<PAGE>
FILED PURSUANT TO RULE 424(b)(2)
REGISTRATION NO. 333-35251
PROSPECTUS SUPPLEMENT
(To Prospectus dated March 16, 1998)
$855,145,000 (APPROXIMATE)
BANKAMERICA MANUFACTURED HOUSING CONTRACT TRUST IV
SENIOR/SUBORDINATE PASS-THROUGH CERTIFICATES, SERIES 1998-1
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INITIAL
CERTIFICATE PASS-THROUGH FINAL SCHEDULED
BALANCE RATE DISTRIBUTION DATE(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A.......................... $734,260,000 6.47% June 10, 2019
- --------------------------------------------------------------------------------
Class M.......................... $ 67,158,000 6.94%(1) April 10, 2023
- --------------------------------------------------------------------------------
Class B-1........................ $ 53,727,000 7.81%(1) August 10, 2025
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) The Pass-Through Rate for each of the Class M and Class B-1 Certificates
is subject to a maximum rate equal to the Weighted Average Net Contract
Rate (as defined herein) of the Contracts in the Contract Pool.
(2) Determined as described under "Prepayment and Yield Considerations--Final
Scheduled Distribution Date"; the final Distribution Date could occur
significantly earlier.
(PRINCIPAL AND INTEREST PAYABLE ON THE 10TH DAY OF EACH MONTH BEGINNING IN
APRIL, 1998)
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, SELLER
BANK OF AMERICA, FSB ACTING THROUGH ITS DIVISION, BANKAMERICA HOUSING
SERVICES, SELLER AND SERVICER
The Class B-2 Certificates and the Class R Certificates have not been
registered under the Securities Act of 1933, as amended (the "Securities Act")
and are not being offered hereby.
(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 S-15 AND IN
THE PROSPECTUS AT PAGE 13.
---------------
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 NATIONAL TRUST AND SAVINGS ASSOCIATION,
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 UNDERWRITING
SELLERS(1)(2) PUBLIC(1) DISCOUNT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Certificates................................ 99.732545% 99.984375% 0.251830%
- -------------------------------------------------------------------------------------------------
Class M Certificates................................ 99.484375% 99.984375% 0.500000%
- -------------------------------------------------------------------------------------------------
Class B-1 Certificates.............................. 99.218750% 99.968750% 0.750000%
- -------------------------------------------------------------------------------------------------
Total............................................... $852,415,159 $855,002,989 $2,587,830
</TABLE>
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- -------------------------------------------------------------------------------
(1) Plus accrued interest, if any, at the applicable rate from March 10, 1998.
(2) Before deducting expenses payable by the Sellers, estimated to be
$745,000.
---------------
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, Cedel Bank,
societe anonyme and the Euroclear System on or about March 27, 1998.
---------------
BANCAMERICA ROBERTSON STEPHENS MORGAN STANLEY DEAN WITTER
---------------
The date of this Prospectus Supplement is March 24, 1998
<PAGE>
(continued from previous page)
The BankAmerica Manufactured Housing Contract Trust IV Senior/Subordinate
Pass-Through Certificates, Series 1998-1 (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 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, NT&SA") and Bank of America, FSB. Each Contract was originated by
Bank of America, FSB on an individual basis in the ordinary course of its
business. Bank of America, FSB, acting through its division, BankAmerica
Housing Services, will serve as servicer of the Contracts (together with any
successor servicer, the "Servicer"). 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 March 16, 1998 attached hereto (the "Prospectus").
The Certificates will consist of one class of senior certificates (the
"Senior Certificates") designated as the Class A Certificates and four classes
of subordinate certificates designated as the Class M Certificates, the Class
B-1 Certificates, the Class B-2 Certificates and the Class R Certificates
(collectively, the "Subordinate Certificates"). Only the Class A, Class M and
Class B-1 Certificates (collectively, the "Offered Certificates") are
being offered hereby. The Class A, Class M and Class B-1 Certificates will
evidence in the aggregate approximate initial 82.00%, 7.50%, and 6.00%
undivided interests, respectively, in the Contract Pool. The Class B-2
Certificates will evidence in the aggregate an approximate initial 4.50%
undivided interest in the Contract Pool. The Class B-1 and Class B-2
Certificates are referred to collectively as the "Class B Certificates"
herein.
Distributions of principal and 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 April, 1998. The Class A Certificates will have the
respective fixed Pass-Through Rates specified above. The Pass-Through Rates
for the Class M and Class B-1 Certificates are subject to a maximum rate equal
to the Weighted Average Net Contract Rate. See "Description of the
Certificates" herein.
The rights of the Subordinate Certificateholders to receive distributions of
principal and interest are subordinated as described herein to such rights of
the Senior Certificateholders, the rights of Class B-2 and Class R
Certificateholders to receive distributions are subordinated as described
herein to such rights of the Class B-1 and Class M Certificateholders, and the
rights of Class B-1 Certificateholders to receive distributions are
subordinated as described herein to such rights of the Class M
Certificateholders. 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. See "Risk Factors" herein.
It is a condition to the issuance of the Offered Certificates that the Class
A Certificates be rated "Aaa" by Moody's Investors Service, Inc. ("Moody's")
and "AAA" by Fitch IBCA, Inc. ("Fitch"), that the Class M Certificates be
rated at least "Aa3" by Moody's and "AA-" by Fitch and that the Class B-1
Certificates be rated at least "Baa2" by Moody's and "BBB" by Fitch.
ii
<PAGE>
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
Certificates, other than the Class R Certificates, will represent "regular
interests" in the REMIC. See "Certain Federal Income Tax Consequences" herein
and in the Prospectus.
---------------
There is currently no market for the Offered Certificates. 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.
This Prospectus Supplement may be used by BancAmerica Robertson Stephens, an
affiliate of the Seller and Servicer, in connection with offers and sales
related to market making transactions in the Offered Certificates. BancAmerica
Robertson Stephens 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 EITHER SELLER OR EITHER 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 SELLER SINCE SUCH DATES.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF OFFERED
CERTIFICATES, INCLUDING ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE
COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "METHOD OF
DISTRIBUTION."
iii
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Terms of the Offered Certificates......................................... S-1
Risk Factors.............................................................. S-15
Recent Developments....................................................... S-16
The Contract Pool......................................................... S-16
The Sellers............................................................... S-24
Prepayment and Yield Considerations....................................... S-27
Description of the Certificates........................................... S-37
Certain Federal Income Tax Consequences................................... S-55
ERISA Considerations...................................................... S-57
Certain Legal Aspects of the Contracts.................................... S-59
Ratings................................................................... S-62
Legal Investment.......................................................... S-62
Method of Distribution.................................................... S-63
Use of Proceeds........................................................... S-64
Legal Matters............................................................. S-64
Index of Significant Definitions.......................................... S-65
PROSPECTUS
Incorporation of Certain Documents by Reference........................... 1
Additional Information.................................................... 1
Reports to Certificateholders............................................. 2
Summary of Terms.......................................................... 3
Risk Factors.............................................................. 13
The Contract Pools........................................................ 16
The Sellers............................................................... 20
Bank of America, FSB's Management's Discussion and Analysis of
Delinquency, Repossession and Loan Loss Experience....................... 28
Prepayment and Yield Considerations....................................... 28
Description of the Certificates........................................... 31
Credit and Liquidity Enhancement.......................................... 43
Certain Federal Income Tax Consequences................................... 47
Other Tax Consequences.................................................... 71
Restrictions on Transfer of REMIC Residual Certificates................... 72
Tax-Exempt Investors...................................................... 72
Legal Investment.......................................................... 73
ERISA Considerations...................................................... 74
Certain Legal Aspects of the Contracts.................................... 75
Ratings................................................................... 83
Method of Distribution.................................................... 83
Use of Proceeds........................................................... 84
Legal Matters............................................................. 84
Other Considerations...................................................... 84
Index of Significant Definitions.......................................... 86
</TABLE>
<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.
Securities Offered.......... The Class A, Class M and Class B-1 Certificates
(collectively, the "Offered Certificates") of the
BankAmerica Manufactured Housing Contract Trust
IV Senior/Subordinate Pass-Through Certificates,
Series 1998-1. The Class B-2 and Class R
Certificates are not being offered hereby. The
Offered Certificates, the Class B-2 Certificates
and the Class R Certificates are collectively
referred to as the "Certificates" herein.
The Class A Certificates (the "Senior
Certificates") are senior to the Class M,
Class B-1, Class B-2 and Class R Certificates
(collectively, the "Subordinate Certificates") to
the extent described herein, and the Class B-1,
Class B-2 and Class R Certificates are
subordinate to the Class M Certificates to the
extent described herein. The Class B-1 and Class
B-2 Certificates are referred to herein
collectively as the "Class B Certificates." The
Offered Certificates and the Class B-2
Certificates are referred to herein collectively
as the "Series 1998-1 Regular Certificates." The
Class R Certificates are referred to herein as
the "Series 1998-1 Residual Certificates."
The Sellers................. As to any Contract (as hereinafter defined),
either Bank of America National Trust and Savings
Association ("Bank of America, NT&SA") or Bank of
America, FSB, acting through its division,
BankAmerica Housing Services (individually the
"Seller" or collectively the "Sellers"), as
applicable, and as to the Trust Fund (as
hereinafter defined), Bank of America, NT&SA and
Bank of America, FSB.
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 First National Bank of Chicago (the
"Trustee").
Cut-off Date................ February 28, 1998.
Cut-off Date Pool Principal
Balance ...................
$895,440,092.56 (Approximate, subject to a
variance of plus or minus 5%).
Initial Certificate The Initial Certificate Balance for each Class of
Balance..................... Offered Certificates is set forth on the cover
hereof. Each such Initial
S-1
<PAGE>
Certificate Balance is subject to a variance of
plus or minus 5%).
Initial Class B-2 $40,295,092.56 (Approximate, subject to a
Certificate Balance........ variance of plus or minus 5%).
Pass-Through Rate........... The Pass-Through Rate for each Class of the
Offered Certificates is set forth on the cover
hereof. The Pass-Through Rates for each of the
Class M and Class B-1 Certificates will not
exceed the Weighted Average Net Contract Rate.
The "Weighted Average Net Contract Rate" is the
weighted average of the Net Contract Rates
(weighted by outstanding principal balance) on
the Contracts in the Contract Pool. 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 1.00%. Interest on each Class of
Certificates will be calculated on the basis of a
360-day year comprised of twelve 30-day months.
Class B-2 Pass-Through An amount equal to the lesser of 8.00%, and the
Rate........................ Weighted Average Net Contract Rate, 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 April, 1998. The
first Distribution Date is April 10, 1998 (the
"First Distribution Date").
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
March 1, 1998 (the "Agreement"), by and among
Bank of America, NT&SA, Bank of America, FSB,
acting through its division, BankAmerica Housing
Services, in each case as Seller, Bank of America
FSB, acting through its division, BankAmerica
Housing Services, 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 originated or
purchased by either Security Pacific Financial
Services of California, Inc. ("SPFSC"), a wholly-
owned subsidiary of Bank of America, NT&SA, or by
Bank of America, FSB, acting through its
division, BankAmerica
S-2
<PAGE>
Housing Services, in each case on an individual
basis in the ordinary course of its business. Any
Contract purchased on an individual basis by
SPFSC will be sold by it to Bank of America,
NT&SA, and conveyed by Bank of America, NT&SA to
the Trust Fund, immediately prior to the issuance
of the Certificates. 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 33,550 Contracts having
an aggregate unpaid principal balance of
approximately $895,440,092.56. The Contracts, as
of their origination, were secured by
Manufactured Homes located in 47 states and have
been selected by Bank of America, FSB from the
manufactured housing installment sale contracts
and installment loan portfolios of Bank of
America, FSB acting through its division,
BankAmerica Housing Services, and of SPFSC 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
7.00% to 14.75%, with a weighted average of
approximately 10.40%. As of the Cut-off Date, the
Contracts had a weighted average original term to
maturity of approximately 256 months and a
weighted average remaining term to maturity of
approximately 229 months. The final scheduled
payment date on the Contract with the latest
maturity is in February 2028. The Contracts were
originated in 1993, 1994, 1997 and 1998. 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
trust deed on the real estate on which the
manufactured home is located. Land Home and Land-
in-Lieu Contracts in the aggregate comprise
approximately 12.64% (by principal balance) of
the Contract Pool as of the Cut-off Date. See
"The Contract Pool-Land Home and Land-in-Lieu
Contracts" herein and "The Contract Pools" in the
Prospectus.
Description of The Certificates evidence undivided interests in
Certificates................ 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, Class B-1,
Class B-2 and Class R Certificates are
Subordinate Certificates, all as described
herein. The
S-3
<PAGE>
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 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 Balance of such Class of
Certificates.
Non-Recourse Obligations.... Neither Bank of America, NT&SA, 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, NT&SA and Bank of America, FSB, acting
through its division, BankAmerica Housing
Services, 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, acting through
its division, BankAmerica Housing Services, 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 NATIONAL TRUST AND
SAVINGS ASSOCIATION 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 either
Seller or an affiliate thereof. 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............... General. Distributions to the holders of the
Series 1998-1 Regular Certificates of interest
and principal, respectively, will be made first
to the holders of the Senior Certificates, second
to the holders of the Class M Certificates, third
to the holders of the Class B-1 Certificates and
fourth to the holders of the Class B-2
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,"
S-4
<PAGE>
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.
