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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1994
REGISTRATION NO. 33-53881
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GREEN TREE FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MINNESOTA 41-1263905
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DREW S. BACKSTRAND
300 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CHARLES F. SAWYER CATHY M. KAPLAN
DORSEY & WHITNEY BROWN & WOOD
220 SOUTH SIXTH STREET ONE WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
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Pursuant to Rule 429, the Prospectus contained in this Registration
Statement relates to and constitutes Post-Effective Amendment No. 3 to
Registration Statement No. 33-50527, which first became effective on October
6, 1993.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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GREEN TREE FINANCIAL CORPORATION, SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
Manufactured Housing Contract Pass-Through Certificates ("Certificates") of
one or more series (each, a "Series") may be 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 evidence specified interests in separate pools of assets
(each a "Trust Fund"), which will consist of manufactured housing installment
sales contracts and installment loan agreements (the "Contracts") and/or
securities backed by other pools of manufactured housing contracts
("Manufactured Housing Securities"), both as more particularly described
herein, and of certain other property conveyed by Green Tree Financial
Corporation (the "Company"). The Contracts and/or Manufactured Housing
Securities, if any, included in the Trust Fund for any Series will be
described in the related Prospectus Supplement. Except as otherwise specified
in the related Prospectus Supplement, the Contracts will have been originated
in the ordinary course of business by the Company. Except to the extent
otherwise specified in the related Prospectus Supplement, the Manufactured
Housing Securities included in the Trust Fund for any Series will evidence
interests in, or indebtedness secured by, pools of manufactured housing
contracts originated and serviced by the Company. Specific information
regarding the size and composition of the pool of Contracts included in the
Trust Fund for any Series, and the size and composition of the pool of
manufactured housing contracts relating to each Manufactured Housing Security
included in the Trust Fund for any Series, will be set forth in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, a
pool insurance policy, letter of credit, surety bond, guarantee of the
Company, cash reserve fund, or other form of credit enhancement, or any
combination thereof, may be provided with respect to a Series of Certificates,
or one or more Classes of such Series. The Company will act as Servicer (in
such capacity referred to herein as the "Servicer") of the Contracts.
Each Series of Certificates may include one or more senior Classes of
Certificates (the "Senior Certificates") and one or more subordinate Classes
of Certificates (the "Subordinated Certificates"). A Series of
Senior/Subordinated Certificates may include one or more Classes ("Mezzanine
Certificates") which are subordinated to one or more Classes of Certificates
and are senior to one or more Classes of Certificates. Certificates of a
Series may be divided into two or more Classes which (i) represent interests
in specified percentages (which may be 0%) of principal or interest, or both,
in distributions on the pool of Contracts relating to such Series, as
specified in the related Prospectus Supplement, and/or (ii) are entitled to
receive distributions in respect of principal before or after specified
principal distributions have been made on one or more other Classes within
such Series, or on a planned or targeted amortization schedule or upon the
occurrence of other specified events. Each Prospectus Supplement will describe
the Series and Class or Classes of Certificates offered thereby.
The Prospectus Supplement will set forth the Remittance Rate that will be
paid to Certificateholders of each Class of such Series. Such Remittance Rate
may be fixed, variable or adjustable, as specified in the related Prospectus
Supplement.
Except as otherwise specified in the related Prospectus Supplement, the only
obligations of the Company with respect to a Series of Certificates will be
pursuant to certain limited representations and warranties. Except for certain
representations and warranties relating to the Contracts and certain other
exceptions, the Servicer's obligations with respect to the Certificates are
limited to its contractual servicing obligations. If so specified in the
related Prospectus Supplement, the Servicer may be obligated, under certain
terms and conditions, to advance the amount of any delinquent payments of
principal and interest on the Contracts during the immediately preceding Due
Period (as defined herein), but only to the extent the Servicer determines
such advances are recoverable from future payments and collections on the
Contracts or otherwise. See "Description of the Certificates--Advances" and
"--Distributions on Certificates."
There will have been no public market for any Certificates sold hereunder
prior to the offering thereof and there is no assurance that any such market
will develop. The Underwriters named in the Prospectus Supplement relating to
a Series may from time to time buy and sell Certificates of such Series, but
there can be no assurance that an active secondary market therefor will
develop, and there is no assurance that any such market, if established, will
continue.
The Company may elect to cause the Trust Fund relating to a Series of
Certificates to be treated as a "Real Estate Mortgage Investment Conduit" (a
"REMIC") for federal income tax purposes. See "Certain Federal Income Tax
Consequences" herein.
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
COMPANY OR ANY OF ITS AFFILIATES, EXCEPT TO THE LIMITED EXTENT DESCRIBED
HEREIN. THE CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY, OR (EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT) BY ANY OTHER PERSON OR ENTITY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
The date of this Prospectus is September 16, 1994.
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REPORTS TO CERTIFICATEHOLDERS
The Company will cause to be provided to the holders of the Certificates of
each Series certain monthly and annual reports concerning such Certificates and
the related Trust Fund as further described in the related Prospectus
Supplement under "Description of the Certificates--Reports to
Certificateholders."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Information concerning the Company can be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 500 West Madison Street, Chicago, Illinois 60661-2511 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's Common Stock and rights to purchase preferred shares are listed on
the New York Stock Exchange ("NYSE") and on the Pacific Stock Exchange ("PSE").
The Company's Senior Subordinated Debentures are also listed on the NYSE and
the PSE. The Company's Senior Subordinated Notes are listed on the NYSE.
Reports and other information concerning the Company can be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York and the Pacific Stock Exchange, Inc., 115 Sansome Street, San Francisco,
California.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of certain material terms of certain of
the documents referred to herein and therein, but neither contains nor will
contain all of the information set forth in the Registration Statement of which
this Prospectus is a part (the "Registration Statement"). For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Company has filed with the Commission under the Securities
Act of 1933, as amended. Statements contained in this Prospectus and any
Prospectus Supplement describing a provision of any contract or other document
referred to are summaries, and if this Prospectus or such Prospectus Supplement
indicates that such contract or other document has been filed as an exhibit to
the Registration Statement, reference is made to the copy of the contract or
other document filed as an exhibit, each such statement being qualified in all
respects by reference to the actual provision being described. Copies of the
Registration Statement can be inspected and, upon payment of the Commission's
prescribed charges, copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at certain of its Regional Offices located as follows: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048, and
Chicago Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
With respect to any Class of Certificates that is supported by a guarantee of
the Company, the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 which has been filed with the Commission is hereby
incorporated by reference in this Prospectus and the related Prospectus
Supplement.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the
date of this Prospectus and prior to the termination of the offering of the
Certificates shall be deemed to be incorporated by reference into this
Prospectus and the Prospectus Supplement relating to a Class of Certificates
that is supported by a guarantee of the Company, and to be a part thereof from
the respective dates of filing of such documents. Any statement contained
herein
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or in a document all or any portion of which is incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this Prospectus
is delivered, upon the written or oral request of such person, a copy of any or
all of the foregoing documents incorporated herein by reference (other than
certain exhibits to such documents). Requests for such copies should be
directed to Drew S. Backstrand, Vice President and General Counsel, 1100
Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639,
telephone number (612) 293-3400.
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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 in the accompanying
Prospectus Supplement. Capitalized terms used herein shall have the respective
meanings assigned them in the "Glossary."
Title of Securities.......... Manufactured Housing Contract Pass-Through Cer-
tificates (Issuable in Series) (the "Certifi-
cates").
Seller....................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Company").
Servicer..................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Servicer").
Special Considerations....... Certain special considerations are particularly
relevant to a decision to invest in any Certif-
icates sold hereunder. See "Special Considera-
tions" herein.
Securities Offered........... Certificates evidencing interests in pools of
Contracts and/or Manufactured Housing Securi-
ties (each as defined herein) may be issued
from time to time in Series pursuant to sepa-
rate Pooling and Servicing Agreements (each, an
"Agreement") between the Company, as Seller and
Servicer, and the Trustee specified in the re-
lated Prospectus Supplement for such Series of
Certificates (the "Trustee").
The Trust Fund............... The Trust Fund for any Series of Certificates
will include a Contract Pool and/or Manufac-
tured Housing Securities (each as described be-
low), and certain other property as described
herein under "The Trust Fund."
The Contracts................ The Contracts included in the Trust Fund for a
Series of Certificates (the "Contract Pool")
will be fixed or variable rate Contracts. Such
Contracts, as specified in the related Prospec-
tus Supplement, will consist of manufactured
housing installment sales contracts and in-
stallment loan agreements and will be conven-
tional contracts or contracts insured by the
Federal Housing Administration ("FHA") or par-
tially guaranteed by the Veterans Administra-
tion ("VA"). Each Contract will be secured by a
new or used Manufactured Home (as defined here-
in) or, in certain cases, by a mortgage or deed
of trust on the real estate to which the manu-
factured home is deemed permanently affixed (a
"Land-and-Home Contract").
The Prospectus Supplement for each Series will
provide information with respect to (i) the ag-
gregate principal balance of the Contracts com-
prising the Contract Pool, as of the date spec-
ified in the Prospectus Supplement (the "Cut-
off Date"); (ii) the weighted average contrac-
tual rate of interest (the "Contract Rate") on
the Contracts; (iii) the weighted average term
to scheduled maturity as of origination; (iv)
the weighted average term to scheduled maturity
as of the Cut-off Date and the range of terms
to maturity; (v) the percentage amount of Con-
tracts secured by new or used Manufactured
Homes; (vi)
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the average outstanding principal balance of
the Contracts as of the Cut-off Date; (vii) the
range of Loan-to-Value Ratios; (viii) the geo-
graphic distribution of Obligors; and (ix) the
types of Manufactured Homes securing the Con-
tracts. In addition, if so specified in the re-
lated Prospectus Supplement, additional Con-
tracts may be purchased from the Company during
the Pre-Funding Period specified in the related
Prospectus Supplement, from funds on deposit in
a Pre-Funding Account.
Except as otherwise specified in the related
Prospectus Sup-plement, the Contracts will have
been originated by the Company on an individual
basis in the ordinary course of its business.
Manufactured Housing
Securities............. The Manufactured Housing Securities, if any, in-
cluded in the Trust Fund for a Series of Cer-
tificates will be securities evidencing benefi-
cial interests in, or indebtedness secured by,
pools of manufactured housing contracts, which
contracts are being serviced by the Company on
behalf of the trust that issued such Manufac-
tured Housing Securities. Such Manufactured
Housing Securities will have previously been
offered and distributed to the public pursuant
to an effective registration statement or are
being registered under the Securities Act of
1933, as amended (the "Act") in connection with
the offering of a Series of Certificates. See
"The Trust Fund--Manufactured Housing Securi-
ties." Unless otherwise specified in the Pro-
spectus Supplement relating to a Series of Cer-
tificates, payments on any Manufactured Housing
Securities included in a Trust Fund will be
distributed directly to the Trustee as the reg-
istered owner of such Manufactured Housing Se-
curities.
If the Trust Fund for a Series includes any Man-
ufactured Housing Securities, the related Pro-
spectus Supplement will specify, to the extent
relevant, (i) the outstanding principal amount
and remittance rate of such Manufactured Hous-
ing Security; (ii) certain characteristics of
the manufactured housing contracts securing
such Manufactured Housing Security; (iii) the
expected maturity and final maturity of such
Manufactured Housing Security; and (iv) a de-
scription of the structure of the transaction
giving rise to such Manufactured Housing Secu-
rity, including a description of any credit en-
hancement relating to such Manufactured Housing
Security.
Description of Certificates.. The Certificates of each Series may be issued in
one or more Classes or subclasses as and on the
terms specified in the related Prospectus Sup-
plement, each of which will evidence the inter-
est specified in the related Prospectus Supple-
ment in the Trust Fund for such Series. For
convenience of description, any reference in
this Prospectus to a "Class" of Certificates
includes a reference to any subclasses of such
Class. If so specified in a Prospectus Supple-
ment, a Series of Certificates may include one
or more Classes which (i) are entitled to re-
ceive distributions only in respect of princi-
pal ("Principal Only Certifi
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cates"), interest ("Interest Only Certifi-
cates") or any combination thereof, or in spec-
ified proportions in respect of such payments,
and/or (ii) are entitled to receive distribu-
tions in respect of principal before or after
specified principal distributions have been
made on one or more other Classes within such
Series ("Fast Pay/Slow Pay Certificates"), or
on a planned amortization schedule ("PAC Cer-
tificates") or targeted amortization schedule
("TAC Certificates") or upon the occurrence of
other specified events. See "Description of
Certificates" herein. The Prospectus Supplement
will set forth the rate at which interest will
be paid to Certificateholders of each Class of
a given Series (the "Pass-Through Rate"). Such
Pass-Through Rate may be fixed, variable or ad-
justable, as specified in the related Prospec-
tus Supplement.
Each Series of Certificates may include one or
more Classes ("Subordinated Certificates")
which are subordinated in right of distribution
to one or more other Classes ("Senior Certifi-
cates"). Certificates of a Series which in-
cludes Senior and Sub- ordinated Certificates
are referred to herein collectively as
"Senior/Subordinated Certificates." A Series of
Senior/Subordinated Certificates may include
one or more Classes ("Mezzanine Certificates")
which are subordinated to one or more Classes
of Certificates and are senior to one or more
Classes of Certificates.
The Certificates will be issuable in fully reg-
istered form in the authorized denominations
specified in the related Prospectus Supplement.
See "Description of the Certificates." The Sub-
ordinated Certificates of a Series will be sub-
ordinated in certain respects to the Senior
Certificates of the same Series. If a Series of
Certificates contains more than one Class of
Subordinated Certificates, distributions and
losses will be allocated among such Classes in
the manner specified in the related Prospectus
Supplement. The Certificates will not be guar-
anteed or insured by any government agency or,
unless otherwise specified in the related Pro-
spectus Supplement, other insurer and, except
as described below and in the related Prospec-
tus Supplement, the Contracts will not be guar-
anteed or insured by any government agency or
other insurer.
Subordinated Certificates.... One or more Classes of any Series may be Subor-
dinated Certificates, as specified in the re-
lated Prospectus Supplement. The rights of the
Subordinated Certificateholders to receive any
or a specified portion of distributions with
respect to the Contracts and/or Manufactured
Housing Securities will be subordinated to the
rights of Senior Certificateholders to the ex-
tent and in the manner specified in the related
Prospectus Supplement. If a Series of Certifi-
cates contains more than one Class of Subordi-
nated Certificates, distributions and losses
will be allocated among such classes in the
manner specified in the related Prospectus Sup-
plement. The rights of the Subordi
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nated Certificateholders, to the extent not
subordinated, may be on a parity with those Se-
nior Certificateholders. This subordination is
intended to enhance the likelihood of regular
receipt by Senior Certificateholders of the
full amount of scheduled monthly payments of
principal and interest due them and to protect
the Senior Certificateholders against losses.
If so specified in the applicable Prospectus
Supplement, Mezzanine Certificates or other
Classes of Subordinated Certificates may be en-
titled to the benefits of other forms of credit
enhancement and may, if rated in one of the
four highest rating categories by a nationally
recognized statistical rating organization, be
offered pursuant to this Prospectus and such
Prospectus Supplement.
Credit Enhancement........... As an alternative, or in addition, to the credit
enhancement afforded by subordination of the
Subordinated Certificates, credit enhancement
with respect to a Series of Certificates may be
provided by pool insurance, letters of credit,
surety bonds, a guarantee of the Company, cash
reserve funds or other forms of enhancement ac-
ceptable to each nationally recognized rating
agency rating a Series of Certificates, in each
case as described in the related Prospectus
Supplement.
Interest..................... Except as otherwise set forth in the related
Prospectus Supplement, interest on the Certifi-
cates will be paid on the dates specified in
the related Prospectus Supplement (each a "Re-
mittance Date"), commencing on the date speci-
fied in the related Prospectus Supplement. The
related Prospectus Supplement will set forth
for each Class of Certificates the interest
rate, if any, for each such Class or the method
of determining such interest rate. See "Yield
Considerations" and "Description of the Certif-
icates." As specified in the related Prospectus
Supplement, Classes of a Series of Certificates
may be entitled to receive no interest or in-
terest which is not proportionate to the prin-
cipal allocable to such Certificates.
Principal (Including
Prepayments)................ Except as otherwise set forth in the related
Prospectus Supple-ment, principal on each Con-
tract or Manufactured Housing Security, includ-
ing any principal prepayments, will be passed
through on each Remittance Date. See "Maturity
and Prepayment Considerations" and "Description
of the Certificates." If so specified in the
Prospectus Supplement with respect to a Class
of a Series having a Stated Balance, such dis-
tributions may be made in reduction of the
Stated Balance, in an amount equal to the Cer-
tificate Remittance Amount or such other
amounts as are specified in the related Pro-
spectus Supplement. See "Maturity and Prepay-
ment Considerations" and "Description of the
Certificates--Distributions on Certificates"
and "--Payments on Contracts and Manufactured
Housing Securities."
Optional Termination......... If so specified in the related Prospectus Sup-
plement, each of the Company or the Servicer
may at its option repurchase all Contracts
and/or Manufactured Housing Securities included
in the
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Trust Fund for a Series of Certificates remain-
ing outstanding at such time and under the cir-
cumstances specified in such Prospectus Supple-
ment. Unless otherwise provided in the related
Prospectus Supplement, the repurchase price
will equal the principal amount of such Con-
tracts and Manufactured Housing Securities plus
accrued interest from the first day of the
month of repurchase to the first day of the
next succeeding month at the Contract Rates
borne by such Contracts and the remittance
rates borne by such Manufactured Housing Secu-
rities. See "Description of the Certificates--
Termination of the Agreement."
Global Certificates.......... If so specified in the related Prospectus Sup-
plement, 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 cer-
tificates (each, a "Global Certificate") to be
held by a depositary (each, a "Depositary") on
behalf of the beneficial owners of the Certifi-
cates, as described herein under "Description
of the Certificates--Global Certificates." The
description of the Certificates in this Pro-
spectus assumes that the Certificates of a Se-
ries will not be issued in the form of Global
Certificates. If some or all of the Certifi-
cates of a Series are issued in the form of one
or more Global Certificates, the term "Global
Certificateholder," as used herein, will refer
to such beneficial owners of such Certificates,
and the rights of such Certificateholders will
be limited as described herein under "Descrip-
tion of the Certificates--Global Certificates."
Representations and
Warranties of the Company... As a condition to the Company's conveyance of
any Contract Pool to the Trust Fund, the Com-
pany will be required to make certain represen-
tations and warranties in the related Agreement
regarding the Contracts. Under the terms of the
Agreement, if the Company becomes aware of a
breach of any such representation or warranty
that materially adversely affects the Trust
Fund's interest in any Contract or receives
written notice of such a breach from the
Trustee or the Servicer, then the Company will
be obligated either to cure such breach or to
repurchase or substitute for the affected Con-
tract, in each case under the conditions fur-
ther described herein. See "Description of the
Certificates--Conveyance of Contracts and Manu-
factured Housing Securities" herein. The Com-
pany previously will have made similar repre-
sentations and warranties with respect to the
manufactured housing contracts securing any
Manufactured Housing Securities included in a
Trust Fund.
Federal Income Tax
Considerations.............. If an election (a "REMIC Election") is made to
treat the Trust Fund represented by a series of
Certificates or a segregated portion thereof as
a "real estate mortgage investment conduit" (a
"REMIC") under the Internal Revenue Code of
1986, as amended (the "Code"), each class of
Certificates which are offered hereby may con-
stitute "regular interests" or "residual inter-
ests" in such REMIC under the Code, with the
tax consequences under the Code described
herein and in such Pro-
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spectus Supplement. If so specified in the ap-
plicable Prospectus Supplement, a Class of Cer-
tificates offered hereby may represent inter-
ests in a "two-tier" REMIC, but all interests
in the first and second tier REMIC will be cre-
ated under the same Pooling and Servicing
Agreement. See "Certain Federal Income Tax Con-
sequences--REMIC Series."
If a REMIC Election is not made with respect to
a Series of Certificates, the Trust Fund repre-
sented by such Certificates will be treated as
a grantor trust for federal income tax purposes
and will not be classified as an association
taxable as a corporation. In such event, each
Certificateholder will be treated as the owner
of an undivided pro rata interest in income and
corpus attributable to the related Contract
Pool and any other assets held by the Trust
Fund and will be considered the equitable owner
of an undivided interest in the Contracts in-
cluded in such Contract Pool. See "Certain Fed-
eral Income Tax Consequences--Non-REMIC Se-
ries."
ERISA Considerations......... A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or the Code,
should review carefully with its legal advisors
whether the purchase or holding of Certificates
could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the
Code. See "ERISA Considerations" herein.
Legal Investment............. Unless otherwise indicated in the applicable
Prospectus Supplement, any Certificates offered
hereby that are rated by at least one nation-
ally recognized statistical rating organization
in one of its two highest rating categories
will constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement
Act of 1984, as amended, and as such (unless
otherwise indicated in the applicable Prospec-
tus Supplement) will be "legal investments" for
certain types of institutional investors to the
extent provided in that Act. Some Classes of
Certificates offered hereby may not be rated in
one of the two highest rating categories and
thus would not constitute "mortgage related se-
curities." See "Legal Investment" herein.
Ratings...................... It is a condition precedent to the issuance of
any Class of Certificates sold under this Pro-
spectus that they be rated in one of the four
highest rating categories (within which there
may be sub-categories or gradations indicating
relative standing) of at least one nationally
recognized statistical rating organization. A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the as-
signing rating agency. See "Ratings" herein.
9
<PAGE>
SPECIAL CONSIDERATIONS
Prospective investors in Certificates should consider, among other things,
the following factors in connection with the purchase of the Certificates:
1. General. An investment in Certificates may be affected by, among other
things, a downturn in regional or local economic conditions. These regional
or local economic conditions are often volatile, and historically have
affected the delinquency, loan loss and repossession experience of
manufactured housing contracts. Moreover, regardless of its location,
manufactured housing generally depreciates in value. Consequently, the
market value of certain Manufactured Homes could be or become lower than
the outstanding principal balances of the Contracts that they secure. To
the extent that losses on the Contracts are not covered by the
subordination of other Classes of Certificates, if any, or by any other
form of credit enhancement, Holders of the Certificates of a Series
evidencing interests in such Contracts will bear all risk of loss resulting
from default by obligors and will have to look primarily to the value of
the Manufactured Homes for recovery of the outstanding principal and unpaid
interest on the defaulted Contracts. See "The Trust Fund--The Contract
Pools."
