equal to the Class M Certificate Balance together
with any shortfall in interest due to the Class M Certificateholders in respect
of prior Distribution Dates and one month's interest on the Class M Certificate
Balance at the Class M Pass-Through Rate, and to the Class B Certificateholders
an amount equal to the Class B Certificate Balance together with any shortfall
in interest due to the Class B Certificateholders in respect of prior
Distribution Dates and one month's interest on the Class B Certificate Balance
at the Class B Pass-Through Rate (the "Minimum Termination Amount").
On any Distribution Date after the Distribution Date on which the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal
Balance, the Servicer may also direct the Trustee to conduct a Termination
Auction for the sale of all Contracts then outstanding in the Trust Fund, and in
any case the Servicer shall be obligated to direct the Trustee to conduct such a
Termination Auction within 90 days of the Distribution Date on which the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal
Balance, unless the Servicer has exercised the repurchase option described
above. The Servicer shall give notice mailed no later than [ ] days preceding
the date on which the Termination Auction is to occur. The Trustee will solicit
each Certificateholder, the Seller[s] and one or more active participants in the
asset-backed securities or manufactured housing contract market that are not
affiliated with BankAmerica Corporation to make a bid to purchase the Contracts
at the Termination Auction. The Trustee will sell all the Contracts to the
highest bidder, subject, among other things, to (i) the requirement that the
highest bid equal or exceed the Minimum Termination Amount, and (ii) the
requirement that at least one bid be tendered by an active participant in the
asset-backed securities or manufactured housing contract market that is not
affiliated with BankAmerica Corporation. If the foregoing requirements are
satisfied, the successful bidder or bidders shall deposit the aggregate purchase
price for the Contracts in the Certificate Account. If the foregoing
requirements are not satisfied, the purchase shall not occur and distributions
will continue to be made on the Certificates. Any sale and consequent
termination of the Trust Fund as a result of a Termination Auction must
constitute a "qualified liquidation" of the Trust Fund under Section 860F of the
Code.
Termination of the Agreement
The Agreement will terminate upon the last action required to be taken
by the Trustee on the final Distribution Date following the earlier of (i) the
purchase by the Servicer of all Contracts and all property acquired in respect
of any Contract remaining in the Trust Fund as described above under "--
Optional Termination and Termination Auction"[,/or] (ii) the final payment or
other liquidation (or any advance with respect thereto) of the last Contract
remaining in the Trust Fund or the disposition of all property acquired upon
repossession of any Manufactured Home [or (iii) the sale in a Termination
Auction of all Contracts and all other property acquired in respect of any
Contract remaining in the Trust Fund as described above under "-- Optional
Termination and Termination Auction"].
Upon presentation and surrender of the Series 199[ ]-[ ] Regular
Certificates, the Trustee shall cause to be distributed, to the extent of funds
available, to such Certificateholders on the final Distribution Date in
proportion to their respective Percentage Interests an amount equal to the
respective unpaid Certificate Balances of the Series 199[ ]-[ ] Regular
Certificates, together with any unpaid interest on such Certificates due on
prior Distribution Dates and one month's interest at the applicable pass-through
rates on such unpaid Certificate Balances; provided that such funds will be
distributed in the applicable order of priority specified under "--
Distributions" above. If the Agreement is then being terminated, any amount
which remains on deposit in the Certificate Account (other than amounts retained
to meet claims) after distribution to the holders of the Series 199[ ]-[ ]
Regular Certificates will be distributed to the Class R Certificateholders.
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<PAGE>
Collection and Other Servicing Procedures
The Servicer will administer, service and make collections on the
Contracts, exercising the degree of care that the Servicer exercises with
respect to similar contracts serviced by the Servicer.
Subject to the requirements of applicable law, the Servicer will be
required to commence repossession and other realization procedures with respect
to any defaulted Contract promptly after the Servicer determines that such
Contract will not be brought current. The Servicer may rescind, cancel or make
material modifications of the terms of a Contract (including modifying the
amounts and Due Dates of Scheduled Payments) in connection with a default or
imminent default thereunder.
Servicing Compensation; Certain Other Matters Regarding the Servicer
For its servicing of the Contracts, the Servicer will be entitled to
receive a monthly servicing fee equal to the product of one-twelfth of 1.00% and
the Pool Scheduled Principal Balance for the related Distribution Date (the
"Monthly Servicing Fee"), whether or not the related Scheduled Payments on the
Contracts are received. The Available Distribution Amount will be net of the
Monthly Servicing Fee. See "-- Payments on the Contracts; Certificate Account"
above. [For so long as the Servicer is entitled to delay deposits to the
Certificate Account until on or prior to the Distribution Date, any earnings on
the amounts retained by the Servicer will constitute additional servicing
compensation.]
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 and real property securing such Contracts, if any.
The Trustee
[ ] (the "Trustee") has its corporate trust offices at [ ]. The Trustee
may resign at any time, in which event the Seller[s] will be obligated to
appoint a successor Trustee. The Seller[s] 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 Seller[s] 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.
The Agreement requires the Trustee to maintain, at its own expense, an
office or agency in New York City or [ ] where Certificates may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Trustee and the certificate registrar in respect of the Certificates
pursuant to the Agreement may be served.
The Trustee, or any of its affiliates, in its individual or any other
capacity, may become the owner or pledgee of Certificates with the same rights
as it would have if it were not Trustee.
The Trustee will also act as paying agent, certificate registrar and
authenticating agent under the Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Orrick, Herrington &
Sutcliffe LLP, special counsel to the Seller[s], will deliver its opinion that,
assuming (i) the making of appropriate elections, (ii) compliance with
applicable provisions of the Code, including Sections 860A through 860G of the
Code (the "REMIC Provisions"), and related Treasury regulations, and (iii)
compliance by the Seller[s], the Servicer and the Trustee with all of the
provisions of the related Agreements, (a) the Trust Fund will qualify, for
federal income tax purposes, as a "real estate mortgage investment conduit" (a
"REMIC") within the meaning of the REMIC Provisions, (b) the Offered
Certificates evidence the "regular interests" in such REMIC and (c) the Class R
Certificates constitute the sole class of
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<PAGE>
"residual interests" in such REMIC, respectively, each within the meaning of the
REMIC Provisions in effect on the date hereof.
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates,
to the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of Orrick, Herrington, & Sutcliffe, LLP, subject
to the qualifications set forth herein. In addition, Orrick, Herrington, &
Sutcliffe LLP has prepared or reviewed the statements in this Prospectus
Supplement and in the Prospectus under the heading "Certain Federal Income Tax
Consequences," and is of the opinion that such statements are correct in all
material respects. Such statements are intended as an explanatory discussion of
the possible effects of the classification of the Trust Fund as a REMIC for
federal income tax purposes on investors generally and of related tax matters
affecting investors generally, but do not purport to furnish information in the
level of detail or with the attention to an investor's specific tax
circumstances that would be provided by an investor's own tax advisor.
Accordingly, each investor is advised to consult its own tax advisors with
regard to the tax consequences to it of investing in the Offered
Certificates.
The Offered Certificates will be Regular Certificates (as defined in
the Prospectus under "Certain Federal Income Tax Consequences -- REMIC
Certificates"). Generally, the Offered Certificates will be treated as debt
instruments for federal income tax purposes with payment terms equivalent to the
terms of the Offered Certificates. Holders of Offered Certificates will be
required to report income with respect to such Offered Certificates under the
accrual method of accounting, regardless of their normal tax accounting method.
For federal income tax reporting purposes, the Class ___ Certificates
and Class ___ Certificates will be treated as having been issued with original
issue discount. All other classes of Offered Certificates will be treated as
not having been issued with original issue discount for federal income tax
reporting purposes. The prepayment assumption that will be used in determining
the rate of accrual of original issue discount, market discount and premium, if
any, for federal income tax purposes, will be based on the assumption that,
subsequent to the date of any determination the Contracts will prepay at a rate
equal to 100% of the Prepayment Assumption. No representation is made that the
Contracts will prepay at that rate or at any other rate. See "Certain Federal
Income Tax Consequences -- REMIC Certificates -- C. Taxation of Regular
Certificates -- 2. Original Issue Discount" in the Prospectus.
[The OID Regulations suggest that original issue discount with respect
to securities such as the Variable Strip Certificates that represent multiple
uncertificated REMIC regular interests, in which ownership interests will be
issued simultaneously to the same buyer, should be computed on an aggregate
method. In the absence of further guidance from the IRS, original issue
discount with respect to the uncertified regular interests represented by the
Variable Strip Certificates will be reported to the IRS and the
Certificateholders on an aggregate method based on a single overall constant
yield and the prepayment assumption stated above, treating all such
uncertificated regular interests as a single debt instrument as set forth in
the OID Regulations.]
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
Certificateholder, the amount of original issue discount allocable to such
period would be zero and such Certificateholder will be permitted to offset such
negative amount only against future original issue discount (if any)
attributable to such Certificates.
In certain circumstances OID Regulations permit the holder of a debt
instrument to recognize original issue discount under a method that differs from
that used by the issuer. Accordingly, it is possible that the holder of a
Certificate may be able to select a method for recognizing original issue
discount that differs from that used by the REMIC Administrator in preparing
reports to the Certificateholders and the IRS.
Certain classes of the Offered Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
such a class of Certificates will be treated as holding a certificate with
amortizable bond premium will depend on such Certificateholder's purchase price
and the distributions remaining to be made on such Certificate at the time of
its acquisition by such Certificateholder. Holders of such classes of
Certificates should consult their tax advisors regarding the possibility of
making an election to amortize such premium. See "Certain Federal Income Tax
Consequences -- REMIC Certificate -- C. Taxation of Regular Certificates" and
"-- 6. Premium" in the Prospectus.
The Offered Certificates will be treated as assets described in Section
7701(a)(19)(C) of the Code and "real estate assets" under Section 856(c)(4)(A)
of the Code generally in the same proportion that the assets of the Trust Fund
would be so treated. In addition, interest on the Offered Certificates will be
treated as "interest on obligations secured by mortgages on real property" under
Section 856(c)(3)(B) of the Code generally to the extent that such Offered
Certificates are treated as "real estate assets" under Section 856(c)(4)(A) of
the Code. Moreover, the Offered Certificates (other than the Residual
Certificates) will be "qualified mortgages" within the meaning of Section
860G(a)(3) of the Code if transferred to another REMIC on its startup day in
exchange for a regular or residual interest therein. However, prospective
investors in Offered Certificates that will be generally treated as assets
described in Section 860G(a)(3) of the Code should note that, notwithstanding
such treatment, any repurchase of such a Certificate pursuant to the right of
the Master Servicer or the Company to repurchase such Offered Certificates may
adversely affect any REMIC that holds such Offered Certificates if such
repurchase is made under circumstances giving rise to a Prohibited Transaction
Tax. See "Description of the Certificates -- Termination of the Agreement" and
"-- Optional Termination and Termination Auction" herein and "Certain Federal
Income Tax Consequences -- REMICS Certificate -- A. Tax Status of REMIC
Certificates" in the Prospectus.
For further information regarding federal income tax consequences of
investing in the Offered Certificates, see "Certain Federal Income Tax
Consequences -- REMIC Certificates" in the Prospectus.
* for reference only
S-44
<PAGE>
ERISA CONSIDERATIONS
General
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit or other plans that
are subject to ERISA and/or Section 4975 of the Code ("Plans") and on persons
who are fiduciaries with respect to such Plans. See "ERISA Considerations" in
the Prospectus.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption
(defined below) and other administrative exemptions under ERISA and the
potential consequences in their specific circumstances, prior to making an
investment in the Offered Certificates. Moreover, each Plan fiduciary should
determine whether under the general fiduciary standards of investment prudence
and diversification an investment in the Offered Certificates is appropriate for
the Plan, taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Senior Certificates
[The Department of Labor ("DOL") has granted to [Underwriter] an
administrative exemption (DOL Prohibited Transaction Exemption 97-34, 62 Fed.
Reg. 39021, issued July 21, 1997, amending DOL Prohibited Transaction Exemption
[ ], [ ] Fed. Reg. [ ] (19 ) (the "Exemption")) from certain of the prohibited
transaction rules of ERISA. The Exemption exempts from the prohibitions of
Sections 406(a) and 407(a) of ERISA, and the related excise tax provisions of
Section 4975 of the Code, the purchase, holding and resale by Plans of
pass-through certificates representing interests in trusts that hold assets
consisting primarily of certain receivables, loans and other obligations that
meet the general conditions summarized below. The receivables covered by the
Exemption include manufactured housing installment sales contracts and
installment loan agreements secured by manufactured homes such as the Contracts.
The Seller[s] believe[s] that the Exemption will apply to the acquisition and
holding of Class A Certificates by Plans and that all conditions of the
Exemption other than those within the control of the investors have been or will
be met.
[Among the general conditions which must be satisfied for the Exemption
to apply to the acquisition, holding and resale by a Plan of the Class A
Certificates are the following:
[(1) The acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A 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 Class A Certificates
acquired by the Plan are not subordinated to the rights and interests evidenced
by other Certificates of the Trust.
[(3) The Class A 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 [ ] or [ ].
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<PAGE>
[(4) The Trustee is not an affiliate of the Underwriters, Bank of
America, Bank of America, FSB, SPFSC, any Obligor with respect to Contracts
included in the Trust Fund constituting more than 5% of the aggregate
unamortized principal balance of the assets in the Trust Fund, or any affiliate
of such parties. (Such parties, and the Trustee and its affiliates, are
sometimes referred to herein collectively as the "Restricted Group"). As of the
date hereof, no Obligor with respect to Contracts included in the Trust Fund is
an Obligor with respect to Contracts constituting more than 5% of the aggregate
unamortized principal balance of the assets of the Trust Fund.
[(5) The sum of all payments made to and retained by the Underwriters
in connection with the distribution of the Class A Certificates represents not
more than reasonable compensation for underwriting the Class A Certificates. The
sum of all payments made to and retained by the Seller[s] pursuant to the sale
of the Contracts to the Trust Fund represents not more than the fair market
value of such Contracts. The sum of all payments made to and retained by Bank of
America, FSB represents not more than reasonable compensation for Bank of
America, FSB's services under the Agreement and reimbursement of Bank of
America, FSB's reasonable expenses in connection therewith.
[(6) The Plan 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.
[In addition, the Exemption exempts from the prohibitions of Sections
406(a), 406(b) and 407(a) of ERISA, and the related excise tax provisions of
Section 4975 of the Code, transactions undertaken in connection with the
servicing, management and operation of such a trust pursuant to a binding
pooling and servicing agreement, subject to the foregoing general conditions and
to certain additional requirements. The Seller[s] believe[s] that the Exemption
will apply to such transactions undertaken with respect to the Trust Fund and
the Contracts and that all conditions of the Exemption other than those within
the control of the investors have been or will be met.
[The Exemption also exempts from the prohibition of Sections 406(b)(1)
and 406(b)(2) of ERISA the related excise tax provisions of Section 4975 of the
Code, the direct or indirect sale, exchange or transfer of Class A Certificates
between either Seller[s] or the Underwriters and a Plan when the person who has
discretionary authority or renders investment advice with respect to the
investment of the Plan's assets in the Class A Certificates (the "Fiduciary") is
(a) an obligor with respect to 5% or less of the fair market value of Contracts
in the Trust Fund or (b) an affiliate of any such person, subject to the general
conditions summarized above and to the following additional requirements:
[(1) No member of the Restricted Group is a sponsor of the Plan.
[(2) In connection with the initial issuance of Class A Certificates,
at least 50% in Percentage Interests of such Class of Certificates is acquired
by persons independent of the Restricted Group and at least 50% of the aggregate
interest in the Trust Fund is acquired by persons independent of the Restricted
Group.
[(3) The Plan's investment in the Class A Certificates does not exceed
25% in Percentage Interests of any such Class of Certificates outstanding at
the time of acquisition.
[(4) Immediately after the acquisition of the Class A Certificates, no
more than 25% of the assets of the Plan with respect to which the Fiduciary has
discretionary authority or renders investment advice are invested in
certificates representing an interest in a trust containing assets sold or
serviced by the same entity.
[The Exemption also applies to the direct or indirect acquisition or
disposition of Class A Certificates by a Plan in the secondary market if certain
conditions are met and the continued holding of Class A Certificates acquired in
initial or secondary markets.
[Before purchasing a Class A Certificate, a fiduciary of a Plan should
make its own determination as to the availability of the exemptive relief
provided in the Exemption or the availability of any other prohibited
transaction exemptions, and whether the conditions of any such exemption will be
applicable to the Certificate. Any fiduciary of a Plan considering whether to
purchase a Class A Certificate should also carefully review with its own legal
advisors the applicability of the fiduciary duty and prohibited transaction
provisions of ERISA and Section 4975 of the Code to such investment. See
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<PAGE>
"ERISA Considerations" in the Prospectus.]
[CLASS M AND] CLASS B CERTIFICATES
A fiduciary or other person investing "plan assets" of any Plan will
not be permitted to purchase or hold [the Class M or] the Class B Certificates,
unless such person delivers to the Trustee the certificate or opinion referred
to below, as such actions may give rise to a non-exempt prohibited transaction
under ERISA or Section 4975 of the Code. See "ERISA Considerations" in the
Prospectus. Because the [Class M and] the Class B Certificates do not meet the
requirements of the Exemption, it does not provide exemptive relief for the
purchase or holding of such Certificates with "plan assets" of any Plan.
In addition, no transfer of [a Class M or] a Class B Certificate shall
be registered unless the prospective transferee provides the Trustee, the
Seller[s] and the Servicer with (a) a certification to the effect that such
transferee (1) is neither an employee benefit plan subject to Section 406 of
ERISA, or section 4975 of the Code, the trustee of any such plan or a person
acting on behalf of any such plan nor a person using "plan assets" of any such
plan or (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 Prohibited Transaction Class Exemption
95-60 ("PTCE 95-60")) and the purchase and holding of such Certificates is
eligible for the exemptive relief available under Sections I and III of PTCE 95-
60; or (b) an opinion of counsel (a "Benefit Plan Opinion") satisfactory to the
Trustee, the Seller[s] and the Servicer, and upon which the Trustee, the
Seller[s] and the Servicer shall be entitled to rely, to the effect that the
purchase or holding of such [Class M or] Class B Certificate by the prospective
transferee will not result in any non-exempt prohibited transaction under ERISA
or Section 4975 of the Code and will not subject the Trustee, the Seller[s] or
the servicer 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, the Seller[s] or the Servicer. Owners of the [Class M or] Class B
Certificates will be deemed to have made the representation in clause (a)(1) or
clause (a)(2) above.
RATINGS
It is a condition to the issuance of the Certificates that the Senior
Certificates be rated "[ ]" by [ ], that the Class M Certificates be rated at
least "[ ]" by [ ] and that the Class B Certificates be rated at least "[ ]" by
[ ]. A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
agency. The security rating of the offered Certificates should be evaluated
independently of similar security ratings assigned to other kinds of securities.
The ratings assigned by [ ] to pass-through certificates address the
likelihood of the receipt by the related certificateholders of their allocable
share of principal and/or interest on the underlying assets. [ ] ratings take
into consideration the credit quality of the related underlying assets, any
credit support arrangements, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on such underlying
assets is adequate to make payments required by such certificates. [ ] ratings
on such certificates do not, however, constitute a statement regarding frequency
of prepayments on the underlying assets or as to whether yield may be adversely
affected as a result thereof. An explanation of the significance of such ratings
may be obtained from [ ], [ ], New York, New York [ ], telephone [( )- ].
The Seller[s] have not requested a rating on the Offered Certificates
by any rating agency other than [ ]. However, there can be no assurance as to
whether any other rating agency will rate any or all of the Offered
Certificates, or if it did, what rating would be assigned to the Offered
Certificates 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 rating assigned to such Certificates by [ ].
LEGAL INVESTMENT
The [Senior and Class M] Certificates at the time of issuance will
qualify as "mortgage related securities" under the Secondary Mortgage Market
Enhancement Act of 1984, as amended ("SMMEA") and, as such, will
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<PAGE>
constitute legal investments for certain types of investors to the extent
provided in SMMEA. Such institutions should consult their own legal advisors in
determining whether and to what extent the [Senior and Class M] Certificates
constitute legal investments for such investors.
Because the [Class B Certificates] will not, at the time of issuance,
be rated in one of the two highest rating categories of [ ], the [Class B
Certificates] will not constitute "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal authority to invest in more
highly rated securities based on first mortgage loans may not be legally
authorized to invest in the [Class B Certificates]. No representation is made as
to any regulatory requirements or considerations (including without limitation
regulatory capital or permissible investment requirements) applicable to the
purchase of the [Class B Certificates] by banks, savings and loan associations
or other financial institutions. Such institutions should consult their own
legal advisors in determining whether and to what extent the Offered
Certificates constitute legal investments for such investors. See "Legal
Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement dated
[ , 19 ] (the "Underwriting Agreement"), the Seller[s] [have] [has] agreed to
sell, and [each of ] (the "Underwriters") has agreed to purchase from the
Seller[s], the respective principal amounts of the Offered Certificates set
forth below its name in the table below.
<TABLE>
<CAPTION>
Underwriters
-------------------------------------------------------------------------
Principal Amount of
- ---------------------------------- --------------------------------------- ---------------------------------
<S> <C> <C>
Class A Certificates....... $ $
[Class A-IO Certificates... $ $ ]
Class M Certificates....... $ $
Class B Certificates....... $ $
</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 Seller[s] [has] [have] been advised by the Underwriters that they
propose initially to offer the Offered Certificates to the public at the prices
set forth herein, and to certain dealers at such prices less the initial
concession not in excess of [ %] of the Class A Certificate Balance, [ %] of the
Class A-IO offering price, [ %] of the Class M Certificate Balance and [ %] of
the Class B Certificate Balance. The Underwriters may allow dealers, and such
dealers may allow, a concession not in excess of [ %] of the Class A Certificate
Balance, [[ %] of the Class A-IO offering price,] [ %] of the Class M
Certificate Balance and [ %] of the Class B Certificate Balance. After the
initial public offering of the Offered Certificates, the public offering prices
and such concessions may be changed.
The Underwriting Agreement provides that the Seller[s] will indemnify
the Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriters
may be required to make in respect thereof.
The Underwriters will reimburse certain expenses of the Seller[s].
In connection with the sale of the Offered Certificates, the
Underwriters and other persons participating in the sale may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Offered Certificates. Specifically, the Underwriters may over-allot in
connection with the sale, creating a short position in the Offered
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<PAGE>
Certificates for their own account. To cover over-allotments or to stabilize the
price of the Offered Certificates, the Underwriters may bid for, and purchase,
Offered Certificates in the open market. The Underwriters may also impose a
penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing the Offered Certificates, if the
Underwriters repurchase previously distributed Offered Certificates in
transactions to cover their short position, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase, Offered
Certificates in market making transactions. These activities may stabilize or
maintain the market price of the Offered Certificates above market levels that
may otherwise prevail. The Underwriters are not required to engage in these
activities and may end any of these activities at any time.
USE OF PROCEEDS
[Substantially all of the net proceeds to be received from the sale of
the Offered Certificates will be used by the Seller[s] for general corporate
purposes, including the purchase of the Contracts and the payment of other
expenses connected with pooling the Contracts and issuing the Offered
Certificates.]
LEGAL MATTERS
Certain legal matters relating to the Offered Certificates, including
legal matters relating to material federal income tax consequences concerning
the Offered Certificates, will be passed upon for the Sellers by Orrick,
Herrington & Sutcliffe, LLP, San Francisco, California and for the
Underwriters by Brown & Wood LLP, New York, New York.
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<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
Page in Prospectus
Supplement on Which
Term Term is Defined, S-
- ---- -------------------
<S> <C>
Agreement................................................... 6, 32
Annual Servicing Rate....................................... 3, 2
Available Distribution Amount............................... 7, 36
Bank of America............................................. 2, 5
CBE......................................................... 30
Cede........................................................ 12
Certificate Account......................................... 35
Certificate Balance......................................... 9, 38
Certificate Owners.......................................... 12, 31
Certificateholders.......................................... 2, 12
Certificates................................................ 1, 5
Class A Certificates........................................ 5
Class A Interest Distribution Amount........................ 8, 37
Class A Pass-Through Rate................................... 5
Class A-IO Certificates..................................... 5
Class B Certificates........................................ 5
Class B Interest Distribution Amount........................ 8, 37
Class B Pass-Through Rate................................... 5
Class M Certificates........................................ 5
Class M Interest Distribution Amount........................ 8, 37
Class M Pass-Through Rate................................... 5
Class R Certificates........................................ 2, 5
Closing Date................................................ 34
Code........................................................ 12, 45, 48
Collection Period........................................... 6
Contract File............................................... 32
Contract Pool............................................... 1, 6
Contract Rate............................................... 6
Contract Schedule........................................... 32
Contracts................................................... 1, 6
CPR......................................................... A-1
Cut-off Date................................................ 5
Cut-off Date Pool Principal Balance......................... 5
Determination Date.......................................... 35
Distribution Date........................................... 2, 31
DOL......................................................... 45
DTC......................................................... 12
Due Date.................................................... 6
Eligible Institution........................................ 35
Eligible Investments........................................ 9, 35, 38
Eligible Substitute Contract................................ 35
ERISA....................................................... 12, 45, 47
Excess Contract Payment..................................... 36
Excess Interest............................................. 10, 39
Exemption................................................... 45
FDIC........................................................ 35
Fiduciary................................................... 46
First Distribution Date..................................... 8
</TABLE>
S-50
<PAGE>
<TABLE>
<CAPTION>
Page in Prospectus
Supplement on Which
Term Term is Defined, S-
- ---- ---------------------
<S> <C>
Formula Principal Distribution Amount....................... 8, 37
Initial Class A Certificate Balance......................... 5
Initial Class B Certificate Balance......................... 5
Initial Pass-Through Rate................................... 15
Land Home Contracts......................................... 6
Land-in-Lieu Contracts...................................... 6
Legal Investment............................................ 13
Liquidated Contract......................................... 8, 37
Liquidation Expenses........................................ 36
Liquidation Proceeds........................................ 8, 37
Manufactured Home........................................... 6
Minimum Termination Amount.................................. 42
Monthly Advance............................................. 10, 41
Monthly Servicing Fee....................................... 43
Net Contract Rate........................................... 32
Net Liquidation Proceeds.................................... 10, 39
1997 Act.................................................... 45
Nonrecoverable Advance...................................... 40
Notional Principal Amount................................... 7, 36
Offered Certificates........................................ 2
OID......................................................... 12, 44
Outstanding Amount Advanced................................. 40
Percentage Interest......................................... 6, 31
Plans....................................................... 45
Pool Scheduled Principal Balance............................ 8, 37
Prepayment Model............................................ 27
Prospectus.................................................. 2
PTCE 95-60.................................................. 47
Record Date................................................. 31
REMIC....................................................... 2, 43
REMIC Provisions............................................ 43
Replaced Contract........................................... 34
Reserve Account............................................. 9, 38
Reserve Acount Cap.......................................... 9, 38
Reserve Account Draw Amount................................. 9
Restricted Group............................................ 46
Scheduled Principal Balance................................. 8, 37
Scheduled Principal Reduction Amount........................ 8, 37
Senior Certificate Balance.................................. 9
Senior Certificates......................................... 2, 5
Series 199[ ]-[ ] Regular Certificates...................... 5
Series 199[ ]-[ ] Residual Certificates..................... 5
Servicer.................................................... 2
SMMEA....................................................... 12, 47
SPFSC....................................................... 2, 6
Structuring Assumptions..................................... 27
Subordinate Certificate Balance............................. 9
Subordinate Certificates.................................... 2, 5
Total Regular Principal Amount.............................. 8, 37
Trust Fund.................................................. 2, 6
Trustee..................................................... 5, 43
Underwriters................................................ 2, 48
Underwriting Agreement...................................... 48
Value....................................................... 16, 18
WAC......................................................... 26, 52, A-1
WAM......................................................... 26
Yield Table................................................. 43
</TABLE>
S-51
<PAGE>
APPENDIX A
PREPAYMENT EXPERIENCE OF CERTAIN POOLS
Certain statistical information relating to the prepayment behavior of
certain but not all pools of manufactured housing contracts sold by SPHSI[,
SPFSC, Bank of America] or Bank of America, FSB, and serviced by SPHSI and now
by Bank of America, FSB, through its division, BankAmerica Housing Services, is
set forth below in tabular form. These tables relate to [ ] sold pools for which
prepayment information is available covering a period of at least 18 months and
which had an aggregate principal balance as of the first day of the month of
sale of at least $100,000,000. In evaluating whether the data contained in these
tables contain useful information with respect to the expected prepayment
behavior of any particular contract pool, prospective Certificateholders should
consider the following: neither Bank of America, FSB nor SPHSI has performed
statistical analysis to determine whether the contracts to which such tables
relate constitute a statistically significant sample of manufactured housing
contracts for purposes of determining expected prepayment behavior. Furthermore,
no assurance can be given that the Contracts in the Contract Pool will have
characteristics similar to the contracts in any sold pool to which the following
tables relate. For these reasons, and because of the unpredictable nature of the
factors described herein as influencing the amount of prepayments of
manufactured housing contracts, no assurance can be given that the prepayment
experience for the Contract Pool with an average age as of the Cut-off Date
similar to the average ages (as of the first day of the month of sale) of the
pools to which the tables relate will exhibit prepayment behavior similar to the
behavior summarized in such tables for the periods covered by such tables.
In addition to the foregoing, prospective Certificateholders should
consider that the tables set forth below are limited in the periods which are
covered thereby and thus cannot reflect the effects, if any, of aging on the
prepayment behavior of manufactured housing contracts beyond the periods covered
thereby.
The following tables set forth, with respect to each sold pool, an
initial aggregate principal balance (calculated as of the first day of the month
of the sale), the decline in outstanding aggregate principal balance for each
subsequent month (whether due to liquidations, scheduled principal payments,
principal prepayments or repurchases), the constant prepayment rate ("CPR") for
each such month and for the life of the pool through [19 ] (calculated as the
annual rate of the decline in the outstanding aggregate principal balance due to
liquidations, principal prepayments and repurchases exhibited during such month
or over the life of the pool) and the weighted average annual percentage rate
("WAC") of the contracts in each pool as of the first day of the month of the
sale of each pool and the first day of every month thereafter up to and
including [ 1, 199 ]. The estimated average age of each pool as of the first day
of the month of sale is listed in "Prepayment and Yield Considerations" herein.
A-1
<PAGE>
<TABLE>
<CAPTION>
POOL #1 Aggregate
First Contract
Day of: Balance CPR WAC
------- --------- --- ---
<S> <C> <C> <C>
<CAPTION>
POOL #2 Aggregate
First Contract
Day of: Balance CPR WAC
------- --------- --- ---
<S> <C> <C> <C>
</TABLE>
A-2
<PAGE>
================================================================================
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
================================================================================
SUBJECT TO COMPLETION, DATED _______ __, 1997
PROSPECTUS
BANKAMERICA MANUFACTURED HOUSING CONTRACT TRUST
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, SELLER
BANK OF AMERICA, FSB, THROUGH ITS DIVISION, BANKAMERICA HOUSING SERVICES,
SELLER AND SERVICER
BankAmerica Manufactured Housing Contract Trust Pass-Through Certificates
("Certificates") of one or more series (each, a "Series") may be sold from time
to time under this Prospectus and a Prospectus Supplement for each such Series.
The Certificates of each Series may be issued in one or more classes or
subclasses (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 sold under this Prospectus, and there may be separate Prospectus
Supplements for one or more of such Classes so sold. Any reference herein to the
Prospectus Supplement relating to a Series comprised of more than one Class
should be understood to refer to each of the Prospectus Supplements relating to
the Classes sold hereunder.
The Certificates of each Series will represent interests, as specified in
the related Prospectus Supplement, in a trust fund (a "Trust Fund") created by
Bank of America National Trust and Savings Association ("Bank of
(cover continued on next page)
This Prospectus and any related Prospectus Supplement may be used by
BancAmerica Securities, Inc., an affiliate of the Sellers, in connection with
offers and sales related to market making transactions in any Series of the
Certificates BancAmerica Securities, Inc. may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of the sale. With respect to any Series of Certificates, none
of the Certificates evidencing the Residual Interest (as defined herein) for
such Series has been registered under the Securities Act of 1933, as amended
(the "Securities Act") or will be offered or sold pursuant to this Prospectus.
See page 70 herein for the Index of Significant Definitions contained herein.
FOR A DISCUSSION OF SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
CERTIFICATES, SEE "RISK FACTORS" HEREIN AT PAGE 8 AND IN THE PROSPECTUS
SUPPLEMENT.
----------
- --------------------------------------------------------------------------------
PROCEEDS FROM THE ASSETS IN THE TRUST FUND FOR A SERIES WILL BE THE ONLY SOURCE
OF PAYMENT ON THE CERTIFICATES OF SUCH SERIES, AND THE CERTIFICATES WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF BANK OF AMERICA, BANK OF AMERICA, FSB,
THEIR PARENT CORPORATION, BANKAMERICA CORPORATION, OR OTHER AFFILIATES, SUBJECT
TO CERTAIN EXCEPTIONS DESCRIBED UNDER "RISK FACTORS" HEREIN. NEITHER THE
CERTIFICATES NOR (UNLESS OTHERWISE SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT) UNDERLYING CONTRACTS OR ANY COLLECTIONS THEREON WILL BE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
---------
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------
This Prospectus may not be used to consummate sales of Certificates unless
accompanied by a Prospectus Supplement.
The date of this Prospectus is ___________ __, 1997.
<PAGE>
America" or "Seller") or by Bank of America, FSB ("Bank of America, FSB" or
"Seller," and, together with Bank of America, the "Sellers") or both. The Trust
Fund for each Series of Certificates will be separate from the Trust Fund for
any other Series of Certificates. Each Trust Fund will include a pool (each, a
"Contract Pool") of manufactured housing installment sales contracts and
installment loan agreements (the "Contracts") together with certain contract
rights and other rights relating to such Contracts (as discussed below). Bank of
America, FSB, acting through its division, BankAmerica Housing Services, will
act as the servicer of the Contracts in each Trust Fund (together with any
successor servicer appointed as described herein, the "Servicer").
The Contracts comprising each Contract Pool will be conveyed to the
relevant Trust Fund by the applicable Sellers. Each Contract will have been
either (i) originated or purchased by Bank of America, Bank of America, FSB,
acting through its division, BankAmerica Housing Services, or by Security
Pacific Financial Services of California, Inc. ("SPFSC"), a wholly-owned
subsidiary of Bank of America, in each case on an individual basis in the
ordinary course of its business or (ii) purchased by Bank of America, by Bank of
America, FSB, through its division, BankAmerica Housing Services, by SPFSC, or
by any combination thereof, in bulk from other lenders or finance companies
(including from affiliates of the Sellers), from governmental agencies or
instrumentalities or from other entities. Interests in each Trust Fund will be
evidenced by a separate Series of Certificates. SPFSC will not be conveying any
Contracts to any Trust Fund. Any Contracts purchased on an individual basis or
in bulk by SPFSC will be sold by it to Bank of America, and conveyed by Bank of
America to the Trustee of a Trust Fund immediately before the issuance of
Certificates evidencing interests in such Contracts.
If a Series of Certificates is comprised of more than one Class, the
related Prospectus Supplement will set forth the interest in the applicable
Trust Fund represented by each Class sold hereunder. The timing of distributions
of principal or of interest or of both to the holders of Certificates of such
Classes may be on a sequential, pro-rata or other basis as specified in the
related Prospectus Supplement. In addition, if specified in the related
Prospectus Supplement, the rights of the holders of the Certificates of one or
more Classes of a multiple-Class Series to receive distributions with respect to
some or all of the assets of the related Trust Fund may be subordinate to such
rights of the holders of the Certificates of one or more other Classes.
Neither Bank of America nor Bank of America, FSB nor any of their
affiliates will have any obligations with respect to any Series of Certificates
except, in the case of the Sellers, for obligations arising from certain
representations and warranties of Bank of America and Bank of America, FSB, as
the case may be, with respect to the Contracts sold by it in the related
Contract Pool and, in the case of Bank of America, FSB, for certain contractual
servicing obligations, each as further described herein. See "Risk Factors -- No
Recourse" herein.
To the extent specified in the related Prospectus Supplement, the
holders of the Certificates of any Series, or of one or more Classes within a
Series, may be entitled to the benefit of overcollateralization or subordination
of one or more Classes of Certificates within such Series, one or more spread
accounts or other reserve funds, one or more letters of credit, one or more
surety bonds or other credit facilities and/or one or more certificate purchase
agreements or other liquidity facilities. See "Credit and Liquidity Enhancement"
herein and the related Prospectus Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, the
Certificates of a Series or of any Class within a Series will be issuable in the
form of one or more global certificates represented by book-entries on the
records of a depository or participating members thereof. See "Reports to
Certificateholders," "Risk Factors," and "Description of the Certificates --
Global Certificates" herein and the related Prospectus Supplement.
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. See "Risk Factors" herein.
An election may be made 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.
ii
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference all reports and other
documents filed or caused to be filed by either Seller or the Servicer (if other
than Bank of America, FSB) with respect to the Trust Fund for any Series of
Certificates, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), subsequent to the date of
this Prospectus and prior to the termination of the offering of the Certificates
of such Series. 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 such
statement so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus. Upon request by any person
to whom this Prospectus and the applicable Prospectus Supplement are delivered
in connection with the offering of one or more Classes of Certificates, the
Servicer will provide or cause to be provided without charge a copy of any such
documents and/or reports incorporated herein by reference, in each case to the
extent such documents or reports relate to such Classes of Certificates, other
than the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Servicer should be
directed orally or in writing to BankAmerica Housing Services, Investor
Services, 10089 Willow Creek Road, San Diego, California, 92131-9516, telephone
number (619) 530-9394. Each of Bank of America and Bank of America, FSB has
determined that its respective financial statements are not material to the
offering of any Certificates.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series
of Certificates will contain, a summary of certain material terms of certain of
the documents referred to herein and therein, but neither contains or 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 Sellers have jointly filed with the Securities and Exchange
Commission (the "Commission"), Washington, D.C., under the Securities Act.
