<PAGE>
As filed with the Securities and Exchange Commission on June 4, 1999
Registration No. 333-75623
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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GREEN TREE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 41-1807858
(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)
--------------
Joel H. Gottesman
1100 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 Jeffrey J. Murphy
Dorsey & Whitney LLP Thacher Proffitt & Wood
220 South Sixth Street Two 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]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
Pursuant to Rule 429, the Prospectuses contained in this Registration
Statement also relate to and constitute Post-Effective Amendment No. 2 to
Registration Statement No. 333-63305, which became effective on October 14,
1998.
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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<PAGE>
GREEN TREE FINANCIAL CORPORATION
Certificates for Home Improvement and Home Equity Loans
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EXPLANATORY NOTE
This Registration Statement includes seven different Base Prospectuses, with
an accompanying form of Prospectus Supplement, describing different
combinations of assets or transaction structures that might be employed by the
Registrant:
Base No. 1Home Equity Loans, REMIC
The assets of the related Trust would consist of home equity loans.
Each such home equity loan would constitute a "qualified mortgage"
for purposes of the REMIC provisions of the Internal Revenue Code.
The Trust would be structured to qualify as a "real estate mortgage
investment conduit"("REMIC") under the Internal Revenue Code, and
would issue certificates constituting "regular interests" in the
REMIC.
Base No. 2 High-LTV Home Equity Loans , Owner Trust
The assets of the related Trust would consist of home equity loans.
For various reasons, which may include a loan-to-value ratio in
excess of 125%, Green Tree is unable to represent that such home
equity loans constitute "qualified mortgages" for purposes of the
REMIC provisions of the Internal Revenue Code. The Trust would be
structured as an "owner trust," issuing notes pursuant to an
indenture representing indebtedness of the Trust, and possibly
issuing certificates representing beneficial interests in the Trust.
Base No. 3 Secured Home Improvement and Home Equity Loans, REMIC
The assets of the related Trust would consist of home improvement
loans and home equity loans. Each such home improvement loan and each
such home equity loan would constitute a "qualified mortgage" for
purposes of the REMIC provisions of the Internal Revenue Code. The
Trust would be structured to qualify as a REMIC under the Internal
Revenue Code, and would issue certificates constituting "regular
interests" in the REMIC.
Base No. 4 Secured Home Improvement Loans, REMIC
The assets of the related Trust would consist of home improvement
loans. Each such home improvement loan would constitute a "qualified
mortgage" for purposes of the REMIC provisions of the Internal
Revenue Code. The Trust would be structured to qualify as a REMIC
under the Internal Revenue Code, and would issue certificates
constituting "regular interests" in the REMIC.
Base No. 5 Unsecured Home Improvement Loans and High-LTV Home Equity Loans ,
Owner Trust
The assets of the related Trust would consist of home improvement
loans and home equity loans. For various reasons, which may include
the lack of a mortgage on the related improved real estate or a loan-
to-value ratio of such loan in excess of 125%, Green Tree is unable
to represent that such home improvement loans and home equity loans
constitute "qualified mortgages" for purposes of the REMIC provisions
of the Internal Revenue Code. The Trust would be structured as an
"owner trust," issuing notes pursuant to an indenture representing
indebtedness of the Trust, and possibly issuing certificates
representing beneficial interests in the Trust.
Base No. 6 Unsecured Home Improvement Loans , Grantor Trust
The assets of the related Trust would consist of home improvement
loans. For various reasons, which may include the lack of a mortgage
on the related improved real estate or a loan-to-value ratio of such
loan in excess of 125%, Green Tree is unable to represent that such
home improvement loans constitute "qualified mortgages" for purposes
of the REMIC provisions of the Internal Revenue Code. The Trust would
be structured to qualify as a "grantor trust" under the Internal
Revenue Code, and would issue certificates representing beneficial
interests in the Trust.
Base No. 7 Unsecured Home Improvement Loans , Owner Trust
The assets of the related Trust would consist of home improvement
loans. For various reasons, which may include the lack of a mortgage
on the related improved real estate or a loan-to-value ratio of such
loan in excess of 125%, Green Tree is unable to represent that such
home improvement loans constitute "qualified mortgages" for purposes
of the REMIC provisions of the Internal Revenue Code. The Trust would
be structured as an "owner trust," issuing notes pursuant to an
indenture representing indebtedness of the Trust, and possibly
issuing certificates representing beneficial interests in the Trust.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT Prospectus Supplement to Base No. 1
(To prospectus dated June , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Certificates for Home Equity Loans
Series 1999-
----------
The certificates will consist of 15 classes, but we are offering only the
classes listed below now:
<TABLE>
<CAPTION>
Approximate C Pass-Through Underwriting Proceeds to
Class Principal Amount Rate Price to Public Discount Company
- ----- ---------------- -------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
A-1A ARM................ $
A-1B ARM................ $
A-1..................... $
A-2..................... $
A-3..................... $
A-4..................... $
A-5..................... $
A-6 IO.................. $
M-1..................... $
M-2..................... $
B-1..................... $
B-2A.................... $
Total................... $
</TABLE>
- -----
(1) Or the weighted average of the rates on the loans, if less.
Consider carefully the risk factors beginning on page S-13 in this prospectus
supplement.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
These certificates will be delivered on or about , 1999.
The underwriters named below will offer these securities to the public at the
offering price listed on this cover page and they will receive the discount
listed above. See "Underwriting" on page S-98 in this prospectus supplement and
on page 63 in the prospectus.
----------
[Underwriters]
The date of this prospectus supplement is , 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Certificates................................. S-4
Risk Factors............................................................. S-13
Structure of the Transaction............................................. S-16
Use of Proceeds.......................................................... S-17
The Loans................................................................ S-17
Yield and Prepayment Considerations...................................... S-41
Green Tree Financial Corporation......................................... S-53
Description of the Certificates.......................................... S-55
Description of the Class B-2 Limited Guaranty............................ S-90
Certain Federal Income Tax Consequences.................................. S-91
ERISA Considerations..................................................... S-92
Underwriting............................................................. S-98
Legal Matters............................................................ S-99
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trust................................................................ 3
Use of Proceeds.......................................................... 8
Green Tree Financial Corporation......................................... 9
Yield Considerations..................................................... 10
Maturity and Prepayment Considerations................................... 11
Description of the Certificates.......................................... 12
Servicing................................................................ 21
Certain Legal Aspects of the Loans; Repurchase Obligations............... 24
ERISA Considerations..................................................... 36
Certain Federal Income Tax Consequences.................................. 39
Legal Investment Considerations.......................................... 62
Ratings.................................................................. 63
Underwriting............................................................. 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Glossary................................................................. 66
</TABLE>
You should rely only on the information contained in this prospectus. Green
Tree and the underwriters have not authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. Green Tree and the
underwriters are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
S-2
<PAGE>
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our home equity lending business, and about any series of certificates
for home equity loans that we may wish to sell. This prospectus supplement
contains more detailed information about the specific terms of this series of
certificates. If the description of the terms of your certificate varies
between this prospectus supplement and the prospectus, you should rely on the
information in this prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Green Tree or an underwriter by asking for it.
No prospectus regarding these certificates has been or will be prepared in
the United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These certificates may not be offered or sold, or re-offered
or re-sold, to persons in the United Kingdom, except (1) to persons whose
ordinary activities involve them in acquiring, holding, managing and disposing
of investments (as principal or agent) for the purpose of their businesses, or
(2) in circumstances that will not constitute or result in an offer to the
public in the United Kingdom within the meaning of the United Kingdom Public
Offers of Securities Regulation 1995. You may not pass this prospectus
supplement and prospectus, or any other document inviting applications or
offers to purchase certificates or offering certificates for purchase, to any
person in the United Kingdom who (1) does not fall within article 11(3) of the
Financial Services Act 1986 (Investment Advisements) (Exemptions) Order 1996 or
(2) is not otherwise a person to whom passing this prospectus supplement and
prospectus would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE CERTIFICATES
This summary highlights selected information regarding the certificates, and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the certificates,
read this entire prospectus supplement and the accompanying prospectus. In
particular, we will refer throughout this summary to sections of this
prospectus supplement or the prospectus, or both, which will contain more
complete descriptions of the matters summarized. All these references will be
to sections of this prospectus supplement only unless we note otherwise.
The classes of certificates, Series 1999- , listed on the table below will
represent interests in a trust. The trust will own a pool of home equity loans.
<TABLE>
<CAPTION>
Pass-Through Approximate S&P Fitch
Class Rate Principal Amount(1) Rating Rating
- ----- ------------ ------------------- ------ ------
<S> <C> <C> <C> <C>
A-1A ARM......................... $
A-1B ARM.........................
A-1..............................
A-2..............................
A-3..............................
A-4..............................
A-5..............................
A-6 IO...........................
M-1..............................
M-2..............................
B-1..............................
B-2A.............................
B-2..............................
</TABLE>
- --------
(1) May vary plus or minus 5%.
(2) Interest on the class A-6 IO certificates will be based on a notional
principal amount. That notional principal amount will equal $ ,
or the Class A principal balance, if less, for the first 24 months and will
equal zero thereafter.
We will not issue or sell the certificates unless S&P and Fitch assign each
class at least the rating listing above.
The ratings on each class of certificates by S&P addresses the likelihood of
timely receipt of interest and ultimate receipt of principal. The rating of
each class of certificates by Fitch addresses the likelihood of the receipt of
certificateholders of all distributions to which such certificateholders are
entitled. 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.
S-4
<PAGE>
The ratings of the Class B-2 certificates are based in part on an assessment
of Green Tree's ability to make payments under the Class B-2 limited guaranty.
Any reduction in the rating of Green Tree's debt securities may result in a
similar reduction in the ratings of the Class B-2 certificates.
Only some classes of the certificates are being offered under this prospectus
supplement and prospectus, and they are identified on the cover page of this
prospectus supplement. Green Tree, or one of its affiliates, will initially
retain the Class B-2 Certificates.
Seller and Servicer.........
Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Trustee..................... U.S. Bank Trust National Association, St. Paul,
Minnesota.
Payment Date................
The fifteenth day of each month, or if that day
is not a business day, the next succeeding
business day. The first payment date will be on
15, 1999.
Record Date.................
The business day just before the payment date.
Distributions on the
Certificates................
Distributions on the certificates on any payment
date will be made primarily from amounts
collected on the home equity loans during the
prior calendar month. On each payment date, the
trustee will apply the amount available to make
distributions of principal and interest on the
certificates in the following order of priority:
^ Class A interest;
^ Class M-1 interest;
^ Class M-2 interest;
^ Class B-1 interest;
^ Class A-1A ARM and Class A-1B ARM principal;
^ Class A principal (other than the Class A-6
IO certificates);
^ Class M-1 principal;
^ Class M-2 principal;
^ Class B-1 principal;
S-5
<PAGE>
^ Class B-2A interest;
^ Class B-2A principal;
^ Class B-2 interest;
^ Class B-2 principal; and
^ Class B-2A additional principal.
This prospectus supplement summarizes in the next
3 pages the amounts of interest and principal to
be paid on each payment date. In each case, the
payments will be made only to the extent the
amount available, after making any payments with
a higher priority, is sufficient. See
"Description of the Certificates--Payments on
Loans."
A. Interest on the Class A,
Class M-1, Class M-2 and
Class B-1 Certificates...
Interest will be payable first to each class of
Class A certificates concurrently, then to the
Class M-1 certificates, then to the Class M-2
certificates, and then to the Class B-1
certificates. See "Description of the
Certificates--Distributions on Certificates" and
"--Losses on Liquidated Loans."
B. Principal on the Class
A, Class M and Class B-1
Certificates ............
The portion of the amount available applied to
the payment of principal on the Class A, Class M
and Class B-1 certificates on each payment date
will be based on the scheduled amounts of
principal due on the home equity loans. Any
principal payable will initially be paid only on
the Class A Certificates. Principal will be paid
first to the Class A-1 certificates until all
certificates of that class have been retired, and
after that to each successive Class A
certificates. Beginning with the payment date
occuring in , the trustee will then apply any
remaining amount available to pay principal to
the Class M-1 and Class M-2 certificates and the
Class B-1 certificates. See "Description of the
Certificates--Distributions on Certificates."
C. Class B-2A Interest......
The remaining amount available will be used to
pay interest on the Class B-2A certificates.
S-6
<PAGE>
D. Class B-2A Principal.....
In general, principal will not be payable on the
Class B-2A certificates until the B-1
certificates have been retired. After that has
occurred, the Class B-2 certificates will be
entitled to receive a portion of the principal to
be paid on each payment date.
E. Class B-2 Interest.......
Any remaining amount available will be used to
pay interest on the Class B-2 certificates.
F. Class B-2 Principal......
In general, principal will not be payable on the
Class B-2 certificates until the B-1 certificates
have been retired. After that has occurred, the
Class B-2 certificates will be entitled to
receive a portion of the principal to be paid on
each payment date.
G. Class B-2 Limited
Guaranty.................
We will guarantee payment of interest and
principal on the Class B-2 certificates. See
"Description of the Class B-2 Limited Guaranty"
for a complete description of our obligation
under the Class B-2 Limited Guaranty.
H. Additional Class B-2A
Principal................
After paying the amounts of interest and
principal due on the certificates described
above, the trustee will apply 50% of the
remaining amount available, if any, to the
payment of principal on the Class B-2A
certificates.
Home Equity Loans...........
The pool will include two types of home equity
loans: fixed-rate home equity loans and
adjustable rate home equity loans.
A. Fixed-Rate Home Equity
Loans....................
This prospectus supplement provides information
regarding only a portion of the fixed-rate home
equity loans to be included in the pool on the
closing date. These initial loans represent about
% of all the fixed-rate home equity loans. We
will transfer additional loans to the trust on
the closing date, and will transfer the remaining
fixed-rate home equity loans to the trust within
90 days after the closing date.
With respect to the fixed-rate home equity loans
as of the cut-off date:
. all are secured by a lien on the related
real property;
S-7
<PAGE>
. the related properties are located in
states and the District of Columbia;
. there are loans;
. the contract rates range from % to
%, with a weighted average of %;
. the weighted average term to schedule
maturity, as of their dates of origination,
was months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months;
. are balloon loans and the rest provide
for level monthly payments for the duration
of the loan;
. the weighted average contract rate on the
balloon loans was ;
. the balloon loans had a weighted average
term to scheduled maturity, as of their
dates of origination, of months; and a
weighted average to maturity as of the cut-
off date of months; and
. the latest scheduled maturity date was in ,
.
See "The Loans--Fixed Rate Loans," which includes
the permissible characteristics or the other
loans that we will transfer to the trust on the
closing date or later.
B. Adjustable Rate Home
Equity Loans.............
This prospectus supplement provides information
regarding a portion of the adjustable rate home
equity loans, representing about % of all the
adjustable rate home equity loans. We will
transfer another portion of the adjustable rate
home equity loans to the trust on the closing
date, and will transfer the remaining adjustable
rate home equity loans to the trust within 90
days after the closing date.
For purposes of calculating the amount of
principal payable on each payment date on the
Class A-1A ARM and Class A-1B ARM certificates,
the adjustable rate loans have been divided into
group I and group II. This prospectus supplement
provides information regarding the initial group
I adjustable rate loans and the initial group II
adjustable rate loans.
S-8
<PAGE>
1. Group I.............
With respect to the group I loans, as of the cut-
off date:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. each loan accrues interest at a fixed rate
for no more than months, and after that
the interest rate adjusts annually or
semiannually to equal the sum of the six-
month LIBOR or one year treasury index and
the gross margin specified in the loan;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months, and
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months.
2. Group II ................
With respect to the group II loans, as of the
cut-off date:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. each loan accrues interest at a fixed rate
for no more than months, and thereafter
the interest rate adjusts annually or
semiannually to equal the sum of the six-
month LIBOR or one year treasury index and
the gross margin specified in the that loan;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months, and
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months.
Pre-Funding Account.........
If the aggregate principal balance of the loans
transferred by Green Tree to the trust on the
closing date is less that the aggregate original
principal balance
S-9
<PAGE>
of the pool of certificates, that difference will
be deposited by the trustee in a pre-funding
account, and those funds will be used to purchase
loans from time to time until , 1999. If those
funds are not completely used by , 1999, the
only remaining funds will be distributed as
principal on the Class A-1 certificates and on
the A-1B ARM certificates on the , 1999 payment
date.
Advances....................
The servicer will to make advances each month of
any scheduled payments on the loans that were due
but not received during the prior due period, but
it will be entitled to reimbursement for any
advance. See "Description of the certificates--
Advances" in this prospectus supplement and in
the prospectus.
Repurchase or Substitution
Obligations.................
We will make representations and warranties about
the loans when we transfer them to the trust. If
a representation or warranty is breached in a way
that materially and adversely affects the
interests of the certificateholders, then we
must, within 90 days, either (1) cure the breach
or (2) repurchase the defective loans. During the
first two years after the closing date, we may
substitute other loans instead of repurchasing
defective loans. See "Description of the
certificates--Conveyance of Loans" in this
prospectus supplement and in the prospectus.
Repurchase Options..........
After the scheduled principal balance of the
loans is less than 10% of the aggregate principal
balance of the certificates on the closing date,
we will have the option to purchase all of the
outstanding loans. See "Description of the
certificates--Repurchase Option" in this
prospectus supplement and in the prospectus.
Tax Status.................
In the opinion of Green Tree's counsel, for
federal income tax purposes the trust will
consist of two segregated asset pools--a master
REMIC and a subsidiary REMIC--and each will be
treated as a separate REMIC. Each class of
certificates will constitute regular interests in
the master REMIC and
S-10
<PAGE>
generally will be treated as debt instruments of
the trust for federal income tax purposes. A
holder of a certificate will be required to
include as income all interest paid on the
certificates, including any original issue
discount, under the accrual method of accounting,
even if the holder usually uses the cash method
of accounting. The Class A-6 IO certificates will
be considered to have been issued with original
issue discount. See "Certain Federal Income Tax
Consequences" in this prospectus supplement and
in the prospectus for a more detailed description
of the tax status of the certificates.
ERISA Considerations........
Subject to the conditions described under "ERISA
Considerations," employee benefit plans that are
subject to the ERISA may purchase Class A
certificates. An employee benefit plan may not
purchase any other class of certificates, unless
it satisfies the conditions described under
"ERISA Considerations" in this prospectus
supplement and in the prospectus.
Legal Investment
Considerations..............
The certificates will not constitute mortgage
related securities for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, because
a number of the loans are not secured by first
liens on the related real estate. This means that
many institutions that have the legal authority
to invest in mortgage related securities may not
be legally authorized to invest in the
certificates. You should consult with your own
legal advisor to decide whether and how much you
may legally invest in the certificates.
Reports to Holders of the
Certificates...........
We will provide to the holders of the
certificates monthly and annual reports about the
certificates and the trust. See "Description of
the Certificates--Reports to Certificateholders"
in the prospectus.
S-11
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase certificates.
A substantial number of the liens on improved real estate securing the loans
will be junior to other liens on that real estate.
Because the liens are junior, the rights of the trust (and consequently the
holders of certificates of the related series), as beneficiary under a
conventional junior deed of trust or as mortgagee under a conventional junior
mortgage are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to cause the property securing the loan to be sold
upon default of the mortgagor or trustor. This extinguishes the junior
mortgagee's or junior beneficiary's lien unless the servicer on behalf of the
trust fund asserts its subordinate interest in the property in foreclosure
litigation and, possibly, satisfies the defaulted senior loan or loans. For a
more complete description of the risks associated with junior mortgage liens,
see "Certain Legal Aspects of the Loans--Repurchase Obligations."
We expect a substantial portion of the loans included in a loan pool to have
loan-to-value ratios of 90% or more, based on the total of the outstanding
principal balances of all senior mortgages or deeds of trust and of the loan an
the one hand, and the value of the home, on the other. For a more complete
description, see "Green Tree Financial Corporation--Loan Origination." An
overall decline in the residential real estate market, the general condition of
a property securing a loan or other factors could adversely affect the value of
the property securing a loan. As a result, the remaining balance of that loan,
together with that of any senior liens on the related property, could equal or
exceed the value of the property.
A secondary market for the certificates may not develop.
We cannot assure to you that a secondary market will develop for the
certificates of any series, or, if a secondary market does develop, that it
will provide the holders of any of the certificates with liquidity of
investment. We also cannot assure to you that if a secondary market does
develop, that it will continue to exist for the term of any series of
certificates.
The assignment to the trust will not be recorded.
We will not record the assignment to the trustee of the mortgage or deed of
trust securing any loan, because of the expense and administrative
inconvenience involved. In some states, in the absence of a recordation, the
assignment to the related trustee of the mortgage or deed of trust securing a
loan may not be effective against creditors of or purchasers from us or our
trustee in bankruptcy.
S-12
<PAGE>
Bankruptcy proceedings could delay distributions on the certificates.
We intend that each transfer of loans to the related trust fund will
constitute a sale, rather than a pledge of the loans to secure indebtedness.
However, if we were to become a debtor under the federal bankruptcy code, it is
possible that our creditor or trustee in bankruptcy may argue that the sale of
the loans by us was a pledge of the loans 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 holders of the certificates.
The historical delinquency experience with home equity loans may not be an
accurate prediction of the performance of the loans in the pool.
If you purchase a certificate, the return on your investment will depend
largely on the performance of the loans constituting the underlying pool. We
have disclosed our historical delinquency experience with home equity loans
under "The Loans" in this prospectus supplement, but the historical experience
may not be an accurate prediction of the performance of the home equity loans
constituting the pool for several reasons.
. Our historical experience with home equity loans is limited: we
began purchasing and servicing them in January 1996. If our
historical experience were longer, or involved a larger number of
home equity loans, the data might well be substantially different,
and some investors might consider the data a better predictor of
the performance of the pool.
. Historical experience with the performance of one pool of loans is
never a completely reliable predictor of the future performance of
another pool of loans.
. The information incorporates some home equity loans that are not of
the type to be included in the pool, and therefore the information
presented is not necessarily indicative of our delinquency
experience with home equity loans similar to the home equity loans
comprising the pool.
You must not assume that the pool will experience delinquencies and losses
identical to the historical data presented here.
Many of the loans are balloon loans.
Approximately % of the loans are balloon loans. These loans require equal
monthly payments, consisting of principal and interest, based on a stated
amortization schedule, and a single payment of the remaining principal balance
of the loan at maturity. The remainder of the loans require substantially equal
monthly payments that are, if timely paid, sufficient to amortize fully the
principal balance of the loan on or before its maturity date. The balloon loans
may present a higher risk of default than the fully-amortizing loans, because
the balloon loan borrowers are required to make a larger payment at maturity.
If you purchase a certificate, the return on your investment will depend
largely on the performance of the loans constituting the pool. If a substantial
number of the balloon loans default, causing higher than expected defaults and
losses on the pool, you may suffer a loss on your investment.
S-13
<PAGE>
Some loans in the pool will be subject to the Home Ownership and Equity
Protection Act of 1994.
The Home Protection Act adds certain additional provisions to Regulation Z,
the implementing regulation of the Federal Truth-in-Lending Act. These
provisions impose additional disclosure and other requirements on creditors
with respect to non-purchase money mortgage loans with high interest rates or
up-front fees and charges. A violation of these provisions of the Home
Protection Act can affect the enforceability of the related loan, and it
subjects any assignee of the loan, such as the trust, to all the claims and
defenses that the consumer could assert against the creditor, including the
right to rescind the loan. If you purchase a certificate, the return on your
investment will depend largely on the performance of the loans constituting the
pool. If we are found to have violated provisions of the Home Protection Act
with respect to any loan that is subject to the Home Protection Act, the trust
may be unable to collect on that loan. We would, however, be obligated to
repurchase that loan, because of the breach of its representation warranty.
This prospectus supplement describes only a portion of the loans.
The additional loans and the subsequent loans that we deliver after the
closing date will have characteristics that differ somewhat from the initial
loans described in this prospectus supplement. However, each of the additional
loans and subsequent loans must satisfy the eligibility criteria described
under "Description of the Certificates--Conveyance of Loans" and "--Conveyance
of Subsequent Loans and Pre-Funding Account" in this prospectus supplement. We
will file current reports on Form 8-K following the purchase of additional
loans and subsequent loans by the trust and following the termination of the
funding period. The 8-K will include the same type of information regarding the
subsequent loans that is included in this prospectus supplement with respect to
the initial loans.
Other rating agencies could provide unsolicited ratings on the certificates
that could be lower than the requested ratings.
Although we have not requested a rating of the certificates from any rating
agencies other than S&P and Fitch, other rating agencies may rate the
certificates. These ratings could be higher or lower than the ratings S&P and
Fitch initially give to the certificates. There is a risk that a lower rating
of your certificate from another rating agency could reduce the market value or
liquidity of your certificate.
S-14
<PAGE>
STRUCTURE OF THE TRANSACTION
On or about the closing date, , 1999, Green Tree will establish the
trust pursuant to a pooling and servicing agreement to be dated as of ,
1999 between Green Tree, as seller and servicer, and the trustee.
The Class A-1A ARM, Class A-1B ARM, Class A-1, Class A-2, Class A-3, Class A-
4, Class A-5, Class A-6 IO, Class M-1, Class M-2, Class B-1, Class B-2A and
Class B-2 certificates will be issued by the trust, which will consist
primarily of the loans, including all rights to receive payments due on the
loans after (1) the cut-off date, , 1999 for each loan other than the
subsequent loans, and (2) for each subsequent loan, the date on which the loan
is purchased by the trust, liens on the related real estate and amounts held
for the trust in the certificate account. The trust will also issue several
other classes of more subordinated certificates, which are not being offered
here.
Payments and recoveries in respect of principal and interest on the loans
will be paid into a certificate account maintained at an eligible institution,
initially U.S. Bank National Association, Minneapolis, Minnesota, in the name
of the trust, no later than one business day after receipt. Payments on deposit
in the certificate account and constituting the amount available will be
applied on the fifteenth day of each month or, if that day is not a business
day, the next succeeding business day, to make the distributions to the
certificateholders as of the immediately preceding record date and to pay
certain monthly fees to the servicer as compensation for its servicing of the
loans.
The servicer will be obligated to advance for each payment date any scheduled
payments on the loans that were due but not received during the prior due
period. The servicer will be entitled to reimbursement of an advance from funds
available in the certificate account. The servicer will not be required to make
any advance to the extent that it does not expect to recoup the advance from
subsequent funds available therefor in the certificate account. If the servicer
fails to make any advance required under the pooling and servicing agreement,
the trustee is obligated, subject to certain conditions, to make the advance.
Following the transfer of the loans from Green Tree to the trust, the
obligations of Green Tree are limited to:
(1) its obligations as servicer to service the loans;
(2) certain representations and warranties in the pooling and servicing
agreement as described under "Description of the Certificates--
Conveyance of Loans"; and
(3) certain indemnities.
Green Tree is obligated under the pooling and servicing agreement to repurchase
at the repurchase price, or, at its option, to substitute another loan on the
first payment date which is more than 90 days after it becomes aware, or it
receives written notice from the trustee, of any breach of any such
representation and warranty that materially and adversely affects the
certificateholders' interest in that loan if such breach has not been cured
prior to that date.
S-15
<PAGE>
Green Tree also has certain obligations to repurchase loans and to indemnify
the trustee and certificateholders with respect to other matters.
USE OF PROCEEDS
Green Tree will use the net proceeds received from the sale of the
certificates for working capital and general corporate purposes, including
building a portfolio of home equity loans, providing warehouse financing for
the purchase of loans and other costs of maintaining these loans until they are
pooled and sold to other investors.
THE LOANS
Fixed-Rate Loans
This prospectus supplement contains information regarding the initial fixed-
rate loans, which will represent approximately % of all fixed-rate loans,
and which consist of closed-end home equity loans originated through ,
1999. The information for each initial fixed-rate loan is as of the cut-off
date for the loan. The trust may purchase additional fixed-rate loans on the
closing date and may purchase subsequent fixed-rate loans for a period of up to
90 days after that. See "Description of the Certificates--Conveyance of
Subsequent Loans and Pre-Funding Account" below.
The initial fixed-rate loans have an aggregate principal balance of
$ . Each fixed-rate loan is a closed-end home equity loan originated
by Green Tree or by a company-approved correspondent lender and purchased by
Green Tree. Each fixed-rate loan is secured by a lien on the related real
estate.
Green Tree will make certain representations and warranties in the pooling
and servicing agreement, including that
(1) each fixed-rate loan is fully amortizing and provides for level
monthly payments over the term of the loan, computed on the simple
interest method, except for the balloon loans and the step-up rate
loans;
(2) each initial fixed-rate loan has its last scheduled payment due no
later than February 6, 2029; and
(3) each fixed-rate loan is secured by a lien on the related real estate.
The fixed-rate loans will be originated or acquired by Green Tree in the
ordinary course of Green Tree's business. A detailed listing of the initial
fixed-rate loans is appended to the pooling and servicing agreement.
See "Description of the Certificates" in this prospectus supplement and in the
prospectus. Each of the initial fixed-rate loans has a loan rate of at least
% per annum and not more than % and the weighted average of the loan
rates of the initial fixed-rate loans as of the cut-off date is %. As of
the cut-off date, the initial fixed-rate loans had remaining maturities of at
least months but not more than months and original maturities of at
least months but not more than months. The initial fixed-rate loans had
a weighted average term to scheduled maturity, as of origination,
S-16
<PAGE>
of months, and a weighted average term to scheduled maturity, as of the
cut-off date, of months. The average principal balance per initial fixed-
rate loan as of the cut-off date was $ and the principal balances on the
initial fixed-rate loans as of the cut-off date ranged from $ to
$ . The balloon loans included in the initial fixed-rate loans consisted
of closed-end home equity loans and have a principal balance as of the
cut-off date of $ . The weighted average of the loan rates of such
balloon loans as of the cut-off date was %, and such balloon loans had a
weighted average term to scheduled maturity, as of origination, of months,
and a weighted average term to scheduled maturity, as of the cut-off date, of
months. The initial fixed-rate loans arise from loans relating to real
property located in states and the District of Columbia. By principal
balance as of the cut-off date, approximately % of the initial fixed-rate
loans were secured by real property located in California, % in Ohio, %
in Michigan and % in North Carolina. No other state represented 5% or more
of the cut-off date pool principal balance of the initial fixed-rate loans.
S-17
<PAGE>
The table below describes additional characteristics of the initial fixed-
rate loans as of the cut-off date.
Geographical Distribution of Mortgaged Properties--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial % of Initial
Fixed-Rate Loans Fixed-Rate Loans
Number of by Number of Aggregate Principal by Outstanding
Loans as of Loans as Balance Outstanding Principal Balance
Cut-off Date of Cut-off Date as of Cut-off Date as of Cut-off Date
------------ ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ --------------- ------
Total............... 100.00% $ 100.00%
===== ====== =============== ======
</TABLE>
S-18
<PAGE>
Years of Origination--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial Fixed-
Rate Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
Year of Origination as of Cut-off Date as of Cut-off Date Cut-off Date
- ------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
1995.................... %
1996....................
1997....................
1998....................
1999....................
----- -------------- ------
Total............... 100.00%
===== ============== ======
</TABLE>
Distribution of Original Loan Amounts--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial Fixed-
Rate Loans by
Aggregate Principal Outstanding Principal
Original Loan Amount Number of Loans Balance Outstanding Balance as of
(in Dollars) as of Cut-off Date as of Cut-off Date Cut-off Date
-------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000....... %
$ 10,000 to $ 19,999....
$ 20,000 to $ 29,999....
$ 30,000 to $ 39,999....
$ 40,000 to $ 49,999....
$ 50,000 to $ 59,999....
$ 60,000 to $ 69,999....
$ 70,000 to $ 79,999....
$ 80,000 to $ 89,999....
$ 90,000 to $ 99,999....
$100,000 to $109,999....
$110,000 to $119,999....
$120,000 to $129,999....
$130,000 to $139,999....
$140,000 to $149,999....
$150,000 to $159,999....
$160,000 to $169,999....
$170,000 to $179,999....
$180,000 to $189,999....
$190,000 to $199,999....
$200,000 to $209,999....
$210,000 to $219,999....
Greater than $220,000...
----- -------------- ------
Total............... 100.00%
===== ============== ======
</TABLE>
S-19
<PAGE>
Loan Rates--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial Fixed-Rate
Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
Range of Loans by Loan Rate as of Cut-off Date as of Cut-off Date Cut-off Date
- --------------------------- ------------------ ------------------- -----------------------
<S> <C> <C> <C>
Less than 7.000%........... $ %
7.001 to 8.000%..........
8.001 to 9.000%..........
9.001 to 10.000%..........
10.001 to 11.000%..........
11.001 to 12.000%..........
12.001 to 13.000%..........
13.001 to 14.000%..........
14.001 to 15.000%..........
15.001 to 16.000%..........
16.001 to 17.000%..........
Greater than 17.000%.......
----- --------------- ------
Total.................. $ 100.00%
===== =============== ======
</TABLE>
Remaining Months to Maturity--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial Fixed-Rate
Loans by
Months Remaining to Aggregate Principal Outstanding Principal
Scheduled Maturity Number of Loans Balance Outstanding Balance as of
As of Cut-off Date as of Cut-off Date as of Cut-off Date Cut-off Date
------------------- ------------------ ------------------- -----------------------
<S> <C> <C> <C>
Fewer than 31........... $ *
31 to 60.............. %
61 to 90..............
91 to 120..............
121 to 150..............
151 to 180..............
181 to 210..............
211 to 240..............
241 to 270..............
271 to 300..............
301 to 330..............
331 to 360..............
----- --------------- ------
Total............... $ 100.00%
===== =============== ======
</TABLE>
- --------
*Indicates an amount greater than zero but less than 0.005% of the aggregate
principal balance of the Initial Fixed-Rate loans.
S-20
<PAGE>
Lien Position--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial Fixed-Rate
Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
as of Cut-off Date as of Cut-off Date Cut-off Date
------------------ ------------------- -----------------------
<S> <C> <C> <C>
First........... $ %
Second..........
Third...........
----- --------------- ------
Total....... $ 100.00%
===== =============== ======
</TABLE>
Loan-to-Value Ratio--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial Fixed-Rate
Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
Loan-to-Value Ratio as of Cut-off Date as of Cut-off Date Cut-off Date
- ------------------- ------------------ ------------------- -----------------------
<S> <C> <C> <C>
Less than 10.0001%...... %
10.0001 to 20.0000%.....
20.0001 to 30.0000%.....
30.0001 to 40.0000%.....
40.0001 to 50.0000%.....
50.0001 to 60.0000%.....
60.0001 to 70.0000%.....
70.0001 to 80.0000%.....
80.0001 to 90.0000%.....
Greater than 90.0000%...
----- ----------- ------
Total............... $ 100.00%
===== =========== ======
</TABLE>
Adjustable Rate Loans
This prospectus supplement contains information regarding the initial
adjustable rate loans, which will represent approximately % of all adjustable
rate loans, and which consist of closed-end loans originated through . The
information for each initial adjustable rate loan is as of the cut-off date for
the loan. Under the pooling and servicing agreement, the trust may purchase
additional adjustable rate loans on the closing date and may purchase
subsequent adjustable rate loans for a period of up to days after that. See
"Description of the Certificates--Conveyance of Subsequent Loans and Pre-
Funding Account" below.
Each adjustable rate loan is a closed-end loan originated by Green Tree or by
a company-approved correspondent lender and purchased by Green Tree. Each
adjustable rate loan is secured by a lien on the related real estate.
The initial adjustable rate loans have loan rates subject to semiannual
adjustment after an initial period of up to 36 months on the day of the month
specified in the adjustable rate loan, to equal the sum of:
(1) the six-month LIBOR index; and
S-21
<PAGE>
(2) a fixed percentage amount specified in the related adjustable rate
loan.
The loan rates will not increase on any adjustment date by more than 2% per
year. All of the initial adjustable rate loans further provide that the loan
rate will in no event be more than the fixed percentage set forth in the
adjustable rate loan. Each initial adjustable rate loan provides that in no
event will the loan rate be less than a specified lifetime interest rate floor.
At the time of the first payment due on an initial adjustable rate loan after
each related adjustment date, the monthly payment will be adjusted to an amount
which will fully amortize the outstanding principal balance of that adjustable
rate loan over its remaining term, and pay interest at the loan rate as so
adjusted. All of the initial adjustable rate loans were originated with a loan
rate less than the sum of:
(1) the six-month LIBOR index at the time the initial loan rate was
established, and
(2) the gross margin.
The six-month LIBOR index is an annual rate equal to the average of interbank
offered rates for six-month U.S. dollar-denominated deposits in the London
market based on quotations of major banks, as published in The Wall Street
Journal and as most recently available as of the date specified in the related
adjustable rate loan.
Green Tree will make certain representations and warranties, including that:
(1) each adjustable rate loan is fully amortizing and provides for monthly
payments, except, in the case of a balloon loan, for the final monthly
payment, over the term of such loan, computed on the simple interest
method;
(2) each adjustable rate loan has its last scheduled payment due no later
than May 2028; and
(3) each adjustable rate loan is secured by a lien on the related real
estate.
The adjustable rate loans will be originated or acquired by Green Tree in the
ordinary course of business. A detailed listing of the adjustable rate loans
will be attached to the pooling and servicing agreement. See "Description of
the Certificates" in this prospectus supplement and in the prospectus.
For purposes of calculating the amount of principal payable on each payment
date on the Class A-1A ARM and Class A-1B ARM certificates, the adjustable rate
loans have been divided into group I and group II. This prospectus supplement
provides information regarding the initial group I adjustable rate loans and
the initial group II adjustable rate loans.
Group I Adjustable Rate Loans
On the cut-off date, the initial group I adjustable rate loans had loan rates
ranging from % to % and a weighted average loan rate of %. On the cut-off
date, the weighted average maximum loan rate of the initial group I adjustable
rate loans was %, with maximum loan rates that range from % to %. On the
cut-off date, the initial group I adjustable rate loans had a weighted average
gross margin of % and gross
S-22
<PAGE>
margins ranging from % to %. On the cut-off date, the initial group I
adjustable rate loans had remaining maturities of at least months but not
more than months and original maturities of at least months but not more
than months. The initial group I adjustable rate loans had a weighted average
term to scheduled maturity, as of origination, of months, and a weighted
average term to scheduled maturity of months. The average principal balance
per initial group I adjustable rate loan was $ and the principal balances on
the initial group I adjustable rate loans ranged from $ to $ . The initial
group I adjustable rate loans arise from loans relating to real property
located in states and the District of Columbia. By principal balance,
approximately % of the initial group I adjustable rate loans were secured by
real property located in California, % in Maryland, % in Ohio, % in
Washington, % in Colorado and % in Florida. No other state represented %
or more of the aggregate cut-off date principal balance of the initial group I
adjustable rate loans.
S-23
<PAGE>
The table below describes additional characteristics of the initial group I
adjustable rate loans.
Geographical Distribution of Mortgaged Properties--Initial Group I Adjustable
Rate Loans
<TABLE>
<CAPTION>
% of Initial
% of Initial Group I
Group I Adjustable
Adjustable Rate Loans
Rate Loans Aggregate Principal by Outstanding
by Number of Balance Principal
Number of Loans Loans as Outstanding as of Balance as of
as of Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
------------------ --------------- ------------------- --------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
California..............
Colorado................
Delaware................
District Of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Nebraska................
Nevada..................
New Hampshire...........
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
--- ------ -------------- ------
Total............... 100.00% $ 100.00%
=== ====== ============== ======
</TABLE>
S-24
<PAGE>
Years of Origination--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Adjustable Rate
Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
Year of Origination as of Cut-off Date as of Cut-off Date Cut-off Date
- ------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
1997.................... $ %
1998....................
1999....................
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
Distribution of Original Loan Amounts--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial
Group I Adjustable
Rate
Loans by
Aggregate Principal Outstanding Principal
Original Loan Amount Number of Loans Balance Outstanding Balance as of
(in Dollars) as of Cut-off Date as of Cut-off Date Cut-off Date
-------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
Less than$ 30,000....... $ %
$ 30,000 to $ 39,999....
$ 40,000 to $ 49,999....
$ 50,000 to $ 59,999....
$ 60,000 to $ 69,999....
$ 70,000 to $ 79,999....
$ 80,000 to $ 89,999....
$ 90,000 to $ 99,999....
$100,000 to $109,999....
$110,000 to $119,999....
$120,000 to $129,999....
$130,000 to $139,999....
$140,000 to $149,999....
$150,000 to $159,999....
$160,000 to $169,999....
$170,000 to $179,999....
$180,000 to $189,999....
$190,000 to $199,999....
$200,000 to $249,999....
$250,000 to $299,999....
Greater than $299,999...
--- ------------- ------
Total............... $ 100.00%
=== ============= ======
</TABLE>
S-25
<PAGE>
Current Loan Rates--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Aggregate Principal Adjustable Rate Loans by
Range of Loans by Number of Loans Balance Outstanding Outstanding Principal
Loan Rate as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
----------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
Less than 7.000......... $ %
7.001 to 8.000.........
8.001 to 9.000.........
9.001 to 0.000.........
10.001 to 1.000.........
11.001 to 2.000.........
12.001 to 3.000.........
13.001 to 3.250.........
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
Remaining Months to Maturity--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Months Remaining to Aggregate Principal Adjustable Rate Loans by
Scheduled Maturity Number of Loans Balance Outstanding Outstanding Principal
As of Cut-off Date as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
331 to 360.............. $ 100.00%
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
Lien Position--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Aggregate Principal Adjustable Rate Loans by
Number of Loans Balance Outstanding Outstanding Principal
as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
------------------ ------------------- --------------------------
<S> <C> <C> <C>
First Lien Position..... $ 100.00%
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
Loan-to-Value Ratio--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Aggregate Principal Adjustable Rate Loans by
Number of Loans Balance Outstanding Outstanding Principal
Loan-to-Value Ratio as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
20.01 to 30.00.......... $ %
30.01 to 40.00..........
40.01 to 50.00..........
50.01 to 60.00..........
60.01 to 70.00..........
70.01 to 80.00..........
80.01 to 90.00..........
Over 90.00..............
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
S-26
<PAGE>
Month of Next Rate Adjustment--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Aggregate Principal Adjustable Rate Loans
Number of Loans Balance Outstanding by Outstanding Principal
Month of Next Rate Adjustment as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ----------------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
February 1999............... $ %
March 1999..................
April 1999..................
May 1999....................
June 1999...................
September 1999..............
October 1999................
December 1999...............
January 2000................
February 2000...............
March 2000..................
April 2000..................
May 2000....................
June 2000...................
July 2000...................
August 2000.................
September 2000..............
October 2000................
November 2000...............
December 2000...............
January 2001................
February 2001...............
June 2001...................
July 2001...................
August 2001.................
September 2001..............
October 2001................
November 2001...............
December 2001...............
January 2002................
--- -------------- ------
Total................... $ 100.00%
=== ============== ======
</TABLE>
S-27
<PAGE>
Distribution of Gross Margin--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Aggregate Principal Adjustable Rate Loans
Number of Loans Balance Outstanding by Outstanding Principal
Gross Margin as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------ ------------------ ------------------- --------------------------
<S> <C> <C> <C>
Less than 4.499%........ $
4.500 to 4.749%.........
4.750 to 4.999%.........
5.000 to 5.249%.........
5.250 to 5.499%.........
5.500 to 5.749%.........
5.750 to 5.999%.........
6.000 to 6.249%.........
6.250 to 6.499%.........
6.500 to 6.749%.........
6.750 to 6.999%.........
7.000 to 7.249%.........
7.250 to 7.499%.........
7.500 to 7.749%.........
7.750 to 7.999%.........
8.000 to 8.249%.........
8.250 to 8.499%.........
8.500 to 8.749%.........
8.750 to 8.999%.........
9.000 to 9.249%.........
9.250 to 9.499%.........
9.500 to 9.749%.........
Greater than 9.750%.....
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
S-28
<PAGE>
Maximum Loan Rates--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group I
Adjustable Rate Loans
Number of Loans Aggregate Principal by Outstanding Principal
as of Cut-off Balance Outstanding Balance as of
Maximum Loan Rates Date as of Cut-off Date Cut-off Date
- ------------------ --------------- ------------------- ------------------------
<S> <C> <C> <C>
Less than 13.000%....... $ %
13.000 to 13.249%.......
13.250 to 13.499%.......
13.500 to 13.749%.......
13.750 to 13.999%.......
14.000 to 14.249%.......
14.250 to 14.499%.......
14.500 to 14.749%.......
14.750 to 14.999%.......
15.000 to 15.249%.......
15.250 to 15.499%.......
15.500 to 15.749%.......
15.750 to 15.999%.......
16.000 to 16.249%.......
16.250 to 16.499%.......
16.500 to 16.749%.......
16.750 to 16.999%.......
17.000 to 17.249%.......
17.250 to 17.499%.......
17.500 to 17.749%.......
17.750 to 17.999%.......
18.000 to 18.249%.......
18.250 to 18.499%.......
18.500 to 18.749%.......
18.750 to 18.999%.......
19.000 to 19.249%.......
19.250 to 19.499%.......
Greater than 19.500%....
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
S-29
<PAGE>
Minimum Loan Rates--Initial Group I Adjustable Rate Loans
<TABLE>
<CAPTION>
% of
Initial Group I
Adjustable Rate
Number of Loans
Loans Aggregate Principal by Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Minimum Loan Rates off Date as of Cut-off Date Cut-off Date
- ------------------ ---------- ------------------- ------------------------
<S> <C> <C> <C>
Less than 7.250%...... $ %
7.250 to 7.499%......
7.500 to 7.749%......
7.750 to 7.999%......
8.000 to 8.249%......
8.250 to 8.499%......
8.500 to 8.749%......
8.750 to 8.999%......
9.000 to 9.249%......
9.250 to 9.499%......
9.500 to 9.749%......
9.750 to 9.999%......
10.000 to 10.249%......
10.250 to 10.499%......
10.500 to 10.749%......
10.750 to 10.999%......
11.000 to 11.249%......
11.250 to 11.499%......
11.500 to 11.749%......
11.750 to 11.999%......
12.000 to 12.249%......
12.250 to 12.499%......
Greater than 12.750%...
--- -------------- ------
Total................ $ 100.00%
=== ============== ======
</TABLE>
Group II Adjustable Rate Loans
On the cut-off date, the initial group II adjustable rate loans had loan
rates ranging from % to % and a weighted average loan rate of %. The
weighted average maximum loan rate of the initial group II adjustable rate
loans was %, with maximum loan rates that range from % to %. As of the
cut-off date, the initial group II adjustable rate loans had a weighted average
gross margin of % and gross margins ranging from % to %. The initial
group II adjustable rate loans had remaining maturities of at least months
but not more than months and original maturities of at least months but
not more than months. The initial group II adjustable rate loans had a
weighted average term to scheduled maturity, at origination, of months, and
a weighted average term to scheduled maturity, on the cut-off date, of
months. The average principal balance per initial group II adjustable rate loan
was $ and the principal balances on the initial group II adjustable rate
loans ranged from $ to $ . The initial group II adjustable rate loans
arise from loans relating to real property located in states and the District
of Columbia. By principal balance as of the cut-off date, approximately % of
the initial group II adjustable rate loans were secured
S-30
<PAGE>
by real property located in California, % in Maryland, % in Ohio, % in
Washington, % in Colorado and % in Florida. No other state represented %
or more of the aggregate cut-off date principal balance of the initial group II
adjustable rate loans.
S-31
<PAGE>
The table below describes additional characteristics of the initial group II
adjustable rate loans.
Geographical Distribution of Mortgaged Properties--Initial Group II Adjustable
Rate Loans
<TABLE>
<CAPTION>
% of Initial
% of Initial Group II
Group II Adjustable
Adjustable Rate Loans
Rate Loans Aggregate Principal by Outstanding
by Number of Balance Principal
Number of Loans Loans as Outstanding as of Balance as of
as of Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
------------------ --------------- ------------------- --------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District Of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maryland................
Massachusetts...........
Michigan................
Mississippi.............
Missouri................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
Tennessee...............
Texas...................
Utah....................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
--- ------ -------------- ------
Total............... 100.00% $ 100.00%
=== ====== ============== ======
</TABLE>
S-32
<PAGE>
Years of Origination--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Adjustable Rate
Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
Year of Origination as of Cut-off Date as of Cut-off Date Cut-off Date
- ------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
1997.................... $ %
1998....................
1999....................
--- --------------- ------
Total............... $ 100.00%
=== =============== ======
</TABLE>
Distribution of Original Loan Amounts--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Adjustable Rate
Loans by
Aggregate Principal Outstanding Principal
Original Loan Amount Number of Loans Balance Outstanding Balance as of
(in Dollars) as of Cut-off Date as of Cut-off Date Cut-off Date
-------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
Less than$ 30,000....... $ %
$ 30,000 to $ 39,999....
$ 40,000 to $ 49,999....
$ 50,000 to $ 59,999....
$ 60,000 to $ 69,999....
$ 70,000 to $ 79,999....
$ 80,000 to $ 89,999....
$ 90,000 to $ 99,999....
$100,000 to $109,999....
$110,000 to $119,999....
$120,000 to $129,999....
$130,000 to $139,999....
$140,000 to $149,999....
$150,000 to $159,999....
$160,000 to $169,999....
$170,000 to $179,999....
$180,000 to $189,999....
$190,000 to $199,999....
$200,000 to $209,999....
$210,000 to $219,999....
Greater than $220,000...
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
S-33
<PAGE>
Current Loan Rates--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Aggregate Principal Adjustable Rate Loans by
Range of Loans by Number of Loans Balance Outstanding Outstanding Principal
Loan Rate as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
----------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
Less than 7.000......... $ %
7.001--8.000............
8.001--9.000............
9.001--10.000...........
10.001--11.000..........
11.001--12.000..........
12.001--13.000..........
Over 13.000.............
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
Remaining Months to Maturity--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Months Remaining to Aggregate Principal Adjustable Rate Loans by
Scheduled Maturity Number of Loans Balance Outstanding Outstanding Principal
As of Cut-off Date as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
331--360................ $ 100.00%
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
Lien Position--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Aggregate Principal Adjustable Rate Loans by
Number of Loans Balance Outstanding Outstanding Principal
as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
------------------ ------------------- --------------------------
<S> <C> <C> <C>
First........ $ 100.00%
--- -------------- ------
Total.... $ 100.00%
=== ============== ======
</TABLE>
Loan-to-Value Ratio--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Aggregate Principal Adjustable Rate Loans by
Number of Loans Balance Outstanding Outstanding Principal
Loan-to-Value Ratio as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
10.01--20.00............ $ %
20.01--30.00............
30.01--40.00............
40.01--50.00............
50.01--60.00............
60.01--70.00............
70.01--80.00............
80.01--90.00............
Greater than 90.00......
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
S-34
<PAGE>
Month of Next Rate Adjustment--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Aggregate Principal Adjustable Rate Loans
Number of Loans Balance Outstanding by Outstanding Principal
Month of Next Rate Adjustment as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ----------------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
January 1999................ $ %
February 1999...............
March 1999..................
April 1999..................
May 1999....................
June 1999...................
September 1999..............
October 1999................
December 1999...............
January 2000................
February 2000...............
March 2000..................
April 2000..................
May 2000....................
June 2000...................
July 2000...................
August 2000.................
September 2000..............
October 2000................
November 2000...............
December 2000...............
January 2001................
February 2001...............
June 2001...................
July 2001...................
August 2001.................
September 2001..............
October 2001................
November 2001...............
December 2001...............
--- -------------- ------
Total................... $ 100.00%
=== ============== ======
</TABLE>
S-35
<PAGE>
Distribution of Gross Margin--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Aggregate Principal Adjustable Rate Loans
Number of Loans Balance Outstanding by Outstanding Principal
Gross Margin as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------ ------------------ ------------------- --------------------------
<S> <C> <C> <C>
Less than 4.750%........ $ %
4.750 to 4.999%.........
5.000 to 5.249%.........
5.250 to 5.499%.........
5.500 to 5.749%.........
5.750 to 5.999%.........
6.000 to 6.249%.........
6.250 to 6.499%.........
6.500 to 6.749%.........
6.750 to 6.999%.........
7.000 to 7.249%.........
7.250 to 7.499%.........
7.500 to 7.749%.........
7.750 to 7.999%.........
8.000 to 8.249%.........
8.250 to 8.499%.........
8.500 to 8.749%.........
8.750 to 8.999%.........
9.000 to 9.249%.........
9.250 to 9.499%.........
9.500 to 9.749%.........
Greater than 9.749%.....
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
S-36
<PAGE>
Maximum Loan Rates--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial Group II
Adjustable Rate Loans
Number of Loans Aggregate Principal by Outstanding Principal
as of Cut-off Balance Outstanding Balance as of
Maximum Loan Rates Date as of Cut-off Date Cut-off Date
- ------------------ --------------- ------------------- ------------------------
<S> <C> <C> <C>
Less than 13.000%....... $ %
13.000 to 13.249%.......
13.250 to 13.499%.......
13.500 to 13.749%.......
13.750 to 13.999%.......
14.000 to 14.249%.......
14.250 to 14.499%.......
14.500 to 14.749%.......
14.750 to 14.999%.......
15.000 to 15.249%.......
15.250 to 15.499%.......
15.500 to 15.749%.......
15.750 to 15.999%.......
16.000 to 16.249%.......
16.250 to 16.499%.......
16.500 to 16.749%.......
16.750 to 16.999%.......
17.000 to 17.249%.......
17.250 to 17.499%.......
17.500 to 17.749%.......
17.750 to 17.999%.......
18.000 to 18.249%.......
18.250 to 18.499%.......
18.500 to 18.749%.......
18.750 to 18.999%.......
19.000 to 19.249%.......
19.250 to 19.499%.......
19.500 to 19.749%.......
19.750 to 19.999%.......
Greater than 19.999%....
--- -------------- ------
Total............... $ 100.00%
=== ============== ======
</TABLE>
S-37
<PAGE>
Minimum Loan Rates--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of
Initial Group II
Adjustable Rate
Number of Loans
Loans Aggregate Principal by Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Minimum Loan Rates off Date as of Cut-off Date Cut-off Date
- ------------------ ---------- ------------------- ------------------------
<S> <C> <C> <C>
Less than 7.250%...... $ %
7.250 to 7.499%......
7.500 to 7.749%......
7.750 to 7.999%......
8.000 to 8.249%......
8.250 to 8.499%......
8.500 to 8.749%......
8.750 to 8.999%......
9.000 to 9.249%......
9.250 to 9.499%......
9.500 to 9.749%......
9.750 to 9.999%......
10.000 to 10.249%......
10.250 to 10.499%......
10.500 to 10.749%......
10.750 to 10.999%......
11.000 to 11.249%......
11.250 to 11.499%......
11.500 to 11.749%......
11.750 to 11.999%......
12.000 to 12.249%......
12.250 to 12.499%......
12.500 to 12.749%......
Greater than 12.750%...
--- --------------- ------
Total................ $ 100.00%
=== =============== ======
</TABLE>
S-38
<PAGE>
Delinquency Information
The following table shows information relating to Green Tree's delinquency
experience with respect to all home equity loans serviced by Green Tree. Not
all of these home equity loans are of the type to be included in the loan pool
and so the information presented does not necessarily indicate Green Tree's
delinquency experience with respect to home equity loans similar to the loans
in the loan pool. In addition, Green Tree began originating, purchasing and
servicing home equity loans in January 1996, and as a result has no significant
experience with respect to the performance of these kinds of loans. Moreover,
because all such home equity loans have been recently originated, it is likely
that this experience does not indicate the delinquency experience to be
expected from a more seasoned portfolio.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31,
-----------------
1998 1997
-------- -------
<S> <C> <C>
Number of loans Outstanding(1)............................... 114,399 65,355
Number of loans Delinquent(2)(3)
30-59 Days................................................. 2,390 1,141
60-89 Days................................................. 670 283
90 Days or More............................................ 801 411
-------- -------
Total loans Delinquent....................................... 3,861 1,835
Delinquencies as a Percent of loans Outstanding(4)........... 3.38% 2.81%
</TABLE>
- --------
(1)Excludes defaulted loans not yet liquidated.
(2)A loan is considered delinquent by Green Tree if any payment of $25 or more
is past-due 30 days or more.
(3)The period of delinquency is based on the number of days that payments are
contractually past-due (assuming 30-day months). Consequently, a loan due
on the first day of a month is not 30 days delinquent until the first day
of the next month. These tables do not include as delinquent the home
equity loans of obligors who have entered bankruptcy proceedings, provided
that those obligors are current under their bankruptcy payment plan.
(4)By number of loans.
Because of Green Tree's limited historical experience with respect to the
performance of home equity loans, no information has been included here with
respect to Green Tree's loan loss or liquidation experience with respect to
home equity loans.
S-39
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of any certificate will depend on the price paid by the
certificateholder and will be sensitive to the rate and timing of principal
payments on the loans, which may fluctuate significantly from time to time. The
loans generally may be prepaid in full or in part at any time.
Higher than expected principal prepayments will increase the yield on
certificates purchased at a price less than the undivided ownership interest in
the aggregate principal balance of the loans represented by those certificates
and will decrease the yield on certificates purchased at a price greater than
the undivided ownership interest in the aggregate principal balance of the
loans represented by those certificates. Green Tree has no significant
experience with respect to the rate of principal prepayments on home equity
loans. Because the loans have scheduled due dates throughout the calendar
month, prepayments on the loans would affect the amount of funds available to
make distributions on the certificates on any payment date only if a
substantial portion of the loans prepaid prior to their due dates in the
preceding month, while very few loans prepaid after their due dates in the
preceding month. In addition, liquidations of defaulted loans or the servicer's
exercise of its option to repurchase the entire remaining pool of loans will
affect the timing of principal distributions on the certificates. Green Tree
has the option of substituting new loans for those loans in the loan pool which
are prepaid in full prior to , 1999. See "Description of the
Certificates--Conveyance of Loans." There is no assurance that Green Tree will
exercise its option to make any such substitutions nor, should it desire to
exercise such option, that loans meeting the eligibility criteria will be
available. To the extent any such substitutions are made, the impact on the
loan pool and the certificates of what would otherwise have constituted a
principal prepayment will be averted.
The Class A-1B ARM certificates and the Class A-1 certificates will be
prepaid in part on the first payment date after the funding period in the event
that any pre-funded amount remains in the pre-funding account on such payment
date after the purchase by the trust of the subsequent loans. Any amounts
remaining which had been allocated to the purchase of subsequent adjustable
rate loans will be paid to the Class A-1B ARM certificateholders and any
amounts remaining which had been allocated to the purchase of subsequent fixed-
rate loans will be paid to the Class A-1 certificateholders. Green Tree
believes that the principal amount of subsequent loans to be purchased by the
trust will require the application of substantially all of the pre-funded
amount. It is unlikely, however, that the aggregate principal amount of
subsequent loans purchased by the trust will be identical to the pre-funded
amount, and that consequently, Class A-1B ARM certificateholders and Class A-1
certificateholders will receive some prepayment of principal.
Prepayments on mortgage loans and other consumer installment obligations are
commonly measured relative to a prepayment standard or model. The Constant
Prepayment Rate ("CPR") model assumes that the outstanding principal balance of
a pool of loans prepays each month at a specified constant annual rate. The
certificates were priced using a prepayment assumption of, with respect to the
fixed-rate loans, 125% of the applicable prepayment assumption, and with
respect to the adjustable rate loans, 30% of CPR. There
S-40
<PAGE>
can be no assurance that the loans will prepay at the applicable rate, and it
is unlikely that prepayments or liquidations of the loans will occur at any
constant rate.
The amount of interest to which the certificateholders of any class are
entitled on any payment date will be the product of the related pass-through
rate and, in the absence of any liquidation loss principal amount adjustment,
the principal balance of such class, or in the case of the Class A-6 IO
certificates, the notional principal amount, immediately following the
preceding payment date. Interest on each class of certificates, other than the
Class A-1A ARM and the Class A-1B ARM certificates, will be computed on the
basis of a 360-day year of twelve 30-day months. Interest on the Class A-1A ARM
and the Class A-1B ARM certificates will be computed on the basis of actual
days elapsed in a 360-day year. Certificateholders will receive payments in
respect of principal on each payment date to the extent that funds available in
the certificate account are sufficient, in the priority described under
"Description of the Certificates--Distributions on Certificates." As required
by state laws, interest paid by obligors on the loans is computed according to
the simple interest method.
The final scheduled payment date on the initial loan with the latest maturity
is in .
Weighted Average Life of the Certificates
The following information is given solely to illustrate the effect of
prepayments of the related loans on the weighted average life of each class of
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the loans.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the certificates will be
influenced by the rate at which principal on the related loans is paid.
Principal payments on loans may be in the form of scheduled amortization or
prepayments (for this purpose, the term prepayment includes repayments and
liquidations due to default or other dispositions of the loans).
The rate of principal payments on pools of home equity loans is influenced by
a variety of economic, geographic, social and other factors, including the
level of interest rates and the rate at which homeowners sell their homes or
default on their loans. Other factors affecting prepayment of loans include:
. changes in obligors' housing needs,
. job transfers,
. unemployment, and
. obligors' net equity in their homes.
In the case of home equity loans secured by real estate, in general, if
prevailing interest rates fall significantly below the interest rates on these
loans, the loans are likely to be subject to higher prepayment rates than if
prevailing interest rates remained at or above the rates borne
S-41
<PAGE>
by such loans. Conversely, if prevailing interest rates rise above the interest
rates on such home equity loans, the rate of prepayment would be expected to
decrease.
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the loans are received in
a timely manner and prepayments are made at the indicated percentages
of the model;
(2) the servicer exercises its option to repurchase the loans, as
described under "Description of the Certificates--Repurchase Option;"
(3) the aggregate principal balance of the initial loans as of the cut-off
date is $ and these loans have the characteristics described
under "The Loans--Fixed-Rate Loans" and "The Loans--Adjustable Rate
Loans;"
(4) the initial fixed-rate loans will, as of the cut-off date, be grouped
into ten pools having the additional characteristics described below
under "Assumed Initial Fixed-Rate Loan Characteristics" and the
additional and subsequent fixed-rate loans will, as of the cut-off
date, be grouped into ten pools having the additional characteristics
described below under "Assumed Additional and Subsequent Fixed-Rate
Loan Characteristics;"
(5) the initial group I adjustable rate loans will, as of the cut-off
date, be grouped into four pools having the additional characteristics
described below under "Assumed Initial Group I Adjustable Rate Loan
Characteristics" and the additional and subsequent group I adjustable
rate loans will, as of the cut-off date, be grouped into four pools
having the additional characteristics described below under "Assumed
Additional and Subsequent Group I Adjustable Rate Loan
Characteristics;"
(6) the initial group I adjustable rate loans will, as of the cut-off
date, be grouped into four pools having the additional characteristics
described below under "Assumed Initial Group I Adjustable Rate Loan
Characteristics" and the additional and subsequent group I adjustable
rate loans will, as of the cut-off date, be grouped into four pools
having the additional characteristics described below under "Assumed
Additional and Subsequent Group I Adjustable Rate Loan
Characteristics;"
(7) each class of the certificates, other than the Class A-6 IO
certificates, has an original principal balance as shown on the cover
page of this prospectus supplement;
(8) the rate for one-month LIBOR is %;
(9) the subsequent loans will have their first scheduled payment date in
;
(10) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(11) no delinquencies or losses are experienced on the loans;
(12) distributions are made on the certificates on the 15th day of each
month, commencing in 15, 1999; and
S-42
<PAGE>
(13) the certificates are issued on , 1999. No representation is made
that the loans will not experience delinquencies or losses.
Prepayments on home equity loans are commonly measured relative to a
prepayment standard or model. Two different models are used in this prospectus
supplement, one for the adjustable rate loans and the other for the fixed-rate
loans. Reference in this prospectus supplement to a prepayment assumption
refers to the appropriate model, depending upon whether the reference is to the
adjustable rate loans or the fixed-rate loans.
The percentages and weighted average life information for the Class A-1A ARM
certificates and the Class A-1B ARM certificates in the following tables are
based on a CPR model that assumes that the outstanding principal balance of the
group I adjustable rate loans and the group II adjustable rate loans will
prepay at the percentages of CPR outline of the prepayment scenarios table
below.
The prepayment assumption used for the fixed-rate loans represents an assumed
rate of prepayment each month relative to the then outstanding principal
balance of a pool of home equity loans for the life of such home equity loans.
The 100% prepayment assumption assumes a constant prepayment of 4% per annum of
the then outstanding principal balance of such loans in the first month of the
life of such loans and an additional 1.45% (precisely, 16/11%) per year in each
month thereafter until the twelfth month. Beginning in the twelfth month and in
each month thereafter during the life of such loans, the 100% prepayment
assumption assumes a constant prepayment rate of 20% per annum each month.
It is not likely that the loans will prepay at any constant percentage of the
prepayment assumption or of the CPR to maturity or that all of the loans will
prepay at the same rate.
You are urged to make your investment decisions on a basis that includes our
determination as to anticipated prepayment rates under a variety of the
assumptions discussed here.
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Adjustable Rate loans
(1)....................
Fixed-Rate loans (2)....
</TABLE>
- --------
(1) As a CPR percentage.
(2) As a percentage of the prepayment assumption.
S-43
<PAGE>
Assumed Initial Fixed-Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted Balloon Loan
Cut-off Weighted Average Average Weighted
Date Pool Average Remaining Term Original Term Average
Principal Loan to Maturity to Maturity Amortization
Pool Balance Rate (months) (months) Term
- ---- --------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. ............... $ %
2. ...............
3. ...............
4. ...............
5. ...............
6. ...............
7. ...............
8. ...............
9. ...............
10. ..............
</TABLE>
Assumed Additional and Subsequent Fixed-Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted Balloon Loan
Cut-off Weighted Average Average Weighted
Date Pool Average Remaining Term Original Term Average
Principal Loan to Maturity to Maturity Amortization
Pool Balance Rate (months) (months) Term
- ---- --------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. .............. $ %
2. ..............
3. ..............
4. ..............
5. ..............
6. ..............
7. ..............
8. ..............
9. ..............
10. ..............
</TABLE>
S-44
<PAGE>
Assumed Initial Group I Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Weighted Remaining Original Weighted
Date Pool Average Term to Term to Average Month(s)
Principal Loan Maturity Maturity Gross Life Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Cap Floor Cap Change
- ---- --------- -------- --------- -------- -------- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. ..................... $ % % % % %
2. .....................
3. .....................
4. .....................
</TABLE>
Assumed Initial Group II Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Weighted Remaining Original Weighted
Date Pool Average Term to Term to Average Month(s)
Principal Loan Maturity Maturity Gross Life Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Cap Floor Cap Change
- ---- --------- -------- --------- -------- -------- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. ..................... $ % % % % %
2. .....................
3. .....................
4. .....................
</TABLE>
Assumed Additional and Subsequent Group I Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Weighted Remaining Original Weighted
Date Pool Average Term to Term to Average Month(s)
Principal Loan Maturity Maturity Gross Life Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Cap Floor Cap Change
- ---- --------- -------- --------- -------- -------- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. ..................... $ % % % % %
2. .....................
3. .....................
4. .....................
</TABLE>
Assumed Additional and Subsequent Group II Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Weighted Remaining Original Weighted
Date Pool Average Term to Term to Average Month(s)
Principal Loan Maturity Maturity Gross Life Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Cap Floor Cap Change
- ---- --------- -------- --------- -------- -------- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. ..................... $ % % % % %
2. .....................
3. .....................
4. .....................
</TABLE>
Based on these assumptions, the following tables indicate the projected
weighted average lives of each class of certificates, and outline the
percentages of the original principal balance of each class that would be
outstanding after each of the dates shown, under the indicated prepayment
scenarios.
S-45
<PAGE>
The weighted average life of a class of certificates is determined by (a)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of issuance of
such certificate to the stated payment date, (b) adding the results, and (c)
dividing the sum by the initial principal balance of such certificate.
Percentage of the Original Principal Balance of the Class A-1A ARM
Certificates at the Respective Percentages of the
CPR Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class A-1B ARM
Certificates at the Respective Percentages of the
CPR Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
April 15, 2008..........
April 15, 2009..........
April 15, 2010..........
Weighted Average Life
(years)................
</TABLE>
S-46
<PAGE>
Percentage of the Original Principal Balance of the Class A-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class A-2 Certificates at
the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class A-3 Certificates at
the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
Weighted Average Life
(years)................
</TABLE>
S-47
<PAGE>
Percentage of the Original Principal Balance of the Class A-4 Certificates at
the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class A-5 Certificates at
the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
April 15, 2008..........
April 15, 2009..........
Weighted Average Life
(years)................
</TABLE>
S-48
<PAGE>
Percentage of the Original Principal Balance of the Class M-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
April 15, 2008..........
April 15, 2009..........
April 15, 2010..........
April 15, 2011..........
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class M-2 Certificates at
the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
April 15, 2008..........
April 15, 2009..........
April 15, 2010..........
April 15, 2011..........
Weighted Average Life
(years)................
</TABLE>
S-49
<PAGE>
Percentage of the Original Principal Balance of the Class B-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
April 15, 2008..........
Weighted Average Life
(years)................
</TABLE>
S-50
<PAGE>
Percentage of the Original Principal Balance of the Class B-2A
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
April 15, 2008..........
April 15, 2009..........
April 15, 2010..........
April 15, 2011..........
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class B-2
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
April 15, 2000..........
April 15, 2001..........
April 15, 2002..........
April 15, 2003..........
April 15, 2004..........
April 15, 2005..........
April 15, 2006..........
April 15, 2007..........
April 15, 2008..........
April 15, 2009..........
April 15, 2010..........
April 15, 2011..........
Weighted Average Life
(years)................
</TABLE>
S-51
<PAGE>
GREEN TREE FINANCIAL CORPORATION
General
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under the heading "Green Tree Financial
Corporation."
Green Tree is a Delaware corporation which, on December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Green Tree purchases,
pools, sells and services conditional sales contracts for manufactured homes
and other consumer installment sales contracts, as well as home equity loans.
Green Tree is the largest servicer of government-insured manufactured housing
contracts and conventional manufactured housing contracts in the United States.
Servicing functions are performed through Green Tree Financial Servicing
Corporation, a wholly owned subsidiary of Green Tree. Through its principal
offices in St. Paul, Minnesota, and service centers throughout the United
States, Green Tree serves all 50 states. Green Tree began financing home equity
loans in January 1996. Green Tree also purchases, pools and services
installment sales contracts for various consumer products. Green Tree's
principal executive offices are located at 1100 Landmark Towers, 345 St. Peter
Street, St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Green Tree's
quarterly and annual reports, which are incorporated by reference in this
prospectus supplement and in the prospectus, are available from Green Tree upon
written request.
Ratio of Earnings to Fixed Charges for Green Tree
The table below shows Green Tree's ratios of earnings to fixed charges for
the past five years [and the months ended , 1999.] For the purposes of
compiling these ratios, earnings consist of earnings before income taxes plus
fixed charges. Fixed charges consist of interest expense and the interest
portion of rent expense.
<TABLE>
<CAPTION>
Months
Ended
Year Ended December 31,
------------------------ -----------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges................................. 7.98 7.90 5.44 3.94 .62*
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to the merger of Green
Tree with Conseco, Inc.
Recent Developments
We have been served with various lawsuits in the United States District Court
for the District of Minnesota. These lawsuits were filed by our stockholders as
purported class actions on behalf of persons or entities who purchased common
stock or traded in options during the alleged class periods. In addition to the
company, some of our current and former officers and directors are named as
defendants in one or more of the lawsuits. The lawsuits have been consolidated
into two complaints, one relating to an alleged class of purchasers of our
common stock and the other relating to an alleged class of traders in options
for our
S-52
<PAGE>
common stock. In addition to these two complaints, a separate non-class action
lawsuit containing similar allegations was also filed. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. In each case, plaintiffs allege that we and the other
defendants violated federal securities laws by making false and misleading
statements about our current state and our future prospects particularly about
prepayment assumptions and performance of some of our loan portfolios, which
allegedly rendered our financial statements false and misleading. We believe
that the lawsuits are without merit and intend to defend the lawsuits
vigorously.
S-53
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent,
supersedes the information in the prospectus under "Description of the
Certificates."
The certificates will be issued pursuant to the pooling and servicing
agreement between Green Tree, as seller and servicer, and the trustee. A copy
of the execution form of the pooling and servicing agreement will be filed in a
current report on Form 8-K with the SEC after the initial issuance of the
certificates. The following summary describes the material provisions of the
pooling and servicing agreement, reference to which is made for a complete
recital of its terms.
General
The certificates will be issued in fully registered, certificated form only
in denominations of $1,000 or any integral multiple of $1,000. The certificates
initially will be represented by certificates registered in the name of Cede as
the nominee of DTC, and will only be available in the form of book-entries on
the records of DTC and participating members. See "--Registration of the
Certificates" below. The trust consists primarily of the loans and the rights,
benefits, obligations and proceeds, including liens on the related real estate,
amounts held in the certificate account and the Class B-2 limited guaranty of
Green Tree for the benefit of the Class B-2 certificateholders.
Distributions on the certificates will be made by the paying agent on each
payment date to persons in whose names the certificates are registered as of
the business day immediately preceding such payment date. See "--Registration
of the Certificates" below. The first payment date for the certificates will be
in April 1999. Payments will be made by check mailed to the certificateholder
at the address appearing on the certificate register, except that a
certificateholder who holds an aggregate percentage interest of at least 5% of
a class of certificates may request payment by wire transfer. Final payments
will be made only upon tender of the certificates to the trustee for
cancellation.
Conveyance of Loans
On the closing date, Green Tree will establish the trust and transfer,
assign, set over and otherwise convey to the trust all right, title and
interest of Green Tree in the initial and additional loans, including all
principal and interest received on or with respect to such loans, other than
receipts of principal and interest due on such loans before the cut-off date.
The pooling and servicing agreement permits the trust to purchase up to
approximately $ aggregate principal balance of subsequent loans on or
within 90 days after the closing date on one or more closing dates. See "--
Conveyance of Subsequent Loans and Pre-Funding Account" below.
On behalf of the trust, as the issuer of the certificates, the trustee,
concurrently with each conveyance, will execute and deliver the certificates to
or upon the order of Green Tree. The loans will be described on a list
delivered to the trustee and certified by a duly authorized officer of Green
Tree. This list will include the amount of monthly payments due
S-54
<PAGE>
on each loan as of the date of issuance of the certificates, the loan rate on
each loan and the maturity date of each loan. The list will be attached as an
exhibit to the pooling and servicing agreement and will be available for
inspection by any certificateholder at the principal office of Green Tree.
Before the conveyance of the loans to the trust, Green Tree will have completed
a review of all the loan files, confirming the accuracy of each item on the
list of loans delivered to the trustee. Any loan discovered not to agree with
such list in a manner that is materially adverse to the interests of the
certificateholders will be repurchased by Green Tree, or, if the discrepancy
relates to the unpaid principal balance of a loan, Green Tree may deposit cash
in the certificate account in an amount sufficient to offset such discrepancy.
The trustee will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota, reflecting the conveyance and assignment of the loans to
the trustee, and Green Tree's accounting records and computer systems will also
reflect the conveyance and assignment.
Dorsey & Whitney LLP, counsel to Green Tree, will give an opinion to the
trustee that the transfer of the loans from Green Tree to the trust would, in
the event Green Tree became a debtor under the United States Bankruptcy Code,
be treated as a true sale and not as a pledge to secure borrowings. If,
however, the transfer of the loans from Green Tree to the trust were treated as
a pledge to secure borrowings by Green Tree, the distribution of proceeds of
the loans to the trust might be subject to the automatic stay provisions of the
United States Bankruptcy Code, which would delay the distribution of such
proceeds for an uncertain period of time. In addition, a bankruptcy trustee
would have the power to sell the loans if the proceeds of such sale could
satisfy the amount of the debt deemed owed by Green Tree, or the bankruptcy
trustee could substitute other collateral in lieu of the loans to secure such
debt, or such debt could be subject to adjustment by the bankruptcy trustee if
Green Tree were to file for reorganization under Chapter 11 of the United
States Bankruptcy Code.
Green Tree will make certain representations and warranties in the pooling
and servicing agreement with respect to each loan, including that:
(1) for each loan other than the subsequent loans, as of the applicable
cut-off date, the most recent scheduled payment was made or was not
delinquent more than 59 days;
(2) for each subsequent loan, as of the respective subsequent cut-off
date, the most recent scheduled payment was made or was not delinquent
more than 59 days;
(3) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(4) each loan 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;
(5) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
S-55
<PAGE>
(6) each loan was originated by a home equity lender in the ordinary
course of its business or was originated by Green Tree directly;
(7) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest on the loan unlawful;
(8) each loan complies with all requirements of law;
(9) no loan has been satisfied, subordinated to a lower lien ranking than
its original position or rescinded;
(10) each loan creates a valid and perfected lien on the related real
estate;
(11) all parties to each loan had full legal capacity to execute such
loan;
(12) no loan has been sold, conveyed and assigned or pledged to any other
person and Green Tree has good and marketable title to each loan free
and clear of any encumbrance, equity, lien, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer such loan to the trustee;
(13) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by (1) and (2) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under such loan, and Green Tree has not waived any of
the foregoing;
(14) each loan is a fully-amortizing loan and provides for level monthly
payments based on its applicable loan rate, except, in the case of a
balloon loan, for the final monthly payment, over the term of such
loan;
(15) each loan contains customary and enforceable provisions such as to
render the rights and remedies of the holder adequate for realization
against the collateral;
(16) the description of each loan set forth in the list delivered to the
trustee is true and correct;
(17) there is only one original of each loan;
(18) each loan was originated or purchased in accordance with Green Tree's
then-current underwriting guidelines; and
(19) each loan is a qualified mortgage under section 860G(a)(3) of the
Internal Revenue Code.
Green Tree will also make certain representations and warranties with respect
to the loans in the aggregate, including that:
(1) each loan, other than the adjustable rate loans, has a contractual
rate of interest of at least %;
(2) no loan had a remaining term to maturity at origination of more than
360 months;
(3) no more than 1% of the loans, by principal balance as of the cut-off
date, were secured by properties located in an area with the same zip
code;
(4) no more than 5.0% of the loans, by principal balance as of the cut-off
date, were originated by any one lender; and
S-56
<PAGE>
(5) no adverse selection procedures were employed in selecting the loans
from Green Tree's portfolio. Green Tree will make certain additional
representations and warranties with respect to the subsequent loans.
See "--Conveyance of Subsequent Loans and Pre-Funding Account" below.
Under the terms of the pooling and servicing agreement, and subject to Green
Tree's option to effect a substitution as described in the next paragraph,
Green Tree has agreed to repurchase, at the repurchase price, any loan that is
materially and adversely affected by a breach of a representation and warranty
with respect to such loan made in the pooling and servicing agreement if such
breach has not been cured within 90 days of the day it was or should have been
discovered by the servicer or the trustee. The repurchase price, with respect
to any loan to be so repurchased or with respect to a liquidated loan, means
the outstanding principal balance of such loan, without giving effect to any
advances made by the servicer or the trustee, plus interest on such loan at the
pass-through rate from the end of the due period with respect to which the
obligor last made a scheduled payment through the date of such repurchase or
liquidation. This repurchase obligation constitutes the sole remedy available
to the trust and the certificateholders for a breach of a representation or
warranty, but not with respect to any other breach by Green Tree of its
obligations.
Instead of repurchasing a loan as specified in the preceding paragraph,
during the two-year period following the closing date, Green Tree may, at its
option, substitute an eligible substitute loan for the loan that it is
otherwise obligated to repurchase. An eligible substitute loan is a loan that
satisfies, as of the date of its substitution, the representations and
warranties specified in article III of the pooling and servicing agreement, has
a scheduled principal balance that is not greater than the scheduled principal
balance of the replaced loan, has a loan rate that is at least equal to the
loan rate of the replaced loan and has a remaining term to scheduled maturity
that is not greater than the remaining term to scheduled maturity of the
replaced loan. Green Tree will be required to deposit in the certificate
account cash in the amount, if any, by which the scheduled principal balance of
the replaced loan exceeds the scheduled principal balance of the loan being
substituted. The deposit will be deemed to be a partial principal prepayment.
Green Tree may, at its option, substitute new loans for loans which are
prepaid in full prior to , 1999. Any such substitute loans shall
constitute eligible substitute loans and must be substituted prior to the
determination date immediately following the calendar month in which the
prepayment was received by the servicer. In the event the aggregate amount of
principal received in respect of loans prepaid in full in a given calendar
month exceeds the aggregate of the scheduled principal balances of eligible
substitute loans substituted therefor, such excess shall be distributed to
certificateholders on the related payment date as a prepayment of principal.
Notwithstanding the foregoing, there is no assurance that Green Tree will opt
to make any such substitutions nor, should it desire to exercise such option,
that eligible substitute loans will be available therefor.
S-57
<PAGE>
Conveyance of Subsequent Loans and Pre-Funding Account
A pre-funding account will be established by the trustee and funded by Green
Tree with a pre-funded amount of up to approximately $ on the closing date
to provide the trust with sufficient funds to purchase subsequent loans. The
pre-funding account will be used to purchase subsequent loans during the period
from the closing date until the earliest of:
(1) the date on which the amount on deposit in the pre-funding account is
less than $10,000;
(2) 90 days after the closing date, or
(3) the date on which an event of termination occurs under the pooling and
servicing agreement.
The pre-funded amount will be reduced during the funding period by the amount
used to purchase subsequent loans in accordance with the pooling and servicing
agreement.
Under the pooling and servicing agreement, the trust will be obligated to
purchase subsequent loans from Green Tree during the funding period, subject to
their availability. In connection with the purchase of subsequent loans on such
dates of transfer, the trust will be required to pay to Green Tree from amounts
on deposit in the pre-funding account a cash purchase price of 100% of the
principal balance. Green Tree will designate the subsequent transfer date as
the cut-off date with respect to the related subsequent loans purchased on that
date. The amount paid from the pre-funding account on each subsequent transfer
date will not include accrued interest on the related subsequent loans.
Following each subsequent transfer date, the aggregate principal balance of the
subsequent loans will increase by an amount equal to the aggregate principal
balance of the loans so purchased and the amount in the pre-funding account
will decrease accordingly.
Any pre-funded amount remaining after the end of the funding period will be
applied on the next payment date to prepay principal on the Class A-1B ARM
certificates and the Class A-1 certificates. Any amounts remaining which had
been allocated to the purchase of subsequent adjustable rate loans will be paid
to the Class A-1B ARM certificateholders and any amounts remaining which had
been allocated to the purchase of subsequent fixed-rate loans will be paid to
the Class A-1 certificateholders. Although no assurance can be given, Green
Tree anticipates that the principal amount of the related subsequent loans
purchased by the trust will require the application of substantially all of the
related pre-funded amount and that there should be no material amount of
principal prepaid to the Class A-1B ARM certificateholders or the Class A-1
certificateholders from the pre-funding account. However, it is unlikely that
Green Tree will be able to deliver subsequent loans with an aggregate principal
balance identical to the remaining pre-funded amount.
Any conveyance of subsequent loans on a subsequent transfer date is subject
to certain conditions including:
(1) each subsequent loan must satisfy the representations and warranties
specified in the related subsequent transfer instrument and the
pooling and servicing agreement;
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(2) Green Tree may not select subsequent loans in a manner that it
believes is adverse to the interests of the certificateholders;
(3) as of the respective subsequent cut-off date the subsequent loans must
satisfy the following criteria:
(a) no subsequent loan may be more than 59 days contractually
delinquent as of the related subsequent cut-off date;
(b) the remaining stated term to maturity of each subsequent loan may
not exceed 360 months;
(c) each subsequent loan must have been underwritten in accordance
with Green Tree's standard underwriting criteria;
(d) as a result of the purchase of the subsequent loans, the weighted
average loan to value ratio of the loan pool will not be more than
200 basis points more than such ratio with respect to the initial
loans;
(e) as a result of the purchase of the subsequent loans, the Class A
certificates will not receive from S&P or Fitch a lower credit
rating than the rating assigned at the initial issuance of such
certificates; and
(f) an independent accountant will provide a letter stating whether or
not the characteristics of the subsequent loans conform to the
characteristics described in this prospectus supplement.
Payments on Loans
The servicer, on behalf of the trust, will establish and maintain a
certificate account in an eligible account at a depository institution with
trust powers organized under the laws of the United States or any state, the
deposits of which are insured to the full extent permitted by law by the FDIC,
whose short-term deposits have been rated A-1 by S&P and F-1 by Fitch or whose
unsecured long-term debt has been rated in one of the two highest rating
categories by S&P and Fitch, and which is subject to supervision and
examination by federal or state authorities. "Eligible account" means any
account which is:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the trustee, which depository institution or trust
company has capital and surplus of not less than $50,000,000; or
(4) an account that will not cause S&P or Fitch to downgrade or withdraw
its then-current rating assigned to the certificates, as evidenced in
writing by S&P and Fitch.
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The servicer may authorize the trustee to invest the funds in the certificate
account in eligible investments that will mature not later than the business
day preceding the applicable monthly payment date. Eligible investments
include:
. obligations of the United States backed by the full faith and
credit of the United States, federal funds, certificates of
deposit, time deposits and bankers acceptances sold by eligible
commercial banks;
. any other demand or time deposit or certificate of deposit fully
insured by the FDIC;
. investments in certain money-market funds;
. certain repurchase agreements of United States government
securities with eligible commercial banks;
. securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least "AA" from S&P
and Fitch not in excess of 10% of amounts in the certificate
account at the time of such investment; and
. commercial paper assigned a rating of at least A-1+ by S&P and at
least F-1+ by Fitch. Any losses on such investments will be
deducted from other investment earnings or from other funds in the
certificate account.
All payments from obligors on the loans, including principal prepayments and
advance payments from obligors not constituting principal prepayments, shall be
paid into the certificate account no later than one business day following
receipt thereof, except amounts received as extension fees or assumption fees
not allocated to regular installments due on loans, which are retained by the
servicer as part of its servicing fees and are not paid into the certificate
account and except for certain proceeds from liquidated loans which are used to
reimburse the servicer for customary out-of-pocket liquidation expenses. See
"Description of the Certificates--Servicing Compensation and Payment of
Expenses." In addition, all payments under FHA Insurance received by the
servicer, any advances by the servicer or the trustee as described under
"Description of the Certificates--Advances," and amounts paid by Green Tree for
loans repurchased, or upon substitution for a loan otherwise required to be
repurchased, as a result of a breach of representations or warranties, as
described under "Description of the Certificates--Conveyance of Loans," will be
paid into the certificate account.
On the second business day preceding each payment date, the servicer will
determine the amount available and the amount of funds necessary to make all
payments to be made on the next payment date from the certificate account. Not
later than one business day after this determination date, Green Tree will
deposit in the certificate account the repurchase price of any loans required
to be repurchased on such payment date, or any amounts required to be deposited
upon substitution for any loan otherwise required to be repurchased on that
payment date, as a result of a breach of representations and warranties.
On each payment date the trustee will withdraw the amount available from the
certificate account and make the following payments, in the following order of
priority:
(1) if neither Green Tree nor any wholly owned subsidiary of Green Tree is
the servicer, to pay the monthly servicing fee to the servicer;
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(2) to pay interest and principal on the certificates, in the manner and
the order of priority described below;
(3) if Green Tree or any wholly owned subsidiary of Green Tree is the
servicer, to pay the monthly servicing fee to the servicer;
(4) to pay any Class B-2A additional principal distribution amount, as
described under "--Distributions on Certificates--Class B-2A
Principal" below;
(5) to reimburse the servicer or the trustee, as applicable, for any
unreimbursed advances with respect to the loans made in respect of
current or prior payment dates;
(6) to reimburse the holder of the Class C certificates for expenses
incurred by and reimbursable to it with respect to taxes or charges
imposed upon the trust as a REMIC or otherwise;
(7) to reimburse Green Tree for any prior unreimbursed Class B-2 guaranty
payments;
(8) to pay the Class B-3I distribution amount on the Class B-3I
certificates; and
(9) to pay any remaining amounts to the holder of the Class C
certificates.
The scheduled principal balance of a loan with respect to any payment date is
its principal balance as of the scheduled payment date in the calendar month
preceding that payment date as specified in its amortization schedule, after
giving effect to any previous partial principal prepayments and to the
scheduled payment due on such due date, but without giving effect to any
delinquency in payment or adjustments due to bankruptcy or similar proceedings.
The pool scheduled principal balance as of any payment date is the aggregate of
the scheduled principal balances of loans comprising the loan pool that were
outstanding during the preceding due period. A liquidated loan is a defaulted
loan as to which all amounts that the servicer expects to recover on account of
such loan have been received.
Distributions on Certificates
On each payment date, distributions on the certificates in respect of the
amount available will be made to:
. the holders of the Class A certificates,
. the Class M certificates and
. the Class B certificates, in the manner described below.
Distributions of interest and principal on the certificates will be made
primarily from amounts available in respect of the loans.
Interest on the Class A, Class M-1, Class M-2 and Class B-1 Certificates.
Interest will be distributable:
. first to each class of Class A certificates concurrently,
. then to the Class M-1 certificates,
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. then to the Class M-2 certificates and
. then to the Class B-1 certificates.
Interest on the outstanding Class A principal balance, or, in the case of the
Class A-6 IO certificates, on the notional principal amount, Class M-1 adjusted
principal balance, Class M-2 adjusted principal balance and Class B-1 adjusted
principal balance, will accrue at the related pass-through rate from ,
1999, or from the most recent payment date on which interest has been paid, to
but excluding the following payment date. Interest on each class of Class A
certificates, other than the Class A-1A ARM and Class A-1B ARM certificates,
will be computed on the basis of a 360-day year of twelve 30-day months.
Interest on the Class A-1A ARM and Class A-1B ARM certificates will be computed
on the basis of actual days elapsed in a 360-day year. The principal balance of
a class of certificates, other than the Class A-6 IO certificates, which has no
principal balance, as of any payment date is the original principal balance of
that class less all principal amounts previously distributed to the class. The
Class M-1 adjusted principal balance as of any payment date is the Class M-1
principal balance less any Class M-1 liquidation loss amount, described below
under "Losses on Liquidated Loans." The Class M-2 adjusted principal balance as
of any payment date is the Class M-2 principal balance less any Class M-2
liquidation loss amount described below under "Losses on Liquidated Loans." The
Class B-1 adjusted principal balance as of any payment date is the Class B-1
principal balance less any Class B-1 liquidation loss amount (described below
under "Losses on Liquidated Loans").
The Class A-1A ARM pass-through rate is a floating rate equal to the lesser
of one-month LIBOR plus the Class A-1A pass-through margin or the available
funds pass-through rate, but in no case more than 14%. The Class A-1A pass-
through margin will equal % per year on each payment date on which the pool
scheduled principal balance is 10% or more of the cut-off date pool principal
balance, and % per year on each payment date on which the pool scheduled
principal balance is less than 10% of the cut-off date pool principal balance.
The Class A-1B ARM pass-through rate is a floating rate equal to the lesser of
one-month LIBOR plus the Class A-1B pass-through margin or the available funds
pass-through rate, but in no case more than 14%. The Class A-1B pass-through
margin will equal % per year on each payment date on which the pool scheduled
principal balance is 10% or more of the cut-off date pool principal balance,
and % per year on each payment date on which the pool scheduled principal
balance is less than 10% of the cut-off date pool principal balance. The
available funds pass-through rate for any payment date will be a rate per year
equal to the weighted average of the expense adjusted loan rates on the then
outstanding adjustable rate loans. The expense adjusted loan rate on any
adjustable rate loan is equal to the then applicable loan rate, minus the
expense fee rate. The expense fee rate is 0.50%. One-month LIBOR with respect
to any monthly interest period will equal the offered rate for United States
dollar deposits for one month that appears on Telerate Page 3750 as of 11:00
A.M., London time, on the second LIBOR business day prior to such monthly
interest period. For a description of the method used to calculate one-month
LIBOR, see "Calculation of One-Month LIBOR" on page of this prospectus
supplement.
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Interest will be calculated on the Class HE: A-6 IO certificates on each
payment date based on the notional principal amount, which for the first 24
payment dates is equal to $120,000,000 (or the Class A principal balance for
such payment date, if less), and after that will equal zero. The notional
principal amount provides a basis for calculating interest payments only, and
does not represent the right to receive any distributions of principal.
In the event that, on a particular payment date, the amount available is not
sufficient to make a full distribution of interest to the holders of a class of
Class A certificates, Class M-1 certificates, Class M-2 certificates or Class
B-1 certificates, after payment of interest on each class of certificates that
is senior to that class of certificates, the Class A certificates being treated
as a single class for this purpose, the amount of interest to be distributed in
respect of such class will be allocated among the outstanding certificates of
such class pro rata in accordance with their respective entitlements to
interest, and the amount of the shortfall will be carried forward and added to
the amount such holders will be entitled to receive on the next payment date.
Any such amount so carried forward will bear interest at the applicable pass-
through rate, to the extent legally permissible.
Principal on the Class A, Class M-1, Class M-2 and Class B-1 Certificates.
The Class A, Class M-1, Class M-2 and Class B-1 certificates will receive
distributions of principal in the order of priority described below, after
payment of all interest then accrued on the Class A principal balance, Class A-
6 IO notional principal amount, Class M-1 adjusted principal balance, Class M-2
adjusted principal balance and Class B-1 adjusted principal balance. The Class
A-6 IO certificates do not receive distributions of principal.
Holders of the Class A-1A ARM certificates and the Class A-1B ARM
certificates will be entitled to receive as payments of principal in an amount
equal to the group I ARM formula principal distribution amount and the group II
ARM formula principal distribution amount, respectively. The group I ARM
formula principal distribution amount on or before the payment date on which
the Class A-1A ARM certificates have been paid in full will generally be equal
to the lesser of (A) the Class A-1A ARM principal balance or (B) the sum of the
following:
(1) all scheduled payments of principal due on each outstanding group I
adjustable rate loan during the related due period;
(2) the scheduled principal balance of each group I adjustable rate loan
which, during the related due period, was purchased by Green Tree
under the pooling and servicing agreement on account of certain
breaches of its representations and warranties;
(3) the scheduled principal balance of each group I adjustable rate loan
that became a liquidated loan during the related due period;
(4) all partial principal prepayments applied and principal prepayments in
full received on each group I adjustable rate loan during the related
due period; and
(5) on any payment date which is on or after the payment date on which the
Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 certificates
have been paid in
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full, a pro rata portion (based on the Class A-1A ARM principal
balance versus the Class A-1B ARM principal balance) of (a) the senior
percentage times the sum of the amounts described in clause (A) of the
definition of the formula principal distribution amount less (b) the
amount, if any, to be distributed in payment of principal on the Class
A-1, Class A-2, Class A-3, Class A-4 and Class A-5 certificates on
such payment date.
The group II ARM formula principal distribution amount on or before the
payment date on which the Class A-1B ARM certificates have been paid in full
will generally be equal to the lesser of (A) the Class A-1B ARM principal
balance or (B) the sum of the following:
(1) all scheduled payments of principal due on each outstanding group II
adjustable rate loan during the related due period;
(2) the scheduled principal balance of each group II adjustable rate loan
which, during the related due period, was purchased by Green Tree
pursuant to the pooling and servicing agreement on account of certain
breaches of its representations and warranties;
(3) the scheduled principal balance of each group II adjustable rate loan
that became a liquidated loan during the related due period;
(4) all partial principal prepayments applied and principal prepayments in
full received on each group II adjustable rate loan during the related
due period; and
(5) on any payment date which is on or after the payment date on which the
Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 certificates
have been paid in full, a pro rata portion (based on the Class A-1B
ARM principal balance versus the Class A-1A ARM principal balance) of
(a) the senior percentage times the sum of the amounts described in
clause (A) of the definition of the formula principal distribution
amount less (b) the amount, if any, to be distributed in payment of
principal on the Class A-1, Class A-2, Class A-3, Class A-4 and Class
A-5 certificates on that payment date.
Holders of the Class A certificates, other than the Class A-1A ARM
certificates, the Class A-1B ARM certificates and the Class A-6 IO
certificates, the Class M-1 certificates, the Class M-2 certificates and the
Class B-1 certificates will be entitled to receive, as payments of principal,
an amount equal to the senior percentage or the Class B percentage, as
applicable, of a formula principal distribution amount, which is (A) the sum
of:
(1) all scheduled payments of principal due on each outstanding loan
during the related due period,
(2) the scheduled principal balance of each loan which, during the related
due period, was purchased by Green Tree pursuant to the pooling and
servicing agreement on account of certain breaches of its
representations and warranties,
(3) all partial principal prepayments applied and all principal
prepayments in full received during the related due period in respect
of loans,
(4) the scheduled principal balance of each loan that became a liquidated
loan during the related due period and
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(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the certificate account if the payment date occurs on or
after the payment date on which the Class B-2 principal balance has
been reduced to zero, or such amount was not covered by a Class B-2
guaranty payment and corresponding reduction in the Class B-2
principal balance, minus the sum of those portions of the Group I ARM
formula principal distribution amount and the Group II ARM formula
principal distribution amount described above.
When the principal balance of a class of certificates is reduced to zero, no
further distributions of principal will be made to the holders of that class.
The senior percentage for any payment date prior to the Class B cross-over
date (as described below), and for any payment date on or after the Class B
cross-over date on which any Class B principal distribution test (as described
below) has not been satisfied, will equal 100%. On each payment date on or
after the Class B cross-over date, if each Class B principal distribution test
has been satisfied on such payment date, the senior percentage will equal a
fraction, expressed as a percentage, the numerator of which is the sum of the
Class A principal balance, excluding the Class A-1A ARM principal balance and
the Class A-1B ARM principal balance, and the Class M principal balance for
that payment date and the denominator of which is the pool scheduled principal
balance of the loans, excluding the adjustable rate loans, for the immediately
preceding payment date.
The pool scheduled principal balance as of any payment date is the aggregate
of the scheduled principal balances of loans that were outstanding during the
preceding due period. A "liquidated loan" is a defaulted loan as to which all
amounts that the servicer expects to recover on account of such loan have been
received.
The senior percentage of the formula principal distribution amount will be
distributed, to the extent of the amount available, after payment of all
interest then accrued on the Class A principal balance, Class A-6 IO notional
principal amount, Class M-1 adjusted principal balance, Class M-2 adjusted
principal balance and Class B-1 adjusted principal balance, as follows:
(1) that portion, if any, of the senior percentage of the formula
principal distribution amount equal to the Class A-5 lockout pro rata
distribution amount will be distributed to the Class A-5
certificateholders; and
(2) the remainder of the senior percentage of the formula principal
distribution amount will be distributed in the following order:
. first, to the Class A-1 certificateholders until the Class A-1
principal balance has been reduced to zero,
. then to the Class A-2 certificateholders until the Class A-2
principal balance has been reduced to zero,
. then to the Class A-3 certificateholders until the Class A-3
principal balance has been reduced to zero,
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. then to the Class A-4 certificateholders until the Class A-4
principal balance has been reduced to zero,
. then to the Class A-5 certificateholders until the Class A-5
principal balance has been reduced to zero,
. then to the Class M-1 certificateholders until the Class M-1
principal balance has been reduced to zero and
. then to the Class M-2 certificateholders until the Class M-2
principal balance has been reduced to zero.
The Class A-5 lockout pro rata distribution amount, as to any payment date,
is an amount equal to the lesser of:
(a) the product of (1) the Class A-5 lockout percentage, and (2) the
product of (A) a fraction, the numerator of which is the Class A-5
principal balance immediately preceding that payment date and the
denominator of which is the Class A principal balance (excluding the
Class A-1A ARM principal balance and the Class A-1B ARM principal
balance) immediately preceding such payment date, and (B) the senior
percentage of the formula principal distribution amount for such
payment date, and
(b) the Class A-5 principal balance immediately preceding such payment
date.
The Class A-5 lockout percentage, as to any payment date occurring during the
periods set forth below, is the percentage designated as such as follows:
<TABLE>
<CAPTION>
Class A-5
Period (dates inclusive) Lockout Percentage
------------------------ ------------------
<S> <C>
April 1999 through March 2001............................. 0%
April 2001 through March 2003............................. 20%
April 2003 through March 2004............................. 80%
April 2004 through March 2005............................. 100%
April 2005 and thereafter................................. 300%
</TABLE>
Payments of principal on the Class B-l certificates will not commence until
the Class B cross-over date, and will be made on that payment date and each
subsequent payment date only if each Class B principal distribution test is
satisfied on such payment date (unless the Class A principal balance and the
Class M principal balance have been reduced to zero). The Class B cross-over
date will be the earlier of:
(1) the payment date on which the Class M-2 principal balance is reduced
to zero and
(2) the first payment date on or after the payment date in April 2002 on
which the fraction, expressed as a percentage, the numerator of which
is the Class B principal balance as of that payment date and the
denominator of which is the pool scheduled principal balance as of the
immediately preceding payment date, is equal to or greater than 15.3%.
On each payment date on or after the Class B cross-over date and prior to the
payment date on which the Class A principal balance and the Class M principal
balance have been
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reduced to zero, holders of Class B certificates will be entitled to
distributions of principal only if each of the following tests is satisfied on
such payment date:
(1) the average of the sixty-day delinquency ratio (as defined in the
pooling and servicing agreement) as of such payment date and the prior
two payment dates must not exceed 10%;
(2) the average of the thirty-day delinquency ratio (as defined in the
pooling and servicing agreement) as of such payment date and the prior
two payment dates must not exceed 12%;
(3) the cumulative realized loss ratio (as defined in the pooling and
servicing agreement) as of such payment date must not exceed 7.5%;
(4) the current realized loss ratio (as defined in the pooling and
servicing agreement) as of such payment date must not exceed 2.0%; and
(5) (a) the sum of the Class B principal balance plus the amount by which
the aggregate certificate principal balance exceeds the pool scheduled
principal balance as of the immediately preceeding payment date,
divided by (b) the pool scheduled principal balance as of the
immediately preceding payment date, must be equal to or greater than
15.3%.
On each payment date on which the Class B certificates are eligible to
receive distributions of principal, the Class B percentage of the formula
principal distribution amount will be paid to the Class B-1 certificateholders
to the extent of the amount available, after payment of all interest then
accrued on the Class A principal balance, Class A-6 IO notional principal
amount, Class M-1 adjusted principal balance, Class M-2 adjusted principal
balance and Class B-1 adjusted principal balance and all principal then due on
the Class A certificates and Class M certificates, until the Class B-l
principal balance has been reduced to zero.
The Class B percentage for any payment date will be equal to 100% minus the
senior percentage. The Class B percentage for each payment date after the Class
A principal balance and the Class M principal balance have been reduced to zero
will be equal to 100%.
Notwithstanding the foregoing, on any payment date as to which there is a
Class A liquidation loss principal amount, the remaining amount available,
after payment of all interest then accrued on the Class A principal balance,
Class A-6 IO notional principal amount, Class M-1 adjusted principal balance,
Class M-2 adjusted principal balance and Class B-1 adjusted principal balance,
will be distributed pro rata to each class of Class A certificates based on the
principal balance of each class. In no event will such amount exceed the
principal balance of any such class. The Class A liquidation loss principal
amount is the amount, if any, by which the pool scheduled principal balance
plus the pre-funded amount is less than the Class A principal balance.
If, as to any payment date, the remaining amount available, after payment of
all interest then accrued on the Class A principal balance, Class A-6 IO
notional principal amount, Class M-1 adjusted principal balance, Class M-2
adjusted principal balance and Class B-1
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adjusted principal balance, is less than the sum of the group I ARM formula
principal distribution amount, the group II ARM formula principal distribution
amount and the senior percentage of the formula principal distribution amount
the amounts to be distributed to the Class A-1A ARM certificateholders and
Class A-1B ARM certificateholders, on the one hand, and the remaining Class A
certificateholders, Class M-1 certificateholders and Class M-2
certificateholders, on the other, will be allocated pro rata based upon the
respective portions of the amount available that would have been distributed to
the Class A, Class M-1 and Class M-2 certificateholders, as described above,
had the remaining amount available been sufficient.
Class B-2A Interest
Interest on the outstanding Class B-2A adjusted principal balance will accrue
from , 1999, or from the most recent payment date on which interest has
been paid, to but excluding the following payment date, and will be computed on
the basis of a 360-day year composed of twelve 30-day months.
To the extent of the remaining amount available, if any, for a payment date
after payment of all interest and principal then payable on the Class A, Class
M and Class B-1 certificates, interest will be paid to the Class B-2A
certificateholders on that payment date at the Class B-2A pass-through rate on
the then outstanding Class B-2A adjusted principal balance. The Class B-2A
pass-through rate is shown on the cover of this prospectus supplement. The
Class B-2A adjusted principal balance as of any payment date is the Class B-2A
principal balance less any Class B-2A liquidation loss amount, described below
under "Losses on Liquidated Loans."
If on a particular payment date, the remaining amount available is not
sufficient to make a full distribution of interest to the Class B-2A
certificateholders, the amount of the deficiency will be carried forward as an
amount that the Class B-2A certificateholders are entitled to receive on the
next payment date. Any amount so carried forward will bear interest at the
Class B-2A pass-through rate, to the extent legally permissible.
Class B-2A Principal
Except for payment of any Class B-2A additional principal distribution
amount, as described below, payment of principal on the Class B-2A certificates
will not commence until the payment date on which the Class B-1 principal
balance has been reduced to zero, and will be made on that payment date and
each payment date thereafter only if each Class B principal distribution test
is satisfied on that payment date, unless the Class A principal balance and the
Class M principal balance have been reduced to zero. On any such payment date,
the Class B percentage of the formula principal distribution amount will be
distributed from the amount available after payment of all interest and
principal on the Class A and Class M certificates and all interest on the Class
B-2A certificates, to the Class B-2A certificateholders until the Class B-2A
principal balance has been reduced to zero.
The Class B-2A certificateholders will also be entitled to receive additional
distributions in respect of principal on each payment date to the extent there
is any amount available remaining after payment of all interest and principal
on the Class A, Class M and Class B certificates and the monthly servicing fee
to the servicer for such payment date. The Class
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B-2A additional principal distribution amount for any payment date will be
equal to the lesser of
(1) one-half of such remaining amount available, and
(2) the amount necessary to reduce the Class B-2A principal balance to
zero, after taking into account any distributions to made pursuant to the
preceding paragraph.
Class B-2 Interest.
Interest on the outstanding Class B-2 principal balance will accrue from
, 1999, or from the most recent payment date on which interest has been paid,
to but excluding the following payment date, and will be computed on the basis
of a 360-day year of twelve 30-day months.
If there is any remaining amount available for a payment date after payment
of all interest and (except for any Class B-2A additional principal
distribution amount) principal then payable on the Class A, Class M-1, Class M-
2, Class B-1 and Class B-2A certificates, and there is Class B-2 guaranty
payment, if any, for that date, interest will be paid to the Class B-2
certificateholders on that payment date at the Class B-2 pass-through rate on
the then outstanding Class B-2 principal balance. The Class B-2 pass-through
rate is %, subject to a maximum rate equal to the weighted average of the
loan rates on the loans. The Class B-2 principal balance is the original Class
B-2 principal balance less all amounts previously distributed to the Class B-2
certificateholders in respect of principal, including any Class B-2 guaranty
payments.
In the event that, on a particular payment date, the remaining amount
available plus any amounts actually paid under the Class B-2 limited guaranty
are not sufficient to make a full distribution of interest to the Class B-2
certificateholders, the amount of the deficiency will be carried forward as an
amount that the Class B-2 certificateholders are entitled to receive on the
next payment date. Any amount so carried forward will, to the extent legally
permissible, bear interest at the Class B-2 pass-through rate.
Class B-2 Principal.
Except for payments of the Class B-2 liquidation loss principal amount,
payments of principal on the Class B-2 certificates will not commence until the
payment date on which the Class B-1 and the Class B-2A principal balances have
been reduced to zero (the "Class B-1 and B-2A Cross-over Date"), and will be
made on that payment date and each payment date after that only if each Class B
principal distribution test is satisfied on that payment date, unless the Class
A principal balance and the Class M principal balance have been reduced to
zero. On any such payment date, the Class B percentage of the formula principal
distribution amount will be distributed, from any remaining amount available,
after payment of all interest and principal then due on the Class A and Class M
certificates, and any amounts actually paid under the Class B-2 limited
guaranty, in each case after payment of interest on the Class B-2 certificates,
to the Class B-2 certificateholders until the Class B-2 principal balance has
been reduced to zero.
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On each payment date, the Class B-2 certificateholders will be entitled to
receive, pursuant to the Class B-2 limited guaranty, the Class B-2 liquidation
loss principal amount until the Class B-2 principal balance has been reduced to
zero.
Calculation of One-Month LIBOR
The London Interbank Offered Rate or LIBOR with respect to any monthly
interest period will be established by the calculation agent appointed by the
trust and will equal the offered rate for United States dollar deposits for one
month that appears on Telerate Page 3750 as of 11:00 A.M., London time, on the
second LIBOR business day prior to such monthly interest period. Telerate Page
3750 means the display page so designated on the Dow Jones Telerate Service (or
such other page as may replace that page on that service, or such other service
as may be designated by the calculation agent as the information vendor, for
the purpose of displaying London interbank offered rates of major banks). If
such rate appears on Telerate Page 3750, LIBOR will be such rate. "LIBOR
Business Day" means a day that is both a business day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed. If on any LIBOR determination date the offered
rate does not appear on Telerate Page 3750, the calculation agent will request
each of the reference banks to provide the calculation agent with its offered
quotation for United States dollar deposits for one month to prime banks in the
London interbank market as of 11:00 A.M., London time, on that date. If at
least two reference banks provide the calculation agent with offered
quotations, LIBOR on that date will be the arithmetic mean, rounded upward, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward, of all such quotations. If on that date
fewer than two of the reference banks provide the calculation agent with
offered quotations, LIBOR on such date will be the arithmetic mean, rounded
upward, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-
millionths of a percentage point rounded upward, of the offered per annum rates
that one or more leading banks in the City of New York selected by the
calculation agent are quoting as of 11:00 A.M., New York City time, on that
date to leading European banks for United States dollar deposits for one month;
provided, however, that if the banks are not quoting as described above, LIBOR
for that date will be LIBOR applicable to the monthly interest period
immediately preceding the monthly interest period. Notwithstanding the
foregoing, however, LIBOR for a payment date shall not be based on LIBOR for
the prior payment date for three consecutive payment dates. If, under the
priorities described above, LIBOR for a payment date would be based on LIBOR
for the previous payment date for the second consecutive payment date, the
calculation agent shall select an alternative comparable index over which the
calculation agent has no control used for determining one-month Eurodollar
lending rates that is calculated and published by an independent third party.
The calculation agent will initially be the trustee.
Subordination of Class M Certificates and Class B Certificates
The rights of the holders of the Class M certificates and Class B
certificates to receive distributions with respect to the loans, as well as any
other amounts constituting amount available, will be subordinated to the rights
of the holders of the Class A certificates. This
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subordination is intended to enhance the likelihood of regular receipt by the
holders of the Class A certificates of the full amount of their scheduled
monthly payments of interest and principal and to afford those holders
protection against losses on liquidated loans.
A portion of the protection afforded to the holders of the Class A
certificates by means of the subordination of the Class M and Class B
certificates will be accomplished by the preferential right of the Class A
certificateholders to receive on any payment date the amount of interest due on
the Class A certificates, including any interest due on a prior payment date
but not received, prior to any distribution being made on a payment date in
respect of interest on the Class M and Class B certificates. After that, any
remaining amount available will be applied to the payment of interest due on
the Class M-1 adjusted principal balance, then interest due on the Class M-2
adjusted principal balance and then interest due on the Class B-1 adjusted
principal balance.
After payment of all interest accrued on the Class A principal balance, Class
A-6 IO notional principal amount, Class M-1 adjusted principal balance, Class
M-2 adjusted principal balance and Class B-1 adjusted principal balance, any
remaining amount available will be distributed in the following order of
priority:
. first, the senior percentage or the Class B percentage, as applicable,
of the formula principal distribution amount will be distributed to the
Class A, Class M and Class B-1 certificateholders in the order of
priority described under "Principal on the Class A, Class M-1, Class M-
2 and Class B-1 certificates";
. second, any unpaid Class M-1 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class M-1 certificateholders;
. third, any unpaid Class M-2 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class M-2 certificateholders; and,
. fourth, any unpaid Class B-1 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class B-1 certificateholders.
The rights of the holders of the Class B-2A certificates to receive
distributions with respect to the loans and other amounts in the certificate
account will be subordinated to such rights of the holders of the Class A
certificates, Class M certificates and Class B-1 certificates. Thus, the Class
B-2A certificateholders will be entitled to distributions of interest and
principal on the Class B-2A certificates only after distributions of all
interest and principal then payable on the Class A, Class M and Class B-1
certificates.
If a Class B-2 liquidation loss amount is realized for any payment date and
Green Tree fails to pay that amount pursuant to its Class B-2 limited guaranty,
the Class B-2 certificateholders may incur losses on their investment in the
Class B-2 certificates to the extent such losses are not made up from future
payments on the loans or the Class B-2 limited guaranty.
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Losses on Liquidated Loans
The distribution of principal to the Class A certificateholders is intended
to include the senior percentage of the scheduled principal balance of each
loan, other than the adjustable rate loans, that became a liquidated loan
during the preceding due period and the scheduled principal balance of each
adjustable rate loan that became a liquidated loan during the preceding due
period. If the net liquidation proceeds from such liquidated loan are less than
the scheduled principal balance of such liquidated loans plus accrued and
unpaid interest thereon, the deficiency will, in effect, be absorbed by
. the Class C certificateholder,
. then the Class B-3I certificateholder,
. then the monthly servicing fee otherwise payable to the servicer (so
long as Green Tree or any wholly owned subsidiary of Green Tree is the
servicer),
. then the Class B-2 certificateholders,
. then the Class B-2A certificateholders,
. then the Class B-1 certificateholders,
. then the Class M-2 certificateholders and
. then the Class M-1 certificateholders, since a portion of the amount
available equal to such deficiency and otherwise distributable to them
will be paid to the Class A certificateholders.
Likewise, to the extent the Class M-1 certificateholders, the Class M-2
certificateholders or the Class B-1 certificateholders are entitled to receive
distributions of principal, similar deficiencies could result for each Class of
certificates with a lower payment priority.
In the event the amount available for any payment date is insufficient to
distribute the full formula principal distribution amount for that payment date
to the certificateholders, the aggregate outstanding principal balance of the
certificates will decline on that payment date by an amount less than the
decline in the pool scheduled principal balance for that payment date. Because
of the Class B-2A additional principal that will be paid on each payment date,
assuming that the amount available is sufficient, it is unlikely that
distributions of principal on one or more payment dates of less than the
formula principal distribution amount for the payment dates would result in the
aggregate outstanding principal balance of the certificates being greater than
the pool scheduled principal balance. Nevertheless, severe losses and
delinquencies on the loan pool will create this kind of a deficiency. In this
event, the amount of the deficiency (the "Liquidation Loss Amount") would be
allocated first to the Class B-2 certificates (the "Class B-2 Liquidation Loss
Amount"), and Green Tree would be obligated to pay the amount of the Class B-2
Liquidation Loss Amount to the Class B-2 certificateholders pursuant to the
Class B-2 limited guaranty. If on any payment date the sum of the Class A
principal balance, the Class M-1 principal balance, the Class M-2 principal
balance, the Class B-1 principal balance and the Class B-2A principal balance,
were equal to the pool scheduled principal balance, no further liquidation loss
amounts could be allocated to the Class B-2 certificates and any further
liquidation loss amounts would be allocated to reduce the Class B-2A adjusted
principal balance (a "Class B-2A Liquidation Loss
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Amount"). If the Class B-2A adjusted principal balance were reduced to zero, no
further liquidation loss amounts would be allocated to the Class B 2-A
certificates and any further liquidation loss amounts realized would be
allocated to reduce the Class B-1 adjusted principal balance (a "Class B-1
Liquidation Loss Amount"). If the Class B-1 adjusted principal balance were
reduced to zero, any further liquidation loss amounts realized would be
allocated to reduce the Class M-2 adjusted principal balance (a "Class M-2
Liquidation Loss Amount"). If the Class M-2 adjusted principal balance were
reduced to zero, any further liquidation loss amounts realized would be
allocated to reduce the Class M-1 adjusted principal balance (a "Class M-1
Liquidation Loss Amount"). Any such liquidation loss amounts would be reduced
on subsequent payment dates to the extent that the amount available on such
payment dates is sufficient to permit the distribution of principal due, but
not paid, on the certificates on prior payment dates. In the event the adjusted
principal balance of the Class M-1, Class M-2, Class B-2A or Class B-1
certificates were reduced by a liquidation loss amount, interest accruing on
that class would be calculated on the reduced adjusted principal balance of
that class. The interest accruing on that class's liquidation loss amount each
month (such class's "Liquidation Loss Interest Amount"), plus interest at the
applicable certificate rate on any liquidation loss interest amount due on a
prior payment date but not paid, would be paid to the certificateholders of
that class from the amount available, after distributions of principal on all
Class A, Class M, Class B-1 and Class B-2A certificates (other than Class B-2A
Additional Principal), in the order of priority described above under
"Subordination of Class M and Class B Certificates."
If the amount available is not sufficient to cover the entire amount
distributable to the Class A certificateholders, the Class M-1
certificateholders or the Class M-2 certificateholders on a particular payment
date, then the senior percentage on future payment dates may be increased and
the Class B percentage on future payment dates may be reduced as a result of
such deficiency.
But for the effect of the subordination of the Class M-2, Class B and Class C
certificates and the related monthly servicing fee otherwise payable to the
servicer with respect to the loans, the Class M-1 certificateholders will
absorb all losses on each liquidated loan in the amount by which its net
liquidation proceeds are less than its unpaid principal balance plus accrued
and unpaid interest less the related monthly servicing fee.
But for the effect of the subordination of the Class B and Class C
certificates and the related monthly servicing fee otherwise payable to the
servicer with respect to the loans, the Class M-2 certificateholders will
absorb all losses on each liquidated loan in the amount by which its net
liquidation proceeds are less than its unpaid principal balance plus accrued
and unpaid interest less the related monthly servicing fee.
But for the effect of the subordination of the Class B-3I, Class B-2, Class
B-2A and Class C certificates and the related monthly servicing fee otherwise
payable to the servicer with respect to the loans, the Class B-1
certificateholders will absorb all losses on each liquidated loan in the amount
by which its net liquidation proceeds are less than its unpaid principal
balance plus accrued and unpaid interest less the related monthly servicing
fee.
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But for the effect of the subordination of the Class B-3I, Class B-2 and
Class C certificates and the related monthly servicing fee otherwise payable to
the servicer with respect to the loans, the Class B-2A certificateholders will
absorb all losses on each liquidated loan in the amount by which its net
liquidation proceeds are less than its unpaid principal balance plus accrued
and unpaid interest less the related monthly servicing fee.
But for the payments under the Class B-2 limited guaranty described below and
the subordination of the Class B-3I and Class C certificates and the related
monthly servicing fee otherwise payable to the servicer with respect to the
loans, the Class B-2 certificateholders will absorb all losses on each
Liquidated loan in the amount by which its net liquidation proceeds are less
than its unpaid principal balance plus accrued and unpaid interest less the
related monthly servicing fee.
Advances
To the extent that collections on a loan in any due period are less than the
scheduled payment due, the servicer will be obligated to make an advance of the
uncollected portion of such scheduled payment. The servicer will be obligated
to advance a delinquent payment on a loan only to the extent that the servicer,
in its sole discretion, expects to recoup that advance from subsequent funds
available in the certificate account.
If the servicer fails to make an advance required under the pooling and
servicing agreement, the trustee will be obligated to deposit the amount of
that advance in the certificate account on the payment date. The trustee will
not, however, be obligated to deposit any of this amount if (1) the trustee
does not expect to recoup the advance from subsequent funds available in the
certificate account, or (2) the trustee determines that it is not legally able
to make the advance.
Reports to Certificateholders
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class A certificateholder, a statement on the related
payment date that shows:
(a) the amount of such distribution to holders of each class of Class A
certificates allocable to interest (separately identifying any unpaid
interest shortfall included);
(b) the amount of such distribution to holders of each class of Class A
certificates allocable to principal (separately identifying (1) the
aggregate amount of any principal prepayments included and (2) that
portion of any such distribution to Class A-5 certificateholders
constituting the Class A-5 lockout pro rata distribution amount);
(c) the amount, if any, by which the Class A formula distribution amount
exceeds the Class A distribution amount for such payment date;
(d) the principal balance of each class of Class A certificates and the
notional principal amount for the Class A-6 IO certificates after
giving effect to the distribution of principal on such payment date;
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(e) the senior percentage and the Class A-5 lockout percentage for such
payment date;
(f) the pool scheduled principal balance for such payment date;
(g) the pool factor (a percentage derived from a fraction the numerator of
which is the sum of the Class A principal balance, the Class M
principal balance and the Class B principal balance and the
denominator of which is the cut-off date pool principal balance plus
the amount in the pre-funding account); and
(h) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed as
dollar amounts for a Class A certificate with a 1% percentage interest or per
$1,000 denomination of Class A certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class A
certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class M-1 certificateholder, a statement in respect of
the related payment date setting forth, among other things:
(a) the amount of such distribution to holders of the Class M-1
certificates allocable to interest (separately identifying any unpaid
interest shortfall included);
(b) the amount of such distribution to holders of the Class M-1
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the Class M-1 formula distribution amount
exceeds the Class M-1 remaining amount available for such payment
date;
(d) the principal balance of the Class M-1 certificates after giving
effect to the distribution of principal on such payment date;
(e) any unpaid interest on any Class M-1 liquidation loss principal
amounts, after giving effect to payments of such interest on such
payment date;
(f) the senior percentage for such payment date;
(g) the pool scheduled principal balance for such payment date;
(h) the pool factor; and
(i) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed as
dollar amounts for a Class M-1 certificate with a 1% percentage interest or per
$1,000 denomination of Class M-1 certificate.
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In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-1
certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class M-2 certificateholder, a statement in respect of
the related payment date setting forth, among other things:
(a) the amount of such distribution to holders of the Class M-2
certificates allocable to interest (separately identifying any unpaid
interest shortfall included);
(b) the amount of such distribution to holders of the Class M-2
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the Class M-2 formula distribution amount
exceeds the Class M-2 remaining amount available for such payment
date;
(d) the principal balance of the Class M-2 certificates after giving
effect to the distribution of principal on such payment date;
(e) any unpaid interest on any Class M-2 liquidation loss principal
amounts, after giving effect to payments of such interest on such
payment date;
(f) the senior percentage for such payment date;
(g) the pool scheduled principal balance for such payment date;
(h) the pool factor; and
(i) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed as
dollar amounts for a Class M-2 certificate with a 1% percentage interest or per
$1,000 denomination of Class M-2 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-2
certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class B-2 certificateholder, a statement in respect of
the related payment date setting forth, among other things:
(a) the amount of such distribution to holders of the Class B-1
certificates allocable to interest (separately identifying any unpaid
interest shortfall included);
(b) the amount of such distribution to holders of the Class B-1
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
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(c) the amount, if any, by which the Class B-1 formula distribution amount
exceeds the Class B-1 remaining amount available for such payment
date;
(d) the principal balance of the Class B-1 certificates after giving
effect to the distribution of principal on such payment date;
(e) any unpaid interest on any Class B-1 liquidation loss principal
amounts, after giving effect to payments of such interest on such
payment date;
(f) the Class B percentage for such payment date;
(g) the pool scheduled principal balance for such payment date;
(h) the pool factor; and
(i) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed as
dollar amounts for a Class B-1 certificate with a 1% percentage interest or per
$1,000 denomination of Class B-1 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-1
certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class B-2A certificateholder, a statement in respect of
the related payment date setting forth, among other things:
(a) the amount of such distribution to holders of the Class B-2A
certificates allocable to interest (separately identifying any unpaid
interest shortfall included and (2) that portion of any such
distribution constituting the Class B-2A additional principal
distribution amount);
(b) the amount of such distribution to holders of the Class B-2A
certificates allocable to principal (separately identifying (1) the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the Class B-2A formula distribution
amount exceeds the Class B-2A remaining amount available for such
payment date;
(d) the principal balance of the Class B-2A certificates after giving
effect to the distribution of principal on such payment date;
(e) any unpaid interest on any Class B-2A liquidation loss principal
amounts, after giving effect to payments of such interest on such
payment date;
(f) the Class B percentage for such payment date;
(g) the pool scheduled principal balance for such payment date;
(h) the pool factor; and
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(i) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed as
dollar amounts for a Class B-2A certificate with a 1% percentage interest or
per $1,000 denomination of Class B-2A certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-2A
certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class B-2 certificateholder, a statement in respect of
the related payment date setting forth, among other things:
(a) the amount of such distribution to holders of Class B-2 certificates
allocable to interest;
(b) the amount of such distribution to holders of Class B-2 certificates
allocable to principal (separately identifying the aggregate amount of
any principal prepayments included);
(c) the amount, if any, by which the sum of the Class B-2 formula
distribution amount and the Class B-2 liquidation loss principal
amount, if any, exceeds the Class B-2 distribution amount for such
payment date;
(d) the Class B-2 liquidation loss principal amount, if any, for such
payment date;
(e) any unpaid interest on any Class B-2 liquidation loss principal
amounts, after giving effect to payments of such interest on such
payment date;
(f) the Class B-2 guaranty payment, if any, for such payment date;
(g) the Class B-2 principal balance after giving effect to the
distribution of principal on such payment date;
(h) the Class B percentage for such payment date;
(i) the pool scheduled principal balance for such payment date;
(j) the pool factor; and
(k) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days.
Information furnished pursuant to clauses (a) through (c) and clause (g) will
be expressed as dollar amounts for a Class B-2 certificate with a 1% percentage
interest or per $1,000 denomination of Class B-2 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-2
certificateholder of record at any time during such calendar year as to the
aggregate amounts reported pursuant to (a) and (b) above for such calendar
year.
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Repurchase Option
The pooling and servicing agreement provides that at any time that the pool
scheduled principal balance is less than 10% of the cut-off date pool principal
balance, the servicer will have the option to repurchase, on 30 days' prior
written notice to the trustee, all outstanding loans (other than any Loan as to
which title to the underlying property has been assigned) at a price sufficient
to pay the aggregate certificate principal balance plus the monthly interest
due on all certificates on the payment date occurring in the month following
the date of repurchase. Such amount will be distributed on such payment date.
Collection and Other Servicing Procedures
The servicer will manage, administer, service and make collections on the
loans, exercising the degree of skill and care consistent with the highest
degree of skill and care that the servicer exercises with respect to similar
loans serviced by the servicer. The servicer will not be required to cause to
be maintained, or otherwise monitor the maintenance of, hazard insurance on the
improved properties. Green Tree does, however, as a matter of its own policy,
monitor proof of hazard insurance coverage and require that it be named as an
additional loss payee on all first lien secured loans and generally on junior
lien secured loans with amounts financed of over $20,000.
Servicing Compensation and Payment of Expenses
The servicer will receive a monthly servicing fee for each due period for
servicing the loans equal to one-twelfth of the product of .75% and the
remaining pool scheduled principal balance plus the related pre-funded amount,
if any.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust. The
servicer is also entitled to reimbursement out of the liquidation proceeds of a
liquidated loan for customary out-of-pocket liquidation expenses incurred by
it.
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 loan. Administrative services performed by the servicer on
behalf of the trust include selecting and packaging the loans, 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 loans and paid by the
servicer from its servicing fees include payment of fees and expenses of
accountants, payments of all fees and expenses incurred in connection with the
enforcement of loans or foreclosure on collateral relating thereto, payment of
trustee's fees, and payment of expenses incurred in connection with
distributions and reports to certificateholders.
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Evidence as to Compliance
The pooling and servicing agreement provides for delivery to the trustee of a
monthly report by the servicer no later than one business day following the
determination date, setting forth the information described under "Reports to
Certificateholders" above. Each 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 pooling and servicing agreement. On or
before May 1 of each year, beginning in 2000, the servicer will deliver to the
trustee a report of PricerwaterhouseCoopers LLP, or another nationally
recognized accounting firm, stating that such firm has examined certain
documents and records relating to the servicing of loans serviced by the
servicer and stating that, on the basis of such examination, such servicing has
been conducted in compliance with the pooling and servicing agreement, except
for any exceptions set forth in such report.
The pooling and servicing agreement provides that the servicer shall furnish
to the trustee such reasonably pertinent underlying data as can be generated by
the servicer's existing data processing system without undue modification or
expense.
The pooling and servicing agreement provides that a certificateholder holding
certificates representing at least 5% of the aggregate certificate principal
balance will have the same rights of inspection as the trustee and may upon
written request to the servicer receive copies of all reports provided to the
trustee.
Transferability
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code. See "ERISA Considerations" in this
prospectus supplement and in the prospectus.
Certain Matters Relating to Green Tree
The pooling and servicing agreement provides that Green Tree may not resign
from its obligations and duties as servicer thereunder, except upon a
determination that Green Tree's performance of such duties is no longer
permissible under the pooling and servicing agreement or applicable law, and
prohibits Green Tree from extending credit to any certificateholder for the
purchase of a certificate, purchasing certificates in any agency or trustee
capacity or lending money to the trust. Green Tree can be removed as servicer
only pursuant to an event of termination as discussed below.
Events of Termination
An event of termination under the pooling and servicing agreement will occur
if:
(1) the servicer fails to make any payment or deposit required under the
pooling and servicing agreement (including an advance) and such
failure continues for four business days;
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(2) the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for thirty days;
(3) the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
(4) a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or similar official) of the
servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs;
(5) the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or its creditors, or fails
to, or admits in writing its inability to, pay its debts as they
become due, or takes any corporate action in furtherance of the
foregoing;
(6) the servicer fails to be an eligible servicer; or
(7) the servicer's seller-servicer loan with GNMA is terminated. The
servicer will be required under the pooling and servicing agreement to
give the trustee and the certificateholders notice of an event of
termination promptly upon the occurrence of such event.
Rights Upon an Event of Termination
If an event of termination has occurred and is continuing, either the trustee
or holders of certificates representing 25% or more of the aggregate
certificate principal balance may terminate all of the servicer's management,
administrative, servicing and collection functions under the pooling and
servicing agreement. Upon such termination, the trustee or its designee will
succeed to all the responsibilities, duties and liabilities of Green Tree as
servicer under the pooling and servicing agreement and will be entitled to
similar compensation arrangements; provided, however, that neither the trustee
nor any successor servicer will assume any accrued obligation of the prior
servicer or any obligation of Green Tree to repurchase loans for breaches of
representations and warranties, and the trustee will not be liable for any acts
or omissions of the servicer occurring prior to a transfer of the servicer's
servicing and related functions or for any breach by the servicer of any of its
representations and warranties contained in the pooling and servicing agreement
or any related document or 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 Green Tree's obligation to repurchase
certain loans for breaches of representations or warranties under the pooling
and servicing agreement. In the event that the trustee is unwilling or
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unable so to act, it may appoint, or petition a court of competent jurisdiction
for the appointment of, an eligible servicer to act as successor to the
servicer under the pooling and servicing agreement. The trustee and such
successor may agree upon the servicing compensation to be paid (after receiving
comparable bids from other eligible servicers), which may not be greater than
the monthly servicing fee payable to Green Tree as servicer under the pooling
and servicing agreement without the consent of all of the certificateholders.
Termination of the Agreement
The pooling and servicing agreement will terminate on the earlier of (a) the
payment date on which the pool scheduled principal balance is reduced to zero;
or (b) the payment date occurring in the month following the servicer's
repurchase of the loans as described under "Description of the Certificates--
Repurchase Option." However, Green Tree's representations, warranties and
indemnities will survive any termination of the pooling and servicing
agreement.
Amendment; Waiver
The pooling and servicing agreement may be amended by agreement of the
trustee, the servicer and Green Tree at any time without the consent of the
certificateholders to cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision or to add other
provisions not inconsistent with the pooling and servicing agreement, upon
receipt of an opinion of counsel to the servicer that such amendment will not
adversely affect in any material respect the interests of any
certificateholder.
The pooling and servicing agreement may also be amended from time to time by
the trustee, the servicer and Green Tree with the consent of holders of
certificates representing 66 2/3% or more of the aggregate certificate
principal balance, and holders of certificates representing 51% or more of the
aggregate certificate principal balance may vote to waive any event of
termination, provided that no such amendment or waiver shall (a) reduce in any
manner the amount of, or delay the timing of, collections of payments on loans
or distributions which are required to be made on any certificate, or (b)
reduce the aggregate amount of certificates required for any amendment of the
pooling and servicing agreement, without the unanimous consent of the
certificateholders.
The trustee is required under the pooling and servicing agreement to furnish
certificateholders with notice promptly upon execution of any amendment to the
pooling and servicing agreement.
Indemnification
The pooling and servicing agreement provides that Green Tree will defend and
indemnify the trust, the trustee and the certificateholders against any and all
costs, expenses, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation:
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(a) arising out of or resulting from the use or ownership by Green Tree
or any affiliate thereof of any real estate securing a loan;
(b) for any taxes which may at any time be asserted with respect to, and
as of the date of, the conveyance of the loans to the trust (but not
including any federal, state or other tax arising out of the creation
of the trust and the issuance of the certificates); and
(c) with respect to certain other tax matters.
The pooling and servicing agreement also provides that the servicer will
defend and indemnify the trust, the trustee and the certificateholders (which
indemnification will survive any removal of the servicer) 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 Green Tree as servicer with respect to any loan.
Duties and Immunities of the Trustee
The trustee will make no representations as to the validity or sufficiency of
the pooling and servicing agreement, the certificates or any loan, loan file or
related documents, and will not be accountable for the use or application by
Green Tree of any funds paid to Green Tree in consideration of the conveyance
of the loans, or deposited into the certificate account by the servicer. If no
event of termination has occurred, the trustee will be required to perform only
those duties specifically required of it under the pooling and servicing
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 to the requirements of the
pooling and servicing agreement.
Under the pooling and servicing agreement the servicer will agree:
(1) to pay to the trustee from time to time reasonable compensation for
all services rendered by it;
(2) to reimburse the trustee upon its request for all reasonable
expenses, disbursements and advances incurred by the trustee in accordance
with any provision of the pooling and servicing agreement, including
reasonable compensation and the expenses and disbursements of its agents
and counsel, except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) 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, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties thereunder.
The trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the pooling
and servicing agreement if there is
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a reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured.
The pooling and servicing agreement also provides that the trustee will
maintain at its expense in Minneapolis or St. Paul, Minnesota, an office or
agency where certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the trustee and the
certificate registrar and transfer agent in respect of the certificates to the
pooling and servicing agreement may be served. On the date of this prospectus
supplement the trustee's office for these purposes is located at 180 East Fifth
Street, St. Paul, Minnesota 55101. The trustee will promptly give written
notice to Green Tree, the servicer and the certificateholders of any change of
address.
The Trustee
U.S. Bank Trust National Association has its corporate trust offices at 180
East Fifth Street, St. Paul, Minnesota 55101.
The trustee may resign from its duties under the pooling and servicing
agreement at any time, in which event the servicer will be obligated to appoint
a successor trustee. The servicer may also remove the trustee if the trustee
ceases to be eligible to continue as such under the pooling and servicing
agreement or if the trustee becomes insolvent. In such circumstances, the
servicer will also be obligated to appoint a successor trustee. Any resignation
or removal of the trustee and appointment of a successor trustee will not
become effective until acceptance of the appointment by the successor trustee.
Registration of the Certificates
The certificates initially will be represented by certificates registered in
the name of Cede & Co., the nominee of DTC. The interests of beneficial owners
of the certificates will be represented by book entries on the records of the
participating members of DTC. Definitive certificates will be available only
under the limited circumstances described herein. Holders of the certificates
may hold through DTC (in the United States), CEDEL or Euroclear in Europe if
they are participants of such systems, or indirectly through organizations that
are participants in such systems.
CEDEL and Euroclear will hold omnibus positions in the certificates on behalf
of the CEDEL participants and the Euroclear participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries, which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC accepts securities for deposit from its participating organizations
and facilitates the clearance and settlement of securities transactions between
participants in such securities through electronic book-entry
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changes in accounts of participants, thereby eliminating the need for physical
movement of certificates. participants include securities brokers and dealers,
banks and trust companies and clearing corporations and may include certain
other organizations. Indirect access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
The beneficial owners of certificates who are not participants but desire to
purchase, sell or otherwise transfer ownership of the certificates may do so
only through participants (unless and until definitive certificates, are
issued). In addition, certificate owners will receive all distributions of
principal of, and interest on, the certificates from the trustee through DTC
and participants. certificate owners will not receive or be entitled to receive
certificates representing their respective interests in the certificates,
except under the limited circumstances described below.
Unless and until definitive certificates are issued, it is anticipated that
the only certificateholder of the certificates will be Cede & Co., as nominee
of DTC. Certificate owners will not be recognized by the trustee as
certificateholders as that term is used in the pooling and servicing agreement.
Certificate owners are only permitted to exercise the rights of
certificateholders indirectly through participants and DTC.
While certificates are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the certificates and is
required to receive and transmit distributions of principal of, and interest
on, the certificates. Participants with whom certificate owners have accounts
with respect to certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective certificate owners. Accordingly, although certificate owners will
not possess certificates, the rules provide a mechanism by which certificate
owners will receive distributions and will be able to transfer their interests.
Definitive certificates will be issued in registered form to certificate
owners, or their nominees, rather than to DTC, only if (1) DTC or Green Tree
advise the trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the certificates and Green Tree or the trustee is unable to locate a
qualified successor or (2) Green Tree at its sole option advises the trustee in
writing that it elects to terminate the book-entry system through DTC. Upon
issuance of definitive certificates to certificate owners, such certificates
will be transferable directly and registered holders will deal directly with
the trustee with respect to transfers, notices and distributions.
DTC has advised Green Tree that, unless and until definitive certificates are
issued, DTC will take any action permitted to be taken by a certificateholder
under the pooling and servicing agreement only at the direction of one or more
participants to whose DTC accounts the certificates are credited. DTC has
advised Green Tree that DTC will take this action with respect to any
fractional interest of the certificates only at the direction of and on behalf
of
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such participants beneficially owning a corresponding fractional interest of
the certificates. DTC may take actions, at the direction of the participants,
with respect to some certificates which conflict with actions taken with
respect to other certificates.
Issuance of certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the certificates in the
secondary market and the ability of certificate owners to pledge them. In
addition, since distributions on the certificates will be made by the trustee
to DTC and DTC will credit such distributions to the accounts of its
participants, with the participants further crediting such distributions to the
accounts of indirect participants or certificate owners, certificate owners may
experience delays in the receipt of such distributions.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL participants or
Euroclear participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing system
by its depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC,
and making or receiving payment in accordance with normal procedures for same-
day funds settlement applicable to DTC. CEDEL participants and Euroclear
participants may not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in CEDEL or Euroclear
as a result of a transaction with a participant will be made during the
subsequent securities settlement processing, dated the business day following
the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
CEDEL participant or Euroclear participant on such business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
participant or a Euroclear participant to a participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations, which
are called CEDEL participants, and facilitates the clearance and settlement of
securities transactions between CEDEL participants through electronic book-
entry changes in accounts of CEDEL participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in CEDEL in
any of 28 currencies, including United States dollars. CEDEL provides to its
CEDEL participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary
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Institute. CEDEL participants are recognized financial institutions around the
world, including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations and may
include the underwriters. Indirect access to CEDEL is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a CEDEL participant, either directly or
indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies, including
United States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described in Annex I hereto. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office, under loan with Euroclear Clearance System, S.C., a Belgian cooperative
corporation. All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear operator, not the cooperative. The Cooperative
establishes policy for the Euroclear System on behalf of Euroclear
participants. Euroclear participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to the Euroclear system is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related operating procedures of the Euroclear system and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
system, and receipts of payments with respect to securities in the Euroclear
system. All securities in the Euroclear system are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts. The Euroclear operator acts under the terms and conditions only on
behalf of Euroclear participants and has no record of or relationship with
persons holding through Euroclear participants.
Distributions with respect to certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by its depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States
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tax laws and regulations. See "Certain Federal Income Tax Consequences" in the
prospectus and "Global Clearance, Settlement and Tax Documentation Procedures"
in Annex I to this prospectus supplement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of certificates among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
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DESCRIPTION OF THE CLASS B-2 LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Class B-2
certificates and liquidation losses and delinquencies on the loans, Green Tree
will provide a guaranty against losses that would otherwise be borne by the
Class B-2 certificates. Each payment required to be made under the Class B-2
limited guaranty is a Class B-2 guaranty payment. Before to the Class B-1 and
B-2A cross-over date, and on any payment date on or after the Class B-1 and B-
2A cross-over date on which the Class B principal distribution test is not
satisfied, the Class B-2 guaranty payment will equal the amount, by which:
(1) the sum of (a) the Class B-2 formula distribution amount for that
payment date (which will be equal to accrued and unpaid interest on
the Class B-2 certificates) and (b) the Class B-2 liquidation loss
principal amount, for the payment date exceeds:
(2) the Class B-2 distribution amount for such payment date. The Class B-2
liquidation loss principal amount for any payment date equals the
amount by which the aggregate certificate principal balance exceeds
the pool scheduled principal balance for such payment date, but in no
event greater than the Class B-2 principal balance. The Class B-2
liquidation loss principal amount is, in substance, the amount of
delinquencies and losses experienced on the loans during the related
due period that was not absorbed by the Class B-3I and Class C
certificates and the related monthly servicing fee otherwise payable
to Green Tree (so long as Green Tree or any wholly owned subsidiary of
Green Tree is the servicer) with respect to the loans. On each payment
date on or after the Class B-1 and B-2A cross-over date, if the Class
B principal distribution test is satisfied on such payment date, the
Class B-2 guaranty payment will equal the amount, by which:
(a) the sum of (i) the Class B-2 formula distribution amount for that
payment date (which will include both interest and principal) and
(ii) the Class B-2 principal liquidation loss amount, if any, for
such payment date exceeds;
(b) the Class B-2 distribution amount for the payment date.
The Class B-2 Limited Guaranty will be an unsecured general obligation of
Green Tree and will not be supported by any letter of credit or other credit
enhancement arrangement. The Class B-2 limited guaranty will not benefit in any
way, or result in any payment to, the Class A-1A ARM, Class A-1B ARM, Class A-
1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6 IO, Class M-1, Class
M-2, Class B-1 or Class B-2A certificateholders.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the certificates, [Company Counsel], counsel to Green
Tree, will deliver its opinion that, assuming that two separate elections are
made to treat segregated portions of the assets of the trust as master and
subsidiary REMICs, and further assuming ongoing compliance with the terms of
the pooling and servicing agreement, the master REMIC and the subsidiary REMIC
will each qualify as a REMIC, the subsidiary REMIC regular interests, which are
not being offered hereunder, will be treated as regular interests in the
subsidiary REMIC, and each class of certificates will be treated as regular
interests in the master REMIC for federal income tax purposes. The Class C
subsidiary certificate, which is not being offered here, will constitute the
sole class of residual interests in the subsidiary REMIC, and the Class C
master certificate, which is not being offered here, will constitute the sole
class of residual interests in the master REMIC.
Other than the Class A-6 IO certificates, the certificates will not be issued
with original issue discount for federal income tax purposes. Although the tax
treatment is not entirely certain, the Class A-6 IO certificates will be
treated as having been issued with original issue discount for federal income
tax purposes equal to the excess of all expected payments of interest on these
certificates over their issue price. The prepayment assumption that will be
used to determine the rate of accrual of original issue discount, market
discount and premium, if any, will be based on the assumption that the loans
will prepay at a rate equal to 125% of the applicable prepayment assumption as
to the fixed-rate loans and 30% CPR as to the adjustable rate loans. Although
unclear, a holder of a Class A-6 IO certificate may be entitled to deduct a
loss to the extent that its remaining basis exceeds the maximum amount of
future payments to which such certificateholder would be entitled if there were
no further prepayments of the loans.
Certificates held by financial institutions, thrift institutions taxed as
domestic building and loan associations and real estate investment trusts will
represent interests in loans secured by an interest in real property and real
estate assets for purposes of Sections 7701(a)(19)(C) and 856(c)(4)(A) of the
IRS code, respectively, in the same proportion that the assets in the master
REMIC consist of qualifying assets under these sections. Interest paid with
respect to certificates held by a real estate investment trust will be
considered to be interest on obligations secured by mortgages on real property
or on interests in real property for purposes of Section 856(c)(3) of the IRS
code to the extent that such certificates are treated as real estate assets
under Section 856(c)(4)(A) of the IRS code.
For further information regarding federal income tax consequences of
investing in the certificates, see "Certain Federal Income Tax Consequences--
REMIC Series" in the prospectus.
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ERISA CONSIDERATIONS
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under "ERISA Considerations."
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain restrictions on employee benefit plans that are subject to ERISA and on
persons who are fiduciaries with respect to these plans. Employee benefit plans
that are governmental plans, as defined in section 3(32) of ERISA, and some
church plans, as defined in Section 3(33) of ERISA, are not subject to ERISA
requirements. Accordingly, assets of those plans may be invested in the Class A
certificates without regard to the ERISA restrictions described in this
section, subject to applicable provisions of other federal and state laws.