2. Limited Obligations. The Certificates will not represent an interest
in or obligation of the Company, except to the limited extent described
herein. The Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, any Underwriter or its affiliates,
the Servicer or (except as otherwise specified in the related Prospectus
Supplement) by the Company.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates of any Series, or, if it does develop,
that it will provide the holders of any of the Certificates with liquidity
of investment or that it will remain for the term of any Series of
Certificates.
4. Prepayment Considerations. The prepayment experience on the related
Contracts will affect the average life of each Class of Certificates.
Prepayments on the Contracts (which include both voluntary prepayments and
liquidations following default) may be influenced by a variety of economic,
geographic, social and other factors, including repossessions, aging,
seasonality, market interest rates, changes in housing needs, job transfers
and unemployment. In the event a Contract is prepaid in full, interest on
such Contract will accrue only to the date of prepayment. If the
Certificates of any Series are purchased at a discount and the purchaser
calculates its anticipated yield to maturity based on an assumed rate of
payment of principal on such Certificates that is faster than the rate
actually realized, such purchaser's actual yield to maturity will be lower
than the yield so calculated by such purchaser. If a Trust Fund for any
Series includes any Manufactured Housing Securities, the rate of payment of
principal on any such Manufactured Housing Security will be affected if the
Company exercises its right to repurchase the contracts related to such
Manufactured Housing Security when the remaining aggregate principal
balance of such contracts is less than a specified percentage (usually 10%)
of their principal balance on the related cut-off date. See "Maturity and
Prepayment Considerations."
5. Security Interests and Certain Other Aspects of the Contracts. Each
Contract will be secured by a security interest in a Manufactured Home (or,
in the case of a Land-and-Home Contract, by a mortgage or deed of trust on
the real estate to which the Manufactured Home is permanently affixed).
Perfection of security interests in the Manufactured Homes and enforcement
of rights to realize upon the value of the Manufactured Homes as collateral
for the Contracts are subject to a number of federal and state laws,
including the Uniform Commercial Code (the "UCC") as adopted in each state
and, in most states, certificate of title statutes, but generally not state
real estate laws. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. Because of the expense and
administrative inconvenience involved, the Company will not amend any
certificate of title to name the Trustee as the lienholder and will not
deliver any certificate of title to the Trustee or note thereon the
Trustee's interest. Consequently, in some states in the absence of such an
amendment to the certificate of title the assignment to the Trustee of the
security interest in the Manufactured Home may not be effective or such
security interest may not be perfected and in the absence of such notation
or delivery to the Trustee the assignment of the security interest in the
Manufactured Home to the Trustee may not be
10
<PAGE>
effective against creditors of the Company or a trustee in bankruptcy of
the Company. Because of the expense and administrative inconvenience
involved, the Company will not record the assignment to the Trustee of the
mortgage or deed of trust securing each Land-and-Home Contract.
Consequently, in some states in the absence of such recordation the
assignment to the Trustee of the mortgage or deed of trust securing a Land-
and-Home Contract may not be effective, and in the absence of such
recordation the assignment of the mortgage or deed of trust to the Trustee
may not be effective against creditors of or purchasers from the Company or
a trustee in bankruptcy of the Company. In addition, numerous federal and
state consumer protection laws impose requirements on lenders under
installment sales contracts and installment loan agreements such as the
Contracts, 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 would apply to the Trust Fund as assignee of the
Contracts. From time to time, the Company has been involved in litigation
under consumer or debtor protection laws, some of which have been class
actions. Pursuant to the Agreement, the Company will represent and warrant
that each Contract complies with all requirements of law and will provide
certain warranties relating to the validity, perfection and priority of the
security interest in each Manufactured Home securing a Contract. A breach
by the Company of any such warranty that materially adversely affects any
Contract would require the Company to repurchase, or at its option
substitute another manufactured housing contract for, such Contract unless
such breach is cured within 90 days. If the Company does not honor its
repurchase obligation in respect of a Contract and such Contract were to
become defaulted, recovery of amounts due on such Contract would be
dependent on repossession and resale of the Manufactured Home securing such
Contract. Certain other factors may limit the ability of the
Certificateholders to realize upon the Manufactured Homes or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of
the Contracts" herein.
6. Certain Matters Relating to Insolvency. The Company intends that each
transfer of Contracts and/or Manufactured Housing Securities to the related
Trust Fund constitute a sale, rather than a pledge of such assets to secure
indebtedness of the Company. However, if the Company were to become a
debtor under the federal bankruptcy code, it is possible that a creditor or
trustee in bankruptcy of the Company or the Company as debtor-in-possession
may argue that the sale of such assets by the Company was a pledge of such
assets rather than a sale. This position, if presented to or accepted by a
court, could result in a delay in or reduction of distributions to the
Certificateholders.
A case recently decided by the United States Court of Appeals for the
Tenth Circuit contains language to the effect that accounts sold by an
entity which subsequently became bankrupt remained property of the debtor's
bankruptcy estate. Although the Contracts constitute chattel paper rather
than accounts under the UCC, sales of chattel paper, like sales of
accounts, are governed by Article 9 of the UCC. If the Company were to
become a debtor under the federal bankruptcy code and a court were to
follow the reasoning of the Tenth Circuit and apply such reasoning to
chattel paper, Certificateholders could experience a delay or reduction in
distributions.
THE TRUST FUND
GENERAL
Each Trust Fund will include (i) a Contract Pool and/or Manufactured Housing
Securities, (ii) the amounts held from time to time in a trust account (the
"Certificate Account") maintained by the Trustee pursuant to the Agreement,
(iii) proceeds from certain hazard insurance on individual Manufactured Homes
and Manufactured Homes (or the related real estate, in the case of Land-and-
Home Contracts) acquired by repossession, (iv) any letter of credit, guarantee,
surety bond, insurance policy, cash reserve fund or other credit enhancement
securing payment of all or part of a Series of Certificates, and (v) such other
property as may be specified in the related Prospectus Supplement.
11
<PAGE>
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, containing one Contract Pool comprised
of Contracts having the aggregate principal balance as of the specified day of
the month of the creation of the pool (the "Cut-off Date") specified in the
related Prospectus Supplement, and/or one or more Manufactured Housing
Securities having the aggregate outstanding principal balance as of the Closing
Date specified in the related Prospectus Supplement. Holders of Certificates of
a Series will have interests only in such Trust Fund and will have no interest
in the Trust Fund created with respect to any other Series of Certificates. If
so specified in the related Prospectus Supplement, the Trust Fund may include a
Pre-Funding Account which would be used to purchase additional Contracts
("Subsequent Contracts") from the Company during the Pre-Funding Period
specified in the related Prospectus Supplement. The related Prospectus
Supplement will specify the conditions that must be satisfied prior to any
transfer of Subsequent Contracts, including the requisite characteristics of
the Subsequent Contracts.
The following is a brief description of the Contracts and Manufactured
Housing Securities expected to be included in a Trust Fund. Specific
information respecting the Contracts and Manufactured Housing Securities will
be provided in the Prospectus Supplement and, to the extent not contained in
the related Prospectus Supplement, in a report on Form 8-K to be filed with the
Securities and Exchange Commission within fifteen days after the initial
issuance of such Certificates. A copy of the Agreement with respect to each
Series of Certificates will be attached to the Form 8-K and will be available
for inspection at the corporate trust office of the Trustee specified in the
related Prospectus Supplement. A schedule of the Contracts and Manufactured
Housing Securities relating to such Series will be attached to the Agreement
delivered to the Trustee upon delivery of the Certificates.
Whenever in this Prospectus terms such as "Contract Pool," "Manufactured
Housing Securities," "Trust Fund," "Agreement" or "Remittance Rate" are used,
those terms respectively apply, unless the context otherwise indicates, to one
specific Contract Pool, one specific group of Manufactured Housing Securities,
a specific Trust Fund, each Agreement and the Remittance Rate applicable to the
related Series of Certificates.
THE CONTRACT POOLS
Except as otherwise specified in the related Prospectus Supplement, each pool
of Contracts included in the Trust Fund for a Series of Certificates (the
"Contract Pool") will consist of manufactured housing installment sales
contracts and installment loan agreements (collectively, the "Contracts")
originated by the Company on an individual basis in the ordinary course of
business. The Contracts may be conventional manufactured housing contracts or
contracts insured by the FHA or partially guaranteed by the VA. Each Contract
will be secured by a Manufactured Home (as defined below) or by a mortgage or
deed of trust relating to the real estate to which the Manufactured Home is
deemed permanently affixed (a "Land-and-Home Contract"). Except as otherwise
specified in the related Prospectus Supplement, the Contracts will be fully
amortizing and will bear interest at a fixed or variable annual percentage rate
(the "Contract Rate") or at a Contract Rate which steps up on a particular date
(a "step-up rate").
The Company, as seller of the Contracts, will represent that the Manufactured
Homes securing the Contracts consist of manufactured homes within the meaning
of 42 United States Code, Section 5402(6), which defines a "manufactured home"
as "a structure, transportable in one or more sections, which in the traveling
mode, is eight body feet or more in width or forty body feet or more in length,
or, when erected on site, is three hundred twenty or more square feet, and
which is built on a permanent chassis designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which
meets all the requirements of this paragraph except the size requirements and
with respect to which the manufacturer voluntarily files a certification
required by the Secretary [of Housing and Urban Development] and complies with
the standards established under this chapter."
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<PAGE>
For each Series of Certificates, the Company will assign the Contracts
constituting the Contract Pool to the trustee named in the related Prospectus
Supplement (the "Trustee"). The Company, as Servicer (in such capacity referred
to herein as the "Servicer"), will service the Contracts pursuant to the
Agreement. See "Description of the Certificates--Servicing." Unless otherwise
specified in the related Prospectus Supplement, the Contract documents (other
than the documents relating to Land-and-Home Contracts) will be held by the
Servicer as custodian for the Trustee. The documents relating to any Land-and-
Home Contracts will be held for the benefit of the Trustee by a Custodian (the
"Custodian") appointed pursuant to a Custodial Agreement (the "Custodial
Agreement") between the Trustee and the Custodian
Each Contract Pool will be composed of Contracts bearing interest at the
annual fixed or variable Contract Rates or step-up rates specified in the
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Monthly Payments for Contracts bearing interest at a step-up
rate (sometimes referred to herein as "step-up rate Contracts") will increase
on the dates on which the Contract Rates are stepped up. Unless otherwise
stated in the related Prospectus Supplement, each registered holder of a
Certificate will be entitled to receive periodic distributions, which will be
monthly unless otherwise specified in the related Prospectus Supplement, of all
or a portion of principal on the underlying Contracts or interest on the
principal balance of such Certificate at the Remittance Rate, or both.
A Contract Pool may include "staged-funding" Contracts, under which the
Company makes multiple disbursements to enable the Obligor to finance both the
purchase of a Manufactured Home and the acquisition or improvement of the
related real estate. For example, the Company might make disbursements to
enable the Obligor to purchase the real estate on which the Manufactured Home
is to be located, then to make improvements on the real estate (such as a
driveway, well and septic system), then to purchase and deliver the
Manufactured Home, and then to make final site improvements. Prior to the final
disbursement, the Obligor pays only interest on the disbursed amount of the
loan; following the final disbursement, the Obligor begins making fully
amortizing payments of principal and interest. The Company will represent and
warrant in the related Agreement that all staged-funding Contracts included in
a Contract Pool will have been fully disbursed within 90 days after the related
Closing Date, and the Company will be obligated to repurchase on the next
Remittance Date any staged-funding Contract that has not been fully disbursed
by such date.
The related Prospectus Supplement will specify for the Contracts contained in
the related Contract Pool, among other things, the range of the dates of
origination of the Contracts; the range of the Contract Rates and the weighted
average Contract Rate; the Loan-to-Value Ratios; the minimum and maximum
outstanding principal balances as of the Cut-off Date and the average
outstanding principal balance as of the Cut-off Date; the aggregate principal
balances of the Contracts included in the Contract Pool as of the Cut-off Date;
the weighted average and range of scheduled terms to maturity as of origination
and as of the Cut-off Date; the original maturities of the Contracts and the
last maturity date of any Contract; and the locations of the Obligors on the
Contracts. If the Trust Fund includes a Pre-Funding Account, the related
Prospectus Supplement will specify the conditions that must be satisfied prior
to any transfer of Subsequent Contracts, including the requisite
characteristics of the Subsequent Contracts.
The Company will make representations and warranties as to the types and
geographical distribution of the Contracts included in a Contract Pool and as
to the accuracy in all material respects of certain information furnished to
the Trustee in respect of each such Contract. Upon a breach of any
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Company will be obligated either to cure
the breach in all material respects, to purchase the Contract or to substitute
another Contract as described below. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a breach of representation by the Company. See "Description of the
Certificates--Conveyance of Contracts."
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<PAGE>
MANUFACTURED HOUSING SECURITIES
The Trust Fund for a Series may include Manufactured Housing Securities,
which will be securities evidencing beneficial interests in, or indebtedness
secured by, pools of manufactured housing contracts, which contracts are being
serviced by the Company on behalf of the trust that issued such Manufactured
Housing Securities. Such Manufactured Housing Securities will have previously
been offered and distributed to the public pursuant to an effective
registration statement or are being registered under the Act in connection with
the offering of a Series of Certificates. Unless otherwise specified in the
Prospectus Supplement relating to a Series of Certificates, payments on any
Manufactured Housing Certificates included in a Trust Fund will be distributed
directly to the Trustee as the registered owner of such Manufactured Housing
Securities.
If the Trust Fund for a Series includes any Manufactured Housing Securities,
the related Prospectus Supplement will specify, to the extent relevant, (i) the
outstanding principal amount and remittance rate of such Manufactured Housing
Security; (ii) certain characteristics of the manufactured housing contracts
securing such Manufactured Housing Security; (iii) the expected maturity and
final maturity of such Manufactured Housing Security; and (iv) a description of
the structure of the transaction giving rise to such Manufactured Housing
Security, including a description of any credit enhancement relating to such
Manufactured Housing Security.
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts and/or Manufactured Housing
Securities, costs of carrying the Contracts and/or Manufactured Housing
Securities until sale of the related Certificates and to pay other expenses
connected with pooling the Contracts and/or Manufactured Housing Securities and
issuing the Certificates.
GREEN TREE FINANCIAL CORPORATION
GENERAL
The Company is a Minnesota corporation which, as of December 31, 1993, had
stockholders' equity of approximately $549,429,000. The Company purchases,
pools, sells and services conditional sales contracts for manufactured housing
throughout the nation. The Company is currently the largest servicer of
manufactured housing government insured or guaranteed contracts, and is one of
the largest servicers of conventional manufactured housing contracts, in the
United States. The Company operates its business through 40 regional service
centers throughout the United States, serving all 50 states. The Company's
principal executive offices are located at 1100 Landmark Towers, 345 St. Peter
Street, St. Paul, Minnesota 55102-1639 (telephone (612) 293-3400). The
Company's Annual Report on Form 10-K for the year ended December 31, 1993, most
recent Proxy Statement and, when available, subsequent quarterly and annual
reports are available from the Company upon written request.
CONTRACT ORIGINATION
Through its regional service centers, the Company arranges to purchase
manufactured housing contracts from manufactured housing dealers located
throughout the United States. The Company's regional service center personnel
contact dealers located in their region and explain the Company's available
financing plans, terms, prevailing rates and credit and financing policies. If
the dealer wishes to use the Company's available customer financing, the dealer
must make an application for dealer approval. Upon satisfactory results of the
Company's investigation of the dealer's creditworthiness and general business
reputation, the Company and the dealer execute a dealer agreement. The Company
also originates manufactured housing installment loan agreements directly with
customers.
All contracts that the Company originates are written on forms provided by
the Company and are originated on an individually approved basis in accordance
with the Company's guidelines. The dealer or the customer submits the
customer's credit application and purchase order to a regional service center
where Company personnel make an analysis of the creditworthiness of the
proposed buyer. The analysis includes a
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<PAGE>
review of the applicant's paying habits, length and likelihood of continued
employment, and certain other factors. The Company's current underwriting
guidelines for conventional contracts require that the monthly payment on the
contract not exceed 29% of the obligor's monthly income and that the monthly
payment on the contract, together with the obligor's other fixed monthly
obligations, not exceed 41% of the obligor's monthly income (net of federal and
state income taxes). Manufactured housing contracts are assumable by any
individual who meets the Company's then-current underwriting criteria. With
respect to conventional contracts for new manufactured homes, the Company may
finance up to the lesser of (a) 95% of the cash sale price (including taxes,
fees and insurance) or (b) 125% of the manufacturer's invoice price plus 100%
of taxes and license fees, 100% of freight charges, 100% of the dealer's cost
of additional dealer-installed equipment (not to exceed 20% of the amount
financed in all states except California; not to exceed 70% of the
manufacturer's invoice price in California if required to meet park
requirements), and up to $750 of set-up costs per module. With respect to used
manufactured homes, the Company may finance up to 95% of the lesser of (a) the
total delivered sales price of the unit (including taxes, fees, insurance and
up to $750 of set-up costs per module), or (b) the appraised value of the unit
plus taxes, fees, and insurance. Such appraisals on used manufactured homes are
performed by employees of the Company. If the application meets the Company's
guidelines and the credit is approved, the Company purchases the contract after
the manufactured home is delivered and set up and the customer has moved in.
The guidelines in this paragraph may be exceeded when the Company's
underwriters deem it appropriate. For the definition of "value" used in
calculating the loan-to-value ratios of the Contracts, see "The Trust Fund--The
Contract Pools."
The volume of manufactured housing contracts purchased or originated by the
Company for the past five years and certain other information at the end of
such years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT FOR AVERAGE SIZE)
<S> <C> <C> <C> <C> <C>
Principal balance of con-
tracts purchased:
FHA/VA................. $324,137 $426,689 $507,879 $ 265,992 $ 252,466
Conventional........... 446,728 459,466 432,060 942,874 2,196,655
-------- -------- -------- ---------- ----------
Total.............. $770,865 $886,155 $939,939 $1,208,866 $2,449,121
======== ======== ======== ========== ==========
Number of contracts pur-
chased.................. 37,651 42,396 43,842 53,484 96,934
Average contract size.... $ 20,474 $ 20,902 $ 21,439 $ 22,602 $ 25,266
Average interest rate.... 13.6% 13.6% 12.7% 11.5% 10.1%
Weighted average remain-
ing term at purchase
(months)................ 188 193 192 199 205
</TABLE>
POOLING AND DISPOSITION OF CONTRACTS
The Company generally pools contracts for sale to investors within 15 to 120
days of purchase. In the case of FHA-insured and VA-guaranteed manufactured
housing contracts, the Company generally issues modified pass-through
certificates secured by the contracts and guaranteed by the Government National
Mortgage Association ("GNMA certificates"). The GNMA certificates provide for
the payment by the Company to registered holders of GNMA certificates of
monthly payments of principal and interest and the "pass-through" of any
prepayments of the contracts.
In the case of conventional manufactured housing contracts, the Company sells
pools of contracts through asset securitization vehicles such as the Trust
Funds described herein. The Company establishes a specified level of recourse
(which may take the form of a subordinated right to interest payments on the
Contracts, payable after the payment of scheduled principal and interest on the
related investor interests) or a cash reserve fund for losses on the contracts
comprising the pools. Upon a default under a contract and a liquidation of the
underlying collateral, any net losses are charged against the established
recourse amount or the reserve fund.
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<PAGE>
SERVICING
The Company services all of the manufactured housing contracts it originates
or purchases from other originators, collecting loan payments, taxes and
insurance payments where applicable and other payments from borrowers and
remitting principal and interest payments to the holders of the conventional
contracts or of the GNMA certificates backed by FHA-insured and VA-guaranteed
contracts.
The following table shows the composition of the Company's servicing
portfolio of contracts that the Company originated, including manufactured
housing contracts, recreational vehicle contracts, motorcycle contracts,
special product contracts and home improvement contracts, on the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unpaid principal balance
of contracts being
serviced (in thou-
sands)................. $3,599,216 $4,098,091 $4,753,650 $5,278,370 $6,922,340
Average unpaid balance.. $ 16,589 $ 16,456 $ 16,394 $ 16,638 $ 17,864
Number of contracts
serviced............... 216,962 249,038 289,960 317,251 387,509
</TABLE>
In 1990, the Company began subservicing manufactured housing contracts
originated by other lenders. These subserviced contracts are not reflected in
the foregoing table.
YIELD CONSIDERATIONS
The Remittance Rates of each Class of Certificates, the weighted average
Contract Rate of the Contracts and the remittance rates of any Manufactured
Housing Securities included in the Trust Fund for each Series of Certificates
will be set forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each monthly
accrual of interest on a Contract is calculated at one-twelfth of the product
of the Contract Rate and the principal balance outstanding on the scheduled
payment date for such Contract in the preceding month. Unless otherwise
specified in the related Prospectus Supplement, the remittance rate for each
Manufactured Housing Security and the Remittance Rate with respect to each
Certificate will be calculated similarly.
The Prospectus Supplement for each Series will indicate that a lower rate of
principal prepayments than anticipated would negatively affect the total return
to investors of any Class of Certificates that is offered at a discount to its
principal amount, and a higher rate of principal prepayments than anticipated
would negatively affect the total return to investors of any such Class of
Certificates that is offered at a premium to its principal amount or without
any principal amount.
The yield on some types of Certificates which may be offered hereby, such as
Interest Only Certificates, Principal Only Certificates, and Fast Pay/Slow Pay
Certificates, each as further described in "Description of Certificates--
General," may be particularly sensitive to prepayment rates, and to changes in
prepayment rates, on the underlying Contracts. If so stated in the related
Prospectus Supplement, the yield on some types of Certificates which may be
offered hereby could change and may be negative under certain prepayment rate
scenarios. Accordingly, some types of Certificates may not be legal or
appropriate investments for certain financial institutions, pension funds or
others. See "ERISA Considerations" and "Legal Investment Considerations." In
addition, the timing of changes in the rate of prepayment on the Contracts
included in a Contract Pool may significantly affect an investor's actual yield
to maturity, even if the average prepayment rate over time is consistent with
the investor's expectations. In general, the earlier that prepayments on
Contracts occur, the greater the effect on the investor's yield to maturity.
If a Series of Certificates contains Classes of Certificates entitled to
receive distributions of principal or interest or both, in a specified order
other than as a specified percentage of each distribution of principal or
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<PAGE>
interest or both, the Prospectus Supplement will set forth information,
measured relative to a prepayment standard or model specified in such
Prospectus Supplement, with respect to the projected weighted average life of
each such Class and the percentage of the original principal of each such Class
that would be outstanding on specified Remittance Dates for such Series based
on the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Contracts in the related Trust Fund are made at rates
corresponding to the various percentages of such prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
Unless otherwise described in an applicable Prospectus Supplement, all of the
Contracts will have maturities at origination of not more than 25 years.