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, copies can
be obtained at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
following regional offices: 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. The
Commission maintains a web site at http://www.sec.gov that contains reports and
other documents filed by registrants electronically with the Commission.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates (as defined herein) with
respect to a Trust Fund are issued, monthly and annual reports, which contain
unaudited information concerning the Trust Fund and are prepared by the
Servicer, will be sent on behalf of the Trust Fund to Cede & Co. ("Cede"), as
nominee of The Depository Trust Company ("DTC") and registered holder of the
Certificates offered hereby, pursuant to the Agreement (as defined herein). See
"Description of the Certificates -- Global Certificates." Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Agreement will not require the sending of, and the
Sellers do not intend to send, any of their financial reports to registered
holders (the "Certificateholders") of the Certificates offered hereby or to
owners (the "Certificate Owners") of beneficial interests in the Certificates.
The Servicer will file with the Commission such periodic reports with respect to
the Trust Fund as are required under the Exchange Act, and the rules and
regulations of the Commission thereunder. If the number of Certificateholders of
record is below 300, the Certificates may cease to be subject to the periodic
reporting requirements of the Exchange Act. In that case, the Servicer may cease
to file such reports with the Commission. The Trustee would, however, continue
to provide periodic reports to Certificateholders as and to the extent described
in the Prospectus Supplement.
1
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and by reference to the
information with respect to each Series of Certificates contained in the related
Prospectus Supplement. Reference is made to the "Index of Significant
Definitions" herein beginning at page 72 for the location in this Prospectus of
the definitions of certain capitalized terms.
Title of Certificates................ BankAmerica Manufactured Housing
Contract Trust Pass-Through
Certificates (Issuable in Series).
Seller or Sellers.................... Bank of America National Trust and
Savings Association ("Bank of America")
or Bank of America, FSB, through its
division, BankAmerica Housing Services,
or both of them.
Servicer............................. Bank of America, FSB, through its
division, BankAmerica Housing Services
(together with any successor servicer
under the Agreement (as defined
herein), the "Servicer").
Risk Factors......................... Certain risk factors are particularly
relevant to a decision to invest in any
Certificates sold hereunder. See "Risk
Factors" herein.
The Contracts........................ The Certificates of any Series will
represent undivided ownership interest
in a pool (a "Contract Pool") of
certain manufactured housing
installment sales contracts and
installment loan agreements (each, a
"Contract" and, collectively, the
"Contracts"). Contracts comprising a
Contract Pool will have been either (i)
originated or purchased by Bank of
America, Bank of America, FSB, acting
through its division, BankAmerica
Housing Services, by Security Pacific
Financial Services of California, Inc.
("SPFSC"), a wholly-owned subsidiary of
Bank of America, or by any combination
thereof, in each case on an individual
basis in the ordinary course of its
business or (ii) purchased by Bank of
America, by Bank of America, FSB,
acting through its division,
BankAmerica Housing Services, by SPFSC,
or by any combination thereof, in bulk
from other lenders or finance companies
(including from affiliates of the
Sellers), from governmental agencies or
instrumentalities or from other
entities. SPFSC will not be conveying
any Contracts to any Trust Fund. Any
Contracts purchased on an individual
basis or in bulk by SPFSC will be sold
by it to Bank of America, and conveyed
by Bank of America to the Trustee of a
Trust Fund immediately before the
issuance of Certificates evidencing
interests in such Contracts.
Each Contract will be secured by a
new or used manufactured home (each
manufactured home securing a Contract
being referred to herein as a
"Manufactured Home") and, in certain
cases, by a mortgage or deed of trust
on the real estate on which the
Manufactured Home is located ("Land
Home" or "Land-in-Lieu Contract").
Unless otherwise specified in the
related Prospectus Supplement, none of
the Contracts or collections thereon
will be insured or guaranteed by any
governmental agency or instrumentality.
The applicable Prospectus Supplement
will specify if any of the related
Contracts are Land Home or Land-in-Lieu
Contracts and whether the annual
percentage rate ("Contract Rate") for
each such Contract is fixed, is
variable or increases ("steps up") in
specified increments on certain dates.
The Prospectus Supplement relating to
each Series of Certificates will
provide information as of the first day
of the month of initial issuance of
such Certificates (the "Cut-off Date")
with respect to, among other things,
(i) the number, the aggregate unpaid
principal balance, and the range of
outstanding principal balances of the
Contracts comprising the related
Contract Pool; (ii) the weighted
average of the Contract Rates
("Weighted Average Contract Rate") of
the Contracts and the distribution of
Contract Rates; (iii) the weighted
average original and remaining terms to
maturity of the Contracts and the
distribution of remaining terms to
maturity; (iv) the average outstanding
principal balance of the Contracts; (v)
the geographical distribution of the
related Manufactured Homes at
origination; (vi) the years of
origination of the Contracts; (vii) the
distribution of original principal
balances of the Contracts; (viii) the
percentage amount of Contracts secured
by new or used Manufactured Homes; (ix)
the range of and weighted average
loan-to-value ratios at origination;
and (x) the month and year in which the
final
2
<PAGE>
scheduled payment date for the Contract
with the latest maturity is scheduled
to occur. If a Contract Pool contains
Step-Up Rate Contracts (as defined
herein), the related Prospectus
Supplement will specify the percentage
of the Contract Pool comprised of such
Contracts, the period during which the
Contract Rates for such Contracts will
be stepped up, the range of increases
in such Contract Rates and the range of
increases in the Scheduled Payments (as
defined herein) for such Contracts. If
a Contract Pool contains variable rate
Contracts, the related Prospectus
Supplement will contain a description
of the basis on which such rates are
determined, including any maximum or
minimum rates and the frequency with
which any such rate adjusts. The
Prospectus Supplement relating to a
Series of Certificates also will
contain certain information about
Contracts in the related Trust Fund
that are Land Home Contracts (as
defined herein), Land-in-Lieu Contracts
(as defined herein) or Contracts that
are partially guaranteed by the
Veterans Administration or partially
insured by the Federal Housing
Administration. To the extent that Bank
of America or Bank of America, FSB, as
the case may be, believes such
information to be material, any
Prospectus Supplement may also include
additional information concerning the
related Contract Pool that is stored in
the electronic data processing system
of the BankAmerica Housing Services
division of Bank of America, FSB.
Description of Certificates.......... Each Series of Certificates will be
issued pursuant to a pooling and
servicing agreement (each, an
"Agreement") entered into by Bank of
America or Bank of America, FSB, or
both of them, in each case as Seller
with respect to Contracts sold by it
for the related Contract Pool, Bank of
America, FSB, acting through its
division, BankAmerica Housing Services,
as Servicer, the trustee specified in
the related Prospectus Supplement (the
"Trustee"), and such other parties, if
any, as may be specified in the related
Prospectus Supplement. The Certificates
of a Series may be issued in one or
more classes or subclasses (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
under 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 to refer to each
of the Prospectus Supplements relating
to the Classes of such Series sold
hereunder. Any reference herein to the
Certificates of a Class should be
understood as a reference to the
Certificates of a Class within a
Series, the Certificates of a subclass
within a Class or all of the
Certificates of a single-Class Series,
as the context may require.
The Certificates of each Series will
evidence an interest, as specified in
the related Prospectus Supplement, in a
trust fund (a "Trust Fund") created by
Bank of America, Bank of America, FSB
or both of them, as the case may be,
pursuant to an Agreement. Each Trust
Fund will include a Contract Pool
together with certain contract rights
and other rights relating to such
Contracts (as discussed below). Each
Trust Fund may from time to time also
include title to any Manufactured Home
that is repossessed following a
Contract default, hazard insurance
claims and proceeds from the sale of
any such Manufactured Home or such
hazard insurance claims. The Contracts
comprising each Contract Pool will be
sold to the related Trust Fund by Bank
of America, Bank of America, FSB or
both of them.
Non-Recourse Obligations............. Neither Bank of America nor Bank of
America, FSB nor any of their
affiliates will have any obligations
with respect to any Series of
Certificates except, in the case of the
Sellers, for obligations arising from
certain representations and warranties
of Bank of America and Bank of America,
FSB, as the case may be, with respect
to the Contracts sold by it in the
related Contract Pool and, in the case
of Bank of America, FSB, for certain
contractual servicing obligations, each
as further described herein. SUBJECT
ONLY TO THE FOREGOING EXCEPTIONS, THE
CERTIFICATES WILL NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF BANK OF
AMERICA OR BANK OF AMERICA, FSB, THEIR
PARENT CORPORATION, BANKAMERICA
CORPORATION, OR ANY AFFILIATE THEREOF,
AND ASSETS IN THE TRUST FUND WILL
CONSTITUTE THE ONLY SOURCE OF FUNDS FOR
PAYMENT ON THE CERTIFICATES. NONE OF
THE CERTIFICATES OR (UNLESS OTHERWISE
SPECIFIED IN THE RELATED PROSPECTUS
SUPPLEMENT) THE
3
<PAGE>
UNDERLYING CONTRACTS OR ANY COLLECTIONS
THEREON WILL BE INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR BY ANY OTHER
GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
Distributions on Certificates........ All Certificates will entitle the
holders thereof to distributions, on
the dates specified in the related
Prospectus Supplement (each, a
"Distribution Date"), from amounts
collected on the underlying Contracts.
The Certificates of a Class may entitle
the holders thereof to (a)
distributions of both principal and
interest, (b) distributions of
principal only or (c) distributions of
interest only. Such distributions will
be made in accordance with a formula
described in the related Prospectus
Supplement, and, unless otherwise
specified in such Prospectus
Supplement, distributions allocable to
a Class of Certificates will be applied
first to interest, if any, and second
to principal, if any. To the extent
specified in the related Prospectus
Supplement, the rights of the holders
of the Certificates of one or more
Classes of a multiple-Class Series to
receive distributions of principal or
of interest or both from amounts
collected on the Contracts may be
subordinate to such rights of the
holders of Certificates of one or more
other Classes. See "Credit and
Liquidity Enhancement" herein and the
applicable Prospectus Supplement.
A. Distributions of Principal........ If the Certificates of a Class entitle
the holders thereof to distributions of
principal, the related Prospectus
Supplement will specify an initial
aggregate principal balance for the
Certificates of the Class (the related
"Certificate Balance") and a method of
computing the amount of principal, if
any, to be distributed to the holders
of such Certificates on each
Distribution Date. Unless otherwise
specified in the related Prospectus
Supplement, principal distributions for
the Certificates of a Class will be
computed on the basis of a formula
which, on each Distribution Date,
allocates all or a portion of the Total
Regular Principal Amount relating to
that Distribution Date to the
Certificates of that Class. The "Total
Regular Principal Amount" is the total
amount by which the aggregate
outstanding principal balance of the
Contracts in the related Contract Pool
is reduced during one or more
collection periods prior to the
Distribution Date designated in such
Prospectus Supplement (each, a
"Collection Period"). Such reduction
may occur as a result of actuarially
predetermined scheduled principal
reductions, receipt of principal
prepayments, liquidation of Contracts,
losses on Contracts and repurchases of
Contracts under certain conditions, the
failure of a third party credit support
provider, if any, to make a required
payment, or a combination of the
foregoing events. See "The Contract
Pools," "Description of the
Certificates-- Conveyance of
Contracts," "Description of the
Certificates-- Optional and Mandatory
Repurchase of Certificates; Termination
Auction" and "Description of the
Certificates-- Collection and Other
Servicing Procedures" herein.
Distributions with respect to all or a
portion of the Total Regular Principal
Amount are sometimes referred to herein
as distributions of "Regular
Principal." The Total Regular Principal
Amount with respect to any Contract
Pool and any Distribution Date may be
estimated in a manner specified in the
related Prospectus Supplement.
If, due to liquidation losses or other
circumstances adversely affecting the
collections on the underlying Contract
Pool, the Contract collections
available on any Distribution Date to
make distributions of Regular Principal
to the holders of the Certificates of a
Class are less than the portion of the
Total Regular Principal Amount
allocable to such Class, the deficiency
may be made up from (i) the amount, if
any, by which the interest collected on
nondefaulted Contracts during the same
Collection Period exceeds the interest
distribution due to the holders of
Certificates for the related Series,
the servicing fee of the Servicer (to
the extent such servicing fee is
payable prior to distributions of
interest to the holders of any Class of
Certificates) and other expenses of the
Trust Fund or (ii) funds available from
one or more forms of credit support,
but only to the extent, if any,
specified in the applicable Prospectus
Supplement. See "Credit and Liquidity
Enhancement" herein. If specified in
the applicable Prospectus Supplement,
the Certificate Balance of the
Certificates of a Class will be reduced
on each Distribution Date by the full
amount of the portion of the Total
Regular Principal Amount allocable to
such Class even if, due to deficient
Contract collections, a full
distribution thereof is not made.
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The applicable distribution formula for
each Class of a multiple-Class Series
may allocate the Total Regular
Principal Amount among the various
Classes on a pro rata, sequential or
other basis, as specified in the
related Prospectus Supplement. If
specified in the related Prospectus
Supplement, any such formula may
entitle the holders of Certificates of
a particular Class to receive on
certain Distribution Dates,
distributions of Regular Principal from
particular sources of credit support
upon the occurrence of certain losses
or delinquencies, even if the holders
of the Certificates of such Class would
not have been entitled to receive
principal distributions on such
Distribution Dates from amounts
collected on the underlying Contracts
in the absence of such losses or
delinquencies.
If specified in the applicable
Prospectus Supplement, the Certificates
of a Class may entitle the holders
thereof to special principal
distributions on particular
Distribution Dates that are unrelated
to the Total Regular Principal Amount
for any such Distribution Date
("Special Principal Distributions").
Special Principal Distributions may be
made, under the circumstances set forth
in the applicable Prospectus
Supplement, from interest collected on
the underlying Contract Pool, from
funds available from one or more forms
of credit support or from such other
source as may be specified in such
Prospectus Supplement. The Certificates
of a Class having an initial
Certificate Balance may entitle the
holders thereof to distributions of
Regular Principal only, to
distributions of Regular Principal and
to Special Principal Distributions or
to Special Principal Distributions
only. However, unless otherwise stated
in the related Prospectus Supplement,
the Certificates of a Class will not
entitle the holders thereof to
aggregate principal distributions in
excess of the initial Certificate
Balance for such Class.
B. Distributions of Interest......... The distribution formula for a Class of
Certificates having an initial
Certificate Balance may, but need not,
also specify a method of computing the
interest, if any, to be distributed on
specified Distribution Dates (which may
include all or less than all of the
Distribution Dates) to the holders of
the Certificates of such Class. Such
interest may be equal, subject to such
adjustments as may be described in the
related Prospectus Supplement, to a
specified number of days' interest on
the applicable Certificate Balance
(before giving effect to any reduction
thereof on such Distribution Date),
calculated at a rate (the "Pass-Through
Rate") specified in the related
Prospectus Supplement. The Pass-Through
Rate may be fixed or variable, and, if
specified in the related Prospectus
Supplement, may shift from a variable
rate to a fixed rate under the
conditions specified in such Prospectus
Supplement. See "Description of the
Certificates-- Distributions on
Certificates-- B. Distributions of
Interest" herein for a general
description of the types of variable
Pass-Through Rates that might be
applicable to a Class of Certificates.
Alternatively, such interest may be
equal to all or a portion (which
portion will be determined as described
in the related Prospectus Supplement)
of the interest due on the related
Contracts during one or more Collection
Periods occurring prior to such
Distribution Date. Classes of
Certificates that do not entitle the
holders thereof to receive
distributions of principal may
nevertheless entitle such holders to
receive interest distributions
calculated on this basis. If, due to
liquidation losses or other
circumstances adversely affecting the
collections on the underlying Contract
Pool, the Contract collections
available to make distributions of
interest to the holders of the
Certificates of a Class are less than
the amount of interest computed as
described above, the deficiency may be
made up from other sources, but only to
the extent, if any, specified in the
related Prospectus Supplement. See
"Credit and Liquidity Enhancement"
herein and the applicable Prospectus
Supplement.
C. Residual Interests................ If specified in the related Prospectus
Supplement, a Class of Certificates in
any Series may evidence a residual
interest in the related Trust Fund (the
"Residual Interest"). Any such Class
will not have been registered under the
Securities Act and will not be offered
or sold pursuant to this Prospectus.
Certificates evidencing a Residual
Interest will not have the features
described above. Rather, unless
otherwise specified in such Prospectus
Supplement, such Certificates will
entitle the holders thereof to receive
distributions from amounts collected on
the Contracts which would not be needed
to make distributions to the holders of
other interests in the Trust
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<PAGE>
Fund (or to pay expenses of the related
Trust Fund) in the absence of
liquidation losses or other events
resulting in deficient Contract
collections.
In addition, if specified in the
related Prospectus Supplement, certain
or all Certificates evidencing Residual
Interests may also entitle the holders
thereof to receive additional
distributions of assets of the related
Trust Fund, to the extent any such
assets remain after being applied to
make distributions to the holders of
other interests in the Trust Fund (or
to pay expenses of the Trust Fund). The
Certificates evidencing a Residual
Interest may entitle the holders
thereof to distributions at various
times throughout the life of the
related Trust Fund or only upon
termination of the Trust Fund, all as
more fully set forth in the related
Prospectus Supplement. If an election
is made to treat the related Trust Fund
as a REMIC, the holders of a Residual
Interest in such Trust Fund will be
subject to federal income taxation with
respect to their ownership of such
Residual Interest as described herein
under "Certain Federal Income Tax
Consequences -- REMIC Certificates --D.
Taxation of Residual Certificates."
Global Certificates.................. Unless otherwise specified in the
related Prospectus Supplement, the
Certificates of a Series, or of one or
more Classes within a Series, will be
issuable in the form of one or more
global certificates (each, a "Global
Certificate") to be held by Cede & Co.
("Cede"), as nominee of The Depository
Trust Company ("DTC"), on behalf of the
beneficial owners (the "Certificate
Owners") of the Certificates, as
described herein under "Description of
the Certificates-- Global
Certificates." If some or all of the
Certificates of a Series are issued in
the form of one or more Global
Certificates, certain monthly and
annual reports prepared by the Servicer
under the related Agreement will be
sent on behalf of the related Trust
Fund to Cede and not to the Certificate
Owners, as described in "Reports to
Certificateholders" above.
Credit and Liquidity Enhancement..... The extent, if any, to which a Class of
Certificates in any Series may be
entitled to the benefit of one or more
forms of credit and liquidity
enhancement by means of
overcollateralization or subordination
of one or more Classes of Certificates
in such Series, the deposit of funds
into one or more spread accounts or
other reserve funds, the issuance of
one or more letters of credit, surety
bonds, or other credit facilities, or a
combination thereof, and/or the
performance under one or more
certificate purchase agreements or
other liquidity facilities, or a
combination thereof, will be described
in the related Prospectus Supplement.
See "Credit and Liquidity Enhancement"
herein and the related Prospectus
Supplement.
Advances............................. The extent, if any, to which the
Servicer will be required to make
advances of delinquent scheduled
payments on the Contracts in a Contract
Pool will be described in the related
Prospectus Supplement.
Optional Termination and
Termination Auction................ The Servicer has the option to purchase
from the Trust Fund all Contracts then
outstanding and all other property in
the Trust Fund on any Distribution Date
after the First Distribution Date if,
among other conditions, the Pool
Scheduled Principal Balance is less
than 10% of the Cut-off Date Pool
Principal Balance. See "Description of
the Certificates --Optional Termination
and Termination Auction" herein. During
that period, the Servicer also may
direct the Trustee to conduct a
Termination Auction for the sale of all
Contracts then outstanding in the Trust
Fund, and, in any event, if the
Servicer has not exercised the option
call within 90 days of the first
Distribution Date when the Pool
Scheduled Principal Balance is less
than 10% of the Cut-off Date Pool
Principal Balance, the Servicer shall
direct the Trustee to conduct a
Termination Auction. See "Description
of the Certificates -- Optional
Termination and Termination Auction"
herein. Any early termination of the
Trust Fund and early retirement of the
Certificates that results from the
Servicer's exercise of the option call
or a successful Termination Auction may
have an effect on an investor's yield
on such Certificates. See "Prepayment
and Yield Considerations" herein and in
the Prospectus Supplement.
Federal Income Tax Consequences...... The federal income tax consequences of
the purchase, ownership and disposition
of the Certificates in any Series will
depend on, among other factors, whether
an election is made to treat the
related Trust Fund as a REMIC under the
provisions of the Internal Revenue Code
of 1986, as amended (the "Code"). See
"Certain Federal Income Tax
Consequences-- REMIC
6
<PAGE>
Certificates" herein for a discussion
of the federal income tax consequences
of the purchase, ownership and
disposition of the Certificates in any
Series if such an election is made. See
"Certain Federal Income Tax
Consequences--Non-REMIC Certificates"
for a discussion of the federal income
tax consequences of the purchase,
ownership and disposition of the
Certificates in any Series if such an
election is not made.
ERISA Considerations................. A fiduciary of any employee benefit or
other plan subject to the Employee
Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975
of the Code should carefully review
with its own legal advisors whether the
purchase or holding of Certificates
could give rise to a transaction that
is prohibited or otherwise
impermissible under ERISA or the Code.
See "ERISA Considerations" herein and
in the related Prospectus Supplement.
If specified in the related Prospectus
Supplement, certain Certificates sold
hereunder will not be transferable to
certain benefit plan investors except
under the conditions set forth in such
Prospectus Supplement.
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 generally
constitute "mortgage related
securities" under the Secondary
Mortgage Market Enhancement Act of
1984, as amended ("SMMEA") and, as
such, would be "legal investments" for
certain types of institutional
investors to the extent provided in
SMMEA. Certain state laws have
overridden SMMEA and, therefore,
institutional investors should review
with their own legal advisors whether
such Certificates would constitute a
legal investment. In addition, some
Classes of Certificates offered hereby
may not be rated in one of the two
highest rating categories and thus
would not constitute "mortgage related
securities." See "Legal Investment"
herein and in the related Prospectus
Supplement.
Rating............................... It is a condition to the issuance of
each Class of Certificates sold under
this Prospectus that it be rated at the
time of issuance by at least one
nationally recognized statistical
rating organization in one of its four
highest rating categories. 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
Class of Certificates should be
evaluated independently of similar
security ratings assigned to other
kinds of securities, including
Certificates in the same Series or
Certificates of other Series sold under
this Prospectus.
Ratings on manufactured housing
contract pass-through certificates
address the likelihood of the receipt
by certificateholders of their
allocable share of principal and
interest on the underlying manufactured
housing contract assets. These ratings
address structural and legal aspects
associated with such certificates, the
extent to which the payment stream on
such underlying assets is adequate to
make payments required by such
certificates and the credit quality of
the credit enhancer, if any. Ratings on
the Certificates do not, however,
constitute a statement regarding the
likelihood of principal prepayments by
Obligors under the Contracts in the
related Contract Pool, the degree by
which prepayments made by such Obligors
might differ from those originally
anticipated or whether the yield
originally anticipated by investors of
any Series of Certificates may be
adversely affected as a result of such
prepayments. As a result, investors of
any Series of Certificates might suffer
a lower than anticipated yield. See
"Rating" herein and in the related
Prospectus Supplement.
7
<PAGE>
RISK FACTORS
Prospective purchasers of Certificates should consider, among other
things, the following factors in connection with the purchase of Certificates.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. Actual results could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
elsewhere in this Prospectus.
1. Limited Liquidity. There can be no assurance that a secondary market will
develop for Certificates or, if it does develop, that it will provide the
holders of Certificates with liquidity of investment or that it will remain for
the term of such Certificates.
2. Book-entry Form. To the extent any Certificate is represented by a Global
Certificate, the issuance of such Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary trading market since investors
may be unwilling to purchase Certificates for which they cannot obtain physical
certificates. See "Description of the Certificates -- Global Certificates"
herein.
3. Prevailing Economic Conditions. An investment in Certificates may be
affected by, among other things, a downturn in national, regional or local
economic conditions. The geographic location of the Manufactured Homes in any
Contract Pool at origination of the related Contract will be set forth in the
related Prospectus Supplement under "The Contract Pool." Regional and local
economic conditions are often volatile and, historically, regional and local
economic conditions, as well as national economic conditions, have affected the
delinquency, loan loss and repossession experience of manufactured housing
installment sales contracts and/or installment loan contracts (hereinafter
generally referred to as "contracts" or "manufactured housing contracts").
Sufficiently high delinquencies and liquidation losses on the Contracts in any
contract pool will have the effect of reducing, and possibly eliminating, the
protection against loss afforded by any credit enhancement supporting any Class
of the related Certificates. If such protection is eliminated with respect to a
Class of Certificates, the holders of such Certificates will bear all risk of
loss on the related Contracts and will have to rely on the value of the related
Manufactured Homes for recovery of the outstanding principal of and unpaid
interest on any defaulted Contracts in the related Contract Pool. See "Credit
and Liquidity Enhancement" herein and the related Prospectus Supplement.
4. Liquidation Losses and Credit Risk. Manufactured housing generally
depreciates in value, regardless of its location. Thus, Certificateholders
should expect that, as a general matter, the market value of any Manufactured
Home will be lower than the outstanding balance of the related Contract. To the
extent that the Servicer is required to repossess Manufactured Homes because of
owner defaults under the Contracts, liquidation losses will likely occur. The
primary protection of Certificateholders against these liquidation losses comes
from three sources: first, the amount (the "Excess Interest"), if any, by which
the interest collected on nondefaulted Contracts during a Collection Period
exceeds interest distributions due to the holders of the Regular Certificates
and the Monthly Servicing Fee; second, any Credit Facility or Reserve Fund that
may support one or more Classes of Certificates, and third, as to the holders of
Senior Certificates, the subordination in interest of the junior Classes of
Certificates. The amount of Excess Interest can vary from Contract Pool to
Contract Pool, and will be reduced if interest-only Certificates are issued. If
the liquidation losses exceed the amount of Excess Interest and any Credit
Facility or Reserve Fund, the payments on Certificates will be delayed and
losses are likely to occur that will be borne by the holders of the
Certificates. To the extent that the Certificates have been designated as senior
or subordinate, the most junior certificates would be the first to bear these
delays or losses. See "The Contract Pools" and "Credit and Liquidity
Enhancement" herein and in the related Prospectus Supplement.
5. No Recourse. Neither Bank of America nor Bank of America, FSB nor any of
their affiliates will have any obligations with respect to any Series of
Certificates except, in the case of the Sellers, for obligations arising from
certain representations and warranties of Bank of America and Bank of America,
FSB, as the case may be, with respect to the Contracts sold by it in the related
Contract Pool, and, in the case of Bank of America, FSB, for certain contractual
servicing obligations, each as further described herein. In all other respects,
the purchase of any Certificate will be without recourse unless the related
Prospectus Supplement (i) specifies that some or all of the Contracts evidenced
by such Certificate are partially guaranteed by the Veterans Administration or
partially insured by the Federal Housing
8
<PAGE>
Administration, or (ii) describes one or more forms of credit or liquidity
enhancement supporting distributions on the related Certificates. SUBJECT ONLY
TO THE FOREGOING EXCEPTIONS, PROCEEDS FROM THE ASSETS IN THE RELATED TRUST FUND
WILL CONSTITUTE THE ONLY SOURCE OF FUNDS FOR PAYMENT ON THE CERTIFICATES OF THE
RELATED SERIES. THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS
OF BANK OF AMERICA, BANK OF AMERICA, FSB, THEIR PARENT CORPORATION, BANKAMERICA
CORPORATION, OR ANY AFFILIATE THEREOF, AND NEITHER THE CERTIFICATES NOR THE
UNDERLYING CONTRACTS OR ANY COLLECTIONS THEREON WILL BE INSURED OR GUARANTEED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY OTHER GOVERNMENTAL AGENCY OR
INSTRUMENTALITY.
6. Security Interests of the Trust Fund in the Manufactured Homes. On the date
of initial issuance of Certificates in any Series, Bank of America or Bank of
America, FSB or both will convey the related Contracts to the related Trust
Fund. Bank of America, FSB, through its division, BankAmerica Housing Services,
as Servicer, will obtain and maintain physical possession of the Contract
documents as custodian and agent for the related Trustee. Each Contract is
secured by a security interest in a Manufactured Home and, in the case of Land
Home Contracts or Land-in-Lieu Contracts (both as defined herein), the real
estate on which the related Manufactured Home is located. Perfection of security
interests in the Manufactured Homes and enforcement of rights to realize upon
the value of the Manufactured Homes as collateral for the Contracts are subject
to a number of federal and state laws, including the Uniform Commercial Code
(the "UCC") as adopted in the states in which the Manufactured Homes are located
and such states' certificate of title statutes, and, in the case of Land Home
Contracts or Land-in-Lieu Contracts, their real estate laws. Under such federal
and state laws, a number of factors may limit the ability of a holder of a
perfected security interest in Manufactured Homes to realize upon such
Manufactured Homes or may limit the amount realized to less than the amount due
under the related Contract. See "Certain Legal Aspects of the Contracts -
Security Interests in the Manufactured Homes" and "Land Home and Land-in-Lieu
Contracts" herein.
Unless otherwise specified in the related Prospectus Supplement, the
certificates of title for the Manufactured Homes (including Manufactured Homes
securing Contracts which are purchased by SPFSC and then conveyed by Bank of
America to the related Trust Fund) will show "Security Pacific Financial
Services, a Division of Bank of America, FSB" (the name under which the
BankAmerica Housing Services division of Bank of America, FSB conducted its
business from approximately February 1993 to February 1994), "Security Pacific
Housing Services, a Division of Bank of America, FSB" (the name under which the
BankAmerica Housing Services division of Bank of America, FSB was conducted its
business from approximately February 1994 to June 1995), "Bank of America, FSB,"
or "BankAmerica Housing Services, a division of Bank of America, FSB" as the
lienholder; the UCC financing statements, where applicable, will show Bank of
America, FSB (under one of the foregoing names) as secured party. Because of the
expense and administrative inconvenience involved, Bank of America, FSB will not
amend the certificates of title to change the lienholder specified therein to
the relevant Trustee at the time Contracts are conveyed to a Trust Fund, and
will not execute any transfer instrument (including, among other instruments,
UCC-3 assignments) relating to any Manufactured Home in favor of the relevant
Trustee or deliver any certificate of title to such Trustee or note thereon such
Trustee's interest. Similarly, Bank of America, FSB will not record an
assignment to the Trustee of the mortgage or deed of trust securing each Land
Home or Land-in-Lieu Contract. In some states, in the absence of such an
amendment, notation, execution, delivery or recordation of assignment, the
assignment to the Trustee of the security interest in the Manufactured Homes, or
the mortgage or deed of trust securing a Land Home Contract, may not be
effective or such security interest may not be perfected. If any otherwise
effectively assigned security interest in favor of the Trustee is not perfected,
such assignment of the security interest to the Trustee may not be effective
against creditors of Bank of America, FSB, which continues to be specified as
lienholder on any certificate of title or as secured party on any UCC filing, or
against a receiver or conservator of Bank of America, FSB. See "Description of
the Certificates -- Conveyance of Contracts" in the applicable Prospectus
Supplement for a description of certain limited circumstances under which Bank
of America, FSB or Bank of America, as the case may be, will be obligated to
repurchase, or at its option substitute another contract for, a Contract sold by
it if, as a result of the failure by Bank of America, FSB to take any action
described above in this paragraph with respect to the related Manufactured Home,
the Trustee does not have a perfected first-priority security interest in such
Manufactured Home or real property, if any.
7. Federal and State Consumer Protection Laws. Numerous federal and state
consumer protection laws could adversely affect the interest of any Trust Fund
in the Contracts comprising the related Contract Pool. For example, as
9
<PAGE>
described herein under "Certain Legal Aspects of the Contracts -- Consumer
Protection Laws," the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act") could, under certain circumstances, cap the amount of
interest that may be charged on certain Contracts at 6% per annum and may hinder
the ability of the Servicer to foreclose on such Contracts in a timely fashion.
In addition, other 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. These laws could apply to any Trust Fund as assignee
of the related Contracts. Pursuant to each Agreement, Bank of America, FSB or
Bank of America or both of them, as the case may be, will represent and warrant
that each Contract sold by it complies with all requirements of law. To the
extent described in the applicable Prospectus Supplement under "Description of
Certificates -- Conveyance of Contracts," a breach of any such representation or
warranty that materially and adversely affects the related Trust Fund's interest
in a Contract will create an obligation by Bank of America, FSB or Bank of
America, as the case may be, to repurchase, or at its option substitute another
contract for, such Contract, unless such breach is cured within the time period
specified in the related Agreement. Neither Bank of America, FSB nor Bank of
America will have any obligation to repurchase any Contract because of
limitations imposed under the Relief Act, however.
8. Prepayment Considerations. The prepayment experience on the Contracts
underlying any Series of Certificates (including prepayments due to liquidations
of defaulted Contracts) will affect the average life and the maturity of such
Certificates. Prepayments on the Contracts in any Contract Pool may be
influenced by a variety of economic, geographic, social and other factors,
including repossessions, aging, seasonality and interest rates. Other factors
affecting prepayment on such Contracts include changes in housing needs, job
transfers and unemployment. In addition, in the event a partial prepayment is
made on a Contract, or a Contract is prepaid in full, interest on such Contract
to the extent of such prepayment will cease to accrue as of the date of
prepayment. If with respect to any Trust Fund such prepayments and related
interest shortfalls were sufficiently high during a Collection Period, the
Available Distribution Amount (as defined in the applicable Prospectus
Supplement) for the related Distribution Date could be less than the amount of
principal and interest that would be distributable to the related
Certificateholders in the absence of such shortfalls. See "Prepayment and Yield
Considerations" herein and in the related Prospectus Supplement.
9. Difficulty in Pledging. To the extent transactions in Certificates can be
effected only through DTC, participating organizations, indirect participants
and certain banks, the ability of a Certificate Owner to pledge any such
Certificate to persons or entities that do not participate in the DTC system, or
otherwise to take actions in respect of such Certificates, may be limited due to
the lack of physical certificates representing any such Certificate. See
"Description of the Certificates -- Global Certificates" herein.
10. Potential Delays in Receipt of Distributions. To the extent any Certificate
is represented by a Global Certificate, Certificate Owners with respect thereto
may experience some delay in their receipt of distributions. 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 Certificate Owners either directly or indirectly through
indirect participants. See "Description of the Certificates -- Global
Certificates" herein.
11. Insolvency, Receivership or Bankruptcy of Contract Sellers. In the event of
an insolvency, conservatorship or receivership of Bank of America, FSB or Bank
of America, as the case may be, or the insolvency or bankruptcy of any affiliate
thereof that has sold Contracts to Bank of America or Bank of America, FSB and
becomes a debtor in a proceeding under the federal bankruptcy code, the sale of
Contracts by Bank of America or Bank of America, FSB or both of them, or the
sale of Contracts by an insolvent affiliate to either of them, as the case may
be, could be recharacterized as a borrowing secured by a pledge of the
Contracts. Such an attempt, even if unsuccessful, could result in delays in or
reductions of distributions on the Certificates. See "Other Considerations"
herein.
12. Insolvency, Conservatorship or Receivership of Servicer. In the event of a
conservatorship or receivership of Bank of America, FSB (of which BankAmerica
Housing Services is an unincorporated division), the receiver or conservator
could prevent the termination of Bank of America, FSB as Servicer if no event of
default under the applicable Agreement exists other than the receivership or
conservatorship or insolvency of the Servicer. Such restriction could result in
a delay or possibly a reduction in payments on the Certificates to the extent
Bank of America, FSB received
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(but did not deposit with the trustee) Contract collections before the date of
receivership or conservatorship. See "Other Considerations" herein.
THE CONTRACT POOLS
Each Contract contained in a Contract Pool will have been (i)
originated by Bank of America, by Bank of America, FSB, acting through its
division, BankAmerica Housing Services or by SPFSC or purchased by Bank of
America, Bank of America, FSB, acting through its division, BankAmerica Housing
Services or by SPFSC from a manufactured housing dealer on an individual basis
in the ordinary course of its business and/or (ii) purchased by Bank of America,
by Bank of America, FSB, acting through its division, BankAmerica Housing
Services, or by SPFSC, from one or more governmental agencies or
instrumentalities and/or from one or more other lenders or finance companies
(including affiliates of the Sellers) that purchase and hold manufactured
housing contracts ("Bulk Sellers"), all as more particularly specified in the
related Prospectus Supplement. Each Contract will be secured by a new or used
Manufactured Home and, in the case of a Land Home or Land-in-Lieu Contract, by
real property upon which the Manufactured Home is located. Unless otherwise
specified in the related Prospectus Supplement, the Contracts will not be
insured by any governmental agency or instrumentality. However, if so specified
in the related Prospectus Supplement, some or all of the Contracts and
collections thereon will, subject to the conditions described below, be
partially insured by the Federal Housing Administration or partially guaranteed
by the Veterans Administration.
On the date of initial issuance of the Certificates of any Series, Bank
of America, Bank of America, FSB or both of them will convey the Contracts
comprising the related Contract Pool to the related Trust Fund. Bank of America,
FSB, through its division, BankAmerica Housing Services, as Servicer, will
obtain and maintain possession of all Contract documents.
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement relating to each Contract Pool will require the related Manufactured
Homes 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 statutes
also would require that the security interest in any Manufactured Home include
the plumbing, heating, air conditioning and electrical systems relating to such
Manufactured Home.
Each Agreement will require 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 Compensation
and Payment of Expenses; Certain Matters Regarding the Servicer -- A. Hazard
Insurance Policies." Generally, no other insurance will be required with respect
to the Manufactured Homes, the Contracts or any Contract Pool.