However, any governmental or church plan which is qualified under section
401(a) of the IRS code and exempt from taxation under section 501(a) of the IRS
code is subject to the prohibited transaction rules described in section 503 of
the IRS code.
The U.S. Department of Labor has granted an administrative exemption to
Lehman Brothers Inc. (Prohibited Transaction Exemption No. 91-14, 56 Fed. Reg.
7413 (1991)), from certain of the prohibited transaction rules of ERISA and the
IRS code. They provide an exemption from certain of the prohibited transaction
rules of ERISA and the IRS code with respect to the initial purchase, the
holding and the subsequent resale by plans of certificates representing
interests in asset-backed pass-through trusts that consist of certain
receivables, loans and other obligations that meet the conditions and
requirements of the exemption. The receivables covered by the exemption include
home equity loans such as the loans in the loan pool. The exemption will apply
to the acquisition, holding, and resale of the Class A certificates by a plan,
provided that specified conditions are met, including those described in the
paragraph below.
Among the conditions which must be satisfied for the exemption to apply to
the Class A certificates are the following:
(1) the acquisition of the Class A certificates by a plan is on terms,
including the price for the Class A certificates, that are at least as
favorable to the plan as they would be in an arm's-length transaction
with an unrelated party;
(2) the rights and interests evidenced by the Class A certificates
acquired by the plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) the Class A certificates acquired by the plan have received a rating
at the time of such acquisition that is in one of the three highest
generic rating categories from either S&P, Fitch, Duff & Phelps Credit
Rating Co. or Moody's Investors Service, Inc.;
(4) the trustee is not an affiliate of any other member of the restricted
group, as defined below;
(5) the sum of all payments made to the underwriters in connection with
the distribution of the Class A certificates represents not more than
reasonable
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compensation for underwriting the Class A certificates, as applicable.
The sum of all payments made to and retained by Green Tree pursuant to
the sale of the loans to the trust represents not more than the fair
market value of such loans. The sum of all payments made to and
retained by the servicer represents not more than reasonable
compensation for the servicer's services under the pooling and
servicing agreement and reimbursement of the servicer's reasonable
expenses in connection therewith; and
(6) The plan investing in the Class A certificates is an accredited
investor as defined in Rule 501(a)(1) of Regulation D under the
Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the exemption, which extends exemptive relief to mortgage-backed and asset-
backed securities transactions using pre-funding accounts for trusts issuing
pass-through certificates. The amendment generally allows mortgage loans or
other secured receivables (the "Obligations") supporting payments to
certificateholders, and having a value equal to no more than 25% of the total
principal amount of the certificates being offered by the trust, to be
transferred to the trust within a 90-day or three-month pre-funding period
following the closing date, instead of requiring that all such Obligations be
either identified or transferred on or before the closing date. The relief is
available when the following conditions are met:
(1) the ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered must not
exceed 25%;
(2) all additional Obligations transferred after the closing date must
meet the same terms and conditions for eligibility as the original
Obligations used to create the trust, which terms and conditions have
been approved by an exemption rating agency;
(3) the transfer of the additional Obligations to the trust during the
pre-funding period must not result in the certificates to be covered
by the exemption receiving a lower credit rating from an exemption
rating agency upon termination of the pre-funding period than the
rating that was obtained at the time of the initial issuance of the
certificates by the trust;
(4) solely as a result of the use of pre-funding period, the weighted
average annual percentage interest rate for all of the Obligations in
the trust at the end of the pre-funding period must not be more than
100 basis points lower than the average interest rate for the
Obligations transferred to the trust on the closing date;
(5) in order to insure that the characteristics of the additional
Obligations are substantially similar to the original Obligations
which were transferred to the trust fund:
. the characteristics of the additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
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. an independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to each
exemption rating agency rating the certificates, the related
underwriter and the related prospectus or trustee) stating whether
or not the characteristics of the additional Obligations conform
to the characteristics described in the related prospectus or
prospectus supplement and/or pooling and servicing agreement. In
preparing this letter, the independent accountant must use the
same type of procedures as were applicable to the Obligations
transferred to the trust as of the closing date;
(6) the period of pre-funding must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the
pooling and servicing agreement or an event of default occurs;
(7) amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be
invested only in certain permitted investments;
(8) the related prospectus or prospectus supplement must describe:
. any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
. the duration of the period of pre-funding;
. the percentage and/or dollar amount of the pre-funding limit for
the trust; and
. that the amounts remaining in the pre-funding account at the end
of the pre-funding period will be remitted to certificateholders
as repayments of principal;
(9) the related pooling and servicing agreement must describe these
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
additional Obligations.
Moreover, the exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements,
. in the case of the acquisition of Class A certificates in
connection with the initial issuance, at least fifty percent (50%)
of the Class A certificates, as applicable, are acquired by
persons independent of the restricted group,
. the plan's investment in Class A certificates does not exceed
twenty-five percent (25%) of all of the Class A certificates, as
applicable, outstanding at the time of the acquisition and
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<PAGE>
. immediately after the acquisition, no more than twenty-five
percent (25%) of the assets of the plan are invested in
certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity. The
exemption does not apply to plans sponsored by Green Tree, the
underwriters, the trustee, the servicer, any obligor with respect
to loans included in the trust constituting more than five percent
(5%) of the aggregate unamortized principal balance of the assets
in the trust or any affiliate of such parties.
In its prefatory comments to the amendment as proposed by DOL (62 Fed. Reg.
28502), the DOL stated its interpretive position that a transaction which
satisfied the conditions of the exemption, but did not satisfy the conditions
of the amendment as proposed, could nevertheless qualify for exemptive relief
if it included a pre-funding account that was used only to acquire assets that
are specifically identified by the sponsor or originator as of the closing
date, but transferred to the trust after the closing date for administrative or
other reasons. Although the pre-funding account may not satisfy the conditions
of the amendment in that the pre-funding account may exceed 25% of the total
principal amount of the related certificates, funds in the pre-funding account
in excess of such 25% threshold will be used by the trust solely to purchase
subsequent home equity loans in accordance with the pooling and servicing
agreement from a fixed pool of loans that will have been specifically
identified prior to the closing date. It is expected that all of the loans in
such fixed pool, except for those which are determined not to meet the criteria
for purchase set forth in the pooling and servicing agreement, will be acquired
using the pre-funding account. Accordingly, Green Tree believes that the
existence of the pre-funding account should not cause the Exemption to be
inapplicable.
Green Tree believes that the exemption will apply to the acquisition and
holding of Class A certificates sold by the underwriters and by plans and that
all conditions of the exemption other than those within the control of the
investors have been met. In addition, as of the date of this prospectus
supplement, no obligor with respect to loans included in the trust constitutes
more than 5% of the aggregate unamortized principal balance of the assets of
the trust. Any Plan fiduciary who proposes to cause a plan to purchase Class A
certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the IRS code of the plan's acquisition and
ownership of the Class A certificates. Assets of a plan or individual
retirement account should not be invested in the Class A certificates unless it
is clear that the assets of the trust will not be plan assets or unless it is
clear that the exemption or a prohibited transaction class exemption will apply
and exempt all potential prohibited transactions. See "ERISA Considerations" in
the prospectus.
In addition to the exemption, some or all of the transactions involving the
purchase, holding and resale of certificates that might otherwise constitute
prohibited transactions under ERISA or the IRS code might qualify for relief
from the prohibited transaction rules and related taxes and penalties under
certain class exemptions granted by the DOL, including Prohibited Transaction
Class Exemption ("PTCE") 83-1, which exempts certain transactions involving
employee benefit plans and mortgage pool investment trusts, PTCE 86-128, which
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exempts certain transactions involving employee benefit plans and certain
broker-dealers, PTCE 90-1, which exempts certain transactions involving
employee benefit plans and insurance company pooled separate accounts, PTCE 91-
38, which exempts certain transactions involving employee benefit plans and
bank collective investment funds and PTCE 96-23, which exempts certain
transactions involving employee benefit plans and in-house asset managers.
There also may be other exemptions applicable to a particular transaction
involving the trust. A plan that intends to acquire any class of the
certificates should consult with its own counsel regarding whether such
investment would cause a prohibited transaction to occur and whether the terms
and conditions of an applicable class exemption may be satisfied.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the IRS code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the IRS code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL published
proposed regulations on December 22, 1997 to provide guidance for the purpose
of determining, in cases where insurance policies supported by an insurer's
general account are issued to or for the benefit of a plan on or before
December 31, 1998, which general account assets constitute plan assets. Section
401(c) of ERISA generally provides that, until the date which is 18 months
after the proposed 401(c) Regulations become final, no person will be subject
to liability under Part 4 of Title I of ERISA and Section 4975 of the IRS code
on the basis of a claim that the assets of an insurance company general account
constitute plan assets, unless (1) as otherwise provided by the Secretary of
Labor in the proposed 401(c) Regulations to prevent avoidance of the
regulations or (2) an action is brought by the Secretary of Labor for certain
breaches of fiduciary duty which would also constitute a violation of federal
or state criminal law. Any assets of an insurance company general account which
support insurance policies issued to a plan after December 31, 1998 or issued
to plans on or before December 31, 1998 for which the insurance company does
not comply with the proposed 401(c) Regulations may be treated as plan assets.
In addition, because Section 401(c) does not relate to insurance company
separate accounts, separate account assets are still treated as plan assets of
any plan invested in such separate account. Insurance companies contemplating
the investment of general account assets in the certificates should consult
with their legal counsel with respect to the applicability of Section 401(c) of
ERISA, including the general account's ability to continue to hold the
certificates after the date which is 18 months after the date on which the
proposed 401(c) Regulations become final.
No transfer of any class of certificates other than the Class A certificates
will be permitted to be made to a plan unless the plan, at its expense,
delivers to the trustee and Green Tree an opinion of counsel, in form
satisfactory to the trustee and Green Tree, to the effect that the purchase or
holding of any other class of certificates by the plan will not result in the
assets of the trust being deemed to be plan assets and subject to the
prohibited transaction provisions of ERISA and the IRS code and will not
subject the trustee, Green
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<PAGE>
Tree or the servicer to any obligation or liability in addition to those
undertaken in the pooling and servicing agreement. Unless this opinion is
delivered, each person acquiring such a certificate will be deemed to represent
to the trustee, Green Tree and the servicer either (1) the person is neither a
plan, nor acting on behalf of a plan, subject to ERISA or to Section 4975 of
the IRS code or (2) that the purchase and holding of the certificate by the
plan will not result in the assets of the trust being deemed to be plan assets
and subject to the prohibited transaction provisions of ERISA and the IRS code
and will not subject the trustee, Green Tree or the servicer to any obligation
or liability in addition to those undertaken in the pooling and servicing
agreement.
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<PAGE>
UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from Green Tree the respective principal
amounts of the certificates set forth opposite their names below.
<TABLE>
<CAPTION>
Principal Principal Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Amount of Amount of
Class A-1A ARM Class A-1B ARM Class A-1 Class A-2 Class A-3 Class A-4
Underwriter Certificates Certificates Certificates Certificates Certificates Certificates
----------- -------------- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated..... $ $ $ $ $ $
Chase Securities Inc. ..
Credit Suisse First
Boston.................
First Union Capital
Markets................
Lehman Brothers Inc. ...
--------- --------- --------- --------- --------- ---------
Totals................ $ $ $ $ $ $
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Principal Percentage Principal Principal Principal Principle
Amount of Interest of Amount of Amount of Amount of Amount of
Class A-5 Class A-6 IO Class M-1 Class M-2 Class B-1 Class B-2A
Underwriter Certificates Certificates Certificates Certificates Certificates Certificates
----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated..... $ % $ $ $ $
Chase Securities Inc. ..
Credit Suisse First
Boston.................
First Union Capital
Markets................
Lehman Brothers Inc.....
--------- --- --------- --------- --------- ---------
Totals................ $ 100% $ $ $ $
========= === ========= ========= ========= =========
</TABLE>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions in the agreement, to purchase all of the certificates
offered here if any such certificates are purchased. In the event of a default
by the underwriters, the underwriting agreement provides that, in certain
circumstances, the underwriting agreement may be terminated.
Green Tree has been advised by the underwriters that they propose initially
to offer the certificates to the public at the respective offering prices set
forth on the cover page of this prospectus supplement and to certain dealers at
such price less a concession not in excess of the respective amounts shown in
the table below (expressed as a percentage of the relative certificate
principal balance). The underwriters may allow and such dealers may reallow a
discount not in excess of the respective amounts listed in the table below to
other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1A ARM............................ % %
A-1B ARM............................ % %
A-1................................. % %
A-2................................. % %
A-3................................. % %
A-4................................. % %
A-5................................. % %
A-6 IO.............................. % %
M-1................................. % %
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
M-2................................. % %
B-1................................. % %
B-2A................................ % %
</TABLE>
Neither Green Tree nor any of the underwriters makes any representations or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the certificates. In addition,
neither Green Tree nor any of the underwriters makes any representation that
the underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Until the distribution of the certificates is completed, rules of the SEC may
limit the ability of the underwriters and some selling group members to bid for
and purchase the certificates. As an exception to these rules, the underwriters
are permitted to engage in certain transactions that stabilize the price of the
certificates. Such transactions consist of bids or purchases for the purposes
of pegging, fixing or maintaining the price of the certificates. In general,
purchases of a security for the purpose of stabilization could cause the price
of the security to be higher than it might be without these purchases.
The underwriting pooling and servicing agreement provides that Green Tree
will indemnify the underwriters against liabilities, including liabilities
under the Securities Act of 1933 or contribute to payments the underwriters may
be required to make in respect thereof.
Green Tree has agreed that for a period of 30 days from the date of this
prospectus supplement it will not offer or sell publicly any other home
improvement loan or home equity loan pass-through certificates without the
consent of the underwriters.
Each underwriter or one of its affiliates has from time to time provided
warehouse and other financing to Green Tree.
LEGAL MATTERS
The validity of the certificates will be passed upon for Green Tree and the
trust by [Company Counsel], [St. Paul and] Minneapolis, Minnesota, and for the
underwriters by Thacher Proffitt & Wood, New York, New York. The material
federal income tax consequences of the certificates will be passed upon for
Green Tree by [Company Counsel].
S-98
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Base Prospectus No. 1
Home Equity Loans
Green Tree Financial Corporation, Seller and Servicer
Certificates for Home Equity Loans
(Issuable In Series)
We are offering certificates for home equity loans under this prospectus and
a prospectus supplement. The prospectus supplement will be prepared separately
for each series of certificates offered. Green Tree Financial Corporation will
form a trust for each series, and the trust will issue the certificates of that
series. The certificates of any series may comprise several different classes.
A trust may also issue one or more other interests in the trust that will not
be offered under this prospectus.
The right of each class of certificates within a series to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of certificates. In addition, a series of certificates may include one or more
classes which on the one hand are subordinated to one or more classes of
certificates, while on the other hand are senior to one or more classes of
certificates. The rate of principal and interest payment on the certificates of
any class will depend on the priority of payment of that class and the rate and
timing of payments of the related home equity loans.
-----------
The certificates will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
This prospectus may not be used to consummate sales of any certificates
unless accompanied by the prospectus supplement relating to that series.
Prospectus dated , 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (2) the prospectus supplement for to
the particular terms of your series of certificates.
If the terms of your certificates varies between this prospectus and the
prospectus supplement, you should rely on the information in your prospectus
supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
2
<PAGE>
THE TRUST
General
Certificates evidencing interests in pools of home equity loans may be issued
from time to time in series under a separate pooling and servicing agreement
between Green Tree, as seller and servicer, and the trustee.
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 supplement,
each of which will evidence the interest specified in the related prospectus in
the loan pool and other property held in a trust fund for the benefit of
certificateholders. Each trust will include:
. a loan pool;
. the amounts held from time to time in a trust certificate account
maintained by the trustee under a pooling and servicing agreement;
. 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 for home equity loans; and
. other property as specified in the related prospectus supplement.
Each certificate will evidence the interest specified in the prospectus
supplement in one trust fund, containing one loan pool comprised of loans
having the aggregate principal balance as of the specified day of the month of
the creation of the pool specified in the prospectus supplement. Holders of
certificates of a series will have interests only in that loan pool and will
have no interest in the loan pool created for any other series of certificates.
If specified in the related prospectus supplement, the trust fund may include
funds on deposit in a pre-funding account which would be used to purchase
subsequent loans from Green Tree during the pre-funding period specified in the
related prospectus supplement. The related prospectus supplement will specify
the conditions that must be satisfied before any transfer of subsequent loans,
including the requisite characteristics of the subsequent loans.
Except as otherwise specified in the related prospectus supplement, all of
the loans will have been originated by Green Tree in the ordinary course of its
business. Specific information respecting the loans included in each trust fund
will be provided in the related prospectus supplement and, if not contained in
the related prospectus supplement, in a report on Form 8-K to be filed with the
Commission within fifteen days after the initial issuance of the certificates.
A copy of the pooling and servicing agreement for 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 loans relating to that series will be attached to
the pooling and servicing agreement delivered to the trustee upon delivery of
the certificates.
The Loan Pools
Except as otherwise specified in the related prospectus supplement, the loan
pool will consist of the loans, originated by Green Tree on an individual basis
in the ordinary course of business. All loans will be secured by the related
real estate. Except as otherwise specified in the related prospectus
supplement, the loans will be fully amortizing and will bear interest at a
fixed or variable annual percentage rate.
3
<PAGE>
For each series of certificates, we will assign the loans constituting the
loan pool to the trustee named in the prospectus supplement. We will service
the loans as servicer under the pooling and servicing agreement. See
"Description of the Certificates--Servicing." Unless otherwise specified in the
related prospectus supplement, the loan documents will be held by the trustee
or a custodian on its behalf.
Each loan pool will be composed of loans bearing interest at the loan rates
specified in the prospectus supplement. Unless we specify otherwise in the
related prospectus supplement, each registered holder of a certificate will be
entitled to receive periodic distributions, which will be monthly unless we
specify otherwise in the related prospectus supplement, of all or a portion of
principal on the underlying loans or interest on the principal balance of the
certificate, or on some other principal balance unrelated to that of the
certificate, at the pass-through rate, or both. The prospectus supplement will
list the rate at which interest will be paid to certificateholders of each
class of a given series. The pass-through rate may be fixed, variable or
adjustable, as specified in the related prospectus supplement.
The related prospectus supplement will specify for the loans contained in the
related loan pool:
. the range of the dates of origination of the loans;
. the range of the loan rates and the weighted average loan rate;
. the minimum and maximum outstanding principal balances and the average
outstanding principal balance as of the cut-off date;
. the aggregate principal balance of the loans included in the loan 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 range of original maturities of the loans and the last maturity
date of any loan; and
. the geographic location of improved real estate securing the loans.
If the trust fund includes a pre-funding account, the related prospectus
supplement will specify the conditions that must be satisfied before any
transfer of subsequent loans, including the requisite characteristics of the
subsequent loans.
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material respects of information furnished to the trustee for each loan. Upon a
breach of any representation or warranty that materially and adversely affects
the interests of the certificateholders in a loan, we will be obligated to cure
the breach in all material respects, or to repurchase or substitute for the
loan as described below under "Description of the Certificates--Repurchase
Option." This repurchase obligation constitutes the sole remedy available to
the certificateholders or the trustee for a breach of representation or
warranty by us. See "Description of the Certificates--Conveyance of Loans."
4
<PAGE>
Conveyance of Loans
We will transfer to the trustee all of our right, title and interest in the
loans, including all principal and interest received on or with respect to the
loans, except receipts of principal and interest due on the loans before the
cut-off date. On behalf of the trust, as the issuer of the related series of
certificates, the trustee, concurrently with the conveyance, will execute and
deliver the certificates to the order of Green Tree. The loans will be as
described on a list attached to the pooling and servicing agreement. This list
will include the amount of monthly payments due on each loan as of the date of
issuance of the certificates, the loan rate on each loan and the maturity date
of each loan. This list will be available for inspection by any
certificateholder at the principal executive office of the servicer. Before the
conveyance of the loans to the trust, our internal audit department will
complete a review of all of the loan files confirming the accuracy of the list
of loans delivered to the trustee. Any loan discovered not to agree with that
list in a manner that is materially adverse to the interests of the
certificateholders will be repurchased or substituted for by us, or, if the
discrepancy relates to the unpaid principal balance of a loan, we may deposit
cash in the separate certificate account maintained at an eligible institution
in the name of the trustee in an amount sufficient to offset the discrepancy.
If the trust fund includes a pre-funding account, the related prospectus
supplement will specify the conditions that must be satisfied before any
transfer of subsequent loans, including the requisite characteristics of the
subsequent loans.
Unless otherwise specified in the related prospectus supplement, the trustee
or its custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and our accounting records and computer systems will also reflect this
sale and assignment.
Our counsel will render an opinion to the trustee that the transfer of the
loans from us to the related trust fund would, if we became a debtor under the
United States Bankruptcy Code, be treated as a true sale and not as a pledge to
secure borrowings. If, however, the transfer of the loans from us to the trust
fund were treated as a pledge to secure borrowings by us, the distribution of
proceeds of the loans to the trust fund might be subject to the automatic stay
provisions of the United States Bankruptcy Code, which would delay the
distribution of the proceeds for an uncertain period of time. In addition, a
bankruptcy trustee would have the power to sell the loans if the proceeds of
the sale could satisfy the amount of the debt deemed owed by us, or the
bankruptcy trustee could substitute other collateral in lieu of the loans to
secure the debt, or the debt could be subject to adjustment by the bankruptcy
trustee if Green Tree were to file for reorganization under Chapter 11 of the
United States Bankruptcy Code.
Except as otherwise specified in the related prospectus supplement, we will
make representations and warranties in the pooling and servicing agreement for
each loan as of the related closing date, including that:
. as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
5
<PAGE>
. no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
. each loan 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;
. no loan is subject to any right of rescission, set-off, counterclaim or
defense;
. each loan was originated by a home equity lender in the ordinary course
of the lender's business and assigned to us or was originated by us
directly;
. no loan was originated in or is subject to the laws of any jurisdiction
whose laws would make the transfer of the loan or an interest in the
loan to the trustee under the pooling and servicing agreement or the
certificates unlawful;
. each loan complies with all requirements of law;
. no loan has been satisfied, subordinated to a lower lien ranking than
its original position, if any, or rescinded;
. each loan creates a valid and perfected lien on the related improved
real estate;
. all parties to each loan had full legal capacity to execute the loan;
. no loan has been sold, conveyed and assigned or pledged to any other
person and Green Tree has good and marketable title to each loan free
and clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to transfer
the loan to the trustee;
. as of the cut-off date there was no default, breach, violation or event
permitting acceleration under any loan, except for payment
delinquencies permitted by the first clause, no event that with notice
and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under the
loan, and we have not waived any of the foregoing;
. each loan is a fully-amortizing loan with a fixed rate of interest and
provides for level payments over the term of the loan;
. each loan contains customary and enforceable provisions such as to
render the rights and remedies of the holder adequate for realization
against the collateral;
. the description of each loan appearing in the list delivered to the
trustee is true and correct;
. there is only one original of each loan; and
. each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
Under the terms of the pooling and servicing agreement, if we become aware of
a breach of any representation or warranty that materially adversely affects
the trust fund's interest in any loan or receives written notice of a breach
from the trustee or the servicer,
6
<PAGE>
then we will be obligated either to cure the breach or to repurchase or, if so
provided in the related prospectus supplement, substitute for the affected
loan, in each case under the conditions further described in this prospectus
and in the prospectus supplement. This repurchase obligation will constitute
the sole remedy available to the trust fund and the certificateholders for a
breach of a representation or warranty under the pooling and servicing
agreement relating to the loans, but not for any other breach by us of our
obligations under the pooling and servicing agreement. If a prohibited
transaction tax under the REMIC provisions of the IRS code is incurred in
connection with the repurchase, distributions otherwise payable to residual
certificateholders will be applied to pay the tax. We will be required to pay
the amount of the tax that is not funded out of the distributions.
The repurchase price of a loan at any time means the outstanding principal
amount of the loan, without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable pass-through rate on the loan
from the end of the due period for which the obligor last made a payment,
without giving effect to any advances made by the servicer or the trustee,
through the end of the immediately preceding due period.
Payments on Loans
Each certificate account will be a trust account established by the servicer
as to each series of certificates in the name of the trustee:
(1) with a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit are rated within the
two highest rating categories, or other rating category as will not
adversely affect the ratings assigned to the certificates, by each
rating agency rating the certificates of that series; or
(2) with the trust department of a national bank; or
(3) in an account or accounts the deposits in which are fully insured by
the FDIC; or
(4) 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 so that, as evidenced by an opinion of
counsel, the certificateholders have a claim for the funds in the
certificate account or a perfected first priority security interest
against any collateral securing the 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
(5) otherwise acceptable to the rating agency without reduction or
withdrawal of the rating assigned to the relevant certificates.
The collateral eligible to secure amounts in the certificate account is limited
to United States government securities and other high-quality investments
specified in the applicable pooling and servicing agreement. A certificate
account may be maintained as an interest-bearing account, or the funds held in
the account may be invested pending each succeeding payment date in eligible
investments.
7
<PAGE>
Unless otherwise specified in the related prospectus supplement, the servicer
will deposit in the certificate account on a daily basis all proceeds 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, including:
. all obligor payments on account of principal, including principal
prepayments, on the loans;
. all obligor payments on account of interest on the loans;
. all amounts received and retained for the liquidation of defaulted
loans, net of liquidation expenses;
. any advances made as described under "Advances" below and other amounts
required under the pooling and servicing agreement to be deposited in
the certificate account;
. all amounts received from any credit enhancement provided on a series
of certificates; and
. all proceeds of any loan or property acquired in respect thereof
repurchased by the servicer or us, as described under "Conveyance of
Loans" above or under "Repurchase Option" below.
USE OF PROCEEDS
Unless we specify otherwise in the related prospectus supplement,
substantially all of the net proceeds to be received from the sale of each
series of certificates will be used by us for general corporate purposes,
including the origination or acquisition of additional home equity loans, costs
of carrying the loans until sale of the related certificates and to pay other
expenses connected with pooling the loans and issuing the certificates.
8
<PAGE>
GREEN TREE FINANCIAL CORPORATION
General
Certificates evidencing interests in pools of home equity loans may be issued
from time to time in series under a separate pooling and servicing agreement
between us, as seller and servicer, and the trustee.
Green Tree is a Delaware corporation which, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. We purchase, pool, sell and
service conditional sales contracts for manufactured homes and other consumer
installment sales contracts, as well as home equity loans. We are the largest
servicer of government-insured manufactured housing contracts and conventional
manufactured housing contracts in the United States. Servicing functions are
performed through Green Tree Financial Servicing Corporation, a wholly owned
subsidiary of Green Tree. Through its principal offices in St. Paul, Minnesota,
and service centers throughout the United States, Green Tree serves all 50
states. We began financing home equity loans in January 1996. We also purchase,
pool and service installment sales contracts for various consumer products. Our
principal executive offices are located at 1100 Landmark Towers, 345 St. Peter
Street, St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Green Tree's
quarterly and annual reports are available from Green Tree upon written
request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We are incorporating by reference the following documents into
this prospectus and the prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10K for the
year ended December 31, 1998.
. Green Tree Financial Corporation's quarterly report on Form 10Q for the
quarter ended March 31, 1999.
We will provide you, upon your written or oral request, a copy of any or all
of the documents incorporated by reference in this prospectus, exhibits to
those documents. Please direct your requests for copies to John Dolphin, Vice
President and Director of Investor Relations, 1100 Landmark Towers, 345 St.
Peter Street, St. Paul, Minnesota 55102-1639, telephone number (651) 293-3400.
All documents filed by the servicer, on behalf of any trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after
the date of this prospectus and prior to the termination of the offering of the
certificates issued by that trust, will be incorporated by reference into this
prospectus.
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by
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reference) and other information. You can read and copy these documents at the
public reference facility maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. You can also read and copy
these reports and other information at the following regional offices of the
SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street,
Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Loan Origination
Green Tree has originated closed-end home equity loans since January 1996. As
of December 31, 1998, we had approximately $7,302,696,406 aggregate principal
amount of outstanding closed-end home equity loans.
Through a system of regional offices, we market our home equity lending
directly to consumers using a variety of marketing techniques. We also review
and re-underwrite loan applications forwarded by correspondent lenders.
Our credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less or more favorable equity position, the
creditworthiness of the borrower must be stronger, or may be weaker. The loan-
to-value ratio of the requested loan, combined with any existing loans with a
senior lien position, may not exceed 95% without senior management approval. In
most circumstances, an appraisal of the property is required. Currently, loans
secured by a first mortgage with an obligor having a superior credit rating may
not exceed $300,000 without senior management approval, and loans secured by a
second mortgage with an obligor having a superior credit rating may not exceed
$250,000 without senior management approval.
YIELD CONSIDERATIONS
The pass-through rates and the weighted average and range of contractual
rates of interest of the loans, as of the related cut-off date, relating to
each series of certificates are listed in the related prospectus supplement.
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 class of
certificates that is offered at a premium to its principal amount or without
any principal amount.
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The yield on some types of certificates which we may offer, such as interest
only certificates, principal only certificates, and fast pay/slow pay
certificates, may be particularly sensitive to prepayment rates, and to changes
in prepayment rates, on the underlying loans. If so stated in the related
prospectus supplement, the yield on some types of certificates which we may
offer could change and may be negative under some prepayment rate scenarios.
Accordingly, some types of certificates may not be legal or appropriate
investments for financial institutions, pension funds or others. See "ERISA
Considerations" and "Legal Investment Considerations" in this prospectus and in
the prospectus supplement. In addition, the timing of changes in the rate of
prepayment on the loans included in a loan 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 loans occur, the greater the effect on the investor's yield
to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise described in an applicable prospectus supplement, all of the
loans will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. Green Tree
has no significant experience with the rate of principal prepayments on home
equity loans. Because the loans have scheduled due dates throughout the
calendar month, and because, unless otherwise specified in the related
prospectus supplement, all principal prepayments will be passed through to
certificateholders of the related series on the payment date following the due
period in which the principal prepayment occurred, prepayments on the loans
would affect the amount of funds available to make distributions on the
certificates on any payment date only if a substantial portion of the loans
prepaid before their respective due dates in a particular month, thus paying
less than 30 days' interest for that due period, while very few loans prepaid
after their respective due dates in that month. In addition, liquidations of
defaulted loans or the servicer's or Green Tree's exercise of its option to
repurchase the entire remaining pool of loans will affect the timing of
principal distributions on the certificates of a series. See "Description of
the Certificates--Repurchase Option."
Information regarding the prepayment standard or model or any other rate of
assumed prepayment, as applicable, will be described in the prospectus
supplement for a series of certificates. Although the related prospectus
supplement will specify the prepayment assumptions used to price any series of
certificates, we cannot assure you that the loans will prepay at that rate, and
it is unlikely that prepayments or liquidations of the loans will occur at any
constant rate.
See "Description of the Certificates--Repurchase Option" for a description of
Green Tree's or the servicer's option to repurchase the loans comprising part
of a trust fund when
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the aggregate outstanding principal balance of the loans is less than a
specified percentage of the initial aggregate outstanding principal balance of
the loans as of the related cut-off date. See also "The Trust Fund--The Loan
Pools" for a description of Green Tree's obligations to repurchase a loan in
case of a breach of a representation or warranty for that loan.
DESCRIPTION OF THE CERTIFICATES
Each series of certificates will be issued under a pooling and servicing
agreement to be entered into among Green Tree, as seller and servicer, and the
trustee named in the related prospectus supplement, and other parties as are
described in the applicable prospectus supplement. The following summaries
describe provisions expected to be common to each pooling and servicing
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 pooling and servicing agreement and its description
in the related prospectus supplement. The provisions of the form of pooling and
servicing agreement filed as an exhibit to the registration statement of which
this prospectus is a part that we do not describe in this prospectus may differ
from the provisions of any actual pooling and servicing agreement. The material
differences will be described in the related prospectus supplement. Capitalized
terms used in this prospectus and not otherwise defined shall have the meanings
assigned to them in the form of pooling and servicing 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 under this prospectus, and there may be
separate prospectus supplements relating to one or more of the classes sold.
When we refer to the prospectus supplement relating to a series comprised of
more than one class it should be understood to refer to each of the prospectus
supplements relating to the classes sold under this prospectus. When we refer
to the certificates of a class it 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.
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 created under the related pooling and servicing
agreement. The trust fund will be held by the trustee for the benefit of the
certificateholders. 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 listed 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.
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Ownership of each loan pool may be evidenced by one or more classes of
certificates, each representing the interest in the loan pool specified in the
related prospectus supplement. Each series of certificates may include one or
more classes of subordinated certificates which are subordinated in right of
distribution to one or more other classes of senior certificates, as provided
in the related prospectus supplement. A series that are both senior and
subordinate are 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 for a series of mezzanine certificates will describe
the extent to which they are subordinated, which may include a formula for
determining the subordinated amount or for determining the allocation of the
amount available for distribution among senior certificates and subordinated
certificates, the allocation of losses among the classes of subordinated
certificates, the period or periods of subordination, any minimum subordinated
amount and any distributions or payments which will not be affected by the
subordination. The protection afforded to the senior certificateholders from
the subordination feature described above will be effected by the preferential
right of the certificateholders to receive current distributions from the loan
pool. If a series of certificates contains more than one class of subordinated
certificates, losses will be allocated among the classes in the manner
described in the 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 under this
prospectus and the prospectus supplement.
If specified in a prospectus supplement, a series of certificates may include
one or more classes which:
(1) are entitled to receive distributions only in respect of principal,
interest or any combination of the two, or in specified proportions
of the payments; and/or
(2) are entitled to receive distributions of principal before or after
specified principal distributions have been made on one or more other
classes within a series or on a planned amortization schedule or
targeted amortization schedule or upon the occurrence of other
specified events.
The prospectus supplement will list the pass-through rate at which interest
will be paid to certificateholders of each class of a given series. The 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 loans evidenced by a single certificate of each
class of certificates of a series.
Distributions of principal and interest on the certificates will be made on
the payment dates listed in the related prospectus supplement 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.
Distributions will be made by check mailed to the address of the person
entitled to the distribution as it appears on the certificate register, or, as
described
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in the related prospectus supplement, 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 that will be deposited with, or on behalf of,
and registered in the name of a nominee for, a 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.
Global certificates will be issued in registered form. Unless and until it is
exchanged in whole or in part for a certificate in definitive form, a global
certificate may not be transferred except as a whole by the depositary for the
global certificate to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary.
The specific terms of the depositary arrangement for any certificates of a
class will be described in the related prospectus supplement. It is anticipated
that the following provisions described in this subsection will apply to all
depositary arrangements:
Upon the issuance of a global certificate, the depositary for the global
certificate will credit, on its book-entry registration and transfer system,
the respective denominations of the certificates represented by the global
certificate to the accounts of institutions that have accounts with the
depositary. 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 the global certificate will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the depositary for the global certificate or by
participants or persons that hold through participants. The laws of some states
require that purchasers of securities take physical delivery of the securities
in definitive form. These limits and 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 the global certificate, the depositary or the nominee, as the case may
be, will be considered the sole owner or holder of the certificates represented
by the global certificate for all purposes under the pooling and servicing
agreement relating to those certificates. Except as described in the paragraph
below, owners of beneficial interests in a global certificate will not be
entitled to have certificates of the series represented by a global certificate
registered in their names, will not receive or be entitled to receive physical
delivery of certificates of that series in definitive form and will not be
considered the owners or holders under the pooling and servicing agreement
governing those 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 the certificates. In
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addition, all reports required under the applicable pooling and servicing
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. Green Tree, the servicer, the trustee, or any agent, including
any applicable certificate registrar or paying agent, will not 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.
Green Tree expects that the depositary for certificates of a class, upon
receipt of any distribution or payment on a global certificate, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interest in the global certificate as shown on the
records of the depositary. Green Tree also expects that payments by
participants to owners of beneficial interests in the global certificate held
through 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 the
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 Green Tree within the time period specified in the pooling and
servicing agreement, Green Tree will cause to be issued certificates of that
class in definitive form in exchange for the related global certificate or
certificates. In addition, Green Tree 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, if this occurs, will cause to be issued
certificates of that class in definitive form in exchange for the related
global certificate or certificates. Further, if Green Tree so specifies that
the certificates of a class, an owner of a beneficial interest in a global
certificate representing certificates of that Class may, on terms acceptable to
Green Tree and the depositary for the global certificate, receive certificates
of that 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 the
global certificate equal in denominations to the beneficial interest and to
have the certificates registered in its name.
Distributions on Certificates
Except as otherwise provided in the related prospectus supplement, on each
payment date for a series of certificates, the trustee will withdraw from the
applicable certificate account and distribute to the certificateholders of that
series of record on the preceding record date an amount equal to the amount
available for that payment date. Unless otherwise specified in the applicable
prospectus supplement, the amount available for a payment date is an amount
equal to the aggregate of all amounts on deposit in the certificate account as
of the seventh business day following the end of the related due period, or
another date as may be specified in the related prospectus supplement except:
(1) all payments on the loans that were due on or before the cut-off
date;
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(2) all payments or collections received after the due period preceding
the month in which the payment date occurs;
(3) all scheduled payments of principal and interest due on a date or
dates subsequent to the due period preceding the determination date;
(4) amounts representing reimbursement for advances, these reimbursement
being limited, if so specified in the related prospectus supplement,
to amounts received on particular loans as late collections of
principal or interest as to which the servicer has made an
unreimbursed advance; and
(5) amounts representing reimbursement for any unpaid servicing fee.
In the case of a series of certificates which includes only one class, the
amount available for distribution on each payment date will be distributed pro
rata to the holders of the certificates. In the case of any other series of
certificates, the amount available for each payment date will be allocated and
distributed to holders of the certificates of the Series according to the
method and in the order of priority specified in the applicable prospectus
supplement. We refer to the amount of principal and interest specified in the
related prospectus supplement to be distributed to certificateholders as the
certificate distribution amount.
Within the time specified in the pooling and servicing agreement and
described in the related prospectus supplement, the servicer will furnish a
statement to the trustee listing the amount to be distributed on the related
payment date on account of principal and interest, stated separately, and a
statement listing information about the loans.
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 1999. All weekdays are assumed to be business days. The initial
principal balance of the loan pool will be the aggregate principal balance of
the loans at the close of business on the cut-off date, after deducting
principal payments due on or before that date, which, together with
corresponding interest payments, are not part of the loan pool and will not be
passed through to certificateholders. Scheduled payments and principal
prepayments may be received at any time during the due period and will be
deposited in the certificate account by the servicer for distribution to
certificateholders. When a loan is prepaid in full, interest on the amount
prepaid is collected from the obligor only to the date of payment.
Distributions on April 15 will be made to certificateholders of record at the
close of business on the last business day of March, which is the month
immediately preceding the month of distribution. On April 9 (the seventh
business day following the end of the prior due period), 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
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interests evidenced by the senior certificates and the subordinated
certificates in the trust fund. On April 15, the amounts determined on April 9
will be distributed to certificateholders.
<TABLE>
<S> <C>
March 1............................................. Cut-off date.
March 1-31.......................................... Due period. Servicer
receives scheduled payments
on the loans and any
principal prepayments made
by obligors and applicable
interest thereon.
March 29............................................ Record date.
April 9............................................. Determination date.
Distribution amount
determined.
April 15............................................ Payment date.
</TABLE>
Succeeding months follow the pattern of the due period through the payment
date. The flow of funds with respect to any series of certificates may differ
from the above example, as specified in the related prospectus supplement.
Reports to Certificateholders
The trustee will forward to each certificateholder on each payment date, or
as soon thereafter as is practicable, as specified in the related prospectus
supplement, a statement listing the following information:
(1) the amount of distribution which constitutes monthly principal,
specifying the amounts constituting scheduled payments by obligors,
principal prepayments on the loans, and other payments on the loans;
(2) the amount of distribution which constitutes monthly interest;
(3) the remaining principal balance represented by the
certificateholder's interest;
(4) the amount of fees payable out of the trust fund;
(5) the pool factor (a percentage derived from a fraction the numerator
of which is the remaining principal balance of the certificates and
the denominator of which is the initial principal amount of the
certificates) immediately before and immediately after the payment
date;
(6) the number and aggregate principal balance of loans delinquent (a)
31-59 days, (b) 60-89 and (c) 90 or more days;
(7) the number of loans liquidated during the due period ending
immediately before the payment date;
(8) other customary factual information as is necessary to enable
certificateholders to prepare their tax returns; and
(9) other customary factual information available to the servicer without
unreasonable expense as is necessary to enable certificateholders to
comply with regulatory requirements.
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Advances
Unless otherwise specified in the related prospectus supplement, to the
extent that collections on a loan in any due period are less than the
scheduled payment due, the servicer will be obligated to make an advance of
the uncollected portion of the scheduled payment. The servicer will be
obligated to advance a delinquent payment on a loan only to the extent that
the servicer, in its sole discretion, expects to recoup the advance from
subsequent collections on the loan or from liquidation proceeds of the loans.
The servicer will deposit any advances in the certificate account no later
than one business day before the following payment date. The servicer will be
entitled to recoup its advances on a loan from subsequent payments by or on
behalf of the obligor and from liquidation proceeds, including any foreclosure
resale proceeds of the loan, and will release its right to reimbursements in
conjunction with the purchase of the loan by Green Tree for breach of
representations and warranties. If the servicer determines in good faith that
an amount previously advanced will not ultimately be recoverable from payments
by or on behalf of the obligor or from liquidation proceeds, including any
foreclosure resale proceeds of the loan, the servicer will be entitled to
reimbursement from payments on other loans or from other funds available.
Unless otherwise specified in the related prospectus supplement, if the
servicer fails to make an advance required under the pooling and servicing
agreement, the trustee will be obligated to deposit the amount of the advance
in the certificate account on the payment date. The trustee will not, however,
be obligated to deposit any amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from any liquidation proceeds; or
(2) the trustee determines that it is not legally able to make the
advance.
Indemnification
The pooling and servicing agreement requires Green Tree to defend and
indemnify the trust fund, the trustee, including any agent of the trustee, and
the certificateholders against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation:
(1) arising out of or resulting from the use or ownership by Green Tree
or the servicer or any of its affiliates of any real estate related
to a loan; and
(2) for any taxes which may at any time be asserted for, and as of the
date of, the conveyance of the loans to the trust fund, but not
including any federal, state or other tax arising out of the creation
of the trust fund and the issuance of the certificates.
The pooling and servicing agreement also requires the servicer, in its
duties as servicer of the loans, 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 loans, against any and all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation, for any action taken by
the servicer on any loan while it was the servicer.
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Repurchase Option
Unless otherwise specified in the related prospectus supplement, each pooling
and servicing agreement will provide that on any payment date on which the pool
scheduled principal balance is less than 10% of the cut-off date pool principal
balance, Green Tree or the servicer will have the option to repurchase, on
30 days' prior written notice to the trustee, all outstanding loans in the
related loan pool at a price equal to the greatest of
(1) the principal balance of the loans on the prior payment date plus 30
days' accrued interest at the applicable pass-through rate and any
delinquent payments of interest, plus the fair market value, as
determined by the servicer, of any acquired properties,
(2) the fair market value of all of the assets of the trust fund, and
(3) an amount equal to the aggregate certificate principal balance of the
related certificates plus interest on the certificates payable on and
before the payment date occurring in the month following the
repurchase, less amounts on deposit in the certificate account and
available to pay the principal and interest.
The price will be paid on the payment date on which the purchase occurs to the
certificateholders of record on the last business day of the immediately
preceding due period in immediately available funds against the trustee's
delivery of the loans and any acquired properties to the servicer. The
distribution of the purchase price to certificateholders will be in lieu of any
other distribution to be made on the payment date on the related loans.
Amendment
Unless otherwise specified in the related prospectus supplement, the pooling
and servicing agreement may be amended by Green Tree, the servicer and the
trustee without the consent of the certificateholders:
. to cure any ambiguity; or
. to correct or supplement any provision in the agreement that may be
inconsistent with another provision; or
. if an election has been made for a particular series of certificates to
treat the trust fund as a REMIC within the meaning of Section 860D(a)
of the IRS code, to maintain the REMIC status of the trust fund and to
avoid the imposition of certain taxes on the REMIC; or
. to make any other provisions on matters or questions arising under the
pooling and servicing agreement that are not inconsistent with its
provisions, provided that the 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 pooling
and servicing agreement may also be amended by Green Tree, the servicer and the
trustee with the consent of the certificateholders, other than holders of
residual certificates, representing 66 2/3% or more of the aggregate
certificate principal balance of a series for the purpose of adding any
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provisions to or changing in any manner or eliminating any of the provisions of
the pooling and servicing agreement or of modifying in any manner the rights of
the certificateholders; provided, however, that no amendment that reduces in
any manner the amount of, or delays the timing of, any payment received on
loans which are required to be distributed on any certificate may be effective
without the consent of the holders of each certificate.
Termination of the Agreement
The obligations created by each pooling and servicing agreement will
terminate, after distribution of all monthly principal and monthly interest
then due to certificateholders, on the earlier of (1) the payment date next
succeeding the later of the final payment or other liquidation of the last loan
or the disposition of all property acquired upon foreclosure of any loan; or
(2) the payment date on which Green Tree or the servicer repurchases the loans
as described under "Description of the Certificates--Repurchase Option."
However, Green Tree's representations, warranties and indemnities will survive
any termination of the pooling and servicing agreement.
The Trustee
The prospectus supplement for a series of certificates will specify the
trustee under the related pooling and servicing agreement. The trustee may have
customary commercial banking relationships with Green Tree or its affiliates
and the servicer or its affiliates.
The trustee may resign at any time, in which event Green Tree will be
obligated to appoint a successor trustee. Green Tree may also remove the
trustee if the trustee ceases to be eligible to continue as trustee under the
pooling and servicing agreement or if the trustee becomes insolvent. Any
resignation or removal of the trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by the successor
trustee.
The trustee will make no representation as to the validity or sufficiency of
the pooling and servicing agreement, the certificates or any loan, loan file or
related documents, and will not be accountable for the use or application by
Green Tree of any funds paid to Green Tree, as seller, in consideration of the
conveyance of the loans, or deposited into or withdrawn from the certificate
account by the servicer. If no event of termination has occurred, the trustee
will be required to perform only those duties specifically required of it under
the pooling and servicing 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 pooling and servicing agreement. Whether or
not an event of termination has occurred, the trustee is not required to expend
or risk its own funds or otherwise incur any financial liability in the
performance of its duties or the exercise of its powers if it has reasonable
grounds to believe that repayment of the funds or adequate indemnity against
the risk or liability is not reasonably assured to it.
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Under the pooling and servicing agreement, the servicer agrees to pay to the
trustee on each payment date:
. reasonable compensation for all services rendered by it under the
agreement, which compensation shall not be limited by any provision of
law regarding the compensation of a trustee of an express trust; and
. reimbursement for all reasonable expenses, disbursements and advances
incurred or made by the trustee in accordance with any provision of the
pooling and servicing agreement, including reasonable compensation and
the expenses and disbursements of its agents and counsel, except any
expense, disbursement or advance as may be attributable to the
trustee's negligence or bad faith.
Green Tree 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.
SERVICING
Under the pooling and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as described below in this
section. The servicer will perform diligently all services and duties specified
in each pooling and servicing agreement, in the same manner as prudent lending
institutions of mortgage loans of the same type as the loans in those
jurisdictions where the related real properties are located or as otherwise
specified in the pooling and servicing 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, foreclosure of
loans.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the pooling and servicing agreement, will
follow the collection procedures as it follows for mortgage loans serviced by
it that are comparable to the loans.
Evidence as to Compliance. Unless otherwise specified in the related
prospectus supplement, each pooling and servicing agreement will require the
servicer to deliver to the trustee a monthly report before each payment date,
describing information about the loan pool and the certificates of the series
as is specified in the related prospectus supplement. Each report to the
trustee will be accompanied by a statement from an appropriate officer of the
servicer certifying the accuracy of the report and stating that the servicer
has not defaulted in the performance of its obligations under the pooling and
servicing 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
the firm has examined documents and records relating to the servicing of home
equity loans serviced by the servicer under pooling and servicing agreements
similar to the pooling and servicing agreement and stating that, on the basis
of those procedures, the servicing has been conducted in compliance with the
pooling and servicing agreement, except for any exceptions described in the
report.
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About the Servicer. The servicer may not resign from its obligations and
duties under a pooling and servicing agreement except upon a determination that
its duties under the pooling and servicing agreement are no longer permissible
under applicable law. No resignation will become effective until the trustee or
a successor servicer has assumed the servicer's obligations and duties under
the pooling and servicing agreement. The servicer can only be removed as
servicer upon the occurrence of an event of termination as discussed below
under "--Events of Termination."
The servicer shall keep in force throughout the term of the pooling and
servicing agreement:
. a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the pooling and servicing
agreement; and
. a fidelity bond.
The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home equity
loans having an aggregate principal amount of $10 million or more and which are
generally regarded as servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which Green Tree may assign, for each due period, paid on the
next succeeding payment date, equal to 1/12th of the product of the annual
servicing fee rate described in the applicable prospectus supplement and the
pool scheduled principal balance for that payment date. As long as Green Tree
is the servicer, the trustee will pay Green Tree its monthly servicing fee from
any monies remaining after the certificateholders have received all payments of
principal and interest for the payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust fund, for
additional administrative services performed by the servicer on behalf of the
trust fund and for expenses paid 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 for each
loan. Administrative services performed by the servicer on behalf of the trust
fund include selecting and packaging the loans, calculating distributions to
certificateholders and providing related data processing and reporting services
for certificateholders and on behalf of the trustee. Expenses incurred in
servicing of the loans and paid by Green Tree from its monthly servicing fees
include payment of fees and expenses of accountants, payments of all fees and
expenses incurred in the enforcement of loans or foreclosure on collateral
relating thereto, payment of trustee's fees, and payment of expenses incurred
in distributions and reports to certificateholders, except that the servicer
shall be reimbursed out of the liquidation proceeds of a liquidated loan for
customary out-of-pocket liquidation expenses incurred by it.
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Events of Termination. Except as otherwise specified in the related
prospectus supplement, events of termination under each pooling and servicing
agreement will occur if:
. the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and the failure
continues for four business days;
. the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for 30 days;
. the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
. a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or appoints a receiver, liquidator, assignee, custodian,
trustee, or sequestrator, or similar official, of the servicer, as the
case may be, or enters a decree or order for any substantial
liquidation of its affairs;
. the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any law, or consents to
the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits
in writing its inability to, pay its debts as they become due, or takes
any corporate action in furtherance of the foregoing;
. the servicer fails to be an eligible servicer; or
. if Green Tree is the servicer, Green Tree's servicing rights under its
master seller-servicer contract with GNMA are terminated.
The servicer will be required under the pooling and servicing agreement to give
the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of the event.
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 certificateholders
representing 25% or more of the aggregate certificate principal balance of a
series shall, terminate all of the rights and obligations of the servicer under
the related pooling and servicing agreement and in and to the loans, and the
proceeds of the loans, at which time, subject to applicable law regarding the
trustee's ability to make advances, the trustee or a successor servicer under
the pooling and servicing agreement will succeed to all the responsibilities,
duties and liabilities of the servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the trustee nor any successor servicer will assume any
obligation of Green Tree to repurchase loans for breaches of
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representations or warranties, and the trustee and a successor servicer will
not be liable for any acts or omissions of the prior servicer occurring before
a transfer of the servicer's servicing and related functions or for any breach
by the servicer of any of its obligations contained in the pooling and
servicing agreement. Notwithstanding the termination, the servicer shall be
entitled to payment of amounts payable to it before the termination, for
services rendered before the termination. No termination will affect in any
manner Green Tree's obligation to repurchase loans for breaches of
representations or warranties under the pooling and servicing agreement. If the
trustee is obligated to succeed the servicer but is unwilling or unable to do
so, it may appoint, or petition to a court of competent jurisdiction for the
appointment of, a servicer. Pending appointment, the trustee is obligated to
act in this capacity. The trustee and the 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 pooling and servicing agreement.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the pooling and servicing agreement at
the request, order or direction of any of the holders of certificates, unless
the certificateholders have offered to the trustee reasonable security or
indemnity against the costs, expenses and liabilities which the trustee may
incur.
CERTAIN LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of Green Tree's conveyance and assignment of a pool of loans to a
trust fund, the certificateholders of the series, as the beneficial owners of
the trust fund, will succeed collectively to all of the rights thereunder,
including the right to receive payment on the loans. The following discussion
contains summaries of legal aspects of home equity loans secured by residential
properties which are general in nature. Because these 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 real
estate securing the loans may be situated or which may govern any loan. The
summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the loans.
Mortgages and Deeds of Trust
The loans will be secured by either mortgages, deeds of trust, security deeds
or deeds to secure debt depending upon the prevailing practice in the state in
which the underlying property is located, and may have first, second or third
priority. In some states, a mortgage creates a lien upon the real property
encumbered by the mortgage or deed of trust. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent, such as the payment of the indebtedness secured. 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 retail installment contract evidencing the loan and the mortgage.
Although a deed of trust is similar to a
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mortgage, a deed of trust has three parties: the borrower, or trustor, the
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
repayment of the loan. The trustee's authority under a deed of trust and the
mortgagee's authority under a mortgage are governed by applicable state law,
the express provisions of the deed of trust or mortgage, and, in some cases for
deeds of trust, the directions of the beneficiary. Some states use a security
deed or deed to secure debt which is similar to a deed of trust except that it
has only two parties: a grantor (similar to a mortgagor) and a grantee (similar
to a mortgagee). Mortgages, deeds of trust and deeds to secure debt are not
prior to liens for real estate taxes and assessments and other charges imposed
under governmental police powers. Priority between mortgages, deeds of trust
and deeds to secure debt and other encumbrances depends on their terms, the
knowledge of the parties to the instrument in some cases and generally on the
order of recordation of the mortgage, deed of trust or the deed to secure debt
in the appropriate recording office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the loans in any loan pool are expected to be
second or third mortgages or deeds of trust which are junior to mortgages or
deeds of trust held by other lenders or institutional investors. The rights of
the related trust fund, and therefore the certificateholders, as beneficiary
under a junior deed of trust or as mortgagee under a junior mortgage, are
subordinate to those of the mortgagee or beneficiary under the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the loan to be sold upon default of the mortgagor or
trustor under the senior mortgage or deed of trust, thereby extinguishing the
junior mortgagee's or junior beneficiary's lien unless the servicer on behalf
of the trust fund asserts its subordinate interest in the property in
foreclosure litigation and, possibly, satisfies the defaulted senior loan or
loans. As discussed more fully below, a junior mortgagee or beneficiary may
satisfy a defaulted senior loan in full, or in some states may cure the default
and bring the senior loan current, in either event usually adding the amounts
expended to the balance due on the junior loan. Although Green Tree generally
does not cure defaults under a senior mortgage or deed of trust, it is Green
Tree's standard practice to protect its interest by attending any foreclosure
sale and bidding for property only if it is in Green Tree's best interests to
do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like that of Green Tree, confers on the mortgagee or beneficiary the
right both to receive all proceeds collected under any hazard insurance policy
and all awards made in connection with any condemnation proceedings, and to
apply such proceeds and awards to any indebtedness secured by the mortgage or
deed of trust, in such order as the mortgagee or beneficiary may determine.
Thus, in the event improvements on the property are damaged or destroyed by
fire or other casualty, or in the event the property is taken by condemnation,
the mortgagee or beneficiary under the underlying first mortgage or deed of
trust will have the prior right to collect any insurance proceeds payable under
a hazard insurance policy and
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any award of damages in connection with the condemnation and to apply the same
to the indebtedness secured by the first mortgage or deed of trust. Proceeds in
excess of the amount of first mortgage indebtedness, in most cases, may be
applied to the indebtedness of a junior mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a future advance clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an obligatory or optional advance. If the mortgagee or beneficiary
is obligated to advance the additional amounts, the advance is entitled to
receive the same priority as amounts initially advanced under the mortgage or
deed of trust, notwithstanding the fact that there may be junior mortgages or
deeds of trust and other liens which intervene between the date of recording of
the mortgage or deed of trust and the date of the future advance, and, in some
states, notwithstanding that the senior mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of advances under the clause rests, in
some states, on state statutes giving priority to all advances made under the
loan agreement to a credit limit amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste, and to appear in and defend any action or proceeding purporting to
affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. If the mortgagor or trustor fails to perform any of
these obligations, the mortgagee or beneficiary is given the right under the
mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or
beneficiary for any sums expended by the mortgagee or beneficiary on behalf of
the mortgagor or trustor. All sums expended by a senior mortgagee or
beneficiary generally become part of the indebtedness secured by the senior
mortgage or deed of trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For
example, if the borrower and the senior lender agree to an increase in
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the principal amount of or the interest rate payable on the senior loan, the
senior lender may lose its priority to the extent any existing junior lender is
harmed or the borrower is additionally burdened. Third, if the borrower
defaults on the senior loan and/or any junior loan or loans, the existence of
junior loans and actions taken by junior lenders can impair the security
available to the senior lender and can interfere with or delay the taking of
action by the senior lender. The bankruptcy of a junior lender may operate to
stay foreclosure or similar proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action establishes a waiver, or
fraud, bad faith, oppressive or unconscionable conduct and warrants a court of
equity to refuse affirmative relief to the mortgagee. In some circumstances a
court of equity may relieve the mortgagor from an entirely technical default
where the default was not willful. 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. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a referee
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, under a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, 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 notice
of sale. In addition, before the sale, 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. Some states require that a notice
of sale be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers in a specified manner before
the date of trustee's sale. 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.
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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. Some state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might 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. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. 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, paying taxes 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. Any loss resulting from the sale may be
reduced by the receipt of any mortgage insurance proceeds.
A second or third mortgagee may not foreclose on the property securing a
second or first mortgage unless it forecloses subject to the senior mortgages,
in which case it must either pay the entire amount due on the senior mortgages
before or at the time of the foreclosure sale or make payments on the senior
mortgages in the event the mortgagor is in default thereunder, in either event
adding the amounts expended to the balance due on the junior loan, and may be
subrogated to the rights of the senior mortgagees. In addition, in the event
that the foreclosure by a junior mortgagee triggers the enforcement of a due-
on-sale clause in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgages to the senior mortgagees.
Accordingly, for those loans which are second or third mortgage loans, if the
lender purchases the property, the lender's title will be subject to all senior
liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
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In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related trust with respect to its acquisition, by
foreclosure or otherwise, and disposition of real property securing a loan, and
any such taxes or fees imposed may reduce liquidation proceeds with respect to
such property, as well as distributions payable to the certificateholders.
Second or Third Mortgages
The loans may be secured by second or third mortgages or deeds of trust,
which are junior to first or second mortgages or deeds of trust held by other
lenders. The rights of the certificateholders as the holders of a junior deed
of trust, junior mortgage, or junior security deed are subordinate in lien and
in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the senior deed of
trust, the junior mortgagee's or junior beneficiary's lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the loan. See "--
Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to secure debt or security deed. In the event of a conflict
between the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed and the junior mortgage, deed of trust, deed to secure debt or
security deed, the terms of the senior mortgage, deed of trust, deed to secure
debt or security deed will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage, deed of trust, deed to secure debt
or security deed may have the right to perform the obligation itself.
Generally, all sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition,
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in some states, when a foreclosure action has been commenced, the redeeming
party must pay the costs of the action. Those having an equity of redemption
must generally be made parties and duly summoned to the foreclosure action in
order for their equity of redemption to be barred.
In some states, after sale under a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In other
states, this right of redemption applies only to sale following judicial
foreclosure, and not to sale under 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 expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. In some states, the right to
redeem is an equitable right. The equity of redemption, which is a non-
statutory right that must be exercised before foreclosure sale, should be
distinguished from statutory rights of redemption. 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.
In some states, there is no right to redeem property after a trustee's sale
under a deed of trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Some states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. 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 public 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 other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security;
however, in some of these states, the lender, following judgment on the
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies on 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
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of the 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.
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In some states, exceptions to the anti-deficiency statutes are provided for
in instances where the value of the lender's security has been impaired by acts
or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, under the federal bankruptcy law, the filing of a petition acts as a
stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default of a
mortgage loan on a debtor's residence by paying arrearages and reinstate the
original mortgage loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court, provided no sale of the property had yet occurred, before the filing of
the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. In the case of a mortgage loan not
secured by the debtor's principal residence, courts with federal bankruptcy
jurisdiction may also reduce the monthly payments due under the mortgage loan,
change the rate of interest and alter the mortgage loan repayment schedule.
The IRS code provides priority to federal tax liens over the lien of the
mortgage or deed of trust. The bankruptcy code also provides priority to tax
liens over the lien of the mortgage or deed of trust. The laws of some states
provide priority to state 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, state licensing requirements, 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 mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994, which became effective on
October 1, 1995, adds provisions to Regulation Z which impose additional
disclosure and other requirements on creditors involved in non-purchase
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money mortgage loans with high interest rates or high up-front fees and
charges. It is possible that some loans included in a loan pool may be subject
to these provisions. The Home Protection Act applies to mortgage loans
originated on or after the effective date of these regulations. These laws can
impose specific statutory liabilities upon creditors who fail to comply with
their provisions and may affect the enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The 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 related lenders and
assignees, to transfer the contract free of notice of claims by the debtor. The
effect of this rule is to subject the assignee of the contract to all claims
and defenses which the debtor could assert against the seller of goods, such as
a home improvement contractor. Liability under this rule is limited to amounts
paid under a loan; however, the obligor also may be able to assert the rule to
set off remaining amounts due as a defense against a claim brought by the trust
fund against the obligor. The Home Protection Act provides that assignees of
high-interest, non-purchase money mortgage loans, which may include some home
equity loans, are subject to all claims and defenses that the debtor could
assert against the original creditor, unless the assignee demonstrates that a
reasonable person in the exercise of ordinary due diligence could not have
determined that the mortgage loan was subject to the provisions of the Home
Protection Act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In some states there are or may be specific limitations upon late
charges which a lender may collect from a borrower for delinquent payments.
Under the pooling and servicing agreement, late charges, to the extent
permitted by law and not waived by Green Tree, will be retained by Green Tree
as additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts will
generally enforce clauses providing for acceleration in the event of a material
payment default. However, courts, exercising equity jurisdiction, may refuse to
allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
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Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage having a
power of sale does not involve sufficient state action to afford constitutional
protection to the borrower.
Due-on-Sale Clauses
All of the home equity loan documents will contain due-on-sale clauses unless
the prospectus supplement indicates otherwise. These clauses permit the
servicer to accelerate the maturity of the loan on notice, which is usually 30
days, if the borrower sells, transfers or conveys the property without the
prior consent of the mortgagee. In recent years, court decisions and
legislative actions placed substantial restrictions on the right of lenders to
enforce such clauses in many states. However, effective October 15, 1982,
Congress enacted the Garn-St Germain Depository Institutions Act of 1982,
which, after a three-year grace period, preempts state laws which prohibit the
enforcement of due-on-sale clauses by providing, among other matters, that due-
on-sale clauses in some loans, including the home equity loans made after the
effective date of the Garn-St. Germain Act are enforceable within limitations
as described in the Garn-St. Germain Act and its regulations.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any home equity loan which contains a "due-on-sale"
clause upon transfer of an interest in the mortgaged property. This ability to
accelerate will not apply to certain types of transfers, including:
. the granting of a leasehold interest which has a term of three years or
less and which does not contain an option to purchase;
. a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property;
. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property;
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. the creation of a lien or other encumbrance subordinate to the lender's
security instrument which does not relate to a transfer of rights of
occupancy in the mortgaged property, provided that the lien or
encumbrance is not created under a contract for deed;
. a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety; and
. other transfers as described in the Garn-St. Germain Act and its
regulations.
As a result, a lesser number of loans which contain due-on-sale clauses may
extend to full maturity than earlier experience would indicate for single-
family mortgage loans. However, we cannot predict the extent of the effect of
the Garn-St. Germain Act on the average lives and delinquency rates of the home
equity loans.
The inability to enforce a due-on-sale clause may result in home equity loans
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the loans and the number of loans which may be outstanding
until maturity.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, ("CERCLA"), and under some states' laws, a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property may become liable in certain
circumstances for the costs of cleaning up hazardous substances regardless of
whether they have contaminated the property. CERCLA imposes strict, as well as
joint and several, liability on several classes of potentially responsible
parties, including current owners and operators of the property who did not
cause or contribute to the contamination. Furthermore, liability under CERCLA
is not limited to the original or unamortized principal balance of a loan or to
the value of the property securing a loan. Lenders may be held liable under
CERCLA as owners or operators unless they qualify for the secured creditor
exemption to CERCLA. This exemption exempts from the definition of owners and
operators those who, without participating in the management of a facility,
hold indicia of ownership primarily to protect a security interest in the
facility. What constitutes sufficient participation in the management of a
property securing a loan or the business of a borrower to render the exemption
unavailable to a lender has been a matter of interpretation by the courts.
CERCLA has been interpreted to impose liability on a secured party, even absent
foreclosure, where the party participated in the financial management of the
borrower's business to a degree indicating a capacity to influence waste
disposal decisions. However, court interpretations of the secured creditor
exemption have been inconsistent. In addition, when lenders foreclose and then
become owners of collateral property, courts are inconsistent as to whether
ownership renders the secured creditor exemption unavailable. Other federal and
state laws in some circumstances may impose liability on a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property on which contaminants other
than CERCLA hazardous substances are present, including petroleum, agricultural
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chemicals, hazardous wastes, asbestos, radon, and lead-based paint. These
cleanup costs may be substantial. It is possible that cleanup costs could
become a liability of a trust fund and reduce the amounts otherwise
distributable to the holders of the related series of certificates in some
circumstances if these cleanup costs were incurred. Moreover, some states by
statute impose an environmental lien for any cleanup costs incurred by the
state on the property that is the subject of the cleanup costs. All subsequent
liens on the property generally are subordinated to an environmental lien and,
in some states, even prior recorded liens are subordinated to environmental
liens. In the latter states, the security interest of the trustee in a related
parcel of real property that is subject to an environmental lien could be
adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present on any mortgaged property before the
origination of the mortgage loan or before foreclosure or accepting a deed-in-
lieu of foreclosure. Accordingly, Green Tree has not made and will not make
these evaluations before the origination of the home equity loans. Neither
Green Tree nor any replacement servicer will be required by any pooling and
servicing agreement to undertake any evaluations before foreclosure or
accepting a deed-in-lieu of foreclosure. Green Tree does not make any
representations or warranties or assume any liability for the absence or effect
of contaminants on any related real property or any casualty resulting from the
presence or effect of contaminants. However, Green Tree will not foreclose on
related real property or accept a deed-in-lieu of foreclosure if it knows or
reasonably believes that there are material contaminated conditions on such
property. A failure so to foreclose may reduce the amounts otherwise available
to certificateholders of the related series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, would adversely affect, for an indeterminate period of time, the
ability of the servicer to collect full amounts of interest on certain of the
loans. Any shortfall in interest collections resulting from the application of
the Relief Act or similar legislation, which would not be recoverable from the
related loans, would result in a reduction of the amounts distributable to the
certificateholders. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under certain circumstances, during an additional
three month period thereafter. Thus, in the event that the Relief Act or
similar legislation applies to any loan which goes into default, there may be
delays in payment on the certificates in connection therewith. Any other
interest shortfalls, deferrals or forgiveness of payments on the loans
resulting from similar legislation or regulations may result in delays in
payments or losses to certificateholders.
Repurchase Obligations
Green Tree will represent and warrant under each pooling and servicing
agreement that each loan complies with all requirements of law. Accordingly, if
any obligor has a claim against the related trust fund for violation of any law
and such claim materially adversely
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affects the trust fund's interest in a loan, such violation would constitute a
breach of a representation and warranty under the pooling and servicing
agreement and would create an obligation to repurchase such loan unless the
breach is cured. See "Description of the Certificates--Conveyance of Loans."
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to ERISA 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 those
plans. ERISA also imposes duties on persons who are fiduciaries of the plans.
Under ERISA, and subject to exemptions not relevant to this offering, any
person who exercises any authority or control over the management or
disposition of the assets of a plan is considered to be a fiduciary of the
plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of plans be invested and
managed for the exclusive benefit of plan participants and beneficiaries, a
determination by the plan fiduciary that any such investment is permitted under
the governing plan instruments and is prudent and appropriate for the plan in
view of its overall investment policy and the composition and diversification
of its portfolio. Some 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 these plans
may be invested in certificates without regard to the ERISA considerations
described above and in the paragraphs below, subject to the provisions of
applicable state law. Any plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, however,
is subject to the prohibited transaction rules provided in Section 503 of the
IRS code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
IRS code, prohibit a broad range of transactions involving plan assets and
persons having specified relationships to a plan. These 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 IRS 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 loan pool and not merely an interest in the
certificates, transactions occurring in the operation of the loan pool might
constitute prohibited transactions unless an administrative exemption applies.
Some exemptions which may be applicable to the acquisition and holding of the
certificates or to the servicing and operation of the loan pool are noted in
the paragraphs below.
The Department of Labor has issued a regulation (29 C.F.R. Section 2510.3-
101) 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,
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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. The certificates are not expected to be publicly-offered securities under
the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise tax provisions of Section 4975 of
the IRS 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, which amended Prohibited Transaction
Exemption 81-7, the DOL exempted from ERISA's prohibited transaction rules
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. 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 housing like the loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing plan's assets could be
considered to include an undivided interest in the home equity loans and any
other assets held in the loan pool. If the assets of a contract pool are
considered assets of an investing plan, Green Tree, the servicer, the trustee
and other persons, in providing services on the contracts, may be considered
fiduciaries to the plan and
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subject to the fiduciary responsibility provisions of Title I of ERISA and the
prohibited transaction provisions of Section 4975 of the IRS code for
transactions involving those assets unless a statutory or administrative
exemption applies.
Any plan fiduciary considering the purchase of a certificate should consult
with its counsel about the potential applicability of ERISA and the IRS code to
the 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.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in transactions with persons who provide
services to insurance company general accounts. PTE 95-60 also permits
transactions relating to the origination and operation of asset pool investment
trusts in which an insurance company general account has an interest as the
result of the acquisition of certificates issued by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of PTE 95-60. The receivables covered by PTE 95-60 include home
equity loans secured by either first or second mortgages in single-family,
residential property.The exemption offered by PTE 95-60 is conditioned upon
compliance with the requirements of one of several underwriter exemptions,
other than compliance with the requirements that the certificates acquired by
the general account not be subordinated and receive a rating that is in one of
the three highest generic rating categories from either S&P, Moody's, Duff &
Phelps Credit Rating Co. or Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the IRS code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the IRS code, for transactions involving an insurance company general
account. Under Section 401(c) of ERISA, the DOL published proposed regulations
on December 22, 1997 to provide guidance for the purpose of determining, in
cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of a Plan on or before December 31, 1998, which
general account assets constitute Plan assets. Section 401(c) of ERISA
generally provides that, until the date which is 18 months after the Proposed
401(c) Regulations become final, no person will be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the IRS code on the basis of a
claim that the assets of an insurance company general account constitute Plan
assets, unless:
(1) as otherwise provided by the Secretary of Labor in the Proposed
401(c) Regulations to prevent avoidance of the regulations; or
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(2) an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998 or issued to plans on or
before December 31, 1998 for which the insurance company does not comply with
the Proposed 401(c) Regulations may be treated as plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as plan assets of any plan invested
in the separate account. Insurance companies contemplating the investment of
general account assets in the certificates should consult with their legal
counsel about the applicability of PTCE 95-60 and Section 401(c) of ERISA,
including the general account's ability to continue to hold the securities
after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the 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,
all of which are subject to change, including retroactive changes, 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 IRS 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
for which a REMIC election is made and then with series for which a REMIC
election is not made.
REMIC Series
For each series of certificates for which a REMIC election is made, at the
initial issuance of the certificates in that series the counsel to Green Tree
identified in the applicable prospectus supplement will have advised Green Tree
that in its opinion, assuming ongoing compliance with the applicable pooling
and servicing agreement, the trust fund will qualify as a REMIC and the
certificates in that series REMIC certificates will be treated either as
regular interests in the REMIC within the meaning of Section 860G(a)(1) of the
IRS code regular certificates or as residual interests in the REMIC within the
meaning of Section 860G(a)(2) of the IRS code residual certificates.
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Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with requirements and the following discussion assumes that these
requirements will be satisfied by the trust fund so long as there are any REMIC
certificates outstanding. Substantially all of the assets of the REMIC must
consist of qualified mortgages and permitted investments as of the close of the
third month beginning after the day on which the REMIC issues all of its
regular and residual interests startup day and at all times thereafter. The
term qualified mortgage means any obligation, including a participation or
certificate of beneficial ownership in such obligation, which is principally
secured by an interest in real property that is transferred to the REMIC on the
startup day in exchange for regular or residual interests in the REMIC or is
purchased by the REMIC within the three-month period beginning on the startup
day under a fixed price contract in effect on the startup day. The REMIC
regulations provide that a home equity loan is principally secured by an
interest in real property if the fair market value of the real property
securing the loan is at least equal to either (1) 80% of the issue price
(generally, the principal balance) of the loan at the time it was originated or
(2) 80% of the adjusted issue price (the then-outstanding principal balance,
with adjustments) of the loan 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 home equity loan is principally secured by an interest in real property if
substantially all of the proceeds of the loan 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 loan (other than the personal liability of the
obligor). A qualified mortgage also includes a qualified replacement mortgage
that is used to replace any qualified mortgage within three months of the
startup day or to replace a defective mortgage within two years of the startup
day.
Permitted investments consist of:
. temporary investments of cash received under qualified mortgages before
distribution to holders of interests in the REMIC cash-flow
investments;
. 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 contingencies
qualified reserve assets; and
. 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 the 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 IRS 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 the
property is not held for more than two years.
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The IRS 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 the representation is false. The IRS code further requires that
reasonable arrangements must be made to enable a REMIC to provide the IRS and
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 IRS
code if, in spite of the steps taken to prevent disqualified organizations from
holding residual interests, such an organization does, in fact, acquire a
residual interest. See "REMIC Series--Restrictions on Transfer of Residual
Certificates" below.
If the trust fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the trust fund will not be treated
as a REMIC for the year during which the failure occurs and thereafter unless
the IRS determines, in its discretion, that the failure was inadvertent (in
which case, the IRS 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. This 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 the taxes.
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 a subsidiary REMIC and a
master REMIC. Upon the issuance of any series of certificates, counsel will
have advised Green Tree, 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 the
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 under this prospectus. Solely for the purpose of determining
whether the 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
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REMIC's qualified mortgages, the stated principal amount for 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 on 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 Green
Tree, will be allocated as a separate item of gross income and as a separate
item of expense 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, trusts and
estates, certain other pass-through entities beneficially owned by one or more
individuals, trusts or estates, and regulated investment companies. Such an
individual, estate, trust or pass-through entity that holds a regular
certificate in such a REMIC will be allowed to deduct the foregoing separate
item of expense under Section 212 of the IRS code only to the extent that, in
the aggregate and combined with other itemized deductions, it exceeds 2% of the
adjusted gross income of the holder. In addition, Section 68 of the IRS code
provides that the amount of itemized deductions (including those provided for
in Section 212 of the IRS code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the IRS code ($126,600 for 1999, in the case of a joint return) will be reduced
by the lesser of (1) 3% of the excess of adjusted gross income over the
specified threshold amount or (2) 80% of the amount of itemized deductions
otherwise allowable for that taxable year. Furthermore, in determining the
alternative minimum taxable income of such an individual, trust, estate or
pass-through entity that is a holder of a regular certificate in such a REMIC,
no deduction will be allowed for the holder's allocable portion of the
foregoing expenses, even though an amount equal to the total of the expenses
will be included in the holder's gross income for alternative minimum tax
purposes. Unless otherwise stated in the prospectus supplement, the foregoing
expenses will not be allocated to holders of a regular certificate in a REMIC.
If the foregoing limitations apply, some holders of regular certificates in
single-class REMICs may not be entitled to deduct all or any part of the
foregoing expenses. Accordingly, regular certificates in such a single class-
REMIC may not be appropriate investments for individuals, trusts, estates or
pass-through entities beneficially owned by one or more individuals, trusts or
estates. Prospective investors should carefully consult with their own tax
advisors prior to making an investment in any regular certificates.
Tax Status of REMIC Certificates. In general, (1) 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 IRS code will constitute a
regular interest in a REMIC within the meaning of Section 7701(a)(19)(C)(xi) of
the IRS code; and (2) regular certificates held by
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a real estate investment trust will constitute real estate assets within the
meaning of Section 856(c)(5)(A) of the IRS code and interest will be considered
interest on obligations secured by mortgages on real property within the
meaning of Section 856(c)(3)(B) of the IRS 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 IRS code (including assets described
in Section 7701(a)(19)(C) of the IRS code), then the regular certificates will
be qualifying assets only to the extent that the assets comprising the REMIC
are qualifying assets. Furthermore, interest paid on 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 IRS 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 IRS code, respectively. In addition,
the REMIC regulations provide that payments on loans held and reinvested
pending distribution to certificateholders will be considered to be real estate
assets within the meaning of Section 856(c)(5)(A) of the IRS code. Entities
affected by the foregoing provisions of the IRS 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 IRS code and the Treasury regulations issued
thereunder in January 1994 (the "OID Regulations"). The discussion here 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 IRS 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 issued. Nonetheless, the IRS code requires
that a prepayment assumption be used for the underlying assets of a REMIC in
computing the accrual of original issue discount on regular certificates, and
that regular adjustments be made in the amount and the rate of accrual to
reflect differences between the actual prepayment rate and the prepayment
assumption. Although regulations have not been issued concerning the use of a
prepayment assumption, the legislative history associated with the Tax Reform
Act of 1986 indicates that these regulations are to provide that the prepayment
assumption used for a regular certificate must be the same as that used in
pricing the initial offering of the regular certificate. The prepayment
assumption used in reporting original issue discount for each series of regular
certificates will be consistent with this standard and will be disclosed in the
related prospectus supplement. However, no representation is made hereby nor
can there be any assurance that the underlying assets of a REMIC will in fact
prepay at a rate conforming to the prepayment assumption or at any other rate.
Certificateholders also should be aware that the OID regulations do not address
certain issues relevant to, or are not applicable to, prepayable securities
such as the regular certificates.
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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 the regular certificate to its maturity date. The OID
Regulations, however, provide a special de minimis rule to apply to obligations
such as the Regular certificates that have more than one principal payment or
that have interest payments that are not qualified stated interest as defined
in the OID Regulations, payable before maturity. 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. As
described above, it appears that 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, Green Tree expects
to apply the de minimis rule applicable to installment obligations by using the
prepayment assumption.
Generally, the original holder of a regular certificate that includes a de
minimis amount of original issue discount, other than de minimis original issue
discount attributable to a so-called teaser interest rate or initial interest
rate holiday, 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. Under 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.
Under 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, interest is considered unconditionally payable only
if late payment or nonpayment is expected to be penalized or reasonable
remedies exist to compel payment. It is possible that interest payable on
regular certificates may not be considered to be unconditionally payable under
the OID Regulations because regular certificateholders may not have default
remedies ordinarily available to holders of debt instruments or because no
penalties are imposed as a result of any failure to make interest payments on
the regular certificates. Until further guidance is issued, however, the REMIC
will treat the interest on
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regular certificates as unconditionally payable under the OID Regulations. In
addition, under the OID Regulations, certain variable interest rates payable on
Regular certificates, including rates based upon the weighted average interest
rate of a loan pool, may not be treated as qualified stated interest. In this
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, Green Tree expects to
determine the stated redemption price at maturity of a regular certificate by
assuming that the anticipated rate of prepayment for all loans will occur in
such a manner that the initial pass-through rate for a certificate will not
change. Accordingly, interest at the initial pass-through rate will constitute
qualified stated interest payments for purposes of applying the original issue
discount provisions of the IRS code. In general, the issue price of a regular
certificate is the first price at which a substantial amount of the regular
certificates of that 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 generally includes that pre-issuance accrued interest.
If the regular certificates are determined to be issued with original issue
discount, a holder of a regular certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to such income. The
amount of original issue discount, if any, required to be included in a regular
certificateholder's ordinary gross income for federal income tax purposes in
any taxable year will be computed in accordance with Section 1272(a) of the IRS
code and the OID Regulations. Under this 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 (1) the present value of all remaining
payments to be made on the regular certificate as of the close of the accrual
period and (2) 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
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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 IRS code requires
the present value of the remaining payments to be determined on the bases of:
. 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;
. events, including actual prepayments, which have occurred before the
close of the accrual period; and
. 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 loans 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 on
the loans 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 loans 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 the purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to the
regular certificate, unless the price paid equals or exceeds the regular
certificate's remaining stated redemption price. If the price paid exceeds the
regular certificate's adjusted issue price, but does not equal or exceed the
remaining stated redemption price of the regular certificate, the amount of
original issue discount to be accrued will be reduced in accordance with a
formula listed in Section 1272(a)(7)(B) of the IRS code. Under this provision,
the daily portions of original issue discount which must be included in gross
income will be reduced by an amount equal to such daily portion multiplied by
the fraction obtained by dividing (1) the excess of the purchase price therefor
over the regular certificate's adjusted issue price by (2) the aggregate
original issue discount remaining to be accrued with respect to such regular
certificate.
Green Tree believes that the holder of a regular certificate determined to be
issued with more than 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
regarding several issues concerning the computation of original issue discount
for obligations such as the regular certificates.
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Adjustable Rate Regular Certificates. Regular certificates may bear interest
at an adjustable rate. Under the OID Regulations, if an adjustable rate regular
certificate provides for qualified stated interest payments computed on the
basis of qualified floating rates or objective rates, then any original issue
discount on a regular certificate may be 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." If adjustable rate regular certificates are issued,
the related prospectus supplement will describe the manner in which the
original issue discount rules may be applied and the method to be used in
preparing information returns to the holders of such adjustable rate regular
certificates and to the IRS.
For purposes of applying the original issue discount provisions of the IRS
code, all or a portion of the interest payable on adjustable rate regular
certificate may not be treated as qualified stated interest in certain
circumstances, including the following:
. if the adjustable 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;
. if it is reasonably expected that the average value of the adjustable
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
. if interest is not payable in all circumstances.
In these situations, as well as others, it is unclear under the OID Regulations
whether these interest payments constitute qualified stated interest payments,
or must be treated as part of a regular certificate's stated redemption price
at maturity resulting in original issue discount.
Market Discount. Regular certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the IRS code. A
purchaser of a regular certificate who purchases the regular certificate at a
market discount, such as, a discount from its adjusted issue price as described
in the paragraph above, will be required to recognize accrued market discount
as ordinary income as payments of principal are received on the 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 (1) under a constant yield method that is similar to the
method for the accrual of original issue discount or (2) under a ratable
accrual method (under which the market discount is treated as accruing in equal
daily installments during the period the regular certificate is held by the
purchaser), in each case computed taking into account the prepayment
assumption. Because the regulations referred to above have not been issued, we
cannot predict what effect, if any, these regulations, when issued, might have
on the tax treatment of a regular certificate purchased at a discount in the
secondary market.
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The IRS code provides that the market discount in respect of a regular
certificate will be considered to be zero if the amount allocable to the
regular certificate is less than 0.25% of the regular certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would be
allocated among a portion of each scheduled distribution representing the
stated redemption price of such regular certificate and that portion of the
discount allocable to the distribution would be reported as income when the
distribution occurs or is due.
The IRS code further provides that any principal payment on a regular
certificate acquired with market discount or any gain on disposition of the
regular certificate shall be treated as ordinary income to the extent it does
not exceed the accrued market discount at the time of the payment. The amount
of accrued market discount for purposes of determining the amount of ordinary
income to be recognized for subsequent payments on the Regular certificate is
to be reduced by the amount previously treated as ordinary income.
In general, limitations imposed by the IRS code that are intended to match
deductions with the taxation of income will 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 stated redemption price at maturity 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. It appears that the prepayment assumption should be
taken into account in determining the term of a regular certificate for this
purpose. Amortizable bond premium with respect to a regular certificate will be
treated as an offset to interest income on the regular certificate, and a
certificateholder's deduction for amortizable bond premium will be limited in
each year to the amount of interest income derived with respect to the regular
certificate for that year. Any election to deduct amortizable bond premium will
apply to all debt instruments, other than instruments the interest on which is
excludable from gross income, held by the certificateholder at the beginning of
the first taxable year to which the election applies or acquired after that,
and may be revoked only with the consent of the IRS. Bond premium on a regular
certificate held by a certificateholder who does not elect to deduct the
premium will decrease the gain or increase the loss otherwise recognized on the
disposition of the regular certificate. 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.
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Realized Losses. Holders of a regular certificate acquired in connection with
a trade or business should be allowed to deduct as ordinary losses any losses
sustained during a taxable year in which the regular certificates become wholly
or partially worthless as a result of one or more realized losses on the
underlying assets of the REMIC. However, it appears that a noncorporate holder
of a regular certificate that does not acquire such certificate in connection
with a trade or business may not be entitled to deduct a loss until the
holder's certificate becomes wholly worthless, which may not occur until its
outstanding principal balance has been reduced to zero. Any loss may be
characterized as a short-term capital loss.
At present, the law is unclear with respect to the timing and character of
any loss which may be realized by a holder of a regular certificate. Such a
holder may be required to accrue interest and original issue discount on a
regular certificate without giving effect to any defaults or deficiencies on
the underlying assets of the REMIC until the holder can establish that the
losses will not be recoverable under any circumstances. As a result, the holder
of a regular certificate may be required to report taxable income in excess of
the amount of economic income actually accruing to the benefit of the holder in
a particular period. It is expected, however, that the holder of a regular
certificate would eventually recognize a loss or reduction in income
attributable to the income when the loss is, in fact, realized for federal
income tax purposes.
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 the regular certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income for the 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. Except as discussed below or with respect to market
discount, any gain or loss recognized upon a sale, exchange, retirement, or
other taxable 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 or market discount, will be treated as ordinary income to the extent
of the excess, if any, of (1) the amount that would have been includable in the
holder's income if the yield on the regular certificate had equaled 110% of the
applicable federal rate determined as of the beginning of the holder's holding
period, over (2) the amount of ordinary income actually recognized by the
holder on the Regular certificate.
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, 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
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each calendar quarter ratably to each day in the quarter and by allocating the
daily portion among the residual holders in proportion to their respective
holdings of residual certificates in the REMIC on that 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:
(1) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply;
(2) all bad loans will be deductible as business bad debts; and
(3) 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 loans, plus any cancellation of indebtedness income due to realized
losses on regular certificates and income on reinvestment of cash flows and
reserve assets, minus deductions, including interest and original issue
discount expense on the regular certificates, bad debt losses with respect to
the underlying assets of a REMIC, servicing fees on the loans, other
administrative expenses of a REMIC, and amortization of premium, if any, on the
loans.
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 on the loans, 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 loans is acquired by a
REMIC at a discount, and one or more of the loans is prepaid, the residual
holder may recognize taxable income without being entitled to receive a
corresponding cash distribution because:
(1) the prepayment may be used in whole or in part to make distributions
on regular certificates; and
(2) the discount on the loans 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 loan will
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remain constant over time as a percentage of the outstanding principal amount
of that loan, assuming it bears interest at a fixed rate. Consequently,
residual holders must have sufficient other sources of cash to pay any federal,
state, or local income taxes due as a result of such mismatching, or such
holders must have unrelated deductions against which to offset such income,
subject to the discussion of excess inclusions below under "REMIC Series--
Limitations on Offset or Exemption of REMIC Income." The mismatching of income
and deductions described in this paragraph, if present with respect to a series
of certificates, may have a significant adverse effect upon the residual
holder's after-tax rate of return.
The amount of any net loss of a REMIC that may be taken into account by the
residual holder is limited to the adjusted basis of the residual certificate as
of the close of the quarter (or time of disposition of the residual certificate
if earlier), determined without taking into account the net loss for the
quarter. The initial adjusted basis of a purchaser of a residual certificate is
the amount paid for such residual certificate. Such adjusted basis will be
increased by the amount of taxable income of the REMIC reportable by the
residual holder and decreased, but not below zero, 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 IRS 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, Green Tree 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 in excess of the
corresponding portion of the REMIC's basis in the loans, the residual holder
will not recover such excess 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,
and subject to the same uncertainties, as original issue discount income on
regular certificates as described above under "REMIC Series--Original Issue
Discount" and "--Adjustable Rate Regular Certificates," without regard to the
de minimis rule.
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The REMIC will have market discount income in respect of the loans if, in
general, the basis of the REMIC in the loans is exceeded by their unpaid
principal balances. The REMIC's basis in such loans is generally the fair
market value of the loans immediately after their transfer to the REMIC, which
will equal the aggregate issue prices of the REMIC certificates which are sold
to investors and the estimated fair market value of any classes of certificates
which are retained. In respect of the loans that have market discount to which
IRS code Section 1276 applies, the accrued portion of the 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 loans exceeds the unpaid principal
balances thereof, the REMIC will be considered to have acquired such loans at a
premium equal to the amount of such excess. As stated above, the REMIC's basis
in the loans is the fair market value of the loans immediately after the
transfer thereof to the REMIC. Generally, a REMIC that holds a loan as a
capital asset will elect to amortize premium on the loans under a constant
interest method. See the discussion under "REMIC Series--Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. All or a portion of the
REMIC taxable income includable in determining the federal income tax liability
of a residual holder will be subject to special treatment. That portion,
referred to as the excess inclusion, is equal to the excess of REMIC taxable
income for the calendar quarter allocable to a residual certificate over the
daily accruals for such quarterly period of (1) 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 IRS
code, multiplied by (2) the adjusted issue price of the residual certificate at
the beginning of the 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 before the
beginning of such quarterly period.
The portion of a residual holder's REMIC taxable income consisting of the
excess inclusions will be subject to federal income tax in all events and 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 IRS code, the residual holder's excess inclusions will be
treated as unrelated business taxable income of such residual holder for
purposes of Section 511. In addition, if the residual holder is not a U.S.
person, such residual holder's excess inclusions generally would be ineligible
for exemption from or reduction in the rate of United States withholding tax.
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 and would constitute unrelated business taxable income for tax-
exempt shareholders.
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Furthermore, for purposes of the alternative minimum tax, (1) excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and (2) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the tentative minimum tax on excess inclusions.
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 (1) the present value of the total anticipated excess inclusions
with respect to such residual certificate for periods after the transfer, and
(2) the highest marginal federal income tax rate applicable to corporations.
The anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the prepayment
assumption. The present value rate equals the applicable federal rate under
Section 1274(d) of the IRS 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 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 the entity, then a
tax is imposed on the entity equal to the product of (1) the amount of excess
inclusions on the residual certificate that are allocable to the interest in
the pass-through entity during the period the interest is held by the
disqualified organization, and (2) the highest marginal federal income tax rate
imposed on corporations. This 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 the tax if it has received an affidavit from such
record holder that it is not a disqualified organization and, during the period
the person is the record holder of the residual certificate, the pass-through
entity does not have actual knowledge that the affidavit is false.
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
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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 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, (1) 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 (2) 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:
. 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
. 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 of a residual certificate to certify
to the statements in the second clause of the preceding sentence as part of the
affidavit described above under "Restrictions on Transfer of Residual
Certificates."
Mark-to-Market Rules. On December 24, 1996, the IRS released final mark-to-
market regulations relating to the requirement that a securities dealer mark to
market securities held for sale to customers. This mark-to-market requirement
applies to all securities owned by a dealer, except to the extent that the
dealer has specifically identified a security as held for investment. The mark-
to-market regulations provide that for purposes of this mark-to-market
requirement, a residual certificate acquired on or after January 4, 1995 is not
treated as a security and thus may not be marked to market. Prospective
purchasers of a residual
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certificate should consult their tax advisors regarding the possible
application of the mark-to-market requirement to 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 the residual holder in the 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. This 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.
Except as provided in treasury regulations, the wash sale rules of IRS 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 the sale or disposition, acquires (or enters into any other
transaction that results in the application of IRS code Section 1091) any
residual interest in any REMIC or any interest in a taxable mortgage pool that
is economically comparable to a residual certificate.
Certain Other Taxes on the REMIC. The REMIC provisions of the IRS code impose
a 100% tax on any net income derived by a REMIC from certain prohibited
transactions. These transactions are:
. 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;
. the receipt of income from assets other than qualified mortgages and
permitted investments;
. the receipt of compensation for services; and
. the receipt of gain from the dispositions of cash flow investments.
The REMIC regulations provide that the modification of the terms of a loan
occasioned by default or a reasonably foreseeable default of the loan, the
assumption of the loan, 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 loan will not be treated as a disposition of the loan. 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 loans, a
sale of such loans by
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the REMIC under a purchase agreement or other contract with Green Tree or other
party, if and when the obligor elects to so convert the terms of the loan, will
not result in a prohibited transaction for the REMIC. The IRS 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 IRS 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
incur a significant amount of such taxes or any material amount of state or
local income or franchise taxes. However, if any such taxes are imposed on a
REMIC they will be paid by Green Tree or the trustee, if due to the breach of
Green Tree's or the trustee's obligations, as the case may be, under the
related pooling and servicing agreement or in other cases, such taxes shall be
borne by the related trust fund resulting in a reduction in amounts otherwise
payable to holders of the related regular or residual certificates.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a qualified liquidation. A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation, which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur, and sells all of its assets (other than cash)
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of regular or residual
certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation (including all cash), less amounts retained
to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
foreign holder is a certificateholder who holds a regular certificate and who
is not:
(1) a citizen or resident of the United States;
(2) a corporation, partnership, or other entity organized in or under the
laws of the United States or a political subdivision thereof;
(3) an estate the income of which is includible in gross income for
United States tax purposes regardless of its source; or
(4) a trust if:
. a court within the United States is able to exercise primary
supervision over the administration of the trust; and
. one or more United States trustees have authority to control all
substantial decisions of the trust.
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). To
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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. In addition, the foregoing
rules will not apply to exempt a U.S. shareholder of a controlled foreign
corporation from taxation on such U.S. shareholder's allocable portion of the
interest income received by such controlled foreign corporation. 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:
(1) 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
(2) the gain is effectively connected with the conduct by the foreign
holder of a trade or business within the United States.
It appears that a regular certificate will not be included in the estate of a
foreign holder and will not be subject to United States estate taxes. However,
foreign holders should consult their own tax advisors regarding estate tax
consequences.
Unless otherwise stated in the related prospectus supplement, transfers of
residual certificates to foreign holders will be prohibited by the related
pooling and servicing agreement.
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
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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. Green Tree will report
annually to the IRS, holders of record of the regular certificates that are not
excepted from the reporting requirements and, to the extent required by the IRS
code, other interested parties, information with respect to the interest paid
or accrued on the regular certificates, original issue discount, if any,
accruing on the regular certificates and information necessary to compute the
accrual of any market discount or the amortization of any premium on the
regular certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a residual
certificateholder must be designated as the REMIC's tax matters person. The tax
matters person, generally, has responsibility for overseeing and providing
notice to the other residual certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. Unless otherwise
indicated in the related prospectus supplement, Green Tree 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 of certificates, or a segregated portion of them, with respect to which
a REMIC election is not made, counsel will, unless otherwise specified in the
related prospectus supplement, have advised Green Tree that, in their opinion,
each loan pool and the arrangement to be administered by Green Tree under which
the trustee will hold and Green Tree will be obligated to service the loans and
pursuant to which these 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 IRS code Section
7701(i), but rather will be classified as a grantor trust under Subpart E, Part
I of Subchapter J of the IRS code. In such event, 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
loan 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
loans included therein. The following discussion assumes the trust fund will be
so classified as a grantor trust.
Tax Status of Non-REMIC Certificates. In general:
. certificates held by a domestic building and loan association within
the meaning of Section 7701(a)(19) of the IRS code may be considered to
represent loans secured by an interest in real property within the
meaning of Section 7701(a)(19)(C)(v) of the IRS code; and
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. certificates held by a real estate investment trust may constitute real
estate assets within the meaning of Section 856(c)(5)(A) of the IRS
code and interest on them may be considered interest on obligations
secured by mortgages on real property within the meaning of Section
856(c)(3)(B) of the IRS code.
See the discussions of the IRS 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
loans under these IRS code sections and should, in addition, consult with their
own tax advisors with respect to these matters.
Tax Treatment of Non-REMIC Certificates. Subject to the discussion below of
the stripped bond rules of the IRS code, 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 loans comprising such loan pool, including
interest, market or original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by Green Tree, and any gain
upon disposition of such loans. A disposition includes scheduled or prepaid
collections with respect to the loans, as well as the sale or exchange of a
non-REMIC certificate. Subject to the discussion below of certain limitations
on itemized deductions, non-REMIC certificateholders will be entitled under
Section 162 or 212 of the IRS 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 Green Tree. 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 these expenses under
Section 212 of the IRS 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 IRS code provides
that the amount of itemized deductions (including those provided for in Section
212 of the IRS code) otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a threshold amount specified in the IRS
code ($126,600 for 1999, in the case of a joint return) will be reduced by the
lesser of (1) 3% of the excess of adjusted gross income over the specified
threshold amount or (2) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. Furthermore, in determining the alternative
minimum taxable income of an individual, trust, estate or pass-through entity
that is a holder of a non-REMIC certificate, no deduction will be allowed for
such holder's allocable portion of the foregoing expenses, even though an
amount equal to the total of such expenses will be included in such holder's
gross income for alternative minimum tax purposes. To the extent that a non-
REMIC certificateholder is not permitted to deduct servicing fees allocable to
a non-REMIC certificate, the taxable income of the non-REMIC certificateholder
attributable to that non-REMIC certificate will exceed the net cash
distributions related to such income. Non-REMIC certificateholders may deduct
any loss on disposition of the loans to the extent permitted under the IRS
code.
To the extent that any of the loans comprising a loan pool were originated on
or after March 2, 1984 and under circumstances giving rise to original issue
discount,
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certificateholders will be required to report annually an amount of additional
interest income attributable to such discount in such loans prior to receipt of
cash related to such discount. See the discussion above under "REMIC Series--
Original Issue Discount." Similarly, IRS code provisions concerning market
discount and amortizable premium will apply to the loans comprising a loan 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." However, it is unclear
whether a prepayment assumption should be used in accruing or amortizing any
such discount or premium.
Stripped Non-REMIC Certificates. Some classes of non-REMIC certificates may
be subject to the stripped bond rules of Section 1286 of the IRS 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 loan 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:
. if any servicing compensation is deemed to exceed a reasonable amount;
. if Green Tree or any other party retains a retained yield with respect
to the loans comprising a loan pool;
. 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 loans; or
. 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 IRS
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
(1) 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 (2) no more than 100 basis points (including any
amount of servicing in excess of reasonable servicing) is stripped off of the
loans. See "REMIC Series--Market Discount" above.
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Although the OID Regulations suggest that a prepayment assumption is not to
be used in computing the yield on the underlying assets of a trust fund with
respect to which a REMIC election is not made, the IRS code appears to require
that such a prepayment assumption be used in computing yield with respect to
stripped certificates. In the absence of authority to the contrary, Green Tree
intends to base information reports and returns to the IRS and the holders of
stripped certificates taking into account an appropriate prepayment assumption.
Holders of stripped certificates should refer to the related prospectus
supplement to determine whether and in what manner the original issue discount
rules will apply thereto.
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 IRS 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:
(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each loan; or
(2) a separate installment obligation for each loan representing the
stripped certificate's pro rata share of principal and/or interest
payments to be made with respect thereto.
As a result of these possible alternative characterizations, investors should
consult their own tax advisors regarding the proper treatment of stripped
certificates for federal income tax purposes.
The servicing compensation to be received by Green Tree and the fee for
credit enhancement, if any, may be questioned by the IRS for certificates or
loans 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 Green Tree or other party
in a portion of the interest payments to be made pursuant to the loans. In this
event, a certificate might be treated as a stripped certificate subject to the
stripped bond rules of Section 1286 of the IRS code and the original issue
discount provisions rather than to the market discount and premium rules.
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 loans represented by the non-REMIC certificate.
Generally, the aggregate adjusted basis will equal the non-REMIC
certificateholder's cost for the non-REMIC certificate increased by the amount
of any previously reported income or 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
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to the original issue discount and market discount rules, any such gain or loss
would be capital gain or loss if the non-REMIC certificate was held as a
capital asset.
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a non-REMIC
certificateholder who is a foreign holder 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 loans 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 Green Tree 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. Green Tree 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, Green
Tree 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 Green Tree and any sub-servicer and such other
customary factual information as Green Tree deems necessary or desirable to
enable certificateholders to prepare their tax returns. Reports will be made
annually to the IRS 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.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, any
certificates offered under this prospectus are not expected to constitute
mortgage related securities for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 because there will be
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a substantial number of loans that are secured by liens on real estate that are
not first liens, as required by SMMEA. Accordingly, many institutions with
legal authority to invest in mortgage related securities may not be legally
authorized to invest in the certificates.
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
Before the issuance of any class of certificates sold under this prospectus,
they must be rated by at least one nationally recognized statistical rating
organization in one of its four highest rating categories. A security rating is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating agency. The security
rating of any series of certificates should be evaluated independently of
similar security ratings assigned to other kinds of securities.
UNDERWRITING
Green Tree may sell certificates of each series to or through underwriters by
a negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell and place certificates directly to other
purchasers or through agents. Green Tree 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, Green Tree or any of its affiliate 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 the prospectus supplement. The purchaser
may then from time to time offer and sell 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 or principal
63
<PAGE>
or both. This kind of 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 Green Tree 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
the 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 Green Tree
and any profit on the resale of the certificates by them may be deemed to be
underwriting discounts and commissions, under the Securities Act of 1933. Any
such underwriters or agents will be identified, and any such compensation
received from Green Tree will be described in the prospectus supplement.
Under agreements which may be entered into by Green Tree, underwriters and
agents who participate in the distribution of the certificates may be entitled
to indemnification by Green Tree against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the prospectus supplement, Green Tree will authorize
underwriters or other persons acting as Green Tree's agents to solicit offers
by certain institutions to purchase the certificates from Green Tree pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which these contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational
charitable institutions and others, but in all cases these institutions must be
approved by Green Tree. 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.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the certificates. These
types of transactions may include stabilizing, the purchase of certificates to
cover syndicate short positions and the imposition of penalty bids. For a more
complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
Certain of the underwriters and their associates may engage in transactions
with and perform services for Green Tree in the ordinary course of business.
64
<PAGE>
LEGAL MATTERS
The legality and material federal income tax consequences of the certificates
will be passed upon for Green Tree by the counsel to Green Tree identified in
the applicable prospectus supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31, 1998, incorporated by reference in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997 are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in this prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
65
<PAGE>
GLOSSARY
Below are abbreviated definitions of terms used in this prospectus and the
prospectus supplement. The pooling and servicing agreement may contain a more
complete definition of some of the terms defined here and reference should be
made to the pooling and servicing agreement for a more complete definition of
all such terms.
"Adjustable Rate Certificates" means certificates which evidence the right to
receive distributions of income at a variable payment rate.
"Advances" means the advances made by a servicer (including from advances made
by a sub-servicer) on any payment date pursuant to a pooling and servicing
agreement.
"Amount Available" means, for each series of certificates, amounts on deposit
in the certificate account on a Determination Date.
"Certificate Distribution Amount" means the amount of principal and interest
specified in the related prospectus supplement to be distributed to
certificateholders.
"Compound Interest Certificates" means certificates on which interest may
accrue but not be paid for the period described in the related prospectus
supplement.
"Cut-off Date" means the date specified in the related prospectus supplement as
the date from which principal and interest payments on the contracts are
included in the trust.
"Determination Date" means, unless otherwise specified in the related
prospectus supplement, the third business day immediately preceding the related
payment date.
"Due Period" means, unless otherwise provided in a related prospectus
supplement, with respect to any payment date, the period from and including the
15th day of the second month preceding the payment date, to and including the
14th day of the month immediately preceding the payment date.
"Eligible Investments" means one or more of the investments specified in the
pooling and servicing agreement in which moneys in the certificate account and
certain other accounts are permitted to be invested.
"Formula Principal Distribution Amount" means the sum of:
(1) all scheduled payments of principal due on each outstanding contract
during the related due period, after adjustments for previous partial
principal prepayments and after any adjustments to a contract's
amortization schedule as a result of a bankruptcy or a similar
proceeding involving the related obligor,
(2) the Scheduled Principal Balance of each contract which, during the
month preceding the related due period, was purchased by Green Tree
under the pooling and servicing agreement on account of breaches of
its representations and warranties,
(3) all partial principal prepayments applied and all principal
prepayments in full received during the related due period,
66
<PAGE>
(4) the Scheduled Principal Balance of each contract that became a
liquidated contract during the related due period, plus the amount of
any reduction in the outstanding principal balance of a contract
during the related due period ordered as the result of a bankruptcy or
similar proceeding involving the related obligor,
(5) without repeating the above, all collections in respect of principal
on the contracts received during the due period in which the payment
date occurs up to and including the third business day prior to such
payment date, but in no event later than the 25th day of the month
before the payment rate, minus
(6) with respect to all payment dates other than the payment date in
1999, the amount included in the formula principal distribution amount
for the preceding payment date by virtue of clause (5) above, plus
(7) with respect to the payment date in 2000, any amount, by which the
Class A-1 principal balance as of the payment date exceeds the sum on
the payment date of the amounts described in clause (1) through (6)
above; minus
(8) with respect to the payment date in 2000, any amount, distributed
in respect of principal on the Class A-1 certificates on the payment
date in 2000 under clause (7) above.
"Liquidation Proceeds" means cash including insurance proceeds received in
connection with the repossession of a manufactured home.
"Monthly Payment" means the scheduled monthly payment of principal and interest
on a contract.
"Net Liquidated Proceeds" means all amounts received and retained for the
liquidation of defaulted contracts, net of liquidation expenses.
"Participants means institutions that have accounts with the depositary.
"Pool Scheduled Principal Balance" means, as of any payment date, the aggregate
of the Scheduled Principal Balances of contracts outstanding at the end of the
related due period.
"Replaced loan" means an Eligible Substitute loan substituted for a
manufactured housing contract which Green Tree is otherwise obligated to
repurchase under the pooling and servicing agreement.
"Repurchase Price" means the remaining principal amount outstanding on a
manufactured housing contract on the date of repurchase plus accrued and unpaid
interest at its contract rate to the date of the repurchase.
"Scheduled Principal Balance" means, as of any payment date, the "Scheduled
Principal Balance" of a contract as of any payment date is the unpaid principal
balance of the contract as specified in the amortization schedule at the time
relating to the contract as of the due date in the related due period, after
giving effect to any previous partial prepayments and to the payment of
principal due on the due date and irrespective of any delinquency in payment on
the contract.
67
<PAGE>
"Senior Distribution Amount" means, for a series of certificates having
Subordinated Certificates, as of each payment date and for each class of Senior
Certificates, the amount due the holders of that class of Senior Certificates.
"Senior Percentage" means, for a series of certificates having Subordinated
Certificates, the percentage specified in the related prospectus supplement.
"Subordinated Percentage" means, for a series of certificates having
Subordinated Certificates, the percentage specified in the related prospectus
supplement.
68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Supplement to Base No. 2
PROSPECTUS SUPPLEMENT
(To prospectus dated June , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Green Tree Home Equity Trust 1999-
Loan-Backed Notes and Certificates
----------
The securities will consist of classes, but we are offering only the
classes listed below now:
<TABLE>
<CAPTION>
Approximate Interest Underwriting Proceeds to
Class Principal Amount(1) Rate Price to Public(2) Discount Company
- ----- ------------------- -------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
A-1 Notes............... $ % % % %
A-2 Notes............... $ % % % %
A-3 Notes............... $ % % % %
A-4 Notes............... $ % % % %
Total................... $ $ $
</TABLE>
- -----
(1) May vary plus or minus 5%.
(2) Plus any accrued interest beginning on , 1999.
Consider carefully the risk factors beginning on page S-13 in this prospectus
supplement.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
The notes will be delivered through the same-day funds settlement system of
the Depository Trust Company on or about , 1999.
The underwriters named below will offer the notes to the public at the
offering price listed on this cover page and they will receive the discount
listed above. See "Underwriting" on page S- in this prospectus supplement and
on page in the prospectus.
----------
[Underwriters]
The date of this prospectus supplement is , 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Notes........................................ S-4
Risk Factors............................................................. S-12
The Trust................................................................ S-14
The Trust Property....................................................... S-15
The Loan Pool............................................................ S-16
Green Tree Financial Corporation......................................... S-22
Yield and Prepayment Considerations...................................... S-22
Description of the Notes................................................. S-25
Description of the Counterparty.......................................... S-34
Description of the Certificates.......................................... S-34
Description of the Trust Documents and Indenture......................... S-37
Certain Federal and State Income Tax Consequences........................ S-42
ERISA Considerations..................................................... S-43
Underwriting............................................................. S-45
Legal Matters............................................................ S-46
Annex I.................................................................. A-1
Prospectus
Important Notice About Information Presented in This Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trusts............................................................... 3
Green Tree Financial Corporation......................................... 5
Yield Considerations..................................................... 7
Maturity and Prepayment Considerations................................... 8
Pool Factor.............................................................. 9
Use of Proceeds.......................................................... 9
The Notes................................................................ 10
The Certificates......................................................... 16
Certain Information Regarding the Securities............................. 18
Description of the Trust Documents....................................... 22
Certain Legal Aspects of the Loans; Repurchase Obligations............... 36
Certain Federal Income Tax Consequences.................................. 48
Certain State Income Tax Consequences.................................... 57
ERISA Considerations..................................................... 57
Legal Investment Considerations.......................................... 61
Ratings.................................................................. 61
Underwriting............................................................. 61
Legal Matters............................................................ 63
Experts.................................................................. 63
Glossary................................................................. 64
</TABLE>
S-2
<PAGE>
You should rely only on the information contained in this prospectus. We and
the underwriters have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted.
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about ourselves, about our home equity
lending business, and about any series of certificates or notes for home equity
loans that we may wish to sell. This prospectus supplement contains more
detailed information about the specific terms of this series of notes. If the
description of the terms of your notes varies between this prospectus
supplement and this prospectus, you should rely on the information in this
prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Green Tree or an underwriter by asking for it.
No prospectus regarding these notes has been or will be prepared in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These notes may not be offered or sold, or re-offered or re-
sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments (as principal or agent) for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer to the public
in the United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulation 1995. You may not pass this prospectus supplement and
prospectus, or any other document inviting applications or offers to purchase
notes or offering notes for purchase, to any person in the United Kingdom who
(1) does not fall within article 11(3) of the Financial Services Act 1986
(Investment Advisements) (Exemptions) Order 1996 or (2) is not otherwise a
person to whom passing this prospectus supplement and prospectus would be
lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE NOTES
This summary highlights selected information regarding the notes, and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the notes, read this
entire prospectus supplement and the accompanying prospectus. In particular, we
will refer throughout this summary to sections of this prospectus supplement or
the prospectus, or both, which will contain more complete descriptions of the
matters summarized. All these references will be to sections of this prospectus
supplement only unless we note otherwise.
Green Tree Home Improvement Trust 1999- will issue the classes of securities
listed in the table below.
<TABLE>
<CAPTION>
Interest Approximate Moody's S&P
Class Rate Principal Amount (1) Rating Rating
- ----- -------- -------------------- ------- ------
<S> <C> <C> <C> <C>
A-1 Notes.......................... % $
A-2 Notes..........................
A-3 Notes..........................
A-4 Notes..........................
</TABLE>
- --------
(1)May vary plus or minus 5%.
We will not issue or sell the notes unless S&P and Fitch assign each class at
least the rating listed above. The rating of each class of notes by Moody's and
S&P addresses the likelihood of timely receipt of interest and ultimate receipt
of principal. 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.
None of the certificates are being offered under this prospectus supplement
and prospectus. We are offering the notes listed in the table above. We, or one
of our affiliates, will initially retain the certificates.
Issuer .....................
Green Tree Home Improvement and Home Equity Loan
Trust 1999- , a Delaware business trust.
Seller and Servicer......... Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Indenture Trustee...........
[Indenture Trustee], not in its individual
capacity but solely as trustee under the trust
indenture.
Owner Trustee............... [Owner Trustee], not in its individual capacity
but solely as owner trustee under the trust
agreement.
S-4
<PAGE>
Payment Date................
The fifteenth day of each month (or, if that
fifteenth day is not a business day, the next
succeeding business day) beginning on 15,
1999.
Record Date................. The business day just before the related payment
date, beginning in 1999.
Distributions on Notes......
Distributions on the notes on any payment date
will be made primarily from amounts collected on
the home equity loans during the prior calendar
month. This is the amount available for
distribution. On each payment date, the indenture
trustee will apply the amount available, less
certain fees to the note insurer and servicer, if
other than us, to make distributions of principal
and interest on the notes in the following order
of priority:
^ The Class A-1 interest;
^ The Class A-1 principal;
^ The Class A-2 interest;
^ The Class A-2 principal;
^ The Class A-3 interest;
^ The Class A-3 principal;
^ The Class A-4 interest; and
^ The Class A-4 principal;
This prospectus supplement summarizes in the next
3 pages the amounts of interest and principal to
be paid on each payment date. In each case, the
payments will be made only to the extent the
amount available, after making any payments with
a higher priority, is sufficient. See
"Description of the notes--Payments on Loans" for
a detailed description of the amounts that will
constitute the amount available for any payment
date.
A. Class A-1 Interest ...... We will pay interest on the Class A-1 notes that
has accrued from the previous distribution date.
If there are not enough funds available to pay
interest on the Class A- notes, we will carry
the shortfall forward and add it to the amount of
interest payable on the next distribution date.
S-5
<PAGE>
B. Class A-1 Principal......
We will pay the Class A-1 noteholders principal
on each distribution date in an amount equal to
approximately % of a formula principal
distribution amount plus any unpaid shortfall of
principal, if any, from a previous distribution
date. See "Description of the Trust Documents and
Indenture--Distributions."
C. Class A-2 Interest....... We will pay interest on the Class A-2 notes that
has accrued from the previous distribution date.
We will pay interest on the Class A-2 notes from
funds available after we pay interest on the
previous class of notes. If there are not enough
funds available to pay interest on the Class A-2
notes, we will carry the shortfall forward and
add it to the amount of interest payable on the
next distribution date.
D. Class A-2 Principal......
We will pay the Class A-2 noteholders principal
on each distribution date in an amount equal to
approximately % of a formula principal
distribution amount plus any unpaid shortfall of
principal, if any, from a previous distribution
date. See "Description of the trust Documents and
Indenture--Distributions."
E. Class A-3 Interest....... We will pay interest on the Class A-3 notes that
has accrued from the previous distribution date.
We will pay interest on the Class A-3 notes from
funds available after we pay interest on the
previous classes of notes. If there are not
enough funds available to pay interest on the
Class A-3 notes, we will carry the shortfall
forward and add it to the amount of interest
payable on the next distribution date.
F. Class A-3 Principal .....
We will pay the Class A-3 noteholders principal
on each distribution date in an amount equal to
approximately % of a formula principal
distribution amount plus any unpaid shortfall of
principal, if any, from a previous distribution
date. See "Description of the trust Documents and
Indenture--Distributions."
G. Class A-4 Interest.......
We will pay interest on the Class A-4 notes that
has accrued from the previous distribution date.
We will pay interest on the Class A-4 notes from
funds available after we pay interest on the
previous classes of notes. If
S-6
<PAGE>
there are not enough funds available to pay
interest on the Class A-4 notes, we will carry
the shortfall forward and add it to the amount of
interest payable on the next distribution date.
H. Class A-4 Principal......
We will pay the Class A-4 noteholders principal
on each distribution date in an amount equal to
approximately % of a formula principal
distribution amount plus any unpaid shortfall of
principal, if any, from a previous distribution
date. See "Description of the Trust Documents and
Indenture--Distributions."
Interest Rate Cap
Agreement................... The Class A-1 noteholders will have the benefit
of an interest rate cap agreement, dated ,
1999 between the trust and [counterparty]. Under
the interest rate cap agreement, [counterparty]
will make a payment to the trust on each
distribution date, to the extent that the Class
A-1 rate exceeds 10%, pursuant to a pre-set
formula. See "Description of the Notes--Interest
Rate Cap Agreement" and "Description of the
Counterparty."
Spread Account..............
The Class A-2, Class A-3 and Class A-4
noteholders will have the benefit of a separate
sub-account for each class contained in a spread
account. The indenture trustee will hold the
spread account. On any distribution date, if
there are not enough funds to distribute interest
on the Class A-2, Class A-3 or Class A-4 notes,
the indenture trustee will withdraw the amount of
the deficiency from the applicable sub-account
for distribution to the applicable class of
notes.
On the closing date, the amount on deposit in the
Class A-2, Class A-3 and Class A-4 sub-accounts
will be zero. On each distribution date, the
indenture trustee will deposit all funds
remaining in the collection account, after
distribution of all interest and principal on the
notes first to the Class A-2 sub-account, then to
the Class A-3 sub-account and then to the Class
A-4 sub account, until the amount on deposit in
each of the sub-accounts equals $ , $
and $ . If the indenture trustee
withdraws funds from any sub-account, that sub-
account will be replenished as
S-7
<PAGE>
provided in the sale and servicing agreement and
the indenture. The spread account will be
included in the property of the trust. See
"Description of the Notes--The Spread Account."
Reserve Account.............
Noteholders will have the benefit of a reserve
account. The indenture trustee will hold the
reserve account. On any distribution date, if the
funds in the note distribution account are
insufficient to make full payment of interest or
principal payable on a class of notes, the
indenture trustee will withdraw the amount of the
deficiency from the reserve account and deposit
that amount in the note distribution account for
distribution to the applicable class of notes.
On the closing date, the amount on deposit in the
reserve account will be zero. On each
distribution date, the indenture trustee will
deposit into the reserve account all funds
remaining in the collection account, after
distribution of all interest and principal
payable on the notes, all interest payable on the
certificates and all deposits in the spread
account, until the amount in the reserve account
equals % of the pool scheduled principal
balance. If the reserve account is drawn upon, it
will be replenished to the extent provided in the
sale and servicing agreement and the indenture.
The reserve account will be included in the trust
property. See "Description of the Notes--The
Reserve Account."
Terms of the Certificates... Below are the principal terms of the
certificates:
A. Distributions............
Certificateholders will be entitled to receive on
each distribution date commencing in 1999,
their distributable amount. See "Description of
the Trust Documents and Indenture."
B. Pass-Through Rate........ % per year payable monthly at one-twelfth
the annual rate calculated on the basis of a 360-
day year consisting of twelve 30- day months.
C. Interest.................
On each distribution date, the owner trustee will
distribute to the certificateholders accrued
interest at the pass-through rate on the
outstanding certificate principal
S-8
<PAGE>
balance. Interest will accrue from , 1999 or
from the most recent distribution date up to but
excluding the following distribution date. The
certificate principal balance on any distribution
date will be the original certificate principal
balance minus all principal amounts previously
distributed to the certificateholders and minus
any unreimbursed liquidation losses absorbed by
the certificates.
If there are not enough funds available to make a
full distribution of interest on the
certificates, the amount of the shortfall will be
carried forward and added to the amount of
interest payable on the next distribution date.
Any amount carried forward will bear interest at
the pass-through rate, to the extent legally
permissible. See "Description of the
Certificates."
D. Principal................
We will not pay principal on the certificates
until we have paid off all of the notes in full.
On each distribution date after we have paid off
the notes, we will pay principal on the
certificates for that distribution date, plus any
unpaid shortfall from prior distribution dates.
E. Limited Guarantee........
To mitigate the effect of the subordination of
the certificates and the effect of liquidation
losses on the loans, we will entitle the
certificateholders to receive on each
distribution date an amount equal to the guaranty
payment, if any, under our limited guaranty. The
guaranty payment for any distribution date will
equal the difference between the
certificateholders' distributable amount and the
remaining funds available in the collection
account after payment of all interest and
principal on the notes and the deposit in any
sub-account of the spread account or the reserve
account of any amounts previously withdrawn and
not previously replenished. The
certificateholders' distributable amount equals
the unpaid and accrued interest on the
certificates, plus on each distribution date
after the notes are paid off, principal in an
amount equal to the formula principal
distribution amount for that distribution date
plus any unpaid Certificate principal shortfall
for that distribution date and plus any
unreimbursed certificate principal liquidation
loss.
S-9
<PAGE>
The limited guaranty will be an unsecured general
obligation of Green Tree and will not be
supported by any letter of credit or other
enhancement arrangement. The rating assigned to
the certificates may be affected by the rating of
our debt securities.
F. Optional Prepayment......
If we exercise our option to purchase the loans
under the sale and servicing agreement, the
certificateholders will receive an amount equal
to the principal amount together with accrued
interest and the certificates will be retired.
See "Description of the Certificates--Optional
Prepayment."
Collection Account;
Priority of Payments........
Except under the conditions described in this
prospectus or as otherwise acceptable to the
rating agencies, the servicer will be required to
remit payments received on the loans within one
business day to an account in the name of the
indenture trustee. This account is the collection
account. On each distribution date, the servicer
will instruct the indenture trustee to withdraw
funds on deposit in the collection account and to
apply those funds as follows:
^ if we are the servicer, to pay the monthly
servicing fee,
^ reimbursement of any advance made that were
recovered during the prior monthly period,
^ the noteholders' interest and principal and
any amounts previously withdrawn from any
sub-account of the spread account or the
reserve account,
^ the certificateholders' interest and
principal after the notes have been paid in
full,
^ amounts necessary to fully fund the Class A-
2, Class A-3 and Class A-4 sub-accounts of
the spread account,
^ the amount necessary to fully fund the
reserve account and
^ any remaining amount to us as the monthly
servicing and guaranty fee.
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<PAGE>
Pre-Funding Account.........
On the closing date, we will deposit money in the
pre-funding account to provide the trust with
sufficient funds to purchase the subsequent
loans. The pre-funded amount will initially equal
the difference between $ and the
aggregate principal balance as of the cutoff date
of the initial loans. The pre-funding account
will be included in the trust's property. Any
reimbursement income earned on amounts on deposit
in the pre-funding account will be taxable to
Green Tree. See "Yield and Prepayment
Considerations" and "Description of the Trust
Documents and Indenture--Accounts."
Tax Status..................
In the opinion of our counsel, for federal and
Minnesota income tax purposes, the notes will be
characterized as debt, and the trust will not be
characterized as an association, or a publicly
traded partnership, taxable as a corporation and
neither the trust nor any portion of the trust
will constitute a taxable mortgage pool taxable
as a corporation. Each noteholder, by the
acceptance of a note, will agree to treat the
notes as debt. Each certificateholder, by the
acceptance of a certificate, will agree to treat
the trust as a partnership in which the
certificateholders are partners for federal
income tax purposes. See "Certain Federal Income
Tax Consequences."
ERISA Considerations........
If the notes are considered to be indebtedness
without substantial equity features under a
regulation issued by the United States Department
of Labor, the acquisition or holding of notes by
or on behalf of a benefit plan will not cause the
assets of the trust to become plan assets, which
generally prevents the application of certain
prohibited transaction rules of the Employee
Retirement Income Security Act of 1974, and the
Internal Revenue Code of 1986, that otherwise
would possibly be applicable. We believe that the
notes should be treated as indebtedness without
substantial equity features for purposes of these
regulations. You may not acquire the certificates
if you are an employee benefit plan, individual
retirement account or Keogh Plan subject to
either Title I of ERISA or the IRS code. See
"ERISA Considerations" in this prospectus
supplement and in the prospectus.
S-11
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the securities.
Because the liens are junior, a substantial number of the liens on improved
real estate securing the loans will be junior to other liens on that real
estate.
The rights of the trust as beneficiary under a conventional junior deed of
trust or as mortgagee under a conventional junior mortgage are subordinate to
those of the mortgagee or beneficiary under the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
cause the property securing the loan to be sold upon default of the mortgagor
or trustor. This extinguishes the junior mortgagee's or junior beneficiary's
lien unless the servicer on behalf of the trust asserts its subordinate
interest in the property in foreclosure litigation and, possibly, satisfies the
defaulted senior loan or loans. See "Certain Legal Aspects of the Loans--
Repurchase Obligations."
We expect a substantial portion of the loans included in a loan pool to have
loan-to-value ratios of 90% or more, based on the total of the outstanding
principal balances of all senior mortgages or deeds of trust and the loan on
the one hand, and the value of the home, on the other. An overall decline in
the residential real estate market, the general condition of a property
securing a loan or other factors could adversely affect the value of the
property securing a loan. As a result, the remaining balance of that loan,
together with that of any senior liens on the related property, could equal or
exceed the value of the property. See "Green Tree Financial Corporation--Loan
Origination."
A secondary market for the securities may not develop.
We cannot assure to you that a secondary market will develop for the
securities of any series, or, if a secondary market does develop, that it will
provide the holders of any of the securities with liquidity of investment. We
also cannot assure to you that if a secondary market does develop, that it will
continue to exist for the term of any series of securities.
In addition, issuance of certificates and notes in book-entry form rather
than as physical certificates or notes may adversely affect the liquidity of
certificates or notes in the secondary market and the ability of the
certificate owners or note owners to pledge them. In addition, since
distributions on the certificates and the notes will be made by the trustee or
the indenture trustee to DTC and DTC will credit such distributions to the
accounts of its participants, with the participants further crediting such
distributions to the accounts of indirect participants or certificate owners or
note owners, certificate owners and note owners may experience delays in the
receipt of such distributions.
The loans may be prepaid before their scheduled maturity.
Full or partial prepayments on the loans will reduce the weighted average
life of the securities. Obligors may prepay their loans without penalty.
Prepayments may result from
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<PAGE>
payments by obligors, liquidations due to default, the receipt of proceeds from
physical damage or credit insurance, repurchases by us as a result of certain
uncured breaches of the warranties, purchases by the servicer as a result of
certain uncured breaches of the covenants made by it in the sale and servicing
agreement, or us or the servicer exercising our option to purchase all of the
remaining loans.
Unless we specify otherwise in this prospectus supplement, the amounts paid
to securityholders in respect of principal on any distribution date will
include all prepayments on the loans during the corresponding due periods. The
owners of notes and the owners of certificates will bear all reinvestment risk
resulting from the timing of payments of principal on the securities.
Bankruptcy proceedings could delay distributions on the securities.
We intend that each transfer of loans to the trust fund will constitute a
sale, rather than a pledge of the loans to secure indebtedness. However, if we
were to become a debtor under the federal bankruptcy code, it is possible that
our creditor or trustee in bankruptcy may argue that the sale of the loans was
a pledge of the loans 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 holders of the notes and certificates.
The Class A-2, Class A-3 and Class A-4 notes will be subordinate.
Each class of notes will be subordinate for payment of interest and principal
to the holders of the class of notes with a prior numeric designation. The
certificates will be subordinate in priority of payment of interest and
principal to the notes. We will not pay principal on the certificates until the
outstanding principal amounts of all of the notes have been paid.
You must rely upon payments on the loans for payment of your interest and
principal. The trust will not have any significant assets or sources of funds
other than the loans, the spread account, the reserve account, the interest
rate cap payments and our limited guaranty.
We have limited delinquency, loan loss and repossession experience.
We have limited underwriting and servicing experience with home equity loans
similar to the loans under this transaction. Although we have calculated our
delinquency and net loss experience with respect to our servicing portfolio of
home equity loans, we cannot assure you that the information presented will
reflect actual experience with respect to the loans. In addition, we cannot
assure you that the future delinquency, loan loss or repossession experience of
the trust will be better or worse than our own experience. See "The Loan Pool--
Delinquency, Loan Loss and Repossession Information."
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<PAGE>
The real estate securing the loans may be inadequate security.
As of the cutoff date, approximately % of the cutoff date principal
balance represented loans which were either unsecured or secured by subordinate
liens on the applicable real estate. As a result, the real estate securing a
loan is not likely to provide adequate security if it becomes necessary to
realize upon the collateral. Even if the real estate securing a given loan
provides adequate security, we could encounter substantial delays in connection
with the liquidation of that loan. This would result in current shortfalls in
distributions to the holders of the certificates. In addition, liquidation
expenses relating to the any liquidated loan will reduce the proceeds otherwise
available for payment to the holders of the certificates. In the event that any
real estate securing a loan fails to provide adequate security, any losses in
connection with that loan will be borne by the holders of the certificates.
The loans are located primarily in .
As of the cutoff date, obligors on approximately % of the initial loans
were located in . Accordingly, adverse economic conditions or other
factors particularly affecting this state could adversely affect the
delinquency, loan loss or repossession experience of the trust with respect to
the loans.
Other rating agencies could provide unsolicited ratings on the notes that could
be lower than the requested ratings.
Although we have not requested a rating of the notes from any rating agencies
other than Moody's & S&P, other rating agencies may rate the notes. These
ratings could be higher or lower than the ratings Moody's & S&P initially give
to the notes. There is a risk that a lower rating of your note from another
rating agency could reduce the market value or liquidity of your note.
THE TRUST
The following information supplements and if inconsistent, supersedes the
information contained in the prospectus. You should consider, in addition to
the information below, the information under "The Trusts" in the accompanying
prospectus.
General
Green Tree Home Equity Loan Trust 1999- is a business trust formed under the
laws of the State of Delaware under the trust agreement for the transactions
described in this prospectus supplement. After its formation, the trust will
not engage in any activity other than:
(1) acquiring, holding and managing the loans and the other assets of the
trust and proceeds therefrom,
(2) issuing the notes and the certificates,
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<PAGE>
(3) making payments on the notes and the certificates and
(4) engaging in other activities that are necessary, suitable or
convenient to accomplish the above.
The trust will initially be capitalized with equity equal to approximately
$ from the sale of the certificates to third party investors that are
expected to be unaffiliated with Green Tree or its affiliates. The equity of
the trust, together with the proceeds of the initial sale of the notes, will be
used by the trust to purchase the loans from Green Tree under the sale and
servicing agreement.
The trust's principal offices are in , Delaware, at the address listed
below under "--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cutoff date, as if the issuance and sale of the notes and certificates had
taken place on that date:
<TABLE>
<S> <C>
Class A-1 Notes.............................................. $
Class A-2 Notes..............................................
Class A-3 Notes..............................................
Class A-4 Notes..............................................
Certificates.................................................
------------
Total...................................................... $
============
</TABLE>
The Owner Trustee
[Name of Owner Trustee] is the owner trustee under the trust agreement.
[Owner trustee] is a Delaware banking corporation and its principal offices are
located at , , Delaware . The owner trustee will
perform limited administrative functions under the trust agreement, including
making distributions from the certificate distribution account. The owner
trustee's liability in connection with the issuance and sale of the
certificates and the notes is limited solely to the express obligations of the
owner trustee as described in the trust agreement.
THE TRUST PROPERTY
The trust property will include, among other things:
(1) the loans;
(2) all rights to receive payments due on the loans on or after the cutoff
date, excluding certain insurance premiums, late fees and other
servicing charges;
(3) amounts as from time to time may be held in the collection account,
the spread account, the reserve account, the pre-funding account and
any other accounts established and maintained by the servicer under
the sale and servicing agreement;
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<PAGE>
(4) an assignment of the mortgages on the real estate securing the home
equity loans; and
(5) all other rights under the trust documents.
See "The Loans" and "Description of the Trust Documents--Collections" in the
accompanying prospectus.
Each certificate will represent a fractional undivided interest in the trust
property. Under the indenture, the trust will grant a security interest in the
trust property in favor of the indenture trustee for the noteholders. Any
proceeds of the security interest in the trust property would be distributed
according to the indenture, as described under "Description of the Trust
Documents and Indenture--Distributions."
[Indenture trustee] or a custodian on its behalf will hold the loan files
which include each original loan, as well as copies of documents and
instruments relating to such loan and evidencing the mortgage, if any, on the
real property. In order to protect the trust's ownership interest in the loans,
us will file a UCC-1 financing statement in Minnesota and Delaware to give
notice of the trust's ownership of the loans and the trust property.
THE LOAN POOL
General
This prospectus supplement contains information regarding the initial loans,
which were originated through and will be transferred to the trust on
the closing date. The information for each loan is as of the cutoff date for
such loan. The loans had an aggregate principal balance as of the cutoff date
of $ . The sale and servicing agreement provides that the initial loans
will be purchased by the trust on the closing date and that the subsequent
loans will be purchased by the trust from time to time during the pre-funding
period.
We will purchase all of the loans from dealers and correspondent lenders who
regularly originate and sell the loans to us, or will be originated by us
directly. Substantially all of the home equity loans have loan-to-value ratios
equal to or greater than 125%. A significant portion of the home equity loans
were purchased by us from an independent financing company. We believe that the
underwriting standards employed by this independent financing company are
similar to the standards used by ourselves.
Certain Other Characteristics
The loans:
(1) had a remaining maturity, as of the cutoff date, of at least
months, but not more than months,
(2) had an original maturity of at least months, but not more than
months,
(3) had an original principal balance of at least $ and not more
than $ ,
S-16
<PAGE>
(4) had a remaining principal balance as of the cutoff date of at least
$ and not more than $ .
The home equity loans have a principal balance as of the cutoff date of
approximately $ . The home equity loans were originated between and
.
S-17
<PAGE>
Geographic Concentration of Home Equity Loans
<TABLE>
<CAPTION>
Number of
Loans as of Percent of Number Principal Balance Percent of Cutoff Date
State (1) Cutoff Date of Loans as of Cutoff Date Principal Balance
--------- ----------- ----------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ --------------- ------
Total................. 100.00% $ 100.00%
===== ====== =============== ======
</TABLE>
- --------
(1)Based on the address of the obligor set forth in Green Tree's records.
S-18
<PAGE>
Distribution of Original Loan Amounts of Home Equity Loans
<TABLE>
<CAPTION>
Aggregate
Principal
Balance % of Loan Pool
Outstanding by Outstanding
Number of Loans as of Cutoff Principal Balance
Original Loan Amount as of Cutoff Date Date as of Cutoff Date
-------------------- ----------------- --------------- -----------------
<S> <C> <C> <C>
Less than $10,000......... $ %
Between $10,000 and
$19,999..................
Between $20,000 and
$29,999..................
Between $30,000 and
$39,999..................
Between $40,000 and
$49,999..................
Between $50,000 and
$59,999..................
Between $60,000 and
$69,999..................
Between $70,000 and
$79,999..................
Between $80,000 and
$89,999..................
Between $90,000 and
$99,999..................
Between $100,000 and
$109,999.................
Between $110,000 and
$119,999.................
Between $120,000 and
$129,999.................
Between $130,000 and
$139,999.................
Between $140,000 and
$149,999.................
Between $150,000 and
$159,999.................
Between $160,000 and
$169,999.................
Between $170,000 and
$179,999.................
Between $180,000 and
$189,999.................
Between $190,000 and
$199,999.................
Between $200,000 and
$249,999.................
Between $250,000 and
$299,999.................
Over $300,000.............
----- --------------- ------
Total................... $ 100.00%
===== =============== ======
</TABLE>
Year of Origination of Home Equity Loans
<TABLE>
<CAPTION>
Aggregate % of Loan Pool
Principal Balance by Outstanding
Year of Number of Loans Outstanding Principal Balance
Oiginationr as of Cutoff Date as of Cutoff Date as of Cutoff Date
- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
1989.................... $ %
1990....................
1991....................
1992....................
1993....................
1994....................
1995....................
1996....................
1997....................
------ ------------- ------
Total................. $ 100.00%
====== ============= ======
</TABLE>
S-19
<PAGE>
Lien Position of Home Equity Loans
<TABLE>
<CAPTION>
%
% of Loan Pool by
Number of Aggregate Principal Outstanding Principal
Number of Loans Loans as of Balance Outstanding Balance as of
as of Cutoff Date Cutoff Date as of Cutoff Date Cutoff Date
----------------- ----------- ------------------- ---------------------
<S> <C> <C> <C> <C>
First................... % $ %
Second..................
Third...................
----- ------ ------------- ------
Total............... 100.00% $ 100.00%
===== ====== ============= ======
</TABLE>
Home Equity Loan Rates
<TABLE>
<CAPTION>
Aggregate Principal % of Loan Pool by
Number of Loans Balance Outstanding Outstanding Principal
Loan Rate as of Cutoff Date as of Cutoff Date Balance as of Cutoff Date
--------- ----------------- ------------------- -------------------------
<S> <C> <C> <C>
Less than 9.00%........... $ %
9.01% to 10.00%..........
10.01% to 11.00%..........
11.01% to 12.00%..........
12.01% to 13.00%..........
13.01% to 14.00%..........
14.01% to 15.00%..........
15.01% to 16.00%..........
16.01% to 17.00%..........
Over 17.00%...............
----- ------------- ------
Total................... $ 100.00%
===== ============= ======
Remaining Months to Maturity of Home Equity Loans
<CAPTION>
Aggregate Principal % of Loan Pool by
Number of Loans Balance Outstanding Outstanding Principal
Remaining Months to Maturity as of Cutoff Date as of Cutoff Date Balance as of Cutoff Date
- ---------------------------- ----------------- ------------------- -------------------------
<S> <C> <C> <C>
Fewer than 31............. $ %
31 to 60................
61 to 90................
91 to 120................
121 to 150................
151 to 180................
181 to 210................
211 to 240................
241-270...................
271-300...................
301-330...................
331-360...................
----- ------------- ------
Total................... $ 100.00%
===== ============= ======
</TABLE>
S-20
<PAGE>
Lien Position of Home Equity Loans
<TABLE>
<CAPTION>
% of
Number of Home Equity
Loans Loans % of
as of as of Aggregate Principal Cutoff Date
Cut-off Cut- Balance Outstanding Principal
Lien Position Date off Date as of Cut-off Date Balance
------------- --------- ----------- ------------------- -----------
<S> <C> <C> <C> <C>
First..................... % $ %
Second....................
Third.....................
Fourth....................
----- ------ ------------- ------
Total................... 100.00% $ 100.00%
===== ====== ============= ======
</TABLE>
S-21
<PAGE>
GREEN TREE FINANCIAL CORPORATION
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under the heading "Green Tree Financial
Corporation."
No delinquency, loan loss or liquidation information has been included for
home equity loans, because we have only limited historical experience with the
performance of these loans, and we do not currently compile separate
delinquency, loan loss and liquidation information on home equity loans with
high loan-to-value ratios such as the home equity loans.
Recent Developments
We have been served with various lawsuits in the United States District Court
for the District of Minnesota. These lawsuits were filed by our stockholders as
purported class actions on behalf of persons or entities who purchased common
stock or traded in options during the alleged class periods. In addition to the
company, some of our current and former officers and directors are named as
defendants in one or more of the lawsuits. The lawsuits have been consolidated
into two complaints, one relating to an alleged class of purchasers of our
common stock and the other relating to an alleged class of traders in options
for our common stock. In addition to these two complaints, a separate non-class
action lawsuit containing similar allegations was also filed. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. In each case, plaintiffs allege that we and the other
defendants violated federal securities laws by making false and misleading
statements about our current state and our future prospects particularly about
prepayment assumptions and performance of some of our loan portfolios, which
allegedly rendered our financial statements false and misleading. We believe
that the lawsuits are without merit and intend to defend the lawsuits
vigorously.
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements the information in the prospectus under
the heading "Yield and Prepayment Considerations."
The servicer and Green Tree each has the option to purchase from the trust
all remaining loans, which will effect early redemption of the notes and early
retirement of the certificates, on any distribution date when the scheduled
principal balance of the loans in the pool is 10% or less of the cutoff date
pool principal balance. See "Description of the Trust Documents--Termination"
in the prospectus.
The Class A-1, Class A-2, Class A-3 and Class A-4 notes will be prepaid in
part on the first distribution date after the pre-funding period, in no event
later than , 1999, to the extent of any pre-funded amount remaining in the
pre-funding account on that distribution date. Green Tree believes that
substantially all of the pre-funded amount will be used to acquire the
subsequent loans. It is unlikely, however, that the aggregate principal amount
of subsequent loans purchased by the trust will be identical to the pre-funded
amount, and that consequently, Class A-1, Class A-2, Class A-3 and Class A-4
noteholders
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<PAGE>
will receive a prepayment of principal, in accordance with their applicable
percentage of the formula principal distribution amount.
Principal prepayments on the home equity loans will result in accelerating
principal payments on the notes. The rate of principal payments on pools of
home equity loans is influenced by a variety of economic, geographic, social
and other factors, including the level of interest rates and the rate at which
homeowners sell their homes or default on their loans. Other factors affecting
prepayment of home equity loans and home improvement contacts include changes
in obligors' housing needs, job transfers, unemployment and obligors' net
equity in their homes. Since home equity loans are not generally viewed by
borrowers as permanent financing, the home equity loans may experience a higher
rate of prepayments than traditional mortgage loans. In addition, if prevailing
interest rates fall significantly below the interest rates on the loans, the
loans are likely to be subject to higher prepayment rates than if prevailing
interest rates remain at or above the rates borne by the loans. Conversely, if
prevailing interest rates rise above the interest rates on the loans, the rate
of prepayment would be expected to decrease.
Weighted Average Life of the Notes and the Certificates
The following information is given solely to illustrate the effect of
prepayments on the loans on the weighted average life of the notes and the
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the loans.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the notes and the
certificates will be influenced by the rate at which principal on the loans is
paid. Principal payments on the loans may be in the form of scheduled
amortization or prepayments, including, for this purpose, liquidations due to
default.
The base case prepayment model is our management's best estimate of the
prepayment rates that may be experienced on the loans. Because we began
originating and servicing home equity loans only recently, these estimates are
based in part on industry experience with similar loans and loans rather than
our experience. There can be no assurance that the loans will experience
prepayments at such projected rates or in the manner assumed by the prepayment
model used for that type of loan, or that the loans in the aggregate will
experience prepayments similar to the overall prepayment rate or in the manner
projected in the base case.
The model used in this prospectus supplement is the constant prepayment rate
("CPR"). The CPR represents an assumed constant rate of prepayment each month,
expressed as a per year percentage of the outstanding principal balance of the
home equity loans. The base case prepayment rate used with respect to the home
equity loans included in the trust, for purposes of the following tables, was
% CPR.
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<PAGE>
As used in the following tables, the columns headed %, %, %, % and
% assume that prepayments on the loans are made at base case prepayment
rates of %, %, %, % and %. For example, % base case prepayment
rate and % base case prepayment rate mean that home equity loans have been
assumed to have a prepayment rate equal to % CPR and % CPR. CPR DOES
NOT PURPORT TO BE AN HISTORICAL DESCRIPTION OF PREPAYMENT EXPERIENCE OR A
PREDICTION OF THE ANTICIPATED RATE OF PREPAYMENT OF ANY POOL OF LOANS,
INCLUDING THE LOANS.
[PREPAYMENT TABLES HERE]
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<PAGE>
DESCRIPTION OF THE NOTES
The following information supplements and, if inconsistent, supersedes the
information contained in the accompanying prospectus under "The Notes,"
"Certain Information Regarding the Securities," and "Description of the Trust
Documents."
General
The notes will be issued under to the terms of the indenture, a form of which
has been filed as an exhibit to the registration statement. A copy of the
indenture, as executed, will be filed with the commission following the
issuance of the securities. The following summary describes certain terms of
the notes and the indenture. The summary is not complete and is subject to all
the provisions of the notes and the indenture. The following summary also
supplements the description of the general terms and provisions of the notes of
any given series and the indenture described in the accompanying prospectus.
[Indenture trustee], a national banking association headquartered in [ ],
will be the indenture trustee.
Distributions
Noteholders will be entitled to receive on each distribution date commencing
in 1999, to the extent that funds are available, the noteholders'
distributable amount. Distributions on the notes will be made from funds
available:
. first to the holders of the Class A-1 notes,
. then to the holders of the Class A-2 notes,
. then to the holders of the Class A-3 notes and
. then to the holders of the Class A-4 notes,
in the manner and order of priority described below.
Class A-1 Interest
Interest on the outstanding Class A-1 principal balance will accrue from
, , or from the most recent distribution date, to but excluding the
following distribution date, at the Class A-1 rate for that monthly interest
period. The Class A-1 principal balance as of any distribution date will be the
original Class A-1 principal balance minus all principal amounts previously
distributed to the Class A-1 noteholders.
Interest will be paid on the Class A-1 notes to the extent of funds available
on such distribution date. In the event the funds available are not sufficient
to make a full distribution of interest on the Class A-1 notes, the funds
available will be applied pro rata to the Class A-1 notes based on the amount
payable to the class and the amount of the shortfall will be carried forward
and added to the amount of interest payable on the next distribution date. Any
amount carried forward will bear interest at the Class A-1 rate, to the extent
legally permissible.
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<PAGE>
Class A-1 Principal
To the extent of funds available after payment of all interest payable on the
Class A-1 notes, the Class A-1 noteholders will be entitled to receive on each
distribution date as payment of principal equal to the sum of approximately
% of the formula principal distribution amount for such distribution date
plus the unpaid Class A-1 principal shortfall, if any, for such distribution
date. In the event the funds available are not sufficient to make a full
distribution of principal on the Class A-1 notes, the funds available will be
applied pro rata to the Class A-1 notes based on the amount payable to such
class.