PREPAYMENT CONSIDERATIONS
Contracts generally may be prepaid in full or in part without penalty. FHA
Contracts and VA Contracts may be prepaid at any time without penalty. Based on
the Company's experience with the portfolio of manufactured housing contracts
serviced by it, the Company anticipates that a number of the Contracts will be
prepaid prior to their maturity. A number of factors, including homeowner
mobility, general and regional economic conditions and prevailing interest
rates, may influence prepayments. In addition, repurchases of Contracts on
account of certain breaches of representations and warranties have the effect
of prepaying such Contracts and therefore would affect the average life of the
Certificates. Most of the Contracts contain a "due-on-sale" clause that would
permit the Servicer to accelerate the maturity of a Contract upon the sale of
the related Manufactured Home. In the case of those Contracts that do contain
due-on-sale clauses, the Servicer will permit assumptions of such Contracts if
the purchaser of the related Manufactured Home satisfies the Company's then-
current underwriting standards.
Information regarding the Prepayment Model or any other rate of assumed
prepayment, as applicable, will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
See "Description of the Certificates--Termination of the Agreement" for a
description of the Company's or Servicer's option to repurchase the Contracts
and/or Manufactured Housing Securities comprising part of a Trust Fund when the
aggregate outstanding principal balance of such Contracts and Manufactured
Housing Securities is less than a specified percentage of the initial aggregate
outstanding principal balance of such Contracts and Manufactured Housing
Securities as of the related Cut-off Date. See also "The Trust Fund--The
Contract Pools" for a description of the obligations of the Company to
repurchase a Contract in case of a breach of a representation or warranty
relative to such Contract.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate pooling and
servicing agreement (each, an "Agreement") to be entered into among the
Company, as Seller and Servicer, and the trustee named in the related
Prospectus Supplement (the "Trustee"), and such other parties, if any, as are
described in the applicable Prospectus Supplement. The following summaries
describe certain provisions expected to be common to each Agreement and the
related Certificates, but do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions of the related
Agreement and the description set forth in the related Prospectus Supplement.
Section references contained herein refer to sections of the form of Agreement
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the "Registration Statement"). The portions of such sections described
herein may be contained in different numbered sections in the actual Agreement
pursuant to which any Series of Certificates is issued. The provisions of the
form of Agreement filed as an exhibit to the Registration Statement that are
not
17
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described herein may differ from the provisions of any actual Agreement. The
material differences will be described in the related Prospectus Supplement.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the form of Agreement filed as an exhibit to the
Registration Statement.
Each Series of Certificates will have been rated in the rating category by
the rating agency or agencies specified in the related Prospectus Supplement.
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 or all of the Certificates of a
single-Class Series, as the context may require. For convenience of
description, any reference in this Prospectus to a "Class" of Certificates
includes a reference to any subclass of such Class.
The Certificates of each Series will be issued in fully registered form only
and will represent the interests specified in the related Prospectus Supplement
in a separate trust fund (the "Trust Fund") created pursuant to the related
Agreement. The Trust Fund will be held by the Trustee for the benefit of the
Certificateholders. Each Trust Fund, to the extent specified in the related
Prospectus Supplement, will include (i) Contracts and/or Manufactured Housing
Securities which are subject to the Agreement from time to time, (ii) the
amounts held in the Certificate Account from time to time, (iii) proceeds from
certain hazard insurance on individual Manufactured Homes and Manufactured
Homes (or the related real estate, in the case of Land-and-Home Contracts)
acquired by repossession, (iv) any letter of credit, guarantee, surety bond,
insurance policy, cash reserve fund or other credit enhancement securing
payment of all or part of a Series of Certificates and (v) such other property
as may be specified in the related Prospectus Supplement. Except as otherwise
specified in the related Prospectus Supplement, the Certificates will be freely
transferable and exchangeable at the corporate trust office of the Trustee at
the address set forth in the related Prospectus Supplement. No service charge
will be made for any registration of exchange or transfer of Certificates, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Ownership of each Contract Pool and/or Manufactured Housing Security included
in a Trust Fund may be evidenced by one or more Classes of Certificates, each
representing the interest in the Trust Fund specified in the related Prospectus
Supplement. Each Series of Certificates may include one or more Classes
("Subordinated Certificates") which are subordinated in right of distribution
to one or more other Classes ("Senior Certificates"), as provided in the
related Prospectus Supplement. Certificates of a Series which includes Senior
and Subordinated Certificates are referred to herein collectively as
"Senior/Subordinated Certificates." A Series of Senior/Subordinated
Certificates may include one or more Classes ("Mezzanine Certificates") which
are subordinated to one or more Classes of Certificates and are senior to one
or more Classes of Certificates. The Prospectus Supplement with respect to a
Series of Senior/Subordinated Certificates will set forth, among other things,
the extent to which the Subordinated Certificates are subordinated (which may
include a formula for determining the subordinated amount or for determining
the allocation of the Amount Available (hereinafter defined) among Senior
Certificates and Subordinated Certificates), the allocation of losses among the
Classes of Subordinated Certificates, the period or periods of such
subordination, the minimum subordinated amount, if any, and any distributions
or payments which will not be affected by such subordination. The protection
afforded to the Senior Certificateholders from the subordination feature
described above will be effected by the preferential right of such
Certificateholders to receive current distributions from the Trust Fund. If a
Series of Certificates contains more than one Class of Subordinated
Certificates, losses will be allocated among such Classes in the manner
described in the
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Prospectus Supplement. If so specified in the applicable Prospectus Supplement,
Mezzanine Certificates or other Classes of Subordinated Certificates may be
entitled to the benefits of other forms of credit enhancement and may, if rated
in one of the four highest rating categories by a nationally recognized
statistical rating organization, be offered pursuant to this Prospectus and
such Prospectus Supplement.
If so specified in a Prospectus Supplement, a Series of Certificates may
include one or more Classes which (i) are entitled to receive distributions
only in respect of principal ("Principal Only Certificates"), interest
("Interest Only Certificates") or any combination thereof, or in specified
proportions in respect of such payments, and/or (ii) are entitled to receive
distributions in respect of principal before or after specified principal
distributions have been made on one or more other Classes within such Series
("Fast Pay/Slow Pay Certificates"), or on a planned amortization schedule ("PAC
Certificates") or targeted amortization schedule ("TAC Certificates") or upon
the occurrence of other specified events. The Prospectus Supplement will set
forth the rate at which interest will be paid to Certificateholders of each
Class of a given Series (the "Pass-Through Rate"). Such Pass-Through Rate may
be fixed, variable or adjustable, as specified in the related Prospectus
Supplement
The related Prospectus Supplement will specify the minimum denomination or
initial principal amount of Contracts evidenced by a single Certificate of each
Class of Certificates of a Series (a "Single Certificate").
Distributions of principal and interest on the Certificates will be made on
the payment dates set forth in the related Prospectus Supplement (each, a
"Remittance Date") to the persons in whose names the Certificates are
registered at the close of business on the related record date specified in the
related Prospectus Supplement (the "Record Date"). Distributions will be made
by check mailed to the address of the person entitled thereto as it appears on
the Certificate Register, or, to the extent described in the related Agreement,
by wire transfer, except that the final distribution in retirement of
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee specified in the final
distribution notice to Certificateholders.
GLOBAL CERTIFICATES
The Certificates of a Class may be issued in whole or in part in the form of
one or more global certificates (each, a "Global Certificate") that will be
deposited with, or on behalf of, and registered in the name of a nominee for, a
depositary (the "Depositary") identified in the related Prospectus Supplement.
The description of the Certificates contained in this Prospectus assumes that
the Certificates will be issued in definitive form. If the Certificates of a
Class are issued in the form of one or more Global Certificates, the term
"Certificateholder" should be understood to refer to the beneficial owners of
the Global Certificates, and the rights of such Certificateholders will be
limited as described under this subheading.
Global Certificates will be issued in registered form. Unless and until it is
exchanged in whole or in part for Certificates in definitive form, a Global
Certificate may not be transferred except as a whole by the Depositary for such
Global Certificate to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor.
The specific terms of the depositary arrangement with respect to any
Certificates of a Class will be described in the related Prospectus Supplement.
It is anticipated that the following provisions will apply to all depositary
arrangements:
Upon the issuance of a Global Certificate, the Depositary for such Global
Certificate will credit, on its book-entry registration and transfer system,
the respective denominations of the Certificates represented by such Global
Certificate to the accounts of institutions that have accounts with such
Depositary ("participants"). Ownership of beneficial interests in a Global
Certificate will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in such Global
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Certificate will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such Global
Certificate or by participants or persons that hold through participants. The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Certificate.
So long as the Depositary for a Global Certificate, or its nominee, is the
owner of such Global Certificate, such Depositary or such nominee, as the case
may be, will be considered the sole owner or holder of the Certificates
represented by such Global Certificate for all purposes under the Agreement
relating to such Certificates. Except as set forth below, owners of beneficial
interests in a Global Certificate will not be entitled to have Certificates of
the Series represented by such Global Certificate registered in their names,
will not receive or be entitled to receive physical delivery of Certificates of
such Series in definitive form and will not be considered the owners or holders
thereof under the Agreement governing such Certificates.
Distributions or payments on Certificates registered in the name of or held
by a Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner for the holder of the Global
Certificate representing such Certificates. In addition, all reports required
under the applicable Agreement to be made to Certificateholders (as described
below under "Reports to Certificateholders") will be delivered to the
Depositary or its nominee, as the case may be. None of the Company, Servicer,
Trustee, or any agent thereof (including any applicable Certificate Registrar
or Paying Agent), will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests or for providing
reports to the related beneficial owners.
The Company expects that the Depositary for Certificates of a Class, upon
receipt of any distribution or payment in respect of a Global Certificate, will
credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interest in such Global
Certificate as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in such
Global Certificate held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name," and will be the
responsibility of such participants.
If a Depositary for Certificates of a Class is at any time unwilling or
unable to continue as Depositary and a successor depositary is not appointed by
or on behalf of the Company within the time period specified in the Agreement,
the Company will cause to be issued Certificates of such Class in definitive
form in exchange for the related Global Certificate or Certificates. In
addition, the Company may at any time and in its sole discretion determine not
to have any Certificates of a Class represented by one or more Global
Certificates and, in such event, will cause to be issued Certificates of such
Class in definitive form in exchange for the related Global Certificate or
Certificates. Further, if the Company so specifies with respect to the
Certificates of a Class, an owner of a beneficial interest in a Global
Certificate representing Certificates of such Class may, on terms acceptable to
the Company and the Depositary for such Global Certificate, receive
Certificates of such Class in definitive form. In any such instance, an owner
of a beneficial interest in a Global Certificate will be entitled to physical
delivery in definitive form of Certificates of the Class represented by such
Global Certificate equal in denominations to such beneficial interest and to
have such Certificates registered in its name.
CONVEYANCE OF CONTRACTS AND MANUFACTURED HOUSING SECURITIES
The Company will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Company in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies on
the related Manufactured Homes, all documents contained in the Contract files
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and all proceeds derived from any of the foregoing. (Section 2.01.) On behalf
of the Trust, as the issuer of the related Series of Certificates, the Trustee,
concurrently with such conveyance, will execute and deliver the Certificates to
the order of the Company. The Contracts will be as described on a list attached
to the Agreement. (Sections 1.02 and 2.02.) Such list will include the amount
of monthly payments due on each Contract as of the date of issuance of the
Certificates, the Contract Rate on each Contract and the maturity date of each
Contract. Such list will be available for inspection by any Certificateholder
at the principal executive office of the Servicer. (Sections 1.02 and 5.04.)
Prior to the conveyance of the Contracts to the Trust, the Company's internal
audit department will complete a review of all of the Contract files, including
the certificates of title to, or other evidence of a perfected security
interest in, the Manufactured Homes, confirming the accuracy of the list of
Contracts delivered to the Trustee. Any Contract discovered not to agree with
such list in a manner that is materially adverse to the interests of the
Certificateholders will be repurchased by the Company or replaced with another
Contract, or, if the discrepancy relates to the unpaid principal balance of a
Contract, the Company may deposit cash in the separate account maintained at an
Eligible Institution in the name of the Trustee (the "Certificate Account") in
an amount sufficient to offset such discrepancy. If the Trust Fund includes a
Pre-Funding Account, the related Prospectus Supplement will specify the
conditions that must be satisfied prior to any transfer of Subsequent
Contracts, including the requisite characteristics of the Subsequent Contracts.
The Agreement will designate the Company as custodian to maintain possession,
as the Trustee's agent, of the Contracts and any other documents related to the
Manufactured Homes (other than the Land-and-Home Contracts and related
documents). (Sections 2.03 and 4.01.) To facilitate servicing and save
administrative costs, the documents will not be physically segregated from
other similar documents that are in the Company's possession. Uniform
Commercial Code financing statements will be filed in Minnesota reflecting the
sale and assignment of the Contracts to the Trustee, and the Company's
accounting records and computer systems will also reflect such sale and
assignment. In addition, the Contracts will be stamped to reflect their
assignment to the Trustee. However, if through fraud, negligence or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without knowledge of the assignment, the Trustee's interest in the Contracts
could be defeated. See "Special Considerations--Security Interests and Certain
Other Aspects of the Contracts." The Agreement will designate the Trustee or
another independent custodian, as the Trustee's agent, to maintain possession
of the documents relating to all Land-and-Home Contracts.
Except as otherwise specified in the related Prospectus Supplement, the
Company will make certain warranties in the Agreement with respect to each
Contract as of the Closing Date, including that: (a) as of the Cut-off Date, or
the date of origination, if later, the most recent scheduled payment was made
or was not delinquent more than 59 days; (b) no provision of a Contract has
been waived, altered or modified in any respect, except by instruments or
documents contained in the Contract file or the Land-and-Home Contract file;
(c) each Contract is a legal, valid and binding obligation of the Obligor and
is enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (e) each Contract is covered
by hazard insurance described under "--Servicing--Hazard Insurance"; (f) each
Contract has been originated by a manufactured housing dealer or the Company in
the ordinary course of such dealer's or the Company's business and, if
originated by a manufactured housing dealer, was purchased by the Company in
the ordinary course of business; (g) no Contract was originated in or is
subject to the laws of any jurisdiction whose laws would make the transfer of
the Contract or an interest therein to the Trustee pursuant to the Agreement or
pursuant to the Certificates unlawful; (h) each Contract complies with all
requirements of law; (i) no Contract has been satisfied, subordinated in whole
or in part or rescinded and the Manufactured Home securing the Contract has not
been released from the lien of the Contract in whole or in part; (j) each
Contract creates a valid and enforceable first priority security interest in
favor of the Company in the Manufactured Home covered thereby and, with respect
to each Land-and-Home Contract, the lien created thereby has been recorded or
will be recorded within six months, and such security interest or lien has been
assigned by the
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Company to the Trustee; (k) all parties to each Contract had capacity to
execute such Contract; (l) no Contract has been sold, assigned or pledged to
any other person and prior to the transfer of the Contracts by the Company to
the Trustee, the Company had good and marketable title to each Contract free
and clear of any encumbrance, equity, loan, pledge, charge, claim or security
interest, and was the sole owner and had full right to transfer such Contract
to the Trustee; (m) as of the Cut-off Date, or the date of origination, if
later, there was no default, breach, violation or event permitting acceleration
under any Contract (except for payment delinquencies permitted by clause (a)
above), no event which with notice and the expiration of any grace or cure
period would constitute a default, breach, violation or event permitting
acceleration under such Contract, and the Company has not waived any of the
foregoing; (n) as of the Closing Date there were, to the best of the Company's
knowledge, no liens or claims which have been filed for work, labor or
materials affecting a Manufactured Home or any related Mortgaged Property
securing a Contract, which are or may be liens prior or equal to the lien of
the Contract; (o) each Contract other than a step-up rate Contract is a fully-
amortizing loan with a fixed Contract Rate and provides for level payments over
the term of such Contract; (p) each Contract contains customary and enforceable
provisions such as to render the rights and remedies of the Holder thereof
adequate for realization against the collateral of the benefits of the
security; (q) the description of each Contract set forth in the list delivered
to the Trustee is true and correct; (r) there is only one original of each
Contract; (s) except as specified in the related Prospectus Supplement, none of
the Contracts had a Loan-to-Value Ratio at origination greater than 95% and, if
the related Manufactured Home was new at the time such Contract was originated,
the original principal balance of such Contract did not exceed 125% of the
manufacturer's invoice price plus 100% of taxes and license fees, freight
charges, the dealer's cost of dealer-installed equipment and up to $750 of set-
up costs per module; (t) at the time of origination of each Contract the
Obligor was the primary resident of the related Manufactured Home; (u) other
than the Land-and-Home Contracts, the related Manufactured Home is not
considered or classified as part of the real estate on which it is located
under the laws of the jurisdiction in which it is located, and as of the
Closing Date such Manufactured Home was, to the best of the Company's
knowledge, free of damage and in good repair; (v) the related Manufactured Home
is a "manufactured home" within the meaning of 42 United States Code, Section
5402(6) and each manufactured housing dealer from whom the Company purchased a
Contract was approved by the Company in accordance with the requirements of the
Secretary of Housing and Urban Development; (w) each Contract is a "qualified
mortgage" under Section 860G(a)(3) of the Code and each Manufactured Home is
"manufactured housing" within the meaning of Section 25(e)(10) of the Code; and
(x) if a Contract is an FHA/VA Contract, the Contract has been serviced in
accordance with FHA/VA Regulations, the insurance or guarantee of the Contract
under the FHA/VA Regulations and related laws is in full force and effect, and
no event has occurred which, with or without notice or lapse of time or both,
would impair such insurance or guarantee. (Article III.) The Company previously
will have made similar representations and warranties with respect to the
manufactured housing contracts securing any Manufactured Housing Securities
included in a Trust Fund.
Under the terms of the Agreement, and subject to the conditions specified in
the preceding paragraph and to the Company's option to effect a substitution as
described in the next paragraph, the Company will be obligated to repurchase
for the Repurchase Price (as defined below) any Contract on the first business
day after the first Determination Date which is more than 90 days after the
Company becomes aware, or should have become aware, or the Company's receipt of
written notice from the Trustee or the Servicer, of a breach of any
representation or warranty of the Company in the Agreement that materially
adversely affects the Trust's interest in any Contract if such breach has not
been cured. (Section 3.05.) The Repurchase Price for any Contract will be the
remaining principal amount outstanding on such Contract on the date of
repurchase plus accrued and unpaid interest thereon at its Contract Rate to the
date of such repurchase. (Section 1.02.) This repurchase obligation constitutes
the sole remedy available to the Trust Fund and the Certificateholders for a
breach of a warranty under the Agreement with respect to the Contracts (but not
with respect to any other breach by the Company of its obligations under the
Agreement). If a prohibited transaction tax under the REMIC provisions of the
Code is incurred in connection with such repurchase, distributions otherwise
payable to Residual Certificateholders will be applied to pay such tax. The
Company will be required to pay the amount of such tax that is not funded out
of such distributions. (Section 6.06.)
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In lieu of purchasing a Contract as specified in the preceding paragraph,
during the two-year period following the Closing Date, the Company may, at its
option, substitute an Eligible Substitute Contract (as defined below) for the
Contract that it is otherwise obligated to repurchase (referred to herein as
the "Replaced Contract"). An Eligible Substitute Contract is a Contract that
satisfies, as of the date of its substitution, the representations and
warranties specified in Article III of the Agreement, has a Scheduled Principal
Balance that is not greater than the Scheduled Principal Balance of the
Replaced Contract, has a Contract Rate that is at least equal to the Contract
Rate of the Replaced Contract and has a remaining term to scheduled maturity
that is not greater than the remaining term to scheduled maturity of the
Replaced Contract. (Section 1.02.) The Company will be required to deposit in
the Certificate Account cash in the amount, if any, by which the Scheduled
Principal Balance of the Replaced Contract exceeds the Scheduled Principal
Balance of the Contract being substituted. Such deposit will be deemed to be a
Partial Principal Prepayment. (Sections 1.02 and 3.05.)
If the Trust Fund includes Manufactured Housing Securities, the Company will
transfer to the Trust all right, title and interest in such Manufactured
Housing Securities, including all rights to payments thereon on or after the
Closing Date.
PAYMENTS ON CONTRACTS AND MANUFACTURED HOUSING SECURITIES
Each Certificate Account will be a trust account established by the Servicer
as to each Series of Certificates in the name of the Trustee (i) with a
depository institution, the long-term unsecured debt obligations of which at
the time of any deposit therein are rated within the two highest rating
categories or such other rating category as will not adversely affect the
ratings assigned to the Certificates by each rating agency rating the
Certificates of such Series, (ii) with the trust department of a national bank,
(iii) in an account or accounts the deposits in which are fully insured by the
FDIC, (iv) in an account or accounts the deposits in which are insured by the
FDIC (to the limits established by the FDIC), the uninsured deposits in which
are otherwise secured such that, as evidenced by an opinion of counsel, the
Certificateholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the depository institution with which the Certificate
Account is maintained or (v) otherwise acceptable to the rating agency without
reduction or withdrawal of the rating assigned to the relevant certificates.
The collateral eligible to secure amounts in the Certificate Account is limited
to United States government securities and certain other high-quality
investments specified in the applicable agreement ("Eligible Investments"). A
Certificate Account may be maintained as an interest bearing account, or the
funds held therein may be invested pending each succeeding Remittance Date in
Eligible Investments.
Unless otherwise specified in the related Prospectus Supplement, the Servicer
will deposit in the Certificate Account on a daily basis the following payments
and collections received or made by it subsequent to the Cut-off Date
(including scheduled payments of principal and interest due after the Cut-off
Date but received by the Servicer on or before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Contracts, net of liquidation expenses ("Net
Liquidation Proceeds");
(iv) all proceeds received under any hazard or other insurance policy
covering any Contract, other than proceeds to be applied to the restoration
or repair of the Manufactured Home or released to the Obligor;
(v) any Advances made as described under "Advances" and certain other
amounts required under the Agreement to be deposited in the Certificate
Account;
(vi) all amounts received from any credit enhancement provided with
respect to a Series of Certificates; and
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(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer, or the Company, or otherwise as
described above or under "Termination" below.
Unless otherwise specified in the Prospectus Supplement relating to any
Manufactured Housing Securities that may be included in a Trust Fund, the
Trustee, as registered owner of such Manufactured Housing Securities, will
receive all payments theron and will deposit such payments directly into the
Certificate Account.