Each Contract Pool may contain actuarial or simple interest Contracts
(as further described below) bearing a Contract Rate that is fixed or variable
or increases in specified increments on particular dates (a "Step-Up Rate"). The
rate at which the Contracts in a particular Contract Pool bear interest will be
further described in the applicable Prospectus Supplement. Unless otherwise
specified in the applicable Prospectus Supplement, each Contract will provide
for payments on scheduled monthly due dates (each, a "Due Date"). The day of
each month constituting the Due Date will vary from Contract to Contract. Unless
the Contracts bear interest at a variable rate, the scheduled payment due on
each monthly Due Date (the "Scheduled Payment") will be specified in the
Contract. The Scheduled Payments for fixed-rate Contracts will be constant
assuming no prepayments. Unless otherwise specified in the applicable Prospectus
Supplement, the Scheduled Payments for Contracts bearing interest at a Step-Up
Rate ("Step-Up Rate Contracts") will increase on the dates on which the Contract
Rates are stepped up. In addition, unless otherwise specified in the related
Prospectus Supplement, the Contracts may be prepaid in full or in part at any
time.
Unless otherwise stated in the applicable Prospectus Supplement,
Scheduled Payments whether for actuarial or simple interest Contracts, may be
paid prior to their Due Dates, whether in, or in months prior to, the months of
their Due Dates. Thus, the obligor under a Contract (each, an "Obligor") may, in
June, pay the Scheduled Payments due in
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June, July and August. In that event, no further payment will become due on such
Contract until the September Due Date. In the case of a simple interest
Contract, the Obligor would have to instruct the Servicer to apply such payment
as a pay-ahead of future Scheduled Payments; otherwise such payment would be
applied as a partial principal prepayment. There is no limit to the number of
Scheduled Payments that may be paid ahead in this manner. The effect of paid-
ahead Scheduled Payments will be different for actuarial Contracts than for
simple interest Contracts, as further described below.
The Scheduled Payments for each actuarial Contract (whether a fixed
rate Contract or a Step-Up Rate Contract) will fully amortize the principal
balance of the Contract over its term. The portion of each Scheduled Payment
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 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 Scheduled Payment will be applied to interest and to
principal in accordance with a precomputed allocation, whether such Scheduled
Payments are received in advance of or subsequent to their Due Dates. Unless
otherwise specified in the applicable Prospectus Supplement, all payments
received in a Collection Period on an actuarial Contract in excess of the
related Obligor's Scheduled Payment (other than payments not allocated to
principal and interest (such as late payment charges) or payments sufficient to
pay in full the outstanding principal balance of and all accrued and unpaid
interest on such Contract) are applied as a partial prepayment of principal on
the Contract, unless (i) the related Obligor notifies or confirms with the
Servicer that such payments are to be applied to future Scheduled Payments in
the order of the Due Dates of such payments or (ii) the amount of such excess
payment is approximately equal (subject to a variance of plus or minus 10%) to
the amount of a future Scheduled Payment.
The Scheduled Payments for each simple interest Contract (whether a
fixed rate Contract or a Step-Up Rate Contract) would, if made exactly on their
respective Due Dates, result in a nearly full amortization of the Contract.
However, each such Scheduled Payment will be applied when received first to
accrued interest on the unpaid principal balance of the Contract (computed on a
daily simple interest basis) and then to principal. Thus, the portions of each
such Scheduled Payment allocable to principal and interest will depend on the
amount of interest accrued to the date payment is received. Unless otherwise
stated in the applicable Prospectus Supplement, no Scheduled Payment on a
Contract will be considered to be delinquent once 90% of the amount thereof is
received. Late payments or payments of less than 100% of any Scheduled Payment
on a simple interest Contract will result in such Contract amortizing more
slowly than originally scheduled and could extend the maturity date of any such
Contract beyond its original scheduled maturity date.
Under certain circumstances, the amount of accrued interest on a simple
interest Contract could exceed the amount of the Scheduled Payment. This could
happen, for example, in the case of delinquency, or in the case of the first
Scheduled Payment due after one or more Scheduled Payments have been paid ahead
as described above (because interest continues to accrue on simple interest
Contracts during the months in which the paid-ahead Scheduled Payments would
have become due). In any such event, the entire amount of the payment will be
allocated to interest, and although some accrued interest will remain unpaid,
the unpaid interest will not be added to the principal balance of the Contract
and will not bear interest. Under other circumstances, no interest will have
accrued between the dates of receipt of Scheduled Payments on simple interest
Contracts. This could be the case if, for example, one or more Scheduled
Payments were paid ahead on a Due Date occurring in a month prior to the months
in which such Scheduled Payments would have become due, as described above. In
that event, the entire amount of such paid-ahead Scheduled Payments generally
will be allocated to principal.
Variable rate Contracts may be either actuarial or simple interest
Contracts. Unless otherwise specified in the related Prospectus Supplement, the
Scheduled Payments on variable rate Contracts will be allocated between
principal and interest as described above for actuarial Contracts and simple
interest Contracts, respectively, based upon the Contract Rate in effect when
such Scheduled Payments are due. Unless otherwise specified in the related
Prospectus Supplement, the amounts of such Scheduled Payments will be adjusted,
on the basis described in such Prospectus Supplement, whenever the related
variable rate is adjusted.
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If so specified in the applicable Prospectus Supplement, the related
Contract Pool may contain Contracts which combine certain features of actuarial
and simple interest Contracts as follows: Scheduled Payments will be applied to
principal and interest as if such Contracts were actuarial Contracts, but if any
such Contract is prepaid in full, the amount required to be paid will be
calculated as if the Scheduled Payments received prior to the date of prepayment
were applied to principal and interest in the same manner as they would have
been had such Contract been a simple interest Contract.
If specified in the related Prospectus Supplement, certain Contracts
("Land Home Contracts" and "Land-in-Lieu Contracts") will also be secured by
liens on the real estate on which the related Manufactured Homes are located.
Unless otherwise specified in the related Prospectus Supplement, all Land Home
Contracts will have financed the purchase of the related Manufactured Home
together with the real estate on which the Manufactured Home is located. In
certain jurisdictions, a lender cannot obtain separate evidence of its lien on
the Manufactured Home securing a Land Home Contract and its lien on the property
on which the Manufactured Home is located. In those jurisdictions, the only
evidence of liens on the Manufactured Homes securing Land Home Contracts will be
the deeds of trust, mortgages or similar security instruments (in each case, a
"Mortgage") on the real estate on which the Manufactured Homes are located. It
is a policy of Bank of America, FSB, acting through its division, BankAmerica
Housing Services, to obtain title insurance policies, where available, with
respect to any such Contract that it originates insuring that the related
Manufactured Home is subject to the lien of the related Mortgage, although title
policies may not have been obtained with respect to Land Home Contracts acquired
from Bulk Sellers and some title insurers will not insure the Manufactured Home
unless it is permanently attached to the land. Where the real estate on which
the related Manufactured Home is located is owned by the related Obligor, the
Obligor may provide a Mortgage on the real estate in lieu of all or part of any
required down payment for any such Contract. Any such Contract is referred to
herein as a "Land-in-Lieu Contract" rather than a "Land Home Contract."
Generally, separate evidences of liens on Manufactured Homes and the real
property securing Land-in-Lieu Contracts are obtained. However, no title
insurance is obtained in respect of such Contracts. See "Certain Legal Aspects
of the Contracts -- Land Home and Land-in-Lieu Contracts" herein.
A Contract Pool may include "staged-funding" Contracts which provide
multiple disbursements to an Obligor to finance the purchase of a Manufactured
Home or the acquisition or improvement of the real estate on which the
Manufactured Home will be located. The Obligor pays only the interest on the
disbursed amount of the loan (or an additional origination fee which is
financed, in lieu of interest) until the final disbursement, and, following the
final disbursement, pays both interest and principal. Bank of America, FSB will
represent and warrant in the Agreement that all staged-funding Contracts
included in a Contract Pool will be fully disbursed within 90 days after the
Closing Date, and, if any staged-funding Contract is not fully disbursed within
90 days after the Closing Date, Bank of America, FSB will repurchase that
staged-funding Contract on the next Distribution Date.
The Prospectus Supplement relating to each Series of Certificates will
provide information as of the Cut-off Date for such Series with respect to,
among other things, (i) the number, the aggregate principal balance, and the
range of outstanding principal balances of the Contracts comprising the related
Contract Pool; (ii) the weighted average of the Contract Rates ("Weighted
Average Contract Rate") of the Contracts and the distribution of Contract Rates;
(iii) the weighted average original and remaining terms to maturity of the
Contracts and the distribution of remaining terms to maturity; (iv) the average
outstanding principal balance of the Contracts; (v) the geographical
distribution of the related Manufactured Homes at origination; (vi) the years of
origination of the Contracts; (vii) the distribution of original principal
balances of the Contracts; (viii) the percentage amount of Contracts secured by
new or used Manufactured Homes; (ix) the range of and weighted average
loan-to-value ratios at origination; and (x) the month and year in which the
final scheduled payment date for the Contract with the latest maturity is
scheduled to occur. If a Contract Pool contains Step-Up Rate Contracts, the
related Prospectus Supplement will specify the percentage of the Contract Pool
comprised of such Contracts, the period during which the Contract Rates for such
Contracts will be stepped up, the range of increases in such Contract Rates and
the range of increases in the Scheduled Payments for such Contracts. If a
Contract Pool contains variable rate Contracts, the related Prospectus
Supplement will contain a description of the basis on which such rates are
determined, including any maximum or minimum rates and the frequency with which
any such rate adjusts. The Prospectus Supplement relating to a Series of
Certificates also will contain certain information about Contracts in the
related Trust Fund that are Land Home Contracts, Land-in-Lieu Contracts or
Contracts that are partially guaranteed by the Veterans Administration or
partially insured by the Federal Housing Administration. In addition, to the
extent Bank of America's or Bank of America, FSB's management believes such
information to be material, any
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Prospectus Supplement may also include additional information concerning the
related Contract Pool that is stored in the electronic data processing system of
the BankAmerica Housing Services division of Bank of America, FSB.
See "The Sellers" herein for a description of certain origination and
underwriting practices of Bank of America, FSB with respect to manufactured
housing contracts that have been originated by Bank of America, FSB, acting
through its division, BankAmerica Housing Services, or have been purchased by
Bank of America, FSB, acting through its division, BankAmerica Housing Services,
or by SPFSC on an individual basis. To the extent any Contracts in a Contract
Pool were purchased by one or more of the Sellers from one or more Bulk Sellers,
the applicable Prospectus Supplement will contain a description of certain
practices observed by such Seller or the Sellers, as the case may be, in
connection with any such purchase.
THE SELLERS
Bank of America, FSB
Bank of America, FSB is a federal savings bank and wholly owned
subsidiary of BankAmerica Corporation. As of June 30, 1997, Bank of America, FSB
and its consolidated subsidiaries accounted for approximately 5.4% of the
consolidated total assets of BankAmerica Corporation and constituted BankAmerica
Corporation's sixth largest bank subsidiary. As of June 30, 1997, and based on
the Thrift Financial Report of Bank of America, FSB at such date, Bank of
America, FSB and its consolidated subsidiaries had total deposits of $1.9
billion, total assets of $13.8 billion and capital and surplus of $1.4 billion.
Bank of America, FSB's headquarters are located in Portland, Oregon, and its
administrative offices are located at 555 California Street, San Francisco,
California 94104 (telephone 415-622-2220).
BankAmerica Housing Services, a Division of Bank of America, FSB
Bank of America, FSB has conducted its business of purchasing and
originating manufactured housing installment contracts through its
unincorporated division, BankAmerica Housing Services. BankAmerica Housing
Services is not a separate legal entity from Bank of America, FSB, and all
references in this Prospectus and any Prospectus Supplement to BankAmerica
Housing Services (unless otherwise specified herein) are intended to reflect its
status as a division of, and not a corporate entity separate from, Bank of
America, FSB. In the fourth quarter of 1992, Bank of America, FSB, through its
division, BankAmerica Housing Services, began purchasing and originating
manufactured housing installment contracts through the regional offices in the
United States of its affiliate, Security Pacific Housing Services, Inc.
("SPHSI"). Prior to that time, SPHSI conducted the business of purchasing,
originating, servicing and selling manufactured housing contracts. SPHSI
discontinued the conduct of that business in July 1993, transferring to the
BankAmerica Housing Services division of Bank of America, FSB the regional
office structure, systems and employees relating to that business. The
applicable Prospectus Supplement will contain a description of SPHSI's loan
origination and underwriting practices for any Contract contained in the related
Contract Pool that was originated or purchased by SPHSI on an individual basis
in the ordinary course of its business. The principal office of BankAmerica
Housing Services division of Bank of America, FSB is located at 10089 Willow
Creek Road, San Diego, California 92131-2447 (telephone 619-549-4700).
Bank of America National Trust and Savings Association
Bank of America, a wholly-owned subsidiary of BankAmerica Corporation,
is a national banking association. As of June 30, 1997, Bank of America and its
consolidated subsidiaries accounted for approximately 87% of the consolidated
total assets of the BankAmerica Corporation and constituted BankAmerica
Corporation's largest bank subsidiary. As of June 30, 1997, and based on the
Consolidated Report of Condition of Bank of America at such date, Bank of
America and its consolidated subsidiaries had total deposits of $164.7 billion
(including deposits from BankAmerica Corporation and other subsidiaries of
BankAmerica Corporation of $5.2 billion), total assets of $224.3 billion and
capital and surplus of $16.3 billion. Bank of America's headquarters are located
at 555 California Street, San Francisco, California 94104 (telephone
415-622-3530).
Currently, Bank of America originates and purchases manufactured
housing contracts but does not purchase on an individual basis any of the
manufactured housing contracts originated or purchased by Bank of America, FSB.
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Bank of America expects that any Contracts it conveys to a Trust Fund will have
been originated or purchased by Bank of America, FSB, acting through its
division, BankAmerica Housing Services, on an individual basis, transferred by
Bank of America, FSB to SPFSC (as further described under "-- Loan
Originations." below), and purchased by Bank of America from SPFSC immediately
prior to Bank of America's conveyance of such Contracts to a Trust Fund. If any
Contracts that Bank of America conveys to a Trust Fund are not transferred
between Bank of America, FSB, SPFSC and Bank of America in the foregoing manner,
the related Prospectus Supplement will describe the conveyances for such
Contracts from such Contracts' origination to their conveyance to the related
Trust Fund.
Security Pacific Financial Services of California, Inc.
SPFSC is a subsidiary of Bank of America and an affiliate of Bank of
America, FSB. In the second quarter of 1994, SPFSC began purchasing certain
contracts on an individual basis from Bank of America, FSB. SPFSC's headquarters
are located in San Diego, California (telephone 619-578-6150).
Loan Originations
Bank of America, FSB, through its division, BankAmerica Housing
Services, purchases and originates manufactured housing contracts on an
individual basis through 46 regional offices throughout the United States,
serving 48 states. Through the regional offices of BankAmerica Housing Services,
Bank of America, FSB arranges to purchase manufactured housing contracts
originated by manufactured housing dealers located throughout the United States.
Generally, these purchases result from BankAmerica Housing Services division's
regional office personnel contacting dealers located in their regions and
explaining Bank of America, FSB's available financing plans, terms, prevailing
rates and credit and financing policies. If a dealer wishes to make such
financing available to its customers, the dealer must apply for dealer approval.
Upon satisfactory results of BankAmerica Housing Services division's
investigation of the dealer's creditworthiness and general business reputation,
Bank of America, FSB and the dealer will enter into a dealer agreement. Bank of
America, FSB, through its BankAmerica Housing Services division, also originates
manufactured housing contracts directly with customers.
Prior to a regulatory amendment that became effective October 30, 1996,
a federal savings bank, such as Bank of America, FSB, could not maintain in its
portfolio any manufactured housing contract that had a term to maturity of more
than twenty years or any manufactured housing contract with respect to which the
financed amount was greater than 90% of the value of the manufactured home.
Manufactured housing contracts that could not be maintained in the portfolio of
Bank of America, FSB for these reasons were acquired by SPFSC on an individual
basis at or about the time such contracts were originated or purchased by Bank
of America, FSB. The documents of title in respect of a Contract sold by Bank of
America, FSB to SPFSC, then by SPFSC to Bank of America and then by Bank of
America to any Trust Fund will show Bank of America, FSB as the lienholder.
Since January 1997, under the new regulatory amendment, Bank of America, FSB has
originated and held all manufactured housing contracts. See "Risk Factors --
Security Interests in the Manufactured Homes" and "Certain Legal Aspects of the
Contracts -- Security Interests in the Manufactured Homes" herein.
In addition to purchasing and originating manufactured housing
contracts and installment loan agreements on an individual basis, Bank of
America, FSB, acting through its division, BankAmerica Housing Services, makes
bulk purchases of manufactured housing contracts. These bulk purchases may be
from the portfolios of other lenders or finance companies (including affiliates
of Bank of America, FSB), the portfolios of governmental agencies or
instrumentalities or the portfolios of other entities that purchase and hold
manufactured housing contracts. Moreover, Bank of America, FSB, acting through
its division, BankAmerica Housing Services, on behalf of other owners (including
SPFSC), services manufactured housing contracts that were not purchased or
originated by Bank of America, FSB. Currently, the servicing of all such
contracts is, and Bank of America, FSB's management currently anticipates, that
servicing of all such contracts will continue to be, performed through the
BankAmerica Housing Services division's manufactured housing regional office
system. However, Bank of America, FSB can provide no assurance that this will
continue to be the case.
The general practices of the BankAmerica Housing Services division of
Bank of America, FSB with regard to the origination of contracts and the
purchase of contracts from manufactured housing dealers are described below
under
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"- Underwriting Practices." See "- Servicing" below for a description of
certain of Bank of America, FSB's servicing practices.
Underwriting Practices
With respect to each retail manufactured housing contract that is
purchased from a dealer, the general practice of Bank of America, FSB, acting
through its division, BankAmerica Housing Services, is to have the dealer submit
the customer's credit application, manufacturer's invoice (if the contract is
for a new home) and certain other information relating to the contract to the
applicable regional office of BankAmerica Housing Services division. Personnel
at the regional office analyze the creditworthiness of the customer and certain
other aspects of the proposed transaction. If the creditworthiness of the
customer and other aspects of the transaction are approved by the regional
office, the customer and the dealer execute a contract on a form provided or
approved in advance by BankAmerica Housing Services division. After the
manufactured home financed under the contract is delivered and set up by the
dealer, and the customer has moved in, Bank of America, FSB purchases the
contract from the dealer.
Because manufactured homes generally depreciate in value, Bank of
America, FSB's management believes that the creditworthiness of a potential
obligor should be the most important criterion in determining whether to approve
the purchase or origination of a contract. As a result, the underwriting
guidelines of BankAmerica Housing Services division generally require, and have
required, regional office personnel to examine each applicant's credit history,
residence history, employment history and debt-to-income ratio. There is no
minimum requirement for any of these criteria, although BankAmerica Housing
Services division has developed certain guidelines for employment history and
debt-to-income ratios. In the case of employment history, BankAmerica Housing
Services division generally requires its regional office personnel to consider
whether the applicant has worked continuously for the same employer for at least
24 months and, if not, whether the applicant has worked in the same occupational
field for at least 24 months. The recommended debt-to-income ratio for a
particular credit application depends on the credit score recommendation
(described below) generated for that application. In general, the maximum
debt-to-income ratio for each application that is either recommended for
approval or approved by the credit scoring system ranges from 70 percent to 53
percent, based on BankAmerica Housing Services division's estimate of the
applicant's after-tax income. Although BankAmerica Housing Services division has
guidelines for some of these criteria, the division's management does not
believe that an applicant's inability to satisfy some of these guidelines
warrants denial of credit in all cases. For example, if an applicant fails to
meet a guideline by a certain margin for one of the criteria mentioned above,
the applicant generally must exceed the threshold for one or more other criteria
by a compensating margin for such applicant's credit application to be approved.
In addition, in special cases, credit applications are approved even if certain
of the criteria are not met. For these reasons, management of BankAmerica
Housing Services division believes that the ultimate decision whether to approve
or reject a credit application should be made by regional office personnel. To
assist personnel in evaluating credit applications, the division began using a
Fair-Isaacs credit scoring system in January 1995. The Fair-Isaacs credit
scoring system generates a recommendation to approve or deny a credit
application based on certain criteria established by BankAmerica Housing
Services division. The underwriting guidelines of BankAmerica Housing Services
division allow the recommendation generated by the Fair-Isaacs credit scoring
system to be used by regional personnel as a guide in determining whether to
extend credit to an applicant, but do not require regional personnel to make
credit decisions based solely on the system's recommendations. BankAmerica
Housing Services division does not disclose the criteria used by this credit
scoring system either to regional personnel or to the dealers assisting in the
preparation of credit applications. The criteria is periodically reviewed by
management at the headquarters of BankAmerica Housing Services division, and
modified as necessary. In July, 1997, BankAmerica Housing Services division
implemented a new Fair-Isaacs credit scoring system.
It is the policy of BankAmerica Housing Services division that one
authorized person provide written approval of credit applications for amounts up
to or equal to certain limits and that two authorized persons provide written
approval of credit applications for amounts over those limits. The credit limits
established by the division vary with each regional office. In addition, each
person authorized to make these credit decisions has to be either a regional
manager or another regional office employee to whom the authority to approve
credit applications has been delegated. Any such delegated authority may be
limited in that the person to whom such authority is delegated may not be
authorized to approve credit applications for contracts with initial principal
amounts above certain specified levels. The qualifications of all regional
office personnel authorized to approve or reject credit applications are
reviewed and
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approved by BankAmerica Housing Services division's senior management.
Generally, both the dealer service manager and the credit manager in each
regional office (in addition to the regional manager) have authority to approve
credit applications. However, each regional office may at various times have
additional, or in some cases fewer, personnel authorized to approve or reject
credit applications. BankAmerica Housing Services division has no set
qualifications for regional managers or for other employees to whom authority to
approve credit applications may be delegated; rather, such authority is given
commensurate with such manager's or employee's experience.
It is and has been the policy of BankAmerica Housing Services division
that each credit application be approved or rejected within one to seven days
after receipt. Thus, there is less time for credit investigation than is the
case, for example, with loans for site-built homes. Although BankAmerica Housing
Services division's management believes that the seven-day period for approval
or rejection of each credit application is consistent with industry practice, no
assurance can be given that any credit application that was approved in one to
seven days would have been approved if a longer period had been provided for
credit investigation.
The credit review and approval practices of each regional office are
subject to internal reviews and audits (which are performed in certain instances
by an affiliate of Bank of America, FSB) that, through sampling, examine the
nature of the verification of credit histories, residence histories, employment
histories and debt-to-income ratios of the applicants and evaluate the credit
risks associated with the contracts purchased through such regional offices by
rating the obligors on such contracts according to their credit histories,
employment histories and debt-to-income ratios. Selection of underwriting files
for review is generally made by the personnel performing the examination,
without prior knowledge on the part of regional office personnel of the files to
be selected for review. However, BankAmerica Housing Services division has no
requirement that any specific random selection procedures be followed and no
assurance can be given that the files reviewed in any examination process are
representative of the contract originations in the related regional office. In
addition, no statistical analysis is performed on the results of any such
examination of underwriting files.
Conventional manufactured housing contracts (that is, contracts that
are not insured or guaranteed by a governmental agency or instrumentality)
currently comprise 100% (by initial principal balance) of the manufactured
housing contracts purchased or originated by Bank of America, FSB through its
division, BankAmerica Housing Services. However, Bank of America, FSB can
provide no assurance that it will not seek to originate or purchase manufactured
housing contracts, whether on an individual basis from authorized dealers or in
bulk from Bulk Sellers, that are partially insured or guaranteed by one or more
governmental agencies or instrumentalities.
Before May 1994, in the case of conventional manufactured housing
contracts secured by new manufactured homes, it was the policy of BankAmerica
Housing Services division to finance no more than the lower of (i) 125% of the
manufacturer's invoice price plus taxes, insurance, freight charges, certain
dealer installed equipment and certain set-up costs and (ii) 90% of the buyer's
total cost of any new manufactured home. A buyer's cost includes certain fees,
sales tax and certain insurance premiums (including up to five years of premiums
on required hazard insurance). Before May 1994, in the case of conventional
manufactured housing contracts secured by used manufactured homes, the maximum
amount financed by BankAmerica Housing Services was the lower of (i) 90% of
retail value, as specified in the National Automobile Dealers Association
("NADA") Mobile/Manufactured Housing Appraisal Guide or the "Kelley Blue Book,"
plus taxes, insurance, and certain set-up costs, and (ii) an amount determined
by BankAmerica Housing Services using a formula based on the square feet, age
and type of manufactured home, plus sales tax, license fee and insurance.
Since May 1994, it has been the policy of BankAmerica Housing Services
division to finance, with respect to new and used manufactured homes, no more
than 95% of the total buyer's cost of any manufactured home (including taxes and
insurance premiums) plus 100% of the costs attributable to prepaid finance
charges and closing costs that are financed. In the case of new manufactured
homes, the maximum amount financed also cannot exceed 130% of the manufacturer's
invoice price plus taxes, insurance, freight charges, certain dealer installed
equipment and certain set-up costs. For used manufactured homes, the amount
financed cannot exceed 95% of the retail value, as specified in the NADA
Mobile/Manufactured Housing Appraisal Guide or the "Kelley Blue Book" plus
taxes, insurance and certain set-up costs. For Land Home and Land-in-Lieu
Contracts, it is the policy of BankAmerica Housing Services division to finance
no more than (i) 95% of the value of the real property as determined by
appraisal or tax assessment, plus the total buyer's cost of the manufactured
home (including taxes and insurance premiums), plus the cost of improvements to
the land and 100% of the costs attributable to prepaid finance charges and
closing costs that are financed or (ii) in the case of a manufactured home that
is already located on the land, 95% of the final appraised value of the land and
manufactured home together and 100% of the costs attributable to prepaid finance
charges and closing costs that are financed. BankAmerica Housing Services
division also has had a policy from May 1994 to July 1995 not to finance
manufactured housing contracts for terms exceeding 25 years. In July 1995,
that
17
<PAGE>
policy was modified to permit financing of manufactured housing contracts for
terms up to 30 years. Prior to January 1, 1997, manufactured housing Contracts
exceeding 90% loan-to-value or 20 years duration were acquired by SPFSC on an
individual basis at or about the time such Contracts were originated or
purchased by BankAmerica Housing Services. Beginning in January, 1997, all
manufactured housing contracts are originated and held by Bank of America, FSB.
An OTS amendment that was effective October 30, 1996 removed the loan-to-value
and maximum term limitations from the regulations applicable to Federal Savings
Banks.
BankAmerica Housing Services division requires a down payment in the
form of cash and/or the trade-in value of a previously owned manufactured home
and/or, in the case of Land in Lieu Contracts, an estimated value of equity in
real property pledged as an 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 BankAmerica Housing Services division in light of
current market conditions. The value of real property pledged as additional
collateral is estimated by regional personnel or appraisers who are familiar
with the area in which the property is located.
Underwriting policies for the origination or purchase on an individual
basis of manufactured housing contracts are established by BankAmerica Housing
Services division's management at its headquarters in San Diego and are
applicable to all regional offices in BankAmerica Housing Services' manufactured
housing regional office system.
The volume of manufactured housing contracts originated by SPHSI, by
Bank of America, FSB acting through its division, BankAmerica Housing Services,
or purchased by SPHSI or by Bank of America, FSB acting through its division,
BankAmerica Housing Services, from dealers on an individual basis for the
periods indicated below and certain other information at the end of such periods
are as follows:
<TABLE>
<CAPTION>
Contracts Originated or Purchased on an Individual Basis
(Dollars in Thousands)
Year Ended December 31,
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Principal Balance of Contracts Purchased
(1)(2)................................. $758,757 $873,227 $1,248,346 $2,586,896 $2,990,081
Number of Contracts Purchased (1)......... 32,752 35,645 46,865 87,407 91,033
Average Contract Size (2)................. $23.2 $24.5 $26.6 $29.6 $32.8
Weighted Average Contract Rate (2)........ 11.55% 10.03% 10.68% 10.04% 9.52%
Number of Regional Offices (3)............ 23 26 35 38 40
</TABLE>
- -----------
(1) Does not include any portfolios acquired in bulk from third
parties. Includes only contracts originated by SPHSI or by Bank of America,
FSB through its BankAmerica Housing Services division or purchased from
dealers.
(2) Based on principal balance or Contract Rate, as applicable, at the
time of origination or purchase in the specified period.
(3) Includes regional offices in the United States originating or
purchasing manufactured housing contracts as of the end of the time period.
Servicing
Bank of America, FSB, through the manufactured housing regional office
system of its division, BankAmerica Housing Services, services all of the
manufactured housing contracts that it purchases or originates, whether on an
individual basis or in bulk. Generally, whenever any contracts are sold, Bank of
America, FSB will retain servicing responsibilities with respect to such
contracts. In addition, Bank of America, FSB has made arrangements, and is
actively seeking further arrangements, pursuant to which it services, or would
service, manufactured housing contracts owned by other entities. Such contracts
would not be purchased by Bank of America, FSB. Generally, such servicing
responsibilities are, and would be, carried out through the manufactured housing
regional office system of its division,
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<PAGE>
BankAmerica Housing Services. Bank of America, FSB, through its division,
BankAmerica Housing Services, also services contracts purchased on an individual
basis or in bulk by SPHSI or SPFSC, as well as those previously serviced (but
not owned) by SPHSI. Servicing responsibilities include collecting principal and
interest payments, taxes, insurance premiums and other payments from obligors
and, when such contracts are not owned by Bank of America, FSB, remitting
principal and interest payments to the owners thereof, to the extent such owners
are entitled thereto. Collection procedures include repossession and resale of
manufactured homes securing defaulted contracts (and foreclosure if land is
involved) and, if deemed advisable by Bank of America, FSB, entering into
workout arrangements with obligors under certain defaulted contracts. Although
decisions as to whether to repossess any manufactured home are made on an
individual basis, Bank of America, FSB's general policy is to institute
repossession procedures promptly after regional office personnel determine that
it is unlikely that a defaulted contract will be brought current, and thereafter
to diligently pursue the resale of such manufactured homes. See "- Delinquency
and Loan Loss/Repossession Experience" below and "The Seller(s)" in the
Prospectus Supplement for any Series of Certificates offered hereby for certain
historical statistical data relating to the delinquency and repossession
experience of the contracts serviced through the manufactured housing regional
office system of BankAmerica Housing Services division. The following table
shows the size of the portfolio of manufactured housing contracts serviced
(including contracts already in repossession) by the manufactured housing
regional office system of SPHSI and now Bank of America, FSB, acting through its
division, BankAmerica Housing Services, as of the dates indicated:
<TABLE>
<CAPTION>
Size of Serviced Portfolio
(Dollars in Thousands)
At December 31,
---------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Unpaid Principal Balance of Contracts Being $4,028,114 $4,337,902 $4,877,858 $6,739,285 $8,660,898
Serviced...............................
Average Unpaid Principal Balance.......... $18.6 $19.0 $19.8 $22.2 $24.4
Number of Contracts Being Serviced........ 216,714 228,452 246,572 303,739 355,664
</TABLE>
Delinquency and Loan Loss/Repossession Experience
The delinquency, repossession and loan loss experience shown in the
following tables for the periods referenced therein is for illustrative purposes
only, and there is no assurance that the delinquency, repossession or loan loss
experience of any Contracts sold to a Trust Fund will be similar to that set
forth below. Differences between the related Contract Pool and the serviced
portfolio as a whole as to interest rates, borrower characteristics and location
and type of collateral may result in significant differences in performance as
to delinquency, repossession and loan loss experience.
The following table sets forth the delinquency experience since 1992 of
manufactured housing contracts serviced through the manufactured housing
regional office system of SPHSI and now of Bank of America, FSB, acting through
its division, BankAmerica Housing Services (other than contracts already in
repossession as of the dates indicated):
<TABLE>
<CAPTION>
Delinquency Experience
At December 31,
---------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding (1)........................... 215,544 227,411 245,432 302,455 354,081
Number of Contracts Delinquent (2)
30-59 days................................................. 2,317 1,992 2,599 4,408 5,883
60-89 days................................................. 540 469 633 974 1,460
90 days or more............................................ 640 641 739 1,179 1,743
-------- -------- -------- -------- -----
Total Contracts Delinquent.................................... 3,497 3,102 3,971 6,561 9,086
Delinquencies as a Percentage of Contracts Outstanding (3).... 1.62% 1.36% 1.62% 2.17% 2.57%
</TABLE>
19
<PAGE>
- -----------
(1) Excludes contracts already in repossession.
(2) 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.
Excludes contracts already in repossession.
(3) By number of contracts, as of period end.
The following table sets forth the loan loss/repossession experience of
manufactured housing contracts serviced through the manufactured housing
regional office system of SPHSI and now Bank of America, FSB, acting through its
division, BankAmerica Housing Services (including contracts already in
repossession) as of the dates indicated:
<TABLE>
<CAPTION>
Loan Loss/Repossession Experience
(Dollars in Thousands)
Year Ended December 31,
-----------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of Contracts Serviced (1).......... 216,714 228,452 246,572 303,739 355,664
Principal Balance of Contracts Being
Serviced (1)........................... $4,028,114 $4,337,902 $4,877,858 $6,739,285 $8,660,898
Average Principal Recovery Upon Liquidation
(2).................................... 47.25% 45.61% 47.61% 50.92% 50.08%
Contract Liquidations (3)................. 2.93% 2.51% 2.19% 2.04% 2.49%
Net Losses (4): $107,996
Dollars................................ $75,435 $70,510 $63,601 $69,864 1.25%
Percentage (5)......................... 1.87% 1.63% 1.30% 1.04% 1,583
Contracts in Repossession................. 1,170 1,041 1,140 1,284
</TABLE>
- -----------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the outstanding principal balance of contracts that
were liquidated during the applicable period, based on the gross
amounts recovered upon liquidation less any liquidation proceeds
applied to unpaid interest accrued through the date of liquidation and
after the payment of repossession and other liquidation expenses.
(3) Number of contracts liquidated during the period as a percentage of the
total number of contracts being serviced as of period end. (4) The
calculation of net loss includes unpaid interest accrued through the
date of liquidation and all repossession and other liquidation
expenses. (5) The aggregate net loss amount as a percentage of the
principal balance of contracts being serviced as of period end.
BANK OF AMERICA, FSB'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF DELINQUENCY,
REPOSSESSION AND LOAN LOSS EXPERIENCE
The delinquency, repossession and loan loss experience exhibited by the
foregoing tables for the periods referenced therein are for illustrative
purposes only and there is no assurance that the delinquency, repossession or
loan loss experience of any Contracts sold to a Trust Fund will be similar to
that set forth above. Management has not observed any material economic
development in the general business environment of the country or in local areas
where Bank of America, FSB's manufactured housing contracts are originated which
have unfavorably affected portfolio performance in relation to delinquencies,
repossessions and loan losses during this period. Portfolio
20
<PAGE>
performance in these respects has been somewhat worse in Southern California
than in other geographical areas. As of March 31, 1997, contracts related to
manufactured homes located in Southern California represent 1.10% of Bank of
America, FSB's loan servicing portfolio based on the aggregate principal balance
of the contracts being serviced. In Southern California, the delinquencies as a
percentage of contracts outstanding were 2.62% and 2.21%, as of December 31,
1996 and March 31, 1997, respectively, as compared to 2.57% and 2.00% for the
portfolio as a whole for these periods. Losses on defaulted contracts as a
percentage of the aggregate principal balance of contracts being serviced in
Southern California for these periods were 10.62% and 2.54%, respectively, as
compared with 1.25% and .40% for the portfolio as a whole. Bank of America,
FSB's management believes that these differences reflect the adverse prevailing
economic conditions in Southern California during these periods, including job
losses and declines in real estate values. They also may in part result from
different minimum loan underwriting criteria used in underwriting loans in
California prior to July 1991. Prior to that date, SPHSI used more liberal loan
underwriting criteria in California in response to the underwriting practices of
competing lenders. Although these standards were used throughout California,
only the portion of the portfolio in Southern California has suffered materially
different delinquency and loss experience than the rest of the country. The
differing underwriting practices for California were discontinued in July 1991.
Presently, Bank of America, FSB is not actively originating contracts in
Southern California. In 1993, 1994, 1995 and 1996, loan originations in Southern
California were less than 3% of total originations, based on the number of
contracts.
No assurance can be given that local or national economic conditions
may not in the future adversely affect portfolio performance in these respects.
PREPAYMENT AND YIELD CONSIDERATIONS
Prepayment Considerations
Unless otherwise specified in the related Prospectus Supplement, the
Contracts in any Contract Pool may be prepaid in full or in part at any time.