No payments of principal will be made to the
holders of the Class M Certificates until the
Senior Certificate Balance has been reduced to
zero, no payments of principal will be made to
the holders of the Class B-1 Certificates until
the Class M Certificate Balance has been reduced
to zero and no payments of principal will be made
to the holders of the Class B-2 Certificates
until the Class B-1 Certificate Balance has been
reduced to zero.
Priorities. On each Distribution Date, the
Available Distribution Amount, together with the
Reserve Account Draw Amount (as defined herein),
if any, 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;
(ii) to the Class A 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, the
Formula Principal Distribution Amount until the
Class M Certificate Balance is reduced to zero;
(v) to the Class B-1 Certificateholders, the
Class B-1 Interest Distribution Amount;
(vi) to the Class B-1 Certificateholders, the
Formula Principal Distribution Amount until the
Class B-1 Certificate Balance is reduced to zero;
(vii) to the Class B-2 Certificateholders, the
Class B-2 Interest Distribution Amount;
(viii) to the Class B-2 Certificateholders, the
Formula Principal Distribution Amount until the
Class B-2 Certificate Balance is reduced to zero;
(ix) to the Reserve Account, any remaining
Available Distribution Amount until the amount on
deposit therein equals the Reserve Account Cap;
(x) to the Class R Certificateholders, any
remaining Available Distribution Amount.
S-5
<PAGE>
In addition, notwithstanding the foregoing, if
the Formula Principal Distribution Amount
allocable to the holders of the Class A
Certificates on any Distribution Date pursuant to
clause (ii) above exceeds the Class A Certificate
Balance for such Distribution Date, such excess
will be distributed to the Class M
Certificateholders. If the Formula Principal
Distribution Amount allocable to the Class M
Certificateholders on any Distribution Date
pursuant to clause (iv) above exceeds the Class M
Certificate Balance for any such Distribution
Date, such excess will be distributed to the
Class B-1 Certificateholders. If the Formula
Principal Distribution Amount allocable to the
Class B-1 Certificateholders on any Distribution
Date pursuant to clause (vi) above exceeds the
Class B-1 Certificate Balance for any such
Distribution Date, such excess will be
distributed to the Class B-2 Certificateholders.
Definitions. Except as described below, as to any
Distribution Date, the "Interest Distribution
Amount" for any Class is equal to the sum of
(i) one month's interest at the Pass-Through Rate
for that Class on the Certificate Balance of that
Class and (ii) any previously undistributed
shortfalls in interest due to the
Certificateholders of that Class in respect of
prior Distribution Dates. Any shortfall in
interest due to Certificateholders will, to the
extent legally permissible, bear interest at the
related Pass-Through Rate. Interest will accrue
with respect to each Distribution Date in respect
of the Series 1998-1 Regular Certificates during
the one-month period beginning on the 10th day of
the month preceding the month of such
Distribution Date and ending on the 9th day of
the month of such Distribution Date (each, an
"Interest Accrual Period").
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, NT&SA
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
S-6
<PAGE>
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
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
Certificate Balance 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, Class B-1 Certificate
Balance and the Class B-2 Certificate Balance
immediately prior to such Distribution Date. In
no event shall the aggregate distributions of
principal to the holders of any class of Offered
Certificates and the Class B-2 Certificates
exceed the Initial Certificate Balances for such
Class of Offered Certificates or the Initial
Class B-2 Certificate Balance, respectively.
S-7
<PAGE>
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
$8,954,401 (1.00% of the Cut-off Date Pool
Principal Balance) on the Closing Date. In the
event that amounts on deposit in the Reserve
Account fall below the Reserve Account Cap, the
Reserve Account will be replenished on each
Distribution Date by certain excess interest
collections on or in respect of the Contracts, if
any, remaining after all required distributions
to the Class A, Class M and Class B
Certificateholders and after the payment of the
Monthly Servicing Fee and the reimbursement of
Monthly Advances have been made on such
Distribution Date; provided that the amount on
deposit in the Reserve Account shall not exceed
the Reserve Account Cap. The Reserve Account Cap
is equal to $8,954,401 or if there has been a
Reserve Account Trigger and such Reserve Account
Trigger has not been cured, $17,908,802 (2.00% of
the Cut-off Date Pool Principal Balance). See
"Description of the Certificates--Reserve
Account" herein for a description of the Reserve
Account Triggers and the Reserve Account and the
application of amounts on deposit in the Reserve
Account.
Subordination of the
Subordinate Certificates...
The rights of the holders of the Subordinate
Certificates to receive distributions of
available amounts in the Trust Fund will be
subordinated, to the extent described herein, to
such rights of the holders of the Senior
Certificates. This subordination is intended to
enhance the likelihood of 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, and the rights of the holders of
the Class B-2 Certificates to receive the
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 B-1 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 and of the Class B-2 Certificates to
the Class M and Class B-1 Certificates is
intended to enhance the likelihood of regular
receipt by the holders of the Class M
Certificates and the holders of the Class B-1
Certificates, respectively, of the full amount of
the distributions due them and to afford such
holders protection against losses on Liquidated
Contracts.
S-8
<PAGE>
The protection afforded to the holders of Senior
Certificates by means of the subordination of the
Subordinate Certificates, to the Class M
Certificateholders by the subordination of the
Class B Certificates and to the Class B-1
Certificateholders by the subordination of the
Class B-2 Certificates (in each case, to the
extent described herein) will be accomplished by
the application of the Available Distribution
Amount (together with any Reserve Account Draw
Amount) in the order specified under
"Distributions" above. Accordingly, in the event
that the Available Distribution Amount (together
with any Reserve Account Draw 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 (together with any Reserve Account Draw
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."
Losses on Liquidated As described above, the Total Regular Principal
Contracts................... Amount distributable to the holders of the Series
1998-1 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 1998-1 Regular Certificates and the
Monthly Servicing Fee.
The effect of any losses on Liquidated Contracts
during a Collection Period in excess of the (i)
Excess Interest, if any, and (ii) the funds, if
any, on deposit in the Reserve Account
S-9
<PAGE>
generally will reduce scheduled interest payments
on the Class B-2 Certificates, the Class B-1
Certificates and the Class M Certificates, in
that order, and may reduce the Pool Scheduled
Principal Balance below the aggregate Certificate
Balance of the Certificates on the related
Distribution Date. In the event the Pool
Scheduled Principal Balance falls below the
aggregate Certificate Balance of the Certificates
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-2 Certificateholders, the
Class B-1 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 1998-1 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, NT&SA 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 the BankAmerica
Housing Services division of Bank of America,
FSB, Security Pacific Housing Services, a
division of Bank of America, FSB or Security
Pacific Financial Services, a division of 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
S-10
<PAGE>
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, neither Seller
will be obligated to repurchase or substitute a
Contract solely on the basis of the failure by
Bank of America, NT&SA or 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, each of the Sellers 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, acting through
its BankAmerica Housing Services division, will
maintain possession of the Contract documents,
and each of the Sellers will stamp or cause to be
stamped each of their respective Contracts 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 Distribution Date on
which, 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
S-11
<PAGE>
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.
Registration of Offered The Offered Certificates initially will be
Certificates................ 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 in the United
States, or Cedel Bank, societe anonyme ("Cedel")
or the Euroclear System ("Euroclear") in Europe
and participating members thereof, except as
otherwise specified herein. See "Risk Factors"
and "Description of the Certificates--Global
Certificates" in the Prospectus and "Description
of the Certificates--Registration of the Offered
Certificates" and "Description of the
Certificates--Distributions" herein.
Federal Income Tax For federal income tax purposes, an election will
Consequences................ be made to treat certain assets of the Trust Fund
as a real estate mortgage investment conduit
("REMIC"). The Series 1998-1 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. The Series 1998-1 Residual Certificates
will be treated as the "residual interest" in the
REMIC for federal income tax purposes. Holders of
the Series 1998-1 Regular Certificates that would
otherwise report income under a cash method of
accounting will be required to include in income
interest on the Series 1998-1 Regular
Certificates (including original issue discount
("OID"), if any) in accordance with the accrual
method of accounting. See "Certain Federal Income
Tax Consequences" herein and in the Prospectus.
S-12
<PAGE>
ERISA Considerations........ Senior Certificates. Subject to the conditions
and discussion set forth herein, the Senior
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 (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-1 Certificates" is delivered to the
Trustee, an employee benefit 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 Certificates and the 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-1 Certificates will not, at
the time of issuance, be rated in one of the two
highest rating categories of Moody's and Fitch,
the Class B-1 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 manufactured housing
obligations may not be legally authorized to
invest in the Class B-1 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-1 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.
S-13
<PAGE>
Rating...................... It is a condition to the issuance of the Offered
Certificates that the Senior Certificates be
rated "Aaa" by Moody's and "AAA" by Fitch, that
the Class M Certificates be rated at least "Aa3"
by Moody's and "AA-" by Fitch and that the Class
B-1 Certificates be rated at least "Baa2" by
Moody's and "BBB" by Fitch. The Seller has not
requested ratings on the Offered Certificates by
any rating agency other than Moody's and Fitch.
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 Moody's and
Fitch. 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.
S-14
<PAGE>
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 any 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-1 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-1
Certificates, limiting the market of such securities.
2. Distributions Of Principal. The yield to maturity on the Class M and
Class B-1 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. No payments of principal will be made on the
Subordinate Certificates until the Senior Certificate Balance has been reduced
to zero and no payments of principal will be made on the Class B-1
Certificates until the Class M Certificate Balance has been reduced to zero.
It is not possible to predict the timing of the occurrence of the Distribution
Date, if any, on which the Senior Certificate Balance or the Class M
Certificate Balance, as applicable, 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. Prepayments on
Contracts may be influenced by a variety of economic, geographic, social and
other factors, including repossessions, aging, seasonality, market interest
rates, changes in housing needs, job transfers and unemployment. See
"Prepayment and Yield Considerations" herein and in the Prospectus.
3. No Recourse. Neither Bank of America, NT&SA 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, NT&SA and Bank of
America, FSB, acting through its division, BankAmerica Housing Services, with
respect to the Contracts sold by it in the Contract Pool and, in the case of
Bank of America, FSB, acting through its division, BankAmerica Housing
Services, 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
NATIONAL TRUST AND SAVINGS ASSOCIATION 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 either Seller or an affiliate thereof. 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
S-15
<PAGE>
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.
5. Prepayments May Affect Pass-Through Rates. The Pass-Through Rate for each
of the Certificates of Class M, Class B-1 and Class B-2 on any Distribution
Date will be adjusted so as not to exceed the weighted average of the Net
Contract Rates in the Contract Pool. Disproportionate prepayments (including
prepayments due to liquidations and repurchases by the Seller 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 the
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
Certificateholders 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.
RECENT DEVELOPMENTS
Bank of America, FSB announced in October 1997 its intention to sell the
operating business of its BankAmerica Housing Services division. Since such
time, potential purchasers of the BankAmerica Housing Services division have
reviewed its operations. However, a final purchaser has not yet been selected
and is not likely to be announced until the second quarter of 1998. There can
be no assurance of when, or even if, the sale will in fact be consummated.
The administration and servicing functions of 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 successor servicer under
the Agreement. If such servicing and administration functions are to be
performed by the purchaser, the Agreement will provide that such duties will
automatically be assigned to the purchaser and that Bank of America, FSB will
be relieved of its obligations as Servicer under the Agreement as long as such
assignment would not result in a withdrawal or downgrade of the then-current
rating or ratings of the Certificates. In the event that the assignment would,
in fact, result in such a withdrawal or a downgrade, 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 originated by Bank of America, FSB, acting through its
division, BankAmerica Housing Services, on an individual basis in the ordinary
course of its business. A description of Bank of America, FSB's general
practices 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, each Seller
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 93% of the Contracts (by outstanding principal balance as of
the Cut-off Date) will be sold by Bank of America, FSB, acting through its
division, BankAmerica Housing Services and approximately 7% will be sold by
Bank of America, NT&SA.
S-16
<PAGE>
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 (i) was 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 85% 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
7.00% to 14.75%. The weighted average Contract Rate of the Contracts as of the
Cut-off Date was approximately 10.40%. As of the Cut-off Date, the Contracts
had remaining scheduled maturities of not more than 360 months, and original
scheduled maturities of at least 24 months but not more than 362 months. As of
the Cut-off Date, the Contracts had a weighted average remaining term to
maturity of approximately 229 months, and a weighted average original term to
scheduled maturity of approximately 256 months. The average outstanding
principal balance of the Contracts as of the Cut-off Date was approximately
$26,690 and the outstanding principal balances of the Contracts as of the Cut-
off Date ranged from approximately $393 to $159,435. The weighted average
loan-to-value ratio for the Contracts at origination was approximately 88.24%
and the loan-to-value ratio of the Contracts at origination ranged from 9.60%
to 95.49%. "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 the 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 SPFSC and 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 depreciate in value, and it has been the experience of the
BankAmerica Housing Services division of Bank of America, FSB 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 47 states;
approximately 8.27% of the Contracts by outstanding principal balance as of
the Cut-off Date were secured by Manufactured Homes located in Texas, 8.19% in
Georgia, 7.59% in North Carolina, 6.55% in Alabama, 6.29% in Florida and 5.34%
in Tennessee. No other state represented more than 5% (by outstanding
principal balance as of the Cut-off Date) of the Contracts.