DISTRIBUTIONS ON CERTIFICATES
Except as otherwise provided in the related Prospectus Supplement, on each
Remittance Date, the Trustee will withdraw from the applicable Certificate
Account and distribute to the Certificateholders of each Class (other than a
Series having a Class of Subordinated Certificates, as described below), either
the specified interest of such Class in the Contract Pool times the aggregate
of all amounts on deposit in the Certificate Account as of the third Business
Day preceding the Remittance Date or such other date as may be specified in the
related Prospectus Supplement (the "Determination Date"), or, in the case of a
Series of Certificates comprised of Classes which have been assigned a Stated
Balance, payments of interest and payments in reduction of the Stated Balance
from all amounts on deposit in the Certificate Account on the Determination
Date, in the priority and calculated in the manner set forth in the related
Prospectus Supplement, except, in each case: (i) all payments on the Contracts
that were due on or before the Cut-off Date; (ii) all payments or collections
received after the Due Period preceding the month in which the Remittance Date
occurs; (iii) all scheduled payments of principal and interest due on a date or
dates subsequent to the Due Period preceding the Determination Date; (iv)
amounts representing reimbursement for Advances, such reimbursement being
limited, if so specified in the related Prospectus Supplement, to amounts
received on particular Contracts as late collections of principal or interest
as to which the Servicer has made an unreimbursed Advance; and (v) amounts
representing reimbursement for any unpaid Servicing Fee and expenses from
Liquidation Proceeds, condemnation proceeds and proceeds of insurance policies
with respect to the related Contracts. The amount of principal and interest
specified in the related Prospectus Supplement to be distributed to
Certificateholders is referred to herein as the "Certificate Distribution
Amount." The amounts on deposit in the Certificate Account on a Determination
Date, less the amounts specified in (i) through (v) above, are referred to
herein as the "Amount Available."
Unless otherwise specified in the related Prospectus Supplement, with respect
to a Series of Certificates having a Class of Subordinated Certificates, on
each Remittance Date, the Trustee will withdraw from the applicable Certificate
Account and distribute to the Holders of Senior Certificates, in the aggregate,
the lesser of (i) the Senior Distribution Amount plus the Outstanding Senior
Shortfall (each defined below), or (ii) the percentage interest (which may vary
as specified in the related Prospectus Supplement) of the Classes of Senior
Certificates times the Amount Available plus (a) the percentage interest (which
may vary as specified in the related Prospectus Supplement) of the Classes of
Subordinated Certificates times the Amount Available, not to exceed the
Available Subordination Amount, if any, as defined in the related Prospectus
Supplement, and (b) Advances, if any, made by the Servicer. The distribution
made to the Certificateholders of each Class or sub-class of Senior
Certificates shall be calculated as described in the related Prospectus
Supplement and may vary as to the allocation of principal or interest or both.
Unless otherwise specified in the related Prospectus Supplement, the Senior
Distribution Amount is an amount equal to the percentage interest of the
Classes of Senior Certificates times:
(i) all regularly scheduled payments of principal of and interest which
were due on Contracts and Manufactured Housing Securities during the
related Due Period, whether or not received, with the interest portions
thereof adjusted to the Remittance Rate;
(ii) all Principal Prepayments made by the Obligor during the prior Due
Period;
(iii) with respect to each Contract not described in (iv) below, all
insurance proceeds, all condemnation awards and any other cash proceeds
from a source other than the Obligor, to the extent required to be
deposited in the Certificate Account, which were received during the prior
Due Period,
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net of related unreimbursed Advances and net of any portion thereof which,
as to any Contract, constitutes late collections;
(iv) with respect to each Contract as to which a receipt of Liquidation
Proceeds has been received during the prior Due Period or other event of
termination of the Contract has occurred during the prior Due Period, an
amount equal to the principal amount of the Contract outstanding
immediately prior to the date of receipt of such Liquidation Proceeds or
such other event of termination, reduced by the principal portion of any
unpaid payments due on or before such date to the extent previously
advanced against or otherwise received by the Certificateholder, plus
interest thereon from the most recent Due Date at the Remittance Rate; and
(v) with respect to each Contract repurchased by the Company for which
the repurchase price was not distributed previously, an amount equal to the
principal amount of the Contract outstanding on the date of such repurchase
reduced by the principal portion of any unpaid payments due on or before
such date (but only to the extent advanced against or otherwise received by
the Certificateholders), plus interest thereon to the most recent Due Date.
The Outstanding Senior Shortfall for any Class of Senior Certificates means
as of any date, to the extent not previously paid, the aggregate of the amounts
by which the Senior Distribution Amount for such Class for any Remittance Date
exceeded the amount actually paid on such Remittance Date plus interest at the
Remittance Rate.
Unless otherwise specified in the related Prospectus Supplement, on each
Remittance Date, the Servicer shall distribute to the Classes of Subordinated
Certificateholders, in the order set forth in the related Prospectus
Supplement, the balance of the Amount Available, if any, after the payment to
the Senior Certificateholders, as described above.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes of which have been assigned a Stated
Balance, distributions in reduction of the Stated Balance of such Certificates
will be made on each Remittance Date to the Certificateholders of the Class or
sub-class then entitled to receive such Certificate distributions until the
aggregate amount of such distributions have reduced the Stated Balance of the
Certificates of such Class to zero or a specified percentage. Allocation of
distributions in reduction of Stated Balance will be made to each Class of such
Certificates in the order specified in the related Prospectus Supplement,
which, if so specified in such Prospectus Supplement, may be concurrently.
Unless otherwise specified in the related Prospectus Supplement, distributions
in reduction of the Stated Balance of each Certificate of a Class then entitled
to receive such distributions will be made pro rata among the Certificates of
such Class.
Unless otherwise specified in the related Prospectus Supplement, the maximum
amount which will be distributed in reduction of Stated Balance to holders of
Certificates of a Class then entitled thereto on any Remittance Date will
equal, to the extent funds are available, the sum of (i) the amount of the
interest, if any, that has accrued but is not yet payable on the Compound
Interest Certificates of such Series, if any, from the prior Remittance Date
(or since the date specified in the related Prospectus Supplement in the case
of first Remittance Date) (the "Accrual Remittance Amount"); (ii) the
Certificate Remittance Amount; and (iii) the applicable percentage of the
Excess Cash Flow, if any, specified in such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Remittance Date will equal the
amount, if any, by which the then outstanding Stated Balance of the
Certificates of the related Classes of such Series (before taking into account
the amount of interest accrued on any Class of Compound Interest Certificates
of such Series to be added to the Stated Balance thereof on such Remittance
Date) exceeds the Asset Value, as defined in the related Prospectus Supplement,
of the Contracts in the Contract Pool underlying such Series as of the end of
the applicable Due Period specified in the related Prospectus Supplement. For
purposes of determining the Certificate
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Remittance Amount with respect to a Remittance Date, the Asset Value of the
Contracts will be reduced to take into account the interest evidenced by such
Classes of Certificates in the principal distributions on or with respect to
such Contracts received by the Trustee during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or sub-classes of which have been assigned
a Stated Balance, Excess Cash Flow represents the excess of (i) the interest
evidenced by such Classes of Certificates in the distributions received on the
Contracts underlying such Series in the Due Period preceding a Remittance Date
for such Series (and, in the case of the first Due Period, the amount deposited
in the Certificate Account on the closing date for the sale of such
Certificates), together with income from the reinvestment thereof, (ii) the sum
of all interest accrued, whether or not then payable, on the Certificates of
such Classes since the preceding Remittance Date (or since the date specified
in the related Prospectus Supplement in the case of the first Remittance Date),
the Certificate Remittance Amount for the then current Remittance Date and, if
applicable, any payments made on any Certificates of such Class pursuant to any
special distributions in reduction of Stated Balance during such Due Period.
Within the time specified in the Agreement and described in the related
Prospectus Supplement, the Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the related Remittance Date on
account of principal and interest, stated separately, and a statement setting
forth certain information with respect to the Contracts.
If there are not sufficient funds in the Certificate Account to make the full
distribution to Certificateholders described above on any Remittance Date, the
Servicer will distribute the funds available for distribution to the
Certificateholders of each Class in accordance with the respective interests
therein, except that Subordinated Certificateholders, if any, will not, subject
to the limitations described in the related Prospectus Supplement, receive any
distributions until Senior Certificateholders receive the Senior Distribution
Amount plus the Outstanding Senior Shortfall. The difference between the amount
which the Certificateholders would have received if there had been sufficient
eligible funds in the Certificate Account and the amount actually distributed,
plus interest at the Remittance Rates of the respective Contracts to which such
shortfall is attributable, will be added to the amount which the
Certificateholders are entitled to receive on the next Remittance Date.
Special Distributions. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes of which have been
assigned a Stated Balance and having less frequent than monthly Remittance
Dates, such Classes may receive Special Distributions in reduction of Stated
Balance ("Special Distributions") in any month, other than a month in which a
Remittance Date occurs, if, as a result of principal prepayments on the
Contracts in the related Contract Pool or low reinvestment yields, the Trustee
determines, based on assumptions specified in the related Agreement, that the
amount of cash anticipated to be on deposit in the Certificate Account on the
next Remittance Date for such Series and available to be distributed to the
Holders of the Certificates of such Classes may be less than the sum of (i) the
interest scheduled to be distributed to holders of the Certificates of such
Classes and (ii) the amount to be distributed in reduction of Stated Balance of
such Certificates on such Remittance Date. Any such Special Distributions will
be made in the same priority and manner as distributions in reduction of Stated
Balance would be made on the next Remittance Date.
Subordinated Certificates. The rights of a Class of Certificateholders of a
Series to receive any or a specified portion of distributions of principal or
interest or both with respect to the Trust Fund, to the extent specified in the
related Agreement and described in the related Prospectus Supplement, may be
subordinated to such rights of other Certificateholders. The Prospectus
Supplement with respect to a Series of Certificates having a Class of
Subordinated Certificates will set forth, among other things, the extent to
which such Class is subordinated (which may include a formula for determining
the subordinated amount or for determining the allocation of the Amount
Available among Senior Certificates and Subordinated Certificates), the
allocation of losses among the Classes of Subordinated Certificates, the period
or periods of such
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subordination, the minimum subordinated amount, if any, and any distributions
or payments which will not be affected by such subordination. The protection
afforded to the Senior Certificateholders from the subordination feature
described above will be effected by the preferential right of such
Certificateholders to receive current distributions from the Trust Fund.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Servicer is
obligated to make periodic Advances of cash from its own funds or, if so
specified in the related Prospectus Supplement, from excess funds in the
Certificate Account not then required to be distributed to Certificateholders,
for distribution to the Certificateholders in an amount equal to the difference
between the amount due to them and the amount in the Certificate Account,
eligible for distribution to them pursuant to the Agreement, but only to the
extent such difference is due to delinquent payments of principal and interest
for the preceding Due Period and only to the extent the Servicer determines
such advances are recoverable from future payments and collections on the
delinquent Contracts. The Servicer's obligation to make Advances, if any, may,
as specified in the related Prospectus Supplement, be limited in amount. If so
specified in the related Prospectus Supplement, the Servicer will not be
obligated to make Advances until all or a specified portion of the Reserve
Fund, if any, is depleted. Advances are intended to maintain a regular flow of
scheduled interest and principal payments to the Senior Certificateholders, not
to guarantee or insure against losses. Accordingly, any funds so advanced are
recoverable by the Servicer out of amounts received on particular Contracts
which represent late recoveries of principal or interest respecting which any
such Advance was made.
EXAMPLE OF DISTRIBUTIONS
The following is an example of the flow of funds as it would relate to a
hypothetical series of Certificates issued, and with a Cut-off Date occurring,
in March 1994 (all days are assumed to be business days):
<TABLE>
<S> <C> <C>
April 1......................... (1) Cut-off Date.
April 1-30...................... (2) Due Period. Servicer receives scheduled
payments on the Contracts and any Principal
Prepayments made by Obligors and applicable
interest thereon.
March 31........................ (3) Record Date.
April 12........................ (4) Determination Date. Distribution amount
determined.
April 15........................ (5) Remittance Date.
</TABLE>
Succeeding months follow the pattern of (2) through (5). The flow of funds
with respect to any Series of Certificates may differ from the above example,
as specified in the related Prospectus Supplement.
- --------
(1) The initial principal balance of the Contract Pool will be the aggregate
principal balance of the Contracts at the close of business on the Cut-off
Date, after deducting principal payments due on or before such date, which,
together with corresponding interest payments, are not part of the Contract
Pool and will not be passed through to Certificateholders.
(2) Scheduled payments and Principal Prepayments may be received at any time
during this period and will be deposited in the Certificate Account by the
Servicer for distribution to Certificateholders. When a Contract is prepaid
in full, interest on the amount prepaid is collected from the Obligor only
to the date of payment.
(3) Distributions on April 15 will be made to Certificateholders of record at
the close of business on the last Business Day of the month immediately
preceding the month of distribution.
(4) On April 12 (the third Business Day prior to the Remittance Date), the
Servicer will determine the amounts of principal and interest which will be
passed through on April 15. In addition, the Servicer may advance funds to
cover any delinquencies, in which event the distribution to
Certificateholders on April 15 will include the full amounts of principal
and interest due during March. The Servicer will also calculate any changes
in the relative interests evidenced by the Senior Certificates and the
Subordinated Certificates in the Trust Fund.
(5) On April 15, the amounts determined on April 12 will be distributed to
Certificateholders.
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INDEMNIFICATION
The Agreement requires the Company to defend and indemnify the Trust Fund,
the Trustee (including any agent of the Trustee) and the Certificateholders
(which indemnification will survive any removal of the Servicer as servicer of
the Contracts) against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation (a) arising out of or resulting from the use or ownership by the
Company or the Servicer or any affiliate thereof of any Manufactured Home and
(b) for any taxes which may at any time be asserted with respect to, and as of
the date of, the conveyance of the Contracts to the Trust Fund (but not
including any federal, state or other tax arising out of the creation of the
Trust Fund and the issuance of the Certificates). (Article X).
The Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend and indemnify the Trust Fund, the Trustee
and the Certificateholders (which indemnification will survive any removal of
the Servicer as servicer of the Contracts) against any and all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel and expenses of litigation, in respect of any action taken by the
Servicer with respect to any Contract while it was the Servicer. (Section
10.04.)
SERVICING
Pursuant to the Agreement, the Servicer will service and administer the
Contracts assigned to the Trustee as more fully set forth below. The Servicer
will perform diligently all services and duties specified in each Agreement, in
the same manner as prudent lending institutions of manufactured housing
contracts of the same type as the Contracts in those jurisdictions where the
related Manufactured Homes are located or as otherwise specified in the
Agreement. The duties to be performed by the Servicer will include collection
and remittance of principal and interest payments, collection of insurance
claims and, if necessary, repossession.
The Servicer will make reasonable efforts to collect all payments called for
under the Contracts and, consistent with the Agreement and any FHA insurance
and VA guaranty, will follow such collection procedures as it follows with
respect to mortgage loans or contracts serviced by it that are comparable to
the Contracts.
Hazard Insurance. Except as otherwise specified in the related Prospectus
Supplement, the terms of the Agreement will require the Servicer to cause to be
maintained with respect to each Contract one or more Hazard Insurance Policies
which provide, at a minimum, the same coverage as a standard form fire and
extended coverage insurance policy that is customary for manufactured housing,
issued by a company authorized to issue such policies in the state in which the
Manufactured Home is located, and in an amount which is not less than the
maximum insurable value of such Manufactured Home or the principal balance due
from the Obligor on the related Contract, whichever is less; provided, however,
that the amount of coverage provided by each Hazard Insurance Policy shall be
sufficient to avoid the application of any co-insurance clause contained
therein. When a Manufactured Home's location was, at the time of origination of
the related Contract, within a federally designated special flood hazard area,
the Servicer also shall cause such flood insurance to be maintained, which
coverage shall be at least equal to the minimum amount specified in the
preceding sentence or such lesser amount as may be available under the federal
flood insurance program. Each Hazard Insurance Policy caused to be maintained
by the Servicer shall contain a standard loss payee clause in favor of the
Servicer and its successors and assigns. If any Obligor is in default in the
payment of premiums on its Hazard Insurance Policy or Policies, the Servicer
shall pay such premiums out of its own funds, and may add separately such
premium to the Obligor's obligation as provided by the Contract, but may not
add such premium to the remaining principal balance of the Contract.
The Servicer may maintain, in lieu of causing individual Hazard Insurance
Policies to be maintained with respect to each Manufactured Home, and shall
maintain, to the extent that the related Contract does
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not require the Obligor to maintain a Hazard Insurance Policy with respect to
the related Manufactured Home, one or more blanket insurance policies covering
losses on the Obligor's interest in the Contracts resulting from the absence or
insufficiency of individual Hazard Insurance Policies. Any such blanket policy
shall be substantially in the form and in the amount carried by the Servicer as
of the date of this Agreement. The Servicer shall pay the premium for such
policy on the basis described therein and shall pay any deductible amount with
respect to claims under such policy relating to the Contracts. If the insurer
thereunder shall cease to be acceptable to the Servicer, the Servicer shall
exercise its best reasonable efforts to obtain from another insurer a
replacement policy comparable to such policy.
If the Servicer shall have repossessed a Manufactured Home on behalf of the
Trustee, the Servicer shall either (i) maintain at its expense hazard insurance
with respect to such Manufactured Home, or (ii) indemnify the Trustee against
any damage to such Manufactured Home prior to resale or other disposition.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, each Agreement will require the Servicer to deliver to
the Trustee a monthly report prior to each Remittance Date, setting forth
certain information regarding the Contract Pool and the Certificates of such
Series as is specified in the related Prospectus Supplement. Each such report
to the Trustee will be accompanied by a statement from an appropriate officer
of the Servicer certifying the accuracy of such report and stating that the
Servicer has not defaulted in the performance of its obligations under the
Agreement. On or before May 1 of each year, the Servicer will deliver to the
Trustee a report of a nationally recognized accounting firm stating that such
firm has examined certain documents and records relating to the servicing of
manufactured housing contracts serviced by the Servicer under pooling and
servicing agreements similar to the Agreement and stating that, on the basis of
such procedures, such servicing has been conducted in compliance with the
Agreement, except for any exceptions set forth in such report. (Article VI.)
Certain Matters Regarding the Servicer. The Servicer may not resign from its
obligations and duties under an Agreement except upon a determination that its
duties thereunder are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor servicer has
assumed the Servicer's obligations and duties under such Agreement. The
Servicer can only be removed as servicer pursuant to an Event of Termination as
discussed below. Any person with which the Servicer is merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer is a party, or any person succeeding to the business of the
Servicer, will be the successor to the Servicer under the Agreement so long as
such successor services at least $100 million of manufactured housing
contracts. (Section 12.01.)
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will also provide that neither the Servicer, nor any director,
officer, employee or agent of the Servicer, will be under any liability to the
Trust Fund or the Certificateholders for any action taken or for restraining
from the taking of any action in good faith pursuant to the Agreement, or for
errors in judgment; provided, however, that neither the Servicer nor any such
person will be protected against any liability which would otherwise be imposed
by reason of the failure to perform its obligations in strict compliance with
the standards of care set forth in the Agreement. The Servicer may, in its
discretion, undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust Fund and the Servicer will
be entitled to be reimbursed therefor out of the Certificate Account.
The Servicer shall keep in force throughout the term of this Agreement (i)
policy or policies of insurance covering errors and omissions for failure to
maintain insurance as required by this Agreement, and (ii) a fidelity bond.
Such policy or policies and such fidelity bond shall be in such form and amount
as is generally customary among persons which service a portfolio of
manufactured housing contracts having an aggregate principal amount of $100
million or more and which are generally regarded as servicers acceptable to
institutional investors.
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The Servicer, to the extent practicable, shall cause the Obligors to pay all
taxes and similar governmental charges when and as due. To the extent that
nonpayment of any taxes or charges would result in the creation of a lien upon
any Manufactured Home having a priority equal or senior to the lien of the
related Contract, the Servicer shall advance any such delinquent tax or charge.
Servicing Compensation and Payment of Expenses. For its servicing of the
Contracts, the Servicer will receive servicing fees ("Servicing Fees") which
include a Monthly Servicing Fee (which the Company may assign) for each Due
Period (paid on the next succeeding Remittance Date) equal to 1/12th of the
product of 0.50% and the Pool Scheduled Principal Balance for such Remittance
Date. As long as the Company is the Servicer the Trustee will pay the Company
its Monthly Servicing Fee from any monies remaining after the
Certificateholders have received all payments of principal and interest for
such Remittance Date.
The Monthly Servicing Fee provides compensation for customary manufactured
housing contract third-party servicing activities to be performed by the
Servicer for the Trust Fund and for additional 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. Expenses incurred in connection with the
servicing of the Contracts and paid by the Servicer from its Servicing Fees
include, without limitation, payment of fees and expenses of accountants,
payments of all fees and expenses incurred in connection with the enforcement
of Contracts (except Liquidation Expenses) and payment of expenses incurred in
connection with distributions and reports to Certificateholders. The Servicer
will be reimbursed out of the Liquidation Proceeds of a Liquidated Contract for
all ordinary and necessary Liquidation Expenses incurred by it in realization
upon the related Manufactured Home. (Section 5.08.)
As part of its Servicing Fees the Servicer will also be entitled to retain,
as compensation for the additional services provided in connection therewith,
any fees for late payments made by Obligors, extension fees paid by Obligors
for the extension of scheduled payments and assumption fees for permitted
assumptions of Contracts by purchasers of the related Manufactured Homes.
(Section 1.02.)
Events of Termination. Except as otherwise specified in the related
Prospectus Supplement, Events of Termination under each Agreement will include
(i) any failure by the Servicer to distribute to the Certificateholders any
required payment which continues unremedied for 5 days (or such other period
specified in the related Prospectus Supplement) after the giving of written
notice; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Agreement that
materially and adversely affects the interests of Certificateholders, which, in
either case, continues unremedied for 30 days after the giving of written
notice of such failure of breach; (iii) any assignment or delegation by the
Servicer of its duties or rights under the Agreement, except as specifically
permitted under the Agreement, or any attempt to make such an assignment or
delegation; (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
Servicer; and (v) the Servicer is no longer an Eligible Servicer (as defined in
the applicable Agreement). Notice as used herein shall mean notice to the
Servicer by the Trustee or the Company, or to the Company, the Servicer, if
any, and the Trustee by the Holders of Certificates representing interests
aggregating not less than 25% of the Trust Fund.