The prepayment experience of the Contracts (including prepayments due to
liquidations of defaulted Contracts) will affect the average life and the
maturity of the related Certificates. Bank of America, FSB does not maintain
statistics with respect to the rate of prepayment of manufactured housing
contracts in its servicing portfolio, except for certain pools of manufactured
housing contracts sold by SPHSI, business predecessor of the BankAmerica Housing
Services division of Bank of America, FSB, and certain pools of manufactured
housing contracts sold by Bank of America, FSB, Bank of America or SPFSC for
which at least eighteen months of prepayment information is available. As to
such pools, the Prospectus Supplement for any Series of Certificates will
contain information concerning the historical rates of prepayment on
manufactured housing contracts in such pools through a date as to which such
information is available as of the date of such Prospectus Supplement. For
example, a Contract Pool might include Contracts with Contract Rates that are
generally higher or lower, in absolute terms or in comparison to prevailing
rates, than the contract rates of the contracts from which are derived certain
historical statistical data set forth in the Prospectus or Prospectus
Supplement. As a result, the prepayment performance of the Contracts contained
in that Contract Pool might be higher or lower than the prepayment performance
of the contracts reflected in the historical data. In addition, Housing
Services' management is aware of limited publicly available information relating
to historical rates of prepayment on manufactured housing contracts. However,
Bank of America, FSB's management believes that neither the prepayment
experience of other pools of manufactured housing contracts nor the historical
rates of prepayment for any other manufactured housing contracts will
necessarily be indicative of the rate of prepayment that may be expected to be
exhibited by the Contracts in any other Contract Pool. Nevertheless, Bank of
America, FSB's management anticipates that a number of Contracts will be prepaid
in full in each year during which any related Certificates are outstanding. The
amount of prepayments on such Contracts (including prepayments due to
liquidations of defaulted Contracts) during any particular year may be
influenced by a variety of economic, geographic, social and other factors,
including repossessions, aging, seasonality, interest rates and the rate at
which manufactured homeowners sell their manufactured homes. Other factors
affecting prepayments on such Contracts include changes in Obligors' housing
needs, job transfers, unemployment and Obligors' net equity in manufactured
homes. Because of the depreciating nature of manufactured housing, which limits
the possibilities for refinancing, and because the terms of manufactured housing
contracts are generally shorter than the terms for mortgage loans secured by
site-built homes (and changes in interest rates have a correspondingly smaller
effect on the monthly payments on manufactured housing contracts as opposed to
mortgage loans secured by site-built homes), changes in interest rates may play
a smaller role in
21
<PAGE>
prepayment behavior of manufactured housing contracts than they do in the
prepayment behavior of loans secured by mortgages on site-built homes.
Conversely, local economic conditions and certain of the other factors mentioned
above are likely to play a larger role in the prepayment behavior of
manufactured housing contracts than they do in the prepayment behavior of loans
secured by mortgages on site-built homes.
Repurchases of Contracts on account of certain breaches of
representations and warranties as described in the applicable Prospectus
Supplement also will have the effect of prepaying such Contracts and therefore
will affect the average life of and yield on the Certificates. See "Description
of the Certificates -- Conveyance of Contracts." In addition, most of the
Contracts contain provisions that prohibit the related owner from selling the
Manufactured Home without the prior consent of the holder of the related
Contract. Such provisions are similar to "due-on-sale" clauses and may not be
enforceable in certain states. See "Certain Legal Aspects of the Contracts --
Transfers of Manufactured Homes; Enforceability of Restrictions on Transfer"
herein. The Servicer's policy is to permit most sales of Manufactured Homes
where the proposed buyer meets the Servicer's then current underwriting
standards and enters into an assumption agreement.
To the extent provided in the related Prospectus Supplement, the
Servicer under each Agreement will have the option to purchase all of the
Contracts in the related Contract Pool, at the price and under the conditions
specified in such Prospectus Supplement, when the aggregate Pool Principal
Balance (as defined in the related Prospectus Supplement) of the Contract Pool
has been reduced to 10% of its initial Pool Principal Balance. The exercise of
any such option will affect the average life of and yield on the related
Certificates. To the extent provided in the related Prospectus Supplement, the
Trustee for the related Trust Fund shall solicit bids for the purchase of the
Contracts remaining in the Trust Fund at a Termination Auction (as defined
herein) within ninety days following the Distribution Date as of which the Pool
Principal Balance for a Contract Pool is less than 10% of such Contract Pool's
Cut-off Date Pool Principal Balance. The sale and consequent termination of the
related Trust Fund pursuant to a Termination Auction will affect the average
life and yield on the related Certificates.
The average life and maturity of the Certificates of any Class will
also be affected by the amount and timing of any Special Principal Distributions
to the holders of such Certificates. In addition, if any Certificate of a Class
is subject to mandatory repurchase, the occurrence of the Repurchase Date (as
hereinafter defined) for such Certificate will have the same effect as the
maturation of such Certificate (with the repurchase price being equivalent to
the amount due at maturity). See "Description of the Certificates --
Distributions on Certificates" and "Description of the Certificates -- Optional
and Mandatory Repurchase of Certificates; Termination Auction" herein. The
Prospectus Supplement relating to any Class that is entitled to Special
Principal Distributions or is subject to mandatory repurchase will contain a
description of the conditions under which such distributions or repurchases will
take place and a description of some of the factors that might affect the rate
of Special Principal Distributions or the timing of any Repurchase Dates.
Information regarding the "Prepayment Model" (to be defined in the
related Prospectus Supplement) or any other rate of assumed prepayment, as
applicable, will be set forth in the Prospectus Supplement applicable to the
relevant Class or Classes of Certificates offered hereby.
Yield Considerations
To the extent that any credit enhancement or any advancing obligation
of the Servicer described in the related Prospectus Supplement is insufficient
to protect the holders of any Class of Certificates from losses or delinquencies
on the related Contract Pool, the yield to such holders from their investment in
such Certificates will be adversely affected should such losses or delinquencies
occur. In the absence of losses or delinquencies which are not covered by credit
enhancement or advances, respectively, on a Distribution Date, the effective
yield on the Certificates will depend upon, among other things, the price at
which the Certificates are purchased, the rate at which the Contracts for the
related Trust Fund liquidate or are prepaid and the amount and timing of any
Special Principal Distributions. If a purchaser of Certificates purchases them
at a discount (premium) and calculates its anticipated yield to maturity based
on an assumed rate of distributions of principal on such Certificates that is
faster (slower) than the rate actually realized, such purchaser's actual yield
to maturity will be lower than the yield so calculated by such purchaser. Losses
which are covered by credit enhancement, but on later than anticipated
Distribution Dates, will have the same effect on anticipated yield as
prepayments that are made later than anticipated, as just described, depending
on whether the Certificates were purchased at a discount or premium.
22
<PAGE>
The yield to holders of any Class of Certificates may be below that
otherwise produced by the applicable Pass-Through Rate because, while, in the
absence of losses or delinquencies, one month's interest on the related
Contracts will be collected during each Collection Period, the portion of such
interest to which the holders of such Certificates are entitled will not be
distributed until the first Distribution Date after such Collection Period.
If a Certificate is subject to mandatory repurchase, the yield to the
Repurchase Date will be affected by, among other things, the applicable
repurchase price, the ability of any Liquidity Facility Provider (as hereinafter
defined) to distribute the repurchase price and the date, if any, on which the
Repurchase Date occurs. If, in connection with a mandatory repurchase, the
repurchase price for a Certificate is equal to its Percentage Interest (as
hereinafter defined) of the then current Certificate Balance, and the
Certificate is purchased at a discount, and the purchaser calculates its
anticipated yield to the Repurchase Date based on an assumed Repurchase Date
that is earlier than the actual Repurchase Date, then such purchaser's actual
yield to maturity will be lower than it would have been if a repurchase occurred
on the assumed date.
The payment features of the Contracts comprising any Contract Pool (as
described above under "The Contract Pools") may, under certain extraordinary
circumstances, cause the amounts collected thereon during particular Collection
Periods to be insufficient to fund all distributions of principal and interest
to the holders of some or all of the Certificates of the related Series, even in
the absence of losses or delinquencies. Such circumstances could occur if a
sufficiently large number of partial or full prepayments, as a percentage of the
then outstanding Pool Principal Balance of the related Contract Pool, are
received on Contracts in a particular Collection Period, if such prepayments are
made in advance of such Contracts' respective Due Dates during such Collection
Period. In such case, a non-default collection shortfall could occur because
interest that actually accrues on such Contracts is less than interest that
would have accrued if the payments were paid on the Contracts' respective Due
Dates. A non-default collection shortfall could adversely affect the yield to
holders of any Class of Certificates to the extent such shortfalls are not
covered by credit enhancement or advances.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate
Agreement. The following summaries describe certain provisions expected to be
common to each Agreement and the related Certificates, but do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the related Agreement and the description set forth in the
related Prospectus Supplement. Section references contained herein refer to
sections of the form of Agreement filed as an exhibit to the Registration
Statement. The Prospectus Supplement for each Series will describe the specific
material provisions of the Agreement relating to such Series. Capitalized terms
used 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. 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 subclass
within a Series or all of the Certificates of a single-Class Series, as the
context may require.
The Certificates will be issued in the denominations specified in the
related Prospectus Supplement. (Section 6.02.) The "Percentage Interest" of a
Certificate is the percentage obtained from dividing the original denomination
of such Certificate by the initial principal balance of all of the Certificates
of such Class. Interest-only Certificates will have no Percentage Interest.
Certificates, if issued in registered form ("Definitive Certificates") to
Certificate Owners or nominees thereof, will be transferable and exchangeable at
the corporate trust office of the
23
<PAGE>
Trustee or, if it so elects, at the office of an agent in New York, New York.
(Sections 6.02 and 9.11.) 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. (Section 6.02.)
The Certificates of each Series will evidence an interest, as specified
in the related Prospectus Supplement, in a Trust Fund. Each Trust Fund will
include (i) a Contract Pool, including certain rights to receive payments on the
Contracts comprising such Contract Pool on and after the Cut-off Date, (ii) the
amounts held from time to time in the "Certificate Account" (as described in the
applicable Prospectus Supplement under "-- Payment on Contracts; 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, (iv) the obligations of Bank of America, Bank of America,
FSB or both of them, as applicable, under certain conditions, to repurchase
Contracts sold by it with respect to which certain representations and
warranties have been breached and not cured, (v) certain contractual servicing
obligations of the Servicer, (vi) the proceeds of all insurance policies
described herein and (vii) if applicable, one or more forms of credit support.
Bank of America, Bank of America, FSB or both of them, as applicable,
will convey the Contracts to the Trustee. See "The Contract Pools" herein and
"-- Conveyance of Contracts" below. Bank of America, FSB, acting through its
division, BankAmerica Housing Services, 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.
Conveyance of Contracts
On the date of initial issuance of the Certificates of a Series, Bank
of America, FSB, Bank of America, or both of them will sell to the Trustee,
without recourse, all right, title and interest of Bank of America, FSB or Bank
of America, as the case may be, in and to the Contracts sold by it, and all
rights under the standard hazard insurance policies on the related Manufactured
Homes. The conveyance of the Contracts to the Trustee will include a conveyance
of all rights to receive Scheduled Payments thereon that were due on or after
the Cut-off Date, even if received prior to the Cut-off Date, as well as all
rights to any payments received on or after the Cut-off Date other than late
receipts of Scheduled Payments that were due prior to the Cut-off Date. The
Contracts will be described on a schedule attached to the Agreement (the
"Contract Schedule"). The Contract Schedule will include the principal balance
of each Contract as of the Cut-off Date, the amount of each Scheduled Payment
due on each Contract as of the Cut-off Date, the Contract Rate on each Contract
(determined as of the Cut-off Date) and the maturity date of each Contract.
Prior to the conveyance of the Contracts to the Trustee, BankAmerica Housing
Services division's operations department will be required to complete a review
of all of the originals of the Contracts, the certificates of title to, or other
evidence of a perfected security interest in, the Manufactured Homes, any
related Mortgages, if any, and any assignments or modifications of the foregoing
(collectively, the "Contract Files") confirming the accuracy of the Contract
Schedule delivered to the Trustee. Any Contract discovered not to agree with
such schedule in a manner that is materially adverse to the interests of the
Certificateholders will be repurchased by Bank of America or Bank of America,
FSB, as applicable, or replaced with another Contract, except that if the
discrepancy relates to the principal balance of a Contract (determined as
described above), Bank of America or Bank of America, FSB, as applicable, may,
under certain conditions, deposit cash in the Certificate Account in an amount
sufficient to offset such discrepancy. The Trustee will not review the Contract
Files. (Section 2.01.)
The Servicer will hold, as custodian and agent on behalf of the
Trustee, the original Contracts and copies of documents and instruments relating
to each Contract and the security interest in the Manufactured Home, and real
property, if any, relating to each Contract. In order to give notice of the
Trustee's right, title and interest in and to the Contracts, a UCC-1 financing
statement identifying the Trustee as the secured party and identifying all the
Contracts as collateral will be filed in the appropriate office in the
appropriate states. The Contracts will be stamped or otherwise marked to reflect
their assignment to the Trustee. To the extent that the Contracts do not
constitute "chattel paper" within the meaning of the UCC as in effect in the
applicable jurisdictions or to the extent that the Contracts do constitute
chattel paper and a subsequent purchaser is able to take physical possession of
the Contracts without notice of such assignment, the Trustee's interest in the
Contracts could be defeated. See "Certain Legal Aspects of the Contracts --
Security Interests in the Manufactured Homes" and "Land Home and Land-in-Lieu
Contracts" herein.
24
<PAGE>
Bank of America, Bank of America, FSB or both of them, as applicable,
will make certain representations and warranties to the Trustee with respect to
each Contract sold by it. The applicable Prospectus Supplement will describe the
representations and warranties made by Bank of America, Bank of America, FSB or
both of them in connection with the Contracts conveyed to the related Trust
Fund, the terms pursuant to which Bank of America or Bank of America, FSB, as
the case may be, will be obligated to repurchase, at the price specified
therein, any Contract sold by it if any such representation and warranty has
been breached (unless such breach has been cured or otherwise is not required to
be cured), and the terms pursuant to which Bank of America or Bank of America,
FSB may remedy any such breach. (Section 3.05.)
Payments on Contracts
The applicable Prospectus Supplement will specify the arrangements
pursuant to which Contract collections are held pending distribution to
Certificateholders. (Section 4.05.) Certain Contract collections will be applied
to pay the Servicer's servicing compensation and to reimburse it for certain
expenses, as set forth in each Prospectus Supplement and as set forth herein
under "-- Servicing Compensation and Payment of Expenses; Certain Matters
Regarding the Servicer" below.
If so provided in the applicable Prospectus Supplement, for as long as
Bank of America, FSB remains the Servicer under the Pooling and Servicing
Agreement and Bank of America, FSB maintains the minimum short-term rating from
a nationally recognized statistical rating organization specified in the
applicable Prospectus Supplement, the Servicer may use payments in respect of
principal and interest received on the Contracts for its own benefit until the
related Distribution Date without an obligation to pay interest or any other
investment return, it being understood that any benefit to Bank of America, FSB
from this arrangement shall be additional servicing compensation. While such
rating is maintained, on or prior to each Distribution Date, the Servicer will
deposit in the Certificate Account amounts which are to be included in the funds
available for the related Distribution Date. If so provided in the applicable
Prospectus Supplement, amounts deposited in the Certificate Account may be
invested in Permitted Investments (as described in the Pooling and Servicing
Agreement) maturing no later than the related Distribution Date.
If the Servicer is entitled to delay payments to the Certificate
Account as described above, but its short-term rating does not satisfy the
rating requirements specified above, the Servicer may, if permitted in the
applicable Prospectus Supplement, continue to hold collections prior to
distribution as described above so long as the Servicer causes to be maintained
an irrevocable letter of credit or surety bond or other credit enhancement
instrument in form and substance satisfactory to the rating agency, issued by a
depository institution or insurance company having the minimum rating from a
nationally recognized statistical rating organization specified in the
applicable Prospectus Supplement and providing that the Trustee may draw thereon
in the event that Bank of America, FSB, as Servicer, fails to make any deposit
or payment required under the Pooling and Servicing Agreement.
Distributions on Certificates
The Certificates of any Class will entitle the holders thereof to
distributions, on the Distribution Dates specified in the related Prospectus
Supplement, from amounts collected on the underlying Contracts. The Certificates
of a Class may entitle the holders thereof to (a) distributions of both
principal and interest, (b) distributions of principal only, or (c)
distributions of interest only. Such distributions will be made in accordance
with a formula described in the related Prospectus Supplement, and, unless
otherwise specified in such Prospectus Supplement, such distributions will be
applied first to interest, if any, and second to principal, if any. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of the Certificates of one or more Classes of a multiple Class Series to receive
distributions of principal or of interest or of both from amounts collected on
the Contracts may be subordinate to such rights of the holders of Certificates
of one or more other Classes. See "Credit and Liquidity Enhancement" herein.
A. Distributions of Principal. If the Certificates of a Class entitle the
holders thereof to distributions of principal, the related Prospectus Supplement
will specify an initial aggregate Certificate Balance for the Certificates of
such Class and a method of computing the amount of principal, if any, to be
distributed to the holders of such Certificates on each Distribution Date.
Unless otherwise specified in the related Prospectus Supplement, principal
distributions for the Certificates of a Class will be computed on the basis of a
formula which, on each Distribution Date, allocates all or a
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portion of the Total Regular Principal Amount relating to such Distribution Date
to the Certificates of such Class. The "Total Regular Principal Amount" is the
total amount by which the aggregate outstanding principal balance of the
Contracts in the related Contract Pool is reduced during one or more collection
periods prior to such Distribution Date designated in such Prospectus Supplement
(each, a "Collection Period"). Such reduction may occur as a result of
actuarially predetermined scheduled principal reductions, receipt of principal
prepayments, liquidation of Contracts, repurchases of Contracts under certain
conditions, losses on Contracts, the failure of a third party credit support
provider, if any, to make a required payment, or a combination of any of the
foregoing events. See "The Contract Pools" and "-- Servicing Compensation and
Payment of Expenses; Certain Matters Regarding the Servicer" herein.
Distributions with respect to all or a portion of the Total Regular Principal
Amount are sometimes referred to herein as distributions of "Regular Principal."
The Total Regular Principal Amount with respect to any Contract Pool and any
Distribution Date may be estimated in a manner specified in the related
Prospectus Supplement.
If, due to liquidation losses or other circumstances adversely
affecting the collections on the underlying Contract Pool, the Contract
collections available on any Distribution Date to make distributions of Regular
Principal to the holders of the Certificates of a Class are less than the
portion of the Total Regular Principal Amount allocable to such Class, the
deficiency may be made up from (i) the amount ("Excess Interest"), if any, by
which the interest collected on nondefaulted Contracts during the same
Collection Period exceeds the interest distribution due to the holders of the
Certificates for the related Series and the Monthly Servicing Fee (as defined
hereinafter and in the related Prospectus Supplement), or (ii) funds available
from one or more forms of credit support referred to below, but only to the
extent, if any, specified in the applicable Prospectus Supplement. See "Credit
and Liquidity Enhancement" herein. If specified in the applicable Prospectus
Supplement, the Certificate Balance of the Certificates of a Class will be
reduced on each Distribution Date by the full amount of the portion of the Total
Regular Principal Amount allocable to such Class even if, due to deficient
Contract collections, a full distribution thereof is not made.
The applicable distribution formula for each Class of a multiple-Class
Series may allocate the Total Regular Principal Amount among the various Classes
on a pro rata, sequential or other basis, as specified in the related Prospectus
Supplement. If specified in the related Prospectus Supplement, any such formula
may entitle the holders of Certificates of a particular Class to receive on
certain Distribution Dates, distributions of Regular Principal from particular
sources of funds (e.g., one or more of the forms of credit support referred to
below) upon the occurrence of certain losses or delinquencies, even if the
holders of the Certificates of such Class would not have been entitled to
receive principal distributions on such Distribution Dates from amounts
collected on the underlying Contracts in the absence of such losses or
delinquencies.
If specified in the applicable Prospectus Supplement, the Certificates
of a Class may entitle the holders thereof to special principal distributions on
particular Distribution Dates that are unrelated to the Total Regular Principal
Amount for any such Distribution Date ("Special Principal Distributions").
Special Principal Distributions may be made, under the circumstances set forth
in the applicable Prospectus Supplement, from interest collected on the
underlying Contract Pool, from funds available from one or more forms of credit
support or from any other source specified in such Prospectus Supplement. The
Certificates of a Class having an initial Certificate Balance may entitle the
holders thereof to distributions of Regular Principal only, to distributions of
Regular Principal and to Special Principal Distributions or to Special Principal
Distributions only. However, unless otherwise stated in the related Prospectus
Supplement, the Certificates of a Class will not entitle the holders thereof to
aggregate principal distributions in excess of the initial Certificate Balance
for such Class.
B. Distributions of Interest. The distribution formula for a Class of
Certificates having an initial Certificate Balance may, but need not, also
specify a method of computing the interest, if any, to be distributed on
specified Distribution Dates (which may include all or less than all of the
Distribution Dates) to the holders of the Certificates of such Class. Such
interest may be equal, subject to such adjustments as may be described in the
related Prospectus Supplement, to a specified number of days' interest on the
applicable Certificate Balance (before giving effect to any reduction thereof on
such Distribution Date), calculated at a rate (the "Pass-Through Rate")
specified in the related Prospectus Supplement. The Pass-Through Rate may be
fixed or variable, and, if specified in the related Prospectus Supplement, may
shift from a variable rate to a fixed rate under the conditions specified in
such Prospectus Supplement. Variable Pass-Through Rates may vary from time to
time based upon changes in an index or other measure of certain market rates,
all as more fully described in the related Prospectus Supplement. In that case,
the time period between
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Pass-Through Rate adjustments (each, a "Rate Period") and the specific basis on
which the Pass-Through Rate for each Rate Period will be determined (including
the particular market rates and measures thereof relevant for determining the
Pass-Through Rate for each Rate Period) may remain constant or may change from
time to time at the election of the Servicer or otherwise, all as specified in
the related Prospectus Supplement. Variable Pass-Through Rates may also vary
from time to time, in the manner specified in the related Prospectus Supplement,
based upon changes in the weighted average of the Contract Rates of the
Contracts in the related Contract Pool or on any other basis. To the extent set
forth in the related Prospectus Supplement, variable Pass-Through Rates may also
have floor rates and/or ceiling rates which may be fixed or subject to
adjustment as set forth in such Prospectus Supplement. In addition, a variable
Pass-Through Rate may be converted to a fixed Pass-Through Rate at the election
of the Sellers or upon the occurrence of certain conditions. In that event, the
related Prospectus Supplement will set forth the conditions under which the
variable Pass-Through Rate may be converted to a fixed Pass-Through Rate.
Rather than entitling the holders thereof to receive distributions of
interest based upon a Pass-Through Rate, the distribution formula for the
Certificates of a Class may entitle the holders thereof to distributions of
interest on specified Distribution Dates (which may include all or less than all
of the Distribution Dates) equal, in the case of any such Distribution Date, to
all or a portion (which portion will be determined as described in the related
Prospectus Supplement) of the interest payable on the related Contracts during
one or more Collection Periods occurring prior to such Distribution Date.
Classes of Certificates that do not entitle the holders thereof to receive
distributions of principal may nevertheless entitle such holders to receive
interest distributions calculated on this basis.
If, due to liquidation losses or other circumstances adversely
affecting the collections on the underlying Contract Pool, the Contract
collections available to make distributions of interest to the holders of the
Certificates of a Class are less than the amount of interest computed as
described above, the deficiency may be made up from other sources, but only to
the extent, if any, specified in the applicable Prospectus Supplement. See
"Credit and Liquidity Enhancement" herein.
Each Prospectus Supplement will contain information relating to the
full amounts of principal and interest required to be distributed to the holders
of the related Class or Classes of Certificates, to the extent there are
sufficient Contract collections available therefor (sometimes referred to herein
as "full distributions"), to the amounts paid or payable on the underlying
Contracts.
C. Residual Interests. If specified in the related Prospectus Supplement, a
Class of Certificates sold hereunder may evidence a residual interest in the
related Trust Fund (the "Residual Interest"). Certificates evidencing a Residual
Interest will not have the features described above. Rather, unless otherwise
specified in such Prospectus Supplement, such Certificates will entitle the
holders thereof to receive distributions from amounts collected on the Contracts
which would not be needed to make distributions to the holders of other
interests in the Trust Fund (or to pay expenses of the Trust Fund) in the
absence of liquidation losses or other events resulting in deficient Contract
collections. In addition, if specified in such Prospectus Supplement, any such
Certificates may also entitle the holders thereof to receive additional
distributions of assets of the related Trust Fund, to the extent any such assets
remain after being applied to make distributions to the holders of other
interests in the Trust Fund (or to pay expenses of the Trust Fund). The
Certificates evidencing a Residual Interest may entitle the holders thereof to
distributions at various times throughout the life of the related Trust Fund or
only upon termination of the Trust Fund, all as more fully set forth in the
related Prospectus Supplement. If an election is made to treat the related Trust
Fund as a REMIC (as hereinafter defined), the holders of a Residual Interest in
such Trust Fund will be subject to federal income taxation with respect to their
ownership of such Residual Interest as described herein under "Certain Federal
Income Tax Consequences -- REMIC Certificates -- D. Taxation of Residual
Certificates."
Global Certificates
Unless otherwise specified in the applicable 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") that are initially registered in the name of Cede & Co. ("Cede"),
as nominee of The Depository Trust Company ("DTC"), on behalf of the beneficial
owners (the "Certificate Owners") of the Certificates. DTC is a limited-purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve
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System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Certificate Owners who are not Participants but desire to purchase,
sell or otherwise transfer ownership of Certificates may do so only through
Participants (unless and until Definitive Certificates are issued). In addition,
Certificate Owners will receive all distributions of principal of, and interest
on, the Certificates from the Trustee through DTC and Participants. Certificate
Owners will not receive or be entitled to receive certificates representing
their respective interests in the Certificates, except under the limited
circumstances described below. In addition, if some or all of the Certificates
of a Series are issued in the form of one or more Global Certificates, certain
monthly and annual reports prepared by the Servicer under the related Agreement
will be sent on behalf of the related Trust Fund to Cede and not to the
Certificate Owners.
Unless and until Definitive Certificates are issued, it is anticipated
that the only "Certificateholder" of the Certificates will be Cede, 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 the rights
of Certificateholders indirectly through Participants and DTC.
Unless otherwise specified in the related Prospectus Supplement, while
the Certificates are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "DTC Rules"), Participants are required to make
book-entry transfers through DTC's facilities with respect to the Certificates,
and DTC as the sole holder of the Certificates is required to receive and
transmit distributions of principal of, and interest on, the Certificates.
Unless and until Definitive Certificates are issued, Certificate Owners who are
not Participants may transfer ownership of Certificates only through
Participants by instructing such Participants to transfer Certificates, by
book-entry transfer, through DTC for the account of the purchasers of such
Certificates, which account is maintained with their respective Participants.
Under the DTC Rules and in accordance with DTC's normal procedures, transfers of
ownership of Certificates will be executed through DTC, and the accounts of the
respective Participants at DTC will be debited and credited.
Definitive Certificates will be issued to Certificate Owners, or their
nominees, rather than to DTC, only if (i) the Servicer advises the Trustee in
writing that DTC is no longer willing or qualified to discharge properly its
responsibilities as nominee and depository with respect to the Certificates and
the Servicer or the Trustee is unable to locate a qualified successor, (ii) the
Sellers, at their option, jointly elect to terminate the book-entry system
through DTC, or (iii) after the occurrence of an Event of Default (See "--
Servicing Compensation and Payment of Expenses; Certain Matters Regarding the
Servicer -- Events of Default" below), Certificate Owners having a majority in
Percentage Interests of each Class of the Certificates advise the Trustee and
DTC through the Participants, in writing, that the continuation of a book-entry
system through DTC (or a successor thereto) to the exclusion of any physical
certificates being issued to Certificate Owners is no longer in the best
interests of Certificate Owners. Upon issuance of Definitive Certificates to
Certificate Owners, such Certificates will be transferable directly (and not
exclusively on a book-entry basis), and registered holders will deal directly
with the Trustee with respect to transfers, notices and distributions.
Except as otherwise specified in the related Prospectus Supplement,
unless and until Definitive Certificates are issued, DTC will take any action
permitted to be taken by a Certificateholder under the Agreement only at the
direction of one or more Participants to whose DTC accounts the Certificates are
credited and will take such action with respect to any Percentage Interests of
the Certificates only at the direction of and on behalf of such Participants
with respect to such Percentage Interests of the Certificates. DTC may take
actions, at the direction of the related Participants, with respect to some
Certificates which conflict with actions taken with respect to other
Certificates.
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Optional and Mandatory Repurchase of Certificates; Optional Termination and
Termination Auction
A. Optional Repurchase. Unless otherwise specified in the applicable Prospectus
Supplement, the Servicer for any Trust Fund will have the option to repurchase,
upon giving notice mailed no later than the Distribution Date next preceding the
month of the exercise of such option, all outstanding Contracts after the first
Distribution Date on which the Pool Scheduled Principal Balance (as defined
hereinafter) is less than 10% of the initial Pool Principal Balance on the
Cut-off Date. The price at which the Servicer for such Trust Fund may repurchase
the related Contracts will equal the greater of (a) the sum of (x) 100% of the
Pool Scheduled Principal Balance of each Contract (other than any Contract as to
which the related Manufactured Home has been acquired and not yet disposed of
and whose fair market value is included pursuant to clause (y) below) as of the
final Distribution Date, and (y) the fair market value of such acquired property
(as determined by the Servicer) and (b) the aggregate fair market value (as
determined by the Servicer) of all of the assets of such Trust Fund, plus, in
the case of both clause (a) and (b), an amount sufficient to reimburse
Certificateholders for each outstanding Class for any shortfall in interest due
thereto in respect of prior Distribution Dates. Notwithstanding the foregoing,
the Servicer's option shall not be exercisable if there will not be distributed
to the Certificateholders for each outstanding Class an amount equal to the
aggregate Certificate Balance for each outstanding Class together with any
shortfall in interest due to such Certificateholders in respect of prior
Distribution Dates and one month's interest on the aggregate Certificate Balance
for each outstanding Class at the respective Pass-Through Rates for such Classes
(the "Minimum Termination Amount"). See "Description of the Certificates --
Optional Termination" in the related Prospectus Supplement. (Section 10.01.)
B. Mandatory Repurchase. Some or all of the Certificates of a Class may be
subject to repurchase by or on behalf of the Sellers at the option of the
holders thereof and/or at the option of the Sellers, but only to the extent, at
the prices, on the dates and under the conditions specified in the related
Prospectus Supplement. In addition, some or all of the Certificates of a Class
may be subject to mandatory repurchase by or on behalf of the Sellers to the
extent, at the prices, on the dates and under the conditions specified in the
related Prospectus Supplement. On the date on which any Certificate is subject
to repurchase (the "Repurchase Date") the holder thereof will cease to be
entitled to any benefit of the Certificate or the related Agreement and will be
entitled only to receive from the Trustee the repurchase price of the
Certificate upon surrender thereof at the office or agency designated by the
Trustee. To the extent specified in the related Prospectus Supplement, the funds
necessary to distribute the repurchase price of any Certificate subject to
mandatory or optional repurchase as described therein will be provided under a
certificate purchase agreement or other Liquidity Facility as described in
"Credit and Liquidity Enhancement" herein.
C. Optional or Mandatory Termination Auction. If specified in the applicable
Prospectus Supplement, on any Distribution Date after the Distribution Date on
which the Pool Scheduled Principal Balance is less than 10% of the Cut-off Date
Pool Principal Balance, the Servicer will, in addition to the option to
repurchase the Contracts discussed above, have the option to direct the Trustee
to solicit bids for the purchase at an auction (the "Termination Auction") of
the Contracts remaining in the Trust Fund. Unless the Servicer has either
exercised the option to repurchase the Contracts or directed the Trustee to
conduct a Termination Auction within 90 days of the Distribution Date on which
the Pool Scheduled Principal Balance is less than 10% of the Cut-off Date Pool
Principal Balance, the Servicer shall, to the extent specified in the related
Prospectus Supplement, be obligated to direct the Trustee to conduct such a
Termination Auction. In any Termination Auction, the Servicer shall give notice
as specified in the applicable Prospectus Supplement before the date on which
the Termination Auction is to occur. The Trustee will solicit each
Certificateholder, the Seller[s] and one or more active participants in the
asset-backed securities or manufactured housing contract market that are not
affiliated with BankAmerica Corporation to make a bid to purchase the Contracts
at the Termination Auction. The Trustee will sell all the Contracts to the
highest bidder, subject, among other things, to: (i) the requirement that the
highest bid equal or exceed the Minimum Termination Amount, and (ii) the
requirement that at least one bid be tendered by an active participant in the
asset-backed securities or manufactured housing contract market that is not
affiliated with BankAmerica Corporation. If the foregoing requirements are
satisfied, the successful bidder or bidders shall deposit the aggregate purchase
price for the Contracts in the Certificate Account. If the foregoing
requirements are not satisfied, the purchase shall not occur and distributions
will continue to be made on the Certificates. Any sale and consequent
termination of the Trust Fund as a result of a Termination Auction must
constitute a "qualified liquidation" of the Trust Fund under Section 860F of the
Code. (Section 10.1)
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Termination of the Agreement
The Agreement will terminate upon the last action required to be taken
by the Trustee on the final Distribution Date following the earlier of (i) the
purchase or sale of all Contracts and all property acquired in respect of any
Contract remaining in the Trust Fund as described above under "-- Optional and
Mandatory Repurchase of Certificates; Termination Auction" or (ii) the final
payment or other liquidation (or any advance with respect thereto) of the last
Contract remaining in the relevant Trust Fund (including the disposition of all
property acquired upon repossession of any Manufactured Home). (Section 10.01.)
In the event of the termination of any Agreement, the holders of
Certificates of any Class of the related Series will be entitled to receive,
upon presentation and surrender of their Certificates at the office or agency
designated by the Trustee, a final distribution in an amount computed as
described in the related Prospectus Supplement.
Collection and Other Servicing Procedures
Except as otherwise provided in the related Agreement, the Servicer may
rescind, cancel or make material modifications of the terms of a Contract
(including modifying the amounts and Due Dates of Scheduled Payments) in
connection with a default or imminent default thereunder. However, unless
otherwise specified in the related Prospectus Supplement and unless required by
the applicable law or to bring Contracts into conformity with the
representations and warranties contained in the Agreement, the Servicer may not
rescind, cancel or materially modify any Contract unless the Servicer obtains an
opinion of counsel to the effect that such action will not have certain adverse
federal income tax consequences. (Section 4.07.)
Servicing Compensation and Payment of Expenses; Certain Matters Regarding the
Servicer
The monthly servicing fee (the "Monthly Servicing Fee") and any
additional servicing compensation with respect to the Contracts underlying a
Series of Certificates will be specified in the applicable Prospectus
Supplement. (Section 1.01.)
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 administrative 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 to Certificateholders and providing related
data processing and reporting services for Certificateholders and on behalf of
the Trustee. Unless otherwise specified in the applicable Prospectus Supplement,
expenses incurred in connection with servicing the Contracts and paid by the
Servicer from its Monthly Servicing Fee include, without limitation, payment of
fees and expenses of accountants, payment of all fees and expenses incurred in
connection with the enforcement of Contracts (except liquidation expenses and
certain other expenses) and payment of expenses incurred in connection with
distributions and reports to Certificateholders. The Servicer will be reimbursed
out of the liquidation proceeds from a defaulted Contract for all reasonable,
out-of-pocket liquidation expenses incurred by it in realizing upon the related
Manufactured Home as well as for advances of taxes and insurance premiums
previously made with respect to any such Contract (to the extent not previously
recovered).
Unless otherwise specified in the related Prospectus Supplement, 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. (Sections 4.15 and
5.03.) To the extent specified in the related Prospectus Supplement, the
Servicer will also be entitled to use payments of principal and interest
(including Liquidation Proceeds net of Liquidation Expenses) for its own
benefit, without an obligation to pay interest or any other investment return
thereon, until the related Distribution Date.
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Unless otherwise specified in the applicable Prospectus Supplement, 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 $50 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 (whereupon it will no
longer be liable for the obligations of the Servicer under the Agreement),
provided that, among other conditions, any rating assigned to the Certificates
will not be reduced because of such assignment and delegation. (Sections 7.04,
7.06 and 7.07.)
A. Hazard Insurance Policies. Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be obligated to cause to be maintained
one or more hazard insurance policies with respect to each Manufactured Home in
an amount at least equal to the lesser of its maximum insurable value or the
principal amount due from the Obligor under the related Contract. Such hazard
insurance policies will, at a minimum, provide fire and extended coverage on
terms and conditions customary in manufactured housing hazard insurance
policies. If a Manufactured Home is located within a federally designated flood
area, the Servicer will, to the extent required by applicable law or regulation,
also be obligated to cause flood insurance to be maintained in an amount equal
to the lesser of the amounts described above or the maximum amount available for
such Manufactured Home under the federal flood insurance programs. Such policies
may provide for customary deductible amounts. Coverage thereunder will be
required to be sufficient to avoid the application of any co-insurance
provisions. Such policies will be required to contain a standard loss payee
clause in favor of the Servicer and its successors and assigns. In general, the
Servicer will not be obligated to cause to be obtained and maintained hazard
insurance policies that provide earthquake coverage. If earthquake coverage is
required with respect to Contracts in a particular Trust Fund, that fact will be
disclosed in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, all
amounts collected by the Servicer under a hazard or flood insurance policy will
be applied either to the restoration or repair of the Manufactured Home or
against the remaining principal balance of the related Contract upon
repossession of the Manufactured Home, after reimbursing the Servicer for
amounts previously advanced by it for such purposes. The Servicer may satisfy
its obligation to maintain hazard and flood insurance policies with respect to
each Manufactured Home by maintaining a blanket policy insuring against hazard
and flood losses on the related Obligor's interest in such Manufactured Home.
Such blanket policy may contain a deductible clause, in which case the Servicer
will be required to make payments to the related Trust Fund in the amount of any
deductible amounts in connection with insurance claims on repossessed
Manufactured Homes.
Unless otherwise specified in the related Prospectus Supplement, if the
Servicer repossesses a Manufactured Home on behalf of the Trustee, the Servicer
is required to either maintain a Hazard Insurance Policy with respect to such
Manufactured Home meeting the requirements set forth above, or to indemnify the
Trust Fund against any damage to such Manufactured Home prior to resale or other
disposition. (Section 4.09.)
B. Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, the Servicer will be required to deliver to the Trustee
each year an officer's certificate executed by an officer of the Servicer (i)
stating that a review of the activities of the Servicer during the preceding
calendar year and of performance under the Agreement has been made under the
supervision of such officer, and (ii) stating that to the best of such officer's
knowledge, the Servicer has fulfilled all its obligations under the Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof. Such officer's certificate will be accompanied by a
statement of a firm of independent public accountants to the effect that, on the
basis of an examination of certain documents and records relating to servicing
of the Contracts under the Agreement (or, at the Servicer's option, the
Contracts and other contracts being serviced by the Servicer under agreements
similar to the Agreement), conducted in accordance with generally accepted
auditing standards, the Servicer's servicing has been conducted in compliance
with the provisions of the Agreement (or such agreements), except (i) such
exceptions as such firm believes to be immaterial and (ii) such other exceptions
as may be set forth in such statement. (Sections 4.20 and 4.21.)
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C. Events of Default. Unless otherwise specified in the related Prospectus
Supplement, events of default under the Agreement will consist of (i) any
failure by the Servicer to make any deposit or payment required of it under the
Agreement which continues unremedied for five days after the giving of written
notice, (ii) any failure by the Servicer duly to observe or perform in any
material respect any of its other covenants or agreements in the Agreement which
continues unremedied for 30 days after the giving of written notice of such
failure, and (iii) certain events of insolvency, readjustment of debt,
marshaling of assets and liabilities or other similar proceedings regarding the
Servicer. Unless otherwise specified in the related Prospectus Supplement,
"notice" as used in this paragraph means notice to the Servicer by the Trustee,
the Sellers or, if applicable, the Credit Facility Provider, or to the Servicer,
the Trustee and the Sellers by the holders of Certificates evidencing interests
("Fractional Interests") in the outstanding principal balance of outstanding
Certificates that, in the aggregate, equal at least 25% of the principal balance
of all outstanding Certificates (excluding Certificates held by the Sellers,
Bank of America, FSB, through its division, BankAmerica Housing Services (as
well as any successor Servicer, if Bank of America, FSB is not the Servicer) or
any of their respective affiliates). (Section 8.01.)
D. Rights Upon Event of Default. Unless otherwise specified in the related
Prospectus Supplement so long as an event of default remains unremedied, the
Trustee may (but only with the consent of the Credit Facility Provider (if any)
if the Credit Facility has not expired or if the Credit Facility has expired or
been terminated and such Credit Facility Provider has not been reimbursed for
all amounts due it), and at the written direction of the holders of Certificates
evidencing Fractional Interests aggregating not less than 51% shall, terminate
all of the rights and obligations of the Servicer under the Agreement and in and
to the related Contracts, whereupon (subject to applicable law regarding the
Trustee's ability to make monthly 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. If the Trustee is obligated to succeed the Servicer
but is unwilling or unable so to act, it may appoint, or petition 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 a monthly amount specified in the Agreement. (Sections
7.07 and 8.01.)
Unless otherwise specified in the related Prospectus Supplement, no
Certificateholder will have any right under the Agreement to institute any
proceeding with respect to the Agreement unless such holder previously has given
to the Trustee written notice of default and unless the holders of Certificates
evidencing Fractional Interests aggregating not less than 25% have 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. (Sections 8.01 and 11.08.)
Amendment
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Sellers, the Servicer and the Trustee without
the consent of the Certificateholders (but only with the consent of the Credit
Facility Provider (if any) if the Credit Facility has not expired or if the
Credit Facility has expired or been terminated and such Credit Facility Provider
has not been reimbursed for all amounts due it), (i) to cure any ambiguity, (ii)
to correct or supplement any provision therein that may be inconsistent with any
other provision therein, (iii) to add to the duties or obligations of the
Servicer, (iv) to obtain a rating from a nationally recognized rating agency or
to maintain or improve the ratings of any Class of the Certificates then given
by any rating agency (it being understood that, after obtaining the rating of
the Certificates from the rating agencies specified in such Agreement, none of
the Trustee, the Sellers or the Servicer is obligated to obtain, maintain or
improve any rating assigned to the Certificates), or (v) to make any other
provisions with respect to matters or questions arising under such Agreement,
provided that such action will not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of the
Certificateholders. The Agreement may also be amended, by the Sellers, the
Servicer and the Trustee with the consent of at least 51% of the holders of
Certificates of each Class affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
such Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment shall (i) reduce
in any manner the amount
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of, or delay the timing of, any distributions on any Certificate, without the
consent of the Holder of such Certificate as the case may be, (ii) adversely
affect in any material respect the interests of the Holders of any Class of
Certificates in a manner other than as described in (i), without the consent of
the Holders of Certificates of such Class evidencing, as to such Class,
Percentage Interests aggregating 66% or (iii) reduce the aforesaid percentage of
Certificates the holders of which are required to consent to any such amendment,
without the consent of the holders of all Certificates then outstanding, and no
such amendment shall adversely affect the status of the Trust Fund as a REMIC.
Unless otherwise specified in the applicable Prospectus Supplement, the
Agreement may also be amended from time to time, without the consent of any
Certificateholders, by the Sellers, the Trustee and the Servicer to modify,
eliminate or add to the provisions of the Agreement to (i) maintain the
qualification of the Trust Fund as a REMIC under the Code or avoid, or minimize
the risk of, the imposition of any tax on the Trust Fund under the Code that
would be a claim against the Trust Fund assets, provided that an opinion of
counsel is delivered to the Trustee to the effect that such action is necessary
or appropriate to maintain such qualification or avoid any such tax or minimize
the risk of its imposition, or (ii) prevent the Trust Fund from entering into
any "prohibited transaction" as defined in Section 860F of the Code, provided
that an opinion of counsel is delivered to the Trustee to the effect that such
action is necessary or appropriate to prevent the Trust Fund from entering into
such prohibited transaction. (Section 11.01.)
The Agreement may otherwise be subject to amendment without the consent
of any Certificateholders and, under certain circumstances, without the consent
of the Trustee, if and to the extent specified in the related Prospectus
Supplement.
The Trustee
The Trustee with respect to a Series will be identified in the
applicable Prospectus Supplement. Unless otherwise specified therein, the
Trustee may resign at any time, in which event the Sellers will be obligated to
appoint a successor Trustee. The Sellers may also remove the Trustee if the
Trustee ceases to be eligible to continue as such under the related Agreement or
if the Trustee becomes insolvent. In such circumstances, the Sellers 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. (Section 9.07.)
Unless otherwise specified in the related Prospectus Supplement, the
Agreement for any Series will require the Trustee to maintain, at its own
expense, an office or agency in New York City where the Certificates for such
Series may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Trustee and the Certificate Registrar in
respect of such Certificates pursuant to the related Agreement may be served.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee, or any of its affiliates, in its individual or any other capacity, may
become the owner or pledgee of the Certificates of any Series with the same
rights as it would have if it were not Trustee.
Unless otherwise specified in the related Prospectus Supplement, the
Trustee will act as Paying Agent, Certificate Registrar and Authenticating Agent
for the related Series of Certificates.
Indemnification
Unless otherwise specified in the applicable Prospectus Supplement,
each Agreement will provide that neither the Servicer nor any of its directors,
officers, employees or agents will be under any liability to the Trustee or the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to such Agreement, or for errors in judgment;
provided, however, that such provision shall not protect the Servicer or any
such person against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence. The Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action which
arises under an Agreement (other than in connection with the enforcement of any
Contract in accordance with the Agreement) and which in its opinion may involve
it in any expenses or liability; provided, however, that the Servicer may in its
discretion undertake any such other legal action which it may deem necessary or
desirable in respect of the Agreement and the rights and duties of the parties
thereto. In such event, the legal expenses and costs of such other
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legal action and any liability resulting therefrom shall be expenses, costs and
liabilities payable from the Trust Fund and the Servicer shall be entitled to be
reimbursed therefor from amounts collected on the Contracts. (Section 7.05.)
CREDIT AND LIQUIDITY ENHANCEMENT
To the extent specified in the related Prospectus Supplement, a Class
of Certificates may be entitled to the benefit of one or more of the following
forms of credit and liquidity enhancement:
Subordination
The Certificates of one or more Classes of a multiple-Class Series (the
"Senior Certificates") may afford the holders thereof a right to receive
distributions of principal or of interest or of both on each Distribution Date
from amounts collected on the related Contract Pool that is prior to the right
to receive such distributions afforded by the Certificates of the other Class or
Classes (the "Junior Certificates" or "Subordinate Certificates"). Unless
otherwise specified in the related Prospectus Supplement, this prior right will
result from one or both of the following two features:
1. The Senior Certificates will entitle the holders thereof to
receive on some or all Distribution Dates, prior to any distribution of
principal or of interest or of both (as specified in the related
Prospectus Supplement) being made to the holders of the Junior
Certificates on any such Distribution Date, a full distribution of
principal or of interest or of both principal and interest (as
specified in the related Prospectus Supplement) from amounts collected
on the Contracts during the related Collection Period(s). To the extent
that Contract collections during the related Collection Period(s)
would, in the absence of liquidation losses or other circumstances
adversely affecting such Contract collections, have been applied to
make distributions to the holders of the Junior Certificates, this
feature will enhance the likelihood of timely receipt by the holders of
the Senior Certificates of full distributions of principal or of
interest or of both in accordance with the applicable distribution
formula.
2. The distribution formula for the Senior Certificates (other
than interest-only Certificates) will entitle the holders thereof to
receive, on some or all Distribution Dates, all or a disproportionate
share of the Total Regular Principal Amount until the Certificate
Balance of the Senior Certificates has been reduced to zero. See
"Description of Certificates -- Distributions on Certificates -- A.
Distributions of Principal" above. This feature, in effect, will
provide the holders of the Senior Certificates (other than holders of
interest-only Certificates) with a prior right to receive the principal
collected on the Contracts until the Certificate Balance of the Senior
Certificates has been reduced to zero. The degree of priority will
depend on the share of the Total Regular Principal Amount to which the
holders of the Senior Certificates (other than holders of interest-only
Certificates) are entitled on particular Distribution Dates. If the
holders of the Senior Certificates (other than holders of interest-only
Certificates) are entitled to receive all of the Total Regular
Principal Amount on each Distribution Date (to the extent of the
Contract collections available to make distributions of Regular
Principal on such Distribution Date), then the holders of the Senior
Certificates (other than holders of interest-only Certificates) will,
in effect, have a right to receive all principal collected on the
Contracts that is absolutely prior to the right of the holders of the
Junior Certificates to receive any principal collected on the
Contracts. If, however, the holders of the Senior Certificates (other
than holders of interest-only Certificates) are entitled to receive
only a disproportionate share of the Total Regular Principal Amount, or
are entitled to receive all or a disproportionate share of the Total
Regular Principal Amount only on certain Distribution Dates, then the
prior right of the holders of the Senior Certificates (other than
holders of interest-only Certificates) to receive distributions of
principal collected on the Contracts will, to that extent, be limited.
The prior right to receive distributions of principal collections
described above will enhance the likelihood that the holders of the
Senior Certificates (other than holders of interest-only Certificates)
will ultimately receive distributions of principal in an aggregate
amount equal to the initial Certificate Balance of the Senior
Certificates. It will not, however, enhance the likelihood of timely
receipt by the holders of the Senior Certificates of full distributions
of the amounts to which they would have been entitled in the absence of
liquidation losses or other circumstances adversely affecting Contract
collections.
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If specified in the related Prospectus Supplement, the features
described above may be characteristic of different Classes within a
multiple-Class Series. Thus, Certificates which constitute Senior Certificates
under the criteria described in paragraph 1 above may constitute Junior
Certificates under the criteria described in paragraph 2 above, and Certificates
which constitute Senior Certificates under the criteria described in paragraph 2
above may constitute Junior Certificates under the criteria described in
paragraph 1 above. In general, the splitting of the features described above
among two separate Classes of a multiple-Class Series will undercut the
protection against loss afforded by each of such features. The particular
effects of any such splitting will be discussed in the applicable Prospectus
Supplement. The following discussion is based on the assumption that the
features described above will not be characteristic of different Classes within
a multiple-Class Series.
The degree of protection against loss provided to the holders of the
Senior Certificates at any time by either of the subordination features
described above will be determined primarily by the degree to which the
aggregate principal balance of the underlying Contracts (the "Pool Principal
Balance") exceeds the Certificate Balance of the Senior Certificates (and to a
lesser extent, if the holders of the Senior Certificates also have a prior right
to receive interest, by the degree to which the interest payable on the
Contracts, net of the portions thereof used to pay the servicing fee of the
Servicer (if such servicing fee is payable prior to distributions of interest to
the holders of the Senior Certificates) and other expenses of the Trust Fund,
exceeds the interest distributable to the holders of the Senior Certificates).
The relative levels of the Certificate Balance of the Senior Certificates (the
"Senior Certificate Balance") and the related Pool Principal Balance, and hence
the degree of protection against loss afforded by the subordination features
described above, may change over time depending on, among other things, the
formula by which principal is distributed to the holders of the Senior
Certificates and the level of liquidation losses on the underlying Contracts.
Generally, if the holders of Senior Certificates (other than holders of
interest-only Certificates) receive a disproportionate share of the Total
Regular Principal Amount on any Distribution Date, the effect will be to
increase, as a relative matter, the degree by which the Pool Principal Balance
exceeds the Certificate Balance of the Senior Certificates, thus increasing the
degree of protection against loss afforded by the subordination of the Junior
Certificates. In addition, Special Principal Distributions to the holders of the
Senior Certificates from sources other than principal collections on the
underlying Contracts generally will increase the degree of protection against
loss above the protection that would have been provided if such distributions
were not made (because the Senior Certificate Balance will be reduced without a
reduction in the Pool Principal Balance). On the other hand, if, due to
liquidation losses or other circumstances adversely affecting Contract
collections, the holders of Senior Certificates (other than holders of
interest-only Certificates) receive less than their proportionate share of the
Total Regular Principal Amount, the effect will be to decrease, as a relative
matter, the degree to which the Pool Principal Balance exceeds the Certificate
Balance of the Senior Certificates, thus decreasing the degree of protection
against loss afforded by the subordination of the Junior Certificates. The
effects of particular principal distribution formulae in this regard will be
discussed in the applicable Prospectus Supplement. The description of any such
effects in a particular Prospectus Supplement may relate the Certificate
Balances of the Senior Certificates to Pool Principal Balances which are
estimated or adjusted as described therein. Such Pool Principal Balances may
sometimes be referred to in a Prospectus Supplement as "Pool Scheduled Principal
Balances."
Where there is more than one Class of Junior Certificates, the rights
of one or more of such Classes of Junior Certificates to receive distributions
of principal, interest or principal and interest may be subordinated to the
rights of one or more other Classes of Junior Certificates to receive such
distributions. Any Class of Junior Certificates that is entitled to receive such
distributions from Contract Pool collections prior to any other Class of Junior
Certificates is a "mezzanine" Class of Junior Certificates. The subordination of
any Class of Junior Certificate to a mezzanine Class of Junior Certificates will
enhance the likelihood of timely receipt by the holders of such mezzanine Class
of Junior Certificates relative to any Class of Junior Certificates that is
subordinate to such mezzanine Class of Junior Certificates. Junior Certificates,
including any mezzanine Classes of Junior Certificates, may only be sold
hereunder if rated in one of the four highest rating categories of a nationally
recognized statistical rating organization. (See "Rating" herein). The effect of
any subordination on any Classes of Junior Certificates sold hereunder will be
discussed in the applicable Prospectus Supplement.
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Reserve Funds
The Certificates of one or more Classes may be entitled to the benefit
of one or more spread accounts or other reserve funds (each, a "Reserve Fund")
which, to the extent specified in the related Prospectus Supplement, will cover
shortfalls created when collections on the related Contract Pool that are
available to make distributions to the holders of such Certificates are not
sufficient to fund full distributions of principal, interest or principal and
interest to such Certificateholders. Any Reserve Fund may be available to cover
all or a portion of such shortfalls and may be available to cover any
shortfalls, no matter what the cause, or only shortfalls due to certain causes
(e.g., liquidation losses only or delinquencies only), all as specified in the
related Prospectus Supplement. In addition, to the extent specified in the
related Prospectus Supplement, a Reserve Fund may be used to make distributions
of interest or Regular Principal to the holders of a Class of Certificates on
particular Distribution Dates upon the occurrence of certain losses,
delinquencies or other events, even if such Certificateholders would not have
been entitled to any such distributions on such Distribution Dates in the
absence of losses, delinquencies or other events. A Reserve Fund may also be
used to fund Special Principal Distributions under the circumstances set forth
in the related Prospectus Supplement. The related Prospectus Supplement will
specify whether any Reserve Fund will be established as part of the Trust Fund
or held outside of the Trust Fund by a collateral agent or similar third party
(who may be the Trustee acting in a different capacity) and will contain a
description of any arrangement pursuant to which the Reserve Fund is held
outside of the Trust Fund.
The method of funding any Reserve Fund, and the required levels of
funding, if any, as well as the circumstances under which amounts on deposit in
any Reserve Fund may be distributed to persons other than Certificateholders,
will be described in the applicable Prospectus Supplement. To the extent that a
Reserve Fund may be funded in whole or in part from some or all of the interest
collected on the Contracts in excess of the interest needed to make
distributions to the holders of one or more Classes of Certificates, such
Reserve Fund may be referred to in the applicable Prospectus Supplement as a
"Spread Account."
Credit Facilities
The Certificates of one or more Classes may be entitled to the benefit
of one or more letters of credit, surety bonds or similar credit facilities
(each, a "Credit Facility"). Each such Credit Facility may be in an amount
greater than, equal to or less than the Certificate Balance of the Certificates
of each Class entitled to the benefits thereof, and may be subject to reduction
or be limited as to duration, all as described in the applicable Prospectus
Supplement. To the extent specified in the related Prospectus Supplement,
amounts realized under a Credit Facility supporting the Certificates of any
Class may be used for the same purposes as amounts on deposit in Reserve Funds.
See "-- Reserve Funds" above. A Credit Facility may be held by a Trustee as part
of the related Trust Fund or may be held by a collateral agent or other third
party (who may be the Trustee acting in a different capacity). The related
Prospectus Supplement will contain a description of the material terms of any
Credit Facility and any arrangement pursuant to which the Credit Facility is
held outside of the Trust Fund. Such Prospectus Supplement will also contain
certain information concerning the provider of the Credit Facility (the "Credit
Facility Provider"), which information will have been provided to the Sellers by
the Credit Facility Provider for use in such Prospectus Supplement. Bank of
America, Bank of America, FSB or an affiliate thereof may be a Credit Facility
Provider.
If specified in the applicable Prospectus Supplement, a Credit
Facility, rather than supporting distributions of particular amounts to the
holders of Certificates of particular Classes, may, instead, support certain
collections on the related Contract Pool. These collections may be of all or a
portion of amounts due on Contracts in liquidation, all or a portion of the
scheduled monthly payments due on the Contracts or of other amounts. The extent
to which any such collections are supported by a Credit Facility which functions
in this manner will be described in the applicable Prospectus Supplement.
Liquidity Facilities
The Certificates of one or more Classes may be entitled to the benefit
of one or more certificate purchase agreements or other liquidity facilities
(each, a "Liquidity Facility"), pursuant to which the provider of such Liquidity
Facility (the "Liquidity Facility Provider") will provide funds to be used to
purchase some or all of such Certificates on the Repurchase Dates applicable
thereto. Unless otherwise specified in the applicable Prospectus Supplement, a
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Liquidity Facility will be held outside of the Trust Fund by a third party
(which may be the Trustee acting in another capacity). The related Prospectus
Supplement will contain a description of the material terms of any such
Liquidity Facility and any arrangement pursuant to which it is held outside of
the Trust Fund, and will contain certain information concerning the Liquidity
Facility Provider, which information will have been provided to the Sellers by
the Liquidity Facility Provider for use in such Prospectus Supplement. Bank of
America, Bank of America, FSB or an affiliate thereof may be a Liquidity
Facility Provider. If specified in the related Prospectus Supplement, a Reserve
Fund or Credit Facility may also serve as a Liquidity Facility.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of
Certificates of any Series, to the extent it relates to matters of law or legal
conclusions with respect thereto, represents the opinion of special counsel to
Bank of America and Bank of America, FSB with respect to that Series on the
material matters associated with such consequences, subject to any
qualifications set forth herein. Special counsel to Bank of America and Bank of
America, FSB for each Series will be Orrick, Herrington & Sutcliffe LLP, and a
copy of the legal opinion of such counsel rendered in connection with any Series
of Certificates will be filed with the Commission on a Current Report on Form 8-
K within 15 days after the issuance of the related Series of Certificates. This
discussion is directed primarily to Certificateholders that hold the
Certificates as "capital assets" within the meaning of Section 1221 of the Code
(although portions thereof also may apply to Certificateholders who do not hold
Certificates as "capital assets") and it does not purport to discuss all federal
income tax consequences that may be applicable to the individual circumstances
of particular investors, some of which (such as banks, insurance companies and
foreign investors) may be subject to special treatment under the Code. Further,
the authorities on which this discussion, and the opinion referred to below, are
based are subject to change or differing interpretations, which could apply
retroactively. Prospective investors should note that no rulings have been or
will be sought from the Internal Revenue Service (the "Service") with respect to
any of the federal income tax consequences discussed below, and no assurance can
be given that the Service will not take contrary positions. Taxpayers and
preparers of tax returns (including those filed by any REMIC or other issuer)
should be aware that under applicable Treasury regulations a provider of advice
on specific issues of law is not considered an income tax return preparer unless
the advice (i) is given with respect to events that have occurred at the time
the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, taxpayers should consult their tax advisors
and tax return preparers regarding the preparation of any item on a tax return,
even where the anticipated tax treatment has been discussed herein. In addition
to the federal income tax consequences described herein, potential investors are
advised to consider the state, local and other tax consequences, if any, of the
purchase, ownership and disposition of Certificates in a Series. See "Other Tax
Consequences." Certificateholders are advised to consult their tax advisors
concerning the federal, state, local or other tax consequences to them of the
purchase, ownership and disposition of Certificates in a Series.
The following discussion addresses securities of two general types: (i)
certificates ("REMIC Certificates") representing interests in a Trust Fund with
respect to which an election to be treated as a "real estate mortgage investment
conduit" ("REMIC") under Sections 860A through 860G (the "REMIC Provisions") of
the Code will be made, and (ii) Grantor Trust Certificates representing
interests in a Trust Fund ("Grantor Trust Fund") as to which no such election
will be made.
The following discussion is based in part upon the rules governing
original issue discount that are set forth in Sections 1271-1273 and 1275 of the
Code and in the Treasury regulations issued thereunder (the "OID Regulations"),
and in part upon the REMIC Provisions and the Treasury regulations issued
thereunder (the "REMIC Regulations"). The OID Regulations do not adequately
address certain issues relevant to, and in some instances provide that they are
not applicable to, securities such as the Certificates.
The following discussion is limited in applicability to the
Certificates. For purposes of this tax discussion, references to a
"Certificateholder" or a "holder" are to the beneficial owner of a Certificate.
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REMIC Elections
Under the Code, an election may be made with respect to a Trust Fund
related to any Series of Certificates to treat such Trust Fund as a "real estate
mortgage investment conduit" ("REMIC") within the meaning of Section 860D(a) of
the Code, in which case the Certificates of any Class of such Series will be
either "regular interests" in the REMIC within the meaning of Section 860G(a)(1)
of the Code or "residual interests" in the REMIC within the meaning of Section
860G(a)(2) of the Code. The Prospectus Supplement for each Series of
Certificates will indicate whether each Seller of Contracts to the related
Contract Pool intends to cause an election to be made to treat the Trust Fund as
a REMIC, and if such an election is to be made, which Certificates will be
regular interests and which will be the residual interest in the REMIC. The
discussion under the heading "-- REMIC Certificates" discusses Series with
respect to which each Seller of Contracts to the related Contract Pool will
cause a REMIC election to be made and the discussion under the heading "--
Non-REMIC Certificates" discusses Series with respect to which the Sellers (or
if only one Seller sells Contracts to the related Contract Pool, the applicable
Seller) will not cause a REMIC election to be made.
REMIC Certificates
The discussion in this section applies only to a Series of Certificates
for which a REMIC election is to be made. Upon the issuance of each Series of
Certificates for which a REMIC election is to be made, Orrick, Herrington &
Sutcliffe LLP, special counsel to Bank of America and Bank of America, FSB, will
deliver its opinion generally to the effect that, with respect to each such
Series of Certificates, under then existing law and assuming that a REMIC
election is made in accordance with the requirements of the Code and compliance
by the Seller(s), the Servicer and the Trustee for such Series with all of the
provisions of the related Agreement, the agreement or agreements, if any,
providing for a Credit Facility or a Liquidity Facility, together with any
agreement documenting the arrangement through which a Credit Facility or a
Liquidity Facility is held outside the related Trust Fund, and agreement or
agreements with any Underwriter, the Trust Fund will be a REMIC, and the
Certificates of such Series will be treated as either "regular interests" in the
REMIC ("Regular Certificates") or "residual interests" in the REMIC ("Residual
Certificates") .
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of REMIC Certificates,
to the extent it relates to matters of law or legal conclusions with respect
thereto, represents the opinion of Orrick, Herrington & Sutcliffe LLP, special
counsel to Bank of America and Bank of America, FSB, subject to any
qualifications set forth herein. In addition, Orrick, Herrington & Sutcliffe
LLP, special counsel to Bank of America and Bank of America, FSB, have prepared
or reviewed the statements in this Prospectus under the heading "Certain Federal
Income Tax Consequences --REMIC Certificates," and are of the opinion that such
statements are correct in all material respects. Such statements are intended as
an explanatory discussion of the possible effects of the classification of any
Trust Fund as a REMIC for federal income tax purposes on investors generally and
of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
own tax advisor. Accordingly, each investor is advised to consult its own tax
advisors with regard to the tax consequences to it of investing in REMIC
Certificates.
A. Tax Status of REMIC Certificates. Unless otherwise specified in the related
Prospectus Supplement, the Certificates of any Series, in their entirety, will
generally be considered (i) "real estate assets" within the meaning of Section
856(c)(4)(A) of the Code and (ii) assets described in Section 7701(a)(19)(C) of
the Code (assets qualifying under one or more of those sections, applying each
section separately, "qualifying assets") for a calendar quarter if at least 95%
of the assets of the related Trust Fund are qualifying assets during such
calendar quarter. In the event the percentage of the Trust Fund's assets which
are qualifying assets falls below 95% for any calendar quarter, then a
corresponding percentage of the Certificates will be treated as qualifying
assets for such calendar quarter. Any amount includable in gross income with
respect to the Certificates will be treated as "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Section 856(c)(3)(B) of the Code to the extent that the Certificates
are treated as "real estate assets" within the meaning of Section 856(c)(4)(A)
of the Code. The assets of the Trust Fund will include, in addition to the
Contracts, payments on the Contracts held pending distribution, and may include,
among other assets, one or more Reserve Funds. With respect to the treatment of
Contracts as qualifying assets, (i) the Treasury Regulations under Section 856
of the Code define a "real estate asset"
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under Section 856(c)(5)(A) of the Code to include a loan secured by manufactured
housing that qualifies as a single family residence under the Code, and (ii) the
Treasury Regulations under Section 7701(a)(19)(C) of the Code provide that
assets described in that Section include loans secured by manufactured housing
that qualifies as a single family residence under the Code. It is unclear
whether other assets of the Trust Fund would be treated as qualifying assets
under the foregoing sections of the Code. REMIC Certificates held by a regulated
investment company will not constitute "Government Securities" within the
meaning of Code Section 851(b)(4)(A)(ii).
B. Qualification as a REMIC. Qualification as a REMIC requires ongoing
compliance with certain conditions. The following discussion assumes that such
requirements will be satisfied by a Trust Fund so long as any REMIC Certificates
related to such Trust Fund are 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 manufactured
housing 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 manufactured housing
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 as well as a published notice issued by the Internal
Revenue Service (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 qualifying a Trust Fund as a REMIC. Under Section 25(e)(10) of
the Code, the term "single family residence" includes any manufactured home
which has a minimum of 400 square feet of living space and a minimum width in
excess of 102 inches and which is of a kind customarily used at a fixed
location. Bank of America or Bank of America, FSB or both of them, as the case
may be, will represent and warrant that each of the manufactured homes securing
the Contracts conveyed by it to a Trust Fund meets this definition of a "single
family residence." 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 payments on contracts are received. Foreclosure
property will be a permitted investment only to the extent that such property is
not held for more than three years unless an extension of such holding period is
obtained from the Service.
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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"), do not hold the 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 be made to enable
a REMIC to provide 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 "Restrictions on
Transfer of Residual Certificates" below.
For certain Series of Certificates, two or more separate elections may
be made to treat segregated portions of the assets of a single Trust Fund as
REMICs for federal income tax purposes. Upon the issuance of any such series of
Certificates, Orrick, Herrington & Sutcliffe LLP, special tax counsel to Bank of
America and Bank of America, FSB, will have advised Bank of America and Bank of
America, FSB, as described above, that at the initial issuance of the
Certificates of such Series, each such segregated portion qualify as a REMIC for
federal income tax purposes, and that the Certificates in such Series will be
treated either as Regular Certificates or Residual Certificates of the
appropriate REMIC. Solely for the purpose of determining whether such Regular
Certificates will constitute qualifying real estate or real property assets for
certain categories of financial institutions or real estate investment trusts as
described above under "-- A. Tax Status of REMIC Certificates," some or all of
the REMICs in a multiple-tier REMIC structure may be treated as one. See the
discussion below under "-- C. Taxation of Regular Certificates."
If an entity electing to be treated as a REMIC fails to comply with one
or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the Code provides that the entity will not be treated as a REMIC
for such year and thereafter. In this event, an entity with multiple classes of
ownership interests may be treated as a separate association taxable as a
corporation under Treasury regulations, and interests in the REMIC may be
treated as debt or equity interests therein. If the Trust Fund were treated as a
corporation, income of the Trust Fund would be subject to corporate tax in the
hands of the Trust Fund, and, therefore, only a reduced amount might be
available for distribution to Certificateholders. The Code authorizes the
Treasury Department to issue Treasury regulations that address situations where
failure to meet one or more of the requirements for REMIC status occurs
inadvertently and in good faith, and disqualification of a REMIC would occur
absent regulatory relief. Investors should be aware, however, that the
Conference Committee Report (the "Committee Report") to the Tax Reform Act of
1986 (the "1986 Act") indicates that the relief may be accompanied by sanctions,
such as the imposition of a corporate income tax on all or a portion of the
REMIC's income for the period of time in which the requirements for REMIC status
are not satisfied. The Agreement with respect to each REMIC will include
provisions designed to maintain the related Trust Fund's status as a REMIC. It
is not anticipated that the status of any Trust Fund as a REMIC will be
terminated.
C. Taxation of Regular Certificates.
1. General. The Regular Certificates in any Series will constitute
"regular interests" in the related REMIC. Accordingly, the Regular Certificates
will generally be treated for federal income tax purposes as debt instruments
that are issued by the related Trust Fund on the date of issuance of the Regular
Certificates and not as ownership interests in the Trust Fund or the Trust
Fund's assets. Interest, original issue discount, and market discount accrued on
a Regular Certificate will be treated as ordinary income to the holder. Each
holder must use the accrual method of accounting with regard to Regular
Certificates, regardless of the method of accounting otherwise used by such
holder. Payments of interest on REMIC Regular certificates may be based on a
fixed rate or a variable rate as permitted by the REMIC Regulations, or may
consist of a specified portion of the interest payments on qualified mortgages
where such portion does not vary during the period the REMIC Regular Certificate
is outstanding. If a Regular Certificate represents an
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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.
2. Original Issue Discount
Certain Regular Certificates may be issued with "original issue
discount" within the meaning of Code Section 1273(a). Any holders of Regular
Certificates issued with original issue discount generally will be required to
include original issue discount in income as it accrues, in accordance with a
constant interest method that takes into account the compounding of interest, in
advance of the receipt of the cash attributable to such income. The Company
will report annually (or more often if required) to the Internal Revenue Service
("IRS") and to Certificateholders such information with respect to the original
issue discount accruing on the REMIC Regular Certificates as may be required
under Code Section 6049 and the regulations thereunder. See "--11. Reporting
Requirements" below.
Rules governing original issue discount are set forth in Code Sections
1271 through 1273 and 1275 and, to some extent, in the OID Regulations. Code
Section 1272(a)(6) provides special original issue discount rules applicable to
Regular Certificates. Regulations have not yet been proposed or adopted under
Section 1272(a)(6) of the Code. Further, application of the OID Regulations to
the Regular Certificates remains unclear in some respects because the OID
Regulations generally purport not to apply to instruments to which section
1272(a)(6) applies such as Regular Certificates, and separately because they
either do not address, or are subject to varying interpretations with regard to,
several relevant issues.
Code Section 1272(a)(6) requires that a mortgage prepayment assumption
("Prepayment Assumption") be used in computing the accrual of original issue
discount on Regular Certificates and for certain other federal income tax
purposes. The Prepayment Assumption is to be determined in the manner
prescribed in Treasury regulations. To date, no such regulations have been
promulgated. The Committee Report indicates that the regulations will provide
that the Prepayment Assumption, if any, used with respect to a particular
transaction must be the same as that used by the parties in pricing the
transaction. Unless otherwise specified in the applicable Prospectus
Supplement, the Company will use a percentage of the prepayment assumption
specified in the applicable Prospectus Supplement in reporting original issue
discount that is consistent with this standard. However, the Company does not
make any representation that the Mortgage Loans will in fact prepay at a rate
equal to that prepayment assumption or at any other rate. Each investor must
make its own decision as to the appropriate prepayment assumption to be used in
deciding whether or not to purchase any of the Regular Certificates. The
Prospectus Supplement with respect to a Series of Certificates will disclose the
prepayment assumption to be used in reporting original issue discount, if any,
and for certain other federal income tax purposes.
The total amount of original issue discount on a Regular Certificate is
the excess of the "stated redemption price at maturity" of the Regular
Certificate over its "issue price". Except as discussed in the following two
paragraphs, in general, the issue price of a particular Class of Regular
Certificates offered hereunder will be the price at which a substantial amount
of Regular Certificates of that Class are first sold to the public (excluding
bond houses and brokers).
If a Regular Certificate is sold with accrued interest that relates to
a period prior to the issue date of such Regular Certificate, the amount paid
for the accrued interest will be treated
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instead as increasing the issue price of the Regular Certificate. In addition,
that portion of the first interest payment in excess of interest accrued from
the Closing Date to the first Distribution Date will be treated for federal
income tax reporting purposes as includible in the stated redemption price at
maturity of the Regular Certificate, and as excludible from income when received
as a payment of interest on the first Distribution Date. The OID Regulations
suggest that some or all of this pre-issuance accrued interest "may" be treated
as a separate asset (and hence not includible in a Regular Certificate's issue
price or stated redemption price at maturity), whose cost is recovered entirely
out of interest paid on the first Distribution Date. It is unclear how such
treatment would be elected under the OID Regulations and whether an election
could be made unilaterally by a Certificateholder.
The stated redemption price at maturity of a Regular Certificate is equal to
the total of all payments to be made on such Certificate other than "qualified
stated interest." Under the OID Regulations, "qualified stated interest" is
interest that is unconditionally payable at least annually during the entire
term of the Certificate at either (i) a single fixed rate that appropriately
takes into account the length of the interval between payments or (ii) the
current values of a single "qualified floating rate" or "objective rate" (each,
a "Single Variable Rate"). A "current value" is the value of a variable rate on
any day that is no earlier than three months prior to the first day on which
that value is in effect and no later than one year following that day. A
"qualified floating rate" is a rate whose variations can reasonably be expected
to measure contemporaneous variations in the cost of newly borrowed funds in the
currency in which the Certificate is denominated. Such a rate remains qualified
even though it is multiplied by a fixed, positive multiple not exceeding 1.35,
increased or decreased by a fixed rate, or both. Certain combinations of rates
constitute a single qualified floating rate, including (i) interest stated at a
fixed rate for an initial period of less than one year followed by a qualified
floating rate if the value of the floating rate at the closing date is intended
to approximate the fixed rate, and (ii) two or more qualified floating rates
that can be expected to have appropriately the same values throughout the term
of the Certificate. A combination of such rates is conclusively presumed to be a
single floating rate if the values of all rates on the closing date are within
0.25% of each other. A variable rate that is subject to an interest rate cap,
floor, "governor" or similar restriction on rate adjustment may be a qualified
floating rate only if such restriction is fixed throughout the term of the
instrument, or is not reasonably expected as of the closing date to cause the
yield on the debt instrument to differ significantly from the expected yield
absent the restriction. An "objective rate" is a rate (other than a qualified
floating rate) determined using a single formula fixed for the life of the
Certificate, which is based on (i) one or more qualified floating rates
(including a multiple or inverse of a qualified floating rate), (ii) one or more
rates each of which would be a qualified floating rate for a debt instrument
denominated in a foreign currency, (iii) the yield of changes in price of one or
more items of "actively traded" personal property, (iv) a combination of rates
described in (i), (ii) and (iii), or (v) a rate designated by the IRS. However,
a variable rate is not an objective rate if it is reasonably expected that the
average value of the rate during the first half of the Certificate's term will
differ significantly from the average value of such rate during the first half
of the Certificate's term will differ significantly from the average value of
such rate during the final half of its term. A combination of interest stated at
a fixed rate for an initial period of less than one year followed by an
objective rate is treated as a single objective rate if the value of the
objective rate at the closing date is intended to approximate the fixed rate;
such a combination of rates is conclusively presumed to be to be a single
objective rate if the objective rate on the closing date does not differ from
the fixed rate by more than 0.25%. The qualified stated interest payable with
respect to certain variable rate debt instruments not bearing stated interest at
a Single Variable Rate generally is determined under the OID Regulations by
converting such instruments into fixed rate debt instruments. Instruments
qualifying for such treatment generally include those providing for stated
interest at (i) more than one qualified floating rates, or at (ii) a single
fixed rate and (a) one or more qualified floating rates or (b) a single
"qualified inverse floating rate" (each, a "Multiple Variable Rate"). A
qualified inverse floating rate is an objective rate equal to a fixed rate
reduced by a qualified floating rate, the variations in which can reasonably be
expected to inversely reflect contemporaneous variations in the cost of newly
borrowed funds (disregarding permissible rate caps, floors, governors and
similar restrictions such as are described above). Under these rules, some of
the payments of interest on a Certificate bearing a fixed rate of interest for
an initial period followed by a qualified floating rate of interest in
subsequent periods could be treated as included in the stated redemption price
at maturity if the initial fixed rate were to differ sufficiently from the rate
that would have been set using the formula applicable to
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subsequent periods. See "Taxation of Regular Certificates -- 3. Variable Rate
Certificates". Regular Certificates offered hereby other than Certificates
providing for variable rates of interest or for the accretion of interest are
not anticipated to have stated interest other than "qualified stated interest",
but if any such REMIC Regular Certificates are so offered, appropriate
disclosures will be made in the Prospectus Supplement. Some or all of the
payments on REMIC Regular Certificates providing for the accretion of interest
will be included in the stated redemption price at maturity of such
Certificates.