S-17
<PAGE>
Approximately 85% 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 15% 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 12.64% of the Contracts by outstanding principal
balance as of the Cut-off Date are secured by liens on real estate as well as
on Manufactured Homes. See "Certain Legal Aspects of the Contracts" herein.
S-18
<PAGE>
Set forth below is a description of certain additional characteristics of the
Contracts:
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES AS OF ORIGINATION
<TABLE>
<CAPTION>
% OF CONTRACT
POOL BY OUTSTANDING
AGGREGATE PRINCIPAL PRINCIPAL BALANCE
NUMBER OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-
STATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE OFF DATE(1)
----- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Alabama......... 2,052 $ 58,672,962.55 6.55%
Arizona......... 1,080 34,404,193.97 3.84
Arkansas........ 1,060 25,190,236.54 2.81
California...... 692 18,946,323.01 2.12
Colorado........ 330 11,481,939.83 1.28
Connecticut..... 2 23,475.98 (2)
Delaware........ 121 3,103,301.13 0.35
Florida......... 1,920 56,354,437.50 6.29
Georgia......... 2,623 73,375,096.94 8.19
Idaho........... 209 6,768,366.54 0.76
Illinois........ 365 9,734,186.37 1.09
Indiana......... 654 15,742,674.36 1.76
Iowa............ 176 4,371,248.59 0.49
Kansas.......... 330 9,106,707.55 1.02
Kentucky........ 1,346 34,063,334.38 3.80
Louisiana....... 974 25,521,504.10 2.85
Maine........... 172 5,692,764.23 0.64
Maryland........ 186 4,823,994.92 0.54
Massachusetts... 6 172,068.94 0.02
Michigan........ 615 17,126,400.19 1.91
Minnesota....... 248 5,827,471.41 0.65
Mississippi..... 975 22,488,363.87 2.51
Missouri........ 890 22,085,800.36 2.47
Montana......... 151 5,398,561.16 0.60
Nebraska........ 114 3,637,978.49 0.41
Nevada.......... 329 11,306,660.92 1.26
New Hampshire... 57 1,815,744.46 0.20
New Jersey...... 28 824,820.41 0.09
New Mexico...... 750 21,564,856.09 2.41
New York........ 495 16,070,866.32 1.79
North Carolina.. 2,856 67,969,881.16 7.59
North Dakota.... 76 1,825,082.59 0.20
Ohio............ 886 21,532,248.48 2.40
Oklahoma........ 503 15,432,254.67 1.72
Oregon.......... 366 10,949,153.70 1.22
Pennsylvania.... 730 19,498,084.48 2.18
South Carolina.. 1,606 39,040,833.29 4.36
South Dakota.... 134 3,755,686.13 0.42
Tennessee....... 1,999 47,794,306.52 5.34
Texas........... 2,829 74,017,979.62 8.27
Utah............ 117 3,987,465.73 0.45
Vermont......... 59 1,912,685.04 0.21
Virginia........ 917 21,854,047.64 2.44
Washington...... 311 9,490,327.65 1.06
West Virginia... 919 22,827,032.72 2.55
Wisconsin....... 164 4,034,670.99 0.45
Wyoming......... 128 3,822,011.04 0.43
------ --------------- ------
Total......... 33,550 $895,440,092.56 100.00%
====== =============== ======
</TABLE>
- --------
(1) Entries may not add to 100.00% due to rounding.
(2) Percent of Contract Pool by outstanding principal balance as of the Cut-off
Date is less than 0.01%.
S-19
<PAGE>
YEAR OF ORIGINATION OF CONTRACTS
<TABLE>
<CAPTION>
% OF CONTRACT
AGGREGATE PRINCIPAL POOL BY OUTSTANDING
YEAR OF NUMBER OF CONTRACTS BALANCE OUTSTANDING PRINCIPAL BALANCE
ORIGINATION AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE (1)
----------- ------------------- ------------------- ----------------------
<S> <C> <C> <C>
1993........ 8,313 $171,705,191.36 19.18%
1994........ 11,980 $268,330,912.30 29.97
1997........ 11,125 $382,260,144.67 42.69
1998........ 2,132 $ 73,143,844.23 8.17
------ --------------- ------
Total..... 33,550 $895,440,092.56 100.00%
====== =============== ======
</TABLE>
- --------
(1) Entries may not add to 100% due to rounding.
DISTRIBUTION OF ORIGINAL PRINCIPAL BALANCES OF CONTRACTS(1)
<TABLE>
<CAPTION>
% OF CONTRACT
POOL BY OUTSTANDING
AGGREGATE PRINCIPAL PRINCIPAL BALANCE
ORIGINAL CONTRACT NUMBER OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF
AMOUNT AS OF CUT-OFF DATE AS OF CUT-OFF DATE DATE(2)
----------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
$ 0- 5,000.......... 13 $ 54,473.70 0.01%
$ 5,001- 7,500.......... 179 920,716.30 0.10
$ 7,501-10,000.......... 817 5,029,918.97 0.56
$10,001-12,500.......... 1,354 12,041,623.55 1.34
$12,501-15,000.......... 2,138 24,725,896.12 2.76
$15,001-17,500.......... 2,549 35,703,914.25 3.99
$17,501-20,000.......... 2,863 46,849,287.94 5.23
$20,001-22,500.......... 3,346 63,645,055.10 7.11
$22,501-25,000.......... 3,349 72,065,270.51 8.05
$25,001-27,500.......... 2,886 70,249,115.50 7.85
$27,501-30,000.......... 2,278 61,331,495.10 6.85
$30,001-32,500.......... 1,897 55,775,526.72 6.23
$32,501-35,000.......... 1,580 50,281,446.78 5.62
$35,001-40,000.......... 2,583 91,572,143.93 10.23
$40,001-45,000.......... 1,657 67,065,976.29 7.49
$45,001-50,000.......... 1,310 59,656,271.41 6.66
$50,001-55,000.......... 751 38,540,182.41 4.30
$55,001-60,000.......... 538 30,305,369.58 3.38
$60,001-65,000.......... 392 24,124,818.91 2.69
$65,001-70,000.......... 260 17,379,279.35 1.94
$70,001-75,000.......... 209 15,044,170.60 1.68
$75,001-80,000.......... 167 12,812,573.62 1.43
$80,001-85,000.......... 130 10,654,275.47 1.19
Over $85,000............ 304 29,611,290.45 3.31
------ --------------- ------
Total................. 33,550 $895,440,092.56 100.00%
====== =============== ======
</TABLE>
- --------
(1) The maximum outstanding Contract principal balance as of the Cut-off Date
is $159,435.41, which represents 0.018% 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-20
<PAGE>
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
% OF CONTRACT
POOL BY OUTSTANDING
AGGREGATE PRINCIPAL PRINCIPAL BALANCE
NUMBER OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF
LOAN-TO-VALUE RATIO(1) AS OF CUT-OFF DATE AS OF CUT-OFF DATE DATE(2)
- ---------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Less than or equal to
50%.................... 329 $ 4,096,114.17 0.46%
51-60%.................. 369 6,531,198.61 0.73
61-70%.................. 692 14,241,874.65 1.59
71-80%.................. 3,455 79,421,493.88 8.87
81-85%.................. 3,223 87,126,825.16 9.73
86-90%.................. 18,321 466,145,472.37 52.06
91-95%.................. 7,161 237,877,113.72 26.57
------ --------------- ------
Total................. 33,550 $895,440,092.56 100.00%
====== =============== ======
</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.
S-21
<PAGE>
DISTRIBUTION OF CONTRACT RATES
<TABLE>
<CAPTION>
% OF CONTRACT
POOL BY OUTSTANDING
AGGREGATE PRINCIPAL PRINCIPAL BALANCE
RANGES OF CONTRACTS NUMBER OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF
BY CONTRACT RATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE DATE(1)
- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
7.00- 7.24........ 216 $ 16,473,522.02 1.84%
7.25- 7.49........ 302 22,127,561.32 2.47
7.50- 7.74........ 76 3,779,294.70 0.42
7.75- 7.99........ 319 15,172,296.33 1.69
8.00- 8.24........ 213 10,286,990.50 1.15
8.25- 8.49........ 721 38,906,985.94 4.35
8.50- 8.74........ 349 14,686,388.38 1.64
8.75- 8.99........ 288 9,576,997.15 1.07
9.00- 9.24........ 580 23,132,449.66 2.58
9.25- 9.49........ 718 27,711,366.51 3.09
9.50- 9.74........ 1,922 58,572,951.59 6.54
9.75- 9.99........ 2,592 69,159,417.91 7.72
10.00-10.24........ 2,330 56,021,116.29 6.26
10.25-10.49........ 1,696 58,268,790.63 6.51
10.50-10.74........ 4,117 90,580,020.13 10.12
10.75-10.99........ 1,525 34,354,467.56 3.84
11.00-11.24........ 2,346 57,740,455.24 6.45
11.25-11.49........ 1,417 39,977,904.38 4.46
11.50-11.74........ 1,966 50,635,372.31 5.65
11.75-11.99........ 1,991 45,931,618.45 5.13
12.00-12.24........ 2,468 53,383,594.75 5.96
12.25-12.49........ 1,574 33,092,666.52 3.70
12.50-12.74........ 1,676 29,662.501.00 3.31
12.75-12.99........ 582 11,059,978.00 1.24
13.00-13.24........ 350 5,397,463.96 0.60
13.25-13.49........ 301 5,090,638.93 0.57
13.50-13.74........ 384 5,870,653.49 0.66
13.75-13.99........ 437 7,381,826.69 0.82
14.00-14.24........ 27 393,877.74 0.04
14.25-14.49........ 29 434,326.10 0.05
14.50-14.74........ 27 355,583.12 0.04
14.75-14.99........ 11 221,015.26 0.02
------ --------------- ------
Total............ 33,550 $895,440,092.56 100.00%
====== =============== ======
</TABLE>
- --------
(1) Entries may not add to 100.00% due to rounding.
S-22
<PAGE>
REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
% OF CONTRACT
POOL BY OUTSTANDING
AGGREGATE PRINCIPAL PRINCIPAL BALANCE
MONTHS REMAINING AS OF NUMBER OF CONTRACTS BALANCE OUTSTANDING AS OF CUT-OFF
CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE DATE(1)
- ---------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
Greater than 0 and less
than or equal to 30.... 450 $ 1,666,711.79 0.19%
Greater than 30 and less
than or equal to 60.... 1,295 10,966,378.06 1.22
Greater than 60 and less
than or equal to 90.... 1,927 23,554,598.00 2.63
Greater than 90 and less
than or equal to 120... 2,159 33,431,036.67 3.73
Greater than 120 and
less than or equal to
150.................... 7,574 138,361,443.90 15.45
Greater than 150 and
less than or equal to
180.................... 2,927 65,028,285.65 7.26
Greater than 180 and
less than or equal to
210.................... 7,834 228,095,128.97 25.47
Greater than 210 and
less than or equal to
240.................... 2,990 89,418,491.81 9.99
Greater than 240 and
less than or equal to
270.................... 302 13,549,445.03 1.51
Greater than 270 and
less than or equal to
300.................... 984 36,698,279.45 4.10
Greater than 300 and
less than or equal to
360.................... 5,108 254,670,293.23 28.44
------ --------------- ------
Total................. 33,550 $895,440,092.56 100.00%
====== =============== ======
</TABLE>
- --------
(1) Entries may not add to 100.00% due to rounding.
S-23
<PAGE>
THE SELLERS
The following information supplements 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 division") or Bank of America, FSB, acting through its
BankAmerica Housing Services division, or purchased by SPHSI or by Bank of
America, FSB, acting through its BankAmerica Housing Services division, from
dealers on an individual basis 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)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------------- FEBRUARY 28,
1993 1994 1995 1996 1997 1998
-------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance
of Contracts
Purchased(1)(2)........ $873,227 $1,248,346 $2,586,896 $2,990,081 $2,581,063 $305,500
Number of Contracts
Purchased(1)........... 35,645 46,865 87,407 91,033 71,285 8,352
Average Contract
Size(2)................ $ 24.5 $ 26.6 $ 29.6 $ 32.8 $ 36.2 $ 36.6
Weighted Average
Contract Rate(2)....... 10.03% 10.68% 10.04% 9.52% 9.49% 9.11%
Number of Regional
Offices(3)............. 26 35 38 40 45 45
</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 BankAmerica Housing Services division, 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.
S-24
<PAGE>
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)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------ FEBRUARY 28,
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Unpaid Principal
Balance of Contracts
Being Serviced(1)...... $4,337,902 $4,877,858 $6,739,285 $8,660,898 $9,939,309 $10,005,483
Average Contract Unpaid
Principal Balance...... $ 19.0 $ 19.8 $ 22.2 $ 24.4 $ 26.0 $ 26.2
Number of Contracts
Being Serviced......... 228,452 246,572 303,739 355,664 382,206 382,543
</TABLE>
- --------
(1) Does not include a portfolio of approximately $840 million in unpaid
principal balance of contracts belonging to Bank of America, NT&SA (the
"NT&SA Portfolio") and serviced by the Servicer beginning in August 1997.