Rights Upon Event of Termination. Except as otherwise specified in the
related Prospectus Supplement, so long as an Event of Termination remains
unremedied, the Trustee may, and at the written direction of the
Certificateholders of a Series evidencing interests aggregating 25% or more of
the related Trust Fund, shall, terminate all of the rights and obligations of
the Servicer under the related Agreement and in and to the Contracts, and the
proceeds thereof, whereupon (subject to applicable law regarding the Trustee's
ability to
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make advances) the Trustee or a successor Servicer under the Agreement will
succeed to all the responsibilities, duties and liabilities of the Servicer
under the Agreement and will be entitled to similar compensation arrangements;
provided, however, that neither the Trustee nor any successor Servicer will
assume any obligation of the Company to repurchase Contracts for breaches of
representations or warranties, and the Trustee and such successor Servicer will
not be liable for any acts or omissions of the prior Servicer occurring prior
to a transfer of the Servicer's servicing and related functions or for any
breach by such Servicer of any of its obligations contained in the Agreement.
Notwithstanding such termination, the Servicer shall be entitled to payment of
certain amounts payable to it prior to such termination, for services rendered
prior to such termination. No such termination will affect in any manner the
Company's obligation to repurchase certain Contracts for breaches of
representations or warranties under the Agreement. In the event that the
Trustee would be obligated to succeed the Servicer but is unwilling or unable
so to act, it may appoint, or petition to a court of competent jurisdiction for
the appointment of a Servicer. Pending such appointment, the Trustee is
obligated to act in such capacity. The Trustee and such successor may agree
upon the servicing compensation to be paid, which in no event may be greater
than the compensation to the Servicer under the Agreement.
No Certificateholder will have any right under an Agreement to institute any
proceeding with respect to such Agreement unless such Holder previously has
given to the Trustee written notice of default and unless the Holders of
Certificates evidencing interests aggregating not less than 25% of the related
Trust Fund requested the Trustee in writing to institute such proceeding in its
own name as Trustee and have offered to the Trustee reasonable indemnity and
the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to take any action or
institute, conduct or defend any litigation under the Agreement at the request,
order or direction of any of the Holders of Certificates, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which the Trustee may incur.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will forward to each Certificateholder on each Remittance Date,
or as soon thereafter as is practicable, as specified in the related Prospectus
Supplement, a statement setting forth, among other things:
(i) the amount of such distribution allocable to principal on the
Contracts;
(ii) the amount of such distribution allocable to interest on the
Contracts;
(iii) if the distribution to the Certificateholders is less than the full
amount that would be distributable to such Certificateholders if there were
sufficient eligible funds in the Certificate Account, the difference
between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Certificate Account and the amounts actually distributed;
(iv) the aggregate amount of Advances, if any, by the Servicer included
in the amounts actually distributed to the Certificateholders;
(v) the outstanding principal balance of the Contracts; and
(vi) the approximate weighted average Remittance Rate of the Contracts
during the Due Period immediately preceding such Remittance Date.
In addition, not more than 90 days after the end of each calendar year, the
Servicer will furnish a report to each Certificateholder of record at any time
during such calendar year (a) as to the aggregate of amounts reported pursuant
to (i) through (v) above for such calendar year or, in the event such person
was a Certificateholder of record during a portion of such calendar year, for
the applicable portion of such year, (b) such information as the Servicer deems
necessary or desirable for Certificateholders to prepare their tax returns and
(c) if so specified in the related Prospectus Supplement, a listing of the
principal balances of the Contracts outstanding at the end of such calendar
year. Information in the monthly and annual reports
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provided to the Certificateholders will not have been examined and reported
upon by an independent public accountant. However, the Servicer will provide to
the Trustee annually a report by independent public accountants with respect to
the servicing of the Contracts as described under "Evidence as to Compliance"
above.
In addition, to the extent applicable, such report shall include:
(i) in the case of Certificates which are assigned a Stated Balance, the
amount of the distribution being made in reduction of Stated Balance
specified in the related Prospectus Supplement, and the Stated Balance of
each such Class of Certificates and a Single Certificate of the Holder's
Class after giving effect to the distribution in reduction of Stated
Balance made on such Remittance Date and after giving effect to all Special
Distributions since the preceding Remittance Date or since the Closing Date
in the case of the first Remittance Date; and
(ii) with respect to Compound Interest Certificates (but only if the
Holders thereof shall not have received on such Remittance Date a
distribution of interest equal to the entire amount of interest accrued on
such Certificate during the related Due Period with respect to such
Remittance Date):
(a) the interest accrued on such Class of Compound Interest
Certificates and on a Single Certificate of such Class during the Due
Period (or specified interest accrual period) with respect to such
Remittance Date and added to the principal of such Compound Interest
Certificates; and
(b) the Stated Balance of such Class of Compound Interest
Certificates and of a Single Certificate of such Class after giving
effect to the addition thereto of all interest accrued thereon during
the Due Period (or specified interest accrual period) with respect to
such Remittance Date.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Company, the Servicer and the Trustee without
the consent of the Certificateholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, (iii) if an election has been made with respect to a
particular Series of Certificates to treat the Trust Fund as a real estate
mortgage investment conduit ("REMIC") within the meaning of Section 860D(a) of
the Internal Revenue Code of 1986, as amended, to maintain the REMIC status of
the Trust Fund and to avoid the imposition of certain taxes on the REMIC or
(iv) to make any other provisions with respect to matters or questions arising
under such Agreement that are not inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of the Certificateholders of the related Series. Unless otherwise
specified in the related Prospectus Supplement, the Agreement may also be
amended by the Company, the Servicer and the Trustee with the consent of the
Certificateholders (other than holders of Residual Certificates) evidencing
interests aggregating not less than 51% of the Trust Fund for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment that reduces in
any manner the amount of, or delay the timing of, any payment received on or
with respect to Contracts which are required to be distributed on any
Certificate may be effective without the consent of the Holders of each such
Certificate.
TERMINATION OF THE AGREEMENT
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (i) the later of the
final payment or other liquidation of the last Contracts and/or Manufactured
Housing Securities subject thereto and the disposition of all property acquired
upon foreclosure of any Land-and-Home Contract or repossession of any
Manufactured Home and (ii) the payment to the Certificateholders of all amounts
held by the Servicer or the Trustee and required to be paid to it pursuant to
the Agreement. In addition, unless otherwise specified in the related
Prospectus Supplement, the Company or the Servicer may at its option with
respect to any Series of Certificates, repurchase all Certificates or
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Contracts and/or Manufactured Housing Securities remaining outstanding at such
time as the aggregate unpaid principal balance of such Contracts and/or
Manufactured Housing Securities is less than the percentage of the aggregate
unpaid principal balance of the Contracts on the Cut-off Date specified with
respect to such Series in the related Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement, the repurchase price will equal
the principal amount of such Contracts and/or Manufactured Housing Securities
plus accrued interest from the first day of the month of repurchase to the
first day of the next succeeding month at the Contract Rates borne by such
Contracts and the remittance rates borne by such Manufactured Housing
Securities.
THE TRUSTEE
The Prospectus Supplement for a Series of Certificates will specify the
Trustee under the related Agreement. The Trustee may have normal banking
relationships with the Company or its affiliates and the Servicer or its
affiliates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. Unless otherwise specified in
the related Prospectus Supplement, the Trustee may also be removed at any time
by the Holders of Certificates evidencing interests aggregating over 50% of
the related Trust Fund as specified in the Agreement. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
The Trustee will make no representation as to the validity or sufficiency of
the Agreement, the Certificates, any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Company of any funds paid to the Company, as Seller, in consideration of the
conveyance of the Contracts, or deposited into or withdrawn from the
Certificate Account by the Servicer. (Section 11.03.) If no Event of
Termination has occurred, the Trustee will be required to perform only those
duties specifically required of it under the Agreement. However, upon receipt
of the various certificates, reports or other instruments required to be
furnished to it, the Trustee will be required to examine them to determine
whether they conform as to form to the requirements of the Agreement. (Section
11.01.) Whether or not an Event of Termination has occurred, the Trustee is
not required to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties or the exercise of its powers if it
has reasonable grounds to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(Section 11.01.)
Under the Agreement, the Servicer agrees to pay to the Trustee on each
Remittance Date (a) reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and (b)
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with any provision of the Agreement
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense, disbursement or advance as
may be attributable to the Trustee's negligence or bad faith. The Company has
agreed to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the Trust Fund and the Trustee's duties thereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of the Trustee's powers or duties
thereunder. (Section 11.05.)
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts may be FHA-insured or VA-guaranteed, the payments
upon which, subject to the following discussion, are insured by the FHA under
Title I of the National Housing Act or partially guaranteed by the VA.
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The regulations governing FHA manufactured home insurance provide that
insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to HUD. With respecting to a
defaulted FHA contract, the servicer must follow applicable regulations before
initiating repossession procedures. These regulations include requirements that
the lender arrange a face-to-face meeting with the borrower, initiate a
modification or repayment plan, if feasible, and give the borrower 30 days'
notice of default prior to any repossession. The insurance claim is paid in
cash by HUD. For manufactured housing contracts, the amount of insurance
benefits generally paid by FHA is equal to 90% of the sum of (i) the unpaid
principal amount of the Contract at the date of default and uncollected
interest earned to the date of default computed at the Contract rate, after
deducting the best price obtainable for the collateral (based in part on a HUD-
approved appraisal) and all amounts retained or collected by the lender from
other sources with respect to the Contract, (ii) accrued and unpaid interest on
the unpaid amount of the Contract from the date of default to the date of
submission of the claim plus 15 calendar days (but in no event more than nine
months) computed at a rate of 7% per annum, (iii) costs paid to a dealer or
other third party to repossess and preserve the Manufactured Home, (iv) the
amount of any sales commission paid to a dealer or other third party for the
resale of the property, (v) with respect to a Land-and-Home Contract, property
taxes, special assessments and other similar charges and hazard insurance
premiums, prorated to the date of disposition of the property, (vi) uncollected
court costs, (vii) legal fees, not to exceed $500, and (viii) expenses for
recording the assignment of the lien on the collateral to the United States.
The insurance available to a lender under FHA Title I insurance is subject to
the limit of a reserve amount equal to ten percent of the original principal
balance of all Title I insured loans originated by the lender, which amount is
reduced by all claims paid to the lender and by an annual reduction in the
reserve amount of ten percent of the reserve amount, and which is increased by
an amount equal to ten percent of the original principal balance of insured
loans subsequently originated by the lender. As of March 31, 1994, the
Company's Title I reserve amount was approximately $125,033,000, which amount
was available to pay claims in respect of approximately $1,947,000,000 of FHA-
insured home improvement loans and manufactured housing contracts serviced by
the Company. If the Company were replaced as Servicer of the Contracts under
the Agreement, it is not clear from the FHA regulations what portion of this
reserve amount would be available for claims in respect of the FHA-insured
Contracts. The obligation to pay insurance premiums to FHA is the obligation of
the Company, as Servicer of the FHA-insured Contracts.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under the guarantee will be the percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the amount of the
original guarantee.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-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.
THE CONTRACTS (OTHER THAN LAND-AND-HOME CONTRACTS)
General. As a result of the assignment of the Contracts to the Trustee, the
Trust Fund will succeed collectively to all of the rights (including the right
to receive payment on the Contracts) and will assume the
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obligations of the obligee under the Contracts. Each Contract evidences both
(a) the obligation of the Obligor to repay the loan evidenced thereby, and (b)
the grant of a security interest in the Manufactured Home to secure repayment
of such loan. Certain aspects of both features of the Contracts are described
more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Company will retain possession of the Contracts
as custodian for the Trustee, and will make an appropriate filing of a UCC-1
financing statement in Minnesota to give notice of the Trustee's ownership of
the Contracts. The Contracts will be stamped to reflect their assignment from
the Company to the Trustee. However, if through negligence, fraud or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the Trustee's interest in the Contracts
could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes securing
the Contracts may be located in all 50 states and the District of Columbia.
Security interests in manufactured homes may be perfected either by notation of
the secured party's lien on the certificate of title or by delivery of the
required documents and payment of a fee to the state motor vehicle authority,
depending on state law. In some nontitle states, perfection pursuant to the
provisions of the UCC is required. The Company effects such notation or
delivery of the required documents and fees, and obtains possession of the
certificate of title, as appropriate under the laws of the state in which a
Manufactured Home is registered. In the event the Company fails, due to
clerical errors, to effect such notation or delivery, or files the security
interest under the wrong law (for example, under a motor vehicle title statute
rather than under the UCC, in a few states), the Certificateholders may not
have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured homes have become larger and 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. See "Land-
and-Home Contracts" below. These filings must be made in the real estate
records office of the county where the home is located. Substantially all of
the Contracts contain provisions prohibiting the borrower from permanently
attaching the Manufactured Home to its site. So long as the borrower does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest
in the Manufactured Home. If, however, a Manufactured Home becomes permanently
attached to its site, other parties could obtain an interest in the
Manufactured Home which is prior to the security interest originally retained
by the seller and transferred to the Company. The Company will represent that
at the date of the initial issuance of the related Certificates it has obtained
a perfected first priority security interest by proper notation or delivery of
the required documents and fees with respect to substantially all of the
Manufactured Homes securing the Contracts.
The Company will assign the security interest in the Manufactured Homes to
the Trustee on behalf of the Certificateholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Company nor the Trustee will
amend the certificates of title to identify the Trustee as the new secured
party, and neither the Company nor the Servicer will deliver the certificates
of title to the Trustee or note thereon the interest of the Trustee.
Accordingly, the Company will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In some states, such
assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured
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party succeeds to the Servicer's rights as the secured party. However, in some
states in the absence of an amendment to the certificate of title, such
assignment of the security interest in the Manufactured Home may not be held
effective or such security interests may not be perfected and in the absence of
such notation or delivery to the Trustee, the assignment of the security
interest in the Manufactured Home may not be effective against creditors of the
Company or a trustee in bankruptcy of the Company.
In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Company on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Company's security interest is not perfected, such security interest
would be subordinate to, among others, subsequent purchasers for value of the
Manufactured Homes and holders of perfected security interests. There also
exists a risk in not identifying the Trustee as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If the
owner were to relocate a Manufactured Home to another state and not re-register
the Manufactured Home in such state, and if steps were not taken to re-perfect
the Trustee's security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home
is noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states which do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
In the ordinary course of servicing the manufactured housing conditional sales
contracts, the Company takes steps to effect such re-perfection upon receipt of
notice of re-registration or information from the obligor as to relocation.
Similarly, when an obligor under a Contract sells a Manufactured Home, the
Company must surrender possession of the certificate of title or will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related manufactured housing
conditional sales contract before release of the lien. Under the Agreement, the
Servicer is obligated to take such steps, at the Servicer's expense, as are
necessary to maintain perfection of security interests in the Manufactured
Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home and liens for personal property taxes take priority over a perfected
security interest. The Company will represent in the Agreement that it has no
knowledge of any such liens with respect to any Manufactured Home securing
payment on any Contract. However, such liens could arise at any time during the
term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes. The Servicer on
behalf of the Trustee, to the extent required by the related Agreement, may
take action to enforce the Trustee's security interest with respect to
Contracts in default by repossession and resale of the Manufactured Homes
securing such Defaulted Contracts. So long as the Manufactured Home has not
become subject to real estate laws, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days' notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession
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sales, including requiring prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice of any sale prior to resale of the unit so that
the debtor may redeem at or before such resale. In the event of such
repossession and resale of a Manufactured Home, the Trustee would be entitled
to be paid out of the sale proceeds before such proceeds could be applied to
the payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the manufactured home securing such a debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), an Obligor who enters military service
after the origination of such Obligor's Contract (including an Obligor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by the subordination of a Class of Subordinated Certificates, could
result in losses to the holders of a Series of Certificates. In addition, the
Relief Act imposes limitations which would impair the ability of the Servicer
to foreclose on an affected Contract during the Obligor's period of active duty
status. Thus, in the event that such a Contract goes into default, there may be
delays and losses occasioned by the inability to realize upon the Manufactured
Home in a timely fashion.
LAND-AND-HOME CONTRACTS
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the
state in which the underlying property is located. A mortgage creates a lien
upon the real property described in the mortgage. There are two parties to a
mortgage: the mortgagor, who is the borrower, and the mortgagee, who is the
lender. In a mortgage state, the mortgagor delivers to the mortgagee a note or
bond evidencing the loan and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust has three parties: the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under 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 defendant. When the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be time-
consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
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Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior 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 some states the right to redeem
is an equitable right. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has run.
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
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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. For example, with respect
to a Land-and-Home Contract, in a Chapter 13 proceeding under the federal
Bankruptcy Code, when a court determines that the value of a home is less than
the principal balance of the loan, the court may prevent a lender from
foreclosing on the home, and, as part of the rehabilitation plan, reduce the
amount of the secured indebtedness to the value of the home as it exists at the
time of the proceeding, leaving the lender as a general unsecured creditor for
the difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Certain court decisions have applied such relief to claims
secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the mortgage
or deed of trust. The laws of some states provide priority to certain tax liens
over the lien of the 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 Act, Fair Credit Billing
Act, Fair Credit Reporting Act, and related statutes and regulations. These
federal laws and state laws impose specific statutory liabilities upon lenders
who originate or service mortgage loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of
the Contracts.
CERTAIN MATTERS RELATING TO INSOLVENCY
The Company intends that each transfer of the Contracts to a Trust Fund will
constitute a sale rather than a pledge of the Contracts to secure indebtedness
of the Company. However, if the Company were to become a debtor under the
federal bankruptcy code, it is possible that a creditor, receiver, conservator
or trustee in bankruptcy of the Company or the Company as a debtor-in-
possession may argue that the sale of the Contracts by the Company was a pledge
of the Contracts rather than a sale. This position, if argued or accepted by a
court, could result in a delay in or reduction of distributions to the related
Certificateholders.
CONSUMER PROTECTION LAWS
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a Contract (such as the Trust
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Fund) to all claims and defenses which the Obligor could assert against the
seller of the Manufactured Home. Liability under this rule is limited to
amounts paid under a contract; however, the Obligor also may be able to assert
the rule to set off remaining amounts due as a defense against a claim brought
by the Trust Fund against such Obligor. Numerous other federal and state
consumer protection laws impose requirements applicable to the origination and
lending pursuant to the Contracts, including the Truth in Lending Act, the
Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit
Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. In the case of some of
these laws, the failure to comply with their provisions may affect the
enforceability of the related Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such
sale or transfer that is not consented to. The Company expects that it will
permit most transfers of Manufactured Homes and not accelerate the maturity of
the related Contracts. In certain cases, the transfer may be made by a
delinquent Obligor in order to avoid a repossession proceeding with respect to
a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the "due-
on-sale" clause. The Garn-St. Germain Depositary Institutions Act of 1982
preempts, subject to certain exceptions and conditions, state laws prohibiting
enforcement of "due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing. The Contracts
would be covered if they satisfy certain conditions, among other things,
governing the terms of any prepayments, late charges and deferral fees and
requiring a 30-day notice period prior to instituting any action leading to
repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where 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. The Company will represent in the applicable Agreement that all of the
Contracts comply with applicable usury law.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes certain requirements on employee benefit plans subject to ERISA
("Plans") and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by such Plans. Among other
requirements, ERISA mandates that the assets of Plans be held in trust and that
the trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of such Plans. Under ERISA, any
person who exercises any authority or control with respect to the management or
disposition of the assets of a Plan is considered to be a fiduciary of such
Plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of Plans be invested and
managed for the exclusive benefit
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of Plan participants and beneficiaries, a determination by the Plan fiduciary
that any such investment is permitted under the governing Plan instruments and
is prudent and appropriate for the Plan in view of its overall investment
policy and the composition and diversification of its portfolio. Certain
employee benefit plans, such as governmental plans (as defined in ERISA Section
3(32)) and certain church plans (as defined in ERISA Section 3(33)), are not
subject to ERISA. Accordingly, assets of such plans may be invested in
Certificates without regard to the ERISA considerations described above and
below, subject to the provisions of applicable state law. Any such plan which
is qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), however, is subject to
the prohibited transaction rules set forth in Section 503 of the Code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Code, prohibit a broad range of transactions involving Plan assets and persons
having certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 and 407 of ERISA and excise taxes are imposed
upon such persons by Section 4975 of the Code. An investment in the
Certificates by a Plan might constitute prohibited transactions under the
foregoing provisions unless an administrative exemption applies. In addition,
if an investing Plan's assets were deemed to include an interest in the assets
of the Contract Pool and not merely an interest in the Certificates,
transactions occurring in the operation of the Contract Pool might constitute
prohibited transactions unless an administrative exemption applies. Certain
such exemptions which may be applicable to the acquisition and holding of the
Certificates or to the servicing and operation of the Contract Pool are noted
below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "Regulation") concerning the definition of what constitutes
the assets of a Plan. This regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing plan unless certain
exceptions apply. However, the Regulation provides that, generally, the assets
of a corporation or partnership in which a Plan invests will not be deemed for
purposes of ERISA to be assets of such Plan if the equity interest acquired by
the investing Plan is a publicly-offered security. A publicly-offered security,
as defined under the Regulation, is a security that is widely held, freely
transferable, and registered under the Securities Exchange Act of 1934, as
amended. The Certificates are not expected to be publicly-offered securities
under the terms of the Regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise provisions of Section 4975 of the
Code) may be found under the provisions of specific statutory or administrative
exemptive relief authorized under Section 408 of ERISA. In Prohibited
Transaction Exemption 83-1 ("PTE 83-1"), which amended Prohibited Transaction
Exemption 81-7, the DOL exempted from ERISA's prohibited transaction rules
certain transactions relating to the operation of residential mortgage pool
investment trusts and the purchase, sale and holding of "mortgage pool pass-
through certificates" in the initial issuance of such certificates. PTE 83-1
permits, subject to certain conditions, transactions which might otherwise be
prohibited between Plans and parties in interest with respect to those Plans
related to the origination, maintenance and termination of mortgage pools
consisting of mortgage loans secured by first or second mortgages or deeds of
trust on single-family residential property, and the acquisition and holding of
certain mortgage pool pass-through certificates representing an interest in
such mortgage pools by Plans. If the general conditions of PTE 83-1 are
satisfied, investments by a Plan in certificates that represent interests in a
mortgage pool consisting of single family loans will be exempt from the
prohibitions of Sections 406(a) and 407 of ERISA (relating generally to
transactions with parties in interest who are not fiduciaries) if the Plan
purchases such certificates at no more than fair market value, and will be
exempt from the prohibitions of Section 406(b)(1) and (2) of ERISA (relating
generally to transactions with fiduciaries) if, in addition, the purchase is
approved by an independent fiduciary, no sales commission is paid to the pool
sponsor, the Plan does not purchase more than 25 percent of such certificates,
and at least 50 percent of all such certificates are purchased by persons
independent of the pool sponsor or pool trustee.