The formula principal distribution amount with respect to any distribution
date will generally be equal to the sum of the following amounts for the
monthly period, in each case computed in accordance with the method specified
in each home equity loan:
(1) all scheduled payments of principal due on each outstanding home
equity loan during the monthly period,
(2) all partial principal prepayments applied and all principal
prepayments in full received during the monthly period for each home
equity loan,
(3) the scheduled principal balance of each home equity loan that became a
liquidated loan during the monthly period,
(4) the scheduled principal balance of each home equity loan which, during
the monthly period, was purchased by Green Tree as a result of a
breach of a representation as warranty or by the servicer because of
an uncured breach of a covenant under the sale and servicing
agreement, and
(5) with respect to the distribution date in 1999, any remaining
amounts on deposit in the pre-funding account.
The formula principal distribution amount for the distribution date in ,
will be the sum of the note principal balance and the certificate principal
balance. A liquidated loan means any defaulted loan as to which the servicer
has determined that all amounts which it expects to recover from or on account
of the loan through the date of disposition of the real property have been
recovered or any defaulted loan in respect of which the real property has been
realized upon and disposed of and the proceeds of such disposition have been
received. The unpaid Class A-1 principal shortfall for any distribution date
will equal any amount required to be paid for principal on the Class A-1 notes
on any prior distribution date but not paid on any intervening distribution
date.
Class A-2 Interest
Interest on the outstanding Class A-2 principal balance will accrue from ,
, or from the most recent distribution date, to but excluding the following
distribution date, at the Class A-2 rate for the monthly interest period. The
Class A-2 principal balance as of any distribution date will be the original
Class A-2 principal balance minus all amounts previously distributed to the
Class A-2 noteholders in respect of principal, and minus any unreimbursed Class
A-2 principal liquidation loss, described further in the following pages under
"--Losses on Liquidated Loans".
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Interest will be paid on the Class A-2 notes to the extent of funds available
on that distribution date, after payment of all interest and principal then
payable on the Class A-1 notes. In the event the remaining funds available are
not sufficient to make a full distribution of interest on the Class A-2 notes,
the amount of the shortfall will be carried forward and added to the amount of
interest payable on the next distribution date. Any amount so carried forward
will bear interest at the Class A-2 rate, to the extent legally permissible.
Class A-2 Principal
Class A-2 noteholders will be entitled to receive on each distribution date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-1 notes and after payment of all
interest payable on the Class A-2 notes, the sum of approximately % of the
formula principal distribution amount for such distribution date, plus any
unpaid Class A-2 principal shortfall for such distribution date.
The unpaid Class A-2 principal shortfall for any distribution date will equal
any amount required to be paid for principal on the Class A-2 notes on any
prior distribution date but not paid on any intervening distribution date, less
any unreimbursed Class A-2 principal liquidation loss.
Class A-3 Interest
Interest on the outstanding Class A-3 principal balance will accrue from
, , or from the most recent distribution date, to but excluding the
following distribution date, at the Class A-3 rate for the monthly interest
period. The Class A-3 principal balance as of any distribution date will be the
original Class A-3 principal balance minus all amounts previously distributed
to the Class A-3 noteholders for principal, and minus any unreimbursed Class A-
3 principal liquidation loss, described further in the following pages under
"--Losses on Liquidated Loans.
Interest will be paid on the Class A-3 notes to the extent of funds available
on that distribution date, after payment of all interest and principal then
payable on the Class A-2 notes. In the event such remaining funds available are
not sufficient to make a full distribution of interest on the Class A-3 notes,
the amount of the shortfall will be carried forward and added to the amount of
interest payable on the next distribution date. Any amount so carried forward
will bear interest at the Class A-3 rate, to the extent legally permissible.
Class A-3 Principal
Class A-3 noteholders will be entitled to receive on each distribution date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-2 notes and after payment of all
interest payable on the Class A-3 notes, the sum of approximately % of the
formula principal distribution amount for that distribution date, plus any
unpaid Class A-3 principal shortfall, for the distribution date.
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The unpaid Class A-3 principal shortfall for any distribution date will equal
any amount required to be paid for principal on the Class A-3 notes on any
prior distribution date but not paid on any intervening distribution date, less
any unreimbursed Class A-3 principal liquidation loss.
Class A-4 Interest
Interest on the outstanding Class A-4 principal balance will accrue from
, , or from the most recent distribution date, to but excluding the
following distribution date, at the Class A-4 rate for the monthly interest
period. The Class A-4 principal balance as of any distribution date will be the
original Class A-4 principal balance minus all amounts previously distributed
to the Class A-4 noteholders for principal, and minus any unreimbursed Class A-
4 principal liquidation loss, described further in the following pages under
"--Losses on Liquidated Loans".
Interest will be paid on the Class A-4 notes to the extent of funds available
on the distribution date, after payment of all interest and principal then
payable on the Class A-3 notes. In the event such remaining funds available are
not sufficient to make a full distribution of interest on the Class A-4 notes,
the amount of the shortfall will be carried forward and added to the amount of
interest payable on the next distribution date. Any amount so carried forward
will bear interest at the Class A-4 rate, to the extent legally permissible.
Class A-4 Principal
Class A-4 noteholders will be entitled to receive on each distribution date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-3 notes and after payment of all
interest payable on the Class A-4 notes, the sum of approximately % of the
formula principal distribution amount for that distribution date, plus any
unpaid Class A-4 principal shortfall for such distribution date.
The unpaid Class A-4 principal shortfall for any distribution date will equal
any amount required to be paid in respect of principal on the Class A-4 notes
on any prior distribution date but not paid on any intervening distribution
date, less any unreimbursed Class A-4 principal liquidation loss.
Optional Redemption
The notes will be redeemed in whole, but not in part, on any distribution
date on which we exercise our option to purchase the loans. We may purchase the
loans when the pool scheduled principal balance has declined to 10% or less of
the cutoff date pool principal balance, as described in the accompanying
prospectus under "Description of the Trust Documents--Termination." The pool
scheduled principal balance is the aggregate scheduled principal balance of all
outstanding loans during a monthly period. A redemption will effect early
retirement of the notes. The redemption price will be equal to the unpaid
principal amount of the notes redeemed plus accrued and unpaid interest
thereon.
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Mandatory Prepayments
The Class A-1, Class A-2, Class A-3 and Class A-4 notes will be prepaid in
part on the first distribution date after the pre-funding period, in no event
later than , 1999, to the extent of any pre-funded amount remaining in the
pre-funding account on that distribution date. We believe that substantially
all of the pre-funded amount will be used to acquire the subsequent loans. It
is unlikely, however, that the aggregate principal amount of subsequent loans
purchased by the trust will be identical to the pre-funded amount, and that
consequently, Class A-1, Class A-2, Class A-3 and Class A-4 noteholders will
receive a prepayment of principal, according to their applicable percentage of
the formula principal distribution amount.
The Interest Rate Cap Agreement
Class A-1 noteholders will have the benefit of the interest rate cap
agreement between the trust and the counterparty. Under to the interest rate
cap agreement, the counterparty will make the interest rate cap payment to the
trust on each distribution date to the extent that the Class A-1 rate exceeds
10%, in an amount equal to the amount obtained by multiplying the Class A-1
principal balance by the product of
(1) the maximum of
(a) the excess of the Class A-1 rate over 10% or
(b) 0% and
(2) the number of days in the monthly interest period divided by 360.
Payments received by the indenture trustee under the interest rate cap
agreement will be deposited in the collection account. See "Description of the
Counterparty."
The Spread Account
Class A-2, Class A-3 and Class A-4 noteholders will have the benefit of a
separate sub-account for each class contained in the spread account to be held
by the indenture trustee. On any distribution date, if the funds in the note
distribution account, after making all distributions on each class of notes
with a prior numeric designation, is insufficient to distribute all interest
then payable on the Class A-2, Class A-3 or Class A-4 notes, the indenture
trustee will withdraw the amount of the deficiency from the applicable sub-
account and deposit such amount in the note distribution account for
distribution to the applicable class. On any distribution date, the amount of
funds in the spread account will not be available to cover a shortfall in
principal distributable on any class of notes, but will only be available to
cover a shortfall in interest distributable on the Class A-2, Class A-3 and
Class A-4 notes.
On the closing date, the amount on deposit in the Class A-2, Class A-3 and
Class A-4 sub-accounts will be zero. On each distribution date, the indenture
trustee will deposit all funds remaining in the collection account, after
distribution of all interest and principal then payable on the notes and all
interest then payable on the certificates:
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.first to the Class A-2 sub-account,
.then to the Class A-3 sub-account and
.then to the Class A-4 sub-account,
until the amount on deposit in such sub-accounts equals $ , $ and $ ,
subject to reduction as provided in the sale and servicing agreement. If any
sub-account is drawn upon, it will be replenished as provided in the sale and
servicing agreement and the indenture. The spread account is included in the
trust property. Any amount remaining in the spread account upon termination of
the trust will be distributed to us.
The Reserve Account
Noteholders will have the benefit of the reserve account to be held by the
indenture trustee. On any distribution date, if the funds in the note
distribution account are insufficient to make full payment of interest or
principal payable on a class of notes, after making appropriate draws upon the
spread account, the indenture trustee will withdraw the amount of the
deficiency from the amount on deposit in the reserve account and deposit that
amount in the note distribution account for distribution to the applicable
class.
On the closing date, the amount on deposit in the reserve account will be
zero. On each distribution date, the indenture trustee will deposit all funds
remaining in the collection account, after distribution of all interest and
principal then payable on the notes, all interest then payable on the
certificates and all deposits in the spread account, until the amount on
deposit in the reserve account equals 1.5% of the pool scheduled principal
balance, subject to reduction as provided in, and to other terms and conditions
contained in, the sale and servicing agreement. If the reserve account is drawn
upon, it will be replenished as provided in the sale and servicing agreement
and the indenture. The reserve account is included in the trust property. Any
amount remaining in the reserve account upon termination of the trust will be
distributed to us.
Losses on Liquidated Loans
As described above, the distribution of principal to each class of notes is
intended to equal the applicable percentage of the formula principal
distribution amount. On each distribution date, each amount includes the
scheduled principal balance of each loan that became a liquidated loan during
the monthly period related to that distribution date. If the net liquidation
proceeds from such liquidated loan are less than the scheduled principal
balance of such liquidated loan, the deficiency will, in effect, be absorbed:
. first by the monthly servicing and guaranty fee otherwise payable to
us,
. then by the certificateholders, although we will be obligated to make
a guaranty payment equal to any shortfall in the distribution to the
certificateholders, and
. then by each class of notes in inverse numeric order.
Funds on deposit in the reserve account will be available to pay any shortfall
in the distribution of interest and principal to any class of notes.
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If the funds available for any distribution date, after making all required
distributions of interest and principal to more senior classes of notes, are
insufficient to make a full distribution of interest and/or principal to a
class of notes or the certificates, that deficiency will be carried forward and
added to the amount to be distributed to the class of notes or the certificates
on the following distribution date.
If the pool scheduled principal balance for any distribution date is less
than the sum of the aggregate outstanding principal balance of the notes and
the certificate principal balance after giving effect to all distributions of
principal on the distribution date, then the certificate principal balance will
be reduced by the amount of the deficiency. We will be obligated to pay the
amount of any the certificate principal liquidation loss under the limited
guaranty. If we should fail to pay such amount, however, the amount
distributable on the certificates on future distribution dates would include
interest on any certificate principal liquidation loss at the pass-through
rate, and, to the extent legally permissible, interest on any unpaid interest
at the pass-through rate, accrued from the date this certificate principal
liquidation loss was incurred, and the amount of the certificate principal
liquidation loss.
Similarly, if the certificate principal balance were reduced to zero, which
would be caused only by certificate principal liquidation losses, whether or
not we make any required payments under the limited guaranty, and the pool
scheduled principal balance on any distribution date were less than the
aggregate outstanding principal balance of the notes after giving effect to
distributions of principal on such distribution date, then the Class A-4
principal balance would be reduced by the amount of such deficiency. The funds
on deposit in the reserve account will be available to pay the amount of any
such Class A-4 principal liquidation loss. If the funds available in the
reserve account are insufficient to pay such amount, however, the amount
distributable on the Class A-4 notes on future distribution dates would include
interest on any such Class A-4 principal liquidation loss at the Class A-4
rate, and, to the extent legally permissible, interest on such unpaid interest
at the Class A-4 rate, accrued from the date such Class A-4 principal
liquidation loss was incurred, and the amount of such Class A-4 principal
liquidation loss. Each more senior class of notes would similarly be subject to
reduction in its outstanding principal balance if the aggregate outstanding
principal balance of all more junior classes of notes were reduced to zero and
the pool scheduled principal balance were less than the aggregate outstanding
principal balance of the notes, and would similarly be entitled on future
distribution dates to receive interest on any such principal liquidation loss
at the applicable interest rate, and the amount of such principal liquidation
loss. The applicable percentage of the formula principal distribution amount
distributable to each class of notes on each distribution date will not be
affected by any principal liquidation loss experienced by a class of notes.
Accordingly, even if a class of notes has experienced a principal liquidation
loss, that class will continue to be entitled to receive its applicable
percentage of the formula principal distribution amount, or, if the amount
available in the collection account is insufficient to make such distribution,
that class will be entitled to receive the amount of this deficiency on
subsequent distribution dates as an unpaid principal shortfall.
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Book-Entry Registration
Holders of the notes or the certificates may hold through DTC in the United
States or, solely in the case of the notes, CEDEL or Euroclear in Europe if
they are participants of these systems, or indirectly through organizations
that are participants in these systems. The certificates may not be held,
directly or indirectly, through CEDEL or Euroclear.
Cede & Co., as nominee for DTC, will hold the notes and the certificates.
CEDEL and Euroclear will hold omnibus positions in the notes on behalf of the
CEDEL participants and the Euroclear participants, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries, which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC.
Transfers between DTC's participating organizations will occur according to
DTC rules. Transfers between CEDEL participants and Euroclear participants will
occur in the ordinary way according to their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL participants or
Euroclear participants, on the other, will be effected in DTC according to DTC
rules on behalf of the relevant European international clearing system by its
depositary; however, these cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in such system according to its rules and procedures and within
its established deadlines (European time). The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment according to normal procedures for same-day funds
settlement applicable to DTC. CEDEL participants and Euroclear participants may
not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in CEDEL or Euroclear
for a transaction with a participant will be made during the subsequent
securities settlement processing, dated the business day following the DTC
settlement date, and these credits or any transactions in the securities
settled during such processing will be reported to the relevant CEDEL
participant or Euroclear participant on that business day. Cash received in
CEDEL or Euroclear for sales of securities by or through a CEDEL participant or
a Euroclear participant to a participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
For a description of transfers between persons holding directly or indirectly
through DTC, see "Certain Information Regarding the Securities--Book-Entry
Registration" in the prospectus.
Cedel Bank, societe anonyme is incorporated under the laws of Luxembourg as a
professional depository. CEDEL holds securities for its participating
organizations, which are called CEDEL participants, and facilitates the
clearance and settlement of securities
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transactions between CEDEL participants through electronic book-entry changes
in accounts of CEDEL participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to CEDEL is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a CEDEL
participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies, including
United States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described in Annex I hereto. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), under loan with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear operator, not the cooperative. The cooperative establishes policy for
the Euroclear System on behalf of Euroclear participants. Euroclear
participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to the Euroclear System is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law. The terms and conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the Euroclear
System. All securities in the Euroclear System are held on a
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fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear operator acts under the terms and
conditions only on behalf of Euroclear participants and has no record of or
relationship with persons holding through Euroclear participants.
Distributions with respect to notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL participants or Euroclear participants
in accordance with the relevant system's rules and procedures, to the extent
received by its depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Federal Income Tax Consequences" in the prospectus and "Global
Clearance, Settlement and Tax Documentation Procedures" in Annex I to this
prospectus supplement. CEDEL or the Euroclear operator, as the case may be,
will take any other action permitted to be taken by a noteholder under the
indenture on behalf of a CEDEL participant or Euroclear participant only in
accordance with its relevant rules and procedures and subject to its
depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
DESCRIPTION OF THE COUNTERPARTY
[insert description of counterparty, if any]
The description of the counterparty set out above has been provided by the
counterparty. The counterparty has not, however, been involved in the
preparation of, and does not accept responsibility for, this prospectus
supplement as a whole.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and, if inconsistent, supersedes, the
information contained in the accompanying prospectus under "The Certificates,"
"Certain Information Regarding the Securities," and "Description of the Trust
Documents."
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General
The certificates will be issued under the terms of the trust agreement, a
form of which has been filed as an exhibit to the registration statement. A
copy of the trust agreement, as executed, will be filed with the commission
following the issuance of the securities. The following summary describes
certain terms of the certificates and the trust agreement. The summary is not
complete and is subject to all the provisions of the certificates and the trust
agreement. The following summary supplements, and to the extent inconsistent
with the trust agreement replaces, the description of the general terms and
provisions of the certificates of any given series and the trust agreement
described in the prospectus, to which description reference is made.
Distributions
Certificateholders will be entitled to receive on each distribution date
commencing in 1999, to the extent that funds available together with the
guaranty payment are sufficient, the certificateholders' distributable amount.
Interest
On each distribution date, the owner trustee will distribute pro rata to
certificateholders accrued interest at the pass-through rate on the outstanding
certificate principal balance. Interest for a distribution date will accrue
from , 1999, or from the most recent distribution date to but excluding
the following distribution date. The certificate principal balance as of any
distribution date will be the original certificate principal balance, reduced
by all amounts allocable to principal previously distributed to
certificateholders minus any unreimbursed certificate principal liquidation
loss as further described in this prospectus supplement under "--Losses on
Liquidated Loans").
Interest will be paid on the certificates from funds available on such
distribution date, after payment of all interest and principal then payable on
the notes and any amounts previously withdrawn from any sub-account of the
spread account or the reserve account and not previously replenished. If the
funds available are not sufficient to make a full distribution of interest on
the certificates, the amount of the shortfall will be carried forward and added
to the amount of interest payable on the next distribution date. Any amount so
carried forward will bear interest at the pass-through rate, to the extent
legally permissible. See "Description of the Certificates."
Principal
No distributions of principal on the certificates will be payable until all
of the notes have been paid in full. On each distribution date commencing on
the distribution date on which the notes are paid in full, principal on the
certificates will be payable in an amount equal to the formula principal
distribution amount for that distribution date, plus the unpaid certificate
principal shortfall, if any, from prior distribution dates.
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The unpaid certificate principal shortfall for any distribution date will
equal any amount required to be paid in respect of principal on the
certificates on any prior distribution date but not paid on any intervening
distribution date, less any unreimbursed certificate principal liquidation
loss.
Optional Prepayment
If we exercise our option to purchase the loans when the pool scheduled
principal balance declines to 10% or less of the cutoff date pool principal
balance, certificateholders will receive an amount for the certificates equal
to the outstanding principal amount together with accrued interest at the pass-
through rate, which distribution will effect early retirement of the
certificates. See "Description of the Trust Documents--Termination" in the
accompanying prospectus.
Limited Guaranty
In order to mitigate the effect of the subordination of the certificates and
the effect of liquidation losses and delinquencies on the loans, the
certificateholders are entitled to receive on each distribution date the amount
equal to the guaranty payment, if any, under our limited guaranty. The guaranty
payment for any distribution date will equal the difference, if any, between
the certificateholders' distributable amount and the remaining funds available
in the collection account after payment of all interest and principal on the
notes and the deposit in any sub-account of the spread account or the reserve
account of any amounts previously withdrawn therefrom and not previously
replenished. The certificateholders' distributable amount" equals the unpaid
and accrued interest on the certificates, plus on each distribution date
commencing on the distribution date on which the notes are paid in full,
principal in an amount equal to the formula principal distribution amount for
such distribution date, plus any unpaid certificate principal shortfall for
that distribution date, and plus any unreimbursed certificate principal
liquidation loss.
The limited guaranty will be an unsecured general obligation of Green Tree
and will not be supported by any letter of credit or other enhancement
arrangement. The limited guaranty will not benefit in any way, or result in any
payment to, the Class A-1, Class A-2, Class A-3 or Class A-4 noteholders.
As compensation for servicing the loans and providing the limited guaranty,
we will be entitled to receive the monthly servicing and guaranty fee on each
distribution date, which will be equal to the amount available remaining after
payment of the certificateholders' distributable amount and any deposits into
the spread account or the reserve account required on that distribution date.
Transfers of Certificates
Certificateholders, other than individuals or entities holding certificates
through a broker who reports sales of securities on Form 1099-B, are required
under the trust agreement to
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|notify the owner trustee of any transfer of their certificates in a taxable
sale or exchange within 30 days of such transfer.
Losses on Liquidated Loans
As described in the paragraphs above, the distribution of principal to the
certificates is intended to equal the Class A-1 formula principal distribution
amount. This amount includes the scheduled principal balance of each loan that
became a liquidated loan during the monthly period preceding that distribution
date. If the net liquidation proceeds from the liquidated loan are less than
the scheduled principal balance of the liquidated loan, the deficiency will, in
effect, be absorbed:
. first by the monthly servicing and guaranty fee otherwise payable to
us and the general partner fee payable to the general partner and
. then by the certificateholders,
although we will be obligated to make a guaranty payment equal to any shortfall
in the distribution to the certificateholders.
If the funds available for any distribution date, after making all required
distributions of interest and principal to the notes, are not sufficient to
make a full distribution of interest and/or principal to the certificates, the
deficiency will be carried forward and added to the amount to be distributed to
the certificates on the following distribution date.
If the pool scheduled principal balance for any distribution date is less
than the sum of the aggregate outstanding principal balance of the notes and
the certificate principal balance after giving effect to all distributions of
principal on that distribution date, then the certificate principal balance
will be reduced by the amount of that deficiency, which is called a certificate
principal liquidation loss. We will be obligated to pay the amount of any
certificate principal liquidation loss under the limited guaranty. If we should
fail to pay this amount, however, the amount distributable on the certificates
on future distribution dates would include interest on any certificate
principal liquidation loss at the pass-through rate (and, to the extent legally
permissible, interest on any unpaid interest at the pass-through rate) accrued
from the date that certificate principal liquidation loss was incurred, and the
amount of that certificate principal liquidation loss.
DESCRIPTION OF THE TRUST DOCUMENTS AND INDENTURE
The following summary describes some of the terms of the sale and servicing
agreement and the trust agreement, which together form the trust documents, and
the indenture. Forms of the trust documents and indenture, as executed, have
been filed as exhibits to the registration statement. A copy of each of the
trust documents and indenture will be filed with the SEC following the issuance
of the securities. The summary is not complete and is subject to all the
provisions of the trust documents and indenture. The following summary
supplements, the description of the general terms and provisions of the trust
documents and indenture set forth in the accompanying prospectus.
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Accounts
The servicer will establish and maintain one or more accounts, in the name of
the indenture trustee on behalf of the noteholders and the certificateholders,
into which all payments made on or for the loans will be deposited, which is
the collection account. The servicer will establish and maintain the spread
account, which will include sub-accounts for the Class A-2, Class A-3 and Class
A-4 noteholders, in the name of the indenture trustee on behalf of the
noteholders, in which amounts will be deposited to cover shortfalls in interest
distributable on the Class A-2, Class A-3 and Class A-4 notes. In addition, the
servicer will establish and maintain the reserve account in the name of the
indenture trustee on behalf of the noteholders, in which amounts will be
deposited to cover shortfalls in interest or principal distributable on the
notes. The servicer will establish and maintain a note distribution account, in
the name of the indenture trustee on behalf of the noteholders, in which
amounts released from the collection account, the spread account and the
reserve account for distribution to noteholders will be deposited and from
which all distributions to noteholders will be made. The servicer will also
establish and maintain a certificate distribution account, in the name of the
owner trustee on behalf of the certificateholders, in which amounts released
from the collection account for distribution to certificateholders will be
deposited and from which all distributions to certificateholders will be made.
See "Description of the Trust Documents--Collections" in the accompanying
prospectus.
A pre-funding account will be established by the indenture trustee and funded
by us on the closing date to provide the trust with sufficient funds to
purchase subsequent loans. The amount deposited in the pre-funding account, as
reduced from time-to-time called the pre-funded amount, will initially equal
the difference between $ and the aggregate principal balance as of the
cutoff date of the initial loans and additional loans. The pre-funding account
will be used to purchase subsequent loans during the period from the closing
date until the earliest of:
(1) the date on which the amount on deposit in the pre-funding account is
less than $10,000,
(2) , 1999 or
(3) the date on which an event of termination occurs under the sale and
servicing agreement, which is the pre-funding period.
The pre-funded amount will be reduced during the pre-funding period by the
amount used to purchase subsequent loans in accordance with the sale and
servicing agreement.
Under the sale and servicing agreement, following the initial issuance of the
securities, the trust will be obligated to purchase subsequent loans from us
during the pre-funding period, subject to the availability of subsequent loans.
Each subsequent loan will have been underwritten in accordance with our
standard underwriting criteria. Subsequent loans will be transferred to the
trust under subsequent transfer instruments between us and the trust. In
connection with the purchase of subsequent loans on such subsequent transfer
dates, the trust will be required to pay to us from amounts on deposit in the
pre-funding account a cash purchase price of 100% of the principal balance. We
will designate the subsequent
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transfer date as the cutoff date for the subsequent loans purchased on that
date. The amount paid from the pre-funding account on each subsequent transfer
date will not include accrued interest on the subsequent loans. Following each
subsequent transfer date, the aggregate principal balance of the subsequent
loans in the trust will increase by an amount equal to the aggregate principal
balance of the loans so purchased and the amount in the pre-funding account
will decrease accordingly. Any pre-funded amount remaining after the purchase
of subsequent loans will be applied on the first distribution date on or after
the last day of the pre-funding period to prepay principal on the Class A-1
Class A-2, Class A-3 and Class A-4 notes.
Any conveyance of subsequent loans on a subsequent transfer date is subject
to certain conditions including, but not limited to:
(1) each subsequent loan must satisfy the representations and warranties
specified in the subsequent transfer instrument and the sale and
servicing agreement;
(2) We will not select subsequent loans in a manner that it believes is
adverse to the interests of the securityholders;
(3) as of its respective cutoff date, each subsequent loan will satisfy
the following criteria:
. no subsequent loan may be more than 59 days contractually
delinquent;
. the remaining stated term to maturity of each subsequent loan will
not exceed 240 months;
. each subsequent loan will be underwritten in accordance with our
standard underwriting criteria; and
. no subsequent loan will have a loan-to-value ratio greater than
100%.
Distributions
On each distribution date, the servicer shall instruct the indenture trustee
to distribute from the collection account the amount available in the following
order of priority:
(1) if we or one of our affiliates is no longer the servicer, then to
the servicer, the servicing fee for the related monthly period.
(2) to the servicer, reimbursement for advances made for delinquent
payments that were recovered during the prior monthly period.
(3) to the note distribution account, the noteholders' distributable
amount and any amounts previously withdrawn from any sub-account of the
spread account or the reserve account and not previously replenished.
(4) to the certificate distribution account, the certificateholders'
interest distributable amount and, after the notes have been paid in full,
the certificateholders' principal distributable amount.
(5) to the indenture trustee for deposit in the spread account, to fund
the initial amounts required in the Class A-2, Class A-3 and Class A-4
sub-accounts.
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(6) to the indenture trustee for deposit in the reserve account, to fund
the initial amount required in the indenture.
(7) to us, the monthly servicing and guaranty fee.
On each distribution date, the indenture trustee will distribute all amounts on
deposit in the note distribution account in the following order of priority:
(1) to the Class A-1 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods;
(2) to the Class A-2 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and
principal for principal liquidation losses;
(3) to the Class A-2 sub-account of the spread account to the extent
amounts have previously been withdrawn from the Class A-2 sub-account to
pay interest on the Class A-2 notes and have not previously been
replenished;
(4) to the Class A-3 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and
principal for principal liquidation losses;
(5) to the Class A-3 sub-account of the spread account to the extent
amounts have previously been withdrawn from the Class A-3 sub-account to
pay interest on the Class A-3 notes and have not previously been
replenished;
(6) to the Class A-4 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and
principal for principal liquidation losses;
(7) to the Class A-4 sub-account of the spread account to the extent
amounts have previously been withdrawn from the Class A-4 sub-account to
pay interest on the Class A-4 notes and have not previously been
replenished; and
(8) to the reserve account to the extent amounts have previously been
withdrawn from the reserve account to pay interest or principal on any
class of notes and have not previously been replenished.
On each distribution date, the owner trustee or its paying agent will
distribute all amounts on deposit in the certificate distribution account to
the certificateholders.
Statements to Securityholders
On or before each distribution date, the servicer will prepare and provide to
the indenture trustee a statement to be delivered to the noteholders and to the
owner trustee a statement to be delivered to the certificateholders on the
distribution date. These statements will be based on the information in the
related servicer's certificate describing information required under the trust
documents. Each statement to be delivered to noteholders will include the
following information as to the notes, and each statement to be delivered to
certificateholders will include the following information as to the
certificates, for the distribution date or the period since the previous
distribution date, as applicable:
(1) the amount of the distribution allocable to interest on or for each
class of notes and to the certificates;
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(2) the amount of the distribution allocable to principal on or for each
class of notes and to the certificates;
(3) the aggregate outstanding principal balance and the note pool factor
for the notes and the certificate principal balance and the certificate
pool factor for the certificates after giving effect to all payments
reported under (2) above on that date;
(4) the noteholders' interest shortfall, the noteholders' principal
shortfall, the certificateholders' interest shortfall and the
certificateholders' principal shortfall, if any, and the change in these
amounts from the previous statement;
(5) the amount, if any, of principal liquidation losses, aggregate
unreimbursed principal liquidation losses since the closing date and the
amount of the distribution allocable to these losses for the notes and
certificates;
(6) the amount, if any, deposited or withdrawn from each sub-account of
the spread account and the amount on deposit in each sub-account of the
spread account after giving effect to all withdrawals and deposits on that
distribution date;
(7) the amount, if any, deposited or withdrawn from the reserve account
and the amount on deposit in the reserve account after giving effect to
all withdrawals and deposits on that distribution date;
(8) the amount, if any, of the interest rate cap payment and the
guaranty payment;
(9) the amount of the monthly servicing and guaranty fee paid to the
servicer;
(10) the number and aggregate principal balances of delinquent loans,
the number of products repossessed, and repossessed and remaining in
inventory, the number of foreclosures and the number of loans that became
liquidated loans for the immediately preceding monthly period; and
(11) the aggregate amount of servicer advances made by the servicer for
that distribution date, and the aggregate amount paid to the servicer as
reimbursement of servicer advances made on prior distribution dates.
Each amount shown under subclauses (1) through (6) for certificates or notes
will be expressed as a dollar amount per $1,000 of the initial principal amount
of the notes or the initial certificate principal balance, as applicable.
Unless and until definitive notes or definitive certificates are issued, the
reports will be sent on behalf of the trust to Cede & Co., as registered holder
of the notes and the certificates and the nominee of DTC. Note owners and
certificate owners may receive copies of these reports upon written request,
together with a certification that they are note owners or certificate owners,
as the case may be, and payment of any expenses for the distribution of the
reports, from the indenture trustee or owner trustee. See "Reports to
Securityholders" in this prospectus supplement and "Reports to Securityholders"
and "Certain Information Regarding the Securities" in the accompanying
prospectus.
Within the required period of time after the end of each calendar year, the
indenture trustee and the owner trustee, as applicable, will furnish to each
person who at any time during the calendar year was a noteholder or
certificateholder, a statement as to the
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aggregate amounts of interest and principal paid to that noteholder or
certificateholder, information regarding the amount of servicing compensation
received by the servicer and other information as Green Tree deems necessary to
enable that noteholder or certificateholder to prepare its tax returns. See
"Certain Federal Income Tax Consequences" in this prospectus supplement.
Administrator
Green Tree Financial Servicing Corporation, a Delaware corporation will be
the Administrator and will provide the notices and perform other administrative
obligations required by the indenture and the trust agreement. The
administrator, a subsidiary of us, will enter into an administration agreement
with the trust and the indenture trustee describing its duties and obligations
as administrator.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal and state income tax
consequences relating to the purchase, ownership, and disposition of the notes
and the certificates. The discussion is based upon the current provisions of
the Internal Revenue Code of 1986, the accompanying treasury regulations, and
judicial or ruling authority, all of which are subject to change, which change
may be retroactive. For additional information regarding federal and state
income tax consequences, see "Certain Federal Income Tax Consequences--Owner
Trust Series" and "Certain State Income Tax Consequences" in the prospectus.
Prospective investors should consult their own tax advisors to determine the
federal, state, local and other tax consequences of the purchase, ownership and
disposition of the notes and the certificates. Prospective investors should
note that no rulings have been or will be sought from the IRS with respect to
any of the federal income tax consequences discussed in this prospectus
supplement or in the accompanying prospectus, and no assurance can be given
that the IRS will not take contrary positions. Moreover, there are no cases or
IRS rulings on transactions similar to those described in this prospectus
supplement similar to the trust, involving both debt and equity interests
issued by a trust with terms similar to those of the notes and the
certificates.
In the opinion of [counsel to Green Tree], for federal and Minnesota income
tax purposes, the notes will be characterized as debt and the trust will not be
characterized as an association, or a publicly traded partnership, taxable as a
corporation and neither the trust nor any portion of the trust will constitute
a taxable mortgage pool taxable as a corporation. Each certificateholder, by
the acceptance of a certificate, agrees to treat the trust as a partnership in
which the certificateholders are partners for federal income tax purposes. The
notes will not be issued with original issue discount ("OID"). The Class A-1
notes provide for stated interest at a floating rate based on LIBOR. Under
treasury regulations, stated interest payable at a variable rate is not treated
as OID or contingent interest if the variable rate is a qualified floating rate
or a qualified objective rate. The stated interest on the Class
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A-1 notes represents interest payable at a qualified floating rate and will be
taxable to holders of such notes as interest and not as OID or contingent
interest. The Class A-2, Class A-3 and Class A-4 notes will not be issued with
OID or contingent interest because interest will be payable at a single fixed
rate at least annually.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended, and or Section 4975 of the IRS code, prohibit a pension, profit-
sharing or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans from engaging in certain transactions
with persons that are parties in interest under ERISA or disqualified persons
under the IRS code for that benefit plan. A violation of these prohibited
transaction rules may result in an excise tax or other penalties and
liabilities under ERISA and the IRS code for these persons. Title I of ERISA
also requires that fiduciaries of a benefit plan subject to ERISA make
investments that are prudent, diversified, except if prudent not to do so, and
in accordance with governing plan documents.
Some transactions involving the purchase, holding or transfer of the
securities might be deemed to constitute prohibited transactions under ERISA
and the IRS code if assets of the trust were deemed to be assets of a benefit
plan. Under a regulation issued by the United States Department of Labor (the
"Plan Assets Regulation"), the assets of the trust would be treated as plan
assets of a benefit plan for the purposes of ERISA and the IRS code only if the
benefit plan acquires an equity interest in the trust and none of the
exceptions contained in the Plan Assets Regulation is applicable. An equity
interest is defined under the Plan Assets Regulation as an interest other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. Green Tree believes that the notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. However, without regard to whether the
notes are treated as an equity interest for these purposes, the acquisition or
holding of notes by or on behalf of a benefit plan could be considered to give
rise to a prohibited transaction if the trust, the owner trustee or the
indenture trustee, the owner of collateral, or any of their affiliates is or
becomes a party in interest or a disqualified person for such benefit plan. In
such case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the plan fiduciary making
the decision to acquire a note. Included among these exemptions are:
. PTCE 90-1, regarding investments by insurance company pooled separate
accounts;
. PTCE 91-38 regarding investments by bank collective investment funds;
and
. PTCE 84-14, regarding transactions effected by qualified professional
asset managers.
The certificates may not be acquired by:
. an employee benefit plan (as defined in Section 3(3) of ERISA) that is
subject to the provisions of Title I of ERISA,
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. a plan described in Section 4975(e)(1) of the IRS code or
. any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity.
By its acceptance of a certificate, each certificateholder will be deemed to
have represented and warranted that it is not subject to the foregoing
limitation. In this regard, purchasers that are insurance companies should
consult with their counsel because of the United States Supreme Court case
interpreting the fiduciary responsibility rules of ERISA, John Hancock Mutual
Life Insurance Co. v. Harris Trust and Savings Bank (decided December 13,
1993). In John Hancock, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed to be plan assets for ERISA
purposes under some circumstances. Prospective purchasers should determine
whether the decision affects their ability to make purchases of the
certificates. In particular, an insurance company should consider the exemptive
relief granted by the Department of Labor for transactions involving insurance
company general accounts in Prohibited Transactions Exemption 95-60, 60 Fed.
Reg. 35925 (July 12, 1995). The Small Business Job Protection Act of 1996 (the
"1996 Act") became effective on August 20, 1996. The 1996 Act amends ERISA to
require the Department of Labor to issue regulations to clarify, retroactively,
the application of ERISA and the prohibited transaction provisions of the IRS
code to insurance company general accounts. For additional information
regarding treatment of the certificates under ERISA, see "ERISA Considerations"
in the prospectus.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and some church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. These plans may, however, be subject to
the provisions of other applicable federal and state laws, including, for any
governmental or church plan qualified under Section 401(a) of the IRS code and
exempt from taxation under Section 501(a) of the IRS code, the prohibited
transaction rules set forth in Section 503 of the IRS code.
A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
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UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from us the principal amounts of notes and
certificates set forth below:
<TABLE>
<CAPTION>
Class A-1: Class A-2 Class A-3 Class A-4
Notes Notes Notes Notes Certificates
----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
$ $ $ $ $
</TABLE>
The underwriting agreement provides that the underwriter is obligated to
purchase all of the notes and certificates offered in this prospectus
supplement, if any of such notes and certificates are purchased.
We have been advised by the underwriter that it proposes initially to offer
the notes and certificates to the public at the public offering prices shown on
the cover page of this prospectus supplement and to certain dealers at this
price less a concession not in excess of the amounts listed below (expressed as
a percentage).
The underwriters may allow and such dealers may reallow a discount not in
excess of the respective amounts listed in the table below to other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Commission Discount
----- ---------- -----------
<S> <C> <C>
A-1 notes......................................... % %
A-2 notes......................................... % %
A-3 notes......................................... % %
A-4 notes......................................... % %
Certificates...................................... % %
</TABLE>
The public offering price and the concession and discount to dealers may be
changed by the underwriter after the initial public offering of the notes and
certificates offered in this prospecuts supplement.
Until the distribution of the securities is completed, rules of the SEC may
limit the ability of the underwriter and some selling group members to bid for
and purchase the securities. As an exception to these rules, the underwriter is
permitted to engage in transactions that stabilize the price of the securities.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the securities. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be without these
purchases.
If the underwriter creates a short position in the securities in connection
with the offering, for example, if they sell more securities than are set forth
on the cover page of this prospectus supplement, the underwriter may reduce
that short position by purchasing securities in the open market.
Neither we nor the underwriter make any representations or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the
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prices of the securities. In addition, neither we nor the underwriter make any
representation that the underwriter will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.
The notes have not been and will not be registered under the Securities and
Exchange Law of Japan (the "Securities and Exchange Law") and the underwriter
has agreed that it will not offer or sell any of the notes, directly or
indirectly, in Japan or to, or for the benefit of, any resident of Japan (which
term as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan), except under an
exemption from the registration requirements of, and otherwise in compliance
with, the Securities and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
Green Tree has agreed to indemnify the underwriter against certain
liabilities, including liabilities under the Securities Act of 1933.
We do not intend to apply for listing of the notes and certificates on a
national securities exchange, but has been advised by the underwriter that the
underwriter currently intends to make a market in the securities, as permitted
by applicable laws and regulations. The underwriter is not obligated, however,
to make a market in the securities and any such market may be discontinued at
any time at the sole discretion of the underwriter. Accordingly, no assurance
can be given as to the liquidity of, or trading markets for, the securities.
LEGAL MATTERS
The legality of the notes and certificates and consequences of the federal
and Minnesota income tax matters discussed under "Certain Federal and State
Income Tax Consequences" will be passed upon for Green Tree by
, Minnesota. The validity of the notes and certificates
will be passed upon for the underwriter by , New York, New York.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the notes will be available only in
book-entry form which are called global notes. Investors in the global notes
may hold them through any of DTC, CEDEL or Euroclear. The global notes will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding global notes through CEDEL
and Euroclear will be conducted in the ordinary way in accordance with their
normal rules and operating procedures and according to conventional eurobond
practice (for example, seven calendar day settlement).
Secondary market trading between investors holding global notes through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding notes will be effected on a delivery-against-payment basis
through the Depositaries of CEDEL and Euroclear and DTC Participants.
Non-U.S. holders of global notes will be subject to U.S. withholding taxes
unless the holders meet certain requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
Initial Settlement
All global notes will be held in book-entry form by DTC in the name of Cede &
Co. as nominee of DTC. Investors' interests in the global notes will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
Participants.
If you elect to hold your global notes through DTC, you will need to follow
the settlement practices applicable to United States corporate debt
obligations. Investors securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
If you elect to hold your global notes through CEDEL or Euroclear accounts,
you will need to follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no lock-
up or restricted period. global notes will be credited to the securities
custody accounts on the settlement date against payments in same-day funds.
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<PAGE>
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to be sure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market trading
between CEDEL participants or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
notes are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its depositary to receive the global
notes against payment. Payment will include interest accrued on the global
notes from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by such depositary to the DTC
participant's account against delivery of the global notes. After settlement
has been completed, the global notes will be credited to the applicable
clearing system and by the clearing system, in accordance with its usual
procedures, to the CEDEL participant's or Euroclear participant's account. The
global notes credit will appear the next day, European time, and the cash debit
will be back-valued to, and the interest on the global notes will accrue from,
the value date, which would be the preceding day when settlement occurred in
New York. If settlement is not completed on the intended value date, the CEDEL
or Euroclear cash debit will be valued instead as of the actual settlement
date.
CEDEL participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global notes would incur overdraft charges for one day, assuming
they cleared the overdraft when the global notes were credited to their
accounts. However, interest on the global notes would accrue from the value
date. Therefore, in many cases the investment income on the global notes earned
during that one-day period may
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<PAGE>
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each CEDEL participant's or Euroclear participant's
particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global notes to the
respective depositary for the benefit of CEDEL participants or euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time zone
differences in their favor, CEDEL participants and Euroclear participants may
employ their customary procedures for transactions in which global notes are to
be transferred by the respective clearing systems, through their respective
depositaries, to a DTC participant. The seller will send instructions to CEDEL
or Euroclear through a CEDEL participant or Euroclear participant at least one
business day prior to settlement. In these cases, CEDEL or Euroclear will
instruct their respective depositaries, as appropriate, to deliver the notes to
the DTC participant's account against payment. Payment will include interest
accrued on the global notes from and including the last coupon payment date to
and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL participant or Euroclear participant the following day,
and receipt of the cash proceeds in the CEDEL participant's or Euroclear
participant's account would be back-valued to the value date (which would be
the preceding day, when settlement occurred in New York). Should the CEDEL
participant or Euroclear participant have a line of credit with its clearing
system and elect to be in debit in anticipation of receipt of the sale proceeds
in its account, the bank-valuation will extinguish any overdraft charges
incurred over that one-day period. If settlement is not completed on the
intended value date (for example, the trade fails), receipt of the cash
proceeds in the CEDEL participant's or Euroclear participant's account would
instead be valued as of the actual settlement date. Finally, day traders that
use CEDEL or Euroclear and that purchase global notes from DTC participants for
delivery to CEDEL participants or Euroclear participants should note that these
trades would automatically fail on the sale side unless affirmative action were
taken. At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through CEDEL or Euroclear for one day until the purchase
side of the day trade is reflected in their CEDEL or Euroclear
accounts in accordance with the clearing system's customary
procedures;
(b) borrowing the global notes in the U.S. from a DTC participant no later
than one day prior to settlement, which would give the global notes
sufficient time to be reflected in their CEDEL or Euroclear account in
order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the CEDEL
participant or Euroclear participant.
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<PAGE>
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global notes holding securities through CEDEL or
Euroclear, or through DTC if the holder has an address outside the U.S., will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest, including original issue discount, on registered debt issued by
U.S. Persons, unless:
(1) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable
certification requirements and
(2) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of notes
that are non-U.S. Persons generally can obtain a complete exemption from
the withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status) and a certificate under penalties of perjury (the "Tax
Certificate") that such beneficial owner is:
. not a controlled foreign corporation (within the meaning of Section
957(a) of the Code) that is related (within the meaning of Section
864(d)(4) of the IRS code) to the trust or the transferor and
. not a 10 percent shareholder (within the meaning of Section
871(h)(3)(B) of the IRS code) of the trust or the transferor. If the
information shown on Form W-8 or the Tax Certificate changes, a new
Form W-8 or Tax Certificate, as the case may be, must be filed
within 30 days of such change.
Exemption for non-U.S. Person with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners of
notes residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate, depending on the treaty
terms, by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of Notes or such
owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global security or, in the case of a Form 1001 or a Form 4224 filer, the
owner's agent, files by
A-4
<PAGE>
submitting the appropriate form to the person through whom it holds the
security, the clearing agency, in the case of persons holding directly on
the books of the clearing agency. Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
A U.S. person is:
(1) a citizen or resident of the United States,
(2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, or
(3) an estate or trust the income of which is includible in gross income
for United States tax purposes, regardless of its source.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the global notes.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Notes.
A-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Base Prospectus No. 2
High-LTV Home Equity Loans--Owner Trust
Green Tree Financial Corporation, Seller and Servicer
Home Equity Trusts
(Issuable In Series)
We are offering loan-backed notes and loan-backed certificates for home
equity loans under this prospectus and a prospectus supplement. The prospectus
supplement will be prepared separately for each series of securities offered.
Green Tree Financial Corporation will form a trust for each series, and the
trust will issue the securities of that series. The securities of any series
may comprise several different classes. A trust may also issue one or more
other interests in the trust that will not be offered under this prospectus.
The right of each class of securities within a series to receive payments may
be senior or subordinate to the rights of one or more of the other classes of
securities. In addition, a series of securities may include one or more classes
which on the one hand are subordinated to one or more classes of securities,
while on the other hand are senior to one or more classes of securities. The
rate of principal and interest payment on the securities of any class will
depend on the priority of payment of that class and the rate and timing of
payments of the related home equity loans.
-----------
The securities will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
This prospectus may not be used to consummate sales of any securities unless
accompanied by the prospectus supplement relating to that series.
Prospectus dated , 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the securities in two separate documents that progressively
provide more detail:
(a) this prospectus, which provides general information, some of which may
not apply to a particular series of securities, including your series;
and
(b) the prospectus supplement for the particular terms of your series of
securities.
If the terms of your securities varies between this prospectus and the
prospectus supplement, you should rely on the information in your prospectus
supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
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<PAGE>
To understand all the terms of the securities, read this entire prospectus
and the accompanying prospectus supplement. We have also defined terms in the
glossary section at the back of this prospectus.
THE TRUSTS
For each series of securities, will establish a trust under the trust
documents. Before the sale and assignment of the loans under the trust
documents, the trust will have no assets or obligations. The trust will not
engage in any business activity other than:
. acquiring and holding the trust property,
. issuing the notes and the certificates, if any, of the series and
. distributing payments thereon.
Each note will represent an obligation of, and each certificate, if any, will
represent a fractional undivided interest in, the trust. The trust property of
each trust will include, among other things,
. a loan pool,
. such amounts as from time to time may be held in the collection
account, including all investments in the collection account and all
income and proceeds from the investment of funds in the collection
account, and specific other accounts, including the proceeds of those
accounts,
. 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 securities,
. specific other rights under the trust documents and
. specific other property as may be specified in the prospectus
supplement.
See "The Loans" and "Description of the Trust Documents--Collections." The
trust property will also include, if we specify in the prospectus supplement,
monies on deposit in a pre-funding account to be established with the indenture
trustee or the trustee, which will be used to purchase subsequent loans from us
from time to time (and as frequently as daily) during the pre-funding period we
specify in the prospectus supplement. Any subsequent loans so purchased will be
included in the loan pool forming part of the trust property, subject to the
prior rights of the indenture trustee and the noteholders.
In addition, if we specify in the prospectus supplement, a form of credit
enhancement may be issued to or held by the trustee or the indenture trustee
for the benefit of holders of one or more classes of securities. Holders of
securities of a series will have interests only in that loan pool and will have
no interest in the loan pool created for any other series of securities, except
with respect to FHA insurance reserves.
Except as we specify otherwise in the prospectus supplement, all of the loans
will have been originated by us in the ordinary course of its business.
Specific information for the loans included in each trust will be provided in
the prospectus supplement and, if not
3
<PAGE>
contained in the prospectus supplement, in a report on Form 8-K to be filed
with the SEC within fifteen days after the initial issuance of the securities.
A copy of the sale and servicing agreement for each series of securities will
be attached to the Form 8-K and will be available for inspection at the
corporate trust office of the trustee we specify in the prospectus supplement.
A schedule of the loans relating to those series will be attached to the sale
and servicing agreement delivered to the trustee upon delivery of the
securities.
The Loan Pools
Except as we specify otherwise in the prospectus supplement, the loan pool
will consist of closed-end home equity loans, which we refer to in this
prospectus as the loans, originated by us on an individual basis in the
ordinary course of business. All loans will be secured by an interest in the
real estate. Except as we specify otherwise in the prospectus supplement, the
loans will be fully amortizing and will bear interest at a fixed or variable
annual percentage rate, which we refer to in this prospectus as the loan rate.
For each series of securities, we will assign the loans constituting the loan
pool to the trustee named in the prospectus supplement. We, as servicer will
service the loans under the sale and servicing agreement. See "Description of
the Trust Documents--Servicing." Unless we specify otherwise in the prospectus
supplement, the loan documents will be held by the trustee or a custodian on
its behalf.
The prospectus supplement will specify for the loans contained in the loan
pool, among other things:
. the range of the dates of origination of the loans;
. the range of the loan rates and the weighted average loan rate;
. the minimum and maximum outstanding principal balances and the average
outstanding principal balance as of the cut-off date;
. the aggregate principal balance of the loans included in the loan 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 range of original maturities of the loans and the last maturity
date of any loan; and
. the geographic location of improved real estate securing the loans.
If the trust includes a pre-funding account, the prospectus supplement will
specify the conditions that must be satisfied prior to any transfer of
subsequent loans, including the requisite characteristics of the subsequent
loans.
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material
4
<PAGE>
respects of some information furnished to the trustee for each such loan. Upon
a breach of any representation or warranty that materially and adversely
affects the interests of the securityholders in a loan, we will be obligated to
cure the breach in all material respects, or to repurchase or substitute for
the loan as described below. This repurchase obligation constitutes the sole
remedy available to the securityholders or the trustee for a breach of
representation or warranty by Green Tree. See "Description of the Trust
Documents--Sale and Assignment of the Loans."
The Trustee
We will specify the trustee for each trust in the accompanying prospectus
supplement. The trustee's liability in connection with the issuance and sale of
the securities of the series will be limited solely to the express obligations
of the trustee described in the trust documents. A trustee may resign at any
time, in which event the general partner will be obligated to appoint a
successor trustee. The general partner may also remove the trustee if the
trustee ceases to be eligible to continue as trustee under the trust documents
or if the trustee becomes insolvent. In such circumstances, the general partner
will be obligated to appoint a successor trustee. Any resignation or removal of
a trustee and appointment of a successor trustee will be subject to any
conditions or approvals we specify in the accompanying prospectus supplement
and will not become effective until acceptance of the appointment by the
successor trustee.
GREEN TREE FINANCIAL CORPORATION
General
Green Tree is a Delaware corporation that, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Through its various
divisions, we purchase, pool, sell and service retail conditional sales loans
for manufactured housing and retail installment sales loans, as well as home
equity loans. We are the largest servicer of government-insured manufactured
housing loans and conventional manufactured housing loans in the United States.
Servicing functions are performed through Green Tree Financial Servicing
Corporation, our wholly owned subsidiary. Through our principal offices in St.
Paul, Minnesota, and service centers throughout the United States, we serve all
50 states. We also purchase, pool and service installment sales loans for
various consumer products. Our principal executive offices are located at 1100
Landmark Towers, St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Our
annual report and, when available, subsequent quarterly and annual reports are
available from us upon written request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information.
5
<PAGE>
We are incorporating by reference the following documents into this
prospectus and the prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10-K for the
year ended December 31, 1998.
. Green Tree Financial Corporation's quarterly report on Form 10-Q for
the quarter ended March 31, 1999.
All documents filed by the servicer, on behalf of any trust, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this prospectus and before the termination of the offering of the
securities issued by that trust, will be incorporated by reference into this
prospectus.
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by reference) and other information. You can read
and copy these documents at the public reference facility maintained by the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. You can also read and copy these reports and other information at the
following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
1400
New York, NY 10048
Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
We will provide you, upon your written or oral request, a copy of any or all
of the documents incorporated by reference in this prospectus, exhibits to
those documents. Please direct your requests for copies to John Dolphin, Vice
President and Director of Investor Relations, 1100 Landmark Towers, 345 St.
Peter Street, St. Paul, Minnesota 55102-1639, telephone number (651) 293-3400.
Loan Origination
We have originated closed-end home equity loans since January 1996. As of
December 31, 1998, we had approximately $7,302,696,406 aggregate principal
amount of outstanding closed-end home equity loans.
Through a system of regional offices, we market our home equity lending
directly to consumers using a variety of marketing techniques. We also review
and re-underwrite loan applications forwarded by correspondent lenders.
Our credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less or more favorable equity position, the
creditworthiness of the borrower must be stronger, or may be
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<PAGE>
weaker. The loan-to-value ratio of the requested loan, combined with any
existing loans with a senior lien position, may not exceed 95% without senior
management approval. In most circumstances, an appraisal of the property is
required. Currently, loans secured by a first mortgage with an obligor having a
superior credit rating may not exceed $300,000 without senior management
approval, and loans secured by a second mortgage with an obligor having a
superior credit rating may not exceed $250,000 without senior management
approval.
Loss and Delinquency Information
Each prospectus supplement will include our loss and delinquency experience
for its entire servicing portfolio of home equity loans. However, we cannot
assure you that such experience will be indicative of the performance of the
loans included in a particular loan pool.
Ratio of Earnings to Fixed Charges for Green Tree
Shown below are our ratios of earnings to fixed charges for the past five
years and the three months ended March 31, 1999. For the purposes of compiling
these ratios, earnings (losses) consist of earnings (losses) before income
taxes plus fixed charges. Fixed charges consist of interest expense and the
interest portion of rent expense.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
------------------------ ------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges............................... 7.98 7.90 5.44 3.94 .62* 4.53
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to our merger with
Conseco, Inc.
YIELD CONSIDERATIONS
The interest rates, pass-through rates and the weighted average loan rate of
the loans as of the cut-off date for each series of securities will be listed
in the prospectus supplement.
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 securities 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 class of
securities that is offered at a premium to its principal amount or without any
principal amount.
The yield on some types of securities which we may offer, such as stripped
notes, interest only certificates, principal only certificates and fast
pay/slow pay certificates, may be particularly sensitive to prepayment rates,
and to changes in prepayment rates, on the underlying loans. We will state in
the prospectus supplement if the yield on some types of securities which we may
offer could change and may be negative under some prepayment
7
<PAGE>
rate scenarios. Accordingly, some types of securities may not be legal or
appropriate investments for certain financial institutions, pension funds or
others. See "ERISA Considerations" and "Legal Investment Considerations in
this prospectus and in the prospectus supplement." In addition, the timing of
changes in the rate of prepayment on the loans included in a loan 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 loans occur, the
greater the effect on the investor's yield to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless we describe otherwise in the prospectus supplement, all of the loans
will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. We have
no significant experience with the rate of principal prepayments on home
equity loans. Because the loans have scheduled due dates throughout the
calendar month, and because, unless we specify otherwise in the prospectus
supplement, all principal prepayments will be passed through to
securityholders of the series on the payment date following the due period in
which the principal prepayment occurred, prepayments on the loans would affect
the amount of funds available to make distributions on the securities on any
payment date only if a substantial portion of the loans prepaid before their
respective due dates in a particular month, thus paying less than 30 days'
interest for that due period, while very few loans prepaid after their
respective due dates in that month. In addition, liquidations of defaulted
loans or the servicer's or our exercise of our option to repurchase the entire
remaining pool of loans will affect the timing of principal distributions on
the
securities of a series. See "Description of the Trust Documents and Indenture--
Distribution" in the accompanying prospectus supplement.
Information regarding the prepayment standard or model or any other rate of
assumed prepayment, as applicable, will be described in the prospectus
supplement for a series of securities. Although we will specify in the
prospectus supplement the prepayment assumptions used to price any series of
securities, we cannot assure you that the loans will prepay at that rate, and
it is unlikely that prepayments or liquidations of the loans will occur at any
constant rate.
See "Description of the Trust Documents and Indenture" for a description of
our or the servicer's option to repurchase the loans comprising part of a
trust when the aggregate principal balance of such loans as of the cut-off
date is less than a specified percentage of the cut-off date principal balance
of such loans. See also "The Trusts--The Loan Pools" in this prospectus for a
description of our obligations to repurchase a loan in case of a breach of a
representation or warranty relative to such loan.
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<PAGE>
POOL FACTOR
The certificate pool factor for each class of certificates will be an eight-
digit decimal which the servicer will compute indicating the outstanding
balance, called the certificate balance, for the certificates as of each
distribution date as a fraction of the original certificate balance of the
certificates. The note pool factor for each class of notes, if any, will be an
eight-digit decimal which the servicer will compute indicating the remaining
outstanding principal balance for the notes as of each distribution date as a
fraction of the initial outstanding principal balance of that class of notes.
Each certificate pool factor and each note pool factor will initially be
1.00000000; after that, the certificate pool factor and the note pool factor
will decline to reflect reductions in the certificate balance of the applicable
class of certificates or reductions in the outstanding principal balance of the
applicable class of notes, as the case may be. The amount of a
certificateholder's pro rata share of the certificate balance for the
applicable class of certificates can be determined by multiplying the original
denomination of the certificateholder's certificate by the then applicable
certificate pool factor. The amount of a noteholder's pro rata share of the
aggregate outstanding principal balance of the applicable class of notes can be
determined by multiplying the original denomination of these noteholder's note
by the then applicable note pool factor.
For each trust and under the applicable trust documents, on each distribution
date or payment date, as the case may be, the certificateholders and
noteholders will receive periodic reports from the trustee stating the
certificate pool factor or the note pool factor, as the case may be, and
containing various other items of information. Unless and until definitive
certificates or definitive notes are issued, the reports will be sent on behalf
of the trust to the trustee and the indenture trustee and Cede & Co., as
registered holder of the certificates and the notes and the nominee of DTC.
Certificate owners and note owners may receive these reports, upon written
request, together with a certification that they are certificate owners or note
owners and payment of any expenses associated with the distribution of reports,
from the trustee and the indenture trustee at the addresses we specify in the
prospectus supplement. See "Certain Information Regarding the Securities--
Statements to Securityholders."
USE OF PROCEEDS
Unless we specify otherwise in the prospectus supplement, the net proceeds to
be received by the trust from the sale of each series of securities will be
used:
. to pay to us the purchase price for the loans and to make the deposit
of the pre-funded amount into the pre-funding account, if any,
. to repay warehouse lenders and/or
. to provide for other forms of credit enhancement specified in the
prospectus supplement.
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The net proceeds to be received by us will be used for:
. its general corporate purposes, including the origination or
acquisition of additional home equity loans,
. costs of carrying the loans until sale of the related certificates and
. to pay other expenses connected with pooling the loans and issuing the
securities.
THE NOTES
General
For each series of securities, one or more classes of notes will be issued
under the terms of an indenture, a form of which has been filed as an exhibit
to the registration statement of which this prospectus forms a part. Unless we
specify otherwise in the accompanying prospectus supplement, no notes will be
issued as a part of any series. The following summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the notes and the indenture, and the following summary
will be supplemented in whole or in part by the prospectus supplement. Where
particular provisions of or terms used in the indenture are referred to, the
actual provisions (including definition of terms) are incorporated by reference
as part of this summary.
Unless we specify otherwise in the accompanying prospectus supplement, each
class of notes will initially be represented by a single note registered in the
name of the nominee of the depository. See "Certain Information Regarding the
Securities--Book-Entry Registration." Unless we specify otherwise in the
prospectus supplement, notes will be available for purchase in denominations of
$1,000 and integral multiples of $1,000. Notes may be transferred or exchanged
without the payment of any service charge other than any tax or governmental
charge payable in connection with such transfer or exchange. Unless we provide
otherwise in the accompanying prospectus supplement, the indenture trustee will
initially be designated as the registrar for the notes.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, interest
rate and amount of or method of determining payments of principal and interest
on the notes will be described in the prospectus supplement. The right of
holders of any class of notes to receive payments of principal and interest may
be senior or subordinate to the rights of holders of any class or classes of
notes of such series, or any class of certificates, as described in the
prospectus supplement. Unless we provide otherwise in the prospectus
supplement, payments of interest on the notes will be made before payments of
principal thereon. A series may include one or more classes of stripped notes
entitled to (1) principal payments with disproportionate, nominal or no
interest payment, or (2) interest payments with disproportionate, nominal or no
principal payments. Each class of notes may have a different interest rate,
which may be a fixed, variable or adjustable interest rate, and which may be
zero for certain classes of stripped notes, or any combination of these. The
prospectus supplement will specify the interest rate for each class of notes,
or the initial interest rate and the method for determining the interest rate.
One or more classes of notes of a series may be redeemable under the
circumstances we specify in the prospectus supplement.
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<PAGE>
Unless we specify otherwise in the accompanying prospectus supplement,
payments of interest to noteholders of all classes within a series will have
the same priority. Under some circumstances, the amount available for payments
could be less than the amount of interest payable on the notes on any of the
dates we specify for payments in the prospectus supplement, which is called a
payment date, in which case each class of noteholders will receive their
ratable share, based upon the aggregate amount of interest due to such class of
noteholders of the aggregate amount available to be distributed in respect of
interest on the notes.
In the case of a series of securities that includes two or more classes of
notes, the timing, sequential order and priority of payment of principal and
interest, and any schedule or formula or other provisions applicable to the
determination, of each class will be shown in the prospectus supplement. Unless
we specify otherwise in the prospectus supplement, payments of principal and
interest of any class of notes will be made on a pro rata basis among all of
the notes of such class.
The Indenture
A form of indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part. We will provide a copy of the
applicable indenture, without exhibits, upon request to a holder of notes
issued under the indenture.
Modification of Indenture Without Noteholder Consent. Each trust and
applicable indenture trustee on behalf of the trust may, without consent of the
noteholders, enter into one or more supplemental indentures for any of the
following purposes:
(1) to correct or amplify the description of the collateral or add
additional collateral;
(2) to provide for the assumption of the note and the indenture
obligations by a permitted successor to the trust;
(3) to add additional covenants for the benefit of the noteholders;
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(5) to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture;
(6) to provide for the acceptance of the appointment of a successor
indenture trustee or to add to or change any of the provisions of the
indenture or any supplemental indenture which may be inconsistent with
any other provision of the indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee;
(7) to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939; and
(8) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the indenture or modify in any manner the rights of
noteholders under the indenture; provided that any action described in
this clause (8) shall not, as
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<PAGE>
evidenced by an opinion of counsel, adversely affect in any material
respect the interests of any applicable noteholder unless the
noteholder's consent is otherwise obtained as described in the
paragraphs below.
Modifications of Indenture With Noteholder Consent. For each trust, with the
consent of the holders representing a majority of the principal balance of the
outstanding applicable notes, the owner trustee and the indenture trustee may
execute a supplemental indenture to add provisions, to change in any manner or
eliminate any provisions of, the indenture, or modify in any manner the rights
of the noteholders.
However, without the consent of the holder of each outstanding note
affected, no supplemental indenture may:
(1) change the due date of any installment of principal of or interest on
any note or reduce the principal amount, the interest rate we specify
or the redemption price or change the manner of calculating any
payment, any place of payment where, or the coin or currency in which
any note or any interest is payable;
(2) impair the right to institute suit for the enforcement of certain
provisions of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding notes
the consent of the holders of which is required for any such
supplemental indenture or the consent of the holders of which is
required for any waiver of compliance with provisions of the indenture
or of defaults described in the indenture and their consequences as
provided for in the indenture;
(4) modify or alter the provisions of the indenture regarding the voting
of notes held by the trust, any other obligor on the notes, us or an
affiliate of any of them;
(5) reduce the percentage of the aggregate outstanding amount of the
notes which requires the consent of the holders to direct the
indenture trustee to sell or liquidate the loans if the proceeds of
the sale would be insufficient to pay the principal amount and
accrued but unpaid interest on the outstanding notes;
(6) decrease the percentage of the aggregate principal amount of the
notes required to amend the sections of the indenture which specify
the applicable percentage of aggregate principal amount of the notes
necessary to amend the indenture or specific other related
agreements; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture for any of the collateral for the notes or,
except as otherwise permitted or contemplated in the indenture,
terminate the lien of the indenture on any applicable collateral or
deprive the holder of any note of the security afforded by the lien
of the indenture.
Events of Default; Rights Upon Event of Default. For each trust, unless we
specify otherwise in the prospectus supplement, events of default under the
indenture will consist of:
(1) a default for five days or more in the payment of any interest on any
note;
(2) a default in the payment of the principal of or any installment of
the principal of any note when the same becomes due and payable;
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(3) a default in the observance or performance in any material way of any
covenant or agreement of the trust made in the indenture, or any
representation or warranty made by the trust in the indenture or in
any certificate delivered under or in connection with having been
incorrect as of the time made, and the continuation of any such
default or the failure to cure such breach of a representation or
warranty for a period of 30 days after notice is given to the trust
by the indenture trustee or to the trust and the indenture trustee by
the holders of at least 25% in principal amount of the notes then
outstanding; or
(4) some events of bankruptcy, insolvency, receivership or liquidation of
the trust.
However, the amount of principal due and payable on any class of notes on any
payment date, before the final scheduled payment date, if any, for the class
will generally be determined by amounts available to be deposited in the note
distribution account for the payment date.
Therefore, unless we specify otherwise in the prospectus supplement, the
failure to pay principal on a class of notes generally will not result in the
occurrence of an event of default unless such class of notes has a final
scheduled payment date, and then not until such final scheduled payment date
for such class of notes.
Unless we specify otherwise in the prospectus supplement, if an event of
default should occur and be continuing for the notes of any series, the
applicable indenture trustee or a note majority may declare the principal of
the notes to be immediately due and payable. The declaration may, under certain
circumstances, be rescinded by a note majority.
Unless we specify otherwise in the prospectus supplement, if the notes of any
series have been declared due and payable following an event of default, the
applicable indenture trustee may institute proceedings to collect amounts due
or foreclose on trust property, exercise remedies as a secured party, sell the
applicable loans or elect to have the trust maintain possession of the loans
and continue to apply collections on the loans as if there had been no
declaration of acceleration. Unless we specify otherwise in the prospectus
supplement, the indenture trustee, however, will be prohibited from selling the
loans following an event of default, unless
. the holders of all the outstanding applicable notes consent to the
sale;
. the proceeds of the sale are sufficient to pay in full the principal
of and the accrued interest on the outstanding notes at the date of
the sale; or
. the indenture trustee determines that the proceeds of the loans would
not be sufficient on an ongoing basis to make all payments on the
notes when the payments would have become due if the obligations had
not been declared due and payable, and
. the indenture trustee obtains the consent of the holders of 66 2/3% of
the aggregate outstanding amount of the notes.
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Unless we specify otherwise in the prospectus supplement, following a
declaration upon an event of default that the notes are immediately due and
payable,
. note owners will be entitled to ratable repayment of principal on the
basis of their respective unpaid principal balances and
. repayment in full of the accrued interest on and unpaid principal
balances of the notes will be made before any further payment of
interest or principal on the certificates.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing for a series
of notes, the indenture trustee will be under no obligation to exercise any of
the rights or powers under the indenture at the request or direction of any of
the holders of such notes, if the indenture trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities which
might be incurred by it in complying with a request. Subject to the provisions
for indemnification and certain limitations contained in the indenture, a note
majority in a series will have the right to direct the time, method and place
of conducting any proceeding or any remedy available to the indenture trustee,
and a note majority may, in certain cases, waive any default, except a default
in the payment of principal or interest or a default for a covenant or
provision of the indenture that cannot be modified without the waiver or
consent of all of the holders of the outstanding notes.
No holder of a note of any series will have the right to institute any
proceeding under the indenture, unless:
. that holder previously has given to the indenture trustee written
notice of a continuing event of default,
. the holders of not less than 25% in principal amount of the
outstanding notes of that series have made written request of the
indenture trustee to institute such proceeding in its own name as
indenture trustee,
. the holder or holders have offered the indenture trustee reasonable
indemnity,
. the indenture trustee has for 60 days failed to institute a
proceeding, and
. no direction inconsistent with a written request has been given to the
indenture trustee during such 60-day period by the holders of a
majority in principal amount of the outstanding notes.
If an event of default occurs and is continuing and if it is known to the
indenture trustee, the indenture trustee will mail to each noteholder notice of
the event of default within 90 days after it occurs. Except in the case of a
failure to pay principal of or interest on any note, the indenture trustee may
withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the noteholders.
In addition, each indenture trustee and the noteholders, by accepting the
notes, will covenant that they will not at any time institute against the
seller or the trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
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Neither the indenture trustee nor the trustee in its individual capacity, nor
any holder of a certificate including, without limitation, Green Tree, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of the notes or
for any agreement or covenant of the trust contained in the indenture.
Covenants. Each indenture will provide that the trust may not consolidate
with or merge into any other entity, unless
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state,
(2) such entity expressly assumes the trust's obligation to make due and
punctual payments upon the notes and the performance or observance of
every agreement and covenant of the trust under the indenture,
(3) no event of default shall have occurred and be continuing immediately
after such merger or consolidation,
(4) the trustee has been advised that the then current rating of the
applicable notes or certificates then in effect would not be reduced
or withdrawn by the rating agencies as a result of such merger or
consolidation,
(5) the trustee has received an opinion of counsel stating that such
consolidation or merger would have no material adverse tax
consequence to the trust or to any note owner or certificate owner.
Each trust will not, among other things,
(1) except as expressly permitted by the indenture, the trust documents
or related documents for such trust, sell, transfer, exchange or
otherwise dispose of any of the assets of the trust,
(2) claim any credit on or make any deduction from the principal and
interest payable on the notes, other than amounts withheld under the
IRS code or applicable state law, or assert any claim against any
present or former holder of the notes because of the payment of taxes
levied or assessed upon the trust,
(3) dissolve or liquidate in whole or in part,
(4) permit the validity or effectiveness of the indenture to be impaired
or permit any person to be released from any covenants or obligations
for the notes under the indenture except as may be expressly
permitted under the indenture, or
(5) except as expressly permitted by the related documents, permit any
lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or burden the assets of the trust or any
part of the trust.
No trust may engage in any activity other than as we specify under the
section of the prospectus supplement entitled "The Trust." No trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred under the
notes and the indenture or otherwise in accordance with the related documents.
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Annual Compliance Statement. Each trust will be required to file annually
with the indenture trustee a written statement as to the fulfillment of its
obligations under the indenture.
Indenture Trustee's Annual Report. The indenture trustee will be required to
mail each year to all noteholders a brief report relating to its eligibility
and qualification to continue as indenture trustee under the indenture, any
amounts advanced by it under the indenture, the amount, interest rate and
maturity date of certain indebtedness owing by the trust to the indenture
trustee in its individual capacity, the property and funds physically held by
the indenture trustee as such and any action taken by it that materially
affects the notes and that has not been previously reported. Note owners may
receive the reports upon written request, together with a certification that
they are note owners and payment of reproduction and postage expenses
associated with the distribution of such reports, from the indenture trustee at
the address specified in the prospectus supplement.
Satisfaction and Discharge of Indenture. The indenture will be discharged for
the collateral securing the notes upon the delivery to the indenture trustee
for cancellation of all the notes or, with certain limitations, upon deposit
with the indenture trustee of funds sufficient for the payment in full of all
of the notes.
The Indenture Trustee
The indenture trustee for a series of notes will be specified in the
prospectus supplement. The indenture trustee may resign at any time, in which
event the seller will be obligated to appoint a successor trustee. We may also
remove the indenture trustee if the indenture trustee ceases to be eligible to
continue as trustee under the indenture or if the indenture trustee becomes
insolvent. In these circumstances, we will be obligated to appoint a successor
trustee. Any resignation or removal of the indenture trustee and appointment of
a successor trustee will be subject to any conditions or approvals, if any,
specified in the prospectus supplement and will not become effective until
acceptance of the appointment by a successor trustee.
THE CERTIFICATES
General
A series of securities may include one or more classes of certificates issued
under the trust documents to be entered into between us, as seller and as
servicer, and the trustee, forms of which have been filed as exhibits to the
registration statement of which this prospectus forms a part. The following
summary does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all of the material provisions of the trust
documents. Where particular provisions of or terms used in the trust documents
are referred to, the actual provisions are incorporated by reference as part of
this summary.
If the certificates of a series are issued in more than one class, the
certificates of all or less than all of such classes may be sold under this
prospectus, and there may be separate
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prospectus supplements relating to one or more of such classes so sold. Any
reference in this prospectus 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 under this prospectus.
Any reference in this prospectus 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 subclasses of such class.
Unless we specify otherwise in the prospectus supplement, each class of
certificates will initially be represented by a single certificate registered
in the name of the nominee of DTC together with any successor depository
selected by us. See "Certain Information Regarding the Securities--Book-Entry
Registration." Unless we specify otherwise in the prospectus supplement, the
certificates evidencing interests in a trust will be available for purchase in
denominations of $1,000 initial principal amount and integral multiples of
$1,000, except that one certificate evidencing an interest in such trust may be
issued in a denomination that is less than $1,000 initial principal amount.
Certificates may be transferred or exchanged without the payment of any service
charge other than any tax or governmental charge payable in connection with the
transfer or exchange. Unless we specify otherwise in the prospectus supplement,
the trustee will initially be designated as the registrar for the certificates.
Distributions of Interest and Principal
The timing and priority of distributions, seniority, allocations of loss,
pass-through rate and amount of or method of determining distributions with
respect to principal and interest, or, where applicable, for principal only or
interest only, on the certificates of any series will be described in the
prospectus supplement. Distributions of interest on the certificates will be
made on the dates we specify in the prospectus supplement, which will be called
a distribution date and, unless we specify otherwise in the prospectus
supplement, will be made before distributions for principal. A series may
include one or more classes of certificates called subordinated certificates
which are subordinated in right of distribution to one or more other classes of
certificates which are senior certificates, as provided in the prospectus
supplement. Series that are both senior and subordinate are 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
for a series of mezzanine certificates will set forth, among other things, the
extent to which they are 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 subordination, the minimum subordinated amount, if any, and
any distributions or payments which will not be affected by the subordination.
The protection afforded to the senior certificateholders from the subordination
feature described in this paragraph will be effected by the preferential right
of the certificateholders to receive current distributions from the loan pool.
If a series of certificates contains more than one class of subordinated
certificates, losses will be allocated among the classes in the manner
described in the prospectus
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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 under this prospectus and the prospectus
supplement.
If we so specify in a prospectus supplement, a series may include one or more
classes of certificates which are:
. principal only certificates that are entitled to receive distributions
only of principal,
. entitled to receive distributions for principal before or after
specified principal distributions have been made on one or more other
classes within such series or on a planned amortization schedule or
targeted amortization schedule or upon the occurrence of other events
we specify.
The prospectus supplement will describe the pass-through rate at which interest
will be paid to certificateholders of each class of a given series. The pass-
through rate may be fixed, variable or adjustable, as specified in the
prospectus supplement.
The prospectus supplement will specify the pass-through rate for each class
of certificate, or the initial pass-through rate and the method for determining
the pass-through rate. Unless we specify otherwise in the prospectus
supplement, interest on the certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Unless we specify otherwise in
the prospectus supplement, distributions for the certificates will be
subordinate to payments for the notes, if any, as more fully described in the
prospectus supplement. Distributions for principal of any class of certificates
will be made on a pro rata basis among all of the certificateholders of the
applicable class.
In the case of a series of certificates which includes two or more classes of
certificates, the timing, sequential order, priority of payment or amount of
distributions for principal, and any schedule or formula or other provisions
applicable to the determination, of each class shall be as shown in the
prospectus supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless we provide otherwise in the prospectus supplement, the securities of
each series will be registered in the name of Cede & Co., the nominee of DTC.
DTC is a limited-purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a clearing corporation within
the meaning of the New York Uniform Commercial Code, and a clearing agency
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
accepts securities for deposit from its participating organizations and
facilitates the clearance and settlement of securities transactions between
participants in the securities through electronic book-entry changes in
accounts of participants, eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may
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include certain other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Certificate owners and note owners who are not participants but want to
purchase, sell or otherwise transfer ownership of securities may do so only
through participants, unless and until definitive certificates or definitive
notes, are issued. In addition, certificate owners and note owners will receive
all distributions of principal of, and interest on, the securities from the
trustee or the indenture trustee, as applicable, through DTC and its
participants. Certificate owners and note owners will not receive or be
entitled to receive certificates representing their respective interests in the
securities, except under the limited circumstances described in this prospectus
and specific other circumstances, if any, as may be described in the prospectus
supplement.
Unless and until definitive securities are issued, it is anticipated that the
only certificateholder of the certificates and the only noteholder of the
notes, if any, will be Cede & Co., as nominee of DTC. Certificate owners and
note owners will not be recognized by the trustee as certificateholders or by
the indenture trustee as noteholders as those terms are used in the trust
documents or indenture. Certificate owners and note owners will be permitted to
exercise the rights of certificateholders or noteholders, as the case may be,
only indirectly through DTC participants and DTC.
For any series of securities, while the securities are outstanding, except
under the circumstances described in this prospectus, under the rules,
regulations and procedures creating and affecting DTC and its operations, DTC
is required to make book-entry transfers among participants on whose behalf it
acts with respect to the securities and is required to receive and transmit
distributions of principal of, and interest on, the securities. Participants
with whom certificate owners or note owners have accounts for securities are
similarly required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective certificate owners and note owners.
Accordingly, although certificate owners and note owners will not possess
securities, the rules provide a mechanism by which certificate owners and note
owners will receive distributions and will be able to transfer their interests.
For any series of securities, unless we specify otherwise in the prospectus
supplement, certificates, if any, and definitive notes will be issued in
registered form to certificate owners and note owners, or their nominees,
rather than to DTC, only if
(1) DTC, we or the servicer advises the trustee or the indenture trustee,
as the case may be, in writing that DTC is no longer willing or able
to discharge properly its responsibilities as nominee and depository
with respect to the certificates or the notes, and we, the servicer,
the trustee or the indenture trustee, as the case may be, is unable
to locate a qualified successor;
(2) We or the administrator, if any, at its sole option has advised the
trustee or the indenture trustee, as the case may be, in writing that
it elects to terminate the book-entry system through DTC; and
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(3) after the occurrence of a servicer termination event, the holders
representing a majority of the certificate balance or a note majority
advises the trustee or the indenture trustee, as the case may be,
through DTC, that continuation of a book-entry system is no longer in
their best interests.
Upon issuance of definitive certificates or definitive notes to certificate
owners or note owners, the certificates or notes will be transferable directly,
and not exclusively on a book-entry basis, and registered holders will deal
directly with the trustee or the indenture trustee, as the case may be, for
transfers, notices and distributions.
DTC has advised us that, unless and until definitive certificates or
definitive notes are issued, DTC will take any action permitted to be taken by
a certificateholder or a noteholder under the trust documents or indenture only
at the direction of one or more participants to whose DTC accounts the
certificates or notes are credited. DTC has advised us that DTC will take such
action for any fractional interest of the certificates or the notes only at the
direction of and on behalf of such participants beneficially owning a
corresponding fractional interest of the certificates or the notes. DTC may
take actions, at the direction of the applicable participants, with respect to
some certificates or notes which conflict with actions taken with respect to
other certificates or notes.
Statements to Securityholders
On or before each distribution date, the servicer will prepare and provide to
the trustee a statement to be delivered to the certificateholders on such
distribution date. On or before each distribution date, the servicer will
prepare and provide to the indenture trustee a statement to be delivered to the
noteholders on the distribution date. These statements will be based on the
information in a servicer's certificate describing information required under
the trust documents. Unless we specify otherwise in the prospectus supplement,
each statement to be delivered to certificateholders will include the following
information as to the certificates for such distribution date or the period
since the previous distribution date, as applicable, and each statement to be
delivered to noteholders will include the following information as to the notes
for that distribution date or the period since the previous distribution date,
as applicable:
(1) the amount of the distribution allocable to interest on or for each
class of securities;
(2) the amount of the distribution allocable to principal on or for each
class of securities;
(3) the certificate balance and the certificate pool factor for each
class of certificates and the aggregate outstanding principal balance and
the note pool factor for each class of notes, after giving effect to all
payments reported under (2) above;
(4) the amount of the monthly servicing fee paid to the servicer for the
applicable due period or periods, as the case may be;
(5) the pass-through rate or interest rate for the next period for any
class of certificates or notes with variable or adjustable rates;
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(6) the amount of advances made by the servicer with respect to the
distribution date, and the amount paid to the servicer on the distribution
date as reimbursement of advances made on previous distribution dates;
(7) the amount, if any, distributed to certificateholders and
noteholders applicable to payments under the form of credit enhancement,
if any;
(8) the number and aggregate principal balance of loans delinquent (a)
31-59 days, (b) 60-89 and (c) 90 or more days;
(9) the number of loans liquidated during the due period ending
immediately before such payment date;
(10) such customary factual information as is necessary to enable
securityholders to prepare their tax returns; and
(11) other information as may be specified in the prospectus supplement.
Each amount described above in subclauses (1), (2), (4) and (6) for
certificates or notes will be expressed as a dollar amount per $1,000 of the
initial certificate balance or the initial principal balance of the notes, as
applicable.
Unless and until definitive certificates or definitive notes are issued,
reports with respect to a series of securities will be sent on behalf of the
trust to the trustee, the indenture trustee and Cede & Co., as registered
holder of the certificates and the notes and the nominee of DTC. Certificate
owners and note owners may receive copies of reports upon written request,
together with a certification that they are certificate owners or note owners,
as the case may be, and payment of reproduction and postage expenses associated
with the distribution of the reports, from the trustee or the indenture
trustee, as applicable. See "Reports to Securityholders" and "--Book-Entry
Registration" in this prospectus.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year during the term of a trust, the trustee and the indenture
trustee, as applicable, will mail to each holder of a class of securities who
at any time during such calendar year has been a securityholder, and received
any payment, a statement containing information for the purposes of such
securityholder's preparation of federal income tax returns. DTC will convey
this information to its participants, who in turn will convey the information
to their indirect participants in accordance with arrangements among DTC and
such participants. Certificate owners and note owners may receive reports upon
written request, together with a certification that they are certificate owners
or note owners and payment of reproduction and postage expenses associated with
the distribution of such information, from the trustee, with respect to
certificate owners, or from the indenture trustee, with respect to note owners,
at the addresses specified in the related prospectus supplement. See "Certain
Federal Income Tax Consequences."
Lists of Securityholders
Unless we provide otherwise in the prospectus supplement, for each series of
certificates, at that time, if any, as definitive certificates have been
issued, the trustee will,
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upon written request by three or more certificateholders or one or more holders
of certificates evidencing not less than 25% of the certificate balance, within
five business days after provision to the trustee of a statement of the
applicants' desire to communicate with other certificateholders about their
rights under the trust documents or the certificates and a copy of the
communication that the applicants propose to transmit, afford the
certificateholders access during business hours to the current list of
certificateholders for purposes of communicating with other certificateholders
about their rights under the trust documents. Unless we specify otherwise in
the prospectus supplement, the trust documents will not provide for holding any
annual or other meetings of certificateholders.
Unless we provide otherwise in the prospectus supplement, for each series of
notes, if any, at that time, if any, as definitive notes have been issued, the
indenture trustee will, upon written request by three or more noteholders or
one or more holders of notes evidencing not less than 25% of the aggregate
principal balance of the notes, within five business days after the indenture
trustee is provided with a statement of the applicants' desire to communicate
with other noteholders about their rights under the indenture or the notes and
a copy of the communication that the applicants propose to transmit, afford
such noteholders access during business hours to the current list of
noteholders for purposes of communicating with other noteholders about their
rights under the indenture. Unless we specify otherwise in the prospectus
supplement, the indenture will not provide for holding any annual or other
meetings of noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as we specify otherwise in the prospectus supplement, the following
summary describes some of the terms of the sale and servicing agreements and
the trust agreements, together referred to as the trust documents, under which
we will sell and assign loans to a trust and the servicer will agree to service
those loans on behalf of the trust, and under which a trust will be created and
certificates will be issued. Forms of the trust documents have been filed as
exhibits to the registration statement of which this prospectus forms a part.
We will provide a copy of the agreements upon request to a holder of securities
described in the trust documents. This summary is not complete and is subject
to, and qualified in its entirety by reference to, all of the terms and
conditions of the trust documents. Where particular provisions or terms used in
the trust documents are referred to, the actual provisions are incorporated by
reference as part of this summary.
Sale and Assignment of the Loans
On the closing date, we will sell and assign to the trust, without recourse,
our entire interest in the applicable loans, including all principal and
interest received on or for the loans. Each loan transferred by us to the trust
will be identified in a schedule of loans appearing as an exhibit to the trust
documents. Concurrently with such sale and assignment, the trustee will execute
and the indenture trustee will authenticate and deliver, the notes to or upon
the order of the seller, and the trustee will execute and deliver the
certificates representing the certificates, if any, to or upon our order.
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The schedule of loans will include the amount of monthly payments due on each
loan as of the date of issuance of the securities, the loan rate on each loan
and the maturity date of each loan. This list will be available for inspection
by any securityholder at the principal executive office of the servicer. Before
the conveyance of the loans to the trustee, our internal audit department will
complete a review of all of the loan files confirming the accuracy of the list
of loans delivered to the trustee. Any loan discovered not to agree with such
list in a manner that is materially adverse to the interests of the
securityholders will be repurchased or substituted for by us, or, if the
discrepancy relates to the unpaid principal balance of a loan, we may deposit
cash in a separate collection account maintained at an eligible institution in
the name of the trustee, in an amount sufficient to offset such discrepancy. If
the trust includes a pre-funding account, the prospectus supplement will
describe the conditions that must be satisfied before any transfer of
subsequent loans, including the requisite characteristics of the subsequent
loans.
Unless we specify otherwise in the prospectus supplement, the trustee or its
custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and our accounting records and computer systems will also reflect the
sale and assignment.
Our counsel identified in the applicable prospectus supplement will render an
opinion to the trustee that the transfer of the loans from us to the trust
would, in the event we became a debtor under the United States Bankruptcy Code,
be treated as a true sale and not as a pledge to secure borrowings. If,
however, the transfer of the loans from us to the trust were treated as a
pledge to secure borrowings by us, the distribution of proceeds of the loans to
the trust might be subject to the automatic stay provisions of the United
States Bankruptcy Code, which would delay the distribution of the proceeds for
an uncertain period of time. In addition, a bankruptcy trustee would have the
power to sell the loans if the proceeds of a sale could satisfy the amount of
the debt deemed owed by us, or the bankruptcy trustee could substitute other
collateral in lieu of the loans to secure the debt, or the debt could be
subject to adjustment by the bankruptcy trustee if we were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code.
Except as we specify otherwise in the prospectus supplement, we will make
certain representations and warranties in the sale and servicing agreement for
each loan as of the closing date, including that:
(1) as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
(2) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(3) each loan 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;
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(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each loan was either
(a) originated by a home equity lender in the ordinary course of such
lender's business and assigned to us or
(b) was originated by us directly;
(6) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest in the loan under the sale and servicing agreement or the
securities unlawful;
(7) each loan complies with all requirements of law;
(8) no loan has been satisfied, subordinated to a lower lien ranking than
its original position, or rescinded;
(9) each loan creates a valid and perfected lien on the improved real
estate;
(10) all parties to each loan had full legal capacity to execute the
loan;
(11) no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to the trustee;
(12) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan except for payment
delinquencies permitted by clause (1) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under the loan, and we have not waived any of the
these;
(13) each loan is a fully amortizing loan with a fixed rate of interest
and provides for level payments over the term of the loan;
(14) each loan contains customary and enforceable provisions as to render
the rights and remedies of the holder adequate for realization
against the collateral;
(15) the description of each loan shown in the list delivered to the
trustee is true and correct;
(16) there is only one original of each loan; and
(17) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
0ur warranties will be made as of the execution and delivery of the trust
documents and will survive the sale, transfer and assignment of the loans and
other trust property to the trust but will speak only as of the date made.
Under the terms of the sale and servicing agreement, if we become aware of a
breach of any such representation or warranty that materially adversely affects
the interests of the note owners, the certificate owners, if any, or the trust
in any loan or receives written notice of such a breach from the trustee or the
servicer, then we will be obligated either to cure the breach or to repurchase
or, if so provided in the prospectus supplement, substitute for the
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affected loan, in each case under the conditions further described in this
prospectus and in the prospectus supplement. This repurchase obligation will
constitute the sole remedy available to the trust and the securityholders for a
breach of a representation or warranty under the sale and servicing agreement
for the loans, but not for any other breach by us of our obligations under the
sale and servicing agreement.
The purchase amount of a loan at any time means the outstanding principal
amount of the loan, plus interest at the applicable loan rate on that loan from
the end of the due period for which the obligor last made a payment, through
the end of the immediately preceding due period.
Upon the purchase by us of a loan due to a breach of a representation or
warranty, the trustee will convey the loan and the trust property to us.
Collections
For each trust, the servicer will establish one or more collection accounts
in the name of the indenture trustee for the benefit of the securityholders. If
we specify in the prospectus supplement, the indenture trustee will establish
and maintain for each series a note distribution account, in the name of the
indenture trustee on behalf of the related noteholders, in which amounts
released from the collection account and any pre-funding account and any
amounts received from any source of credit enhancement for payment to the
noteholders will be deposited and from which all distributions to the
noteholders will be made.For any series including one or more classes of
certificates, the trustee will establish and maintain for each series a
certificate distribution account, in the name of the trustee on behalf of the
related certificateholders, in which amounts released from the collection
account and any pre-funding account and any amounts received from any source of
credit enhancement for distribution to the certificateholders will be deposited
and from which all distributions to the certificateholders will be made. The
collection account, the certificate distribution account, if any, and the note
distribution account, if any, are referred to in this prospectus collectively
as the designated accounts. Any other accounts to be established for a trust
will be described in the prospectus supplement.
Each designated account will be an eligible account maintained with the
trustee, the indenture trustee and/or other depository institutions. Eligible
account means any account which is:
. an account maintained with an eligible institution in this prospectus;
. an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC;
. a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the trustee, which depository institution or trust
company has capital and surplus (or, if such depository institution or
trust company is a subsidiary of a bank holding company system, the
capital and surplus of the bank holding company) of not less than
$50,000,000 and
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the securities of such depository institution (or, if the depository
institution is a subsidiary of a bank holding company system and the
depository institution's securities are not rated, the securities of
the bank holding company) has a credit rating from each rating agency
rating such series of notes and/or certificates in one of its generic
credit rating categories which signifies investment grade; or
. an account that will not cause any rating agency to downgrade or
withdraw its then-current rating assigned to the securities, as
confirmed in writing by each rating agency.
Eligible institution means any depository institution organized under the laws
of the United States or any state, the deposits of which are insured to the
full extent permitted by law by the Bank Insurance Fund currently administered
by the Federal Deposit Insurance Corporation, whose short-term deposits have
been rated in one of the two highest rating categories or other rating
category as will not adversely affect the ratings assigned to the securities
of such series. On the closing date indicated in the prospectus supplement,
the servicer will cause to be deposited in the collection account all payments
on the loans received by the servicer after the cut-off date and on or before
the second business day preceding the closing date.
Unless we specify otherwise in the prospectus supplement, the servicer will
deposit in the collection account on a daily basis all proceeds and
collections received or made by it for the loans 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,
including:
(1) all obligor payments on account of principal, including principal
prepayments, on the loans;
(2) all obligor payments on account of interest on the loans;
(3) all amounts received and retained because of the liquidation of
defaulted loans, net of liquidation expenses, which is the net liquidation
proceeds;
(4) any advances made as described under advances below and specific
other amounts required under the sale and servicing agreement to be
deposited in the collection account;
(5) all amounts received from any credit enhancement provided for a
series of securities; and
(6) all proceeds of any loan or property acquired because of them
repurchased by the servicer or us, as described under sale and assignment
of the loans above or under repurchase option below.
Notwithstanding the foregoing and unless we provide otherwise in the
prospectus supplement, the servicer may utilize an alternative remittance
schedule, if the servicer provides to the trustee and the indenture trustee
written confirmation from each rating agency that the alternative remittance
schedule will not result in the downgrading or withdrawal by the rating agency
of the rating(s) then assigned to the securities. We will
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also deposit into the collection account on or before the deposit date the
purchase amount of each loan to be purchased by us for breach of a
representation or warranty.
For any series of securities, funds in the designated accounts and any other
accounts identified in the prospectus supplement will be invested, as provided
in the trust documents, at the direction of the servicer in United States
government securities and certain other high-quality investments meeting the
criteria specified in the trust documents, which are called eligible
investments. Eligible investments shall mature no later than the business day
preceding the applicable distribution date for the due period to which such
amounts relate. Investments in eligible investments will be made in the name of
the trustee or the indenture trustee, as the case may be, and such investments
will not be sold or disposed of before their maturity.
Unless we specify otherwise in the prospectus supplement, collections or
recoveries on a loan, other than late fees or certain other similar fees or
charges received during a due period and purchase amounts deposited with the
trustee before a distribution date will be applied first to any outstanding
advances made by the servicer for the loan, and then to interest and principal
on the loan in accordance with the terms of the loan.
Servicing
Under the sale and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as more fully described below. The
servicer will perform diligently all services and duties specified in each sale
and servicing agreement, in the same manner as prudent lending institutions of
home improvement loans of the same type as the loans in those jurisdictions
where the real properties are located or as we specify otherwise in the sale
and servicing 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, foreclosure of loans.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the sale and servicing agreement, will
follow the collection procedures for the loans as it follows for loans or loans
serviced by it that are comparable to the loans.
Evidence as to Compliance. Unless we specify otherwise in the prospectus
supplement, each sale and servicing agreement will require the servicer to
deliver to the trustee a monthly report prior to each payment date, setting
forth specific information regarding the loan pool and the securities of the
series as is described in the prospectus supplement. Each report to the trustee
will be accompanied by a statement from an appropriate officer of the servicer
certifying the accuracy of the report and stating that the servicer has not
defaulted in the performance of its obligations under the sale and servicing
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 the
firm has examined the documents and records relating to the servicing of home
improvement loans serviced by the servicer under agreements similar to the sale
and servicing agreement and stating that, on the basis of
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these procedures, the servicing has been conducted in compliance with the sale
and servicing agreement, except for any exceptions set forth in the report.
Certain Matters Regarding the Servicer. The servicer may not resign from its
obligations and duties under a sale and servicing agreement except upon a
determination that its duties are no longer permissible under applicable law.
No resignation will become effective until the trustee or a successor servicer
has assumed the servicer's obligations and duties under the sale and servicing
agreement. The servicer can only be removed as servicer upon the occurrence of
an event of termination as discussed below.
The servicer shall keep in force throughout the term of the sale and servicing
agreement
(1) a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the sale and servicing
agreement, and
(2) a fidelity bond.
The policy or policies and fidelity bond shall be in the form and amount as is
generally customary among persons which service a portfolio of home improvement
loans having an aggregate principal amount of $10 million or more and which are
generally regarded as servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee that we may assign for each due period paid on the next
succeeding payment date equal to 1/12th of the product of the annual servicing
fee rate described in the applicable prospectus supplement and the aggregate
principal balance for the payment date. As long as we are the servicer, the
trustee will pay us its monthly servicing fee from any monies remaining after
the securityholders have received all payments of principal and interest for
that payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records for each
loan. Administrative services performed by the servicer on behalf of the trust
include selecting and packaging the loans, calculating distributions to
securityholders and providing related data processing and reporting services
for securityholders and on behalf of the trustee. Expenses incurred for
servicing of the loans and paid by us from our monthly servicing fees include
payment of fees and expenses of accountants, payments of all fees and expenses
incurred with the enforcement of loans or payment of trustee's fees, and
payment of expenses incurred with distributions and reports to securityholders,
except that the servicer shall be reimbursed out of the liquidation proceeds of
a liquidated loan for customary out-of-pocket liquidation expenses incurred by
it.
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Events of Termination. Except as we specify otherwise in the prospectus
supplement, events of termination under each sale and servicing agreement will
occur if:
(1) any failure by the servicer to deliver to the indenture trustee for
distribution to the noteholders or to the trustee for distribution to
the certificateholders any required payment which continues
unremedied for 5 days after the giving of written notice or such
other period specified in the prospectus supplement;
(2) any failure by the servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the
trust documents that materially and adversely affects the interests
of securityholders, which, in either case, continues unremedied for
30 days after the giving of written notice of a failure of breach;
(3) any assignment or delegation by the servicer of its duties or rights
under the trust documents, except as specifically permitted under the
trust documents, or any attempt to make an assignment or delegation;
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the servicer;
(5) the servicer is no longer an eligible servicer, as defined in the
trust documents, or
(6) if we are is the servicer, our receiving rights under our master
seller-servicer loan with GNMA are terminated.
Notice as used here shall mean notice to the servicer by the trustee, the
indenture trustee, if any, or us, or to us, the servicer, the indenture
trustee, if any, and the trustee by the holders of securities representing
interests aggregating not less than 25% of the outstanding principal balance of
the securities issued by such trust.
Unless we specify otherwise in the prospectus supplement, if a servicer
termination event occurs and is continuing, the trustee, the indenture trustee
or the holders of at least 25% in aggregate principal balance of the
outstanding securities issued by the trust, by notice then given in writing to
the servicer, and to the trustee and the indenture trustee if given by the
securityholders, may terminate all of the rights and obligations of the
servicer under the trust documents. Immediately upon the giving of notice, and,
in the case of a successor servicer other than the trustee, the acceptance by
the successor servicer of its appointment, all authority of the servicer will
pass to the trustee or other successor servicer. The trustee, the indenture
trustee and the successor servicer may set off and deduct any amounts owed by
the servicer from any amounts payable to the outgoing servicer.
On and after the time the servicer receives a notice of termination, the
trustee or other successor servicer we specify in the prospectus supplement,
which is the backup servicer, will be the successor in all respects to the
servicer and will be subject to all the responsibilities, restrictions, duties
and liabilities of the servicer under the trust documents; provided, however,
that the successor servicer shall have no liability for any obligation which
was required to be performed by the prior servicer before the date that the
successor servicer becomes the servicer or any claim of a third party,
including a securityholder, based on any alleged action or inaction of the
prior servicer.
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Notwithstanding a termination, the servicer shall be entitled to payment of
amounts payable to it before a termination, for services rendered before the
termination. No termination will affect in any manner our obligation to
repurchase loans for breaches of representations or warranties under the trust
documents. 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 this capacity. The trustee
and a 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 trust
documents without the consent of all of the securityholders.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the sale and servicing agreement at the
request, order or direction of any of the holders of securities, unless the
securityholders have offered to the trustee reasonable security or indemnity
against the costs, expenses and liabilities which the trustee may incur.
We, as servicer, will be required to pay all expenses incurred by us for our
servicing activities, including fees, expenses and disbursements of the
trustee, the indenture trustee, the custodian and independent accountants,
taxes imposed on the servicer and expenses incurred in connection with
distributions and reports to certificateholders and noteholders, except certain
expenses incurred for realizing upon the loans.
Upon any termination of, or appointment of a successor to, the servicer, the
trustee and the indenture trustee will each give prompt written notice thereof
to certificateholders and noteholders, at their respective addresses appearing
in the certificate register or the note register and to each rating agency.
Distributions
For each trust, beginning on the distribution date specified in the
prospectus supplement, distributions of principal and interest, or, where
applicable, of principal or interest only, on each class of securities entitled
to principal and interest will be made by the trustee or the indenture trustee,
as applicable, to the certificateholders and the noteholders. The timing,
calculation, allocation, order, source, priorities of and requirements for all
distributions to each class of certificateholders and all payments to each
class of noteholders will be described in the prospectus supplement.
Except as we specify otherwise in the prospectus supplement, on the third
business day prior to each distribution date, the servicer will determine the
amount available and the amounts to be distributed on the notes and
certificates for the distribution date. Except as we specify otherwise in the
prospectus supplement, the amount available for any distribution date will be
equal to:
(1) the funds on deposit in the collection account at the close of
business on the last day of the applicable due period, plus
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(2) any advances to be made by the servicer for delinquent payments, plus
(3) any purchase amounts to be deposited by us for loans to be repurchased
due to a breach of a representation or warranty, minus
(4) any amounts paid by obligors in the due period, but to be applied in
respect of a regular monthly payment due in a subsequent due period
called an advance payment, minus
(5) any amounts incorrectly deposited in the collection account.
Except as we specify otherwise in the prospectus supplement, on each
distribution date, before making distributions for the notes and certificates,
the amount available will be applied,
. first, if we are no longer the servicer, to pay the monthly servicing
fee to the successor servicer, and
. second, to reimburse the servicer, including us, for any advances made
for a previous due period and subsequently recovered and for any
advances previously made that the servicer has determined are
uncollectible advances.
Enhancement
The amounts and types of enhancement arrangements and the provider, if
applicable, for each class of securities will be described in the prospectus
supplement. If and to the extent provided in the prospectus supplement,
enhancement may be in the form of a financial guaranty insurance policy, letter
of credit, our guaranty, cash reserve fund, derivative product, or other form
of enhancement, or any combination of these, as may be described in the
prospectus supplement. If specified in the applicable prospectus supplement,
enhancement for a class of securities of a series may cover one or more other
classes of securities in the series, and accordingly may be exhausted for the
benefit of a particular class and thereafter be unavailable to the other
classes. Further information regarding any provider of enhancement, including
financial information when material, will be included in the prospectus
supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the certificateholders and the noteholders of the full amount of
principal and interest due and to decrease the likelihood that the
certificateholders and the noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the prospectus
supplement. Unless we specify otherwise in the prospectus supplement, the
enhancement for a class of securities will not provide protection against all
risks of loss and will not guarantee repayment of the entire principal and
interest thereon. If losses occur which exceed the amount covered by any
enhancement or which are not covered by any enhancement, securityholders will
bear their allocable share of deficiencies. In addition, if a form of
enhancement covers more than one class of securities of a series,
securityholders of that class will be subject to the risk that such enhancement
will be exhausted by the claims of securityholders of other classes.
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Advances
Unless we specify otherwise in the prospectus supplement, the servicer will
be obligated to make advances each month of any scheduled payments on the loans
included in a trust that were due but not received during the previous due
period. The servicer will be entitled to reimbursement of an advance from the
amount available in the collection account for the related trust:
(1) when the delinquent payment is recovered by the trust, or
(2) when the servicer has determined that such advance has become an
uncollectible advance.
The servicer will be obligated to make an advance only to the extent that it
determines that an advance will be recoverable from subsequent funds available
for this in the collection account for the trust. The servicer will be entitled
to recoup its advances on a loan from subsequent payments by or on behalf of
the obligor and from liquidation proceeds, if any, of the loan, and will
release its right to reimbursements in conjunction with the purchase of the
loan by us for breach of representations and warranties. If the servicer
determines in good faith that an amount previously advanced will not ultimately
be recoverable from payments by or on behalf of the obligor or from net
liquidation proceeds, if any, of the loan, called an uncollectible advance, the
servicer will be entitled to reimbursement from payments on other loans or from
other funds available therefor.
Unless we specify otherwise in the prospectus supplement, if the servicer
fails to make an advance required under the sale and servicing agreement, the
trustee will be obligated to deposit the amount of such advance in the
collection account on the payment date. The trustee will not, however, be
obligated to deposit that amount if
(i) the trustee does not expect to recoup that advance from subsequent
collections on the loan or from liquidation proceeds, if any, or
(ii) the trustee determines that it is not legally able to make that
advance.
Evidence as to Compliance
On or before March 31 of each year the servicer will deliver to each trustee
and each indenture trustee a report of a nationally recognized accounting firm
stating that the firm has examined some documents and records relating to the
servicing of loans serviced by the servicer under pooling and servicing
agreements or sale and servicing agreements similar to the trust documents and
stating that, on the basis of those procedures, the servicing has been
conducted in compliance with the applicable trust documents, except for any
exceptions listed in such report. A copy of such statement may be obtained by
any certificate owner or note owner upon compliance with the requirements
described under "Certain Information Regarding the Securities--Statements to
Securityholders."
Indemnification and Limits on Liability
Unless we specify otherwise in the prospectus supplement, the trust documents
will provide that the servicer will be liable only to the extent of the
obligations specifically
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undertaken by it under the trust documents and will have no other obligations
or liabilities. The trust documents will further provide that neither the
servicer nor any of its directors, officers, employees and agents will have any
liability to the trust, the certificateholders or the noteholders, except as
provided in the trust documents, for any action taken or for refraining from
taking any action under the trust documents, other than any liability that
would otherwise be imposed by reason of the servicer's breach of the trust
documents or willful misfeasance, bad faith or negligence including errors in
judgment in the performance of its duties, or by reason of reckless disregard
of obligations and duties under the trust documents or any violation of law.
The servicer may, with the prior consent of the trustee and the indenture
trustee, if any, delegate duties under the trust documents to any of its
affiliates. In addition, the servicer may at any time perform the specific duty
of repossessing products through subcontractors who are in the business of
servicing consumer receivables. The servicer may also perform other specific
duties through subcontractors; provided, however, that no delegation of these
duties by the servicer shall relieve the servicer of its responsibility for
these duties.
Amendment
Unless we specify otherwise in the prospectus supplement, the trust documents
may be amended by the seller, the servicer, the trustee and the indenture
trustee, but without the consent of any of the securityholders, to cure any
ambiguity or to correct or supplement any provision, provided that such action
will not, in the opinion of counsel, which may be our internal counsel or the
servicer, reasonably satisfactory to the trustee and the indenture trustee,
materially and adversely affect the interests of the securityholders. The trust
documents may also be amended by us, the servicer and the trustee and the
indenture trustee, and a certificate majority and a note majority, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the trust documents or of modifying, in any manner,
the rights of the certificateholders or the noteholders. No such amendment may:
. increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the loans or distributions
that are required to be made on any certificate or note or the pass-
through rate or interest rate or
. reduce the percentage of the certificate balance evidenced by
certificates or of the aggregate principal amount of notes then
outstanding required to consent to any amendment, without the consent
of the holders of all certificates or all notes, as the case may be,
then outstanding.
Termination
The obligations created by the trust documents will terminate upon the date
calculated in the trust documents, generally upon:
(i) the later of the final payment or other liquidation of the last loan
and the disposition of all property acquired upon repossession of any
product and
(ii) the payment to the securityholders of all amounts held by the
servicer or the trustee and required to be paid to the
securityholders under the trust documents.
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Unless we provide otherwise in the prospectus supplement, for each series of
securities, in order to avoid excessive administrative expense, we and the
servicer each will be permitted, at its option, to purchase from the trust, on
any distribution date immediately following any due period as of the last day
of which the aggregate principal balance is equal to or less than 10%, or such
other percentage as may be specified in the prospectus supplement of the cut-
off date principal balance, all remaining loans in the trust and the other
remaining trust property at a price equal to the aggregate of the purchase
amounts and the appraised value of any other remaining trust property. The
exercise of this right will effect an early retirement of the related
certificates and notes.
If a general partner is named in the prospectus supplement, unless we specify
otherwise in the prospectus supplement, the trust agreement will provide that,
in the event that the general partner becomes insolvent, withdraws or is
expelled as a general partner or is terminated or dissolved, the trust will
terminate in 90 days and effect redemption of the notes and prepayment of the
certificates, if any. Following the winding-up of the affairs of the trust,
unless within that 90 days the remaining general partner, if any, and holders
of a majority of the certificates of that series agree in writing to the
continuation of the business of the trust and to the appointment of a successor
to the former general partner, and the owner trustee is able to obtain an
opinion of counsel stating that the trust will not after that be an
association, or publicly traded partnership, taxable as a corporation for
federal income tax purposes.
Unless we specify otherwise in the prospectus supplement, for each series of
securities, the trustee will give written notice of the final distribution for
the certificates, if any, to each certificateholder of record and the indenture
trustee will give written notice of the final payment for the notes to each
noteholder of record. The final distribution to any certificateholder and the
final payment to any noteholder will be made only upon surrender and
cancellation of such holder's certificate or note at the office or agency of
the trustee, for certificates, or of the indenture trustee, for those notes,
specified in the notice of termination. Any funds remaining in the trust, after
the trustee or the indenture trustee has taken certain measures to locate a
certificateholder or noteholder, as the case may be, and these measures have
failed, will be distributed to The United Way, and the certificateholders and
noteholders, by acceptance of their certificates and notes, will waive any
rights with respect to such funds.
The Trustee
The trustee or owner trustee for each trust will be specified in the
applicable prospectus supplement. The trustee, in its individual capacity or
otherwise, and any of its affiliates may hold certificates or notes in their
own names or as pledgee. In addition, for the purpose of meeting the legal
requirements of some jurisdictions, the trustee, with the consent of the
servicer, will have the power to appoint co-trustees or separate trustees of
all or any part of the applicable trust. In the event of an appointment, all
rights, powers, duties and obligations conferred or imposed upon the trustee by
the trust documents will be conferred or imposed upon the trustee and such
separate trustee or co-trustee jointly, or, in any jurisdiction where the
trustee is incompetent or unqualified to perform certain acts, singly upon such
separate
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trustee or co-trustee who shall exercise and perform these rights, powers,
duties and obligations solely at the direction of the trustee.
The trustee of any trust may resign at any time, and then the general
partner, if any, specified in the prospectus supplement or, if no such general
partner is specified, the servicer or its successor will be obligated to
appoint a successor trustee. The general partner, if any, specified in the
applicable prospectus supplement, or, if no such general partner is specified,
the servicer, may also remove the trustee,
. if the trustee ceases to be eligible to serve,
. becomes legally unable to act,
. is adjudged insolvent or
. is placed in receivership or similar proceedings.
In such circumstances, the general partner, if any, specified in the related
prospectus supplement or, if no such general partner is specified, the servicer
will be obligated to appoint a successor trustee. Any resignation or removal of
the trustee and appointment of a successor trustee will not become effective
until acceptance of the appointment by the successor trustee.
Duties of the Trustee
The trustee will make no representation as to the validity or sufficiency of
any trust document, the certificates or the notes, other than its execution of
the certificates and the notes, the loans or any related documents, and will
not be accountable for the use or application by the servicer of any funds paid
to the servicer for the certificates, the notes or the loans before deposit in
the applicable collection account.
The trustee will be required to perform only those duties specifically
required of it under the trust documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the servicer to the trustee under the
trust documents, in which case it will only be required to examine the
certificates, reports or instruments to determine whether they conform
substantially to the requirements of the trust documents.
The trustee will be under no obligation to exercise any of the rights or
powers vested in it by the trust documents or to institute, conduct, or defend
any litigation at the request, order or direction of any of the
certificateholders or noteholders, unless the certificateholders or noteholders
have offered the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred. No certificateholder nor any
noteholder will have any right under the trust documents to institute any
proceeding for such trust documents, unless the holder has given the trustee
written notice of default and unless the holders of certificates evidencing not
less than 25% of the certificate balance or the holders of notes evidencing not
less than 25% of the aggregate principal balance of the notes then outstanding,
as the case may be, have made written request to the trustee to institute
proceeding in its own name as trustee and have offered to the trustee
reasonable indemnity,
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and the trustee for 30 days after the receipt of the notice, request and offer
to indemnify has neglected or refused to institute any such proceedings.
Administrator
If an administrator is specified in the applicable prospectus supplement,
that administrator will enter into an administration agreement under which that
administrator will agree, to the extent provided in the administration
agreement, to provide the notices and to perform other administrative
obligations required by the related indenture and the trust agreement.
CERTAIN LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of our conveyance and assignment of a pool of loans to a trust,
the securityholders of that series, as the beneficial owners of the trust, will
succeed collectively to all of the rights of that series, including the right
to receive payment on the loans. The following discussion contains summaries of
some legal aspects of home improvement loans which are general in nature.
Because the 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 improved real estate is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the loans.
Mortgages and Deeds of Trust
The loans will be secured by either mortgages, deeds of trust, security deeds
or deeds to secure debt depending upon the prevailing practice in the state in
which the underlying property is located, and may have first, second or third
priority. In some states, a mortgage creates a lien upon the real property
encumbered by the mortgage or deed of trust. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent, such as the payment of the indebtedness secured by 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 retail installment loan 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, or trustor, the 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 repayment of the loan. The
trustee's authority under a deed of trust and the mortgagee's authority under a
mortgage are governed by applicable state law, the express provisions of the
deed of trust or mortgage, and, in some cases with respect to deeds of trust,
the directions of the beneficiary. Some states use a security deed or deed to
secure debt which is similar to a deed of trust except that it has only two
parties: a grantor (similar to a mortgagor) and a grantee (similar to a
mortgagee). Mortgages, deeds of trust and deeds to secure debt are not prior to
liens for real estate taxes and assessments and
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other charges imposed under governmental police powers. Priority between
mortgages, deeds of trust and deeds to secure debt and other encumbrances
depends on their terms, the knowledge of the parties to such instrument in some
cases and generally on the order of recordation of the mortgage, deed of trust
or the deed to secure debt in the appropriate recording office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the loans in any loan pool are expected to be
second or third mortgages or deeds of trust which are junior to mortgages or
deeds of trust held by other lenders or institutional investors. The rights of
the related trust, and therefore the securityholders, as beneficiary under a
junior deed of trust or as mortgagee under a junior mortgage, are subordinate
to those of the mortgagee or beneficiary under the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive hazard insurance and condemnation proceeds and to cause the property
securing the loan to be sold upon default of the mortgagor or trustor under the
senior mortgage or deed of trust, thereby extinguishing the junior mortgagee's
or junior beneficiary's lien unless the servicer on behalf of the trust asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior loan or loans. As discussed below, a
junior mortgagee or beneficiary may satisfy a defaulted senior loan in full, or
in some states may cure the default and bring the senior loan current, in
either event usually adding the amounts expended to the balance due on the
junior loan. Although we generally do not cure defaults under a senior mortgage
or deed of trust, it is our standard practice to protect our interest by
attending any foreclosure sale and bidding for property only if it is in our
best interest.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like that of Green Tree, confers on the mortgagee or beneficiary the
right both to receive all proceeds collected under any hazard insurance policy
and all awards made in connection with any condemnation proceedings, and to
apply those proceeds and awards to any indebtedness secured by the mortgage or
deed of trust, in the order as the mortgagee or beneficiary may determine. In
the event improvements on the property are damaged or destroyed by fire or
other casualty, or in the event the property is taken by condemnation, the
mortgagee or beneficiary under the underlying first mortgage or deed of trust
will have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness, in most cases, may be applied to the indebtedness of a junior
mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a future advance clause, which provides that additional amounts
advanced to or on behalf of the mortgagor or trustor by the mortgagee or
beneficiary are to be secured by the mortgage or deed of trust. The priority of
any advance made under the clause depends, in some states, on whether the
advance was an obligatory or optional advance. If the mortgagee or beneficiary
is obligated to advance the additional amounts, the advance is entitled to
receive the same
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priority as amounts initially advanced under the mortgage or deed of trust,
notwithstanding the fact that there may be junior mortgages or deeds of trust
and other liens which intervene between the date of recording of the mortgage
or deed of trust and the date of the future advance, and, in some states,
notwithstanding that the senior mortgagee or beneficiary had actual knowledge
of such intervening junior mortgages or deeds of trust and other liens at the
time of the advance. Where the mortgagee or beneficiary is not obligated to
advance additional amounts or, in some states, has actual knowledge of the
intervening junior mortgages or deeds of trust and other liens, the advance
will be subordinate to such intervening junior mortgages or deeds of trust and
other liens. Priority of advances under the clause rests, in some states, on
state statutes giving priority to all advances made under the loan agreement to
a credit limit amount stated in the recorded mortgage.
Other provisions typically found in the form of the mortgage or deed of trust
used by most institutional lenders
. obligates the mortgagor or trustor to pay before delinquency all taxes
and assessments on the property and, when due, all encumbrances,
charges and liens on the property which appear before to the mortgage
or deed of trust,
. to provide and maintain fire insurance on the property,
. to maintain and repair the property and not to commit or permit any
waste of the property, and
. to appear in and defend any action or proceeding purporting to affect
the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust.
Upon a failure of the mortgagor or trustor to perform any of these
obligations, the mortgagee or beneficiary is given the right under the mortgage
or deed of trust to perform the obligation itself, at its election, with the
mortgagor or trustor agreeing to reimburse the mortgagee or beneficiary for any
sums expended by the mortgagee or beneficiary on behalf of the mortgagor or
trustor. All sums expended by a senior mortgagee or beneficiary generally
become part of the indebtedness secured by the senior mortgage or deed of
trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk.
. First, the borrower may have difficulty servicing and repaying
multiple loans.
. Second, acts of the senior lender which prejudice the junior lender or
impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose
its priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened.
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. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior
lender.
The bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action established a waiver, or
fraud, bad faith, oppressive or unconscionable conduct.
Under certain circumstances a court of equity may relieve the mortgagor from
an entirely technical default where the default was not willful. Generally, the
action is initiated by the service of legal pleadings upon all parties having a
recorded interest in the real property. Delays in completion of the foreclosure
occasionally may result from difficulties in locating necessary defendants.
When the mortgagee's right to foreclosure is contested, the legal proceedings
necessary to resolve the issue can be time-consuming. After the completion of a
judicial foreclosure proceeding, the court may issue a judgment of foreclosure
and appoint a referee or other officer to conduct the sale of the property. In
some states, mortgages may also be foreclosed by advertisement, under to a
power of sale provided in the mortgage. Foreclosure of a mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by non-
judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, 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 notice
of sale. In addition, before the sale, 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. Other states require that a notice
of sale be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers in a specified manner before
the date of trustee's sale.
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Some state laws also 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. Specific state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might 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. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. After that, 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, paying taxes and making 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. Any loss resulting from a sale may be
reduced by the receipt of mortgage insurance proceeds, if any.
A second or third mortgagee may not foreclose on the property securing a
second or first mortgage unless it forecloses subject to the senior mortgages,
in which case it must either pay the entire amount due on the senior mortgages
before or at the time of the foreclosure sale or make payments on the senior
mortgages in the event the mortgagor is in default, in either event adding the
amounts expended to the balance due on the junior loan, and may be subrogated
to the rights of the senior mortgagees. In addition, in the event that the
foreclosure by a junior mortgagee triggers the enforcement of a due-on-sale
clause in a senior mortgage, the junior mortgagee may be required to pay the
full amount of the senior mortgages to the senior mortgagees. Accordingly, for
those loans which are second or third mortgage loans, if the lender purchases
the property, the lender's title will be subject to all senior liens and claims
and specific governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
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Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
In some jurisdictions, real property transfer or recording taxes or fees may
be imposed on the applicable trust for its acquisition, by foreclosure or
otherwise, and disposition of real property securing a loan, and any such taxes
or fees imposed may reduce liquidation proceeds for such property, as well as
distributions payable to the securityholders.
Second or Third Mortgages
The loans may be secured by second or third mortgages or deeds of trust,
which are junior to first or second mortgages or deeds of trust held by other
lenders. The rights of the securityholders as the holders of a junior deed of
trust, junior mortgage, or junior security deed are subordinate in lien and in
payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale under to the senior deed of
trust, the junior mortgagee's or junior beneficiary's lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the loan. See "--
Foreclosure" in this prospectus.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to secure debt or security deed. In the event of a conflict
between the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed and the junior mortgage, deed of trust, deed to secure debt or
security deed, the terms of the senior mortgage, deed of trust, deed to secure
debt or security deed will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage, deed of trust, deed to secure debt
or security deed may have the right to perform the obligation itself.
Generally, all sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their equity of redemption. The doctrine of equity of redemption provides
that, until the property covered by a mortgage has been sold in accordance with
a properly conducted foreclosure and foreclosure sale, those having an
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interest which is subordinate to that of the foreclosing mortgagee have an
equity of redemption and may redeem the property by paying the entire debt with
interest. In addition, in some states, when a foreclosure action has been
commenced, the redeeming party must pay certain costs of such action. Those
having an equity of redemption must generally be made parties and duly summoned
to the foreclosure action in order for their equity of redemption to be barred.
In some states, after sale under 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
specific other states, this right of redemption applies only to sale following
judicial foreclosure, and not to sale under 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
expenses of foreclosure. In other states, redemption may be authorized if the
former borrower pays only a portion of the sums due. In some states, the right
to redeem is an equitable right. The equity of redemption, which is a non-
statutory right that must be exercised prior to foreclosure sale, should be
distinguished from statutory rights of redemption. 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.
In some states, there is no right to redeem property after a trustee's sale
under a deed of trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Individual states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In
other 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 public sale.
Specific 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 selected other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting that
security; however, in some of these states, the lender, following judgment on
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies for 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
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value
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of the property at the time of a sale. The purpose of these statutes is to
prevent a beneficiary or a mortgagee from obtaining a large deficiency judgment
against the former borrower as a result of low or no bids at the foreclosure
sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, for the federal bankruptcy law, the filing of a petition acts as a
stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default for a
mortgage loan on a debtor's residence by paying arrearages and reinstate the
original mortgage loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state court
before the filing of the debtor's Chapter 13 petition. Some courts with federal
bankruptcy jurisdiction have approved plans, based on the particular facts of
the reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. In the case of a mortgage loan not
secured by the debtor's principal residence, courts with federal bankruptcy
jurisdiction may also reduce the monthly payments due under such mortgage loan,
change the rate of interest and alter the mortgage loan repayment schedule.
The IRS code provides priority to certain federal tax liens over the lien of
the mortgage or deed of trust. The bankruptcy IRS code also provides priority
to selected tax liens over the lien of the mortgage or deed of trust. The laws
of some states provide priority to specific state tax liens over the lien of
the mortgage or deed of trust. Numerous federal and individual 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, state licensing requirements, and applicable
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 mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-
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Lending Act, Regulation Z, the Equal Credit Opportunity Act, Regulation B, the
Fair Credit Reporting Act, and applicable statutes. The Home Ownership and
Equity Protection Act of 1994, which became effective on October 1, 1995, adds
provisions to Regulation Z which impose additional disclosure and other
requirements on creditors involved in non-purchase money mortgage loans with
high interest rates or high up-front fees and charges. It is possible that some
loans included in a loan pool may be subject to these provisions. The Home
Protection Act applies to mortgage loans originated on or after the effective
date of the regulations. These laws can impose specific statutory liabilities
upon creditors who fail to comply with their provisions and may affect the
enforceability of the loan.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
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 loan
which is the seller of goods which gave rise to the transaction, and specific
related lenders and assignees to transfer that loan free of notice of claims by
the debtor thereunder. The effect of this rule is to subject the assignee of
that loan to all claims and defenses which the debtor could assert against the
seller of goods, for example, a home improvement contractor. Liability under
this rule is limited to amounts paid under a loan; however, the obligor also
may be able to assert the rule to set off remaining amounts due as a defense
against a claim brought by the trust against an obligor. The Home Protection
Act provides that assignees of certain high-interest, non-purchase money
mortgage loans are subject to all claims and defenses that the debtor could
assert against the original creditor, unless the assignee demonstrates that a
reasonable person in the exercise of ordinary due diligence could not have
determined that the mortgage loan was subject to the provisions of the Home
Protection Act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In individual states there are or may be specific limitations upon
late charges which a lender may collect from a borrower for delinquent
payments. Under the sale and servicing agreement, late charges, to the extent
permitted by law and not waived by us, will be retained by us as additional
servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the
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borrower, after the applicable cure period. Courts will generally enforce
clauses providing for acceleration in the event of a material payment default.
However, courts, exercising equity jurisdiction, may refuse to allow a lender
to foreclose a mortgage or deed of trust when an acceleration of the
indebtedness would be inequitable or unjust and the circumstances would render
the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In selected cases, courts have required lenders to reinstate loans or
recast payment schedules to accommodate borrowers who are suffering from
temporary financial disability. In other cases, courts have limited the right
of lenders to foreclose if the default under the mortgage instrument is not
monetary, for example, the borrower failing to adequately maintain the property
or the borrower executing a junior mortgage or deed of trust affecting the
property. In other cases, some courts have been faced with the issue whether
federal or state constitutional provisions reflecting due process concerns for
adequate notice require that borrowers under mortgages or the deeds of trust
receive notices in addition to statutorily-prescribed minimum requirements. For
the most part, these cases have upheld the notice provisions as being
reasonable or have found that the sale by a trustee under a deed of trust or
under a mortgage having a power of sale does not involve sufficient state
action to afford constitutional protection to the borrower.
"Due-on-Sale" Clauses
All of the loan documents will contain due-on-sale clauses unless the
prospectus supplement indicates otherwise. These clauses permit the servicer to
accelerate the maturity of the loan on notice, which is usually 30 days, if the
borrower sells, transfers or conveys the property without the prior consent of
the mortgagee. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce these clauses in
many states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982, which, after a three-year grace
period, preempts state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that due-on-sale clauses in certain
loans, including these loans, made after the effective date of the Garn-St.
Germain Act are enforceable within certain limitations as set forth in the
Garn-St. Germain Act and the regulations promulgated thereunder.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any loan which contains a due-on-sale clause upon
transfer of an interest in the mortgaged property. This ability to accelerate
will not apply to selected types of transfers, including:
. the granting of a leasehold interest which has a term of three years
or less and which does not contain an option to purchase,
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. a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property,
. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property,
. the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of
rights of occupancy in the mortgaged property, provided that such lien
or encumbrance is not created pursuant to a loan for deed,
. transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety, and
. other transfers as set forth in the Garn-St. Germain Act and its
regulation.
As a result, a lesser number of loans which contain due-on-sale clauses may
extend to full maturity than earlier experience would indicate for single-
family mortgage loans. The extent of the effect of the Garn-St. Germain Act on
the average lives and delinquency rates of the loans, however, cannot be
predicted.
The inability to enforce a due-on-sale clause may result in loans bearing an
interest rate below the current market rate being assumed by a new home buyer
rather than being paid off, which may have an impact upon the average life of
the loans and the number of loans which may be outstanding until maturity.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended, and under state law in certain states, a secured
party which takes a deed-in-lieu of foreclosure, purchases a mortgaged property
at a foreclosure sale, or operates a mortgaged property may become liable in
specific circumstances for the costs of cleaning up hazardous substances
regardless of whether they have contaminated the property. CERCLA imposes
strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Furthermore,
liability under CERCLA is not limited to the original or unamortized principal
balance of a loan or to the value of the property securing a loan. Lenders may
be held liable under CERCLA as owners or operators unless they qualify for the
secured creditor exemption to CERCLA. This exemption exempts from the
definition of owners and operators those who, without participating in the
management of a facility, hold indicia of ownership primarily to protect a
security interest in the facility. What constitutes sufficient participation in
the management of a property securing a loan or the business of a borrower to
render the exemption unavailable to a lender has been a matter of
interpretation by the courts. CERCLA has been interpreted to impose liability
on a secured party, even absent foreclosure, where the party participated in
the financial management of the borrower's business to a degree indicating a
capacity to influence waste
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disposal decisions. However, court interpretations of the secured creditor
exemption have been inconsistent. In addition, when lenders foreclose and
become owners of collateral property, courts are inconsistent as to whether
such ownership renders the secured creditor exemption unavailable. Other
federal and state laws in selected circumstances may impose liability on a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property on which
contaminants other than CERCLA hazardous substances are present, including
petroleum, agricultural chemicals, hazardous wastes, asbestos, radon, and lead-
based paint. These cleanup costs may be substantial. It is possible that the
cleanup costs could become a liability of a trust and reduce the amounts
otherwise distributable to the holders of the related series of securities in
certain circumstances if such cleanup costs were incurred. Moreover, some
states by statute impose a lien for any cleanup costs incurred by that state on
the property that is the subject of the cleanup costs. All subsequent liens on
such property generally are subordinated to this environmental lien and, in
some states, even prior recorded liens are subordinated to environmental liens.
In the latter states, the security interest of the trustee in a related parcel
of real property that is subject to this environmental lien could be adversely
affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present for to any mortgaged property before
the origination of the mortgage loan or before foreclosure or accepting a deed-
in-lieu of foreclosure. Accordingly, we have has not made and will not make any
evaluations before the origination of the loans. Neither we nor any replacement
servicer will be required by any sale and servicing agreement to undertake any
evaluations prior to foreclosure or accepting a deed-in-lieu of foreclosure. We
do does not make any representations or warranties or assume any liability for
the absence or effect of contaminants on any related real property or any
casualty resulting from the presence or effect of contaminants. However, we
will not foreclose on related real property or accept a deed-in-lieu of
foreclosure if we know or reasonably believe that there are material
contaminated conditions on such property. A failure so to foreclose may reduce
the amounts otherwise available to securityholders of the related series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act would adversely
affect, for an indeterminate period of time, the ability of the servicer to
collect full amounts of interest on specific loans. Any shortfall in interest
collections resulting from the application of the Relief Act or similar
legislation, which would not be recoverable from the related loans, would
result in a reduction of the amounts distributable to the securityholders. In
addition, the Relief Act imposes limitations that would impair the ability of
the servicer to foreclose on an affected mortgage, deed of trust, deed to
secured debt or security deed during the mortgagor's period of active duty
status, and, under certain circumstances, during an additional three-month
period after that. In the event that the Relief Act or similar legislation
applies to any loan which goes into default, there may be delays in payment on
the securities. Any other interest shortfalls, deferrals or forgiveness of
payments on the loans resulting from similar legislation or regulations may
result in delays in payments or losses to securityholders.
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Repurchase Obligations
We will represent and warrant under each sale and servicing agreement that
each loan complies with all requirements of law. Accordingly, if any obligor
has a claim against the applicable trust for violation of any law and that
claim materially adversely affects the trust's interest in a loan, such
violation would constitute a breach of a representation and warranty under the
sale and servicing agreement and would create an obligation to repurchase that
loan unless the breach is cured. See "Description of the Trust Documents--Sale
and Assignment of the Loans."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences relating to the purchase, ownership, and disposition of the
securities. The discussion is based upon the current provisions of the IRS
code, the treasury regulations promulgated under the IRS code and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. The discussion does not deal with federal income tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Investors are encouraged to consult their own tax advisors with
respect to the federal, state, local, and any other tax consequences of the
purchase, ownership, and disposition of the securities.
Our counsel, [Counsel to Green Tree], has delivered an opinion regarding
various federal income tax matters discussed below. Our counsel identified in
the prospectus supplement will deliver an opinion regarding tax matters
applicable to each series of securities. The tax opinion, however, is not
binding on the IRS or the courts. The opinion of counsel will specifically
address only those issues specifically identified below as being covered by
such opinion; however, the opinion of counsel also will state that the
additional discussion described below accurately describes counsel's advice
relating to material tax issues. No ruling on any of these issues will be
sought from the service.
Tax Status of the Trust
For each series of securities which includes both notes and certificates,
counsel will deliver its opinion that the trust will not be an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes. As a result, in the opinion of counsel, the trust itself will not be
subject to federal income tax but, instead, each certificateholder will be
required to take into account its distributive share of items of income and
deduction, including deductions for distributions of interest to the
noteholders, of the trust as though these items had been realized directly by
the certificateholder. This opinion will be based on the assumption that the
terms of the trust agreement and related documents will be complied with, and
on counsel's conclusion that the nature of the income of the trust will exempt
it from the rule that certain publicly traded partnerships are taxable as
corporations. There are, however, no cases or service rulings on transactions
involving a trust issuing both debt and equity interests with terms similar to
those of the notes and the certificates. As a result, the service may disagree
with all or a part of this discussion.
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If the trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the loans, possibly
reduced by its interest expense on the notes. Any of this corporate income tax
could materially reduce cash available to make payments on the notes and
distributions on the certificates.
Tax Consequences to Noteholders
Treatment of the Notes as Indebtedness. The owner trustee, on behalf of the
trust, will agree, and the noteholders will agree by their purchase of notes,
to treat the notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the notes will be classified as debt for federal
income tax purposes. The discussion in this section assumes this
characterization of the notes is correct.
Interest Income on the Notes. Interest on the notes will be taxable as
ordinary interest income when received by noteholders utilizing the cash-basis
method of accounting and when accrued by noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the notes would be
considered issued with original issue discount ("OID") if the stated redemption
price at maturity of a note, generally equal to its principal amount as of the
date of issuance plus all interest other than qualified stated interest payable
before or at maturity exceeds the original issue price, in this case, the
initial offering price at which a substantial amount of the notes are sold to
the public. Any OID would be considered de minimis under the OID regulations if
it does not exceed 1/4% of the stated redemption price at maturity of a note
multiplied by the number of full years until its maturity date. It is
anticipated that the notes will not be considered issued with more than de
minimis OID. Under the OID regulations, an owner of a note issued with a de
minimis amount of OID must include such OID in income, on a pro rata basis, as
principal payments are made on the note.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
however, the trust will treat interest payments on the notes as qualified
stated interest under the OID regulations. If the notes are issued or are
deemed to be issued with OID, all or a portion of the taxable income to be
recognized for the notes would be includible in the income of noteholders as
OID. Any amount treated as OID would not, however, be includible again when the
amount is actually received. If the yield on a class of notes were not
materially different from its coupon, this treatment would have no significant
effect on noteholders using the accrual method of accounting. However, cash
method noteholders may be required to report income for the notes in advance of
the receipt of cash attributable to such income.
A noteholder must include OID in income as interest over the term of the
notes under a constant yield method. In general, OID must be included in income
in advance of the receipt
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of cash representing that income. Each noteholder is encouraged to consult its
own tax advisor regarding the impact of the OID rules if the notes are issued
with OID.
Market Discount. The notes, whether or not issued with original issue
discount, will be subject to the market discount rules of Section 1276 of the
IRS code. In general, these rules provide that if a noteholder purchases the
note at a market discount (such as a discount from its original issue price
plus any accrued original issue discount) that exceeds a de minimis amount
specified in the IRS code, and after that recognizes gain upon a disposition,
the lesser of (i) the gain or (ii) the accrued market discount will be taxed as
ordinary interest income. Market discount also will be recognized and taxable
as ordinary interest income as payments of principal are received on the notes
to the extent that the amount of these payments does not exceed the accrued
market discount. Generally, the accrued market discount will be the total
market discount on the note multiplied by a fraction, the numerator of which is
the number of days the noteholder held the note and the denominator of which is
the number of days after the date the noteholder acquired the note until and
including its maturity date. The noteholder may elect, however, to determine
accrued market discount under the constant-yield method, which election shall
not be revoked without the consent of the service.
Limitations imposed by the IRS code which are intended to match deductions
with the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
note with accrued market discount. A noteholder may elect to include market
discount in gross income as it accrues and, if the noteholder makes such an
election, is exempt from this rule. The adjusted basis of a note subject to
this election will be increased to reflect market discount included in gross
income, reducing any gain or increasing any loss on a sale or taxable
disposition. An election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the noteholder at the
beginning of the first taxable year to which the election applies or acquired
after that and is irrevocable without the consent of the service.
Amortizable Bond Premium. In general, if a noteholder purchases a note at a
premium, such as an amount in excess of the amount payable upon maturity, the
noteholder will be considered to have purchased such note with amortizable bond
premium equal to the amount of such excess. Such noteholder may elect to deduct
the amortizable bond premium as it accrues under a constant-yield method over
the remaining term of the note. That noteholder's tax basis in the note will be
reduced by the amount of the amortizable bond premium deducted. Amortizable
bond premium for a note will be treated as an offset to interest income on such
note, and a noteholder's deduction for amortizable bond premium for a note will
be limited in each year to the amount of interest income derived with respect
to such note for that year. Any election to deduct amortizable bond premium
shall apply to all debt instruments, other than instruments the interest on
which is excludible from gross income, held by the noteholder at the beginning
of the first taxable year to which the election applies or acquired after that
and is irrevocable without the consent of the service. Bond premium on a note
held by a noteholder who does not elect to deduct the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the note.
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Disposition of Notes. If a noteholder sells a note, the noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the noteholder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder generally will equal
the noteholder's cost for the note, increased by any market discount, OID and
gain previously included by that noteholder in income for the note and
decreased by principal payments previously received by such noteholder and the
amount of bond premium previously amortized for the note. Any such gain or loss
will be capital gain or loss if the note was held as a capital asset, except
for gain representing accrued interest and accrued market discount not
previously included in income, and will be short-term, mid-term or long-term
capital gain or loss depending upon whether the note was held for more or less
than one year or for more than eighteen months. Capital losses generally may be
used only to offset capital gains.
Foreign Holders. Generally, interest paid to a noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
note in connection with a United States trade or business will be treated as
portfolio interest and therefore will be exempt from the 30% withholding tax.
Such a noteholder will be entitled to receive interest payments on the notes
free of United States federal income tax provided that the noteholder
periodically provides the indenture trustee, or other person who would
otherwise be required to withhold tax, with a statement certifying under
penalty of perjury that the noteholder is not a United States person and
providing the name and address of the noteholder and will not be subject to
federal income tax on gain from the disposition of a note unless the noteholder
is an individual who is present in the United States for 183 days or more
during the taxable year in which the disposition takes place and certain other
requirements are met.
Tax Administration and Reporting. The indenture trustee will furnish to each
noteholder with each distribution a statement showing the amount of the
distribution allocable to principal and to interest. 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 for interest
and original issue discount, if any, for the notes.
Backup Withholding. Under certain circumstances, a noteholder may be subject
to backup withholding at a 31% rate. Backup withholding may apply to a
noteholder who is a United States person if the holder, among other
circumstances, fails to furnish their social security number or other taxpayer
identification number to the indenture trustee. Backup withholding may apply,
under selected circumstances, to a noteholder who is a foreign person if the
noteholder fails to provide the indenture trustee or the noteholder's
securities broker with the statement necessary to establish the exemption from
federal income and withholding tax on interest on the note. Backup withholding,
however, does not apply to payments on a note made to selected exempt
recipients, such as corporations and tax-exempt organizations, and to certain
foreign persons. Noteholders should consult their tax advisors for additional
information concerning the potential application of backup withholding to
payments received by them for a note.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
counsel, the IRS successfully asserted that the notes did not represent debt
for federal income tax
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purposes, the notes might be treated as equity interests in the trust. If so
treated, the trust would be treated as a publicly traded partnership that would
not be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the notes as equity interests in that type of
partnership could have adverse tax consequences to some holders. For example,
income to foreign holders generally would be subject to federal tax and federal
tax return filing and withholding requirements, income to certain tax-exempt
entities would be unrelated business taxable income, and individual holders
might be subject to specified limitations on their ability to deduct their
share of trust expenses.
Tax Consequences to Certificateholders
Treatment of the Trust as a Partnership. We, the general partner and the
owner trustee will agree, and the certificateholders will agree by their
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the trust, the partners of the partnership being the certificateholders and
the general partner, and the notes being debt of the partnership. The proper
characterization of the arrangement involving the trust, the certificates, the
notes, the general partner, us and the servicer, however, is not certain
because there is no authority on transactions closely comparable to that
contemplated herein.
A variety of alternative characterizations are possible. For example, because
the certificates have selected features characteristic of debt, the
certificates might be considered debt of the trust. This characterization would
not result in materially adverse tax consequences to certificateholders as
compared to the consequences from treatment of the certificates as equity in a
partnership, as discussed in the following paragraphs. The following discussion
assumes that the certificates represent equity interests in a partnership.
Partnership Taxation. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account the holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the loans, including
appropriate adjustments for market discount, OID and bond premium, and any gain
upon collection or disposition of the loans. The trust's deductions will
consist primarily of interest accruing for the notes, servicing and other fees,
and losses or deductions upon collection or disposition of the loans.
The tax items of a partnership are allocable to the partners in accordance
with the IRS code, treasury regulations and the partnership agreement, in this
prospectus, the trust agreement and related documents. The trust agreement will
provide, in general, that the certificateholders will be allocated taxable
income of the trust for each month equal to the sum of
(1) the interest that accrues on the certificates according to their terms
for that month, including interest accruing at the pass-through rate
for that month and interest on amounts previously due on the
certificates but not yet distributed;
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(2) any trust income attributable to discount on the loans that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
(3) prepayment premium payable to the certificateholders for that month;
and
(4) any other amounts of income payable to the certificateholders for that
month.
Although it is not anticipated that the certificates will be issued at a price
which exceeds their principal amount, allocations of trust income to the
certificateholders will be reduced by any amortization by the trust of premium
on loans that corresponds to any such excess of the issue price of certificates
over their principal amount.
All remaining taxable income of the trust will be allocated to the general
partner. Based on the economic arrangement of the parties, this approach for
allocating trust income should be permissible under applicable treasury
regulations, although no assurance can be given that the IRS would not require
a greater amount of income to be allocated to certificateholders. Moreover,
even under this method of allocation, certificateholders may be allocated
income equal to the entire pass-through rate plus the other items described
above even though the trust might not have sufficient cash to make current cash
distributions of this amount. Cash basis holders will in effect be required to
report income from the certificates on the accrual basis, and
certificateholders may become liable for taxes on trust income even if they
have not received cash from the trust to pay these taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
certificateholders but certificateholders may be purchasing certificates at
different times and at different prices, certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the trust.
All of the taxable income allocated to a certificateholder that is a pension,
profit sharing or employee benefit plan or other tax-exempt entity, including
an individual retirement account, will constitute unrelated business taxable
income generally taxable to such a holder under the IRS code.
A certificateholder's share of expenses of the trust, including fees to the
servicer but not interest expense, will be miscellaneous itemized deductions.
An individual, an estate, or a trust that holds a certificate either directly
or through a pass-through entity will be allowed to deduct such expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with specific other itemized deductions, they exceed 2% of the
adjusted gross income of the certificateholder. In addition, Section 68 of the
IRS code provides that the amount of itemized deductions (including those
provided for in Section 212 of the IRS code) otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds a threshold
amount determined under the IRS code ($126,600 in 1999, 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 the taxable year. To the extent
that a certificateholder is not permitted to deduct servicing fees allocable to
a certificate, the taxable income of the certificateholder attributable to that
certificate will exceed the net cash distributions related to
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this income. Certificateholders may deduct any loss on disposition of the loans
to the extent permitted under the IRS code.
Discount and Premium. It is believed that the loans were not issued with OID,
and, therefore, the trust should not have OID income. The purchase price paid
by the trust for the loans may exceed the remaining principal balance of the
loans at the time of purchase. If the trust is deemed to acquire the loans at a
premium or at a market discount, the trust will elect to offset any premium
against interest income on the loans or to include any discount in income
currently as it accrues over the life of the loans. The trust will make this
premium or market discount calculation on an aggregate basis but may be
required to recompute it on a loan-by-loan basis. As indicated above, a portion
of this premium deduction or market discount income may be allocated to
certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss for distributions from the trust. A certificateholder
will recognize gain, however, to the extent that any money distributed exceeds
the certificateholder's adjusted basis in its certificates immediately before
the distribution described in this prospectus under "Disposition of
Certificates". A certificateholder will recognize loss upon termination of the
trust or termination of the certificateholder's interest in the trust if the
trust only distributes money to the certificateholder and the amount
distributed is less than the certificateholder's adjusted basis in the
certificates. This gain or loss generally will be capital gain or loss if the
certificates are held as capital assets and will be long-term gain or loss if
the holding period of the certificates is more than one year.
Section 708 Termination. Under Section 708 of the IRS code, the trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the trust are sold or exchanged within a 12-
month period. Under treasury regulations, if such a termination occurs, the
trust will be considered to have contributed the assets of the trust (the old
partnership) to a new partnership in exchange for interests in the new
partnership. Such interests would be deemed distributed to the partners of the
old partnership in liquidation thereof, which would not constitute a sale or
exchange for United States federal income tax purposes.
Disposition of Certificates. If a certificateholder sells a certificate, the
certificateholder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale and the
seller's tax basis in the certificate. A certificateholder's tax basis in a
certificate generally will equal the certificateholder's cost increased by the
certificateholder's share of trust income and decreased by any distributions
received for that certificate. In addition, both the tax basis in the
certificate and the amount realized on a sale of a certificate would include
the certificateholder's share of the notes and other liabilities of the trust.
A certificateholder acquiring certificates at different prices may be required
to maintain a single aggregate adjusted tax basis in these certificates, and,
upon sale or other disposition of some of these certificates, allocate a
portion of such aggregate tax basis to the certificates sold, rather than
maintain a separate tax basis in each certificate for purposes of computing
gain or loss on a sale of that certificate.