DELINQUENCY EXPERIENCE
The following table sets forth the delinquency experience since 1993 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
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------- FEBRUARY 28,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding(1)......... 227,411 245,432 302,455 354,081 379,587 379,730
Number of Contracts
Delinquent(2):
30-59 days............ 1,992 2,599 4,408 5,883 7,696 4,971
60-89 days............ 469 633 974 1,460 1,968 1,507
90 days or more....... 641 739 1,179 1,743 2,723 2,717
------- ------- ------- ------- ------- -------
Total Contracts
Delinquent......... 3,102 3,971 6,561 9,086 12,387 9,195
Delinquencies as a
Percentage of Contracts
Outstanding(3)......... 1.36% 1.62% 2.17% 2.57% 3.26% 2.42%
</TABLE>
- --------
(1) Excludes contracts already in repossession and the NT&SA Portfolio.
(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-25
<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)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------------- FEBRUARY 28,
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Serviced(1)............ 228,452 246,572 303,739 355,664 382,206 382,543
Principal Balance of
Contracts Being
Serviced(1)............ $4,337,902 $4,877,858 $6,739,285 $8,660,898 $9,939,309 $10,005,483
Average Principal
Recovery Upon
Liquidation(2)......... 45.61% 47.61% 50.92% 50.08% 47.89% 43.37%
Contract Liquidation(3). 2.51% 2.19% 2.04% 2.49% 2.90% 0.64%
Net Losses(4):
Dollars............... $ 70,510 $ 63,601 $ 69,864 $ 107,996 $ 157,099 $ 39,850
Percentage(5)......... 1.63% 1.30% 1.04% 1.25% 1.58% 0.40%
Contracts in
Repossession........... 1,041 1,140 1,284 1,583 2,619 2,813
</TABLE>
- --------
(1) As of period end. Includes contracts already in repossession. Excludes the
NT&SA Portfolio.
(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 for 1997 over 1996, is due primarily
to the seasoning of the portfolio. Management believes that the rate of losses
with respect to the contracts serviced by it tend to increase during the first
four years after origination, and decrease thereafter, although there can be
no assurance that such experience will be reflected in the future. In light of
the significant increase in the
S-26
<PAGE>
number of contracts originated in each of 1995 and 1996 over each previous
year, the contracts originated after the end of 1994 may not have reached
their periods of peak potential for losses if the pattern described in the
preceding sentence were to continue. In addition, in general, the rate of
losses has been higher for contracts originated after 1994 than for contracts
originated prior to such period. 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 rperiod. 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 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 24 months to 362
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, NT&SA or
SPFSC, as the case may be, for which at least eighteen months of prepayment
information is available, as described below 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 below. 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 of
Bank of America, FSB is aware of limited publicly available information
relating to historical rates of prepayment on manufactured housing contracts,
management of the BankAmerica Housing Services division of Bank of America,
FSB 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 the BankAmerica Housing Services division of Bank
of America, FSB 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
S-27
<PAGE>
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 for the sale of 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 1998-1 Regular Certificates and delaying the
amortization of certain other Classes of the Series 1998-1 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 1998-1
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.
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 February 2028.
The last scheduled Distribution Dates for the Series 1998-1 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. 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,
together with the Reserve Account Draw Amount, is not sufficient to permit a
full distribution of the Total Regular Principal Amount to the holders of any
Class of Offered Certificates, the effect will be to cause the Offered
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 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
S-28
<PAGE>
Amounts (together with the Reserve Account Draw Amount) might not be available
to provide for aggregate distributions on the Offered Certificates equal to
the sum of their initial outstanding Certificate Balances plus 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
(together with the Reserve Account Draw 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 Certificateholders 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.
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.
Certain statistical information relating to the prepayment behavior of
certain but not all pools of manufactured housing contracts sold by SPHSI,
Bank of America, NT&SA and Bank of America, FSB and serviced by SPHSI and now
Bank of America, FSB is set forth below in tabular form. The table relates to
nineteen 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 the table contains 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 the table relates constitutes a statistically
significant sample of manufactured housing contracts for purposes of
determining expected prepayment behavior. Furthermore, no assurance can be
given that the
S-29
<PAGE>
Contracts in the Contract Pool will have characteristics similar to the
contracts in any sold pool to which the following table relates. For these
reasons, and because of the unpredictable nature of the factors described
under "Weighted Average Life of the Offered Certificates" herein, which may
influence 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 table relates
will exhibit prepayment behavior similar to the behavior summarized in such
table for the periods covered by such table.
In addition to the foregoing, prospective Certificateholders should consider
that the table set forth below is 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 table below sets forth with respect to certain pools of contracts (a)
the initial aggregate principal balance of the contracts in the pool
(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 December 1, 1997, (f) the WAC of the
contracts in the pool as of December 1, 1997 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 December 1, 1997. 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.
<TABLE>
<CAPTION>
AGGREGATE ORIGINAL ESTIMATED PERCENTAGE
ORIGINAL WAM AT AVERAGE AGE AGGREGATE OF THE
POOL MONTH AND YEAR PRINCIPAL ORIGINAL SALE AT SALE PRINCIPAL PREPAYMENT
# OF SALE BALANCE WAC (MONTHS) (MONTHS) BALANCE(1) WAC(1) MODEL(1)
---- -------------- ------------ -------- -------- ----------- ------------ ------ ----------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
1 September 1988.......... $106,635,430 13.44% 178 5 $ 21,845,698 13.41% 190%
2 December 1988........... 104,666,978 13.35 184 4 23,466,498 13.31% 193%
3 May 1989................ 105,629,211 13.84 185 4 23,920,435 13.81% 210%
4 September 1989.......... 125,140,010 13.10 184 8 32,195,544 13.04% 194%
5 November 1989........... 105,106,711 13.14 192 2 27,928,465 13.15% 205%
6 March 1990.............. 140,369,133 13.48 186 5 37,064,800 13.42% 214%
7 June 1990............... 149,153,886 13.61 188 4 41,808,319 13.56% 215%
8 September 1990.......... 176,504,848 13.79 185 5 50,207,813 13.77% 220%
9 December 1990........... 176,277,296 13.69 189 5 47,776,222 13.78% 244%
10 March 1991.............. 115,743,068 13.46 187 12 34,250,705 13.51% 229%
11 June 1991............... 139,806,805 13.21 192 3 46,439,769 13.31% 224%
12 September 1991.......... 150,531,673 13.11 196 3 51,389,630 13.19% 232%
13 December 1991........... 150,837,421 12.76 193 3 53,259,674 12.73% 232%
14 March 1992.............. 140,964,598 12.10 192 3 54,556,606 12.12% 218%
15 June 1992............... 175,780,463 12.21 191 3 74,205,330 12.13% 207%
16 October 1992............ 175,970,703 11.57 198 3 82,040,500 11.58% 196%
17 May 1995................ 124,994,111 10.93 227 13 88,087,487 10.93% 189%
18 November 1995(2)........ 125,209,123 10.63 225 14 94,990,583 10.64% 184%
19 June 1996(3)............ 245,785,417 10.63 255 5 210,932,390 10.61% 167%
</TABLE>
- --------
(1) As of December 1, 1997
(2) Of the $125,209,123 aggregate original principal balance of the November
1995 pool, contracts totaling $68,452,887, or 54.67%, were conveyed to the
trust fund by Bank of America, NT&SA as seller under the related pooling
and servicing agreement.
S-30
<PAGE>
(3) Of the $245,785,417 aggregate original principal balance of the June 1996
pool, contracts totaling $159,889,359, or 65.05%, were conveyed to the
trust fund by Bank of America, NT&SA as seller under the related pooling
and servicing agreement.
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 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 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 3.7% per
annum of the then unpaid principal balance of such Contracts in the first
month of the life of the Contracts and an additional .01% per annum in each
month thereafter (for example, 3.9% per annum in the third month) until the
24th month. Beginning in the 24th month and in each month thereafter during
the life of the Contracts, 100% of the Prepayment Model assumes a constant
prepayment rate of 6.0% 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
S-31
<PAGE>
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
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 eighteen groups
having the additional characteristics set forth in the table entitled "Assumed
Contract Characteristics" below, (iv) the Class A Certificates initially
represent 82.00% of the entire ownership interest in the Trust Fund and have a
Class A Pass-Through Rate of 6.47% per annum, the Class M Certificates
initially represent 7.50% of the entire ownership interest in the Trust Fund
and have a Class M Pass-Through Rate of 6.94% per annum and the Class B-1
Certificates initially represent 6.00% of the entire ownership interest in the
Trust Fund and have a Class B-1 Pass-Through Rate of 7.81% 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 1.00% 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.
S-32
<PAGE>
ASSUMED CONTRACT CHARACTERISTICS
<TABLE>
<CAPTION>
CURRENT ORIGINAL REMAINING
PRINCIPAL CONTRACT TERM TO MATURITY TERM TO MATURITY
POOL BALANCE RATE (MONTHS) (MONTHS)
---- --------------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
1....................... $ 10,510,919.49 10.266% 109 56
2....................... 522,008.00 11.429 113 52
3....................... 12,470,465.83 11.367 103 60
4....................... 848,854.20 11.440 109 96
5....................... 20,096,029.79 11.480 103 98
6....................... 79,964,696.51 10.150 175 122
7....................... 5,400,071.32 11.290 176 115
8....................... 70,003,632.19 11.706 176 133
9....................... 1,558,917.49 12.158 174 161
10...................... 51,072,657.63 11.515 176 172
11...................... 119,454,212.95 9.870 238 185
12...................... 4,677,982.43 11.118 237 176
13...................... 123,505,517.79 11.347 237 194
14...................... 2,676,564.42 11.270 237 224
15...................... 86,083,598.41 10.974 239 235
16...................... 13,526,597.15 10.635 298 257
17...................... 7,874,711.91 10.092 348 335
18...................... 285,192,655.05 9.420 351 346
--------------- ------ --- ---
Total or weighted
average................ $895,440,092.56 10.400% 256 229
=============== ====== === ===
</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 229 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.
S-33
<PAGE>
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-1 Certificate Balance that would
be outstanding after each of the dates shown at the indicated percentages of
the Prepayment Model.