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However, PTE 83-1 does not provide an exemption for transactions involving
subordinate certificates or for certificates representing an interest in
conditional sales contracts and installment sales or loan agreements secured by
manufactured housing like the Contracts.
There can be no assurance that any of the exceptions set forth in the
Regulation, PTE 83-1 or any other administrative exemption under ERISA, will
apply to the purchase of Certificates offered hereby, and, as a result, an
investing Plan's assets could be considered to include an undivided interest in
the Contracts and any other assets held in the Contract Pool. In the event that
assets of a Contract Pool are considered assets of an investing Plan, the
Company, the Servicer, the Trustee and other persons, in providing services
with respect to the Contracts, may be considered fiduciaries to such Plan and
subject to the fiduciary responsibility provisions of Title I of ERISA and the
prohibited transaction provisions of Section 4975 of the Code with respect to
transactions involving such assets unless a statutory or administrative
exemption applies.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the
Certificates. The discussion is based upon laws, regulations, rulings, and
decisions now in effect, including Treasury Regulations issued on December 23,
1992, and generally effective for REMICs with startup days on or after November
12, 1991 (the "REMIC Regulations"), all of which are subject to change or
possibly differing interpretations. The discussion does not purport to deal
with federal income tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors to determine the federal, state, local, and any other tax
consequences of the purchase, ownership, and disposition of the Certificates.
Many aspects of the federal tax treatment of the purchase, ownership, and
disposition of the Certificates will depend upon whether an election is made to
treat the Trust Fund or a segregated portion thereof evidenced by a particular
series or sub-series of Certificates as a REMIC within the meaning of Section
860D(a) of the Code. The Prospectus Supplement for each series will indicate
whether or not an election to be treated as a REMIC has been or will be made
with respect thereto. The following discussion deals first with Series with
respect to which a REMIC Election is made and then with Series with respect to
which a REMIC Election is not made.
REMIC SERIES
With respect to each Series of Certificates for which a REMIC Election is
made, Dorsey & Whitney or other counsel to the Company identified in the
applicable Prospectus Supplement will have advised the Company that in its
opinion, assuming (i) the making of that election in accordance with the
requirements of the Code and (ii) ongoing compliance with the applicable
Agreement, at the initial issuance of the Certificates in such series the Trust
Fund will qualify as a REMIC and the Certificates in such a Series ("REMIC
Certificates") will be treated either as regular interests in the REMIC within
the meaning of Section 860G(a)(1) of the Code ("Regular Certificates") or as
residual interests in the REMIC within the meaning of Section 860G(a)(2) of the
Code ("Residual Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust Fund so long as there are any
REMIC Certificates outstanding. Substantially all of the assets of the REMIC
must
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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 (including Manufactured
Housing Securities which constitute regular interests in a REMIC) that is
transferred to the REMIC on the Startup Day in exchange for regular or
residual interests in the REMIC or any such obligation (other than
Manufactured Housing Securities which constitute regular interests in a REMIC)
that is purchased by the REMIC within the three-month period beginning on the
Startup Day if such purchase is pursuant to a fixed price contract in effect
on the Startup Day. The REMIC Regulations provide that a Contract is
principally secured by an interest in real property if the fair market value
of the real property securing the Contract is at least equal to either (i) 80%
of the issue price (generally, the principal balance) of the Contract at the
time it was originated or (ii) 80% of the adjusted issue price (the then-
outstanding principal balance, with certain adjustments) of the Contract at
the time it is contributed to a REMIC. The fair market value of the underlying
real property is to be determined after taking into account other liens
encumbering that real property. Alternatively, a Contract is principally
secured by an interest in real property if substantially all of the proceeds
of the Contract were used to acquire or to improve or protect an interest in
real property that, at the origination date, is the only security for the
Contract (other than the personal liability of the obligor). The REMIC
Regulations provide that obligations secured by manufactured housing or mobile
homes (not including recreational vehicles, campers or similar vehicles) which
are "single family residences" under Section 25(e)(10) of the Code will
qualify as obligations secured by real property without regard to state law
classifications. See the discussion below under "REMIC Series--Status of
Manufactured Housing Contracts." A qualified mortgage also includes a
qualified replacement mortgage that is used to replace any qualified mortgage
within three months of the Startup Day or to replace a defective mortgage
within two years of the Startup Day.
"Permitted investments" consist of (a) temporary investments of cash
received under qualified mortgages before distribution to holders of interests
in the REMIC ("cash-flow investments"), (b) amounts, such as a Reserve Fund,
if any, reasonably required to provide for full payment of expenses of the
REMIC, the principal and interest due on regular or residual interests in the
event of defaults on qualified mortgages, lower than expected returns on cash-
flow investments, prepayment interest shortfalls or certain other
contingencies ("qualified reserve assets"), and (c) certain property acquired
as a result of foreclosure of defaulted qualified mortgages ("foreclosure
property"). A reserve fund will not be qualified if more than 30% of the gross
income from the assets in the reserve fund is derived from the sale or other
disposition of property held for three months or less, unless such sale is
necessary to prevent a default in payment of principal or interest on Regular
Certificates. In accordance with Section 860G(a)(7) of the Code, a reserve
fund must be "promptly and appropriately" reduced as payments on contracts are
received. Foreclosure property will be a permitted investment only to the
extent that such property is not held for more than two years.
The Code requires that in order to qualify as a REMIC an entity must make
reasonable arrangements designed to ensure that certain specified entities,
generally including governmental entities or other entities that are exempt
from United States tax, including the tax on unrelated business income
("Disqualified Organizations"), not hold residual interests in the REMIC.
Consequently, it is expected that in the case of any Trust Fund for which a
REMIC Election is made the transfer, sale, or other disposition of a Residual
Certificate to a Disqualified Organization will be prohibited and the ability
of a Residual Certificate to be transferred will be conditioned on the
Trustee's receipt of a certificate or other document representing that the
proposed transferee is not a Disqualified Organization. The transferor of a
Residual Certificate must not, as of the time of the transfer, have actual
knowledge that such representation is false. The Code further requires that
reasonable arrangements must be made to enable a REMIC to provide the Internal
Revenue Service (the "Service") and certain other parties, including
transferors of residual interests in a REMIC, with the information needed to
compute the tax imposed by Section 860E(e)(1) of the Code if, in spite of the
steps taken to prevent Disqualified Organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest.
See "REMIC Series--Restrictions on Transfer of Residual Certificates" below.
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If the Trust Fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the Trust Fund will not be treated
as a REMIC for the year during which such failure occurs and thereafter unless
the Service determines, in its discretion, that such failure was inadvertent
(in which case, the Service may require any adjustments which it deems
appropriate). If the ownership interests in the assets of the Trust Fund
consist of multiple classes, failure to treat the Trust Fund as a REMIC may
cause the Trust Fund to be treated as an association taxable as a corporation.
Such treatment could result in income of the Trust Fund being subject to
corporate tax in the hands of the Trust Fund and in a reduced amount being
available for distribution to Certificateholders as a result of the payment of
such taxes.
Status of Manufactured Housing Contracts. The REMIC Regulations as well as a
Notice issued by the Service provide that obligations secured by interests in
manufactured housing, which qualify as "single family residences" within the
meaning of Section 25(e)(10) of the Code, are to be treated as "qualified
mortgages" for a REMIC. Under Section 25(e)(10) of the Code, the term "single
family residence" includes any manufactured home which has a minimum of 400
square feet of living space and a minimum width in excess of 102 inches and
which is of a kind customarily used at a fixed location. The Company will
represent and warrant that each of the manufactured homes securing the
Contracts which are a part of a Trust Fund meets this definition of a "single
family residence." See the discussion above under "REMIC Series--Qualification
as a REMIC."
Two-Tier REMIC Structures. For certain series of Certificates, two separate
elections may be made to treat segregated portions of the assets of a single
Trust Fund as REMICs for federal income tax purposes (respectively, the
"Subsidiary REMIC" and the "Master REMIC"). Upon the issuance of any such
series of Certificates, Counsel will have advised the Company, as described
above, that at the initial issuance of the Certificates, the Subsidiary REMIC
and the Master REMIC will each qualify as a REMIC for federal income tax
purposes, and that the Certificates in such a series will be treated either as
Regular Certificates or Residual Certificates of the appropriate REMIC. Only
REMIC Certificates issued by the Master REMIC will be offered hereunder. Solely
for the purpose of determining whether such Regular Certificates will
constitute qualifying real estate or real property assets for certain
categories of financial institutions or real estate investment trusts as
described below, both REMICs in a two-tier REMIC structure will be treated as
one. See the discussion below under "REMIC Series--Taxation of Regular
Interests."
Taxation of Regular Interests. Regular Certificates will be treated as new
debt instruments issued by the REMIC on the Startup Day. If a Regular
Certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the stated
principal amount with respect to that Regular Certificate may be zero. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of interest or a qualified variable rate on some or all of the
qualified mortgages. Stated interest on a Regular Certificate will be taxable
as ordinary income. Holders of Regular Certificates that would otherwise report
income under a cash method of accounting will be required to report income with
respect to such Regular Certificates under the accrual method. Under Temporary
Treasury Regulations, if a Trust Fund, with respect to which a REMIC Election
is made, is considered to be a "single-class REMIC," a portion of the REMIC's
servicing fees, administrative and other non-interest expenses, including
assumption fees and late payment charges retained by the Company, will be
allocated as a separate item to those Regular Certificateholders that are
"pass-through interest holders." Generally, a single-class REMIC is defined as
a REMIC that would be treated as a fixed investment trust under applicable law
but for its qualification as a REMIC, or a REMIC that is substantially similar
to an investment trust but is structured with the principal purpose of avoiding
this allocation requirement imposed by the Temporary Treasury Regulations.
Generally, a pass-through interest holder refers to individuals, entities taxed
as individuals, such as certain trusts and estates, and regulated investment
companies. An individual, an estate, or a trust that holds a Regular
Certificate in such a REMIC will be allowed to deduct the foregoing expenses
under Section 212 of the Code only to the extent that, in the aggregate and
combined with certain other itemized deductions, they exceed 2% of the adjusted
gross income of the holder. In addition, Section 68 of the Code provides that
the amount of itemized deductions (including those provided for in Section 212
of the Code) otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds a threshold amount specified in the Code
($100,000 in the case of a joint return) will be reduced by the lesser
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of (i) 3% of the excess of adjusted gross income over the specified threshold
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. As a result of the foregoing limitations, certain holders of
Regular Certificates in "single-class REMICs" may not be entitled to deduct all
or any part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates held
by a financial institution as described in Section 593(a) of the Code will
represent interests in "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) Regular Certificates held by a thrift
institution taxed as a "domestic building and loan association" within the
meaning of Section 7701(a)(19) of the Code will constitute "a regular ...
interest in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi) of the
Code; and (iii) Regular Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code and interest thereon will be considered "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code. If less than 95% of the average adjusted basis of the
assets comprising the REMIC are assets qualifying under any of the foregoing
Sections of the Code (including assets described in Section 7701(a)(19)(C) of
the Code), then the Regular Certificates will be qualifying assets only to the
extent that the assets comprising the REMIC are qualifying assets. Treasury
Regulations promulgated pursuant to Section 593 of the Code define "qualifying
real property loans" to include a loan secured by a mobile home unit
"permanently fixed to real property" except during a brief period in which the
unit is transported to its site. Section 7701(a)(19)(C)(v) of the Code provides
that "loans secured by an interest in real property" includes loans secured by
mobile homes not used on a transient basis. Treasury Regulations promulgated
pursuant to Section 856 of the Code state that local law definitions are not
controlling in determining the meaning of the term "real property" for purposes
of that section, and the Service has ruled that obligations secured by
permanently installed mobile home units qualify as "real estate assets" under
this provision. Furthermore, interest paid with respect to Certificates held by
a real estate investment trust will be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code to the same extent that the
Certificates themselves are treated as real estate assets. Regular Certificates
held by a regulated investment company or a real estate investment trust will
not constitute "Government securities" within the meaning of Sections
851(b)(4)(A)(i) and 856(c)(5)(A) of the Code, respectively. In addition, the
REMIC Regulations provide that payments on Contracts held and reinvested
pending distribution to Certificateholders will be considered to be "qualifying
real property loans" within the meaning of Section 593(b) of the Code and "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code. Entities
affected by the foregoing provisions of the Code that are considering the
purchase of Certificates should consult their own tax advisors regarding these
provisions.
Original Issue Discount. Regular Certificates may be issued with "original
issue discount." Rules governing original issue discount are set forth in
Sections 1271-1273 and 1275 of the Code and the Treasury Regulations issued
thereunder in January 1994 (the "OID Regulations"). The discussion herein is
based in part on the OID Regulations, which generally apply to debt instruments
issued on or after April 4, 1994, but which generally may be relied upon for
debt instruments issued after December 21, 1992. Moreover, although the rules
relating to original issue discount contained in the Code were modified by the
Tax Reform Act of 1986 specifically to address the tax treatment of securities,
such as the Regular Certificates, on which principal is required to be prepaid
based on prepayments of the underlying assets, regulations under that
legislation have not yet been finalized. Certificateholders also should be
aware that the OID Regulations do not address certain issues relevant to
prepayable securities such as the Regular Certificates.
In general, in the hands of the original holder of a Regular Certificate,
original issue discount, if any, is the difference between the "stated
redemption price at maturity" of the Regular Certificate and its "issue price."
The original issue discount with respect to a Regular Certificate will be
considered to be zero if it is less than .25% of the Regular Certificate's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Regular Certificate to its maturity date. The
OID Regulations, however, provide a special de minimis rule to apply to
obligations such as the Regular Certificates that have more than one principal
payment or that have interest payments that are not qualified stated interest
as
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defined in the OID Regulations, payable before maturity ("installment
obligations"). Under the special rule, original issue discount on an
installment obligation is generally considered to be zero if it is less than
.25% of the principal amount of the obligation multiplied by the weighted
average maturity of the obligation as defined in the OID Regulations. Because
of the possibility of prepayments, it is not clear whether or how the de
minimis rules will apply to the Regular Certificates. It is possible that the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption") will be required to be used in determining the
weighted average maturity of the Regular Certificates. In the absence of
authority to the contrary, the Company expects to apply the de minimis rule
applicable to installment obligations by using the Prepayment Assumption. The
OID Regulations provide a further special de minimis rule applicable to any
Regular Certificates that are "self-amortizing installment obligations," i.e.,
Regular Certificates that provide for equal payments composed of principal and
qualified stated interest payable unconditionally at least annually during its
entire term, with no significant additional payment required at maturity. Under
this special rule, original issue discount on a self-amortizing installment
obligation is generally considered to be zero if it is less than .167% of the
principal amount of the obligation multiplied by the number of complete years
from the date of issue of such a Regular Certificate to its maturity date.
Generally, the original holder of a Regular Certificate that includes a de
minimis amount of original issue discount includes that original issue discount
in income as principal payments are made. The amount includable in income with
respect to each principal payment equals a pro rata portion of the entire
amount of de minimis original issue discount with respect to that Regular
Certificate. Any de minimis amount of original issue discount includable in
income by a holder of a Regular Certificate is generally treated as a capital
gain if the Regular Certificate is a capital asset in the hands of the holder
thereof. Pursuant to the OID Regulations, a holder of a Regular Certificate
that uses the accrual method of tax accounting or that acquired such Regular
Certificate on or after April 4, 1994, may, however, elect to include in gross
income all interest that accrues on a Regular Certificate, including any de
minimis original issue discount and market discount, by using the constant
yield method described below with respect to original issue discount.
The stated redemption price at maturity of a Regular Certificate generally
will be equal to the sum of all payments, whether denominated as principal or
interest, to be made with respect thereto other than "qualified stated
interest." Pursuant to the OID Regulations, qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate of interest (or, under certain circumstances, a variable rate tied to an
objective index) during the entire term of the Regular Certificate (including
short periods). Under the OID Regulations, certain variable interest rates
payable on Regular Certificates, including rates based upon the weighted
average interest rate of a Pool of Contracts, may not be treated as qualified
stated interest. In such case, the OID Regulations would treat interest under
such rates as contingent interest which generally must be included in income by
the Regular Certificateholder when the interest becomes fixed, as opposed to
when it accrues. Until further guidance is issued concerning the treatment of
such interest payable on Regular Certificates, the REMIC will treat such
interest as being payable at a variable rate tied to a single objective index
of market rates. Prospective investors should consult their tax advisors
regarding the treatment of such interest under the OID Regulations. In the
absence of authority to the contrary and if otherwise appropriate, the Company
expects to determine the stated redemption price at maturity of a Regular
Certificate by assuming that the anticipated rate of prepayment for all
Contracts will occur in such a manner that the initial Remittance Rate for a
Certificate will not change. Accordingly, interest at the initial Remittance
Rate will constitute qualified stated interest payments for purposes of
applying the original issue discount provisions of the Code. In general, the
issue price of a Regular Certificate is the first price at which a substantial
amount of the Regular Certificates of such class are sold for money to the
public (excluding bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesalers). If a
portion of the initial offering price of a Regular Certificate is allocable to
interest that has accrued prior to its date of issue, the issue price of such a
Regular Certificate includes that pre-issuance accrued interest.
If the Regular Certificates are determined to be issued with original issue
discount, a holder of a Regular Certificate must generally include the original
issue discount in ordinary gross income for federal income tax
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purposes as it accrues in advance of the receipt of any cash attributable to
such income. The amount of original issue discount, if any, required to be
included in a Regular Certificateholder's ordinary gross income for federal
income tax purposes in any taxable year will be computed in accordance with
Section 1272(a) of the Code and the OID Regulations. Under such Section and the
OID Regulations, original issue discount accrues on a daily basis under a
constant yield method that takes into account the compounding of interest. The
amount of original issue discount to be included in income by a holder of a
debt instrument, such as a Regular Certificate, under which principal payments
may be subject to acceleration because of prepayments of other debt obligations
securing such instruments, is computed by taking into account the Prepayment
Assumption.
The amount of original issue discount includable in income by a holder of a
Regular Certificate is the sum of the "daily portions" of the original issue
discount for each day during the taxable year on which the holder held the
Regular Certificate. The daily portions of original issue discount are
determined by allocating to each day in any "accrual period" a pro rata portion
of the excess, if any, of the sum of (i) the present value of all remaining
payments to be made on the Regular Certificate as of the close of the "accrual
period" and (ii) the payments during the "accrual period" of amounts included
in the stated redemption price of the Regular Certificate over the "adjusted
issue price" of the Regular Certificate at the beginning of the "accrual
period." Generally, the "accrual period" for the Regular Certificates
corresponds to the intervals at which amounts are paid or compounded with
respect to such Regular Certificate, beginning with their date of issuance and
ending with the maturity date. The "adjusted issue price" of a Regular
Certificate at the beginning of any accrual period is the sum of the issue
price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code requires the present value of the
remaining payments to be determined on the bases of (a) the original yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period), (b) events,
including actual prepayments, which have occurred before the close of the
accrual period, and (c) the assumption that the remaining payments will be made
in accordance with the original Prepayment Assumption. The effect of this
method is to increase the portions of original issue discount that a Regular
Certificateholder must include in income to take into account prepayments with
respect to the Contracts held by the Trust Fund that occur at a rate that
exceeds the Prepayment Assumption and to decrease (but not below zero for any
period) the portions of original issue discount that a Regular
Certificateholder must include in income to take into account prepayments with
respect to the Contracts that occur at a rate that is slower than the
Prepayment Assumption. Although original issue discount will be reported to
Regular Certificateholders based on the Prepayment Assumption, no
representation is made to Regular Certificateholders that the Contracts will be
prepaid at that rate or at any other rate.
A subsequent purchaser of a Regular Certificate will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Regular Certificate, unless the price paid equals or exceeds the Regular
Certificate's outstanding principal amount. If the price paid exceeds the sum
of the Regular Certificate's issue price plus the aggregate amount of original
issue discount accrued with respect to the Regular Certificate, but does not
equal or exceed the outstanding principal amount of the Regular Certificate,
the amount of original issue discount to be accrued will be reduced in
accordance with a formula set forth in Section 1272(a)(7)(B) of the Code.
The Company believes that the holder of a Regular Certificate determined to
be issued with non-de minimis original issue discount will be required to
include the original issue discount in ordinary gross income for federal income
tax purposes computed in the manner described above. However, the OID
Regulations either do not address or are subject to varying interpretations
with respect to several issues concerning the computation of original issue
discount for obligations such as the Regular Certificates.
Variable Rate Regular Certificates. Regular Certificates may bear interest at
a variable rate. Under the OID Regulations, if a variable rate Regular
Certificate provides for qualified stated interest payments
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computed on the basis of certain qualified floating rates or objective rates,
then any original issue discount on such a Regular Certificate is computed and
accrued under the same methodology that applies to Regular Certificates paying
qualified stated interest at a fixed rate. See the discussion above under
"REMIC Series--Original Issue Discount." Accordingly, if the issue price of
such a Regular Certificate is equal to its stated redemption price at maturity,
the Regular Certificate will not have any original issue discount.
For purposes of applying the original issue discount provisions of the Code,
all or a portion of the interest payable with respect to a variable rate
Regular Certificate may not be treated as qualified stated interest in certain
circumstances, including the following: (i) if the variable rate of interest is
subject to one or more minimum or maximum rate floors or ceilings which are not
fixed throughout the term of the Regular Certificate and which are reasonably
expected as of the issue date to cause the rate in certain accrual periods to
be significantly higher or lower than the overall expected return on the
Regular Certificate determined without such floor or ceiling; (ii) if it is
reasonably expected that the average value of the variable rate during the
first half of the term of the Regular Certificate will be either significantly
less than or significantly greater than the average value of the rate during
the final half of the term of the Regular Certificate; or (iii) if interest is
not payable in all circumstances. In these situations, as well as others, it is
unclear under the OID Regulations whether such interest payments constitute
qualified stated interest payments, or must be treated either as part of a
Regular Certificate's stated redemption price at maturity resulting in original
issue discount, or represent contingent payments which are recognized as
ordinary gross income for federal income tax purposes only as the interest
payments become fixed in each accrual period.