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Any gain on the sale of a certificate attributable to the certificateholder's
share of unrecognized accrued market discount on the loans would generally be
treated as ordinary income to the certificateholder and would give rise to
special tax reporting requirements. The trust does not expect to have any other
assets that would give rise to these special reporting requirements. To avoid
those special reporting requirements, the trust will elect to include market
discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of income
not including income attributable to disallowed itemized deductions described
in the paragraphs above, over the life of the certificates that exceeds the
aggregate cash distributions, the excess generally will give rise to a capital
loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the related record date. As a result, a certificateholder purchasing a
certificate may be allocated tax items, which will affect the
certificateholder's tax liability and tax basis, attributable to periods before
the certificateholder actually owns the certificate. The use of this convention
may not be permitted by existing regulations. If a monthly convention is not
permitted, or only applies to transfers of less than all of the
certificateholder's interest, taxable income or losses of the trust may be
reallocated among the certificateholders. The general partner is authorized to
revise the trust's method of allocation between transferors and transferees to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a certificateholder sells a
certificate at a profit or loss, the purchasing certificateholder will have a
higher or lower basis in the certificate than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust files an election under Section 754 of
the IRS code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make such election. As a
result, certificateholders may be allocated a greater or lesser amount of trust
income than would be appropriate based on their own purchase price for
certificates.
Administrative Matters. Under the administration agreement, the trustee will
monitor the performance of the following responsibilities of the trust by other
service providers. The trust is required to keep or have kept complete and
accurate books of the trust. These books will be maintained for financial
reporting and tax purposes on an accrual basis and the fiscal year of the trust
will be the calendar year. The trust will file a partnership information return
on IRS Form 1065 with the IRS for each taxable year of the trust and will
report each certificateholder's allocable share of items of trust income and
expense to certificateholders and the IRS on Schedule K-1. The trust will
provide the Schedule K-1 information to nominees that fail to provide the trust
with specific required information statements relating to identification of
beneficial owners of certificates and those nominees will be required to
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forward this information to the beneficial owners. Generally,
certificateholders must file tax returns that are consistent with the
information return filed by the trust or be subject to penalties unless the
certificateholder notifies the IRS of any inconsistencies.
We or our subsidiary as identified in the applicable prospectus supplement
will be designated as the tax matters partner in the trust agreement and will
be responsible for representing the certificateholders in any dispute with the
IRS. The IRS code provides for administrative examination of a partnership as
if the partnership were a separate and distinct taxpayer. Generally, the
statute of limitations for partnership items does not expire before three years
after the date on which the partnership information return is filed. Any
adverse determination following an audit of the return of the trust by the
appropriate taxing authorities could result in an adjustment of the returns of
the certificateholders, and, under specific circumstances, a certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the trust. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes for non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described in this prospectus. Although it is not expected that
the trust will be engaged in a trade or business in the United States for this
purposes, the trust will withhold as if it were so engaged in order to protect
the trust from possible adverse consequences of a failure to withhold. It is
expected that the trust will withhold on the portion of its taxable income that
is allocable to foreign certificateholders under Section 1446 of the IRS code,
as if this income were effectively connected to a U.S. trade or business, at a
rate of 35% for foreign holders that are taxable as corporations and 39.6% for
all other foreign certificateholders. Subsequent adoption of treasury
regulations or the issuance of other administrative pronouncements may require
the trust to change its withholding procedures. In determining a
certificateholder's nonforeign status, the trust may rely on Form W-8, Form W-9
or the certificateholder's certification of nonforeign status signed under
penalties of perjury.
Each foreign certificateholder might be required to file a U.S. individual or
corporate income tax return, including, in the case of a corporation, the
branch profits tax on its share of the trust's income. Each foreign
certificateholder must obtain a taxpayer identification number from the IRS and
submit that number to the trust on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign certificateholder generally will be
entitled to file with the IRS a claim for refund for taxes withheld by the
trust, taking the position that no taxes are due because the trust is not
engaged in a U.S. trade or business. However, the IRS may assert that
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
Backup Withholding. Under specific circumstances, a certificateholder may be
subject to backup withholding at a 31% rate. See the discussion above in this
prospectus under "Certain Federal Income Tax Consequences--Tax Consequences to
Noteholders--Backup Withholding."
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CERTAIN STATE INCOME TAX CONSEQUENCES
The activities to be undertaken by the servicer in servicing and collecting
the loans will take place in Minnesota. The State of Minnesota imposes an
income tax on individuals, trusts and estates and a franchise tax measured by
net income on corporations. This discussion of Minnesota taxation is based upon
current statutory provisions and the regulations promulgated by these statutes,
and applicable judicial or ruling authority, all of which are subject to
change, which may be retroactive. No ruling on any of the issues discussed
below will be sought from the Minnesota Department of Revenue.
If the notes are treated as debt for federal income tax purposes, in the
opinion of counsel this treatment will also apply for Minnesota tax purposes.
Noteholders not otherwise subject to Minnesota income or franchise taxation
would not become subject to this tax solely because of their ownership of the
notes. Noteholders already subject to income or franchise taxation in Minnesota
could, however, be required to pay this tax on all or a portion of the income
generated from ownership of the notes.
If the trust is treated as a partnership, not taxable as a corporation, for
federal income tax purposes, in the opinion of counsel the trust would also be
treated as a partnership for Minnesota income tax purposes. The partnership
therefore would not be subject to Minnesota taxation. Certificateholders that
are not otherwise subject to Minnesota income or franchise taxation would not
become subject to this tax solely because of their interests in the
partnership. Certificateholders already subject to income or franchise taxation
in Minnesota could, however, be required to pay this tax on all or a portion of
the income from the partnership.
If the certificates are treated as ownership interests in an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, in the opinion of counsel this treatment would also apply for
Minnesota income and franchise tax purposes. Under this treatment, the trust
would be subject to the Minnesota franchise tax measured by net income, which
could result in reduced distributions to certificateholders. Certificateholders
that are not otherwise subject to Minnesota income or franchise taxation would
not become subject to this tax solely because of their interests in the
constructive corporation. Certificateholders already subject to income or
franchise taxation in Minnesota could, however, be required to pay this tax on
all or a portion of the income from the constructive corporation.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to ERISA ("Plans") and on persons who are
fiduciaries for these Plans. Generally, ERISA applies to investments made by
the 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 those
Plans. ERISA also imposes duties on persons who are fiduciaries
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<PAGE>
of the Plans. Under ERISA, and subject to exemptions not relevant to this
offering, any person who exercises any authority or control over the management
or disposition of the assets of a Plan is considered to be a fiduciary of the
Plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of Plans be invested and
managed for the exclusive benefit of Plan participants and beneficiaries, a
determination by the Plan fiduciary that this 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. Some employee benefit plans, such as governmental plans (as defined
in ERISA Section 3(32)) and selected church plans (as defined in ERISA Section
3(33)), are not subject to ERISA. Accordingly, assets of these plans may be
invested in certificates without regard to the ERISA considerations described
above and in the paragraphs below, subject to the provisions of applicable
state law. Any plan which is qualified and exempt from taxation under Sections
401(a) and 501(a) of the IRS code however, is subject to the prohibited
transaction rules provided in Section 503 of the IRS code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
IRS code, prohibit a broad range of transactions involving Plan assets and
persons having specified relationships to a Plan ("parties in interest" within
the meaning of ERISA, and "disqualified persons" within the meaning of ERISA).
These 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 IRS 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 loan pool and not merely an interest
in the certificates, transactions occurring in the operation of the loan pool
might constitute prohibited transactions unless an administrative exemption
applies. Exemptions which may be applicable to the acquisition and holding of
the certificates or to the servicing and operation of the loan pool are noted
in the paragraphs below.
The Department of Labor has issued a regulation (29 C.F.R. Section 2510.3-
101) 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 particular 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 the 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. The certificates are not
expected to be publicly offered securities under the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise tax provisions of Section 4975 of
the IRS code) may be
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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 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
specific conditions, transactions which might otherwise be prohibited between
Plans and parties in interest for 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 specific mortgage pool
pass-through certificates representing an interest in these 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 the certificates, and at least 50 percent of
all the certificates are purchased by persons independent of the pool sponsor
or pool trustee. However, PTE 83-1 does not provide an exemption for
transactions involving subordinate certificates or for certificates
representing an interest in conditional sales loans and installment sales or
loan agreements secured by housing like the loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing Plan's assets could be
considered to include an undivided interest in the home equity loans and any
other assets held in the loan pool. If the assets of a loan pool are considered
assets of an investing Plan, we, the servicer, the trustee and other persons,
in providing services on the loans, may be considered fiduciaries to the Plan
and subject to the fiduciary responsibility provisions of Title I of ERISA and
the prohibited transaction provisions of Section 4975 of the IRS code for
transactions involving those assets unless a statutory or administrative
exemption applies.
Any Plan fiduciary considering the purchase of a certificate should consult
with its counsel about the potential applicability of ERISA and the IRS code to
the 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.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in
59
<PAGE>
transactions with persons who provide services to insurance company general
accounts. PTE 95-60 also permits transactions relating to the origination and
operation of asset pool investment trusts in which an insurance company general
account has an interest as the result of the acquisition of certificates issued
by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of
specific receivables, loans and other obligations that meet the conditions and
requirements of PTE 95-60. The receivables covered by PTE 95-60 include home
equity installment sale loans and installment loan agreements such as the home
equity loans in the loan pool. The exemption offered by PTE 95-60 is
conditioned upon compliance with the requirements of one of several
"underwriter exemptions," other than compliance with the requirements that the
certificates acquired by the general account not be subordinated and receive a
rating that is in one of the three highest generic rating categories from
either S&P, Moody's, Duff & Phelps Credit Rating Co. or Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the IRS code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the IRS code, for transactions involving an insurance company general
account. Under Section 401(c) of ERISA, the DOL published proposed regulations
("Proposed 401(c) Regulations") on December 22, 1997 to provide guidance for
the purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute Plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the Proposed 401(c) Regulations become final, no person will be
subject to liability under Part 4 of Title I of ERISA and Section 4975 of the
IRS code on the basis of a claim that the assets of an insurance company
general account constitute Plan assets, unless
(1) as otherwise provided by the Secretary of Labor in the Proposed
401(c) Regulations to prevent avoidance of the regulations; or
(2) an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for which the insurance company does not comply with
the Proposed 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as Plan assets of any Plan invested
in the separate account. Insurance companies contemplating the investment of
general account assets in the certificates should consult with their legal
counsel about the applicability of PTCE 95-60 and Section 401(c) of ERISA,
including the general account's ability to continue to hold the securities
after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
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LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, any
securities offered here are not expected to constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because there will be a substantial number of loans that are secured by
liens on real estate that are not first liens, as required by SMMEA.
Accordingly, many institutions with legal authority to invest in "mortgage
related securities" may not be legally authorized to invest in the securities.
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, individual 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 selected investors, including depository institutions, either to purchase
securities or to purchase securities 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 securities constitute
legal investments for them.
RATINGS
It is a condition precedent to the issuance of any class of securities 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 securities should
be evaluated independently of similar security ratings assigned to other kinds
of securities.
UNDERWRITING
We may sell securities of each series to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell and place securities directly to other
purchasers or through agents. We intend that securities will be offered through
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 securities may be made through a combination of these methods.
The distribution of the securities 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 the
prevailing market prices or at negotiated prices.
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If so specified in the prospectus supplement relating to a series of
securities, we or our affiliate may purchase some or all of one or more classes
of securities of a series from the underwriter or underwriters at a price
specified in the prospectus supplement. The purchaser may after that from time
to time offer and sell, under this prospectus, some or all of the securities so
purchased directly, through one or more underwriters to be designated at the
time of the offering of the securities or through broker-dealers acting as
agent and/or principal. The offering may be restricted in the manner described
in the prospectus supplement. The 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 securities, underwriters may receive
compensation from us or from purchasers of securities for whom they may act as
agents in the form of discounts, concessions or commissions. Underwriters may
sell the securities of a series to or through dealers and these 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 securities of a series may be deemed to be underwriters,
and any discounts or commissions received by them from us and any profit on the
resale of the securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any such underwriters or agents will be
identified, and any such compensation received from us will be described, in
the prospectus supplement.
Under agreements which may be entered into by us, underwriters and agents who
participate in the distribution of the securities may be entitled to
indemnification by us against specific liabilities, including liabilities under
the Securities Act.
If so indicated in the prospectus supplement, we will authorize underwriters
or other persons acting as our agents to solicit offers by certain institutions
to purchase the securities from us under loans providing for payment and
delivery on a future date. Institutions with which such loans 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 us. The obligation of any
purchaser under that loan will be subject to the condition that the purchaser
of the offered securities shall not at the time of delivery be prohibited under
the laws of the jurisdiction to which that purchaser is subject from purchasing
such securities. The underwriters and other agents will not have responsibility
for the validity or performance of those loans.
The underwriters may, from time to time, buy and sell securities, but there
can be no assurance that an active secondary market will develop and there is
no assurance that any market, if established, will continue.
Some of the underwriters and their associates may engage in transactions with
and perform services for us in the ordinary course of business.
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Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the securities. These
types of transactions may include stabilizing, the purchase of securities to
cover syndicate short positions and the imposition of penalty bids. For a more
complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
The indenture trustee, if any, may, from time to time, invest the funds in
the designated accounts in eligible investments acquired from the underwriters.
Under each underwriting agreement, the closing of the sale of any class of
securities subject to that underwriting agreement will be conditioned on the
closing of the sale of all other such classes.
The place and time of delivery for the securities for which this prospectus
is delivered will be described in the related prospectus supplement.
LEGAL MATTERS
Selected matters relating to the validity of the certificates and the notes
will be passed upon for us by the our counsel as identified in the applicable
prospectus supplement. The validity of the certificates and the notes will be
passed upon for the underwriters named in the applicable prospectus supplement
by the counsel for the underwriters identified in the that prospectus
supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31, 1998, incorporated by reference in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997 are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in this prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
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GLOSSARY
For the purposes of this prospectus and the prospectus supplement, the
following terms will have the following meanings:
"Amount available" with respect to any distribution date, means generally the
sum of payments on the loans due and received during the preceding month,
prepayments and other unscheduled collections received during the preceding
month, any amounts deposited in respect of purchased loans, any interest rate
cap payment, any guaranty payment, and all earnings from the investment of
funds in the collection account.
The "formula principal distribution amount" for any distribution date (but
subject to the last sentence of this definition) will generally be equal to the
sum of the following amounts with respect to the monthly period, in each case
computed in accordance with the method specified in each home equity loan:
(i) all scheduled payments of principal due on each outstanding home
equity loan during the monthly period,
(ii) all partial principal prepayments applied and all principal
prepayments in full received during the monthly period in respect of each
home equity loan,
(iii) the scheduled principal balance of each home equity loan that
became a liquidated loan during the monthly period,
(iv) the scheduled principal balance of each home equity loan which,
during the monthly period, was purchased by us as a result of a breach of
a representation or warranty or by the servicer as a result of an uncured
breach of a covenant under the sale and servicing agreement, and
(v) with respect to the distribution date in 1999, any remaining
amounts on deposit in the pre-funding account.
The formula principal distribution amount for the distribution date in
2029, will be the sum of the note principal balance and the certificate
principal balance.
"Liquidated loan" means any defaulted loan as to which the servicer has
determined that all amounts which it expects to recover from or on account of
such loan through the date of disposition of the real property have been
recovered; provided that any defaulted loan in respect of which the real
property has been realized upon and disposed of and proceeds of such
disposition have been received shall be deemed to be a liquidated loan.
"Purchased loan" means a loan that:
. We have become obligated to repurchase (or, under certain
circumstances, has elected to repurchase) as a result of an uncured
breach by us of a representation or warranty made by us for such loan
or
. the servicer has become obligated to repurchase, or, under certain
circumstances, has elected to repurchase, as a result of an uncured
breach of the covenants made by it for that such loan.
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"Noteholders' distributable amount" means, for any distribution date, the sum
of the noteholders' interest distributable amount and the noteholders'
principal distributable amount.
"Noteholders' interest distributable amount" means, for any distribution
date, the sum of the noteholders' monthly interest distributable amount for
such distribution date and the noteholders' interest carryover shortfall for
the distribution date.
"Noteholders' monthly interest distributable amount" means, for any
distribution date, interest accrued for the monthly interest period on each
class of notes at the respective interest rate for such class on:
(1) the outstanding principal balance of the notes of such class and
(2) the aggregate unreimbursed principal liquidation losses of the class
on each prior distribution date, in each case after giving effect to
all payments of principal to the noteholders of the class on the
immediately preceding distribution date.
"Principal liquidation loss" means, for any distribution date and any class
of notes, the amount by which the aggregate principal balance of the class and
each junior class and the certificate principal balance, after giving effect to
any principal liquidation losses imposed on such junior classes and
certificates, exceeds the pool scheduled principal balance, after giving effect
to all distributions of principal on such distribution date.
"Principal balance" means, with respect to any determination date and any
class of notes, the original principal balance of a class minus all amounts
previously distributed in respect of principal of the class and minus any
unreimbursed principal liquidation losses of such class.
"Noteholders' interest carryover shortfall" means, for any distribution date,
the excess of the noteholders' monthly interest distributable amount for the
preceding distribution date and any outstanding noteholders' interest carryover
shortfall on such preceding distribution date, over the amount in respect of
interest that is actually deposited in the note distribution account on the
preceding distribution date, plus interest on the amount of interest due but
not paid to noteholders on the preceding distribution date, to the extent
permitted by law, at the respective interest rate for each class of notes for
the applicable monthly interest period.
"Noteholder's principal distributable amount" means, for any distribution
date, the sum of the noteholders' monthly principal distributable amount for
the distribution date and the noteholders' unpaid principal shortfall as of the
close of the preceding distribution date; provided, however, that the
noteholders' principal distributable amount shall not exceed the outstanding
principal balance of the notes, and provided further, that the noteholders'
principal distributable amount on the final scheduled distribution date shall
not be less than the amount that is necessary, after giving effect to other
amounts to be deposited in the note distribution account on such distribution
date and allocable to principal, to reduce the outstanding principal balances,
including all unreimbursed principal liquidation losses, of all classes of
notes to zero.
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"Noteholders' monthly principal distributable amount" means, for any
distribution date, the noteholders' percentage of the formula principal
distribution amount plus the aggregate unreimbursed principal liquidation
losses of each class of notes.
"Noteholders' percentage" means, 100% until and including the distribution
date on which the aggregate principal balance of the notes are paid in full and
0% thereafter.
"Noteholders' unpaid principal shortfall" means, as of the close of any
distribution date, the excess of the noteholders' monthly principal
distributable amount and any outstanding noteholders' unpaid principal
shortfall from the preceding distribution date over the amount in respect of
principal that is actually deposited in the note distribution account on such
distribution date.
"Certificateholders' distributable amount" means, for any distribution date,
the sum of the certificateholders' interest distributable amount and the
certificateholders' principal distributable amount.
"Certificateholders' interest distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly interest
distributable amount for such distribution date and the certificateholders'
interest carryover shortfall for such distribution date.
"Certificateholders' monthly interest distributable amount" means, for any
distribution date, interest accrued at the pass-through rate on:
(1) the certificate principal balance and
(2) the aggregate unreimbursed certificate principal liquidation losses on
each prior distribution date, in each case after giving effect to all
payments of principal to the certificateholders on the immediately
preceding distribution date.
"Certificate principal liquidation loss" means, for any distribution date,
the amount by which the aggregate principal balance of the notes and the
certificate principal balance exceeds the pool scheduled principal balance,
after giving effect to all distributions of principal on such distribution
date.
"Certificate principal balance" equals, initially, approximately $ and,
after that, equals the original certificate principal balance, reduced by all
amounts allocable to principal previously distributed to certificateholders
minus any unreimbursed certificate principal liquidation losses.
"Certificateholders' interest carryover shortfall" means, for any
distribution date, the excess of the certificateholders' monthly interest
distributable amount for the preceding distribution date and any outstanding
certificateholders' interest carryover shortfall on the preceding distribution
date, over the amount in respect of interest at the pass-through rate that is
actually deposited in the certificate distribution account on such preceding
distribution date, plus interest on such excess, to the extent permitted by
law, at the pass-through rate from such preceding distribution date to but
excluding the current distribution date.
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"Certificateholders' principal distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly principal
distributable amount for such distribution date and the certificateholders'
unpaid principal shortfall as of the close of the preceding distribution date;
provided, however, that the certificateholders' principal distributable amount
shall not exceed the certificate principal balance plus any unreimbursed
certificate principal liquidation losses. In addition, on the final scheduled
distribution date, the principal required to be deposited into the certificate
distribution account shall not be less than the amount that is necessary, after
giving effect to the other amounts to be deposited in the certificate
distribution account on such distribution date and allocable to principal, to
reduce to zero the certificate principal balance plus the unreimbursed
certificate principal liquidation losses.
"Certificateholders' monthly principal distributable amount" means, for any
distribution date prior to the distribution date on which the notes are paid in
full, zero; and with respect to any distribution date commencing on the
distribution date on which the notes are paid in full, the formula principal
distribution amount, less, on the distribution date on which the notes are paid
in full, the portion thereof payable on the notes.
"Certificateholders' unpaid principal shortfall" means, as of the close of
any distribution date, the excess of the certificateholders' monthly principal
distributable amount and any outstanding certificateholders' unpaid principal
shortfall from the preceding distribution date, over the amount in respect of
principal that is actually deposited in the certificate distribution account.
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- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and its +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT Prospectus Supplement to Base No. 3
(To prospectus dated , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Certificates for Home Improvement and Home Equity Loans
Series 1999-
-----------
The certificates will consist of classes, but we are offering only the
following classes now:
<TABLE>
<CAPTION>
Pass-
Approximate Through Underwriting Proceeds to
Class Principal Amount Rate Price to Public Discount Company
- ----- ---------------- ------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
HI: A-1....... $ % % % %
HI: A-2....... $ % % % %
HI: A-3....... $ % % % %
HE: A-1A NAS.. $ % % % %
HE: A-1B ARM.. $ % % % %
HE: A-1....... $ % % % %
HE: A-2....... $ % % % %
HE: A-3....... $ % % % %
HE: A-4....... $ % % % %
HE: A-5 IO.... $ % % % %
HE: M-1....... $ (1) % % % %
Total......... $ $ $
</TABLE>
(1) Or the weighted average of the rates on the loans in the related loan sub-
pool, if less.
You should consider carefully the risk factors beginning on page S-21 in this
prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed the
merits of this offering. Any representation to the contrary is unlawful.
The underwriters named below will offer these securities, other than the
Class HE: A-5 IO and Class HE: M-1 certificates, to the public at the offering
price listed on this cover page and they will receive the discount listed
above. See "Underwriting" on page S-141 in this prospectus supplement and on
page 67 in the prospectus.
[Underwriters]
The date of this prospectus supplement is , 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Summary of the Terms of the Certificates.................................. S-4
Risk Factors.............................................................. S-21
Structure of the Transaction.............................................. S-26
Use of Proceeds........................................................... S-28
The Loans................................................................. S-29
Yield and Prepayment Considerations....................................... S-55
Green Tree Financial Corporation.......................................... S-75
Description of the Certificates........................................... S-76
Description of the Swap Counterparty and the Swap Agreement............... S-129
Description of the Limited Guaranties..................................... S-131
Certain Federal Income Tax Consequences................................... S-133
ERISA Considerations...................................................... S-135
Underwriting.............................................................. S-141
Legal Matters............................................................. S-142
Annex I................................................................... A-1
Prospectus
Important Notice about Information Presented in this Prospectus
and the Accompanying Prospectus Supplement............................... 2
The Trust................................................................. 3
Use of Proceeds........................................................... 8
Green Tree Financial Corporation.......................................... 8
Yield Considerations...................................................... 12
Maturity and Prepayment Considerations.................................... 12
Description of the Certificates........................................... 13
Description of FHA Insurance.............................................. 22
Servicing................................................................. 24
Certain Legal Aspects of the Loans; Repurchase Obligations................ 27
ERISA Considerations...................................................... 40
Certain Federal Income Tax Consequences................................... 43
Legal Investment Considerations........................................... 67
Ratings................................................................... 67
Underwriting.............................................................. 67
Legal Matters............................................................. 69
Experts................................................................... 69
Glossary.................................................................. 70
</TABLE>
You should rely only on the information contained in this prospectus. Green
Tree and the underwriters have not authorized any other person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. Green Tree and the
underwriters are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
S-2
<PAGE>
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our home equity and home improvement lending business, and about any
series of certificates for home improvement and home equity loans that we may
wish to sell. This prospectus supplement contains more detailed information
about the specific terms this series of certificates. If the description of the
terms of your certificate varies between this prospectus supplement and the
prospectus, you should rely on the information in this prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from us or an underwriter by asking for it.
No prospectus regarding these certificates has been or will be prepared in
the United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These certificates may not be offered or sold, or re-offered
or re-sold, to persons in the United Kingdom, except (1) to persons whose
ordinary activities involve them in acquiring, holding, managing and disposing
of investments (as principal or agent) for the purpose of their businesses, or
(2) in circumstances that will not constitute or result in an offer to the
public in the United Kingdom within the meaning of the United Kingdom Public
Offers of Securities Regulation 1995. You may not pass this prospectus
supplement and prospectus, or any other document inviting applications or
offers to purchase certificates or offering certificates for purchase, to any
person in the United Kingdom who (1) does not fall within article 11(3) of the
Financial Services Act 1986 (Investment Advisements) (Exemptions) Order 1996 or
(2) is not otherwise a person to whom passing this prospectus supplement and
prospectus would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE CERTIFICATES
This summary highlights selected information regarding the certificates, and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the certificates,
read this entire prospectus supplement and the accompanying prospectus. In
particular, we will refer throughout this summary to sections of this
prospectus supplement or the prospectus, or both, which will contain more
complete descriptions of the matters summarized. All these references will be
to sections of this prospectus supplement only unless we note otherwise.
Home Improvement and Home Equity Loan Trust 1999- and Grantor Trust 1999-
will issue the classes of certificates listed in the table below.
<TABLE>
<CAPTION>
Approximate Moody's Fitch
Class Certificate Rate Principal Amount (1) Rating Rating
- ----- ---------------- -------------------- ------- ------
<S> <C> <C> <C> <C>
HI: A-1.................... % $
HI: A-2....................
HI: A-3....................
HI: M-1....................
HI: M-2.................... (1)
HI: B-1....................
HI: B-2.................... (1)
HE: A-1A NAS...............
HE: A-1B ARM...............
HE: A-1....................
HE: A-1 Underlying.........
HE: A-2....................
HE: A-3....................
HE: A-4.................... (1)
HE: A-5 IO................. (2)
HE: M-1....................
HE: M-2....................
HE: B......................
C Master................... (3)
C Subsidiary............... (3)
</TABLE>
- --------
(1) Or the weighted average of the rates on the loans in the related loan sub-
pool, if less.
(2) Interest on the Class HE: A-5 IO certificates will be based on a notional
principal amount. That notional principal amount will equal $ (or the
Class HE: A Principal Balance, if less) for the first 24 months, and will
equal zero thereafter.
(3) This class is not entitled to any distributions of interest.
Only some classes of the certificates are being offered under this prospectus
supplement and the prospectus, and they are identified on the cover page of
this prospectus supplement. Green Tree or one of its affiliates, initially will
retain the Class HI: M-1, Class HI: M-2, Class HI: B-1, Class HI: B-2,
Class HE: M-2, Class HE: B, Class C master and Class C subsidiary certificates,
but may sell any or all of these certificates at a later date.
S-4
<PAGE>
We will not issue or sell the certificates unless S&P and Fitch assign each
class at least the rating listed above. The rating of each class of
certificates by Moody's and Fitch addresses the likelihood of timely receipt of
interest and ultimate receipt of principal. The ratings of the Class HE: A-1B
ARM certificates do not address the likelihood of payment of supplemental
interest in the event the available funds pass-through rate is less than one
month LIBOR plus the pass-through margin, as described under "Description of
the Loans--Distributions on Sub-Pool HE Certificates." 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 ratings of the Class HE: B certificates and Class HI: B-2 certificates
are based in part on an assessment of our ability to make payments under the
Class HE: B limited guaranty and the Class HI: B-2 limited guaranty. Any
reduction in the rating of Green Tree's debt securities may result in a similar
reduction in the ratings of the Class HE: B and Class HI: B-2 certificates.
The ratings of the Class HE: A-1 certificates are based partially on the
creditworthiness of the swap counterparty. Any reduction in the rating assigned
to the swap counterparty would likely result in a reduction in the ratings of
the Class HE: A-1 certificates.
Seller and Servicer.........
Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Trustee.....................
[Trustee], as trustee for the Home Improvement
and Home Equity loan trust 1999- and Grantor
trust 1999- .
Payment Date................
For the certificates, other than the Class HE: A-
1 certificates, the fifteenth day of each month,
or, if that fifteenth day is not a business day,
the next succeeding business day, beginning on
, 1999. For the Class HE: A-1 certificates,
the eighteenth day of each month during the term
of a swap agreement, or if that eighteenth day is
not a business day, the next succeeding business
day. The payment date for the Class HE: A-1
certificates will be an earlier day, but not
earlier than the payment date for the other
certificates, if the trustee receives any
required swap payment before 11:00 a.m. Central
Standard Time on the earlier day. The payment
date for the Class HE: A-1 certificates will be
the same as the payment date for the other
certificates after the swap agreement terminates.
S-5
<PAGE>
Record Date.................
The business day just before the related payment
date, beginning in 1999.
Sub-Pool HI Certificates....
Payments of principal and interest on some of the
certificates will be made primarily from payments
on the loans included in sub-pool HI.
Sub-Pool HE Certificates....
Payments of principal and interest on some of the
certificates will be made primarily from payments
on the loans included in sub-pool HE. Certain
payments of interest on the Class HE: A-1
certificates may be made by a swap counterparty
under a swap agreement.
Distributions on Sub-Pool
HI Certificates.............
Distributions on the sub-pool HI certificates on
any payment date will be made primarily from
amounts collected on the home improvement loans
comprising sub-pool HI during the prior calendar
month. On each payment date, the trustee will
apply the sub-pool HI amount available to make
distributions of principal and interest on the
sub-pool HI certificates in the following order
of priority:
^ Class HI: A interest;
^ Class HI: M-1 interest;
^ Class HI: M-2 interest;
^ Class HI: B-1 interest;
^ Principal on the class or classes of Class
HI: A certificates then entitled to
principal;
^ Principal on the Class HI: M certificates
(if due);
^ Class HI: B-1 principal (if due);
^ Class HI: B-2 interest; and
^ Class HI: B-2 principal (if due).
This prospectus supplement summarizes in the next
3 pages the amounts of interest and principal to
be paid on each payment date. See "Description of
the Certificates--Payments on Loans."
S-6
<PAGE>
A. Interest on the Class
HI: A, Class HI:M-1, Class
HI: M-2, and Class HI: B-1
Certificates................
Interest will be payable
. first to each class of the Class HI: A
certificates concurrently,
. then to the Class HI: M-1 certificates,
. then to the Class HI: M-2 certificates and
. then to the Class HI: B-1 certificates. See
"Description of the Certificates--
Distributions on Sub-Pool HI Certificates"
and "--Losses on Liquidated Home
Improvement Loans."
B. Principal on the Class
HI: A, Class HI: M-1, Class
HI: M-2 and Class HI: B-1
Certificates................
After paying the amounts of interest due on the
sub-pool HI certificates described above, the
trustee will then apply the remaining sub-pool HI
amount available to pay principal on the Class
HI: A, Class HI: M-1, Class HI: M-2 and Class HI:
B-1 certificates. A predetermined class
percentage of scheduled and unscheduled principal
payments and other recoveries on the home
improvement loans for that payment date, plus any
supplementary principal distribution required
because of high losses on the FHA home
improvement loans, will be paid:
^ to the Class HI: A-1 certificates until
retired, then
^ to the Class HI: A-2 certificates until
retired, then
^ to the Class HI: A-3 certificates until
retired, then
^ to the Class HI: M-1 certificates until
retired, and then
^ to the Class HI: M-2 certificates until
retired.
The trustee will pay principal on the Class HI:
B-1 certificates from available funds in an
amount equal to a percentage of the loan payments
and recoveries described above. Prior to the
payment date in , the percentage will
probably be zero. After that assuming
delinquencies, defaults and losses on the home
improvement loans remain below certain
S-7
<PAGE>
thresholds and that the ratio of the aggregate
outstanding principal balance of the Class HI: B
certificates to the total outstanding balance of
sub-pool HI has become at least 20%, the
percentage will generally equal this ratio. See
"Description of the certificates--Distributions
on Sub-Pool HI certificates."
C. Class HI: B-2 Interest...
After paying the amounts of interest and
principal due on the other sub-pool HI
certificates described above, the trustee will
then apply the remaining sub-pool HI amount
available to pay interest on the Class HI: B-2
certificates.
D. Class HI: B-2
Principal................... After paying the amounts of interest and
principal due on the sub-pool HI certificates
described above, the trustee will then apply the
remaining sub-pool HI amount available to pay
principal due on the Class HI: B-2 certificates.
In general, principal will not be payable on the
Class HI: B-2 certificates until the Class HI: B-
1 certificates have been retired. After that has
occurred, the Class HI: B-2 certificates will
generally be entitled to receive principal in an
amount equal to a percentage of the loan payments
and recoveries described above. The principal
balance of the Class HI: B-2 certificates will
generally not be reduced below $ until the
Class HI: A, Class HI: M and Class HI: B-1
certificates have been paid in full.
E. Class HI: B-2 Limited
Guaranty....................
We will guarantee payment of interest and
principal on the Class HI: B-2 certificates. The
Class HI: B-2 limited guaranty is of no benefit
to any other class of certificates and will be an
unsecured general obligation of us unsupported by
any letter of credit or other credit enhancement.
See "Description of the Class HI: B-2 Limited
Guaranty."
Grantor Trust...............
The Class HE: A-1 certificates will represent
undivided ownership interests in the assets held
by Green Tree Grantor Trust 1999- . The assets of
the grantor trust will consist of:
(1) the Class HE: A-1 underlying certificates
issued by the home improvement and home
equity loan trust 1999- and
S-8
<PAGE>
(2) a swap agreement between the grantor trust
and a swap counterparty.
Under the swap agreement, the swap counterparty
will be obligated to pay to the trustee the
amount by which the interest due to the Class
HE: A-1 certificates on a payment date exceeds
the amount of interest due to the trustee for
that payment date on the Class HE: A-1 underlying
certificate. The grantor trust will be created
pursuant to a trust agreement between us and the
trustee.
Swap Counterparty...........
Westdeutsche Landesbank Girozentrale, a bank
organized under the laws of the State of North
Rhine-Westphalia, acting through its New York
branch. See "Description of the Swap
Counterparty."
Reserve Account.............
The Class HE: A and Class HE: M
certificateholders will have the benefit of a
reserve account to cover liquidation losses on
the home equity loans. The reserve account will
equal $ on the closing date. Withdrawals will
be made from the reserve account to cover
liquidation losses on the home equity loans, and
to repay the loan used to fund the reserve
account. Additions will be made to the reserve
account from the sub-pool HE amount available in
an amount equal to those withdrawals from the
reserve account that are used to repay the loan
upon certain triggering events described below.
Reserve Account Loan........
The reserve account will be fully funded on the
closing date by a loan. Loan fees on the reserve
account loan will be paid on each payment date
from the amount available to pay the Class HE
certificateholders.
Amounts will be released on each payment date
from the reserve account to pay a portion of the
principal on the reserve account loan, commencing
on or after the payment date in if on that
payment date, certain tests have been met. The
loan reduction amount on this payment date will
be the excess of the sum of the Class HE: B
adjusted principal balance and the reserve
account balance over 16% of the pool scheduled
principal balance of sub-pool HE on that payment
date.
S-9
<PAGE>
However, if the Class HE: A and Class HE: M
certificate principal balances have been reduced
to zero, the reserve account balance will also be
reduced to zero.
In addition, if on a payment date certain
triggering events have occurred, amounts will be
released from the reserve account to pay the
reserve account loan on that payment date, and on
each succeeding payment date, until the
triggering event is cured. In this case, the
amount of the repayment on that date will
generally equal the amount available to Class HE
certificateholders on that payment date minus all
amounts which the Class HE: A and Class HE: M
certificateholders are entitled to receive on
that payment date. A triggering event will occur
if liquidation losses on loans included in sub-
pool HE exceed specified amounts, if prepayments
fall below certain levels, or if the sub-pool HE
amount available, after payment of interest and
principal to Class HE: A and Class HE: M
certificateholders, is less than a specified
amount.
On the earlier of the payment date in or the
payment date on which any termination event has
occurred, a portion of the sub-pool HE amount
available may be applied to pay the reserve
account loan on that payment date, and on each
succeeding payment date, until the reserve
account loan has been paid in full. In this case,
the amount of each repayment will generally equal
the amount available to the Class HE
certificateholders on that payment date minus all
amounts which the Class HE: A and Class HE: M
certificateholders are entitled to receive on
that payment date. Termination events include
. an event of default under the reserve
account loan agreement,
. the exercise by the servicer of its right
to purchase the loans in the trust created
under the pooling and servicing agreement
after the scheduled principal balance of
all the loans is less than 10% of the
aggregate principal balance of the
certificates on the closing date,
S-10
<PAGE>
. and the failure of certain tests related to
the performance of the loans included in
sub-pool HE.
Distributions on Sub-Pool
HE Certificates.............
Distributions on the sub-pool HE certificates on
any payment date will be made primarily from
amounts collected on the home equity loans
comprising sub-pool HE during the prior calendar
month. On each payment date, the trustee will
apply these amounts to make distributions of
principal and interest on the sub-pool HE
certificates in the following order of priority:
^ Class HE: A interest;
^ Class HE: M-1 interest;
^ Class HE: M-2 interest;
^ Principal on the class or classes of Class
HE: A certificates then entitled to
principal;
^ Principal on the Class HE: M certificates
(if due);
^ Class HE: B interest; and
^ Class HE: B principal (if due).
This prospectus supplement summarizes in the next
3 pages the amounts of interest and principal to
be paid on each payment date. See "Description of
the Certificates--Payments on Loans."
A. Interest on the Class
HE: A, Class HE: M-1 and
Class HE: M-2
Certificates................
Interest will be payable:
. first to each class of Class HE: A
certificates concurrently, including the
Class HE: A-1 underlying certificate but
excluding the Class HE: A-1 certificates,
. then to the Class HE: M-1 certificates
. and then to the Class HE: M-2 certificates,
to the extent of the sub-pool HE amount
available.
Certain payments of interest on the Class HE: A-1
certificates may be made by a swap counterparty
under
S-11
<PAGE>
a swap agreement. See "Description of the
Certificates--Distributions on Sub-Pool HE
Certificates" and "--Losses on Liquidated Home
Equity Loans."
B. Principal on the Class
HE: A, Class HE: M-1 and
Class HE: M-2
Certificates................
After paying the amounts due on the sub-pool HE
certificates described above, the trustee will
then apply any remaining amounts available, plus
withdrawals from a reserve account to cover any
liquidation losses, to pay principal on the Class
HE: A certificates, except the Class HE: A-5 IO
certificates, which will receive no principal,
Class HE: M-1 and Class HE: M-2 certificates, in
the amounts and order of priority described
below:
. First, the trustee will distribute a
formula amount based on the amount of
principal due on the adjustable rate home
equity loans for that payment date to the
Class HE: A-1A NAS certificates and the
Class HE: A-1B ARM certificates according
to the Class HE: A-1A NAS percentage and
the Class HE: A-1B ARM percentage.
. Second, the trustee will distribute a
formula amount based on the amount of
principal due on the group I home equity
loans for that payment date, to the Class
HE: A-1 certificates. Each group I loan,
together with any prior mortgage, has an
original principal balance of no more than
$ .
. Third, the trustee will distribute a
formula amount based on the amount of
principal due on the group II home equity
loans for that payment date. These
distributions will be made:
^ to the Class HE: A-2 certificates until
retired, then
^ to the Class HE: A-3 certificates until
retired, and then
^ to the Class HE: A-4 certificates until
retired.
S-12
<PAGE>
After paying the amounts of interest and
principal due on the sub-pool HE certificates
described above and the satisfaction of certain
additional tests, the trustee will then apply any
remaining amounts available, plus withdrawals
from a reserve account to cover liquidation
losses, to pay principal to the Class HE: M-1 and
Class HE: M-2 certificates according to a formula
based on a percentage of the principal balance of
the home equity loans. See "Description of the
Certificates--Distributions on Sub-Pool HE
Certificates."
C. Class HE: B Interest.....
After paying the amounts of interest and
principal due on the sub-pool HE certificates,
the trustee will then apply the remaining sub-
pool HE amount available to pay interest on the
Class HE: B certificates, unless the reserve
account lenders are entitled to loan payments as
a result of a triggering event or termination
event under the reserve account loan.
D. Class HE: B Principal....
After paying the amounts of interest and
principal due on the sub-pool HE certificates,
the trustee will then apply the remaining sub-
pool HE amount available to pay principal due on
the Class HE: B certificates. Class HE: B
certificates will not be paid principal before
. ,
. the reserve account has been reduced to
zero
. and certain tests are satisfied.
The principal balance of the Class HE: B
certificates will generally not be reduced below
$ until the Class HE: A and Class HE: M
certificates have been retired. Principal will be
distributed generally according to a formula
amount dictated by the principal balance of the
home equity loans.
E. Class HE: B Limited
Guaranty....................
We will guarantee payment of interest and
principal on the Class HE: B certificates. The
Class HE: B limited guaranty is of no benefit to
any other class of certificates and will be an
unsecured general obligation of us unsupported by
any letter of credit or other credit
S-13
<PAGE>
enhancement. See "Description of the Class HE: B
Limited Guaranty."
Home Improvement Loans......
Sub-pool HI will consist of a pool of
conventional and FHA-insured home improvement
loans and promissory notes. This prospectus
supplement provides information regarding a
portion of the home improvement loans,
representing about % of sub-pool HI. We will
transfer another portion of the home improvement
loans to the trust on the closing date, and will
transfer the remaining home improvement loans to
the trust within 60 days after the closing date.
On the cut-off date the first portion of home
improvement loans have the following
characteristics:
. are conventional and are FHA-
insured;
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. the loan rates range from % to %, with
a weighted average of %;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months; and
. the latest scheduled maturity date was in
.
Sub-Pool HI Pre-Funding
Account.....................
If the aggregate principal balance of the home
improvement loans transferred by us to the trust
on the closing date is less than the aggregate
original principal balance of the sub-pool HI
certificates, that difference will be deposited
by the trustee in the sub-pool HI pre-funding
account, and those funds will be used to purchase
home improvement loans until ,
S-14
<PAGE>
1999. If those funds are not completely used by
, 1999, any remaining funds will be
distributed as principal on the Class HI: A-1
certificates on the 1999 payment date.
Home Equity Loans......
Sub-pool HE will include both fixed-rate home
equity loans, divided into group I and group II
and adjustable rate home equity loans.
A. Group I Fixed-Rate Home
Equity Loans...........
This prospectus supplement provides information
about a portion of the group I fixed-rate home
equity loans, representing about % of all the
group I fixed-rate home equity loans. We will
transfer another portion of the group I fixed-
rate home equity loans to the trust on the
closing date, and will transfer the remaining
group I fixed-rate home equity loans to the trust
within 60 days after the closing date.
Each group I home equity loan, together with any
prior mortgage, has an original principal balance
of no more than $ .
On the cut-off date the first portion of group I
fixed-rate home equity loans have the following
characteristics:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. the loan rates range from % to %, with
a weighted average of %;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months,
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months;
. % are balloon loans and the rest provide
for level monthly payments for the duration
of the loan;
S-15
<PAGE>
. the weighted average loan rate on the
balloon loans was %;
. the balloon loans had a weighted average
term to scheduled maturity of months;
. a weighted average to maturity as of the
cut-off date of months; and
. the latest scheduled maturity date was in
.
See "The Loans--Home Equity Loans."
B. Group II Fixed-Rate Home
Equity Loans...........
This prospectus supplement provides information
about a portion of the group II fixed-rate home
equity loans, representing about % of all the
group II fixed-rate home equity loans. We will
transfer another portion of the group II fixed-
rate home equity loans to the trust on the
closing date, and will transfer the remaining
group II fixed-rate home equity loans to the
trust within 60 days after the closing date.
On the cut-off date the first portion of group II
fixed-rate home equity loans have the following
characteristics:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. the loan rates range from % to %, with
a weighted average of %;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months;
. % are balloon loans and the rest provide
for level monthly payments for the duration
of the loan;
S-16
<PAGE>
. the weighted average loan rate on the
balloon loans was %;
. the balloon loans had a weighted average
term to scheduled maturity, as of their
dates of origination, of months and a
weighted average to maturity as of the cut-
off date of months; and
. the latest scheduled maturity date was in
.
See "The Loans--Home Equity Loans."
C. Adjustable Rate Home
Equity Loans...........
This prospectus supplement provides information
regarding a portion of the adjustable rate home
equity loans, representing about % of all the
adjustable rate home equity loans. We will
transfer another portion of the adjustable rate
home equity loans to the trust on the closing
date, and will transfer the remaining adjustable
rate home equity loans to the trust within 60
days after the closing date.
On the cut-off date the first portion of
adjustable rate home equity loans have the
following characteristics:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. each loan accrues interest at a fixed rate
for no more than months, and after that
the interest rate adjusts annually or
semiannually to equal the sum of the six-
month LIBOR or one year treasury index and
the gross margin specified in that loan;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months,
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months; and
S-17
<PAGE>
. the latest scheduled maturity date was in
.
See "The Loans--Home Equity Loans."
Sub-Pool HE Pre-Funding
Account.....................
If the aggregate principal balance of the home
equity loans on the closing date is less than the
aggregate original principal balance of the sub-
pool HE certificates, that difference will be
deposited by the trustee in the sub-pool HE pre-
funding account, and those funds will be used to
purchase home equity loans until , 1999. If
those funds are not completely used by ,
1999, the remaining funds, if any, will be
distributed as principal
. on the Class HE: A-1 certificates, to the
extent of remaining funds that had been
allocated for the purchase of group I
fixed-rate home equity loans,
. on the Class HE: A-2 certificates, to the
extent of remaining funds that had been
allocated for the purchase of group II
fixed-rate home equity loans and
. on the Class HE: A-1B ARM certificates, to
the extent of remaining funds that had been
allocated for the purchase of adjustable
rate home equity loans, on the 1999
payment date.
Advances....................
The servicer is obligated to make advances each
month of any scheduled payments on the loans that
were due but not received during the prior due
period, but it will be entitled to reimbursement
for any advance. See "Description of the
certificates--Advances."
Repurchase or Substitution
Obligations.................
We will make representations and warranties about
the loans when we transfer them to the trust. If
a representation or warranty is breached in a way
that adversely affects the interests of the
certificateholders, then we must, within 90 days,
either (1) cure the breach or (2) repurchase the
defective loans. During the first
S-18
<PAGE>
two years after the closing date, we may
substitute other loans instead of repurchasing
defective loans. See "Description of the
certificates--Conveyance of Loans" in this
prospectus supplement and in the prospectus.
Repurchase Option...........
After the scheduled principal balance of the
loans is less than 10% of the aggregate principal
balance of the certificates on the closing date,
we will have the option to purchase all of the
outstanding loans. See "Description of the
certificates--Repurchase Option" in this
prospectus supplement and in the prospectus.
Tax Status..................
In the opinion of our counsel for federal income
tax purposes the trust, in part, will consist of
two segregated asset pools--a master REMIC and a
subsidiary REMIC--and each will be treated as a
separate real estate mortgage investment conduit
or REMIC. Each class of sub-pool HI certificates
and each class of sub-pool HE certificates, other
than the Class HE:A-1 certificates, and the Class
HE: A-1 underlying certificates will constitute
regular interests in the master REMIC and
generally will be treated as debt instruments of
the trust for federal income tax purposes. A
holder of a certificate will be required to
include as income all interest paid on the
certificates, including any original issue
discount, in accordance with the accrual method
of accounting, even if the holder usually uses
the cash method of accounting. The Class HE: A-5
IO certificates will be considered to have been
issued with original issue discount. The Class
HE:A-1 certificates will represent undivided
ownership interests in the assets held by a
grantor trust. No election will be made to treat
the grantor trust as a REMIC for federal income
tax purposes. See "Certain Federal Income Tax
Consequences" in this prospectus supplement and
in the prospectus.
ERISA Considerations........
Subject to the conditions described under "ERISA
Considerations," employee benefit plans that are
subject to the Employee Retirement Income
Security Act of 1974 may purchase the following
classes of certificates:
. Class HI: A-1;
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<PAGE>
. Class HI: A-2;
. Class HI: A-3;
. Class HE: A-1A NAS;
. Class HE: A-1B ARM;
. Class HE: A-2;
. Class HE: A-3;
. Class HE: A-4 and
. Class HE: A-5 IO.
An employee benefit plan may not purchase any
other class of certificates, unless it satisfies
the conditions described under "ERISA
Considerations" in this prospectus supplement and
in the prospectus.
Legal Investment
Considerations..............
The certificates will not constitute mortgage
related securities for purposes of the Secondary
Mortgage Market Enhancement Act of 1984, because
a number of the loans are not secured by first
liens on the real estate, as required by SMMEA.
This means that many institutions that have the
legal authority to invest in mortgage related
securities may not be legally authorized to
invest in the certificates. You should consult
with your own legal advisor to decide whether and
to what extent you may legally invest in the
certificates.
Reports to Holders of the
Certificates...........
We will provide to the holders of the
certificates monthly and annual reports about the
certificates and the trust. See "Description of
the Certificates--Reports to Certificateholders"
in the prospectus.
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<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase certificates.
Only some of the home improvement loans in the pool are insured by FHA pursuant
to Title I of the National Housing Act.
The availability of FHA insurance following a default on an FHA-insured home
improvement loan is subject to a number of conditions, including strict
compliance by us with FHA regulations in originating and servicing the loan.
Although we are an FHA-approved lender and we believe that we have complied
with FHA regulations, these regulations are susceptible to substantial
interpretation. The law does not require us to obtain approval from FHA of our
origination and servicing practices. If we fail to comply with FHA regulations,
FHA may deny some insurance claims and we cannot assure you that FHA's
enforcement of its regulations will not become stricter in the future. We
sometimes engage in disputes with FHA over the validity of claims submitted and
our compliance with FHA regulations in servicing loans insured by FHA. In
addition, FHA will only cover 90% of the sum of the unpaid principal on a home
improvement loan, up to nine months unpaid interest and certain liquidation
costs.
The amount of FHA insurance on the loans in a given pool is limited to the
balance of a reserve amount. This reserve amount as of , 199 , was equal to
approximately $ , but will be reduced by the amount of all FHA
insurance claims paid and will be increased by an amount equal to 10% of the
unpaid principal balance of FHA Title I loans subsequently originated and
reported for insurance by us. Severe losses on our FHA-insured manufactured
housing loans, or on other FHA-insured home improvement loans originated by us,
could reduce or eliminate our FHA insurance reserves. If this happened FHA
insurance would not be available to cover losses on FHA-insured home
improvement loans. If we were terminated as servicer due to bankruptcy or
otherwise, it is anticipated that a proportionate amount of our FHA insurance
reserves would be transferred to the reserve account of the trustee or the
successor servicer, but we can not assure you of the amount, if any, that would
be transferred. For a more complete description of the limits on the
availability of FHA insurance, see "Description of FHA Insurance."
A substantial number of the liens on improved real estate securing the loans in
a given loan pool will be junior to other liens on that real estate.
Because the liens are junior, the rights of the trust as beneficiary under a
conventional junior deed of trust or as mortgagee under a conventional junior
mortgage are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust. This extinguishes the junior mortgagee's or
junior beneficiary's lien unless the servicer on behalf of the trust fund
asserts its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior loan or loans. See "Certain Legal
Aspects of the Loans--Repurchase Obligations."
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<PAGE>
We expect a substantial portion of the loans included in a loan pool to have
loan-to-value ratios of 90% or more, based on the total of the outstanding
principal balances of all senior mortgages or deeds of trust and of the loan an
the one hand, and the value of the home, on the other. For a more complete
description, see "Green Tree Financial Corporation--Loan Origination." An
overall decline in the residential real estate market, the general condition of
a property securing a loan or other factors could adversely affect the value of
the property securing a loan. As a result, the remaining balance of that loan,
together with that of any senior liens on the related property, could equal or
exceed the value of the property.
A secondary market for the certificates may not develop.
We cannot assure to you that a secondary market will develop for the
certificates of any series, or, if a secondary market does develop, that it
will provide the holders of any of the certificates with liquidity of
investment. We also cannot assure to you that if a secondary market does
develop, that it will continue to exist for the term of any series of
certificates.
The assignment to the trust will not be recorded.
We will not record the assignment to the trustee of the mortgage or deed of
trust securing any loan, because of the expense and administrative
inconvenience involved. In some states, in the absence of a recordation, the
assignment to the related trustee of the mortgage or deed of trust securing a
loan may not be effective against creditors of or purchasers from us or our
trustee in bankruptcy.
Bankruptcy proceedings could delay distribution on the certificates.
We intend that each transfer of loans to the related trust fund will
constitute a sale, rather than a pledge of the loans to secure indebtedness.
However, if we were to become a debtor under the federal bankruptcy code, it is
possible that a creditor or trustee in bankruptcy of us may argue that the sale
of the loans by us was a pledge of the loans 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 holders of the certificates.
The historical delinquency experience with home improvement and home equity
loans may not be an accurate prediction of the loans in the pool.
If you purchase a sub-pool HI certificate, the return on your investment will
depend largely on the performance of the home improvement loans constituting
sub-pool HI. We have disclosed our historical delinquency and loan loss and
liquidation experience with home improvement loans under "The Loans--Home
Improvement Loans" in this prospectus supplement, but the historical experience
may not be an accurate prediction of the performance of the home improvement
loans constituting sub-pool HI for several reasons.
. First, our historical experience with home improvement loans is
limited: it began purchasing and servicing FHA-insured home
improvement loans in 1989 and
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<PAGE>
conventional home improvement loans in 1992. If our historical
experience were longer, or involved a larger number of home
improvement loans, the data might be substantially different, and some
investors might consider that data a better predictor of the
performance of sub-pool HI.
. Second, historical experience with the performance of one pool of
loans is never a completely reliable predictor of the future
performance of another pool of loans. You must not assume that sub-
pool HI will experience delinquencies and losses identical to the
historical data presented here.
. Third, we have limited information on the performance of a portfolio
of FHA-insured home improvement loans purchased in bulk from Empire
Funding Corp., a mortgage lender engaged in the business of
originating, purchasing, selling and servicing home loans. The loans
purchased from Empire Funding Corp. are expected to make up
approximately % of sub-pool HI.
If you purchase a sub-pool HE certificate, the return on your investment
will depend largely on the performance of the home equity loans constituting
sub-pool HE. We have disclosed our historical delinquency experience with home
equity loans under "The Loans--Home Equity Loans" in this prospectus
supplement, but the historical experience may not be an accurate prediction of
the performance of the home equity loans constituting sub-pool HE for several
reasons.
. First, our historical experience with home equity loans is limited: it
began purchasing and servicing them in January 1996. If our historical
experience were longer, or involved a larger number of home equity
loans, the data might well be substantially different, and some
investors might consider that data a better predictor of the
performance of sub-pool HE.
. Second, historical experience with the performance of one pool of
loans is never a completely reliable predictor of the future
performance of another pool of loans.
. Third, the information incorporates some home equity loans that are
not of the type to be included in sub-pool HE, and therefore the
information presented is not necessarily indicative of our delinquency
experience with respect to home equity loans similar to the home
equity loans compromising sub-pool HE. You must not assume that sub-
pool HE will experience delinquencies and losses identical to the
historical data presented here.
Many of the loans are balloon loans.
Approximately 22% of the home equity loans are balloon loans. These loans
require equal monthly payments, consisting of principal and interest, based on
a stated amortization schedule, and a single payment of the remaining
principal balance of the loan at maturity. The remainder of the loans require
substantially equal monthly payments that are, if timely paid, sufficient to
amortize fully the principal balance of the loan on or before its maturity
date. The balloon loans may present a higher risk of default than the fully-
amortizing home equity loans, because the balloon loan borrowers are required
to make a larger payment at
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<PAGE>
maturity. If you purchase a sub-pool HE certificate, the return on your
investment will depend largely on the performance of the home equity loans
constituting sub-pool HE. If a substantial number of the balloon loans default,
causing higher than expected defaults and losses on sub-pool HE, you may suffer
a loss on your investment.
Some loans in the pool will be subject to the Home Ownership and Equity
Protection Act of 1994.
The Home Protection Act adds certain additional provisions to Regulation Z,
the implementing regulation of the Federal Truth-in-Lending Act. These
provisions impose additional disclosure and other requirements on creditors
with respect to non-purchase money mortgage loans with high interest rates or
up-front fees and charges. A violation of these provisions of the Home
Protection Act can affect the enforceability of the related loan, and it
subjects any assignee of such a loan,such as the trust, to all the claims and
defenses that the consumer could assert against the creditor, including the
right to rescind the loan. If you purchase a Sub-Pool HE certificate, the
return on your investment will depend largely on the performance of the home
equity loans constituting Sub-Pool HE. If we are found to have violated the
provisions of the Home Protection Act with respect to any home equity loan that
is subject to the Home Protection Act, the trust may be unable to collect on
that loan. We would, however, be obligated to repurchase that loan because of
the breach of its representation and warranty.
This prospectus supplement provides information regarding only a portion of the
home improvement loans and home equity loans that will be transferred to the
trust.
The subsequent home improvement loans and home equity loans will have
characteristics that differ somewhat from the loans described in this
prospectus supplement. All of the subsequent loans must satisfy various
criteria specified in the pooling and servicing agreement and described under
"Description of the certificates--Conveyance of Loans," "--Conveyance of
Subsequent Home Improvement Loans and the Sub-Pool HI Pre-Funding Account," and
"--Conveyance of Subsequent Home Equity Loans and the Sub-Pool HE Pre-Funding
Account." If you purchase a certificate, you must not assume that the
characteristics of the loan pool will be identical to the characteristics of
the home improvement loans and home equity loans disclosed in this prospectus
supplement. Current Reports on Form 8-K will be filed following each purchase
of loans by the trust. The final report will include the same type of
information regarding the entire loan pool as this prospectus supplement
contains with respect to the first group of home improvement loans and home
equity loans.
The purchase of the Class HE: A-1 certificates involves risks associated with a
swap agreement.
Under the swap agreement a swap counterparty is obligated to make payments to
support the interest paid to the holders of the Class HE: A-1 certificates. The
swap counterparty will be obligated to pay to the trustee the amount, if any,
by which the interest due to the Class HE: A-1 certificates on a payment date,
calculated based on a floating rate,
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<PAGE>
exceeds the amount of interest due to the trustee for such payment date in
respect of the Class HE: A-1 underlying certificate, calculated based on a
fixed rate. In the event that the swap counterparty fails to make the required
payments or if the swap agreement is terminated in accordance with its terms,
holders of the Class HE: A-1 certificates would receive only the fixed pass-
through rate on the Class HE: A-1 underlying certificates. Apart from the swap
counterparty's payment obligation, there will be no other assets of the grantor
trust available to support the floating rate of interest on the Class HE: A-1
certificates.
The senior debt of the swap counterparty is rated Aa1 by Moody's and AAA by
Fitch. If the debt rating of the swap counterparty is withdrawn or reduced
below a level acceptable to Fitch and Moody's, the swap counterparty is
required, no later than the 30th day following such rating agency downgrade
either to enter into a collateral security agreement or secure a replacement
swap counterparty acceptable to Fitch and Moody's to maintain the ratings of
the Class HE: A-1 certificates. In the event that no such agreement is entered
into or replacement swap counterparty secured within such period, an early
termination of the swap agreement could occur.
The swap agreement will terminate on the earliest to occur of
(a) , ,
(b) the date on which there are no further amounts due on the Class HE: A-
1 underlying certificates and
(c) the date designated by either the trustee or swap counterparty as an
early termination date with respect to the swap agreement following a
payment default by the swap counterparty or the trustee, or certain
other customary early termination events, such as the downgrade
referred to above. In the event of a termination pursuant to clause
(a) or (b) above, no termination fee will be payable either to or by
the grantor trust. In the event of a termination pursuant to clause
(c) above, no termination fee will be payable by the grantor trust and
depending on the then-current market conditions, the trust fund may
receive a termination fee. Even if the trust fund receives a fee, the
holders of the Class HE: A-1 certificates might not receive full
interest payments.
Other rating agencies could provide unsolicited ratings on the notes that
could be lower than the requested ratings.
Although we have not requested a rating of the certificates from any rating
agencies other than Moody's and S&P, other rating agencies may rate the
certificates. These ratings could be higher or lower than the rating Moody's
and S&P initially gave the certificates. There is risk that a lower rating of
your certificate from another rating agency could reduce the market value or
liquidity of your note.
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<PAGE>
STRUCTURE OF THE TRANSACTION
The certificates for home improvement and home equity loans, Series 1999-
will represent interests in a trust consisting of a sub-pool of home
improvement loans and promissory notes and a sub-pool of fixed-rate home equity
loans and adjustable rate home equity loans. We will convey the home
improvement loans, fixed-rate home equity loans and adjustable rate home equity
loans and other related property to the trust. On or about the closing date,
, 1999, Green Tree will establish the trust under a pooling and
servicing agreement to be dated as of , 1999, between us, as seller and
servicer, and the trustee.
The Class HI: A-1, Class HI: A-2, Class HI: A-3, Class HI: M-1, Class HI: M-
2, Class HI: B-1 and Class HI: B-2 certificates, and the Class HE: A-1A NAS,
Class HE: A-1B ARM, Class HE: A-2, Class HE: A-3, Class HE: A-4, Class HE: A-5
IO, Class HE: M-1, Class HE: M-2, Class HE: B, Class HE: A-1 Underlying, Class
C Master and Class C Subsidiary certificates, will be issued by the trust. The
trust will consist primarily of the loans, including all rights to receive
payments due on the loans after:
(1) , 1999 for each home equity loan other than the subsequent home
equity loans;
(2) , 1999 with respect to all home improvement loans other than
subsequent home improvement loans; and
(3) for each subsequent home equity loan or subsequent home improvement
loan, the date on which this loan is purchased by the trust, all
rights under FHA Insurance with respect to the FHA-insured home
improvement loans, liens on the related real estate, amounts held for
the trust in the certificate account, the Class HI: B-2 limited
guaranty of Green Tree for the benefit of the Class HI: B-2
certificates, as described in "Description of the Class HI: B-2
Limited Guaranty" in this prospectus supplement, and the Class HE: B
limited guaranty of Green Tree for the benefit of the Class HE: B
certificates, as described in "Description of the Class HE: B Limited
Guaranty" in this prospectus supplement.
The Class HI: M-1, Class HI: M-2, Class HI: B-1, Class HI: B-2, Class HE: A-1
underlying certificates, Class HE: M-2, Class HE: B, Class C Master and Class C
Subsidiary certificates are not being offered here. Sub-pool HI and sub-pool HE
will each be deemed to be a separate sub-trust within the trust.
The Class HE: A-1 certificates will represent undivided ownership interests
in the assets held by Green Tree Grantor Trust 1999- . The assets of the
grantor trust will consist of:
(1) the Class HE: A-1 underlying certificates issued by the trust; and
(2) a swap agreement between the grantor trust and the swap counterparty,
Westdeutsche Landesbank Girozentrale, New York branch.
The swap counterparty, or any successor counterparty prior to the payment date
in , will be obligated to pay to the trustee the amount, if any, by which
the interest
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<PAGE>
due on the Class HE: A-1 certificates on a payment date, which is calculated on
a floating rate, exceeds the amount of interest due to the trustee for that
payment date in respect of the Class HE: A-1 underlying certificate, which is
calculated on a fixed rate. The grantor trust will be created pursuant to a
trust agreement to be dated as of , 1999, between Green Tree, as the
depositor and servicer, and [trustee], as the trustee.
Payments and recoveries of principal and interest on the loans will be paid
into a separate certificate account maintained at an eligible institution,
initially [trustee] in the name of the trust, no later than one business day
after receipt. The payment date for holders of certificates, other than Class
HE: A-1 certificates, will be on the fifteenth day of each month, or, if such
day is not a business day, the next succeeding business day, and the payment
date for holders of the HE: A-1 certificates will be on the eighteenth day of
each month during the term of the swap agreement, or if that eighteenth day is
not a business day, the next succeeding business day. The payment date for the
Class HE: A-1 certificates will be an earlier day, but not earlier than the
payment date for the other certificates, if the trustee receives any required
swap payment before 11:00 a.m. Central Standard Time on the earlier day. The
payment date for the Class HE: A-1 certificates will be the same as the payment
date for the other certificates after the swap agreement terminates. Payments
on deposit in the certificate account and trust account under the grantor trust
agreement will be applied on each payment date to make the distributions to the
certificateholders as of the immediately preceding record date as described
under "Description of the Certificates--Distributions on Sub-Pool HI
Certificates" and "--Distributions on Sub-Pool HE Certificates" in this
prospectus supplement and to pay monthly servicing fees to the servicer as
compensation for its servicing of the loans and to pay certain monthly fees to
Green Tree as compensation for providing the Class HI: B-2 limited guaranty and
the Class HE: B limited guaranty.
The servicer will be obligated to advance for each payment date any scheduled
payments on the loans that were due but not received during the prior due
period. The servicer will be entitled to reimbursement of an advance from funds
available in the certificate account. The servicer will not be required to make
any advance to the extent that it does not expect to recoup the advance from
subsequent funds available in the certificate account. If the servicer fails to
make any advance required under the pooling and servicing agreement, the
trustee is obligated, subject to certain conditions, to make the advance.
Following the transfer of the loans from us to the trust, our obligations are
limited to:
(1) our obligations as servicer to service the loans;
(2) certain representations and warranties in the pooling and servicing
agreement as described under "Description of the Certificates--
Conveyance of Loans" in this prospectus supplement;
(3) certain indemnities;
(4) the Class HI: B-2 limited guaranty and
(5) the Class HE: B limited guaranty.
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<PAGE>
We are obligated under the pooling and servicing agreement to repurchase at the
repurchase price, or, at its option, to substitute another loan for, any loan
on the first payment date which is more than 90 days after we become aware, or
we receive written notice from the trustee, of any breach of any representation
and warranty in the pooling and servicing agreement that materially and
adversely affects the certificateholders' interest in the loan if such breach
has not been cured prior to such date. The pooling and servicing agreement also
provides that we have certain obligations to repurchase loans and to indemnify
the trustee and certificateholders with respect to certain other matters.
Distributions of interest and principal on the sub-pool HI certificates will
be made primarily from amounts available in respect of the home improvements
loans comprising sub-pool HI, while distributions of principal and interest on
the sub-pool HE certificates will be made primarily from amounts available in
respect of the home equity loans comprising sub-pool HE and the payments, if
any, by the swap counterparty. Under certain circumstances amounts available
from the loans in one sub-pool may be available to make distributions to the
holders of certificates relating to the other sub-pool.
There is currently no secondary market for the certificates, and there is no
assurance that any such market will develop or, if it does develop, that it
will continue. [Underwriters] expect, but are not obligated, to make a market
in the certificates.
USE OF PROCEEDS
We will use the net proceeds received from the sale of the certificates for
working capital and general corporate purposes, including building a portfolio
of home improvement loans and home equity loans, providing warehouse financing
for the purchase of loans and loans and other costs of maintaining such loans
and loans until they are pooled and sold to other investors.
S-28
<PAGE>
THE LOANS
Home Improvement Loans
This prospectus supplement contains information regarding certain initial
home improvement loans, which will represent approximately % of all home
improvement loans by aggregate principal balance as of the cut-off date, and
which consist of home improvement loans and promissory notes originated through
. The information for each initial home improvement loan is as of the
cut-off date for such loan. The pooling and servicing agreement provides that
subsequent home improvement loans will be purchased by the trust up to 60 days
after the closing date. See "Description of the Certificates--Conveyance of
Subsequent Home Improvement Loans and Sub-Pool HI Pre-Funding Account" below.
The initial home improvement loans have an aggregate principal balance as of
the cut-off date of $ . Each home improvement loan is a home
improvement loan originated by a Company-approved home improvement contractor
and purchased by Green Tree, or a home improvement promissory note originated
by Green Tree directly. Each home improvement loan is secured by a lien on the
related real estate. Each home improvement loan finances improvements to a one-
to four-family residential property, an owner-occupied condominium or town
house or a manufactured home which either qualifies as real estate under state
law or is located in a Green Tree-approved park.
Green Tree will make certain representations and warranties in the pooling
and servicing agreement, including that:
(1) each home improvement loan is fully amortizing with a fixed
contractual rate of interest and provides for level monthly payments
over the term of such loan, computed on the simple interest method;
(2) each home improvement loan has its last scheduled payment due no later
than ;
(3) each FHA-insured home improvement loan was originated in accordance
with applicable FHA regulations and is insured, without set-off,
surcharge or defense, by FHA Insurance; and
(4) each home improvement loan is secured by a lien on the related real
estate.
The home improvement loans will be originated or acquired by Green Tree in
the ordinary course of Green Tree's business. A detailed listing of the home
improvement loans is appended to the pooling and servicing agreement. See
"Description of the Certificates" in this prospectus supplement and in the
prospectus. Approximately % of the initial home improvement loans, by
aggregate principal balance as of the cut-off date, are insured by FHA to the
extent described in "Description of FHA Insurance" in the prospectus. Each of
the initial home improvement loans has a loan rate of at least % per annum
and not more than % and the weighted average of the loan rates of the
initial home improvement loans as of the cut-off date is %. As of the cut-
off date, the initial home improvement loans had remaining maturities of at
least months but not more than months and
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<PAGE>
original maturities of at least months but not more than months. The
initial home improvement loans had a weighted average term to scheduled
maturity, as of origination, of months, and a weighted average term to
scheduled maturity, as of the cut-off date, of months. The average
principal balance per initial home improvement loan as of the cut-off date was
$ and the principal balances on the initial home improvement loans as
of the cut-off date ranged from $ to $ . The initial home
improvement loans arise from loans relating to real property located in
states and the District of Columbia. By principal balance as of the cut-off
date, approximately % of the initial home improvement loans financed
improvements to real estate located in , % in , % in , and
% in . No other state represented 5% or more of the aggregate principal
balance as of the cut-off date of the initial home improvement loans.
Substantially none of the initial home improvement loans provide for recourse
to the originating contractor in the event of a default by the obligor.
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<PAGE>
The tables below show additional characteristics of the initial home
improvement loans as of the cut-off date.
Geographical Distribution of Mortgaged Properties-- Initial Home Improvement
Loans
<TABLE>
<CAPTION>
% of
Initial
% of Sub-Pool
Initial HI by
Sub-Pool HI by Aggregate Principal Outstanding
Number of Number of Balance Principal
Loans as of Loans as Outstanding as of Balance as of
Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
------------ --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Alaska..................
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Hawaii..................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
Other...................
----- ------ ------------ ------
Total................... 100.00% $ 100.00%
===== ====== ============ ======
</TABLE>
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<PAGE>
Years of Origination--Initial Home Improvement Loans
<TABLE>
<CAPTION>
% of Initial
Number of Sub-Pool HI By
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Year of Origination off Date as of Cut-off Date Cut-off Date
- ------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1989...................... $ %
1990......................
1996......................
1997......................
1998......................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Distribution of Original Loan Amounts--Initial Home Improvement Loans
<TABLE>
<CAPTION>
% of Initial
Number of Sub-Pool HI by
Loans Aggregate Principal Outstanding Principal
Original Home Improvement as of Cut- Balance Outstanding Balance as of
Loan Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
- ------------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than$ 10,000.......... $ %
Between$ 10,000--$ 19,999..
Between$ 20,000--$ 29,999..
Between$ 30,000--$ 39,999..
Between$ 40,000--$ 49,999..
Between$ 50,000--$ 59,999..
Between$ 60,000--$ 69,999..
Between$ 70,000--$ 79,999..
Between$ 80,000--$ 89,999..
Between$ 90,000--$ 99,999..
Between$100,000--$109,999..
Between$110,000--$119,999..
Between$120,000--$129,999..
Between$130,000--$139,999..
Between$140,000--$149,999..
Between$150,000--$159,999..
Between$160,000--$169,999..
Between$170,000--$179,999..
Between$180,000--$189,999..
Between$190,000--$199,999..
Over $200,000.............
----- ------------- ------
Total.................. $ 100.00%
===== ============= ======
</TABLE>
Loan Rates--Initial Home Improvement Loans
<TABLE>
<CAPTION>
% of Initial
Number of Sub-Pool HI by
Loans Aggregate Principal Outstanding Principal
Range of Home Improvement as of Cut- Balance Outstanding Balance as of
Loans by Loan Rate off Date as of Cut-off Date Cut-off Date
------------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
From 7.01%-- 8.00%........ $ %
From 8.01%-- 9.00%........
From 9.01%--10.00%........
From 10.01%--11.00%........
From 11.01%--12.00%........
From 12.01%--13.00%........
From 13.01%--14.00%........
From 14.01%--15.00%........
From 15.01%--16.00%........
From 16.01%--17.00%........
Over17.01%.................
----- ------------ ------
Total.................. $ 100.00%
===== ============ ======
</TABLE>
S-32
<PAGE>
Remaining Months to Maturity--Initial Home Improvement Loans
<TABLE>
<CAPTION>
% of
Initial
Number of Sub-Pool HI by
Months Remaining to Loans Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
as of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31.............. $ %
31 to 60..................
61 to 90..................
91 to 120.................
121 to 150................
151 to 180................
181 to 210................
211 to 240................
241 to 270................
271 to 300................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Delinquency, Loan Default and Loss Information
The following tables show the delinquency experience for the periods
indicated of the portfolios of conventional and FHA-insured secured home
improvement loans serviced by Green Tree, other than home improvement loans
already in foreclosure.
Delinquency Experience--Conventional Home Improvement Loans
<TABLE>
<CAPTION>
At December 31,
At , ------------------------------------
1999 1998 1997 1996 1995 1994
----------- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Number of Loans
Outstanding(1)............. 85,958 74,021 56,028 29,788
Number of Loans
Delinquent(2)(3)
30-59 Days................ 946 656 394 57
60-89 Days................ 258 241 109 10
90 Days or More........... 338 279 126 15
--- --- ------ ------ ------ ------
Total Loans Delinquent...... 1,542 1,176 629 82
Delinquencies as a Percent
of Loans Outstanding(4).... % % 1.79% 1.59% 1.12% .28%
</TABLE>
- --------
(1) Excludes defaulted loans not yet liquidated.
(2) A loan is considered delinquent by Green Tree if any payment of $25 or more
is past-due 30 days or more.
(3) The period of delinquency is based on the number of days that payments are
contractually past-due (assuming 30-day months). Consequently, a loan due
on the first day of a month is not 30 days delinquent until the first day
of the next month. The information for 1996 and 1997 does not include as
delinquent the home improvement loans of obligors who have entered
bankruptcy proceedings, provided that such obligors are current under their
bankruptcy payment plan.
(4) By number of loans.
S-33
<PAGE>
Delinquency Experience--FHA-Insured Home Improvement Loans
<TABLE>
<CAPTION>
At December 31,
------------------------------------
At ,
1999 1998 1997 1996 1995 1994
----------- ---- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Number of Loans
Outstanding(1)............. 17,539 22,001 25,925 26,885
Number of Loans
Delinquent(2)(3)
30-59 Days................ 439 459 462 237
60-89 Days................ 95 123 121 95
90 Days or More........... 141 198 183 146
---- ---- ------ ------ ------ ------
Total Loans Delinquent...... 675 780 766 478
Delinquencies as a Percent
of Loans Outstanding(4).... % % 3.85% 3.55% 2.95% 1.78%
</TABLE>
- --------
(1) Excludes defaulted loans not yet liquidated.
(2) A loan is considered delinquent by Green Tree if any payment of $25 or more
is past-due 30 days or more.
(3) The period of delinquency is based on the number of days that payments are
contractually past-due (assuming 30-day months). Consequently, a loan due
on the first day of a month is not 30 days delinquent until the first day
of the next month. The information for 1996 and 1997 does not include as
delinquent the home improvement loans of obligors who have entered
bankruptcy proceedings, provided that such obligors are current under their
bankruptcy payment plan.
(4) By number of loans.
The following tables show the loan default and loss experience for the
periods indicated of the portfolios of conventional and FHA-insured secured
home improvement loans serviced by Green Tree.
Loan Default and Loss Experience--Conventional Home Improvement Loans
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
---------------------------------------------------
At ,
1999 1998 1997 1996 1995 1994
----------- ------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of
Loans Serviced(1)...... $1,741,669 $ $1,435,535 $1,147,111 $824,419 $418,055
Loan Defaults(2)........ 1.08% % 1.60% 1.25% .53% .12%
Net Losses:
Dollars(3)............ $ 16,840 $ $ 16,034 $ 11,072 $ 3,424 $ 285
Percentage(4)......... .97% % 1.12% .97% .42% .07%
</TABLE>
- --------
(1) As of period end. Includes defaulted loans not yet liquidated.
(2) As a percentage of the total number of loans being serviced as of period
end. Green Tree considers a loan defaulted when Green Tree has commenced
foreclosure or enforcement proceedings or the loan is 180 days delinquent.
(3) Does not include any estimated losses for defaulted loans not yet
liquidated.
(4) As a percentage of the principal amount of loans being serviced as of
period end.
S-34
<PAGE>
Loan Default and Loss Experience--FHA-Insured Home Improvement Loans
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
-----------------------------------------------
At ,
1999 1998 1997 1996 1995 1994
----------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of
Loans Serviced(1)...... $98,915 $ $128,657 $161,438 $191,364 $199,286
Loan Defaults(2)........ 4.03% % 3.17% 2.90% 1.81% 1.88%
Net Losses:
Dollars(3)............ $ 511 $ $ 500 $ 574 $ 291 $ 623
Percentage(4)......... .52% % .39% .36% .15% .31%
</TABLE>
- --------
(1) As of period end. Includes defaulted loans not yet liquidated.
(2) As a percentage of the total number of loans being serviced as of period
end. Green Tree considers a loan defaulted when Green Tree has submitted a
claim to FHA, Green Tree has commenced foreclosure or enforcement
proceedings, or the loan is 180 days delinquent.
(3) Does not include any estimated losses for defaulted loans not yet
liquidated. Includes unpaid interest to the date of FHA claim submission
and all expenses of liquidation, and reflects proceeds of FHA Insurance
claims paid.
(4) As a percentage of the principal amount of loans being serviced as of
period end.
Green Tree's management is not aware of any trends or anomalies which have
adversely affected the delinquency, loan default and loss experience of its
portfolio of home improvement loans.
The data presented in the tables above are for illustrative purposes only and
there is no assurance that the delinquency, loan default and loss experience of
the home improvement loans will be similar to that set forth above. Moreover,
because Green Tree began originating and purchasing FHA-insured home
improvement loans in April 1989, and secured conventional home improvement
loans in September 1992, it is possible that Green Tree's portfolio is not yet
sufficiently seasoned to show the delinquencies and losses that would be
experienced if such data were collected over a longer period of time. The
delinquency, loan default and loss experience of home improvement loans may be
adversely affected by a downturn in regional or local economic conditions.
Regional and local economic conditions are often volatile, and no predictions
can be made regarding future economic conditions in any particular area.
Fixed-Rate Home Equity Loans
Sub-pool HE includes initial fixed-rate home equity loans. This prospectus
supplement contains information regarding certain fixed-rate home equity loans,
divided into group I and group II, which will represent approximately % of
all fixed-rate home equity loans by aggregate principal balance as of the cut-
off date, and which consist of closed-end home equity loans originated through
. The information for each initial fixed-rate home equity loan is as of
the cut-off date for the loan. The pooling and servicing agreement provides
that subsequent fixed-rate home equity loans will be purchased by the trust
prior to or up to 60 days after the closing date. See "Description of the
Certificates--Conveyance of Subsequent Home Equity Loans and Sub-Pool HE Pre-
Funding Account" below.
S-35
<PAGE>
The initial group I fixed-rate home equity loans have an aggregate principal
balance of $ . Each group I fixed-rate home equity loan is a closed-
end home equity loan originated by Green Tree or by a Green Tree-approved
correspondent lender and purchased by Green Tree. Each group I fixed-rate home
equity loan is secured by a lien on the related real estate.
We will make certain representations and warranties in the pooling and
servicing agreement, including that:
(1) each group I fixed-rate home equity loan is fully amortizing and
provides for level monthly payments over the term of such loan,
computed on the simple interest method (except for the balloon loans),
(2) each group I initial fixed-rate home equity loan has its last
scheduled payment due no later than , and
(3) each group I fixed-rate home equity loan is secured by a lien on the
related real estate. The group I fixed-rate home equity loans will be
originated or acquired by us in the ordinary course of our business. A
detailed listing of the initial group I fixed-rate home equity loans
is attached to the pooling and servicing agreement. See "Description
of the Certificates" in this prospectus supplement and in the
prospectus.
Each of the initial group I fixed-rate home equity loans has a loan rate of at
least % per year and not more than % and the weighted average of the
loan rates of the initial group I fixed-rate home equity loans as of the cut-
off date is %. As of the cut-off date, the initial group I fixed-rate home
equity loans had remaining maturities of at least months but not more than
months and original maturities of at least 48 months but not more than
months. The initial group I fixed-rate home equity loans had a weighted
average term to scheduled maturity, as of origination, of months, and a
weighted average term to scheduled maturity, as of the cut-off date, of
months. The average principal balance per initial group I fixed-rate home
equity loan as of the cut-off date was $ and the principal balances on
the initial group I fixed-rate home equity loans as of the cut-off date ranged
from $ to $ . The balloon loans included in the initial group I
fixed-rate home equity loans consisted of closed-end home equity loans and
have a principal balance as of the cut-off date of $ . The weighted
average of the loan rates of these balloon loans as of the cut-off date was
%, and these balloon loans had a weighted average term to scheduled
maturity, as of origination, of months, and a weighted average term to
scheduled maturity, as of the cut-off date, of months. The initial group I
fixed-rate home equity loans arise from loans relating to real property located
in states and the District of Columbia. By principal balance as of the cut-
off date, approximately % of the initial group I fixed-rate home equity
loans were secured by real property located in , % in , % in ,
% in , and % in . No other state represented 5% or more of the
cut-off date pool principal balance of the initial group I fixed-rate home
equity loans.
S-36
<PAGE>
The tables below show additional characteristics of the initial group I
fixed-rate home equity loans.
Geographical Distribution of Mortgaged Properties-- Initial Group I Fixed-Rate
Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
% of Initial Group I
Group I Fixed-Rate
Fixed-Rate Home Equity
Home Equity Loans by
Loans Aggregate Principal Outstanding
Number of by Number of Balance Principal
Loans as of Loans as Outstanding as of Balance as of
Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
------------ --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
---- ------ --------------- ------
Total................... 100.00% $ 100.00%
==== ====== =============== ======
</TABLE>
S-37
<PAGE>
Years of Origination--Initial Group I Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial Group I
Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Year of Origination off Date as of Cut-off Date Cut-off Date
- ------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1987...................... $ %
1996......................
1997......................
1998......................
---- ------------ ------
Total................. $ 100.00%
==== ============ ======
</TABLE>
Distribution of Original Loan Amounts--Initial Group I Fixed-Rate Home Equity
Loans
<TABLE>
<CAPTION>
% of Initial Group I
Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
Original Loan as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than$ 10,000......... $ %
Between$ 10,000--
$ 19,999.................
Between$ 20,000--
$ 29,999.................
Between$ 30,000--
$ 39,999.................
Between$ 40,000--
$ 49,999.................
Between$ 50,000--
$ 59,999.................
Between$ 60,000--
$ 69,999.................
Between$ 70,000--
$ 79,999.................
Between$ 80,000--
$ 89,999.................
Between$ 90,000--
$ 99,999.................
Between$100,000--
$109,999.................
Between$110,000--
$119,999.................
Between$120,000--
$129,999.................
Between$130,000--
$139,999.................
Between$140,000--
$149,999.................
Between$150,000--
$159,999.................
Between$160,000--
$169,999.................
Between$170,000--
$179,999.................
Between$180,000--
$189,999.................
Between$190,000--
$199,999.................
Between$200,000--
$209,999.................
Between$210,000--
$219,999.................
Over $220,000...........
---- ------------ ------
Total................. $ 100.00%
==== ============ ======
</TABLE>
S-38
<PAGE>
Loan Rates--Initial Group I Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial Group I Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
Range of Home Equity as of Cut- Balance Outstanding Balance as of
Loans by Loan Rate off Date as of Cut-off Date Cut-off Date
-------------------- ---------- ------------------- -------------------------------
<S> <C> <C> <C>
From 7.00%-- 9.00%..... $ %
From 9.01%--10.00%.....
From 10.01%--11.00%.....
From 11.01%--12.00%.....
From 12.01%--13.00%.....
From 13.01%--14.00%.....
From 14.01%--15.00%.....
From 15.01%--16.00%.....
From 16.01%--17.00%.....
Over 17.00%.............
---- ------------ ------
Total............... $ 100.00%
==== ============ ======
</TABLE>
Remaining Months to Maturity--Initial Group I Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial Group I
Fixed-Rate
Number of Home Equity Loans by
Months Remaining to Loans Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
31--60.................... $ %
61--90....................
91--120...................
121--150..................
151--180..................
181--210..................
211--240..................
241--270..................
271--300..................
301--330..................
331--360..................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Lien Position--Initial Group I Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
Group I
Fixed-Rate % of Initial Group I
Home Equity Fixed-Rate
Number of Loans by Home Equity Loans by
Loans Number of Aggregate Principal Outstanding Principal
as of Cut- Loans as of Balance Outstanding Balance as of
off Date Cut-off Date as of Cut-off Date Cut-off Date
---------- ------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
First........ % $ %
Second.......
----- ------ ------------ ------
Total.... 100.00% $ 100.00%
===== ====== ============ ======
</TABLE>
S-39
<PAGE>
Combined Loan-to-Value Ratio--Initial Group I Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial Group I
Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Combined Loan-to-Value Ratio off Date as of Cut-off Date Cut-off Date
- ---------------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
From 0.00%-10.00%............ $ %
From 10.01%-20.00%...........
From 20.01%-30.00%...........
From 30.01%-40.00%...........
From 40.01%-50.00%...........
From 50.01%-60.00%...........
From 60.01%-70.00%...........
From 70.01%-80.00%...........
From 80.01%-90.00%...........
Over 90.00%..................
----- ------------ ------
Total.................... $ 100.00%
===== ============ ======
</TABLE>
The initial group II fixed-rate home equity loans have an aggregate principal
balance of $ . Each group II fixed-rate home equity loan is a
closed-end home equity loan originated by us or by a company-approved
correspondent lender and purchased by us. Each group II fixed-rate home equity
loan is secured by a lien on the related real estate.
We will make certain representations and warranties in the pooling and
servicing agreement, including that
(1) each group II fixed-rate home equity loan is fully amortizing and
provides for level monthly payments over the term of such loan,
computed on the simple interest method, except for the balloon loans,
(2) each initial group II fixed-rate home equity Loan has its last
scheduled payment due no later than , and
(3) each group II fixed-rate home equity loan is secured by a lien on the
related real estate.
The group II fixed-rate home equity loans will be originated or acquired by us
in the ordinary course of our business. A detailed listing of the initial group
II fixed-rate home equity loans is appended to the pooling and servicing
agreement. See "Description of the Certificates" in this prospectus supplement
and in the prospectus.
Each of the initial group II fixed-rate home equity loans has a loan rate of at
least % per year and not more than % and the weighted average of the
loan rates of the initial group II fixed-rate home equity loans as of the cut-
off date is %. As of the cut-off date, the initial group II fixed-rate home
equity loans had remaining maturities of at least months but not more than
months and original maturities of at least months but not more than
months. The initial group II fixed-rate home equity loans had a weighted
average term to scheduled maturity, as of origination, of months, and a
weighted average term to scheduled maturity, as of the cut-off date, of
months. The average principal balance per
S-40
<PAGE>
initial group II fixed-rate home equity loan as of the cut-off date was
$ and the principal balances on the initial group II fixed-rate home
equity loans as of the cut-off date ranged from $ to $ . The
balloon loans included in the initial group II fixed-rate home equity loans
consisted of closed-end home equity loans and have a principal balance as of
the cut-off date of $ . The weighted average of the loan rates of
those balloon loans as of the cut-off date was %, and those balloon loans
had a weighted average term to scheduled maturity, as of origination, of
months, and a weighted average term to scheduled maturity, as of the cut-off
date, of months. The initial group II fixed-rate home equity loans arise
from loans relating to real property located in states and the District of
Columbia. By principal balance as of the cut-off date, approximately % of
the initial group II fixed-rate home equity loans were secured by real property
located in California. No other state represented 5% or more of the cut-off
date pool principal balance of the initial group II fixed-rate home equity
loans.
S-41
<PAGE>
The table below shows additional characteristics of the initial group II
fixed-rate home equity loans.
Geographical Distribution of Mortgaged Properties--Initial Group II Fixed-Rate
Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
% of Initial Group II
Group II Fixed-Rate
Fixed-Rate Home Equity
Home Equity Loans by
Loans Aggregate Principal Outstanding
Number of by Number of Balance Principal
Loans as of Loans as Outstanding as of Balance as of
Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
------------ --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisianna..............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ ------------- ------
Total................... 100.00% $ 100.00%
===== ====== ============= ======
</TABLE>
S-42
<PAGE>
Years of Origination--Initial Group II Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
Group II Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Year of Origination off Date as of Cut-off Date Cut-off Date
- ------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1995...................... $ %
1996......................
1997......................
1998......................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Distribution of Original Loan Amounts--Initial Group II Fixed-Rate Home Equity
Loans
<TABLE>
<CAPTION>
% of Initial
Group II Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
Original Loan as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Between$ 10,000--
$ 19,999................. $ %
Between$ 20,000--
$ 29,999.................
Between$ 30,000--
$ 39,999.................
Between$ 40,000--
$ 49,999.................
Between$ 50,000--
$ 59,999.................
Between$ 60,000--
$ 69,999.................
Between$ 70,000--
$ 79,999.................
Between$ 80,000--
$ 89,999.................
Between$ 90,000--
$ 99,999.................
Between$100,000--
$109,999.................
Between$110,000--
$119,999.................
Between$120,000--
$129,999.................
Between$130,000--
$139,999.................
Between$140,000--
$149,999.................
Between$150,000--
$159,999.................
Between$160,000--
$169,999.................
Between$170,000--
$179,999.................
Between$180,000--
$189,999.................
Between$190,000--
$199,999.................
Between$200,000--
$209,999.................
Between$210,000--
$219,999.................
Between$220,000--
$229,999.................
Between$230,000--
$239,999.................
Between$240,000--
$249,999.................
Between$250,000--
$299,999.................
Between$300,000--
$349,999.................
Between$350,000--
$399,999.................
Between$400,000--
$449,999.................
Between$450,000--
$499,999.................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
S-43
<PAGE>
Loan Rates--Initial Group II Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial Group II
Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
Range of Home Equity as of Cut- Balance Outstanding Balance as of
Loans by Loan Rate off Date as of Cut-off Date Cut-off Date
-------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
From 7.01%-- 9.00%....... $ %
From 9.01%--10.00%.......
From 10.01%--11.00%.......
From 11.01%--12.00%.......
From 12.01%--13.00%.......
From 13.01%--14.00%.......
From 14.01%--15.00%.......
From 15.01%--16.00%.......
From 16.01%--17.00%.......
Over 17.00%...............
----- ------------- ------
Total................. $ 100.00%
===== ============= ======
</TABLE>
Remaining Months to Maturity--Initial Group II Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial Group II
Fixed-Rate
Number of Home Equity Loans by
Months Remaining to Loans Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
31--60.................... $ %
61--90....................
91--120...................
121--150..................
151--180..................
181--210..................
211--240..................
271--300..................
301--330..................
331--360..................
----- --------------- ------
Total................. $ 100.00%
===== =============== ======
</TABLE>
Lien Position--Initial Group II Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
Group II
Fixed-Rate % of Initial Group II
Home Equity Fixed-Rate
Number of Loans by Home Equity Loans by
Loans Number of Aggregate Principal Outstanding Principal
as of Cut- Loans as of Balance Outstanding Balance as of
off Date Cut-off Date as of Cut-off Date Cut-off Date
---------- ------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
First........ % $ %
Second.......
Third........
----- ------ ------------ ------
Total.... 100.00% $ 100.00%
===== ====== ============ ======
</TABLE>
S-44
<PAGE>
Combined Loan-to-Value Ratio--Initial Group II Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
Group II
Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Combined Loan-to-Value Ratio off Date as of Cut-off Date Cut-off Date
- ---------------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
From 0.00%-10.00%............ $ %
From 10.01%-20.00%...........
From 20.01%-30.00%...........
From 30.01%-40.00%...........
From 40.01%-50.00%...........
From 50.01%-60.00%...........
From 60.01%-70.00%...........
From 70.01%-80.00%...........
From 80.01%-90.00%...........
Over 90.01%..................
----- ------------ ------
Total.................... $ 100.00%
===== ============ ======
</TABLE>
Adjustable Rate Home Equity Loans
Sub-pool HE includes adjustable rate home equity loans. This prospectus
supplement contains information regarding initial adjustable rate home equity
loans, which will represent approximately % of all adjustable rate home
equity loans by aggregate principal balance as of the cut-off date, and which
consist of closed-end home equity loans originated through , 1999. The
information for each initial adjustable rate home equity loan is as of the cut-
off date for the loan. The pooling and servicing agreement also provides that
subsequent adjustable rate home equity loans will be purchased by the trust up
to 60 days after the closing date. See "Description of the Certificates--
Conveyance of Subsequent Home Equity loans and Sub-Pool HE Pre-Funding Account"
below.
The initial adjustable rate home equity loans have an aggregate principal
balance of $ . Each adjustable rate home equity loan is a closed-end home
equity loan originated by us or by a Company-approved correspondent lender and
purchased by us. Each adjustable rate home equity loan is secured by a lien on
the related real estate.
The initial adjustable rate home equity loans have loan rates subject to
annual or semiannual adjustment after an initial period of up to 36 months on
the day of the month specified in the adjustable rate home equity loan, to
equal the sum of (1) the six-month LIBOR index and (2) a fixed percentage gross
margin amount specified in the related adjustable rate home equity loan. The
loan rates will not increase on any adjustment date by more than 3% per year.
All of the initial adjustable rate home equity loans further provide that the
maximum loan rate will in no event be more than the fixed percentage set forth
in the adjustable rate home equity loan. Each initial adjustable rate home
equity loan provides that in no event will the minimum loan rate be less than
the initial loan rate. Effective with the first payment due on an initial
adjustable rate home equity loan after each related adjustment date, the
monthly payment will be adjusted to an amount which will fully
S-45
<PAGE>
amortize the outstanding principal balance of such adjustable rate home equity
loan over its remaining term, and pay interest at the loan rate as so adjusted.
Substantially all of the initial adjustable rate home equity loans were
originated with a loan rate less than the sum of (1) the six-month LIBOR index
at the time the initial loan rate was established and (2) the gross margin. The
six-month LIBOR index is a per year rate equal to the average of interbank
offered rates for six-month U.S. dollar-denominated deposits in the London
market based on quotations of major banks, as published in The Wall Street
Journal and as most recently available as of the date specified in the related
adjustable rate home equity loan.
We will make certain representations and warranties in the pooling and
servicing agreement, including that
(1)each adjustable rate home equity loan is fully amortizing and provides
for monthly payments, over the term of such loan, computed on the
simple interest method;
(2)each initial adjustable rate home equity loan has its last scheduled
payment due no later than , and
(3)each adjustable rate home equity loan is secured by a lien on the
related real estate.
The adjustable rate home equity loans will be originated or acquired by us in
the ordinary course of our business. A detailed listing of the initial
adjustable rate home equity loans is appended to the pooling and servicing
agreement. See "Description of the Certificates" in this prospectus supplement
and in the prospectus. The loan rates on the initial adjustable rate home
equity loans as of the cut-off date range from % to % with a weighted
average loan rate of %. As of the cut-off date, the weighted average maximum
loan rate of the initial adjustable rate home equity loans was %, with
maximum loan rates that range from % to %. As of the cut-off date, the
initial adjustable rate home equity loans had a weighted average gross margin
of % and gross margins ranging from % to %. As of the cut-off date,
the initial adjustable rate home equity loans had remaining maturities of at
least months but not more than months and original maturities of at
least months but not more than months. The initial adjustable rate home
equity loans had a weighted average term to scheduled maturity, as of
origination, of months, and a weighted average term to scheduled maturity,
as of the cut-off date, of months. The average principal balance per
initial adjustable rate home equity loan as of the cut-off date was $
and the principal balances on the initial adjustable rate home equity loans as
of the cut-off date ranged from $ to $ . The initial adjustable
rate home equity loans arise from loans relating to real property located in
states and the District of Columbia. By principal balance as of the cut-off
date, approximately % of the initial adjustable rate home equity loans were
secured by real property located in , % in , % in , % in
, % in and % in . No other state represented 5% or more
of the cut-off date pool principal balance of the initial adjustable rate home
equity loans.
S-46
<PAGE>
The tables below show additional characteristics of the initial adjustable
rate home equity loans.
Geographical Distribution of Mortgaged Properties-- Initial Adjustable Rate
Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
% of Initial Adjustable
Adjustable Rate Home
Rate Home Equity Loans
Equity Loans Aggregate Principal by Outstanding
Number of by Number of Balance Principal
Loans as of Loans as Outstanding as of Balance as of
State Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
- ------------------------ ------------ --------------- ------------------- --------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
Tennessee...............
Texas...................
Utah....................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
---- ------ ------------ ------
Total................... 100.00% $ 100.00%
==== ====== ============ ======
</TABLE>
S-47
<PAGE>
Years of Origination--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
Adjustable Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Year of Origination off Date as of Cut-off Date Cut-off Date
- ------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1997...................... $ %
1998......................
--- --- ---
Total................. $ %
=== === ===
</TABLE>
Distribution of Original Loan Amounts--Initial Adjustable Rate Home Equity
Loans
<TABLE>
<CAPTION>
% of Initial
Adjustable Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
Original Loan Amount as of Cut- Balance Outstanding Balance as of
(in Dollars) off Date as of Cut-off Date Cut-off Date
-------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Between$ 20,000--
$ 29,999................. $ %
Between$ 30,000--
$ 39,999.................
Between$ 40,000--
$ 49,999.................
Between$ 50,000--
$ 59,999.................
Between$ 60,000--
$ 69,999.................
Between$ 70,000--
$ 79,999.................
Between$ 80,000--
$ 89,999.................
Between$ 90,000--
$ 99,999.................
Between$100,000--
$109,999.................
Between$110,000--
$119,999.................
Between$120,000--
$129,999.................
Between$130,000--
$139,999.................
Between$140,000--
$149,999.................
Between$150,000--
$159,999.................
Between$160,000--
$169,999.................
Between$170,000--
$179,999.................
Between$180,000--
$189,999.................
Between$190,000--
$199,999.................
Between$200,000--
$249,999.................
Between$250,000--
$299,999.................
Over$300,000..............
--- ------------ -------
Total................. $ 100.00%
=== ============ =======
</TABLE>
S-48
<PAGE>
Current Loan Rates--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
Range of Loans by as of Cut- Balance Outstanding Balance as of
Loan Rate off Date as of Cut-off Date Cut-off Date
------------------ ---------- ------------------- ---------------------
<S> <C> <C> <C>
From 7.00%--8.00%......... $ %
From 8.01%--9.00%.........
From 9.01%--10.00%.......
From 10.01%--11.00%.......
From 11.01%--12.00%.......
From 12.01%--13.00%.......
--- ------------ ------
Total................. $ 100.00%
=== ============ ======
</TABLE>
Remaining Months to Maturity--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable Rate Home
Number of Equity Loans by
Months Remaining to Loans Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 346............. $ %
346-360...................
--- ------------ ------
Total................. $ 100.00%
=== ============ ======
</TABLE>
Lien Position--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable % of
Rate Home Initial
Equity Adjustable Rate Home
Number of Loans by Equity Loans by
Loans Number of Aggregate Principal Outstanding Principal
as of Cut- Loans as of Balance Outstanding Balance as of
off Date Cut-off Date as of Cut-off Date Cut-off Date
---------- ------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
First........ 100.00% $ 100.00%
--- ------ ------------ ------
Total.... 100.00% $ 100.00%
=== ====== ============ ======
</TABLE>
S-49
<PAGE>
Loan-to-Value Ratio--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable Rate Home
Number of Equity Loans by
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Loan-to-Value Ratio off Date as of Cut-off Date Cut-off Date
- ------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
From 30.01% to 40.00%..... $ %
From 40.01% to 50.00%.....
From 50.01% to 60.00%.....
From 60.01% to 70.00%.....
From 70.01% to 80.00%.....
From 80.01% to 90.00%.....
Over 90.00%...............
--- -------------- ------
Total................. $ 100.00%
=== ============== ======
</TABLE>
Month of Next Rate Adjustment--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable Rate
Number of Home Equity Loans
Loans Aggregate Principal by Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Month of Next Rate Adjustment off Date as of Cut-off Date Cut-off Date
- ----------------------------- ---------- ------------------- ------------------------
<S> <C> <C> <C>
February 1999............... $ %
March 1999..................
December 1999...............
January 2000................
February 2000...............
March 2000..................
April 2000..................
May 2000....................
June 2000...................
July 2000...................
August 2000.................
September 2000..............
October 2000................
February 2001...............
March 2001..................
June 2001...................
July 2001...................
August 2001.................
September 2001..............
--- ------------- ------
Total................... $ 100.00%
=== ============= ======
</TABLE>
S-50
<PAGE>
Distribution of Gross Margin--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable Rate
Number of Home Equity Loans
Loans Aggregate Principal by Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Gross Margin off Date as of Cut-off Date Cut-off Date
- ------------ ---------- ------------------- ------------------------
<S> <C> <C> <C>
4.250 to 4.499%........ $ %
4.500 to 4.749%........
4.750 to 4.999%........
5.000 to 5.249%........
5.250 to 5.499%........
5.500 to 5.749%........
5.750 to 5.999%........
6.000 to 6.249%........
6.250 to 6.499%........
6.500 to 6.749%........
6.750 to 6.999%........
7.000 to 7.249%........
7.250 to 7.499%........
7.500 to 7.749%........
7.750 to 7.999%........
8.000 to 8.249%........
8.250 to 8.499%........
8.500 to 8.749%........
8.750 to 8.999%........
9.000 to 9.249%........
9.250 to 9.499%........
9.500 to 9.749%........
Over 9.750%............
--- ------------- ------
Total.............. $ 100.00%
=== ============= ======
</TABLE>
S-51
<PAGE>
Maximum Loan Rates--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable Rate
Number of Home Equity Loans
Loans Aggregate Principal by Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Maximum Loan Rates off Date as of Cut-off Date Cut-off Date
- ------------------ ---------- ------------------- ------------------------
<S> <C> <C> <C>
Less than 13.000%...... $ %
13.000 to 13.249%......
13.250 to 13.499%......
13.500 to 13.749% .....
13.750 to 13.999%......
14.000 to 14.249%......
14.250 to 14.499%......
14.500 to 14.749%......
14.750 to 14.999%......
15.000 to 15.249%......
15.250 to 15.499%......
15.500 to 15.749%......
15.750 to 15.999%......
16.000 to 16.249%......
16.250 to 16.499%......
16.500 to 16.749%......
16.750 to 16.999%......
17.000 to 17.249%......
17.250 to 17.499%......
17.500 to 17.749%......
17.750 to 17.999%......
18.000 to 18.249%......
18.250 to 18.499%......
18.500 to 18.749%......
18.750 to 18.999%......
19.000 to 19.249%......
19.250 to 19.499%......
19.500 to 19.749%......
19.750 to 19.999%......
--- ------------- ------
Total.............. $ 100.00%
=== ============= ======
</TABLE>
S-52
<PAGE>
Minimum Loan Rates--Initial Adjustable Rate Home Equity Loans
<TABLE>
<CAPTION>
% of
Initial
Adjustable Rate
Number of Home Equity Loans
Loans Aggregate Principal by Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Minimum Loan Rates off Date as of Cut-off Date Cut-off Date
- ------------------ ---------- ------------------- ------------------------
<S> <C> <C> <C>
Less than 7.250%...... $ %
7.250 to 7.499%......
7.500 to 7.749%......
7.750 to 7.999%......
8.000 to 8.249%......
8.250 to 8.499%......
8.500 to 8.749%......
8.750 to 8.999%......
9.000 to 9.249%......
9.250 to 9.499%......
9.500 to 9.749%......
9.750 to 9.999%......
10.000 to 10.249%......
10.250 to 10.499%......
10.500 to 10.749%......
10.750 to 10.999%......
11.000 to 11.249%......
11.250 to 11.499%......
11.500 to 11.749%......
11.750 to 11.999%......
12.000 to 12.249%......
12.250 to 12.499%......
12.500 to 12.749%......
--- ------------- ------
Total................ $ 100.00%
=== ============= ======
</TABLE>
S-53
<PAGE>
Delinquency, Loan Default and Loss Information
The following table sets forth information relating to our delinquency
experience with respect to all home equity loans serviced by us. Not all such
home equity loans are of the type to be included in sub-pool HE, and thus the
information presented is not necessarily indicative of our delinquency
experience with respect to home equity loans similar to the home equity loans
comprising sub-pool HE. In addition, we began originating, purchasing and
servicing home equity loans in January 1996, and as a result has no significant
experience with respect to the performance of such loans. Moreover, because all
such home equity loans have been recently originated, it is likely that this
experience is not indicative of the delinquency experience to be expected from
a more seasoned portfolio.
Delinquency Experience--Home Equity Loans
<TABLE>
<CAPTION>
At December 31,
---------------------
At 30,
1999 1998 1997 1996
------------ ----- ------ ------
<S> <C> <C> <C> <C>
Number of Loans Outstanding(1)............ 100,161 65,355 17,731
Number of Loans Delinquent(2)(3)
30-59 Days.............................. 1,846 1,141 504
60-89 Days.............................. 531 283 94
90 Days or More......................... 686 411 52
------- ----- ------ ------
Total Loans Delinquent.................... 3,063 1,835 650
Delinquencies as a Percent of Loans
Outstanding(4)........................... 3.06% % 2.81% 3.67%
</TABLE>
- --------
(1)Excludes defaulted loans not yet liquidated.
(2)A loan is considered delinquent by Green Tree if any payment of $25 or more
is past-due 30 days or more.
(3)The period of delinquency is based on the number of days that payments are
contractually past-due (assuming 30-day months). Consequently, a loan due
on the first day of a month is not 30 days delinquent until the first day
of the next month. The information does not include as delinquent the home
equity loans of obligors who have entered bankruptcy proceedings, provided
that such obligors are current under their bankruptcy payment plan.
(4)By number of loans.
Because of our limited historical experience with respect to the performance
of home equity loans, no information has been included here with respect to our
loan loss or liquidation experience with respect to home equity loans.
S-54
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any certificate will depend on the price paid by the
certificateholder, the timing of principal payments, and the timing and amount
of any liquidation losses on the related loans.
Higher than expected principal prepayments will increase the yield on
certificates purchased at a price less than the undivided ownership interest in
the aggregate principal balance of the loans represented by such certificates
and will decrease the yield on certificates purchased at a price greater than
the undivided ownership interest in the aggregate principal balance of the
loans represented by such certificates. Green Tree has no significant
experience with respect to the rate of principal prepayments on home
improvement loans or home equity loans. Because the loans have scheduled due
dates throughout the calendar month, prepayments on the loans would affect the
amount of funds available to make distributions on the certificates on any
payment date only if a substantial portion of the loans prepaid prior to their
due dates in the preceding month, while very few loans prepaid after their
respective due dates in the preceding month. In addition, liquidations of
defaulted loans or the servicer's exercise of its option to repurchase the
entire remaining pool of loans will affect the timing of principal
distributions on the certificates. Under the pooling and servicing agreement,
Green Tree has the option of substituting new loans for loans which are prepaid
in full prior to . See "Description of the Certificates--Conveyance of
Loans" in this prospectus supplement. There is no assurance that Green Tree
will exercise its option to make any such substitutions nor, should it desire
to exercise such option, that loans meeting the eligibility criteria will be
available therefor. To the extent any such substitutions are made, the impact
on the applicable sub-pool and related certificates of what would otherwise
have consituted a principal prepayment will be averted.
The Class HI: A-1 certificates will be prepaid in part on the first payment
date after the funding period in the event that any pre-funded amount remains
in the sub-pool HI pre-funding account on that payment date after the purchase
by the trust of the subsequent home improvement loans. The Class HE: A-1B ARM
certificates, the Class HE: A-1 certificates and the Class HE: A-2 certificates
will be prepaid in part on the first payment date after the funding period in
the event that any pre-funded amount remains in the sub-pool HE: pre-funding
account on that payment date after the purchase by the trust of the subsequent
home equity loans. Any amounts remaining which had been allocated to the
purchase of subsequent adjustable rate home equity loans will be paid to the
Class HE: A-1B ARM Certificateholders; any amounts remaining which had been
allocated to the purchase of subsequent group I home equity loans will be paid
to the Class HE: A-1 certificateholders and any amounts remaining which had
been allocated to the purchase of subsequent group II home equity loans will be
paid to the Class HE: A-2 certificateholders. Green Tree believes that the
principal amount of subsequent home improvement loans and subsequent home
equity loans to be purchased by the trust will require the application of
substantially all of the pre-funded amount. It is unlikely, however, that the
aggregate principal amount of subsequent home improvement loans and subsequent
home equity loans purchased by the
S-55
<PAGE>
trust will be identical to the pre-funded amount, and that consequently, Class
HI: A-1 Certificateholders, Class HE: A-1B ARM certificateholders, Class HE: A-
1 certificateholders and Class HE: A-2 certificateholders will receive some
prepayment of principal.
Prepayments on mortgage loans and other consumer installment obligations are
commonly measured relative to a prepayment standard or model. The Constant
Prepayment Rate ("CPR") model assumes that the outstanding principal balance of
a pool of loans prepays each month at a specified constant annual rate. The
sub-pool HI certificates were priced using a prepayment assumption of 100% of
the applicable prepayment assumption and the sub-pool HE certificates were
priced using a prepayment assumption of, with respect to the fixed-rate loans,
125% of the applicable prepayment assumption, as described below, and with
respect to the adjustable rate loans, 30% CPR. There can be no assurance that
the loans comprising each sub-pool will prepay at the applicable rate, and it
is unlikely that prepayments or liquidations of the loans in either sub-pool
will occur at any constant rate.
The amount of interest to which the certificateholders of any class are
entitled on any payment date will be the product of the related pass-through
rate and (in the absence of any liquidation loss amount adjustment) the
principal balance of that class, or in the case of the Class HE: A-5 IO
certificates, the notional principal amount, immediately following the
preceding payment date. Interest on each class of certificates other than the
Class HE: A-1B ARM certificates and Class HE: A-1 certificates, prior to the
payment date, will be computed on the basis of a 360-day year of twelve
30-day months. Interest on the Class HE: A-1B ARM certificates and Class HE: A-
1 certificates, prior to the payment date, will be computed on the basis
of actual days elapsed in a 360-day year. On and after the February 2014
payment date, interest on the Class HE: A-1 certificates will be computed on
the basis of a 360-day year of twelve 30-day months. Certificateholders will
receive payments in respect of principal on each payment date to the extent
that funds available in the certificate account are sufficient, in the priority
described under "Description of the Certificates--Distributions on Sub-Pool HI
Certificates" and "--Distributions on Sub-Pool HE Certificates," as applicable.
As required by applicable state laws, interest paid by Obligors on the loans is
computed according to the simple interest method.
The final scheduled payment date on the initial home improvement loan with
the latest maturity is in November 2023. The expected final maturity of each
class of sub-pool HI certificates, based on the assumptions that there are no
defaults, prepayments or delinquencies with respect to payments due under the
home improvement loans and that the repurchase option has not been exercised,
are as follows:
<TABLE>
<CAPTION>
Class Expected Final Maturity
----- -----------------------
<S> <C>
HI: A-1..............................................
HI: A-2..............................................
HI: A-3..............................................
HI: M-1..............................................
HI: M-2..............................................
HI: B-1..............................................
HI: B-2..............................................
</TABLE>
S-56
<PAGE>
The final scheduled payment date on the initial home equity loan with the
latest maturity is in October 2028. The expected final maturity of each class
of Sub-Pool HE certificates, based on the assumptions that there are no
defaults, prepayments or delinquencies with respect to payments due under the
home equity loans and that the repurchase option has not been exercised, are as
follows:
<TABLE>
<CAPTION>
Class Expected Final Maturity
----- -----------------------
<S> <C>
HE: A-1A NAS.........................................
HE: A-1B ARM.........................................
HE: A-1..............................................
HE: A-2..............................................
HE: A-3..............................................
HE: A-4..............................................
HE: A-5 IO...........................................
HE: M-1..............................................
HE: M-2..............................................
HE: B................................................
</TABLE>
Weighted Average Life of the Certificates
The following information is given solely to illustrate the effect of
prepayments of the related loans on the weighted average life of each class of
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the loans in either
sub-pool.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the certificates will be
influenced by the rate at which principal on the related loans is paid.
Principal payments on loans may be in the form of scheduled amortization or
prepayments.
The rate of principal payments on pools of home improvement loans and home
equity loans is influenced by a variety of economic, geographic, social and
other factors, including the level of interest rates and the rate at which
homeowners sell their homes or default on their loans or loans. Other factors
affecting prepayment of loans include changes in obligors' housing needs, job
transfers, unemployment and obligors' net equity in their homes. In the case of
home improvement loans and home equity loans secured by real estate, in
general, if prevailing interest rates fall significantly below the interest
rates on such loans or loans, the loans or loans are likely to be subject to
higher prepayment rates than if prevailing interest rates remained at or above
the rates borne by such loans or loans. Conversely, if prevailing interest
rates rise above the interest rates on such home improvement loans or home
equity loans, the rate of prepayment would be expected to decrease. However, as
described above and in "Description of the Certificates--Conveyance of Loans"
in this prospectus supplement, Green Tree has the option of substituting new
loans for loans which are prepaid in full prior to , 1999, which, if
exercised, would neutralize the impact to related certificateholders of such
prepayments.
S-57
<PAGE>
Sub-Pool HI Certificates
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the home improvement
loans are received in a timely manner and prepayments are made at the
indicated percentages of the model as described below in the table;
(2) the servicer does not exercise its option to repurchase the loans, as
described under "Description of the Certificates--Repurchase Option";
(3) the aggregate principal balance of the initial home improvement loans
as of the cut-off date is $ and the loans have the
characteristics described under "The Loans--Home Improvement Loans";
(4) the home improvement loans will, as of the cut-off date, be grouped
into 10 pools having the additional characteristics described below
under "Assumed Initial Home Improvement Loan Characteristics" and
"Assumed Subsequent Home Improvement Loan Characteristics";
(5) each class of the sub-pool HI certificates has an original principal
balance as shown on the cover page of this prospectus supplement;
(6) the subsequent home improvement loans will have the characteristics
described in the table below and have their first scheduled payment
date in 1999;
(7) the pass-through rates for the certificates are as indicated in
"Summary of the Terms of the Certificates";
(8) no interest shortfalls will arise in connection with prepayments in
full of the home improvement loans;
(9) no delinquencies or losses are experienced on the home improvement
loans;
(10) distributions are made on the sub-pool HI certificates on the 15th
day of each month, commencing in 1999;
(11) the sub-pool HI certificates are issued on , 1999; and
(12) We do not exercise its option to substitute new loans for sub-pool HI
loans prepaid in full prior to , 1999 (see "Description of the
Certificates--Conveyance of Loans" in this prospectus supplement).
No representation is made that the home improvement loans will not experience
delinquencies or losses.
The prepayment assumption used in this prospectus supplement with respect to
the home improvement loans represents an assumed rate of prepayment each month
relative to the then outstanding principal balance of a pool of home
improvement loans for the life of the home improvement loans. The 100%
prepayment assumption for home improvement loans assumes a constant prepayment
of 12% per annum of the then outstanding principal balance of the loans in the
first month of the life of such loans and an additional 1.09% (precisely,
12/11%) per year in each month after that until the twelfth month. Beginning in
the
S-58
<PAGE>
twelfth month and in each month after that during the life of the loans, the
100% prepayment assumption for home improvement loans assumes a constant
prepayment rate of 24% per year each month.
It is not likely that the home improvement loans will prepay at any constant
percentage of the prepayment assumption or that all of the home improvement
loans will prepay at the same rate.
You are urged to make your investment decisions on a basis that includes a
determination as to anticipated prepayment rates under a variety of the
assumptions discussed in this prospectus supplement.
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV ScenarioV
---------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Home Improvement Loans
(1).................... % % % % %
</TABLE>
- --------
(1) As a percentage of the prepayment assumption for home improvement Loans.
Assumed Initial Home Improvement Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Cut-off Weighted Average Average
Date Pool Average Remaining Term Original Term
Principal loan to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- ----------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ........................... $ %
2. ...........................
3. ...........................
4. ...........................
5. ...........................
</TABLE>
It is not likely that the home improvement Loans will prepay at any constant
percentage of the CPR to maturity or that all of the home improvement Loans
will prepay at the same rate.
You are urged to make your investment decisions on a basis that includes a
determination as to anticipated prepayment rates under a variety of the
assumptions discussed in this prospectus supplement.
Assumed Subsequent Home Improvement Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Cut-off Weighted Average Average
Date Pool Average Remaining Term Original Term
Principal Loan to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- ----------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ........................... $ %
2. ...........................
3. ...........................
4. ...........................
5. ...........................
</TABLE>
S-59
<PAGE>
Based on the foregoing assumptions, the following tables show the projected
weighted average lives of each class of sub-pool HI certificates, and show the
percentages of the original principal balance of each class that would be
outstanding after each of the dates shown, at the indicated percentages of the
CPR.
The weighted average life of a class of certificates is determined by (a)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of issuance of
such certificate to the stated payment date, (b) adding the results, and (c)
dividing the sum by the initial principal balance of such certificate.
Percentage of the Original Principal Balance of the Class HI: A-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV ScenarioV
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
Weighted Average Life
(years)................
Percentage of the Original Principal Balance of the Class HI: A-2
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
Weighted Average Life
(years)................
</TABLE>
S-60
<PAGE>
Percentage of the Original Principal Balance of the Class HI: A-3 Certificates
at the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class HI: M-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
Weighted Average Life
(years)................
</TABLE>
S-61
<PAGE>
Percentage of the Original Principal Balance of the Class HI: M-2 Certificates
at the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
December 15, 2012.......
December 15, 2013.......
December 15, 2014.......
December 15, 2015.......
December 15, 2016.......
December 15, 2017.......
December 15, 2018.......
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class HI: B-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
Weighted Average Life
(years)................
</TABLE>
S-62
<PAGE>
Percentage of the Original Principal Balance of the Class HI: B-2 Certificates
at the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
December 15, 2012.......
December 15, 2013.......
December 15, 2014.......
December 15, 2015.......
December 15, 2016.......
December 15, 2017.......
December 15, 2018.......
December 15, 2019.......
December 15, 2020.......
December 15, 2021.......
December 15, 2022.......
December 15, 2023.......
Weighted Average Life
(years)................
</TABLE>
S-63
<PAGE>
Sub-Pool HE Certificates
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the home equity loans
are received in a timely manner and prepayments are made at the
indicated percentages of the model as described below in the table;
(2) the servicer does not exercise its option to repurchase the loans, as
described under "Description of the Certificates--Repurchase Option;"
(3) the aggregate principal balance of the initial home equity loans as
of the cut-off date is $ and the loans have the characteristics
described under "The Loans--Fixed Rate Home Equity Loans" and "The
Loans--Adjustable Rate Home Equity Loans";
(4) the group I fixed-rate home equity loans will, as of the cut-off
date, be grouped into 14 pools having the additional characteristics
described below under "Assumed Initial Group I Fixed-Rate Home Equity
Loan Characteristics" and "Assumed Subsequent Group I Fixed-Rate Home
Equity Loan Characteristics";
(5) the group II fixed-rate home equity loans will, as of the cut-off
date, be grouped into 14 pools having the additional characteristics
described below under "Assumed Initial Group II Fixed-Rate Home
Equity Loan Characteristics" and "Assumed Subsequent Group II Fixed-
Rate Home Equity Loan Characteristics";
(6) the adjustable rate home equity loans will, as of the cut-off date,
be grouped into 38 pools having the additional characteristics
described below under "Assumed Initial Adjustable Rate Home Equity
Loan Characteristics" and "Assumed Subsequent Adjustable Rate Home
Equity Loan Characteristics";
(7) each class of the sub-pool HE certificates, other than the Class HE:
A-5 IO certificates, has an original principal balance as shown on
the cover page of this prospectus supplement;
(8) the rate for one-month LIBOR is % and the rate for six-month LIBOR
is %;
(9) the pass-through rates for the certificates are as indicated in
"Summary of the Terms of the Certificates";
(10) the pass-through margin for the Class HE: A-1B ARM certificates is
%;
(11) the subsequent home equity loans will have the characteristics
described in the tables below and have their first scheduled payment
date in ;
(12) no interest shortfalls will arise in connection with prepayments in
full of the home equity loans;
(13) no delinquencies or losses are experienced on the home equity loans;
(14) distributions are made on the sub-pool HE certificates on the 15th
day of each month, commencing in 1999;
S-64
<PAGE>
(15) the sub-pool HE certificates are issued on ;
(16) interest on the Class HE: A-1 underlying certificates was computed
on the basis of a 360-day year of twelve 30-day months and
(17) we do not exercise its option to substitute new loans for Sub-Pool
HE Loans prepaid in full prior to , 1999 (see "Description of
the Certificates--Conveyance of Loans" in this prospectus
supplement). No representation is made that the home equity loans
will not experience delinquencies or losses.
Prepayments on home equity loans are commonly measured relative to a
prepayment standard or model. Two different prepayment assumption models are
used in this prospectus supplement for the adjustable rate home equity loans,
on the one hand, and the fixed-rate home equity loans, on the other. Reference
in this prospectus supplement to a prepayment assumption will refer to the
appropriate model, depending upon whether the reference is with respect to the
adjustable rate home equity loans or the fixed-rate home equity loans.
The percentages and weighted average life information for the Class HE: A-1A
NAS certificates and the Class HE: A-1B ARM certificates in the following table
are based on a CPR model that assumes that the outstanding principal balance of
the adjustable rate home equity loans will prepay at the indicated percentages
of CPR set forth in the table.
The prepayment assumption used in this prospectus supplement with respect to
the fixed-rate home equity loans represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of home
equity loans for the life of such home equity loans. The 100% prepayment
assumption for fixed-rate home equity loans assumes a constant prepayment of 4%
per year of the then outstanding principal balance of such loans in the first
month of the life of such loans and an additional 1.45% (precisely, 16/11%) per
year in each month after that until the twelfth month. Beginning in the twelfth
month and in each month after that during the life of the loans, the 100%
prepayment assumption assumes a constant prepayment rate of 20% per year each
month.
It is not likely that the home equity loans will prepay at any constant
percentage of the prepayment assumption or of the CPR to maturity or that all
of the home equity loans will prepay at the same rate.
You are urged to make your investment decisions on a basis that includes a
determination as to anticipated prepayment rates under a variety of the
assumptions discussed in this prospectus supplement.
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Adjustable Rate Home
Equity loans (1)....... % % % % %
Fixed-Rate Home Equity
loans (2)..............
</TABLE>
- --------
(1)As a conditional prepayment rate ("CPR") percentage.
(2)As a percentage of the Prepayment Assumption for Fixed Rate Home Equity
Loans.
S-65
<PAGE>
Assumed Initial Group I Fixed-Rate Home Equity Loan Characteristics
<TABLE>
<CAPTION>
Balloon Loan
Weighted Weighted Weighted
Cut-off Weighted Average Average Average
Date Pool Average Remaining Term Original Term Amortization
Principal Loan to Maturity to Maturity Term
Pool Balance Rate (months) (months) (months)
- ---- ----------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. ............. $ %
2. .............
3. .............
4. .............
5. .............
6. .............
7. .............
Assumed Subsequent Group I Fixed-Rate Home Equity Loan Characteristics
<CAPTION>
Balloon Loan
Weighted Weighted Weighted
Cut-off Weighted Average Average Average
Date Pool Average Remaining Term Original Term Amortization
Principal Loan to Maturity to Maturity Term
Pool Balance Rate (months) (months) (months)
- ---- ----------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. ............. $ %
2. .............
3. .............
4. .............
5. .............
6. .............
7. .............
Assumed Initial Group II Fixed-Rate Home Equity Loan Characteristics
<CAPTION>
Balloon Loan
Weighted Weighted Weighted
Cut-off Weighted Average Average Average
Date Pool Average Remaining Term Original Term Amortization
Principal Loan to Maturity to Maturity Term
Pool Balance Rate (months) (months) (months)
- ---- ----------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. ............. $ %
2. .............
3. .............
4. .............
5. .............
6. .............
7. .............
</TABLE>
S-66
<PAGE>
Assumed Subsequent Group II Fixed-Rate Home Equity Loan Characteristics
<TABLE>
<CAPTION>
Balloon Loan
Weighted Weighted Weighted
Cut-off Weighted Average Average Average
Date Pool Average Remaining Term Original Term Amortization
Principal Loan to Maturity to Maturity Term
Pool Balance Rate (months) (months) (months)
- ---- ----------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. ............ $ %
2. ............
3. ............
4. ............
5. ............
6. ............
7. ............
</TABLE>
Assumed Initial Adjustable Rate Home Equity Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Weighted Remaining Original Weighted
Date Pool Average Term to Term to Average Month(s)
Principal Loan Maturity Maturity Gross Life Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Cap Floor Cap Change
- ---- ----------- -------- --------- -------- -------- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. .................... $ % % % % %
2. ....................
3. ....................
4. ....................
5. ....................
6. ....................
7. ....................
8. ....................
9. ....................
10. ....................
11. ....................
12. ....................
13. ....................
14. ....................
15. ....................
16. ....................
17. ....................
18. ....................
19. ....................
</TABLE>
S-67
<PAGE>
Assumed Subsequent Adjustable Rate Home Equity Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Weighted Remaining Original Weighted
Date Pool Average Term to Term to Average Month(s)
Principal Loan Maturity Maturity Gross Life Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Cap Floor Cap Change
- ---- ----------- -------- --------- -------- -------- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. .................... $ % % % % %
2. ....................
3. ....................
4. ....................
5. ....................
6. ....................
7. ....................
8. ....................
9. ....................
10. ....................
11. ....................
12. ....................
13. ....................
14. ....................
15. ....................
16. ....................
17. ....................
18. ....................
19. ....................
</TABLE>
Based on these assumptions, the following tables indicate the projected
weighted average lives of each class of sub-pool HE certificates, and show the
percentages of the original principal balance of each class that would be
outstanding after each of the dates shown, at the indicated percentages of the
applicable prepayment assumption.
The weighted average life of a class of certificates is determined by (a)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of issuance of
such certificate to the stated payment date, (b) adding the results, and (c)
dividing the sum by the initial principal balance of such certificate.
Percentage of the Original Principal Balance of the Class HE: A-1A NAS
Certificates at the Respective Percentages of the
CPR Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
Weighted Average Life
(1) (years)............
</TABLE>
S-68
<PAGE>
Percentage of the Original Principal Balance of the Class HE: A-1B ARM
Certificates at the Respective Percentages of the
CPR Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
December 15, 2012.......
December 15, 2013.......
December 15, 2014.......
December 15, 2015.......
December 15, 2016.......
December 15, 2017.......
December 15, 2018.......
December 15, 2019.......
December 15, 2020.......
Weighted Average Life
(years)................
</TABLE>
S-69
<PAGE>
Percentage of the Original Principal Balance of the Class HE: A-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
December 15, 2012.......
December 15, 2013.......
December 15, 2014.......
December 15, 2015.......
December 15, 2016.......
December 15, 2017.......
December 15, 2018.......
Weighted Average Life
(years)................
</TABLE>
S-70
<PAGE>
Percentage of the Original Principal Balance of the Class HE: A-2 Certificates
at the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class HE: A-3 Certificates
at the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
Weighted Average Life
(years)................
</TABLE>
Percentage of the Original Principal Balance of the Class HE: A-4 Certificates
at the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage.. 100% 100% 100% 100% 100%
December 15, 1999...
December 15, 2000...
December 15, 2001...
December 15, 2002...
December 15, 2003...
December 15, 2004...
December 15,
2005...............
December 15, 2006...
December 15, 2007...
December 15, 2008...
December 15, 2009...
December 15, 2010...
December 15, 2011...
December 15, 2012...
December 15, 2013...
December 15, 2014...
December 15, 2015...
December 15, 2016...
December 15, 2017...
December 15, 2018...
December 15, 2019...
Weighted Average
Life (years).......
</TABLE>
S-71
<PAGE>
Percentage of the Original Principal Balance of the Class HE: M-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
December 15, 2012.......
December 15, 2013.......
December 15, 2014.......
December 15, 2015.......
December 15, 2016.......
December 15, 2017.......
December 15, 2018.......
Weighted Average Life
(years)................
</TABLE>
S-72
<PAGE>
Percentage of the Original Principal Balance of the Class HE: M-2 Certificates
at the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
December 15, 2012.......
December 15, 2013.......
December 15, 2014.......
December 15, 2015.......
December 15, 2016.......
December 15, 2017.......
Weighted Average Life
(years)................
</TABLE>
S-73
<PAGE>
Percentage of the Original Principal Balance of the Class HE: BCertificates at
the Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
December 15, 1999.......
December 15, 2000.......
December 15, 2001.......
December 15, 2002.......
December 15, 2003.......
December 15, 2004.......
December 15, 2005.......
December 15, 2006.......
December 15, 2007.......
December 15, 2008.......
December 15, 2009.......
December 15, 2010.......
December 15, 2011.......
December 15, 2012.......
December 15, 2013.......
December 15, 2014.......
December 15, 2015.......
December 15, 2016.......
December 15, 2017.......
December 15, 2018.......
December 15, 2019.......
December 15, 2020.......
December 15, 2021.......
December 15, 2022.......
December 15, 2023.......
December 15, 2024.......
December 15, 2025.......
December 15, 2026.......
December 15, 2027.......
December 15, 2028.......
Weighted Average Life
(years)................
</TABLE>
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<PAGE>
GREEN TREE FINANCIAL CORPORATION
General
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under the heading "Green Tree Financial
Corporation."
Green Tree is a Delaware corporation which, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. We purchase, pool, sell and
service conditional sales loans for manufactured homes and other consumer
installment sales loans, as well as home equity loans. We are the largest
servicer of government-insured manufactured housing loans and conventional
manufactured housing loans in the United States. Servicing functions are
performed through Green Tree Financial Servicing Corporation, a wholly owned
subsidiary of Green Tree. Through its principal offices in St. Paul, Minnesota,
and service centers throughout the United States, we serve all 50 states. We
began financing FHA-insured home improvement loans in April 1989, conventional
home improvement loans in September 1992 and home equity loans in January 1996.
We also purchase, pool and service installment sales loans for various consumer
products. Green Tree's principal executive offices are located at 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639 (telephone (651)
293-3400). Green Tree's quarterly and annual reports, which are incorporated by
reference in this prospectus supplement and in the prospectus, are available
from Green Tree upon written request.
Ratio of Earnings to Fixed Charges for Green Tree
The table below shows Green Tree's ratios of earnings to fixed charges for
the past five years and the three months ended March 31, 1999. For the purposes
of compiling these ratios, earnings consist of earnings before both income
taxes and fixed charges. Fixed charges consist of interest expense and the
interest portion of rent expense.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31
------------------------ ------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges................................ 7.98 7.90 5.44 3.94 .62* 4.53
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to the merger of Green
Tree with Conseco, Inc.
Recent Developments
We have been served with various lawsuits in the United States District Court
for the District of Minnesota. These lawsuits were filed by our stockholders as
purported class actions on behalf of persons or entities who purchased common
stock or traded in options during the alleged class periods. In addition to the
company, some of our current and former officers and directors are named as
defendants in one or more of the lawsuits. The lawsuits have been consolidated
into two complaints, one relating to an alleged class of purchasers of our
common stock and the other relating to an alleged class of traders in options
for our
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<PAGE>
common stock. In addition to these two complaints, a separate non-class action
lawsuit containing similar allegations was also filed. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. In each case, plaintiffs allege that we and the other
defendants violated federal securities laws by making false and misleading
statements about our current state and our future prospects particularly about
prepayment assumptions and performance of some of our loan portfolios, which
allegedly rendered our financial statements false and misleading. We believe
that the lawsuits are without merit and intend to defend the lawsuits
vigorously.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent,
supersedes the information in the prospectus under "Description of the
Certificates."
The certificates will be issued pursuant to the pooling and servicing
agreement between us, as seller and servicer, and the trustee. A copy of the
execution form of the pooling and servicing agreement will be filed in a
current report on Form 8-K with the SEC after the initial issuance of the
certificates. The following summary describes the material provisions of the
pooling and servicing agreement, reference to which is made for a complete
recital of its terms.
General
The certificates will be issued in fully registered, certificated form only
in denominations of $1,000 or any integral multiple of $1,000. The certificates
initially will be represented by certificates registered in the name of Cede as
the nominee of DTC, and will only be available in the form of book-entries on
the records of DTC and participating members. See "Description of the
Certificates--Registration of the Certificates". The trust consists primarily
of the loans and the rights, benefits, obligations and proceeds, including
liens on the related real estate, rights under applicable FHA insurance for
FHA-insured home improvement loans, amounts held in the Certificate Account and
the Class HI: B-2 limited guaranty and the Class HE: B limited guaranty of
Green Tree for the benefit of the Class HI: B-2 certificateholders and the
Class HE: B certificateholders, respectively.
Distributions on the certificates will be made each month by the paying
agent, on each payment date to persons in whose names the certificates are
registered as of the business day immediately preceding the payment date. See
"Description of the Certificates--Registration of the Certificates". The first
payment date for the certificates will be in 1999. Payments will be made
by check mailed to the certificateholder at the address appearing on the
certificate register, except that a certificateholder who holds an aggregate
percentage interest of at least 5% of a class of certificates may request
payment by wire transfer. Final payments will be made only upon tender of the
certificates to the trustee for cancellation.
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<PAGE>
Conveyance of Loans
On the closing date, we will establish the trust and transfer, assign, set
over and otherwise convey to the trust all right, title and interest of Green
Tree in the initial home improvement loans and the initial home equity loans,
including all principal and interest received on or with respect to the loans,
other than receipts of principal and interest due on the loans before the cut-
off date. The pooling and servicing agreement permits the trust to purchase
approximately $ aggregate principal balance of subsequent home improvement
loans and approximately $ aggregate principal balance of subsequent home
equity loans within 60 days after the closing date on one or more closing
dates. See "Conveyance of Subsequent Home Improvement Loans and Sub-Pool HI
Pre-Funding Account" and "Conveyance of Subsequent Home Equity Loans and Sub-
Pool HE Pre-Funding Account" in this prospectus supplement.
The trustee, concurrently with each conveyance, will execute and deliver the
certificates to or upon the order of Green Tree. The loans are described on a
list delivered to the trustee and certified by a duly authorized officer of
Green Tree. This list includes the amount of monthly payments due on each loan
as of the date of issuance of the certificates, the loan rate on each loan and
the maturity date of each loan. The list will be attached as an exhibit to the
pooling and servicing agreement and will be available for inspection by any
certificateholder at the principal office of Green Tree. Prior to the
conveyance of the loans to the trust, Green Tree will have completed a review
of all the loan files, confirming the accuracy of each item on the list of
loans delivered to the trustee. Any loan discovered not to agree with the list
in a manner that is materially adverse to the interests of the
certificateholders will be repurchased by Green Tree, or, if the discrepancy
relates to the unpaid principal balance of a loan, Green Tree may deposit cash
in the certificate account in an amount sufficient to offset the discrepancy.
The trustee will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota, reflecting the conveyance and assignment of the loans to
the trustee, and Green Tree's accounting records and computer systems will also
reflect the conveyance and assignment.
[Company Counsel], our counsel, will give an opinion to the trustee that the
transfer of the loans from Green Tree to the trust would, in the event Green
Tree became a debtor under the United States Bankruptcy Code, be treated as a
true sale and not as a pledge to secure borrowings. If, however, the transfer
of the loans from Green Tree to the trust were treated as a pledge to secure
borrowings by Green Tree, the distribution of proceeds of the loans to the
trust might be subject to the automatic stay provisions of the United States
Bankruptcy Code, which would delay the distribution of such proceeds for an
uncertain period of time. In addition, a bankruptcy trustee would have the
power to sell the loans if the proceeds of the sale could satisfy the amount of
the debt deemed owed by Green Tree, or the bankruptcy trustee could substitute
other collateral in lieu of the loans to secure the debt, or the debt could be
subject to adjustment by the bankruptcy trustee if Green Tree were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code.
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<PAGE>
Green Tree will make certain representations and warranties in the pooling
and servicing agreement with respect to each loan, including that:
(1) for each loan other than the subsequent home improvement loans and
the subsequent home equity loans, as of the applicable cut-off date,
the most recent scheduled payment was made or was not delinquent more
than 30 days;
(2) for each subsequent home improvement loan and each subsequent home
equity loan, as of the respective subsequent cut-off date, the most
recent scheduled payment was made or was not delinquent more than 30
days;
(3) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(4) each loan 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;
(5) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(6) each loan, if an FHA-insured home improvement loan, was originated in
accordance with applicable FHA regulations and is insured, without
set-off, surcharge or defense, by FHA insurance;
(7) each loan was originated by a home improvement contractor or home
equity lender in the ordinary course of its business or was
originated by Green Tree directly;
(8) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest therein pursuant to the pooling and servicing agreement or
the certificates unlawful;
(9) each loan complies with all requirements of law;
(10) no loan has been satisfied, subordinated to a lower lien ranking
than its original position or rescinded;
(11) each loan creates a valid and perfected lien on the related real
estate;
(12) all parties to each loan had full legal capacity to execute the
loan;
(13) no loan has been sold, conveyed and assigned or pledged to any other
person and Green Tree has good and marketable title to each loan
free and clear of any encumbrance, equity, lien, pledge, charge,
claim or security interest, and is the sole owner and has full right
to transfer the loan to the trustee;
(14) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clauses (1) and (2) above, no event that
with notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under the loan, and Green Tree has not waived any of
the foregoing;
(15) each loan is a fully-amortizing loan and provides for level monthly
payments based on its applicable loan rate, except, in the case of a
balloon loan, for the final monthly payment, over the term of the
loan;
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<PAGE>
(16) each loan contains customary and enforceable provisions as to render
the rights and remedies of the holder adequate for realization against
the collateral;
(17) the description of each loan set forth in the list delivered to the
trustee is true and correct;
(18) there is only one original of each loan;
(19) each loan was originated or purchased in accordance with Green Tree's
then-current underwriting guidelines; and
(20) each loan is a "qualified mortgage" under section 860G(a)(3) of the
Internal Revenue Code of 1986, as amended.
Green Tree will also make certain representations and warranties with respect
to the home improvement loans in the aggregate, including that
(1) each home improvement loan has a contractual rate of interest of at
least 7.00%;
(2) no home improvement loan had a remaining term to maturity at
origination of more than 300 months;
(3) no more than 1% of the home improvement loans, by principal balance
as of the cut-off date, were secured by properties located in an area
with the same zip code;
(4) no more than 5% of the home improvement loans, by principal balance
as of the cut-off date, were originated by any one contractor or
lender, other than the home improvement loans purchased from Empire
Funding Corp.; and
(5) no adverse selection procedures were employed in selecting the home
improvement loans from Green Tree's portfolio.
Green Tree will make certain additional representations and warranties for the
subsequent home improvement loans. See "--Conveyance of Subsequent Home
Improvement Loans and Sub-Pool HI Pre-Funding Account" in this prospectus
supplement.
Green Tree will also make certain representations and warranties for the home
equity loans in the aggregate, including that
(1) each home equity loan, other than the adjustable rate home equity
loans, has a contractual rate of interest of at least 6.00%;
(2) no home equity loan had a remaining term to maturity at origination
of more than 360 months;
(3) no more than 1% of the home equity loans, by principal balance as of
the cut-off date, were secured by properties located in an area with
the same zip code;
(4) no more than 7% of the home equity loans, by principal balance as of
the cut-off date, were originated by any one lender other than Green
Tree; and
(5) no adverse selection procedures were employed in selecting the home
equity loans from Green Tree's portfolio.
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<PAGE>
Green Tree will make certain additional representations and warranties for the
subsequent home equity loans. See "--Conveyance of Subsequent Home Equity Loans
and Sub-Pool HE Pre-Funding Account" in the prospectus supplement.
Under the terms of the pooling and servicing agreement, and subject to Green
Tree's option to effect a substitution as described in the next paragraph,
Green Tree has agreed to repurchase, at the repurchase price any loan that is
materially and adversely affected by a breach of a representation and warranty
for the loan made in the pooling and servicing agreement if the breach has not
been cured within 90 days of the day it was or should have been discovered by
the servicer or the trustee. The repurchase price, for any loan to be
repurchased or for a liquidated loan, means the outstanding principal balance
of that loan, without giving effect to any advances made by the servicer or the
trustee, plus interest on that loan at the pass-through rate, which will be the
weighted average of the pass-through rates of the related classes of
certificates, from the end of the due period for which the obligor last made a
scheduled payment through the date of the repurchase or liquidation. This
repurchase obligation constitutes the sole remedy available to the trust and
the certificateholders for a breach of a representation or warranty under the
pooling and servicing agreement for the loans.
Instead of repurchasing a loan as specified in the preceding paragraph,
during the two-year period following the closing date, Green Tree may, at its
option, substitute an eligible substitute loan for the loan that it is
otherwise obligated to repurchase. An eligible substitute loan is a loan that
satisfies, as of the date of its substitution, the representations and
warranties specified in Article III of the pooling and servicing agreement, has
a scheduled principal balance that is not greater than the scheduled principal
balance of the replaced loan, has a loan rate that is at least equal to the
loan rate of the replaced loan and has a remaining term to scheduled maturity
that is not greater than the remaining term to scheduled maturity of the
replaced loan. Green Tree will be required to deposit in the certificate
account cash in the amount, if any, by which the scheduled principal balance of
the replaced loan exceeds the scheduled principal balance of the loan being
substituted. This deposit will be deemed to be a partial principal prepayment.
Green Tree may, at its option, substitute new loans for loans which are
prepaid in full prior to , 1999. Any substitute loans shall constitute
eligible substitute loans and must be substituted prior to the determination
date immediately following the calendar month in which the prepayment was
received by the servicer. In the event the aggregate amount of principal
received in respect of loans prepaid in full in a given calendar month exceeds
the aggregate of the scheduled principal balances of eligible substitute loans
substituted therefor, the excess shall be distributed to certificateholders on
the related payment date as a prepayment of principal. Notwithstanding the
foregoing, there is no assurance that Green Tree will opt to make any
substitutions nor, should it desire to exercise the option, that eligible
substitute loans will be available.
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<PAGE>
Conveyance of Subsequent Home Improvement Loans and Sub-Pool HI Pre-Funding
Account
A sub-pool HI pre-funding account will be established by the trustee and
funded by Green Tree with approximately $ on the closing date to provide
the trust with sufficient funds to purchase subsequent home improvement loans.
In no event will the sub-pool HI pre-funded amount, less the aggregate
principal balance of subsequent home improvement loans specifically identified
for purchase by the trust as of the closing date, represent more than 25% of
the original sub-pool HI certificate principal balance. The sub-pool HI pre-
funding account will be used to purchase subsequent home improvement loans
during the period from the closing date until the earliest of (1) the date on
which the amount on deposit in the sub-pool HI pre-funding account is less than
$10,000, (2) 60 days after the closing date or (3) the date on which an event
of termination occurs under the pooling and servicing agreement. The sub-pool
HI pre-funded amount will be reduced during the funding period by the amount
used to purchase subsequent home improvement loans in accordance with the
pooling and servicing agreement.
Under the pooling and servicing agreement following the initial issuance of
the certificates, the trust will be obligated to purchase subsequent home
improvement loans from Green Tree during the funding period, subject to their
availability. In connection with the purchase of subsequent home improvement
loans on the subsequent transfer dates, the trust will be required to pay to
Green Tree from amounts on deposit in the sub-pool HI pre-funding account a
cash purchase price of 100% of the principal balance thereof. Green Tree will
designate the subsequent transfer date as the subsequent cut-off date for the
related subsequent home improvement loans purchased on the date. The amount
paid from the sub-pool HI pre-funding account on each subsequent transfer date
will not include accrued interest on the related subsequent home improvement
loans. Following each subsequent transfer date, the aggregate principal balance
of the subsequent home improvement loans in sub-pool HI will increase by an
amount equal to the aggregate principal balance of the home improvement loans
so purchased and the amount in the sub-pool HI pre-funding account will
decrease accordingly.
Any sub-pool HI pre-funded amount remaining after the end of the funding
period will be applied on the next payment date to prepay principal on the
class HI: A-1 certificates. Although no assurance can be given, Green Tree
anticipates that the principal amount of the related subsequent home
improvement loans purchased by the trust will require the application of
substantially all of the sub-pool HI pre-funded amount and that there should be
no material amount of principal prepaid to the Class HI: A-1 certificateholders
from the sub-pool HI pre-Funding account. However, it is unlikely that Green
Tree will be able to deliver Subsequent Home Improvement Loans with an
aggregate principal balance identical to the remaining sub-pool HI pre-funded
amount.