Under a de minimis rule in the Code, as interpreted in the OID Regulations,
original issue discount on a Regular Certificate will be considered to be zero
if such original issue discount is less than 0.25% of the stated redemption
price at maturity of the Regular Certificate multiplied by the weighted average
life of the Regular Certificate. For this purpose, the weighted average life of
the Regular Certificate is computed as the sum of the amounts determined by
multiplying the amount of each payment under the instrument (other than a
payment of qualified stated interest) by a fraction, whose numerator is the
number of complete years from the issue date until such payment is made, and
whose denominator is the stated redemption price at maturity of such Regular
Certificate. The IRS may be anticipated to take the position that this rule
should be applied taking into account the prepayment assumption and the effect
of any anticipated investment income. Under the OID Regulation, Regular
Certificates bearing only qualified stated interest except for any "teaser"
rate, interest holiday or similar provision would be treated as subject to the
de minimis rule if the greater of the deferred or foregone interest or the other
original issue discount is less than such de minimis amount.
The OID Regulations generally would treat de minimis original issue
discount as includible in income as each principal payment is made, based on the
product of the total amount of such de minimis original issue discount and a
fraction, whose numerator is the amount of such principal payment and whose
denominator is the stated principal amount of the Regular Certificate. The OID
Regulations also would permit a Certificateholder to elect to accrue de minimis
original issue discount into income currently based on a constant yield method.
See "Taxation of Regular Certificates -- 4. Market Discount" and "-- 5.
Premium".
Each holder of a Regular Certificate must include in gross income the sum
of the "daily portions" of original issue discount on its Regular Certificate
for each day during its taxable year on which it held such Regular Certificate.
For this purpose, in the case of an original holder of a Regular Certificate,
the daily portions of original issue discount will be determined as follows. A
calculation will first be made of the portion of the original issue discount
that accrued during each accrual period, that is, unless otherwise stated in the
applicable Prospectus Supplement, each period that begins or ends on a date that
corresponds to a Distribution Date on the Regular Certificate and begins on the
first day following the immediately preceding accrual period (beginning on the
Closing Date in the case of the first such period). For any accrual period such
portion will equal the excess, if any, of (i) the sum of (A) the present value
of all of the distributions remaining to be made on the Regular Certificate, if
any, as of the end of the accrual period and (B) the distribution made on such
Regular Certificate during the accrual period of amounts included in the stated
redemption price at maturity, over (ii) the adjusted issue price of such Regular
Certificate at the beginning of the accrual period. The present value of the
remaining payments referred to in the preceding sentence will be calculated
based on (i) the yield to maturity of the Regular Certificate, calculated as of
the settlement date, giving effect to the Prepayment Assumption, (ii) events
(including actual prepayments) that have occurred prior to the end of the
accrual period, and (iii) the prepayment assumption. The adjusted issue price of
a Regular Certificate at the beginning of any accrual period will equal the
issue price of such Certificate, increased by the aggregate amount of original
issue discount with respect to such Regular Certificate that accrued in prior
accrual periods, and reduced by the amount of any distributions made on such
Regular Certificate in prior accrual periods of amounts included in the stated
redemption price at maturity. The original issue discount accruing during any
accrual period will be allocated ratably to each day during the period to
determine the daily portion of original issue discount for each day. With
respect to an accrual period between the settlement date and the first
Distribution Date on the Regular Certificate (notwithstanding that no
distribution is scheduled to be made on such date) that is shorter than a full
accrual period, the OID Regulations permit the daily portions of original issue
discount to be determined according to any reasonable method.
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A subsequent purchaser of a Regular Certificate that purchases such
Regular Certificate at a cost (not including payment for accrued qualified
stated interest) less than its remaining stated redemption price at maturity
will also be required to include in gross income, for each day on which it
holds such Regular Certificate, the daily portions of original issue discount
with respect to such Regular Certificate, but reduced, if such cost exceeds the
"adjusted issue price", by an amount equal to the product of (i) such daily
portions and (ii) a constant fraction, whose numerator is such excess and whose
denominator is the sum of the daily portions of original issue discount on such
Regular Certificate for all days on or after the day of purchase. The adjusted
issue price of a Regular Certificate on any given day is equal to the sum of the
adjusted issue price (or, in the case of the first accrual period, the issue
price) of the Regular Certificate at the beginning of the accrual period during
which such day occurs and the daily portions of original issue discount for all
days during such accrual period prior to such day, reduced by the aggregate
amount of distributions previously made other than distributions of qualified
stated interest.
3. Variable Rate Certificates. Purchasers of Regular Certificates bearing a
variable rate of interest should be aware that there is uncertainty concerning
the application of Section 1272(a)(6) of the Code and the OID Regulations to
such Certificates. In the absence of other authority, the Company intends to be
guided by the provisions of the OID Regulations governing variable rate debt
instruments in adapting the provisions of Section 1272(a)(6) of the Code to such
Certificates for the purpose of preparing reports furnished to
Certificateholders. The effect of the application of such provisions generally
will be to cause Certificateholders holding Certificates bearing interest at a
Single Variable Rate to take into account for each period an amount
corresponding approximately to the sum of (i) the qualified stated interest,
accruing on the outstanding face amount of the Regular Certificate as the stated
interest rate for that Certificate varies from time to time and (ii) the amount
of original issue discount that would have been attributable to that period on
the basis of a constant yield to maturity for a bond issued at the same time
and issue price as the Regular Certificate, having the same face amount and
schedule of payments of principal as such Certificate, subject to the same
prepayment assumption, and bearing interest at a fixed rate equal to the value
of the applicable qualified floating rate or qualified inverse floating rate in
the case of a Certificate providing for either such rate, or equal to the fixed
rate that reflects the reasonably expected yield on the Certificate in the case
of a Certificate providing for an objective rate other than an inverse floating
rate, in each case as of the issue date. Certificateholders holding Regular
Certificates bearing interest at a Multiple Variable Rate generally will take
into account interest and original issue discount under a similar methodology,
except that the amounts of qualified stated interest and original issue
discount attributable to such a Certificate first will be determined for an
equivalent fixed rate debt instrument, the assumed fixed rates for which are (a)
for each qualified floating rate, the value of each such rate as of the closing
date (with appropriate adjustment for any differences in intervals between
interest adjustment dates), (b) for a qualified inverse floating rate, the value
of the rate as of the closing date, (c) for any other objective rate, the fixed
rate that reflects the yield that is reasonably expected for the Certificate,
and (d) for an actual fixed rate, such hypothetical fixed rate as would result
under (a) or (b) if the actual fixed rate were replaced by a hypothetical
qualified floating rate or qualified inverse floating rate such that the fair
market value of the Certificate as of the issue date would be approximately the
same as that of an otherwise identical debt instrument providing for the
hypothetical variable rate rather than the actual fixed rate. If the interest
paid or accrued with respect to a Multiple Variable Rate Certificate during an
accrual period differs from the assumed fixed interest rate, such difference
will be an adjustment (to interest or original issue discount, as applicable) to
the Certificateholder's taxable income for the taxable period or periods to
which such difference relates. Additionally, purchasers of such Certificates
should be aware that the provisions of the OID Regulations applicable to
variable rate debt instruments have been limited and may not apply to some
Regular Certificates having variable rates. If such a Certificate is not
governed by the provisions of the OID Regulations applicable to variable rate
debt instruments, it may be subject to provisions of proposed Treasury
Regulations applicable to instruments having contingent payments. The
application of those provisions to instruments such as variable rate Regular
Certificates is subject to differing interpretations. Prospective purchasers of
variable rate Regular Certificates are advised to consult their tax advisors
concerning the tax treatment of such Certificates.
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4. Market Discount
A Certificateholder that purchases a Regular Certificate at a market
discount, that is, at a purchase price less than the adjusted issue price (as
defined under "--Taxation of Regular Certificates--2. Original Issue
Discount") of such Regular Certificate generally will recognize market discount
upon receipt of each distribution of principal. In particular, such a holder
will generally be required to allocate each payment of principal on a Regular
Certificate first to accrued market discount, and to recognize ordinary income
to the extent such principal payment does not exceed the aggregate amount of
accrued market discount on such Regular Certificate not previously included in
income. Such market discount must be included in income in addition to any
original issue discount includible in income with respect to such Regular
Certificate.
A Certificateholder may elect to include market discount in income
currently as it accrues, rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by such Certificateholder on or after the first day of
the first taxable year to which such election applies. In addition, the OID
Regulations permit a Certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method. If such an election were made
for a Regular Certificate with market discount, the Certificateholder would be
deemed to have made an election to currently include market discount in income
with respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium is deemed to have made an election to amortize bond
premium, as described below, with respect to all debt instruments having
amortizable bond premium that such Certificateholder owns or acquires. The
election to accrue interest, discount and premium on a constant yield method
with respect to a Certificate is irrevocable.
Under a statutory de minimis exception, market discount with respect to
a Regular Certificate will be considered to be zero for purposes of Code
Sections 1276 through 1278 if such market discount is less than 0.25% of the
stated redemption price at maturity of such Regular Certificate multiplied by
the number of complete years to maturity remaining after the date of its
purchase. In interpreting a similar de minimis rule with respect to original
issue discount on obligations payable in installments, the OID Regulations refer
to the weighted average maturity of obligations, and it is likely that the same
rule will be applied in determining whether market discount is de minimis. It
appears that de minimis market discount on a Regular Certificate would be
treated in a manner similar to original issue discount of a de minimis amount.
See "Taxation of Regular Certificates--2. Original Issue Discount". Such
treatment would result in discount being included in income at a slower rate
than discount would be required to be included using the method described above.
However, Treasury regulations implementing the market discount de minimis
exception have not been issued in proposed or temporary form, and the precise
treatment of de minimis market discount on obligations payable in more than one
installment therefore remains uncertain.
The 1986 Act grants authority to the Treasury Department to issue
regulations providing for the method for accruing market discount of more than a
de minimis amount on debt instruments, the principal of which is payable in more
than one installment. Until such time as regulations are issued by the
Treasury Department, certain rules described in the Committee Report will
apply. Under those rules, the holder of a bond purchased with more than de
minimis market discount may elect to accrue such market discount either on the
basis of a constant yield method or on the basis of the appropriate
proportionate method described below. Under the proportionate method for
obligations issued with original issue discount, the amount of market discount
that accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
original issue discount accruing during the period and the denominator of which
is the total remaining original issue discount at the beginning of the period.
Under the proportionate method for obligations issued without original issue
discount, the amount of market discount that accrues during a period is equal to
the product of (i) the total remaining market discount, multiplied by (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the period. The Prepayment
Assumption, if any, used in calculating the accrual of original issue discount
is to be used in calculating the accrual of market discount under any of the
above methods. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Regular Certificate purchased at a discount in
the secondary market.
Further, a purchaser generally will be required to treat a portion of
any gain on sale or exchange of a Regular Certificate as ordinary income to the
extent of the market discount accrued to the date of disposition under one of
the foregoing methods, less any accrued market discount previously reported as
ordinary income. Such purchaser also may be required to defer a portion of its
interest deductions for the taxable year attributable to any indebtedness
incurred or continued to purchase or carry such Regular Certificate. Any such
deferred interest expense is, in general, allowed as a deduction not later than
the year in which the related market discount income is recognized. If such
holder elects to include market discount in income currently as it accrues on
all market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
5. Premium
A Regular Certificate purchased at a cost (not including payment for
accrued qualified stated interest) greater than its remaining stated redemption
price at maturity will be considered to be purchased at a premium. The holder
of such a Regular Certificate may elect to amortize such premium under the
constant yield method. The OID Regulations also permit Certificateholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the Certificateholder as having made the
election to amortize premium generally, as discussed above. The Committee
Report indicates a Congressional intent that the same rules that will apply to
accrual of market discount on installment obligations will also apply in
amortizing bond premium under Code Section 171 on installment obligations such
as the Regular Certificates.
6. Effects of Defaults or Delinquencies. Certain Series of
Certificates may contain one or more Classes of Subordinate Certificates. In the
event there are defaults or delinquencies on Contracts in the related Trust
Fund, amounts that would otherwise be distributed on the Subordinate
Certificates may instead be distributed on the Senior Certificates. Holders of
Subordinate Certificates nevertheless will be required to report interest income
with respect to such Certificates (including original issue discount) as such
income accrues without giving effect to delays or reductions in distributions on
such Subordinate Certificates attributable to defaults and delinquencies on such
Contracts, except to the extent that it can be established that the
undistributed amounts are not collectible. As a result, the amount of income
reported by a holder of a Subordinate Certificate in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder 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 the Subordinate Certificate is reduced as a result of defaults
or delinquencies on the related Contracts. However, the timing of such losses or
reductions in income is uncertain, and in some circumstances losses could be
capital losses that generally can be offset only with capital gains. Holders of
Subordinate Certificates should consult their own tax advisors on these
points.
7. Sales of Certificates. If a Regular Certificate is sold or
exchanged, the seller will recognize gain or loss equal to the difference, if
any, between the amount realized (net of accrued interest) and its adjusted
basis in such Regular Certificate. A seller's adjusted basis generally will
equal the cost of such Regular Certificate to the seller, increased by any
original issue discount reported by such seller with respect to such Regular
Certificate and reduced (but not below zero) by distributions received by such
seller (other than payments of qualified stated interest) and by any amortized
premium. Except as described above "-- 4. Market Discount" and with respect to
the next three paragraphs, any such gain or loss will be capital gain or loss
provided the Regular Certificate is held as a capital asset. The Taxpayer Relief
Act of 1997 (the "1997 Act") has changed the tax rates and holding periods
applicable to long-term capital gains of individuals.
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Because the tax rates and applicable holding periods will vary depending upon a
Certificateholder's individual circumstances, investors should consult their own
tax advisors concerning the effect of these 1997 Act changes.
Gain from the disposition of a Regular Certificate that might otherwise
be capital gain will be treated as ordinary income to the extent that such gain
does not exceed the excess, if any, of (i) the amount that would have been
includable in the seller's gross income had income accrued at a rate equal to
110% of "the applicable Federal rate" under Section 1274(d) of the Code
(generally, an average yield of United States Treasury obligations of different
ranges of maturities published monthly by the Service), determined as of the
date of purchase of such Regular Certificate, over (ii) the amount of income
actually includable in the gross income of the seller with respect to the
Regular Certificate.
Regular Certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Code, and accordingly, gain or loss
recognized from a sale of a Regular Certificate by a bank or thrift institution
to which such section applies would be ordinary income or loss.
If Bank of America and Bank of America, FSB, or either of them, 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.
8. Pass-Through of Expenses Other Than Interest. If a Trust Fund
for which a REMIC election is made is considered a "single-class REMIC" (as
defined below), a portion of such Trust Fund's servicing, administrative and
other non-interest expenses will be allocated as a separate item to those
Regular Certificateholders that are "pass-through interest holders" (as defined
below). Such a holder would be required to add its allocable share, if any, of
such expenses to its gross income and to treat the same amount as an item of
investment expense. An individual would generally be allowed a deduction for
such an expense item for regular tax purposes only as a miscellaneous itemized
deduction subject to the limitation under Section 67 of the Code, and may not be
allowed any deduction for such item for purposes of the alternative minimum tax.
Section 67 of the Code allows deductions for miscellaneous itemized deductions
only to the extent that in the aggregate they exceed 2% of an individual's
adjusted gross income. The Revenue Reconciliation Act of 1990 further limits the
itemized deductions allowed to certain individuals. If so specified in the
related Prospectus Supplement, the applicable Agreement will require each holder
to give the Trust Fund written notice immediately upon becoming a holder, if it
is a pass-through interest holder, or is holding a Regular Certificate on behalf
of a pass-through interest holder. The Trust Fund will report to each holder
that has given the Trust Fund such notice (and others if it is required) and to
the Service, each such holder's allocable share, if any, of the Trust Fund's
noninterest expenses. Generally, a "single-class REMIC" is defined as (i) a
REMIC that would be treated as an investment trust under Treasury regulations
but for its qualification as a REMIC or (ii) a REMIC that is substantially
similar to an investment trust but is structured with the principal purpose of
avoiding the allocation requirement imposed under Section 67 of the Code. The
term "pass-through interest holder" generally refers to individuals, entities
taxed as individuals and certain pass-through entities, but does not include
real estate investment trusts. Such investors should consult their own tax
advisors regarding consequences to them of the allocation of the Trust Fund's
non-interest expenses. In addition, the amount of itemized deductions otherwise
allowable for the taxable year of an individual whose adjusted gross income
exceeds certain thresholds will be reduced.
9. 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 or partnership organized in or under the laws of the United
States, a state (other than any partnership that is treated as not a United
States person under any Applicable Treasury regulations) thereof or the District
of Columbia or an entity taxable as such for U.S. federal income tax purposes,
(iii) an estate, the income of which is included in gross income for United
States 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 fiduciaries have the
authority to control all substantial decisions of the trust. Unless the interest
on a Regular Certificate is effectively
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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
Bank of America or Bank of America, FSB and does not own actually or
constructively 10% or more of the voting stock of Bank of America or Bank of
America, FSB. To qualify for this tax exemption, the Foreign Holder will be
required to provide periodically a statement signed under penalties of perjury
certifying that the Foreign Holder meets the requirements for treatment as a
Foreign Holder and providing the Foreign Holder's name and address. The
statement, which may be made on a Form W-8 or substantially similar substitute
form, generally must be provided in the year a payment occurs or in either of
the two preceding years. The statement must be provided either directly or
through a clearing organization or financial institution. This exemption may not
apply to a Foreign Holder that owns directly or indirectly both Regular
Certificates and Residual Certificates. If for any reason the exemption does not
apply, interest paid to Foreign Holders will be subject to U.S. withholding tax
at the rate of 30% (or, if applicable, a reduced rate provided in a tax treaty).
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.
On April 22, 1996, the IRS issued proposed regulations which, if
adopted in final form, could have an effect on the United States' taxation of
foreign investors in Regular Certificates or Residual Certificates. The proposed
regulations would apply to payments after December 31, 1997. Foreign Holders
should consult their own tax advisors regarding the specific tax consequences to
them of owning Certificates.
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 United States 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 Bank of America or Bank of America, FSB. Regular Certificateholders who
are non-U.S. Persons and persons related to such holders should not acquire any
Residual Certificates, and Residual Certificateholders and persons related to
Residual Certificateholders should not acquire any Regular Certificates without
consulting their tax advisors as to the possible adverse tax consequences of
doing so.
10. 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. Each
non-exempt Certificateholder 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. 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.
11. Requirements. The Servicer will report annually to the Service, to
holders of record of the Regular Certificates that are not excepted from the
reporting requirements and, to the extent required by the Code, to other
interested parties, information with respect to the interest paid or accrued on
the Regular Certificates, original
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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.
12. New Withholding Regulations. The Treasury Department has issued
new regulations (the "New Regulations") which make certain modifications to the
withholding, backup withholding and information reporting rules described above.
The New Regulations attempt to unify certification requirements and modify
reliance standards. The New Regulations will generally be effective for payments
made after December 31, 1998, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
D. Taxation of Residual Certificates. The discussion under this heading
applies only to a Series of Certificates with respect to which a REMIC election
is made and to Residual Certificates. Such Residual Certificates will be subject
to tax rules, described below, that differ from those that would apply if they
were treated for federal income tax purposes as direct ownership interests in
the related Trust Fund or as debt instruments issued by such Trust Fund.
1. Although a REMIC is a separate entity for federal
income tax purposes, a REMIC is not generally subject to federal income tax.
Rather, the taxable income of a REMIC is taken into account by the holders of
REMIC residual interests.
In general, each original holder of a Residual Certificate will report
on its federal income tax return, as ordinary income, its share of the "daily
portion" of the taxable income of the Trust Fund for each day during the taxable
year on which such Residual Certificateholder held a Residual Certificate. The
"daily portion" of the taxable income of the Trust Fund is determined by
allocating to each day in any calendar quarter its ratable portion of the
taxable income or net loss of the Trust Fund for such quarter, and such Residual
Certificateholder's share of the "daily portion" is based on the portion of
outstanding Residual Certificates that such Residual Certificateholder owns on
such day. REMIC taxable income will be taxable to the Residual
Certificateholders without regard to the timing or amounts of cash distributions
by the REMIC. Ordinary income derived from Residual Certificates will be
"portfolio income" for purposes of the taxation of taxpayers subject to the
limitation on the deductibility of "passive losses." As residual interests, the
Residual Certificates will be subject to tax rules, described below, that differ
from those that would apply if the Residual Certificates were treated for
federal income tax purposes as direct ownership interests in the Contracts, or
as debt instruments issued by the REMIC. Under certain circumstances, a Residual
Certificateholder may be required to recognize for a given period income
substantially in excess of distributions made on the Residual Certificates.
A subsequent Residual Certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the Trust Fund for each day that such Residual Certificateholder held such
Residual Certificate. Those daily amounts generally would equal the amounts,
described above, that would have been reported for the same days by a holder of
a Residual Certificate (an "Original Holder") that purchased such Residual
Certificate at its original issuance and held it continuously thereafter. As
discussed below, the taxable income of the Trust Fund will be calculated based
in part on the initial tax basis to the Trust Fund of its assets, which in turn
equals the sum of the issue prices of the Residual Certificates and each Class
of Regular Certificates. The legislative history of the 1986 Act indicates that
certain adjustments may be appropriate to reduce (or increase) the income of a
subsequent Residual Certificateholder that purchased such Residual Certificate
at a price greater than (or less than) the adjusted basis (as defined below in
"Distributions") such Residual Certificate would have in the hands of an
Original Holder. For the present, however, adjustments are apparently not
permitted or required.
2. A holder's adjusted basis in a Residual Certificate will equal the
purchase price of such Residual Certificate, increased by the amount of the
related Trust Fund's taxable income that is allocated to the holder of such
Residual Certificate, and decreased (but not below zero) by the amount of
distributions received thereon by such holder and the Trust Fund's net losses
allocated to such holder. Payments on a Residual Certificate (whether at their
scheduled times or as a result of prepayments) will generally not result in any
taxable income or loss to the holder of a Residual Certificate. If the amount of
such payment exceeds a holder's adjusted basis in its Residual Certificate,
however, the holder will recognize gain (treated as gain from the sale or
exchange of its Residual Certificate) to the extent of such excess. See "-- 10.
Sale or Exchange" below.
3. Taxable Income of the Trust Fund. 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. In general, the Trust Fund's taxable
income will reflect a netting of (i) the gross income produced by the assets of
the Trust Fund, including the stated interest and any original issue discount or
market
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discount income on the Contracts in the related Contract Pool (net of any
amortized premium on such Contracts), income from the investment or reinvestment
of cash flows and, if applicable, reserve assets, and amortization of any issue
premium with respect to the Regular Certificates and (ii) deductions, including
stated interest and original issue discount expense on Regular Certificates that
would be permitted if the Regular Certificates were indebtedness of the Trust
Fund, servicing fees, and other administrative expenses of the Trust Fund
(except as described below under "-- 5. Expenses Other Than Interest"). Any gain
or loss realized by the Trust Fund from the disposition of any asset is treated
as gain or loss from the sale or exchange of property that is not a capital
asset. If there is more than one Class of Regular Certificates, deductions
allowed to the Trust Fund with respect to the Regular Certificates will
generally be calculated separately with respect to each Class based on the yield
of that Class.
For purposes of determining its taxable income, the Trust Fund will
have an initial aggregate tax basis in its assets equal to the sum of the issue
prices of the Regular Certificates and the Residual Certificates. The issue
price of a Certificate of a Class (whether Regular Certificates or Residual
Certificates) that is publicly offered will be the initial offering price to the
public (excluding bond houses and brokers) at which a substantial amount of the
Certificates of that Class is sold, and if not publicly offered will be the
price paid by the first buyer of a Certificate of such class. 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 interests, 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, and unless the related Prospectus Supplement otherwise provides, it is
not expected that any Trust Fund as to which a REMIC election is made will 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.
If a Trust Fund acquires a Contract and the principal amount of such
Contract (or revised issue price in the case of a Contract issued with original
issue discount) exceeds the Trust Fund's basis in such Contract by more than a
de minimis amount (as described above in "C. Taxation of Regular Certificates --
5. Market Discount"), such discount would generally be includable in the Trust
Fund's income as it accrues, in advance of receipt of the cash attributable to
such income, under a constant yield method, similar to the method for accruing
original issue discount on Regular Certificates described above in "C. Taxation
of Regular Certificates -- 2. Original Issue Discount." The Trust Fund's
deductions for original issue discount expense with respect to Regular
Certificates also will be determined under those rules, except that the de
minimis rule that may apply to holders of Regular Certificates and the
adjustments for holders of Regular Certificates that purchase their Certificates
at a price greater than the adjusted issue price described therein will not
apply.
If the Trust Fund's basis in a Contract exceeds the remaining stated
redemption price at maturity of such a Contract, the Trust Fund will be
considered to have acquired such Contract at a premium equal to the amount of
such excess. In the event that any Contract in the Contract Pool is acquired by
the Trust Fund at a premium, the Trust Fund will be entitled to amortize such
premium on a yield-to-maturity basis. Although the matter is not free from
doubt, the Trust Fund intends to make this calculation using a reasonable
prepayment assumption.
If a Class of Regular Certificates is issued at a price in excess of
the aggregate principal amount of such Class (the excess, the "Issue Premium"),
the portion of the Issue Premium that is considered to be amortized during a
taxable year will be treated as ordinary income of the Trust Fund for such
taxable year. Although the matter is not entirely certain, it is likely that the
Issue Premium would be amortized under a constant yield method in a manner
analogous to the method of accruing original issue discount described above
under "C. Taxation of Regular Certificates -- 2. Original Issue Discount."
The taxable income recognized by a holder of a Residual Certificate 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, a holder of a Residual
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Certificate 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. The taxable
income recognized by a holder of a Residual Certificate also may be greater in
earlier years because the REMIC will use a constant yield in computing income
from the Contracts, while interest deductions with respect to Regular
Certificates, expressed as a percentage of the outstanding principal amount of
the Regular Certificates, may increase over time as earlier, lower-yielding
Classes are paid. The mismatching of income and deductions described in this
paragraph, if present with respect to a series of Residual Certificates, could
have a significant adverse effect upon the holder's after-tax rate of return. In
addition, a holder of a Residual Certificate may need to 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 in "--7. Excess Inclusions."
A Residual Certificateholder will not be permitted to amortize the cost
of its Residual Certificate as an offset to its share of the taxable income of
the Trust Fund. However, that taxable income will not include cash received by
the Trust Fund that represents a recovery of the Trust Fund's basis in its
assets (which will include the issue price of the Residual Certificates as well
as the issue price of Regular Certificates). Such recovery of basis by the Trust
Fund will have the effect of amortization of the issue price of the Residual
Certificates over the life of the Trust Fund's assets. However, in view of the
possible acceleration of the income of holders of Residual Certificates
described above, the period of time over which such issue price is effectively
amortized may be longer than the economic life of the Residual Certificates.
The method of taxation of Residual Certificates described above can
produce a significantly lower after-tax yield for a Residual Certificate than
would be the case if (i) Residual Certificates were taxable in the same manner
as debt instruments issued by the Trust Fund or (ii) no portion of the taxable
income on the Residual Certificates in each period were treated as "excess
inclusions" (as defined below). In certain periods, taxable income and the
resulting tax liability on a Residual Certificate are likely to exceed payments
received thereon. In addition, a substantial tax may be imposed on certain
transferors of the Residual Certificates and certain beneficial owners of the
Residual Certificates that are "pass-through" entities. Investors should consult
their tax advisors before purchasing a Residual Certificate.
4. Net Losses of the Trust Fund. The Trust Fund will have a net
loss for a calendar quarter if its deductions for that calendar quarter exceed
its gross income for that calendar quarter. The net loss allocable to any
Residual Certificate will not be deductible by the holder to the extent that
such net loss exceeds such holder's adjusted basis (as defined above in "-- 2.
Distributions") in such Residual Certificate at the end of the calendar quarter
in which such loss arises (or the time of disposition of the Residual
Certificate, if earlier), determined without taking into account the net loss
for such quarter. Any net loss that is not currently deductible by reason of
this limitation may be carried forward indefinitely, but may be used only to
offset taxable income of the same Trust Fund subsequently allocated to such
Residual Certificateholder. The ability of Residual Certificateholders that are
individuals or closely-held corporations to deduct net losses may be subject to
additional limitations under the Code.
5. Expenses Other Than Interest. Except in the limited circumstance
when the Trust Fund is considered a "single-class REMIC" (as defined above in
"C. Taxation of Regular Certificates -- 8. Pass-Through of Expenses Other Than
Interest"), the Trust Fund's servicing, administrative and other noninterest
expenses will be allocated entirely to the Residual Certificateholders. In the
case where the Trust Fund is considered a single-class REMIC, such expenses will
be allocated proportionately among Regular and Residual Certificateholders. See
"C. Taxation of Regular Certificates -- 8. Pass-Through of Expenses Other Than
Interest." In either case, such expenses will be allocated as a separate item to
those holders that are "pass-through interest holders" (as defined above in "C.
Taxation of Regular Certificates -- 8. Pass-Through of Expenses Other Than
Interest"). Such a holder would be required to add its allocable
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share, if any, of such expenses to its gross income and treat the same amount as
an item of investment expense. Limitations on the deductibility of such expenses
are described above in "C. Taxation of Regular Certificates -- 8. Pass-Through
of Expenses Other Than Interest." The related Agreement will require each holder
to give the Trust Fund written notice upon becoming a holder if it is a pass-
through interest holder, or is holding a Residual Certificate on behalf of a
pass-through interest holder. The Trust Fund will report quarterly to each
holder of a Residual Certificate during any calendar quarter that has given the
Trust Fund such notice (and others if it is required) and to the Service
annually such holder's allocable share, if any, of the Trust Fund's non-interest
expenses. Such investors should consult their tax advisors in determining the
consequences to them of the allocation of the Trust Fund's non-interest
expenses.
6. Transactions; Special Taxes. Income from certain transactions by
the REMIC, called prohibited transactions, will not be part of the calculation
of income or loss includable in the federal income tax returns of Residual
Certificateholders, but rather will be taxed directly to the REMIC at a 100%
rate. Prohibited transactions generally include (i) the disposition of qualified
mortgages other than pursuant to a (a) substitution for a defective mortgage
within two years or for any qualified mortgage within three months of the
specified Startup Date, (b) repurchase of a defective mortgage, (c) foreclosure,
default, or imminent default of a qualified mortgage, (d) bankruptcy or
insolvency of the REMIC or (e) a qualified (complete) liquidation of the REMIC,
(ii) the receipt of income from assets that are not the type of mortgage loans
or investments that the REMIC is permitted to hold, (iii) the receipt of
compensation for services or (iv) the receipt of gain from disposition of cash
flow investments other than pursuant to a qualified (complete) liquidation of
the REMIC. The Trust Fund will be subject to a tax equal to 100% of the amount
of any contributions of property made to the Trust Fund after the Startup Day,
except for certain cash contributions specified in Section 860G(d) of the Code.
An additional tax may be imposed on the Trust Fund, at the highest marginal
federal corporate income tax rate, on certain net income from foreclosure
property.
It is anticipated that the Trust Fund will not engage in any prohibited
transactions in which it would recognize a material amount of net income or
receive substantial contributions of property after the Startup Date. However,
if the Trust Fund is subject to the tax on prohibited transactions or
contributions, such tax would generally be borne by the Residual
Certificateholders.
7. Excess Inclusions. A portion of the income of the Trust Fund
allocable to a Residual Certificateholder referred to in the Code as an "excess
inclusion" will be subject to federal income tax in all events. (Excess
inclusions are defined below.) Thus, for example, an excess inclusion (i) may
not be offset by any unrelated losses or net operating loss carryovers of a
Residual Certificateholder, (ii) will be treated as "unrelated business taxable
income" within the meaning of Section 512 of the Code if the Residual
Certificateholder is a pension fund or any other organization that is subject to
tax only on its unrelated business taxable income and (iii) is not eligible for
any reduction in the rate of withholding tax in the case of a Residual
Certificateholder that is a foreign investor, as further discussed in "-- 13.
Foreign Investors" below. In addition, if a real estate investment trust,
regulated investment company, or certain pass-through entities own a Residual
Certificate, a portion of dividends paid by such entities would be treated as
excess inclusions in the hands of its shareholders with the same consequences as
excess inclusions attributed directly to a Residual Certificateholder.
Except as discussed in the following paragraph, with respect to any
Residual Certificateholder, the excess inclusion for any calendar quarter will
equal the excess, if any, of (i) the amount of the Trust Fund's taxable income
for the calendar quarter allocable to the Residual Certificateholder, over (ii)
the sum of the "daily accruals" (as defined below) for all days during the
calendar quarter on which the Residual Certificateholder held such Residual
Certificate. For this purpose, daily accruals with respect to a Residual
Certificateholder will be calculated by allocating to each day in such calendar
quarter its ratable portion of the product of (i) the "adjusted issue price" (as
defined below) of the Residual Certificate at the beginning of such calendar
quarter, and (ii) 120% of the "long-term Federal rate" (defined below),
calculated on the issue date of the Residual Certificate as if it were a debt
instrument and based on quarterly compounding. For this purpose, the "adjusted
issue price" of a Residual Certificate at the beginning of any calendar quarter
will equal its issue price, increased by the aggregate of the daily accruals for
all prior calendar quarters and the amount of any contributions made to the
Trust Fund with respect to the Residual Certificates after the Startup Date, and
decreased (but not below zero) by the aggregate amount of distributions made
with respect to the Residual Certificate before the beginning of such calendar
quarter. The "long-term Federal rate" is an average of current yields on
Treasury securities with a remaining term of greater than nine years, computed
and published monthly by the Service. As an
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exception to the general rule described above, the Treasury has authority to
issue regulations that would treat 100% of the income accruing on a Residual
Certificate as an excess inclusion, if the Residual Certificates, in the
aggregate, are considered not to have "significant value." The REMIC
Regulations, however, do not contain such a rule.
The Small Business Act has eliminated a special rule that formerly
permitted certain financial institutions utilizing the reserve method of
accounting for bad debts pursuant to Section 593 of the Code to use net
operating losses and other allowable deductions to offset their excess
inclusions from certain REMIC residual certificates. In addition, the Small
Business Act provides three rules for determining the effect of excess
inclusions on the alternative minimum taxable income of a holder of a REMIC
residual certificate. First, alternative minimum taxable income for such a
residual holder is determined without regard to the special rule that taxable
income cannot be less than excess inclusions. Second, a residual holder's
alternative minimum taxable income for a tax year cannot be less than the excess
inclusions for the year. Third, the amount of any alternative minimum tax net
operating loss deductions must be computed without regard to any excess
inclusions.
8. Effect of Defaults and Delinquencies. The Residual Certificates
of a multiple-Class Series may be subordinate to one or more Classes of Regular
Certificates (for purposes of this paragraph, "Senior Certificates"), and, in
the event there are defaults or delinquencies on the Contracts in the related
Contract Pool, amounts that would otherwise be distributed on the Residual
Certificates may instead be distributed on the Senior Certificates. However, the
Trust Fund will generally be required to report income in respect of Contracts
(and deductions with respect to the Regular Certificates) without giving effect
to default and delinquencies, except to the extent it can be established that
amounts due on the Contracts are uncollectible. To the extent the income on a
delinquent or defaulted Contract is greater than the deduction allowed in
respect of interest on the Regular Certificate that relates to such Contract,
the Trust Fund may recognize net income without making corresponding
distributions of cash on the Residual Certificates, and holders of Residual
Certificates will be required to report their pro rata share of the net income
of the Trust Fund without regard to the timing and amount of cash distributed on
such Residual Certificates.
9. Tax on Transfers of Residual Certificates to Certain
Organizations. An entity will not qualify as a REMIC unless there are reasonable
arrangements designed to ensure that residual interests in such entity are not
held by "disqualified organizations" (as defined below). Restrictions on the
transfer of the Residual Certificates that are intended to meet this requirement
will be included in the related Agreement and are discussed more fully in
"Restrictions on Transfer of REMIC Residual Certificates." If, notwithstanding
those restrictions, a Residual Certificate is 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. Under the REMIC
Regulations, the anticipated excess inclusions must be determined based on (i)
events that have occurred up to the time of the transfer and (ii) the project
payments based on the Assumed Prepayment Rate. The REMIC Regulations also
provide that the present value of the anticipated excess inclusions is
determined by discounting the anticipated excess inclusions as of the date of
the transfer using the applicable Federal rate under Section 1274(d)(1) of the
Code for the month of the transfer that would apply to a hypothetical obligation
with a term beginning on the date of the transfer and ending on the date the
life of the REMIC is anticipated to expire (as determined under rules described
above in "-- 7. Excess Inclusions"). Such a tax would generally be imposed on
the transferor of the Residual Certificate, except that where such transfer is
through an agent for a disqualified organization, the tax would instead be
imposed on such agent. However, a transferor of a Residual Certificate (or an
agent for a disqualified organization) would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to such transferor (or
such agent) an affidavit that the transferee is not a disqualified organization,
and as of the time of the transfer the transferor or the agent does not have
actual knowledge that such affidavit is false.