If a variable rate Regular Certificate is deemed to have been issued with
original issue discount, as described above, the amount of original issue
discount accrues on a daily basis under a constant yield method that takes into
account the compounding of interest; provided, however, that the interest
associated with such a Regular Certificate generally is assumed to remain
constant throughout the term of the Regular Certificate at a rate that, in the
case of a qualified floating rate, equals the value of such qualified floating
rate as of the issue date of the Regular Certificate, or, in the case of an
objective rate, at a fixed rate that reflects the yield that is reasonably
expected for the Regular Certificate. A holder of such a Regular Certificate
would then recognize original issue discount during each accrual period which
is calculated based upon such Regular Certificate's assumed yield to maturity,
adjusted to reflect the difference between the assumed and actual interest
rate.
The OID Regulations either do not address or are subject to varying
interpretations with respect to several issues concerning the computation of
original issue discount with respect to the Regular Certificates, including
variable rate Regular Certificates. Additional information regarding the manner
of reporting original issue discount to the Service and to holders of variable
rate Regular Certificates will be set forth in the Prospectus Supplement
relating to the issuance of such Regular Certificates.
Market Discount. Regular Certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the Code. A
purchaser of a Regular Certificate who purchases the Regular Certificate at a
market discount (i.e., a discount from its original issue price plus any
accrued original issue discount, if any, as described above) will be required
to recognize accrued market discount as ordinary income as payments of
principal are received on such Regular Certificate or upon the sale or exchange
of the Regular Certificate. In general, the holder of a Regular Certificate may
elect to treat market discount as accruing either (i) under a constant yield
method that is similar to the method for the accrual of original issue discount
or (ii) in proportion to accruals of original issue discount (or, if there is
no original issue discount, in proportion to accruals of stated interest), in
each case computed taking into account the Prepayment Assumption.
The Code provides that the market discount in respect of a Regular
Certificate will be considered to be zero if the amount allocable to the
Regular Certificate is less than 0.25% of the Regular Certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount
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would be allocated among a portion of each scheduled distribution representing
the stated redemption price of such Regular Certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The Code further provides that any principal payment with respect to a
Regular Certificate acquired with market discount or any gain on disposition of
such a Regular Certificate shall be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of such payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
Regular Certificate is to be reduced by the amount previously treated as
ordinary income.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as the Regular Certificates. Until such time as regulations are issued,
rules described in the legislative history for these provisions of the Code
will apply. Under those rules, as described above, the holder of a Regular
Certificate with market discount may elect to accrue market discount either on
the basis of a constant interest rate or according to certain other methods.
Certificateholders who acquire a Regular Certificate at a market discount
should consult their tax advisors concerning various methods which are
available for accruing that market discount.
In general, limitations imposed by the Code that are intended to match
deductions with the taxation of income may require a holder of a Regular
Certificate having market discount to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry such Regular Certificate. Alternatively, a holder of a Regular
Certificate may elect to include market discount in gross income as it accrues
and, if he makes such an election, is exempt from this rule. The adjusted basis
of a Regular Certificate subject to such election will be increased to reflect
market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or taxable disposition.
Amortizable Premium. A holder of a Regular Certificate who holds the Regular
Certificate as a capital asset and who purchased the Regular Certificate at a
cost greater than its outstanding principal amount will be considered to have
purchased the Regular Certificate at a premium. In general, the Regular
Certificateholder may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A Regular Certificateholder's tax basis
in the Regular Certificate will be reduced by the amount of the amortizable
bond premium deducted. In addition, it appears that the same methods which
apply to the accrual of market discount on installment obligations are intended
to apply in computing the amortizable bond premium deduction with respect to a
Regular Certificate. It is not clear, however, (i) whether the alternatives to
the constant-yield method which may be available for the accrual of market
discount are available for amortizing premium on Regular Certificates and (ii)
whether the Prepayment Assumption should be taken into account in determining
the term of a Regular Certificate for this purpose. Certificateholders who pay
a premium for a Regular Certificate should consult their tax advisors
concerning such an election and rules for determining the method for amortizing
bond premium.
Gain or Loss on Disposition. If a Regular Certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
from the sale and the seller's adjusted basis in such Regular Certificate. The
adjusted basis generally will equal the cost of such Regular Certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income with respect to such Regular Certificate and reduced (but
not below zero) by any payments on the Regular Certificate previously received
or accrued by the seller (other than qualified stated interest payments) and
any amortizable premium. Similarly, a Regular Certificateholder who receives a
principal payment with respect to a Regular Certificate will recognize gain or
loss equal to the difference between the amount of the payment and the holder's
allocable portion of his or her adjusted basis in the Regular Certificate.
Except as discussed below or with respect to market discount, any gain or loss
recognized upon a sale, exchange, retirement, or other disposition of a Regular
Certificate will be capital gain if the Regular Certificate is held as a
capital asset.
Gain from the disposition of a Regular Certificate that might otherwise be
capital gain, including any gain attributable to de minimis original issue
discount, will be treated as ordinary income to the extent of the
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excess, if any, of (i) the amount that would have been includable in the
holder's income if the yield on such Regular Certificate had equaled 110% of
the applicable federal rate determined as of the beginning of such holder's
holding period, over (ii) the amount of ordinary income actually recognized by
the holder with respect to such Regular Certificate.
If the Company is determined to have intended on the date of issue of the
Regular Certificates to call all or any portion of the Regular Certificates
prior to their stated maturity within the meaning of Section 1271(a)(2)(A) of
the Code, any gain realized upon a sale, exchange, retirement, or other
disposition of a Regular Certificate would be considered ordinary income to the
extent it does not exceed the unrecognized portion of the original issue
discount, if any, with respect to the Regular Certificate. The OID Regulations
provide that the intention to call rule will not be applied to mortgage-backed
securities such as the Regular Certificates. In addition, under the OID
Regulations, a mandatory sinking fund or call option is not evidence of an
intention to call.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be includable as ordinary income or
loss in determining the taxable income of holders of Residual Certificates
("Residual Holders"), and will not be taxed separately to the REMIC. The daily
portions are determined by allocating the REMIC's taxable income or net loss
for each calendar quarter ratably to each day in such quarter and by allocating
such daily portion among the Residual Holders in proportion to their respective
holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. REMIC taxable
income generally means a REMIC's gross income, including interest, original
issue discount income, and market discount income, if any, on the Contracts,
plus income on reinvestment of cash flows and reserve assets, minus deductions,
including interest and original issue discount expense on the Regular
Certificates, servicing fees on the Contracts, other administrative expenses of
a REMIC, and amortization of premium, if any, with respect to the Contracts.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
interest, original issue discount or market discount income, or amortization of
premium with respect to the Contracts, on the one hand, and the timing of
deductions for interest (including original issue discount) on the Regular
Certificates, on the other hand. In the event that an interest in the Contracts
is acquired by a REMIC at a discount, and one or more of such Contracts is
prepaid, the Residual Holder may recognize taxable income without being
entitled to receive a corresponding cash distribution because (i) the
prepayment may be used in whole or in part to make distributions on Regular
Certificates, and (ii) the discount on the Contracts which is includable in a
REMIC's income may exceed its deduction with respect to the distributions on
those Regular Certificates. When there is more than one class of Regular
Certificates that receive payments sequentially (i.e., a fast-pay, slow-pay
structure), this mismatching of income and deductions is particularly likely to
occur in the early years following issuance of the Regular Certificates, when
distributions are being made in respect of earlier classes of Regular
Certificates to the extent that such classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
general, losses would be allowed in later years as distributions on the later
classes of Regular Certificates are made. Taxable income may also be greater in
earlier years than in later years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of
Regular Certificates, may increase over time as distributions are made on the
lower yielding classes of Regular Certificates, whereas interest income with
respect to any given Contract will remain constant over time as a percentage of
the outstanding principal amount of that loan (assuming it bears interest at a
fixed rate). Consequently, Residual Holders must have sufficient other sources
of cash to pay any federal, state, or local income taxes due as a result of
such mismatching, or such holders must have unrelated deductions against which
to offset such income, subject to the discussion of "excess inclusions" below
under "REMIC Series--Limitations on Offset or Exemption of REMIC Income." The
mismatching of income and deductions
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described in this paragraph, if present with respect to a series of
Certificates, may have a significant adverse effect upon the Residual Holder's
after-tax rate of return.
The amount of any net loss of a REMIC that may be taken into account by the
Residual Holder is limited to the adjusted basis of the Residual Certificate as
of the close of the quarter (or time of disposition of the Residual Certificate
if earlier), determined without taking into account the net loss for the
quarter. The initial adjusted basis of a purchaser of a Residual Certificate is
the amount paid for such Residual Certificate. Such adjusted basis will be
increased by the amount of taxable income of the REMIC reportable by the
Residual Holder and decreased by the amount of loss of the REMIC reportable by
the Residual Holder. A cash distribution from the REMIC also will reduce such
adjusted basis (but not below zero). Any loss that is disallowed on account of
this limitation may be carried over indefinitely by the Residual Holder for
whom such loss was disallowed and may be used by such Residual Holder only to
offset any income generated by the same REMIC.
If a Residual Certificate has a negative value, it is not clear whether its
issue price would be considered to be zero or such negative amount for purposes
of determining the REMIC's basis in its assets. The REMIC Regulations imply
that residual interests 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, the Company does not intend to treat a
class of Residual Certificates as having a value of less than zero for purposes
of determining the basis of the related REMIC in its assets.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC's basis in the Contracts, the Residual
Holder will not recover a portion of such basis until termination of the REMIC
unless Treasury Regulations yet to be issued provide for periodic adjustments
to the REMIC income otherwise reportable by such holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a REMIC's
deductions for original issue discount will be determined in the same manner as
original issue discount income on Regular Certificates as described above under
"REMIC Series--Original Issue Discount" and "--Variable Rate Regular
Certificates," without regard to the de minimis rule described therein.
The REMIC will have market discount income in respect of the Contracts if, in
general, the basis of the REMIC in such Contracts is exceeded by their unpaid
principal balances. The REMIC's basis in such Contracts is generally the fair
market value of the Contracts immediately after the transfer thereof to the
REMIC (which may equal a proportionate part of the aggregate fair market value
of the REMIC Certificates). In respect of the Contracts that have market
discount to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income. Market
discount income generally should accrue in the manner described above under
"REMIC Series--Market Discount."
Generally, if the basis of a REMIC in the Contracts exceeds the unpaid
principal balances thereof, the REMIC will be considered to have acquired such
Contracts at a premium equal to the amount of such excess. As stated above, the
REMIC's basis in the Contracts is the fair market value of the Contracts
immediately after the transfer thereof to the REMIC. Generally, a person that
holds a Contract as a capital asset may elect to amortize premium on the
Contracts under a constant interest method. See the discussion under "REMIC
Series--Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. If the aggregate value of
the Residual Certificates relative to the aggregate value of the Regular
Certificates and Residual Certificates is considered to be "significant," as
described below, then a portion (but not all) of the REMIC taxable income
includable in
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determining the federal income tax liability of a Residual Holder will be
subject to special treatment. That portion, referred to as the "excess
inclusion," is equal to the excess of REMIC taxable income for the calendar
quarter allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Section 1274(d) of the Code, multiplied by (ii) the
adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described
in this paragraph for all prior quarters, decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. The value of the Residual Certificates would be considered
significant in cases where the aggregate issue price of the Residual
Certificates is at least 2% of the aggregate issue price of the Regular
Certificates and Residual Certificates, and the anticipated weighted average
life of the Residual Certificates is at least 20% of the anticipated weighted
average life of the REMIC.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions on such
Residual Holder's tax return, including net operating loss carry forwards.
Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Section 511 of the Code, the Residual
Holder's excess inclusions will be treated as unrelated business taxable income
of such Residual Holder for purposes of Section 511. Finally, if a real estate
investment trust or regulated investment company owns a Residual Certificate, a
portion (allocated under Treasury Regulations yet to be issued) of dividends
paid by such real estate investment trust or regulated investment company could
not be offset by net operating losses of its shareholders, would constitute
unrelated business taxable income for tax-exempt shareholders, and would be
ineligible for reduction of withholding to certain persons who are not U.S.
persons.
An exception to the inability of a Residual Holder to offset excess
inclusions with unrelated deductions and net operating losses applies to
certain financial institutions described in Section 593 of the Code ("thrift
institutions"). For purposes of applying this rule, all members of an
affiliated group filing a consolidated return are treated as one taxpayer,
except that thrift institutions to which Section 593 applies and each of their
subsidiaries formed to issue REMICs are treated as separate corporations.
Furthermore, the Code provides that regulations may be issued to disallow the
ability of a thrift institution to use deductions to offset excess inclusions
if necessary or appropriate to prevent the avoidance of tax. A thrift
institution may not so offset its excess inclusions unless the Residual
Certificates have "significant value," which requires that (i) the Residual
Certificates have an issue price that is at least equal to 2% of the aggregate
of the issue prices of all Residual Certificates and Regular Certificates with
respect to the REMIC, and (ii) the anticipated weighted average life of the
Residual Certificates is at least 20% of the anticipated weighted average life
of the REMIC. The anticipated weighted average life of the Residual
Certificates is based on all anticipated payments to be received with respect
thereto (using the Prepayment Assumption). The anticipated weighted average
life of the REMIC is the weighted average of the anticipated weighted average
lives of all classes of Certificates in the REMIC (computed using all
anticipated payments on a Regular Certificate with nominal or no principal).
Finally, an ordering rule under the REMIC Regulations provides that a thrift
institution may only offset its excess inclusion income with deductions after
it has first applied its deductions against income that is not excess inclusion
income. If applicable, the Prospectus Supplement with respect to a series will
set forth whether the Residual Certificates are expected to have "significant
value."
Restrictions on Transfer of Residual Certificates. As described above under
"REMIC Series--Qualification as a REMIC," an interest in a Residual Certificate
may not be transferred to a Disqualified Organization. If any legal or
beneficial interest in a Residual Certificate is, nonetheless, transferred to a
Disqualified Organization, a tax would be imposed in an amount equal to the
product of (i) the present value of the total anticipated excess inclusions
with respect to such Residual Certificate for periods after the transfer, and
(ii) the highest marginal federal income tax rate applicable to corporations.
The anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the Prepayment
Assumption. The present value rate equals the applicable federal rate
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under Section 1274(d) of the Code as of the date of the transfer for a term
ending on the close of the last quarter in which excess inclusions are
expected to accrue. Such rate is applied to the anticipated excess inclusions
from the end of the remaining calendar quarters in which they arise to the
date of the transfer. Such a tax generally would be imposed on the transferor
of the Residual Certificate, except that where such transfer is through an
agent (including a broker, nominee, or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit, under penalties of perjury, that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Treasury Department if the Disqualified Organization promptly
disposes of the residual interest and the transferor pays such amount of tax
as the Treasury Department may require (presumably, a corporate tax on the
excess inclusion for the period the residual interest is actually held by the
Disqualified Organization).
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
income tax rate imposed on corporations. Such tax would be deductible from the
ordinary gross income of the Pass-Through Entity for the taxable year. The
Pass-Through Entity would not be liable for such tax if it has received an
affidavit from such record holder that it is not a Disqualified Organization
and, during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For these purposes, a "Pass-Through Entity" means any regulated investment
company, real estate investment trust, common trust fund, partnership, trust
or estate and certain corporations operating on a cooperative basis. Except as
may be provided in Treasury Regulations, any person holding an interest in a
Pass-Through Entity as a nominee for another will, with respect to such
interest, be treated as a Pass-Through Entity.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus
would continue to be subject to tax on its allocable portion of the net income
of the REMIC. Under the REMIC Regulations, a transfer of a "noneconomic
residual interest" (as defined below) to a Residual Holder is disregarded for
all federal income tax purposes if a significant purpose of the transfer is to
enable the transferor to impede the assessment or collection of tax. A
residual interest in a REMIC (including a residual interest with a positive
value at issuance) is a "noneconomic residual interest" unless, at the time of
transfer, (i) the present value of the expected future distributions on the
residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. The
anticipated excess inclusions and the present value rate are determined in the
same manner as set forth above. The REMIC Regulations explain that a
significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation
of the financial condition of the transferee and found that the transferee
historically had paid its debts as they came due and found no significant
evidence to indicate that the transferee would not continue to pay its debts
as they came 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 Pooling
and Servicing Agreement with respect to each series of REMIC Certificates will
require the transferee
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of a Residual Certificate to certify to the statements in clause (ii) of the
preceding sentence as part of the affidavit described above under "Restrictions
on Transfer of Residual Certificates."
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of a
Residual Certificate, the Residual Holder will recognize gain or loss equal to
the excess, if any, of the amount realized over the adjusted basis as described
above of such Residual Holder in such Residual Certificate at the time of the
sale or exchange. In addition to reporting the taxable income of the REMIC, a
Residual Holder will have taxable income to the extent that any cash
distribution to him from the REMIC exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC may be treated as a sale or exchange of a Residual Holder's Residual
Certificate, in which case, if the Residual Holder has an adjusted basis in his
Residual Certificate remaining when his interest in the REMIC terminates, and
if he holds such Residual Certificate as a capital asset, then he will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
The Conference Committee Report to the Tax Reform Act of 1986 provides that,
except as provided in Treasury Regulations, the wash sale rules of Code Section
1091 will apply to dispositions of Residual Certificates where the seller of
the Residual Certificate, during the period beginning six months before the
sale or disposition of the Residual Certificate and ending six months after
such sale or disposition, acquires (or enters into any other transaction that
results in the application of Code Section 1091) any residual interest in any
REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC owner
trust) that is economically comparable to a Residual Certificate.
Certain Other Taxes on the REMIC. The REMIC provisions of the Code impose a
100% tax on any net income derived by a REMIC from certain prohibited
transactions. Such transactions are: (i) any disposition of a qualified
mortgage, other than pursuant to the substitution of a qualified replacement
mortgage for a qualified mortgage (or the repurchase in lieu of substitution of
a defective obligation), a disposition incident to the foreclosure, default, or
imminent default of a mortgage, the bankruptcy or insolvency of the REMIC, or a
qualified liquidation of the REMIC; (ii) the receipt of income from assets
other than qualified mortgages and permitted investments; (iii) the receipt of
compensation for services; and (iv) the receipt of gain from the dispositions
of cash flow investments. The REMIC Regulations provide that the modification
of the terms of a Contract occasioned by default or a reasonably foreseeable
default of the Contract, the assumption of the Contract, the waiver of a due-
on-sale clause or the conversion of an interest rate by an Obligor pursuant to
the terms of a convertible adjustable-rate Contract will not be treated as a
disposition of the Contract. In the event that a REMIC holds Convertible ARM
Loans which are convertible at the option of the Obligor into fixed-rate, fully
amortizing, level payment Contracts, a sale of such Contracts by the REMIC
pursuant to a purchase agreement or other contract with the Company or other
party, if and when the Obligor elects to so convert the terms of the Contract,
is not expected to result in a prohibited transaction for the REMIC. The Code
also imposes a 100% tax on contributions to a REMIC made after the Startup Day,
unless such contributions are payments made to facilitate a cleanup call or a
qualified liquidation of the REMIC, payments in the nature of a guaranty,
contributions during the three-month period beginning on the Startup Day or
contributions to a qualified reserve fund of the REMIC by a holder of a
residual interest in the REMIC. The Code also imposes a tax on a REMIC at the
highest corporate rate on certain net income from foreclosure property that the
REMIC derives from the management, sale, or disposition of any real property,
or any personal property incident thereto, acquired by the REMIC in connection
with the default or imminent default of a loan. Generally, it is not
anticipated that a REMIC will generate a significant amount of such income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a "qualified liquidation." A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation (which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur) and sells all of its assets (other than cash)
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of Regular or Residual
Certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation (including all cash), less amounts retained
to meet claims.
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Taxation of Certain Foreign Investors. For purposes of this discussion, a
"Foreign Holder" is a Certificateholder who holds a Regular Certificate and who
is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity organized in or under the laws of the United
States or a political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes
regardless of its source. Unless the interest on a Regular Certificate is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States, the Foreign Holder is not subject to federal
income or withholding tax on interest (or original issue discount, if any) on a
Regular Certificate (subject to possible backup withholding of tax, discussed
below), provided the Foreign Holder is not a controlled foreign corporation
related to the Company and does not own actually or constructively 10% or more
of the voting stock of the Company. To qualify for this tax exemption, the
Foreign Holder will be required to provide periodically a statement signed
under penalties of perjury certifying that the Foreign Holder meets the
requirements for treatment as a Foreign Holder and providing the Foreign
Holder's name and address. The statement, which may be made on a Form W-8 or
substantially similar substitute form, generally must be provided in the year a
payment occurs or in either of the two preceding years. The statement must be
provided, either directly or through clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax.
This exemption may not apply to a Foreign Holder that owns both Regular
Certificates and Residual Certificates. If the interest on a Regular
Certificate is effectively connected with the conduct by a Foreign Holder of a
trade or business within the United States, then the Foreign Holder will be
subject to tax at regular graduated rates. Foreign Holders should consult their
own tax advisors regarding the specific tax consequences of their owning a
Regular Certificate.
Any gain recognized by a Foreign Holder upon a sale, retirement or other
taxable disposition of a Regular Certificate generally will not be subject to
United States federal income tax unless either (i) the Foreign Holder is a
nonresident alien individual who holds the Regular Certificate as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition and either the gain is attributable to an
office or other fixed place of business maintained in the U.S. by the
individual or the individual has a "tax home" in the United States, or (ii) the
gain is effectively connected with the conduct by the Foreign Holder of a trade
or business within the United States.
A Regular Certificate will not be includible in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company.
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
Certificate. Backup withholding, however, does not apply to payments on a
Certificate made to certain exempt recipients, such as corporations and tax-
exempt organizations, and to certain foreign persons. REMIC Certificateholders
should consult their tax advisors for additional information concerning the
potential application of backup withholding to payments received by them with
respect to a Certificate.
Reporting Requirements and Tax Administration. The Company will report
annually to the Service, holders of record of the Regular Certificates that are
not excepted from the reporting requirements and, to the extent required by the
Code, other interested parties, information with respect to the interest paid
or accrued on the Regular Certificates, original issue discount, if any,
accruing on the Regular Certificates and information necessary to compute the
accrual of any market discount or the amortization of any premium on the
Regular Certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMICs "tax
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matters person." The tax matters person, generally, has responsibility for
overseeing and providing notice to the other Residual Certificateholders of
certain administrative and judicial proceedings regarding the REMIC's tax
affairs. Unless otherwise indicated in the related Prospectus Supplement, the
Company will be designated as tax matters person for each REMIC, and in
conjunction with the Trustee will act as the agent of the Residual
Certificateholders in the preparation and filing of the REMIC's federal and
state income tax and other information returns.