PERCENT OF THE INITIAL CLASS A CERTIFICATE BALANCE AT THE
RESPECTIVE PERCENTAGES OF THE PREPAYMENT MODEL
(ASSUMING TERMINATION PURSUANT TO A TERMINATION AUCTION)
<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
March 10, 1999................................ 97 90 87 86 84 81 78
March 10, 2000................................ 93 80 74 72 68 63 57
March 10, 2001................................ 88 70 62 59 55 47 41
March 10, 2002................................ 84 61 51 48 42 34 27
March 10, 2003................................ 78 52 42 38 32 24 16
March 10, 2004................................ 73 44 33 29 23 15 8
March 10, 2005................................ 68 37 25 21 15 8 1
March 10, 2006................................ 62 29 18 14 9 1 0
March 10, 2007................................ 55 23 12 8 3 0 0
March 10, 2008................................ 48 16 6 2 0 0 0
March 10, 2009................................ 42 11 1 0 0 0 0
March 10, 2010................................ 37 6 0 0 0 0 0
March 10, 2011................................ 31 2 0 0 0 0 0
March 10, 2012................................ 25 0 0 0 0 0 0
March 10, 2013................................ 19 0 0 0 0 0 0
March 10, 2014................................ 14 0 0 0 0 0 0
March 10, 2015................................ 11 0 0 0 0 0 0
March 10, 2016................................ 8 0 0 0 0 0 0
March 10, 2017................................ 5 0 0 0 0 0 0
March 10, 2018................................ 2 0 0 0 0 0 0
March 10, 2019................................ 0 0 0 0 0 0 0
March 10, 2020................................ 0 0 0 0 0 0 0
March 10, 2021................................ 0 0 0 0 0 0 0
March 10, 2022................................ 0 0 0 0 0 0 0
March 10, 2023................................ 0 0 0 0 0 0 0
March 10, 2024................................ 0 0 0 0 0 0 0
March 10, 2025................................ 0 0 0 0 0 0 0
March 10, 2026................................ 0 0 0 0 0 0 0
March 10, 2027................................ 0 0 0 0 0 0 0
Weighted Average Life (years)................. 9.9 5.7 4.6 4.2 3.8 3.2 2.8
</TABLE>
S-34
<PAGE>
PERCENT OF THE INITIAL CLASS M CERTIFICATE BALANCE AT THE
RESPECTIVE PERCENTAGES OF THE PREPAYMENT MODEL
(ASSUMING TERMINATION PURSUANT TO A TERMINATION AUCTION)
<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
March 10, 1999............................... 100 100 100 100 100 100 100
March 10, 2000............................... 100 100 100 100 100 100 100
March 10, 2001............................... 100 100 100 100 100 100 100
March 10, 2002............................... 100 100 100 100 100 100 100
March 10, 2003............................... 100 100 100 100 100 100 100
March 10, 2004............................... 100 100 100 100 100 100 100
March 10, 2005............................... 100 100 100 100 100 100 100
March 10, 2006............................... 100 100 100 100 100 100 53
March 10, 2007............................... 100 100 100 100 100 61 6
March 10, 2008............................... 100 100 100 100 78 15 0
March 10, 2009............................... 100 100 100 78 35 0 0
March 10, 2010............................... 100 100 71 40 2 0 0
March 10, 2011............................... 100 100 34 6 0 0 0
March 10, 2012............................... 100 78 0 0 0 0 0
March 10, 2013............................... 100 39 0 0 0 0 0
March 10, 2014............................... 100 7 0 0 0 0 0
March 10, 2015............................... 100 0 0 0 0 0 0
March 10, 2016............................... 100 0 0 0 0 0 0
March 10, 2017............................... 100 0 0 0 0 0 0
March 10, 2018............................... 100 0 0 0 0 0 0
March 10, 2019............................... 100 0 0 0 0 0 0
March 10, 2020............................... 81 0 0 0 0 0 0
March 10, 2021............................... 57 0 0 0 0 0 0
March 10, 2022............................... 30 0 0 0 0 0 0
March 10, 2023............................... 1 0 0 0 0 0 0
March 10, 2024............................... 0 0 0 0 0 0 0
March 10, 2025............................... 0 0 0 0 0 0 0
March 10, 2026............................... 0 0 0 0 0 0 0
March 10, 2027............................... 0 0 0 0 0 0 0
Weighted Average Life (years)................ 23.2 14.8 12.6 11.8 10.7 9.3 8.1
</TABLE>
S-35
<PAGE>
PERCENT OF THE INITIAL CLASS B-1 CERTIFICATE BALANCE AT THE
RESPECTIVE PERCENTAGES OF THE PREPAYMENT MODEL
(ASSUMING TERMINATION PURSUANT TO A TERMINATION AUCTION)
<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
March 10, 1998............................... 100 100 100 100 100 100 100
March 10, 1999............................... 100 100 100 100 100 100 100
March 10, 2000............................... 100 100 100 100 100 100 100
March 10, 2001............................... 100 100 100 100 100 100 100
March 10, 2002............................... 100 100 100 100 100 100 100
March 10, 2003............................... 100 100 100 100 100 100 100
March 10, 2004............................... 100 100 100 100 100 100 100
March 10, 2005............................... 100 100 100 100 100 100 100
March 10, 2006............................... 100 100 100 100 100 100 100
March 10, 2007............................... 100 100 100 100 100 100 100
March 10, 2008............................... 100 100 100 100 100 100 0
March 10, 2009............................... 100 100 100 100 100 0 0
March 10, 2010............................... 100 100 100 100 100 0 0
March 10, 2011............................... 100 100 100 100 0 0 0
March 10, 2012............................... 100 100 100 0 0 0 0
March 10, 2013............................... 100 100 0 0 0 0 0
March 10, 2014............................... 100 100 0 0 0 0 0
March 10, 2015............................... 100 0 0 0 0 0 0
March 10, 2016............................... 100 0 0 0 0 0 0
March 10, 2017............................... 100 0 0 0 0 0 0
March 10, 2018............................... 100 0 0 0 0 0 0
March 10, 2019............................... 100 0 0 0 0 0 0
March 10, 2020............................... 100 0 0 0 0 0 0
March 10, 2021............................... 100 0 0 0 0 0 0
March 10, 2022............................... 100 0 0 0 0 0 0
March 10, 2023............................... 100 0 0 0 0 0 0
March 10, 2024............................... 0 0 0 0 0 0 0
March 10, 2025............................... 0 0 0 0 0 0 0
March 10, 2026............................... 0 0 0 0 0 0 0
March 10, 2027............................... 0 0 0 0 0 0 0
Weighted Average Life (years)................ 25.5 16.9 14.5 13.7 12.6 10.9 9.6
</TABLE>
FINAL SCHEDULED DISTRIBUTION DATE
The Final Scheduled Distribution Dates for each Class of Offered
Certificates is set forth on the cover hereof. The Final Scheduled
Distribution Dates for the Class A, Class M and Class B-1 Certificates were
determined on the basis of the Structuring Assumptions and the assumption that
there are no prepayments, the Servicer does not exercise its optional
termination right and the Contracts are not sold in a Termination Auction. The
actual final Distribution Date for each Class of Offered Certificates is
likely to be shorter, and could occur significantly earlier than, the
applicable Final Scheduled Distribution Date because (i) prepayments are
likely to occur, (ii) the Sellers may repurchase Contracts in the event of
breaches of representations and warranties and (iii) the Servicer may cause an
optional termination of the Trust Fund or a Termination Auction may occur.
S-36
<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 an
exhibit 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
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 R Certificate) is the percentage obtained from dividing the original
denomination of such Certificate by the Initial Certificate Balance of the
Certificates of such 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, NT&SA 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, (v) the
proceeds of all insurance policies described herein and (vi) the Reserve
Account.
Bank of America, NT&SA and Bank of America, FSB, 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 and interest 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 April, 1998, 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").
PASS-THROUGH RATES
Interest on each Class of Certificates will be computed on the basis of a
360-day year of twelve 30-day months.
The Class A Pass-Through Rate will be 6.47% per annum.
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The Class M Pass-Through Rate will be the lesser of 6.94% per annum and the
Weighted Average Net Contract Rate.
The Class B-1 Pass-Through Rate will be the lesser of 7.81% per annum and
the Weighted Average Net Contract Rate.
The Class B-2 Pass-Through Rate will be the lesser of 8.00% per annum and
the Weighted Average Net Contract Rate.
The "Weighted Average Net Contract Rate" is equal to 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 1.00%. The
Weighted Average Net Contract Rate as of the Cut-off Date was approximately
9.40%.
In all but the most unusual prepayment scenarios, it is anticipated that the
Weighted Average Net Contract Rate will equal or exceed the specific
percentages set forth above. If a large principal amount of Contracts having
Contract Rates higher than 7.94% were to prepay while a proportionate
principal amount of the Contracts having Contract Rates lower than 7.94% did
not prepay, the interest collections on the remaining Contracts would not be
sufficient to support the specific percentages set forth above for the Class
M, Class B-1 and Class B-2 Certificates. Of the initial Contracts, 93.59% by
aggregate principal balance as of the Cut-off Date had Contract Rates equal to
or higher than 7.94%.
CONVEYANCE OF CONTRACTS
On the date of initial issuance of the Certificates, Bank of America, NT&SA
and Bank of America, FSB will convey to the Trustee, without recourse, all
right, title and interest of Bank of America, NT&SA and Bank of America, FSB,
respectively, 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, NT&SA 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, NT&SA 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
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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,
if any, securing such Contracts. 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" in
the Prospectus.
Bank of America, NT&SA and Bank of America, FSB 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 in the ordinary course of its
business, or (ii) originated by Bank of America, FSB in the ordinary course of
its business; (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, NT&SA or Bank of America, FSB, as applicable, in the
Manufactured Home and real property, if any, securing such Contract, (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, if any, securing such
Contract, (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, NT&SA 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, NT&SA 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, NT&SA or 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, if any, 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
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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, NT&SA 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, Bank of America, FSB, was 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 Contract will be 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 7.00% and the Contract with the highest Contract Rate
has a Contract Rate of 14.75%. 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, NT&SA 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, NT&SA or Bank of America, FSB, as the
case may be, becomes aware, or after Bank of America, NT&SA or Bank of
America, FSB's receipt of written notice from the Trustee or the Servicer, of
a breach of any representation or warranty of Bank of America, NT&SA 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, NT&SA nor Bank of
America, FSB will be required to repurchase or substitute any Contract
relating to a Manufactured Home and real property, if any, securing such
Contract 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, NT&SA 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, NT&SA 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
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which would give rise to a repurchase obligation on the part of Bank of
America, NT&SA or Bank of America, FSB, as applicable, were to result from
proceedings brought by a receiver or conservator of Bank of America, NT&SA 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,
NT&SA, 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 Payment due in the twelve months prior to its substitution. Bank
of America, NT&SA or Bank of America, FSB, 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 P-1 by Moody's and F-1 by Fitch (if rated by
Fitch) in the case of commercial paper or in one of the two highest rating
categories by Moody's and Fitch (if rated by Fitch) 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 Moody's and Fitch (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 P-1 by Moody's and F-1 by Fitch (if rated by Fitch); money market
funds acceptable to Moody's and Fitch (as evidenced by a letter from Moody's
and Fitch to such effect); and other obligations acceptable to Moody's and
Fitch.
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. Amounts received as late payment fees, extension fees, assumption
fees or similar fees may be retained by the Servicer
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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, NT&SA or Bank of America, FSB 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 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 Bank of America, NT&SA 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 1998-1 Regular Certificates will
be applied first to the holders of the Senior Certificates, second to the
holders of the Class M Certificates and third 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 to holders of each Class of Certificates of principal and
interest 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.
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
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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,
together with the Reserve Account Draw Amount (as defined herein), if any,
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;
(ii) to the Class A 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, the Formula Principal
Distribution Amount until the Class M Certificate Balance is reduced to
zero;
(v) to the Class B-1 Certificateholders, the Class B-1 Interest
Distribution Amount;
(vi) to the Class B-1 Certificateholders, the Formula Principal
Distribution Amount until the Class B-1 Certificate Balance is reduced to
zero;
(vii) to the Class B-2 Certificateholders, the Class B-2 Interest
Distribution Amount;
(viii) to the Class B-2 Certificateholders, the Formula Principal
Distribution Amount until the Class B-2 Certificate Balance is reduced to
zero;
(ix) to the Reserve Account any remaining Available Distribution Amount
until the amount on deposit therein equals the Reserve Account Cap;
(x) to the Class R Certificateholders, any remaining Available
Distribution Amount.
In addition, notwithstanding the foregoing, if the Formula Principal
Distribution Amount allocable to the holders of the Class A Certificates on
any Distribution Date pursuant to clause (ii) above exceeds the Class A
Certificate Balance for such Distribution Date, such excess will be
distributed to the Class M Certificateholders. If the Formula Principal
Distribution Amount allocable to the Class M Certificateholders on any
Distribution Date pursuant to clause (iv) above exceeds the Class M
Certificate Balance for any such Distribution Date, such excess will be
distributed to the Class B-1 Certificateholders. If the Formula Principal
Distribution Amount allocable to the Class B-1 Certificateholders on any
Distribution Date pursuant to clause (vi) above exceeds the Class B-1
Certificate Balance for any such Distribution Date, such excess will be
distributed to the Class B-2 Certificateholders.
Definitions. Except as described below, as to any Distribution Date, the
"Interest Distribution Amount" for any Class is equal to the sum of (i) one
month's interest at the Pass-Through Rate for that Class on the Certificate
Balance of that Class and (ii) any previously undistributed shortfalls in
interest due to the Certificateholders of that Class in respect of prior
Distribution Dates. Any shortfall in interest due to Certificateholders will,
to the extent legally permissible, bear interest at the related Pass-Through
Rate. Interest will accrue with respect to each Distribution Date in respect
of the Series 1998-1 Regular Certificates during the one-month period
beginning on the 10th day of the month preceding the month of such
Distribution Date and ending on the 9th day of the month of such Distribution
Date (each, an "Interest Accrual Period).
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.
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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, NT&SA and 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 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. 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, the Class B-1
Certificate Balance and the Class B-2 Certificate Balance immediately prior to
such Distribution Date. The term "Certificate Balance" in respect of any one
or more Classes of Certificates has the corresponding meaning. In no event
shall the aggregate distributions of principal to the holders of the Class A,
Class M, Class B-1 and Class B-2 Certificates exceed the Initial Class A
Certificate Balance, the Initial Class M Certificate Balance, the Initial
Class B-1 Certificate Balance and the Initial Class B-2 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 $8,954,401 (1.00% of the Cut-off Date Pool
Principal Balance) on the Closing Date. In the event that amounts on deposit
in the Reserve Account fall below the Reserve Account Cap, the Reserve Account
will be replenished on each Distribution Date by the deposit therein of the
portion of the Available Distribution Amount remaining after the distribution
of all amounts required to be paid to the Class A, Class M and Class B
Certificateholders and after the payment of the Monthly Servicing Fee and
reimbursement of Monthly Advances has been made as described above under "--
Distributions-- Priorities" until the amount on deposit in the Reserve Account
equals $8,954,401, or, if there has been a Reserve Account Trigger and such
Reserve Account Trigger has not been cured, $17,908,802 (2.00% of the Cut-off
Date Pool Principal Balance) (the "Reserve Account Cap"). On or prior to each
Distribution Date, a withdrawal will
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be made from the Reserve Account, if necessary, in an amount (the "Reserve
Account Draw Amount") equal to the lesser of (i) the amount on deposit in the
Reserve Account and (ii) the amount by which the aggregate of amounts due to
Certificateholders in clauses (i) through (viii) under "--Distributions--
Priorities" above will exceed the Available Distribution Amount on the related
Distribution Date. The Reserve Account Draw Amount will be distributed
together with the Available Distribution Amount. Reserve Account Draw Amounts
will only be available to make payments to Certificateholders of the amounts
described in clause (ii) of the immediately preceding sentence. Funds in the
Reserve Account will be invested in Eligible Investments selected by the Class
R Certificateholders, which investments will be subject to the same investment
criteria as the investment of funds on deposit in the Certificate Account.