Any conveyance of subsequent home improvement loans on a subsequent transfer
date is subject to certain conditions including, but not limited to:
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<PAGE>
(1) each subsequent home improvement loan must satisfy the representations
and warranties specified in the related subsequent transfer instrument
and the pooling and servicing agreement;
(2) Green Tree may not select subsequent home improvement loans in a
manner that it believes is adverse to the interests of the
certificateholders;
(3) as of the respective Subsequent cut-off date the subsequent home
improvement loans must satisfy the following criteria:
(a) no subsequent home improvement loan may be more than 30 days
contractually delinquent as of the related subsequent cut-off
date;
(b) the remaining stated term to maturity of each subsequent home
improvement loan may not exceed 360 months;
(c) each subsequent home improvement loan must have been underwritten
in accordance with Green Tree's standard underwriting criteria;
(d) no subsequent home improvement loan may have a loan-to-value
ratio greater than 100%;
(4) as a result of the purchase of the subsequent home improvement loans,
neither the class HI: A certificates nor the class HE: A certificates
will receive from Moody's or Fitch a lower credit rating than the
rating assigned at the initial issuance of such certificates; and
(5) an independent accountant will provide a letter stating whether or not
the characteristics of the subsequent home improvement loans conform
to the characteristics described herein.
Conveyance of Subsequent Home Equity Loans and Sub-Pool HE Pre-Funding Account
A sub-pool HE pre-funding account will be established by the trustee and
funded by Green Tree with approximately $ on the closing date to provide
the trust with sufficient funds to purchase subsequent home equity loans. In no
event will the sub-pool HE pre-funded amount, less the aggregate principal
balance of subsequent home equity loans specifically identified for purchase by
the trust as of the closing date, represent more than 25% of the original sub-
pool HE certificate principal balance. The sub-pool HE pre-funding account will
be used to purchase subsequent home equity loans during the period from the
closing date until the earliest of (1) the date on which the amount on deposit
in the sub-pool HE pre-funding account is less than $10,000, (2) 60 days after
the closing date or (3) the date on which an event of termination occurs under
the pooling and servicing agreement (the "funding period"). The sub-pool HE
pre-funded amount will be reduced during the funding period by the amount used
to purchase subsequent home equity loans in accordance with the pooling and
servicing agreement.
Under the pooling and servicing agreement following the initial issuance of
the certificates, the trust will be obligated to purchase subsequent home
equity loans from Green Tree during the funding period, subject to their
availability. In connection with the purchase of subsequent home equity loans
on the subsequent transfer dates, the trust will be required
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<PAGE>
to pay to Green Tree from amounts on deposit in the sub-pool HE pre-funding
account a cash purchase price of 100% of the principal balance thereof. Green
Tree will designate the subsequent transfer date as the subsequent cut-off date
with respect to the related subsequent home equity loans purchased on such
date. The amount paid from the sub-pool HE pre-funding account on each
subsequent transfer date will not include accrued interest on the related
subsequent home equity loans. Following each subsequent transfer date, the
aggregate principal balance of the subsequent home equity loans in sub-pool HE
will increase by an amount equal to the aggregate principal balance of the home
equity loans so purchased and the amount in the sub-pool HE pre-funding account
will decrease accordingly.
Any sub-pool HE pre-funded amount remaining after the end of the funding
period will be applied on the next payment date to prepay principal on the
Class HE: A-1B ARM, Class HE: A-1 and Class HE: A-2 certificates. Any amounts
remaining which had been allocated to the purchase of subsequent adjustable
rate home equity loans will be paid to the Class HE: A-1B ARM
certificateholders, any amounts remaining which had been allocated to the
purchase of Group I Subsequent fixed-rate home equity loans will be paid to the
Class HE: A-1 certificateholders and any amounts remaining which had been
allocated to the purchase of group II subsequent fixed-rate home equity Loans
will be paid to the Class HE: A-2 certificateholders. Although no assurance can
be given, Green Tree anticipates that the principal amount of the related
subsequent home equity loans purchased by the trust will require the
application of substantially all of the sub-pool HE pre-funded amount and that
there should be no material amount of principal prepaid to the Class HE: A-1B
ARM certificateholders, the Class HE: A-1 certificateholders or the Class
HE: A-2 certificateholders from the sub-pool HE pre-funding account. However,
it is unlikely that Green Tree will be able to deliver subsequent home equity
loans with an aggregate principal balance identical to the remaining sub-pool
HE pre-funded amount.
Any conveyance of subsequent home equity loans on a subsequent transfer date
is subject to certain conditions including, but not limited to: (1) each
subsequent home equity loan must satisfy the representations and warranties
specified in the related subsequent transfer instrument and the pooling and
servicing agreement; (2) Green Tree may not select subsequent home equity loans
in a manner that it believes is adverse to the interests of the
certificateholders; (3) as of the respective subsequent cut-off date the
subsequent home equity loans must satisfy the following criteria: (a) no
subsequent home equity loan may be more than 59 days contractually delinquent
as of the related subsequent cut-off date; (b) the remaining stated term to
maturity of each subsequent home equity loan may not exceed 360 months; (c)
each subsequent home equity loan must have been underwritten in accordance with
Green Tree's standard underwriting criteria; (d) as a result of the purchase of
the subsequent home equity loans, the weighted average loan to value ratio of
sub-pool HE will not be more than 200 basis points more than such ratio with
respect to the initial home equity loans; (e) as a result of the purchase of
the subsequent home equity loans, neither the Class HI: A certificates nor the
Class HE: A certificates will receive from Moody's or Fitch a lower credit
rating than the rating assigned at the initial issuance of such certificates;
and (f) an independent accountant will provide a letter stating whether or not
the characteristics of the subsequent home equity loans conform to the
characteristics described herein.
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Grantor Trust
Green Tree Grantor Trust 1999- will be created and established pursuant to
the grantor trust agreement. The depositor will deposit into the grantor trust
without recourse $ of Class HE: A-1 underlying certificates issued by the
trust, and the grantor trust will issue the Class HE: A-1 certificates.
The property of the grantor trust will include (a) the Class HE: A-1
underlying certificates issued by the trust and all payments thereon, (b) such
amounts as may be held by the trustee in a grantor trust account held by the
trustee for the benefit of the Class HE: A-1 certificateholders, (c) the swap
agreement and all payments received thereunder and (d) proceeds of all of the
foregoing. The grantor trust will not acquire any receivables or assets other
than the foregoing and will not have any need for additional capital resources.
To the extent that payments are made on the Class HE: A-1 Underlying
certificates and payments are received by the trustee as required under the
Swap Agreement, the Grantor trust will have sufficient liquidity to make
interest and principal distributions on the Class HE: A-1 certificates.
On each payment date with respect to the Class HE: A-1 certificates, the
trustee will pay to the Class HE: A-1 certificateholders, to the extent of
funds available in the grantor trust account:
(1) interest at a rate equal to the Class HE: A-1 pass-through rate, less
any interest shortfall on the Class HE: A-1 underlying certificate for
that period, plus any interest shortfall distributed on the related
payment date with respect to the Class HE: A-1 underlying certificate;
and
(2) principal in an amount equal to the principal received by the grantor
trust on the related payment date with respect to the Class HE: A-1
underlying certificate.
Payments on Loans
The servicer, on behalf of the trust, will establish and maintain a
certificate account in an eligible account at a depository institution
(initially U.S. Bank National Association, Minneapolis, Minnesota) with trust
powers organized under the laws of the United States or any state, the deposits
of which are insured to the full extent permitted by law by the FDIC, whose
short-term deposits have been rated P-1 by Moody's and F-1 by Fitch or whose
unsecured long-term debt has been rated in one of the two highest rating
categories by Moody's and Fitch, and which is subject to supervision and
examination by federal or state eligible institutions. Eligible account means,
at any time, an account which is any of the following:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the bank insurance fund or the Savings Association Insurance
Fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers
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<PAGE>
and acting in its fiduciary capacity for the benefit of the trustee,
which depository institution or trust company has capital and surplus
of not less than $50,000,000; or
(4) an account that will not cause Moody's or Fitch to downgrade or
withdraw its then-current rating assigned to the certificates, as
evidenced in writing by Moody's and Fitch. The servicer may authorize
the trustee to invest the funds in the certificate account in
eligible investments that will mature not later than the business day
preceding the applicable monthly payment date. These eligible
investments include:
. obligations of the United States or of any of its agencies backed
by the full faith and credit of the United States, federal funds,
certificates of deposit, time deposits and bankers acceptances
sold by eligible commercial banks;
. any other demand or time deposit or certificate of deposit fully
insured by the FDIC; investments in certain money-market funds;
. certain repurchase agreements of United States government
securities with eligible commercial banks;
. securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least Aa2 by Moody's
and AA from Fitch not in excess of 10% of amounts in the
certificate account at the time of such investment; and
. commercial paper assigned a rating of at least P-1 by Moody's and
F-1+ by Fitch. Any losses on such investments will be deducted
from other investment earnings or from other funds in the
certificate account.
All receipts by the servicer of payments on the loans, including principal
prepayments and advance payments by obligors not constituting principal
prepayments, will be paid into the certificate account no later than one
business day following receipt, except amounts received as extension fees or
assumption fees not allocated to regular installments due on loans, which are
retained by the servicer as part of its servicing fees and are not paid into
the certificate account and except for certain proceeds from liquidated loans
which are used to reimburse the servicer for customary out-of-pocket
liquidation expenses. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses". In addition, all payments under FHA
Insurance received by the servicer, any advances by the servicer or the
trustee as described under "Description of the Certificates--Advances," and
amounts paid by Green Tree for loans repurchased, or upon substitution for a
loan otherwise required to be repurchased, as a result of a breach of
representations or warranties under the pooling and servicing agreement, as
described under "Description of the Certificates--Conveyance of Loans," will
be paid into the certificate account.
On the second business day preceding each payment date, the servicer will
determine the sub-pool HI amount available and the sub-pool HE amount
available in the certificate account and the amount of funds necessary to make
all payments to be made on the next payment date from the certificate account.
Not later than one business day after the
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determination date, Green Tree will deposit in the certificate account the
repurchase price of any loans required to be repurchased on that payment date,
or any amounts required to be deposited upon substitution for any loan
otherwise required to be repurchased on such purchase date, as a result of a
breach of representations and warranties under the pooling and servicing
agreement.
On each payment date the trustee will withdraw the sub-pool HI amount
available, which will consist primarily of amounts received in respect of the
home improvement loans, but will also include that portion of the sub-pool HE
amount available in excess of the amounts necessary to make the payments
described in clauses (1) through (9) of the succeeding paragraph) from the
certificate Account and make the following payments, in the following order of
priority:
(1) if neither Green Tree nor any wholly owned subsidiary of Green Tree is
the servicer, to pay the monthly servicing fee with respect to the
home improvement Loans to the servicer;
(2) to pay interest and principal on the sub-pool HI certificates, in the
following order of priority:
(A) interest on the Class HI: A, Class HI: M-1, Class HI: M-2 and
Class HI: B-1 certificates as follows:
. first, to Class HI: A Certificateholders, interest on the
Class HI: A principal balance;
. second, to Class HI: M-1 Certificateholders, interest on the
Class HI: M-1 adjusted principal balance;
. third, to Class HI: M-2 Certificateholders, interest on the
Class HI: M-2 adjusted principal balance; and
. fourth, to Class HI: B-1 Certificateholders, interest on the
Class HI: B-1 adjusted principal balance;
(B) principal on the Class HI: A, Class HI: M-1, Class HI: M-2 and
Class HI: B-1 certificates, in the manner and order of priority
described below under "Distributions on Sub-Pool HI Certificates--
Principal on the Class HI: A, Class HI: M-1, Class HI: M-2 and
Class HI: B-1 Certificates," in respect of the sub-pool HI formula
principal distribution amount;
(C) principal on the Class HI: A, Class HI: M-1 and Class HI: M-2
certificates, in the manner and order of priority described below
under "Distributions on Sub-Pool HI Certificates-- Principal on
the Class HI: A, Class HI: M-1, Class HI: M-2 and Class HI: B-1
Certificates," in respect of any Sub-Pool HI supplementary
principal distribution amount;
(D) payments on the Class HI: M-1, Class HI: M-2 and Class HI: B-1
certificates in respect of sub-pool HI liquidation loss interest
amounts as follows:
. first, to Class HI: M-1 Certificateholders, any unpaid Class
HI: M-1 liquidation loss interest amount;
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. second, to Class HI: M-2 Certificateholders, any unpaid Class
HI: M-2 liquidation loss interest amount; and
. third, to Class HI: B-1 Certificateholders, any unpaid Class
HI: B-1 liquidation loss interest amount; and
(E) interest and principal on the Class HI: B-2 certificates, in the
manner and order of priority described below under "Distributions
on Sub-Pool HI Certificates--Class HI: B-2 Interest" and "--Class
HI: B-2 Principal."
(3) if Green Tree or any wholly owned subsidiary of Green Tree is the
servicer, to pay the monthly servicing fee to the servicer with
respect to the home improvement Loans;
(4) to reimburse the trustee or any successor servicer for any payments of
FHA Insurance premiums with respect to the home improvement Loans not
paid by Green Tree, as servicer, and for which the trustee or such
successor servicer has not been reimbursed by Green Tree;
(5) to reimburse the servicer or the trustee, as applicable, for any
unreimbursed advances with respect to the home improvement Loans made
in respect of current or prior payment dates;
(6) to reimburse the holder of the Class C certificate for expenses
incurred by and reimbursable to it with respect to taxes or charges
imposed upon the trust as a REMIC or otherwise;
(7) to reimburse Green Tree for any prior unreimbursed Class HI: B-2
guaranty payments;
(8) to pay the Class HI: B-2 guaranty fee to Green Tree; and
(9) to pay any remaining amounts to the holder of the Class C certificate.
On each payment date the trustee will withdraw the Sub-Pool HE amount
available, which will consist primarily of amounts received in respect of the
Home Equity Loans, but will also include that portion of the Sub-Pool HI Amount
Available in excess of the amounts necessary to make the payments described in
clauses (1) through (9) of the preceding paragraph, and withdrawals from the
reserve account from the certificate account and make the following payments,
in the following order of priority:
(1) if neither Green Tree nor any wholly owned subsidiary of Green Tree is
the servicer, to pay the Monthly Servicing Fee with respect to the
Home Equity Loans to the servicer;
(2) to pay interest and principal on the sub-pool HE certificates, in the
following order of priority:
(A) interest on the Class HE: A certificates, including the Class
HE: A-1 underlying certificate but excluding the Class HE: A-1
certificates, and the Class HE: M-1 and Class HE: M-2 certificates
as follows, including, in each case, any such interest due on a
prior payment date but not received:
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. first, to such Class HE: A Certificateholders, interest on the
Class HE: A principal balance or, in the case of the Class HE:
A-5 IO certificates, on the notional principal amount;
. second, to Class HE: M-1 Certificateholders, interest on the
Class HE: M-1 adjusted principal balance; and
. third, to Class HE: M-2 Certificateholders, interest on the
Class HE: M-2 adjusted principal balance;
(B) principal on the Class HE: A certificates, including the Class
HE: A-1 underlying certificate but excluding the Class HE: A-1
certificates, and the Class HE: M-1 and Class HE: M-2
certificates, in the manner and order of priority described below
under "Distributions on Sub-Pool HE Certificates--Principal on the
Class HE: A, Class HE: M-1 and Class HE: M-2 Certificates," in
respect of the sub-Pool HE formula principal distribution amount;
(C) payments on the Class HE: M-1 and Class HE: M-2 certificates in
respect of sub-pool HE liquidation loss interest amounts as
follows:
. first, to Class HE: M-1 Certificateholders, any unpaid Class
HE: M-1 liquidation loss interest amount; and
. second, to Class HE: M-2 Certificateholders, any unpaid Class
HE: M-2 liquidation loss interest amount;
(D) interest and principal on the Class HE: B certificates, in the
manner and order of priority described below under "Distributions
on Sub-Pool HE Certificates--Class HE: B Interest" and "--Class
HE: B Principal;" and
(E) interest, to the extent not paid on a prior Payment Date, on the
Class HE: A-1B ARM certificates for any payment date with respect
to which the available funds pass-through rate was less than one-
month LIBOR plus the pass-through margin (or 14.0% if less),
calculated on the Class HE: A-1B ARM principal balance for such
payment date at a rate equal to such difference, plus interest on
such amount accrued from such payment date to the payment date on
which such amount is paid.
(3) if Green Tree or any wholly owned subsidiary of Green Tree is the
servicer, to pay the monthly servicing fee to the servicer with
respect to the home equity loan;
(4) to reimburse the servicer or the trustee, as applicable, for any
unreimbursed advances with respect to the home equity loan made in
respect of current or prior payment dates;
(5) to reimburse the holder of the Class C certificate for expenses
incurred by and reimbursable to it with respect to taxes or charges
imposed upon the trust as a REMIC or otherwise;
(6) to reimburse Green Tree for any prior unreimbursed Class HE: B
guaranty payments;
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(7) to pay the Class HE: B guaranty fee to Green Tree; and
(8) to pay any remaining amounts to the holder of the Class C certificate.
The scheduled principal balance of a loan with respect to any payment date is
its principal balance as of the scheduled payment due date in the calendar
month preceding that payment date as specified in its amortization schedule,
after giving effect to any previous partial principal prepayments and to the
scheduled payment due on such due date, but without giving effect to any
delinquency in payment or adjustments due to bankruptcy or similar proceedings.
The pool scheduled principal balance, with respect to the loan pool or a given
sub-pool, as of any payment date, is the aggregate of the scheduled principal
balances of loans comprising the loan pool or such sub-pool, as the case may
be, that were outstanding during the preceding due period. A liquidated loan is
a defaulted loan as to which all amounts that the servicer expects to recover
on account of such loan have been received.
Distributions on Sub-Pool HI Certificates
On each payment date, distributions on the sub-pool HI certificates will be
made to the holders of the class HI: A certificates, the class HI: M
certificates and the class HI: B certificates in the manner described in the
next pages. Distributions of interest and principal on the sub-pool HI
certificates will be made primarily from amounts available in respect of the
home improvement loans comprising sub-pool HI, although, under certain
circumstances as described in this prospectus supplement, amounts available in
respect of the home equity loans in sub-pool HE may be available to make such
distributions.
The sub-pool HI amount available will consist primarily of payments made on
or in respect of the home improvement loans comprising sub-pool HI and will
include amounts payable, subject to the subordination described in this
prospectus supplement, to the servicer, so long as Green Tree or any wholly
owned subsidiary of Green Tree is the servicer, as the monthly servicing fee
with respect to the home improvement loans, to Green Tree as the class HI: B-2
guaranty fee, and to the class C certificateholders.
Interest on the Class HI: A, Class HI: M-1, Class HI: M-2 and Class HI: B-1
Certificates
Interest will be distributable first to each class of class HI: A
certificates concurrently, then to the class HI: M-1 certificates, then to the
class HI: M-2 certificates and then to the class HI: B-1 certificates. Interest
on the outstanding class HI: A principal balance, class HI: M-1 adjusted
principal balance, class HI: M-2 adjusted principal balance and class HI: B-1
adjusted principal balance, as applicable, will accrue at the related pass-
through rate from , 1999, or from the most recent payment date on which
interest has been paid, to but excluding the following payment date, and will
be computed on the basis of a 360-day year of twelve 30-day months. The
principal balance of a class of sub-pool HI certificates as of any payment date
is the original principal balance of such class less all amounts previously
distributed on account of principal of such class. The class HI: A principal
balance as of any payment date is the sum of the Class HI: A-1 principal
balance, the Class HI: A-2 principal balance and the Class HI: A-3 principal
balance. The "class HI:
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M principal balance" as of any payment date is the sum of the class HI: M-1
principal balance and the class HI: M-2 principal balance. The "Class HI: M-1
adjusted principal balance" as of any payment date is the class HI: M-1
principal balance less any Class HI: M-1 liquidation loss amount. The pass-
through rates for the class HI: A, Class HI: M and class HI: B-1 certificates
are set forth on the cover of this prospectus supplement. The "Class HI: M-2
adjusted principal balance" as of any payment date is the class HI: M-2
principal balance less any Class HI: M-2 liquidation loss amount (described
below under "losses on liquidated home improvement loans"). The "Class HI: B
principal balance" as of any payment date is the sum of the class HI: B-1
principal balance and the Class HI: B-2 principal balance. The "Class HI: B-1
adjusted principal balance" as of any payment date is the Class HI: B-1
principal balance less any Class HI: B-1 liquidation loss amount (described
below under "losses on liquidated home improvement loans").
The pass-through rates on the Class HI: A, Class HI: M and Class HI: B-1
certificates are set forth on the cover of this prospectus supplement. The
Class HI: B-2 pass-through rate is 8.50%, subject to a maximum rate equal to
the weighted average of the loan rates on the home improvement loans.
In the event that, on a particular payment date, the sub-pool HI amount
available in the certificate account is not sufficient to make a full
distribution of interest to the holders of a class of class HI: A certificates,
class HI: M-1 certificates, Class HI: M-2 certificates or Class HI: B-1
certificates, after payment of interest on each class of sub-pool HI
certificates that is senior to such class of certificates (the Class HI: A
certificates being treated as a single class for this purpose), the amount of
interest to be distributed in respect of such class will be allocated among the
outstanding certificates of such class pro rata in accordance with their
respective entitlements to interest, and the amount of the shortfall will be
carried forward and added to the amount such holders will be entitled to
receive on the next payment date. Any such amount so carried forward will bear
interest at the applicable pass-through rate, to the extent legally
permissible.
Principal on the Class HI: A, Class HI: M-1, Class HI: M-2 and Class HI: B-1
Certificates.
The Class HI: A, Class HI: M-1, Class HI: M-2 and Class HI: B-1 certificates
will be entitled to receive on each payment date as distributions of principal,
in the order of priority set forth below and to the extent of the sub-pool HI
amount available in the certificate account after payment of all interest then
accrued on the Class HI: A principal balance, Class HI: M-1 adjusted principal
balance, Class HI: M-2 adjusted principal balance and Class HI: B-1 adjusted
principal balance, an amount equal to the sub-pool HI senior percentage (as
defined below) or the Class HI: B percentage, as applicable, of the sub-pool HI
formula principal distribution amount. The sub-pool HI formula principal
distribution amount is the sum of:
(1) all scheduled payments of principal due on each outstanding home
improvement loan during the related due period,
(2) the scheduled principal balance of each home improvement loan which,
during the due period, was purchased by Green Tree pursuant to the
pooling and servicing agreement on account of certain breaches of its
representations and warranties,
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(3) all partial principal prepayments applied and all principal
prepayments in full received during such due period in respect of home
improvement loan,
(4) the scheduled principal balance of each home improvement loan that
became a liquidated loan during such due period, and
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the certificate account if
(a) the payment date occurs on or after the payment date on which the
Class HI: B-2 principal balance has been reduced to zero, or
(b) such amount was not covered by a Class HI: B-2 guaranty payment
and corresponding reduction in the Class HI: B-2 principal
balance, less any sub-pool HI over-collateralization adjustment
amount (as described below).
In addition, on each payment date occurring in January 2002 or after on which
the sub-pool HI current realized loss test (as described below) has not been
met and the ratio of (a) the net liquidation losses on all FHA-Insured loan
that became liquidated loan in any due period preceding such payment date to
(b) the aggregate repurchase price of all such liquidated loan is 50% or more,
holders of a Class of Class HI: A or Class HI: M certificates will be entitled
to receive as payments of principal, in the order of priority described below,
the sub-pool HI supplementary principal distribution amount (which is the
balance, if any, of the sub-pool HI amount available in the certificate account
after payment of (1) all interest then accrued on the Class HI: A principal
balance, Class HI: M-1 adjusted principal balance, Class HI: M-2 adjusted
principal balance and Class HI: B-1 adjusted principal balance, and (2) the
sub-pool HI formula principal distribution amount). When the principal balance
of a Class of sub-pool HI certificates is reduced to zero, no further
distributions of principal will be made to the holders of that class.
The scheduled principal balance of a loan with respect to any payment date is
its principal balance as of the scheduled payment due date in the due period,
after giving effect to any previous partial principal prepayments applied and
to the scheduled payment due on such due date, and after giving effect to any
adjustments due to bankruptcy or similar proceedings. The pool scheduled
principal balance, with respect to the loan pool or a given sub-pool as of any
payment date, is the aggregate of the scheduled principal balances of loans
comprising the loan pool or such sub-pool, as the case may be, that were
outstanding during the preceding due period. A liquidated loan is a defaulted
loan where all amounts that the servicer expects to recover on account of that
loan have been received.
The sub-pool HI over-collateralization adjustment amount for any payment date
will be the excess, if any, of the (1) the excess of (a) the pool scheduled
principal balance of sub-pool HI over (b) the sum of the Class HI: A principal
balance, the Class HI: M principal balance and the Class HI: B principal
balance, over (2) 2% of the pool scheduled principal balance of sub-pool HI.
The sub-pool HI senior percentage of the sub-pool HI formula principal
distribution amount and any sub-pool HI supplementary principal distribution
amount will be distributed,
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to the extent of the sub-pool HI amount available, after payment of all
interest then accrued on the Class HI: A principal balance, Class HI: M-1
adjusted principal balance, Class HI: M-2 adjusted principal balance and Class
HI: B-1 adjusted principal balance,
. first, to the Class HI: A-1 certificateholders until the Class HI:
A-1 principal balance has been reduced to zero,
. then to the Class HI: A-2 certificateholders until the Class HI:
A-2 principal balance has been reduced to zero,
. then to the Class HI: A-3 certificateholders until the Class HI:
A-3 principal balance has been reduced to zero,
. then to the Class HI: M-1 certificateholders until the Class HI:
M-1 principal balance has been reduced to zero and
. then to the Class HI: M-2 certificateholders until the Class HI:
M-2 principal balance has been reduced to zero.
The sub-pool HI senior percentage for any payment date prior to the Class HI:
B cross-over date, and for any payment date on or after the Class HI: B cross-
over date on which each Class HI: B principal distribution test has not been
satisfied, will equal 100%. On each payment date on or after the Class HI: B
cross-over date, if each Class HI: B principal distribution test has been
satisfied on such payment date, the sub-pool HI senior percentage will equal a
fraction, expressed as a percentage, the numerator of which is the sum of the
Class HI: A principal balance and the Class HI: M principal balance for such
payment date and the denominator of which is the pool scheduled principal
balance of sub-pool HI for the immediately preceding payment date.
Payments of principal on the Class HI: B-l certificates will not commence
until the Class HI: B cross-over date, and will be made on that payment date
and each payment date after that only if each Class HI: B principal
distribution test is satisfied on that payment date, unless the Class HI: A
principal balance and the Class HI: M principal balance have been reduced to
zero. The Class HI: B cross-over date will be the earlier of (A) the payment
date on which the Class HI: M-2 principal balance is reduced to zero and (B)
the first payment date on or after the payment date in 2002 on which the
fraction, expressed as a percentage, the numerator of which is the Class HI: B
principal balance as of such payment date and the denominator of which is the
pool scheduled principal balance of sub-pool HI as of the immediately preceding
payment date, is equal to or greater than 20%.
On each payment date on or after the Class HI: B cross-over date and prior to
the payment date on which the Class HI: A principal balance and the Class HI: M
principal balance have been reduced to zero, holders of Class HI: B
certificates will be entitled to distributions of principal only if each of the
following Class HI: B principal distribution tests is satisfied on such payment
date:
(1) the average of the sub-pool HI sixty-day delinquency ratio (as defined
in the pooling and servicing agreement) as of such payment date and
the prior two payment dates must not exceed 2.5%;
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(2) the average of the sub-pool HI thirty-day delinquency ratio, as
defined in the pooling and servicing agreement, as of such payment
date and the prior two payment dates must not exceed 5%;
(3) the sub-pool HI cumulative realized loss ratio, as defined in the
pooling and servicing agreement, as of such payment date must not
exceed 10%;
(4) the sub-pool HI current realized loss ratio, as defined in the pooling
and servicing agreement, as of such payment date must not exceed 2.5%;
and
(5) the Class HI: B principal balance divided by the pool scheduled
principal balance of sub-pool HI as of the immediately preceding
payment date must be equal to or greater than 20%.
On each payment date on which the Class HI: B certificates are eligible to
receive distributions of principal, the Class HI: B percentage of the sub-pool
HI formula principal distribution amount less the Class HI: B floor reduction
amount will be paid to the Class HI: B-1 certificateholders to the extent of
the sub-pool HI amount available, after payment of all interest then accrued on
the Class HI: A principal balance, Class HI: M-1 adjusted principal balance,
Class HI: M-2 adjusted principal balance and Class HI: B-1 adjusted principal
balance and all principal then due on the Class HI: A certificates and Class
HI: M certificates, until the Class HI: B-l principal balance has been reduced
to zero. The Class HI: B floor reduction amount means as to any payment date
prior to the Class HI: M-2 cross-over date, the amount, if any, by which the
Class HI: B percentage of the sub-pool HI formula principal distribution amount
exceeds (a) the Class HI: B principal balance prior to the effect of such
distribution less (b) $1,250,000, and after the Class HI: M-2 cross-over date
the amount will equal zero.
Any Class HI: B floor reduction amount will be distributed to the Class HI:
A-1 certificates until the balance is reduced to zero, then to Class HI: A-2
certificates until the balance is reduced to zero, then to Class HI: A-3
certificates until the balance is reduced to zero, then to Class HI: M-1
certificates, until the balance is reduced to zero, and then to Class HI: M-2
certificates until the balance is reduced to zero.
The Class HI: B percentage for any payment date will be equal to 100% minus
the sub-pool HI senior percentage. The Class HI: B percentage for each payment
date, if any, after the Class HI: A principal balance and the Class HI: M
principal balance have been reduced to zero will be equal to 100%.
Notwithstanding the above, on any payment date as to which there is a Class
HI: A liquidation loss principal amount, which is the amount, if any, by which
the pool scheduled principal balance of sub-pool HI plus the sub-pool HI pre-
funded amount is less than the Class HI: A principal balance, the remaining
sub-pool HI amount available, after payment of all interest then accrued on the
Class HI: A principal balance, Class HI: M-1 adjusted principal balance, Class
HI: M-2 adjusted principal balance and Class HI: B-1 adjusted principal
balance, will be distributed pro rata to each class of Class HI: A certificates
based on the principal balance of each class. In no event will such amount
exceed the principal balance of any such class).
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Class HI: B-2 Interest.
Interest on the outstanding Class HI: B-2 principal balance will accrue from
, 1999, or from the most recent payment date on which interest has been
paid, to but excluding the following payment date, and will be computed on the
basis of a 360-day year of twelve 30-day months.
To the extent of (a) the remaining sub-pool HI amount available, if any, for
a payment date after payment of all interest and principal then payable on the
Class HI: A, Class HI: M-1, Class HI: M-2 and Class HI: B-1 certificates, and
(b) the Class HI: B-2 guaranty payment, if any, for such date, interest will be
paid to the Class HI: B-2 certificateholders on such payment date at the Class
HI: B-2 pass-through rate on the then outstanding Class HI: B-2 principal
balance. The Class HI: B-2 principal balance is the original class HI: B-2
principal balance less all amounts previously distributed to the Class HI: B-2
certificateholders, including any Class HI: B-2 guaranty payments, on account
of principal.
In the event that, on a particular payment date, the remaining sub-pool HI
amount available in the certificate account plus any amounts actually paid
under the Class HI: B-2 limited guaranty are not sufficient to make a full
distribution of interest to the Class HI: B-2 certificateholders, the amount of
the deficiency will be carried forward as an amount that the Class HI: B-2
certificateholders are entitled to receive on the next payment date. Any amount
so carried forward will, to the extent legally permissible, bear interest at
the Class HI: B-2 pass-through rate.
Class HI: B-2 Principal.
Except for payments of the Class HI: B-2 liquidation loss principal amount,
payments of principal on the Class HI: B-2 certificates will not commence until
the payment date on which the Class HI: B-1 principal balance has been reduced
to zero (the "Class HI: B-1 cross-over date"), and will be made on that payment
date and each payment date after that only if each Class HI: B principal
distribution test is satisfied on such payment date, unless the Class HI: A
principal balance and the Class HI: M principal balance have been reduced to
zero. On any such payment date, the Class HI: B percentage of the sub-pool HI
formula principal distribution amount less the Class HI: B floor reduction
amount will be distributed, to the extent of the sub-pool HI amount available,
after payment of all interest and principal then due on the Class HI: A and
Class HI: M certificates, and any amounts actually paid under the Class HI: B-2
limited guaranty, in each case after payment of interest on the Class HI: B-2
certificates, to the Class HI: B-2 certificateholders until the Class HI: B-2
principal balance has been reduced to zero. The Class HI: B-2 principal balance
generally will not be reduced below $1,250,000 until the Class HI: A principal
balance, the Class HI: M principal balance and the Class HI: B-1 principal
balance have been reduced to zero.
On each payment date, the Class HI: B-2 certificateholders will be entitled
to receive, pursuant to the Class HI: B-2 limited guaranty, the Class HI: B-2
liquidation loss principal amount until the Class HI: B-2 principal balance has
been reduced to zero.
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Distributions on Sub-Pool HE Certificates
On each payment date, distributions on the sub-pool HE certificates will be
made to the holders of the Class HE: A certificates, the Class HE: M
certificates and the Class HE: B certificates, in the manner described below.
Distributions of interest and principal on the sub-pool HE certificates will be
made primarily from amounts available in respect of the home equity loans
comprising sub-pool HE, although, under certain circumstances as described in
this prospectus supplement, amounts available in respect of the home
improvement loans in sub-pool HI may be available to make such distributions.
Sub-pool HE certificateholders will be entitled to receive on each payment
date commencing in 1999, to the extent that the sub-pool HE amount
available plus any reserve account withdrawal amount in the certificate account
is sufficient, distributions allocable to interest and principal, as described
in this prospectus supplement.
The Class HE: A and Class HE: M certificateholders will have the benefit of a
reserve account to cover liquidation losses on the home equity loans. The
reserve account will equal $ on the closing date. Withdrawals will be made
from the reserve account to cover liquidation losses on the home equity loans,
and to repay the loan used to fund the reserve account. Additions will be made
to the reserve account from the sub-pool HE amount available in an amount equal
to those withdrawals from the reserve account that are used to repay the loan
upon certain triggering events.
Reserve Account Loan
The reserve account will be fully funded on the closing date by a loan. Loan
fees due on the reserve account loan will be paid on each payment date from the
amount available to the Class HE Certificateholders.
Amounts will be released on each payment date from the reserve account to pay
a portion of the principal on the reserve account loan, commencing on or after
the payment date in if on that payment date, certain tests have been met.
The loan reduction amount on any payment date will be the excess of the sum of
the Class HE: B adjusted principal balance and the reserve account balance over
16% of the pool scheduled principal balance of sub-pool HE as of that payment
date. However, if the Class HE: A and Class HE: M principal balances have been
reduced to zero, the reserve account balance will also be zero.
In addition, if on a payment date certain triggering events have occurred,
amounts will be released from the reserve account to pay the reserve account
loan on that payment date, and on each succeeding payment date until the
triggering event is cured. In this case, the amount of the repayment on that
date will equal, in general, the sub-pool HE amount available on that payment
date less all amounts which the Class HE: A and Class HE: M certificateholders
are entitled to receive on that payment date. A triggering event will occur if
liquidation losses on loans included in sub-pool HE exceed specified amounts,
if prepayments fall below certain levels, or if the sub-pool HE amount
available, after payment
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of interest and principal to Class HE: A and Class HE: M certificateholders, is
less than a specified amount.
On the earlier of the payment date in or the payment date on which any
termination event has occurred, a portion of the sub-pool HE amount available
may be applied to pay the reserve account loan on that payment date, and on
each succeeding payment date, until the reserve account loan has been paid in
full. In this case, the amount of each repayment will equal, in general, the
sub-pool HE amount available on that payment date, less all amounts which the
Class HE: A and Class HE: M certificateholders are entitled to receive on that
payment date. Termination events include an event of default under the reserve
account loan agreement, the exercise by the servicer of its right to purchase
the loans in the trust created under the pooling and servicing agreement after
the scheduled principal balance of all such loans is less than 10% of the
aggregate principal balance of the certificates on the closing date, and the
failure of certain tests related to the performance of the loans included in
sub-pool HE.
The sub-pool HE amount available will consist primarily of payments made on
or in respect of the home equity loans comprising sub-pool HE and will include
amounts payable, subject to the subordination, to the servicer (so long as
Green Tree or any wholly owned subsidiary of Green Tree is the servicer) as the
related monthly servicing fee with respect to the home equity loans, to Green
Tree as the Class HE: B guaranty fee, and to the Class C certificateholders.
Interest on the Class HE: A, Class HE: M-1 and Class HE: M-2.
Interest will be distributable
. first to each Class of Class HE: A certificates concurrently,
. then to the Class HE: M-1 certificates and
. then to the Class HE: M-2 certificates.
Interest on the outstanding Class HE: A principal balance, or, in the case of
the Class HE: A-5 IO certificates, on the notional principal amount, Class HE:
M-1 adjusted principal balance and Class HE: M-2 adjusted principal balance, as
applicable, will accrue at the related pass-through rate from , 1999, or
from the most recent payment date on which interest has been paid, to but
excluding the following payment date. Interest on each Class of Class HE: A
certificates, other than the Class HE: A-1B ARM and Class HE: A-1 certificates,
will be computed on the basis of a 360-day year of twelve 30-day months.
Interest on the Class HE: A-1B ARM and Class HE: A-1 certificates will be
computed on the basis of actual days elapsed in a 360-day year. The principal
balance of a Class of sub-pool HE certificates as of any payment date is the
original principal balance of the class minus all amounts previously
distributed on account of principal of the Class. The Class HE: A principal
balance as of any payment date is the sum of the Class HE: A-1A NAS principal
balance, the Class HE: A-1B ARM principal balance, the Class HE: A-1 principal
balance, the Class HE: A-2 principal balance, the Class HE: A-3 principal
balance and the Class HE: A-4 principal balance. The Class HE: M principal
balance as of any payment date is the sum
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of the Class HE: M-1 principal balance and the Class HE: M-2 principal balance.
The Class HE: M-1 adjusted principal balance" as of any payment date is the
Class HE: M-1 principal balance less any Class HE: M-1 liquidation loss amount.
The Class HE: M-2 adjusted principal balance as of any payment date is the
Class HE: M-2 principal balance less any Class HE: M-2 liquidation loss amount.
The Class HE: A-1B ARM pass-through rate is a floating rate equal to the
lesser of one-month LIBOR plus the Class A-1B ARM pass-through margin or the
available funds pass-through rate, but in no case more than 14.0%. The Class A-
1B ARM pass-through margin will equal 0.65% per year on each payment date on
which the pool scheduled principal balance of the loan pool is 10% or more of
the cut-off date pool principal balance of the loan pool, and 0.90% per year on
each payment date on which the pool scheduled principal balance of the loan
pool is less than 10% of the aggregate principal balance of the certificates on
the closing date. The available funds pass-through rate for any payment date
will be a rate per year equal to the weighted average of the expense adjusted
loan rates on the then outstanding adjustable rate home equity Loans. The
expense adjusted loan rate on any adjustable rate home equity loan is equal to
the then applicable mortgage rate, minus the expense fee rate. The expense fee
rate is 0.50% per year.
In addition, if on any payment date the Class HE: A-1B ARM pass-through rate
is less than one-month LIBOR plus the pass-through margin or 14.0% if less,
because of the limit of the available funds pass-through rate, supplemental
interest on the Class HE: A-1B ARM principal balance at a rate equal to such
difference will be payable on the Class HE: A-1B ARM certificates, to the
extent the sub-pool HE amount available is sufficient therefor after payment of
all interest and principal due on the sub-pool HE certificates on, and unpaid
loan fees and certain other amounts payable to the reserve account lenders as
of, such payment date. The loan fees are generally calculated at 1.50% per year
until the seventh anniversary of the Closing Date and after that at a rate of
2.5% per year.
Through the payment date in , or as described below in this paragraph,
the Class HE: A-1 pass-through rate will be a floating rate equal to one-month
LIBOR plus 0.57%, but in no case more than 14.0%. On each Payment Date after
, the Class HE: A-1 pass-through rate will equal the pass-through rate on
the Class HE: A-1 underlying certificates, which is 6.2375%. On the payment
date on which the pool scheduled principal balance of the Loan pool is less
than 10% of the aggregate principal balance of the certificates on the closing
date, the Class HE: A-1 pass-through rate will increase by 0.25%.
Interest will be calculated on the Class HE: A-5 IO certificates on each
payment date based on the notional principal amount, which for the first 24
payment dates is equal to $ , or the Class HE: A principal balance for the
payment date, if less, and will after that equal zero. The notional principal
amount provides a basis for calculating interest payments only, and does not
represent the right to receive any distributions of principal.
In the event that, on a particular payment date, the sub-pool HE amount
available in the certificate account is not sufficient to make a full
distribution of interest to the holders of a Class of Class HE: A certificates,
Class HE: M-1 certificates or Class HE: M-2 certificates,
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after payment of interest on each Class of sub-pool HE certificates that is
senior to that class of certificates (the Class HE: A certificates being
treated as a single class for this purpose), the amount of interest to be
distributed in respect of that Class will be allocated among the outstanding
certificates of that class pro rata in accordance with their entitlements to
interest, and the amount of the shortfall will be carried forward and added to
the amount such holders will be entitled to receive on the next payment date.
In such event, the amount of interest to be distributed to the Class HE: A-1
certificates will be reduced by the amount of the interest shortfall in respect
of the Class HE: A-1 underlying certificates. Any such amount so carried
forward will bear interest at the applicable pass-through rate, and in the case
of the Class HE: A-1 certificates, at the pass-through rate for the Class
HE: A-1 underlying certificates, to the extent legally permissible.
Principal on the Class HE: A, Class HE: M-1 and Class HE: M-2 Certificates.
The Class HE: A Class HE: M-1 and Class HE: M-2 certificates will be entitled
to receive on each Payment Date distributions of principal in the order of
priority described below, to the extent of the sub-pool HE amount available
after payment of all interest then accrued on the Class HE: A principal
balance, Class HE: M-1 adjusted principal balance and Class HE: M-2 adjusted
principal balance and after payment of any unpaid loan fees payable to the
reserve account lenders.
Holders of the Class HE: A-1A NAS certificates will generally be entitled to
receive, as payments of principal, an amount equal to Class HE: A-1A NAS
Percentage of the Class HE: A ARM portion, until the Class HE: A-1A NAS
principal balance is reduced to zero. Holders of the Class HE: A-1B ARM
certificates will generally be entitled to receive, as payments of principal,
the Class HE: A ARM portion less an amount equal to the lesser of the
Class A-1A NAS principal balance and the Class HE: A-1A NAS percentage of the
Class HE: A ARM portion, until the Class HE: A-1B ARM principal balance is
reduced to zero.
"Class HE: A-1A NAS Percentage" means, as to any Payment Date:
(1) 0% prior to the payment date in , unless the Class HE: A-1B
ARM Principal Balance has been reduced to zero;
(2) 90% on the payment date in September 2000 and after that, unless the
Class HE: A-1B ARM principal balance has been reduced to zero; and
(3) on and after any payment date on which the Class HE: A-1B ARM
principal balance has been reduced to zero, until the Class HE: A-1A
NAS principal balance has been reduced to zero, 100%.
"Class HE: A ARM Portion" means, generally, as to any payment date,
(a) if the payment date is on or prior to the Class HE: A ARM cross-over
date, an amount equal to the sub-pool HE ARM formula principal
distribution amount;
(b) if the payment date is on or prior to the Class HE: A ARM cross-over
date, and after the Class HE: A-1 underlying and Class HE: A-4
cross-over dates, an amount equal to the sub-pool HE formula
principal distribution amount less
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the sum of the Class HE: M-1, Class HE: M-2, and Class HE: B
formula principal distribution amounts;
(c) if the payment date is after the Class HE: ARM cross-over date, $0.
"Sub-Pool HE: ARM Formula Principal Distribution Amount" means, as to any
payment date, the sum of the following amounts for the related due period, in
each case computed in accordance with the method specified in the relevant
adjustable rate home equity loan:
(a) all scheduled payments of principal due on each outstanding
adjustable rate home equity loan during the prior due period as
specified in the amortization schedule at the time applicable
thereto, after adjustments for previous partial principal
prepayments and any adjustment to the amortization schedule by
reason of any bankruptcy of an Obligor or similar proceeding or any
moratorium or similar waiver or grace period; plus
(b) all partial principal prepayments applied and all principal
prepayments in full received during the prior due period for the
adjustable rate home equity loans; plus
(c) the aggregate scheduled principal balance of all adjustable rate
home equity loans that became liquidated loans during the prior due
period plus the amount of any reduction in principal balance of any
adjustable rate home equity loans during the prior due period
pursuant to bankruptcy proceedings involving the related obligor;
plus
(d) the aggregate scheduled principal balance of all adjustable rate
home equity loans repurchased, and all amounts deposited in lieu of
the repurchase of any adjustable rate home equity loan, during the
prior due period, any amount required to be deposited by Green Tree
in the certificate account during the prior due period; plus
(e) on the payment date which is on or after the last day of the pre-
funding period, any amount then on deposit in the sub-pool HE pre-
funding ARM subaccount.
The Class HE: A-1 underlying certificateholders will be entitled to receive,
as payments of principal, the Class HE: A-1 underlying portion, until the
Class HE: A-1 principal balance is reduced to zero. "Class HE: A-1 Underlying
Portion" means, generally, any payment date,
(a) if the payment date is before the Class HE: A-1 underlying and Class
HE: A-4 cross-over dates, an amount equal to the Sub-Pool HE Group
I formula principal distribution amount less the product of (i) the
sum of the Class HE: M-1, Class HE: M-2, and Class HE: B formula
principal distribution amounts times (ii) a fraction, the numerator
of which is the sub-pool HE Group I formula principal distribution
amount and the denominator of which is the sub-
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pool HE: Group I formula principal distribution amount plus the sub-
pool HE: Group II formula principal distribution amount;
(b) if the payment date is on or before the Class HE: A-1 underlying
cross-over date and the Class HE: A ARM cross-over date but after
the Class HE: A-4 cross-over date, an amount equal to the sub-pool
HE fixed rate formula principal distribution amount less the sum of
the Class HE: M-1, Class HE: M-2, and Class HE: B formula principal
distribution amounts;
(c) if the payment date is on or prior to the Class HE: A-1 underlying
cross-over date and after the Class HE: A-4 and Class HE: A ARM
cross-over dates, an amount equal to the sub-pool HE formula
principal distribution amount less the sum of the Class HE: M-1,
Class HE: M-2, and Class HE: B formula principal distribution
amounts times;
(d) if the payment date is after the Class HE: A-1 underlying cross-over
date, $0.
"Sub-Pool HE: Group I Formula Principal Distribution Amount" means, as to any
payment date, the sum of:
(a) all scheduled payments of principal due on each outstanding Group I
loan during the prior due period listed in the amortization schedule
at the time applicable, after adjustments for previous partial
principal prepayments and after any adjustment to the amortization
schedule by reason of any bankruptcy of an obligor or similar
proceeding or any moratorium or similar waiver or grace period; plus
(b) all partial principal prepayments applied and all principal
prepayments in full received during the prior due period with
respect to the Group I loans; plus
(c) the aggregate scheduled principal balance of all Group I loans that
became liquidated loans during the prior due period plus the amount
of any reduction in principal balance of any Group I loan during the
prior due period pursuant to bankruptcy proceedings involving the
related obligor; plus
(d) the aggregate scheduled principal balance of all Group I loans
repurchased, and all amounts deposited instead of the repurchase of
any Group I loan, during the prior due period, any amount required
to be deposited by Green Tree in the certificate account during the
prior due period; plus
(e) any amount described in clauses (a) through (d) above that was not
previously distributed because of an insufficient amount of funds
available in the certificate account if (1) the payment date occurs
on or after the payment date on which the Class HE: B principal
balance has been reduced to zero, or (2) such amount was not covered
by a Class HE: B guaranty payment and corresponding reduction in the
Class HE: B principal balance; plus
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(f) on the payment date on or after the last day of the pre-funding
period, the Sub-Pool HE Pre-Funded Group I amount.
Holders of the Class HE: A-2, Class HE: A-3 and Class HE: A-4 certificates
will be entitled to receive, as payments of principal, an amount equal to the
Class HE: A(2, 3, 4) portion. When the principal balance of a class of sub-pool
HE certificates is reduced to zero, no further distributions of principal will
be made to the holders of the class.
"Class HE: A (2, 3, 4) Portion" means, generally, as to any payment date,
(a) if the payment date is on or before the Class HE: A-4, Class HE: A-1
underlying, and Class HE: A ARM cross-over dates, an amount equal
to the sub-pool HE Group II formula principal distribution amount
less the product of (i) the sum of the Class HE: M-1, Class HE: M-
2, and Class HE: B formula principal distribution amounts times
(ii) a fraction, the numerator of which is the Sub-Pool HE Group II
formula principal distribution amount and the denominator of which
is the Sub-Pool HE: Group I formula principal distribution amount
plus the sub-pool HE: Group II formula principal distribution
amount;
(b) if the payment date is on or before the Class HE: A-4 and Class HE:
A ARM cross-over dates but after the Class HE: A-1 cross-over date,
an amount equal to the sub-pool HE fixed rate formula principal
distribution amount less the sum of the Class HE: M-1, Class HE: M-
2, and Class HE: B formula principal distribution amounts;
(c) if the payment date is on or before the Class HE: A-4 and Class HE:
A-1 underlying cross-over dates but after the Class HE: A ARM
cross-over date, an amount equal to the sub-pool HE Group II
formula principal distribution amount plus the sub-pool HE ARM
formula principal distribution amount less the product of (i) the
sum of the Class HE: M-1, Class HE: M-2, and Class HE: B formula
principal distribution amounts times (ii) a fraction, the numerator
of which is the Sub-Pool HE Group II formula principal distribution
amount and the denominator of which is the sub-pool HE: Group I
formula principal distribution amount plus the sub-pool HE: Group
II formula principal distribution amount;
(d) if the payment date is on or before the Class HE: A-4 cross-over
date and after the Class HE: A-1 underlying and Class HE: A ARM
cross-over dates, an amount equal to the sub-pool HE formula
principal distribution amount less the sum of the Class HE: M-1,
Class HE: M-2, and Class HE: B formula principal distribution
amounts;
(e) if the payment date is after the Class HE: A-4 cross-over date, $0.
"Sub-Pool HE Group II Formula Principal Distribution Amount" means, as to any
payment date, the sum of:
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(a) all scheduled payments of principal due on each outstanding Group II
loan during the prior due period as specified in the amortization
schedule at the time applicable, after adjustments for previous
partial principal prepayments and after any adjustment to such
amortization schedule by reason of any bankruptcy of an obligor or
similar proceeding or any moratorium or similar waiver or grace
period; plus
(b) all partial principal prepayments applied and all principal
prepayments in full received during the prior due period for the
Group II loans; plus
(c) the aggregate scheduled principal balance of all Group II loans that
became liquidated loans during the prior due period plus the amount
of any reduction in principal balance of any Group II loan during
the prior due period under bankruptcy proceedings involving the
related obligor; plus
(d) the aggregate scheduled principal balance of all Group II loans
repurchased, and all amounts deposited in lieu of the repurchase of
any Group II loan, during the prior due period, any amount required
to be deposited by Green Tree in the certificate account during the
prior due period; plus
(e) any amount described in clauses (a) through (d) above that was not
previously distributed because of an insufficient amount of funds
available in the certificate amount if (1) the payment date occurs
on or after the payment date on which the Class HE: B principal
balance has been reduced to zero, or (2) such amount was not
covered by a Class HE: B guaranty payment and corresponding
reduction in the Class HE: B principal balance; plus
(f) on the payment date on or after the last day of the pre-funding
period, the Sub-Pool HE pre-funded Group II amount.
The Class HE: A-5 IO certificates are interest-only certificates and are not
entitled to receive distributions of principal.
The Class HE: M-1 certificateholders will be entitled to receive, as payments
of principal, the Class HE: M-1 formula principal distribution amount.
"Class HE: M-1 Formula Principal Distribution Amount" means, as to any payment
date,
(a) if the payment date is prior to the payment date, or if such
payment date is on or before the Class HE: A cross-over date and
any Class HE: subordinate principal distribution test is not
satisfied, $0;
(b) if the payment date is on or after the payment date and on or
before the Class HE: A cross-over date and each Class HE:
subordinate principal distribution test is satisfied, the excess of
(i) the difference between (x) the sum of the Class HE: M-1, Class
HE: M-2, and Class HE: B adjusted principal balances and the
reserve account balance and (y) the sum of the Class HE: M-2
formula principal distribution amount, the Class HE: B formula
principal
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distribution amount, and the net reduction of the reserve account
for the payment date over (ii) the product of 38% and the pool
scheduled principal balance of sub-pool HE as of such payment date;
or
(c) if the payment date is after the Class HE: A cross-over date, the
sub-pool HE formula principal distribution amount less the sum of
the Class HE: M-2 formula principal distribution amount and the
Class HE: B formula principal distribution amount.
The Class HE: M-2 certificateholders will be entitled to receive, as
payments of principal, the Class HE: M-2 formula principal distribution
amount.
"Class HE: Subordinate Principal Distribution Test" means, as to any payment
date, each of the sub-pool HE average sixty-day delinquency ratio test, the
sub-pool HE average thirty-day delinquency ratio test, the sub-pool HE
cumulative realized losses test and the sub-pool HE current realized losses
test.
"Class HE: M-2 Formula Principal Distribution Amount" means, as to any
payment date,
(a) if the payment date is before the payment date, or on or before
the Class HE: M-1 cross-over date and any Class HE: subordinate
principal distribution test is not satisfied, $0);
(b) if the payment date is on or after the payment date and on or
before the Class HE: A cross-over date or the Class HE: M-1 cross-
over date and each Class HE: subordinated principal distribution
test is satisfied, the excess of (i) the difference between (x) the
sum of the Class HE: M-2 adjusted principal balance, the Class HE:
B adjusted principal balance and the reserve account balance and
(y) the sum of the Class HE: B formula principal distribution
amount and the net reduction of the reserve account for that
payment date over (ii) the product of 26% and the pool scheduled
principal balance of sub-pool HE as of the payment date; or
(c) if the payment date is after the Class HE: A cross-over date and the
Class M-1 cross-over date, the sub-pool HE formula principal
distribution amount less the Class HE: B formula principal
distribution amount.
Class HE: B Interest.
Interest on the outstanding Class HE: B principal balance will accrue from
, 1999, or from the most recent payment date on which interest has been
paid, to but excluding the following payment date, and will be computed on the
basis of a 360-day year of twelve 30-day months.
To the extent of (i) the remaining sub-pool HE amount available, if any, for
a payment date after payment of all interest and principal then payable on the
Class HE: A, Class HE: M-1 and Class HE: M-2 certificates and any amounts
payable to the reserve account lenders, and (ii) the Class HE: B guaranty
payment, if any, for such date, interest will be paid to the
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Class HE: B certificateholders on the payment date at the Class HE: B pass-
through rate on the then outstanding Class HE: B principal balance. The Class
HE: B principal balance is the original Class HE: B principal balance less all
amounts previously distributed to the Class HE: B certificateholders, including
any Class HE: B guaranty payments, on account of principal.
In the event that, on a particular Payment Date, the remaining Sub-Pool HE
amount available in the certificate account plus any amounts actually paid
under the Class HE: B limited guaranty are not sufficient to make a full
distribution of interest to the Class HE: B certificateholders, the amount of
the deficiency will be carried forward as an amount that the Class HE: B
certificateholders are entitled to receive on the next payment date. Any amount
so carried forward will, to the extent legally permissible, bear interest at
the Class HE: B pass-through rate.
Class HE: B Principal.
Except for payments of the Class HE: B liquidation loss principal amount,
payments of principal on the Class HE: B certificates will not commence until
the payment date in or after , on which the reserve account has been
reduced to zero and will be made on that payment date and each payment date
after only if the Class HE: subordinate principal distribution test is
satisfied on the payment date, unless the Class HE: A principal balance and the
Class HE: M principal balance have been reduced to zero. The Class HE: B
principal balance will not be reduced below $ until the Class HE: A and
Class HE: M certificates have been retired. On any such payment date, Class HE:
B certificateholders will be entitled to receive the Class HE: formula
principal distribution amount, to the extent of the Sub-Pool HE amount
available, after payment of all interest and principal then due on the Class
HE: A and Class HE: M certificates, and any amounts actually paid under the
Class HE: B limited guaranty, in each case after payment of interest on the
Class HE: B certificates.
On each payment date, the Class HE: B certificateholders will be entitled to
receive, pursuant to the Class HE: B limited guaranty, the Class HE: B
liquidation loss principal amount until the Class HE: B principal balance has
been reduced to zero.
"Class HE: B Formula Principal Distribution Amount" means, as to any payment
date,
(a) if the payment date is prior to the payment date or on or
before the Class HE: B cross-over date or any Class HE: subordinate
principal distribution test is not satisfied, $0;
(b) if the payment date is on or after the payment date, after the
Class HE: B cross-over date and on or before either the Class HE: A
or Class HE: M-2 cross-over dates and each Class HE: subordinate
principal distribution test is satisfied, the excess of (i) the
difference between (x) the sum of the Class HE: B adjusted
principal balance and reserve account balance and (y) the net
reduction of the reserve account for that payment date over (ii)
the greater of (x) $5,500,000 and (y) the product of 16% and the
pool scheduled principal balance of Sub-Pool HE as of such payment
date;
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(c) if such payment date is after the Class HE: A, Class HE: M-1 and
Class HE: M-2 cross-over dates, the sub-pool HE formula principal
distribution amount.
Calculation of One-Month LIBOR
The London Interbank Offered Rate or LIBOR with respect to any monthly
interest period will be established by the calculation agent appointed by the
trust and will equal the offered rate for United States dollar deposits for one
month that appears on Telerate Page 3750 as of 11:00 A.M., London time, on the
second LIBOR business day before such monthly interest period. "Telerate Page
3750" means the display page so designated on the Dow Jones Telerate Service,
or such other page as may replace that page on that service, or such other
service as may be designated by the calculation agent as the information
vendor, for the purpose of displaying London interbank offered rates of major
banks. If such rate appears on Telerate Page 3750, LIBOR will be such rate.
"LIBOR Business Day" means a day that is both a business day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed. If on any LIBOR determination date the offered
rate does not appear on Telerate Page 3750, the calculation agent will request
each of the reference banks to provide the calculation agent with its offered
quotation for United States dollar deposits for one month to prime banks in the
London interbank market as of 11:00 A.M., London time, on that date. If at
least two reference banks provide the calculation agent with offered
quotations, LIBOR on that date will be the arithmetic mean, rounded upward, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward, of all such quotations. If on that date
fewer than two of the reference banks provide the calculation agent with
offered quotations, LIBOR on that date will be the arithmetic mean, rounded
upward, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-
millionths of a percentage point rounded upward, of the offered per year rates
that one or more leading banks in the City of New York selected by the
calculation agent are quoting as of 11:00 A.M., New York City time, on that
date to leading European banks for United States dollar deposits for one month;
provided, however, that if the banks are not quoting as described above, LIBOR
for that date will be LIBOR applicable to the monthly interest period
immediately preceding the monthly interest period. Notwithstanding the
foregoing, however, LIBOR for a payment date shall not be based on LIBOR for
the prior payment date for three consecutive payment dates. If, under the
priorities described above, LIBOR for a payment date would be based on LIBOR
for the previous payment date for the second consecutive payment date, the
calculation agent shall select an alternative comparable index, over which the
calculation agent has no control, used for determining one-month Eurodollar
lending rates that is calculated and published by an independent third party.
The calculation agent will initially be the trustee.
Subordination of Class HI: M Certificates and Class HI: B Certificates
The rights of the holders of the Class HI: M certificates and Class HI: B
certificates to receive distributions with respect to the home improvement
loans comprising sub-pool HI, as well as any other amounts constituting the
sub-pool HI amount available, will be subordinated, to the extent described in
this prospectus supplement, to the rights of the
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holders of the Class HI: A certificates. This subordination is intended to
enhance the likelihood of regular receipt by the holders of the Class HI: A
certificates of the full amount of their scheduled monthly payments of interest
and principal and to afford those holders protection against losses on
Liquidated Home Improvement Loans.
A portion of the protection afforded to the holders of the Class HI: A
certificates by the subordination of the Class HI: M and Class HI: B
certificates will be accomplished by the preferential right of the Class HI: A
certificateholders to receive on any payment date the amount of interest due on
the Class HI: A certificates, including any interest due on a prior payment
date but not received, before any distribution being made on a payment date for
interest on the Class HI: M and Class HI: B certificates. After that time, any
remaining Sub-Pool HI amount available will be applied to the payment of
interest due on the Class HI: M-1 adjusted principal balance, then interest due
on the Class HI: M-2 adjusted principal balance and then interest due on the
Class HI: B-1 adjusted principal balance.
After payment of all interest accrued on the Class HI: A principal balance,
Class HI: M-1 adjusted principal balance, Class HI: M-2 adjusted principal
balance and Class HI: B-1 adjusted principal balance any remaining Sub-Pool HI
amount available will be distributed in the following order of priority:
. the sub-pool HI senior percentage or the Class HI: B percentage, as
applicable, of the sub-pool HI formula principal distribution amount,
together with any sub-pool HI supplementary principal distribution
amount, will be distributed to the Class HI: A, Class HI: M and Class
HI: B-1 certificateholders in the order of priority described above
under "Distributions on Sub-Pool HI Certificates--Principal on the
Class HI: A, Class HI: M-1, Class HI: M-2 and Class HI: B-1
Certificates;"
. the remaining sub-pool HI amount available, to the extent sufficient,
will be distributed in the following order of priority:
. any unpaid Class HI: M-1 liquidation loss interest amount (as
described below under "Losses on Liquidated Home Improvement Loans")
will be distributed to the Class HI: M-1 certificateholders;
. any unpaid Class HI: M-2 liquidation loss interest amount (as
described below under "Losses on Liquidated Home Improvement Loans")
will be distributed to the Class HI: M-2 certificateholders; and,
. finally, any unpaid Class HI: B-1 liquidation loss interest amount (as
described below under "Losses on Liquidated Home Improvement Loans")
will be distributed to the Class HI: B-1 certificateholders.
The rights of the holders of the Class HI: B-2 certificates to receive
distributions for the home improvement loans and other amounts in the
certificate account will be subordinated to the rights of the holders of the
Class HI: A certificates, Class HI: M certificates and Class HI: B-1
certificates. The Class HI: B-2 certificateholders will be entitled to
distribution of interest and principal on the Class HI: B-2 certificates only
after distribution of all interest and principal payable on the Class HI: A,
Class HI: M and Class HI: B-1 certificates.
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If a Class HI: B-2 liquidation loss amount is realized for any payment date
and Green Tree fails to pay the amount pursuant to its Class HI: B-2 limited
guaranty, the Class HI: B-2 certificateholders may incur losses on their
investment in the Class HI: B-2 certificates to the extent such losses are not
made up from future payments on the home improvement loans or the Class HI: B-2
limited Guaranty.
Losses on Liquidated Home Improvement Loans
As described above, the distribution of principal to the Class HI: A
certificateholders is intended to include the sub-pool HI senior percentage of
the scheduled principal balance of each home improvement loan that became a
liquidated loan during the preceding due period. If the net liquidation
proceeds from the liquidated loan are less than the scheduled principal balance
of the liquidated loan plus accrued and unpaid interest thereon, the deficiency
will be absorbed by
. the Class C certificateholders,
. then the Class HI: B-2 guaranty fee otherwise payable to Green Tree,
. then the monthly servicing fee otherwise payable to the servicer so
long as Green Tree or any wholly owned subsidiary of Green Tree is the
servicer, for the home improvement loans,
. then the Class HI: B-2 certificateholders,
. then the Class HI: B-1 certificateholders,
. then the Class HI: M-2 certificateholders and
. then the Class HI: M-1 certificateholders, since a portion of the sub-
pool HI amount available equal to such deficiency and otherwise
distributable to them will be paid to the Class HI: A
certificateholders.
To the extent the Class HI: M-1 certificateholders, the Class HI: M-2
certificateholders or the Class HI: B-1 certificateholders are entitled to
receive distributions of principal, similar deficiencies could result for each
class of certificates with a lower payment priority.
If the sub-pool HI amount available is not enough to cover the entire amount
distributable to the Class HI: A certificateholders, the Class HI: M-1
certificateholders or the Class HI: M-2 certificateholders on a particular
payment date, then the sub-pool HI senior percentage on future payment dates
may be increased and the Class HI: B percentage on future payment dates may be
reduced as a result of such deficiency.
In the event the sub-pool HI amount available in the certificate account for
any payment date is insufficient to distribute the full sub-pool HI formula
principal distribution amount for the payment date to the sub-pool HI
certificateholders, the total outstanding principal balance of the sub-pool HI
certificates will be greater than the pool scheduled principal balance of sub-
pool HI for the payment date. In that event, the amount of this kind of
deficiency (the "sub-pool HI liquidation loss amount") would be allocated first
to the Class HI: B-2 certificates (the "Class HI: B-2 liquidation loss
amount"), and Green Tree would be obligated to pay the amount of such Class HI:
B-2 liquidation loss amount to the Class HI:
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B-2 certificateholders pursuant to the Class HI: B-2 limited guaranty. If on
any payment date the sum of the Class HI: A principal balance, the Class HI: M-
1 principal balance, the Class HI: M-2 principal balance and the Class HI: B-1
principal balance were equal to the pool scheduled principal balance of sub-
pool HI, no further sub-pool HI liquidation loss amounts could be allocated to
the Class HI: B-2 certificates and any further sub-pool HI liquidation loss
amounts realized would be allocated to reduce the Class HI: B-1 adjusted
principal balance (a "Class HI: B-1 liquidation loss amount"). If the Class HI:
B-1 adjusted principal balance were reduced to zero, any further sub-pool HI
liquidation loss amounts realized would be allocated to reduce the Class HI: M-
2 adjusted principal balance (a "Class HI: M-2 liquidation loss amount"). If
the Class HI: M-2 adjusted principal balance were reduced to zero, any further
sub-pool HI liquidation loss amounts realized would be allocated to reduce the
Class HI: M-1 adjusted principal balance (a "Class HI: M-1 liquidation loss
amount"). Any sub-pool HI liquidation loss amounts would be reduced on
subsequent payment dates to the extent that the sub-pool HI amount available in
the certificate account on the payment dates is sufficient to permit the
distribution of principal due, but not paid, on the sub-pool HI certificates on
prior payment dates. In the event the adjusted principal balance of the Class
HI: M-1, Class HI: M-2 or Class HI: B-1 certificates were reduced by a sub-pool
HI liquidation loss amount, interest accruing on the class would be calculated
on the reduced adjusted principal balance of the class. The interest accruing
on the class's sub-pool HI liquidation loss amount each month, such class's
"sub-pool HI liquidation loss Interest amount", plus interest at the applicable
pass-through rate on any sub-pool HI liquidation loss interest amount due on a
prior payment date but not paid, would be paid to the certificateholders of the
class from the sub-pool HI amount available, after distributions of principal
on all Class HI: A, Class HI: M and Class HI: B-1 certificates, in the order of
priority described above under "Subordination of Class HI: M and Class HI: B
Certificates."
But for the effect of the subordination of the Class HI: M-2, Class HI: B and
Class C certificates, the Class HI: B-2 guaranty fee otherwise payable to Green
Tree and the related monthly servicing fee otherwise payable to the servicer,
so long as Green Tree or any wholly owned subsidiary of Green Tree is the
servicer, for the home improvement loans, the Class HI: M-1 certificateholders
will absorb all losses on each liquidated home improvement loan in the amount
by which its net liquidation proceeds are less than its unpaid principal
balance plus accrued and unpaid interest less the related monthly servicing
fee.
But for the effect of the subordination of the Class HI: B and Class C
certificates, the Class HI: B-2 guaranty fee otherwise payable to Green Tree
and the related monthly servicing fee otherwise payable to the servicer, so
long as Green Tree or any wholly owned subsidiary of Green Tree is the
servicer, with respect to the home improvement loans, the Class HI: M-2
certificateholders will absorb all losses on each liquidated home improvement
loan in the amount by which its net liquidation proceeds are less than its
unpaid principal balance plus accrued and unpaid interest less the related
monthly servicing fee.
But for the effect of the subordination of the Class HI: B-2 and Class C
certificates, the Class HI: B-2 guaranty fee otherwise payable to Green Tree
and the related monthly
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servicing fee otherwise payable to the servicer, so long as Green Tree or any
wholly owned subsidiary of Green Tree is the servicer, with respect to the home
improvement loans, the Class HI: B-1 certificateholders will absorb all losses
on each liquidated home improvement loan in the amount by which its net
liquidation proceeds are less than its unpaid principal balance plus accrued
and unpaid interest less the related monthly servicing fee.
But for the payments under the Class HI: B-2 limited guaranty described below
and the subordination of the Class C certificates, the Class HI: B-2 guaranty
fee otherwise payable to Green Tree and the related monthly servicing fee
otherwise payable to the servicer, so long as Green Tree or any wholly owned
subsidiary of Green Tree is the servicer, with respect to the home improvement
loans, the Class HI: B-2 certificateholders will absorb all losses on each
liquidated home improvement loan in the amount by which its net liquidation
proceeds are less than its unpaid principal balance plus accrued and unpaid
interest less the related monthly servicing fee.
Subordination of Class HE: M Certificates and Class HE: B Certificates
The rights of the holders of the Class HE: M certificates and Class HE: B
certificates to receive distributions for the home equity loans comprising sub-
pool HE, as well as other amounts constituting the sub-pool HE amount
available, will be subordinated, to the extent shown in this prospectus
supplement, to such rights of the holders of the Class HE: A certificates. This
subordination is intended to improve the likelihood of regular receipt by the
holders of the Class HE: A certificates of the full amount of their scheduled
monthly payments of interest and principal and to give such holders protection
against losses on liquidated home equity loans.
A portion of the protection given to the holders of the Class HE: A
certificates by means of the subordination of the Class HE: M and Class HE: B
certificates will be accomplished by the preferential right of the Class HE: A
certificateholders to receive on any payment date the amount of interest due on
the Class HE: A certificates, including any interest due on a prior payment
date but not received, before any distribution made on a payment date for
interest on the Class HE: M and Class HE: B certificates. After that time, any
remaining sub-pool HE amount available in the certificate account will be
applied to the payment of interest due on the Class HE: M-1 adjusted principal
balance, then interest due on the Class HE: M-2 adjusted principal balance and
then interest due on the Class HE: B adjusted principal balance.
After payment of all interest accrued on the Class HE: A principal balance,
Class HE: A-5 IO notional principal amount, Class HE: M-1 adjusted principal
balance, Class HE: M-2 adjusted principal balance and Class HE: B adjusted
principal balance, any remaining sub-pool HE amount available will be
distributed in the following order of priority:
(1) the Class HE: ARM portion will be distributed to the Class HE: A-1A
NAS and Class HE: A-1B ARM certificateholders;
(2) the Class HE: A-1 underlying portion will be paid to the grantor trust
for payment to the Class HE: A-1 certificateholders;
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(3) the Class HE: A (2,3,4) portion will be paid sequentially to the Class
HE: A-2, Class HE: A-3 and Class HE: A-4 certificateholders;
(4) the Class HE: M-1 formula principal distribution amount will be paid
to the Class HE: M-1 certificateholders; and
(5) the Class HE: M-2 formula principal distribution amount will be paid
to the Class HE: M-2 certificateholders, as described above under
"Distributions on Sub-Pool HE Certificates--Principal on the Class HE:
A, Class HE: M-1 and Class HE: M-2 Certificates".
The remaining sub-pool HE amount available, to the extent sufficient therefor,
will be distributed in the following order of priority:
(1) any unpaid Class HE: M-1 liquidation loss interest amount, as
described below under "Losses on Liquidated Home Equity Loans", will
be distributed to the Class HE: M-1 certificateholders; and,
(2) any unpaid Class HE: M-2 liquidation loss interest amount, as
described below under "Losses on Liquidated Home Equity Loans", will
be distributed to the Class HE: M-2 certificateholders.
The rights of the holders of the Class HE: B certificates to receive
distributions for the home equity loans and other amounts in the certificate
account will be subordinated to such rights of the holders of the Class HE: A
certificates and Class HE: M certificates. The Class HE: B certificateholders
will be entitled to distributions of interest and principal on the Class HE: B
certificates only after distributions of all interest and principal then
payable on the Class HE: A and Class HE: M certificates.
If a Class HE: B liquidation loss amount is realized for any payment date and
Green Tree fails to pay such amount pursuant to its Class HE: B limited
guaranty, the Class HE: B certificateholders may incur losses on their
investment in the Class HE: B certificates to the extent such losses are not
made up from future payments on the home equity loans or the Class HE: B
limited guaranty.
Losses on Liquidated Home Equity Loans
As described above, the distribution of principal to the Class HE: A
certificateholders is intended to include the sub-pool HE senior percentage of
the scheduled principal balance of each home equity loan, other than the
adjustable rate loans, that became a liquidated loan during the preceding due
period and the scheduled principal balance of each adjustable rate loan that
became a liquidated loan during the preceding due period. If the net
liquidation proceeds from these liquidated loans are less than the scheduled
principal balance of such liquidated loans plus accrued and unpaid interest,
the deficiency will be absorbed by:
. the Class C certificateholder,
. then the Class HE: B guaranty fee otherwise payable to Green Tree,
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. then the related monthly servicing fee otherwise payable to the
servicer, so long as Green Tree or any wholly owned subsidiary of
Green Tree is the servicer, with respect to the home equity loans,
. then the Class HE: B certificateholders,
. then the Class HE: M-2 certificateholders; and
. then the Class HE: M-1 certificateholders, since a portion of the sub-
pool HE amount available equal to such deficiency and otherwise
distributable to them will be paid to the Class HE: A
certificateholders.
Likewise, to the extent the Class HE: M-1 certificateholders or the Class HE:
M-2 certificateholders are entitled to receive distributions of principal,
similar deficiencies could result for each Class of sub-pool HE certificates
with a lower payment priority.
In the event the sub-pool HE amount available in the certificate account for
any payment date is insufficient to distribute the full sub-pool HE formula
principal distribution amount for such payment date to the sub-pool HE
certificateholders, the aggregate outstanding principal balance of the sub-pool
HE certificates will be greater than the pool scheduled principal balance of
sub-pool HE for such payment date. In this event, the amount of such deficiency
(the "Sub-Pool HE Liquidation Loss Amount") would be allocated first to the
Class HE: B certificates (the "Class HE: B Liquidation Loss Amount"), and Green
Tree would be obligated to pay the amount of such Class HE: B liquidation loss
amount to the Class HE: B certificateholders pursuant to the Class HE: B
limited guaranty. If on any payment date the sum of the Class HE: A principal
balance, the Class HE: M-1 principal balance and the Class HE: M-2 principal
balance were equal to the pool scheduled principal balance of sub-pool HE, no
further sub-pool HE liquidation loss amounts could be allocated to the Class
HE: B certificates and any further sub-pool HE liquidation loss amounts
realized would be allocated to reduce the Class HE: M-2 adjusted principal
balance (a "Class HE: M-2 Liquidation Loss Amount"). If the Class HE: M-2
adjusted principal balance were reduced to zero, any further sub-pool HE
liquidation loss amounts realized would be allocated to reduce the Class HE: M-
1 adjusted principal balance (a "Class HE: M-1 Liquidation Loss Amount"). Any
sub-pool HE liquidation loss amounts would be reduced on subsequent payment
dates to the extent that the sub-pool HE amount available in the certificate
account on such payment dates is sufficient to permit the distribution of
principal due, but not paid, on the sub-pool HE certificates on prior payment
dates. In the event the adjusted principal balance of the Class HE: M-1 or
Class HE: M-2 certificates were reduced by a sub-pool HE liquidation loss
amount, interest accruing on such class would be calculated on the reduced
adjusted principal balance of such class. The interest accruing on such class's
sub-pool HE liquidation loss amount each month (such Class's "Sub-Pool HE
Liquidation Loss Interest Amount"), plus interest at the applicable pass-
through rate on any sub-pool HE liquidation loss interest amount due on a prior
payment date but not paid, would be paid to the certificateholders of such
class from the sub-pool HE amount available, after distributions of principal
on all Class HE: A and Class HE: M certificates, in the order of priority
described above under "Subordination of Class HE: M and Class HE: B
Certificates."
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If the Sub-Pool HE amount available is not sufficient to cover the entire
amount distributable to the Class HE: A certificateholders, the Class HE: M-1
certificateholders or the Class HE: M-2 certificateholders on a particular
payment date, then the sub-pool HE senior percentage on future payment dates
may be increased and the Class HE: B percentage on future payment dates may be
reduced as a result of the deficiency.
But for the effect of the subordination of the Class HE: M-2, Class HE: B and
Class C certificates, the Class HE: B guaranty fee otherwise payable to Green
Tree and the related monthly servicing fee otherwise payable to the servicer,
so long as Green Tree or any wholly owned subsidiary of Green Tree is the
servicer, with respect to the home equity loans, the Class HE: M-1
certificateholders will absorb all losses on each liquidated home equity loan
in the amount by which its net liquidation proceeds are less than its unpaid
principal balance plus accrued and unpaid interest less the related monthly
servicing fee.
But for the effect of the subordination of the Class HE: B and Class C
certificates, the Class HE: B guaranty fee otherwise payable to Green Tree and
the related monthly servicing fee otherwise payable to the servicer, so long as
Green Tree or any wholly owned subsidiary of Green Tree is the servicer, with
respect to the home equity loans, the Class HE: M-2 certificateholders will
absorb all losses on each liquidated home equity loan in the amount by which
its net liquidation proceeds are less than its unpaid principal balance plus
accrued and unpaid interest less the related monthly servicing fee.
But for the payments under the Class HE: B limited guaranty described below
and the subordination of the Class C certificate, the Class HE: B guaranty fee
otherwise payable to Green Tree and the related monthly servicing fee otherwise
payable to the servicer, so long as Green Tree or any wholly owned subsidiary
of Green Tree is the Servicer, with respect to the home equity loans, the Class
HE: B certificateholders will absorb all losses on each liquidated home equity
loan in the amount by which its net liquidation proceeds are less than its
unpaid principal balance plus accrued and unpaid interest less the related
monthly servicing fee.
Advances
To the extent that collections on a loan in any due period are less than the
scheduled payment due, the servicer will be obligated to make an advance of the
uncollected portion of such scheduled payment. The servicer will be obligated
to advance a delinquent payment on a loan only to the extent that the servicer,
in its sole discretion, expects to recoup that advance from subsequent funds
available in the certificate account.
If the servicer fails to make an advance required under the agreement, the
trustee will be obligated to deposit the amount of that advance in the
certificate account on the payment date. The trustee will not, however, be
obligated to deposit any of this amount if (i) the trustee does not expect to
recoup the advance from subsequent funds available in the certificate account,
or (ii) the trustee determines that it is not legally able to make the advance.
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Reports to Certificateholders
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HI: A certificateholder, a statement on the
related payment date that shows:
(a) the amount of such distribution to holders of each class of Class
HI: A certificates allocable to interest (separately identifying any
unpaid interest shortfall included);
(b) the amount of such distribution to holders of each class of Class
HI: A certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments and any sub-pool HI
supplementary principal distribution amount included);
(c) the amount, if any, by which the Class HI: A formula distribution
amount exceeds the Class HI: A distribution amount for the payment date;
(d) the principal balance of each class of Class HI: A certificates
after giving effect to the distribution of principal on the payment date;
(e) the sub-pool HI senior percentage for the payment date;
(f) the pool scheduled principal balance of sub-pool HI for the payment
date;
(g) the sub-pool HI pool factor (a percentage derived from a fraction
the numerator of which is the sum of the Class HI: A principal balance,
the Class HI: M principal balance and the Class HI: B principal balance
and the denominator of which is the cut-off date pool principal balance of
sub-pool HI); and
(h) the number and aggregate principal balance of home improvement loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class HI: A certificate with a 1% percentage interest
or per $1,000 denomination of Class HI: A certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HI: A
certificateholder of record at any time during the calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for the calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HI: M-1 certificateholder, a statement in respect
of the related payment date setting forth, among other things:
(a) the amount of the distribution to holders of the Class HI: M-1
certificates allocable to interest (separately identifying any unpaid
interest shortfall included);
(b) the amount of the distribution to holders of the Class HI: M-1
certificates allocable to principal (separately identifying the aggregate
amount of any principal prepayments and any sub-pool HI supplementary
principal distribution amount included);
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(c) the amount, if any, by which the Class HI: M-1 formula distribution
amount exceeds the Class HI: M-1 distribution amount for the payment date;
(d) the principal balance of the Class HI: M-1 certificates after giving
effect to the distribution of principal on the payment date;
(e) any unpaid Class HI: M-1 liquidation loss interest amount, after
giving effect to payments of interest on the payment date;
(f) the sub-pool HI senior percentage for the payment date;
(g) the pool scheduled principal balance of sub-pool HI for the payment
date;
(h) the pool factor; and
(i) the number and aggregate principal balance of home improvement loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class HI: M-1 certificate with a 1% percentage interest
or per $1,000 denomination of Class HI: M-1 certificate.
(a) the amount of the distribution to holders of the Class HI: M-2
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments and any sub-pool HI
supplementary principal distribution amount included);
(b) the amount, if any, by which the Class HI: M-2 formula distribution
amount exceeds the Class HI: M-2 distribution amount for the
payment date;
(c) the principal balance of the Class HI: M-2 certificates after giving
effect to the distribution of principal on the payment date;
(d) any unpaid Class HI: M-2 liquidation loss interest amount, after
giving effect to payments of interest on the payment date;
(e) the sub-pool HI senior percentage for the payment date;
(f) the pool scheduled principal balance of sub-pool HI for such payment
date;
(g) the sub-pool HI pool factor; and
(h) the number and aggregate principal balance of home improvement loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class HI: M-2 certificate with a 1% percentage interest
or per $1,000 denomination of Class HI: M-2 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HI: M-2
certificateholder of record at any time during the calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for the calendar
year.
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The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HI: B-1 certificateholder, a statement in respect
of the related payment date setting forth, among other things:
(a) the amount of such distribution to holders of the Class HI: B-1
certificates allocable to interest (separately identifying any
unpaid interest shortfall included);
(b) the amount of the distribution to holders of the Class HI: B-1
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the Class HI: B-1 formula distribution
amount exceeds the Class HI: B-1 distribution amount for the
payment date;
(d) the principal balance of the Class HI: B-1 certificates after giving
effect to the distribution of principal on the payment date;
(e) any unpaid Class HI: B-1 liquidation loss interest amount, after
giving effect to payments of interest on the payment date;
(f) the Class HI: B percentage for the payment date;
(g) the pool scheduled principal balance of sub-pool HI for the payment
date;
(h) the sub-pool HI pool factor; and
(i) the number and aggregate principal balance of sub-pool HI delinquent
(i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class HI: B-1 certificate with a 1% percentage interest
or per $1,000 denomination of Class HI: B-1 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HI: B-1
certificateholder of record at any time during the calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for the calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HI: B-2 certificateholder, a statement in respect
of the related payment date setting forth, among other things:
(a) the amount of the distribution to holders of Class HI: B-2
certificates allocable to interest;
(b) the amount of the distribution to holders of Class HI: B-2
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the sum of the Class HI: B-2 formula
distribution amount and the Class HI: B-2 liquidation loss
principal amount, if any, exceeds the Class HI: B-2 distribution
amount for the payment date;
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(d) the Class HI: B-2 liquidation loss principal amount, if any, for the
payment date;
(e) the Class HI: B-2 guaranty payment, if any, for the payment date;
(f) the Class HI: B-2 principal balance after giving effect to the
distribution of principal on the payment date;
(g) the Class HI: B percentage for the payment date;
(h) the pool scheduled principal balance of sub-pool HI for the payment
date;
(i) the sub-pool HI pool factor; and
(j) the number and aggregate principal balance of home improvement loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (c) will be expressed
as dollar amounts for a Class HI: B-2 certificate with a 1% percentage interest
or per $1,000 denomination of Class HI: B-2 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HI: B-2
certificateholder of record at any time during the calendar year as to the
aggregate amounts reported pursuant to (a) and (b) above for such calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HE: A certificateholder, statements in respect of
the related payment date setting forth, among other things:
(a) the amount of the distribution to holders of each class of Class HE:
A certificates allocable to interest (separately identifying any
unpaid interest shortfall included) and, in the case of a Class HE:
A-1 certificateholder, the amount, if any, paid by the swap
counterparty;
(b) the amount of the distribution to holders of each class of Class HE:
A certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the Class HE: A formula distribution
amount exceeds the Class HE: A distribution amount for the payment
date;
(d) the principal balance of each class of Class HE: A certificates and
the notional principal amount for the Class HE: A-5 IO certificates
after giving effect to the distribution of principal on the payment
date;
(e) the amounts to be paid to and by the swap counterparty on the
related swap payment date;
(f) the pool scheduled principal balance of sub-pool HE for the payment
date;
(g) the sub-pool HE pool factor (a percentage derived from a fraction
the numerator of which is the sum of the Class HE: A principal
balance, the Class HE: M principal balance and the Class HE: B
principal balance and the
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denominator of which is the cut-off date pool principal balance of
sub-pool HE); and
(h) the number and aggregate principal balance of home equity loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class HE: A certificate with a 1% percentage interest
or per $1,000 denomination of Class HE: A certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HE: A
certificateholder of record at any time during the calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for the calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HE: M-1 certificateholder, a statement in respect
of the related payment date setting forth, among other things:
(a) the amount of the distribution to holders of the Class HE: M-1
certificates allocable to interest (separately identifying any
unpaid interest shortfall included);
(b) the amount of the distribution to holders of the Class HE: M-1
certificates allocable to principal (separately identifying the
aggregate amount of any Principal Prepayments included);
(c) the amount, if any, by which the Class HE: M-1 formula distribution
amount exceeds the Class HE: M-1 distribution amount for the
payment date;
(d) the principal balance of the Class HE: M-1 certificates after giving
effect to the distribution of principal on the payment date;
(e) any unpaid Class HE: M-1 liquidation loss interest amount, after
giving effect to payments of interest on the payment date;
(f) the sub-pool HE senior percentage for the payment date;
(g) the pool scheduled principal balance of sub-pool HE for the payment
date;
(h) the sub-pool HE pool factor; and
(i) the number and aggregate principal balance of home equity loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class HE: M-1 certificate with a 1% percentage
interest or per $1,000 denomination of Class HE: M-1 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HE: M-1
certificateholder of record at any time during the calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for the calendar
year.
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The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HE: M-2 certificateholder, a statement in respect
of the related payment date setting forth, among other things:
(a) the amount of the distribution to holders of the Class HE: M-2
certificates allocable to interest (separately identifying any
unpaid interest shortfall included);
(b) the amount of the distribution to holders of the Class HE: M-2
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the Class HE: M-2 formula distribution
amount exceeds the Class HE: M-2 distribution amount for the
payment date;
(d) the principal balance of the Class HE: M-2 certificates after giving
effect to the distribution of principal on the payment date;
(e) any unpaid Class HE: M-2 liquidation loss interest amount, after
giving effect to payments of interest on the payment date;
(f) the sub-pool HE senior percentage for the payment date;
(g) the pool scheduled principal balance of sub-pool HE for the payment
date;
(h) the sub-pool HE pool factor; and
(i) the number and aggregate principal balance of home equity loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class HE: M-2 certificate with a 1% percentage interest
or per $1,000 denomination of Class HE: M-2 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HE: M-2
certificateholder of record at any time during the calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for the calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class HE: B certificateholder, a statement in respect of
the related payment date setting forth, among other things:
(a) the amount of the distribution to holders of Class HE: B
certificates allocable to interest;
(b) the amount of the distribution to holders of Class HE: B
certificates allocable to principal (separately identifying the
aggregate amount of any principal prepayments included);
(c) the amount, if any, by which the sum of the Class HE: B formula
distribution amount and the Class HE: B liquidation loss principal
amount, if any, exceeds the Class HE: B distribution amount for
the payment date;
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(d) the Class HE: B liquidation loss principal amount, if any, for the
payment date;
(e) the Class HE: B guaranty payment, if any, for the payment date;
(f) the Class HE: B principal balance after giving effect to the
distribution of principal on the payment date;
(g) the Class HE: B percentage for the payment date;
(h) the pool scheduled principal balance of sub-pool HE for the
payment date;
(i) the sub-pool HE pool factor; and
(j) the number and aggregate principal balance of home equity loans
delinquent (i) 30-59 days and (ii) 60 or more days.
Information furnished pursuant to clauses (a) through (c) will be expressed
as dollar amounts for a Class HE: B certificate with a 1% percentage interest
or per $1,000 denomination of Class HE: B certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class HE: B
certificateholder of record at any time during the calendar year as to the
aggregate amounts reported pursuant to (a) and (b) above for the calendar year.
Repurchase Option
The agreement provides that at any time that the pool scheduled principal
balance of the loan pool is less than 10% of the aggregate principal balance of
the certificates on the closing date, the servicer will have the option to
repurchase, on 30 days' prior written notice to the trustee, all outstanding
loans (other than any loan as to which title to the underlying property has
been assigned) at a price sufficient to pay
(1) the aggregate certificate principal balance,
(2) the monthly interest due on all certificates on the payment date
occurring in the month following the date of repurchase and
(3) any accrued but unpaid interest thereon, including interest (to the
extent not paid on a prior payment date) on the Class HE: A-1B ARM
certificates for any payment date with respect to which the available
funds pass-through rate was less than one-month LIBOR plus the pass-
through Margin (or 14.0% if less), calculated on the Class HE: A-1B
ARM principal balance for the payment date at a rate equal to the
difference, plus interest on the amount accrued from the payment date
to the payment date on which the amount is paid.
This amount will be distributed on the payment date.
Collection and Other Servicing Procedures
The servicer will manage, administer, service and make collections on the
loans, exercising the degree of skill and care required by FHA and otherwise
consistent with the
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highest degree of skill and care that the servicer exercises with respect to
similar loans serviced by the servicer. The servicer will not be required to
cause to be maintained, or otherwise monitor the maintenance of, hazard
insurance on the improved properties, but is required under FHA regulations to
monitor and ensure the maintenance of flood insurance on properties securing
FHA-insured home improvement loans located in federally designated special
flood hazard areas. Green Tree does, however, as a matter of its own policy,
monitor proof of hazard insurance coverage and require that it be named as an
additional loss payee on all first lien secured loans and generally on junior
lien secured loans with amounts financed of over $20,000.
Servicing Compensation and Payment of Expenses
The servicer will receive a monthly servicing fee for each due period for
servicing the loans comprising each sub-pool equal to one-twelfth of the
product of .50% and the remaining pool scheduled principal balance of the loans
in such sub-pool plus the related pre-funded amount, if any.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust. The
servicer is also entitled to reimbursement out of the liquidation proceeds of a
liquidated loan, including FHA Insurance proceeds, for customary out-of-pocket
liquidation expenses incurred.
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 loan. Administrative services performed by the servicer on
behalf of the trust include selecting and packaging the loans, 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 loans and paid by the
servicer from its servicing fees include payment of FHA insurance premiums,
payment of fees and expenses of accountants, payments of all fees and expenses
incurred in connection with the enforcement of loans or foreclosure on
collateral relating thereto, including submission of FHA Insurance claims, if
applicable, payment of trustee's fees, and payment of expenses incurred in
connection with distributions and reports to certificateholders.
Evidence as to Compliance
The pooling and servicing agreement provides for delivery to the trustee of a
monthly report by the servicer no later than one business day following the
determination date, setting forth the information described under "Description
of the Certificates--Reports to Certificateholders." Each 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 pooling and servicing
agreement. On or before May 1 of each year, beginning in 1999, the servicer
will
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deliver to the trustee a report of a nationally recognized accounting firm,
stating that the firm has examined certain documents and records relating to
the servicing of loans serviced by the servicer and stating that, on the basis
of such examination, such servicing has been conducted in compliance with the
pooling and servicing agreement, except for any exceptions set forth in such
report.
The pooling and servicing agreement provides that the servicer shall furnish
to the trustee reasonably pertinent underlying data as can be generated by the
servicer's existing data processing system without undue modification or
expense.
The pooling and servicing agreement provides that a certificateholder holding
certificates representing at least 5% of the aggregate certificate principal
balance will have the same rights of inspection as the trustee and may upon
written request to the servicer receive copies of all reports provided to the
trustee.
Transferability
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code. See "ERISA Considerations" herein and in
the Prospectus.
Certain Matters Relating to Green Tree
The pooling and servicing agreement provides that Green Tree may not resign
from its obligations and duties as servicer thereunder, except upon a
determination that Green Tree's performance of such duties is no longer
permissible under the pooling and servicing agreement or applicable law, and
prohibits Green Tree from extending credit to any certificateholder for the
purchase of a certificate, purchasing certificates in any agency or trustee
capacity or lending money to the trust. Green Tree can be removed as Servicer
only pursuant to an event of termination as discussed below.
Events of Termination
An event of termination under the pooling and servicing agreement will occur
if
(1) the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and the
failure continues for four business days;
(2) the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for 30 days;
(3) the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make a
conveyance, assignment or delegation;
(4) a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver,
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liquidator, assignee, custodian, trustee, or sequestrator, or similar
official, of the servicer, as the case may be, or enters a decree or
order for any substantial liquidation of its affairs;
(5) the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any law, or consents to
the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits
in writing its inability to, pay its debts as they become due, or
takes any corporate action in furtherance of the foregoing;
(6) the servicer fails to be an eligible servicer; or
(7) the servicer's seller-servicer loan with GNMA is terminated.
The servicer will be required under the pooling and servicing agreement to
give the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of the event.
Rights Upon an Event of Termination
If an event of termination has occurred and is continuing, either the
trustee or holders of certificates representing 25% or more of the aggregate
certificate principal balance may terminate all of the servicer's management,
administrative, servicing and collection functions under the pooling and
servicing agreement. Upon termination, the trustee or its designee will
succeed to all the responsibilities, duties and liabilities of Green Tree as
servicer under the pooling and servicing agreement and will be entitled to
similar compensation arrangements; provided, however, that neither the trustee
nor any successor servicer will assume any accrued obligation of the prior
servicer or any obligation of Green Tree to repurchase loans for breach of
representations and warranties, and the trustee will not be liable for any
acts or omissions of the servicer occurring prior to a transfer of the
servicer's servicing and related functions or for any breach by the servicer
of any of its representations and warranties contained in the pooling and
servicing agreement or any related document or agreement. In addition, the
trustee will notify FHA of the servicer's termination as servicer of the FHA-
insured home improvement loans and will request that the portion of the
servicer's FHA Insurance reserves allocable to the FHA-insured home
improvement loans be transferred to the trustee or a successor servicer. See
"Description of FHA Insurance" in the prospectus. Notwithstanding termination,
the servicer shall be entitled to payment of certain amounts payable to it
prior to the termination, for services rendered prior to the termination. No
termination will affect in any manner Green Tree's obligation to repurchase
loans for breaches of representations or warranties under the pooling and
servicing agreement. In the event that the trustee is unwilling or unable so
to act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, an eligible servicer to act as successor to the servicer under
the pooling and servicing agreement. The trustee and the successor may agree
upon the servicing compensation to be paid, after receiving comparable bids
from other eligible servicers, which may not be greater than the monthly
servicing fee payable to Green
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Tree as servicer under the pooling and servicing agreement without the consent
of all of the certificateholders.
Termination of the Agreement
The pooling and servicing agreement will terminate, after distribution of all
principal and interest then due to certificateholders, on the earlier of (a)
the payment date on which the pool scheduled principal balance of the loan pool
is reduced to zero; or (b) the payment date occurring in the month following
the servicer's repurchase of the loans as described under "Description of the
Certificates--Repurchase Option." However, Green Tree's representations,
warranties and indemnities will survive any termination of the pooling and
servicing agreement.
Amendment; Waiver
The pooling and servicing agreement may be amended by agreement of the
trustee, the servicer and Green Tree at any time without the consent of the
certificateholders to cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision or to add other
provisions not inconsistent with the pooling and servicing agreement, upon
receipt of an opinion of counsel to the servicer that the amendment will not
adversely affect in any material respect the interests of any
certificateholder.
The pooling and servicing agreement may also be amended by agreement of the
trustee, the servicer and Green Tree at any time without the consent of the
certificateholders to effect the transfer of FHA insurance reserves to another
entity in compliance with revisions to FHA regulations, provided that before
any amendment, Moody's and Fitch shall have confirmed that the ratings of the
certificates will not be lowered or withdrawn following the amendment.
The pooling and servicing agreement may also be amended from time to time by
the trustee, the servicer and Green Tree with the consent of holders of
certificates representing 66 2/3% or more of the aggregate certificate
principal balance, and holders of certificates representing 51% or more of the
aggregate certificate principal balance may vote to waive any event of
termination, provided that no amendment or waiver shall (a) reduce in any
manner the amount of, or delay the timing of, collections of payments on loans
or distributions which are required to be made on any certificate, or (b)
reduce the aggregate amount of certificates required for any amendment of the
pooling and servicing agreement, without unanimous consent of the
certificateholders.
The trustee is required under the pooling and servicing agreement to furnish
certificateholders with notice promptly upon execution of any amendment to the
pooling and servicing agreement.
Indemnification
The pooling and servicing agreement provides that Green Tree will defend and
indemnify the trust, the trustee, including any agent of the trustee, and the
certificateholders
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against any and all costs, expenses, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and expenses of litigation:
(1) arising out of or resulting from the use or ownership by Green Tree
or any affiliate thereof of any real estate securing a loan,
(2) for any taxes which may at any time be asserted with respect to, and
as of the date of, the conveyance of the loans to the trust, but not
including any federal, state or other tax arising out of the creation
of the trust and the issuance of the certificates, and
(3) with respect to certain other tax matters.
The pooling and servicing agreement also provides that the servicer will
defend and indemnify the trust, the trustee and the certificateholders, which
indemnification will survive any removal of the servicer, 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 Green Tree as servicer for any loan.
Duties and Immunities of the Trustee
The trustee will make no representations as to the validity or sufficiency of
the pooling and servicing agreement, the certificates or any loan, loan file or
related documents, and will not be accountable for the use or application by
Green Tree of any funds paid to Green Tree in consideration of the conveyance
of the loans, or deposited into the certificate account by the servicer. If no
event of termination has occurred, the trustee will be required to perform only
those duties specifically required of it under the pooling and servicing
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 pooling and servicing agreement.
Under the pooling and servicing agreement the Servicer will agree:
(1) to pay to the trustee from time to time reasonable compensation for
all services rendered by it;
(2) to reimburse the trustee upon its request for all reasonable expenses,
disbursements and advances incurred by the trustee in accordance with
any provision of the pooling and servicing agreement, including FHA
insurance premiums not paid by the servicer and reasonable
compensation and the expenses and disbursements of its agents and
counsel, except any expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) 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, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties.
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The trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the pooling
and servicing agreement if there is a reasonable ground for believing that the
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured.
The pooling and servicing agreement also provides that the trustee will
maintain at its expense in Minneapolis or St. Paul, Minnesota, an office or
agency where certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the trustee and the
certificate registrar and transfer agent in respect of the certificates may be
served. On the date of this prospectus supplement the trustee's office for
these purposes is located at 180 East Fifth Street, St. Paul, Minnesota 55101.
The trustee will promptly give written notice to Green Tree, the servicer and
the certificateholders of any change of address.
The Trustee
[trustee/address].
The trustee may resign from its duties under the pooling and servicing
agreement at any time, in which event the servicer will be obligated to appoint
a successor trustee. The servicer may also remove the trustee if the trustee
ceases to be eligible to continue under the pooling and servicing agreement or
if the trustee becomes insolvent. In these circumstances, the servicer will
also be obligated to appoint a successor trustee. Any resignation or removal of
the trustee and appointment of a successor trustee will not become effective
until acceptance of the appointment by the successor trustee. Any successor
trustee must be an FHA Title I approved lender.
The Grantor Trust Agreement
On the closing date, pursuant to the grantor trust agreement, Green Tree will
transfer, assign, set over and otherwise convey without recourse to the grantor
trustee in trust all of its right, title and interest in and to the Class HE:
A-1 underlying certificates and to the principal and interest due.
U.S. Bank Trust National Association serves as the grantor trustee under the
grantor trust agreement. The grantor trustee may resign from its duties or be
removed under substantially the same circumstances as the trustee may resign or
be removed under the agreement. Likewise, the grantor trust agreement may be
amended under substantially the same circumstances as the pooling and servicing
agreement may be amended. The grantor trust agreement provides that the grantor
trust will terminate upon payment to the Class HE: A-1 certificateholders of
all amounts required to be paid to them upon the final payment of the Class HE:
A-1 underlying certificates.
Registration of the Certificates
The certificates initially will be represented by certificates registered in
the name of Cede & Co., the nominee of DTC. The interests of beneficial owners
of the certificates will
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be represented by book entries on the records of the participating members of
DTC. Definitive certificates will be available only under the limited
circumstances described in this prospectus. Holders of the certificates may
hold through DTC (in the United States), CEDEL or Euroclear (as defined
herein), in Europe, if they are participants of such systems, or indirectly
through organizations that are participants in such systems.
CEDEL and Euroclear will hold omnibus positions in the certificates on behalf
of the CEDEL participants and the Euroclear participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries, which in turn will hold these positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC accepts securities for deposit from its participating organizations
and facilitates the clearance and settlement of securities transactions between
participants in the securities through electronic book-entry changes in
accounts of participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly.
The beneficial owners of certificates who are not participants but desire to
purchase, sell or otherwise transfer ownership of the certificates may do so
only through participants, unless and until definitive certificates, as defined
below, are issued. In addition, certificate owners will receive all
distributions of principal of, and interest on, the certificates from the
trustee through DTC and participants. Certificate owners will not receive or be
entitled to receive certificates representing their respective interests in the
certificates, except under the limited circumstances described below.
Unless and until definitive certificates (as defined below) are issued, it is
anticipated that the only "certificateholder" of the certificates will be Cede
& Co., as nominee of DTC. Certificate owners will not be recognized by the
trustee as certificateholders as that term is used in the pooling and servicing
agreement. Certificate owners are only permitted to exercise the rights of
certificateholders indirectly through participants and DTC.
While certificates are outstanding, except under the circumstances described
below, under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts for the certificates and is required to
receive and transmit distributions of principal of, and interest on, the
certificates. Participants with whom certificate owners have accounts with
respect to certificates are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
certificate owners. Accordingly,
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although certificate owners will not possess certificates, the Rules provide a
mechanism by which certificate owners will receive distributions and will be
able to transfer their interests.
Certificates will be issued in registered form to certificate owners, or
their nominees, rather than to DTC, only if:
(1) DTC or Green Tree advise the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as nominee
and depository with respect to the certificates and Green Tree or the
trustee is unable to locate a qualified successor; or
(2) Green Tree at its sole option advises the trustee in writing that it
elects to terminate the book-entry system through DTC.
Upon issuance of definitive certificates to certificate owners, such
certificates will be transferable directly, and not exclusively on a book-entry
basis, and registered holders will deal directly with the trustee with respect
to transfers, notices and distributions.
DTC has advised Green Tree that, unless and until definitive certificates are
issued, DTC will take any action permitted to be taken by a certificateholder
under the pooling and servicing agreement only at the direction of one or more
participants to whose DTC accounts the certificates are credited. DTC has
advised Green Tree that it will take action for any fractional interest of the
certificates only at the direction of and on behalf of the participants
beneficially owning a corresponding fractional interest of the certificates.
DTC may take actions, at the direction of the participants, for some
certificates which conflict with actions taken for other certificates.
Issuance of certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the certificates in the
secondary market and the ability of certificate owners to pledge them. In
addition, since distributions on the certificates will be made by the trustee
to DTC and DTC will credit the distributions to the accounts of its
participants, with the participants further crediting the distributions to the
accounts of indirect participants or certificate owners, certificate owners may
experience delays in the receipt of the distributions.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through CEDEL participants or
Euroclear participants, on the other, will be effected in DTC in accordance
with DTC rules on behalf of the relevant European international clearing system
by its Depositary; however, the cross-market transactions will require delivery
of instructions to the relevant European international clearing system by the
counterparty in the system in accordance with its rules and procedures and
within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC,
and making or receiving payment in accordance with normal procedures for same-
day funds settlement applicable to DTC. CEDEL participants and Euroclear
participants may not deliver instructions directly to the depositaries.
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Because of time-zone differences, credits of securities in CEDEL or Euroclear
as a result of a transaction with a participant will be made during the
subsequent securities settlement processing, dated the business day following
the DTC settlement date, and the credits or any transactions in the securities
settled during processing will be reported to the relevant CEDEL participant or
Euroclear participant on said business day. Cash received in CEDEL or Euroclear
as a result of sales of securities by or through a CEDEL participant or a
Euroclear participant to a participant will be received with value on the DTC
settlement date but will be available in the relevant CEDEL or Euroclear cash
account only as of the business day following settlement in DTC.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations and
facilitates the clearance and settlement of securities transactions between
CEDEL participants through electronic book-entry changes in accounts of CEDEL
participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include the underwriters. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a CEDEL participant, either directly
or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies, including
United States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described in Annex I hereto. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), under loan with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the cooperative. The cooperative establishes policy for
the Euroclear System on behalf of Euroclear participants. Euroclear
participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to the Euroclear System is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear participant, either directly or indirectly.
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The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related operating procedures of the Euroclear System and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the Euroclear
System. All securities in the Euroclear System are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts. The Euroclear operator acts under the Terms and Conditions only on
behalf of Euroclear participants and has no record of or relationship with
persons holding through Euroclear participants.
Distributions with respect to certificates held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by its depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences" in the Prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex I
to this prospectus supplement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of certificates among participants of DTC, CEDEL
and Euroclear, they are under no obligation to perform or continue to perform
such procedures and such procedures may be discontinued at any time.
DESCRIPTION OF THE SWAP COUNTERPARTY AND THE SWAP AGREEMENT
The Swap Counterparty
The Swap Counterparty, Westdeutsche Landesbank Girozentrale ("WestLB"), which
traces its history to 1832, was created by the merger of two central banks, or
Landesbanks (German State Banks), in the State of North Rhine-Westphalia,
Germany on January 1, 1969. As a German universal bank, WestLB provides
commercial and investment banking services regionally, nationally and
internationally to public, corporate and bank customers.
The New York Branch of WestLB ("WestLB New York") is licensed and subject to
supervision and regulation by the Superintendent of Banks of the State of New
York. WestLB New York is examined by the New York State Banking Department and
is subject to banking laws and regulations applicable to a foreign bank that
operates a New York branch.
Upon written request, WestLB will provide without charge to each person to
whom this prospectus supplement is delivered a copy of WestLB's most recent
annual report. Written
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requests for such annual reports or any additional information concerning
WestLB should be directed to Westdeutsche Landesbank Girozentrale, New York
Branch, 1211 Avenue of the Americas, New York, New York 10036, Attention:
Branch Management.
The Swap Agreement
The swap agreement will provide for payments by: (1) the swap counterparty to
the grantor trust equal to the amount of interest due to the Class HE: A-1
certificateholders on a payment date (calculated based on a floating rate), and
(2) the grantor trust to the swap counterparty equal to the amount of interest
received by the grantor trust in respect of interest due on the Class HE: A-1
underlying certificates on a payment date, calculated based on a fixed rate.
All amounts due under the swap agreement will be netted under this prospectus.
If the resulting net amount is due to the grantor trust, it will be deposited
by the trustee into the grantor trust account for distribution to the Class HE:
A-1 certificateholders. If the resulting net amount is due to the swap
counterparty it will be paid out of funds on deposit in the grantor trust
account. The trustee will be the calculation agent for purposes of determining
the amounts due by either party.
In addition to the terms described above, it is expected that the swap
agreement will have additional terms and conditions as are necessary to ensure
that the swap counterparty does not bear the risk of any shortfall attributable
to defaulted payment obligations on the Group I fixed-rate home equity loans.
The swap agreement will not provide credit enhancement for the Class HE: A-1
certificates.
The swap agreement will be governed by and construed in accordance with the
law of the State of New York and will be documented on the ISDA Master
Agreement, as supplemented by a schedule and a confirmation.
The obligations of the swap counterparty are limited to those specifically
set forth in the swap agreement.
The swap agreement will have a termination date that is the earlier to occur
of (a) January 15, 2014 or (b) the date on which there are no further amounts
due on the Class HE: A-1 underlying certificates. An early termination of the
swap agreement may occur on the date designated by either the trustee or the
swap counterparty as an early termination date with respect to the swap
agreement following a payment default by the swap counterparty or the trustee,
or the occurrence of certain other customary early termination events. One such
other early termination event would be the withdrawal or reduction of the
senior debt rating of WestLB, presently rated Aa1 by Moody's and AAA by Fitch,
to below a level acceptable to Fitch and Moody's and the failure of WestLB
thereupon to either deposit certain amounts as collateral pursuant to a
collateral security agreement or secure a replacement swap counterparty
acceptable to Fitch and Moody's to maintain the ratings of the Class HE: A-1
certificates. In the event of an early termination, a termination fee may be
payable by the swap counterparty to the grantor trust. Upon the occurrence of
an early termination, even if a collateral deposit is made or a termination fee
is paid, the Class HE: A-1 certificateholders could incur interest payment
shortfalls and ultimate loss on the Class HE: A-1 certificates.
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Upon the termination of the swap agreement, holders of the Class HE: A-1
certificates would receive only the fixed pass-through rate on the Class HE: A-
1 underlying certificates.
DESCRIPTION OF THE LIMITED GUARANTIES
Class HI: B-2 Limited Guaranty
In order to mitigate the effect of the subordination of the Class HI: B-2
certificates and liquidation losses and delinquencies on the home improvement
loans, Green Tree will provide a guaranty against losses that would otherwise
be borne by the Class HI: B-2 certificates. Each payment required to be made
under the Class HI: B-2 limited guaranty is referred to as a "Class HI: B-2
Guaranty Payment." Prior to the Class HI: B-1 cross-over date, and on any
payment date on or after the Class HI: B-1 cross-over date on which a Class HI:
B principal distribution test is not satisfied, the Class HI: B-2 guaranty
payment will equal the amount, if any, by which:
(1) the sum of (a) the Class HI: B-2 formula distribution amount for the
payment date which will be equal to accrued and unpaid interest on the
Class HI: B-2 certificates; and (b) the Class HI: B-2 liquidation loss
principal amount, if any, for the payment date exceeds
(2) the Class HI: B-2 distribution amount for the payment date.
The Class HI: B-2 liquidation loss principal amount for any payment date equals
the amount by which the sum of the Class HI: A principal balance, the Class HI:
M principal balance and the Class HI: B principal balance for the payment date
exceeds the pool scheduled principal balance of Sub-Pool HI for the payment
date, but in no event greater than the Class HI: B-2 principal balance. The
Class HI: B-2 liquidation loss principal amount is the amount of delinquencies
and losses experienced on the home improvement loans during the related due
period that was not absorbed by the Class C certificate and the related monthly
servicing fee otherwise payable to Green Tree so long as Green Tree or any
wholly owned subsidiary of Green Tree is the servicer, with respect to the home
improvement loans. On each payment date on or after the Class HI: B-1 cross-
over date, if each Class HI: B principal distribution test is satisfied on that
payment date, or the Class HI: A Principal Balance and the Class HI: M
principal balance have been reduced to zero, the Class HI: B-2 guaranty payment
will equal the amount by which (a) the sum of (i) the Class HI: B-2 formula
distribution amount for that payment date, which will include both interest and
principal, and (ii) the Class HI: B-2 liquidation loss principal amount for
such payment date exceeds (b) the Class HI: B-2 distribution amount for that
payment date.
The Class HI: B-2 limited guaranty will be an unsecured general obligation of
Green Tree and will not be supported by any letter of credit or other credit
enhancement arrangement. The Class HI: B-2 limited guaranty will not benefit in
any way, or result in any payment to, the Class HI: A, Class HI: M or Class HI:
B-1 certificateholders.
As compensation for providing the Class HI: B-2 limited guaranty, Green Tree
will be entitled to receive a Class HI: B-2 guaranty fee on each payment date
equal to the lesser of:
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(1) the sub-pool HI amount available less the Class HI: A distribution
amount, the Class HI: M-1 distribution amount, the Class HI: M-2
distribution amount, the Class HI: B-1 distribution amount, the Class
HI: B-2 distribution amount, the monthly servicing fee and other
amounts required to be paid to the servicer, the trustee, the Class C
certificateholder and Green Tree (see "Description of the
Certificates--Payments on Loans"), and
(2) an amount equal to 1/12th of the product of 3% and the pool scheduled
principal balance of sub-pool HI plus the Sub-Pool HI pre-funded
amount for the immediately preceding payment date.
Class HE: B Limited Guaranty
In order to mitigate the effect of the subordination of the Class HE: B
certificates and liquidation losses and delinquencies on the home equity loans,
Green Tree will provide a guaranty against losses that would otherwise be borne
by the Class HE: B certificates. Each payment required to be made under the
Class HE: B limited guaranty is referred to as a Class HE: B guaranty payment.
Prior to the Class HE: B-1 cross-over date, and on any payment date on or after
the Class HE: B cross-over date on which a Class HE: B principal distribution
test is not satisfied, the Class B guaranty payment will equal the amount by
which:
(1) the sum of (a) the Class HE: B formula distribution amount for such
payment date, which will be equal to accrued and unpaid interest on
the Class HE: B certificates, and (b) the Class HE: B liquidation loss
principal amount for the payment date exceeds
(2) the Class HE: B distribution amount for such payment date.
The Class HE: B liquidation loss principal amount for any payment date equals
the amount, by which the sum of the Class HE: A principal balance, the Class
HE: M principal balance and the Class HE: B principal balance for the payment
date exceeds the pool scheduled principal balance of sub-pool HE for payment
date, but in no event greater than the Class HE: B principal balance. The Class
HE: B liquidation loss principal amount is the amount of delinquencies and
losses experienced on the home equity loans during the related due period that
was not absorbed by the Class C certificate and the related monthly servicing
fee otherwise payable to Green Tree so long as Green Tree or any wholly owned
subsidiary of Green Tree is the servicer, with respect to the home equity
loans. On each payment date on or after the Class HE: B-1 cross-over date, if
each Class HE: B principal distribution test is satisfied on such payment date,
or the Class HE: A principal balance and the Class HE: M principal balance have
been reduced to zero, the Class HE: B guaranty payment will equal the amount by
which;
(1) the sum of (i) the Class HE: B formula distribution amount for
such payment date, which will include both interest and principal
and (ii) the Class HE: B liquidation loss principal amount, for
such payment date exceeds
(2) the Class HE: B distribution amount for the payment date.
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The Class HE: B limited guaranty will be an unsecured general obligation of
Green Tree and will not be supported by any letter of credit or other credit
enhancement arrangement. The Class HE: B limited guaranty will not benefit in
any way, or result in any payment to, the Class HE: A or Class HE: M
certificateholders.
As compensation for providing the Class HE: B limited guaranty, Green Tree
will be entitled to receive a Class HE: B guaranty fee on each payment date
equal to the lesser of:
(1) the sub-pool HE amount available less the Class HE: A distribution
amount, the Class HE: M-1 distribution amount, the Class HE: M-2
distribution amount, the Class HE B-1 distribution amount, the Class
HE B distribution amount, the monthly servicing fee and other amounts
required to be paid to the servicer, the trustee, the Class C
certificateholder and Green Tree (see "Description of the
Certificates--Payments on Loans"), and
(2) an amount equal to 1/12th of the product of 3% and the pool scheduled
principal balance of sub-pool HE plus the sub-pool HE pre-funded
amount for the immediately preceding payment date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
REMIC Election
Upon the issuance of the certificates, [Company Counsel], counsel to Green
Tree, will deliver its opinion that, assuming that two separate elections are
made to treat segregated portions of the assets of the trust as REMICs
(respectively, the "Master REMIC" and the "Subsidiary REMIC"), and further
assuming ongoing compliance with the terms of the pooling and servicing
agreement, the Master REMIC and the Subsidiary REMIC will each qualify as a
REMIC, the Subsidiary REMIC Regular Interests, which are not being offered
hereunder, will be treated as "regular interests" in the Subsidiary REMIC, and
each class of sub-pool HI certificates and sub-pool HE certificates, other than
the Class HE: A-1 certificates, and the Class HE: A-1 underlying certificates
will be treated as "regular interests" in the Master REMIC for federal income
tax purposes. The Class C subsidiary certificate, which is not being offered in
this prospectus, will constitute the sole class of "residual interests" in the
Subsidiary REMIC, and the Class C master certificate, which is not being
offered in this prospectus, will constitute the sole class of "residual
interests" in the Master REMIC.
Other than the Class HE: A-5 IO certificates, it is not anticipated that any
of the certificates will be issued with original issue discount for federal
income tax purposes. The prepayment assumption that will be used to determine
the rate of accrual of original issue discount, market discount and premium, if
any, will be based on the assumption that the Loans will prepay at a rate equal
to 100% of the applicable prepayment assumption as to the home improvement
loans comprising Sub-Pool HI and 125% of the applicable prepayment assumption
as to the fixed-rate home equity loans included in sub-pool HE and 30% CPR as
to the adjustable rate loans included in sub-pool HE.
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Although the tax treatment is not entirely certain, the Class HE: A-5 IO
certificates will be treated as having been issued with original issue discount
for federal income tax purposes equal to the excess of all expected payments of
interest on the certificates over their issue price. Although unclear, a holder
of a Class HE: A-5 IO certificate may be entitled to deduct a loss to the
extent that its remaining basis exceeds the maximum amount of future payments
to which the certificateholder would be entitled if there were no further
prepayments of the home equity loans.
Certificates held by financial institutions, thrift institutions taxed as
domestic building and loan associations and real estate investment trusts will
represent interests in "loans secured by an interest in real property" and
"real estate assets" for purposes of Sections 7701(a)(19)(C) and 856(c)(4) of
the IRS code, respectively, in the same proportion that the assets in the
Master REMIC consist of qualifying assets under such sections. However, with
respect to the Class HE: A-1 certificates this will only apply to the extent of
the Class HE: A-1 underlying certificates. Furthermore, interest paid with
respect to certificates held by a real estate investment trust will be
considered to be "interest on obligations secured by mortgages on real property
or on interests in real property" for purposes of Section 856(c)(3) of the IRS
code to the extent that such certificates, but with respect to the Class HE: A-
1 certificates, only to the extent of the Class HE: A-1 underlying
certificates, are treated as "real estate assets" under Section 856(c) of the
IRS code.
For further information regarding federal income tax consequences of
investing in the certificates, see "Certain Federal Income Tax Consequences--
REMIC Series" in the prospectus.
Grantor Trust
[Company Counsel], counsel to Green Tree, will deliver its opinion that for
federal income tax purposes, assuming compliance with the terms of the grantor
trust agreement, the grantor trust created under the grantor trust agreement
will constitute a grantor trust under Subpart E, Part I of Subchapter J of the
IRS code, and not an association taxable as a corporation. A holder of a Class
HE: A-1 certificate issued by the grantor trust will be treated as the owner of
an undivided interest in the Class HE: A-1 underlying certificates, which are
"regular interests" in a REMIC, the swap agreement and other assets held by the
grantor trust. See "Certain Federal Income Tax Consequences--Non-REMIC Series"
in the prospectus.
A holder of Class HE: A-1 certificates will be required to allocate the
purchase price between the holder's ownership interest in the various assets of
the grantor trust. In general, the allocation would be based on the relative
fair market values of such assets on the date Class HE: A-1 certificate was
purchased. Green Tree will make no representation as to the relative fair
market values and a holder of Class HE: A-1 certificates should consult its tax
adviser concerning the determination of the fair market values and the taxation
of the holder's interest in the swap agreement, the tax treatment of which is
generally governed by the provisions of the IRS code and Treasury regulations
relating to notional principal loans and straddles.
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A holder of a Class HE: A-1 certificate must report ordinary income equal to
its share of the interest payable with respect to the Class HE: A-1 underlying
certificates and a proportionate share of the net amounts payable to the
grantor trust under the swap agreement, and may deduct the expenses incurred by
the grantor trust that are allocable to such certificate, including net
payments under the swap agreement, at the same time and to the same extent as
such items would be reported by such holder if it had purchased and held
directly the assets held by the grantor trust and incurred directly its share
of expenses incurred by the grantor trust. A holder of a Class HE: A-1
certificate that is an individual, estate or trust should consult its tax
adviser concerning possible limitations on the deductibility of expenses of the
grantor trust. For further information regarding federal income tax
consequences of investing in the Class HE: A-1 certificates, see "Certain
Federal Income Tax Consequences--Tax Status of Non-REMIC Certificates" in the
prospectus.
ERISA CONSIDERATIONS
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under "ERISA Considerations."
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain restrictions on employee benefit plans that are subject to ERISA
("Plans") and on persons who are fiduciaries with respect to some Plans.
Employee benefit plans that are governmental plans, as defined in section 3(32)
of ERISA, and some church plans, as defined in Section 3(33) of ERISA, are not
subject to ERISA requirements. Accordingly, assets of those plans may be
invested in the Class HI: A certificates and the Class HE: A certificates,
other than the Class HE: A-1 certificates, without regard to the ERISA
restrictions described in this section, subject to applicable provisions of
other federal and state laws. However, any governmental or church plan which is
qualified under section 401(a) of the IRS code and exempt from taxation under
section 501(a) of the IRS code is subject to the prohibited transaction rules
set forth in section 503 of the IRS code.
The U.S. Department of Labor has granted an administrative exemption to
[Underwriter] (Prohibited Transaction Exemption No. ; Exemption Application
No. , Fed. Reg. ( )) from certain of the prohibited transaction
rules of ERISA and the IRS code. We refer to all of the exemptions as the
"Exemption." They provide an exemption from certain of the prohibited
transaction rules of ERISA and the IRS code with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption include
home equity loans such as the loans in the loan pool. The Exemption will apply
to the acquisition, holding, and resale of the Class A certificates by a Plan,
provided that specified conditions are met, including those described in the
paragraph below.
Among the conditions which must be satisfied for the exemption to apply to
the exempted certificates are the following:
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(1) The acquisition of the exempted certificates by a Plan is on terms,
including the price for the exempted certificates, that are at
least as favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the exempted certificates
acquired by the Plan are not subordinated to the rights and
interests evidenced by other certificates of the trust;
(3) The exempted certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three
highest generic rating categories from either Moody's, Fitch, S&P,
Duff & Phelps Credit Rating Co. (the "Exemption Rating Agencies");
(4) The trustee is not an affiliate of any other member of the
restricted group, as defined below;
(5) The sum of all payments made to the underwriters in connection with
the distribution of the exempted certificates represents not more
than reasonable compensation for underwriting the exempted
certificates, as applicable. The sum of all payments made to and
retained by Green Tree pursuant to the sale of the loans to the
trust represents not more than the fair market value of such loans.
The sum of all payments made to and retained by the servicer
represents not more than reasonable compensation for the servicer's
services under the pooling and servicing agreement and
reimbursement of the servicer's reasonable expenses; and
(6) The plan investing in the exempted certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act
of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the Exemption, which extends exemptive relief to mortgage-backed and asset-
backed securities transactions using pre-funding accounts for trusts issuing
pass-through certificates. The amendment generally allows mortgage loans or
other secured receivables (the "Obligations") supporting payments to
certificateholders, and having a value equal to no more than 25% of the total
principal amount of the certificates being offered by the trust, to be
transferred to the trust within a 90-day or three-month pre-funding period
following the closing date, instead of requiring that all such Obligations be
either identified or transferred on or before the closing date. The relief is
available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered (the "Pre-
Funding Limit") must not exceed 25%.
(2) All Obligations transferred after the closing date (the "Additional
Obligations") must meet the same terms and conditions for eligibility
as the original Obligations used to create the trust, which terms and
conditions have been approved by an Exemption Rating Agency.
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(3) The transfer of the Additional Obligations to the trust during the
pre-funding period must not result in the certificates to be covered
by the Exemption receiving a lower credit rating from an Exemption
Rating Agency upon termination of the pre-funding period than the
rating that was obtained at the time of the initial issuance of the
certificates by the trust.
(4) Solely as a result of the use of pre-funding period, the weighted
average annual percentage interest rate for all of the Obligations in
the trust at the end of the pre-funding period must not be more than
100 basis points lower than the average interest rate for the
Obligations transferred to the trust on the closing date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations
which were transferred to the trust fund:
. the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
. an independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to each
Exemption Rating Agency rating the certificates, the related
underwriter and the related prospectus or trustee) stating whether
or not the characteristics of the Additional Obligations conform
to the characteristics described in the related prospectus or
prospectus supplement and/or pooling and servicing agreement. In
preparing this letter, the independent accountant must use the
same type of procedures as were applicable to the Obligations
transferred to the trust as of the closing date.
(6) The period of pre-funding must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the
pooling and servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be
invested only in certain permitted investments.
(8) The related prospectus or prospectus supplement must describe:
. any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
. the duration of the period of pre-funding;
. the percentage and/or dollar amount of the Pre-Funding Limit for
the trust; and
. that the amounts remaining in the pre-funding account at the end
of the pre-funding period will be remitted to certificateholders
as repayments of principal.
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(9) The related pooling and servicing agreement must describe these
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
Additional Obligations.
Moreover, the exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements:
(1) in the case of the acquisition of exempted certificates in connection
with the initial issuance, at least 50% of the exempted certificates
are acquired by persons independent of the restricted group,
(2) the plan's investment in exempted certificates does not exceed 25% of
all of the exempted certificates outstanding at the time of the
acquisition and
(3) immediately after the acquisition, no more than 25% of the assets of
the pan are invested in certificates representing an interest in one
or more trusts containing assets sold or serviced by the same entity.
The exemption does not apply to plans sponsored by Green Tree, the
underwriters, the trustee, the servicer, any obligor with respect to loans
included in the trust constituting more than 5% of the aggregate unamortized
principal balance of the assets in the trust or any affiliate of such parties.
In its prefatory comments to the amendment as proposed by DOL (62 Fed. Reg.
28502), the DOL stated its interpretive position that a transaction which
satisfied the conditions of the exemption, but did not satisfy the conditions
of the amendment as proposed, could nevertheless qualify for exemptive relief
if it included a pre-funding account that was used only to acquire assets that
are specifically identified by the sponsor or originator as of the closing
date, but transferred to the trust after the closing date for administrative or
other reasons. Although the pre-funding accounts may not satisfy the conditions
of the amendment in that each pre-funding account may exceed 25% of the total
principal amount of the related certificates, funds in the pre-funding accounts
in excess of such 25% threshold will be used by the trust solely to purchase
subsequent home equity loans or subsequent home improvement loans, as
applicable, in accordance with the pooling and servicing agreement from a fixed
pool of loans that will have been specifically identified prior to the closing
date. It is expected that all of the loans in such fixed pool, except for those
which are determined not to meet the criteria for purchase set forth in the
pooling and servicing agreement, will be acquired using the related pre-funded
account. Accordingly, Green Tree believes that the existence of the pre-funding
accounts should not cause the exemption to be inapplicable.
Green Tree believes that the exemption will apply to the acquisition and
holding of the exempted certificates sold by the underwriters and by plans and
that all conditions of the exemption other than those within the control of the
investors have been met. In addition, as of the date hereof, no obligor with
respect to loans included in the trust constitutes more than 5% of the
aggregate unamortized principal balance of the assets of the trust. Any plan
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fiduciary who proposes to cause a plan to purchase the exempted certificates
should consult with its own counsel with respect to the potential consequences
under ERISA and the code of the plan's acquisition and ownership of the
exempted certificates. Assets of a plan or individual retirement account should
not be invested in the exempted certificates unless it is clear that the assets
of the trust will not be plan assets or unless it is clear that the exemption
or a prohibited transaction class exemption will apply and exempt all potential
prohibited transactions. See "ERISA Considerations" in the prospectus.
In addition to the exemption, some or all of the transactions involving the
purchase, holding and resale of certificates that might otherwise constitute
prohibited transactions under ERISA or the IRS code might qualify for relief
from the prohibited transaction rules and related taxes and penalties under
certain class exemptions granted by the DOL, including Prohibited Transaction
Class Exemption ("PTCE") 83-1, which exempts certain transactions involving
employee benefit plans and mortgage pool investment trusts, PTCE 86-128, which
exempts certain transactions involving employee benefit plans and certain
broker-dealers, PTCE 90-1, which exempts certain transactions involving
employee benefit plans and insurance company pooled separate accounts, and PTCE
91-38, which exempts certain transactions involving employee benefit plans and
bank collective investment funds. There also may be other exemptions applicable
to a particular transaction involving the trust. A plan that intends to acquire
any class of the certificates should consult with its own counsel regarding
whether such investment would cause a prohibited transaction to occur and
whether the terms and conditions of an applicable class exemption may be
satisfied.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the IRS code, including the
prohibited transaction restrictions imposed by ERISA and the related excise
taxes imposed by the IRS code, for transactions involving an insurance company
general account. Pursuant to Section 401(c) of ERISA, the DOL published
proposed regulations on December 22, 1997 to provide guidance for the purpose
of determining, in cases where insurance policies supported by an insurer's
general account are issued to or for the benefit of a plan on or before
December 31, 1998, which general account assets constitute plan assets. Section
401(c) of ERISA generally provides that, until the date which is 18 months
after the Proposed 401(c) Regulations become final, no person will be subject
to liability under Part 4 of Title I of ERISA and Section 4975 of the IRS code
on the basis of a claim that the assets of an insurance company general account
constitute plan assets, unless:
(1) as otherwise provided by the Secretary of Labor in the Proposed 401(c)
Regulations to prevent avoidance of the regulations or
(2) an action is brought by the Secretary of Labor for certain breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998 or issued to plans on or
before December 31, 1998 for
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which the insurance company does not comply with the Proposed 401(c)
Regulations may be treated as plan assets. In addition, because Section 401(c)
does not relate to insurance company separate accounts, separate account assets
are still treated as plan assets of any plan invested in such separate account.
Insurance companies contemplating the investment of general account assets in
the certificates should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold the certificates after the date which is 18 months
after the date on which the Proposed 401(c) Regulations become final.
No transfer of any class of certificates other than the exempted certificates
will be permitted to be made to a plan unless such plan, at its expense,
delivers to trustee and Green Tree an opinion of counsel, in form satisfactory
to the trustee and Green Tree, to the effect that the purchase or holding of
any other class of certificates by such plan will not result in the assets of
the trust being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the IRS code and will not subject the
trustee, Green Tree or the servicer to any obligation or liability in addition
to those undertaken in the pooling and servicing agreement. Unless such opinion
is delivered, each person acquiring such a certificate will be deemed to
represent to the trustee, Green Tree and the servicer either (i) that such
person is neither a plan, nor acting on behalf of a plan, subject to ERISA or
to Section 4975 of the IRS code or (ii) that the purchase and holding of the
certificate by such plan will not result in the assets of the trust being
deemed to be plan assets and subject to the prohibited transaction provisions
of ERISA and the IRS code and will not subject the trustee, Green Tree or the
servicer to any obligation or liability in addition to those undertaken in the
pooling and servicing agreement.
S-140
<PAGE>
UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from Green Tree the respective principal
amounts of the certificates set forth opposite their names below.
<TABLE>
<CAPTION>
Principal Principal Principal
Amount of Amount of Amount of
Class Class Class
HI: A-1 HI: A-2 HI: A-3
Underwriter Certificates Certificates Certificates
----------- ------------ ------------ ------------
<S> <C> <C> <C>
[Underwriters]........................... $ $ $
....................................
....................................
....................................
....................................
---------- --------- --------
Totals................................. $ $ $
========== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Principal Principal Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Amount of Amount of
Class Class Class Class Class Class
HE: A-1A NAS HE: A-1B ARM HE: A-1 HE: A-2 HE: A-3 HE: A-4
Underwriter Certificates Certificates Certificates Certificates Certificates Certificates
----------- ------------ ------------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
[Underwriters].......... $ $ $ $ $ $
. .................
...................
...................
...................
------ --------- --------- --------- --------- ---------
Totals................ $ $ $ $ $ $
====== ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Percentage Principal
Interest of Amount of
Class Class
HE: A-5 IO HE: M-1
Underwriter Certificates Certificates
----------- ------------ ------------
<S> <C> <C>
[Underwrtiers]........................................ % $
.................................................
.................................................
.................................................
.................................................
--- ---------
Totals.............................................. 100% $
=== =========
</TABLE>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions in the agreement, to purchase all of the certificates
offered here if any such certificates are purchased. In the event of a default
by the underwriters, the underwriting agreement provides that, in certain
circumstances, the underwriting agreement may be terminated.
Green Tree has been advised by the underwriters that they propose initially
to offer the certificates to the public at the respective offering prices
listed on the cover page of this prospectus supplement and to dealers at such
price less a concession not in excess of the respective amounts listed in the
table below, expressed as a percentage of the relative
S-141
<PAGE>
certificate principal balance. The underwriters may allow and dealers may
reallow a discount not more than the respective amounts listed in the table
below to other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
HI:A-1.............................. % %
HI:A-2.............................. % %
HI:A-3.............................. % %
HE:A-1A NAS......................... % %
HE:A-1B ARM......................... % %
HE:A-1.............................. % %
HE:A-2.............................. % %
HE:A-3.............................. % %
HE:A-4.............................. % %
HE:A-5 IO........................... % %
HE:M-1.............................. % %
</TABLE>
Neither Green Tree nor any of the underwriters makes any representations or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the certificates. In addition,
neither Green Tree nor any of the underwriters makes any representation that
the underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Until the distribution of the certificates is completed, rules of the SEC may
limit the ability of the underwriters and some selling group members to bid for
and purchase the certificates. As an exception to these rules, the underwriters
are permitted to engage in certain transactions that stabilize the price of the
certificates. Such transactions consist of bids or purchases for the purposes
of pegging, fixing or maintaining the price of the certificates. In general,
purchases of a security for the purpose of stabilization could cause the price
of the security to be higher than it might be without these purchases.
The underwriting agreement provides that Green Tree will indemnify the
underwriters against liabilities, including liabilities under the Securities
Act of 1933 or contribute to payments the underwriters may be required to make.
Green Tree has agreed that for a period of 30 days from the date of this
prospectus supplement it will not offer or sell publicly any other home
improvement loan or home equity loan pass-through certificates without the
consent of the underwriters.
Each of the underwriters or one of its affiliates has from time to time
provided warehouse and other financing to Green Tree.
LEGAL MATTERS
The validity of the certificates will be passed upon for Green Tree and the
trust by [Company Counsel], Minnesota, and for the underwriters by
[Underwriter], [New York, New York]. The material federal income tax
consequences of the certificates will be passed upon for Green Tree by [Company
Counsel].
S-142
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the certificates that will be
available only in book-entry form are the global certificates. Investors in the
global certificates may hold these global certificates through any of DTC,
CEDEL or Euroclear. The global certificates will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding global certificates
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice, such as a seven calendar day settlement.
Secondary market trading between investors holding global certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding certificates will be effected on a delivery-against-
payment basis through the respective depositaries of CEDEL and Euroclear, in
their capacity, and DTC participants.
Non-U.S. holders of global certificates will be subject to U.S. withholding
taxes unless such holders meet certain requirements and deliver appropriate
U.S. tax documents to the securities clearing organizations or their
participants.
Initial Settlement
All global certificates will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the global certificates
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their global certificates through DTC will follow
the settlement practices applicable to United States corporate debt
obligations. Investors securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their global certificates through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global certificates will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
A-1
<PAGE>
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL or Euroclear Participants. Secondary market trading
between CEDEL participants or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
certificates are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its depositary to receive the global
certificates against payment. Payment will include interest accrued on the
global certificates from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by such depositary to
the DTC participant's account against delivery of the global certificates.
After settlement has been completed, the global certificates will be credited
to the applicable clearing system and by the clearing system, in accordance
with its usual procedures, to the CEDEL participant's or Euroclear
participant's account. The global certificates credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the global certificates will accrue from, the value date, which would be the
preceding day when settlement occurred in New York. If settlement is not
completed on the intended value date, such as the trade fails, the CEDEL or
Euroclear cash debit will be valued instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the global
certificates are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global certificates would incur overdraft charges for one day,
assuming they cleared the overdraft when the global certificates were credited
to their accounts. However, interest on the global certificates would accrue
from the value date. Therefore, in many cases the investment income on the
global certificates earned during that one-day period may substantially reduce
or offset the amount of any overdraft charges, although this result will depend
on each CEDEL participant's or Euroclear participant's particular cost of
funds.
A-2
<PAGE>
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global certificates
to the respective depositary for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time zone
differences in their favor, CEDEL participants and Euroclear participants may
employ their customary procedures for transactions in which global certificates
are to be transferred by the respective clearing systems, through their
respective depositaries, to a DTC participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL participant or Euroclear
participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct their respective depositaries, as appropriate,
to deliver the certificates to the DTC participant's account against payment.
Payment will include interest accrued on the global certificates from and
including the last coupon payment date to and excluding the settlement date.
The payment will then be reflected in the account of the CEDEL participant or
Euroclear participant the following day, and receipt of the cash proceeds in
the CEDEL participant's or Euroclear participant's account would be back-valued
to the value date which would be the preceding day, when settlement occurred in
New York. Should the CEDEL participant or Euroclear participant have a line of
credit with its clearing system and elect to be in debit in anticipation of
receipts of the sale proceeds in its account, the bank-valuation will
extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date, such as the trade
fails, receipt of the cash proceeds in the CEDEL participant's or Euroclear
participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase global
certificates from DTC participants for delivery to CEDEL participants or
Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day, until the purchase
side of the day trade is reflected in their CEDEL or Euroclear
accounts, in accordance with the clearing system's customary
procedures;
(b) borrowing the global certificates in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the global
certificates sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day before the value date for the sale to the CEDEL
participant or Euroclear participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global certificates holding securities through CEDEL or
Euroclear, or through DTC if the holder has an address outside the U.S., will
be subject to the 30% U.S. withholding tax that generally applies to payments
of interest, including
A-3
<PAGE>
original issue discount, on registered debt issued by U.S. persons, unless:
(1) each clearing system, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the
U.S. entity required to withhold tax complies with applicable
certification requirements, and
(2) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of certificates
that are non-U.S. persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (certificate of Foreign Status) and
a certificate under penalties of perjury that such beneficial owner is:
(1) not a controlled foreign corporation within the meaning of Section
957(a) of the Code, that is related, within the meaning of Section
846(d)(4) of the Code, to the trust or the transferor and
(2) not a 10% shareholder, within the meaning of Section 871(h)(3)(B) of
the Code, of the trust or the transferor. If the information shown on
Form W-8 or the tax certificate changes, a new Form W-8 or tax
certificate, as the case may be, must be filed within 30 days of such
change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224.
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of
certificates residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate by filing Form 1001. If
the treaty provides only for a reduced rate, withholding tax will be
imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by the beneficial owner of certificates or such owner's
agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9.
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global certificate or, in the case of a Form 1001 or a Form 4224 filer,
such owner's agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form W-8 and
Form 1001 are effective for three calendar years and Form 4224 is effective
for one calendar year.
A U.S. person is:
. a citizen or resident of the United States,
A-4
<PAGE>
. a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof (except, in the
case of a partnership, to the extent provided in regulations),
. an estate the income of which is includible in gross income for United
States tax purposes, regardless of its source or
. a trust other than a foreign trust within the meaning of Section 7701
(1)(31) of the Code.
To the extent prescribed in regulations by the Secretary of the Treasury, which
regulations have not yet been issued, a trust which was in existence on August
20, 1996 (other than a trust treated as owned by the grantor under Subpart E of
Part 1 of Subchapter J of Chapter 1 of the Code), and which was treated as a
United States person on August 19, 1996, may elect to continue to be treated as
a United States person notwithstanding the previous sentence. This summary does
not deal with all aspects of U.S. federal income tax withholding that may be
relevant to foreign holders of the global certificates. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the global certificates.
A-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Base Prospectus No. 3
Secured Home Improvement and Home Equity Loans
Green Tree Financial Corporation, Seller and Servicer
Certificates for Home Improvement and Home Equity Loans
(Issuable In Series)
We are offering certificates for home improvement and home equity loans under
this prospectus and a prospectus supplement. The prospectus supplement will be
prepared separately for each series of certificates offered. Green Tree
Financial Corporation will form a trust for each series, and the trust will
issue the certificates of that series. The certificates of any series may
comprise several different classes. A trust may also issue one or more other
interests in the trust that will not be offered under this prospectus.
The right of each class of certificates within a series to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of certificates. In addition, a series of certificates may include one or more
classes which on the one hand are subordinated to one or more classes of
certificates, while on the other hand are senior to one or more classes of
certificates. The rate of principal and interest payment on the certificates of
any class will depend on the priority of payment of that class and the rate and
timing of payments of the related home equity loans.
------------
The certificates will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
------------
This prospectus may not be used to complete sales of any certificates unless
accompanied by the prospectus supplement relating to that series.
Prospectus dated , 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (2) the prospectus supplement for the
particular terms of your series of certificates.
If the terms of your series of certificates varies between this prospectus
and the prospectus supplement, you should rely on the information in your
prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
2
<PAGE>
THE TRUST
General
Certificates that show an interest in pools of home equity loans are issued
from time to time in series under a separate pooling and servicing agreement
between Green Tree, as seller and servicer, and the trustee.
Each trust will include:
(1) a loan pool;
(2) the amounts held from time to time in a trust account called the
certificate account maintained by the trustee under the pooling and
servicing agreement;
(3) proceeds from FHA insurance (for any FHA-insured home improvement
loan included in the loan pool);
(4) 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;
(5) other property as may be specified in the related prospectus
supplement.
Each certificate will evidence the interest specified in the related
prospectus supplement in one trust, containing one loan pool comprised of loans
having the aggregate principal balance as of the specified day of the month of
the creation of the pool is the cut-off date specified in the related
prospectus supplement. Holders of certificates of a series will have interests
only in such loan pool and will have no interest in the loan pool created with
respect to any other series of certificates, except with respect to FHA
insurance reserves. If so specified in the related prospectus supplement, the
loan pool may be divided into two or more sub-pools, in which event the
certificates of some specified classes may be payable primarily from, and for
the loans comprising a given sub-pool. If so specified in the related
prospectus supplement, the trust may include a pre-funding account which would
be used to purchase subsequent loans from Green Tree 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 loans, including the requisite characteristics of the
subsequent loans.
Except as otherwise specified in the related prospectus supplement, all of
the loans will have been originated by Green Tree in the ordinary course of its
business. Specific information respecting the loans included in each trust will
be provided in the related 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 SEC within fifteen days after the initial issuance of the
certificates. A copy of the pooling and servicing 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 loans relating to the
series will be attached to the pooling and servicing agreement delivered to the
trustee upon delivery of the certificates.
The Loan Pools
Except as otherwise specified in the related prospectus supplement, the loan
pool will consist of home improvement loans and promissory notes and closed-end
home equity loans,
3
<PAGE>
originated by Green Tree on an individual basis in the ordinary course of
business. We refer to the home improvement loans and promissory notes and the
home equity loans collectively as loans. The home improvement loans may be
conventional home improvement loans or loans insured by FHA. All loans will be
secured by the related real estate. Except as otherwise specified in the
related prospectus supplement, the loans will be fully amortizing and will bear
interest at a fixed or variable annual percentage rate.
For each series of certificates, Green Tree will assign the loans
constituting the loan pool to the trustee named in the related prospectus
supplement. Green Tree, as servicer will service the loans pursuant to the
pooling and servicing agreement. See "Description of the Certificates--
Servicing." Unless otherwise specified in the related prospectus supplement,
the loan documents will be held by the trustee or a custodian on its behalf.
Each loan pool will be composed of loans bearing interest at the loan rates
specified in the prospectus supplement. Unless we specify otherwise in the
related prospectus supplement, each registered holder of a certificate will be
entitled to receive periodic distributions, which will be monthly unless we
specify otherwise in the related prospectus supplement, of all or a portion of
principal on the underlying loans or interest on the principal balance of the
certificate at the pass-through rate, or both.
The related prospectus supplement will specify for the loans contained in the
related loan pool, the range of the dates of origination of the loans; the
range of the loan rates and the weighted average loan rate; the minimum and
maximum outstanding principal balances and the average outstanding principal
balance as of the cut-off date; the aggregate principal balance of the loans
included in the loan 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 range of original maturities of the loans and the last maturity date
of any loan; and the geographic location of improved real estate securing the
loans. If the trust includes a pre-funding account, the related prospectus
supplement will specify the conditions that must be satisfied before any
transfer of subsequent loans, including the requisite characteristics of the
subsequent loans.