NON-REMIC SERIES
Tax Status of the Trust Fund. In the case of a Trust Fund evidenced by a
series or sub-series of Certificates, or a segregated portion thereof, with
respect to which a REMIC Election is not made ("Non-REMIC Certificates"),
Counsel will have advised the Company that, in their opinion, each Contract
Pool and the arrangement to be administered by the Company under which the
Trustee will hold and the Company will be obligated to service the Contracts
and pursuant to which Non-REMIC Certificates will be issued to Non-REMIC
Certificateholders will not be classified as an association taxable as a
corporation or a "taxable mortgage pool, within the meaning of Code Section
7701(i), but rather will be classified as a grantor trust under Subpart E, Part
1 of Subchapter J of the Code. Each Non-REMIC Certificateholder will be treated
as the owner of a pro rata undivided interest in the ordinary income and corpus
portions of the trust attributable to the Contract Pool in which its
Certificate evidences an ownership interest and will be considered the
equitable owner of a pro rata undivided interest in each of the Contracts
included therein.
Tax Status of Non-REMIC Certificates. In general, (i) Certificates held by a
financial institution taxed as described in Section 593(a) of the Code may
represent interests in "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) Certificates held by a "domestic building and
loan association" within the meaning of Section 7701(a)(19) of the Code may be
considered to represent "qualifying real property loans" within the meaning of
Section 7701(a)(19)(C)(v) of the Code; and (iii) Certificates held by a real
estate investment trust may constitute "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code and interest thereon may be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code. See the discussions of such Code
provisions above under "REMIC Series Tax Status of REMIC Certificates."
Investors should review the related Prospectus Supplement for a discussion of
the treatment of Non-REMIC Certificates and Contracts under these Code sections
and should, in addition, consult with their own tax advisors with respect to
these matters.
Tax Treatment of Non-REMIC Certificates. Non-REMIC Certificateholders will be
required to report on their federal income tax returns, and in a manner
consistent with their respective methods of accounting, their pro rata share of
the entire income arising from the Contracts comprising such Contract Pool,
including interest, original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by the Company, and any gain
upon disposition of such Contracts. (For purposes of this discussion, theterm
"disposition," when used with respect to the Contracts, includes scheduled or
prepaid collections with respect to the Contracts, as well as the sale or
exchange of a Non-REMIC Certificate.) Non-REMIC Certificateholders will be
entitled under Section 162 or 212 of the Code to deduct their pro rata share of
related servicing fees, administrative and other non-interest expenses,
including assumption fees and late payment charges retained by the Company. An
individual, an estate, or a trust that holds a Non-REMIC Certificate either
directly or through a pass-through entity will be allowed to deduct such
expenses under Section 212 of the Code only to the extent that, in the
aggregate and combined with certain other itemized deductions, they exceed 2%
of the adjusted gross income of the holder. In addition, Section 68 of the Code
provides that the amount of itemized deductions (including those provided for
in Section 212 of the Code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the Code ($100,000 in the case of a joint return) will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the specified threshold
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. To the extent that a Non-REMIC Certificateholder is not
permitted to deduct servicing fees allocable to a Non-REMIC Certificate, the
taxable income of the Non-REMIC Certificateholder attributable to that Non-
REMIC Certificate will exceed the net cash distributions
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related to such income. Non-REMIC Certificateholders may deduct any loss on
disposition of the Contracts to the extent permitted under the Code.
Under current Service interpretations of applicable Treasury Regulations the
Company would be able to sell or otherwise dispose of any subordinated Non-
REMIC Certificates. Accordingly, the Company expects to offer subordinated
Non-REMIC Certificates for sale to investors. In general, such subordination
should not affect the federal income tax treatment of either the subordinated
or senior Certificates. Holders of subordinated classes of Certificates should
be able to recognize any losses allocated to such class when and if losses are
realized.
To the extent that any of the Contracts comprising a Contract Pool were
originated on or after March 2, 1984 and under circumstances giving rise to
original issue discount, Certificateholders will be required to report
annually an amount of additional interest income attributable to such discount
in such Contracts prior to receipt of cash related to such discount. See the
discussion above under "REMIC Series--Original Issue Discount." Similarly,
Code provisions concerning market discount and amortizable premium will apply
to the Contracts comprising a Contract Pool to the extent that the loans were
originated after July 18, 1984 and September 27, 1985, respectively. See the
discussions above under "REMIC Series--Market Discount" and "REMIC Series--
Amortizable Premium."
Stripped Non-REMIC Certificates. Certain classes of Non-REMIC Certificates
may be subject to the stripped bond rules of Section 1286 of the Code and for
purposes of this discussion will be referred to as "Stripped Certificates." In
general, a Stripped Certificate will be subject to the stripped bond rules
where there has been a separation of ownership of the right to receive some or
all of the principal payments on a Contract from ownership of the right to
receive some or all of the related interest payments. Non-REMIC Certificates
will constitute Stripped Certificates and will be subject to these rules under
various circumstances, including the following: (i) if any servicing
compensation is deemed to exceed a reasonable amount; (ii) if the Company or
any other party retains a Retained Yield with respect to the Contracts
comprising a Contract Pool; (iii) if two or more classes of Non-REMIC
Certificates are issued representing the right to non-pro rata percentages of
the interest or principal payments on the Contracts; or (iv) if Non-REMIC
Certificates are issued which represent the right to interest only payments or
principal only payments.
Although not entirely clear, each Stripped Certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes
of calculating any original issue discount. Original issue discount with
respect to a Stripped Certificate, if any, must be included in ordinary gross
income for federal income tax purposes as it accrues in accordance with the
constant-yield method that takes into account the compounding of interest and
such accrual of income may be in advance of the receipt of any cash
attributable to such income. See "REMIC Series--Original Issue Discount"
above. For purposes of applying the original issue discount provisions of the
Code, the issue price of a Stripped Certificate will be the purchase price
paid by each holder thereof and the stated redemption price at maturity may
include the aggregate amount of all payments to be made with respect to the
Stripped Certificate whether or not denominated as interest. The amount of
original issue discount with respect to a Stripped Certificate may be treated
as zero under the original issue discount de minimis rules described above. A
purchaser of a Stripped Certificate will be required to account for any
discount on the certificate as market discount rather than original issue
discount if either (i) the amount of original issue discount with respect to
the certificate was treated as zero under the original issue discount de
minimis rule when the certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing in excess of reasonable servicing)
is stripped off of the Contracts. See "REMIC Series--Market Discount" above.
When an investor purchases more than one class of Stripped Certificates it
is currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
It is possible that the Service may take a contrary position with respect to
some or all of the foregoing tax consequences. For example, a holder of a
Stripped Certificate may be treated as the owner of (i) as many stripped bonds
or stripped coupons as there are scheduled payments of principal and/or
interest on each Contract or (ii) a separate installment obligation for each
Contract representing the Stripped Certificate's pro
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rata share of principal and/or interest payments to be made with respect
thereto. As a result of these possible alternative characterizations, investors
should consult their own tax advisors regarding the proper treatment of
Stripped Certificates for federal income tax purposes.
Gain or Loss on Disposition. Upon sale or exchange of a Non-REMIC
Certificate, a Non-REMIC Certificateholder will recognize gain or loss equal to
the difference between the amount realized in the sale and its aggregate
adjusted basis in the Contracts represented by the Non-REMIC Certificate.
Generally, the aggregate adjusted basis will equal the Non-REMIC
Certificateholder's cost for the Non-REMIC Certificate increased by the amount
of any previously reported gain with respect to the Non-REMIC Certificate and
decreased by the amount of any losses previously reported with respect to the
Non-REMIC Certificate and the amount of any distributions received thereon.
Except as provided above with respect to the original issue discount and market
discount rules, any such gain or loss would be capital gain or loss if the Non-
REMIC Certificate was held as a capital asset.
Recharacterization of Servicing Fees. The servicing compensation to be
received by the Company may be questioned by the Service with respect to
certain Certificates or Contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of such servicing
compensation could be recharacterized as an ownership interest retained by the
Company or other party in a portion of the interest payments to be made
pursuant to the Contracts. In this event, a Certificate might be treated as a
Stripped Certificate subject to the stripped bond rules of Section 1286 of the
Code and the original issue discount provisions rather than to the market
discount and premium rules. See the discussion above under "Non-REMIC Series--
Stripped Non-REMIC Certificates."
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a Non-REMIC
Certificateholder who is a Foreign Holder (as defined in "REMIC Series--
Taxation of Certain Foreign Investors") will be treated as "portfolio interest"
and therefore will be exempt from the 30% withholding tax. Such Non-REMIC
Certificateholder will be entitled to receive interest payments and original
issue discount on the Non-REMIC Certificates free of United States federal
income tax, but only to the extent the Contracts were originated after July 18,
1984 and provided that such Non-REMIC Certificateholder periodically provides
the Trustee (or other person who would otherwise be required to withhold tax)
with a statement certifying under penalty of perjury that such Non-REMIC
Certificateholder is not a United States person and providing the name and
address of such Non-REMIC Certificateholder. For additional information
concerning interest or original issue discount paid by the Company to a Foreign
Holder and the treatment of a sale or exchange of a Non-REMIC Certificate by a
Foreign Holder, which will generally have the same tax consequences as the sale
of a Regular Certificate, see the discussion above under "REMIC Series--
Taxation of Certain Foreign Investors".
Tax Administration and Reporting. The Company will furnish to each Non-REMIC
Certificateholder with each distribution a statement setting forth the amount
of such distribution allocable to principal and to interest. In addition, the
Company will furnish, within a reasonable time after the end of each calendar
year, to each Non-REMIC Certificateholder who was a Certificateholder at any
time during such year, information regarding the amount of servicing
compensation received by the Company and any sub-servicer and such other
customary factual information as the Company deems necessary or desirable to
enable Certificateholders to prepare their tax returns. Reports will be made
annually to the Service and to holders of record that are not excepted from the
reporting requirements regarding information as may be required with respect to
interest and original issue discount, if any, with respect to the Non-REMIC
Certificates.
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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LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
Certificates offered hereby that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") and, as such, will
be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, life insurance companies and pension funds) created pursuant to
or existing under the laws of the United States or of any state whose
authorized investments are subject to state regulation to the same extent as,
under applicable law, obligations issued by or guaranteed as to principal and
interest by the United States or any such entities. Under SMMEA, certain states
have created legislation specifically limiting the legal investment authority
of any such entities with respect to "mortgage related securities," in which
case the Certificates will constitute legal investments for entities subject to
such legislation only to the extent provided therein. SMMEA provides, however,
that in no event will the enactment of any such legislation affect the validity
of any contractual commitment to purchase, hold or invest in Certificates, or
require the sale or other disposition of Certificates, so long as such
contractual commitment was made or such Certificates were acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. (S)24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Some Classes of Certificates offered hereby may not be rated in one of the
two highest rating categories and thus would not constitute "mortgage related
securities" for purposes of SMMEA.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from holding securities representing residual interests, including
securities previously purchased. There may be other restrictions on the ability
of certain investors, including depository institutions, either to purchase
Certificates or to purchase Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Certificates constitute
legal investments for such investors.
RATINGS
It is a condition precedent to the issuance of any Class of Certificates sold
under this Prospectus that they be rated by at least one nationally recognized
statistical rating organization in one of its four highest rating categories
(within which there may be sub-categories or gradations indicating relative
standing). A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. The security rating of any Series of Certificates
should be evaluated independently of similar security ratings assigned to other
kinds of securities.
UNDERWRITING
The Company may sell Certificates of each Series to or through underwriters
(the "Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters, and also may sell and
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place Certificates directly to other purchasers or through agents. The Company
intends that Certificates will be offered through such various methods from
time to time and that offerings may be made concurrently through more than one
of these methods or that an offering of a particular Series of Certificates
may be made through a combination of such methods.
The distribution of the Certificates may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Company 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 Company or from purchasers of Certificates for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the Certificates of a Series to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the Certificates of a Series may be deemed to be
Underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of the Certificates by them may be deemed
to be underwriting discounts and commissions, under the Act. Any such
Underwriters or agents will be identified, and any such compensation received
from the Company will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Company will authorize
Underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase the Certificates from the Company pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational
charitable institutions and others, but in all cases such institutions must be
approved by the Company. The obligation of any purchaser under any such
contract will be subject to the condition that the purchaser of the offered
Certificates shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject from purchasing such
Certificates. The Underwriters and such other agents will not have
responsibility in respect of the validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and
there is no assurance that any such market, if established, will continue.
Certain of the Underwriters and their associates may engage in transactions
with and perform services for the Company in the ordinary course of business.
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LEGAL MATTERS
The legality of the Certificates will be passed upon for the Company by
Dorsey & Whitney, Minneapolis, Minnesota. The material federal income tax
consequences of the Certificates will be passed upon for the Company by Dorsey
& Whitney.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1992
and 1993 and for each of the three years in the period ended December 31, 1993
incorporated by reference herein have been audited by KPMG Peat Marwick,
independent accountants, as stated in their opinion given upon their authority
as experts in accounting and auditing.
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GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and the Prospectus Supplement. The Agreement may contain a more
complete definition of certain of the terms defined herein and reference should
be made to the Agreement for a more complete definition of all such terms.
"Accrual Remittance Amount" means, with respect to the Compound Interest
Certificates of a Series of Certificates providing for sequential distributions
in reduction of the Stated Balance of the Classes of such Series, as of any
Remittance Date, the amount of interest, calculated at the Interest Rate, which
has accrued on such Compound Interest Certificates from the prior Remittance
Date.
"Adjustable Rate Certificates" means Certificates which evidence the right to
receive distributions of income at a variable Remittance Rate.
"Advances" means the advances made by a Servicer (including from advances
made by a Sub-servicer) on any Remittance Date pursuant to an Agreement.
"Agreement" means each Pooling and Servicing Agreement by and among the
Company, the Trustee and any other party specified in the related Prospectus
Supplement.
"Asset Value" means the Asset Value of the Contracts included in a Trust
Fund, determined in the manner set forth in the related Agreement.
"Amount Available" means, with respect to each Series of Certificates,
certain amounts on deposit in the Certificate Account on a Determination Date.
"Available Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement, as of any Remittance Date, the
excess, if any, of the then applicable Maximum Subordination Amount over the
Cumulative Subordination Payments as of the preceding Remittance Date.
"Certificate Account" means the account maintained by the Servicer or the
Trustee, as specified in the related Prospectus Supplement.
"Certificate Distribution Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
evidencing an interest in a Contract Pool, the amount of interest (calculated
as specified in such Prospectus Supplement) and the amount of Principal
(calculated as specified in such Prospectus Supplement) to be distributed to
Certificateholders on each Remittance Date.
"Certificate Remittance Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of
the Classes of such Series, as of any Remittance Date, the amount, if any, by
which the then outstanding Stated Balance of the Classes of Certificates of
such Series (before taking into account the amount of interest accrued on any
Class of Compound Interest Certificates to be added to the Stated Balance
thereof on such Remittance Date) exceeds the Asset Value (as defined in the
related Prospectus Supplement) of the Contracts included in the Trust Fund for
such Series as of the end of the related Due Period.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
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"Company" means Green Tree Financial Corporation.
"Compound Interest Certificates" means Certificates on which interest may
accrue but not be paid for the period described in the related Prospectus
Supplement.
"Contract Pool" means, with respect to each Series of Certificates, the pool
of manufactured housing conditional sales contracts and installment loan
agreements transferred by the Company to the Trustee.
"Contract Rate" means, with respect to each Contract, the interest rate
specified in the Contract.
"Contracts" means manufactured housing installment sales contracts and
installment loan agreements, including any and all rights to receive payments
due thereunder on and after the Cut-off Date and security interests in
Manufactured Homes purchased with the proceeds of such contracts.
"Cumulative Subordination Payments" means, with respect to a Series of
Certificates having a class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement as of any Remittance Date, the
cumulative amount equal to (i) the total of all amounts distributed to the
Senior Certificateholders, exclusive of Advances made by the Servicer and the
Initial Deposit to the Reserve Fund, up to and including such Remittance Date
minus (ii) the Senior Percentage times the Available Distribution Amount for
all Remittance Dates up to and including such Remittance Date.
"Cut-off Date" means the date specified in the related Prospectus Supplement
as the date from which principal and interest payments on the Contracts are
included in the Trust Fund.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the third Business Day immediately preceding the related
Remittance Date.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
second day of the month preceding the month of the Remittance Date and ending
on the first day of the month of the Remittance Date.
"Eligible Investments" means one or more of the investments specified in the
Agreement in which moneys in the Certificate Account and certain other accounts
are permitted to be invested.
"Excess Interest or Excess Interest Rate" means, with respect to any
Contract, the per annum percentage of the principal balance from time to time
outstanding, which may be retained by a seller, the Company or the Servicer or
allocated to a designated Class of Certificates, as specified in the related
Prospectus Supplement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"Final Scheduled Remittance Date" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the Stated
Balance of the Classes of each Series, the date, based on the assumptions set
forth in the related Prospectus Supplement, on which the Stated Balance of all
Certificates of each Class shall have been reduced to zero.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"GNMA Certificates" means individual mortgage pass-through securities issued
or guaranteed by GNMA.
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"HUD" means the United States Department of Housing and Urban Development.
"Initial Deposit" means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund on the date of the initial
issuance of the Certificates.
"Interest Rate" means, with respect to a Series of Certificates providing for
sequential distributions in reduction of the Stated Balance of the Classes of
such Series, the interest payable on the Principal Balance outstanding of each
such Class.
"Late Collections" means, with respect to any Contract, amounts received
during any Due Period, whether as late payments of Monthly Payments, or as
Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
"Liquidation Proceeds" means cash (including insurance proceeds) received in
connection with the repossession of a Manufactured Home.
"Loan-to-Value Ratio" means the loan-to-value ratio at the time of
origination of the Contract.
"Manufactured Home" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
"Manufactured Housing Securities" means securities evidencing beneficial
interests in, or indebtedness secured by, pools of manufactured housing
contracts, which contracts are being serviced by the Company on behalf of the
trust that issued such Manufactured Housing Securities, and which are being
included in a Trust Fund.
"Maximum Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, the amount specified
in the related Prospectus Supplement, representing the maximum amount of
Cumulative Subordination Payments which may be required to be made over the
term of the related Agreement.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Contract.
"Obligor" means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
"Record Date" means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in the
Code.
"Remittance Date" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"Remittance Rate" means, as to a Certificate, the rate or rates of interest
thereon specified in the related Prospectus Supplement.
"Senior Certificates" means, with respect to each Series of Certificates, the
Class or Classes which have rights senior to another Class or Classes in such
Series.
"Senior Distribution Amount" means, with respect to a Series of Certificates
having Subordinated Certificates, as of each Remittance Date and for each Class
of Senior Certificates, the amount due the holders of such Class of Senior
Certificates.
64
<PAGE>
"Senior Percentage" means, with respect to a Series of Certificates having
Subordinated Certificates, the percentage specified in the related Prospectus
Supplement.
"Senior Shortfall" means, with respect to a Series of Certificates having
Subordinated Certificates, as of any date, to the extent not previously paid,
the aggregate of the amounts by which the Senior Distribution Amount for any
Remittance Date exceeds the amount actually paid on such date.
"Servicer" means, with respect to each Series of Certificates evidencing
interests in Contracts, the Servicer specified in the related Prospectus
Supplement.
"Servicing Fee" means the amount of the annual fee paid to the Servicer or
the Trustee as specified in the related Prospectus Supplement.
"Single Certificate" means, unless otherwise specified in the related
Prospectus Supplement, for each Class of Certificates of any Series, the
initial principal amount of Contracts evidenced by a single Certificate of such
Class.
"Stated Balance" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of Stated Balance of the Classes of
such Series, the maximum specified dollar amount (exclusive of interest at the
related Interest Rate) to which the Holder thereof is entitled from the cash
flow of the Trust Fund.
"Subordinated Certificates" means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
"Subordinated Percentage" means, with respect to a Series of Certificates
having Subordinated Certificates, the percentage specified in the related
Prospectus Supplement.
"Trust Fund" means, with respect to each Series of Certificates, the corpus
of the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Contracts and/or Manufactured
Housing Securities, such assets as shall from time to time be identified as
deposited in the Certificate Account, the Manufactured Home which secured a
Contract, insurance, a reserve fund and other forms of credit enhancement, if
any.
"Trustee" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"VA" means the Veterans' Administration.
"Variable Rate Certificates" means Certificates which evidence the right to
receive distributions of income at a variable Remittance Rate.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS POST-EFFECTIVE
AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SAINT PAUL, STATE OF
MINNESOTA, ON AUGUST 31, 1994.
GREEN TREE FINANCIAL CORPORATION
/s/ John W. Brink
By: _________________________________
John W. Brink
Executive Vice President,
Treasurer andChief Financial
Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1993, this Post-
Effective Amendment No. 2 to the Registration Statement has been signed by the
following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and August 31, 1994
- ------------------------------------ Chief Executive Officer
Lawrence M. Coss (Principal Executive
Officer) and Director
/s/ John W. Brink Executive Vice President, August 31, 1994
- ------------------------------------ Treasurer and Chief
John W. Brink Financial Officer
(Principal Financial
Officer)
* Vice President and August 31, 1994
- ------------------------------------ Controller (Principal
Robley D. Evans Accounting Officer)
* Director August 31, 1994
- ------------------------------------
Richard G. Evans
* Director August 31, 1994
- ------------------------------------
W. Max McGee
Director
- ------------------------------------
Tania A. Modic
* Director August 31, 1994
- ------------------------------------
Robert S. Nickoloff
* Director August 31, 1994
- ------------------------------------
Robert D. Potts
*By: /s/ John W. Brink
--------------------------------
John W. Brink
As Attorney-in-Fact
</TABLE>
II-1
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
*1.1 Proposed form of Underwriting Agreement
Restated Articles of Incorporation of Green Tree Financial
*3.1 Corporation
*3.1.1 Articles of Amendment to Restated Articles of Incorporation of
Green Tree Financial Corporation, as filed with the Minnesota
Secretary of State on May 20, 1994
*3.2 Bylaws of Green Tree Financial Corporation
*4.1 Form of Pooling and Servicing Agreement
*5.1 Opinion and consent of Dorsey & Whitney as to legality
*8.1 Opinion of Dorsey & Whitney as to tax matters
*12.1 Computation of Ratio of Earnings to Fixed Charges
*21.1 Subsidiaries of the Registrant
*23.1 Consent of KPMG Peat Marwick
*23.2 Consent of Dorsey & Whitney (included as part of Exhibit 5.1)
*24.1 Power of attorney from officers and directors of the Registrant
signed by an attorney-in-fact
</TABLE>
- --------
* Previously filed.