"Reserve Account Trigger" means, as of any Distribution Date, if any of the
following conditions are in effect as of such Distribution Date or were in
effect for any of the immediately preceding eleven Distribution Dates:
(i) the Cumulative Realized Losses as of such Distribution Date exceeds
the percentage with respect to such Distribution Date as set forth in the
Agreement;
(ii) the Current Realized Loss Ratio as of such Distribution Date exceeds
2.5%;
(iii) the Average Sixty-Day Delinquency Ratio as of such Distribution
Date exceeds 3.5%; or
(iv) the Average Thirty-Day Delinquency Ratio as of such Distribution
Date exceeds 5.5%.
The "Average Sixty-Day Delinquency Ratio" and the "Average Thirty-Day
Delinquency Ratio" are, in general, the ratios of the average of the aggregate
principal balances of Contracts delinquent 60 days or more and 30 days or
more, respectively, for the preceding three Collection Periods (determined as
of the last day of each such Collection Period) to the average Pool Scheduled
Principal Balance for such periods. "Cumulative Realized Losses" are, in
general, the aggregate net liquidation losses (calculated as specified in the
Agreement) in respect of Liquidated Contracts since the Cut-off Date. The
"Current Realized Loss Ratio" is, in general, the ratio of the aggregate net
liquidation losses in respect of Liquidated Contracts for the periods
specified in the Agreement to an average Pool Scheduled Principal Balance
specified in the Agreement.
On the earlier to occur of the Distribution Date on which the Class B-2
Certificate Balance is reduced to zero and the Final Scheduled Distribution
Date, after giving effect to any distributions to be made on such Distribution
Date, the amount, if any, on deposit in the Reserve Account will be
distributed to the Class R Certificateholders.
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.
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, and the rights of the holders of the Class B-2
Certificates to receive the 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 B-1 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 and of
the Class B-2 Certificates to the Class M and Class B-1 Certificates is
intended to enhance the likelihood of regular receipt by the holders of the
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Class M Certificates and the holders of the Class B-1 Certificates,
respectively, 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, to the Class M
Certificateholders by the subordination of the Class B Certificates and to the
Class B-1 Certificateholders by the subordination of the Class B-2
Certificates (in each case, to the extent described herein) will be
accomplished by the application of the Available Distribution Amount (together
with any Reserve Account Draw Amount) in the order specified under
"Distributions" above. Accordingly, in the event that the Available
Distribution Amount (together with any Reserve Account Draw Amount) on any
Distribution Date is not sufficient to permit the distribution of the amount
of interest and 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 1998-1 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, 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 the sum of (i) interest
distributions due to holders of the Series 1998-1 Regular Certificates and
(ii) the Monthly Servicing Fee.
The effect of any losses on Liquidated Contracts during a Collection Period
in excess of (i) the Excess Interest, if any, and (ii) the funds, if any, on
deposit in the Reserve Account generally will reduce scheduled interest
payments on the Class B-2 Certificates, the Class B-1 Certificates and the
Class M Certificates, in that order, and may reduce the Pool Scheduled
Principal Balance below the aggregate Certificate Balance of the Certificates
on the related Distribution Date. In the event the Pool Scheduled Principal
Balance falls below the aggregate Certificate Balance of the Certificates 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-2
Certificateholders, the Class B-1 Certificateholders, the Class M
Certificateholders and the Senior Certificateholders, in that order.
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EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of the flow of funds on the
Certificates for the Distribution Date occurring in April 1998:
<TABLE>
<C> <C> <S>
February 28................. (A) Cut-off Date.
March 1-31.................. (B) Servicer receives scheduled payments on
the Contracts and any principal
prepayments made by Obligors and
applicable interest thereon.
April 9..................... (C) Record Date.
April 5..................... (D) Determination Date.
April 10.................... (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.)
</TABLE>
Succeeding months follow the pattern of (B) through (E).
- --------
(A) The Cut-off Date Pool Principal Balance on February 28, 1998 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 April 10, 1998. 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 April 10, 1998 is described under "--
Payments on Contracts; Certificate Account" above.
(C) Distributions on April 10, 1998 will be made to Certificateholders of
record at the close of business on April 9, 1998.
(D) On April 5, 1998 (three business days prior to the Distribution Date), the
Servicer will determine the amounts of principal and interest which will
be passed through on April 10, 1998 to Certificateholders.
(E) On April 10, 1998, the amounts determined on April 5, 1998 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 1998-1 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 1998-1 Regular
Certificateholders rather than to guarantee or insure against losses.
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<PAGE>
The Servicer will also be obligated to make advances, to the extent
recoverable out of Liquidation Proceeds or otherwise, in respect of certain
taxes and insurance premiums not paid by an Obligor on a timely basis. Funds
so advanced are reimbursable to the Servicer as provided in the Agreement.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will include with each distribution to a Certificateholder a
statement as of the related Distribution Date setting forth, among other
things for each Class of Certificates:
(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 number of and aggregate unpaid principal balance of Contracts
with payments delinquent 31 to 59, 60 to 89, and 90 or more days,
respectively;
(f) the amount of fees payable out of the Trust Fund;
(g) the balance in the Reserve Account, if any; and
(h) the Reserve Account Draw Amount, if any.
(i) the Monthly Servicing Fee payable on such Distribution Date and the
amount of any other fees payable out of the Trust Fund;
(j) 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;
(k) 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;
(l) the aggregate liquidation losses realized by the Trust Fund through
the Collection Period immediately preceding such Distribution Date,
expressed in dollars;
(m) the aggregate liquidation losses 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;
(n) 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;
(o) the Weighted Average Net Contract Rate for the Collection Period
immediately preceding the month of such Distribution Date; and
(p) 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
1998-1 Regular Certificate of record at any time during such calendar year as
to the aggregate of amounts reported pursuant to clauses (b) and (c) above for
such calendar year.
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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 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 holders of each outstanding Class of 1998-1 Regular Certificates an amount
equal to the respective Certificate Balances of such Certificates together
with any shortfall in interest due on such Certificates in respect of prior
Distribution Dates and one month's interest at the applicable Pass-Through
Rates on such unpaid Certificate Balances (collectively, 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 10 days preceding the date on which any
Termination Auction is to occur. The Trustee will solicit each registered
Certificateholder, the Sellers 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 Bank of America, NT&SA or Bank of America, FSB. 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 1998-1 Regular Certificates,
the Trustee shall cause to be distributed, to the extent of funds available,
to such Certificateholders on the final
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Distribution Date in proportion to their respective Percentage Interests an
amount equal to the respective unpaid Certificate Balances of the Series 1998-
1 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 1998-
1 Regular Certificates will be distributed to the Class R Certificateholders.
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.
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.
THE TRUSTEE
The First National Bank of Chicago (the "Trustee") has its corporate trust
offices at One First National Plaza, Chicago, Illinois 60670-0126. The Trustee
may resign at any time, in which event the Seller will be obligated to appoint
a successor Trustee. The Seller 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 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 Chicago 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.
S-50
<PAGE>
REGISTRATION OF THE OFFERED CERTIFICATES
The Offered Certificates will be book-entry Certificates (the "Book-Entry
Certificates"). Persons acquiring beneficial ownership interests in the
Offered Certificates ("Certificate Owners") will hold their Offered
Certificates through DTC in the United States, or Cedel Bank, societe anonyme
("Cedel") or Euroclear System ("Euroclear") in Europe if they are participants
of such systems, or indirectly through organizations which are participants in
such systems. The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate principal balance of the Offered
Certificates and will initially be registered in the name of Cede & Co., the
nominee of DTC. Cedel and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in Cedel's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedel and The Chase Manhattan Bank will act as depositary for Euroclear (in
such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Except as described below, no person acquiring a
Book-Entry Certificate (each, a "Beneficial Owner") will be entitled to
receive a physical certificate representing such Certificate (a "Definitive
Certificate"). Unless and until Definitive Certificates are issued, it is
anticipated that the only "Certificateholder" of the Offered Certificates will
be Cede & Co., as nominee of DTC. Certificate Owners will not be
Certificateholders as that term is used in the Agreement. Certificate Owners
are only permitted to exercise their rights indirectly through Participants
and DTC.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded in
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the beneficial owner's Financial Intermediary is not a DTC
participant and on the records of Cedel or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required
to make book-entry transfers among Participants on whose behalf it acts with
respect to the Offered Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Offered Certificates.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Offered Certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interest.
Certificateholders will not receive or be entitled to receive certificates
representing their respective interests in the Offered Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificateholders who are not Participants may
transfer ownership of Offered Certificates only through Participants and
indirect participants by instructing such Participants and indirect
participants to transfer Offered Certificates, by book-entry transfer, through
DTC for the account of the purchasers of such Offered Certificates, which
account is maintained with their respective Participants. Under the Rules and
in accordance with DTC's normal procedures, transfers of ownership of Offered
Certificates will be executed through DTC and the accounts of the respective
Participants at DTC will be debited and credited. Similarly, the Participants
and indirect participants will make debits or credits, as the case may be, on
their records on behalf of the selling and purchasing Certificateholders.
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<PAGE>
Because of time zone differences, credits of securities received in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel
or Euroclear as a result of sales of securities by or through a Cedel
Participant (as defined below) or Euroclear Participant (as defined below) to
a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant Cedel or Euroclear cash account only as of
the business day following settlement in DTC. For information with respect to
tax documentation procedures relating to the Certificates, see "Certain
Federal Income Tax Consequences--REMIC Certificates--C. Taxation of Regular
Certificates--9. Taxation of Certain Foreign Investors" and "--10. Backup
Withholding" in the Prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures--Certain U.S. Federal Income Tax Documentation
Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by a counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives)
own DTC. In accordance with its normal procedures, DTC is expected to record
the positions held by each DTC participant in the Book-Entry Certificates,
whether held for its own account or as a nominee for another person. In
general, beneficial ownership of Book-Entry Certificates will be subject to
the Rules, as in effect from time to time.
Cedel Bank, societe anonyme, 67 Bd Grande-Duchesse Charlotte, L-1331
Luxembourg, was incorporated in 1970 as a limited company under Luxembourg
law. Cedel is owned by banks, securities dealers and financial institutions,
and currently has about 100 shareholders, including U.S. financial
institutions or their subsidiaries. No single entity may own more than five
percent of Cedel's stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institute Monetaire Luxembourgeois, "IML", the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its customers ("Cedel Participants") and
facilitates the clearance and settlement of securities transactions by
electronic book-entry transfers between their accounts. Cedel provides various
services, including safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
also deals with domestic securities markets in several countries through
established depository and custodial relationships. Cedel has established an
electronic bridge with Morgan Guaranty Trust as the Euroclear Operator in
Brussels to facilitate settlement of trades between systems. Cedel currently
accepts over 70,000 securities issues on its books.
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Cedel's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Cedel's United States customers are limited to
securities brokers and dealers and banks. Currently, Cedel has approximately
3,000 customers located in over 60 countries, including all major European
countries, Canada, and the United States. Indirect access to Cedel is
available to other institutions which clear through or maintain a custodial
relationship with an account holder of Cedel.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may be settled in any of 29 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions
govern transfers of securities and cash within Euroclear, withdrawals of
securities and cash from Euroclear and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a tangible
basis with attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants, and has no record of or relationship
with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC participant will be
responsible for disbursing such payments to the beneficial owners of the Book-
Entry Certificates that it represents and to each Financial Intermediary for
which it acts as agent. Each such Financial Intermediary will be responsible
for distributing funds to the beneficial owners of the Book-Entry Certificates
that it represents.
Under a book-entry format, beneficial owners of the Book-Entry Certificates
may experience some delay in their receipt of payments, since such payments
will be forwarded by the Trustee to Cede. Distributions with respect to
Certificates held through Cedel or Euroclear will be credited to the cash
accounts of Cedel Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by the
Relevant Depositary. Such distributions will be subject to tax reporting in
accordance with relevant United States tax laws and regulations. See "Certain
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<PAGE>
Federal Income Tax Consequences--REMIC Certificates--C. Taxation of Regular
Certificates--9. Taxation of Certain Foreign Investors" and "--10. Backup
Withholding" in the Prospectus. Because DTC can only act on behalf of
Financial Intermediaries, the ability of a beneficial owner to pledge Book-
Entry Certificates to persons or entities that do not participate in the
Depository system, or otherwise take actions in respect of such Book-Entry
Certificates, may be limited due to the lack of physical certificates for such
Book-Entry Certificates. In addition, issuance of the Book-Entry Certificates
in the book-entry form may reduce the liquidity of such Certificates in the
secondary market since certain potential investors may be unwilling to
purchase Certificates for which they cannot obtain physical certificates.
Monthly and annual reports on the Trust will be provided to Cede, as nominee
of DTC, and may be made available by Cede to beneficial owners upon request,
in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive Certificates
are issued, DTC will take any action permitted to be taken by the holders of
the Book-Entry Certificates under the Agreement only at the direction of one
or more Financial Intermediaries to whose DTC accounts the Book-Entry
Certificates are credited, to the extent that such actions are taken on behalf
of Financial Intermediaries whose holdings include such Book-Entry
Certificates. Cedel or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Certificateholder under the
Agreement on behalf of a Cedel Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability
of the Relevant Depository to effect such actions on its behalf through DTC.