Green Tree will make representations and warranties as to the types and
geographical distribution of the loans included in a loan pool and as to the
accuracy in all material respects of certain information furnished to the
trustee in respect of each loan. Upon a breach of any representation or
warranty that materially and adversely affects the interests of the
certificateholders in a loan, Green Tree will be obligated to cure the breach
in all material respects, or to repurchase or substitute for the loan as
described below. This repurchase obligation constitutes the sole remedy
available to the certificateholders or the trustee for a breach of
representation or warranty by Green Tree. See "Description of the
Certificates--Conveyance of Loans."
Conveyance of Loans
Green Tree will transfer to the trustee all right, title and interest of
Green Tree in the loans, including all principal and interest received on or
for the loans except receipts of
4
<PAGE>
principal and interest due on the loans before the cut-off date. On behalf of
the trust, as the issuer of the related series of certificates, the trustee,
concurrently with the conveyance, will execute and deliver the certificates to
the order of Green Tree. The loans will be as described on a list attached to
the pooling and servicing agreement. This list will include the amount of
monthly payments due on each loan as of the date of issuance of the
certificates, the loan rate on each loan and the maturity date of each loan.
This list will be available for inspection by any certificateholder at the
principal executive office of the servicer. Before the conveyance of the loans
to the trust, Green Tree's internal audit department will complete a review of
all of the loan files confirming the accuracy of the list of loans delivered to
the trustee. Any loan discovered not to agree with that list in a manner that
is materially adverse to the interests of the certificateholders will be
repurchased or substituted for by Green Tree, or, if the discrepancy relates to
the unpaid principal balance of a loan, Green Tree may deposit cash in the
separate account maintained at an eligible institution in the name of the
trustee in an amount sufficient to offset the discrepancy. If the trust
includes a pre-funding account, the related prospectus supplement will specify
the conditions that must be satisfied before any transfer of subsequent loans,
including the requisite characteristics of the subsequent loans.
Unless otherwise specified in the related prospectus supplement, the trustee
or its custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and Green Tree's accounting records and computer systems will also
reflect this sale and assignment.
The counsel to Green Tree identified in the applicable prospectus supplement
will render an opinion to the trustee that the transfer of the loans from Green
Tree to the related trust would, in the event Green Tree became a debtor under
the United States Bankruptcy Code, be treated as a true sale and not as a
pledge to secure borrowings. If, however, the transfer of the loans from Green
Tree to the trust were treated as a pledge to secure borrowings by Green Tree,
the distribution of proceeds of the loans to the trust might be subject to the
automatic stay provisions of the United States Bankruptcy Code, which would
delay the distribution of the proceeds for an uncertain period of time. In
addition, a bankruptcy trustee would have the power to sell the loans if the
proceeds of the sale could satisfy the amount of the debt deemed owed by Green
Tree, or the bankruptcy trustee could substitute other collateral in lieu of
the loans to secure the debt, or the debt could be subject to adjustment by the
bankruptcy trustee if Green Tree were to file for reorganization under Chapter
11 of the United States Bankruptcy Code.
Except as otherwise specified in the related prospectus supplement, Green
Tree will make representations and warranties in the pooling and servicing
agreement for each loan as of the related closing date, including that:
. as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
5
<PAGE>
. no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
. each loan 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;
. no loan is subject to any right of rescission, set-off, counterclaim
or defense;
. each FHA-insured home improvement loan was originated in accordance
with applicable FHA regulations and is insured, without set-off,
surcharge or defense, by FHA Insurance;
. each loan was either
. entered into by a home improvement contractor in the ordinary
course of the contractor's business and, immediately upon funding,
assigned to Green Tree,
. was originated by a home equity lender in the ordinary course of
the lender's business and assigned to Green Tree, or
. was originated by Green Tree directly;
. no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest therein pursuant to the pooling and servicing agreement or
the certificates unlawful;
. each loan complies with all requirements of law;
. no loan has been satisfied, subordinated to a lower lien ranking than
its original position or rescinded;
. each loan creates a valid and perfected lien on the related improved
real estate;
. all parties to each loan had full legal capacity to execute the loan;
. no loan has been sold, conveyed and assigned or pledged to any other
person and Green Tree has good and marketable title to each loan free
and clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to the trustee;
. as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan (except for payment
delinquencies permitted by the first clause, no event that with notice
and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under the
loan, and Green Tree has not waived any of the foregoing;
. each loan is a fully-amortizing loan with a fixed rate of interest and
provides for level payments over the term of the loan;
. each loan contains customary and enforceable provisions as to render
the rights and remedies of the holder thereof adequate for realization
against the collateral;
. the description of each loan appearing in the list delivered to the
trustee is true and correct;
. there is only one original of each loan; and
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. each loan was originated or purchased in accordance with Green Tree's
then-current underwriting guidelines.
Under the terms of the pooling and servicing agreement, if Green Tree becomes
aware of a breach of any Green Tree representation or warranty that materially
adversely affects the trust's interest in any loan or receives written notice
of a breach from the trustee or the servicer, then Green Tree will be obligated
either to cure the breach or to repurchase or, if so provided in the related
prospectus supplement, substitute for the affected loan, in each case under the
conditions further described in this prospectus and in the prospectus
supplement. This repurchase obligation will constitute the sole remedy
available to the trust and the certificateholders for a breach of a
representation or warranty under the pooling and servicing agreement with
respect to the loans but not for any other breach by Green Tree of its
obligations under the pooling and servicing agreement. If a prohibited
transaction tax under the REMIC provisions of the IRS code is incurred in
connection with such repurchase, distributions otherwise payable to residual
certificateholders will be applied to pay the tax. Green Tree will be required
to pay the amount of such tax that is not funded out of the distributions.
The repurchase price of a loan at any time means the outstanding principal
amount of the loan without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable pass-through rate on the loan
from the end of the due period for which the obligor last made a payment
without giving effect to any advances made by the servicer or the trustee,
through the end of the immediately preceding due period.
Payments on Loans
Each certificate account will be a trust account established by the servicer
as to each series of certificates in the name of the trustee:
(1) with a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit are rated within the
two highest rating categories, or the other rating category as will
not adversely affect the ratings assigned to the certificates, by
each rating agency rating the certificates of that series; or
(2) with the trust department of a national bank; or
(3) in an account or accounts the deposits in which are fully insured by
the FDIC; or
(4) 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 so that, as evidenced by an opinion of
counsel, the certificateholders have a claim for the funds in the
certificate account or a perfected first priority security interest
against any collateral securing the 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
(5) otherwise acceptable to the rating agency without reduction or
withdrawal of the rating assigned to the relevant certificates.
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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 pooling and servicing agreement, the
eligible investments. A certificate account may be maintained as an interest-
bearing account, or the funds held therein may be invested pending each
succeeding payment date in eligible investments.
Unless otherwise specified in the related prospectus supplement, the servicer
will deposit in the certificate account on a daily basis all proceeds 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, including:
. all obligor payments on account of principal, including principal
prepayments, on the loans;
. all obligor payments on account of interest on the loans;
. all FHA insurance payments received by the servicer;
. all net liquidation proceeds amounts received and retained for the
liquidation of defaulted loans, net of liquidation expenses;
. any advances made as described under advances below and other amounts
required under the pooling and servicing agreement to be deposited in
the certificate account;
. all amounts received from any credit enhancement provided on a series
of certificates; and
. all proceeds of any loan or property acquired in respect thereof
repurchased by the servicer or Green Tree, as described under
conveyance of loans above or under repurchase option below.
USE OF PROCEEDS
Unless we specify otherwise in the prospectus supplement, substantially all
of the net proceeds to be received from the sale of each series of certificates
will be used by Green Tree for general corporate purposes, including the
origination or acquisition of additional home improvement loans and home equity
loans, costs of carrying such loans and loans until sale of the related
certificates and to pay other expenses connected with pooling the loans and
issuing the certificates.
GREEN TREE FINANCIAL CORPORATION
General
Green Tree is a Delaware corporation which, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Green Tree purchases,
pools, sells and services conditional sales loans for manufactured homes and
other consumer installment
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sales loans, as well as home equity loans. Green Tree is the largest servicer
of government-insured manufactured housing loans and conventional manufactured
housing loans in the United States. Servicing functions are performed through
Green Tree Financial Servicing Corporation, a wholly owned subsidiary of Green
Tree. Through its principal offices in St. Paul, Minnesota, and service
centers throughout the United States, Green Tree serves all 50 states. Green
Tree began financing FHA-insured home improvement loans in April 1989,
conventional home improvement loans in September 1992 and home equity loans in
January 1996. Green Tree also purchases, pools and services installment sales
loans for various consumer products. Green Tree's principal executive offices
are located at 1100 Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota
55102-1639 (telephone (612) 293-3400). Green Tree's quarterly and annual
reports are available from Green Tree upon written request made to Green Tree.
The SEC allows us to incorporate by reference some of the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We are incorporating by reference the following documents into
this prospectus and the prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10K for the
year ended December 31, 1998.
. Green Tree Financial Corporation's quarterly report on Form 10Q for
the quarter ended March 31, 1999.
All documents filed by the servicer, on behalf of any trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
after the date of this prospectus and prior to the termination of the offering
of the certificates issued by that trust, will be incorporated by reference
into this prospectus.
We will provide you, upon your written or oral request, a copy of any or all
of the documents incorporated by reference in this prospectus, exhibits to
those documents. Please direct your requests for copies to John Dolphin, Vice
President and Director of Investor Relations, 1100 Landmark Towers, 345 St.
Peter Street, St. Paul, Minnesota 55102-1639, telephone number (651) 293-3400.
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by reference), proxy statements and other
information. You can read and copy these documents at the public reference
facility maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. You can also read and copy these reports
and other information at the following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
1400
New York, NY 10048 Chicago, IL 60661
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Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Loan Origination
Home Improvement Loans. Through its centralized loan processing operations in
St. Paul, Minnesota, Green Tree arranges to purchase certain loans from home
improvement contractors located throughout the United States. Green Tree's
regional sales managers contact home improvement contractors and explain Green
Tree's available financing plans, terms, prevailing rates and credit and
financing policies. If the contractor wishes to utilize Green Tree's available
customer financing, the contractor must make an application for contractor
approval. Green Tree has a contractor approval process pursuant to which the
financial condition, business experience and qualifications of the contractor
are reviewed prior to his or her approval to sell loans to Green Tree. In
addition, Green Tree has a centralized compliance group which reviews and
updates contractor financial condition and reviews contractors on an annual
basis to determine whether such contractor's approval will be continued. Green
Tree also reviews monthly contractor trend reports which show the default and
delinquency trends of the particular contractor with respect to loans sold to
Green Tree. Green Tree occasionally will originate directly a home improvement
promissory note involving a home improvement transaction.
All loans that Green Tree originates are written on forms provided or
approved by Green Tree and are purchased on an individually approved basis in
accordance with Green Tree's guidelines. The contractor submits the customer's
credit application and construction loan to Green Tree's office where an
analysis of the creditworthiness of the customer is made using a proprietary
credit scoring system that was implemented by Green Tree in June 1993. If Green
Tree determines that the application meets Green Tree's underwriting guidelines
and applicable FHA regulations (for FHA-insured loans) and the credit is
approved, Green Tree purchases the loan from the contractor when the customer
verifies satisfactory completion of the work, or, in the case of staged
funding, Green Tree follows up with the customer for the completion certificate
90 days after funding.
The types of home improvements financed by Green Tree include:
(1) exterior renovations, including windows, siding and roofing;
(2) pools and spas;
(3) kitchen and bath remodeling; and
(4) room additions and garages.
Green Tree may also, under certain limited conditions, extend additional credit
beyond the purchase price of the home improvement for the purpose of debt
consolidation.
The original principal amount of an FHA-insured home improvement loan with
respect to a single family property currently may not exceed $25,000 without
specific FHA approval, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up
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to $12,000 per unit or a $48,000 limit for four units of owner-occupied
multiple-family homes. Some other criteria for home improvement loans eligible
for FHA insurance are described under the caption "Description of FHA
Insurance."
Green Tree began financing conventional home improvement loans in September
1992. Conventional home improvement loans are not insured by FHA. The original
principal amount of a conventional secured home improvement loan may not exceed
$40,000 for Green Tree's secured no equity lien program, and $100,000 for Green
Tree's secured equity lien program, unless a higher amount financed is approved
by senior management. The original principal amount of a conventional home
improvement loan may not exceed $100,000 for Green Tree's secured lien program,
unless a higher amount financed is approved by senior management. Green Tree
requires that any secured home improvement loan be secured by a recorded lien
(which may be a first, second or (for the
FHA-insured loans and some conventional loans of $30,000 or less) third lien)
on the improved real estate.
Green Tree's underwriting guidelines and credit scoring process weight
significantly the applicant's creditworthiness and place less weight on the
available equity in the related real estate being improved. While it is Green
Tree's policy not to exceed 100% in loan-to-value ratio on any loan, a
substantial portion of the home improvement loans are expected to have loan-to-
value ratios of 90% or more when considering the estimated value of the real
estate, other liens senior to that of the home improvement loan, and the
improvements being financed. Because Green Tree does not require appraisals on
most home improvement loans with loan amounts of less than $30,000 and given
the many other factors that can affect the value of property securing a
conventional home improvement loan, the related prospectus supplement will not
provide detailed disclosure of loan-to-value ratios on the home improvement
loans.
Home Equity Loans. Green Tree has originated closed-end home equity loans
since January 1996. As of December 31, 1998, Green Tree had approximately
$7,302,696,406 aggregate principal amount of outstanding closed-end home equity
loans.
Through a system of regional offices, Green Tree markets its home equity
lending directly to consumers using a variety of marketing techniques. Green
Tree also reviews and re-underwrites loan applications forwarded by
correspondent lenders.
Green Tree's credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio and the applicant's creditworthiness; to the extent the
requested loan would have a less favorable equity position, the
creditworthiness of the borrower must be stronger, or may be weaker. The loan-
to-value ratio of the requested loan, combined with any existing loans with a
senior lien position, may not exceed 95% without senior management approval. In
most circumstances, an appraisal of the property is required. Currently, loans
secured by a first mortgage with an obligor having a superior credit rating may
not exceed $300,000 without senior management approval, and loans secured by a
second mortgage with an obligor having a superior credit rating may not exceed
$250,000 without senior management approval.
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YIELD CONSIDERATIONS
The pass-through rates and the weighted average loan rate of the loans as of
the related cut-off date relating to each series of certificates will be set
forth in the related prospectus supplement.
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 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 we may offer, such as interest
only certificates, principal only certificates, and fast pay/slow pay
certificates, may be particularly sensitive to prepayment rates, and to changes
in prepayment rates, on the underlying loans. If so stated in the related
prospectus supplement, the yield on some types of certificates which we may
offer hereby could change and may be negative under some prepayment rate
scenarios. Accordingly, some types of certificates may not be legal or
appropriate investments for some financial institutions, pension funds or
others. See "ERISA Considerations" and "Legal Investment Considerations" in
this prospectus and in the prospectus supplement. In addition, the timing of
changes in the rate of prepayment on the loans included in a loan 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 loans occur, the
greater the effect on the investor's yield to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise described in an applicable prospectus supplement, all of the
loans will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. FHA-
insured home improvement loans may be prepaid at any time without penalty.
Green Tree has no significant experience with respect to the rate of principal
prepayments on home improvement loans or home equity loans. Because the loans
have scheduled due dates throughout the calendar month, and because (unless
otherwise specified in the related prospectus supplement) all principal
prepayments will be passed through to certificateholders of the related series
on the payment date following the due period in which such principal prepayment
occurred, prepayments on the loans would affect the amount of funds available
to make distributions on the certificates on any payment date only if a
substantial portion of the loans prepaid prior to their respective due dates in
a particular month, thus paying less
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than 30 days' interest for that due period while very few loans prepaid after
their respective due dates in that month. In addition, liquidations of
defaulted loans or the servicer's or Green Tree's exercise of its option to
repurchase the entire remaining pool of loans see "Description of the
Certificates--Repurchase Option" will affect the timing of principal
distributions on the certificates of a series.
Information regarding the prepayment standard or 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. Although the related
prospectus supplement will specify the prepayment assumptions used to price any
series of certificates, there can be no assurance that the loans will prepay at
that rate, and it is unlikely that prepayments or liquidations of the loans
will occur at any constant rate.
See "Description of the Certificates--Repurchase Option" for a description of
Green Tree's or Servicer's option to repurchase the loans comprising part of a
trust when the aggregate outstanding principal balance of the loans is less
than a specified percentage of the initial aggregate outstanding principal
balance of the loans as of the related cut-off date. See also "The Trust--The
Loan Pools" for a description of the obligations of Green Tree to repurchase a
loan in case of a breach of a representation or warranty relative to the loan.
DESCRIPTION OF THE CERTIFICATES
Each series of certificates will be issued under a pooling and servicing
agreement to be entered into among Green Tree, as seller and servicer, and the
trustee named in the related prospectus supplement, and the other parties, as
are described in the applicable prospectus supplement. The following summaries
describe certain provisions expected to be common to each pooling and servicing
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 pooling and servicing agreement and the description
set forth in the related prospectus supplement. The provisions of the form of
pooling and servicing agreement filed as an exhibit to the registration
statement that we do not describe in this prospectus may differ from the
provisions of any actual pooling and servicing agreement. The material
differences will be described in the related prospectus supplement. Capitalized
terms used in this prospectus and not otherwise defined shall have the meanings
assigned to them in the form of pooling and servicing agreement filed as an
exhibit to the registration statement containing this prospectus.
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 these classes may be under this prospectus, and there may be
separate prospectus supplements relating to one or more of such classes sold.
When we refer to the prospectus supplement relating to a series
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comprised of more than one class should be understood each of the prospectus
supplements relating to the classes sold under this prospectus. When we refer
to the certificates of a class it 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 subclasses of that 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 created under the related pooling and servicing agreement.
The trust will be held by the trustee for the benefit of the
certificateholders. 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 listed 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 loan pool may be evidenced by one or more classes of
certificates, each representing the interest in the loan pool specified in the
related prospectus supplement. Each series of certificates may include one or
more classes of subordinated certificates which are subordinated in right of
distribution to one or more other classes of senior certificates, as provided
in the related prospectus supplement. Certificates of a series which includes
senior and subordinated certificates are referred to in this prospectus as
senior/subordinated certificates. A series of senior/subordinated certificates
may include one or more classes of 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 for a series of
senior/subordinated certificates will describe 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 for distribution among senior certificates and subordinated
certificates, the allocation of losses among the classes of subordinated
certificates, the period or periods of the subordination, any minimum
subordinated amount, and any distributions or payments which will not be
affected by that subordination. The protection afforded to the senior
certificateholders from the subordination feature described above will be
effected by the preferential right of the certificateholders to receive current
distributions from the loan pool. If a series of certificates contains more
than one class of subordinated certificates, losses will be allocated among the
classes in the manner described in the 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 under this prospectus and the prospectus supplement.
If so specified in a prospectus supplement, a series of certificates may
include one or more classes which:
(1) are entitled to receive distributions only in respect of principal,
interest or any combination of the two, or in specified proportions of
the payments; and/or
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(2) are entitled to receive distributions of principal before or after
specified principal distributions have been made on one or more other
classes within the 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 list the pass-through rate at which interest
will be paid to certificateholders of each class of a given series. The 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 loans evidenced by a single certificate of each
class of certificates of a series.
Distributions of principal and interest on the certificates will be made on
the payment dates listed in the related prospectus supplement 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 to the distribution as it appears on the certificate register, or, as
described in the related prospectus supplement, 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 that will be deposited with, or on behalf of,
and registered in the name of a nominee for, a 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 the
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 a certificate in definitive form, a global
certificate may not be transferred except as a whole by the depositary for the
global certificate to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary.
The specific terms of the depositary arrangement for any certificates of a
class will be described in the related prospectus supplement. It is anticipated
that the following provisions described in this subsection will apply to all
depositary arrangements:
Upon the issuance of a global certificate, the depositary for the global
certificate will credit, on its book-entry registration and transfer system,
the denominations of the certificates represented by the global certificate to
the accounts of participating institutions
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that have accounts with the depositary. Ownership of beneficial interests in a
global certificate will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in such
global certificate will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the depositary for such global
certificate or by participants or persons that hold through participants. The
laws of some states require that purchasers of securities take physical
delivery of such securities in definitive form. These limits and 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 the 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 the global certificate for all purposes under the pooling and
servicing agreement relating to the certificates. Except as described below,
owners of beneficial interests in a global certificate will not be entitled to
have certificates of the series represented by the global certificate
registered in their names, will not receive or be entitled to receive physical
delivery of certificates of that series in definitive form and will not be
considered the owners or holders under the pooling and servicing agreement
governing the 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 the certificates. In addition, all reports required
under the applicable pooling and servicing 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. Green
Tree, the servicer, the trustee, or any agent including any applicable
certificate registrar or paying agent, will not 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.
Green Tree expects that the depositary for certificates of a class, upon
receipt of any distribution or payment on a global certificate, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interest in the Global certificate as shown on the
records of the depositary. Green Tree also expects that payments by
participants to owners of beneficial interests in the global certificate held
through the 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 the
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 Green Tree within the time period specified in the pooling and
servicing agreement, Green Tree will cause to be issued certificates of that
class in definitive form in exchange for the related global certificate or
certificates. In addition, Green Tree may at any time and in its sole
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discretion determine not to have any certificates of a class represented by one
or more global certificates and, if this occurs, will cause to be issued
certificates of the class in definitive form in exchange for the related global
certificate or certificates. Further, if Green Tree so specifies that 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
Green Tree and the depositary for the 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 the
global certificate equal in denominations to the beneficial interest and to
have the certificates registered in its name.
Distributions on Certificates
Except as otherwise provided in the related prospectus supplement, on each
payment date for a series of certificates, the trustee will withdraw from the
applicable certificate account and distribute to the certificateholders of that
series of record on the preceding record date an amount equal to, in the
aggregate, the "amount available" for that payment date. Unless otherwise
specified in the applicable prospectus supplement, the "amount available" for a
payment date is an amount equal to the aggregate of all amounts on deposit in
the certificate account as of the seventh business day following the end of the
related due period, or another date as may be specified in the related
prospectus supplement (the "Determination Date") except:
(1) all payments on the loans that were due on or before the cut-off
date;
(2) all payments or collections received after the due period preceding
the month in which the payment date occurs;
(3) all scheduled payments of principal and interest due on a date or
dates subsequent to the due period preceding the Determination Date;
(4) amounts representing reimbursement for advances, such reimbursement
being limited, if so specified in the related prospectus supplement,
to amounts received on particular loans as late collections of
principal or interest as to which the servicer has made an
unreimbursed advance; and
(5) amounts representing reimbursement for any unpaid servicing fee.
In the case of a series of certificates which includes only one class, the
amount available for distribution on each payment date will be distributed pro
rata to the holders of such certificates. In the case of any other series of
certificates, the amount available for each payment date will be allocated and
distributed to holders of the certificates of the series pursuant to the method
and in the order of priority specified in the applicable prospectus supplement.
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."
Within the time specified in the pooling and servicing agreement and
described in the related prospectus supplement, the servicer will furnish a
statement to the trustee listing the
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amount to be distributed on the related payment date on account of principal
and interest, stated separately, and a statement listing information about the
loans.
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 1999, all weekdays are assumed to be business days. Succeeding months
follow the due period through the payment date. The flow of funds with respect
to any series of certificates may differ from the above example, as specified
in the related prospectus supplement. The initial principal balance of the loan
pool will be the aggregate principal balance of the loans at the close of
business on the cut-off date, after deducting principal payments due on or
before that date, which, together with corresponding interest payments, are not
part of the loan pool and will not be passed through to certificateholders.
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 loan is prepaid in full,
interest on the amount prepaid is collected from the obligor only to the date
of payment. Distributions on April 15 will be made to certificateholders of
record at the close of business on the last Business Day of March, being the
month immediately preceding the month of distribution. On April 9 (the seventh
business day following the end of the prior due period), 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. On April 15, the amounts determined on April 9 will be distributed to
certificateholders.
<TABLE>
<S> <C>
March 1............................. Cut-off date.
March 1-31.......................... Due period. Servicer receives scheduled
payments on the loans and any principal
prepayments made by obligors and applicable
interest thereon.
March 29............................ Record date.
April 9............................. Determination date. distribution amount
determined.
April 15............................ Payment date.
</TABLE>
Reports to Certificateholders
The trustee will forward to each certificateholder on each payment date, or
as soon thereafter as is practicable, as specified in the related prospectus
supplement, a statement setting forth, among other things:
(1) the amount of such distribution which constitutes monthly principal,
specifying the amounts constituting scheduled payments by obligors,
principal prepayments on the loans, and other payments with respect
to the loans;
(2) the amount of such distribution which constitutes monthly interest;
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(3) the remaining principal balance represented by the
certificateholder's interest;
(4) Green Tree's FHA Insurance reserve amount;
(5) the amount of fees payable out of the trust;
(6) the pool factor (a percentage derived from a fraction the numerator
of which is the remaining principal balance of the certificates and
the denominator of which is the initial principal amount of the
certificates) immediately before and immediately after the payment
date;
(7) the number and aggregate principal balance of loans delinquent (i)
31-59 days, (ii) 60-89 and (iii) 90 or more days;
(8) the number of loans liquidated during the due period ending
immediately before such payment date;
(9) such customary factual information as is necessary to enable
certificateholders to prepare their tax returns; and
(10) such other customary factual information available to the servicer
without unreasonable expense as is necessary to enable
certificateholders to comply with regulatory requirements.
Advances
Unless otherwise specified in the related prospectus supplement, to the
extent that collections on a loan in any due period are less than the scheduled
payment due, the servicer will be obligated to make an advance of the
uncollected portion of the scheduled payment. The servicer will be obligated to
advance a delinquent payment on a loan only to the extent that the servicer, in
its sole discretion, expects to recoup the advance from subsequent collections
on the loan or from liquidation proceeds of the loans. The servicer will
deposit any advances in the certificate account no later than one business day
before the following payment date. The servicer will be entitled to recoup its
advances on a loan from subsequent payments by or on behalf of the obligor and
from liquidation proceeds, including FHA Insurance payments, if applicable, or
foreclosure resale proceeds, if any, of the loan, and will release its right to
reimbursements in conjunction with the purchase of the loan by Green Tree for
breach of representations and warranties. If the servicer determines in good
faith that an amount previously advanced will not ultimately be recoverable
from payments by or on behalf of the obligor or from liquidation proceeds,
including FHA Insurance payments, if applicable, or foreclosure resale
proceeds, if any, of the loan (an "uncollectible advance"), the servicer will
be entitled to reimbursement from payments on other loans or from other funds
available.
Unless otherwise specified in the related prospectus supplement, if the
servicer fails to make an advance required under the pooling and servicing
agreement, the trustee will be obligated to deposit the amount of such advance
in the certificate account on the payment date. The trustee will not, however,
be obligated to deposit any such amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from liquidation proceeds thereof, if any,
or
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(2) the trustee determines that it is not legally able to make such
advance.
Indemnification
The pooling and servicing agreement requires Green Tree to defend and
indemnify the trust, the trustee, including any agent of the trustee and the
certificateholders, which indemnification will survive any removal of the
servicer as servicer of the loans against any and all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel and expenses of litigation (1) arising out of or resulting from the use
or ownership by Green Tree or the servicer or any affiliate thereof of any real
estate related to a loan and (2) for any taxes which may at any time be
asserted for, and as of the date of, the conveyance of the loans to the trust
(but not including any federal, state or other tax arising out of the creation
of the trust and the issuance of the certificates).
The pooling and servicing agreement also requires the servicer, in connection
with its duties as servicer of the loans, to defend and indemnify the trust,
the trustee and the certificateholders (which indemnification will survive any
removal of the servicer as servicer of the loans) against any and all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation, for any action taken by the
servicer on any loan while it was the servicer.
Repurchase Option
Unless otherwise specified in the related prospectus supplement, each pooling
and servicing agreement will provide that on any payment date on which the pool
scheduled principal balance is less than 10% of the cut-off date pool principal
balance, Green Tree or the servicer will have the option to repurchase, on
30 days' prior written notice to the trustee, all outstanding loans in the
related loan pool at a price equal to the greatest of (1) the principal balance
of the loans on the prior payment date plus 30 days' accrued interest thereon
at the applicable pass-through rate and any delinquent payments of interest
thereon, plus the fair market value (as determined by the servicer) of any
acquired properties, (2) the fair market value of all of the assets of the
trust, and (3) an amount equal to the aggregate certificate principal balance
of the related certificates plus interest on the certificates payable on and
before the payment date occurring in the month following the repurchase, less
amounts on deposit in the certificate account and available to pay the
principal and interest. The price will be paid on the payment date on which
such purchase occurs to the certificateholders of record on the last business
day of the immediately preceding due period in immediately available funds
against the trustee's delivery of the loans and any acquired properties to the
servicer. The distribution of the purchase price to certificateholders will be
in lieu of any other distribution to be made on the payment date on the related
loans.
Amendment
Unless otherwise specified in the related prospectus supplement, the pooling
and servicing agreement may be amended by Green Tree, the servicer and the
trustee without the consent of the certificateholders:
. to cure any ambiguity,
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. to correct or supplement any provision therein that may be
inconsistent with another provision,
. if an election has been made for a particular series of certificates
to treat the trust as a REMIC within the meaning of Section 860D(a) of
the IRS code, to maintain the REMIC status of the trust and to avoid
the imposition of certain taxes on the REMIC or
. to make any other provisions on matters or questions arising under the
pooling and servicing agreement that are not inconsistent with its
provisions, provided that the 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 pooling
and servicing agreement may also be amended by Green Tree, the servicer and the
trustee with the consent of the certificateholders other than holders of
residual certificates representing 66 2/3% or more of the aggregate certificate
principal balance of a series for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the pooling and
servicing agreement or of modifying in any manner the rights of the
certificateholders; provided, however, that no amendment that reduces in any
manner the amount of, or delays the timing of, any payment received on or with
respect to loans which are required to be distributed on any certificate may be
effective without the consent of the holders of each certificate.
Termination of the Agreement
The obligations created by each pooling and servicing agreement will
terminate after distribution of all monthly principal and monthly interest then
due to certificateholders on the earlier of (1) the payment date next
succeeding the later of the final payment or other liquidation of the last loan
or the disposition of all property acquired upon foreclosure of any loan; or
(2) the payment date on which Green Tree or the servicer repurchases the loans
as described under "Description of the Certificates--Repurchase Option."
However, Green Tree's representations, warranties and indemnities will survive
any termination of the pooling and servicing agreement.
The Trustee
The prospectus supplement for a series of certificates will specify the
trustee under the related pooling and servicing agreement. The trustee may have
customary commercial banking relationships with Green Tree or its affiliates
and the servicer or its affiliates.
The trustee may resign at any time, in which event Green Tree will be
obligated to appoint a successor trustee. Green Tree may also remove the
trustee if the trustee ceases to be eligible to continue as trustee under the
pooling and servicing agreement or if the trustee becomes insolvent. Any
resignation or removal of the trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by the successor
trustee.
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The trustee will make no representation as to the validity or sufficiency of
the pooling and servicing agreement, the certificates or any loan, loan file or
related documents, and will not be accountable for the use or application by
Green Tree of any funds paid to Green Tree, as seller, in consideration of the
conveyance of the loans, or deposited into or withdrawn from the certificate
account by the servicer. If no event of termination has occurred, the trustee
will be required to perform only those duties specifically required of it under
the pooling and servicing 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 pooling and servicing agreement. Whether or
not an Event of Termination has occurred, the trustee is not required to expend
or risk its own funds or otherwise incur any financial liability in the
performance of its duties or the exercise of its powers if it has reasonable
grounds to believe that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
Under the pooling and servicing agreement, the servicer agrees to pay to the
trustee on each payment date:
. reasonable compensation for all services rendered by it under the
pooling and servicing agreements, which compensation shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust; and
. reimbursement for all reasonable expenses, disbursements and advances
incurred or made by the trustee in accordance with any provision of
the pooling and servicing agreement, including FHA Insurance premiums
not paid by the servicer and 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.
Green Tree has agreed to indemnify the trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or bad
faith on its part, arising out of or in connection with the acceptance or
administration of the trust and the trustee's duties thereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of the trustee's powers or
duties.
DESCRIPTION OF FHA INSURANCE
Certain of the home improvement loans may be FHA-insured, the payments upon
which, subject to the following discussion, are insured by the FHA under Title
I of the National Housing Act.
The insurance available to any trust will be subject to the limit of a
reserve amount equal to 10% of the principal balance of all Title I insured
loans originated or purchased and reported for FHA Insurance by Green Tree
which amount will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by Green Tree. Green Tree's reserve amount
may be reduced by 10% of the principal balance of any loans reported to FHA as
sold
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<PAGE>
without recourse by Green Tree. In the pooling and servicing agreement, Green
Tree will agree to pay all FHA Insurance premiums required by FHA Regulations.
If Green Tree fails to pay any such premium, the trustee or the successor
servicer with respect to each series is obligated to pay the premium and is
entitled to be reimbursed by Green Tree and from collections on the related
home improvement loans.
As of December 31, 1998, Green Tree's FHA Insurance reserve amount was equal
to approximately $ . These insurance reserves were available to cover
losses on approximately $ of FHA-insured manufactured housing loans and
approximately $ of FHA-insured home improvement loans, including the FHA-
insured home improvement loans that may be owned by a trust. If an event of
termination (as defined under "Description of the Certificates--Events of
Termination") occurs, each trustee will notify FHA of Green Tree's termination
as servicer of the related FHA-insured home improvement loans and will request
that the portion of Green Tree's FHA Insurance reserves allocable to the FHA-
insured home improvement loans be transferred to the trustee or a successor
servicer. Although each trustee will request such a transfer of reserves, FHA
is not obligated to comply with such a request, and may determine that it is
not in FHA's interest to permit such transfer of reserves. In addition, FHA has
not specified how insurance reserves might be allocated in such event, and
there can be no assurance that any reserve amount, if transferred to the
trustee or a successor servicer, would not be substantially less than 10% of
the outstanding principal amount of the FHA-insured home improvement loans. It
is likely that the trustee or any successor servicer would be the lender of
record on other FHA Title I loans, so that any reserves that are so permitted
to be transferred would become commingled with reserves available for other FHA
Title I loans. FHA also reserves the right to transfer reserves with
"earmarking", segregating such reserves so that they will not be commingled
with the reserves of the transferee if it is in FHA's interest to do so.
In general, FHA will insure property improvement loans up to $25,000 for a
single-family property, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up to $12,000 per unit for a $48,000 limit
for four units for owner-occupied multiple-family homes. If the loan amount is
$15,000 or more, FHA requires a drive-by appraisal, the current tax assessment
value, or a full uniform residential appraisal report dated within 12 months of
the closing to verify the property's value. The maximum loan amount on
transactions requiring an appraisal is the amount of equity in the property
shown by the market value determination of the property. The loan proceeds must
be used for the purposes described in the loan application, and those
improvements must substantially protect or improve the basic livability or
utility of the property. The Secretary of HUD from time to time publishes a
list of ineligible items and activities which may not be financed with the
proceeds of an FHA-insured home improvement loan.
Following a default on an FHA-insured Home Improvement Loan the servicer may,
subject to certain conditions, either commence foreclosure proceedings against
the improved property securing the loan, if applicable, or submit a claim to
FHA, but may submit a claim
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to FHA after proceeding against the improved property only with the prior
approval of the Secretary of HUD. The availability of FHA Insurance following a
default on an FHA-insured home improvement loan is subject to a number of
conditions, including strict compliance by Green Tree with FHA regulations in
originating and servicing the home improvement loan. Failure to comply with FHA
regulations may result in a denial of or surcharge on the FHA Insurance claim.
Prior to declaring an FHA-insured home improvement loan in default and
submitting a claim to FHA, the servicer must take certain steps to attempt to
cure the default, including personal contact with the borrower either by
telephone or in a meeting and providing the borrower with 30 days' written
notice prior to declaration of default. FHA may deny insurance coverage if the
borrower's nonpayment is related to a valid objection to faulty contractor
performance. In such event, Green Tree will seek to obtain payment by or a
judgment against the borrower, and may resubmit the claim to FHA following such
a judgment. As described under "Green Tree Financial Corporation--Loan
Origination," Green Tree does not purchase a home improvement loan until the
customer verifies satisfactory completion of the work.
Upon submission of a claim to FHA, the related trust must assign its entire
interest in the home improvement loan to the United States. In general, the
claim payment will equal 90% of the sum of (i) the unpaid principal amount of
the home improvement loan at the date of default and uncollected interest
computed at the loan rate earned to the date of default, (ii) accrued and
unpaid interest on the unpaid amount of the home improvement loan 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)
uncollected court costs, (iv) legal fees, not to exceed $500, and (v) expenses
for recording the assignment of the lien to the United States, if applicable.
SERVICING
Under the pooling and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as more fully described below in
this section. The servicer will perform diligently all services and duties
specified in each pooling and servicing agreement, in the same manner as
prudent lending institutions of home improvement loans and home equity loans of
the same type as the loans in those jurisdictions where the related real
properties are located or as otherwise specified in the pooling and servicing
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, foreclosure of loans.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the pooling and servicing agreement and
any FHA Insurance, will follow the collection procedures as it follows with
respect to mortgage loans or loans serviced by it that are comparable to the
loans.
Evidence as to Compliance. Unless otherwise specified in the related
prospectus supplement, each pooling and servicing agreement will require the
servicer to deliver to the trustee a monthly report before each payment date,
describing information about the loan
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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 the report and stating that the servicer has not defaulted in the
performance of its obligations under the pooling and servicing 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 the firm has examined
documents and records relating to the servicing of home improvement loans and
home equity loans serviced by the servicer under pooling and servicing
agreements similar to the pooling and servicing agreement and stating that, on
the basis of such procedures, the servicing has been conducted in compliance
with the pooling and servicing agreement, except for any exceptions described
in the report.
Certain Matters Regarding the Servicer. The servicer may not resign from its
obligations and duties under a pooling and servicing agreement except upon a
determination that its duties under the agreement 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 the pooling and servicing agreement. The servicer can only be
removed as servicer upon the occurrence of an event of termination under "--
Events of Termination."
The servicer shall keep in force throughout the term of the pooling and
servicing agreement:
. a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the pooling and servicing
agreement, and
. a fidelity bond.
The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home
improvement loans and home equity loans having an aggregate principal amount of
$10 million or more and which are generally regarded as servicers acceptable to
institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which Green Tree may assign, for each due period, paid on the
next succeeding payment date, equal to 1/12th of the product of the annual
servicing fee rate described in the applicable prospectus supplement and the
pool scheduled principal balance for that payment date. As long as Green Tree
is the servicer, the trustee will pay Green Tree its monthly servicing fee from
any monies remaining after the certificateholders have received all payments of
principal and interest for the payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax
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records to obligors and maintaining internal records for each loan.
Administrative services performed by the servicer on behalf of the trust
include selecting and packaging the loans, calculating distributions to
certificateholders and providing related data processing and reporting services
for certificateholders and on behalf of the trustee. Expenses incurred in
servicing of the loans and paid by Green Tree from its monthly servicing fees
include payment of FHA Insurance premiums, payment of fees and expenses of
accountants, payments of all fees and expenses incurred in connection with the
enforcement of loans or foreclosure on collateral relating thereto, including
submission of FHA Insurance claims, if applicable, payment of trustee's fees,
and payment of expenses incurred in connection with distributions and reports
to certificateholders, except that the servicer shall be reimbursed out of the
liquidation proceeds of a liquidated loan, including FHA Insurance proceeds for
customary out-of-pocket liquidation expenses incurred by it.
Events of Termination. Except as otherwise specified in the related
prospectus supplement, events of termination under each pooling and servicing
agreement will occur, if:
. the Servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and the failure
continues for four business days;
. the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for 30 days;
. the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
. a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator, or similar official of the
servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs;
. the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any law, or consents to
the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits
in writing its inability to, pay its debts as they become due, or
takes any corporate action in furtherance of the foregoing;
. the servicer fails to be an eligible servicer; or
. if Green Tree is the servicer, Green Tree's servicing rights under its
master seller-servicer loan with GNMA are terminated.
The servicer will be required under the pooling and servicing agreement to give
the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of such event.
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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 certificateholders
representing 25% or more of the aggregate certificate principal balance of a
series shall, terminate all of the rights and obligations of the servicer under
the related pooling and servicing agreement and in and to the loans, and the
proceeds thereof, at which time, subject to applicable law regarding the
trustee's ability to make advances, the trustee or a successor servicer under
the pooling and servicing agreement will succeed to all the responsibilities,
duties and liabilities of the servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the trustee nor any successor servicer will assume any
obligation of Green Tree to repurchase loans 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 before a transfer of the
servicer's servicing and related functions or for any breach by the servicer of
any of its obligations contained in the pooling and servicing agreement. In
addition, the trustee will notify FHA of Green Tree's termination as servicer
of the loans and will request that the portion of Green Tree's FHA Insurance
reserves allocable to the FHA-insured home improvement loans be transferred to
the trustee or a successor servicer. See "Description of FHA Insurance."
Notwithstanding the termination, the servicer shall be entitled to payment of
certain amounts payable to it before the termination, for services rendered
prior to such termination. No such termination will affect in any manner Green
Tree's obligation to repurchase certain loans for breaches of representations
or warranties under the pooling and servicing agreement. If the trustee is
obligated to succeed the servicer but is unwilling or unable to do so, 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 the 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 pooling and servicing agreement.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the pooling and servicing agreement at
the request, order or direction of any of the holders of certificates, unless
the certificateholders have offered to the trustee reasonable security or
indemnity against the costs, expenses and liabilities which the trustee may
incur.
CERTAIN LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of our conveyance and assignment of a pool of loans to a trust
fund, the certificateholders of that series, as the beneficial owners of the
trust, will succeed collectively to all of the rights thereunder, including the
right to receive payment on the loans. The following discussion contains
summaries of certain legal aspects of home improvement loans and home equity
loans secured by residential properties which are general in nature. These
legal aspects are in addition to the requirements of FHA regulations described
in "Description of FHA Insurance" with respect to the FHA-insured home
improvement loans.
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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 real estate securing the loans may be situated or which may
govern any loan. The summaries are qualified in their entirety by reference to
the applicable federal and state laws governing the loans.
Mortgages and Deeds of Trust
The loans will be secured by either mortgages, deeds of trust, security deeds
or deeds to secure debt depending upon the prevailing practice in the state in
which the underlying property is located, and may have first, second or third
priority. In some states, a mortgage creates a lien upon the real property
encumbered by the mortgage or deed of trust. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent, such as, the payment of the indebtedness secured. 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 retail installment loan 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, or trustor, the 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 repayment of the loan. The trustee's
authority under a deed of trust and the mortgagee's authority under a mortgage
are governed by applicable state law, the express provisions of the deed of
trust or mortgage, and, in some cases for deeds of trust, the directions of the
beneficiary. Some states use a security deed or deed to secure debt which is
similar to a deed of trust except that it has only two parties: a grantor
(similar to a mortgagor) and a grantee (similar to a mortgagee). Mortgages,
deeds of trust and deeds to secure debt are not prior to liens for real estate
taxes and assessments and other charges imposed under governmental police
powers. Priority between mortgages, deeds of trust and deeds to secure debt and
other encumbrances depends on their terms, the knowledge of the parties to the
instrument in some cases and generally on the order of recordation of the
mortgage, deed of trust or the deed to secure debt in the appropriate recording
office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the loans in any loan pool are expected to be
second or third mortgages or deeds of trust which are junior to mortgages or
deeds of trust held by other lenders or institutional investors. The rights of
the related trust fund, and therefore the certificateholders, as beneficiary
under a junior deed of trust or as mortgagee under a junior mortgage, are
subordinate to those of the mortgagee or beneficiary under the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to receive hazard insurance and condemnation proceeds and to cause
the property securing the loan to be sold upon default of the mortgagor or
trustor under the senior mortgage or deed of trust, thereby extinguishing the
junior mortgagee's or junior beneficiary's lien unless the servicer on behalf
of the trust asserts its subordinate interest in the property in foreclosure
litigation
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and, possibly, satisfies the defaulted senior loan or loans. As discussed more
fully below, a junior mortgagee or beneficiary may satisfy a defaulted senior
loan in full, or in some states may cure the default and bring the senior loan
current, in either event usually adding the amounts expended to the balance due
on the junior loan. Although we generally does not cure defaults under a senior
mortgage or deed of trust, it is Green Tree's standard practice to protect its
interest by attending any foreclosure sale and bidding for property only if it
is in our best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like us, confers on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply such
proceeds and awards to any indebtedness secured by the mortgage or deed of
trust, in such order as the mortgagee or beneficiary may determine. Thus, in
the event improvements on the property are damaged or destroyed by fire or
other casualty, or in the event the property is taken by condemnation, the
mortgagee or beneficiary under the underlying first mortgage or deed of trust
will have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness, in most cases, may be applied to the indebtedness of a junior
mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a future advance clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an obligatory or optional advance. If the mortgagee or beneficiary
is obligated to advance the additional amounts, the advance is entitled to
receive the same priority as amounts initially advanced under the mortgage or
deed of trust, notwithstanding the fact that there may be junior mortgages or
deeds of trust and other liens which intervene between the date of recording of
the mortgage or deed of trust and the date of the future advance, and, in some
states, notwithstanding that the senior mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of advances under the clause rests, in
some states, on state statutes giving priority to all advances made under the
loan agreement to a credit limit amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or
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permit any waste, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee or beneficiary
under the mortgage or deed of trust. If the mortgagor or trustor fails to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or beneficiary on behalf
of the mortgagor or trustor. All sums expended by a senior mortgagee or
beneficiary generally become part of the indebtedness secured by the senior
mortgage or deed of trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk.
. First, the borrower may have difficulty servicing and repaying
multiple loans.
. Second, acts of the senior lender which prejudice the junior lender or
impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose
its priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened.
. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior
lender.
The bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action establishes a waiver, or
fraud, bad faith, oppressive or unconscionable conduct and warrants a court of
equity to refuse affirmative relief to the mortgagee. In some circumstances a
court of equity may relieve the mortgagor from an entirely technical default
where the default was not willful. 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
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mortgagee's right to foreclosure is contested, the legal proceedings necessary
to resolve the issue can be time-consuming. After the completion of a judicial
foreclosure proceeding, the court may issue a judgment of foreclosure and
appoint a referee or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, under a power of
sale provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, 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 notice
of sale. In addition, before such sale, 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. Some states require that a notice
of sale be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers in a specified manner before
to the date of trustee's sale. 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. Some state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might 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. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. 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, paying taxes 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. Any loss resulting from the sale may be
reduced by the receipt of any mortgage insurance proceeds.
A junior mortgagee may not foreclose on the property securing senior
mortgages unless it forecloses subject to the senior mortgages, in which case
it must either pay the entire
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amount due on the senior mortgages before or at the time of the foreclosure
sale or make payments on the senior mortgages in the event the mortgagor is in
default thereunder, in either event adding the amounts expended to the balance
due on the junior loan, and may be subrogated to the rights of the senior
mortgagees. In addition, in the event that the foreclosure by a junior
mortgagee triggers the enforcement of a due-on-sale clause in a senior
mortgage, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, for those loans which
are second or third mortgage loans, if the lender purchases the property, the
lender's title will be subject to all senior liens and claims and certain
governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders."
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related trust with respect to its acquisition, by
foreclosure or otherwise, and disposition of real property securing a loan, and
any such taxes or fees imposed may reduce liquidation proceeds with respect to
such property, as well as distributions payable to the certificateholders.
Second or Third Mortgages
The loans may be secured by second or third mortgages or deeds of trust,
which are junior to first or second mortgages or deeds of trust held by other
lenders. The rights of the certificateholders as the holders of a junior deed
of trust, junior mortgage, or junior security deed are subordinate in lien and
in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the senior deed of
trust, the junior mortgagee's or junior beneficiary's lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the Loan. See "--
Foreclosure."
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to
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secure debt or security deed. In the event of a conflict between the terms of
the senior mortgage, deed of trust, deed to secure debt or security deed and
the junior mortgage, deed of trust, deed to secure debt or security deed, the
terms of the senior mortgage, deed of trust, deed to secure debt or security
deed will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed may have the right to perform the obligation itself. Generally,
all sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their equity of redemption. The doctrine of equity of redemption provides
that, until the property covered by a mortgage has been sold in accordance with
a properly conducted foreclosure and foreclosure sale, those having an interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay the costs of action. Those having an equity of
redemption must generally be made parties and duly summoned to the foreclosure
action in order for their equity of redemption to be barred.
In some states, after sale under a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In other
states, this right of redemption applies only to sale following judicial
foreclosure, and not to sale under 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 expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. In some states, the right to
redeem is an equitable right. The equity of redemption, which is a non-
statutory right that must be exercised before foreclosure sale, should be
distinguished from statutory rights of redemption. 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.
In some states, there is no right to redeem property after a trustee's sale
under a deed of trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Some states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right
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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 public 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 some other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting the
security; however, in some of these states, the lender, following judgment on
the personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies on 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
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of the 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 instances where the value of the lender's security has been impaired by acts
or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, for the federal bankruptcy law, the filing of a petition acts as a
stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default of a
mortgage loan on a debtor's residence by paying arrearages and reinstate the
original mortgage loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court, provided no sale of the property had yet occurred, before the filing of
the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. In the case of a mortgage loan not
secured by the debtor's principal residence, courts with federal bankruptcy
jurisdiction may also reduce the monthly payments due under such mortgage loan,
change the rate of interest and alter the mortgage loan repayment schedule.
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The IRS code provides priority to federal tax liens over the lien of the
mortgage or deed of trust. The Bankruptcy Code also provides priority to tax
liens over the lien of the mortgage or deed of trust. The laws of some states
provide priority to state 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, state licensing requirements, 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 mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994, which became effective on
October 1, 1995, adds provisions to Regulation Z which impose additional
disclosure and other requirements on creditors involved in non-purchase money
mortgage loans with high interest rates or high up-front fees and charges. It
is possible that some loans included in a loan pool may be subject to these
provisions. The Home Protection Act applies to mortgage loans originated on or
after the effective date of these regulations. These laws can impose specific
statutory liabilities upon creditors who fail to comply with their provisions
and may affect the enforceability of the loan.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
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 loan
which is the seller of goods which gave rise to the transaction, and related
lenders and assignees, to transfer the loan free of notice of claims by the
debtor. The effect of this rule is to subject the assignee of the loan to all
claims and defenses which the debtor could assert against the seller of goods,
such as a home improvement contractor. Liability under this rule is limited to
amounts paid under a loan; however, the obligor also may be able to assert the
rule to set off remaining amounts due as a defense against a claim brought by
the trust against the obligor. The home
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protection act provides that assignees of high-interest, non-purchase money
mortgage loans, which may include some loans, are subject to all claims and
defenses that the debtor could assert against the original creditor, unless the
assignee demonstrates that a reasonable person in the exercise of ordinary due
diligence could not have determined that the mortgage loan was subject to the
provisions of the Home Protection Act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to limitations imposed by FHA regulations with respect
to FHA-insured Home Improvement Loans, in some states there are or may be
specific limitations upon late charges which a lender may collect from a
borrower for delinquent payments. Under the pooling and servicing agreement,
late charges, to the extent permitted by law and not waived by Green Tree, will
be retained by Green Tree as additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts will
generally enforce clauses providing for acceleration in the event of a material
payment default. However, courts, exercising equity jurisdiction, may refuse to
allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage having a
power of sale does not involve sufficient state action to afford constitutional
protection to the borrower.
It is Green Tree's practice with some of the home improvement loans to defer
the first payment for up to 90 days, and to charge the home improvement
contractor points to cover the lost interest due to collecting only 30 days'
interest on the first payment on these deferred payment loans.
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Due-on-Sale Clauses
All of the loan documents will contain due-on-sale clauses unless the
prospectus supplement indicates otherwise. These clauses permit the servicer to
accelerate the maturity of the loan on notice, which is usually 30 days, if the
borrower sells, transfers or conveys the property without the prior consent of
the mortgagee. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in
many states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982, which, after a three-year grace
period, preempts state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that "due-on-sale" clauses in some
loans, including the loans, made after the effective date of the Garn-St.
Germain Act are enforceable within limitations described in the Garn-St.
Germain Act and its regulations.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any loan which contains a due-on-sale clause upon
transfer of an interest in the mortgaged property. This ability to accelerate
will not apply to certain types of transfers, including:
. the granting of a leasehold interest which has a term of three years
or less and which does not contain an option to purchase,
. a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property,
. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property,
. the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of
rights of occupancy in the mortgaged property, provided that such lien
or encumbrance is not created under a loan for deed,
. a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety, and
. other transfers as described in the Garn-St. Germain Act and its
regulations.
As a result, a lesser number of loans which contain "due-on-sale" clauses may
extend to full maturity than earlier experience would indicate with respect to
single-family mortgage loans. However, we cannot predict the extent of the
effect of the Garn-St. Germain Act on the average lives and delinquency rates
of the loans.
The inability to enforce a due-on-sale clause may result in loans bearing an
interest rate below the current market rate being assumed by a new home buyer
rather than being paid off, which may have an impact upon the average life of
the loans and the number of loans which may be outstanding until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 provides that, subject to some conditions, state usury
limitations shall not apply to
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FHA-insured loans and to first mortgage secured conventional loans if the loan
is defined as a "federally related mortgage loan," a number of states have
adopted legislation overriding Title V's exemptions, as permitted by Title V.
Green Tree will represent and warrant in each pooling and servicing agreement
that all Loans comply with any applicable usury limitations.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, and under some state laws, a secured party which takes a deed-
in-lieu of foreclosure, purchases a mortgaged property at a foreclosure sale,
or operates a mortgaged property may become liable in certain circumstances for
the costs of cleaning up hazardous substances regardless of whether they have
contaminated the property. CERCLA imposes strict, as well as joint and several,
liability on several classes of potentially responsible parties, including
current owners and operators of the property who did not cause or contribute to
the contamination. Furthermore, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA.
This exemption exempts from the definition of owners and operators those who,
without participating in the management of a facility, hold indicia of
ownership primarily to protect a security interest in the facility. What
constitutes sufficient participation in the management of a property securing a
loan or the business of a borrower to render the exemption unavailable to a
lender has been a matter of interpretation by the courts. CERCLA has been
interpreted to impose liability on a secured party, even absent foreclosure,
where the party participated in the financial management of the borrower's
business to a degree indicating a capacity to influence waste disposal
decisions. However, court interpretations of the secured creditor exemption
have been inconsistent. In addition, when lenders foreclose and then become
owners of collateral property, courts are inconsistent as to whether ownership
renders the secured creditor exemption unavailable. Other federal and state
laws in some circumstances may impose liability on a secured party which takes
a deed-in-lieu of foreclosure, purchases a mortgaged property at a foreclosure
sale, or operates a mortgaged property on which contaminants other than CERCLA
hazardous substances are present, including petroleum, agricultural chemicals,
hazardous wastes, asbestos, radon, and lead-based paint. These cleanup costs
may be substantial. It is possible that cleanup costs could become a liability
of a trust fund and reduce the amounts otherwise distributable to the holders
of the related series of certificates in some circumstances if these cleanup
costs were incurred. Moreover, some states by statute impose a lien for any
cleanup costs incurred by the state on the property that is the subject of the
cleanup costs (an "environmental lien"). All subsequent liens on the property
generally are subordinated to an environmental lien and, in some states, even
prior recorded liens are subordinated to environmental liens. In the latter
states, the security interest of the trustee in a related parcel of real
property that is subject to an environmental lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present on any mortgaged property before the
origination of the
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mortgage loan or foreclosure or accepting a deed-in-lieu of foreclosure.
Accordingly, Green Tree has not made and will not make these evaluations on the
origination of the Contracts. Neither Green Tree nor any replacement servicer
will be required by any pooling and servicing agreement to undertake any
evaluations before foreclosure or accepting a deed-in-lieu of foreclosure.
Green Tree does not make any representations or warranties or assume any
liability for the absence or effect of contaminants on any related real
property or any casualty resulting from the presence or effect of contaminants.
However, Green Tree will not foreclose on related real property or accept a
deed-in-lieu of foreclosure if it knows or reasonably believes that there are
material contaminated conditions on the property. A failure to foreclose may
reduce the amounts otherwise available to certificateholders of the related
series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, would adversely affect, for an indeterminate period of time, the
ability of the servicer to collect full amounts of interest on some of the
loans. Any shortfall in interest collections resulting from the application of
the Relief Act or similar legislation, which would not be recoverable from the
related loans, would result in a reduction of the amounts distributable to the
certificateholders. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under some circumstances, during an additional
three month period. Thus, in the event that the Relief Act or similar
legislation applies to any loan which goes into default, there may be delays in
payment on the certificates. Any other interest shortfalls, deferrals or
forgiveness of payments on the loans resulting from similar legislation or
regulations may result in delays in payments or losses to certificateholders.
Repurchase Obligations
Under the pooling and servicing agreement, Green Tree will represent and
warrant that each FHA-insured home improvement loan was originated in
compliance with FHA regulations and is covered by FHA insurance. In the event
FHA were to deny insurance coverage on an FHA-insured home improvement loan due
to a violation of FHA regulations in originating or servicing the home
improvement loans, the violation would constitute a breach of a representation
and warranty under the pooling and servicing agreement and would create an
obligation of Green Tree to repurchase the home improvement loan unless the
breach is cured. See "Description of the Certificates--Conveyance of Loans."
In addition, Green Tree will also represent and warrant under each pooling
and servicing agreement that each loan complies with all requirements of law.
Accordingly, if any obligor has a claim against the related trust for violation
of any law and such claim materially adversely affects the trust interest in a
loan, such violation would constitute a breach of a representation and warranty
under the pooling and servicing agreement and would create an obligation to
repurchase the loan unless the breach is cured. See "Description of the
Certificates--Conveyance of Loans."
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes 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 those Plans. ERISA also imposes duties on persons who are fiduciaries
of the Plans. Under ERISA, and subject to exemptions not relevant to this
offering, any person who exercises any authority or control over the management
or disposition of the assets of a Plan is considered to be a fiduciary of the
Plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of Plans be invested and
managed for the exclusive benefit of Plan participants and beneficiaries, a
determination by the Plan fiduciary that any such investment is permitted under
the governing Plan instruments and is prudent and appropriate for the Plan in
view of its overall investment policy and the composition and diversification
of its portfolio. Some 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 these plans
may be invested in certificates without regard to the ERISA considerations
described above and in the paragraphs below, subject to the provisions of
applicable state law. Any plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, however,
is subject to the prohibited transaction rules provided in Section 503 of the
IRS code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
IRS code, prohibit a broad range of transactions involving Plan assets and
persons having specified relationships to a Plan. These 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 IRS 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 loan pool and not merely an interest in the
certificates, transactions occurring in the operation of the loan 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 loan pool are
noted in the paragraphs below.
The Department of Labor has issued a regulation (29 C.F.R. Section 2510.3-
101) 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-
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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. The certificates are not expected to be publicly-offered securities under
the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise tax provisions of Section 4975 of
the IRS 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, which amended Prohibited Transaction
Exemption 81-7, the DOL exempted from ERISA's prohibited transaction rules
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. However, PTE 83-1 does not provide an exemption
for transactions involving subordinate certificates or for certificates
representing an interest in conditional sales loans and installment sales or
loan agreements secured by housing like the loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing Plan's assets could be
considered to include an undivided interest in the home equity loans and any
other assets held in the loan pool. If the assets of a loan pool are considered
assets of an investing Plan, Green Tree, the servicer, the trustee and other
persons, in providing services on the loans, may be considered fiduciaries to
the Plan and subject to the fiduciary responsibility provisions of Title I of
ERISA and the prohibited transaction provisions of Section 4975 of the Code for
transactions involving those assets unless a statutory or administrative
exemption applies.
Any Plan fiduciary considering the purchase of a certificate should consult
with its counsel about the potential applicability of ERISA and the Code to the
investment. Moreover, each Plan fiduciary should determine whether, under the
general fiduciary
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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.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in transactions with persons who provide
services to insurance company general accounts. PTE 95-60 also permits
transactions relating to the origination and operation of asset pool investment
trusts in which an insurance company general account has an interest as the
result of the acquisition of certificates issued by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of PTE 95-60. The receivables covered by PTE 95-60 include home
equity installment sale loans and installment loan agreements such as the home
equity loans in the loan pool. The exemption offered by PTE 95-60 is
conditioned upon compliance with the requirements of one of several underwriter
exemptions, other than compliance with the requirements that the certificates
acquired by the general account not be subordinated and receive a rating that
is in one of the three highest generic rating categories from either S&P,
Moody's, Duff & Phelps Credit Rating Co. or Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the IRS code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the IRS code, for transactions involving an insurance company general
account. Under Section 401(c) of ERISA, the DOL published proposed regulations
("Proposed 401(c) Regulations") on December 22, 1997 to provide guidance for
the purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute Plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the Proposed 401(c) Regulations become final, no person will be
subject to liability under Part 4 of Title I of ERISA and Section 4975 of the
IRS code on the basis of a claim that the assets of an insurance company
general account constitute Plan assets, unless
(1) as otherwise provided by the Secretary of Labor in the Proposed 401(c)
Regulations to prevent avoidance of the regulations; or
(2) an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a Plan after December 31, 1998 or issued to Plans on or
before December 31, 1998 for
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which the insurance company does not comply with the Proposed 401(c)
Regulations may be treated as Plan assets. In addition, because Section 401(c)
does not relate to insurance company separate accounts, separate account assets
are still treated as Plan assets of any Plan invested in the separate account.
Insurance companies contemplating the investment of general account assets in
the certificates should consult with their legal counsel about the
applicability of PTCE 95-60 and Section 401(c) of ERISA, including the general
account's ability to continue to hold the securities after the date which is 18
months after the date the Proposed 401(c) Regulations become final.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the 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,
all of which are subject to change, including retroactive changes 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 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 IRS 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
for which a REMIC election is made and then with series for which a REMIC
election is not made.
REMIC Series
For each series of certificates for which a REMIC election is made, at the
initial issuance of the certificates in that series the counsel to Green Tree
identified in the applicable prospectus supplement will have advised Green Tree
that in its opinion, assuming ongoing compliance with the applicable pooling
and servicing agreement, the trust will qualify as a REMIC and the certificates
in that series ("REMIC Certificates") will be treated either as regular
interests in the REMIC within the meaning of Section 860G(a)(1) of the IRS code
("Regular Certificates") or as residual interests in the REMIC within the
meaning of Section 860G(a)(2) of the IRS code ("Residual Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with requirements and the following discussion assumes that these
requirements will be satisfied by the trust so long as there are any REMIC
certificates outstanding. Substantially
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all of the assets of the REMIC must consist of qualified mortgages and
permitted investments as of the close of the third month beginning after the
day on which the REMIC issues all of its regular and residual interests and at
all times after that. The term qualified mortgage means any obligation
including a participation or certificate of beneficial ownership in such
obligation which is principally secured by an interest in real property that is
transferred to the REMIC on the startup day in exchange for regular or residual
interests in the REMIC or is purchased by the REMIC within the three-month
period beginning on the startup day under a fixed price loan in effect on the
startup day. The REMIC regulations provide that a loan is principally secured
by an interest in real property if the fair market value of the real property
securing the loan is at least equal to either (1) 80% of the issue price
(generally, the principal balance) of the loan at the time it was originated or
(2) 80% of the adjusted issue price (the then-outstanding principal balance,
with certain adjustments) of the loan 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 loan is principally secured by an interest in real property if substantially
all of the proceeds of the loan 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 loan (other than the personal liability of the obligor). A
qualified mortgage also includes a qualified replacement mortgage that is used
to replace any qualified mortgage within three months of the startup day or to
replace a defective mortgage within two years of the startup day.
Permitted investments consist of:
. temporary investments of cash received under qualified mortgages
before distribution to holders of interests in the REMIC;
. 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 contingencies,
and
. property acquired as a result of foreclosure of defaulted qualified
mortgages.
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 the 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 IRS code, a reserve fund must be
"promptly and appropriately" reduced as payments on loans are received.
Foreclosure property will be a permitted investment only to the extent that the
property is not held for more than two years.
The IRS 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 for
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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 IRS code further requires that
reasonable arrangements must be made to enable a REMIC to provide the IRS and
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 IRS
code if, in spite of the steps taken to prevent disqualified organizations from
holding residual interests, such an organization does, in fact, acquire a
residual interest. See "REMIC Series--Restrictions on Transfer of Residual
Certificates" below.
If the trust fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the trust fund will not be treated
as a REMIC for the year during which the failure occurs and thereafter unless
the IRS determines, in its discretion, that such failure was inadvertent, in
which case, the IRS may require any adjustments which it deems appropriate. If
the ownership interests in the assets of the trust consist of multiple classes,
failure to treat the trust as a REMIC may cause the trust to be treated as an
association taxable as a corporation. This treatment could result in income of
the trust being subject to corporate tax in the hands of the trust and in a
reduced amount being available for distribution to certificateholders as a
result of the payment of the taxes.
Two-Tier REMIC Structures. For certain series of certificates, two separate
elections may be made to treat segregated portions of the assets of a single
trust as REMICs for federal income tax purposes. Upon the issuance of any
series of certificates, counsel will have advised Green Tree, 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 the 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 under this
prospectus. Solely for the purpose of determining whether the 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 for 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 on such
regular certificates under the accrual method. Under
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temporary treasury regulations, if a trust, with respect to which a REMIC
election is made, is considered to be a single-class REMIC, a portion of the
REMIC's servicing fees, administrative and other non-interest expenses,
including assumption fees and late payment charges retained by Green Tree, will
be allocated as a separate item of gross income and as a separate item of
expense 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, trusts and
estates, certain other pass-through entities beneficially owned by one or more
individuals, trusts or estates, and regulated investment companies. Such an
individual, estate, trust or pass-through entity that holds a Regular
certificate in such a REMIC will be allowed to deduct the foregoing separate
item of expense under Section 212 of the IRS code only to the extent that, in
the aggregate and combined with other itemized deductions, it exceeds 2% of the
adjusted gross income of the holder. In addition, Section 68 of the IRS code
provides that the amount of itemized deductions (including those provided for
in Section 212 of the IRS code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the IRS code ($126,000 for 1999, in the case of a joint return) will be reduced
by the lesser of:
(1) 3% of the excess of adjusted gross income over the specified threshold
amount or
(2) 80% of the amount of itemized deductions otherwise allowable for that
taxable year.
Furthermore, in determining the alternative minimum taxable income of such an
individual, trust, estate or pass-through entity that is a holder of a regular
certificate in such a REMIC, no deduction will be allowed for the holder's
allocable portion of the foregoing expenses, even though an amount equal to the
total of the expenses will be included in such holder's gross income for
alternative minimum tax purposes. Unless otherwise stated in the related
prospectus supplement, the foregoing expenses will not be allocated to holders
of a regular certificate in a REMIC. If the foregoing limitations apply, some
holders of regular certificates in single-class REMICs may not be entitled to
deduct all or any part of the foregoing expenses. Accordingly, regular
certificates in such a single class-REMIC may not be appropriate investments
for individuals, trusts, estates or pass-through entities beneficially owned by
one or more individuals, trusts or estates. Prospective investors should
carefully consult with their own tax advisors prior to making an investment in
any regular certificates.
Tax Status of REMIC Certificates. In general, (i) 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 IRS code; and (ii) regular certificates held by a
real estate investment trust will constitute real estate assets within the
meaning of Section 856(c)(4)(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
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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. 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
IRS 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)(4)(A) of the IRS
code, respectively. In addition, the REMIC Regulations provide that payments on
Loans held and reinvested pending distribution to Certificateholders will be
considered to be real estate assets within the meaning of Section 856(c)(4)(A)
of the IRS code. Entities affected by the foregoing provisions of the IRS 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"). This discussion 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 issued. Nonetheless, the Code requires that a
prepayment assumption be used with respect to the underlying assets of a REMIC
in computing the accrual of original issue discount on regular certificates,
and that regular adjustments be made in the amount and the rate of accrual to
reflect differences between the actual prepayment rate and the prepayment
assumption. Although regulations have not been issued concerning the use of a
prepayment assumption, the legislative history associated with the Tax Reform
Act of 1986 indicates that such regulations are to provide that the prepayment
assumption used with respect to a regular certificate must be the same as that
used in pricing the initial offering of such regular certificate. The
prepayment assumption used in reporting original issue discount for each series
of regular certificates will be consistent with this standard and will be
disclosed in the related prospectus supplement. However, no representation is
made here nor can there be any assurance that the underlying assets of a REMIC
will in fact prepay at a rate conforming to the prepayment assumption or at any
other rate. You also should be aware that the OID Regulations do not address
certain issues relevant to, or are not applicable 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 of to a regular certificate
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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 that regular certificate to its
maturity date. The OID Regulations, however, provide a special de minimis rule
to apply to installment obligations such as the regular certificates that have
more than one principal payment or that have interest payments that are not
qualified stated interest as defined in the OID Regulations, payable before
maturity. 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. As described above, it appears that 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, Green Tree expects to apply the de minimis rule applicable to
installment obligations by using the prepayment assumption.
Generally, the original holder of a regular certificate that includes a de
minimis amount of original issue discount, other than de minimis original issue
discount attributable to a so-called "teaser" interest rate or initial interest
rate holiday, 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. Pursuant to the OID
Regulations, a holder of a regular certificate that uses the accrual method of
tax accounting or that acquired that 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 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, interest is considered unconditionally payable only
if late payment or nonpayment is expected to be penalized or reasonable
remedies exist to compel payment. It is possible that interest payable on
regular certificates may not be considered to be unconditionally payable under
the OID Regulations because regular Certificateholders may not have default
remedies ordinarily available to holders of debt instruments or because no
penalties are imposed as a result of any failure to make interest payments on
the regular certificates. Until further guidance is issued, however, the REMIC
will treat the interest on regular certificates as unconditionally payable
under the OID Regulations. In addition, under the OID Regulations, certain
variable interest rates payable on regular certificates, including rates based
upon the weighted average interest rate of a loan pool, may not be treated as
qualified stated interest. In such case, the
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OID Regulations would treat interest under these 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 this interest
under the OID Regulations. In the absence of authority to the contrary and if
otherwise appropriate, Green Tree expects to determine the stated redemption
price at maturity of a regular certificate by assuming that the anticipated
rate of prepayment for all Loans will occur in such a manner that the initial
pass-through rate for a certificate will not change. Accordingly, interest at
the initial pass-through 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 generally includes that
pre-issuance accrued interest.
If the regular certificates are determined to be issued with original issue
discount, a holder of a regular certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to that 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 (1) the present value of all remaining
payments to be made on the regular certificate as of the close of the accrual
period and (2) 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
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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 Loans held by the trust that occur at a
rate that exceeds the prepayment assumption and to decrease, (but not below
zero for any period), the portions of original issue discount that a regular
certificateholder must include in income to take into account prepayments with
respect to the loans 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 loans 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 remaining stated redemption price. If the price paid exceeds the
regular certificate's adjusted issue price, but does not equal or exceed the
remaining stated redemption price 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. Under this provision,
the daily portions of original issue discount which must be included in gross
income will be reduced by an amount equal to such daily portion multiplied by
the fraction obtained by dividing (1) the excess of the purchase price therefor
over the regular certificate's adjusted issue price by (2) the aggregate
original issue discount remaining to be accrued with respect to such regular
certificate.
Green Tree believes that the holder of a regular certificate determined to be
issued with more than 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.
Adjustable Rate Regular Certificates. Regular certificates may bear interest
at an adjustable rate. Under the OID Regulations, if an adjustable rate regular
certificate provides for qualified stated interest payments computed on the
basis of certain qualified floating rates or objective rates, then any original
issue discount on such a regular certificate may be computed and accrued under
the same methodology that applies to regular certificates paying
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qualified stated interest at a fixed rate. See the discussion above under
"REMIC Series-- Original Issue Discount." If adjustable rate regular
certificates are issued, the related prospectus supplement will describe the
manner in which the original issue discount rules may be applied with respect
thereto and the method to be used in preparing information returns to the
holders of such adjustable rate regular certificates and to the Service.
For purposes of applying the original issue discount provisions of the Code,
all or a portion of the interest payable with respect to adjustable rate
regular certificate may not be treated as qualified stated interest in certain
circumstances, including the following:
(1) if the adjustable 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;
(2) if it is reasonably expected that the average value of the adjustable
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
(3) 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 as part of a regular certificate's stated
redemption price at maturity resulting in original issue discount.
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 adjusted issue price 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:
(1) under a constant yield method that is similar to the method for the
accrual of original issue discount or
(2) under a ratable accrual method (pursuant to which the market discount
is treated as accruing in equal daily installments during the period
the regular certificate is held by the purchaser), in each case
computed taking into account the Prepayment Assumption.
Because the regulations referred to above have not been issued, it is not
possible to predict what effect, if any, such regulations, when issued, might
have on the tax treatment of a regular certificate purchased at a discount in
the secondary market.
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
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the regular certificate's stated redemption price at maturity multiplied by the
number of complete years remaining to its maturity after the holder acquired
the obligation. If market discount is treated as de minimis under this rule,
the actual discount would be allocated among a portion of each scheduled
distribution representing the stated redemption price of such regular
certificate and that portion of the discount allocable to such distribution
would be reported as income when such distribution occurs or is due.
The Code further provides that any principal payment with respect to a
regular certificate acquired with market discount or any gain on disposition of
such a regular certificate shall be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of such payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
regular certificate is to be reduced by the amount previously treated as
ordinary income.
In general, limitations imposed by the IRS code that are intended to match
deductions with the taxation of income will 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 stated redemption price at maturity 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. It appears that the prepayment assumption should be
taken into account in determining the term of a regular certificate for this
purpose. Amortizable bond premium with respect to a regular certificate will be
treated as an offset to interest income on such regular certificate, and a
certificateholder's deduction for amortizable bond premium will be limited in
each year to the amount of interest income derived with respect to such regular
certificate for such year. Any election to deduct amortizable bond premium will
apply to all debt instruments, other than instruments the interest on which is
excludable from gross income, held by the certificateholder at the beginning of
the first taxable year to which the election applies or thereafter acquired,
and may be revoked only with the consent of the IRS. Bond premium on a regular
certificate held by a certificateholder who does not elect to deduct the
premium will decrease the gain or increase the loss otherwise recognized on the
disposition of the regular certificate. 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.
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Realized Losses. Holders of a regular certificate acquired in connection with
a trade or business should be allowed to deduct as ordinary losses any losses
sustained during a taxable year in which the regular certificates become wholly
or partially worthless as a result of one or more realized losses on the
underlying assets of the REMIC. However, it appears that a noncorporate holder
of a regular certificate that does not acquire such certificate in connection
with a trade or business may not be entitled to deduct such a loss until such
holder's certificate becomes wholly worthless, which may not occur until its
outstanding principal balance has been reduced to zero. Any such loss may be
characterized as a short-term capital loss.
At present, the law is unclear with respect to the timing and character of
any loss which may be realized by a holder of a regular certificate. Such a
holder may be required to accrue interest and original issue discount with
respect to such regular certificate without giving effect to any defaults or
deficiencies on the underlying assets of the REMIC until such holder can
establish that such losses will not be recoverable under any circumstances. As
a result, the holder of a regular certificate may be required to report taxable
income in excess of the amount of economic income actually accruing to the
benefit of such holder in a particular period. It is expected, however, that
the holder of such a regular certificate would eventually recognize a loss or
reduction in income attributable to such income when such loss is, in fact,
realized for federal income tax purposes.
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. Except as discussed below or with
respect to market discount, any gain or loss recognized upon a sale, exchange,
retirement, or other taxable 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 or market discount, will be treated as ordinary income to the extent
of the excess, if any, of (1) 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 (2) the amount of ordinary income actually recognized by
the holder with respect to such regular certificate.
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, 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
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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:
(1) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply,
(2) all bad loans will be deductible as business bad debts, and
(3) 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 loans, plus any cancellation of indebtedness income due to realized
losses with respect to regular certificates and income on reinvestment of cash
flows and reserve assets, minus deductions, including interest and original
issue discount expense on the regular certificates, bad debt losses with
respect to the underlying assets of a REMIC, servicing fees on the Loans, other
administrative expenses of a REMIC, and amortization of premium, if any, with
respect to the loans.
The taxable income recognized by a residual holder in any taxable year will
be affected by the relationship between the timing of interest, original issue
discount or market discount income, or amortization of premium on the loans, on
the one hand, and the timing of deductions for interest, including original
issue discount, on the regular certificates, on the other hand. If an interest
in the loans is acquired by a REMIC at a discount, and one or more of such
loans is prepaid, the residual holder may recognize taxable income without
being entitled to receive a corresponding cash distribution because:
(1) the prepayment may be used in whole or in part to make distributions
on Regular certificates, and
(2) the discount on the loans 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, such as 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 Loan will remain constant over time as a percentage of the
outstanding principal amount of that loan,
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assuming it bears interest at a fixed rate. Consequently, residual holders must
have sufficient other sources of cash to pay any federal, state, or local
income taxes due as a result of such mismatching, or such holders must have
unrelated deductions against which to offset such income, subject to the
discussion of excess inclusions below under "REMIC Series--Limitations on
Offset or Exemption of REMIC Income." The mismatching of income and deductions
described in this paragraph, if present with respect to a series of
certificates, may have a significant adverse effect upon the Residual Holder's
after-tax rate of return.
The amount of any net loss of a REMIC that may be taken into account by the
Residual Holder is limited to the adjusted basis of the Residual certificate as
of the close of the quarter, or time of disposition of the Residual certificate
if earlier, determined without taking into account the net loss for the
quarter. The initial adjusted basis of a purchaser of a Residual certificate is
the amount paid for such Residual certificate. Such adjusted basis will be
increased by the amount of taxable income of the REMIC reportable by the
residual holder and decreased, but not below zero, 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 the
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 IRS 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, Green Tree 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 in excess of the
corresponding portion of the REMIC's basis in the loans, the Residual Holder
will not recover the excess 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,
and subject to the same uncertainties, as original issue discount income on
Regular certificates as described above under "REMIC Series--Original Issue
Discount" and "--Adjustable Rate Regular Certificates," but without regard to
the de minimis rule.
The REMIC will have market discount income in respect of the loans if, in
general, the basis of the REMIC in such loans is exceeded by their unpaid
principal balances. The
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REMIC's basis in such loans is generally the fair market value of the Loans
immediately after the transfer thereof to the REMIC, which will equal the
aggregate issue prices of the REMIC certificates which are sold to investors
and the estimated fair market value of any classes of certificates which are
retained. With regard to the loans 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 loans exceeds the unpaid principal
balances thereof, the REMIC will be considered to have acquired such loans at a
premium equal to the amount of such excess. As stated above, the REMIC's basis
in the loans is the fair market value of the loans immediately after the
transfer thereof to the REMIC. Generally, a REMIC that holds a loan as a
capital asset will elect to amortize premium on the loans under a constant
interest method. See the discussion under "REMIC Series--Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. A portion, or all, of the
REMIC taxable income includable in determining the federal income tax liability
of a Residual Holder will be subject to special treatment. That portion,
referred to as the excess inclusion, is equal to the excess of REMIC taxable
income for the calendar quarter allocable to a Residual certificate over the
daily accruals for such quarterly period of
(1) 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
(2) 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 portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions will be subject to federal income tax in all events and 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. In addition, if the Residual Holder is not a U.S.
person, such Residual Holder's excess inclusions generally would be ineligible
for exemption from or reduction in the rate of United States withholding tax.
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 and would constitute unrelated business taxable income for tax-
exempt shareholders.
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Furthermore, for purposes of the alternative minimum tax:
(1) excess inclusions will not be permitted to be offset by the
alternative tax net operating loss deduction and
(2) alternative minimum taxable income may not be less than the taxpayer's
excess inclusions.
The second rule has the effect of preventing nonrefundable tax credits from
reducing the taxpayer's income tax to an amount lower than the tentative
minimum tax on excess inclusions.
Restrictions on Transfer of Residual Certificates. 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:
(1) the present value of the total anticipated excess inclusions with
respect to such Residual certificate for periods after the transfer,
and
(2) the highest marginal federal income tax rate applicable to
corporations.
The anticipated excess inclusions are based on actual prepayment experience
to the date of the transfer and projected payments based on the Prepayment
Assumption. The present value rate equals the applicable federal rate under
Section 1274(d) of the Code as of the date of the transfer for a term ending on
the close of the last quarter in which excess inclusions are expected to
accrue. Such rate is applied to the anticipated excess inclusions from the end
of the remaining calendar quarters in which they arise to the date of the
transfer. Such a tax generally would be imposed on the transferor of the
Residual certificate, except that where such transfer is through an agent,
including a broker, nominee, or other middleman, for a Disqualified
Organization, the tax would instead 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.
In addition, if a pass-through entity 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:
(1) 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
(2) the highest marginal federal income tax rate imposed on corporations.
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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 taxable years
beginning after December 31, 1997, in the case of a REMIC Residual certificate
held by an electing large partnership, all interests in such partnership shall
be treated as held by disqualified organizations, without regard to whether the
recordholders of the partnership furnish statements, and the amount that is
subject to tax is excluded from the gross income of the partnership allocated
to the partners.
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 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, (1) 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 (2) 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:
(1) 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
(2) 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.
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The pooling and servicing agreement with respect to each series of REMIC
certificates will require the transferee of a Residual certificate to certify
to the statements in clause (2) of the preceding sentence as part of the
affidavit described above under "Restrictions on Transfer of Residual
Certificates."
Mark-to-Market Rules. On December 24, 1996, the Service released final
market-to-market regulations relating to the requirement that a securities
dealer mark to market securities held for sale to customers. This mark-to-
market requirement applies to all securities owned by a dealer, except to the
extent that the dealer has specifically identified a security as held for
investment. The mark-to-market regulations provide that for purposes of this
mark-to-market requirement, a Residual certificate acquired on or after January
4, 1995 is not treated as a security and thus may not be marked to market.
Prospective purchasers of a Residual certificate should consult their tax
advisors regarding the possible application of the mark-to-market requirement
to 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.
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 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:
(1) 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;
(2) the receipt of income from assets other than qualified mortgages and
permitted investments;
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(3) the receipt of compensation for services; and
(4) the receipt of gain from the dispositions of cash flow investments.
The REMIC Regulations provide that the modification of the terms of a loan
occasioned by default or a reasonably foreseeable default of the loan, the
assumption of the loan, 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 loan will not be treated as a disposition of the loan. 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 loans, a
sale of such loans by the REMIC pursuant to a purchase agreement or other loan
with Green Tree or other party, if and when the obligor elects to so convert
the terms of the loan, will not 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 incur a significant amount of such
taxes or any material amount of state or local income or franchise taxes.
However, if any such taxes are imposed on a REMIC they will be paid by Green
Tree or the trustee, if due to the breach of Green Tree's or the trustee's
obligations, as the case may be, under the related pooling and servicing
agreement or in other cases, such taxes shall be borne by the related trust
Fund resulting in a reduction in amounts otherwise payable to holders of the
related Regular or Residual certificates.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a qualified liquidation. A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation, which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur, and sells all of its assets, other than cash,
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of Regular or Residual
certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation, including all cash, less amounts retained
to meet claims.
Taxation of Certain Foreign Investors. A foreign holder is a
certificateholder who holds a regular certificate and who is not:
(1) a citizen or resident of the United States,
(2) a corporation, partnership, or other entity organized in or under the
laws of the United States or a political subdivision thereof, except,
in the case of a partnership, to the extent provided in regulations,
(3) an estate the income of which is includible in gross income for United
States tax purposes regardless of its source or
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(4) a trust if:
(A) a court within the United States is able to exercise primary
supervision over the administration of the trust and
(B) one or more United States persons have authority to control all
substantial decisions of the trust.
To the extent prescribed in yet-to-be-released regulations by the Secretary of
the Treasury, a trust which was in existence on August 20, 1996, other than a
trust treated as owned by the grantor under Subpart E of Part I of Subchapter J
of Chapter 1 of the Code, and which was treated as a United States person on
August 19, 1996, may elect to continue to be treated as a United States person
notwithstanding the previous sentence. 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. 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. In addition, the foregoing rules
will not apply to exempt a U.S. shareholder of a controlled foreign corporation
from taxation on such U.S. shareholder's allocable portion of the interest
income received by such controlled foreign corporation. 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 (1) 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 (2) the
gain is effectively connected with the conduct by the foreign holder of a trade
or business within the United States.
It appears that a regular certificate will not be included in the estate of a
foreign holder and will not be subject to United States estate taxes. However,
foreign holders should consult their own tax advisors regarding estate tax
consequences.
Unless otherwise stated in the related Prospectus Supplement, transfers of
Residual certificates to foreign holders will be prohibited by the related
pooling and servicing agreement.
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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. Green Tree will report
annually to the IRS, holders of record of the regular certificates that are not
excepted from the reporting requirements and, to the extent required by the
Code, other interested parties, information with respect to the interest paid
or accrued on the Regular certificates, original issue discount, if any,
accruing on the regular certificates and information necessary to compute the
accrual of any market discount or the amortization of any premium on the
regular certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMIC's tax matters person. The tax
matters person, generally, has responsibility for overseeing and providing
notice to the other Residual Certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. Unless otherwise
indicated in the related Prospectus Supplement, Green Tree 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 evidenced by a series of
certificates, or a segregated portion, with respect to which a REMIC Election
is not made ("Non-REMIC Certificates"), counsel will have advised Green Tree
that, in their opinion, each loan pool and the arrangement to be administered
by Green Tree under which the trustee will hold and Green Tree will be
obligated to service the Loans 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 I of Subchapter J of Chapter 1 of the Code. In such
event, 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 Loan Pool in which its certificate
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evidences an ownership interest and will be considered the equitable owner of a
pro rata undivided interest in each of the Loans included therein. The
following discussion assumes the trust Fund will be so classified as a grantor
trust.
Tax Status of Non-REMIC Certificates. In general, (1) 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 loans secured by an
interest in real property within the meaning of Section 7701(a)(19)(C)(v) of
the Code; and (2) certificates held by a real estate investment trust may
constitute real estate assets within the meaning of Section 856(c)(4)(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
Loans 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. Subject to the discussion below of
the stripped bond rules of the Code, 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 Loans comprising the loan pool, including
interest, market or original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by Green Tree, and any gain
upon disposition of such Loans. For purposes of this discussion, the term
disposition, when used with respect to the Loans, includes scheduled or prepaid
collections with respect to the Loans, as well as the sale or exchange of a
Non-REMIC certificate. Non-REMIC Certificateholders will generally 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 Green Tree. 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
($126,600 for 1999, in the case of a joint return) will be reduced by the
lesser of (1) 3% of the excess of adjusted gross income over the specified
threshold amount or (2) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. Furthermore, in determining the alternative
minimum taxable income of an individual, trust, estate or pass-through entity
that is a holder of a Non-REMIC certificate, no deduction will be allowed for
such holder's allocable portion of the foregoing expenses, even though an
amount equal to the total of such expenses will be included in such holder's
gross income for alternative minimum tax purposes. To the extent that a Non-
REMIC Certificateholder is not permitted to deduct servicing fees allocable to
a Non-REMIC certificate, the taxable income of the Non-REMIC Certificateholder
attributable to that Non-REMIC certificate will exceed the net cash
distributions related to such income.
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Non-REMIC Certificateholders may deduct any loss on disposition of the Loans to
the extent permitted under the Code.
To the extent that any of the Loans comprising a loan 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 Loans prior to
receipt of cash related to such discount. To the extent that the Non-REMIC
certificates represent an interest in any pool of debt instruments the yield on
which may be affected by reason of prepayments, for taxable years beginning
after August 5, 1997, a prepayment assumption must be used with respect to the
Loans comprising the loan pool in computing the accrual of any original issue
discount, market discount or amortizable premiums. See the discussion above
under "REMIC Series--Original Issue Discount." Similarly, IRS code provisions
concerning market discount and amortizable premium will apply to the Loans
comprising a loan 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." It is
unclear whether a prepayment assumption would be applicable in accruing or
amortizing any such original issue or market discount or premium with respect
to Non-REMIC certificates that do not represent an interest in any pool of debt
instruments the yield on which may be affected by reason of prepayments, or for
taxable years beginning prior to August 5, 1997.
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 Loan 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:
(1) if any servicing compensation is deemed to exceed a reasonable
amount;
(2) if Green Tree or any other party retains a Retained Yield with
respect to the Loans comprising a loan pool;
(3) 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 Loans; or
(4) 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
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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
(1) 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 (2) no more than 100 basis points, including any
amount of servicing in excess of reasonable servicing, is stripped off of the
Loans. See "REMIC Series--Market Discount" above.
To the extent the stripped certificates represent an interest in any pool of
debt instrument the yield on which may by affected by reason of prepayments,
for taxable years beginning after August 5, 1997, a prepayment assumption must
be used in computing yield on the underlying assets of a trust with respect to
which a REMIC election is not made. It is unclear whether a prepayment
assumption would be applicable to the stripped certificates that do not
represent an interest in any such pool or for taxable years beginning prior to
August 5, 1997. The Code appears to require that such a prepayment assumption
be used in computing yield with respect to Stripped certificates that do not
represent an interest in a pool of debt instruments the yield on which may be
affected by reason of prepayments or for taxable years beginning prior to
August 5, 1997. In the absence of authority to the contrary, Green Tree intends
to base information reports and returns to the IRS and the holders of stripped
certificates taking into account an appropriate prepayment assumption. Holders
of stripped certificates should refer to the related prospectus supplement to
determine whether and in what manner the original issue discount rules will
apply thereto.
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 IRS 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 (1) as many stripped bonds or
stripped coupons as there are scheduled payments of principal and/or interest
on each Loan or (2) a separate installment obligation for each Loan
representing the stripped certificate's pro rata share of principal and/or
interest payments to be made with respect thereto. As a result of these
possible alternative characterizations, investors should consult their own tax
advisors regarding the proper treatment of stripped certificates for federal
income tax purposes.
The servicing compensation to be received by Green Tree and the fee for
credit enhancement, if any, may be questioned by the IRS with respect to
certain certificates or
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Loans 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 Green Tree or other party
in a portion of the interest payments to be made pursuant to the Loans. 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.
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 Loans represented by the Non-REMIC certificate.
Generally, the aggregate adjusted basis will equal the Non-REMIC
Certificateholder's cost for the Non-REMIC certificate increased by the amount
of any previously reported income or gain with respect to the Non-REMIC
certificate and decreased by the amount of any losses previously reported with
respect to the Non-REMIC certificate and the amount of any distributions
received thereon. Except as provided above with respect to the original issue
discount and market discount rules, any such gain or loss would be capital gain
or loss if the Non-REMIC certificate was held as a capital asset.
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a Non-REMIC
Certificateholder who is a Foreign Holder, as defined above under "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 Loans 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 Green Tree
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. Green Tree 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, Green
Tree 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 Green Tree and any sub-servicer and such other
customary factual information as Green Tree deems necessary or desirable to
enable Certificateholders to prepare their tax returns. Reports will be made
annually to the IRS and to holders of record that are not excepted from the
reporting requirements regarding information as may be required with respect to
interest and original issue discount, if any, with respect to the Non-REMIC
certificates.
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Other Tax Consequences
No advice has been received as to local income, franchise, personal property,
or other taxation in any state or locality, or as to the tax effect of
ownership of certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of certificates.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
certificates offered hereby are not expected to constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because there will be a substantial number of loans that are secured by
liens on real estate that are not first liens, as required by SMMEA.
Accordingly, many institutions with legal authority to invest in mortgage
related securities may not be legally authorized to invest in the certificates.
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
We may sell certificates of each series to or through 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. We intend
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, Green Tree or any of its affiliates 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 the prospectus supplement. Such purchaser
may then 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 Green Tree 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 us and any
profit on the resale of the certificates by them may be deemed to be
underwriting discounts and commissions, under the Securities Act of 1933. Any
underwriters or agents will be identified, and any such compensation received
from Green Tree will be described, in the prospectus supplement.
Under agreements which may be entered into by us, underwriters and agents who
participate in the distribution of the certificates may be entitled to
indemnification by Green Tree against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the prospectus supplement, we will authorize underwriters
or other persons acting as our agents to solicit offers by certain institutions
to purchase the certificates from Green Tree under loans providing for payment
and delivery on a future date. Institutions with which these loans 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 us. The obligation of any
purchaser under any such loan 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 loans.
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Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the certificates. These
types of transactions may include stabilizing, the purchase of certificates to
cover syndicate short positions and the imposition of penalty bids. For a more
complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
Some of the underwriters and their associates may engage in transactions with
and perform services for us in the ordinary course of business.
LEGAL MATTERS
The legality and material federal income tax consequences of the certificates
will be passed upon for us by our counsel identified in the prospectus
supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31, 1998, incorporated by reference in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997 are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in this prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
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GLOSSARY
Below are abbreviated definitions of terms used in this prospectus and the
prospectus supplement. The pooling and servicing agreement may contain a more
complete definition of some of the terms defined here and reference should be
made to the pooling and servicing agreement for a more complete definition of
all such terms.
"Adjustable Rate Certificates" means certificates which evidence the right to
receive distributions of income at a variable payment rate.
"Advances" means the advances made by a servicer (including from advances made
by a sub-servicer) on any payment date pursuant to a pooling and servicing
agreement.
"Amount Available" means, for each series of certificates, amounts on deposit
in the certificate account on a Determination Date.
"Certificate Distribution Amount" means the amount of principal and interest
specified in the related prospectus supplement to be distributed to
certificateholders.
"Compound Interest Certificates" means certificates on which interest may
accrue but not be paid for the period described in the related prospectus
supplement.
"Cut-off Date" means the date specified in the related prospectus supplement as
the date from which principal and interest payments on the contracts are
included in the trust.
"Determination Date" means, unless otherwise specified in the related
prospectus supplement, the third business day immediately preceding the related
payment date.
"Due Period" means, unless otherwise provided in a related prospectus
supplement, with respect to any payment date, the period from and including the
15th day of the second month preceding the payment date, to and including the
14th day of the month immediately preceding the payment date.
"Eligible Investments" means one or more of the investments specified in the
pooling and servicing agreement in which moneys in the certificate account and
certain other accounts are permitted to be invested.
"Formula Principal Distribution Amount" means the sum of:
(1) all scheduled payments of principal due on each outstanding contract
during the related due period, after adjustments for previous partial
principal prepayments and after any adjustments to a contract's
amortization schedule as a result of a bankruptcy or a similar
proceeding involving the related obligor,
(2) the Scheduled Principal Balance of each contract which, during the
month preceding the related due period, was purchased by Green Tree
under the pooling and servicing agreement on account of breaches of
its representations and warranties,
(3) all partial principal prepayments applied and all principal
prepayments in full received during the related due period,
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(4) the Scheduled Principal Balance of each contract that became a
liquidated contract during the related due period, plus the amount of
any reduction in the outstanding principal balance of a contract
during the related due period ordered as the result of a bankruptcy or
similar proceeding involving the related obligor,
(5) without repeating the above, all collections in respect of principal
on the contracts received during the due period in which the payment
date occurs up to and including the third business day prior to such
payment date, but in no event later than the 25th day of the month
before the payment rate, minus
(6) with respect to all payment dates other than the payment date in
1999, the amount included in the formula principal distribution amount
for the preceding payment date by virtue of clause (5) above, plus
(7) with respect to the payment date in 2000, any amount, by which the
Class A-1 principal balance as of the payment date exceeds the sum on
the payment date of the amounts described in clause (1) through (6)
above; minus
(8) with respect to the payment date in 2000, any amount, distributed
in respect of principal on the Class A-1 certificates on the payment
date in 2000 under clause (7) above.
"Liquidation Proceeds" means cash including insurance proceeds received in
connection with the repossession of a manufactured home.
"Monthly Payment" means the scheduled monthly payment of principal and interest
on a contract.
"Net Liquidated Proceeds" means all amounts received and retained for the
liquidation of defaulted contracts, net of liquidation expenses.
"Participants means institutions that have accounts with the depositary.
"Pool Scheduled Principal Balance" means, as of any payment date, the aggregate
of the Scheduled Principal Balances of contracts outstanding at the end of the
related due period.
"Replaced loan" means an Eligible Substitute loan substituted for a
manufactured housing contract which Green Tree is otherwise obligated to
repurchase under the pooling and servicing agreement.
"Repurchase Price" means the remaining principal amount outstanding on a
manufactured housing contract on the date of repurchase plus accrued and unpaid
interest at its contract rate to the date of the repurchase.
"Scheduled Principal Balance" means, as of any payment date, the "Scheduled
Principal Balance" of a contract as of any payment date is the unpaid principal
balance of the contract as specified in the amortization schedule at the time
relating to the contract as of the due date in the related due period, after
giving effect to any previous partial prepayments and to the payment of
principal due on the due date and irrespective of any delinquency in payment on
the contract.
71
<PAGE>
"Senior Distribution Amount" means, for a series of certificates having
Subordinated Certificates, as of each payment date and for each class of Senior
Certificates, the amount due the holders of that class of Senior Certificates.
"Senior Percentage" means, for a series of certificates having Subordinated
Certificates, the percentage specified in the related prospectus supplement.
"Subordinated Percentage" means, for a series of certificates having
Subordinated Certificates, the percentage specified in the related prospectus
supplement.
72
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Supplement to Base No. 4
PROSPECTUS SUPPLEMENT
(To prospectus dated June , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Certificates for Home Improvement Loans
Series 1999-
----------
The certificates will consist of classes, but we are offering only the
classes listed below now:
<TABLE>
<CAPTION>
Approximate Pass-Through Underwriting Proceeds to
Class Principal Amount Rate Price to Public Discount Company
- ----- ---------------- ------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
A-1A ARM................ $ % % % %
A-1B ARM................ $ % % % %
A-1..................... $ % % % %
A-2..................... $ % % % %
A-3..................... $ % % % %
A-4..................... $ % % % %
A-5..................... $ % % % %
A-6 IO.................. $ % % % %
M-1..................... $ %(1) % % %
M-2..................... $ %(1) % % %
B-1..................... $ %(1) % % %
B-2A.................... $ (1) %(1) % % %
------------ -------------- ---------- --------------
Total................... $ $ $ $
============ ============== ========== ==============
</TABLE>
- -----
(1) Or the weighted average of the rates on the loans, if less.
Consider carefully the risk factors beginning on page S-13 in this prospectus
supplement.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Attorney General of the state of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
These certificates will be delivered on or about , 1999.
The underwriters named below will offer these securities to the public at the
offering price listed on this cover page and they will receive the discount
listed above. See "Underwriting" on page S-63 in this prospectus supplement and
on page 69 in the prospectus.
----------
Underwriters
The date of this prospectus supplement is , 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Certificates................................. S-4
Risk Factors............................................................. S-13
Structure of the Transaction............................................. S-15
Use of Proceeds.......................................................... S-16
The Loans................................................................ S-16
Yield and Prepayment Considerations...................................... S-22
Green Tree Financial Corporation......................................... S-29
Description of the Certificates.......................................... S-29
Description of the Class B-2 Limited Guaranty............................ S-57
Certain Federal Income Tax Consequences.................................. S-58
ERISA Considerations..................................................... S-59
Underwriting............................................................. S-63
Legal Matters............................................................ S-63
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trust................................................................ 3
Use of Proceeds.......................................................... 7
Green Tree Financial Corporation......................................... 8
Yield Considerations..................................................... 11
Maturity and Prepayment Considerations................................... 11
Description of the Certificates.......................................... 12
Certain Legal Aspects of the Loans; Repurchase Obligations............... 28
ERISA Considerations..................................................... 41
Certain Federal Income Tax Consequences.................................. 44
Legal Investment Considerations.......................................... 68
Ratings.................................................................. 68
Underwriting............................................................. 69
Legal Matters............................................................ 70
Experts.................................................................. 70
Glossary................................................................. 71
</TABLE>
You should rely only on the information contained in this prospectus. We
and the underwriters have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted.
S-2
<PAGE>
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our home improvement lending business, and about any series of
certificates for home improvement loans that we may wish to sell. This
prospectus supplement contains more detailed information about the specific
terms of this series of certificates. If the description of the terms of your
certificate varies between this prospectus supplement and the prospectus, you
should rely on the information in this prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from us or an underwriter by asking for it.
No prospectus regarding these certificates has been or will be prepared in
the United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These certificates may not be offered or sold, or re-offered
or re-sold, to persons in the United Kingdom, except (1) to persons whose
ordinary activities involve them in acquiring, holding, managing and disposing
of investments (as principal or agent) for the purpose of their businesses, or
(2) in circumstances that will not constitute or result in an offer to the
public in the United Kingdom within the meaning of the United Kingdom Public
Offers of Securities Regulation 1995. You may not pass this prospectus
supplement and prospectus, or any other document inviting applications or
offers to purchase certificates or offering certificates for purchase, to any
person in the United Kingdom who (1) does not fall within article 11(3) of the
Financial Services Act 1986 (Investment Advisements) (Exemptions) Order 1996 or
(2) is not otherwise a person to whom passing this prospectus supplement and
prospectus would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE CERTIFICATES
This summary highlights selected information regarding the certificates, and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the certificates,
read this entire prospectus supplement and the accompanying prospectus. In
particular, we will refer throughout this summary to sections of this
prospectus supplement or the prospectus, or both, which will contain more
complete descriptions of the matters summarized. All these references will be
to sections of this prospectus supplement only unless we note otherwise.
The classes of certificates for Home Improvement Loans, Series 1999-
listed on the table below will represent interests in a trust. The trust will
own a pool of home equity loans.
<TABLE>
<CAPTION>
Pass-Through Approximate S&P Fitch
Class Rate Principal Amount(1) Rating Rating
- ----- ------------ ------------------- ------ ------
<S> <C> <C> <C> <C>
A-1A ARM......................... $
A-1B ARM.........................
A-1.............................. %
A-2.............................. %
A-3.............................. %
A-4.............................. %
A-5.............................. %
A-6 IO........................... %
M-1.............................. %
M-2.............................. %
B-1.............................. %
B-2A............................. %
B-2.............................. %
</TABLE>
- --------
The ratings on each class of certificates by S&P addresses the likelihood of
timely receipt of interest and ultimate receipt of principal. The rating of
each class of certificates by Fitch addresses the likelihood of the receipt of
certificateholders of all distributions to which such certificateholders are
entitled. The ratings of S&P and Fitch do not address the likelihood of payment
of any interest carried forward and payable to the Class A-1A ARM and Class A-
1B ARM certificateholders on future payment dates. 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 ratings of the Class B-2 certificates are based in part on an assessment
of Green Tree's ability to make payments under the Class B-2 limited guaranty.
Any reduction in the rating of Green Tree's debt securities may result in a
similar reduction in the ratings of the Class B-2 certificates.
S-4
<PAGE>
The Class B-2 certificates are not offered under this prospectus supplement
and prospectus. We are offering all other classes of certificates listed in the
table above. We, or one of our affiliates, will initially retain the Class B-2
certificates.
Seller and Servicer.........
Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Trustee..................... U.S. Bank Trust National Association, St. Paul,
Minnesota.
Payment Date................
The fifteenth day of each month, or if that day
is not a business day, the next succeeding
business day. The first payment date will be
, .
Record Date.................
The business day just before the payment date.
Distributions on the
Certificates................
Distributions on the certificates will be made
primarily from amounts collected during the prior
calendar month on the home improvement loans. On
each payment date, the trustee will apply the
amount available to make distributions of
principal and interest on the certificates in the
following order of priority:
^ payment of the monthly servicing fee, if we
are no longer the servicer;
^ Class A interest;
^ Class M-1 interest;
^ Class M-2 interest;
^ Class B-1 interest;
^ Class A principal (other than the Class A-6
IO certificates);
^ Class M-1 principal;
^ Class M-2 principal;
^ Class B-1 principal;
^ Class B-2A interest;
^ Class B-2A principal;
^ Class B-2 interest;
^ Class B-2 principal;
S-5
<PAGE>
^ payment of any additional amounts due on the
Class A-1A ARM and Class A-1B ARM
certificates because of the "available funds
pass-through rate" limitation on their
respective pass-through rates;
^ payment of the monthly servicing fee to us
and
^ Class B-2A additional principal.
This prospectus supplement summarizes in the next
3 pages the amounts of interest and principal to
be paid on each payment date. In each case, the
payments will be made only up to the amount
available, after making any payments with a
higher priority, is sufficient. See "Description
of the Certificates--Payments on Loans" for a
detailed description of the amounts that will
constitute the amount available for any payment
due.
A. Interest on the Class A,
Class M-1, Class M-2 and
Class B-1 Certificates...
Interest will be payable first to each class of
Class A certificates concurrently, then to the
Class M-1 certificates, then to the Class M-2
certificates, and then to the Class B-1
certificates, to the extent of the amount
available. See "Description of the Certificates--
Distributions on Certificates" and "--Losses on
Liquidated Loans" for a more detailed description
of the calculation of interest payable on the
certificates.
B. Principal on the Class
A, Class M and Class B-1
Certificates ............
The portion of the amount available applied to
the payment of principal on the Class A, Class M-
1, Class M-2 and Class B-1 certificates on each
remittance date will be based on the scheduled
amounts of principal due, whether or not
collected, as well as prepayments and other
amounts received for principal, on the home
improvement loans. Any principal payable will
initially be paid only on the Class A
certificates. Principal payable will be paid
first to the Class A-1 certificates until all
certificates of that class have been retired, and
S-6
<PAGE>
after that to each successive class of Class A
certificates. Beginning with the payment date
occurring in .
Assuming delinquencies, defaults and losses on
the loans remain below specified levels, the
Class M-1, Class M-2 and Class B-1 certificates
will begin to receive a portion of the principle
to be paid on each remittance date. See
"Description of the Certificates--Distributions
on Certificates."
C. Class B-2A Interest......
The remaining amount available will be used to
pay interest on the Class B-2A certificates. See
"Description of the Certificates--Distributions
on Certificates."
D. Class B-2A Principal.....
In general, principal will not be payable on the
Class B-2A certificates until the Class B-1
certificates have been retired. After that has
occurred, the Class B-2A certificates will be
entitled, assuming that delinquencies defaults
and losses on the home improvement loans remain
below levels or that no Class A, Class M or Class
B-1 certificates are outstanding, to receive a
portion of the principal to be paid on each
payment date.
E. Class B-2 Interest.......
Any remaining amount available will be used to
pay interest on the Class B-2 certificates. See
"Description of the Certificates--Distributions
on Certificates."
F. Class B-2 Principal...... In general, principal will not be payable on the
Class B-2 certificates until the B-1 certificates
have been retired. After that has occurred the
Class B-2A certificates will be entitled,
assuming that delinquencies, defaults and losses
on the home equity loans remain below levels or
that no Class A, Class M or Class B-1
certificates are outstanding, to receive a
portion of the principal to be paid on each
payment date.
S-7
<PAGE>
G. Class B-2A Additional
Principal................
After paying the amounts of interest and
principal due on all the certificates described
above, and after paying the monthly servicing fee
to the servicer, 50% of the remaining amount
available, if any, to the payment of additional
principal on the Class B-2A certificates.
Class B-2 Limited
Guaranty................. We will guarantee payment of interest and
principal on the Class B-2 certificates. See
"Description of the Class B-2 limited guaranty"
for a complete description of Green Tree's
obligation under the Class B-2 limited guaranty.
Capitalized Interest
Account.................. The trustee will establish a capitalized interest
account to cover interest payments on the
certificates on the payment dates in , and
1999 in the event that interest collections on
the loans are insufficient. Any funds remaining
in the capitalized interest account will be
released to our subsidiary in 1999, or after
the pre-funding account described below has been
fully used, if earlier.
Seniority of Payment........ The priority of application of the amount
available on each remittance date, as described
in "Priority of Distributions" above, increases
the likelihood that the Class A certificates
would be paid in full but that the other classes
would not. Likewise, the likelihood of payment in
full of the Class M-1, the Class M-2 and the
Class B-1 certificates, is increased due to the
right of each class to receive distributions
before those classes of certificates with a lower
priority of payment.
Home Improvement Loans......
The pool will include two types of home
improvement loans: fixed-rate home improvement
loans and adjustable rate home improvement loans.
A. Fixed-Rate Home
Improvement Loans........
This prospectus supplement provides information
about % of all the fixed-rate home
improvement loans. We will transfer another
portion of the fixed-rate home equity loans to
the trust on the closing date, and will transfer
the remaining fixed-rate home improvement loans
to the trust within 90 days after the closing
date.
S-8
<PAGE>
With respect to the fixed-rate home improvement
loans, as of the cut-off date:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. the loan rates range from % to %,
with a weighted average of %;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months,
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months;
. % are balloon loans and the rest
provide for level monthly payments for the
duration of the loan;
. the weighted average loan rate on the
balloon loans was %;
. the balloon loans had a weighted average
term to scheduled maturity, as of their
dates of origination, of months, and a
weighted average to maturity as of the cut-
off date of months; and
. the latest scheduled maturity date was in
, .
B. Adjustable Rate Home
Improvement Loans........
This prospectus supplement provides information
about % of all the adjustable rate home
improvement loans. We will transfer another
portion of the adjustable rate home improvement
loans to the trust on the closing date, and will
transfer the remaining adjustable rate home
improvement loans to the trust within 90 days
after the closing date.
For purposes of calculating the amount of
principal payable on each payment date on the
Class A-1A ARM and Class A-1B ARM certificates,
the adjustable rate
S-9
<PAGE>
loans have been divided into two groups, group I
and group II, respectively. See "The Loans--
Adjustable Rate Loans."
1. Group I................
The group I adjustable rate loans, as of the cut-
off date:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. no loan has a principal balance at
origination of more than $ ;
. each loan accrues interest at a fixed rate
for no more than months, and thereafter
the interest rate adjusts semiannually to
equal the sum of the six-month LIBOR and
the gross margin specified in that loan;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months, and;,
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months.
2. Group II ..............
The group II adjustable rate loans, as of the
cut-off date:
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. there are loans;
. each loan accrues interest at a fixed rate
for no more than months, and thereafter
the interest rate adjusts semiannually to
equal the sum of the six-month LIBOR and
the gross margin specified in that loan;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months, and;
S-10
<PAGE>
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months.
Pre-Funding Account.........
If the aggregate principal balance of the loans
transferred by us to the trust on the closing
date is less than the aggregate original
principal balance of the certificates, that
difference will be deposited by the trustee in a
pre-funding account, and those funds will be used
to purchase loans from time to time until ,
. If those funds are not completely used by
, , any remaining funds will be distributed
as principal on the Class A-1 certificates, and
on the Class A-1A ARM and Class A-1B ARM
certificates on the payment date.
Advances....................
The servicer will make advances each month of any
scheduled payments on the loans that were due but
not received during the prior due period, but it
will be entitled to reimbursement for any
advance. See "Description of the Certificates--
Advances" in this prospectus supplement and in
the prospectus.
Repurchase or Substitution
Obligations.................
We will make representations and warranties about
the loans when we transfers them to the trust. If
a representation or warranty is breached in a way
that materially and adversely affects the
interests of the certificateholders, then we
must, within 90 days, either (1) cure the breach
or (2) repurchase the defective loans. During the
first two years after the closing date, we may
substitute other loans instead of repurchasing
defective loans. See "Description of the
Certificates--Conveyance of Loans" in this
prospectus supplement and in the prospectus.
Repurchase Options..........
After the scheduled principal balance of the
loans is less than 10% of the scheduled principal
balance of the loans as of their applicable cut-
off dates, we will have the option to purchase
all of the outstanding loans. See "Description of
the Certificates--Repurchase Option" in this
prospectus supplement and in the prospectus.
S-11
<PAGE>
Tax Status..................
In the opinion of our counsel, for federal income
tax purposes the trust will consist of two
segregated asset pools--a master REMIC and a
subsidiary REMIC--and each will be treated as a
separate REMIC. Each class of certificates will
constitute regular interests in the Master REMIC
and generally will be treated as debt instruments
of the trust for federal income tax purposes. A
holder of a certificate will be required to
include as income all interest paid on the
certificates, including any original issue
discount under the accrual method of accounting,
even if you usually use the cash method of
accounting. The Class A-6 IO certificates will be
considered to have been issued with original
issue discount. See "Certain Federal Income Tax
Consequences" in this prospectus supplement and
in the prospectus for a more detailed description
of the tax status of the certificates.
ERISA Considerations........
Subject to the conditions described under "ERISA
Considerations," employee benefit plans that are
subject to ERISA may purchase Class A
certificates. An employee benefit plan may not
purchase any other class of certificates, unless
it satisfies the conditions described under
"ERISA Considerations" in this prospectus
supplement and in the prospectus.
Legal Investment
Considerations..............
The certificates will not constitute mortgage
related securities for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 because a
number of the loans are not secured by first
liens on the related real estate. This means that
many institutions that have the legal authority
to invest in mortgage related securities may not
be legally authorized to invest in the
certificates. You should consult with your own
legal advisor to decide whether and how much you
may legally invest in the certificates.
Reports to Holders of
Certificates...........
We will provide to the holder of the certificates
monthly and annual reports about the certificates
and the trusts. See "Description of the
Certificates--Reports to Certificateholders" in
the prospectus.
S-12
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase certificates.
The number and percentage of home improvement loans in the pool that are
insured by FHA pursuant to Title I of the National Housing Act.
The availability of FHA insurance following a default on an FHA-insured home
improvement loan is subject to a number of conditions, including strict
compliance by us with FHA regulations in originating and servicing the loan.
Although we are an FHA-approved lender and we believe that we have has complied
with FHA regulations, these regulations are susceptible to substantial
interpretation. The law does not require us to obtain approval from FHA of its
origination and servicing practices. If we fail to comply with FHA regulations,
FHA may deny some insurance claims and we cannot assure you that FHA's
enforcement of its regulations will not become stricter in the future. We
sometime engage in disputes with FHA over the validity of claims submitted and
our compliance with FHA regulations in servicing loans insured by FHA. In
addition, FHA will only cover 90% of the sum of the unpaid principal on a home
improvement loan, up to nine months unpaid interest and certain liquidation
costs.
The amount of FHA insurance on the loans in a given pool is limited to the
balance of a reserve amount.
This reserve amount as of , 199 , was equal to approximately $ , but
will be reduced by the amount of all FHA insurance claims paid and will be
increased by an amount equal to 10% of the unpaid principal balance of FHA
Title I loans subsequently originated and reported for insurance by us. Severe
losses on our FHA-insured manufactured housing loans, or on other FHA-insured
home improvement loans originated by us, could reduce or eliminate our FHA
insurance reserves. If this happened FHA insurance would not be available to
cover losses on FHA-insured home improvement loans. If we were terminated as
servicer due to bankruptcy or otherwise, it is anticipated that a proportionate
amount of our FHA insurance reserves would be transferred to the reserve
account of the trustee or the successor servicer, but we can not assure you of
the amount, if any, that would be transferred. For a more complete description
of the limits on the availability of FHA insurance, see "Description of FHA
Insurance."
A substantial number of the liens on improved real estate securing the loans in
a loan pool will be junior to other liens on that real estate.
Because the liens are junior, the rights of the trust, and consequently the
holders of certificates of the related series, as beneficiary under a
conventional junior deed of trust or as mortgagee under a conventional junior
mortgage, are subordinate to those of the mortgagee or beneficiary under the
senior mortgage or deed of trust, including the prior rights of the senior
mortgagee or beneficiary to cause the property securing the loan to be sold
upon default of the mortgagor or trustor. This extinguishes the junior
mortgagee's or junior beneficiary's lien unless the servicer on behalf of the
trust asserts its subordinate interest in
S-13
<PAGE>
the property in foreclosure litigation and, possibly, satisfies the defaulted
senior loan or loans. For a more complete description of the risks associated
with junior mortgage liens, see "Certain Legal Aspects of the Loans--Repurchase
Obligations."
We expect a substantial portion of the loans included in a loan pool to have
loan-to-value ratios of 90% or more, based on the total of the outstanding
principal balances of all senior mortgages or deeds of trust and of the loan an
the one hand, and the value of the home, on the other. For a more complete
description, see "Green Tree Financial Corporation--Loan Origination." An
overall decline in the residential real estate market, the general condition of
a property securing a loan or other factors could adversely affect the value of
the property securing a loan. As a result, the remaining balance of that loan,
together with that of any senior liens on the related property, could equal or
exceed the value of the property.
A secondary market for the certificates may not develop.
We cannot assure to you that a secondary market will develop for the
certificates of any series, or, if a secondary market does develop, that it
will provide the holders of any of the certificates with liquidity of
investment. We also cannot assure to you that if a secondary market does
develop, that it will continue to exist for the term of any series of
certificates.
The assignment to the trust will not be recorded.
We will not record the assignment to the trustee of the mortgage or deed of
trust securing any loan, because of the expense and administrative
inconvenience involved. In some states, in the absence of a recordation, the
assignment to the related trustee of the mortgage or deed of trust securing a
loan may not be effective against our creditors or purchasers from us or a
trustee in bankruptcy for us.
Bankruptcy proceedings could delay distributions on the certificates.
We intend that each transfer of loans to the related trust will constitute a
sale, rather than a pledge of the loans to secure our indebtedness. However, if
we were to become a debtor under the federal bankruptcy code, it is possible
that a creditor or trustee in bankruptcy for us, or we as debtor-in-possession,
may argue that the sale of the loans by us was a pledge of the loans 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 holders of the
certificates.
The historical delinquency experience with home improvement loans may not be an
accurate prediction of the performance of the loans in the pool.
We began purchasing and servicing FHA-insured home improvement loans in April
1989, and conventional home improvement loans in September 1992, and thus has
limited historical experience with respect to the performance, including the
rate of prepayments of home improvement loans. Accordingly, our delinquency
experience and loan loss and liquidation experience set forth under "The Loans"
may not be indicative of the performance of the loans.
S-14
<PAGE>
Other rating agencies could provide unsolicited ratings on the certificates
that could be lower than the requested ratings.
Although we have not requested a rating of the certificates from any rating
agencies other than S&P and Fitch, other rating agencies may rate the
certificates. These ratings could be higher or lower than the ratings S&P and
Fitch initially give to the certificates.
STRUCTURE OF THE TRANSACTION
On or about the closing date, , 1999, we will establish the trust under
a pooling and servicing agreement to be dated as of , 1999, between us,
as seller and servicer, and the trustee.
The Class A-1, Class A-2, Class A-3, Class M-1, Class M-2, Class B-1 and
Class B-2 certificates will be issued by the trust, the corpus of which will
consist primarily of home improvement loans, including all rights to receive
payments due on the loans on and after , 1999, all rights under FHA
Insurance with respect to the FHA-insured loans, liens on the related real
estate, amounts held for the trust in the certificate account, and the Class B-
2 limited guaranty of Green Tree for the benefit of the Class B-2 certificates,
as described in "Description of the Class B-2 Limited Guaranty".
Payments and recoveries in respect of principal and interest on the loans
will be paid into a certificate account maintained at an eligible institution
(initially [trustee], Minneapolis, Minnesota) in the name of the trust, no
later than one business day after receipt. Payments deposited in the
certificate account in respect of each due period, as defined below, will be
applied on the fifteenth day of the next month, or, if that day is not a
business day, the next succeeding business day, to make the distributions to
the certificateholders as of the immediately preceding record date as described
under "Description of the Certificates--Distributions on the Certificates" and
to pay certain monthly fees to the servicer as compensation for its servicing
of the loans.
The servicer will be obligated to advance any scheduled payments on the loans
that were due but not received during the calendar month preceding the month in
which the payment date occurs. The servicer will be entitled to reimbursement
of an advance from funds available in the certificate account. The servicer
will not be required to make any advance to the extent that it does not expect
to recoup the advance from subsequent funds available in the certificate
account. If the servicer fails to make any advance required under the pooling
and servicing agreement, the trustee is obligated, subject to certain
conditions, to make such advance.
Following the transfer of the loans from us to the trust, our obligations are
limited to:
(1)our obligation as servicer to service the loans,
(2) certain representations and warranties in the pooling and servicing
agreement as described under "Description of the Certificates--
Conveyance of Loans",
(3)certain indemnities, and
(4)the Class B-2 limited guaranty.
S-15
<PAGE>
We are is obligated to repurchase at the repurchase price any loan on the first
payment date which is more than 90 days after we become aware, or we receive
written notice from the trustee, of any breach of any such representation and
warranty that materially adversely affects the certificateholders' interest in
such loan if such breach has not been cured before that date. We have certain
obligations to repurchase loans and to indemnify the trustee and
certificateholders for other matters.
USE OF PROCEEDS
We will use the net proceeds received from the sale of the certificates for
working capital and general corporate purposes, including building a portfolio
of home improvement loans and promissory notes, providing warehouse financing
for the purchase of loans and other costs of maintaining these loans until they
are pooled and sold to other investors.
THE LOANS
Each loan is a home improvement loan originated by a home improvement
contractor approved by us and purchased by us, or a home improvement promissory
note originated by us directly. Each loan finances improvements to a one- to
four-family residential property, an owner-occupied condominium or town house
or a manufactured home which either qualifies as real estate under state law or
is located in a park approved by us. Each loan is secured by a lien on the
related real estate.
We will make certain representations and warranties in the pooling and
servicing agreement, including that:
(1)each loan is fully amortizing with a fixed contractual rate of interest
and provides for level monthly payments over the term of the loan,
computed on the simple interest method,
(2)each loan has its last scheduled payment due no later than ,
(3)each FHA-insured loan was originated in accordance with applicable FHA
regulations and is insured, without set-off, surcharge or defense, by
FHA Insurance, and
(4) each loan is secured by a lien, which is typically a subordinate lien
on the related real estate. The loans were originated or acquired by
us in the ordinary course of its business.
A detailed listing of the loans is appended to the pooling and servicing
agreement. See "Description of the Certificates" in this prospectus supplement
and in the prospectus. Approximately % of the loans, by principal balance
as of the cut-off date, are insured by FHA as described in "Description of FHA
Insurance" in the prospectus. Each of the
S-16
<PAGE>
loans has a loan rate of at least % per annum and not more than % and
the weighted average of the loan rates of the loans as of the cut-off date is
%. As of the cut-off date, the loans had remaining maturities of at least
months but not more than months and original maturities of at least 24
months but not more than 360 months. The loans had a weighted average term to
scheduled maturity, as of origination, of months, and a weighted average
term to scheduled maturity, as of the cut-off date, of months. The average
principal balance per loan as of the cut-off date was $ and the
principal balances on the loans as of the cut-off date ranged from $ to
$ . The loans arise from loans relating to real property located in
states and the District of Columbia. By principal balance as of the cut-off
date, approximately % of the loans financed improvements to real estate
located in California, % in New York, % in Florida, % in New
Jersey, % in Pennsylvania and % in Texas. No other state represented %
or more of the cut-off date pool principal balance. Substantially none of the
loans provide for recourse to the originating contractor in the event of a
default by the obligor.
S-17
<PAGE>
The tables below describe additional characteristics of the loans as of the
cut-off date.
Geographical Distribution of Improved Real Estate
<TABLE>
<CAPTION>
% of
% of Loan Pool by
Loan Pool by Aggregate Principal Outstanding
Number of Number of Balance Principal
Loans as of Loans as Outstanding as of Balance as of
Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
------------ --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
---- ------ -------------- ------
Total............... 100.00% $ 100.00%
==== ====== ============== ======
</TABLE>
S-18
<PAGE>
Years of Origination of Loans
<TABLE>
<CAPTION>
% of
Number of Loan Pool By
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Year of Origination off Date as of Cut-off Date Cut-off Date
- ------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
...................... $ %
......................
......................
----- -------------- ------
Total................. $ 100.00%
===== ============== ======
</TABLE>
Distribution of Original Loan Amounts
<TABLE>
<CAPTION>
% of
Number of Loan Pool by
Loans Aggregate Principal Outstanding Principal
Original Loan as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
- ------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $ 10,000........ $ %
Between$ 10,000--
$ 19,999.................
Between$ 20,000--
$ 29,999.................
Between$ 30,000--
$ 39,999.................
Between$ 40,000--
$ 49,999.................
Between$ 50,000--
$ 59,999.................
Between$ 60,000--
$ 69,999.................
Between$ 70,000--
$ 79,999.................
Between$ 80,000--
$ 89,999.................
Between$ 90,000--
$ 99,999.................
Between$100,000--
$109,999.................
Over $110,000.........
----- -------------- ------
Total................. $ 100.00%
===== ============== ======
</TABLE>
Loan Rates
<TABLE>
<CAPTION>
% of
Number of Loan Pool by
Loans Aggregate Principal Outstanding Principal
Range of Loans by as of Cut- Balance Outstanding Balance as of
Loan Rate off Date as of Cut-off Date Cut-off Date
----------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
From 0.00000%--
9.00000%................ $ %
From 9.00001%--
10.00000%................
From 10.00001%--
11.00000%................
From 11.00001%--
12.00000%................
From 12.00001%--
13.00000%................
From 13.00001%--
14.00000%................
From 14.00001%--
15.00000%................
From 15.00001%--
16.00000%................
----- -------------- ------
Total................. $ 100.00%
===== ============== ======
</TABLE>
S-19
<PAGE>
Remaining Months to Maturity
<TABLE>
<CAPTION>
% of
Number of Loan Pool by
Months Remaining to Loans Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31.............. $ %
31-60.....................
61-90.....................
91-120....................
121-150...................
151-180...................
181-210...................
211-240...................
241-270...................
271-300...................
301-330...................
331-360...................
----- -------------- ------
Total................. $ 100.00%
===== ============== ======
</TABLE>
Lien Position of Loans
<TABLE>
<CAPTION>
% of % of
Number of Loan Pool by Loan Pool by
Loans Number of Aggregate Principal Outstanding Principal
as of Cut- Loans as of Balance Outstanding Balance as of
off Date Cut-off Date as of Cut-off Date Cut-off Date
---------- ------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
First........ % $ %
Second.......
Third........
Fourth.......
----- ------- -------------- -------
Total.... 100.00% $ 100.00%
===== ======= ============== =======
</TABLE>
Delinquency, Loan Default and Loss Information
The following tables set forth the delinquency experience for the periods
indicated of the portfolios of conventional and FHA-insured secured home
improvement loans serviced by us (other than loans already in repossession).
Delinquency Experience--Conventional Loans
<TABLE>
<CAPTION>
At December 31,
---------------------
1998 1997 1996
------ ------ -----
<S> <C> <C> <C>
Number of Loans Outstanding(1)...........................
Number of Loans Delinquent(2)(3)
30-59 Days.............................................
60-89 Days.............................................
90 Days or More........................................
------ ------ -----
Total Loans Delinquent...................................
Delinquencies as a Percent of Loans Outstanding(4)....... % % %
</TABLE>
- --------
(1) Excludes defaulted loans not yet liquidated.
S-20
<PAGE>
(2) A loan is considered delinquent by us if any payment of $25 or more is
past-due 30 days or more.
(3) The period of delinquency is based on the number of days that payments are
contractually past-due (assuming 30-day months). Consequently, a loan due
on the first day of a month is not 30 days delinquent until the first day
of the next month.
(4) By number of loans.
Delinquency Experience--FHA Insured Loans
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Number of Loans Outstanding(1)... 25,925 26,885
Number of Loans Delinquent(2)(3)
30-59 Days..................... 462 237
60-89 Days..................... 121 95
90 Days or More................ 183 146
----- ----- ----- ------ ------
Total Loans Delinquent........... 766 478
Delinquencies as a Percent of
Loans Outstanding(4)............ % % % 2.95% 1.78%
</TABLE>
- --------
(1) Excludes defaulted loans not yet liquidated.
(2) A loan is considered delinquent by us if any payment of $25 or more is
past-due 30 days or more.
(3) The period of delinquency is based on the number of days that payments are
contractually past-due (assuming 30-day months). Consequently, a loan due
on the first day of a month is not 30 days delinquent until the first day
of the next month.
(4) By number of loans.
The following tables set forth the loan loss and repossession experience for
the periods indicated of the portfolios of conventional and FHA-insured secured
home improvement loans serviced by Green Tree (other than loans already in
repossession).
Loan Default and Loss Experience--Conventional Loans
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
---------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Principal Balance of Loans
Serviced(1)................... $ $ $ $824,419 $418,055
Loan Defaults(2) % % % .53% .12%
Net Losses:
Dollars(3)................... $ $ $ $ 3,424 $ 285
Percentage(4)................ % % % .42% .07%
</TABLE>
- --------
(1) As of period end. Includes defaulted loans not yet liquidated.
(2) As a percentage of the total number of loans being serviced as of period
end. We consider a loan defaulted when we have commenced foreclosure or
enforcement proceedings or the loan is 180 days delinquent.
(3) Does not include any estimated losses for defaulted loans not yet
liquidated.
(4) As a percentage of the principal amount of loans being serviced as of
period end.
S-21
<PAGE>
Loan Default and Loss Experience--FHA Insured Loans
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
-----------------------------------------
1998 1997 1996 1995 1994
---- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Principal Balance of
Loans Serviced(1)................... $ $ $191,364 $199,286
Loan Defaults(2)..................... % % 1.81% 1.88%
Net Losses:
Dollars(3)......................... $ $ $ 291 $ 623
Percentage(4)...................... % % .15% .31%
</TABLE>
- --------
(1) As of period end. Includes defaulted loans not yet liquidated.
(2) As a percentage of the total number of loans being serviced as of period
end. We consider a loan defaulted when we have submitted a claim to FHA, we
have commenced foreclosure or enforcement proceedings, or the loan is 180
days delinquent.
(3) Does not include any estimated losses for defaulted loans not yet
liquidated. Includes unpaid interest to the date of FHA claim submission
and all expenses of liquidation, and reflects proceeds of FHA Insurance
claims paid.
(4) As a percentage of the principal amount of loans being serviced as of
period end.
Our management is not aware of any trends or anomalies which have adversely
affected the delinquency, loan default and loss experience of its portfolio of
home improvement loans.
The data presented in the tables above are for illustrative purposes only and
there is no assurance that the delinquency, loan default and loss experience of
the loans will be similar to that described above. Because we began originating
and purchasing FHA-insured home improvement loans in April 1989, and secured
conventional home improvement loans in September 1992, it is likely that our
portfolio is not yet sufficiently seasoned to show the delinquencies and losses
that would be experienced if such data were collected over a longer period of
time. The delinquency, loan default and loss experience of home improvement
loans may be adversely affected by a downturn in regional or local economic
conditions. Regional and local economic conditions are often volatile, and no
predictions can be made regarding future economic conditions in any particular
area.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any certificate will depend on the price paid by the
certificateholder, the timing of principal payments, and the timing and amount
of any liquidation losses on the loans.
Higher than expected principal prepayments will increase the yield on
certificates purchased at a price less than the undivided ownership interest in
the aggregate principal balance of the loans represented by those certificates
and will decrease the yield on certificates purchased at a price greater than
the undivided ownership interest in the aggregate principal balance of the
loans represented by those certificates. We have no
S-22
<PAGE>
significant experience relating to the rate of principal prepayments on home
improvement loans. Because the loans have scheduled due dates throughout the
calendar month, and because all principal prepayments are passed through to
certificateholders on the payment date following the due period in which such
principal prepayment occurred, prepayments on the loans would affect the amount
of funds available to make distributions on the certificates on any payment
date only if a substantial portion of the loans prepaid prior to their
respective due dates in a particular month, while very few loans prepaid after
their due dates in that month. In addition, liquidations of defaulted loans or
the servicer's exercise of its option to repurchase the entire remaining pool
of loans will affect the timing of principal distributions on the certificates.
Prepayments on mortgage loans and other consumer installment obligations are
commonly measured relative to a prepayment standard or model. The Constant
Prepayment Rate model assumes that the outstanding principal balance of a pool
of loans prepays each month at a specified constant annual rate. The
certificates were priced using a prepayment assumption of % CPR. There can be
no assurance that the loans will prepay at such rate, and it is unlikely that
prepayments or liquidations of the loans will occur at any constant rate.
The amount of interest to which the certificateholders of any class are
entitled on any payment date will be the product of the related pass-through
rate and the principal balance of such class immediately following the
preceding payment date, based on a 360-day year consisting of 12 months of 30
days each. Certificateholders will receive payments in respect of principal on
each payment date to the extent that funds available in the certificate account
are sufficient, in the priority described under "Description of the
Certificates--Distributions on the Certificates." As required by state laws,
interest paid by obligors on the loans is computed according to the simple
interest method. Principal and interest payable on the certificates will be
computed according to the actuarial method.
The final scheduled payment date on the loan with the latest maturity is in
.
Weighted Average Life of the Certificates
The following information is given solely to illustrate the effect of
prepayments of the loans on the weighted average life of each class of
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the loans.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the certificates will be
influenced by the rate at which principal on the loans is paid. Principal
payments on loans may be in the form of scheduled amortization or prepayments,
for this purpose, the term prepayment includes repayments and liquidations due
to default or other dispositions of the loans.
As used in the following tables, 0% CPR assumes that none of the loans are
prepaid before maturity, % CPR assumes the loans will prepay at a CPR of %,
and so forth.
S-23
<PAGE>
There is no assurance, however, that prepayment of the loans will conform to
any level of the CPR, and no representation is made that the loans will prepay
at the prepayment rates shown or any other prepayment rate. The rate of
principal payments on pools of home improvement loans is influenced by a
variety of economic, geographic, social and other factors, including the level
of interest rates and the rate at which homeowners sell their homes or default
on their loans. Other factors affecting prepayment of loans include changes in
obligors' housing needs, job transfers, unemployment and obligors' net equity
in their homes. In the case of home improvement loans secured by real estate,
in general, if prevailing interest rates fall significantly below the interest
rates on such home improvement loans, the home improvement loans are likely to
be subject to higher prepayment rates than if prevailing interest rates
remained at or above the rates borne by such home improvement loans.
Conversely, if prevailing interest rates rise above the interest rates on such
home improvement loans, the rate of prepayment would be expected to decrease.
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the loans are received in
a timely manner and prepayments are made at the indicated percentages
of the CPR;
(2) the servicer exercises its option to repurchase the loans, as
described under "Description of the Certificates--Repurchase Option";
(3) the loans will, as of the cut-off date, be grouped into four pools
having the additional characteristics described below under Assumed
Loan Characteristics;
(4) the Class A-1 certificates have an original Class A-1 principal
balance of $ and a Class A-1 pass-through rate of %, the
Class A-2 certificates have an original class A-2 principal balance of
$ and a Class A-2 pass-through rate of %, the Class A-3
certificates have an original Class A-3 principal balance of
$ and a Class A-3 pass-through rate of %, the Class M-1
certificates have an original Class M-1 principal balance of
$ and a Class M-1 pass-through rate of %, the Class M-2
certificates have an original Class M-2 principal balance of
$ and a Class M-2 pass-through rate of %, the Class B-1
certificates have an original Class B-1 principal balance of
$ and a Class B-1 pass-through rate of % and the Class
B-2 certificates have an original Class B-2 principal balance of
$ and a Class B-2 pass-through rate of %;
(5) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(6) no delinquencies or losses are experienced on the loans;
(7) distributions are made on the certificates on the 15th day of each
month, commencing in ; and
(8) the certificates are issued on , . No representation is made
that the loans will not experience delinquencies or losses.
S-24
<PAGE>
Assumed Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Cut-off Weighted Average Average
Date Pool Average Remaining Term Original Term
Principal Loan to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- ----------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1............................. $ %
2.............................
3.............................
4.............................
</TABLE>
It is not likely that the loans will prepay at any constant percentage of the
CPR to maturity or that all of the loans will prepay at the same rate.
You are urged to make your investment decisions on a basis that includes your
determination as to anticipated prepayment rates under a variety of the
assumptions discussed.
Based on these assumptions, the following tables indicate the projected
weighted average lives of each class of certificates, and set forth the
percentages of the original principal balance of each class that would be
outstanding after each of the dates shown, at the indicated percentages of the
CPR.
The weighted average life of a class of certificates is determined by: (a)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of issuance of
such certificate to the stated payment date, (b) adding the results, and (c)
dividing the sum by the initial principal balance of such certificate.
S-25
<PAGE>
Percentage of the Original Principal Balance of the Class A-1
Certificates at the Respective Percentages of the
CPR Listed Below:
<TABLE>
<CAPTION>
Date % % % % %
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
March 15, 1997.........................................
March 15, 1998.........................................
March 15, 1999.........................................
Weighted Average Life (years)..........................
</TABLE>
Percentage of the Original Principal Balance of the Class A-2 Certificates at
the Respective Percentages of the CPR Listed Below:
<TABLE>
<CAPTION>
Date % % % % %
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
Weighted Average Life (years)..........................
</TABLE>
Percentage of the Original Principal Balance of the Class A-3 Certificates at
the Respective Percentages of the CPR Listed Below:
<TABLE>
<CAPTION>
Date % % % % %
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
.................................................
Weighted Average Life (years)..........................
</TABLE>
S-26
<PAGE>
Percentage of the Original Principal Balance of the Class M-1
Certificates at the Respective Percentages of the
CPR Listed Below:
<TABLE>
<CAPTION>
Date % % % % %
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
Weighted Average Life (years)..........................
</TABLE>
Percentage of the Original Principal Balance of the Class M-2 Certificates at
the Respective Percentages of the CPR Listed Below:
<TABLE>
<CAPTION>
Date % % % % %
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
Weighted Average Life (years)..........................
</TABLE>
S-27
<PAGE>
Percentage of the Original Principal Balance of the Class B-1
Certificates at the Respective Percentages of the
CPR Listed Below:
<TABLE>
<CAPTION>
Date % % % % %
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
Weighted Average Life (years)..........................
</TABLE>
Percentage of the Original Principal Balance of the Class B-2
Certificates at the Respective Percentages of the
CPR Listed Below:
<TABLE>
<CAPTION>
Date % % % % %
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
...................................................
Weighted Average Life (years)..........................
</TABLE>
S-28
<PAGE>
GREEN TREE FINANCIAL CORPORATION
General
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under the heading "Green Tree Financial
Corporation."
Ratio of Earnings to Fixed Charges for Green Tree
The table below shows Green Tree's ratios of earnings to fixed charges for
the past five years [and the months ended .] For the purposes of
compiling these ratios, earnings consist of earnings before income taxes plus
fixed charges. Fixed charges consist of interest expense and the interest
portion of rent expense.
<TABLE>
<CAPTION>
Months
Year Ended December 31, Ended
------------------------ ------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed Charges.... 7.98 7.90 5.44 3.94 .62* 4.53
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to our merger with
Conseco, Inc.
Recent Developments
We have been served with various lawsuits in the United States District Court
for the District of Minnesota. These lawsuits were filed by our stockholders as
purported class actions on behalf of persons or entities who purchased common
stock or traded in options during the alleged class periods. In addition to the
company, some of our current and former officers and directors are named as
defendants in one or more of the lawsuits. The lawsuits have been consolidated
into two complaints, one relating to an alleged class of purchasers of our
common stock and the other relating to an alleged class of traders in options
for our common stock. In addition to these two complaints, a separate non-class
action lawsuit containing similar allegations was also filed. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. In each case, plaintiffs allege that we and the other
defendants violated federal securities laws by making false and misleading
statements about our current state and our future prospects particularly about
prepayment assumptions and performance of some of our loan portfolios, which
allegedly rendered our financial statements false and misleading. We believe
that the lawsuits are without merit and intend to defend the lawsuits
vigorously.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under "Description of the Certificates."
The certificates will be issued under the pooling and servicing agreement
between us, as seller and servicer, and the trustee. A copy of the execution
form of the pooling and servicing agreement will be filed in a current report
on Form 8-K with the SEC after the
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initial issuance of the certificates. The following summary describes the
material provisions of the pooling and servicing agreement, reference to which
is made for a complete recital of its terms.
General
The certificates will be issued in fully registered, certificated form only
in denominations of $1,000 or any integral multiple of $1,000. The certificates
initially will be represented by certificates registered in the name of Cede as
the nominee of DTC, and will only be available in the form of book-entries on
the records of DTC and participating members. See "--Registration of the
Certificates" below. The trust consists primarily of the loans and the rights,
benefits, obligations and proceeds, including liens on the related real estate,
rights under applicable FHA Insurance for FHA-insured home improvement loans,
amounts held in the certificate account and the Class HI: B-2 limited guaranty
and our Class HE: B-2 limited guaranty for the benefit of the Class HI: B-2
certificateholders and the Class HE: B-2 certificateholders.
Distributions on the certificates will be made by the paying agent on each
payment date to persons in whose names the certificates are registered as of
the business day immediately preceding such payment date. See "--Registration
of the Certificates" below. The first payment date for the certificates will be
in 1999. Payments will be made by check mailed to such certificateholder at
the address appearing on the certificate register, except that a
certificateholder who holds an aggregate percentage interest of at least 5% of
a class of certificates may request payment by wire transfer. Final payments
will be made only upon tender of the certificates to the trustee for
cancellation.
Conveyance of Loans
On the closing date, we will establish the trust and transfer, assign, set
over and otherwise convey to the trust all our right, title and interest in the
loans, including all principal and interest received on or with respect to such
loans, other than receipts of principal and interest due on such loans before
the cut-off date. On behalf of the trust, as the issuer of the certificates,
the trustee, concurrently with such conveyance, will execute and deliver the
certificates to or upon our order. The loans are described on a list delivered
to the trustee and certified by a duly authorized officer of the company. Such
list includes the amount of monthly payments due on each loan as of the date of
issuance of the certificates, the loan rate on each loan and the maturity date
of each loan. The list will be attached as an exhibit to the pooling and
servicing agreement and will be available for inspection by any
certificateholder at our principal office. Before the conveyance of the loans
to the trust, our internal audit department will have completed a review of all
the loan files, confirming the accuracy of each item on the list of loans
delivered to the trustee. Any loan discovered not to agree with such list in a
manner that is materially adverse to the interests of the certificateholders
will be repurchased by us, or, if the discrepancy relates to the unpaid
principal balance of a loan, we may deposit cash in the certificate account in
an amount sufficient to offset such discrepancy.
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The trustee will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota, reflecting the conveyance and assignment of the loans to
the trustee, and our accounting records and computer systems will also reflect
the conveyance and assignment.
Our counsel, Dorsey & Whitney LLP, will render an opinion to the trustee that
the transfer of the loans from us to the trust would, in the event we became a
debtor under the United States Bankruptcy Code, be treated as a true sale and
not as a pledge to secure borrowings. If, however, the transfer of the loans
from us to the trust were treated as a pledge to secure borrowings by us, the
distribution of proceeds of the loans to the trust might be subject to the
automatic stay provisions of the United States Bankruptcy Code, which would
delay the distribution of such proceeds for an uncertain period of time. In
addition, a bankruptcy trustee would have the power to sell the loans if the
proceeds of such sale could satisfy the amount of the debt deemed owed by us,
or the bankruptcy trustee could substitute other collateral in lieu of the
loans to secure such debt, or such debt could be subject to adjustment by the
bankruptcy trustee if we were to file for reorganization under Chapter 11 of
the United States Bankruptcy Code.
We will make certain representations and warranties in the pooling and
servicing agreement with respect to each loan, including that:
(1) as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
(2) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(3) each loan 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;
(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each loan if an FHA-insured loan was originated in accordance with
applicable FHA regulations and is insured, without set-off, surcharge
or defense, by FHA Insurance;
(6) each loan was originated by a home improvement contractor in the
ordinary course of such contractor's business or was originated by us
directly;
(7) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest therein pursuant to the pooling and servicing agreement or
the certificates unlawful;
(8) each loan complies with all requirements of law;
(9) no loan has been satisfied, subordinated to a lower lien ranking than
its original position or rescinded;
(10) each loan creates a valid and perfected lien on the related improved
real estate;
(11) all parties to each loan had full legal capacity to execute such
loan;
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(12) no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer such loan to the trustee;
(13) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clause (1) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under such loan, and we have not waived any of the
foregoing;
(14) each loan is a fully-amortizing loan with a fixed rate of interest
and provides for level monthly payments over the term of such loan;
(15) each loan contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for
realization against the collateral;
(16) the description of each loan set forth in the list delivered to the
trustee is true and correct;
(17) there is only one original of each loan; and
(18) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
We will also make certain representations and warranties with respect to the
loans in the aggregate, including that:
(1) the cut-off date pool principal balance equals at least the original
series 1998- principal balance, and each loan has a contractual rate
of interest of at least %;
(2) no loan had a remaining term to maturity at origination of more than
months;
(3) no more than % of the loans, by principal balance as of the cut-off
date, were secured by properties located in an area with the same zip
code;
(4) no more than % of the loans, by principal balance as of the cut-off
date, were originated by any one contractor; and
(5) no adverse selection procedures were employed in selecting the loans
from our portfolio.
Under the terms of the pooling and servicing agreement, we have agreed to
repurchase, at the repurchase price, any loan that is materially and adversely
affected by a breach of a representation and warranty with respect to such loan
made in the pooling and servicing agreement if such breach has not been cured
within 90 days of the day it was or should have been discovered by the servicer
or the trustee. This repurchase obligation constitutes the sole remedy
available to the trust and the certificateholders for a breach of a
representation or warranty under the pooling and servicing agreement with
respect to the loans, but not with respect to any other breach by us of our
obligations under the pooling and servicing agreement.