In addition, if a "pass-through entity" (as defined below) includes in
income excess inclusions with respect to a Residual Certificate, and a
disqualified organization is the record holder of an interest in such entity,
then a tax will be 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 held by such disqualified organization and
(ii) the highest marginal federal income tax rate imposed on corporations.
However, a pass-through entity will in no event be liable for such tax with
respect to a record holder if the record holder furnishes the pass-through
entity with an affidavit that the record
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holder is not a disqualified organization, and, as of the time the record holder
becomes such a holder, the pass-through entity does not have actual knowledge
that such affidavit is false.
For these purposes, the term "disqualified organization" means (i) the
United States, any State or political subdivision thereof, any possession of the
United States, any foreign government, any international organization, or any
agency or instrumentality of the foregoing (other than an instrumentality that
is a corporation if all of its activities are subject to tax and, except for the
Federal Home Loan Mortgage Corporation, a majority of its board of directors is
not selected by an such governmental unit), (ii) an organization (other than a
cooperative described in Section 521 of the Code) which is exempt from federal
income tax (including the tax imposed by Section 511 of the Code on unrelated
business taxable income) on excess inclusions or (iii) any organization
described in Section 1381(a)(2)(C) of the Code. For these purposes, the term
"pass-through entity" means any regulated investment company, real estate
investment trust, common trust fund, partnership, trust, estate and certain
other entities described in Section 860E(e)(6) of the Code. 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.
10. Sale or Exchange. If a Residual Certificate is sold or exchanged,
the seller will recognize gain or loss equal to the difference, if any, between
the amount realized and its adjusted basis in the Residual Certificate (as
defined above in "-- 2. Distributions") at the time of such sale or exchange
(except that the recognition of a loss may be limited under the "wash sale"
rules described below). In general, any such gain or loss will be capital gain
or loss, provided the Residual Certificate is held as a capital asset as defined
in Section 1221 of the Code. However, a Residual Certificate will be an
"evidence of indebtedness" within the meaning of Section 582(c)(1) of the Code,
so that gain or loss recognized from the sale of a Residual Certificate by a
bank or thrift institution to which such section applies would be ordinary
income or loss.
Section 860F(d) of the Code and the Conference Committee Report to the
1986 Act indicate that, except as provided in Treasury Regulations, the wash
sale rules of Section 1091 of the Code 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 Section 1091 of the
Code) 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.
11. Noneconomic Residual Interests. Under the REMIC Regulations, a
transfer of a "noneconomic residual interest" (as defined below) to a Residual
Holder (other than a Foreign Holder, as discussed below) is disregarded for all
federal income tax purposes if a significant purpose of the transfer is to
enable the transferor to impede the assessment or collection of tax. If a
transfer of a residual interest is disregarded, the transferor would continue to
be treated as the owner of the residual interest and thus would continue to be
subject to tax on its allocable portion of the net income of the REMIC. 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, as a result of the investigation, the transferor found that the
transferee had historically paid its debts as they came due and found no
significant evidence to indicate that the transferee will not continue to pay
its debts as they come due in the future and (ii) the transferee represents to
the transferor that 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
Agreement with respect to each Series of REMIC Certificates will require the
transferee of a Residual Certificate to certify to the statements in clause
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(ii) of the preceding sentence as part of the affidavit described below under
"Restrictions on Transfer of REMIC Residual Certificates."
12. Termination. The Trust Fund related to a Series of Certificates
will terminate shortly following the retirement of Certificates in such Series.
If a Residual Certificateholder's adjusted basis in its Residual Certificate
exceeds the amount of cash distributed to such Residual Certificateholder in
final liquidation of its interest, then, although the matter is not entirely
free from doubt, it would appear that the Residual Certificateholder is entitled
to a loss equal to the amount of such excess.
13. Foreign Investors. Unless otherwise provided in the applicable
Prospectus Supplement, no record or beneficial ownership interest in a Residual
Certificate may be transferred to a Foreign Holder. See "Restrictions on
Transfer of REMIC Residual Certificates" below. With respect to permitted
transfers to Foreign Holders, any such Residual Certificateholders should assume
that payments made on the Residual Certificates they hold will be subject to a
30% withholding tax, or such a lesser rate as may be provided under any
applicable tax treaty, except that the rate of withholding on any payments made
on Residual Certificates that are excess inclusions will not be eligible for
reduction under any applicable tax treaties. See "-- 7. Excess Inclusions"
above. Under the REMIC Regulations, a transfer of a residual interest that has
tax avoidance potential is disregarded for all federal income tax purposes if
the transferee is a Foreign Holder. The REMIC Regulations state that a residual
interest has tax avoidance potential unless, at the time of the transfer, the
transferor reasonably expects that, for each excess inclusion, the REMIC will
distribute to the transferee residual interest holder an amount that will equal
at least 30% of the excess inclusion, and that each such amount will be
distributed at or after the time at which the excess inclusion accrues and not
later than the close of the calendar year following the calendar year of
accrual. See "-- 9. Tax on Transfers of Residual Certificates to Certain
Organizations" above for rules regarding the determination of anticipated excess
inclusions. The above rules do not apply to transfers of Residual Certificates
if the transferee's income from the Residual Certificate would be effectively
connected with a United States trade or business of the transferee. The REMIC
Regulations also provide that a transfer of a Residual Certificate from a
Foreign Holder to a United States person or to a Foreign Holder in whose hands
the income from the Residual Certificate would be effectively connected with a
United States trade or business of the transferee will be disregarded if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions.
14. Mark-to-Market Rules. Treasury regulations provided that a
Residual Certificate acquired after January 3, 1995 will not be treated as a
security and therefore generally cannot be marked to market.
15. Additional Taxable Income of Residual Interests. Any payment
received by a holder of a Residual Certificate in connection with the
acquisition of such Residual Certificate will be taken into account in
determining the income of such holder for federal income tax purposes. Although
it appears likely that any such payment would be includable in income
immediately upon its receipt or accrual as ordinary income, the IRS might assert
that such payment should be included in income over time according to an
amortization schedule or according to some other method. Because of the
uncertainty concerning the treatment of such payments, holders of Residual
Certificates should consult their tax advisors concerning the treatment of such
payments for income tax purposes.
E. Other Matters Relating to REMIC Certificates; Administrative Matters.
Solely for the purposes of the administrative provisions of the Code, each Trust
Fund for which a REMIC election is made will be treated as a partnership, and
the Residual Certificateholders will be treated as the partners thereof. The
Trust Fund must maintain its books on a calendar year basis and must file
federal information returns in a manner similar to a partnership for federal
income tax purposes. Certain information on such returns will be furnished to
each Residual Certificateholder. The Trust Fund also will be subject to the
procedural and administrative rules of the Code applicable to partnerships,
including rules for determining any adjustments to among other things, items of
REMIC income, gain, loss, deduction or credit by the Service in a unified
administrative proceeding. The holders of Residual Certificates will generally
be entitled to participate in audits of the Trust Fund by the Service to the
same extent as general partners in an audit of a partnership. Regular
Certificateholders will not be entitled to participate in any such audits.
Each Residual Certificateholder is required to treat items on its
return consistently with their treatment on the Trust Fund's return, unless the
Residual Certificateholder either files a statement identifying the
inconsistency or
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establishes that the inconsistency resulted from incorrect information received
from the Trust Fund. The Service may assert a deficiency resulting from a
failure to comply with the consistency requirement without instituting an
administrative proceeding at the Trust Fund level. The Trust Fund does not
intend to register as a tax shelter pursuant to Section 6111 of the Code because
it is not anticipated that the Trust Fund will have a net loss for any of the
first five taxable years of its existence. Any person that holds a Residual
Certificate as a nominee for another person will be required to furnish the
Trust Fund, in a manner provided in Treasury Regulations, with the name and
address of such person, and other information.
Each Residual Certificateholder, by purchasing its Residual
Certificate, (A) shall be deemed to consent to the appointment of the Servicer
as (i) the "tax matters person" (within the meaning of Section 1.860F-4(d) of
the REMIC Regulations) for the Trust Fund and (ii) attorney-in-fact and agent
for any person that is the tax matters person if the Servicer is unable to serve
as the tax matters person, and (B) agrees to execute any documents required to
give effect to (A) above.
Non-REMIC Certificates
The discussion under this heading applies only to a Series of
Certificates with respect to which a REMIC election is not made ("Non-REMIC
Certificates").
A. Characterization of the Trust Fund. Upon the issuance of any Series of
Certificates with respect to which no REMIC election is made, Orrick, Herrington
& Sutcliffe LLP, special counsel to Bank of America and Bank of America, FSB,
will deliver its opinion generally to the effect that with respect to each such
Series of Certificates, under then existing law and assuming compliance by the
Seller(s), the Servicer and the Trustee of such Series with all of the
provisions of the related Agreement, and agreement or agreements, if any,
providing for a Credit Facility or a Liquidity Facility, together with any
agreement documenting the arrangement through which a Credit Facility or a
Liquidity Facility is held outside the related Trust Fund, the agreement or
agreements with any Underwriter, for federal income tax purposes, the Trust Fund
will be classified as a grantor trust and not as a corporation or an association
which is taxable as a corporation. Accordingly, each Non-REMIC Certificateholder
will be treated for federal income tax purposes as the owner of an undivided
interest in the Contracts and other assets included in the Trust Fund. As
further described below, each holder of a Non-REMIC Certificate must therefore
report on its federal income tax return the gross income from the portion of the
Contracts that is allocable to such Non-REMIC Certificate and may deduct its
share of the expenses paid by the Trust Fund that are allocable to such Non-
REMIC Certificate, at the same time and to the same extent as such items would
be reported by such holder if it had purchased and held directly such interest
in the Contracts and received directly its share of the payments on the
Contracts and paid directly its share of the expenses paid by the Trust Fund
when those amounts are received and paid by the Trust Fund. A Non-REMIC
Certificateholder who is an individual will be allowed deductions for such
expenses only to the extent that the sum of those expenses and certain other of
the Non-REMIC Certificateholder's miscellaneous itemized deductions exceeds 2%
of such individual's adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year of an individual whose
adjusted gross income exceeds certain thresholds will be reduced. Other
potential limitations on deductibility are described above in "REMIC
Certificates -- C. Taxation of Regular Certificates -- 8. Pass-Through of
Expenses Other Than Interest." Although not clear, it appears that expenses paid
by the Trust Fund, and the gross income used to pay such expenses, should be
allocated among the classes of Non-REMIC Certificates in proportion to their
respective fair market values at issuance.
Under current Service interpretations of applicable Treasury
Regulations, Bank of America or Bank of America, FSB would be able to sell or
otherwise dispose of any subordinated Non-REMIC Certificates. Accordingly, Bank
of America and Bank of America, FSB expect 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, and 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 21, 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
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such discount. See the discussion above under "REMIC Certificates -- C. Taxation
of Regular Certificates -- 2. 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 Certificates --C. Taxation of Regular
Certificates -- 4. Market Discount" and "REMIC Certificates -- C. Taxation of
Regular Certificates -- 5. Premium."
B. Tax Status of Non-REMIC Certificates. In general, the Non-REMIC
Certificates, other than "Premium Non-REMIC Certificates" (as defined below)
will be (i) "real estate assets" within the meaning of Section 856(c)(5)(A) of
the Code and (ii) assets described in Section 7701(a)(19)(C) of the Code to the
extent the Trust Fund's assets qualify under those Sections of the Code. Any
amount includable in gross income with respect to the Non-REMIC Certificates
will be treated as "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code to the extent the income on the Trust Fund's assets
qualifies under that Code Section. The Service has ruled that obligations
secured by permanently installed mobile home units qualify as "real estate
assets" under Section 856(c)(5)(A) of the Code. Assets described in Section
7701(a)(19)(C) of the Code include loans secured by mobile homes not used on a
transient basis. However, whether Manufactured Homes would be viewed as
permanently installed for purposes of Section 856 of the Code would depend on
the facts and circumstances of each case. In this regard, investors should note
that, unless stated otherwise in the related Prospectus Supplement, most of the
Contracts in the related Contract Pool prohibit the Obligor from permanently
attaching the related Manufactured Home to its site if it were not so attached
on the date of the Contract. Non-REMIC Certificates that represent the right
solely to interest payments on the Contracts and Non-REMIC Certificates that are
issued at prices that substantially exceed the portion of the principal amount
of the Contracts allocable to such Non-REMIC Certificates (both types of Non-
REMIC Certificates, "Premium Non-REMIC Certificates") should qualify under the
foregoing sections of the Code to the same extent as other Certificates, but the
matter is not free from doubt. Prospective purchasers of Certificates who may be
affected by the foregoing Code provisions should consult their tax advisors
regarding the status of the Certificates under such provisions.
C. Taxation of Non-REMIC Certificates Under Stripped Bond Rules. Certain
classes of Non-REMIC Certificates may be subject to the stripped bond rules of
Section 1286 of the Code. In general, a Non-REMIC 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 Bank of
America or Bank of America, FSB 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. Unless the Prospectus Supplement indicates
otherwise, the Non-REMIC Certificates will be subject to the "stripped bond"
rules of Section 1286 of the Code (or, if the application of those rules to a
particular Series of Non-REMIC Certificates is uncertain, the Trust Fund will
take the position that they apply). There is some uncertainty as to how that
section will be applied to securities such as the Non-REMIC Certificates.
Investors should consult their own tax advisors regarding the treatment of the
Non-REMIC Certificates under the stripped bond rules.
Although the matter is not entirely clear and alternative
characterizations could be imposed, it appears that each stripped Non-REMIC
Certificate should be considered to be a single debt instrument issued on the
day it is purchased for purposes of calculating original issue discount. Thus,
in each month the holder of a Non-REMIC Certificate (whether a cash or accrual
method taxpayer) will be required to report interest income from the Non-REMIC
Certificate equal to the income that accrues on the Non-REMIC Certificate in
such month, calculated, in accordance with the rules of the Code relating to
original issue discount, under a constant yield method. In general, the amount
of
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such income reported in any month would equal the product of such holder's
adjusted basis in such Non-REMIC Certificate at the beginning of such month (see
" -- D. Sales of Certificates" below) and the yield of such Non-REMIC
Certificate to such holder. Such yield would be the monthly rate (assuming
monthly compounding) determined as of the date of purchase that, if used in
discounting the remaining payments on the portion of the Contracts that is
allocable to such Non-REMIC Certificate, would cause the present value of those
payments to equal the price at which the holder purchased the Non-REMIC
Certificate.
With respect to certain categories of debt instruments, the Code
requires the use of a reasonable prepayment assumption in accruing original
issue discount and provides a method of adjusting those accruals to account for
differences between the assumed prepayment rate and the actual rate. These rules
apply to "regular interests" in a REMIC and are described under "REMIC
Certificates -- C. Taxation of Regular Certificates -- 2. Original Issue
Discount." Regulations could be adopted applying these rules to the Non-REMIC
Certificates. Although the matter is not free from doubt, it appears that the
Taxpayer Relief Act of 1997 has expanded the requirement of the use of a
reasonable prepayment assumption to instruments such as the Non-REMIC
Certificates. In the absence of regulations interpreting the application of this
requirement to such instruments particularly where such instruments are subject
to the Stripped Bond Rules, it is uncertain whether the assumed prepayment rate
would be determined based on conditions at the time of the first sale of the
Non-REMIC Certificates or, with respect to any holder, at the time of purchase
of the Non-REMIC Certificate by that holder. Finally, if these rules were
applied to the Non-REMIC Certificates, and the principles used in calculating
the amount of original issue discount that accrues in any month would produce a
negative amount of original issue discount, it is unclear when such loss would
be allowed.
In the case of a Non-REMIC Certificate acquired at a price equal to the
principal amount of the Contracts allocable to such Non-REMIC Certificate, the
use of a reasonable prepayment assumption would not have any significant effect
on the yield used in calculating accruals of interest income. In the case,
however, of a Non-REMIC Certificate acquired at a discount or premium (that is,
at a price less than or greater than such principal amount, respectively), the
use of a reasonable prepayment assumption would increase or decrease such yield,
and thus accelerate or decelerate the reporting of interest income,
respectively.
If the yield used by the holder of a Non-REMIC Certificate in
calculating the amount of interest that accrues in any month is determined based
on scheduled payments on the Contracts (that is, without using a reasonable
prepayment assumption) and such Non-REMIC Certificate was acquired at a discount
or premium, then such holder generally will recognize a net amount of ordinary
income or loss if a Contract prepays in full in an amount equal to the
difference between the portion of the prepaid principal amount of the Contract
that is allocable to the Non-REMIC Certificate and the portion of the adjusted
basis of the Non-REMIC Certificate (see "-- D. Sales of Certificates" below)
that is allocable to the Contract. In general, basis would be allocated among
the Contracts in proportion to their respective principal balances determined
immediately before such prepayment. It is not clear whether any other
adjustments would be required or permitted to take account of prepayments of the
Contracts.
Solely for purposes of reporting income on the Non-REMIC Certificates
to the Service and to certain holders, as required under the Code, it is
anticipated that, unless provided otherwise in the related Prospectus
Supplement, the yield of the Non-REMIC Certificates will be calculated based on
(i) a representative initial offering price of the Non-REMIC Certificates to the
public and (ii) a reasonable Assumed Prepayment Rate, which will be the rate
used in pricing the initial offering of the Non-REMIC Certificates. (Such yield
may differ significantly from the yield to any particular holder that would be
used in calculating the interest income of such holder.) No representation is
made that the Contracts will in fact prepay at the Assumed Prepayment Rate or at
any other rate.
D. Sales of Certificates. Upon the 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.
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E. 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 above in "REMIC Certificates -- C. Taxation of Regular
Certificates -- 9. 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 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 Certificates -- C. Taxation
of Regular Certificates -- 9. Taxation of Certain Foreign Investors."
OTHER TAX CONSEQUENCES
No advice has been received as to local income, franchise, personal
property, or other taxation in any state or locality, or as to the tax effect of
ownership of Certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of Certificates.
RESTRICTIONS ON TRANSFER OF REMIC RESIDUAL CERTIFICATES
As discussed in "Certain Federal Income Tax Consequences -- D. Taxation
of Residual Certificates -- 9. Tax on Transfers of Residual Certificates to
Certain Organizations," in order for the Trust Fund to qualify as a REMIC, there
must be reasonable arrangements designed to ensure that the Residual
Certificates are not held by disqualified organizations. Further, transfers to
persons that are not United States persons raise special tax issues.
Accordingly, unless the related Prospectus Supplement provides otherwise, no
record or beneficial ownership interest in a Residual Certificate that is sold
under this Prospectus may be transferred unless, among other things, the Trustee
receives (i) an affidavit from the proposed transferee to the effect that it is
not a "disqualified organization" and is not purchasing on behalf of a
disqualified organization (see "Certain Federal Income Tax Consequences -- D.
Taxation of Residual Certificates -- 9. Tax on Transfers of Residual
Certificates to Certain Organizations"), (ii) a representation from the proposed
transferee to the effect that it is a citizen or resident of the United States,
a corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust whose income from sources without the United States is includable in gross
income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States and
(iii) a covenant of the proposed transferee to the effect that the proposed
transferee agrees to be bound by and to abide by the transfer restrictions
applicable to such REMIC Residual Certificate.
TAX-EXEMPT INVESTORS
A qualified pension plan or other entity that is exempt from federal
income taxation pursuant to Section 501 of the Code (a "Tax-Exempt Investor")
nonetheless will be subject to federal income taxation to the extent that its
income is "unrelated business taxable income" ("UBTI") within the meaning of
Section 512 of the Code. All "excess inclusions" of a "REMIC" allocated to a
"Residual Certificate" held by a Tax-Exempt investor will be considered UBTI and
thus will be subject to federal income tax. See "Certain Federal Income Tax
Consequences -- Certificates as REMIC Residual Interests -- 7. Excess
Inclusions."
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Certificates will specify
which, if any, of the Classes of Certificates offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of Certificates that qualify as
"mortgage related securities" will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
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(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 (including the District of Columbia and Puerto Rico) 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, if a state enacted
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any such entities with respect to "mortgage related securities,"
Certificates will constitute legal investments for entities subject to such
legislation only to the extent provided therein. Approximately twenty-one states
adopted such legislation prior to the October 4, 1991 deadline.
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 limitations as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, 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. Section 24 (Seventh), subject in each case to such
regulations as the applicable federal authority may prescribe. In this
connection, federal credit unions should review the National Credit Union
Administration ("NCUA") Letter to Credit Unions No. 96, as modified by Letter to
Credit Unions No. 108, which includes guidelines to assist federal credit unions
in making investment decisions for mortgage related securities, and the NCUAs
regulation "Investment and Deposit Activities" (12 C.F.R. Part 703), which sets
forth certain restrictions on investment by federal credit unions in mortgage
related securities.
All depository institutions considering an investment in the
Certificates (whether or not the Class of Certificates under consideration for
purchase constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators)
(the "Policy Statement"), setting forth, in relevant part, certain securities
trading and sales practices deemed unsuitable for an institution's investment
portfolio, and guidelines for (and restrictions on) investing in mortgage
derivative products, including "mortgage related securities," which are
"high-risk mortgage securities" as defined in the Policy Statement. According to
the Policy Statement, such "high-risk mortgage securities" include securities
such as certificates not entitled to distributions allocated to principal or
interest, or subordinated certificates. Under the Policy Statement, it is the
responsibility of each depository institution to determine, prior to purchase
(and at stated intervals thereafter), whether a particular mortgage derivative
product is a "high-risk mortgage security," and whether the purchase (or
retention) of such a product would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
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.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit or other plans
subject to ERISA and/or Section 4975 of the Code ("Plans") and on persons having
certain specified relationships to a Plan ("Parties in Interest") with respect
to such Plans, including, for this purpose, individual retirement arrangements
described in Section 408 of the Code. Certain employee benefit plans, such as
governmental plans and church plans (if no election has been made under Section
410(d) of the Code), are not subject to the requirements of ERISA, and assets of
such plans may be invested in Certificates without regard to the ERISA
considerations described below, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code is, however,
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
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Investments by Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in Certificates should consider, among other
factors, the sensitivity of the investments to the rate of principal payments
(including prepayments) on the Contracts as discussed in "Prepayment and Yield
Considerations" herein.
The United States Department of Labor (the "DOL") has issued
regulations concerning the definition of what constitutes the assets of a Plan
(DOL Reg. Section 2510.3-101). Under the DOL regulations, the underlying assets
and properties of corporations, partnerships and certain other entities in which
a Plan makes an "equity" investment could be deemed for purposes of ERISA to be
assets of the investing Plan in certain circumstances. A beneficial interest in
a trust is defined as an "equity" interest under the DOL regulations. However,
the DOL regulations provide that, generally, the assets of an entity in which a
Plan makes an equity investment 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 in DOL Reg.
Section 2510.3-101 is a security that is widely held, freely transferable and
either registered under the Exchange Act or sold to the Plan as part of a public
offering under the Securities Act that then becomes so registered. There can be
no assurance that any Class of Certificate will qualify for this or any other
exception under the DOL regulation.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and Parties in Interest, and imposes
additional prohibitions where Parties in Interest are fiduciaries with respect
to such Plan. To the extent that the Contracts may be deemed Plan assets of each
Plan that purchases Certificates, an investment in the Certificates by a Plan
might be a prohibited transaction under ERISA Sections 406 and 407 and subject
to an excise tax under Section 4975 of the Code unless a statutory or
administrative exemption applies.
In Prohibited Transaction Class Exemption ("PTCE") 83-1, which amended
PTCE 81-7, the DOL exempted from ERISA's prohibited transaction rules certain
transactions relating to the operation of residential mortgage pool investment
trusts and the purchase, sale and holding of "mortgage pool pass-through
certificates" in the initial issuance of such certificates. However, PTCE 83-1
does not apply to trusts that hold Contracts.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Certificates
must make its own determination as to
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the availability of any prohibited transaction exemptions under ERISA. Each Plan
fiduciary should also determine whether, under the general fiduciary standards
of investment prudence and diversification, an investment in the Certificates is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
Several underwriters of asset-backed securities have applied for and
obtained ERISA prohibited transaction exemptions which are in some respects
broader than the exceptions to the DOL regulation referred to above.
Such exemptions can only apply to asset-backed securities which, among other
conditions, are sold in an offering with respect to which such underwriter
serves as the sole or a managing underwriter, or as a selling or placement
agent. If such an exemption might be applicable to a Series of Certificates, the
related Prospectus Supplement will refer to such possibility.
Any Plan fiduciary that proposes to cause a Plan to purchase
Certificates should consult with its counsel concerning the impact of ERISA and
the Code, the applicability of any exemption under ERISA and the potential
consequences in its specific circumstances, prior to making such investment.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the Certificates is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
General
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Contracts 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.
As a result of the assignment of Contracts in a Contract Pool to the
Trustee, the related Trust Fund will succeed collectively to all of the rights
(including the right to receive payment on such Contracts), and will assume the
obligations of the obligee, under such 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 either the Manufactured Home, and, in the
case of a Land Home Contract or Land-in-Lieu Contract, the real estate on which
the related Manufactured Home is located, to secure repayment of such loan.
Certain aspects of both features of the Contracts are described more fully
below.
The following discussion focuses on issues relating generally to Bank
of America's, Bank of America, FSB's or any lender's interest in manufactured
housing contracts. See "Risk Factors--Security Interests of a Trust Fund in
the Manufactured Homes" herein for a discussion of certain issues relating to
the transfer to a Trust Fund of Contracts and the related security interests in
the Manufactured Homes comprising the related Contract Pool.
Security Interests of Bank of America, FSB in the Manufactured Homes (Other than
Land Home and Land-in-Lieu Contracts)
Each Contract generally will be "chattel paper" as defined in the UCC
as in effect in California (where Bank of America, FSB's and Bank of America's
chief executive offices are located and where the chief executive office of
SPFSC is located) and the jurisdiction in which the related Manufactured Home
was located at origination. Under the UCC as in effect in each such
jurisdiction, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Bank of America, FSB or Bank
of America, as the case may be, will make or cause to be made appropriate
filings of UCC-1 financing statements to give notice of the Trustee's ownership
of the Contracts sold by it. The Trustee's interest in the Contracts could be
defeated if a subsequent purchaser were able to take physical possession of the
Contracts without notice of such assignment. Unless otherwise specified in the
applicable Prospectus Supplement, Bank of America, FSB or Bank of America or
both of them, as the case may be, will be required under the related Agreement
to stamp or cause to be stamped each Contract sold by it to indicate its
transfer to the Trustee. To the extent the Contracts do not constitute "chattel
paper" within the meaning of the UCC as in effect in California and the
jurisdictions in which the related Manufactured Homes were located at
origination, these steps may not be sufficient to protect the Trustee's interest
in the Contracts against the claims of Bank of America, FSB' or Bank of
America's (or an affiliate's) creditors, a receiver or conservator of Bank of
America, FSB or Bank of America or a receiver, conservator or trustee in
bankruptcy of an affiliate thereof that sold such Contracts to Bank of America,
FSB or Bank of America.
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The Manufactured Homes securing the Contracts in a Contract Pool may be
located in all 50 states and the District of Columbia. Security interests in
manufactured homes similar to the ones securing the Contracts ("manufactured
homes") generally 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 non-title states, perfection pursuant to the provisions of the UCC is
required. Generally, with respect to manufactured housing contracts individually
originated or purchased by Bank of America, FSB, acting through its division,
BankAmerica Housing Services (for itself or as agent for any affiliate of Bank
of America, FSB that purchases any such contracts from Bank of America, FSB)
Bank of America, FSB effects such notation or delivery of the required documents
and fees, and obtains possession of the certificate of title or a lien
certificate, as appropriate, under the laws of the state in which any
manufactured home securing a manufactured housing contract is registered. If
Bank of America, FSB fails, due to clerical errors or otherwise, 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), Bank of America, FSB (for itself, or as agent of the secured lender)
may not have a first-priority security interest in the manufactured home
securing a contract. As manufactured homes have become larger and often have
been attached to their sites without any apparent intention to move them, courts
in many states have held that manufactured homes, under certain circumstances,
may become subject to real estate title and recording laws. As a result, a
security interest in a manufactured home could be rendered subordinate to the
interests of other parties claiming an interest in the home under applicable
state real estate law. In order to perfect a security interest in a manufactured
home under real estate laws, the holder of the security interest must file
either a "fixture filing" under the provisions of the UCC or a real estate
mortgage under the real estate laws of the state where the home is located.
These filings must be made in the real estate records office of the county where
the home is located. Unless otherwise specified in the related Prospectus
Supplement, most of the Contracts in any Contract Pool will contain provisions
prohibiting the Obligor from permanently attaching the Manufactured Home to its
site if it was not so attached on the date of the Contract. As long as each
Manufactured Home was not so attached on the date of the Contract and the
Obligor does not violate this agreement, a security interest in the Manufactured
Home will be governed by the certificate of title laws or the UCC, and the
notation of the security interest on the certificate of title or the filing of a
UCC financing statement will be effective to maintain the priority of Bank of
America, FSB's security interest in the Manufactured Home. If any such
Manufactured Home does become attached after the date of the related Contract,
the related Contract provides that such attachment constitutes an "event of
default" that, if unremedied, gives rise to certain discrete remedies including
acceleration of the unpaid principal balance of the Contract plus accrued
interest and repossession of the Manufactured Home. Regardless of whether a full
recovery is obtained from an Obligor whose Manufactured Home becomes attached,
Bank of America, Bank of America, FSB or both will represent that, at the date
of the initial issuance of Certificates in any Series, it had obtained a
perfected first-priority security interest in each of the Manufactured Homes
securing the related Contracts sold by it. Such representation, however, will
not be based upon an inspection of the site of any Manufactured Home to
determine if the Manufactured Home had become permanently attached to its site.
See "Description of the Certificates -- Conveyance of Contracts" herein. Neither
Bank of America nor Bank of America, FSB will be required to make fixture
filings or to file Mortgages with respect to any of the Manufactured Homes
(except in the case of Land Home and Land-in-Lieu Contracts, as described
below). Consequently, if a Manufactured Home is deemed subject to real estate
title or recording laws because the owner attaches it to its site or otherwise,
the Trustee's interest therein may be subordinated to the interests of others
that may claim an interest therein under applicable real estate laws.
In addition, a federal circuit court decision may adversely affect a
Trustee's interest in the Contract Pool related to a Series of Certificates even
if the related Contracts constitute chattel paper. 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. Sales of chattel paper,
like sales of accounts, are governed by Article 9 of the UCC. If any affiliate
of Bank of America, Bank of America, FSB or both of them is subject to the
federal bankruptcy code, sells Contracts to Bank of America or Bank of America,
FSB and becomes 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 for such Series could experience a delay in, or
reduction of, distributions as to the Contracts that constitute chattel paper
and were sold to the related Trust Fund, directly or indirectly, by any of them.
In the absence of fraud, forgery or permanent affixation of a
manufactured home to its site by the manufactured home owner, or administrative
error by state recording officials, the notation of the lien of Bank of America,
FSB on the certificate of title or delivery of the required documents and fees
(or if applicable, perfection under the UCC) will be sufficient to protect Bank
of America, FSB 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 security interest in
favor of Bank of America, FSB is not perfected, such security
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interest would be subordinate to the claims of, among others, subsequent
purchasers for value of and holders of perfected security interests in such
manufactured homes.
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 until the owner registers the manufactured home in such state. If the
owner were to relocate a manufactured home to another state and were to
re-register the manufactured home in such state, and if steps are not taken to
re-perfect an existing 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. Bank of America, FSB must therefore surrender possession if
it holds the certificate of title to such manufactured home or, in the case of
manufactured homes registered in states which provide for notation of lien, Bank
of America, FSB would receive notice of surrender if its security interest in
the manufactured home is noted on the certificate of title. Accordingly, Bank of
America, FSB 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 the perfection. In the ordinary course of servicing manufactured
housing contracts, Bank of America, FSB, acting through its division,
BankAmerica Housing Services, 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, Bank of America, FSB must surrender possession of the certificate of title
or Bank of America, FSB will receive notice as a result of its lien noted
thereon; accordingly, Bank of America, FSB will have an opportunity to require
satisfaction of the related contract before release of the lien. Such
protections generally would not be available in the case of security interests
in manufactured homes located in non-title states where perfection of such
security interest is achieved by appropriate filings under the UCC (as in effect
in such state). Consequently, the security interest in the manufactured home
could cease to be perfected.
Under the laws of most states, liens for repairs performed on a
manufactured home and liens for personal property taxes take priority over a
perfected security interest in the manufactured home. Each of Bank of America
and Bank of America, FSB will warrant in the Agreement with respect to each
Series of Certificates that, as of the date of initial issuance of such Series
of Certificates, no Manufactured Home relating to a Contract it sold was, to its
knowledge, subject to any such lien. However, such warranty will not be based on
any lien searches or other review. See "Description of the Certificates --
Conveyance of Contracts" in the Prospectus Supplement related to a Series of
Certificates for a description of the remedies for a breach of the
representations and warranties made by Bank of America and Bank of America, FSB
under the related Agreement. In addition, such liens could arise after the date
of initial issuance of the Certificates. Notice may not be given to Bank of
America, Bank of America, FSB, the Servicer, the Trustee or Certificateholders
in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes
Unless otherwise specified in the applicable Prospectus Supplement, 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. In general, as long as a manufactured
home has not become subject to the real estate law, a creditor can repossess a
manufactured home 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 manufactured housing contract generally must give the
obligor a number of days' notice 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 obligor and
commercial reasonableness in effecting such a sale. The law in most states also
requires that the obligor be given notice of any sales prior to resale of the
unit so that the obligor may redeem at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from an obligor for any deficiency on repossession
and resale of the manufactured home securing such obligor's contract. However,
some states impose prohibitions or limitations on deficiency judgments, and in
many cases the defaulting obligor would have no assets with which to pay a
judgment.
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Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws, and general equitable principles may limit or
delay Bank of America, FSB's ability to repossess and resell any Manufactured
Home or enforce a deficiency judgment.
Land Home and Land-in-Lieu Contracts
General. To the extent described in the applicable Prospectus
Supplement, the related Contract Pool may contain Land Home Contracts or
Land-in-Lieu Contracts. The Land Home Contracts and the Land-in-Lieu Contracts
will be secured by either first mortgages or deeds of trust, depending upon the
prevailing practice in the state in which the underlying property is located. A
mortgage creates a lien upon the real property described in the mortgage. There
are two parties to a mortgage: the mortgagor, who is the borrower, and the
mortgagee, who is the lender. In a mortgage state, the mortgagor delivers to the
mortgagee a note or bond evidencing the loan and the mortgage. Although a deed
of trust is similar to a mortgage, a deed of trust has three parties: the
borrower, a lender as beneficiary, and a third-party grantee called the trustee.
Under a deed of trust, the borrower grants the property, irrevocably until the
debt is paid, in trust, generally with a power of sale, to the trustee to secure
payment of the loan. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by the express provisions of
the deed of trust or mortgage, applicable law, and, in some cases, with respect
to the deed of trust, the directions of the beneficiary.
Foreclosure. Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the real property.
Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties defendants. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming and expensive. After the completion of a
judicial foreclosure proceeding, the court may issue a judgment of foreclosure
and appoint a receiver or other officer to conduct the sale of the property. In
some states, mortgages may also be foreclosed by advertisement, pursuant to a
power of sale provided in the mortgage. Foreclosure of a mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by
non-judicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust that
authorizes the trustee to sell property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice of
default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other individual
having an interest of record in the real property, including any junior
lienholders. If the deed of trust is not reinstated within any applicable cure
period, a notice of sale must be posted in a public place and, in most states,
published for a specified period of time in one or more newspapers. In addition,
some state laws require that a copy of the notice of sale be posted on the
property and sent to all parties having an interest of record in the property.
In some states, the borrower-trustor has the right to reinstate the
loan at any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is not common for a third party to purchase the property at the
foreclosure sale. Rather, the lender generally purchases the property from the
trustee or receiver for an amount equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at
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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.
Because of certain requirements of the REMIC Provisions, a Trust Fund as to
which a REMIC election has been made generally must dispose of any related
Manufactured Homes acquired pursuant to repossession, foreclosure, or similar
proceedings within three years after acquisition. Consequently, if the Company
or the Servicing Entity, as applicable, as Master Servicer, or the Servicer, as
the case may be, acting on behalf of the Trust is unable to sell a Manufactured
Home in the course of its ordinary commercial practices within 33 months after
its acquisition thereof (or a longer period as permitted by the Agreement), the
Company or the Servicing Entity, as applicable, as Master Servicer, or the
Servicer, as the case may be, will auction such home to the highest bidder
(which bidder may be the Company or the Servicing Entity, as applicable, as
Master Servicer, or the Servicer, as the case may be) in an auction reasonably
designed to produce a fair price. There can be no assurance that the price for
any Manufactured Home would not be substantially lower than the unpaid principal
balance of the Contract relating thereto. In fact, manufactured homes, unlike
site-built homes, generally depreciate in value, and it has been industry
experience that, upon repossession and resale, the amount recoverable on a
manufactured home securing an installment sales contract is generally lower than
the principal balance of the contract.