DTC may take actions, at the direction of the related Participants, with
respect to some Offered Certificates which conflict with actions taken with
respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the Book-
Entry Certificates, or their nominees, rather than to DTC, only if (a) DTC or
Bank of America, FSB advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and Bank of
America, FSB or the Trustee is unable to locate a qualified successor,
(b) Bank of America, FSB, at its sole option, with the consent of the Trustee,
elects to terminate a book-entry system through DTC or (c) after the
occurrence of an event of default under the Agreement, beneficial owners
having Percentage Interests aggregating not less than 51% of the Book-Entry
Certificates advise the Trustee and DTC through the Financial Intermediaries
and the DTC participants in writing that the continuation of a book-entry
system through DTC (or a successor thereto) is no longer in the best interests
of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for re-
registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as
Certificateholders under the Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfer of Offered Certificates among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any
time.
Neither Bank of America, NT&SA nor Bank of America, FSB, in their capacity
as Sellers, the Servicer nor the Trustee will have any responsibility for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of the Book-Entry Certificates held by Cede & Co., as
nominee for DTC, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the Offered Certificates, Orrick, Herrington &
Sutcliffe LLP, special counsel to the Sellers, 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 Sellers, 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, and (b) the Offered
Certificates, together with the Class B-2 Certificates, evidence the "regular
interests" in such REMIC and (c) the Class R Certificates is the sole class of
"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 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. 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 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 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
170% 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--4. Market Discount" and "--5. Premium" in the Prospectus.
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 Certificates--C. Taxation of Regular Certificates" and "--
5. 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
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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 "The Pooling and Servicing Agreement--
Termination" herein and "Certain Federal Income Tax Consequences--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--REMICs" in the Prospectus.
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ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose 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 a predecessor of BancAmerica
Robertson Stephens and Morgan Stanley & Co. Incorporated essentially identical
administrative exemptions (DOL Prohibited Transaction Exemption ("PTE") 96-92
(Exemption Application No. D-10335), 61 Fed. Reg. 66334 (Dec. 17, 1996), and
PTE 90-24, Exemption Application No. D-8019, 55 Fed. Reg. 20548 (May 17,
1990), respectively, both as amended by PTE 97-34, 62 Fed. Reg. 39021 (July
21, 1997) (collectively, 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 Sellers believe that the Exemption will apply to the
acquisition and holding of Senior 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 Senior
Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party.
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other Certificates of the Trust.
(3) The Senior Certificates acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poors Ratings Group ("S&P"),
Moody's or Fitch.
(4) The Trustee is not an affiliate of the Underwriters, Bank of America,
NT&SA, Bank of America, FSB, 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
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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 Senior Certificates represents not
more than reasonable compensation for underwriting the Senior Certificates.
The sum of all payments made to and retained by the Sellers 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 Sellers believe 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, and the related excise tax provisions of Section 4975 of
the Code, the direct or indirect sale, exchange or transfer of Senior
Certificates between either Seller 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 Senior 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 Senior 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 Senior 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 Senior Certificates, no more
than 25% of the assets of a 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 Senior Certificates by a Plan in the secondary market if
certain conditions are met and the continued holding of Senior Certificates
acquired in initial or secondary markets.
Before purchasing a Senior 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 Senior Certificate should also carefully review with its own legal
advisors the applicability of the fiduciary duty and prohibited
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transaction provisions of ERISA and Section 4975 of the Code to such
investment. See "ERISA Considerations" in the Prospectus.
CLASS M AND CLASS B-1 CERTIFICATES
A Fiduciary or other person investing "plan assets" of any Plan will not be
permitted to purchase or hold the Class M and Class B-1 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 Class B-1 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 Class B-1 Certificate shall be
registered unless the prospective transferee provides the Trustee, the Sellers
and the Servicer with (a) a certification to the effect that such transferee
(1) is neither an employee benefit plan subject to Section 406 or Section 407
of ERISA or a plan subject to 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 that 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 Sellers and the
Servicer, and upon which the Trustee, the Sellers 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 Sellers 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 Sellers or the
Servicer. Owners of the Class M or Class B-1 Certificates will be deemed to
make one of the representations in clauses (a)(1) and (a)(2).
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
LAND HOME AND LAND-IN-LIEU CONTRACTS
General. Approximately 12.64% (by principal balance) of the Contracts are
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 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. 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
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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 its
own expense as are necessary to render the property suitable for sale. The
lender commonly will obtain the services of a real estate broker and pay the
broker a commission in connection with the sale of the property. Depending
upon market conditions, the ultimate proceeds of the sale of the property may
not equal the lender's investment in the property.
Rights of Redemption. In some states, after sale pursuant to a deed of trust
or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies
only to sale following judicial foreclosure, and not sale pursuant to a non-
judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In 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
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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
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.
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.
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RATINGS
It is a condition to the issuance of the Certificates that the Senior
Certificates be rated "Aaa" by Moody's and "AAA" by Fitch, that the Class M
Certificates be rated at least "Aa3" by Moody's and "AA- " by Fitch and that
the Class B-1 Certificates be rated at least "Baa2" by Moody's and "BBB" by
Fitch. 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 Moody's and Fitch to pass-through certificates
address the likelihood of the receipt by the related certificateholders of
their allocable share of principal and interest on the underlying assets.
Moody's and Fitch 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. Moody's and Fitch 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 Moody's Investors Service, Inc., 99 Church Street, New York, New York
10004, telephone: (212) 553-0300, and Fitch IBCA, Inc., One State Street
Plaza, New York, New York 10004, telephone (212) 908-0500, respectively.
The Seller has not requested a rating on the Offered Certificates by any
rating agency other than Moody's and Fitch. 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 Moody's and Fitch.
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 constitute legal
investments for such investors.
Because the Class B-1 Certificates will not, at the time of issuance, be
rated in one of the two highest rating categories of Moody's and Fitch, the
Class B-1 Certificates will not constitute "mortgage related securities" for
purposes of SMMEA. Accordingly, many institutions with legal authority to
invest in more highly rated securities based on first mortgage loans may not
be legally authorized to invest in the Class B-1 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-1 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.
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METHOD OF DISTRIBUTION
Subject to the terms and conditions of the Underwriting Agreement dated
March 24, 1998 (the "Underwriting Agreement"), the Sellers have agreed to
sell, and each of BancAmerica Robertson Stephens and Morgan Stanley & Co.
Incorporated (the "Underwriters") has agreed to purchase from the Sellers, the
respective principal amounts of the Offered Certificates set forth below its
name in the table below. BancAmerica Robertson Stephens is an affiliate of
Bank of America, FSB.
<TABLE>
<CAPTION>
BANCAMERICA
ROBERTSON MORGAN STANLEY & CO.
PRINCIPAL AMOUNT OF STEPHENS INCORPORATED
- ------------------- ------------ --------------------
<S> <C> <C>
Class A Certificates.......................... $220,278,000 $513,982,000
Class M Certificates.......................... $ 20,147,400 $ 47,010,600
Class B-1 Certificates........................ $ 16,118,100 $ 37,608,900
</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 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 Sellers 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 0.15100% of the Class A Certificate Balance,
0.30000% of the Class M Certificate Balance, 0.45000% of the Class B-1
Certificate Balance. The Underwriters may allow dealers, and such dealers may
allow, a concession not in excess of 0.07550% of the Class A Certificate
Balance, 0.15000% of the Class M Certificate Balance, and 0.22500% of the
Class B-1 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 Sellers 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 Sellers.
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 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. 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.
S-63
<PAGE>
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be used by the Sellers 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.
S-64
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
PAGE IN PROSPECTUS
SUPPLEMENT ON WHICH
TERM TERM IS DEFINED, S-
- ---- -------------------
<S> <C>
Agreement................................................... 2, 37
Annual Servicing Rate....................................... 2, 38
Available Distribution Amount............................... 4, 42
Average Sixty-Day Delinquency Ratio......................... 45
Average Thirty-Day Delinquency Ratio........................ 45
Beneficial Owner............................................ 51
Book-Entry Certificates..................................... 51
Cede........................................................ 12
Cedel....................................................... 12, 51
Cedel Participants.......................................... 52
Certificate Account......................................... 37, 41
Certificate Balance......................................... 7, 44
Certificate Owners.......................................... 12, 51
Certificateholders.......................................... 51
Certificates................................................ ii, 1
Class A Pass-Through Rate................................... 37
Class B Certificates........................................ 1
Class B-1 Pass-Through Rate................................. 38
Class B-2 Pass-Through Rate................................. 2, 38
Class M Pass-Through Rate................................... 38
Closing Date................................................ 41
Code........................................................ 13
Collection Period........................................... 2
Contract Files.............................................. 38
Contract Pool............................................... ii, 2
Contract Schedule........................................... 38
Contracts................................................... ii, 2
Cooperative................................................. 53
Cumulative Realized Losses.................................. 45
Current Realized Loss Ratio................................. 45
Cut-off Date................................................ 1
Cut-off Date Pool Principal Balance......................... 1
Definitive Certificate...................................... 51
Determination Date.......................................... 42
Distribution Date........................................... ii, 2, 37
DOL......................................................... 57
DTC......................................................... 12, I-1
Due Date.................................................... 3
Eligible Institution........................................ 41
Eligible Investments........................................ 41
Eligible Substitute Contract................................ 41
ERISA....................................................... 13, 57
Euroclear................................................... 12, 51
Euroclear Operator.......................................... 53
Euroclear Participants...................................... 53
European Depositaries....................................... 51
Excess Contract Payment..................................... 42
Excess Interest............................................. 9, 46
</TABLE>
S-65
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE IN PROSPECTUS
SUPPLEMENT ON WHICH
TERM TERM IS DEFINED, S-
- ---- -------------------
<S> <C>
Exemption................................................... 57
FDIC........................................................ 41
Fiduciary................................................... 58
Financial Intermediary...................................... 51
First Distribution Date..................................... 2
Fitch....................................................... ii
Formula Principal Distribution Amount....................... 6, 43
Global Securities........................................... I-1
IML......................................................... 52
Initial Certificate Balance................................. 1
Initial Pass-Through Rate................................... 16
Interest Accrual Period..................................... 6, 43
Interest Distribution Amount................................ 6, 43
Liquidated Contract......................................... 7, 44
Liquidation Expenses........................................ 42
Liquidation Proceeds........................................ 7, 44
Manufactured Home........................................... 2
Minimum Termination Amount.................................. 49
Moody's..................................................... ii
Monthly Advance............................................. 10, 47
Monthly Servicing Fee....................................... 50
Net Contract Rate........................................... 2, 38
Net Liquidation Proceeds.................................... 9, 46
Nonrecoverable Advance...................................... 47
NT&SA Portfolio ............................................ 25
Offered Certificates........................................ ii, 1
OID......................................................... 12
Outstanding Amount Advanced................................. 47
Percentage Interest......................................... 37
Plans....................................................... 57
Pool Scheduled Principal Balance............................ 7, 44
Prepayment Model............................................ 31
Prospectus.................................................. ii
PTCE 95-60.................................................. 59
PTE......................................................... 57
Record Date................................................. 4, 37
Relevant Depositary......................................... 51
REMIC....................................................... iii, 12, 55
REMIC Provisions............................................ 55
Replaced Contract........................................... 41
Reserve Account............................................. 8, 44
Reserve Account Cap......................................... 8, 44
Reserve Account Draw Amount................................. 45
Reserve Account Trigger..................................... 45
Restricted Group............................................ 57
Rules....................................................... 51
S&P......................................................... 57
Scheduled Principal Balance................................. 7, 44
</TABLE>
S-66
<PAGE>
INDEX OF SIGNIFICANT DEFINITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE IN PROSPECTUS
SUPPLEMENT ON WHICH
TERM TERM IS DEFINED, S-
- ---- -------------------
<S> <C>
Scheduled Principal Reduction Amount........................ 7, 44
Seller...................................................... 1
Sellers..................................................... 1, 24
Senior Certificates......................................... ii, 1
Senior Certificate Balance.................................. 7, 44
Series 1998-1 Regular Certificates.......................... 1
Series 1998-1 Residual Certificates......................... 1
Servicer.................................................... ii, 1
SMMEA....................................................... 13, 62
SPFSC....................................................... 2
SPHSI....................................................... 24
Structuring Assumptions..................................... 32
Subordinate Certificate Balance............................. 7, 44
Subordinate Certificates.................................... ii, 1
Terms and Conditions........................................ 53
Total Regular Principal Amount.............................. 6, 44
Trust Fund.................................................. ii, 3
Trustee..................................................... 1, 50
Underwriters................................................ iii, 63
Underwriting Agreement...................................... 63
U.S. Person................................................. I-4
Value....................................................... 17
WAC......................................................... 30
WAM......................................................... 30
Weighted Average Net Contract Rate.......................... 2, 38
</TABLE>
S-67
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered BankAmerica
Manufactured Housing Contract Trust IV Senior/Subordinate Pass-Through
Certificates, Series 1998-1 (the "Global Securities") will be available only
in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel or
Euroclear. The Global Securities will be tradeable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-
payment basis through the respective Depositaries of Cedel and Euroclear (in
such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions noting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable conventional eurobonds, except that there
will be no temporary global security and no "lock-up" or restricted period.