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The repurchase price, with respect to any loan to be so repurchased or with
respect to a liquidated loan, means the outstanding principal balance of such
loan, without giving effect to any advances made by the servicer or the
trustee, plus interest at the pass-through rate, which will be the weighted
average of the Class A-1, Class A-2, Class A-3, Class M-1, Class M-2, Class B-1
and Class B-2 pass-through rates on such loan from the end of the due period
with respect to which the obligor last made a scheduled payment, without giving
effect to any advances made by the servicer or the trustee through the date of
such repurchase or liquidation.
Pursuant to the pooling and servicing agreement, the servicer will service
and administer the loans conveyed and assigned to the trustee as more fully
described below.
Payments on Loans
The servicer, on behalf of the trust, will establish and maintain a
certificate account in an eligible account at a depository institution with
trust powers organized under the laws of the United States or any state, the
deposits of which are insured to the full extent permitted by law by the FDIC,
whose short-term deposits have been rated P-1 by Moody's and A-1 by S&P or
whose unsecured long-term debt has been rated in one of the two highest rating
categories by Moody's and S&P, and which is subject to supervision and
examination by federal or state authorities. Eligible account means any account
which is:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the trustee, which depository institution or trust
company has capital and surplus of not less than $50,000,000; or
(4) an account that will not cause Moody's or S&P to downgrade or
withdraw its then-current rating assigned to the certificates, as
evidenced in writing by Moody's and S&P.
The servicer may authorize the trustee to invest the funds in the certificate
account in eligible investments that will mature not later than the business
day preceding the applicable monthly payment date. Eligible investments
include:
. obligations of the United States backed by the full faith and
credit of the United States, federal funds, certificates of
deposit, time deposits and bankers acceptances sold by eligible
commercial banks;
. any other demand or time deposit or certificate of deposit fully
insured by the FDIC;
. investments in certain money-market funds;
. certain repurchase agreements of United States government
securities with eligible commercial banks;
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. securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least "Aa2" from
Moody's and at least "AA" from S&P not in excess of 10% of amounts
in the certificate account at the time of such investment; and
. commercial paper assigned a rating of at least P-1 by Moody's and
at least A-1+ by S&P. Any losses on such investments will be
deducted from other investment earnings or from other funds in the
certificate account.
All payments from obligors with respect to the loans, including principal
prepayments and advance payments by obligors not constituting principal
prepayments, shall be paid into the certificate account no later than one
business day following receipt thereof, except amounts received as extension
fees or assumption fees not allocated to regular installments due on loans,
which are retained by the servicer as part of its servicing fees and are not
paid into the certificate account and except for certain proceeds from
liquidated loans which are used to reimburse the servicer for customary out-of-
pocket liquidation expenses. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses." In addition, all payments under FHA
Insurance received by the servicer, any advances by the servicer or the trustee
as described under "Description of the Certificates--Advances," and amounts
paid by Green Tree for loans repurchased as a result of breach of warranties as
described under "Description of the Certificates--Conveyance of Loans," will be
paid into the certificate account.
On the seventh business day of each month the servicer will determine the
amount available and the amount of funds necessary to make all payments to be
made on the next payment date from the certificate account. Not later than one
business day after this determination date, Green Tree will deposit in the
certificate account the repurchase price of any loans required to be
repurchased on that payment date as a result of a breach of representations and
warranties.
On each payment date the trustee will withdraw the amount available from the
certificate account and make the following payments, in the following order of
priority:
(1) if neither we nor our wholly owned subsidiary are the servicer, to
pay the monthly servicing fee to the servicer;
(2) to pay interest and principal on the certificates, in the manner and
the order of priority described below;
(3) if we or our wholly owned subsidiary are the servicer, to pay the
monthly servicing fee to the servicer;
(4) to reimburse the trustee or any successor servicer for any payments
of FHA Insurance premiums not paid by us, as servicer, and for which
the trustee or such successor servicer has not been reimbursed by us;
(5) to reimburse the servicer or the trustee, as applicable, for any
unreimbursed advances made in respect of current or prior payment
dates;
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(6) to reimburse the holder of the Class C certificate for expenses
incurred by and reimbursable to it with respect to taxes or charges
imposed upon the trust as a REMIC or otherwise;
(7) to reimburse us for any prior unreimbursed Class B-2 guaranty
payments; and
(8) to pay any remaining amounts to the holder of the Class C
certificate.
Distributions
On each payment date, distributions on the certificates in respect of the
amount available will be made first to the holders of the Class A certificates,
then to the holders of the Class M-1 certificates, then to the holders of the
Class M-2 certificates, then to the holders of the Class B-1 certificates and
then to the holders of the Class B-2 certificates, as described below.
Distributions of interest and principal to holders of a class of Class A
certificates will be made on each payment date, to the extent that the amount
available in the certificate account is sufficient, in an amount equal to the
sum of:
(1) their respective percentage interests of the amount of interest
calculated as described under Class A interest and
(2) their respective percentage interests, distributed to each class of
Class A certificates in the order of priority of the senior
percentage of the Formula Principal Distribution Amount, calculated
under Class A principal.
Distributions on the Class A certificates will be applied first to the
payment of interest and then to the payment of principal. The Class A
distribution amount for any payment date is intended to be equal to the sum of:
(1) the amount of interest calculated as set forth under Class A interest
and
(2) the senior percentage of the formula principal distribution amount,
if the Class A formula distribution amount exceeds the amount
available in the certificate account on such payment date, then the
Class A distribution amount shall instead equal the amount available
and the amount of such deficiency will be carried forward and added
to the amount the Class A certificateholders will be entitled to
receive on the next payment date.
Distributions of interest and principal to holders of Class M-1 certificates
will be made on each payment date in an amount equal to their respective
percentage interests multiplied by the Class M-1 distribution amount.
Distributions on the Class M-1 certificates will be applied first to the
payment of interest and then to the payment of principal. The Class M-1
distribution amount for any payment date is intended to be equal to the sum of:
(1) the amount of interest calculated under Class M-1 interest and
(2) after the Class A principal balance has been reduced to zero and
until the Class M-1 principal balance has been reduced to zero, the
senior percentage of the formula principal distribution amount.
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If the amount available in the certificate account available for distribution
to the Class M-1 certificateholders, after giving effect to any distribution
made to Class A certificateholders on such payment date is less than the Class
M-1 Formula Distribution Amount, then the Class M-1 distribution amount will
equal the Class M-1 remaining amount available and the amount of such
deficiency will be carried forward and added to the amount such holders will be
entitled to receive on the next payment date.
Distributions of interest and principal to holders of Class M-2 certificates
will be made on each payment date in an amount equal to their respective
percentage interests multiplied by the Class M-2 distribution amount.
Distributions on the Class M-2 certificates will be applied first to the
payment of interest and then to the payment of principal. The Class M-2
distribution amount for any payment date is intended to be equal to the sum of:
(1) the amount of interest calculated as set forth under Class M-2
interest and
(2) after the Class M-1 principal balance has been reduced to zero and
until the Class M-2 principal balance has been reduced to zero, the
senior percentage of the formula principal distribution amount.
If the amount available in the certificate account available for distribution
to the Class M-2 certificateholders, after giving effect to any distribution
made to Class A certificateholders and the Class M-1 certificateholders on such
payment date is less than the Class M-2 Formula Distribution Amount, then the
Class M-2 distribution amount will equal the Class M-2 remaining amount
available and the amount of such deficiency will be carried forward and added
to the amount such holders will be entitled to receive on the next payment
date.
Distributions of interest and principal to holders of Class B-1 certificates
will be made on each payment date in an amount equal to their respective
percentage interests multiplied by the Class B-1 distribution amount.
Distributions on the Class B-1 certificates will be applied first to the
payment of interest and then to the payment of principal. The Class B-1
distribution amount for any payment date is intended to be equal to the sum of:
(1) the amount of interest calculated as set forth under Class B-1
interest and
(2) until the Class B-1 principal balance has been reduced to zero, an
amount of principal equal to the Class B percentage of the formula
principal distribution amount.
If the amount available in the certificate account available for distribution
to the Class B-1 certificateholders, after giving effect to any distribution
made to Class A certificateholders, Class M-1 certificateholders and Class M-2
certificateholders on such payment date, is less than the Class B-1 Formula
Distribution Amount, then the Class B-1 distribution amount will equal the
Class B-1 remaining amount available and the amount of such deficiency will be
carried forward and added to the amount such holders will be entitled to
receive on the next payment date.
Distributions of interest and principal to holders of the Class B-2
certificates will be made on each payment date in an amount equal to their
respective percentage interests of the
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Class B-2 distribution amount and any Class B-2 guaranty payment. The Class B-2
distribution amount for any payment date is intended to be equal to the sum of:
(1) the amount of interest calculated as set forth under Class B-2
interest and
(2) after the Class B-1 principal balance has been reduced to zero and
until the Class B-2 principal balance has been reduced to zero, the
Class B percentage of the formula principal distribution amount.
Distributions on the Class B-2 certificates will be applied first to the
payment of interest and then to the payment of principal. If the amount
available in the certificate account available for distribution to the Class B-
2 certificateholders, after giving effect to distributions made to Class A
certificateholders, Class M certificateholders and Class B-1 certificateholders
on such payment date is not sufficient to make a full distribution of the Class
B-2 Formula Distribution Amount to the Class B-2 certificateholders, then the
Class B-2 distribution amount will equal the Class B-2 remaining amount
available and we will be obligated to make a Class B-2 guaranty payment into
the certificate account pursuant to the Class B-2 limited guaranty.
On each payment date the amount available will be distributed to Class A
certificateholders, then Class M certificateholders and then Class B
certificateholders in the amounts and order of priority listed below:
Class A Interest
One month's interest, computed on the basis of a 360-day year of twelve 30-
day months, will be paid concurrently to the holders of each class of Class A
certificates on each payment date, to the extent of the amount available in the
certificate account on such date, at the related pass-through rate on the then
outstanding principal balance of each class of Class A certificates. Interest
on each class of Class A certificates will accrue from , 1999, or from
the most recent payment date on which interest has been paid, to but excluding
the following payment date.
The pass-through rates for the Class A-1, Class A-2 and Class A-3
certificates are described on the cover of this prospectus supplement, and in
each case will be computed on the basis of a 360-day year of twelve 30-day
months.
The principal balance of any class of Class A certificates as of any payment
date is the original principal balance of such class less all amounts
previously distributed to holders of such class on account of principal. The
Class A principal balance as of any payment date is the sum of the Class A-1
principal balance, the Class A-2 principal balance and the Class A-3 principal
balance.
If, on a particular payment date, the amount available in the certificate
account is not sufficient to make a full distribution of interest to the
holders of each class of Class A certificates, the amount of interest to be
distributed on the Class A certificates will be allocated among each class, and
within a class among the certificates of such class, pro rata in accordance
with their respective entitlements to interest, and the amount of the shortfall
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will be carried forward and added to the amount such holders will be entitled
to receive on the next payment date. Such a shortfall could occur, for example,
if delinquencies or losses realized on the loans were exceptionally high and
were concentrated in a particular month. Any such amount carried forward will
bear interest at the applicable pass-through rate for each class of Class A
certificates, to the extent permitted by law.
Class A Principal
Holders of a class of Class A certificates will be entitled to receive on
each payment date as payments of principal, in the order of priority described
below and up to the amount available in the certificate account on the date
after payment of interest on each class of Class A certificates, the senior
percentage of the sum, such sum being referred to as the formula principal
distribution amount of:
(1) all scheduled payments of principal due on each outstanding loan
during the month preceding the month in which the payment date
occurs,
(2) the scheduled principal balance of each loan which, during the month
preceding the month of the payment date, was purchased by us under
the pooling and servicing agreement on account of certain breaches of
its representations and warranties,
(3) all partial principal prepayments applied and all principal
prepayments in full received during the preceding month,
(4) the scheduled principal balance of each loan that became a liquidated
loan during the preceding month, and
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the certificate account if (a) the payment date occurs
on or after the payment date on which the Class B-2 principal balance
has been reduced to zero, or (b) the amount was not covered by a
Class B-2 guaranty payment and corresponding reduction in the Class
B-2 principal balance. When the principal balance of a class of Class
A certificates is reduced to zero, no further distributions of
principal will be made to the holders of such class.
The senior percentage for any payment date prior to the Class B cross-over
date, and for any payment date on or after the Class B cross-over date on which
any Class B principal distribution test is not satisfied, described under Class
B-1 principal below, will be 100%, and for any payment date on or after the
Class B cross-over date on which each Class B principal distribution test is
satisfied will equal a fraction, expressed as a percentage, the numerator of
which is the sum of the Class A principal balance and the Class M principal
balance as of such payment date and the denominator of which is the pool
scheduled principal balance as of the immediately preceding payment date. The
scheduled principal balance of a loan with respect to any payment date is its
principal balance as of the scheduled payment date in the calendar month
preceding such payment date as specified in its amortization schedule, after
giving effect to any previous partial principal prepayments and to the
scheduled payment due on the due date, but without giving effect to any
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delinquency in payment or adjustments due to bankruptcy or similar proceedings.
The pool scheduled principal balance, as of any payment date, is the aggregate
of the scheduled principal balances of loans that were outstanding during the
preceding due period. A liquidated loan is a defaulted loan as to which all
amounts that the servicer expects to recover on account of such loan have been
received.
The senior percentage of the formula principal distribution amount will be
distributed, to the extent of the amount available after payment of interest on
each class of Class A certificates, first to the Class A-1 certificateholders
until the Class A-1 principal balance has been reduced to zero, then to the
Class A-2 certificateholders until the Class A-2 principal balance has been
reduced to zero and then to the Class A-3 certificateholders until the Class A-
3 principal balance has been reduced to zero.
As described below, all losses on liquidated loans will be absorbed
. first by the Class C certificate,
. then by the monthly servicing fee otherwise payable to the servicer,
so long as we or our wholly owned subsidiary is the servicer,
. then by the Class B-2 certificates,
. then by the Class B-1 certificates,
. then by the Class M-2 certificates and
. then by the Class M-1 certificates.
If the amount available on any payment date is less than the Class A
distribution amount, the amount available will be applied first to the payment
of interest on the Class A certificates and then to the payment of principal to
the class of Class A certificates then entitled.
Class M-1 Interest
Interest will be paid to the Class M-1 certificateholders on each payment
date, up to the Class M-1 remaining amount available, if any, in an amount
equal to the product of:
(1) the Class M-1 pass-through rate and
(2) the then outstanding Class M-1 principal balance less the Class M-1
principal shortfall amount, if any.
The Class M-1 principal shortfall amount as of any payment date will equal
the excess, if any, of the aggregate principal shortfall amount over the
aggregate of the principal balances of the Class M-2 certificates, the Class B-
1 certificates and the Class B-2 certificates. The aggregate principal
shortfall amount as of any payment date will equal the excess, if any, of:
(1) the aggregate principal balance of the certificates as of the
preceding payment date, after giving effect to distributions of
principal thereon, over
(2) the pool scheduled principal balance for such preceding payment date.
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Interest on the outstanding Class M-1 principal balance will accrue from
, 1999, or from the most recent payment date on which interest has been paid,
to but excluding the following payment date, and will be computed on the basis
of a 360-day year of twelve 30-day months. The Class M-1 principal balance is
the original Class M-1 principal balance less the sum of all amounts previously
distributed to Class M-1 certificateholders on account of principal. In the
event that, on a particular payment date, the Class M-1 remaining amount
available, plus other funds in the certificate account available, is not
sufficient to make a full distribution of the Class M-1 interest payment amount
to the Class M-1 certificateholders, the amount of such interest to be
distributed in respect of the Class M-1 certificates will be allocated among
the certificates of such class pro rata in accordance with their respective
entitlements to interest, and any remaining deficiency will be carried forward
and added to the amount such holders will be entitled to receive on the next
payment date. Interest will accrue on the Class M-1 principal shortfall amount,
if any, and will be payable on succeeding payment dates to the extent of the
amount available remaining after payment of the Class A distribution amount,
the Class M-1 distribution amount, the Class M-2 distribution amount, the Class
B-1 distribution amount and the Class B-2 distribution amount. Any interest
amounts carried forward will bear interest at the Class M-1 pass-through rate,
to the extent permitted by law.
The Class M-1 pass-through rate is set forth on the cover of this prospectus
supplement, and will be computed on the basis of a 360-day year of twelve 30-
day months.
Class M-1 Principal
On each payment date after the Class A principal balance has been reduced to
zero, Class M-1 certificateholders will be entitled to receive, as payments of
principal, the senior percentage of the formula principal distribution amount
to the extent of the Class M-1 remaining amount available in the certificate
account on such date, after payment of all interest payable on the Class M-1
certificates, until the Class M-1 principal balance has been reduced to zero.
On each payment date on or after the Class B cross-over date on which each
Class B principal distribution test is satisfied, payments of principal will be
made to Class B-1 or Class B-2 certificateholders, even if Class M-1
certificateholders are not yet entitled to receive payments of principal
because the Class A principal balance has not been reduced to zero.
Class M-2 Interest
Interest will be paid to the Class M-2 certificateholders on each payment
date, up to the Class M-2 remaining amount available, if any, in an amount
equal to the product of:
(1) the Class M-2 pass-through rate and
(2) the then outstanding Class M-2 principal balance less the Class M-2
principal shortfall amount, if any. The Class M-2 principal shortfall
amount as of any payment date will equal the excess, if any, of the
aggregate principal shortfall amount over the aggregate of the
principal balances of the Class B-1 certificates and the Class B-2
certificates.
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Interest on the outstanding Class M-2 principal balance will accrue from
, 1999, or from the most recent payment date on which interest has been paid,
to but excluding the following payment date, and will be computed on the basis
of a 360-day year of twelve 30-day months. The Class M-2 principal balance is
the original Class M-2 principal balance less the sum of all amounts previously
distributed to Class M-2 certificateholders on account of principal. In the
event that, on a particular payment date, the Class M-2 remaining amount
available, plus other funds in the certificate account available, is not
sufficient to make a full distribution of the Class M-2 interest payment amount
to the Class M-2 certificateholders, the amount of such interest to be
distributed in respect to the Class M-2 certificates will be allocated among
the certificates of such class pro rata in accordance with their respective
entitlements to interest, and any remaining deficiency will be carried forward
and added to the amount such holders will be entitled to receive on the next
payment date. Interest will accrue on the Class M-2 principal shortfall amount,
if any, and will be payable on succeeding payment dates to the extent of the
amount available remaining after payment in full of the Class A distribution
amount, the Class M-1 distribution amount, the Class M-2 distribution amount,
the Class B-1 distribution amount, the Class B-2 distribution amount and
interest accrued and unpaid on the Class M-1 principal shortfall amount. Any
interest amounts carried forward will bear interest at the Class M-2 pass-
through rate, to the extent permitted by law.
The Class M-2 pass-through rate is set forth on the cover of this prospectus
supplement, and will be computed on the basis of a 360-day year of twelve 30-
day months.
Class M-2 Principal
On each payment date after the Class A principal balance and the Class M-1
principal balance have been reduced to zero, Class M-2 certificateholders will
be entitled to receive, as payments of principal, the senior percentage of the
formula principal distribution amount to the extent of the Class M-2 remaining
amount available in the certificate account on such date, after payment of all
interest payable on the Class M-2 certificates, until the Class M-2 principal
balance has been reduced to zero. On each payment date on or after the Class B
cross-over date on which each Class B principal distribution test is satisfied,
payments of principal will be made to Class B-1 or Class B-2
certificateholders, even if Class M-2 certificateholders are not yet entitled
to receive payments of principal because the Class A principal balance and
Class M-1 principal balance have not been reduced to zero.
Class B-1 Interest
Interest will be paid to the Class B-1 certificateholders on each payment
date, up to the Class B-1 remaining amount available, if any, in an amount
equal to the product of:
(1) the Class B-1 pass-through rate and
(2) the then outstanding Class B-1 principal balance less the Class B-1
principal shortfall amount, if any.
The Class B-1 principal shortfall amount as of any payment date will equal the
excess, if any, of the aggregate principal shortfall amount over the Class B-2
principal balance. Interest
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on the outstanding Class B-1 principal balance will accrue from , 1999,
or from the most recent payment date on which interest has been paid, to but
excluding the following payment date, and will be computed on the basis of a
360-day year of twelve 30-day months. The Class B-1 principal balance is the
original Class B-1 principal balance less the sum of all amounts previously
distributed to Class B-1 certificateholders on account of principal. In the
event that, on a particular payment date, the Class B-1 remaining amount
available, plus other funds in the certificate account available, is not
sufficient to make a full distribution of the Class B-1 interest payment amount
to the Class B-1 certificateholders, the amount of such interest to be
distributed in respect of the Class B-1 certificates will be allocated among
the certificates of such class pro rata in accordance with their respective
entitlements to interest, and any remaining deficiency will be carried forward
and added to the amount such holders will be entitled to receive on the next
payment date. Interest will accrue on the Class B-1 principal shortfall amount,
if any, and will be payable on succeeding payment dates to the extent of the
amount available remaining after payment in full of the Class A distribution
amount, the Class M-1 distribution amount, the Class M-2 distribution amount,
the Class B-1 distribution amount, the Class B-2 distribution amount and
interest accrued and unpaid on the Class M-1 principal shortfall amount and
Class M-2 principal shortfall amount. Any interest amounts carried forward will
bear interest at the Class B-1 pass-through rate, to the extent permitted by
law.
The Class B-1 pass-through rate is set forth on the cover of this prospectus
supplement, and will be computed on the basis of a 360-day year of twelve 30-
day months.
Class B-1 Principal
Before the Class B cross-over date, there will be no distributions of
principal on the Class B-1 certificates. The Class B cross-over date will be
the earlier of:
(1) the payment date on which the Class M-2 principal balance is reduced
to zero and
(2) the first payment date on or after the payment date in on
which the fraction, expressed as a percentage, the numerator of which
is the Class B principal balance as of such payment date and the
denominator of which is the pool scheduled principal balance as of
the immediately preceding payment date, is equal to or greater than
%.
On each payment date on or after the Class B cross-over date and prior to the
payment date on which the Class A principal balance and the Class M principal
balance have been reduced to zero, holders of Class B certificates will be
entitled to distributions of principal only if each of the following tests is
satisfied on such payment date:
(1) the average sixty-day delinquency ratio as of such payment date must
not exceed %;
(2) the average thirty-day delinquency ratio as of such payment date must
not exceed %;
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(3) the cumulative realized losses as of such payment date must not
exceed a certain specified percentage of the cut-off date pool
principal balance, depending on the year in which such payment date
occurs;
(4) the current realized loss ratio as of such payment date must not
exceed 2.5%; and
(5) the Class B principal balance divided by the pool scheduled principal
balance as of the immediately preceding payment date must be equal to
or greater than %.
On each payment date on or after the Class B cross-over date, if each Class B
principal distribution test is satisfied on such payment date, Class B-1
certificateholders will be entitled to receive, as payments of principal, the
Class B percentage of the formula principal distribution amount to the extent
of the Class B-1 remaining amount available in the certificate account on such
date after payment of all interest payable on the Class B-1 certificates, until
the Class B-1 principal balance has been reduced to zero. The Class B-2
certificateholders will not be entitled to any distributions of principal from
the Class B-1 remaining amount available until the Class B-1 principal balance
has been reduced to zero. The Class B percentage for any payment date will be
equal to 100% minus the senior percentage. The Class B percentage for each
payment date, if any, after the Class A principal balance and the Class M
principal balance have been reduced to zero will be equal to 100%.
Class B-2 Interest
Interest will be paid to the Class B-2 certificateholders on each payment
date, to the extent of:
(1) the Class B-2 remaining amount available, if any and
(2) the amount, if any, paid pursuant to the Class B-2 limited guarantee,
in an amount equal to the product of (a) the Class B-2 pass-through
rate and (b) the then outstanding Class B-2 principal balance less the
Class B-2 principal shortfall amount, if any.
The Class B-2 principal shortfall amount as of any payment date will equal the
aggregate principal shortfall amount. Interest on the outstanding Class B-2
principal balance will accrue from , 1999, or from the most recent
payment date on which interest has been paid, to but excluding the following
payment date, and will be computed on the basis of a 360-day year of twelve 30-
day months. The Class B-2 principal balance is the original Class B-2 principal
balance less the sum of all amounts previously distributed to Class B-2
certificateholders on account of principal. In the event that, on a particular
payment date, the Class B-2 remaining amount available is not sufficient to
make a full distribution of the Class B-2 interest payment amount to the Class
B-2 certificateholders and Green Tree fails to pay such amount under the Class
B-2 limited guaranty, the amount of such interest to be distributed in respect
of the Class B-2 certificates will be allocated among the certificates of such
class pro rata in accordance with their respective entitlements to interest,
and the amount of such deficiency will be carried forward and added to the
amount such holders will be entitled to receive on the next payment date.
Interest will accrue in respect of the Class B-2 principal shortfall amount, if
any, and will be payable on succeeding payment dates to the extent of the
amount available remaining after payment in full of the Class A distribution
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amount, the Class M-1 distribution amount, the Class M-2 distribution amount,
the Class B-1 distribution amount, the Class B-2 distribution amount and
interest accrued and unpaid on the Class M-1 principal shortfall amount, the
Class M-2 principal shortfall amount and the Class B-1 principal shortfall
amount. Any interest amounts carried forward will bear interest at the Class B-
2 pass-through rate, to the extent permitted by law.
The Class B-2 pass-through rate is set forth on the cover of this prospectus
supplement, and will be computed on the basis of a 360-day year of twelve 30-
day months.
Class B-2 Principal
Except for payments of the Class B-2 principal liquidation loss amount,
payments of principal on the Class B-2 certificates will not commence until the
payment date on which the Class B-1 principal balance has been reduced to zero,
and will be made on that payment date and each payment date after that only if
each Class B principal distribution test is satisfied on that payment date,
unless the Class A principal balance and the Class M principal balance have
been reduced to zero. On any payment date, the Class B percentage of the
formula principal distribution amount will be distributed, from any remaining
Class B-2 remaining amount available and any amounts actually paid under the
Class B-2 limited guaranty after payment of interest on the Class B-2
certificates, to the Class B-2 certificateholders until the Class B-2 principal
balance has been reduced to zero.
On each payment date, the Class B-2 certificateholders will be entitled to
receive pursuant to the Class B-2 limited guaranty the amount by which the sum
Class A certificateholders to receive future distributions on the loans that
would otherwise be payable to the holders of Class M certificates and Class B
certificates. On each payment date the Class M-1 certificateholders will be
entitled to receive only amounts described above under Class M-1 interest and
Class M-1 principal, the Class M-2 certificateholders will be entitled to
receive only amounts described under Class M-2 interest and Class M-2
principal, the Class B-1 certificateholders will be entitled to receive only
amounts described above under Class B-1 interest and Class B-1 principal, and
the Class B-2 certificateholders will be entitled to receive only amounts
described above under Class B-2 interest and Class B-2 principal.
In addition, the rights of the holders of the Class M-2 certificates and
Class B certificates to receive distributions with respect to the loans will be
subordinate to such rights of the Class M-1 certificateholders. This
subordination is intended to enhance the likelihood of regular receipt by the
holders of the Class M-1 certificates of the full amount of their scheduled
monthly payments of principal and interest and to afford such holders
protection against losses on liquidated loans. The protection afforded to the
Class M-1 certificateholders by means of the subordination feature will be
accomplished by the preferential right of the Class M-1 certificateholders to
receive, before any distribution being made on a payment date in respect of the
Class M-2 certificates and the Class B certificates, the amount of principal
and interest due them on each payment date out of the Class M-1 remaining
amount available on deposit on such date in the certificate account and by the
right of the
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Class M-1 certificateholders to receive future distributions on the loans that
would otherwise be payable to the holders of Class M-2 certificates and Class B
certificates.
In addition, the rights of the holders of the Class B-1 certificates and the
Class B-2 certificates to receive distributions with respect to the loans will
be subordinate to such rights of the Class M-2 certificateholders. This
subordination is intended to enhance the likelihood of regular receipt by the
holders of the Class M-2 certificates of the full amount of their scheduled
monthly payments of principal and interest and to afford such holders
protection against losses on liquidated loans. The protection afforded to the
Class M-2 certificateholders by means of the subordination feature will be
accomplished by the preferential right of the Class M-2 certificateholders to
receive, prior to any distribution being made on a payment date in respect of
the Class B certificates, the amount of principal and interest due them on each
payment date out of the Class M-2 remaining amount available on deposit on that
date in the certificate account and by the right of the Class M-2
certificateholders to receive future distributions of the loans that would
otherwise be payable to the holders of Class B certificates.
In addition, the rights of the holders of the Class B-2 certificates to
receive distributions with respect to the loans will be subordinate to such
rights of the Class B-1 certificateholders. This subordination is intended to
enhance the likelihood of regular receipt by the holders of the Class B-1
certificates of the full amount of their scheduled monthly payments of
principal and interest and to afford such holders protection against losses on
liquidated loans. The protection afforded to the Class B-1 certificateholders
by means of the subordination feature will be accomplished by the preferential
right of the Class B-1 certificateholders to receive, prior to any distribution
being made on a payment date in respect of the Class B-2 certificates, the
amount of principal and interest due them on each payment date out of the Class
B-1 remaining amount available on deposit on that date in the certificate
account and by the right of the Class B-1 certificateholders to receive future
distributions on the loans that would otherwise be payable to the holders of
Class B-2 certificates.
As described above, prior to the time that the Class A principal balance is
reduced to zero, the distribution of principal to the Class A
certificateholders is intended to include the senior percentage of the
scheduled principal balance of each loan that became a liquidated loan during
the preceding due period. If the liquidation proceeds, net of related
liquidation expenses, from such liquidated loan are less than its scheduled
principal balance plus accrued and unpaid interest, the deficiency will, in
effect, be absorbed by the Class M, the Class B and the Class C
certificateholders and us, since a portion of the amount available equal to
such deficiency and otherwise distributable to them will be paid to the Class A
or Class M certificateholders. Likewise, to the extent the Class M-1
certificateholders or the Class M-2 certificateholders are entitled to receive
distributions of principal, similar deficiencies could result for each class of
certificates with a lower payment priority. If the amount available is not
sufficient to cover the amounts distributable to the Class A or Class M
certificateholders on a particular payment date, then the senior percentage on
future payment dates may be increased and the Class B percentage on future
payment dates may be
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reduced as a result of such deficiency. But for the effect of the relative
subordination of the monthly servicing fee payable to the servicer, so long as
we or our wholly owned subsidiary are the servicer, and amounts otherwise
distributable to the Class M-2, Class B and Class C certificateholders, the
Class M-1 certificateholders will absorb all losses on each liquidated loan in
the amount by which its liquidation proceeds, net of the related liquidation
expenses, are less than its unpaid principal balance plus accrued and unpaid
interest, less the monthly servicing fee. But for the effect of the relative
subordination of the monthly servicing fee payable to the servicer, so long as
we or our wholly owned subsidiary are the servicer, and amounts otherwise
distributable to the Class B and Class C certificateholders on each payment
date, the Class M-2 certificateholders will absorb all losses on each
liquidated loan in the amount by which its liquidation proceeds, net of the
related liquidation expenses, are less than its unpaid principal balance plus
accrued and unpaid interest, less the monthly servicing fee. But for the effect
of the relative subordination of the monthly servicing fee payable to the
servicer, so long as we or our wholly owned subsidiary are the servicer, and
amounts otherwise distributable to the Class B-2 and Class C
certificateholders, the Class B-1 certificateholders will absorb all losses on
each liquidated loan in the amount by which its liquidation proceeds, net of
the related liquidation expenses, are less than its unpaid principal balance
plus accrued and unpaid interest, less the monthly servicing fee. But for the
effect of the relative subordination of the monthly servicing fee payable to
the servicer, so long as we or our wholly owned subsidiary are the servicer,
and amounts otherwise distributable to the Class C certificateholder on each
payment date, and amounts paid under the Class B-2 limited guaranty, the Class
B-2 certificateholders will absorb all losses on each liquidated loan in the
amount by which its liquidation proceeds, net of the related liquidation
expenses, are less than its unpaid principal balance plus accrued and unpaid
interest, less the monthly servicing fee. Class B-2 certificateholders,
however, will be entitled to receive Class B-2 guaranty payments. If we fail to
make a payment required under the Class B-2 limited guaranty, the Class B-2
certificateholders will incur a loss on their investment in the Class B-2
certificates.
Advances
To the extent that collections on a loan in any due period are less than the
scheduled payment due, the servicer will be obligated to make an advance of the
uncollected portion of such scheduled payment. The servicer will be obligated
to advance a delinquent payment on a loan only to the extent that the servicer,
in its sole discretion, expects to recoup the advance from subsequent funds
available in the certificate account.
If the servicer fails to make an advance required under the pooling and
servicing agreement, the trustee will be obligated to deposit the amount of
that advance in the certificate account on the payment date. The trustee will
not, however, be obligated to deposit any of this amount if:
(1) the trustee does not expect to recoup the advance from subsequent
funds available in the certificate account, or
(2) the trustee determines that it is not legally able to make the
advance.
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Reports to Certificateholders
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class A certificateholder, a statement on the related
payment date that shows:
(1) the amount of such distribution to holders of each class of Class A
certificates allocable to interest, separately identifying any unpaid
interest shortfall included;
(2) the amount of such distribution to holders of each class of Class A
certificates allocable to principal, separately identifying the
aggregate amount of any principal prepayments included;
(3) the amount, if any, by which the Class A formula distribution amount
exceeds the Class A distribution amount for such payment date;
(4) the principal balance of each class of Class A certificates after
giving effect to the distribution of principal on such payment date;
(5) the senior percentage for such payment date;
(6) the pool scheduled principal balance of the loans for such payment
date;
(7) the pool factor, a percentage derived from a fraction the numerator
of which is the sum of the Class A principal balance, the Class M
principal balance and the Class B principal balance and the
denominator of which is the cut-off date pool principal balance; and
(8) the number and aggregate principal balance of loans delinquent (a)
30-59 days and (b) 60 or more days.
Information furnished under clauses (1) through (4) will be expressed as dollar
amounts for a Class A certificate with a 1% percentage interest or per $1,000
denomination of Class A certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class A
certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (1) and (2) above for such calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class M-1 certificateholder, a statement on the related
payment date that shows:
(1) the amount of that distribution to holders of the Class M-1
certificates allocable to interest, separately identifying any unpaid
interest shortfall included;
(2) the amount of that distribution to holders of the Class M-1
certificates allocable to principal, separately identifying the
aggregate amount of any principal prepayments included;
(3) the amount, if any, by which the Class M-1 formula distribution
amount exceeds the Class M-1 remaining amount available for such
payment date;
(4) the principal balance of the Class M-1 certificates after giving
effect to the distribution of principal on that payment date;
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(5) the Class M-1 unpaid interest shortfall on principal shortfalls,
after giving effect to payments of such interest shortfalls on such
payment date;
(6) the senior percentage for that payment date;
(7) the pool scheduled principal balance of the loans for such payment
date;
(8) the pool factor; and
(9) the number and aggregate principal balance of loans delinquent (a)
30-59 days and (b) 60 or more days.
Information furnished under clauses (1) through (4) will be expressed as dollar
amounts for a Class M-1 certificate with a 1% percentage interest or per $1,000
denomination of Class M-1 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-1
certificateholder, of record at any time during that calendar year as to the
aggregate of amounts reported pursuant to (1) and (2) above for that calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class M-2 certificateholder, a statement on the related
Payment Date that shows:
(1) the amount of the distribution to holders of the Class M-2
certificates allocable to interest, separately identifying any unpaid
interest shortfall included;
(2) the amount of the distribution to holders of the Class M-2
certificates allocable to principal, separately identifying the
aggregate amount of any principal prepayments included;
(3) the amount, if any, by which the Class M-2 formula distribution
amount exceeds the Class M-2 remaining amount available for that
payment date;
(4) the principal balance of the Class M-2 certificates after giving
effect to the distribution of principal on that payment date;
(5) the Class M-2 unpaid interest shortfall on principal shortfalls,
after giving effect to payments of such interest shortfalls on that
payment date;
(6) the senior percentage for such payment date;
(7) the pool scheduled principal balance of the loans for such payment
date;
(8) the pool factor; and
(9) the number and aggregate principal balance of loans delinquent (a)
30-59 days and (b) 60 or more days.
Information furnished under clauses (1) through (4) will be expressed as dollar
amounts for a Class M-2 certificate with a 1% percentage interest or per $1,000
denomination of Class M-1 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-2
certificateholder of record at any time during
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that calendar year as to the aggregate of amounts reported pursuant to (1) and
(2) above for that calendar year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class B-1 certificateholder, a statement on the related
payment date that shows:
(1) the amount of such distribution to holders of the Class B-1
certificates allocable to interest, separately identifying any unpaid
interest shortfall included;
(2) the amount of such distribution to holders of the Class B-1
certificates allocable to principal, separately identifying the
aggregate amount of any principal prepayments included;
(3) the amount, if any, by which the Class B-1 formula distribution
amount exceeds the Class B-1 remaining amount available for such
payment date;
(4) the principal balance of the Class B-1 certificates after giving
effect to the distribution of principal on such payment date;
(5) the Class B-1 unpaid interest shortfall on principal shortfalls,
after giving effect to payments of such interest shortfalls on such
payment date;
(6) the Class B percentage for such payment date;
(7) the pool scheduled principal balance of the loans for such payment
date;
(8) the pool factor; and
(9) the number and aggregate principal balance of loans delinquent (a)
30-59 days and (b) 60 or more days.
Information furnished under clauses (1) through (4) will be expressed as dollar
amounts for a Class B-1 certificate with a 1% percentage interest or per $1,000
denomination of Class B-1 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-1
certificateholder of record at any time during that calendar year as to the
aggregate of amounts reported pursuant to (1) and (2) above for that calendar
year.
The servicer will furnish to the trustee, and the trustee will include with
each distribution to a Class B-2 certificateholder, a statement on the related
payment date that shows:
(1) the amount of such distribution to holders of Class B-2 certificates
allocable to interest;
(2) the amount of such distribution to holders of Class B-2 certificates
allocable to principal, separately identifying the aggregate amount
of any principal prepayments included;
(3) the amount, if any, by which the sum of the Class B-2 formula
distribution amount and the Class B-2 principal liquidation loss
amount, if any, exceeds the Class B-2 distribution amount for such
payment date;
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(4) the Class B-2 liquidation loss amount, if any, for such payment date;
(5) the Class B-2 unpaid interest shortfall on principal shortfalls,
after giving effect to payments of such interest shortfalls on such
payment date;
(6) the Class B-2 guarantee payment, if any, for such payment date;
(7) the Class B-2 principal balance after giving effect to the
distribution of principal on such payment date;
(8) the Class B percentage for such payment date;
(9) the pool scheduled principal balance of the loans for such payment
date;
(10) the pool factor; and
(11) the number and aggregate principal balance of loans delinquent (a)
30-59 days and (b) 60 or more days.
Information furnished under clauses (1) through (3) will be expressed as dollar
amounts for a Class B-2 certificate with a 1% percentage interest or per $1,000
denomination of Class B-2 certificate.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-2
certificateholder of record at any time during that calendar year as to the
aggregate amounts reported pursuant to (1) and (2) above for that calendar
year.
Repurchase Option
The pooling and servicing agreement provides that at any time that the pool
scheduled principal balance is less than 10% of the cut-off date pool principal
balance, the servicer will have the option to repurchase, on 30 days' prior
written notice to the trustee, all outstanding loans, other than any loan as to
which title to the underlying property has been assigned, at a price sufficient
to pay the aggregate certificate principal balance plus the monthly interest
due on all certificates on the payment date occurring in the month following
the date of repurchase. Such price will be distributed on such payment date.
Collection and Other Servicing Procedures
The servicer will manage, administer, service and make collections on the
loans, exercising the degree of skill and care required by FHA and otherwise
consistent with the highest degree of skill and care that the servicer
exercises with respect to similar loans serviced by the servicer. The servicer
will not be required to cause to be maintained, or otherwise monitor the
maintenance of, hazard insurance on the improved properties, but is required
under FHA regulations to monitor and ensure the maintenance of flood insurance
on properties securing FHA-insured loans located in federally designated
special flood hazard areas. We do, however, as a matter of our own policy,
monitor proof of hazard insurance coverage and require that it be named as an
additional loss payee on all first lien secured loans and generally on junior
lien secured loans with amounts financed of over $ .
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Servicing Compensation and Payment of Expenses
The servicer will receive a monthly servicing fee for each due period equal
to one-twelfth of the product of .75% and the remaining pool scheduled
principal balance of the loans.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust. The
servicer is also entitled to reimbursement out of the liquidation proceeds of a
liquidated loan for customary out-of-pocket liquidation expenses incurred by
it.
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 loan. Administrative services performed by the servicer on
behalf of the trust include selecting and packaging the loans, 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 servicing of the loans and paid by us from
our servicing fees include payment of FHA Insurance premiums, payment of fees
and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of loans or foreclosure on collateral relating,
including submission of FHA Insurance claims, if applicable, payment of
trustee's fees, and payment of expenses incurred in connection with
distributions and reports to certificateholders.
Evidence as to Compliance
The pooling and servicing agreement provides for delivery to the trustee of a
monthly report by the servicer no later than one business day following the
determination date, setting forth the information described under "--Reports to
Certificateholders." Each 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 pooling and servicing agreement. On or
before of each year, beginning in 1999, the servicer will deliver
to the trustee a report of [Accountant], or another nationally recognized
accounting firm, stating that such firm has examined certain documents and
records relating to the servicing of home improvement loans serviced by the
servicer and stating that, on the basis of such examination, such servicing has
been conducted in compliance with the pooling and servicing agreement, except
for any exceptions listed in that report.
The pooling and servicing agreement provides that the servicer shall furnish
to the trustee such reasonably pertinent underlying data as can be generated by
the servicer's existing data processing system without undue modification or
expense.
The pooling and servicing agreement provides that a certificateholder holding
certificates representing at least 5% of the aggregate certificate principal
balance will have
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the same rights of inspection as the trustee and may upon written request to
the servicer receive copies of all reports provided to the trustee.
Transferability
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the IRS code. See "ERISA Considerations" in this
prospectus supplement and in the prospectus.
Certain Matters Relating to Green Tree
The pooling and servicing agreement provides that we may not resign from its
obligations and duties as servicer, except upon a determination that our
performance of such duties is no longer permissible under the pooling and
servicing agreement or applicable law, and prohibits us from extending credit
to any certificateholder for the purchase of a certificate, purchasing
certificates in any agency or trustee capacity or lending money to the trust.
We can be removed as servicer only pursuant to an event of termination as
discussed below.
Events of Termination
An event of termination under the pooling and servicing agreement will occur
if:
(1) the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and such
failure continues for four business days;
(2) the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for thirty days;
(3) the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
(4) a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator, or similar official of the
servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs;
(5) the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or its creditors, or
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fails to, or admits in writing its inability to, pay its debts as they
become due, or takes any corporate action in furtherance of the
foregoing;
(6) the servicer fails to be an eligible servicer; or
(7) the servicer's seller-servicer loan with GNMA is terminated. The
servicer will be required under the pooling and servicing agreement
to give the trustee and the certificateholders notice of an event of
termination promptly upon the occurrence of such event.
Rights Upon an Event of Termination
If an event of termination has occurred and is continuing, either the
trustee or holders of certificates representing 25% or more of the aggregate
certificate principal balance may terminate all of the servicer's management,
administrative, servicing and collection functions under the pooling and
servicing agreement. Upon such termination, the trustee or its designee will
succeed to all the responsibilities, duties and liabilities of Green Tree as
servicer under the pooling and servicing agreement and will be entitled to
similar compensation arrangements; provided, however, that neither the trustee
nor any successor servicer will assume any accrued obligation of the prior
servicer or any obligation of Green Tree to repurchase loans for breach of
representations and warranties, and the trustee will not be liable for any
acts or omissions of the servicer occurring prior to a transfer of the
servicer's servicing and related functions or for any breach by the servicer
of any of its representations and warranties contained in the pooling and
servicing agreement or any related document or agreement. In addition, the
trustee will notify FHA of the servicer's termination as servicer of the FHA-
insured loans and will request that the portion of the servicer's FHA
Insurance reserves allocable to the FHA-insured loans be transferred to the
trustee or a successor servicer. See "Description of FHA Insurance" in the
prospectus. 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 Green Tree's obligation to repurchase certain loans for breaches
of warranties under the pooling and servicing agreement. In the event that the
trustee is unwilling or unable to act, it may appoint, or petition a court of
competent jurisdiction for the appointment of, an eligible servicer to act as
successor to the servicer under the pooling and servicing agreement. The
trustee and the successor may agree upon the servicing compensation to be
paid, after receiving comparable bids from other eligible servicers, which may
not be greater than the monthly servicing fee payable to Green Tree as
servicer under the pooling and servicing agreement without the consent of all
of the certificateholders.
Termination of the Agreement
The pooling and servicing agreement will terminate on the earlier of (a) the
payment date on which the pool scheduled principal balance is reduced to zero;
or (b) the payment date occurring in the month following the servicer's
repurchase of the loans as described under "Description of the Certificates--
Repurchase Option." However, Green Tree's representations, warranties and
indemnities will survive any termination of the pooling and servicing
agreement.
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Amendment; Waiver
The pooling and servicing agreement may be amended by agreement of the
trustee, the servicer and us at any time without the consent of the
certificateholders to cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision or to add other
provisions not inconsistent with the pooling and servicing agreement, upon
receipt of an opinion of counsel to the servicer that such amendment will not
adversely affect in any material way the interests of any certificateholder.
The pooling and servicing agreement may also be amended by agreement of the
trustee, the servicer and us at any time without the consent of the
certificateholders to effect the transfer of FHA Insurance reserves to another
entity in compliance with revisions to FHA regulations, provided that prior to
any such amendment Moody's and S&P shall have confirmed that the ratings of the
certificates will not be lowered or withdrawn following such amendment.
The pooling and servicing agreement may also be amended from time to time by
the trustee, the servicer and us with the consent of holders of certificates
representing 66 2/3% or more of the aggregate certificate principal balance,
and holders of certificates representing 51% or more of the aggregate
certificate principal balance may vote to waive any event of termination,
provided that no such amendment or waiver shall:
(1) reduce in any manner the amount of, or delay the timing of,
collections of payments on loans or distributions which are required
to be made on any certificate; or
(2) reduce the aggregate amount of certificates required for any
amendment of the pooling and servicing agreement, without unanimous
consent of the certificateholders.
The trustee is required under the pooling and servicing agreement to furnish
certificateholders with notice promptly upon execution of any amendment to the
pooling and servicing agreement.
Indemnification
The pooling and servicing agreement provides that we will defend and
indemnify the trust, the trustee and the certificateholders against any and all
costs, expenses, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation:
(1) arising out of or resulting from the use or ownership by us or any
affiliate of any real estate securing a loan,
(2) for any taxes which may at any time be asserted with respect to, and
as of the date of, the conveyance of the loans to the trust, but not
including any federal, state or other tax arising out of the creation
of the trust and the issuance of the certificates, and
(3) relating to various other tax matters.
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The pooling and servicing agreement also provides that the servicer will
defend and indemnify the trust, the trustee and the certificateholders, which
indemnification will survive any removal of the servicer, 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 us as servicer for any loan.
Duties and Immunities of the Trustee
The trustee will make no representations as to the validity or sufficiency of
the pooling and servicing agreement, the certificates or any loan, loan file or
related documents, and will not be accountable for the use or application by us
of any funds paid to us in consideration of the conveyance of the loans, or
deposited into the certificate account by the servicer. If no event of
termination has occurred, the trustee will be required to perform only those
duties specifically required of it under the pooling and servicing 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 pooling
and servicing agreement.
Under the pooling and servicing agreement the servicer will agree:
(1) to pay to the trustee from time to time reasonable compensation for
all services rendered by it;
(2) to reimburse the trustee upon its request for all reasonable expenses,
disbursements and advances incurred by the trustee in accordance with
any provision of the pooling and servicing agreement, including FHA
Insurance premiums not paid by the servicer and reasonable
compensation and the expenses and disbursements of its agents and
counsel, except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) 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, including the costs and expenses of
defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties.
The trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the pooling
and servicing agreement if there is a reasonable ground for believing that the
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured.
The pooling and servicing agreement also provides that the trustee will
maintain at its expense in Minneapolis or St. Paul, Minnesota, an office or
agency where certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the trustee and the
certificate registrar and transfer agent in respect of the certificates may be
served. On the date of this prospectus supplement the trustee's office for
these purposes is located at [180 East Fifth Street, St. Paul, Minnesota
55101]. The trustee will promptly give written notice to us, the servicer and
the certificateholders of any change of address.
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The Trustee
[Trustee] has its corporate trust offices at , Minnesota .
The trustee may resign from its duties under the pooling and servicing
agreement at any time, in which event the servicer will be obligated to appoint
a successor trustee. The servicer may also remove the trustee if the trustee
ceases to be eligible to continue as such under the pooling and servicing
agreement or if the trustee becomes insolvent. In such circumstances, the
servicer will also be obligated to appoint a successor trustee. Any resignation
or removal of the trustee and appointment of a successor trustee will not
become effective until acceptance of the appointment by the successor trustee.
Any successor trustee must be an FHA Title I approved lender.
Registration of the Certificates
The certificates initially will be registered in the name of Cede & Co., the
nominee of DTC. The certificates may be held by investors only through the
book-entry facilities of DTC. DTC is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC accepts securities for deposit from its
participating organizations and facilitates the clearance and settlement of
securities transactions between participants in such securities through
electronic book-entry changes in accounts of participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and
may include certain other organizations. Indirect access to the DTC system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
The beneficial owners of certificates who are not participants but desire to
purchase, sell or otherwise transfer ownership of the certificates may do so
only through participants, unless and until definitive certificates are issued.
In addition, certificate owners will receive all distributions of principal of,
and interest on, the certificates from the trustee through DTC and
participants. Certificate owners will not receive or be entitled to receive
certificates representing their respective interests in the certificates,
except under the limited circumstances described below.
Unless and until definitive certificates are issued, it is anticipated that
the only certificateholder of the certificates will be Cede & Co., as nominee
of DTC. Certificate owners will not be recognized by the trustee as
certificateholders as that term is used in the pooling and servicing agreement.
Certificate owners are only permitted to exercise the rights of
certificateholders indirectly through participants and DTC.
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While certificates are outstanding, except under the circumstances described
below, under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the certificates and is
required to receive and transmit distributions of principal of, and interest
on, the certificates. Participants with whom certificate owners have accounts
with respect to certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective certificate owners. Accordingly, although certificate owners will
not possess certificates, the rules provide a mechanism by which certificate
owners will receive distributions and will be able to transfer their interests.
Definitive certificates will be issued in registered form to certificate
owners, or their nominees, rather than to DTC, only if:
(1) DTC or we advise the trustee in writing that DTC is no longer willing
or able to discharge properly its responsibilities as nominee and
depository with respect to the certificates, and we or the trustee
are unable to locate a qualified successor or
(2) we, at our sole option, advise the trustee in writing that it elects
to terminate the book-entry system through DTC. Upon issuance of
definitive certificates to certificate owners, such certificates will
be transferable directly, and not exclusively on a book-entry basis,
and registered holders will deal directly with the trustee with
respect to transfers, notices and distributions.
DTC has advised us that, unless and until definitive certificates are issued,
DTC will take any action permitted to be taken by a certificateholder under the
pooling and servicing agreement only at the direction of one or more
participants to whose DTC accounts the certificates are credited. DTC has
advised us that DTC will take this action with respect to any fractional
interest of the certificates only at the direction of and on behalf of the
participants beneficially owning a corresponding fractional interest of the
certificates. DTC may take actions, at the direction of the participants, with
respect to some certificates which conflict with actions taken for other
certificates.
Issuance of certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the certificates in the
secondary market and the ability of certificate owners to pledge them. In
addition, since distributions on the certificates will be made by the trustee
to DTC and DTC will credit such distributions to the accounts of its
participants, with the participants further crediting such distributions to the
accounts of indirect participants or certificate owners, certificate owners may
experience delays in the receipt of such distributions.
DESCRIPTION OF THE CLASS B-2 LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Class B-2
certificates and liquidation losses and delinquencies on the loans, we will
provide a guaranty against losses that would otherwise be borne by the Class B-
2 certificates. Each payment required to be made under the Class B-2 limited
guaranty is referred to as a Class B-2 guaranty payment.
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Before the sixth cross-over date, and on any payment date on or after the sixth
cross-over date on which a Class B principal distribution test is not
satisfied, the Class B-2 guaranty payment will equal the amount, if any, by
which:
(1) the sum of (a) the Class B-2 formula distribution amount for such
payment date, which will be equal to accrued and unpaid interest on
the Class B-2 certificates, and (b) the Class B-2 principal
liquidation loss amount, if any, for such payment date exceeds
(2) the Class B-2 distribution amount for such payment date. The Class B-2
principal liquidation loss amount for any payment date equals the
amount, if any, by which the sum of the Class A principal balance, the
Class M principal balance and the Class B principal balance for such
payment date exceeds the pool scheduled principal balance for such
payment date.
The Class B-2 principal liquidation loss amount is, in substance, the amount
of delinquencies and losses experienced on the loans during the related due
period that was not absorbed by the Class C certificate and the monthly
servicing fee otherwise payable to us, so long as we or our wholly owned
subsidiary are the servicer. On each payment date on or after the sixth cross-
over date, if each Class B principal distribution test is satisfied on such
payment date, or the Class A principal balance and the Class M principal
balance have been reduced to zero, the Class B-2 guaranty payment will equal
the amount, if any, by which:
(1) the sum of (a) the Class B-2 formula distribution amount for such
payment date, which will include both interest and principal, and (b)
the Class B-2 principal liquidation loss amount, if any, for such
payment date exceeds
(2) the Class B-2 distribution amount for such payment date.
The Class B-2 limited guaranty will be our unsecured general obligation and
will not be supported by any letter of credit or other credit enhancement
arrangement. The Class B-2 limited guaranty will not benefit in any way, or
result in any payment to, the Class A-1, Class A-2, Class A-3, Class M-1, Class
M-2 or Class B-1 certificateholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Our Counsel, [Company Counsel], will deliver its opinion that, assuming
ongoing compliance with the terms of the pooling and servicing agreement, upon
the issuance of the certificates, the trust will qualify as a REMIC for federal
income tax purposes. The Class A-1, Class A-2, Class A-3, Class M-1, Class M-2,
Class B-1 and Class B-2 certificates will constitute regular interests in the
REMIC. The Class C certificate, which is not being offered, will constitute the
sole class of residual interests in the REMIC.
It is not anticipated that any of the certificates will be issued with
original issue discount for federal income tax purposes. The prepayment
assumption that will be used to determine the rate of accrual of market
discount and premium, if any, will be based on the assumption that the loans
will prepay at a rate equal to % CPR.
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Certificates held by financial institutions, thrift institutions taxed as
domestic building and loan associations and real estate investment trusts will
represent interests in qualifying real property loans, loans secured by an
interest in real property and real estate assets for purposes of Sections
593(d), 7701(a)(19)(C) or 856(c)(5) of the IRS Code, respectively. Furthermore,
interest paid with respect to certificates held by a real estate investment
trust will be considered to be interest on obligations secured by mortgages on
real property or on interests in real property for purposes of Section
856(c)(3) of the IRS code.
For further information regarding federal income tax consequences of
investing in the certificates, see "Certain Federal Income Tax Consequences--
REMIC Series" in the prospectus.
ERISA CONSIDERATIONS
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under "ERISA Considerations."
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain restrictions on employee benefit plans that are subject to ERISA and on
persons who are fiduciaries with respect to these plans. Employee benefit plans
that are governmental plans, as defined in section 3(32) of ERISA, and some
church plans, as defined in Section 3(33) of ERISA, are not subject to ERISA
requirements. Accordingly, assets of those plans may be invested in the Class
A-1, Class A-2 and Class A-3 certificates without regard to the ERISA
restrictions described in this section, subject to applicable provisions of
other federal and state laws. However, any governmental or church plan which is
qualified under section 401(a) of the IRS code and exempt from taxation under
section 501(a) of the IRS code is subject to the prohibited transaction rules
set forth in section 503 of the IRS code.
The U.S. Department of Labor has granted an administrative exemption to
[underwriter] (Prohibited Transaction Exemption No. 91-14, 56 Fed Reg. 7413
(1991)), from certain of the prohibited transaction rules of ERISA and the IRS
code.
They provide an exemption from certain of the prohibited transaction rules of
ERISA and the IRS code with respect to the initial purchase, the holding and
the subsequent resale by plans of certificates representing interests in asset-
backed pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the exemption. The
receivables covered by the exemption include home equity loans such as the
loans in the loan pool. The exemption will apply to the acquisition, holding,
and resale of the Class A certificates by a plan, provided that specified
conditions are met, including those described in the paragraph below.
Among the conditions which must be satisfied for the exemption to apply to
the Class A-1, Class A-2 and Class A-3 certificates are the following:
(1) The acquisition of the Class A-1, Class A-2 or Class A-3 certificates
by a plan is on terms, including the price for the Class A-1, Class
A-2 or Class A-3 certificates,
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that are at least as favorable to the plan as they would be in an
arm's-length transaction with an unrelated party;
(2) The rights and interests evidenced by the Class A-1, Class A-2 or
Class A-3 certificates acquired by the plan are not subordinated to
the rights and interests evidenced by other certificates of the
trust;
(3) The Class A-1, Class A-2 or Class A-3 certificates acquired by the
plan have received a rating at the time of such acquisition that is
in one of the three highest generic rating categories from either
S&P, Moody's, Duff & Phelps or Fitch;
(4) The trustee is not an affiliate of any member of the restricted
group, as defined below;
(5) The sum of all payments made to the underwriter in connection with
the distribution of the Class A-1, Class A-2 or Class A-3
certificates represents not more than reasonable compensation for
underwriting the Class A-1, Class A-2 or Class A-3 certificates, as
applicable. The sum of all payments made to and retained by us under
the sale of the loans to the trust represents not more than the fair
market value of such loans. The sum of all payments made to and
retained by the servicer represents not more than reasonable
compensation for the servicer's services under the pooling and
servicing agreement and reimbursement of the servicer's reasonable
expenses in connection therewith; and
(6) The plan investing in the Class A-1, Class A-2 or Class A-3
certificates is an accredited investor as defined in Rule 501(a)(1)
of Regulation D under the Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the exemption, which extends exemptive relief to mortgage-backed and asset-
backed securities transactions using pre-funding accounts for trusts issuing
pass-through certificates. The amendment generally allows mortgage loans or
other secured receivables, the obligations supporting payments to
certificateholders, and having a value equal to no more than 25% of the total
principal amount of the certificates being offered by the trust, to be
transferred to the trust within a 90-day or three-month pre-funding period
following the closing date, instead of requiring that all such obligations be
either identified or transferred on or before the closing date. The relief is
available when the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered must not
exceed 25%.
(2) All additional obligations transferred after the closing date must
meet the same terms and conditions for eligibility as the original
obligations used to create the trust, which terms and conditions have
been approved by an exemption rating agency.
(3) The transfer of the additional obligations to the trust during the
pre-funding period must not result in the certificates to be covered
by the exemption receiving a lower credit rating from an exemption
rating agency upon termination of the pre-funding
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period than the rating that was obtained at the time of the initial
issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding period, the weighted
average annual percentage interest rate for all of the obligations in
the trust at the end of the pre-funding period must not be more than
100 basis points lower than the average interest rate for the
obligations transferred to the trust on the closing date.
(5) In order to insure that the characteristics of the additional
obligations are substantially similar to the original obligations
which were transferred to the trust fund:
. the characteristics of the additional obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
. an independent accountant retained by the depositor must provide
the depositor with a letter, with copies provided to each
exemption rating agency rating the certificates, the related
underwriter and the related prospectus or trustee, stating whether
or not the characteristics of the additional obligations conform
to the characteristics described in the related prospectus or
prospectus supplement and/or pooling and servicing agreement. In
preparing this letter, the independent accountant must use the
same type of procedures as were applicable to the obligations
transferred to the trust as of the closing date.
(6) The period of pre-funding must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the
pooling and servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or capitalized
interest account used in connection with the pre-funding may be
invested only in certain permitted investments.
(8) The related prospectus or prospectus supplement must describe:
. any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
. the duration of the period of pre-funding;
. the percentage and/or dollar amount of the pre-funding limit for
the trust; and
. that the amounts remaining in the pre-funding account at the end
of the pre-funding period will be remitted to certificateholders
as repayments of principal.
(9) The related pooling and servicing agreement must describe these
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
additional obligations.
Moreover, the exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements:
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(1) in the case of the acquisition of Class A-1, Class A-2 or Class A-3
certificates in connection with the initial issuance, at least fifty
percent (50%) of the Class A-1, Class A-2 or Class A-3 certificates,
as applicable, are acquired by persons independent of the restricted
group,
(2) the plan's investment in Class A-1, Class A-2 or Class A-3
certificates does not exceed twenty-five percent (25%) of all of the
Class A-1, Class A-2 or Class A-3 certificates, as applicable,
outstanding at the time of the acquisition, and
(3) immediately after the acquisition, no more than twenty-five percent
(25%) of the assets of the plan are invested in certificates
representing an interest in one or more trusts containing assets sold
or serviced by the same entity. The exemption does not apply to plans
sponsored by us, the underwriter, the trustee, the servicer, any
obligor with respect to loans included in the trust constituting more
than five percent (5%) of the aggregate unamortized principal balance
of the assets in the trust or any affiliate of such parties.
The Company believes that the exemption will apply to the acquisition and
holding of Class A-1, Class A-2 and Class A-3 certificates sold by the
underwriter and by plans and that all conditions of the exemption other than
those within the control of the investors have been met. In addition, as of the
date hereof, no obligor with respect to loans included in the trust constitutes
more than five percent (5%) of the aggregate unamortized principal balance of
the assets of the trust. Any plan fiduciary who proposes to cause a plan to
purchase Class A-1, Class A-2 or Class A-3 certificates should consult with its
own counsel with respect to the potential consequences under ERISA and the IRS
code of the plan's acquisition and ownership of the Class A-1, Class A-2 or
Class A-3 certificates. Assets of a plan or individual retirement account
should not be invested in the Class A-1, Class A-2 or Class A-3 certificates
unless it is clear that the assets of the trust will not be plan assets or
unless it is clear that the exemption or a prohibited transaction class
exemption will apply and exempt all potential prohibited transactions. See
"ERISA Considerations" in the prospectus.
No transfer of any other class of certificates will be permitted to be made
to a plan unless such plan, at its expense, delivers to the trustee and us an
opinion of counsel, in form satisfactory to the trustee and us, to the effect
that the purchase or holding of any other class of certificates by such plan
will not result in the assets of the trust being deemed to be plan assets and
subject to the prohibited transaction provisions of ERISA and the IRS code and
will not subject the trustee, us or the servicer to any obligation or liability
in addition to those undertaken in the pooling and servicing agreement. Unless
that opinion is delivered, each person acquiring such a certificate will be
deemed to represent to the trustee, us and the servicer that such person is
neither a plan, nor acting on behalf of a plan, subject to ERISA or to Section
4975 of the IRS code.
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UNDERWRITING
The underwriter has agreed, subject to the terms and conditions of the
underwriting pooling and servicing agreement, to purchase the certificates at
the prices set forth on the cover page of this prospectus supplement.
In the underwriting agreement, the underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the certificates
offered hereby if any such certificates are purchased. In the event of a
default by the underwriter, the underwriting agreement provides that, in
certain circumstances, the underwriting agreement may be terminated.
The underwriter proposes to offer the certificates in part directly to
purchasers at the initial public offering prices set forth on the cover page of
this prospectus supplement and in part to certain securities dealers at such
prices less concessions not to exceed % of the original Class A-1 principal
balance, % of the original Class A-2 principal balance, % of the
original Class A-3 principal balance, % of the original Class M-1 principal
balance, % of the original Class M-2 principal balance, % of the original
Class B-1 principal balance, or % of the original Class B-2 principal
balance, as applicable. The underwriter may allow, and such dealers may
reallow, concessions not to exceed % of original Class A-1 principal
balance, % of the original Class A-2 principal balance, % of original
Class A-3 principal balance, % of the original Class M-1 principal balance,
% of the original Class M-2 principal balance, % of the original Class B-
1 principal balance, or % of the original Class B-2 principal balance, as
applicable, to certain brokers and dealers. After the certificates are released
for sale to the public, the offering price and other selling terms may be
varied by the underwriter.
The underwriting agreement provides that we will indemnify the underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, or contribute to payments the underwriter may be required to
make in respect thereof.
We have agreed that for a period of 30 days from the date of this prospectus
supplement it will not offer or sell publicly any other home improvement loan
pass-through certificates without the consent of the underwriter.
LEGAL MATTERS
The validity of the certificates will be passed upon for us and the trust by
[counsel for Green Tree,] Minneapolis, Minnesota, and for the underwriter by
[name of underwriters' Counsel]. The material federal income tax consequences
of the certificates will be passed upon for Green Tree by [counsel for Green
Tree].
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Base Prospectus No. 4 Secured Home Improvement Loans
PROSPECTUS
Green Tree Financial Corporation, Seller and Servicer
Certificates for Home Improvement Loans
(Issuable In Series)
We are offering certificates for home improvement loans under this prospectus
and a prospectus supplement. The prospectus supplement will be prepared
separately for each series of certificates offered. Green Tree Financial
Corporation will form a trust for each series, and the trust will issue the
certificates of that series. The certificates of any series may comprise
several different classes. A trust may also issue one or more other interests
in the trust that will not be offered under this prospectus.
The right of each class of certificates within a series to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of certificates. In addition, a series of certificates may include one or more
classes which on the one hand are subordinated to one or more classes of
certificates, while on the other hand are senior to one or more classes of
certificates. The rate of principal and interest payment on the certificates of
any class will depend on the priority of payment of that class and the rate and
timing of payments of the related home improvement loans.
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The certificates will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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This prospectus may not be used to consummate sales of any certificates
unless accompanied by the prospectus supplement relating to that series.
Prospectus dated , 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (2) the prospectus supplement for the
particular terms of your series of certificates.
If the terms of your certificates between this prospectus and the prospectus
supplement, you should rely on the information in your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
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THE TRUST
General
Certificates evidencing interests in pools of home equity loans may be issued
from time to time in series under a separate pooling and servicing agreement
between us, as seller and servicer, and the trustee.
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 supplement,
each of which will evidence the interest specified in the related prospectus in
the loan pool and other property held in a trust fund for the benefit of
certificateholders. Each trust will include:
(1) a loan pool,
(2) the amounts held from time to time in a trust certificate account
maintained by the trustee pursuant to separate pooling and servicing
agreements,
(3) proceeds from FHA insurance, with respect to any FHA-insured home
improvement loan included in the loan pool,
(4) 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
(5) other property as may be specified in the related prospectus
supplement.
Each certificate will evidence the interest specified in the prospectus
supplement in one trust, containing one loan pool comprised of loans having the
aggregate principal balance as of the specified day of the month of the
creation of the pool specified in the prospectus supplement. Holders of
certificates of a series will have interests only in such loan pool and will
have no interest in the loan pool created for any other series of certificates,
except for FHA insurance reserves. If specified in the related prospectus
supplement, the loan pool may be divided into two or more sub-pools, in which
event the certificates of certain specified classes may be payable primarily
from, and in respect of, the loans comprising a given sub-pool. If specified in
the related prospectus supplement, the trust may include a pre-funding account
which would be used to purchase subsequent loans during the pre-funding period
specified in the related prospectus supplement. The related prospectus
supplement will specify the conditions that must be satisfied before any
transfer of subsequent loans, including the requisite characteristics of the
subsequent loans.
Except as otherwise specified in the related prospectus supplement, all of
the loans will have been originated by Green Tree in the ordinary course of its
business. Specific information regarding the loans included in each trust will
be provided in the related prospectus supplement and, if not contained in the
related prospectus supplement, in a report on Form 8-K to be filed with the SEC
within fifteen days after the initial issuance of the certificates. A copy of
the pooling and servicing agreement for 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 prospectus supplement. A schedule
of the loans relating to that series will be attached to the pooling and
servicing agreement delivered to the trustee upon delivery of the certificates.
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The Loan Pools
Except as otherwise specified in the related prospectus supplement, the loan
pool will consist of:
. home improvement loans and promissory notes; and
. closed-end home equity loans originated by us on an individual basis
in the ordinary course of business.
The home improvement loans may be conventional home improvement loans or loans
insured by FHA. All loans will be secured by the related real estate. Except as
we specify otherwise in the applicable prospectus supplement, the loans will be
fully amortizing and will bear interest at a fixed or variable annual
percentage rate, which we refer to as the loan rate.
For each series of certificates, we will assign the loans constituting the
loan pool to the trustee named in the prospectus supplement. We, as servicer,
will service the loans under the pooling and servicing agreement. See
"Description of the Certificates--Servicing." Unless we specify otherwise in
the prospectus supplement, the loan documents will be held by the trustee or a
custodian on its behalf.
Each loan pool will be composed of loans bearing interest at the loan rates
specified in the prospectus supplement. Unless we specify otherwise in the
prospectus supplement, each registered holder of a certificate will be entitled
to receive periodic distributions, which will be monthly unless we specify
otherwise in the related prospectus supplement, of all or a portion of
principal on the underlying loans or interest on the principal balance of the
certificate, or on some other principal balance unrelated to that of the
certificate, at the pass-through rate, or both.
The prospectus supplement will specify for the loans contained in the loan
pool:
. the range of the dates of origination of the loans;
. the range of the loan rates and the weighted average loan rate;
. the minimum and maximum outstanding principal balances and the average
outstanding principal balance as of the cut-off date;
. the aggregate principal balance of the loans included in the loan 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 range of original maturities of the loans and the last maturity
date of any loan; and
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. the geographic location of improved real estate securing the loans.
If the trust includes a pre-funding account, the prospectus supplement will
specify the conditions that must be satisfied before any transfer of subsequent
loans, including the requisite characteristics of the subsequent loans.
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material respects of information furnished to the trustee for each such loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the certificateholders in a loan, we will be obligated
to cure the breach in all material respects, or to repurchase or substitute for
the loan as described below under "Descriptions of the Certificates--Repurchase
Option." This repurchase obligation constitutes the sole remedy available to
the certificateholders or the trustee for a breach of representation or
warranty by us. See "Description of the Certificates--Conveyance of Loans."
Conveyance of Loans
We will transfer to the trustee all our right, title and interest in the
loans, including all principal and interest received on or for the loans, other
than receipts of principal and interest due on the loans before the cut-off
date. On behalf of the trust, as the issuer of the related series of
certificates, the trustee, together with the conveyance, will execute and
deliver the certificates upon our order. The loans will be as described on a
list attached to the pooling and servicing agreement. This list will include
the amount of monthly payments due on each loan as of the date of issuance of
the certificates, the loan rate on each loan and the maturity date of each
loan. This list will be available for inspection by any certificateholder at
the principal executive office of the servicer. Before the conveyance of the
loans to the trust, our internal audit department will complete a review of all
of the loan files confirming the accuracy of the list of loans delivered to the
trustee. Any loan discovered not to agree with that list in a manner that is
materially adverse to the interests of the certificateholders will be
repurchased or substituted by us, or, if the discrepancy relates to the unpaid
principal balance of a loan, we may deposit cash in the separate certificate
account maintained at an eligible institution in the name of the trustee in an
amount sufficient to offset the discrepancy. If the trust includes a pre-
funding account, the related prospectus supplement will specify the conditions
that must be satisfied before any transfer of subsequent loans, including the
requisite characteristics of the subsequent loans.
Unless otherwise specified in the related prospectus supplement, the trustee
or its custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and our accounting records and computer systems will also reflect this
sale and assignment.
Our counsel identified in the applicable prospectus supplement will render an
opinion to the trustee that the transfer of the loans from us to the related
trust would, if we became a debtor under the United States Bankruptcy Code, be
treated as a true sale and not as a
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pledge to secure borrowings. If, however, the transfer of the loans from us to
the trust were treated as a pledge to secure borrowings by us, the distribution
of proceeds of the loans to the trust might be subject to the automatic stay
provisions of the United States Bankruptcy Code, which would delay the
distribution of the proceeds for an uncertain period of time. In addition, a
bankruptcy trustee would have the power to sell the loans if the proceeds of
the sale could satisfy the amount of the debt deemed owed by us, or the
bankruptcy trustee could substitute other collateral in lieu of the loans to
secure the debt, or the debt could be subject to adjustment by the bankruptcy
trustee if we were to file for reorganization under Chapter 11 of the United
States Bankruptcy Code.
Except as we specify otherwise in the related prospectus supplement, we will
make representations and warranties in the pooling and servicing agreement for
each loan as of the related closing date, including that:
. as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
. no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
. each loan 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;
. no loan is subject to any right of rescission, set-off, counterclaim
or defense;
. each FHA-insured home improvement loan was originated in accordance
with applicable FHA regulations and is insured, without set-off,
surcharge or defense, by FHA Insurance;
. each loan was either (a) entered into by a home improvement contractor
in the ordinary course of such contractor's business and, immediately
upon funding, assigned to us, (b) was originated by a home equity
lender in the ordinary course of such lender's business and assigned
to us, or (c) was originated by us directly;
. no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest under the pooling and servicing agreement or the certificates
unlawful;
. each loan complies with all requirements of law;
. no loan has been satisfied, subordinated to a lower lien ranking than
its original position or rescinded;
. each loan creates a valid and perfected lien on the related improved
real estate;
. all parties to each loan had full legal capacity to execute the loan;
. no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance,
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equity, loan, pledge, charge, claim or security interest, and is the
sole owner and has full right to transfer the loan to the trustee;
. as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by the first clause above, no event that with
notice and the expiration of any grace or cure period would constitute
a default, breach, violation or event permitting acceleration under
the loan, and we have not waived any of the foregoing;
. each loan is a fully-amortizing loan with a fixed rate of interest and
provides for level payments over the term of the loan;
. each loan contains customary and enforceable provisions to render the
rights and remedies of the holder adequate for realization against the
collateral;
. the description of each loan appearing in the list delivered to the
trustee is true and correct;
. there is only one original of each loan; and
. each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
Under the terms of the pooling and servicing agreement, if we become aware
of a breach of any representation or warranty that materially adversely
affects the trust's interest in any loan or receives written notice of a
breach from the trustee or the servicer, then we will be obligated either to
cure the breach or to repurchase or, if so provided in the prospectus
supplement, substitute for the affected loan, in each case under the
conditions further described in this prospectus and in the prospectus
supplement. This repurchase obligation will constitute the sole remedy
available to the trust and the certificateholders for a breach of a
representation or warranty under the pooling and servicing agreement for the
loans, but not for any other breach by us of our obligations under the pooling
and servicing agreement. If a prohibited transaction tax under the REMIC
provisions of the IRS code is incurred in connection with the repurchase,
distributions otherwise payable to residual certificateholders will be applied
to pay the tax. We will be required to pay the amount of the tax that is not
funded out of the distributions.
The repurchase price of a loan at any time means the outstanding principal
amount of the loan, without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable pass-through rate on the loan
from the end of the due period for which the obligor last made a payment,
without giving effect to any advances made by the servicer or the trustee
through the end of the immediately preceding due period.
USE OF PROCEEDS
Unless we specify otherwise in the related prospectus supplement,
substantially all of the net proceeds to be received from the sale of each
series of certificates will be used by us for general corporate purposes,
including the origination or acquisition of additional home
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improvement loans and home equity loans, costs of carrying the loans and loans
until sale of the related certificates and to pay other expenses connected with
pooling the loans and issuing the certificates.
GREEN TREE FINANCIAL CORPORATION
General
Green Tree is a Delaware corporation which, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. We purchase, pool, sell and
service conditional sales loans for manufactured homes and other consumer
installment sales loans, as well as home equity loans. We are the largest
servicer of government-insured manufactured housing loans and conventional
manufactured housing loans in the United States. Servicing functions are
performed through Green Tree Financial Servicing Corporation, our wholly owned
subsidiary. Through our principal office in St. Paul, Minnesota, and service
centers throughout the United States, we serve all 50 states. We began
financing FHA-insured home improvement loans in April 1989, conventional home
improvement loans in September 1992 and home equity loans in January 1996. We
also purchase, pool and service installment sales loans for various consumer
products. Our principal executive offices are located at 1100 Landmark Towers,
345 St. Peter Street, St. Paul, Minnesota 55102-1639 (telephone (651) 293-
3400). Our quarterly and annual reports are available upon written request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We are incorporating by reference the following documents into
this prospectus and the prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10-K for the
year ended December 31, 1998.
. Green Tree Financial Corporation's quarterly report on Form 10-Q for
the quarter ended March 31, 1999.
All documents filed by the servicer, on behalf of any trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after
the date of this prospectus and prior to the termination of the offering of the
certificates issued by that trust, will be incorporated by reference into this
prospectus.
We will provide you, upon your written or oral request, a copy of any or all
of the documents incorporated by reference in this prospectus, exhibits to
those documents. Please direct your requests for copies to John Dolphin, Vice
President and Director of Investor Relations, 1100 Landmark Towers, 345 St.
Peter Street, St. Paul, Minnesota 55102-1639, telephone number (651) 293-3400.
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Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by reference), proxy statements and other
information. You can read and copy these documents at the public reference
facility maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. You can also read and copy these reports and
other information at the following regional offices of the SEC:
New York Regional Chicago Regional Office
Office
Citicorp Center
Seven World Trade 500 West Madison Street, Suite
Center 1400
Suite 1300 Chicago, IL 60661
New York, NY 10048
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Loan Origination
We arrange to purchase certain loans from home improvement contractors
located throughout the United States. Through our centralized loan processing
operations in St. Paul, Minnesota, our regional sales managers contact home
improvement contractors and explain our available financing plans, terms,
prevailing rates and credit and financing policies. If the contractor wishes to
utilize our available customer financing, the contractor must make an
application for contractor approval. We have a contractor approval process
under which the financial condition, business experience and qualifications of
the contractor are reviewed before their approval to sell loans to us. In
addition, we have a centralized compliance group which reviews and updates
contractor financial condition and reviews contractors on an annual basis to
determine whether such contractor's approval will be continued. We also review
monthly contractor trend reports which show the default and delinquency trends
of the particular contractor with respect to loans sold to us. We occasionally
will originate directly a home improvement promissory note involving a home
improvement transaction.
All loans that we originate are written on forms provided or approved by us
and are purchased on an individually approved basis in accordance with our
guidelines. The contractor submits the customer's credit application and
construction loan to our office where an analysis of the creditworthiness of
the customer is made using a proprietary credit scoring system that was
implemented by us in June 1993. If we determine that the application meets our
underwriting guidelines and applicable FHA regulations (for FHA-insured loans)
and the credit is approved, we purchase the loan from the contractor when the
customer verifies satisfactory completion of the work, or, in the case of
staged funding, we follow up with the customer for the completion certificate
90 days after funding.
The types of home improvements financed by us include:
. exterior renovations, including windows, siding and roofing,
. pools and spas,
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. kitchen and bath remodeling, and
. room additions and garages.
We may also, under certain limited conditions, extend additional credit beyond
the purchase price of the home improvement for the purpose of debt
consolidation.
The original principal amount of an FHA-insured home improvement loan with
respect to a single family property currently may not exceed $25,000 without
specific FHA approval, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up to $12,000 per unit or a $48,000 limit for
four units of owner-occupied multiple-family homes. Certain other criteria for
home improvement loans eligible for FHA Insurance are described under the
caption "Description of FHA Insurance."
We began financing conventional home improvement loans in September 1992.
Conventional home improvement loans are not insured by FHA. The original
principal amount of a conventional secured home improvement loan may not exceed
$40,000 for our secured no equity lien program, and $100,000 for our secured
equity lien program, unless a higher amount financed is approved by senior
management. The original principal amount of a conventional home improvement
loan may not exceed $100,000 for our secured lien program, unless a higher
amount financed is approved by senior management. We require that any secured
home improvement loan be secured by a recorded lien, which may be a first,
second or (with respect to FHA-insured loans and some conventional loans of
$30,000 or less) third lien, on the improved real estate.
Our underwriting guidelines and credit scoring process weight significantly
the applicant's creditworthiness and place less weight on the available equity
in the related real estate being improved. While it is our policy not to exceed
100% in loan-to-value ratio on any loan, a substantial portion of the home
improvement loans are expected to have loan-to-value ratios of 90% or more when
considering the estimated value of the real estate, other liens senior to that
of the home improvement loan, and the improvements being financed. Because we
do not require appraisals on most home improvement loans with loan amounts of
less than $30,000, which home improvement loans are expected to comprise a
substantial portion of any loan pool, and given the many other factors that can
affect the value of property securing a conventional home improvement loan, the
related prospectus supplement will not provide detailed disclosure of loan-to-
value ratios on the home improvement loans.
We have originated closed-end home equity loans since January 1996. As of
December 31, 1998, we had approximately $ aggregate principal
amount of outstanding closed-end home equity loans.
Through a system of regional offices, we market our home equity lending
directly to consumers using a variety of marketing techniques. We also review
and re-underwrite loan applications forwarded by correspondent lenders.
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Our credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less or more favorable equity position, the
creditworthiness of the borrower must be stronger or may be weaker. The loan-
to-value ratio of the requested loan, combined with any existing loans with a
senior lien position, may not exceed 95% without senior management approval. In
most circumstances, an appraisal of the property is required. Currently, loans
secured by a first mortgage with an obligor having a superior credit rating may
not exceed $300,000 without senior management approval, and loans secured by a
second mortgage with an obligor having a superior credit rating may not exceed
$250,000 without senior management approval.
YIELD CONSIDERATIONS
The pass-through rates and the weighted average loan rate of the loans, as of
the related cut-off date relating to each series of certificates are listed in
the related prospectus supplement.
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 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 we may offer, such as interest
only certificates, principal only certificates, and fast pay/slow pay
certificates, may be particularly sensitive to prepayment rates, and to changes
in prepayment rates, on the underlying loans. If stated in the related
prospectus supplement, the yield on some types of certificates which we may
offer could change and may be negative under some prepayment rate scenarios.
Accordingly, some types of certificates may not be legal or appropriate
investments for financial institutions, pension funds or others. See "ERISA
Considerations" and "Legal Investment Considerations" in this prospectus and in
the prospectus supplement. In addition, the timing of changes in the rate of
prepayment on the loans included in a loan 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 loans occur, the greater the effect on the investor's yield
to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless we describe otherwise in an applicable prospectus supplement, all of
the loans will have maturities at origination of not more than 25 years.
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Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. FHA-
insured home improvement loans may be prepaid at any time without penalty. We
have no significant experience with the rate of principal prepayments on home
improvement loans or home equity loans. Because the loans have scheduled due
dates throughout the calendar month, and because, unless otherwise specified in
the related prospectus supplement, all principal prepayments will be passed
through to certificateholders of the related series on the payment date
following the due period in which the principal prepayment occurred,
prepayments on the loans would affect the amount of funds available to make
distributions on the certificates on any payment date only if a substantial
portion of the loans prepaid before their respective due dates in a particular
month, thus paying less than 30 days' interest for that due period, while very
few loans prepaid after their respective due dates in that month. In addition,
liquidations of defaulted loans or the servicer's or our exercise of its option
to repurchase the entire remaining pool of loans will affect the timing of
principal distributions on the certificates of a series. See "Description of
the Certificates--Repurchase Option."
Information regarding the prepayment standard or model or any other rate of
assumed prepayment, as applicable, will be set forth in the prospectus
supplement for a series of certificates. Although the related prospectus
supplement will specify the prepayment assumptions used to price any series of
certificates, we cannot assure you that the loans will prepay at that rate, and
it is unlikely that prepayments or liquidations of the loans will occur at any
constant rate.
See "Description of the Certificates--Repurchase Option" for a description of
our or the servicer's option to repurchase the loans comprising part of a trust
when the aggregate outstanding principal balance of the loans is less than a
specified percentage of the initial aggregate outstanding principal balance of
the loans as of the related cut-off date. See also "The Trust--The Loan Pools"
for a description of our obligations to repurchase a loan in case of a breach
of a representation or warranty relative to that loan.
DESCRIPTION OF THE CERTIFICATES
Each series of certificates will be under a separate pooling and servicing
agreement to be entered into among us, as seller and servicer, and the trustee
named in the applicable prospectus supplement, and other parties as are
described in the applicable prospectus supplement. The following summaries
describe provisions expected to be common to each pooling and servicing
agreement and the related certificates, but do not claim to be complete and are
subject to, and are qualified in their entirety by reference to, the provisions
of the related pooling and servicing agreement and its description set forth in
the related prospectus supplement. The provisions of the form of pooling and
servicing agreement filed as an exhibit to the registration statement of which
this prospectus is a part that are not described herein may differ from the
provisions of any actual pooling and servicing agreement. The material
differences will be described in the related prospectus supplement. Capitalized
terms
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used in this prospectus shall have the meanings given to them in the form of
pooling and servicing 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 under this prospectus, and there may be
separate prospectus supplements relating to one or more of the classes sold.
When we refer to the prospectus supplement relating to a series comprised of
more than one class it should be understood to refer to each of the prospectus
supplements relating to the classes sold under this prospectus. When we refer
to the certificates of a class it 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.
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 created pursuant to the related pooling and servicing
agreement. The trust will be held by the trustee for the benefit of the
certificateholders. 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 listed 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 loan pool may be evidenced by one or more classes of
certificates, each representing the interest in the loan pool specified in the
related prospectus supplement. Each series of certificates may include one or
more classes of subordinated certificates which are subordinated in right of
distribution to one or more other classes of senior certificates as provided in
the related prospectus supplement. A series that is both senior and subordinate
are 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 for a series of mezzanine certificates will describe the
extent to which they are 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 subordination, the minimum subordinated amount, and any
distributions or payments which will not be affected by any subordination. The
protection afforded to the senior certificateholders from the subordination
feature described above will be effected by the preferential right of the
certificateholders to receive current distributions from the loan pool. If a
series of certificates contains more than one class of subordinated
certificates, losses will be allocated among the classes in the manner
described in the prospectus supplement. If 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
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and may, if rated in one of the four highest rating categories by a nationally
recognized statistical rating organization, be offered under this prospectus
and the prospectus supplement.
If specified in a prospectus supplement, a series of certificates may include
one or more classes which:
(1) are entitled to receive distributions only in respect of principal,
interest, or any combination of the two, or in specified proportions
of the payments;
(2) are entitled to receive distributions of principal before or after
specified principal distributions have been made on one or more other
classes within a series, or on a planned amortization schedule, or
targeted amortization schedule, or upon the occurrence of other
specified events.
The prospectus supplement will list the pass-through rate at which interest
will be paid to certificateholders of each class of a given series. The 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 loans evidenced by a single certificate of each
class of certificates of a series.
Distributions of principal and interest on the certificates will be made on
the payment dates listed in the related prospectus supplement 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.
Distributions will be made by check mailed to the address of the person
entitled to the distribution as it appears on the certificate register, or, as
described in the related prospectus supplement, 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 that will be deposited with, or on behalf of,
and registered in the name of a nominee for, a 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.
Global certificates will be issued in registered form. Unless and until it is
exchanged in whole or in part for a certificate in definitive form, a global
certificate may not be transferred except as a whole by the depositary for the
global certificate to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary.
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<PAGE>
The specific terms of the depositary arrangement for any certificates of a
class will be described in the related prospectus supplement. It is anticipated
that the following provisions described in this subsection will apply to all
depositary arrangements:
Upon the issuance of a global certificate, the depositary for the global
certificate will credit, on its book-entry registration and transfer system,
the respective denominations of the certificates represented by the global
certificate to the accounts of institutions that have accounts with the
depositary. 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 the global certificate will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the depositary for the global certificate or by
participants or persons that hold through participants. The laws of some states
require that purchasers of securities take physical delivery of the securities
in definitive form. These limits and 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 the global certificate, the depositary or the nominee, as the case may
be, will be considered the sole owner or holder of the certificates represented
by the global certificate for all purposes under the pooling and servicing
agreement relating to those certificates. Except as described in the paragraph
below, owners of beneficial interests in a global certificate will not be
entitled to have certificates of the series represented by a global certificate
registered in their names, will not receive or be entitled to receive physical
delivery of certificates of that series in definitive form and will not be
considered the owners or holders under the pooling and servicing agreement
governing those 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 the certificates. In addition, all reports required
under the applicable pooling and servicing 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. We, the
servicer, the trustee, or any agent, including any applicable certificate
registrar or paying agent, will not 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 the beneficial ownership interests or for
providing reports to the related beneficial owners.
We expect 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 the global certificate as shown on the
records of the depositary. We also expect that payments by participants to
owners of beneficial interests in the global certificate held through
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 the participants.
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<PAGE>
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 us within the time period specified in the pooling and
servicing agreement, we will cause to be issued certificates of that class in
definitive form in exchange for the related global certificate or certificates.
In addition, we may at any time and in our sole discretion determine not to
have any certificates of a class represented by one or more global certificates
and, if this occurs, will cause to be issued certificates of that class in
definitive form in exchange for the related global certificate or certificates.
Further, if we specify that the certificates of a class, an owner of a
beneficial interest in a global certificate representing certificates of that
class may, on terms acceptable to us and the depositary for the global
certificate, receive certificates of that class in definitive form. If this
occurs, 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 the global certificate equal in denominations to the beneficial
interest and to have the certificates registered in its name.
Payments on Loans
Each certificate account will be a trust account established by the servicer
as to each series of certificates in the name of the trustee:
(1) with a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit are rated within the
two highest rating categories, or other rating category as will not
adversely affect the ratings assigned to the certificates, by each
rating agency rating the certificates of that series,
(2) with the trust department of a national bank,
(3) in an account or accounts the deposits in which are fully insured by
the FDIC,
(4) 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 so 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 the 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
(5) otherwise acceptable to the rating agency without reduction or
withdrawal of the rating assigned to the relevant certificates.
The collateral eligible to secure amounts in the certificate account is limited
to United States government securities and other high-quality investments
specified in the applicable pooling and servicing agreement. A certificate
account may be maintained as an interest-bearing account, or the funds held in
the account may be invested pending each succeeding payment date in eligible
investments.
Unless we specify otherwise in the prospectus supplement, the servicer will
deposit in the certificate account on a daily basis all proceeds and
collections received or made by it
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<PAGE>
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, including:
(1) all obligor payments on account of principal, including principal
prepayments, on the loans;
(2) all obligor payments on account of interest on the loans;
(3) all FHA Insurance payments received by the servicer;
(4) all amounts received and retained for the liquidation of defaulted
loans, net of liquidation expenses;
(5) any advances made as described under "Advances" below and other
amounts required under the pooling and servicing agreement to be
deposited in the certificate account;
(6) all amounts received from any credit enhancement provided on a series
of certificates; and
(7) all proceeds of any loan or property acquired or repurchased by the
servicer or us, as described under "Conveyance of Loans" above or
under "Repurchase Option" below.
Distributions on Certificates
Except as we provide otherwise in the prospectus supplement, on each payment
date for a series of certificates, the trustee will withdraw from the
applicable certificate account and distribute to the certificateholders of that
series of record on the preceding record date an amount equal to, in the
aggregate, the amount available for that payment date. Unless we specify
otherwise in the applicable prospectus supplement, the amount available for a
payment date is an amount equal to the sum of all amounts on deposit in the
certificate account as of the seventh business day following the end of the
related due period, or another date as may be specified in the related
prospectus supplement, except:
(1) all payments on the loans that were due on or before the cut-off
date;
(2) all payments or collections received after the due period preceding
the month in which the payment date occurs;
(3) all scheduled payments of principal and interest due on a date or
dates subsequent to the due period preceding the determination date;
(4) amounts representing reimbursement for advances, such reimbursement
being limited, if so specified in the related prospectus supplement,
to amounts received on particular loans as late collections of
principal or interest as to which the servicer has made an
unreimbursed advance; and
(5) amounts representing reimbursement for any unpaid servicing fee.
In the case of a series of certificates which includes only one class, the
amount available for each distribution or payment date will be distributed pro
rata to the holders of the
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certificates. In the case of any other series of certificates, the amount
available for each payment date will be allocated and distributed to holders of
the certificates of the series according to the method and in the order of
priority specified in the applicable prospectus supplement. We refer to the
amount of principal and interest specified in the related prospectus supplement
to be distributed to certificateholders as the certificate distribution amount.
Within the time specified in the pooling and servicing agreement and
described in the related prospectus supplement, the servicer will furnish a
statement to the trustee listing the amount to be distributed on the related
payment date on account of principal and interest, stated separately, and a
statement listing information about the loans.
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 1999. All weekdays are assumed to be business days. The initial
principal balance of the loan pool will be the aggregate principal balance of
the loans 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 loan pool and will not be
passed through to certificateholders. 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 loan is prepaid in full, interest on the amount
prepaid is collected from the obligor only to the date of payment.
Distributions on April 15 will be made to certificateholders of record at the
close of business on the last business day of March, being the month
immediately preceding the month of distribution. On April 9, the seventh
business day following the end of the prior due period, 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. On April 15, the amounts determined on April 9 will be distributed to
certificateholders.
<TABLE>
<S> <C>
March 1............................................. Cut-off date.
March 1-31.......................................... Due period. Servicer
receives scheduled payments
on the loans and any
principal prepayments made
by obligors and applicable
interest thereon.
March 31............................................ Record date.
April 9............................................. Determination date.
Distribution amount
determined.
April 15............................................ Payment date.
</TABLE>
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Succeeding months follow the pattern of the due period through the payment
date. The flow of funds with respect to any series of certificates may differ
from the above example, as specified in the related prospectus supplement.
Reports to Certificateholders
The trustee will forward to each certificateholder on each payment date, or
as soon thereafter as is practicable, as specified in the related prospectus
supplement, a statement listing the following information:
(1) the amount of distribution which constitutes monthly principal,
specifying the amounts constituting scheduled payments by obligors,
principal prepayments on the loans, and other payments on the loans;
(2) the amount of such distribution which constitutes monthly interest;
(3) the remaining principal balance represented by the certificateholder's
interest;
(4) our FHA Insurance reserve amount;
(5) the amount of fees payable out of the trust;
(6) the pool factor, a percentage derived from a fraction the numerator of
which is the remaining principal balance of the certificates and the
denominator of which is the initial principal amount of the
certificates, immediately before and immediately after the payment
date;
(7) the number and aggregate principal balance of loans delinquent (a) 31-
59 days, (b) 60-89 and (c) 90 or more days;
(8) the number of loans liquidated during the due period ending
immediately before the payment date;
(9) other customary factual information as is necessary to enable
certificateholders to prepare their tax returns; and
(10) such other customary factual information available to the servicer
without unreasonable expense as is necessary to enable
certificateholders to comply with regulatory requirements.
Advances
Unless we specify otherwise in the prospectus supplement, to the extent that
collections on a loan in any due period are less than the scheduled payment
due, the servicer will be obligated to make an advance of the uncollected
portion of the scheduled payment. The servicer will be obligated to advance a
delinquent payment on a loan only to the extent that the servicer, in its sole
discretion, expects to recoup such advance from subsequent collections on the
loan or from liquidation proceeds of the loans. The servicer will deposit any
advances in the certificate account no later than one business day before the
following payment date. The servicer will be entitled to recoup its advances on
a loan from subsequent payments by or on behalf of the obligor and from
liquidation proceeds, including FHA
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Insurance payments or foreclosure resale proceeds, if any, of the loan, and
will release its right to reimbursements in conjunction with the purchase of
the loan by us for breach of representations and warranties. If the servicer
determines in good faith that an amount previously advanced will not ultimately
be recoverable from payments by or on behalf of the obligor or from liquidation
proceeds, including FHA Insurance payments or foreclosure resale proceeds of
the loan, the servicer will be entitled to reimbursement from payments on other
loans or from other funds available.
Unless we specify otherwise in the prospectus supplement, if the servicer
fails to make an advance required under the pooling and servicing agreement,
the trustee will be obligated to deposit the amount of the advance in the
certificate account on the payment date. The trustee will not be obligated to
deposit any amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from liquidation proceeds or
(2) the trustee determines that it is not legally able to make the
advance.
Indemnification
The pooling and servicing agreement requires us to defend and indemnify the
trust, the trustee, including any agent of the trustee and the
certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation:
(1) arising out of or resulting from the use or ownership by us or the
servicer or any affiliate of any real estate related to a loan and
(2) for any taxes which may at any time be asserted for, and as of the
date of, the transfer of the loans to the trust, but not including any
federal, state or other tax arising out of the creation of the trust
and the issuance of the certificates.
The pooling and servicing agreement also requires the servicer, in its duties
as servicer of the loans, to defend and indemnify the trust, the trustee and
the certificateholders, which indemnification will survive any removal of the
servicer as servicer of the loans, against any and all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel and expenses of litigation, for any action taken by the servicer on any
loan while it was the servicer.
Servicing
Under to the pooling and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as more fully described below in
this section. The servicer will perform diligently all services and duties
specified in each pooling and servicing agreement, in the same manner as
prudent lending institutions of home improvement loans and home equity loans of
the same type as the loans in those jurisdictions where the related real
properties are located or as otherwise specified in the pooling and servicing
agreement.
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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, foreclosure of loans.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the pooling and servicing agreement and
any FHA Insurance, will follow the collection procedures as it follows for
mortgage loans or loans serviced by it that are comparable to the loans.
Evidence as to Compliance. Unless we specify otherwise in the prospectus
supplement, each pooling and servicing agreement will require the servicer to
deliver to the trustee a monthly report before each payment date, describing
information about the loan pool and the certificates of the series as is
specified in the related prospectus supplement. Each report to the trustee will
be accompanied by a statement from an appropriate officer of the servicer
certifying the accuracy of the report and stating that the servicer has not
defaulted in the performance of its obligations under the pooling and servicing
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 the
firm has examined documents and records relating to the servicing of home
improvement loans and home equity loans serviced by the servicer under pooling
and servicing agreements similar to the pooling and servicing agreement and
stating that, on the basis of those procedures, the servicing has been
conducted in compliance with the pooling and servicing agreement, except for
any exceptions described in the report.
Certain Matters Regarding the Servicer. The servicer may not resign from its
obligations and duties under the pooling and servicing agreement except upon a
determination that its duties under the agreement are no longer permissible
under applicable law. No resignation will become effective until the trustee or
a successor servicer has assumed the servicer's obligations and duties under
the pooling and servicing agreement. The servicer can only be removed as
servicer upon the occurrence of an event of termination as discussed below
under "--Events of Termination."
The servicer shall keep in force throughout the term of the pooling and
servicing agreement:
(1) a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the pooling and servicing
agreement, and
(2) a fidelity bond.
The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home
improvement loans and home equity loans having an aggregate principal amount of
$10 million or more and which are generally regarded as servicers acceptable to
institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which we may assign, for each due period, paid on the next
succeeding payment date, equal to 1/12th of the
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product of the annual servicing fee rate described in the prospectus supplement
and the pool scheduled principal balance for the payment date. As long as we
are the servicer, the trustee will pay us its monthly servicing fee from any
monies remaining after the certificateholders have received all payments of
principal and interest for the payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records with
respect to each loan. Administrative services performed by the servicer on
behalf of the trust include selecting and packaging the loans, 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 servicing of the loans and paid by us from
our monthly servicing fees include payment of FHA insurance premiums, payment
of fees and expenses of accountants, payments of all fees and expenses incurred
in the enforcement of loans or foreclosure on collateral relating thereto,
including submission of FHA insurance claims, payment of trustee's fees, and
payment of expenses incurred in distributions and reports to
certificateholders, except that the servicer shall be reimbursed out of the
liquidation proceeds of a liquidated loan, including FHA insurance proceeds,
for customary out-of-pocket liquidation expenses incurred by it.
Events of Termination. Except as we specify otherwise in the prospectus
supplement, events of termination under each pooling and servicing agreement
will occur if:
(1) the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and such
failure continues for four business days;
(2) the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for 30 days;
(3) the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
(4) a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator, or similar official, of the
servicer or enters a decree or order for any substantial liquidation
of its affairs;
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(5) the servicer begins a voluntary case under any applicable bankruptcy,
insolvency or similar law, or consents to the entry of an order for
relief in an involuntary case under any law, or consents to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits
in writing its inability to, pay its debts as they become due, or
takes any corporate action in furtherance of the foregoing;
(6) the servicer fails to be an eligible servicer; or
(7) if we are the servicer, our servicing rights under its master seller-
servicer loan with GNMA are terminated.
The servicer will be required under the pooling and servicing agreement to give
the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of the event.
Rights Upon Event of Termination. Except as we specify otherwise in the
prospectus supplement, so long as an event of termination remains unremedied,
the trustee may, and at the written direction of certificateholders
representing 25% or more of the aggregate certificate principal balance of a
series shall, terminate all of the rights and obligations of the servicer under
the related pooling and servicing agreement and in and to the loans, and the
proceeds of the loans, at which time, subject to applicable law regarding the
trustee's ability to make advances, the trustee or a successor servicer under
the pooling and servicing agreement will succeed to all the responsibilities,
duties and liabilities of the servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the trustee nor any successor servicer will assume our
obligation to repurchase loans 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 before a transfer of the servicer's
servicing and related functions or for any breach by the servicer of any of its
obligations contained in the pooling and servicing agreement. In addition, the
trustee will notify FHA of our termination as servicer of the loans and will
request that our portion FHA Insurance reserves allocable to the FHA-insured
home improvement loans be transferred to the trustee or a successor servicer.
See "Description of FHA Insurance." Notwithstanding the termination, the
servicer shall be entitled to payment of certain amounts payable to it before
the termination, for services rendered before the termination. No termination
will affect in any manner our obligation to repurchase certain loans for
breaches of representations or warranties under the pooling and servicing
agreement. If 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 appointment,
the trustee is obligated to act in this capacity. The trustee and the 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 pooling and servicing
agreement.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the pooling and servicing agreement at
the request, order or
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<PAGE>
direction of any of the holders of certificates, unless the certificateholders
have offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which the trustee may incur.
Repurchase Option
Unless we specify otherwise in the prospectus supplement, each pooling and
servicing agreement will provide that on any payment date on which the pool
scheduled principal balance is less than 10% of the cut-off date pool principal
balance, we or the servicer will have the option to repurchase, on 30 days'
prior written notice to the trustee, all outstanding loans in the related loan
pool at a price equal to the greatest of:
(1) the principal balance of the loans on the prior payment date plus 30
days' accrued interest thereon at the applicable pass-through rate
and any delinquent payments of interest, plus the fair market value,
as determined by the servicer, of any acquired properties,
(2) the fair market value of all of the assets of the trust, and
(3) an amount equal to the aggregate certificate principal balance of the
related certificates plus interest on the certificates payable on and
prior to the payment date occurring in the month after the
repurchase, less amounts on deposit in the certificate account and
available to pay the principal and interest.
Such price will be paid on the payment date on which the purchase occurs to the
certificateholders of record on the last business day of the immediately
preceding due period in immediately available funds against the trustee's
delivery of the loans and any acquired properties to the servicer. The
distribution of the purchase price to certificateholders will be in lieu of any
other distribution to be made on the payment date on the related loans.
Amendment
Unless we specify otherwise in the prospectus supplement, the pooling and
servicing agreement may be amended by us, the servicer and the trustee without
the consent of the certificateholders:
(1) to cure any ambiguity; or
(2) to correct or supplement any provision in the agreement that may be
inconsistent with another provision; or
(3) if an election has been made for a particular series of certificates
to treat the trust as a REMIC within the meaning of Section 860D(a) of
the IRS code, to maintain the REMIC status of the trust and to avoid
the imposition of certain taxes on the REMIC; or
(4) to make any other provisions for matters or questions arising under
such pooling and servicing agreement that are not inconsistent with
its provisions, provided that the action will not adversely affect in
any material respect the interests of the certificateholders of the
related series.
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Unless we specify otherwise in the prospectus supplement, the pooling and
servicing agreement may also be amended by us, the servicer and the trustee
with the consent of the certificateholders, other than holders of residual
certificates, representing 66 2/3% or more of the aggregate certificate
principal balance of a series for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the pooling and
servicing agreement or of modifying in any manner the rights of the
certificateholders; provided, however, that no amendment that reduces in any
manner the amount of, or delays the timing of, any payment received on loans
which are required to be distributed on any certificate may be effective
without the consent of the holders of each certificate.
Termination of the Agreement
The obligations created by each pooling and servicing agreement will
terminate, after distribution of all monthly principal and monthly interest
then due to certificateholders, on the earlier of:
(1) the payment date after the later of the final payment or other
liquidation of the last loan or the disposition of all property
acquired upon foreclosure of any loan; or
(2) the payment date on which we or the servicer repurchase the loans as
described under "Description of the Certificates--Repurchase Option."
However, our representations, warranties and indemnities will survive
any termination of the pooling and servicing agreement.
The Trustee
The prospectus supplement for a series of certificates will specify the
trustee under the related pooling and servicing agreement. The trustee may have
customary commercial banking relationships with us or our affiliates and the
servicer or its affiliates.
The trustee may resign at any time, in which event we will be obligated to
appoint a successor trustee. We may also remove the trustee if the trustee
ceases to be eligible to continue as trustee under the pooling and servicing
agreement or if the trustee becomes insolvent. Any resignation or removal of
the trustee and appointment of a successor trustee will not become effective
until acceptance of the appointment by the successor trustee.
The trustee will make no representation as to the validity or sufficiency of
the pooling and servicing agreement, the certificates or any loan, loan file or
related documents, and will not be accountable for the use or application by us
of any funds paid to us, as seller, in consideration of the conveyance of the
loans, or deposited into or withdrawn from the certificate account by the
servicer. If no event of termination has occurred, the trustee will be required
to perform only those duties specifically required of it under the pooling and
servicing 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 pooling and servicing agreement. Whether or not an event of
termination has occurred, the trustee is not required to expend or risk its own
funds or otherwise incur any financial liability in the performance
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<PAGE>
of its duties or the exercise of its powers if it has reasonable grounds to
believe that repayment of the funds or adequate indemnity against the risk or
liability is not reasonably assured to it.
Under the pooling and servicing agreement, the servicer agrees to pay to the
trustee on each payment date:
. reasonable compensation for all services rendered by it under the
agreement, which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust;
and
. reimbursement for all reasonable expenses, disbursements and advances
incurred or made by the trustee in accordance with any provision of
the pooling and servicing agreement, including FHA Insurance premiums
not paid by the servicer and 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.
We have agreed to indemnify the trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the trust and the trustee's duties, 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.
DESCRIPTION OF FHA INSURANCE
Some of the home improvement loans may be FHA-insured, the payments upon
which are insured by the FHA under Title I of the National Housing Act and are
subject to the following discussion.
The insurance available to any trust will be subject to the limit of a
reserve amount equal to 10% of the principal balance of all Title I insured
loans originated or purchased and reported for FHA Insurance by us, which
amount will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by us. Our reserve amount may be reduced by
10% of the principal balance of any loans reported to FHA as sold without
recourse by us. In the pooling and servicing agreement, we will agree to pay
all FHA Insurance premiums required by FHA regulations. If we fail to pay any
premium, the trustee or the successor servicer for each series is obligated to
pay the premium and is entitled to be reimbursed by us and from collections on
the related home improvement loans.
As of December 31, 1998, our FHA Insurance reserve amount was equal to
approximately $ . These insurance reserves were available to cover losses
on approximately $ of FHA-insured manufactured housing loans and
approximately $ of FHA-insured home improvement loans, including the FHA-
insured home improvement loans that may be owned by a trust. If an event of
termination, as defined
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under "Description of the Certificates--Events of Termination" occurs, each
trustee will notify FHA of Green Tree's termination as servicer of the related
FHA-insured home improvement loans and will request that the portion of our FHA
Insurance reserves allocable to the FHA-insured home improvement loans be
transferred to the trustee or a successor servicer. Although each trustee will
request a transfer of reserves, FHA is not obligated to comply with such a
request, and may determine that it is not in FHA's interest to permit the
transfer of reserves. In addition, FHA has not specified how insurance reserves
might be allocated in such event, and there can be no assurance that any
reserve amount, if transferred to the trustee or a successor servicer, would
not be substantially less than 10% of the outstanding principal amount of the
FHA-insured home improvement loans. It is likely that the trustee or any
successor servicer would be the lender of record on other FHA Title I loans, so
that any reserves that are so permitted to be transferred would become
commingled with reserves available for other FHA Title I loans. FHA also
reserves the right to transfer reserves with "earmarking," segregating reserves
so that they will not be commingled with the reserves of the transferee, if it
is in FHA's interest to do so.
In general, FHA will insure property improvement loans up to $25,000 for a
single-family property, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up to $12,000 per unit for a $48,000 limit
for four units for owner-occupied multiple-family homes. If the loan amount is
$15,000 or more, FHA requires a drive-by appraisal, the current tax assessment
value, or a full uniform residential appraisal report dated within 12 months of
the closing to verify the property's value. The maximum loan amount on
transactions requiring an appraisal is the amount of equity in the property
shown by the market value determination of the property. The loan proceeds must
be used for the purposes described in the loan application, and those
improvements must substantially protect or improve the basic livability or
utility of the property. The secretary of HUD from time to time publishes a
list of ineligible items and activities which may not be financed with the
proceeds of an FHA-insured home improvement loan.
Following a default on an FHA-insured home improvement loan the servicer may,
subject to certain conditions, either commence foreclosure proceedings against
the improved property securing the loan, or submit a claim to FHA, but may
submit a claim to FHA after proceeding against the improved property only with
the prior approval of the secretary of HUD. The availability of FHA Insurance
following a default on an FHA-insured home improvement loan is subject to a
number of conditions, including strict compliance by us with FHA regulations in
originating and servicing the home improvement loan. Failure to comply with FHA
regulations may result in a denial of or surcharge on the FHA Insurance claim.
Prior to declaring an FHA-insured home improvement loan in default and
submitting a claim to FHA, the servicer must take certain steps to attempt to
cure the default, including personal contact with the borrower either by
telephone or in a meeting and providing the borrower with 30 days' written
notice before declaration of default. FHA may deny insurance coverage if the
borrower's nonpayment is related to a valid objection to faulty contractor
performance. In that event, we will seek to obtain payment by or a judgment
against the borrower, and may resubmit the claim to FHA following such a
judgment. As
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described under "Green Tree Financial Corporation--Loan Origination," We do not
purchase a home improvement loan until the customer verifies satisfactory
completion of the work.
Upon submission of a claim to FHA, the related trust must assign its entire
interest in the home improvement loan to the United States. In general, the
claim payment will equal 90% of the sum of:
(1) the unpaid principal amount of the home improvement loan at the date
of default and uncollected interest computed at the loan rate earned
to the date of default;
(2) accrued and unpaid interest on the unpaid amount of the home
improvement loan 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;
(3) uncollected court costs;
(4) legal fees, not to exceed $500; and
(5) expenses for recording the assignment of the lien to the United
States, if applicable.
CERTAIN LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of our conveyance and assignment of a pool of loans to a trust,
the certificateholders of such series, as the beneficial owners of the trust,
will succeed collectively to all of the rights thereunder, including the right
to receive payment on the loans. The following discussion contains summaries of
certain legal aspects of home improvement loans and home equity loans secured
by residential properties which are general in nature. These legal aspects are
in addition to the requirements of FHA regulations described in "Description of
FHA Insurance" with respect to the FHA-insured home improvement loans. Because
these 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 real estate securing the loans may be situated or which may govern any
loan. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the loans.
Mortgages and Deeds of Trust
The loans will be secured by either mortgages, deeds of trust, security deeds
or deeds to secure debt depending upon the prevailing practice in the state in
which the underlying property is located, and may have first, second or third
priority. In some states, a mortgage creates a lien upon the real property
encumbered by the mortgage or deed of trust. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent, such as, the payment of the indebtedness secured. There are two
parties to a mortgage: the mortgagor, who is the borrower, and the mortgagee,
who is the
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lender. In a mortgage state, the mortgagor delivers to the mortgagee a note or
retail installment loan 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, or trustor, the 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 repayment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
applicable state law, the express provisions of the deed of trust or mortgage,
and, in some cases for deeds of trust, the directions of the beneficiary. Some
states use a security deed or deed to secure debt which is similar to a deed of
trust except that it has only two parties: a grantor, similar to a mortgagor,
and a grantee, similar to a mortgagee. Mortgages, deeds of trust and deeds to
secure debt are not prior to liens for real estate taxes and assessments and
other charges imposed under governmental police powers. Priority between
mortgages, deeds of trust and deeds to secure debt and other encumbrances
depends on their terms, the knowledge of the parties to the instrument in some
cases and generally on the order of recordation of the mortgage, deed of trust
or the deed to secure debt in the appropriate recording office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the loans in any loan pool are expected to be
second or third mortgages or deeds of trust which are junior to mortgages or
deeds of trust held by other lenders or institutional investors. The rights of
the related trust, and therefore the certificateholders, as beneficiary under a
junior deed of trust or as mortgagee under a junior mortgage, are subordinate
to those of the mortgagee or beneficiary under the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive hazard insurance and condemnation proceeds and to cause the property
securing the loan to be sold upon default of the mortgagor or trustor under the
senior mortgage or deed of trust, thereby extinguishing the junior mortgagee's
or junior beneficiary's lien unless the servicer on behalf of the trust asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior loan or loans. As discussed more fully
below, a junior mortgagee or beneficiary may satisfy a defaulted senior loan in
full, or in some states may cure the default and bring the senior loan current,
in either event usually adding the amounts expended to the balance due on the
junior loan. Although we generally do not cure defaults under a senior mortgage
or deed of trust, it is our standard practice to protect our interest by
attending any foreclosure sale and bidding for property only if it is in our
best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like ours, confers on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply such
proceeds and awards to any indebtedness secured by the mortgage or deed of
trust, in such order as the mortgagee or beneficiary may determine. Thus, in
the event improvements on the property are damaged or destroyed by fire or
other casualty, or in the event the property is taken by condemnation, the
mortgagee
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or beneficiary under the underlying first mortgage or deed of trust will have
the prior right to collect any insurance proceeds payable under a hazard
insurance policy and any award of damages in connection with the condemnation
and to apply the same to the indebtedness secured by the first mortgage or deed
of trust. Proceeds in excess of the amount of first mortgage indebtedness, in
most cases, may be applied to the indebtedness of a junior mortgage or deed of
trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a future advance clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an obligatory or optional advance. If the mortgagee or beneficiary
is obligated to advance the additional amounts, the advance is entitled to
receive the same priority as amounts initially advanced under the mortgage or
deed of trust, notwithstanding the fact that there may be junior mortgages or
deeds of trust and other liens which intervene between the date of recording of
the mortgage or deed of trust and the date of the future advance, and, in some
states, notwithstanding that the senior mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of advances under the clause rests, in
some states, on state statutes giving priority to all advances made under the
loan agreement to a credit limit amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste, and to appear in and defend any action or proceeding purporting to
affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. If the mortgagor or trustor fails to perform any of
these obligations, the mortgagee or beneficiary is given the right under the
mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or
beneficiary for any sums expended by the mortgagee or beneficiary on behalf of
the mortgagor or trustor. All sums so expended by a senior mortgagee or
beneficiary generally become part of the indebtedness secured by the senior
mortgage or deed of trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk.
. First, the borrower may have difficulty servicing and repaying multiple
loans.
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. Second, acts of the senior lender which prejudice the junior lender or
impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior
lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened.
. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior
lender.
The bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action establishes a waiver, or
fraud, bad faith, oppressive or unconscionable conduct and warrants a court of
equity to refuse affirmative relief to the mortgagee. In some circumstances a
court of equity may relieve the mortgagor from an entirely technical default
where the default was not willful. 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. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a referee
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, under a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a
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request for a copy of a notice of default and notice of sale. In addition,
before the sale, 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. Some states require that a notice of sale be posted in a
public place and, in most states, published for a specified period of time in
one or more newspapers in a specified manner before the date of trustee's sale.
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. Individual state laws control the amount of foreclosure expenses
and costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might 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. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. 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, paying taxes 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. Any loss resulting from the sale may be
reduced by the receipt of any mortgage insurance proceeds.
A second or third mortgagee may not foreclose on the property securing a
second or first mortgage unless it forecloses subject to the senior mortgages,
in which case it must either pay the entire amount due on the senior mortgages
before or at the time of the foreclosure sale or make payments on the senior
mortgages in the event the mortgagor is in default thereunder, in either event
adding the amounts expended to the balance due on the junior loan, and may be
subrogated to the rights of the senior mortgagees. In addition, in the event
that the foreclosure by a junior mortgagee triggers the enforcement of a due-
on-sale clause in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgages to the senior mortgagees.
Accordingly, for those loans which are second or third mortgage loans, if the
lender purchases the property, the lender's title will be subject to all senior
liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are
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generally payable to the holders of junior mortgages or deeds of trust and
other liens and claims in order of their priority, whether or not the borrower
is in default. Any additional proceeds are generally payable to the mortgagor
or trustor. The payment of the proceeds to the holders of junior mortgages may
occur in the foreclosure action of the senior mortgagee or may require the
institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related trust with respect to its acquisition, by
foreclosure or otherwise, and disposition of real property securing a loan, and
any taxes or fees imposed may reduce liquidation proceeds with respect to the
property, as well as distributions payable to the certificateholders.
Second or Third Mortgages
The loans may be secured by second or third mortgages or deeds of trust,
which are junior to first or second mortgages or deeds of trust held by other
lenders. The rights of the certificateholders as the holders of a junior deed
of trust, junior mortgage, or junior security deed are subordinate in lien and
in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the senior deed of
trust, the junior mortgagee's or junior beneficiary's lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the loan. See "--
Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to secure debt or security deed. In the event of a conflict
between the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed and the junior mortgage, deed of trust, deed to secure debt or
security deed, the terms of the senior mortgage, deed of trust, deed to secure
debt or security deed will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage, deed of trust, deed to secure debt
or security deed may have the right to perform the obligation itself.
Generally, all sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
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Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their equity of redemption. The doctrine of equity of redemption provides
that, until the property covered by a mortgage has been sold in accordance with
a properly conducted foreclosure and foreclosure sale, those having an interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay the costs of the action. Those having an equity of
redemption must generally be made parties and duly summoned to the foreclosure
action in order for their equity of redemption to be barred.
In some states, after sale under a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In other
states, this right of redemption applies only to sale following judicial
foreclosure, and not to sale under 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 expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. In some states, the right to
redeem is an equitable right. The equity of redemption, which is a non-
statutory right that must be exercised before foreclosure sale, should be
distinguished from statutory rights of redemption. 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.
In some states, there is no right to redeem property after a trustee's sale
under a deed of trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Individual states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. 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 public 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 other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security;
however, in some of these states, the lender, following judgment on the
personal action, may be deemed to have elected a remedy and may be precluded
from
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exercising remedies on 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
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of the 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 instances where the value of the lender's security has been impaired by acts
or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, under the federal bankruptcy law, the filing of a petition acts as a
stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default of a
mortgage loan on a debtor's residence by paying arrearages and reinstate the
original mortgage loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court, provided no sale of the property had yet occurred, before the filing of
the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. In the case of a mortgage loan not
secured by the debtor's principal residence, courts with federal bankruptcy
jurisdiction may also reduce the monthly payments due under the mortgage loan,
change the rate of interest and alter the mortgage loan repayment schedule.
The IRS code provides priority to certain federal tax liens over the lien of
the mortgage or deed of trust. The bankruptcy code also provides priority to
certain tax liens over the lien of the mortgage or deed of trust. The laws of
some states provide priority to state 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, state licensing requirements, 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
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fail to comply with the provisions of the law. In some cases, this liability
may affect assignees of the mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994, which became effective on
October 1, 1995, adds provisions to Regulation Z which impose additional
disclosure and other requirements on creditors involved in non-purchase money
mortgage loans with high interest rates or high up-front fees and charges. It
is possible that some loans included in a loan pool may be subject to these
provisions. The Home Protection Act applies to mortgage loans originated on or
after the effective date of these regulations. These laws can impose specific
statutory liabilities upon creditors who fail to comply with their provisions
and may affect the enforceability of the loan.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The holder-in-due-course rule of the Federal Trade Commission is intended to
defeat the ability of the transferor of a consumer credit loan which is the
seller of goods which gave rise to the transaction, and lenders and assignees,
to transfer the loan free of notice of claims by the debtor. The effect of this
rule is to subject the assignee of the loan to all claims and defenses which
the debtor could assert against the seller of goods, such as a home improvement
contractor. Liability under this rule is limited to amounts paid under a loan;
however, the obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the trust against obligor.
The home protection act provides that assignees of high-interest, non-purchase
money mortgage loans, which may include some home improvement loans are subject
to all claims and defenses that the debtor could assert against the original
creditor, unless the assignee demonstrates that a reasonable person in the
exercise of ordinary due diligence could not have determined that the mortgage
loan was subject to the provisions of the home protection act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to
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limitations imposed by FHA regulations with respect to FHA-insured home
improvement loans, in some states there are or may be specific limitations upon
late charges which a lender may collect from a borrower for delinquent
payments. Under the pooling and servicing agreement, late charges, to the
extent permitted by law and not waived by us will be retained by us as
additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts will
generally enforce clauses providing for acceleration in the event of a material
payment default. However, courts, exercising equity jurisdiction, may refuse to
allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage having a
power of sale does not involve sufficient state action to afford constitutional
protection to the borrower.
It is our practice with some of the home improvement loans to defer the first
payment for up to 90 days, and to charge the home improvement contractor points
to cover the lost interest due to collecting only 30 days' interest on the
first payment on these deferred payment loans.
Due-on-Sale Clauses
All of the loan documents will contain due-on-sale clauses unless the
prospectus supplement indicates otherwise. These clauses permit the servicer to
accelerate the maturity of the loan on notice, which is usually 30 days, if the
borrower sells, transfers or conveys the property without the prior consent of
the mortgagee. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in
many states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982, which, after a three-year grace
period,
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preempts state laws which prohibit the enforcement of due-on-sale clauses by
providing, among other matters, that due-on-sale clauses in some loans,
including the home improvement loans, made after the effective date of the
Garn-St. Germain Act are enforceable within some limitations as described in
the Garn-St. Germain Act and its regulations.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any home improvement loan which contains a due-on-sale
clause upon transfer of an interest in the mortgaged property. This ability to
accelerate will not apply to certain types of transfers, including:
. the granting of a leasehold interest which has a term of three years
or less and which does not contain an option to purchase;
. a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property;
. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property;
. the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of
rights of occupancy in the mortgaged property, provided that such lien
or encumbrance is not created under a loan for deed;
. a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety; and
. other transfers as set forth in the Garn-St. Germain Act and the
regulations thereunder.
As a result, a lesser number of loans which contain due-on-sale clauses may
extend to full maturity than earlier experience would indicate for single-
family mortgage loans. However, we cannot predict the extent of the effect of
the Garn-St. Germain Act on the average lives and delinquency rates of the
loans.
The inability to enforce a due-on-sale clause may result in home improvement
loans bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, which may have an impact upon the
average life of the loans and the number of loans which may be outstanding
until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended, provides that, subject to specific conditions,
state usury limitations shall not apply to FHA-insured loans and to first
mortgage secured conventional loans if the loan is defined as a federally
related mortgage loan, a number of states have adopted legislation overriding
Title V's exemptions, as permitted by Title V. We will represent and
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warrant in each pooling and servicing agreement that all loans comply with any
applicable usury limitations.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended and under some state laws, a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property may become liable in certain
circumstances for the costs of cleaning up hazardous substances regardless of
whether they have contaminated the property. CERCLA imposes strict, as well as
joint and several, liability on several classes of potentially responsible
parties, including current owners and operators of the property who did not
cause or contribute to the contamination. Additionally, liability under CERCLA
is not limited to the original or unamortized principal balance of a loan or to
the value of the property securing a loan. Lenders may be held liable under
CERCLA as owners or operators unless they qualify for the secured creditor
exemption to CERCLA. This exemption exempts from the definition of owners and
operators those who, without participating in the management of a facility,
hold indicia of ownership primarily to protect a security interest in the
facility. What constitutes sufficient participation in the management of a
property securing a loan or the business of a borrower to render the exemption
unavailable to a lender has been a matter of interpretation by the courts.
CERCLA has been interpreted to impose liability on a secured party, even absent
foreclosure, where the party participated in the financial management of the
borrower's business to a degree indicating a capacity to influence waste
disposal decisions. However, court interpretations of the secured creditor
exemption have been inconsistent. In addition, when lenders foreclose and then
become owners of collateral property, courts are inconsistent as to whether
ownership renders the secured creditor exemption unavailable. Other federal and
state laws in some circumstances may impose liability on a secured party which
takes a deed-in-lieu of foreclosure, purchases a mortgaged property at a
foreclosure sale, or operates a mortgaged property on which contaminants other
than CERCLA hazardous substances are present, including petroleum, agricultural
chemicals, hazardous wastes, asbestos, radon, and lead-based paint. Such
cleanup costs may be substantial. It is possible that such cleanup costs could
become a liability of a trust and reduce the amounts otherwise distributable to
the holders of the related series of certificates in some circumstances if such
cleanup costs were incurred. Moreover, some states by statute impose a lien for
any cleanup costs incurred by the state on the property that is the subject of
the cleanup costs, an "environmental lien." All subsequent liens on the
property generally are subordinated to such an environmental lien and, in some
states, even prior recorded liens are subordinated to environmental liens. In
the latter states, the security interest of the trustee in a related parcel of
real property that is subject to an environmental lien could be adversely
affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present on any mortgaged property before the
origination of the mortgage loan or before foreclosure or accepting a deed-in-
lieu of foreclosure. Accordingly, we have has not made and will not make these
evaluations before the origination of the
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loans. Neither we nor any replacement servicer will be required by any pooling
and servicing agreement to undertake any such evaluations before foreclosure or
accepting a deed-in-lieu of foreclosure. We do not make any representations or
warranties or assume any liability for the absence or effect of contaminants on
any related real property or any casualty resulting from the presence or effect
of contaminants. However, we will not foreclose on related real property or
accept a deed-in-lieu of foreclosure if we know or reasonably believe that
there are material contaminated conditions on the property. A failure so to
foreclose may reduce the amounts otherwise available to certificateholders of
the related series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, would adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on certain of the
loans. Any shortfall in interest collections resulting from the application of
the Relief Act or similar legislation, which would not be recoverable from the
related loans, would result in a reduction of the amounts distributable to the
certificateholders. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under certain circumstances, during an additional
three month period. In the event that the Relief Act or similar legislation
applies to any loan which goes into default, there may be delays in payment on
the certificates. Any other interest shortfalls, deferrals or forgiveness of
payments on the loans resulting from similar legislation or regulations may
result in delays in payments or losses to certificateholders.
Repurchase Obligations
We will represent and warrant that each FHA-insured home improvement loan was
originated in compliance with FHA regulations and is covered by FHA Insurance.
In the event FHA were to deny insurance coverage on an FHA-insured home
improvement loan due to a violation of FHA regulations in originating or
servicing such home improvement loans, such violation would constitute a breach
of a representation and warranty under the pooling and servicing agreement and
would create an obligation of us to repurchase such home improvement loan
unless the breach is cured. See "Description of the Certificates--Conveyance of
Loans."
In addition, we will also represent and warrant under each pooling and
servicing agreement that each loan complies with all requirements of law. If
any obligor has a claim against the related trust for violation of any law and
the claim materially adversely affects the trust's interest in a loan, such
violation would constitute a breach of a representation and warranty under the
pooling and servicing agreement and would create an obligation to repurchase
the loan unless the breach is cured. See "Description of the Certificates--
Conveyance of Loans."
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to ERISA 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 those
plans. ERISA also imposes duties on persons who are fiduciaries of the plans.
Under ERISA, and subject to exemptions not relevant to this offering, any
person who exercises any authority or control over the management or
disposition of the assets of a Plan is considered to be a fiduciary of the
plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of plans be invested and
managed for the exclusive benefit of plan participants and beneficiaries, a
determination by the plan fiduciary that any such investment is permitted under
the governing plan instruments and is prudent and appropriate for the plan in
view of its overall investment policy and the composition and diversification
of its portfolio. Some 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 these plans may
be invested in certificates without regard to the ERISA considerations
described above and in the paragraphs below, subject to the provisions of
applicable state law. Any plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the IRS code, however, is subject to the
prohibited transaction rules provided in Section 503 of the IRS code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
IRS code, prohibit a broad range of transactions involving plan assets and
persons having specified relationships to a plan. These 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 IRS 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 loan pool and not merely an interest in the
certificates, transactions occurring in the operation of the loan pool might
constitute prohibited transactions unless an administrative exemption applies.
Selected exemptions which may be applicable to the acquisition and holding of
the certificates or to the servicing and operation of the loan pool are noted
in the paragraphs below.
The Department of Labor has issued a regulation (29 C.F.R. Section 2510.3-
101) 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
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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. The certificates are not expected to be publicly offered securities under
the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA,
and from the prohibited transaction excise tax provisions of Section 4975 of
the IRS 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, which amended Prohibited Transaction
Exemption 81-7, the DOL exempted from ERISA's prohibited transaction rules
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 the
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. 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 housing like the loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing plan's assets could be
considered to include an undivided interest in the home equity loans and any
other assets held in the loan pool. If the assets of a contract pool are
considered assets of an investing plan, we, the servicer, the trustee and other
persons, in providing services on the contracts, may be considered fiduciaries
to the plan and subject to the fiduciary responsibility provisions of Title I
of ERISA and the prohibited transaction provisions of Section 4975 of the IRS
code for transactions involving those assets unless a statutory or
administrative exemption applies.
Any plan fiduciary considering the purchase of a certificate should consult
with its counsel about the potential applicability of ERISA and the IRS code to
the investment. Moreover, each plan fiduciary should determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the certificates is
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appropriate for the plan, taking into account the overall investment policy of
the plan and the composition of the plan's investment portfolio.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in transactions with persons who provide
services to insurance company general accounts. PTE 95-60 also permits
transactions relating to the origination and operation of asset pool investment
trusts in which an insurance company general account has an interest as the
result of the acquisition of certificates issued by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of PTE 95-60. The receivables covered by PTE 95-60 include home
equity loans secured by either first or second mortgages in single-family,
residential property. The exemption offered by PTE 95-60 is conditioned upon
compliance with the requirements of one of several underwriter exemptions,
other than compliance with the requirements that the certificates acquired by
the general account not be subordinated and receive a rating that is in one of
the three highest generic rating categories from either S&P, Moody's, Duff &
Phelps or Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the IRS code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the IRS code, for transactions involving an insurance company general
account. Under Section 401(c) of ERISA, the DOL published proposed regulations
on December 22, 1997 to provide guidance for the purpose of determining, in
cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of a plan on or before December 31, 1998, which
general account assets constitute plan assets. Section 401(c) of ERISA
generally provides that, until the date which is 18 months after the Proposed
401(c) Regulations become final, no person will be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the IRS code on the basis of a
claim that the assets of an insurance company general account constitute plan
assets, unless
(1)as otherwise provided by the Secretary of Labor in the Proposed 401(c)
Regulations to prevent avoidance of the regulations; or
(2)an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998 or issued to plans on or
before December 31, 1998 for which the insurance company does not comply with
the Proposed 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as plan assets of any
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Plan invested in the separate account. Insurance companies contemplating the
investment of general account assets in the certificates should consult with
their legal counsel about the applicability of PTCE 95-60 and Section 401(c) of
ERISA, including the general account's ability to continue to hold the
securities after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the 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,
all of which are subject to change, including retroactive changes, 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 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 IRS 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. The following discussion deals first with series for which a REMIC
election is made and then with series for which a REMIC election is not made.
REMIC Series
For each series of certificates for which a REMIC election is made, at the
initial issuance of the certificates in that series our counsel identified in
the applicable prospectus supplement will have advised us that in its opinion,
assuming ongoing compliance with the applicable pooling and servicing
agreement, the trust will qualify as a REMIC and the certificates in that
series, REMIC certificates, will be treated either as regular interests in the
REMIC within the meaning of Section 860G(a)(1) of the IRS code, regular
certificates, or as residual interests in the REMIC within the meaning of
Section 860G(a)(2) of the IRS code, residual certificates.
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with requirements and the following discussion assumes that these
requirements will be satisfied by the trust so long as there are any REMIC
certificates outstanding. Substantially all of the assets of the REMIC must
consist of qualified mortgages and permitted investments as of the close of the
third month beginning after the day on which the REMIC issues all of its
regular and residual interests startup day and at all times after that. The
term
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qualified mortgage means any obligation, including a participation or
certificate of beneficial ownership in such obligation, which is principally
secured by an interest in real property that is transferred to the REMIC on the
startup day in exchange for regular or residual interests in the REMIC or is
purchased by the REMIC within the three-month period beginning on the startup
day pursuant to a fixed price loan in effect on the startup day. The REMIC
regulations provide that a home improvement loan is principally secured by an
interest in real property if the fair market value of the real property
securing the loan is at least equal to either: (1) 80% of the issue price,
generally, the principal balance, of the loan at the time it was originated or
(2) 80% of the adjusted issue price, the then-outstanding principal balance,
with adjustments, of the loan 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 home improvement loan is principally secured by an interest in real property
if substantially all of the proceeds of the loan 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 loan, other than the personal liability of the
obligor. A qualified mortgage also includes a qualified replacement mortgage
that is used to replace any qualified mortgage within three months of the
startup day or to replace a defective mortgage within two years of the startup
day.
Permitted investments consist of:
. temporary investments of cash received under qualified mortgages
before distribution to holders of interests in the REMIC, cash-flow
investments,
. 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 contingencies,
qualified reserve assets, and
. 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 the 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 IRS code, a reserve fund must be
"promptly and appropriately" reduced as payments on loans are received.
Foreclosure property will be a permitted investment only to the extent that the
property is not held for more than two years.
The IRS 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 for which a REMIC
election is made the transfer, sale, or other disposition of a residual
certificate to a
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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 the representation
is false. The IRS code further requires that reasonable arrangements must be
made to enable a REMIC to provide the IRS and 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 IRS code if, in spite of
the steps taken to prevent disqualified organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest. See
"REMIC Series--Restrictions on Transfer of Residual Certificates" below.
If the trust fails to comply with one or more of the ongoing requirements for
qualification as a REMIC, the trust will not be treated as a REMIC for the year
during which the failure occurs and thereafter unless the IRS determines, in
its discretion, that the failure was inadvertent, in which case, the IRS may
require any adjustments which it deems appropriate. If the ownership interests
in the assets of the trust consist of multiple classes, failure to treat the
trust as a REMIC may cause the trust to be treated as an association taxable as
a corporation. Such treatment could result in income of the trust being subject
to corporate tax in the hands of the trust and in a reduced amount being
available for distribution to certificateholders as a result of the payment of
the taxes.
Two-Tier REMIC Structures. For certain series of certificates, two separate
elections may be made to treat segregated portions of the assets of a single
trust as REMICs for federal income tax purposes a subsidiary REMIC and a master
REMIC. Upon the issuance of any such series of certificates, counsel will have
advised Green Tree, 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 the 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 under this prospectus. Solely for the purpose of determining whether
the 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 for 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 on such regular
certificates under the accrual method. Under temporary
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treasury regulations, if a trust, with respect to which a REMIC election is
made, is considered to be a single-class REMIC, a portion of the REMIC's
servicing fees, administrative and other non-interest expenses, including
assumption fees and late payment charges retained by Green Tree, will be
allocated as a separate item of gross income and as a separate item of expense
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, trusts and estates, certain other pass-
through entities beneficially owned by one or more individuals, trusts or
estates, and regulated investment companies. Such an individual, estate, trust
or pass-through entity that holds a regular certificate in such a REMIC will be
allowed to deduct the foregoing separate item of expense under Section 212 of
the IRS code only to the extent that, in the aggregate and combined with other
itemized deductions, it exceeds 2% of the adjusted gross income of the holder.
In addition, Section 68 of the IRS code provides that the amount of itemized
deductions, including those provided for in Section 212 of the IRS code,
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds a threshold amount specified in the IRS code, $126,600 for 1999,
in the case of a joint return, will be reduced by the lesser of (1) 3% of the
excess of adjusted gross income over the specified threshold amount or (2) 80%
of the amount of itemized deductions otherwise allowable for that taxable year.
In determining the alternative minimum taxable income of such an individual,
trust, estate or pass-through entity that is a holder of a regular certificate
in such a REMIC, no deduction will be allowed for the holder's allocable
portion of the foregoing expenses, even though an amount equal to the total of
the expenses will be included in the holder's gross income for alternative
minimum tax purposes. Unless otherwise stated in the related prospectus
supplement, the foregoing expenses will not be allocated to holders of a
regular certificate in a REMIC. If the foregoing limitations apply, some
holders of regular certificates in single-class REMICs may not be entitled to
deduct all or any part of the foregoing expenses. Accordingly, regular
certificates in such a single class-REMIC may not be appropriate investments
for individuals, trusts, estates or pass-through entities beneficially owned by
one or more individuals, trusts or estates. Prospective investors should
carefully consult with their own tax advisors prior to making an investment in
any regular certificates.
Tax Status of REMIC Certificates. In general:
(1) 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 IRS code will constitute "a regular ... interest
in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi) of the
IRS code; and
(2) 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 IRS 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 IRS code.
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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 IRS
code, including assets described in Section 7701(a)(19)(C) of the IRS code,
then the regular certificates will be qualifying assets only to the extent that
the assets comprising the REMIC are qualifying assets. 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 IRS 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 IRS
code, respectively. In addition, the REMIC regulations provide that payments on
loans held and reinvested pending distribution to certificateholders will be
considered to be "real estate assets" within the meaning of Section
856(c)(5)(A) of the IRS code. Entities affected by the foregoing provisions of
the IRS 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 IRS code and the treasury regulations issued
thereunder in January 1994 (the "OID Regulations"). The discussion here 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. Although the rules relating to
original issue discount contained in the IRS 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 issued. Nonetheless, the IRS code requires that a
prepayment assumption be used with respect to the underlying assets of a REMIC
in computing the accrual of original issue discount on regular certificates,
and that regular adjustments be made in the amount and the rate of accrual to
reflect differences between the actual prepayment rate and the prepayment
assumption. Although regulations have not been issued concerning the use of a
prepayment assumption, the legislative history associated with the Tax Reform
Act of 1986 indicates that such regulations are to provide that the prepayment
assumption used with respect to a regular certificate must be the same as that
used in pricing the initial offering of the regular certificate. The prepayment
assumption used in reporting original issue discount for each series of regular
certificates will be consistent with this standard and will be disclosed in the
related prospectus supplement. However, no representation is made hereby nor
can there be any assurance that the underlying assets of a REMIC will in fact
prepay at a rate conforming to the prepayment assumption or at any other rate.
Certificateholders also should be aware that the OID Regulations do not address
certain issues relevant to, or are not applicable 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
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certificate will be considered to be zero if it is less than .25% of the
regular certificate's stated redemption price at maturity multiplied by the
number of complete years from the date of issue of such regular certificate to
its maturity date. The OID Regulations, however, provide a special de minimis
rule to apply to obligations such as the regular certificates that have more
than one principal payment or that have interest payments that are not
qualified stated interest as defined in the OID Regulations, payable before
maturity. 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. As described above, it appears that 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, Green Tree expects to apply the de minimis rule applicable to
installment obligations by using the prepayment assumption.
Generally, the original holder of a regular certificate that includes a de
minimis amount of original issue discount other than de minimis original issue
discount attributable to a so-called teaser interest rate or initial interest
rate holiday, 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.
Under 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, interest is considered unconditionally payable only
if late payment or nonpayment is expected to be penalized or reasonable
remedies exist to compel payment. It is possible that interest payable on
regular certificates may not be considered to be unconditionally payable under
the OID Regulations because regular certificateholders may not have default
remedies ordinarily available to holders of debt instruments or because no
penalties are imposed as a result of any failure to make interest payments on
the regular certificates. Until further guidance is issued, however, the REMIC
will treat the interest on regular certificates as unconditionally payable
under the OID Regulations. In addition, under the OID Regulations, certain
variable interest rates payable on regular certificates, including rates based
upon the weighted average interest rate of a loan pool, may not be treated as
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qualified stated interest. In this 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, Green Tree expects to determine the stated redemption price at
maturity of a regular certificate by assuming that the anticipated rate of
prepayment for all loans will occur in such a manner that the initial pass-
through rate for a certificate will not change. Accordingly, interest at the
initial pass-through rate will constitute qualified stated interest payments
for purposes of applying the original issue discount provisions of the IRS
code. In general, the issue price of a regular certificate is the first price
at which a substantial amount of the regular certificates of that 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 generally includes that
pre-issuance accrued interest.
If the regular certificates are determined to be issued with original issue
discount, a holder of a regular certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to such income. The
amount of original issue discount, if any, required to be included in a regular
certificateholder's ordinary gross income for federal income tax purposes in
any taxable year will be computed in accordance with Section 1272(a) of the IRS
code and the OID Regulations. Under this 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
(1) the present value of all remaining payments to be made on the regular
certificate as of the close of the accrual period and
(2) 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.
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Generally, the accrual period for the regular certificates corresponds to the
intervals at which amounts are paid or compounded on 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 IRS
code requires the present value of the remaining payments to be determined on
the bases of
. 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,
. events, including actual prepayments, which have occurred before the
close of the accrual period and
. 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 loans held by the trust that occur at a
rate that exceeds the prepayment assumption and to decrease, but not below zero
for any period, the portions of original issue discount that a regular
certificateholder must include in income to take into account prepayments with
respect to the loans 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 loans 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 remaining stated redemption price. If the price paid exceeds the
regular certificate's adjusted issue price, but does not equal or exceed the
remaining stated redemption price 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 IRS code. Under this
provision, the daily portions of original issue discount which must be included
in gross income will be reduced by an amount equal to this daily portion
multiplied by the fraction obtained by dividing (1) the excess of the purchase
price over the regular certificate's adjusted issue price by (2) the aggregate
original issue discount remaining to be accrued with respect to such regular
certificate.
We believe that the holder of a regular certificate determined to be issued
with more than 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.
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Adjustable Rate Regular Certificates. Regular certificates may bear interest
at an adjustable rate. Under the OID Regulations, if an adjustable rate regular
certificate provides for qualified stated interest payments computed on the
basis of certain qualified floating rates or objective rates, then any original
issue discount on a regular certificate may be 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." If adjustable rate regular certificates are issued,
the related prospectus supplement will describe the manner in which the
original issue discount rules may be applied and the method to be used in
preparing information returns to the holders of such adjustable rate regular
certificates and to the IRS.
For purposes of applying the original issue discount provisions of the IRS
code, all or a portion of the interest payable with respect to adjustable rate
regular certificate may not be treated as qualified stated interest in certain
circumstances, including the following:
(1) if the adjustable 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;
(2) if it is reasonably expected that the average value of the adjustable
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
(3) 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 as part of a regular certificate's stated redemption price
at maturity resulting in original issue discount.
Market Discount. Regular certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the IRS code. A
purchaser of a regular certificate who purchases the regular certificate at a
market discount, such as a discount from its adjusted issue price 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:
(1) under a constant yield method that is similar to the method for the
accrual of original issue discount or
(2) under a ratable accrual method under which the market discount is
treated as accruing in equal daily installments during the period the
regular certificate is held by the purchaser, in each case computed
taking into account the prepayment assumption.
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Because the regulations referred to above have not been issued, it is not
possible to predict what effect, if any, the regulations, when issued, might
have on the tax treatment of a regular certificate purchased at a discount in
the secondary market.
The IRS code provides that the market discount in respect of a regular
certificate will be considered to be zero if the amount allocable to the
regular certificate is less than 0.25% of the regular certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would be
allocated among a portion of each scheduled distribution representing the
stated redemption price of such regular certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The IRS 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 will 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.
In general, limitations imposed by the IRS code that are intended to match
deductions with the taxation of income will 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, 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 stated redemption price at maturity 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. It appears that the prepayment assumption should be
taken into account in determining the term of a regular certificate for this
purpose. Amortizable bond premium with respect to a regular certificate will be
treated as an offset to interest income on such regular certificate, and a
certificateholder's deduction for amortizable bond premium will be limited in
each year to the amount of interest income derived with respect to such regular
certificate for such year. Any election to deduct amortizable bond premium will
apply to all debt instruments, other than instruments the interest on which is
excludable from gross income, held by the certificateholder at the beginning of
the first taxable year to which the election applies or later acquired, and may
be revoked only with the consent of the IRS. Bond premium on a regular
certificate held by a
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certificateholder who does not elect to deduct the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the
regular certificate. 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.
Realized Losses. Holders of a regular certificate acquired in connection with
a trade or business should be allowed to deduct as ordinary losses any losses
sustained during a taxable year in which the regular certificates become wholly
or partially worthless as a result of one or more realized losses on the
underlying assets of the REMIC. However, it appears that a noncorporate holder
of a regular certificate that does not acquire such certificate in connection
with a trade or business may not be entitled to deduct such a loss until such
holder's certificate becomes wholly worthless, which may not occur until its
outstanding principal balance has been reduced to zero. Any such loss may be
characterized as a short-term capital loss.