Rights of Redemption. In some states, after sale pursuant to a deed of
trust or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors or other parties are given a statutory period in which to redeem the
property from the foreclosure sale. In certain other states, this right of
redemption applies only to sale following judicial foreclosure, and not sale
pursuant to a non-judicial power of sale. In most states where the right of
redemption is available, statutory redemption may occur upon payment of the
foreclosure purchase price, accrued interest and taxes. In some states the right
to redeem is an equitable right. The effect of a right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The exercise
of a right of redemption would defeat the title of any purchaser at a
foreclosure sale, or of any purchaser from the lender subsequent to judicial
foreclosure or sale under a deed of trust. Consequently, the practical effect of
the redemption right is to force the lender to maintain the property and pay the
expense of ownership until the expiration of the redemption period.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain
states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage relating to a
single family residence. In some states, statutes limit the right of the
beneficiary or mortgagee to obtain a deficiency judgment against the borrower
following foreclosure or sale under a deed of trust. A deficiency judgment is a
personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the net amount realized upon the
foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against
the former borrower following a foreclosure sale to the excess of the
outstanding debt over the fair market value of the property at the time of such
sale. The purpose of these statutes is to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as a
result of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided
for in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' 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 and/or enforce a
deficiency judgment. For example, with respect to a Land Home Contract, in a
proceeding under the federal Bankruptcy Code, the court may prevent a lender
from foreclosing on the home, and when a court determines that the value of a
home is less than the principal balance of the loan, the court may 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, reduce the monthly payments due under such mortgage loan,
change the rate of interest and/or alter the mortgage loan repayment
schedule.
65
<PAGE>
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien mortgage or deed of trust. Numerous federal and some
state consumer protection laws impose substantive requirements upon mortgage
lenders in connection with the origination, servicing and the enforcement of
mortgage loans. These laws include the federal Truth in Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity, Fair Credit Billing Act,
Fair Credit Reporting Act, and related statutes and regulations. These federal
laws and state laws impose specific statutory liabilities upon lenders who
originate or service mortgage loans and who fail to comply with the provisions
of the law. In some cases, this liability may affect assignees of the Contracts.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the transaction
(and certain related lenders and assignees) to transfer such contract free of
notice of claims by the obligor thereunder. The effect of this rule is to
subject the assignee of such a contract to all claims and defenses which the
obligor could assert against the seller of goods. Liability under this rule is
limited to amounts paid under such 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 assignee against such obligor. Generally, this rule will
apply to any Contracts conveyed to the Trustee and to any claims made by the
Servicer on behalf of the Trustee, as Bank of America's or Bank of America,
FSB's assignee, as applicable. Numerous other federal and state consumer
protection laws impose requirements applicable to the origination and lending
pursuant to such 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 or create liability for the Trust Fund.
The Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act") could, under certain circumstances, cap the amount of interest
that may be charged on certain Contracts at 6% and may hinder the ability of the
Servicer to foreclose on such Contracts in a timely fashion. Under the terms of
the Relief Act, if so required by an obligor under a manufactured housing
contract 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), such obligor 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. In addition, the Relief
Act imposes limitations which would impair the ability of any lender to
foreclose on an affected contract during the obligor's period of active duty
status and within three months thereafter. It is possible that application of
the Relief Act to certain of the Contracts could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest or foreclose on such Contract, and could result in delays in
payment or losses to the holders of the Certificates. Neither Bank of America
nor Bank of America, FSB will make any representation or warranty as to whether
any Contract is or could become subject to the Relief Act.
Transfers of Manufactured Homes; Enforceability of Restrictions on Transfer
Unless otherwise specified in the related Prospectus Supplement, the
Contracts comprising any Contract Pool generally will prohibit the sale or
transfer of the related Manufactured Homes without the consent of the obligee
and permit the acceleration of the maturity of the Contracts by the obligee upon
any such sale or transfer to which Bank of America, FSB has not consented. Under
the Agreement for a Series of Certificates (unless otherwise specified in the
related Prospectus Supplement), Bank of America, FSB, acting through its
division BankAmerica Housing Services as Servicer, will be required to consent
to any such transfer and to permit the assumption of the related Contract if the
proposed buyer meets the Servicer's underwriting standards and enters into an
assumption agreement, the Servicer determines that permitting such assumption
will not materially increase the risk of nonpayment of the Contract and such
action will not adversely affect or jeopardize any coverage under any insurance
policy required by such Agreement. If the Servicer determines that these
conditions have not been fulfilled, then it will be required to withhold its
consent to the transfer, but only to the extent permitted under the Contract and
applicable law and governmental regulations and only to the extent that such
action will not adversely affect or jeopardize any coverage under any
66
<PAGE>
insurance policy required by the Agreement. In certain cases, a delinquent
Obligor may attempt to transfer a Manufactured Home in order to avoid a
repossession proceeding with respect to such Manufactured Home.
In the case of a transfer of a Manufactured Home after which the
obligee desires to accelerate the maturity of the related Contract, the
obligee's ability to do so will depend on the enforceability under state law of
the clause permitting acceleration on transfer. The Garn-St. Germain Depository
Institutions Act of 1982 preempts, subject to certain exceptions and conditions,
state laws prohibiting enforcement of such clauses applicable to manufactured
homes. To the extent such exceptions and conditions apply in some states, the
Servicer may be prohibited from enforcing such a clause in respect of certain
Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Controls 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 related to any Series of Certificates would be covered under Title V
if, among other things, they satisfy certain conditions governing the terms of
any prepayments, late charges and deferral fees and contain a requirement of a
30-day notice period prior to instituting any action leading to repossession of
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 rejected application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition, even
where Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
Bank of America, FSB or, where applicable, Bank of America will represent, in
the Agreement for a Series of Certificates (unless otherwise specified in the
related Prospectus Supplement), that the Contracts sold by it comply with
applicable usury laws.
RATINGS
It is a condition to the issuance of the Certificates of each Series
offered hereby that at the time of issuance they shall have been rated in one of
the four highest rating categories by the nationally recognized statistical
rating agency or agencies specified in the related Prospectus Supplement.
Ratings on manufactured housing contract pass-through certificates
address the likelihood of the receipt by certificateholders of their allocable
share of principal and interest on the underlying manufactured housing contract
assets. These ratings address structural and legal aspects associated with such
certificates, the extent to which the payment stream on such underlying assets
is adequate to make payments required by such certificates and the credit
quality of the credit enhancer or guarantor, if any. Ratings on the Certificates
do not, however, constitute a statement regarding the likelihood of principal
prepayments by Obligors under the Contracts in the related Contract Pool, the
degree by which prepayments made by such Obligors might differ from those
originally anticipated or whether the yield originally anticipated by investors
of any Series of Certificates may be adversely affected as a result of such
prepayments. As a result, investors of any Series of Certificates might suffer a
lower than anticipated yield.
A rating on any or all of the Certificates of any Series by certain
other rating agencies, if assigned at all, may be lower than the rating or
ratings assigned to such Certificates by the rating agency or agencies specified
in the related Prospectus Supplement. 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. Each security rating should be
evaluated independently of any other security rating.
METHOD OF DISTRIBUTION
The Sellers 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 Sellers intend
that Certificates be offered through such
67
<PAGE>
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.
This Prospectus and any related Prospectus Supplement may be used by
BA Securities, Inc., an affiliate of the Sellers, in connection with offers and
sales related to market making transactions in any Series of the Certificates.
BA Securities, Inc. may act as principal or agent in such transactions. Such
sales will be made at prices related to prevailing market prices at the time of
the sale.
The distribution of the Certificates may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Sellers or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the Underwriter or
Underwriters at a price specified in such Prospectus Supplement. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
Underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may be
restricted in the manner specified in such Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale, at
negotiated prices or at fixed prices.
In connection with the sale of the Certificates, Underwriters may
receive compensation from the Sellers 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 Sellers and any profit on the resale of the Certificates by them may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Any such Underwriters or agents will be identified, and any such compensation
received from the Sellers will be described, in the Prospectus Supplement.
Under agreements which may be entered into by Bank of America, Bank of
America, FSB or both of them, Underwriters and agents who participate in the
distribution of the Certificates may be entitled to indemnification by Bank of
America or Bank of America, FSB, as the case may be, against certain
liabilities, including liabilities under the Securities Act.
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.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of the
Certificates will be used by the Sellers for general corporate purposes,
including the payment of expenses in connection with pooling the Contracts and
issuing the Certificates.
LEGAL MATTERS
Certain legal matters relating to the Certificates, including legal
matters relating to material federal income tax consequences concerning the
Certificates, will be passed upon for Bank of America and Bank of America, FSB
by Orrick, Herrington & Sutcliffe LLP, San Francisco, California.
OTHER CONSIDERATIONS
As federally insured depository institutions, Bank of America and Bank
of America, FSB are subject to conservatorship and receivership rules enacted
pursuant to the Financial Institutions Reform, Recovery and
68
<PAGE>
Enforcement Act of 1989, as amended ("FIRREA"). If a receiver or conservator
were appointed for Bank of America, FSB, the receiver or conservator could
prevent the termination of Bank of America, FSB as Servicer and the appointment
of a successor Servicer if no event of default under the applicable Agreements
exists other than the receivership, conservatorship or insolvency of the
Servicer. In addition, the appointment of a receiver or conservator for Bank of
America, FSB could result in a delay or possibly a reduction in payments on the
Certificates to the extent Bank of America, FSB received (but did not deposit
with the Trustee) Contract collections before the date of receivership or
conservatorship.
Each of the Sellers believes that the transfer of Contracts sold by it
to any Trust Fund will constitute absolute and unconditional sales. However, in
the event of a conservatorship or receivership of Bank of America, Bank of
America, FSB or both of them, a conservator or receiver, as the case may be,
could recharacterize the sale of Contracts by Bank of America or Bank of
America, FSB, or both of them, as a borrowing secured by a pledge of the
Contracts sold by it. Such an attempt, even if unsuccessful, could result in
delays in or reductions of distributions on the Certificates offered hereby and
by the related Prospectus Supplement. If such an attempt were successful, the
conservator or receiver, as the case may be, could elect to accelerate payment
of the Certificates and liquidate the Contracts, with the holders of
Certificates entitled to no more than the then outstanding principal amount of
such Certificates together with interest at the applicable Pass-Through Rate to
the date of payment. Thus, the holders of Certificates could lose the right to
future distributions of interest, and might suffer reinvestment loss in a lower
interest rate environment.
The foregoing discussion does not purport to be comprehensive.
Prospective investors should consult their own legal advisors as to the possible
consequences of any insolvency, conservatorship, receivership or similar
proceeding instituted by or in respect of Bank of America or Bank of America,
FSB.
Similar consequences could result from a bankruptcy proceeding
instituted by or in respect of any affiliate of Bank of America or Bank of
America, FSB that sells Contracts to Bank of America or Bank of America, FSB or
both and becomes subject to a bankruptcy, conservatorship, receivership or
similar proceeding. Prospective investors should consult their own legal
advisors as to such matters.
69
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
Page in Prospectus
Term on Which Term is
- ---- Defined
-------
1986 Act.............................................. 40
1997 Act.............................................. 45
adjusted issue price.................................. 42, 51
Agreement............................................. 3
Assumed Prepayment Rate............................... 41
Bank of America, FSB.................................. 14
BankAmerica Housing Services a Division of Bank of
America FSB.......................................... 9
Bank of America....................................... i, 2
Bank of America FSB................................... ii
Bulk Sellers.......................................... 11
cash-flow investments................................. 39
Cede.................................................. 1, 6, 27
Certificate Account................................... 24
Certificate Owners.................................... 1, 6, 27
Certificateholders.................................... 1, 28
Certificate Balance................................... 4
Certificates.......................................... i
Class................................................. i, 3
Code.................................................. 7
Collection Period..................................... 4, 26
Commission............................................ 1
Contract.............................................. 2
Contract Files........................................ 24
Contract Pool......................................... ii, 2
Contract Rate......................................... 2
Contract Schedule..................................... 24
Contracts............................................. ii, 2, 8
contracts............................................. 8
Credit Facility....................................... 36
Credit Facility Provider.............................. 36
Cut-off Date.......................................... 2
daily portion......................................... 48
Definitive Certificates............................... 23
Disqualified Organizations............................ 40, 53
Distribution Date..................................... 4
DOL................................................... 60
DTC................................................... 1, 6, 27
DTC Rules............................................. 28
Due Date.............................................. 11
ERISA................................................. 7, 59
Excess Interest....................................... 8, 26
Exchange Act.......................................... 1
Final Mark-to-Market Reguations....................... 54
FIRREA................................................ 69
foreclosure property.................................. 39
Foreign Holder........................................ 46
Fractional Interests.................................. 32
full distributions.................................... 27
70
<PAGE>
Global Certificate.................................... 6, 27
Grantor Trust Fund.................................... 37
holder................................................ 37
Indirect Participants................................. 28
installment obligations............................... 41
Issue Premium......................................... 49
Junior Certificates................................... 34
Kelley Blue Book...................................... 17
Land Home Contract.................................... 2, 13
Land-in-Lieu Contract................................. 2, 13
Legal Investment...................................... 7
Liquidity Facility.................................... 36
Liquidity Facility Provider........................... 36
long-term federal rate................................ 51
Manufactured Home..................................... 2
manufactured homes.................................... 62
manufactured housing contracts........................ 8
Master REMIC.......................................... 40
mezzanine............................................. 35
Minimum Termination Amount............................ 29
Monthly Servicing Fee................................. 30
Mortgage.............................................. 13
NADA.................................................. 17
NCUA.................................................. 59
noneconomic residual interest......................... 53
Non-REMIC Certificates................................ 55
notice................................................ 32
Obligor............................................... 11
OID Regulations....................................... 37
Original Holder....................................... 48
Participants.......................................... 28
Parties in Interest................................... 59
pass-through interest holder.......................... 46
Pass-Through Rate..................................... 5, 26
Percentage Interest................................... 23
permitted investments................................. 39
Plans................................................. 59
Policy Statement...................................... 59
Pool Principal Balance................................ 35
Pool Scheduled Principal Balances..................... 35
Premium Non-REMIC Certificates........................ 56
Prepayment Model...................................... 22
PTE 83-1.............................................. 60
qualified mortgage.................................... 39
qualified replacement mortgage........................ 39
qualified reserve assets.............................. 39
Rate Period........................................... 27
Rating................................................ 7, 35
Registration Statement................................ 1
Regular Certificates.................................. 38
Regular Principal..................................... 4
71
<PAGE>
REMIC................................................. ii, 37, 38, 58
REMIC Certificates.................................... 37
REMIC Provisions...................................... 37
REMIC Regulations..................................... 37
Relief Act............................................ 10, 66
Repurchase Date....................................... 29
Reserve Fund.......................................... 36
Residual Certificates................................. 38
Residual Interest..................................... 5, 27
Scheduled Payment..................................... 11
Securities Act........................................ i
Security Pacific Financial Services,
a Division of Bank of America........................ 9
Seller................................................ ii
Sellers............................................... ii
Senior Certificate Balance............................ 35
Senior Certificates................................... 34, 52
Series................................................ i
Service............................................... 37, 39
Servicer.............................................. ii, 2
single-class REMIC.................................... 46, 50
SMMEA................................................. 7, 58
SPFSC................................................. ii, 2
Special Principal Distributions....................... 5, 26
SPHSI................................................. 14
Spread Account........................................ 36
Staged-funding........................................ 13
Startup Day........................................... 39
Step-Up Rate.......................................... 11
Step-Up Rate Contracts................................ 11
Subordinate Certificates.............................. 34
Subsidiary REMIC...................................... 40
Tax-Exempt Investor................................... 58
Termination Auction................................... 29
Title V............................................... 67
Total Regular Principal Amount........................ 4, 26
Trust Fund............................................ i, 3
Trustee............................................... 3
UBTI.................................................. 58
UCC................................................... 9
Underwriters.......................................... 67
Weighted Average Contract Rate........................ 2, 13
72
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================================================================================
No dealer, salesman or person has been authorized to give any information or to
make any representations other than those contained or incorporated by reference
in this Prospectus Supplement or the accompanying Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by any Seller or Underwriter. This Prospectus Supplement and the
accompanying Prospectus do not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby and thereby in any state or
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such state or jurisdiction. Neither the delivery of this
Prospectus Supplement and the accompanying Prospectus nor any sale made
hereunder and thereunder shall, under any circumstances, create any implication
that information herein or therein is correct as of any time subsequent to the
date hereof or thereof or that there has been no change in the affairs of the
Sellers or in the Trust Fund since such dates.
--------------------
TABLE OF CONTENTS
Page
----
FORM OF PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Terms of Offered Certificates......... S-5
Risk Factors.......................... S-14
The Contract Pool..................... S-15
The Sellers........................... S-21
Prepayment and Yield Considerations... S-24
Description of the Certificates....... S-31
Certain Federal Income Tax S-43
Consequences.......................
ERISA Considerations.................. S-45
Ratings............................... S-47
Legal Investment...................... S-47
Method of Distribution................ S-48
Use of Proceeds....................... S-49
Legal Matters......................... S-49
Index of Significant Definitions...... S-50
Appendix A-- Prepayment Experience of A-1
Certain Pools.........................
PROSPECTUS
Incorporation of Certain Information 1
by Reference.......................
Additional Information................ 1
Reports to Certificateholders......... 1
Summary of Terms...................... 2
Risk Factors.......................... 8
The Contract Pools.................... 11
The Sellers........................... 14
Prepayment and Yield Considerations... 21
Description of the Certificates....... 23
Credit and Liquidity Enhancement...... 34
Certain Federal Income Tax 37
Consequences.......................
Other Tax Consequences................ 58
Restrictions on Transfer of REMIC
Residual Certificates.............. 58
Tax-Exempt Investors.................. 58
Legal Investment...................... 58
ERISA Considerations.................. 59
Certain Legal Aspects of the Contracts 61
Ratings............................... 67
Method of Distribution................ 67
Use of Proceeds....................... 68
Legal Matters......................... 68
Other Considerations.................. 68
Index of Significant Definitions...... 70
</TABLE>
================================================================================
================================================================================
BankAmerica Manufactured
Housing Contract Trust
$[ ] (Approximate)
[ ]% Class A
[$[ ] (Approximate)
[ ]% Class A-IO]
$[ ] (Approximate)
[ ]% Class M
$[ ] (Approximate)
[ ]% Class B
Senior/Subordinate
Pass-Through Certificates,
Series 199[ ]-[ ]
-----------
PROSPECTUS SUPPLEMENT
-----------
[UNDERWRITER]
[ , 199 ]
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be
incurred in connection with the offering of the securities being offered
hereunder other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee............................................... $ 606,424.27
Printing and Engraving......................................... 450,000
Trustee's Fees................................................. 340,000
Legal Fees and Expenses........................................ 350,000
Blue Sky Fees and Expenses..................................... 20,000
Accountants' Fees and Expenses................................. 264,000
Rating Agency Fees............................................. 622,220
-------------
Total.................................................... $2,652,644.27
=============
</TABLE>
Item 15. Indemnification of Directors and Officers
1. Bank of America National Trust and Savings Association
Article IX of the Bylaws of ("Bank of America") provides for the
indemnification of the directors, officers and employees of Bank of America, or
persons serving at the request of Bank of America as a director, officer,
employee or agent of another corporation or other business entity, to the full
extent provided by the Delaware General Corporation Law, as such law exists or
may hereafter be amended. This indemnification applies to any threatened,
pending or completed action, suit or proceeding, whether, civil, criminal,
administrative or investigative.
Indemnification may include all expenses (including attorneys' fees,
judgments, fines, ERISA excise taxes and amounts paid in settlement) reasonably
incurred by the indemnified person. However, Bank of America is not authorized
to indemnify against expenses, penalties or other payments incurred in
administrative proceeding or action instituted by a bank regulatory agency which
proceedings or action result in a final order against such person assessing
civil money penalties or requiring payments to Bank of America. Bank of America
is authorized to advance expenses incurred by an indemnified director, officer
or employee provided, if the Delaware General Corporation Law so requires, such
indemnified person shall first deliver an undertaking to Bank of America to
repay such expenses if its is ultimately determined that he or she is not
entitled to be indemnified.
The rights of indemnification and advancement of expenses provided by
Bank of America's Bylaws is not exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
statute, agreement, vote of stockholders or disinterested directors, or
otherwise.
Section 145 of the Delaware General Corporation Law contains detailed
provisions on indemnification of directors and officers against expenses,
judgments, fines and amounts paid in settlement, actually and reasonably
incurred in connection with legal proceedings.
Article IV of Bank of America's Bylaws and the Delaware General
Corporation Law also permit Bank of America to purchase insurance on behalf of
its directors and officers against liabilities arising out of their positions
with Bank of America, whether or not such liabilities would be within the
foregoing indemnification provisions. Pursuant to this authority, Bank of
America maintains such insurance on behalf of its directors and officers.
II-1
<PAGE>
2. Bank of America, FSB
Because Bank of America, FSB is a federal savings association, the
terms and conditions for Bank of America, FSB to indemnify its directors,
officers, and employees are prescribed by Section 545.121 of Title 12 of the
Code of Federal Regulations ("Section 545.121"), as follows:
(a) For purposes of Section 545.121, the following definitions and
rules of construction apply:
(1) Definitions.
(i) Action. The term "action" means any judicial or
administrative proceeding, or threatened proceeding, whether
civil, criminal, or otherwise,, including any appeal or other
proceeding for review;
(ii) Court. The term "court" includes, without
limitation, any court to which or in which any appeal or any
proceeding for review is brought.
(iii) Final judgment. The term "final judgment" means
a judgment, decree or order which is not appealable or as to
which the period for appeal has expired with no appeal taken.
(iv) Settlement. The term "settlement," includes
entry of a judgment by consent or confession or a plea of
guilty or nolo contenders.
(2) Use of References. References in Section 545.121 to
any individual or other person, including any
association, shall include legal representatives,
successors, and assigns thereof.
(b) General. Subject to paragraphs (c) and (g) below, a federal
savings bank such as Bank of America, FSB shall indemnify any person against
whom an action is brought or threatened because that person is or was a
director, officer, or employee of the association, for:
(1) Any amount for which that person became liable under
a judgment in such action; and
(2) Reasonable costs and expenses, including reasonable
attorney's fees, actually paid or incurred by that
person in defending or settling such action, or in
enforcing his or her rights under Section 545.121 if
he or she attains a favorable judgment in such
enforcement action.
(c) Requirements. Indemnification shall be made such person
under paragraph (b) above only if:
(1) Final judgment on the merits is in his or her favor;
or
(2) In case of:
(i) Settlement;
(ii) Final Judgment against him or her, or
(iii) Final judgment in his or her favor, other
than on the merits, if a majority of the disinterested
directors of a federal savings bank such as Bank of America,
FSB determine that he or she was acting in good faith within
the scope his or her employment or authority as he or she
could reasonably have perceived it under the circumstances and
for a purpose he or she could reasonably have believed under
the circumstances was in the best interests of the federal
savings bank or its members.
II-2
<PAGE>
However, no indemnification shall be made unless a
federal savings bank such as Bank of America, FSB gives the
Office of Thrift Supervision (the "OTS") at least 60 days'
notice of its intention to make such indemnification. Such
notice shall state the facts on which the action arose, the
terms of any settlement, and any disposition of the action by
a court. Such notice, a copy thereof, and a certified copy of
the resolution containing the required determination by the
board of directors shall be sent to the OTS District Director,
who shall promptly acknowledge receipt thereof. The notice
period shall run from the date of such receipt. No such
indemnification shall be made if the OTS Director advises the
federal savings bank in writing, within such notice period, of
its objection thereto.
(d) Insurance. A federal savings bank such as Bank of America,
FSB may obtain insurance to protect it and its directors, officers and employees
from potential losses arising from claims against any of them for alleged
wrongful acts, or wrongful acts, committed in their capacity as directors,
officers, or employees. However, no federal savings bank may obtain insurance
which provides for payment of losses of any person incurred as a consequence of
his or her willful or criminal misconduct.
(e) Payment of Expenses. If a majority of directors of a federal
savings bank such as Bank of America, FSB concludes that, in connection with an
action, any person ultimately may become entitled to indemnification under this
section, the directors may authorize payment of reasonable costs and expenses,
including reasonable attorneys' fees, arising from the defense or settlement of
such action. Nothing in this paragraph (e) shall prevent the directors of a
federal savings bank such as Bank of America, FSB from imposing such conditions
on a payment of expenses as they deem warranted and in the interests of such
federal savings bank. Before making an advance payment of expenses under this
paragraph (e), a federal savings bank such as Bank of America, FSB shall obtain
an agreement that such federal savings bank will be repaid if the person, on
whose behalf payment is made, is later determined not to be entitled to such
indemnification.
(f) Exclusiveness of provisions. A federal savings bank such as
Bank of America, FSB shall not indemnify any person referred to in paragraph (b)
above or obtain insurance referred to in paragraph (d) above other than in
accordance with Section 545.121.
(g) Applicability of section 11(n) of the Federal Deposit
Insurance Act. The indemnification provided for in paragraph (b) of Section
545.121 is subject to and qualified by 12 U.S.C. Section 1821(k). Under Section
1821(k), a director or officer of an insured depository institution such as Bank
of America, FSB may be held personally liable for monetary damages in certain
civil actions by, on behalf of, or at the request or direction of the Federal
Deposit Insurance Corporation (the "FDIC"). Section 1821(k) provides that
nothing therein shall impair or affect any right of the FDIC under other
applicable law.
Item 16. Exhibits and Financial Statements
(a) Exhibits
<TABLE>
<S> <C>
1.1 _ Form of Underwriting Agreement. (Incorporated by reference to
Exhibit 1.1 of Registration Statement No. 333-3200)
* 4.1 _ Form of Pooling and Servicing Agreement and certain other related
agreements as Exhibits thereto.
5.1 _ Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
legality.
8.1 _ Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain tax matters.
23.1 _ Consent of Orrick, Herrington & Sutcliffe LLP (included in its
opinions filed as Exhibits 5.1 and 8.1).
* 24.1 _ Power of Attorney of David A. Coulter.
* 24.2 _ Power of Attorney of Michael E. O'Neill.
* 24.3 _ Power of Attorney of John J. Higgins.
* 24.4 _ Power of Attorney of Joseph F. Alibrandi.
* 24.5 _ Power of Attorney of Jill E. Barad.
* 24.6 _ Power of Attorney of Peter B. Bedford.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
* 24.7 _ Power of Attorney of Richard A. Clarke.
* 24.8 _ Power of Attorney of Timm F. Crull.
* 24.9 _ Power of Attorney of Kathleen Feldstein.
* 24.10 _ Power of Attorney of Donald E. Guinn.
* 24.11 _ Power of Attorney of Frank L. Hope, Jr.
* 24.12 _ Power of Attorney of Walter E. Massey.
* 24.13 _ Power of Attorney of John M. Richman.
* 24.14 _ Power of Attorney of Richard M. Rosenberg.
* 24.15 _ Power of Attorney of A. Michael Spence.
* 24.16 _ Power of Attorney of Solomon D. Trujillo.
* 24.17 _ Power of Attorney of David A. Coulter.
* 24.18 _ Power of Attorney of Michael E. O'Neill.
* 24.19 _ Power of Attorney of John J. Higgins.
* 24.20 _ Power of Attorney of Kathleen J. Burke.
* 24.21 _ Power of Attorney of H. Eugene Lockhart
* 24.22 _ Power of Attorney of Jack L. Meyers.
* 24.23 _ Power of Attorney of Michael J. Murray.
* 24.24 _ Power of Attorney of Martin A. Stein.
</TABLE>
- ------------
* Previously filed
- ------------
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
Item 17. Undertakings
In accordance with Rule 430A of Regulation C under the Securities Act
of 1933, as amended (the "Securities Act"), each of the undersigned registrants
hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement; (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change in such
information in the registration statement; provided, that (a)(i) and (a)(ii)
under this Item 17 shall not apply if the information required to be included in
a post-effective amendment thereby is contained in periodic reports filed
pursuant to Section 13 or Section 15(d) of the Exchange Act, that are
incorporated by reference in this registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering hereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(d) That, for purposes of determining any liability under the
Securities Act, each filing of the registrants'
II-4
<PAGE>
respective annual reports pursuant to Section 13(a) or 15(d) of the Exchange Act
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(e) To provide to the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
(f) That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrants of expenses incurred or paid by a director, officer
or controlling person of either registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrants will,
unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(g) That, for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(h) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 that all of the registered
securities will meet the security rating requirement in Instruction I B.5 of
Form S-3 by the time of sale of the registered securities, and that it has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in San Francisco, State of California, on
October 28, 1997.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Originator of the Trust and Registrant
By: /s/ Shaun M. Maguire
-------------------------
Shaun M. Maguire
Assistant Treasurer
II-6
<PAGE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed on October 28, 1997 by
the following persons or their respective attorneys-in-fact in the capacities
indicated.
Signature Title
--------- -----
/s/ David C. Coulter*
DAVID C. COULTER President, Chief Executive
Officer and Chairman (Principal
Executive Officer)
/s/ Michael E. O'Neill*
MICHAEL E. O'NEILL Chief Financial Officer
(Principal Financial Officer)
/s/ John J. Higgins*
JOHN J. HIGGINS Chief Accounting Officer
(Principal Accounting Officer)
/s/ Joseph F. Alibrandi*
JOSEPH F. ALIBRANDI Director
/s/ Jill E. Barad*
JILL E. BARAD Director
/s/ Peter B. Bedford*
PETER B. BEDFORD Director
/s/ Richard A. Clarke*
RICHARD A. CLARKE Director
/s/ Timm F. Crull*
TIMM F. CRULL Director
/s/ Kathleen Feldstein*
KATHLEEN FELDSTEIN Director
/s/ Donald E. Guinn*
DONALD E. GUINN Director
/s/ Frank L. Hope, Jr.*
FRANK L. HOPE, JR. Director
/s/ Walter E. Massey*
WALTER E. MASSEY Director
/s/ John M. Richman*
JOHN M. RICHMAN Director
/s/ Richard M. Rosenberg*
RICHARD M. ROSENBERG Director
II-7
<PAGE>
/s/ A. Michael Spence*
A. MICHAEL SPENCE Director
/s/ Solomon D. Trujillo*
SOLOMON D. TRUJILLO Director
/s/ Andrea B. Goldenberg, Esq.
*By ANDREA B. GOLDENBERG
Attorney-in-Fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 that all of the registered
securities will meet the security rating requirement in Instruction I B.5 of
Form S-3 by the time of sale of the registered securities, and that it has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in San Francisco, State of California, on
October 28, 1997.
BANK OF AMERICA, FSB, as
Originator of the Trust and Registrant
By: /s/Shaun M. Maguire
----------------------
Shaun M. Maguire
Assistant Treasurer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed on October 28, 1997 by
the following persons or their respective attorneys-in-fact in the capacities
indicated.
Signature Title
--------- -----
/s/ David C. Coulter*
DAVID C. COULTER President, Chief Executive Officer
and Director (Principal Executive
Officer)
/s/ Michael E. O'Neill*
MICHAEL E. O'NEILL Chief Financial Officer and Director
(Principal Financial Officer)
/s/ John J. Higgins*
JOHN J. HIGGINS Controller (Principal Accounting
Officer)
/s/ Kathleen J. Burke*
KATHLEEN J. BURKE Director
/s/ H. Eugene Lockhart*
H. EUGENE LOCKHART Director
/s/ Jack L. Meyers*
JACK L. MEYERS Director
/s/ Michael J. Murray*
MICHAEL J. MURRAY Director
II-9
<PAGE>
/s/ Martin A. Stein*
MARTIN A. STEIN Director
/s/ Andrea B. Goldenberg, Esq.
*By: ANDREA B. GOLDENBERG
Attorney-in-Fact
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits
--------
<C> <S>
1.1 _ Form of Underwriting Agreement. (Incorporated by Reference to Exhibit 1.1 of Registration Statement No.
333-3200)
*4.1 _ Form of Pooling and Servicing Agreement and certain
other related agreements as Exhibits thereto.
5.1 _ Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
legality.
8.1 _ Opinion of Orrick, Herrington & Sutcliffe LLP with respect to
certain tax matters.
23.1 _ Consent of Orrick, Herrington & Sutcliffe LLP (included in its opinions
filed as Exhibits 5.1 and 8.1.
*24.1 _ Power of Attorney of David A. Coulter
*24.2 _ Power of Attorney of Michael E. O'Neill.
*24.3 _ Power of Attorney of John J. Higgins.
*24.4 _ Power of Attorney of Joseph F. Alibrandi
*24.5 _ Power of Attorney of Jill E. Barad.
*24.6 _ Power of Attorney of Peter B. Bedford.
*24.7 _ Power of Attorney of Richard A. Clarke.
*24.8 _ Power of Attorney of Timm F. Crull.
*24.9 _ Power of Attorney of Kathleen Feldstein.
*24.10 _ Power of Attorney of Donald E. Guinn.
*24.11 _ Power of Attorney of Frank L. Hope, Jr.
*24.12 _ Power of Attorney of Walter E. Massey.
*24.13 _ Power of Attorney of John M. Richman.
*24.14 _ Power of Attorney of Richard M. Rosenberg.
*24.15 _ Power of Attorney of A. Michael Spence.
*24.16 _ Power of Attorney of Solomon D. Trujillo
*24.17 _ Power of Attorney of David A. Coulter.
*24.18 _ Power of Attorney of Michael E. O'Neill.
*24.19 _ Power of Attorney of John J. Higgins
*24.20 _ Power of Attorney of Kathleen J. Burke.
*24.21 _ Power of Attorney of H. Eugene Lockhart
*24.22 _ Power of Attorney of Jack L. Meyers.
*24.23 _ Power of Attorney of Michael J. Murray.
*24.24 _ Power of Attorney of Martin A. Stein.
</TABLE>
- ------------
* Previously filed.
II-11
<PAGE>
Exhibit 5.1
October 28, 1997
Bank of America National Trust and Savings Association
Bank of America, FSB
555 California Street.
San Francisco, CA 94104
Ladies and Gentlemen:
We have acted as counsel to Bank of America National Trust and Savings
Association, a national banking association ("Bank of America"), and Bank of
America, FSB, a federal savings bank ("Bank of America, FSB" and each of Bank of
America and Bank of America, FSB, a "Registrant"), in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") of the Registration Statement on Form S-3 filed by the Registrants
with the Commission (the "Registration Statement") for the registration under
the Securities Act of 1933, as amended, of its Manufactured Housing Contract
Trust Pass-Through Certificates (the "Certificates"). The Certificates are
issuable in series (each, a "Series") under separate Pooling and Servicing
Agreements (each, a "Pooling Agreement") by and among either Registrant or both
of them, in each case, as seller of manufactured housing installment sales
contracts and installment loan contracts, Bank of America, FSB, as servicer, and
the trustee selected for such Series. The Certificates of each Series are to be
sold as described in the Registration Statement and the prospectus and
prospectus supplement relating to such Series.
We have examined such instruments, documents and records as we deemed
relevant and necessary as a basis for our opinion hereinafter expressed. In
such examination, we have assumed the following: (a) the authenticity of
original documents and the genuineness of all signatures; (b) the conformity to
the originals of all documents submitted to us as copies; and (c) the truth,
accuracy and completeness of the information, representations and warranties
contained in the records, documents, instruments and certificates we have
reviewed.
<PAGE>
Based on such examination, we are of the opinion that when the
issuance of each Series of Certificates has been duly authorized by appropriate
corporate action and the Certificates of such Series have been duly executed,
authenticated and delivered in accordance with the terms of the Pooling
Agreement relating to such Series and sold in the manner described in the
Registration Statement and the prospectus and prospectus supplement relating
thereto, the Certificates of such Series will be legally issued, fully paid,
binding obligations of the trust created by each Pooling Agreement, and the
holders of the Certificates of such Series will be entitled to the benefits of
the Pooling Agreement, except as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, fraudulent
conveyance, moratorium, or other laws relating to or affecting the rights of
creditors generally and general principles of equity, including concepts of
materiality, reasonableness, good faith and fair dealing, and the possible
unavailability of specific performance or injunctive relief, regardless of
whether such enforceability is considered in a proceeding in equity or at law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name wherever it appears in the
Registration Statement and the prospectus contained therein.
Very truly yours,
ORRICK, HERRINGTON & SUTCLIFFE LLP
<PAGE>
Exhibit 8.1
October 17, 1997
Bank of America National Trust and Savings Association
Bank of America, FSB
555 California Street.
San Francisco, CA 94104
Ladies and Gentlemen:
We have acted as counsel to Bank of America National Trust and Savings
Association, a national banking association ("Bank of America"), and Bank of
America, FSB, a federal savings bank ("Bank of America, FSB" and each of Bank of
America and Bank of America, GSB, a "Registrant"), in connection with the
preparation and filing with the Securities and Exchange Commission (the
"Commission") of the Registration Statement on Form S-3 filed by the Registrants
with the Commission (the "Registration Statement") for the registration under
the Securities Act of 1933, as amended, of its Manufactured Housing Contract
Trust Pass-Through Certificates (the "Certificates"). The Certificates are
issuable in series (each, a "Series") under separate Pooling and Servicing
Agreements by and among either Registrant or both of them, in each case, as
seller of manufactured housing installment sales contracts and installment loan
contracts, Bank of America, FSB, as servicer, and the trustee selected for such
Series. The Certificates of each Series are to be sold as described in the
Registration Statement and the prospectus and prospectus supplement relating to
such Series.
We hereby confirm that the statements set forth under the headings
"Summary of Terms--Federal Income Tax Consequences" and "Certain Federal Income
Tax Consequences" in the Prospectus, and under the headings "Terms of the
Offered Certificates--Federal Income Tax Consequences" and "Certain Federal
Income Tax Consequences" in the form of prospectus supplement, each forming a
part of the Registration Statement, which statements have been prepared by us,
constitute our opinion as to the material federal income tax consequences
relating to the Certificates and are correct in all material respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
ORRICK, HERRINGTON AND SUTCLIFFE LLP