Investors securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
manufactured housing contract pass-through certificates issues in same-day
funds.
I-1
<PAGE>
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment
date to and excluding the settlement date, on the basis of the actual number
of days in such accrual period and a year assumed to consist of 360 days. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will
then be made by the respective Depositary of the DTC Participant's account
against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Cedel Participant's or Euroclear Participant's account. The securities
credit will appear the next day (European time) and the cash debt will be
back-valued to, and the interest on the Global Securities will accrue from,
the value date (which would be the preceding day when settlement occurred in
New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Cedel or Euroclear cash debt will be valued instead as
of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each Cedel Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel Participants or Euroclear Participants through a Cedel
Participant or Euroclear Participant at least one business day prior to
settlement. In these cases Cedel or Euroclear will instruct the respective
Depositary, as appropriate, to deliver the Global Securities to the DTC
Participant's account against payment. Payment will include interest accrued
on the Global Securities from and including the last coupon
I-2
<PAGE>
payment to and excluding the settlement date on the basis of either the actual
number of days in such accrual period and a year assumed to consist of 360
days or a 360-day year of twelve 30-day months, as applicable to the related
class of Global Securities. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedel Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest (including original issue discount) on registered debt issued by
U.S. Persons, unless, under currently applicable laws, (i) each clearing
system, bank or other financial institution that holds customers' securities
in the ordinary course of its trade or business in the chain of intermediaries
between such beneficial owner and the U.S. entity required to withhold tax
complies with applicable certification requirements and (ii) such beneficial
owner takes one of the following steps to obtain an exemption or reduced tax
rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
I-3
<PAGE>
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons that are Certificate Owners residing in a
country that has a tax treaty with the United States can obtain an exemption
or reduced tax rate (depending on the treaty terms) by filing Form 1001
(Ownership, Exemption or Reduced Rate Certificate). If the treaty provides
only for a reduced rate, withholding tax will be imposed at that rate unless
the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificate Owner or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes,
regardless of its source. This summary does not deal with all aspects of U.S.
Federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities. Further, the U.S. Treasury Department has recently finalized new
regulations that will revise some aspects of the current system for
withholding on amounts paid to foreign persons. Under these regulations,
interest or OID paid to a nonresident alien would continue to be exempt from
U.S. withholding taxes (including backup withholding) provided that the holder
complies with the new certification procedures.
I-4
<PAGE>
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 America" or
"Seller") or by Bank of America, FSB ("Bank of America, FSB" or
(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 86 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 13 AND IN THE PROSPECTUS
SUPPLEMENT AT PAGE S-15.
---------------
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 MARCH 16, 1998.
<PAGE>
"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.
<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.
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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.
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SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus 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 86 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
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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 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.
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<PAGE>
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
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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 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
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<PAGE>
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.
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
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<PAGE>
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
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<PAGE>
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 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."
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<PAGE>
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--
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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 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
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<PAGE>
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.
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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
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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
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
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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
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,
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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 (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.
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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 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
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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.
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,
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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
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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.
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
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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. 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.
21
<PAGE>
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 "--
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
22
<PAGE>
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 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
23
<PAGE>
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 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
24
<PAGE>
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:
Contracts Originated or Purchased on an Individual Basis (Dollars in
Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Principal Balance of
Contracts
Purchased(1)(2)........ $758,757 $873,227 $1,248,346 $2,586,896 $2,990,081
Number of Contracts Pur-
chased (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 Con-
tract Rate (2)......... 11.55% 10.03% 10.68% 10.04% 9.52%
Number of Regional Of-
fices (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, 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
25
<PAGE>
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:
SIZE OF SERVICED PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unpaid Principal Balance
of Contracts Being
Serviced............... $4,028,114 $4,337,902 $4,877,858 $6,739,285 $8,660,898
Average Unpaid Principal
Balance................ $ 18.6 $ 19.0 $ 19.8 $ 22.2 $ 24.4
Number of Contracts Be-
ing 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):
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
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>
- --------
(1) Excludes contracts already in repossession.
26
<PAGE>
(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:
LOAN LOSS/REPOSSESSION EXPERIENCE (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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):
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 Reposses-
sion................... 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.
27
<PAGE>
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
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 2.26% 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
28
<PAGE>
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 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
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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.
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
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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 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.
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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.
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
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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 portion of the
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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
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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 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
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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 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.
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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.
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
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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)
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
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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.
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
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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.)
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
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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
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modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (i) reduce in any manner the amount 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
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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 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
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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.
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
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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.
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."
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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 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.
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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
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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" 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
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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.
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
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"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 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
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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 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
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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 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,
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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.
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
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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.
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.
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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
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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. 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
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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 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
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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.
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 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.
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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
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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 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
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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 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.
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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 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.
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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
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
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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 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
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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 (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
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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.
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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 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
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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 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-
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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 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
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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.
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.
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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."
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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 (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.
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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.
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 regulations.
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 could
result in a prohibited transaction under ERISA Sections 406 and 407 and be
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 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
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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 PTCE 83-1 and the exceptions to the DOL regulations 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 an
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
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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.
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
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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 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;
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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.
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
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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 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
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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.
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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.
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
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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 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.
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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 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,
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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 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
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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.
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INDEX OF SIGNIFICANT DEFINITIONS
<TABLE>
<CAPTION>
PAGE IN PROSPECTUS
ON WHICH TERM IS
DEFINED
------------------
<S> <C>
1986 Act..................................................... 50
1997 Act..................................................... 57
adjusted issue price......................................... 54, 64
Agreement.................................................... 5
Bank of America, FSB......................................... i
Bank of America.............................................. i, 3
Bank of America FSB.......................................... i, ii
Bulk Sellers................................................. 16
cash-flow investments........................................ 49
Cede......................................................... 2, 10, 36
Certificate Account.......................................... 31
Certificate Owners........................................... 2, 10, 36
Certificateholders........................................... 2, 47
Certificate Balance.......................................... 6
Certificates................................................. i
Class........................................................ i, 5
Code......................................................... 11
Collection Period............................................ 7, 34
Commission................................................... 1
Contract..................................................... 3
Contract Files............................................... 32
Contract Pool................................................ ii, 3
Contract Rate................................................ 4
Contract Schedule............................................ 32
Contracts.................................................... ii, 3
contracts.................................................... 3
Credit Facility.............................................. 46
Credit Facility Provider..................................... 46
Cut-off Date................................................. 4
daily portion................................................ 53
Definitive Certificates...................................... 31
Disqualified Organizations................................... 50, 65
Distribution Date............................................ 6
DOL.......................................................... 74
DTC.......................................................... 2, 10, 36
DTC Rules.................................................... 36
Due Date..................................................... 17
ERISA........................................................ 11, 74
Excess Interest.............................................. 34
Exchange Act................................................. 1
FIRREA....................................................... 84
foreclosure property......................................... 50
Foreign Holder............................................... 58
Fractional Interests......................................... 41
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
PAGE IN PROSPECTUS
ON WHICH TERM IS
DEFINED
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<S> <C>
Global Certificate........................................... 10, 36
Grantor Trust Fund........................................... 47
holder....................................................... 47
Indirect Participants........................................ 36
Issue Premium................................................ 61
Junior Certificates.......................................... 43
Kelley Blue Book............................................. 24
Land Home Contract........................................... 3, 18
Land-in-Lieu Contract........................................ 3, 18
Liquidity Facility........................................... 46
Liquidity Facility Provider.................................. 46
long-term federal rate....................................... 64
Manufactured Home............................................ 3
manufactured homes........................................... 76
manufactured housing contracts............................... 13
mezzanine.................................................... 45
Minimum Termination Amount................................... 37
Monthly Servicing Fee........................................ 39
Mortgage..................................................... 19
NADA......................................................... 24
NCUA......................................................... 73
noneconomic residual interest................................ 66
Non-REMIC Certificates....................................... 68
notice....................................................... 40
Obligor...................................................... 17
OID Regulations.............................................. 47
Original Holder.............................................. 60
Paticipants.................................................. 36
Parties in Interest.......................................... 74
pass-through interest holder................................. 58
Pass-Through Rate............................................ 8, 35
Percentage Interest.......................................... 31
permitted investments........................................ 49
Plans........................................................ 74
Policy Statement............................................. 73
Pool Principal Balance....................................... 44
Pool Scheduled Principal Balances............................ 45
Premium Non-REMIC Certificates............................... 69
Prepayment Model............................................. 30
PTE 83-1..................................................... 74
qualified mortgage........................................... 49
qualified replacement mortgage............................... 49
qualified reserve assets..................................... 50
Rate Period.................................................. 35
Rating....................................................... 45
Registration Statement....................................... 1
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
PAGE IN PROSPECTUS
ON WHICH TERM IS
DEFINED
------------------
<S> <C>
Regular Certificates......................................... 48
regular interests............................................ 48
REMIC........................................................ ii, 47, 48
REMIC Certificates........................................... 47
REMIC Provisions............................................. 47
REMIC Regulations............................................ 47
Relief Act................................................... 15, 81
Repurchase Date.............................................. 37
Reserve Fund................................................. 45
Residual Certificates........................................ 48
Residual Interest............................................ 9, 35, 48
Scheduled Payment............................................ 17
Securities Act............................................... i
Seller....................................................... i, ii
Sellers...................................................... ii
Senior Certificates.......................................... 43, 64
Series....................................................... i
Service...................................................... 47, 49
Servicer..................................................... ii, 3
single-class REMIC........................................... 58
SMMEA........................................................ 11, 73
SPFSC........................................................ ii, 3
Special Principal Distributions.............................. 8, 34
SPHSI........................................................ 20
Spread Account............................................... 45
Staged-funding............................................... 19
Startup Day.................................................. 49
Step-Up Rate................................................. 17
Step-Up Rate Contracts....................................... 17
Subordinate Certificates..................................... 43
Tax-Exempt Investor.......................................... 72
Termination Auction.......................................... 38
Title V...................................................... 82
Total Regular Principal Amount............................... 6, 34
Trust Fund................................................... i, 5
Trustee...................................................... 5
UBTI......................................................... 72
UCC.......................................................... 14
Underwriters................................................. 83
Weighted Average Contract Rate............................... 4, 19
</TABLE>
88
<PAGE>
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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 THE SELLERS OR EITHER 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Terms of Offered Certificates............................................. S-1
Risk Factors.............................................................. S-15
Recent Developments....................................................... S-16
The Contract Pool......................................................... S-16
The Sellers............................................................... S-24
Prepayment and Yield Considerations....................................... S-27
Description of the Certificates........................................... S-37
Certain Federal Income Tax Consequences................................... S-55
ERISA Considerations...................................................... S-57
Certain Legal Aspects of the Contracts.................................... S-59
Ratings................................................................... S-62
Legal Investment.......................................................... S-62
Method of Distribution.................................................... S-63
Use of Proceeds........................................................... S-64
Legal Matters............................................................. S-64
Index of Significant Definitions.......................................... S-65
PROSPECTUS
Incorporation of Certain Documents by Reference........................... 1
Additional Information.................................................... 1
Reports to Certificateholders............................................. 2
Summary of Terms.......................................................... 3
Risk Factors.............................................................. 13
The Contract Pools........................................................ 16
The Sellers............................................................... 20
Bank of America, FSB's Management's Discussion and Analysis of
Delinquency, Repossession and Loan Loss Experience....................... 28
Prepayment and Yield Considerations....................................... 28
Description of the Certificates........................................... 31
Credit and Liquidity Enhancement.......................................... 43
Certain Federal Income Tax Consequences................................... 47
Other Tax Consequences.................................................... 71
Restrictions on Transfer of REMIC Residual Certificates................... 72
Tax-Exempt Investors...................................................... 72
Legal Investment.......................................................... 73
ERISA Considerations...................................................... 74
Certain Legal Aspects of the Contracts.................................... 75
Ratings................................................................... 83
Method of Distribution.................................................... 83
Use of Proceeds........................................................... 84
Legal Matters............................................................. 84
Other Considerations...................................................... 84
Index of Significant Definitions.......................................... 86
</TABLE>
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BANKAMERICA MANUFACTURED HOUSING CONTRACT TRUST IV
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, SELLER
BANK OF AMERICA, FSB, ACTING THROUGH
ITS DIVISION, BANKAMERICA HOUSING
SERVICES, SELLER AND SERVICER
$734,260,000* 6.47% CLASS A
$67,158,000* 6.94%** CLASS M
$53,727,000* 7.81%** CLASS B-1
*NUMBERS ARE APPROXIMATE
**SUBJECT TO A MAXIMUM RATE EQUAL TO THE WEIGHTED AVERAGE NET CONTRACT RATE,
AS DEFINED HEREIN
SENIOR/SUBORDINATE
PASS-THROUGH CERTIFICATES, SERIES 1998-1
---------------
PROSPECTUS SUPPLEMENT
---------------
BANCAMERICA ROBERTSON STEPHENS
MORGAN STANLEY DEAN WITTER
MARCH 24, 1998
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