At present, the law is unclear with respect to the timing and character of
any loss which may be realized by a holder of a regular certificate. Such a
holder may be required to accrue interest and original issue discount with
respect to such regular certificate without giving effect to any defaults or
deficiencies on the underlying assets of the REMIC until such holder can
establish that such losses will not be recoverable under any circumstances. As
a result, the holder of a regular certificate may be required to report taxable
income in excess of the amount of economic income actually accruing to the
benefit of such holder in a particular period. It is expected, however, that
the holder of such a regular certificate would eventually recognize a loss or
reduction in income attributable to such income when such loss is, in fact,
realized for federal income tax purposes.
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 that 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. Except as discussed below or with respect to market
discount, any gain or loss recognized upon a sale, exchange, retirement, or
other taxable 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 or market discount, will be treated as ordinary income to the extent
of the excess, if any, of (1) 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 (2) the amount of ordinary income actually recognized by
the holder with respect to such regular certificate.
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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, 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 that 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:
(1) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply,
(2) all bad loans will be deductible as business bad debts, and
(3) 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 loans, plus any cancellation of indebtedness income due to realized
losses with respect to regular certificates and income on reinvestment of cash
flows and reserve assets, minus deductions, including interest and original
issue discount expense on the regular certificates, bad debt losses with
respect to the underlying assets of a REMIC, servicing fees on the loans, other
administrative expenses of a REMIC, and amortization of premium, if any, with
respect to the loans.
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 loans, 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 loans is
acquired by a REMIC at a discount, and one or more of such loans is prepaid,
the residual holder may recognize taxable income without being entitled to
receive a corresponding cash distribution because:
(1) the prepayment may be used in whole or in part to make distributions
on regular certificates, and
(2) the discount on the loans 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, 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
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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 loan will remain constant over time as a percentage of the
outstanding principal amount of that loan, assuming it bears interest at a
fixed rate. Consequently, residual holders must have sufficient other sources
of cash to pay any federal, state, or local income taxes due as a result of
such mismatching, or such holders must have unrelated deductions against which
to offset such income, subject to the discussion of excess inclusions below
under "REMIC Series--Limitations on Offset or Exemption of REMIC Income." The
mismatching of income and deductions described in this paragraph, if present
with respect to a series of certificates, may have a significant adverse effect
upon the residual holder's after-tax rate of return.
The amount of any net loss of a REMIC that may be taken into account by the
residual holder is limited to the adjusted basis of the residual certificate as
of the close of the quarter, or time of disposition of the residual certificate
if earlier, determined without taking into account the net loss for the
quarter. The initial adjusted basis of a purchaser of a residual certificate is
the amount paid for such residual certificate. Such adjusted basis will be
increased by the amount of taxable income of the REMIC reportable by the
residual holder and decreased, but not below zero, 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 IRS 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, we do 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 in excess of the
corresponding portion of the REMIC's basis in the loans, the residual holder
will not recover such excess basis until termination of the REMIC unless
Treasury Regulations yet to be issued provide for periodic adjustments to the
REMIC income otherwise reportable by that 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,
and subject to
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the same uncertainties, as original issue discount income on regular
certificates as described above under "REMIC Series--Original Issue Discount"
and "--Adjustable Rate Regular Certificates," without regard to the de minimis
rule.
The REMIC will have market discount income in respect of the loans if, in
general, the basis of the REMIC in such loans is exceeded by their unpaid
principal balances. The REMIC's basis in the loans is generally the fair market
value of the loans immediately after the transfer to the REMIC, which will
equal the aggregate issue prices of the REMIC certificates which are sold to
investors and the estimated fair market value of any classes of certificates
which are retained. In respect of the loans that have market discount to which
IRS code Section 1276 applies, the accrued portion of this 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 loans exceeds the unpaid principal
balances, the REMIC will be considered to have acquired such loans at a premium
equal to the amount of such excess. As stated above, the REMIC's basis in the
loans is the fair market value of the loans immediately after the transfer to
the REMIC. Generally, a REMIC that holds a loan as a capital asset will elect
to amortize premium on the loans under a constant interest method. See the
discussion under "REMIC Series--Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. All or a portion of the
REMIC taxable income includable in determining the federal income tax liability
of a residual holder will be subject to special treatment. That portion,
referred to as the excess inclusion, is equal to the excess of REMIC taxable
income for the calendar quarter allocable to a residual certificate over the
daily accruals for such quarterly period of:
(1) 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 IRS code, multiplied by
(2) the adjusted issue price of the 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 portion of a residual holder's REMIC taxable income consisting of the
excess inclusions will be subject to federal income tax in all events and 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 IRS code, the residual holder's excess inclusions will be
treated as unrelated business taxable income of such residual holder for
purposes of Section 511. In addition, if the residual holder is not a U.S.
person, the residual holder's
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excess inclusions generally would be ineligible for exemption from or reduction
in the rate of United States withholding tax. 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 and would constitute
unrelated business taxable income for tax-exempt shareholders.
Additionally, for purposes of the alternative minimum tax, (1) excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and (2) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the tentative minimum tax on excess inclusions.
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:
(1) the present value of the total anticipated excess inclusions with
respect to such residual certificate for periods after the transfer,
and
(2) the highest marginal federal income tax rate applicable to
corporations.
The anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the prepayment
assumption. The present value rate equals the applicable federal rate under
Section 1274(d) of the IRS 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 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:
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(1) 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
(2) the highest marginal federal income tax rate imposed on corporations.
This 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.
A pass-through entity means any regulated investment company, real estate
investment trust, common trust, 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 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:
(1) 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
(2) 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:
(1) 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
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(2) 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 of a residual certificate to certify
to the statements in clause (2) of the preceding sentence as part of the
affidavit described above under "Restrictions on Transfer of Residual
Certificates."
Mark-to-Market Rules. On December 24, 1996, the IRS released final
regulations, the mark-to-market regulations, relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held
for investment. The mark-to-market regulations provide that for purposes of
this mark-to-market requirement, a residual certificate acquired on or after
January 4, 1995 is not treated as a security and thus may not be marked to
market. Prospective purchasers of a residual certificate should consult their
tax advisors regarding the possible application of the mark-to-market
requirement to 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.
Except as provided in Treasury Regulations, the wash sale rules of IRS 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 IRS code Section 1091, any
residual interest in any REMIC or any interest in a taxable mortgage pool that
is economically comparable to a residual certificate.
Certain Other Taxes on the REMIC. The REMIC provisions of the IRS code impose
a 100% tax on any net income derived by a REMIC from certain prohibited
transactions. Such transactions are:
(1) 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
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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;
(2) the receipt of income from assets other than qualified mortgages and
permitted investments;
(3) the receipt of compensation for services; and
(4) the receipt of gain from the dispositions of cash flow investments.
The REMIC regulations provide that the modification of the terms of a loan
occasioned by default or a reasonably foreseeable default of the loan, the
assumption of the loan, 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 loan will not be treated as a disposition of the loan. If a
REMIC holds convertible ARM loans which are convertible at the option of the
obligor into fixed-rate, fully amortizing, level payment loans, a sale of such
loans by the REMIC under a purchase agreement or other loan with us or other
party, if and when the obligor elects to so convert the terms of the loan,
will not result in a prohibited transaction for the REMIC. The IRS 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 IRS 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 incur a significant amount of such taxes or
any material amount of state or local income or franchise taxes. However, if
any such taxes are imposed on a REMIC they will be paid by us or the trustee,
if due to our breach or the trustee's obligations, as the case may be, under
the related pooling and servicing agreement or in other cases, such taxes
shall be borne by the related trust resulting in a reduction in amounts
otherwise payable to holders of the related regular or residual certificates.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a qualified liquidation. A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation, which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur and sells all of its assets, other than cash,
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of regular or residual
certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation, including all cash, less amounts retained
to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
foreign holder is a certificateholder who holds a regular certificate and who
is not
(1) a citizen or resident of the United States;
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(2) a corporation, partnership, or other entity organized in or under the
laws of the United States;
(3) an estate the income of which is includible in gross income for
United States tax purposes regardless of its source; or
(4) a trust if;
(a) a court within the United States is able to exercise primary
supervision over the administration of the trust and
(b) one or more United States trustees have authority to control all
substantial decisions of the trust.
Unless the interest on a regular certificate is effectively connected with the
conduct by the foreign holder of a trade or business within the United States,
the foreign holder is not subject to federal income or withholding tax on
interest, or original issue discount, if any, on a regular certificate, subject
to possible backup withholding of tax, discussed below. 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. In addition, the foregoing rules
will not apply to exempt a U.S. shareholder of a controlled foreign corporation
from taxation on such U.S. shareholder's allocable portion of the interest
income received by such controlled foreign corporation. 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:
(1) 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
(2) the gain is effectively connected with the conduct by the foreign
holder of a trade or business within the United States.
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It appears that a regular certificate will not be included in the estate of a
foreign holder and will not be subject to United States estate taxes. However,
foreign holders should consult their own tax advisors regarding estate tax
consequences.
Unless otherwise stated in the related prospectus supplement, transfers of
residual certificates to foreign holders will be prohibited by the related
pooling and servicing agreement.
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. We will report annually to the
IRS, holders of record of the regular certificates that are not excepted from
the reporting requirements and, to the extent required by the IRS code, other
interested parties, information with respect to the interest paid or accrued on
the regular certificates, original issue discount, if any, accruing on the
regular certificates and information necessary to compute the accrual of any
market discount or the amortization of any premium on the regular certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a residual
certificateholder must be designated as the REMIC's tax matters person. The tax
matters person, generally, has responsibility for overseeing and providing
notice to the other residual certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. Unless otherwise
indicated in the related prospectus supplement, Green Tree 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. In the case of a trust evidenced by a series of
certificates, or a segregated portion of them, for which a REMIC election is
not made counsel will, unless otherwise specified in the related prospectus
supplement, have advised us that, in their opinion, each loan pool and the
arrangement to be administered by us under which the
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trustee will hold and we will be obligated to service the loans and pursuant to
these 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 IRS code Section 7701(i), but rather will
be classified as a grantor trust under Subpart E, Part I of Subchapter J of the
IRS code. In that event, 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 loan 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 loans included. The following
discussion assumes the trust will be so classified as a grantor trust.
Tax Status of Non-REMIC Certificates. In general,
(1) certificates held by a domestic building and loan association within
the meaning of Section 7701(a)(19) of the IRS code may be considered
to represent loans secured by an interest in real property within the
meaning of Section 7701(a)(19)(C)(v) of the IRS code; and
(2) certificates held by a real estate investment trust may constitute
"real estate assets" within the meaning of Section 856(c)(5)(A) of
the IRS code and interest may be considered interest on obligations
secured by mortgages on real property within the meaning of Section
856(c)(3)(B) of the IRS code.
See the discussions of such IRS code provisions above under "REMIC Series Tax
Status of REMIC Certificates." Investors should review the prospectus
supplement for a discussion of the treatment of non-REMIC certificates and
loans under these IRS code sections and should, in addition, consult with their
own tax advisors with respect to these matters.
Tax Treatment of Non-REMIC Certificates. Subject to the discussion below of
the stripped bond rules of the IRS code, 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 loans comprising such loan pool, including
interest, market or original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by us, and any gain upon
disposition of such loans. A disposition includes scheduled or prepaid
collections with respect to the loans, as well as the sale or exchange of a
non-REMIC certificate. Subject to the discussion below of certain limitations
on itemized deductions, non-REMIC certificateholders will be entitled under
Section 162 or 212 of the IRS 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 us. 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 IRS 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 IRS code provides
that the amount of itemized deductions, including those provided for in Section
212 of the IRS code otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a
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threshold amount specified in the IRS code, $126,600 for 1999, in the case of a
joint return, will be reduced by the lesser of:
(1) 3% of the excess of adjusted gross income over the specified threshold
amount or
(2) 80% of the amount of itemized deductions otherwise allowable for such
taxable year.
Furthermore, in determining the alternative minimum taxable income of an
individual, trust, estate or pass-through entity that is a holder of a non-
REMIC certificate, no deduction will be allowed for such holder's allocable
portion of the foregoing expenses, even though an amount equal to the total of
such expenses will be included in such holder's gross income for alternative
minimum tax purposes. To the extent that a non-REMIC certificateholder is not
permitted to deduct servicing fees allocable to a non-REMIC certificate, the
taxable income of the non-REMIC certificateholder attributable to that non-
REMIC certificate will exceed the net cash distributions related to such
income. Non-REMIC certificateholders may deduct any loss on disposition of the
loans to the extent permitted under the IRS code.
To the extent that any of the loans comprising a loan 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 the discount in the loans prior to
receipt of cash related to the discount. See the discussion above under "REMIC
Series--Original Issue Discount." Similarly, IRS code provisions concerning
market discount and amortizable premium will apply to the loans comprising a
loan 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." However, it
is unclear whether a prepayment assumption should be used in accruing or
amortizing any such discount or premium.
Stripped Non-REMIC Certificates. Certain classes of non-REMIC certificates
may be subject to the stripped bond rules of Section 1286 of the IRS 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 loan 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:
(1) if any servicing compensation is deemed to exceed a reasonable
amount;
(2) if Green Tree or any other party retains a retained yield with
respect to the loans comprising a loan pool;
(3) 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 loans; or
(4) if non-REMIC certificates are issued which represent the right to
interest only payments or principal only payments.
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Although unclear, 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 IRS code, the issue
price of a stripped certificate will be the purchase price paid by each holder
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:
(1) 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
(2) no more than 100 basis points, including any amount of servicing in
excess of reasonable servicing, is stripped off of the loans. See
"REMIC Series--Market Discount" above.
Although the OID Regulations suggest that a prepayment assumption is not to
be used in computing the yield on the underlying assets of a trust with respect
to which a REMIC election is not made, the IRS code appears to require that
such a prepayment assumption be used in computing yield with respect to
stripped certificates. In the absence of authority to the contrary, we intend
to base information reports and returns to the IRS and the holders of stripped
certificates taking into account an appropriate prepayment assumption. Holders
of stripped certificates should refer to the related prospectus supplement to
determine whether and in what manner the original issue discount rules will
apply thereto.
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 IRS 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:
(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each loan; or
(2) a separate installment obligation for each loan representing the
stripped certificate's pro rata share of principal and/or interest
payments to be made.
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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.
The servicing compensation to be received by us and the fee for credit
enhancement, if any, may be questioned by the IRS with respect to certain
certificates or loans as exceeding a reasonable fee for the services being
performed, and a portion of the servicing compensation could be recharacterized
as an ownership interest retained by us or other party in a portion of the
interest payments to be made pursuant to the loans. In this event, a
certificate might be treated as a stripped certificate subject to the stripped
bond rules of Section 1286 of the IRS code and the original issue discount
provisions rather than to the market discount and premium rules.
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 loans represented by the non-REMIC certificate.
Generally, the aggregate adjusted basis will equal the non-REMIC
certificateholder's cost for the non-REMIC certificate increased by the amount
of any previously reported income or 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. Except as provided above with respect to the original issue discount
and market discount rules, any such gain or loss would be capital gain or loss
if the non-REMIC certificate was held as a capital asset.
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a non-REMIC
certificateholder who is a foreign holder will be treated as portfolio interest
and will be exempt from the 30% withholding tax. The 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 loans 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 us 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. We will furnish to each non-REMIC
certificateholder with each distribution a statement showing the amount of the
distribution allocable to principal and to interest. In addition, Green Tree
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 Green Tree and any sub-servicer and such other customary factual information
as Green Tree deems necessary to enable certificateholders to
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prepare their tax returns. Reports will be made annually to the IRS 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.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, any
certificates offered here are not expected to constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because there will be a substantial number of loans that are secured by
liens on real estate that are not first liens, as required by SMMEA.
Accordingly, many institutions with legal authority to invest in mortgage
related securities may not be legally authorized to invest in the certificates.
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
Prior to the issuance of any class of certificates sold under this
prospectus, they must be rated by at least one nationally recognized
statistical rating organization in one of its four highest rating categories. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the assigning rating
agency. The security rating of any series of certificates should be evaluated
independently of similar security ratings assigned to other kinds of
securities.
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UNDERWRITING
We may sell certificates of each series to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell and place certificates directly to other
purchasers or through agents. We intend 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, we or any of our affiliate 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 the prospectus supplement. The purchaser
may then from time to time offer and sell some or all of the certificates so
purchased directly, through one or more underwriters to be designated at the
time of the offering of the certificates or through broker-dealers acting as
agent and/or principal. This kind of offering may be restricted in the manner
specified in the 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 us 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 us and any profit on the
resale of the certificates by them may be deemed to be underwriting discounts
and commissions, under the Securities Act of 1933. Any such underwriters or
agents will be identified, and any such compensation received from us will be
described in the prospectus supplement.
Under agreements which may be entered into by us, underwriters and agents who
participate in the distribution of the certificates may be entitled to
indemnification by Green Tree against certain liabilities, including
liabilities under the Securities Act.
If so indicated in the prospectus supplement, we will authorize underwriters
or other persons acting as our agents to solicit offers by certain institutions
to purchase the certificates from us pursuant to loans providing for payment
and delivery on a future date. Institutions with which these loans 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 us. The obligation of any
purchaser under any such loan will be subject to the condition that the
69
<PAGE>
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 loans.
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.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the certificates. These
types of transactions may include stabilizing, the purchase of certificates to
cover syndicate short positions and the imposition of penalty bids. For a
more complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
Certain of the Underwriters and their associates may engage in transactions
with and perform services for us in the ordinary course of business.
LEGAL MATTERS
The legality and material federal income tax consequences of the certificates
will be passed upon for us by our counsel as identified in the applicable
prospectus supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31, 1998, incorporated by reference in this
paragraph have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997 are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in this prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
70
<PAGE>
GLOSSARY
Below are abbreviated definitions of capitalized terms used in this prospectus
and the prospectus supplement. The pooling and servicing agreement may contain
a more complete definition of some of the terms defined here and reference
should be made to the pooling and servicing agreement for a more complete
definition of all such terms.
"Adjustable Rate Certificates" means certificates which evidence the right to
receive distributions of income at a variable payment rate.
"Advances" means the advances made by a servicer (including from advances made
by a sub-servicer) on any payment date pursuant to a pooling and servicing
agreement.
"Amount Available" means, for each series of certificates, amounts on deposit
in the certificate account on a Determination Date.
"Certificate Distribution Amount" means the amount of principal and interest
specified in the related prospectus supplement to be distributed to
certificateholders.
"Compound Interest Certificates" means certificates on which interest may
accrue but not be paid for the period described in the related prospectus
supplement.
"Cut-off Date" means the date specified in the related prospectus supplement as
the date from which principal and interest payments on the contracts are
included in the trust.
"Determination Date" means, unless otherwise specified in the related
prospectus supplement, the third business day immediately preceding the related
payment date.
"Due Period" means, unless otherwise provided in a related prospectus
supplement, with respect to any payment date, the period from and including the
15th day of the second month preceding the payment date, to and including the
14th day of the month immediately preceding the payment date.
"Eligible Investments" means one or more of the investments specified in the
pooling and servicing agreement in which moneys in the certificate account and
certain other accounts are permitted to be invested.
"Formula Principal Distribution Amount" means the sum of:
(1) all scheduled payments of principal due on each outstanding contract
during the related due period, after adjustments for previous partial
principal prepayments and after any adjustments to a contract's
amortization schedule as a result of a bankruptcy or a similar
proceeding involving the related obligor,
(2) the Scheduled Principal Balance of each contract which, during the
month preceding the related due period, was purchased by Green Tree
under the pooling and servicing agreement on account of breaches of
its representations and warranties,
(3) all partial principal prepayments applied and all principal
prepayments in full received during the related due period,
71
<PAGE>
(4) the Scheduled Principal Balance of each contract that became a
liquidated contract during the related due period, plus the amount of
any reduction in the outstanding principal balance of a contract
during the related due period ordered as the result of a bankruptcy or
similar proceeding involving the related obligor,
(5) without repeating the above, all collections in respect of principal
on the contracts received during the due period in which the payment
date occurs up to and including the third business day prior to such
payment date, but in no event later than the 25th day of the month
before the payment rate, minus
(6) with respect to all payment dates other than the payment date in
1999, the amount included in the formula principal distribution amount
for the preceding payment date by virtue of clause (5) above, plus
(7) with respect to the payment date in 2000, any amount, by which the
Class A-1 principal balance as of the payment date exceeds the sum on
the payment date of the amounts described in clause (1) through (6)
above; minus
(8) with respect to the payment date in 2000, any amount, distributed
in respect of principal on the Class A-1 certificates on the payment
date in 2000 under clause (7) above.
"Liquidation Proceeds" means cash including insurance proceeds received in
connection with the repossession of a manufactured home.
"Monthly Payment" means the scheduled monthly payment of principal and interest
on a contract.
"Net Liquidated Proceeds" means all amounts received and retained for the
liquidation of defaulted contracts, net of liquidation expenses.
"Participants means institutions that have accounts with the depositary.
"Pool Scheduled Principal Balance" means, as of any payment date, the aggregate
of the Scheduled Principal Balances of contracts outstanding at the end of the
related due period.
"Replaced loan" means an Eligible Substitute loan substituted for a
manufactured housing contract which Green Tree is otherwise obligated to
repurchase under the pooling and servicing agreement.
"Repurchase Price" means the remaining principal amount outstanding on a
manufactured housing contract on the date of repurchase plus accrued and unpaid
interest at its contract rate to the date of the repurchase.
"Scheduled Principal Balance" means, as of any payment date, the "Scheduled
Principal Balance" of a contract as of any payment date is the unpaid principal
balance of the contract as specified in the amortization schedule at the time
relating to the contract as of the due date in the related due period, after
giving effect to any previous partial prepayments and to the payment of
principal due on the due date and irrespective of any delinquency in payment on
the contract.
72
<PAGE>
"Senior Distribution Amount" means, for a series of certificates having
Subordinated Certificates, as of each payment date and for each class of Senior
Certificates, the amount due the holders of that class of Senior Certificates.
"Senior Percentage" means, for a series of certificates having Subordinated
Certificates, the percentage specified in the related prospectus supplement.
"Subordinated Percentage" means, for a series of certificates having
Subordinated Certificates, the percentage specified in the related prospectus
supplement.
73
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Supplement to Base No.5
PROSPECTUS SUPPLEMENT
(To prospectus dated June , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Green Tree Home Improvement and Home Equity Loan Trust 1999-
Loan-Backed Notes
----------
The securities will consist of classes, but we are offering only the
classes listed below now:
<TABLE>
<CAPTION>
Approximate
Principal Interest Price to Underwriting Proceeds to
Class Amount Rate Public Discount Company
- ----- ----------- -------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
A-1 Notes....... $ % % % %
A-2 Notes....... $ % % % %
M-1 Notes....... $ % (1) (1) (1)
M-2 Notes....... $ % (1) (1) (1)
B-1 Notes....... $ % (1) (1) (1)
Total........... $ $ (2) $ (2)
</TABLE>
- -----
(1) The Class M-1, Class M-2 and Class B-1 notes will be offered from time to
time in negotiated transactions or otherwise at varying prices to be
determined at the time of the sale. The proceeds to the company from any
sale of the notes will be the purchase price paid by the purchaser, less
any expenses payable by the company and any compensation payable to any
underwriter and dealer.
(2) Class A-1 and Class A-2 notes only.
The approximate principal amount of the classes of certificates may vary plus
or minus 5%. The price to public will be the percentage listed in the table
above plus any accrued interest beginning on , 1999.
[Note Insurer Logo]
A note insurance policy, to be issued by [Note Insurer], will guarantee
certain payments on the Class A-1 and Class A-2 notes at the times and to the
extent described in this prospectus supplement.
Consider carefully the risk factors beginning on page S-12 in this prospectus
supplement.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Class A-1 and Class A-2 notes will be delivered on or about , 1999.
The underwriters named below will offer the Class A-1 and Class A-2 notes to
the public at the offering price listed on this cover page and they will
receive the discount listed above. See "Underwriting" on page S-69 in this
prospectus supplement and on page 63 in the prospectus.
----------
[Underwriters]
The date of this prospectus supplement is , 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Notes........................................ S-4
Risk Factors............................................................. S-12
The Trust................................................................ S-16
The Trust Property....................................................... S-17
Use of Proceeds.......................................................... S-20
The Loans................................................................ S-20
Yield and Prepayment Considerations...................................... S-31
Green Tree Financial Corporation......................................... S-37
Description of the Notes................................................. S-37
The Note Insurer......................................................... S-61
The Note Insurance Policy................................................ S-61
Description of the Limited Guaranty...................................... S-65
Certain Federal and State Income Tax Consequences........................ S-66
ERISA Considerations..................................................... S-67
Experts.................................................................. S-69
Underwriting............................................................. S-69
Legal Matters............................................................ S-70
Annex I.................................................................. A-1
Prospectus
Important Notice About Information Presented In This Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trusts............................................................... 3
Green Tree Financial Corporation......................................... 5
Yield Considerations..................................................... 8
Maturity and Prepayment Considerations................................... 9
Pool Factor.............................................................. 10
Use of Proceeds.......................................................... 10
The Notes................................................................ 11
The Certificates......................................................... 17
Certain Information Regarding the Securities............................. 19
Description of the Trust Documents....................................... 23
Description of FHA Insurance............................................. 38
Certain Legal Aspects of the Loans; Repurchase Obligations............... 39
Certain Federal Income Tax Consequences.................................. 52
Certain State Income Tax Considerations.................................. 61
ERISA Considerations..................................................... 62
Legal Investment Considerations.......................................... 62
Ratings.................................................................. 63
Underwriting............................................................. 63
Legal Matters............................................................ 64
Experts.................................................................. 65
Glossary................................................................. 65
</TABLE>
S-2
<PAGE>
You should rely only on the information contained in this prospectus. We
and the underwriters have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted.
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our home equity and home improvement lending business, and about any
series of certificates or notes for home improvement and home equity loans that
we may wish to sell. This prospectus supplement contains more detailed
information about the specific terms of this series of notes. If the
description of the terms of your certificate varies between this prospectus
supplement and the prospectus, you should rely on the information in this
prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from us or an underwriter by asking for it.
No prospectus regarding these notes has been or will be prepared in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These notes may not be offered or sold, or re-offered or re-
sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments (as principal or agent) for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer to the public
in the United Kingdom within the meaning of the United Kingdom Public Offers of
Securities Regulation 1995. You may not pass this prospectus supplement and
prospectus, or any other document inviting applications or offers to purchase
notes or offering notes for purchase, to any person in the United Kingdom who
(1) does not fall within article 11(3) of the Financial Services Act 1986
(Investment Advisements) (Exemptions) Order 1996 or (2) is not otherwise a
person to whom passing this prospectus supplement and prospectus would be
lawful.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE NOTES
This summary highlights selected information regarding the notes, and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the notes, read this
entire prospectus supplement and the accompanying prospectus. In particular, we
will refer throughout this summary to sections of this prospectus supplement or
the prospectus, or both, which will contain more complete descriptions of the
matters summarized. All these references will be to sections of this prospectus
supplement only unless we note otherwise.
Green Tree Home Improvement and Home Equity Loan trust 1999- will issue
the classes of securities listed in the table below.
<TABLE>
<CAPTION>
Interest Approximate Moody's S&P
Class Rate Principal Amount Rating Rating
- ----- -------- ---------------- ------- ------
<S> <C> <C> <C> <C>
A-1 Notes.............................. % $
A-2 Notes..............................
M-1 Notes..............................
M-2 Notes..............................
B-1 Notes..............................
B-2 Notes..............................
Certificates...........................
</TABLE>
The approximate principal amount of the classes of certificates listed
above may vary plus or minus 5%.
We will not issue or sell the notes unless Moody's and S&P assign each
class the rating listed above.
The rating of each class of notes by Moody's and S&P addresses the
likelihood of timely receipt of interest and ultimate receipt of principal. 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 ratings of the Class A-1 and Class A-2 notes are based primarily on
the creditworthiness of the note insurer. Any reduction in a rating of the
claims-paying ability of the note insurer may result in a similar reduction in
the ratings of the Class A-1 and Class A-2 notes. The ratings of the Class B-2
notes are based in part on an assessment of Green Tree's ability to make
payments under the Class B-2 limited guaranty. Any reduction in the rating of
Green Tree's debt securities may result in a similar reduction in the ratings
of the Class B-2 notes. The B-2 notes are not being offered under this
prospectus supplement and prospectus. We are offering all the other classes of
notes listed in the table above. If the Class M-1, Class M-2 and Class B-1
notes are not sold by , 1999, we will retain them until they are sold. We,
or one of our affiliates, will initially retain the Class B-2 notes.
S-4
<PAGE>
Issuer .....................
Green Tree Home Improvement and Home Equity Loan
Trust 1999- , a Delaware business trust.
Seller and Servicer......... Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Indenture Trustee...........
[Indenture Trustee], not in its individual
capacity but solely as trustee under the trust
indenture.
Owner Trustee............... [Owner Trustee], not in its individual capacity
but solely as owner trustee under the trust
agreement.
Payment Date................
The fifteenth day of each month, or, if that
fifteenth day is not a business day, the next
succeeding business day, beginning on 15,
1999.
Record Date.................
The business day just before the related payment
date, beginning in 1999.
Note Insurer and Insurance
Policy......................
[Note Insurer] will irrevocably and
unconditionally guarantee payments to the
indenture trustee for the benefit of the holders
of the Class A-1 and Class A-2 notes. The
insurance payments will equal the amount by which
the sum of (a) the current interest payable on
the Class A notes and (b) the Class A principal
deficiency amount, the amount by which the
principal balance of the Class A notes exceeds
the scheduled principal balance of the contracts,
and (c) on the maturity date, the amount by which
the unpaid principal balance of the Class A notes
exceeds the cash available to pay that amount on
that payment date. Insurance payments will not
cover deficiencies resulting from relief to
debtors under the federal Soldiers' and Sailors'
Civil Relief Act of 1940.
Distributions on Notes......
Distributions on the notes on any payment date
will be made primarily from amounts collected on
the home improvement and home equity contracts
during the prior calendar month.
S-5
<PAGE>
The indenture trustee will apply the amount
available to make distributions of principal and
interest on the notes in the following order of
priority:
^ Class A-1 and Class A-2 interest;
^ Class M-1 interest;
^ Class M-2 interest;
^ Class B-1 interest;
^ Class A-1 and Class A-2 principal;
^ Class M-1 principal (if due);
^ Class M-2 principal (if due);
^ Class B-1 principal (if due);
^ Class B-2 interest; and
^ Class B-2 principal (if due).
This prospectus supplement summarizes in the next
pages the amounts of interest and principal to
be paid. In each case, the payments will be made
only up to the amount available, after making any
payments with a higher priority, is sufficient.
See "Description of the Notes--Payments on
Contracts."
A. Interest on the Class A,
Class M and Class B-1
Notes....................
Interest is payable first to the Class A-1 and
Class A-2 notes concurrently, then to the Class
M-1 notes, then to the Class M-2 notes and then
to the Class B-1 notes up to the amount available
for distribution. See "Description of the Notes--
Distributions on the Notes" and "--Losses on
Liquidated Contracts."
B. Principal on the Class A
and Class M Notes........
The indenture trustee will then apply the
remaining amount available to pay principal on
the Class A notes, pay any reimbursement amount
due to the note insurer and then pay principal on
the Class M notes. For purposes of determining
the amount of principal due on the Class A notes,
the contract pool will be divided into group 1
contracts and group 2 contracts. A senior
percentage will be calculated on each payment
date to
S-6
<PAGE>
determine the amount of the principal payments,
which are payable in the following priority:
. Concurrently, to the Class A-1 and Class A-2
notes, until they are retired.
. After retirement of the Class A notes and
after reimbursements are made to the note
insurer, to the Class M-1 notes until
retired.
. After retirement of the Class A and Class M-
1 notes, to the Class M-2 notes until
retired.
C. Principal on the Class
B-1 Notes................
The indenture trustee will pay principal on the
Class B-1 notes from the amount available
remaining after the payments described above.
Beginning with the payment date in ,
assuming delinquencies, defaults and losses on
the contracts remain below certain levels
specified in the sale and servicing agreement and
the ratio of the aggregate outstanding principal
balance of the Class B notes to the total
outstanding balance of the contract pool has
become at least %, the percentage will
generally equal that ratio. See "Description of
the Notes--Distributions on the Notes."
D. Interest on the Class B-
2 Notes .................
The remaining amount available will be used to
pay interest on the Class B-2 notes.
E. Principal on the Class
B-2 Notes ...............
In general, principal will not be payable on the
Class B-2 notes until the Class B-1 notes have
been retired and the same levels and ratios
applicable to the Class B-1 notes are met. If
that has occurred, the Class B-2 notes will
generally be entitled to receive principal in an
amount equal to a percentage of the scheduled and
unscheduled principal payments and other
recoveries on the group 1 and group 2 contracts.
The principal balance of the Class B-2 notes will
generally not be reduced below $ until the
Class A, Class M and Class B-1 notes have been
paid in full.
S-7
<PAGE>
F. Supplementary Principal
Distribution ............
If cumulative loss triggers are exceeded, the
Class A-1 and Class A-2 notes will get an
additional payment of principal up to the amount
available remaining after the above distributions
are made and the servicer is paid its fee.
Class B-2 Limited
Guaranty................. We will guarantee payment of interest and
principal on the Class B-2 notes. See
"Description of the Class B-2 Limited Guaranty."
The Contract Pool...... The contract pool will include conventional home
improvement contracts and promissory notes and
home equity loans. These contracts will be
divided into two groups, group 1 and group 2.
Group 1 will not include any contracts secured by
a first priority lien on the related mortgaged
property with an original principal balance in
excess of $ , or any contracts secured by a
junior priority lien on the related mortgaged
property with an original principal balance in
excess of % of the original principal balance
of the related senior liens. Group 2 will include
some contracts with original principal balances
that exceed the foregoing amounts. The contracts
are divided into group 1 and group 2 solely for
the purpose of calculating the respective amounts
of principal to which the Class A-1 and Class A-2
notes are entitled. Actual payments received from
both group 1 and group 2 will be used to make
payments of interest and principal on each class
of notes.
A. Group 1 Contracts... With respect to the group 1 contracts as of the
cut-off date:
. all are conventional contracts and not FHA-
insured contracts;
. are home improvement contracts and
are home equity loans;
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
S-8
<PAGE>
. the interest rates range from % to %,
with a weighted average of %;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months; and
. the latest scheduled maturity date was .
See "The Contracts--Group 1 Contracts."
B. Group 2 Contracts........
This prospectus supplement provides information
regarding a portion of the group 2 contracts,
representing about % of all the group 2
contracts. We will transfer the remainder of the
group 2 contracts to the trust on the closing
date.
With respect to the initial group 2 contracts as
of the cut-off date:
. all are conventional (not FHA-insured)
contracts;
. are home improvement contracts and
are home equity loans;
. all are secured by a lien on the related
real property;
. the related properties are located in
states and the District of Columbia;
. the interest rates range from % to %,
with a weighted average of %;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was
months; and
. the latest scheduled maturity date was in
.
See "The Contracts--Group 2 Contracts."
S-9
<PAGE>
Repurchase Obligations......
We will make representations and warranties about
the contracts when we transfer them to the trust.
If a representation or warranty is breached in a
way that materially and adversely affects the
interests of the noteholders or the note insurer,
then we must, within 90 days, either (1) cure the
breach or (2) repurchase the defective contracts.
See "Description of the Notes--Conveyance of
contracts" in this prospectus supplement and in
the prospectus.
Repurchase Option...........
After the scheduled principal balance of the
contracts is less than 10% of the aggregate
principal balance of the contracts as of the cut-
off date, we will have the option to purchase all
of the outstanding contracts, provided that all
amounts owed to the note insurer are paid in
full. The note insurer has a similar right to
purchase the contracts. See "Description of the
Notes--Repurchase Option" in this prospectus
supplement and in the prospectus.
Tax Status..................
In the opinion of our counsel, for federal and
Minnesota income tax purposes, the notes will be
characterized as debt, and the trust will not be
characterized as an association, or a publicly
traded partnership, taxable as a corporation and
neither the trust nor any portion of the trust
will constitute a taxable mortgage pool taxable
as a corporation. Each noteholder, by the
acceptance of a note, will agree to treat the
notes as debt. See "Certain Federal Income Tax
Consequence" in this prospectus supplement and in
the prospectus.
ERISA Considerations........
If the notes are considered to be indebtedness
without substantial equity features under a
regulation issued by the United States Department
of Labor, the acquisition or holding of notes by
or on behalf of a benefit plan will not cause the
assets of the trust to become plan assets,
thereby generally preventing the application of
certain prohibited transaction rules of ERISA and
the IRS Code of 1986 that otherwise would
possibly be applicable. Green Tree believes that
the notes should be treated as indebtedness
without substantial equity features for purposes
of such regulation. See "ERISA Considerations" in
this prospectus supplement and in the prospectus.
S-10
<PAGE>
Legal Investment
Considerations..............
The notes will not constitute mortgage related
securities for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 because a number
of the contracts are not secured by first liens
on the related real estate, as required by SMMEA.
This means that many institutions that have the
legal authority to invest in mortgage related
securities may not be legally authorized to
invest in the notes. You should consult with your
own legal advisor to decide whether and to what
extent you may legally invest in the notes.
Reports to Holders of We will provide to the holders of the notes
Notes.................. monthly and annual reports about the certificates
and the trusts. See "Description of the Notes--
Reports to Noteholders" in the prospectus
supplement and "Description of Notes--Statements
to Securityholders" in the prospectus.
S-11
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase notes.
Some of the home improvement loans in the pool are insured by FHA under Title
I of the National Housing Act.
The availability of FHA insurance following a default on an FHA-insured
home improvement loan is subject to a number of conditions, including strict
compliance by us with FHA regulations in originating and servicing the loan.
Although we are an FHA-approved lender and we believe that we have complied
with FHA regulations, these regulations are susceptible to substantial
interpretation. The law does not require us to obtain approval from FHA of our
origination and servicing practices. If we fail to comply with FHA
regulations, FHA may deny some insurance claims and we cannot assure you that
FHA's enforcement of its regulations will not become stricter in the future.
We sometimes engage in disputes with FHA over the validity of claims submitted
and our compliance with FHA regulations in servicing loans insured by FHA. In
addition, FHA will only cover 90% of the sum of the unpaid principal on a home
improvement loan, up to nine months unpaid interest and certain liquidation
costs.
The amount of FHA insurance on the loans in a given pool is limited to the
balance of a reserve amount. This reserve amount as of December 31, , was
equal to approximately $ , but will be reduced by the amount of all
FHA insurance claims paid and will be increased by an amount equal to 10% of
the unpaid principal balance of FHA Title I loans subsequently originated and
reported for insurance by us. Severe losses on our FHA-insured manufactured
housing contracts, or on other FHA-insured home improvement loans originated
by us, could reduce or eliminate our FHA insurance reserves. If this happened
FHA insurance would not be available to cover losses on FHA-insured home
improvement contracts. If we were terminated as servicer due to bankruptcy or
otherwise, it is anticipated that a proportionate amount of our FHA insurance
reserves would be transferred to the reserve account of the trustee or the
successor servicer, but we can not assure you of the amount, if any, that
would be transferred. See "Description of FHA Insurance."
We expect that a substantial number of the liens on improved real estate
securing the loans in a given loan pool will be junior to other liens on that
real estate.
This subordinates the rights of the trust fund, and consequently the
holders of securities of the related series, as beneficiary under a
conventional junior deed of trust or as mortgagee under a conventional junior
mortgage, to those of the mortgagee or beneficiary under the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to cause the property securing the loan to be sold upon default of
the mortgagor or trustor. This extinguishes the junior mortgagee's or junior
beneficiary's lien unless the servicer on behalf of the trust asserts its
subordinate interest in the property in foreclosure litigation and, possibly,
satisfies the defaulted senior loan or loans. See "Certain Legal Aspects of
the Loans--Repurchase Obligations."
S-12
<PAGE>
We expect a substantial portion of the loans included in a loan pool to
have loan-to-value ratios of 90% or more, based on the total of the outstanding
principal balances of all senior mortgages or deeds of trust and of the loan an
the one hand, and the value of the home, on the other. An overall decline in
the residential real estate market, the general condition of a property
securing a loan or other factors could adversely affect the value of the
property securing a loan. As a result, the remaining balance of that loan,
together with that of any senior liens on the related property, could equal or
exceed the value of the property. See "Green Tree Financial Corporation--Loan
Origination."
The obligations of an obligor under each home improvement loan will not be
secured by an interest in the related real estate.
The related trust, as the owner of the home improvement loan, will be a
general unsecured creditor as to those obligations. Consequently, if an obligor
defaults on its home improvement loan, the related trust will have recourse
only against the obligor's assets generally, along with all other general
unsecured creditors of the obligor. In a bankruptcy or insolvency proceeding
relating to an obligor of a home improvement loan, the obligations of an
obligor under that home improvement loan may be discharged in their entirety.
An obligor on a home improvement loan may not demonstrate concern over
performance of its obligations under the home improvement loan as in the case
where such obligations are secured by the real estate owned by the obligor.
We intend that any transfer of loans to the related trust will constitute a
sale, rather than a pledge of the loans to secure our indebtedness.
However, if we were to become a debtor under the federal bankruptcy code or
similar applicable state laws, our creditor or trustee in bankruptcy might
argue that such sale of loans by us was a pledge of the loans rather than a
sale. If this argument were accepted by a court, it would cause the related
trust to experience a delay in or reduction of collections on the loans.
Some of the home equity loans have high loan-to-value ratios.
We expect a substantial portion of the home equity loans included in a pool
to have loan-to-value ratios of 90% or more, based on the total of the
outstanding principal balances of all senior mortgages or deed of trust and of
the loans on the one hand, and the value of the home on the other. See "Green
Tree Financial Corporation--Contract Origination." An overall decline in the
residential real estate market, the general condition of a property securing a
loan or other factors could adversely affect the value of the property securing
a conventional home improvement loan or a home equity loan such that the
remaining balance on the loan, together with that of any senior liens on the
related property, could equal or exceed the value of the property.
There may be no secondary market for the securities.
We cannot assure to you that a secondary market will develop for the
securities of any series, or, if a secondary market does develop, that it will
provide the holders of any of the
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<PAGE>
certificates with liquidity of investment. We also cannot assure to you that if
a secondary market does develop, that it will continue to exist for the term of
any series of securities.
We will not record the assignment of its security interest in the loans.
We will not record the assignment to the trustee of the mortgage or deed of
trust securing any loan, because of the expense and administrative
inconvenience involved. In some states, in the absence of a recordation, the
assignment to the related trustee of the mortgage or deed of trust securing a
loan may not be effective against creditors of or purchasers from us or a
trustee in our bankruptcy.
Some classes of securities will be subordinate to other classes of securities.
We may subordinate distributions of interest and principal on some or all
classes of securities of a series in priority or payment to interest and
principal due on the notes of that series and/or to distributions of interest
and principal on other classes of securities. In addition, holders of some
classes of securities of any series may have the right to take actions that are
detrimental to the interests of the holders of other classes of securities. For
example, holders of a class of more senior securities may be entitled to
instruct the trustee to liquidate the property of the trust when it is not in
the interest of holders of more junior classes of securities of that series to
do so. On the other hand, some actions may require the consent of a majority of
security owners of all classes of a series, which may mean that owners of
securities of more junior classes can prevent the owners of more senior classes
of that series from taking action. Moreover, no trust will have any significant
assets or sources of funds other than the loans and, as provided in the related
prospectus supplement, a pre-funding account and any credit enhancement
specified in the related prospectus supplement. The notes of any series will
represent obligations solely of the related trust. The certificates will
represent interest solely in the related trust. Except as we specify in the
related prospectus supplement, neither we, the servicer, the owner trustee, the
indenture trustee nor any other person or entity will insure or guarantee the
notes or certificates of any series. Consequently, holders of the securities of
any series must rely for payment upon payments on the related loans and, as
available, amounts on deposit in a pre-funding account and any credit
enhancement as we specify in the related prospectus supplement. If we so
specify in the related prospectus supplement, credit enhancement for a class of
securities of a series may cover one or more other classes of securities of
that series, and accordingly may be exhausted for the benefit of some classes
and thereafter be unavailable for other classes.
Full or partial prepayments on the loans will reduce the weighted average life
of the securities.
Obligors may prepay their loans without penalty. Prepayments may result
from payments by obligors, liquidations due to default, the receipt of proceeds
from physical damage or credit insurance, repurchases by us as a result of
certain uncured breaches of the warranties, purchases by the servicer as a
result of certain uncured breaches of the covenants with respect to the loans
made by it in the related sale and servicing pooling and servicing agreement,
or us or the servicer exercising our option to purchase all of the remaining
loans.
S-14
<PAGE>
Unless we specify otherwise, the amounts paid to securityholders for principal
on any distribution date will include all prepayments on the loans during the
corresponding due periods. The owners of notes and the owners of certificates
will bear all reinvestment risk resulting from the timing of payments of
principal on the securities.
Bankruptcy proceedings could delay distributions on the certificates.
We intend that each transfer of loans to the related trust fund will
constitute a sale, rather than a pledge of the loans to secure our
indebtedness. However, if we were to become a debtor under the federal
bankruptcy code, it is possible that a creditor or trustee in our bankruptcy,
or we as debtor-in-possession, may argue that our sale of the loans was a
pledge of the loans 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 holders of the securities.
The historical delinquency experience with home improvement and home equity
loans may not be an accurate prediction of the performance of the loans in the
pool.
The contracts were originated with a limited expectation of recovering any
amounts from the foreclosure of the related mortgaged property and were
underwritten with an emphasis on the creditworthiness of the borrowers. If the
contracts go into foreclosure and are liquidated, there may be no amounts
recovered from the related mortgaged property unless the value of the property
has increased or the principal amount of the related senior liens has been
reduced to the point where the value of the property, less any related
foreclosure costs, is greater than the principal amount of the related senior
liens. To the extent that any losses are incurred on any of the contracts that
are not covered by the credit enhancement described herein, the holders of the
notes will bear all risk of losses resulting from defaults by borrowers.
The servicing of high loan-to-value ratio loans requires special skill and
diligence and requires more attention to each account and earlier and more
frequent contact with borrowers in default.
We have no historical loss or delinquency data with high loan-to-value
contracts that may be referred to for estimating the future delinquency and
loss experience on the contracts. We have not included our historical
delinquency and loan loss and liquidation experience with home improvement
contracts and home equity loans because this information is not a meaningful
predictor of the performance of the pool of contracts.
Some of the loans in the pool will be subject to the Home Ownership and Equity
Protection Act of 1994.
The Home Protection Act adds certain additional provisions to Regulation Z,
the implementing regulation of the Federal Truth-in-Lending Act. These
provisions impose additional disclosure and other requirements on creditors for
non-purchase money mortgage loans with high interest rates or up-front fees and
charges. A violation of these provisions of the Home Protection Act can affect
the enforceability of the related loan, and it subjects any
S-15
<PAGE>
assignee of the loan, such as the trust, to all the claims and defenses that
the consumer could assert against the creditor, including the right to rescind
the loan. The return on your investment will depend largely on the performance
of the home equity loans contained in the contract pool. If we are found to
have violated the provisions of the Home Protection Act regarding any home
equity loan that is subject to the Home Protection Act, the trust may be unable
to collect on that loan. We would, however, be obligated to repurchase that
loan because of the breach of our representation and warranty.
This prospectus supplement provides information regarding only a portion of the
group 2 contracts that will be transferred to the trust.
The subsequent group 2 contracts will have characteristics that differ
somewhat from the group 2 contracts described in this prospectus supplement.
All of the subsequent contracts will be transferred to the trust on the closing
date and must satisfy various criteria specified in the sale and servicing
agreement. If you purchase a note, you must not assume that the characteristics
of the contract pool will be identical to the characteristics of the contracts
disclosed in this prospectus supplement. We will file a Form 8-K following the
purchase of contracts by the trust on the closing date. This report will
include the same type of information regarding the entire contract pool as this
prospectus supplement contains about the first group of contracts.
Other rating agencies could provide unsolicited ratings on the notes that could
be lower than the requested ratings.
Although we have not requested a rating of the notes from any rating
agencies other than Moody's and S&P, other rating agencies may rate the notes.
These ratings could be higher or lower than the ratings Moody's and S&P
initially give to the notes. There is a risk that a lower rating of your note
from another rating agency could reduce the market value or liquidity of your
note.
THE TRUST
The following information supplements and, to the extent inconsistent
therewith, supersedes the information contained in the accompanying prospectus.
Prospective securityholders should consider, in addition to the information
below, the information under "The Trusts" in the accompanying prospectus.
General
Green Tree Home Improvement and Home Equity Loan Trust 1999- , the issuer
or the trust, is a business trust formed under the laws of the State of
Delaware under the trust
S-16
<PAGE>
agreement for the transactions described in this prospectus supplement. After
its formation, the trust will not engage in any activity other than:
(1) acquiring, holding and managing the loans and the other assets of the
trust and proceeds therefrom;
(2) issuing the notes and the certificate;
(3) making payments on the notes and the certificates; and
(4) engaging in other activities that are necessary, suitable or
convenient to accomplish the above or are incidental or connected to
those activities.
The trust will be capitalized with the proceeds of the initial sale of the
notes, which will be used by the trust to purchase the loans from us under the
sale and servicing agreement between Green Tree and the indenture trustee.
The trust's principal offices are in Wilmington, Delaware, at the address
listed below under "--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cut-off date, as if the issuance and sale of the notes had taken place on that
date:
<TABLE>
<S> <C>
Class A-1 notes................................................. $
Class A-2 notes................................................. $
Class M-1 notes................................................. $
Class M-2 notes................................................. $
Class B-1 notes................................................. $
Class B-2 notes................................................. $
---------
Total......................................................... $
=========
</TABLE>
The Owner Trustee
[Owner trustee] is the owner trustee under the trust agreement. [Owner
trustee] is a Delaware banking corporation and its principal offices are
located at , , , Delaware . The owner trustee will perform
limited administrative functions under the trust agreement, including making
distributions from the certificate distribution account. The owner trustee's
liability in connection with the issuance and sale of the certificates and the
notes is limited solely to the express obligations of the owner trustee as set
forth in the trust agreement.
THE TRUST PROPERTY
The trust property will consist of:
(1) a pool of conventional home improvement contracts and promissory notes
and home equity loans, together with the home improvement loans, the
loans;
S-17
<PAGE>
(2) the mortgage, deed of trust or security deed granted by or on behalf
of the related obligor with respect thereto, including the lien on the
related real property;
(3) all other security interests or liens and property subject thereto
from time to time purporting to secure payment of such contract,
whether pursuant to the agreement giving rise to such contract or
otherwise, together with all financing statements signed by the
obligor describing any collateral securing such contract;
(4) all rights we may have against the originator of the contract if other
than Green Tree;
(5) all rights under hazard insurance, if applicable, on the property
described in the contract;
(6) all rights in any title insurance policy with respect to a contract;
(7) all guarantees, insurance and other agreements or arrangements of
whatever character from time to time supporting or securing payment of
such contract whether pursuant to the agreement giving rise to such
contract or otherwise;
(8) all records in respect of such contract; and
(9) the note insurance policy issued by Financial Security Assurance Inc.
(the "note insurer") for the benefit of the Class A noteholders. See
"The Loans" and "Description of the Trust Documents--Collections" in
the accompanying prospectus.
To protect the trust's ownership interest in the loans, we will file a UCC-
1 financing statement in Minnesota to give notice of the trust's ownership of
the loans and the related trust property.
Under the indenture, the trust will grant a security interest in favor of
the indenture trustee and the note insurer in the trust property, the rights of
the trust under the sale and servicing agreement, including our Class B-2
limited guaranty for the benefit of the Class B-2 noteholders, and the
collection account and note distribution account. Any proceeds of the property
will be distributed according to the indenture, as described below under
"Description of the Trust Documents and Indenture--Distributions."
The indenture trustee or its custodian will hold each original contract, as
well as copies of documents and instruments relating to such contract and
evidencing the security interest in the real property securing the contract.
Payments and recoveries in respect of principal and interest on the loans
will be paid into a separate trust account maintained at an eligible
institution, initially U.S. Bank National Association, Minneapolis, Minnesota,
in the name of the indenture trustee, no later than one business day after
receipt. The indenture trustee will, on the fifteenth day of each month or, if
such day is not a business day, the next succeeding business day, each payment
date, deposit funds from the collection account into a distribution account,
the note distribution account. Payments on deposit in the note distribution
account will be applied on each payment date to make the distributions to the
noteholders as of the immediately preceding record date as described under
"Description of the Notes--Distributions on the Notes"
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<PAGE>
herein and to pay certain monthly fees to the servicer as compensation for its
servicing of the loans, the monthly servicing fee and premiums and other
payments to the note insurer.
Following the transfer of the loans from us to the trust, our obligations
are limited to:
(1) our obligations as servicer to service the loans;
(2) representations and warranties in the sale and servicing agreement as
described under "Description of the Notes--Conveyance of loans" in
this prospectus supplement;
(3) indemnities and fees; and
(4) the Class B-2 limited guaranty.
We are obligated under the sale and servicing agreement to repurchase at the
repurchase price, any contract on the first payment date which is more than 90
days after we become aware, or we receive written notice from the indenture
trustee or the note insurer, of any breach of any representation and warranty
in the sale and servicing agreement that materially and adversely affects the
noteholders' or note insurer's interest in the contract if the breach has not
been cured prior to that date. The sale and servicing agreement also provides
that we have obligations to repurchase loans and to indemnify the indenture
trustee, noteholders and the note insurer about other matters. We are is
obligated to indemnify the note insurer for matters under the note insurance
policy. We are also obligated to pay fees of the owner trustee and indenture
trustee.
S-19
<PAGE>
USE OF PROCEEDS
We will use the net proceeds received from the sale of the notes for
working capital and general corporate purposes, including building a portfolio
of home improvement contracts and home equity loans, providing warehouse
financing for the purchase of contracts and loans and other costs of
maintaining the contracts and loans until they are pooled and sold to other
investors.
THE CONTRACTS
General
The contract pool will consist of home improvement loans and home equity
loans, and will be divided into group 1 and group 2. Group 1 will not include
any loans secured by a first priority lien on the related mortgaged property
with an original principal balance in excess of $ , or any loans secured by a
junior lien on the related mortgaged property with an original principal
balance in excess of 50% of the original principal balance of the related
senior liens, as applicable. Group 2 will include some loans with original
principal balances that exceed the foregoing amounts. The loans are divided
into group 1 and group 2 solely for the purpose of calculating the respective
amounts of principal to which the Class A-1 and Class A-2 notes are entitled.
Actual payments received from both group 1 and group 2 will be used to make
payments of interest and principal on each class of notes.
Home Improvement Contracts
This prospectus supplement contains information regarding some home
improvement loans, which will represent approximately % of all home
improvement loans by aggregate principal balance as of the cut-off date, and
which consist of home improvement contracts and promissory notes originated
through , initial home improvement loans. The information for the initial
home improvement contract is as of the cut-off date for those loans. The
remaining home improvement loans will be purchased by the trust on the closing
date.
The initial home improvement loans have an aggregate principal balance as
of the cut-off date of $ . Each home improvement contract is a home
improvement contract originated by a home improvement contractor that we
approved and that we purchased, or a home improvement promissory note that we
originated directly. The primary loan purpose of the initial home improvement
loans is debt consolidation. Each home improvement contract is secured by a
lien on the related real estate, which consists of a one- to four-family
residential property, an owner-occupied condominium or town house or a
manufactured home which either qualifies as real estate under state law or is
located in a park that we approved. Substantially all of the liens are second
or third liens.
We will originate or acquire the home improvement loans in the ordinary
course of our business. A detailed listing of the home improvement loans is
appended to the sale and servicing agreement. All of the home improvement loans
are conventional contracts,
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<PAGE>
meaning they are not FHA-insured. Each of the initial home improvement loans
has a contract rate of at least % per year and not more than % and the
weighted average of the contract rates of the initial home improvement loans as
of the cut-off date is %. As of the cut-off date, the initial home
improvement loans had remaining maturities of at least months but not more
than months and original maturities of at least months but not more than
months. The initial home improvement loans had a weighted average term to
scheduled maturity, as of origination, of months, and a weighted average
term to scheduled maturity, as of the cut-off date, of months. The average
principal balance per initial home improvement contract as of the cut-off date
was $ and the principal balances on the initial home improvement loans as of
the cut-off date ranged from $ to $ . The initial home improvement loans
arise from loans relating to real property located in states and the
District of Columbia. By principal balance as of the cut-off date,
approximately % of the initial home improvement loans were secured by real
property located in , % in , % in , % in , % in
and % in . No other state represented 5% or more of the aggregate
principal balance as of the cut-off date of the initial home improvement loans.
Substantially none of the initial home improvement loans provide for recourse
to the originating contractor in the event of a default by the obligor.
Home Equity Contracts
The following summary information about the home equity loans is as of the
cut-off date for these loans.
The home equity loans have an aggregate principal balance of $ . Each
home equity contract is a closed-end home equity loan originated by us or by a
correspondent lender approved by us and purchased by us. Approximately % of
the home equity loans by principal balance are for the primary purpose of debt
consolidation. Each home equity contract is secured by a lien on the related
real estate, substantially all of which are second or third liens.
We will originate or acquire the home equity loans will be originated or
acquired by Green Tree in the ordinary course of our business. All of the home
equity loans are conventional contracts, meaning they are not FHA-insured. Each
of the home equity loans has a contract rate of at least % per annum and not
more than % and the weighted average of the contract rates of the initial
home equity loans as of the cut-off date is %. As of the cut-off date, the
home equity loans had remaining maturities of at least months but not more
than 360 months and original maturities of at least months but not more than
months. The home equity loans had a weighted average term to scheduled
maturity, as of origination, of months, and a weighted average term to
scheduled maturity, as of the cut-off date, of months. The average principal
balance per home equity contract as of the cut-off date was $ and the
principal balances on the initial home equity loans as of the cut-off date
ranged from $ to $ . The home equity loans arise from loans relating to
real property located in 48 states and the District of Columbia. By principal
balance as of the cut-off date, approximately % of the home
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<PAGE>
equity loans were secured by real property located in California, % in
Florida and % in Illinois. No other state represented 5% or more of the cut-
off date pool principal balance of the home equity loans.
Group 1 Contracts
The tables below describe the characteristics of the group 1 loans. The
group 1 loans consist of home improvement loans and home equity loans.
The weighted average of the contract rates of the group 1 loans as of the
cut-off date is %. As of the cut-off date, the group 1 loans had remaining
maturities of at least months but not more than months and original
maturities of at least 24 months but not more than months. The group 1 loans
had a weighted average term to scheduled maturity, as of origination, of
months, and a weighted average term to scheduled maturity, as of the cut-off
date, of months. The average principal balance per group 1 contract as of
the cut-off date was $ and the principal balances on the group 1 loans as of
the cut-off date ranged from $ to $ . The group 1 loans arise from loans
relating to real property located in states and the District of Columbia.
By principal balance as of the cut-off date, approximately % of the group 1
loans were secured by real property located in , % in , % in ,
% in and % in . No other state represented 5% or more of the cut-
off date pool principal balance of the group 1 loans.
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<PAGE>
Contract Rates--Group 1 Contracts
<TABLE>
<CAPTION>
Number of % of Group 1 Contracts by
Contracts Aggregate Principal Outstanding Principal
Range of Contracts as of Cut- Balance Outstanding Balance as of
by Contract Rate off Date as of Cut-off Date Cut-off Date
------------------ ---------- ------------------- -------------------------
<S> <C> <C> <C>
Less than 9.001%........ $ %
From 9.001%--10.000%...
From 10.001%--11.000%...
From 11.001%--12.000%...
From 12.001%--13.000%...
From 13.001%--14.000%...
From 14.001%--15.000%...
From 15.001%--16.000%...
From 16.001%--17.000%...
Greater than 17.000%....
----- -------------- ------
Total............... $ 100.00%
===== ============== ======
</TABLE>
Distribution of Current Balance--Group 1 Contracts
<TABLE>
<CAPTION>
% of Group 1
Contracts by
Outstanding Principal
Number of Aggregate Principal Balance as of
Current Balance (in Dollars) Contracts Balance Outstanding Cut-off Date
---------------------------- --------- ------------------- ---------------------
<S> <C> <C> <C>
Less than$ 10,000.00.......... $ %
$ 10,000.00--$ 19,999.99......
$ 20,000.00--$ 29,999.99......
$ 30,000.00--$ 39,999.99......
$ 40,000.00--$ 49,999.99......
$ 50,000.00--$ 59,999.99......
Greater than $ 59,999.99......
----- ------------ ------
Total..................... $ 100.00%
===== ============ ======
</TABLE>
Distribution of Original Contract Amounts--Group 1 Contracts
<TABLE>
<CAPTION>
% of Group 1
Number of Contracts by
Contracts Aggregate Principal Outstanding Principal
Original Contract as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than$ 10,000.00..... $ %
Between$ 10,000.00--
$ 19,999.99.............
Between$ 20,000.00--
$ 29,999.99.............
Between$ 30,000.00--
$ 39,999.99.............
Between$ 40,000.00--
$ 49,999.99.............
Between$ 50,000.00--
$ 59,999.99.............
Greater than $59,999.99..
----- ------------ ------
Total................ $ 100.00%
===== ============ ======
</TABLE>
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<PAGE>
Remaining Months to Maturity--Group 1 Contracts
<TABLE>
<CAPTION>
% of Group 1
Number of Contracts by
Months Remaining to Contracts Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1--60................... $ %
61--120..................
121--180..................
181--240..................
241--300..................
301--360..................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Months since Origination--Group 1 Contracts
<TABLE>
<CAPTION>
% of Group 1
Number of Contracts by
Contracts Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Months Since Origination off Date as of Cut-off Date Cut-off Date
- ------------------------ ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 4............... $ %
From 4--6.................
From 7--12................
Greater than 12...........
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
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<PAGE>
Geographical Distribution of Mortgaged Properties--Group 1 Contracts
<TABLE>
<CAPTION>
% of Group 1
% of Group 1 Contracts by
Contracts Aggregate Principal Outstanding
Number of by Number of Balance Principal
Contracts as of Contracts as Outstanding as of Balance as of
Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
--------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ --------------- ------
Total................... 100.00% $ 100.00%
===== ====== =============== ======
</TABLE>
S-25
<PAGE>
Credit Scores--Group 1 Contracts
<TABLE>
<CAPTION>
% of Group 1
Number of Contracts by
Contracts Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Range of Scores off Date as of Cut-off Date Cut-off Date
- --------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 551............ $ %
From 551--600............
From 601--650............
From 651--700............
From 701--750............
Greater Than 750.........
----- ------------ ------
Total................ $ 100.00%
===== ============ ======
Debt to Income Ratio--Group 1 Contracts
<CAPTION>
% of Group 1
Number of Contracts by
Contracts Aggregate Principal Outstanding Principal
Range of Debt to Income as of Cut- Balance Outstanding Balance as of
Ratios off Date as of Cut-off Date Cut-off Date
- ----------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 10.01%......... $ %
From 10.01%-15.00%.......
From 15.01%-20.00%.......
From 20.01%-25.00%.......
From 25.01%-30.00%.......
From 30.01%-35.00%.......
From 35.01%-40.00%.......
From 40.01%-45.00%.......
From 45.01%-50.00%.......
Greater than 50.00%......
----- ------------ ------
Total................ $ 100.00%
===== ============ ======
</TABLE>
Group 2 Contracts
The weighted average of the contract rates of the initial group 2 loans as
of the cut-off date is %. As of the cut-off date, the initial group 2 loans
had remaining maturities of at least months but not more than 300 months and
original maturities of at least 36 months but not more than months. The
initial group 2 loans had a weighted average term to scheduled maturity, as of
origination, of months, and a weighted average term to scheduled maturity,
as of the cut-off date, of months. The average principal balance per initial
group 2 loans as of the cut-off date was $ and the principal balances on the
initial group 2 loans as of the cut-off date ranged from $ to $ . The
initial group 2 loans arise from loans relating to real property located in
states and the District of Columbia. By principal balance as of the cut-off
date, approximately % of the initial group 2 loans were secured by real
property located in , % in , % in and % in . No other state
represented 5% or more of the cut-off date pool principal balance of the
initial group 2 loans.
The tables below describe the characteristics of the group 2 loans. The
group 2 loans consist of home improvement loans and home equity loans.
S-26
<PAGE>
Contract Rates--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial Group 2
Number of Contracts by
Range of Contracts Aggregate Principal Outstanding Principal
Contracts as of Cut- Balance Outstanding Balance as of
by Contract Rate off Date as of Cut-off Date Cut-off Date
- ---------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 9.001%.......... $ %
From 9.001%--10.000%.....
From 10.001%--11.000%.....
From 11.001%--12.000%.....
From 12.001%--13.000%.....
From 13.001%--14.000%.....
From 14.001%--15.000%.....
From 15.001%--16.000%.....
From 16.001%--17.000%.....
Over 17.000%..............
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Distribution of Current Balance--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial Group 2
Contracts by
Outstanding
Principal Balance as
Number of Aggregate Principal of
Current Balance (in Dollars) Contracts Balance Outstanding Cut-off Date
- ---------------------------- --------- ------------------- --------------------
<S> <C> <C> <C>
Less than $10,000.00........... $ %
Between $10,000.00--
$19,999.99....................
Between $20,000.00--
$29,999.99....................
Between $30,000.00--
$39,999.99....................
Between $40,000.00--
$49,999.99....................
Between $50,000.00--
$59,999.99....................
Greater than $59,999.99........
----- ------------ ------
Total...................... $ 100.00%
===== ============ ======
</TABLE>
Distribution of Original Contract Amounts--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial
Number of Group 2 Contracts by
Contracts Aggregate Principal Outstanding Principal
Original Contract as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than $10,000.00..... $ %
Between$10,000.00--
$19,999.99..............
Between$20,000.00--
$29,999.99..............
Between$30,000.00--
$39,999.99..............
Between$40,000.00--
$49,999.99..............
Between$50,000.00--
$59,999.99..............
Greater than $59,999.99..
----- ------------ ------
Total.................... $ 100.00%
===== ============ ======
</TABLE>
S-27
<PAGE>
Remaining Months to Maturity--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial Group 2
Number of Contracts by
Months Remaining to Contracts Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
1-- 60.................. $ %
61--120..................
121--180..................
181--240..................
241--300..................
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Months Since Origination--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial
Number of Group 2 Contracts by
Contracts Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Months since Origination off Date as of Cut-off Date Cut-off Date
- ------------------------ ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 4............... $ %
From 4--6.................
From 7--12................
Greater than 12...........
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
S-28
<PAGE>
Geographical Distribution of Mortgaged Properties--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial
% of Initial Group 2
Group 2 Contracts by
Contracts Aggregate Principal Outstanding
Number of by Number of Balance Principal
Contracts as of Contracts as Outstanding as of Balance as of
Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
--------------- --------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ ------------ ------
Total................... 100.00% $ 100.00%
===== ====== ============ ======
</TABLE>
S-29
<PAGE>
Credit Scores--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial
Group 2
Number of Contracts by
Contracts Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Range of Scores off Date as of Cut-off Date Cut-off Date
- --------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 551............. $ %
From 551-600..............
From 601-650..............
From 651-700..............
From 701-750..............
Greater Than 750..........
----- ------------ ------
Total................. $ 100.00%
===== ============ ======
</TABLE>
Debt to Income Ratio--Initial Group 2 Contracts
<TABLE>
<CAPTION>
% of Initial
Group 2
Number of Contracts by
Contracts Aggregate Principal Outstanding Principal
Range of Debt to Income as of Cut- Balance Outstanding Balance as of
Ratios off Date as of Cut-off Date Cut-off Date
- ----------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less Than 10.01%......... $ %
From 10.01%-15.00%.......
From 15.01%-20.00%.......
From 20.01%-25.00%.......
From 25.01%-30.00%.......
From 30.01%-35.00%.......
From 35.01%-40.00%.......
From 40.01%-45.00%.......
From 45.01%-50.00%.......
Greater Than 50.00%......
----- ------------ ------
Total................ $ 100.00%
===== ============ ======
</TABLE>
Delinquency, Loan Default and Loss Information
Because of our limited historical experience with the performance of home
improvement contracts and home equity loans similar to the loans in the pool,
we have not included information in this prospectus supplement about our
historical loan loss or liquidation experience. The loans in the pool have high
loan-to-value ratios and have been issued primarily for debt consolidation
purposes.
S-30
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any note will depend on the price paid by the noteholder, the
timing of principal payments, and the timing and amount of any liquidation
losses on the related loans.
We have no significant experience with the rate of principal prepayments on
home improvement contracts or home equity loans. Because the loans have
scheduled due dates throughout the calendar month, prepayments on the loans
would affect the amount of funds available to make distributions on the notes
on any payment date only if a substantial portion of the loans prepaid prior to
their respective due dates in the preceding month, thus paying less than 30
days' interest for that month, while very few loans prepaid after their
respective due dates in the preceding month. In addition, liquidations of
defaulted contracts or the servicer's exercise of its option to repurchase the
entire remaining pool of loans will affect the timing of principal
distributions on the notes. See "Description of the Notes--Repurchase Option."
The amount of interest to which the noteholders of any class are entitled
on any payment date will be the product of the related interest rate and in the
absence of any liquidation loss amount adjustment the principal balance of that
class immediately following the preceding payment date. Interest on each class
of will be computed on the basis of a 360-day year of twelve 30-day months.
noteholders will receive payments in respect of principal on each payment date
to the extent that funds available in the note distribution account are
sufficient therefor, in the priority described under "Description of the
Notes--Distributions on the Notes." As required by applicable state laws,
interest paid by obligors on the loans is computed according to the simple
interest method.
Weighted Average Life of the Notes
The following information is given solely to illustrate the effect of
prepayments of the related loans on the weighted average life of each class of
notes under the stated assumptions and is not a prediction of the prepayment
rate that might actually be experienced by the loans.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the notes will be
influenced by the rate at which principal on the related loans is paid.
Principal payments on loans may be in the form of scheduled amortization or
prepayments. For this purpose, the term "prepayment" includes repayments and
liquidations due to default or other dispositions of the loans.
The rate of principal payments on pools of home improvement contracts and
home equity loans is influenced by a variety of economic, geographic, social
and other factors, including the level of interest rates and the rate at which
homeowners sell their homes or default on their contracts or loans. Other
factors affecting prepayment of loans include changes in obligors' housing
needs, job transfers, unemployment and obligors' net equity in their homes. In
the case of home improvement contracts and home equity loans secured by
S-31
<PAGE>
real estate, in general, if prevailing interest rates fall significantly below
the interest rates on such contracts or loans, the contracts or loans are
likely to be subject to higher prepayment rates than if prevailing interest
rates remained at or above the rates borne by such contracts or loans.
Conversely, if prevailing interest rates rise above the interest rates on such
home improvement contracts or home equity loans, the rate of prepayment would
be expected to decrease.
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the loans are received in
a timely manner and prepayments are made at the indicated percentages
of the model as described below set forth in the table;
(2) the servicer exercises its option to repurchase the loans, as
described under "Description of the Notes--Repurchase Option";
(3) the aggregate principal balance of the initial loans as of the cut-off
date is approximately $ and such loans have the characteristics
set forth under "The Loan";
(4) the loans will, as of the cut-off date, be grouped into pools having
the additional characteristics set forth below under "Assumed Group 1
Contract Characteristics", "Assumed Initial Group 2 Characteristics"
and "Assumed Subsequent Group 2 Contract Characteristics";
(5) each class of notes has an original principal balance as indicated in
"Summary of the Terms of the Notes";
(6) the subsequent loans will have the characteristics set forth in the
table below and have their first scheduled payment date in 1999;
(7) the interest rates for the notes are as indicated in "Summary of the
Terms of the Notes";
(8) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(9) no delinquencies or losses are experienced on the loans;
(10) distributions are made on the notes on the 15th day of each month,
commencing in 1999; and
(11) the notes are issued on , 1999. No representation is made that
the loans will not experience delinquencies or losses.
Prepayments on mortgage loans and other consumer installment obligations
are commonly measured relative to a prepayment standard or model, the
prepayment assumption. The prepayment assumption used in this prospectus
supplement with respect to the home improvement and home equity loans
represents an assumed rate of prepayment each month relative to the then
outstanding principal balance of a pool of home improvement and home equity
loans for the life of such home improvement and home equity loans. The 100%
prepayment assumption assumes a constant prepayment of 0% per year of the then
outstanding principal balance of the loans in the first month of the life of
the loans
S-32
<PAGE>
and an additional 1.14% (precisely, 16/14%) per year in each month thereafter
until the fifteenth month. Beginning in the fifteenth month and in each month
thereafter during the life of such loans, the 100% prepayment assumption
assumes a constant prepayment rate of 16% per year each month.
It is not likely that the loans will prepay at any constant percentage of
the prepayment assumption or that all of the loans will prepay at the same
rate.
You are urged to make your investment decisions on a basis that includes a
determination as to anticipated prepayment rates under a variety of the
assumptions discussed herein.
Assumed Group 1 Contract Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Cut-off Date Weighted Average Average
Pool Average Remaining Term Original Term
Principal Contract to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- ------------ -------- -------------- -------------
<S> <C> <C> <C> <C>
1. .......................... $ %
2. ..........................
3. ..........................
4. ..........................
5. ..........................
</TABLE>
Assumed Initial Group 2 Contract Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Cut-off Weighted Average Average
Date Pool Average Remaining Term Original Term
Principal Contract to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- ----------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ........................... $ %
2. ...........................
3. ...........................
4. ...........................
</TABLE>
Assumed Subsequent Group 2 Contract Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Cut-off Weighted Average Average
Date Pool Average Remaining Term Original Term
Principal Loan to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ............................ $ %
2. ............................
3. ............................
4. ............................
</TABLE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each class of notes, and outline the
percentages of the original principal balance of each class that would be
outstanding after each of the dates shown, at the indicated percentages of the
CPR.
S-33
<PAGE>
The weighted average life of a class notes is determined by:
(1) multiplying the amount of cash distributions in reduction of the
principal balance of such note by the number of years from the date of
issuance of such note to the stated payment date;
(2) adding the results; and
(3) dividing the sum by the initial principal balance of the note.
Percentage of the Original Principal Balance of the Class A-1
Notes at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999...................................
December 15, 2000...................................
December 15, 2001...................................
December 15, 2002...................................
December 15, 2003...................................
December 15, 2004...................................
December 15, 2005...................................
December 15, 2006...................................
December 15, 2007...................................
December 15, 2008...................................
December 15, 2009...................................
December 15, 2010...................................
December 15, 2011...................................
December 15, 2012...................................
Weighted Average Life (years).......................
Percentage of the Original Principal Balance of the Class A-2
Notes at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<CAPTION>
Date 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999...................................
December 15, 2000...................................
December 15, 2001...................................
December 15, 2002...................................
December 15, 2003...................................
December 15, 2004...................................
December 15, 2005...................................
December 15, 2006...................................
December 15, 2007...................................
December 15, 2008...................................
December 15, 2009...................................
December 15, 2010...................................
December 15, 2011...................................
December 15, 2012...................................
Weighted Average Life (years).......................
</TABLE>
S-34
<PAGE>
Percentage of the Original Principal Balance of the Class M-1
Notes at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999...................................
December 15, 2000...................................
December 15, 2001...................................
December 15, 2002...................................
December 15, 2003...................................
December 15, 2004...................................
December 15, 2005...................................
December 15, 2006...................................
December 15, 2007...................................
December 15, 2008...................................
December 15, 2009...................................
December 15, 2010...................................
December 15, 2011...................................
December 15, 2012...................................
December 15, 2013...................................
December 15, 2014...................................
December 15, 2015...................................
Weighted Average Life (years).......................
</TABLE>
Percentage of the Original Principal Balance of the Class M-2 Notes at the
Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999...................................
December 15, 2000...................................
December 15, 2001...................................
December 15, 2002...................................
December 15, 2003...................................
December 15, 2004...................................
December 15, 2005...................................
December 15, 2006...................................
December 15, 2007...................................
December 15, 2008...................................
December 15, 2009...................................
December 15, 2010...................................
December 15, 2011...................................
December 15, 2012...................................
December 15, 2013...................................
December 15, 2014...................................
Weighted Average Life (years).......................
</TABLE>
S-35
<PAGE>
Percentage of the Original Principal Balance of the Class B-1
Notes at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999...................................
December 15, 2000...................................
December 15, 2001...................................
December 15, 2002...................................
December 15, 2003...................................
December 15, 2004...................................
December 15, 2005...................................
December 15, 2006...................................
December 15, 2007...................................
December 15, 2008...................................
December 15, 2009...................................
December 15, 2010...................................
Weighted Average Life (years).......................
</TABLE>
Percentage of the Original Principal Balance of the Class B-2 Notes at the
Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 50% 75% 100% 125% 150%
- ---- --- --- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Initial Percentage.................................. 100% 100% 100% 100% 100%
December 15, 1999...................................
December 15, 2000...................................
December 15, 2001...................................
December 15, 2002...................................
December 15, 2003...................................
December 15, 2004...................................
December 15, 2005...................................
December 15, 2006...................................
December 15, 2007...................................
December 15, 2008...................................
December 15, 2009...................................
December 15, 2010...................................
December 15, 2011...................................
December 15, 2012...................................
December 15, 2013...................................
December 15, 2014...................................
Weighted Average Life (years).......................
</TABLE>
S-36
<PAGE>
GREEN TREE FINANCIAL CORPORATION
General
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under the heading "Green Tree Financial
Corporation."
Ratio of Earnings to Fixed Charges for Green Tree
The table below shows our ratios of earnings (losses) to fixed charges for
the past five years and the nine months ended , 1999. For the purposes of
compiling these ratios, earnings (losses) consist of earnings (losses) before
both income taxes and fixed charges. Fixed charges consist of interest expense
and the interest portion of rent expense.
<TABLE>
<CAPTION>
Year Ended December 31, Months Ended
------------------------ -----------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses)
to Fixed Charges........... 7.98 7.90 5.44 3.94 .62*
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to our merger with
Conseco, Inc.
Recent Developments
We have been served with various lawsuits in the United States District
Court for the District of Minnesota. These lawsuits were filed by our
stockholders as purported class actions on behalf of persons or entities who
purchased common stock or traded in options during the alleged class periods.
In addition to the company, some of our current and former officers and
directors are named as defendants in one or more of the lawsuits. The lawsuits
have been consolidated into two complaints, one relating to an alleged class of
purchasers of our common stock and the other relating to an alleged class of
traders in options for our common stock. In addition to those two complaints, a
separate non-class action lawsuit containing similar allegations was also
filed. Plaintiffs in the lawsuits assert claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. In each case, plaintiffs allege that we
and the other defendants violated federal securities laws by making false and
misleading statements about our current state and future prospects,
particularly about prepayment assumptions and performance of some of our loan
portfolios, which allegedly rendered our financial statements false and
misleading. We believe that the lawsuits are without merit and intend to defend
the lawsuits vigorously.
DESCRIPTION OF THE NOTES
The following information supplements and, if inconsistent, supersedes the
information contained in the prospectus under "The Notes," "Certain Information
Regarding the Securities," and "Description of the Trust Documents."
S-37
<PAGE>
General
The notes will be issued pursuant to the terms of the indenture, a form of
which has been filed as an exhibit to the registration statement. A copy of the
indenture, as executed, will be filed in a current report on Form 8-K with the
SEC following the issuance of the securities. The following summary describes
the terms of the notes and the indenture. The summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the notes and the indenture. The following summary
supplements the description of the general terms and provisions of the notes of
any given series and the related indenture set forth in the accompanying
prospectus, to which description reference is hereby made. U.S. Bank trust
National Association, a national banking association headquartered in St. Paul,
Minnesota, will be the indenture trustee.
The notes initially will be represented by certificates registered in the
name of Cede as the nominee of DTC, and will only be available in the form of
book-entries on the records of DTC and its participating members. See
"Description of the Notes--Registration of the Notes" herein. The property held
by the indenture trustee under the indenture consists primarily of the loans
and the rights, benefits, obligations and proceeds arising from the loans,
including liens on the related real estate, amounts held in the collection
account and note distribution account, the note insurance policy and our Class
B-2 limited guaranty for the benefit of the Class B-2 noteholders.
Payments on the notes will be made each month by the paying agent, which
shall initially be the indenture trustee, on each payment date to persons in
whose names the notes are registered as of the business day immediately
preceding the payment date. See "Description of the Notes--Registration of the
Notes." The first payment date for the notes will be in . Payments will
be made by check mailed to the noteholder at the address appearing on the note
register, except that a noteholder who holds an aggregate percentage interest
of at least 5% of a class of notes may request payment for its percentage
interest in the class by wire transfer. Final payments will be made only upon
tender of the notes to the indenture trustee for cancellation.
To the extent not paid in full prior to that date, the outstanding
principal amount of each class of notes will be payable on the following, final
scheduled distribution date for the class:
Class A-1:
Class A-2:
Class M-1:
Class M-2:
Class B-1:
Class B-2:
Payments on Contracts
The servicer will establish and maintain in the name of the indenture
trustee a collection account in an eligible account at a depository
institution, initially [indenture trustee],
S-38
<PAGE>
Minnesota with trust powers organized under the laws of the United States or
any state, the deposits of which are insured to the full extent permitted by
law by the FDIC, whose short-term deposits have been rated P-1 by Moody's and
A-1 by S&P or whose unsecured long-term debt has been rated in one of the two
highest rating categories by Moody's and S&P, and which is subject to
supervision and examination by federal or state authorities. Eligible account
means, at any time, an account which is:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the bank insurance fund or the savings association insurance
fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the indenture trustee, which depository institution
or trust company has capital and surplus of not less than $50,000,000;
or
(4) an account that will not cause Moody's or S&P to downgrade or withdraw
its then-current rating assigned to the notes without regard to the
note Policy, as evidenced in writing by Moody's and S&P.
The servicer may authorize the indenture trustee to invest the funds in the
collection account in eligible investments (as defined in the sale and
servicing agreement) that will mature not later than the business day preceding
the applicable monthly payment date. The eligible investments include, among
other investments, obligations of the United States or of any agency thereof
backed by the full faith and credit of the United States, federal funds,
certificates of deposit, time deposits and bankers acceptances sold by eligible
commercial banks; any other demand or time deposit or certificate of deposit
fully insured by the FDIC; investments in certain money-market funds; certain
repurchase agreements of United States government securities with eligible
commercial banks; securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least Aa2 by Moody's and AA from
S&P not in excess of 10% of amounts in the collection account at the time of
the investment; and commercial paper assigned a rating of at least P-1 by
Moody's and A-1+ by S&P. Any losses on those investments will be deducted from
other investment earnings or from other funds in the collection account.
All receipts by the servicer of payments with respect to the loans,
including principal prepayments and advance payments by obligors not
constituting principal prepayments, will be paid into the collection account no
later than one business day following receipt thereof, except amounts received
as extension fees or assumption fees not allocated to regular installments due
on loans, which are retained by the servicer as part of its servicing fees and
are not paid into the collection account and except for certain proceeds from
liquidated loans which are used to reimburse the servicer for customary out-of-
pocket liquidation expenses. See "Description of the Notes--Servicing
Compensation and Payment of Expenses". In addition, any advances by the
servicer or the indenture trustee as described under "Description of the
Notes--Advances," and amounts we paid for loans repurchased as a
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result of a breach of representations or warranties, as described under
"Description of the Notes--Conveyance of loans," will be paid into the
collection account.
On a specified business day preceding each payment date, the servicer will
determine the amount available and the amount of funds necessary to make all
payments to be made on the next payment date from the collection account. Not
later than one business day after the determination date, we will deposit in
the collection account the repurchase price of any loans required to be
repurchased on that payment date as a result of a breach of representations and
warranties.
The amount available will consist primarily of payments made on or in
respect of the loans and will include payments made by the note insurer under
the note insurance policy and amounts payable, subject to the subordination
described in this prospectus supplement, to the servicer, so long as we or any
of our wholly owned subsidiaries is the servicer, as the monthly servicing fee
on the loans, and to the certificateholders.
On each payment date, the indenture trustee will withdraw the amount
available from the collection account and make the following payments, in the
following order of priority:
(1) if neither we nor any of our wholly owned subsidiaries is the
servicer, to pay the monthly servicing fee with respect to the loans
to the servicer;
(2) to pay the amount payable monthly to the note insurer, in an amount
equal to the premium rate times the sum of the Class A-1 and Class A-2
principal balance;
(3) to pay interest on the notes, in the following order of priority:
(A) first, to Class A-1 noteholders and the Class A-2 noteholders,
interest on the Class A-1 principal balance and Class A-2
principal balance, respectively;
(B) second, to Class M-1 noteholders, interest on the Class M-1
adjusted principal balance;
(C) third, to Class M-2 noteholders, interest on the Class M-2
adjusted principal balance; and
(D) fourth, to Class B-1 noteholders, interest on the Class B-1
adjusted principal balance;
(4) to pay principal on the Class A notes, in the amount described below
under "Distributions on the Notes--Principal on the Class A, Class M-
1, Class M-2 and Class B-1 Notes," in respect of the group 1 formula
principal distribution amount in the case of the Class A-1 notes, and
in respect of the group 2 formula principal distribution amount in the
case of the Class A-2 notes;
(5) to pay the note insurer for any unreimbursed insurance payments and
any other amounts owing to the note insurer under the insurance
agreement, including any unpaid premium amount, together with interest
thereon as specified in the insurance agreement;
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(6) to pay principal and interest on certain of the notes, in the
following order of priority:
(A) principal on the Class M-1, Class M-2 and Class B-1 notes, in the
amount described below under "Distributions on the Notes--
Principal on the Class A, Class M-1, Class M-2 and Class B-1
Notes," in respect of the Class M principal distribution amount
and Class B-1 principal distribution amount, respectively;
(B) payments on the Class M-1, Class M-2 and Class B-1 notes in
respect of liquidation loss interest amounts as follows:
(I) first, to Class M-1 noteholders, any unpaid Class M-1
liquidation loss interest amount;
(II) second, to Class M-2 noteholders, any unpaid Class M-2
liquidation loss interest amount; and
(III) third, to Class B-1 noteholders, any unpaid Class B-1
liquidation loss interest amount; and
(C) interest and principal on the Class B-2 notes, in the manner and
order of priority described below under "Distributions on the
Notes--Class B-2 Interest" and "--Class B-2 Principal."
(7) if we or any one of our wholly owned subsidiaries is the servicer, to
pay the monthly servicing fee to the servicer;
(8) to pay principal on the Class A notes, in the manner described below
under "Distributions on Notes--Principal on the Class A, Class M-1,
Class M-2 and Class B-1 Notes," in respect of any supplementary
principal distribution amount, which is an amount equal to the lesser
of the Class A principal balance or the amount available remaining
after the distributions described in (1) through (7) above; and
(9) to pay any remaining amounts to the holder of the certificate.
Distributions on the Notes
On each payment date, distributions on the notes will be made to the
holders of the Class A, the Class M and the Class B notes in the manner
described below.
[Noteholders will be entitled to receive on each payment date commencing in
January 1999, to the extent that the amount available in the note distribution
account (together with, in the case of the Class B-2 notes, any Class B-2
guaranty payment, as described below) is sufficient therefor, distributions
allocable to interest and principal, as described herein. The rights of the
Class M and Class B noteholders to receive distributions in respect of the
amount available are subordinated to the rights of the Class A noteholders and
the note insurer's right to the premium amount and the reimbursement amount;
the rights of the Class M-2 and Class B noteholders to receive such
distributions are further subordinated to the rights of the Class M-1
noteholders; the rights of the Class B noteholders to receive such
distributions are further subordinated to the rights of the Class M-2
noteholders; and the rights of the Class B-2 noteholders to receive such
distributions are further subordinated to
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the rights of the Class B-1 noteholders. Distributions will be made on each
payment date commencing in 1999 to holders of record on the related record
date, except that the final distribution in respect of the notes will only be
made upon presentation and surrender of the notes at the office or agency
appointed by the indenture trustee for that purpose in Minneapolis or St. Paul,
Minnesota.]
Interest on the Class A, Class M-1, Class M-2 and Class B-1 Notes
Interest will be distributable first to each class of Class A notes
concurrently, then to the Class M-1 notes, then to the Class M-2 notes and then
to the Class B-1 notes. The interest rates for the Class A, Class M and Class
B-1 notes are listed in "Summary of the Terms of the Notes." Interest on the
outstanding Class A principal balance, Class M-1 adjusted principal balance,
Class M-2 adjusted principal balance and Class B-1 adjusted principal balance,
as applicable, will accrue at the related interest rate from , 1999, or from
the most recent payment date on which interest has been paid, to but excluding
the following payment date, and will be computed on the basis of a 360-day year
of twelve 30-day months. The principal balance of a class of notes as of any
payment date is the original principal balance of that class less all amounts
previously distributed on account of principal of such class. The Class A
principal balance as of any payment date is the sum of the Class A-1 principal
balance and the Class A-2 principal balance. The Class M principal balance as
of any payment date is the sum of the Class M-1 principal balance and the Class
M-2 principal balance. The Class M-1 adjusted principal balance as of any
payment date is the Class M-1 principal balance less any Class M-1 liquidation
loss principal amount (described below under "--Losses on Liquidated loans").
The class M-2 adjusted principal balance as of any payment date is the Class M-
2 principal balance less any Class M-2 liquidation loss principal amount
described below under "Losses on Liquidated loans." The Class B principal
balance as of any payment date is the sum of the Class B-1 principal balance
and the Class B-2 principal balance. The Class B-1 adjusted principal balance
as of any payment date is the Class B-1 principal balance less any Class B-1
liquidation loss principal amount (described below under "Losses on Liquidated
loans").
In the event that, on a particular payment date, the amount available in
the note distribution account is not sufficient to make a full distribution of
interest to the holders of Class M-1 notes, Class M-2 notes or Class B-1 notes,
after payment of interest on each class of notes that is senior to that class
of notes, the amount of interest to be distributed in respect of that class
will be allocated among the outstanding holders of that class pro rata in
accordance with their respective entitlements to interest, and the amount of
the shortfall will be carried forward and added to the amount such holders will
be entitled to receive on the next payment date. Any such amount so carried
forward will bear interest at the applicable interest rate, to the extent
legally permissible.
Principal on the Class A, Class M-1, Class M-2 and Class B-1 Notes.
The Class A, Class M-1, Class M-2 and Class B-1 notes will be entitled to
receive on each payment date distributions of principal, in the order of
priority set forth below and to the extent of the amount available in the note
distribution account after payment of certain fees to the servicer and to the
note insurer and all interest then accrued on the Class A
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principal balance, Class M-1 adjusted principal balance, Class M-2 adjusted
principal balance and Class B-1 adjusted principal balance.
Principal will be distributable first to each class of Class A notes,
concurrently, until retired. The Class A-1 notes will be entitled to receive an
amount equal to the senior percentage of the "Group 1 Formula Principal
Distribution Amount," which is the sum of:
(1) all scheduled payments of principal due on each outstanding group 1
contract during the related due period;
(2) the scheduled principal balance of each group 1 contract which, during
such due period, was purchased by Green Tree on account of certain
breaches of its representations and warranties;
(3) all partial principal prepayments applied and all principal
prepayments in full received during such due period in respect of
group 1 loans;
(4) the scheduled principal balance of each group 1 contract that became a
liquidated contract during such due period; and
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the note distribution account if, the payment date occurs
on or after the payment date on which the Class B-2 principal balance
has been reduced to zero, or such amount was not covered by a Class B-
2 guaranty payment and corresponding reduction in the Class B-2
principal balance.
The Class A-2 notes will be entitled to receive an amount equal to the
senior percentage of "Group 2 Formula Principal Distribution Amount," which is
the sum of:
(1) all scheduled payments of principal due on each outstanding group 2
contract during the related due period;
(2) the scheduled principal balance of each group 2 contract which, during
such due period, was purchased by us on account of breaches of our
representations and warranties;
(3) all partial principal prepayments applied and all principal
prepayments in full received during such due period in respect of
group 2 loans;
(4) the scheduled principal balance of each group 2 contract that became a
liquidated contract during the due period; and
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the note distribution account if, the payment date occurs
on or after the payment date on which the Class B-2 principal balance
has been reduced to zero, or such amount was not covered by a Class B-
2 guaranty payment and corresponding reduction in Class B-2 principal
balance.
If either the Class A-1 notes or the Class A-2 notes are retired, the
remaining class will be entitled to receive the senior percentage of the group
1 formula principal distribution amount and group 2 formula principal
distribution amount.
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In addition, on each payment date on which the supplementary principal
distribution test has not been satisfied, holders of Class A notes will be
entitled to receive as payments of principal the supplementary principal
distribution amount. The supplementary principal distribution test will not be
met if the cumulative losses on the loans exceed certain specified percentages
of the principal balance of the loans as of the cut-off date.
Upon the payment in full of the Class A notes, the Class M-1 notes will be
entitled to receive an amount equal to the senior percentage of the group 1 and
group 2 formula principal distribution amounts. Upon payment in full of the
Class M-1 notes, the Class M-2 notes will be entitled to receive an amount
equal to the senior percentage of the group 1 and group 2 formula principal
distribution amounts. On each payment date, the Class B-1 notes will be
entitled to receive an amount equal to the Class B percentage of the group 1
and group 2 formula principal distribution amounts. When the principal balance
of a class of notes is reduced to zero, no further distributions of principal
will be made to the holders of such class.
The scheduled principal balance of a contract with respect to any payment
date is its principal balance as of the scheduled payment date in the due
period, after giving effect to any previous partial principal prepayments
applied and to the scheduled payment due on the due date, and after giving
effect to any adjustments due to bankruptcy or similar proceedings. The pool
scheduled principal balance, with respect to the loan pool as of any payment
date, is the aggregate of the scheduled principal balances of loans comprising
the loan pool that were outstanding during the preceding due period. A
liquidated loan is a defaulted loan, which is 180 days delinquent, or as to
which all amounts that the servicer expects to recover on account of the loan
have been received.
The senior percentage for any payment date before the Class B cross-over
date, and for any payment date on or after the Class B cross-over date on which
any Class B principal distribution test has not been satisfied, will equal
100%. On each payment date on or after the Class B cross-over date, if each
Class B principal distribution test has been satisfied on that payment date,
the senior percentage will equal a fraction, expressed as a percentage, the
numerator of which is the sum of the Class A principal balance and the Class M
principal balance for such payment date and the denominator of which is the
pool scheduled principal balance for the immediately preceding payment date.
Payments of principal on the Class B-l notes will not commence until the
Class B cross-over date, and will be made on that payment date and each payment
date after that only if each Class B principal distribution test is satisfied
on that payment date, unless the Class A principal balance and the Class M
principal balance have been reduced to zero. The Class B cross-over date, will
be the earlier of:
(1) the payment date on which the Class M-2 principal balance is reduced
to zero; and
(2) the first payment date on or after the payment date in January 2003.
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The Class B principal distribution test, will be satisfied on each payment
date that
(1) the average of the sixty-day delinquency ratio as of such payment date
and the prior two payment dates does not exceed %;
(2) the average of the thirty-day delinquency ratio as of such payment
date and the prior two payment dates does not exceed %;
(3) the cumulative realized loss ratio as of such payment date does not
exceed %;
(4) the current realized loss ratio as of such payment date does not
exceed %; and
(5) the Class B principal balance divided by the pool scheduled principal
balance as of the immediately preceding payment date is equal to or
greater than %.
On each payment date on which the Class B notes are eligible to receive
distributions of principal, the Class B percentage of the group 1 and group 2
formula principal distribution amounts less the Class B floor reduction amount
will be paid to the Class B-1 noteholders to the extent of the amount
available, after payment of certain fees to the servicer, if other than Green
Tree and the note insurer, all interest then accrued on the Class A principal
balance, Class M-1 adjusted principal balance, Class M-2 adjusted principal
balance and Class B-1 adjusted principal balance, all principal then due on the
Class A notes and Class M notes and reimbursement to the note insurer and all
principal then due on the Class M notes, until the Class B-l principal balance
has been reduced to zero. The Class B floor reduction amount means as to any
payment date prior to the Class M-2 cross-over date, the amount, if any, by
which the Class B percentage of the group 1 and group 2 formula principal
distribution amounts exceeds:
(1) the Class B principal balance prior to the effect of such distribution
less;
(2) $2,250,000, and after the Class M-2 cross-over date the Class B floor
reduction amount will equal zero. The Class M-2 cross-over date, is
the payment date on which the Class M-2 principal balance has been
reduced to zero.
Any Class B floor reduction amount will be distributed to the Class A-1
notes and Class A-2 notes concurrently, until the related balances are reduced
to zero, then to the Class M-1 notes until the balance is reduced to zero, and
then to the Class M-2 notes until the balance is reduced to zero.
The Class B percentage for any payment date will be equal to 100% minus the
senior percentage. The Class B percentage for each payment date, if any, after
the Class A principal balance and the Class M principal balance have been
reduced to zero will be equal to 100%.
Notwithstanding the above, on any payment date as to which there is a Class
A principal deficiency amount, the remaining amount available, after payment of
all interest then accrued on the Class A principal balance, Class M-1 adjusted
principal balance, Class M-2 adjusted principal balance and Class B-1 adjusted
principal balance, will be distributed pro rata to each class of Class A notes
based on the principal balance of each class. In no event will the amount
exceed the principal balance of any such class.
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Class B-2 Interest.
Interest on the outstanding Class B-2 principal balance will accrue from
, 1999, or from the most recent payment date on which interest has been
paid, to but excluding the following payment date, and will be computed on the
basis of a 360-day year of twelve 30-day months.
To the extent of the remaining amount available, if any, for a payment date
after payment of certain fees to the servicer and the note insurer, all
interest and principal then payable on the Class A, Class M-1, Class M-2 and
Class B-1 notes and reimbursement to the note insurer, and the Class B-2
guaranty payment, if any, for such date, interest will be paid to the Class B-2
noteholders on such payment date at the Class B-2 interest rate on the then
outstanding Class B-2 principal balance. The Class B-2 principal balance is the
original Class B-2 principal balance less all amounts previously distributed to
the Class B-2 noteholders, including any Class B-2 guaranty payments on account
of principal.
If, on a particular payment date, the remaining amount available in the
note distribution account plus any amounts actually paid under the Class B-2
limited guaranty are not sufficient to make a full distribution of interest to
the Class B-2 noteholders, the amount of the deficiency will be carried forward
as an amount that the Class B-2 noteholders are entitled to receive on the next
payment date. Any amount so carried forward will, to the extent legally
permissible, bear interest at the Class B-2 interest rate.
Class B-2 Principal.
Except for payments of the Class B-2 liquidation loss principal amount,
payments of principal on the Class B-2 notes will not commence until the
payment date on which the Class B-1 principal balance has been reduced to zero,
and will be made on that payment date and each payment date thereafter only if
each Class B principal distribution test is satisfied on such payment date
unless the Class A principal balance and the Class M principal balance have
been reduced to zero. On any payment date, the Class B percentage of the group
1 and group 2 formula principal distribution amounts less the Class B floor
reduction amount will be distributed, up to any amounts actually paid under the
Class B-2 limited guaranty and the amount available, after payment of fees to
the servicer and the note insurer, all interest and principal then due on the
Class A and Class M and Class B-1 notes, reimbursement to the note insurer and
interest on the Class B-2 notes, to the Class B-2 noteholders until the Class
B-2 principal balance has been reduced to zero. The Class B-2 principal
balance generally will not be reduced below $2,250,000 until the Class A
principal balance, the Class M principal balance and the Class B-1 principal
balance have been reduced to zero.
On each payment date, the Class B-2 noteholders will be entitled to
receive, under the Class B-2 limited guaranty, the Class B-2 liquidation loss
principal amount until the Class B-2 principal balance has been reduced to
zero.
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Subordination of Class M Notes and Class B Notes
The rights of the holders of the Class M notes and Class B notes to receive
distributions on the loans, as well as any other amounts constituting the
amount available, will be subordinated to the rights of the holders of the
Class A notes and the rights of the note insurer under the insurance agreement.
This subordination is intended to enhance the likelihood of regular receipt by
the holders of the Class A notes of the full amount of their scheduled monthly
payments of interest and principal and to afford holders protection against
losses on liquidated loans.
A portion of the protection afforded to the holders of the Class A notes by
means of the subordination of the Class M and Class B notes will be
accomplished by the preferential right of the Class A noteholders to receive on
any payment date the amount of interest due on the Class A notes, including any
interest due on a prior payment date but not received, before any distribution
being made on a payment date in respect of interest on the Class M and Class B
notes. Thereafter, any remaining amount available in the note distribution
account will be applied to the payment of interest due on the Class M-1
adjusted principal balance, then interest due on the Class M-2 adjusted
principal balance and then interest due on the Class B-1 adjusted principal
balance. The Class A notes will also have the benefit of the note insurance
policy.
After payment of fees to the servicer and the note insurer, all interest
then accrued on the Class A principal balance, Class M-1 adjusted principal
balance, Class M-2 adjusted principal balance and Class B-1 adjusted principal
balance and reimbursement to the note insurer, any remaining amount available
will be distributed in the following order of priority: first, the senior
percentage or the Class B percentage, as applicable, of the formula principal
distribution amounts will be distributed to the Class A, Class M and Class B-1
noteholders in the order of priority described above under "Distributions on
the Notes--Principal on the Class A, Class M-1, Class M-2 and Class B-1 Notes."
The remaining amount available will be distributed in the following order of
priority:
. any unpaid Class M-1 liquidation loss interest amount (as described
below under "Losses on Liquidated loans") will be distributed to the
Class M-1 noteholders;
. any unpaid Class M-2 liquidation loss interest amount (as described
below under "Losses on Liquidated loans") will be distributed to the
Class M-2 noteholders; and
. any unpaid Class B-1 liquidation loss interest amount (as described
below under "Losses on Liquidated loans") will be distributed to the
Class B-1 noteholders.
The rights of the holders of the Class B-2 notes to receive distributions
on the loans and other amounts in the note distribution account will be
subordinated to the rights of the holders of the Class A notes, Class M notes
and Class B-1 notes and amounts payable to the note insurer. Thus, the Class B-
2 noteholders will be entitled to distribution of interest and principal on the
Class B-2 notes only after distribution of all interest and principal then
payable on the Class A, Class M and Class B-1 notes.
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If a Class B-2 liquidation loss principal amount is realized for any
payment date and we fail to pay that amount under our Class B-2 limited
guaranty, the Class B-2 noteholders may incur losses on their investment in the
Class B-2 notes to the extent the losses are not made up from future payments
on the loans or the Class B-2 limited guaranty.
Losses on Liquidated Contracts
As described above, the distribution of principal to the Class A
noteholders is intended to include the senior percentage of the scheduled
principal balance of each contract that became a liquidated contract during the
preceding due period. If the net liquidation proceeds from the liquidated
contract are less than the scheduled principal balance of the liquidated
contract plus accrued and unpaid interest, the deficiency will, in effect, be
absorbed by the certificateholders first, then the monthly servicing fee
otherwise payable to the servicer, so long as we or one of our or any wholly
owned subsidiaries is the servicer on the loans, then the Class B-2
noteholders, then the Class B-1 noteholders, then the Class M-2 noteholders and
then the Class M-1 noteholders. Likewise, to the extent the Class M-1
noteholders, the Class M-2 noteholders or the Class B-1 noteholders are
entitled to receive distributions of principal, similar deficiencies could
result for each class of notes with a lower payment priority.
If the amount available in the note distribution account for any payment
date is insufficient to distribute the full formula principal distribution
amounts for that payment date to the noteholders, the aggregate outstanding
principal balance of the notes will be greater than the pool scheduled
principal balance for that payment date. If this happens, the amount of such
deficiency would be allocated first to the Class B-2 notes, and we would be
obligated to pay the amount of the Class B-2 liquidation loss principal amount
to the Class B-2 noteholders under the Class B-2 limited guaranty. If on any
payment date the sum of the Class A principal balance, the Class M-1 principal
balance, the Class M-2 principal balance and the Class B-1 principal balance
was equal to the pool scheduled principal balance, no further liquidation loss
principal amounts could be allocated to the Class B-2 notes and any further
liquidation loss principal amounts realized would be allocated to reduce the
Class B-1 adjusted principal balance . If the Class B-1 adjusted principal
balance were reduced to zero, any further liquidation loss principal amounts
realized would be allocated to reduce the Class M-2 adjusted principal balance.
If the Class M-2 adjusted principal balance were reduced to zero, any further
liquidation loss principal amounts realized would be allocated to reduce the
Class M-1 adjusted principal balance. Any liquidation loss principal amounts
would be reduced on subsequent payment dates up to the amount available in the
note distribution account on the payment dates is sufficient to permit the
distribution of principal due, but not paid, on the notes on prior payment
dates. If the adjusted principal balance of the Class M-1, Class M-2 or Class
B-1 notes were reduced by a liquidation loss principal amount, interest
accruing on that class would be calculated on the reduced adjusted principal
balance of that class. The interest accruing on that class's liquidation loss
principal amount each month, plus interest at the applicable interest rate on
any liquidation loss interest amount due on a prior payment date but not paid,
would be paid to the noteholders of that class from the amount available, after
distributions of principal on all Class A, Class M and
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Class B-1 notes, in the order of priority described above under "Subordination
of Class M and Class B Notes."
But for the effect of the subordination of the Class M-2 and Class B notes
and the certificates and the related monthly servicing fee otherwise payable to
the servicer, so long as we or one of our wholly owned subsidiaries is the
servicer, on the loans, the Class M-1 noteholders will absorb all losses on
each liquidated contract in the amount by which its net liquidation proceeds
are less than its unpaid principal balance plus accrued and unpaid interest
less the related monthly servicing fee.
But for the effect of the subordination of the Class B notes and the
certificates and the related monthly servicing fee otherwise payable to the
servicer, so long as we or one of our wholly owned subsidiaries is the servicer
on the loans, the Class M-2 noteholders will absorb all losses on each
liquidated contract in the amount by which its net liquidation proceeds are
less than its unpaid principal balance plus accrued and unpaid interest less
the related monthly servicing fee.
But for the effect of the subordination of the Class B-2 notes and the
certificates and the related monthly servicing fee otherwise payable to the
servicer, so long as we or one of our wholly owned subsidiaries is the servicer
on the loans, the Class B-1 noteholders will absorb all losses on each
liquidated contract in the amount by which its net liquidation proceeds are
less than its unpaid principal balance plus accrued and unpaid interest less
the related monthly servicing fee.
But for the payments under the Class B-2 limited guaranty described below
and the subordination of the certificates and the related monthly servicing fee
otherwise payable to the servicer, so long as we or one of our wholly owned
subsidiaries is the servicer on the loans, the Class B-2 noteholders will
absorb all losses on each liquidated contract in the amount by which its net
liquidation proceeds are less than its unpaid principal balance plus accrued
and unpaid interest less the related monthly servicing fee.
Reports to Noteholders
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class A noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of each class of Class A
notes allocable to interest;
(2) the amount of the distribution to holders of each class of Class A
notes allocable to principal, separately identifying the aggregate
amount of any principal prepayments and any supplementary principal
distribution amount included;
(3) any amount by which the Class A formula distribution amount exceeds
the Class A distribution amount for the payment date;
(4) the principal balance of each class of Class A notes after giving
effect to the distribution of principal on the payment date;
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(5) the senior percentage for the payment date;
(6) the pool scheduled principal balance for the payment date;
(7) the pool factor (a percentage derived from a fraction the numerator of
which is the sum of the Class A principal balance, the Class M
principal balance and the Class B principal balance and the
denominator of which is the cut-off date pool principal balance;
(8) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days;
(9) the amount of any payment by the note insurer under the note insurance
policy and any reimbursement paid to the note insurer; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a Class A note with a 1% percentage interest or per $1,000
denomination of Class A note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class A noteholder of
record at any time during that calendar year as to the aggregate of amounts
reported under (1) and (2) above for such calendar year.
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class M-1 noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of the Class M-1 notes
allocable to interest, separately identifying any unpaid interest
shortfall included;
(2) the amount of such distribution to holders of the Class M-1 notes
allocable to principal, separately identifying the aggregate amount of
any principal prepayments included;
(3) any amount by which the Class M-1 formula distribution amount exceeds
the Class M-1 distribution amount for the payment date;
(4) the principal balance of the Class M-1 note after giving effect to the
distribution of principal on the payment date;
(5) any unpaid Class M-1 liquidation loss interest amount, after giving
effect to payments of interest on the payment date;
(6) the senior percentage for the payment date;
(7) the pool scheduled principal balance for the payment date;
(8) the pool factor;
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(9) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a Class M-1 note with a 1% percentage interest or per $1,000
denomination of Class M-1 note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-1 noteholder
of record at any time during that calendar year as to the aggregate of amounts
reported under (1) and (2) above for that calendar year.
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class M-2 noteholder, a
statement in respect of the related payment date showing:
(1) the amount of the distribution to holders of the Class M-2 notes
allocable to interest, separately identifying any unpaid interest
shortfall included;
(2) the amount of the distribution to holders of the Class M-2 notes
allocable to principal, separately identifying the aggregate amount of
any principal prepayments included;
(3) any amount, by which the Class M-2 formula distribution amount exceeds
the Class M-2 distribution amount for the payment date;
(4) the principal balance of the Class M-2 notes after giving effect to
the distribution of principal on the payment date;
(5) any unpaid Class M-2 liquidation loss interest amount, after giving
effect to payments of interest on the payment date;
(6) the senior percentage for the payment date;
(7) the pool scheduled principal balance for the payment date;
(8) the pool factor;
(9) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a Class M-2 note with a 1% percentage interest or per $1,000
denomination of Class M-2 note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-2 noteholder
of record at any time during that calendar year as to the aggregate of amounts
reported pursuant to (1) and (2) above for that calendar year.
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The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class B-1 noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of the Class B-1 notes
allocable to interest, separately identifying any unpaid interest
shortfall included;
(2) the amount of the distribution to holders of the Class B-1 notes
allocable to principal, separately identifying the aggregate amount of
any principal prepayments included;
(3) any amount which the Class B-1 formula distribution amount exceeds the
Class B-1 distribution amount for the payment date;
(4) the principal balance of the Class B-1 notes after giving effect to
the distribution of principal on the payment date;
(5) any unpaid Class B-1 liquidation loss interest amount, after giving
effect to payments of interest on the payment date;
(6) the Class B percentage for the payment date;
(7) the pool scheduled principal balance for the payment date;
(8) the pool factor;
(9) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a class B-1 note with a 1% percentage interest or per $1,000
denomination of Class B-1 note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-1 noteholder
of record at any time during that calendar year as to the aggregate of amounts
reported under (1) and (2) above for that calendar year.
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class B-2 noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of Class B-2 notes allocable
to interest;
(2) the amount of the distribution to holders of Class B-2 notes allocable
to principal (separately identifying the aggregate amount of any
principal prepayments included);
(3) any amount by which the sum of the Class B-2 formula distribution
amount and the Class B-2 liquidation loss principal amount, if any,
exceeds the Class B-2 distribution amount for the payment date;
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(4) the Class B-2 liquidation loss principal amount for the payment date;
(5) the Class B-2 guaranty payment for the payment date;
(6) the Class B-2 principal balance after giving effect to the
distribution of principal on the payment date;
(7) the Class B percentage for the payment date;
(8) the pool scheduled principal balance for the payment date;
(9) the pool factor;
(10) the number and aggregate principal balance of loans delinquent (a)
30-59 days, (b) 60-89 days, and (c) 90 or more days; and
(11) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (3) will be expressed as
dollar amounts for a Class B-2 note with a 1% percentage interest or per $1,000
denomination of Class B-2 note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-2 noteholder
of record at any time during that calendar year as to the aggregate amounts
reported pursuant to (1) and (2) above for that calendar year.
Each of the foregoing statements will also be provided to the note insurer,
so long as the note insurance policy is in effect.
Conveyance of Contracts
On the closing date, we will establish the trust and transfer, assign, set
over and otherwise convey to the trust all our right, title and interest in the
home improvement loans and the home equity loans, including all principal and
interest received on or with respect to such loans, other than receipts of
principal and interest due on such loans before the cut-off date. The trust
will pledge each contract to the indenture trustee for the benefit of the
noteholders and the note insurer under the indenture.
The indenture trustee, concurrently with each conveyance, will execute and
deliver the notes to or upon our the order. The loans are described on a list
delivered to the trust and certified by a duly authorized officer of Green
Tree. The list includes the amount of monthly payments due on each contract as
of the date of issuance of the notes, the interest rate on each contract and
the maturity date of each contract. The list will be available for inspection
by any noteholder at our principal office. Before conveying the loans to the
trust, we will have completed a review of all the contract files, confirming
the accuracy of each item on the list of loans delivered to the indenture
trustee. We will repurchase any contract discovered not to agree with the list
in a manner that is materially adverse to the interests of the noteholders, or,
if the discrepancy relates to the unpaid principal balance of a contract, we
may deposit cash in the collection account in an amount sufficient to offset
the discrepancy.
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The indenture trustee will maintain possession of the loans and any other
documents contained in the contract files. Uniform Commercial Code financing
statements will be filed in Minnesota, reflecting the pledge and assignment of
the loans to the indenture trustee, and our accounting records and computer
systems will also reflect such pledge and assignment.
[Company Counsel], our counsel, will render an opinion to the indenture
trustee that the transfer of the loans from us to the trust would, in the event
we became a debtor under the United States Bankruptcy Code, be treated as a
true sale and not as a pledge to secure borrowings. If, however, the transfer
of the loans from us to the trust were treated as a pledge to secure our
borrowings, the distribution of proceeds of the loans to the trust might be
subject to the automatic stay provisions of the United States Bankruptcy Code,
which would delay the distribution of such proceeds for an uncertain period of
time. In addition, a bankruptcy trustee would have the power to sell the loans
if the proceeds of the sale could satisfy the amount of the debt deemed owed by
us, or the bankruptcy trustee could substitute other collateral in lieu of the
loans to secure the debt, or the debt could be subject to adjustment by the
bankruptcy trustee if we were to file for reorganization under Chapter 11 of
the United States Bankruptcy Code.
We will make representations and warranties in the sale and servicing
agreement about each contract, including that:
(1) for each contract as of the applicable cut-off date, the most recent
scheduled payment was made or was not delinquent more than 59 days;
(2) no provision of a contract has been waived, altered or modified in
any respect, except by instruments or documents included in the
contract file and reflected on the list of loans delivered to the
trust;
(3) 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;
(4) no contract is subject to any right of rescission, set-off,
counterclaim or defense;
(5) each contract was originated by a home improvement contractor or home
equity lender in the ordinary course of its business or was
originated by us directly;
(6) 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 pursuant to the pooling and servicing agreement or
the notes unlawful;
(7) each contract complies with all requirements of law;
(8) no contract has been satisfied, subordinated to a lower lien ranking
than its original position or rescinded;
(9) each contract creates a valid and perfected lien on the related real
estate;
(10) all parties to each contract had full legal capacity to execute the
contract;
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(11) no contract has been sold, conveyed and assigned or pledged to any
other person and we have good and marketable title to each contract
free and clear of any encumbrance, equity, lien, pledge, charge,
claim or security interest, and are the sole owner and have full
right to transfer the contract to the trust;
(12) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any contract, except for payment
delinquencies permitted by clauses (1) and (2) above, no event that
with notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under the contract, and we have not waived any of the
above;
(13) each contract is a fully-amortizing loan and provides for level
monthly payments based on its applicable contract rate, for the
final monthly payment, over the term of such contract;
(14) each contract contains customary and enforceable provisions such as
to render the rights and remedies of the holder adequate for
realization against the collateral;
(15) the description of each contract in the list delivered to the trust
is true and correct;
(16) there is only one original of each contract; and
(17) each contract was originated or purchased in accordance with our
then-current underwriting guidelines.
We will also make representations and warranties about the home improvement
loans in the aggregate, including that:
(1) the aggregate pool of home improvement loans have a contractual rate
of interest of at least %;
(2) no home improvement contract had a remaining term to maturity at
origination of more than months;
(3) no more than 1% of the home improvement loans, by principal balance
as of the cut-off date, were secured by properties located in an area
with the same zip code;
(4) no more than 5% of the home improvement loans, by principal balance
as of the cut-off date, were originated by any one contractor or
lender; and
(5) no adverse selection procedures were employed in selecting the home
improvement loans from our portfolio.
Under the terms of the sale and servicing agreement, we have agreed to
repurchase, at the repurchase price, any contract that is materially and
adversely affected by a breach of a representation and warranty regarding the
contract made in the sale and servicing agreement if the breach has not been
cured within 90 days of the day it was or should have been discovered by the
servicer or the indenture trustee. The repurchase price, with respect to any
contract to be so repurchased or with respect to a liquidated contract, means
the outstanding principal balance of the contract plus interest on the contract
at the interest rate, which will be the weighted average of the interest rates
of the related classes of notes, from the end of the due period with respect to
which the obligor last made a scheduled payment, without giving effect to any
advances made by the servicer or the indenture trustee, through the date
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of the repurchase or liquidation. This repurchase obligation constitutes the
sole remedy available to the trust and the noteholders for a breach of a
representation or warranty under the sale and servicing agreement regarding the
loans, but not for any other breach by us of our obligations under the sale and
servicing agreement.
Collection and Other Servicing Procedures
The servicer will manage, administer, service and make collections on the
loans, exercising the degree of skill and care consistent with the highest
degree of skill and care that the servicer exercises with respect to similar
contracts (including manufactured housing contracts) serviced by the servicer.
The servicer will not be required to cause to be maintained, or otherwise
monitor the maintenance of, hazard insurance on the improved properties. We do,
however, as a matter of our own policy, monitor proof of hazard insurance
coverage, other than flood insurance and require that we be named as an
additional loss payee on all first lien secured contracts and generally on
junior lien secured contracts with amounts financed of over $20,000.
Servicing Compensation and Payment of Expenses
The servicer will receive a monthly servicing fee for each due period, paid
on the next succeeding payment date for servicing the loans equal to one-
twelfth of the product of .75% and the remaining pool scheduled principal
balance of the loans.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust. The
servicer is also entitled to reimbursement out of the liquidation proceeds of a
liquidated contract for customary out-of-pocket liquidation expenses it incurs.
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 on each
contract. Administrative services performed by the servicer on behalf of the
trust include selecting and packaging the loans, calculating distributions to
noteholders and providing related data processing and reporting services for
noteholders and on behalf of the indenture trustee. Expenses incurred in
connection with the servicing of the loans and paid by the servicer from its
servicing fees include payment of fees and expenses of accountants, payments of
all fees and expenses incurred in the enforcement of loans or foreclosure on
related collateral, payment of trustee's fees, and payment of expenses incurred
in distributions and reports to noteholders.
Evidence as to Compliance
The sale and servicing agreement provides for delivery to the indenture
trustee of a monthly report by the servicer no later than one business day
following the determination date, setting forth the information described under
"Description of the Notes--Reports to the Noteholders." Each report to the
indenture trustee will be accompanied by a statement
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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 sale and servicing agreement. On or before May 1 of
each year, beginning in 2000, the servicer will deliver to the indenture
trustee a report of a nationally recognized accounting firm, stating that the
firm has examined documents and records relating to the servicing of loans
serviced by the servicer and stating that, on the basis of the examination, the
servicing has been conducted in compliance with the sale and servicing
agreement, except for any exceptions listed in report.
The sale and servicing agreement provides that the servicer shall furnish
to the indenture trustee and the note insurer such reasonably pertinent
underlying data as can be generated by the servicer's existing data processing
system without undue modification or expense.
The sale and servicing agreement provides that a noteholder holding notes
representing at least 5% of the aggregate principal balance will have the same
rights of inspection as the indenture trustee and may upon written request to
the servicer receive copies of all reports provided to the indenture trustee.
Certain Matters Relating to Green Tree
The sale and servicing agreement provides that we may not resign from our
obligations and duties as servicer, except upon a determination that our
performance of our duties is no longer permissible under the sale and servicing
agreement or applicable law, and prohibits us from extending credit to any
noteholder for the purchase of a note, purchasing notes in any agency or
trustee capacity or lending money to the trust. We can be removed as servicer
only in an event of termination as discussed below.
Repurchase Option
We, the servicer and the note insurer each will be permitted, at its
option, to purchase from the trust, on any distribution date immediately
following any monthly period as of the last day of which the pool scheduled
principal balance is equal to or less than 10% of the cut-off date pool
principal balance, all remaining loans and the other remaining trust property
at a price equal to the unpaid principal amount of the notes and certificates,
plus accrued and unpaid interest, provided that all amounts owed to the note
insurer are paid in full.
Administrator
Green Tree Financial Servicing Corporation, a Delaware corporation will
provide the notices and perform other administrative obligations required by
the indenture and the trust agreement. The administrator, one of our
subsidiaries, will enter into an administration agreement with the trust and
the indenture trustee relating to its duties and obligations as administrator.
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Registration of the Notes
The notes initially will be represented by certificates registered in the
name of Cede & Co., the nominee of DTC. The interests of beneficial owners of
the notes will be represented by book entries on the records of the
participating members of DTC. Definitive notes will be available only under the
limited circumstances described herein. Holders of the notes may hold through
DTC in the United States, CEDEL or Euroclear in Europe if they are participants
of these systems, or indirectly through organizations that are participants in
these systems.
CEDEL and Euroclear will hold omnibus positions in the notes on behalf of
the CEDEL participants and the Euroclear participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries, which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered under the provisions of Section 17A of the Exchange
Act. DTC accepts securities for deposit from its participating organizations
and facilitates the clearance and settlement of securities transactions between
participants in the securities through electronic book-entry changes in
accounts of participants, eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include other organizations.
Indirect access to the DTC system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
The beneficial owners of notes who are not participants but desire to
purchase, sell or otherwise transfer ownership of the notes may do so only
through participants unless and until definitive notes, are issued. In
addition, note owners will receive all distributions of principal of, and
interest on, the notes from the indenture trustee through DTC and participants.
Note owners will not receive or be entitled to receive certificates
representing their respective interests in the notes, except under the limited
circumstances described below.
Unless and until definitive notes are issued, it is anticipated that the
only noteholder of the notes will be Cede & Co., as nominee of DTC. Note owners
will not be recognized by the indenture trustee as noteholders as that term is
used in the sale and servicing agreement. Note owners are only permitted to
exercise the rights of noteholders indirectly through participants and DTC.
While notes are outstanding, except under the circumstances described
below, under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts for the notes and is required to receive
and transmit distributions of principal of, and interest on, the
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notes. Participants with whom note owners have accounts for notes are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective note owners. Accordingly, although
note owners will not possess certificates, the rules provide a mechanism by
which note owners will receive distributions and will be able to transfer their
interests.
Notes will be issued in registered form to note owners, or their nominees,
rather than to DTC, only if (1) DTC or Green Tree advises the indenture trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as nominee and depository with respect to the notes and Green
Tree or the indenture trustee is unable to locate a qualified successor or (2)
Green Tree at its sole option advises the indenture trustee in writing that it
elects to terminate the book-entry system through DTC. Upon issuance of
definitive notes to note owners, such notes will be transferable directly and
registered holders will deal directly with the indenture trustee with respect
to transfers, notices and distributions.
DTC has advised us that, unless and until definitive notes are issued, DTC
will take any action permitted to be taken by a noteholder under the sale and
servicing agreement only at the direction of one or more participants to whose
DTC accounts the notes are credited. DTC has advised us that DTC will take
action on any fractional interest of the notes only at the direction of and on
behalf of the participants beneficially owning a corresponding fractional
interest of the notes. DTC may take actions, at the direction of the
participants, on some notes which conflict with actions taken on other notes.
Issuance of notes in book-entry form rather than as physical certificates
may adversely affect the liquidity of the notes in the secondary market and the
ability of note owners to pledge them. In addition, since distributions on the
notes will be made by the indenture trustee to DTC and DTC will credit
distributions to the accounts of its participants, with the participants
further crediting distributions to the accounts of indirect participants or
note owners, note owners may experience delays in the receipt of distributions.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
participants or Euroclear participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its rules
and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. CEDEL participants
and Euroclear participants may not deliver instructions directly to the
depositaries.
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Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and credits or any transactions in the
securities settled during the processing will be reported to the relevant CEDEL
participant or Euroclear participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
participant or a Euroclear participant to a participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations, which
are called CEDEL participants, and facilitates the clearance and settlement of
securities transactions between CEDEL participants through electronic book-
entry changes in accounts of CEDEL participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in CEDEL in
any of 28 currencies, including United States dollars. CEDEL provides to its
CEDEL participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a CEDEL
participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in Euroclear in any of 32 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described in Annex I hereto. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office (the "Euroclear operator" or "Euroclear"), under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation. All
operations are conducted by the Euroclear operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear operator, not the cooperative. The cooperative establishes policy for
the Euroclear System on behalf of Euroclear participants. Euroclear
participants include banks, including central banks, securities brokers and
dealers and other professional financial intermediaries and may include the
underwriters. Indirect access to the Euroclear system is also available to
other
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firms that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments on securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the terms and conditions only on behalf of
Euroclear participants and has no record of or relationship with persons
holding through Euroclear participants.
Distributions on notes held through CEDEL or Euroclear will be credited to
the cash accounts of CEDEL participants or Euroclear participants in accordance
with the relevant system's rules and procedures, to the extent received by its
depositary. The distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. See "Certain Federal
Income Tax Consequences" in the prospectus and "Global Clearance, Settlement
and Tax Documentation Procedures" in Annex I to this prospectus supplement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
THE NOTE INSURER
[Insert information about note insurer here]
THE NOTE INSURANCE POLICY
Note Insurance Policy
The following summary of the terms of the note insurance policy does not
purport to be complete and is qualified in its entirety by reference to the
note insurance policy. A form of the note insurance policy may be obtained from
us upon request.
Simultaneously with the issuance of the notes, the note insurer will
deliver the note insurance policy to the indenture trustee for the benefit of
the Class A noteholders. Under the note insurance policy, the note insurer will
irrevocably and unconditionally guarantee
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payment on each payment date to the indenture trustee for the benefit of the
Class A noteholders of the insured payments for such payment date calculated in
accordance with the original terms of the Class A notes when issued and without
regard to any amendment or modification of the Class A notes, the indenture or
the sale and servicing agreement, except amendments or modifications to which
the note insurer has given its prior written consent. An insured payment for a
payment date, if any, will equal the amount by which the sum of:
(1) the current interest payable on the Class A notes; and
(2) the Class A principal deficiency amount (the amount by which the
principal balance of the Class A notes exceeds the scheduled
principal balance of the loans); and
(3) on the maturity date, the amount by which the unpaid principal
balance of the Class A notes exceeds the cash available to pay such
amount on that payment date (without regard to any insured payment to
be made with respect to such payment date).
Insured payments do not cover realized losses; provided, however, that the
note insurer is permitted at its sole option, but not required, to pay any
losses in connection with the liquidation of a contract in accordance with the
note insurance policy. Insured payments do not cover deficiencies resulting
from relief to debtors under the federal Soldiers' and Sailors' Civil Relief
Act of 1940. Nevertheless, the effect of the note insurance policy is to
guaranty the timely payments of interest on, and the ultimate payment of the
principal amount of, the Class A notes.
Payment of claims under the note insurance policy will be made by the note
insurer following receipt by the note insurer of the appropriate notice for
payment on the later to occur of (a) 12:00 noon, New York City time, on the
second business day following receipt of such notice for payment and (b) 12:00
noon, New York City time, on the relevant payment date.
If any payment of an amount guaranteed by the note insurer pursuant to the
note insurance policy is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, the note insurer will pay
such amount out of the funds of the note insurer on the later of:
(1) the date when due to be paid pursuant to the order referred to below;
or
(2) the first to occur of
(a) the fourth business day following receipt by the note insurer
from the indenture trustee of
(i) a certified copy of the order of the court or other
governmental body that exercised jurisdiction to the effect
that a noteholder is required to return principal or interest
distributed with respect to a note during the term of the
note insurance policy because such distributions were
avoidable preferences under applicable bankruptcy law;
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(ii) a certificate of the Class A noteholders(s) that the order
has been entered and is not subject to any stay; and
(iii) an assignment duly executed and delivered by the Class A
noteholder(s) in such form as is reasonably required by the
note insurer and provided to the Class A noteholder(s) by
the note insurer, irrevocably assigning to the note insurer
all rights and claims of the Class A noteholder(s) relating
to or arising under the Class A notes against the debtor
that made such preference payment or otherwise with respect
to such preference payment; and
(b) the date of receipt by the note insurer from the Indenture
trustee of the items referred to in clauses (i), (ii) and (iii)
above if, at least four business days prior to such date of
receipt, the note insurer shall have received written notice from
the indenture trustee that such items were to be delivered on
such date and such date was specified in such notice.
The payment shall be disbursed to the receiver, conservator, debtor-in-
possession or trustee in bankruptcy named in the order and not to the indenture
trustee or any Class A noteholder directly, (unless a Class A noteholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the order, in which case such payment shall
be disbursed to the indenture trustee for distribution to such noteholder upon
proof of such payment reasonably satisfactory to the note insurer).
The terms receipt and received, with respect to the note insurance policy,
mean actual delivery to the note insurer and to its fiscal agent appointed by
the note insurer at its option, if any, prior to 12:00 p.m., New York City
time, on a business day; delivery either on a day that is not a business day or
after 12:00 p.m., New York City time, shall be deemed to be receipt on the next
succeeding business day. If any notice or certificate given under the note
insurance policy by the indenture trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
received, and the note insurer or the fiscal agent shall promptly so advise the
indenture trustee and the indenture trustee may submit an amended notice.
Under the note insurance policy, business day means any day other than (1)
a Saturday or Sunday or (2) a day on which banking institutions in the City of
New York or the State of New York are authorized or obligated by law or
executive order to be closed. The note insurer's obligations under the note
insurance policy to make insured payments shall be discharged to the extent
funds are transferred to the indenture trustee as provided in the note
insurance policy, whether or not such funds are properly applied by the
indenture trustee.
The note insurer shall be subrogated to the rights of each Class A
noteholder to receive payments of principal and interest, as applicable, with
respect to distribution on the Class A notes to the extent of any payment by
the note insurer under the note insurance policy. To the extent the note
insurer makes insured payments, either directly or indirectly, to the Class A
noteholders, the note insurer will be subrogated to the rights of the Class A
noteholders,
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as applicable, with respect to such insured payment and shall be deemed to the
extent of the payment so made to be a registered Class A noteholder for
purposes of payment.
Claims under the note insurance policy will rank equally with any other
unsecured debt and unsubordinated obligations of the note insurer except for
certain obligations in respect of tax and other payments to which preference is
or may become afforded by statute. Claims against the note insurer under the
note insurance policy constitute pari passu claims against the general assets
of the note insurer. The terms of the note insurance policy cannot be modified
or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of Green Tree. The note insurance policy may not
be canceled or revoked prior to payment in full of the notes. The note
insurance policy is governed by the laws of the State of New York. The note
insurance policy is not covered by the Property/Casualty Insurance Security
Fund specified in Article 76 of the New York Insurance Law.
To the fullest extent permitted by applicable law, the note insurer agrees
under the note insurance policy not to assert, and waives, for the benefit of
each Class A noteholder, all of its rights whether by counterclaim, setoff or
otherwise and defense (including, without limitation, the defense of fraud),
whether acquired by subrogation, assignment or otherwise, to the extent that
such rights and defenses may be available to the note insurer to avoid payment
of its obligations under the note insurance policy in accordance with the
express provisions of the note insurance policy.
Under the terms of the sale and servicing agreement and the indenture,
unless a note insurer default exists, the note insurer will be deemed to be a
Class A noteholder for all purposes (other than with respect to payment on the
Class A notes), will be entitled to exercise all rights of the Class A
noteholders thereunder, without the consent of the noteholders, and the Class A
noteholders may exercise such rights only with the prior written consent of the
note insurer. In addition, the note insurer will have, as a third party
beneficiary to the sale and servicing agreement, among others, the following
rights:
(1) the right to give notices of breach or to terminate the rights and
obligations of the servicer under the sale and servicing agreement in
the event of a servicer termination event; as defined in the sale and
servicing agreement and to institute proceedings against the servicer;
(2) the right to consent to or direct any waivers of defaults by the
servicer;
(3) the right to remove the indenture trustee pursuant to the indenture;
(4) the right to direct the actions of the indenture trustee during the
continuation of a servicer default;
(5) the right to require us to repurchase loans for breach of
representation and warranty or defect in documentation;
(6) the right to direct all matters relating to a bankruptcy or other
insolvency proceeding involving us; and
(7) the right to direct the indenture trustee to investigate certain
matters.
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The note insurer's consent will be required prior to, among other things,
(a) the removal of the indenture trustee, (b) the appointment of any successor
indenture trustee or servicer or (c) any amendment to the sale and servicing
agreement.
We, the issuer and the note insurer will enter into an insurance and
indemnity agreement pursuant to which we will agree to reimburse, with
interest, the note insurer for amounts paid pursuant to claims under the note
insurance policy. We will further agree to pay the note insurer all reasonable
charges and expenses that the note insurer may pay or incur relative to any
amounts paid under the note insurance policy or otherwise in connection with
the transaction and to indemnify the note insurer against certain liabilities.
Except to the extent provided therein, amounts owing under the insurance
agreement will be payable solely from the trust estate. An event of default by
us under the insurance agreement will constitute a servicer termination event
under the sale and servicing agreement and allow the note insurer, among other
things, to direct the indenture trustee to terminate us or the servicer. See
"Administration, Removal and Resignation of the Servicer". An event of default
under the insurance agreement includes:
(1) Green Tree's or the issuer's failure to pay when due any amount owed
under the insurance agreement or certain other documents;
(2) the inaccuracy or incompleteness in any material respect of any
representation, or warranty of Green Tree or the issuer in the
insurance agreement, the sale and servicing agreement or certain other
documents;
(3) Green Tree's or the issuer's failure to perform or to comply with any
covenant or agreement in the insurance agreement, the sale and
servicing agreement and other documents;
(4) a finding or ruling by a governmental authority or agency that the
insurance agreement, the sale and servicing agreement or other
documents are not binding on us or the issuer;
(5) our failure to pay our debts in general or the occurrence of events of
insolvency or bankruptcy with respect to us or the issuer; and
(6) the occurrence of performance test violations designed to measure the
performance of the loans.
DESCRIPTION OF THE LIMITED GUARANTY
To mitigate the effect of the subordination of the Class B-2 notes and
liquidation losses and delinquencies on the loans, we will provide a guaranty
against losses that would otherwise be borne by the Class B-2 notes. Each
payment required to be made under the Class B-2 limited guaranty is referred to
as a Class B-2 guaranty payment. Before the Class B-1 cross-over date, and on
any payment date on or after the Class B-1 cross-over date on
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which a Class B principal distribution test is not satisfied, the Class B-2
guaranty payment will equal the amount by which:
(1) the sum of;
(a) the Class B-2 formula distribution amount for the payment date
which will be equal to accrued and unpaid interest on the Class
B-2 notes; and
(b) the Class B-2 liquidation loss principal amount, if any, for the
payment date exceeds;
(2) the Class B-2 distribution amount for the payment date. The Class B-2
liquidation loss principal amount for any payment date equals the
amount, if any, by which the sum of the Class A principal balance,
the Class M principal balance and the Class B principal balance for
such payment date exceeds the pool scheduled principal balance for
such payment date but in no event greater than the Class B-2
principal balance. The Class B-2 liquidation loss principal amount
is, in substance, the amount of delinquencies and losses experienced
on the loans during the related due period that was not absorbed by
the certificate and the related monthly servicing fee otherwise
payable to Green Tree, so long as we or one of our or any wholly
owned subsidiaries is the servicer on the loans. On each payment date
on or after the Class B-1 cross-over date, if each Class B principal
distribution test is satisfied on such payment date (or the Class A
principal balance and the Class M principal balance have been reduced
to zero), the Class B-2 guaranty payment will equal the amount, if
any, by which;
(a) the sum of
(i) the Class B-2 formula distribution amount for the payment
date, which will include both interest and principal; and
(ii) the Class B-2 liquidation loss principal amount for the
payment date exceeds;
(b) the Class B-2 distribution amount for the payment date.
The Class B-2 limited guaranty will be our unsecured general obligation and
will not be supported by any letter of credit or other credit enhancement
arrangement. The Class B-2 limited guaranty will not benefit in any way, or
result in any payment to, the Class A, Class M or Class B-1 noteholders.
CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of federal and state income tax
consequences relating to the purchase, ownership and disposition of the notes.
The discussion is based upon the current provisions of the IRS code, the
treasury regulations promulgated under the code, and judicial or ruling
authority, all of which are subject to change, which change may be retroactive.
See "Certain Federal Income Tax Consequences" and "Certain State Income Tax
Consequences" in the prospectus.
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You should consult your own tax advisors to determine the federal, state,
local and other tax consequences of the purchase, ownership and disposition of
the notes. You should note that no rulings have been or will be sought from the
IRS about any of the federal income tax consequences discussed herein or in the
accompanying prospectus, and no assurance can be given that the IRS will not
take contrary positions. Moreover, there are no cases or IRS rulings on
transactions similar to those we describe about the trust, involving both debt
and equity interests issued by a trust with terms similar to those of the notes
and the certificates.
In the opinion of [Company Counsel], for Federal and Minnesota income tax
purposes, the notes will be characterized as debt and the trust will not be
characterized as an association, or a publicly traded partnership taxable as a
corporation and neither the trust nor any portion of the trust will constitute
a taxable mortgage pool taxable as a corporation.
The Class A-1 and Class A-2 notes will not be issued with original issue
discount. Depending upon the price at which a substantial portion of a class of
notes is sold, the Class M-1, Class M-2 and Class B-1 notes may be issued with
OID.
The prepayment assumption that will be used in determining the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes will be 100% of the prepayment assumption. No
representation is made that the loans will prepay at that rate or any other
rate.
The notes will not be treated as assets described in Section 7701(a)(19)(C)
of the IRS code and "real estate assets" under Section 856(c)(4)(A) of the IRS
code. In addition, interest on the notes will not be treated as "interest on
obligations secured by mortgages on real property" under Section 856(c)(3)(B)
of the IRS code. The notes also will not be treated as "qualified mortgages"
under Section 860G(a)(3)(C) of the IRS code.
ERISA CONSIDERATIONS
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under "ERISA Considerations."
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended, and Section 4975 of the IRS code, prohibit a pension, profit-sharing
or other employee benefit plan, as well as individual retirement accounts and
some types of Keogh Plans (each a "Benefit Plan") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the IRS code with respect to such benefit plan. A
violation of these prohibited transaction rules may result in an excise tax or
other penalties and liabilities under ERISA and the IRS code for those persons.
Title I of ERISA also requires that fiduciaries of a benefit plan subject to
ERISA make investments that are prudent, diversified (except if prudent not to
do so) and in accordance with governing plan documents.
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Some transactions involving the purchase, holding or transfer of the notes
might be deemed to constitute prohibited transactions under ERISA and the IRS
code if assets of the trust were deemed to be assets of a benefit plan. Under a
regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the trust would be treated as plan assets of a
benefit plan for the purposes of ERISA and the IRS code only if the benefit
plan acquires an equity interest in the trust and none of the exceptions
contained in the plan assets regulation is applicable. An equity interest is
defined under the plan assets regulation as an interest other than an
instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. We believe that, as of the date of
this prospectus supplement, the notes should be treated as indebtedness without
substantial equity features for purposes of the plan assets regulation.
However, without regard to whether the notes are treated as an equity interest
for such purposes, the acquisition or holding of notes by or on behalf of a
benefit plan could be considered to give rise to a prohibited transaction if
the trust, the owner trustee or the indenture trustee, the owner of collateral,
the underwriters, or any of their respective affiliates is or becomes a party
in interest or a disqualified person with respect to such benefit plan. In this
case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of asset invested and the
position of the plan fiduciary making the decision to acquire a note. Included
among these exemptions are: Prohibited Transaction Class Exemption ("PTCE") 90-
1, regarding investments by insurance company pooled separate accounts; PTCE
91-38, regarding investments by bank collective investment funds; PTCE 84-14,
regarding transactions effected by qualified professional asset managers; and
PTCE 96-23, regarding transactions effected by in-house asset managers.
In addition, if the notes were treated as an equity interest in the future,
the assets of the trust could be treated as plan assets of a benefit plan for
the purposes of ERISA and the IRS code. In view of the investor-specific nature
of the conditions on the exemptive relief available under ERISA and the IRS
code, each investor should determine whether it is investing plan assets in the
notes and, if it is, should determine that appropriate exemptive relief from
ERISA's prohibited transaction provisions is available. By acquiring notes,
each purchaser will be deemed to represent that either (1) it is not acquiring
the note with the assets of a benefit plan; or (2) the acquisition and holding
of the note will not give rise to a nonexempt prohibited transaction under
Section 406(a) of ERISA or Section 4975 of the IRS code.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. The plans may, however, be subject to
the provisions of other applicable federal and state laws, including, for any
such governmental or church plan qualified under Section 401(a) of the IRS code
and exempt from taxation under Section 501(a) of the IRS code, the prohibited
transaction rules set forth in Section 503 of the IRS code.
A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the
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possibility of exemptive relief from the prohibited transaction rules and other
issues and their potential consequences.
EXPERTS
[Information to be supplied by note insurer.]
UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from Green Tree the respective principal
amounts of the notes set forth opposite their names below.
<TABLE>
<CAPTION>
Principal Principal
Amount of Amount of
Class Class
Underwriter A-1 Notes A-2 Notes
----------- ---------- ----------
<S> <C> <C>
[Underwriters]......................................... $ $
---------- ----------
Totals............................................... $ $
========== ==========
</TABLE>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions in the agreement, to purchase all of the Class A-1 and
Class A-2 notes offered hereby if any such notes are purchased. In the event of
a default by the underwriters, the underwriting agreement provides that, in
certain circumstances, the underwriting agreement may be terminated.
We have been advised by the underwriters that they propose initially to
offer the notes to the public at the respective offering prices set forth on
the cover page of this prospectus supplement and to certain dealers at such
price less a concession not in excess of the respective amounts set forth in
the table below (expressed as a percentage of the relative principal balance).
The underwriters may allow and such dealers may reallow a discount not in
excess of the respective amounts listed in the table below to other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1.............................................. % %
A-2.............................................. % %
</TABLE>
Neither we nor any of the underwriters makes any representations or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Class A-1 and Class A-2 notes. In
addition, neither we nor any of the underwriters makes any representation that
the underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Until the distribution of the Class A-1 and Class A-2 notes is completed,
rules of SEC may limit the ability of the underwriters and certain selling
group members to bid for and purchase the Class A-1 and Class A-2 notes. As an
exception to these rules, the underwriters are permitted to engage in certain
transactions that stabilize the price of the notes. These
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transactions consist of bids or purchases for the purposes of pegging, fixing
or maintaining the price of the Class A-1 and Class A-2 notes. In general,
purchases of a security for the purpose of stabilization could cause the price
of the security to be higher than it might without these purchases.
Subject to the terms and conditions set forth in an underwriting agreement
relating to the Class M and Class B-1 notes, the underwriters have agreed to
offer the Class M and Class B-1 notes on a best effort basis and we have agreed
to sell the Class M and Class B-1 notes if and when sold by the underwriters.
Each underwriting agreement provides that we will indemnify the
underwriters against liabilities, including liabilities under the Securities
Act of 1933, or contribute to payments the underwriters may be required to
make.
We have agreed that for a period of 30 days from the date of this
prospectus supplement we will not offer or sell publicly any other home
improvement contract or home equity loan pass-through certificates without the
consent of the underwriters.
Each of the underwriters or one of its affiliates has from time to time
provided or may in the future provide warehouse and other financing to us.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes will be passed
upon for Green Tree and the trust by [Company Counsel], Minnesota, and for the
Underwriters by Thacher Proffitt & Wood, New York, New York. The material
federal income tax consequences of the notes will be passed upon for Green Tree
by [Company Counsel].
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the certificates will be available
only in book-entry form (the "Global Certificates"). Investors in the global
certificates may hold such global certificates through any of DTC, CEDEL or
Euroclear. The global certificates will be tradeable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding global certificates
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding global certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding certificates will be effected on a delivery-against-
payment basis through the respective depositaries of CEDEL and Euroclear (in
such capacity) and DTC participants.
Non-U.S. holders (as described below) of global certificates will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All global certificates will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the global certificates
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global certificates through DTC will follow
the settlement practices applicable to United States corporate debt
obligations. Investors securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their global certificates through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global certificates will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
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Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL or Euroclear Participants. Secondary market trading
between CEDEL participants or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
certificates are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its depositary to receive the global
certificates against payment. Payment will include interest accrued on the
global certificates from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by such Depositary to
the DTC participant's account against delivery of the global certificates.
After settlement has been completed, the global certificates will be credited
to the applicable clearing system and by the clearing system, in accordance
with its usual procedures, to the CEDEL participant's or Euroclear
participant's account. The global certificates credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the global certificates will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the CEDEL or
Euroclear cash debit will be valued instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the global
certificates are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global certificates would incur overdraft charges for one day,
assuming they cleared the overdraft when the global certificates were credited
to their accounts. However, interest on the global certificates would accrue
from the value date. Therefore, in many cases the investment income on the
global certificates earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL participant's or Euroclear participant's particular cost
of funds.
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<PAGE>
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Certificates
to the respective depositary for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time zone
differences in their favor, CEDEL participants and Euroclear participants may
employ their customary procedures for transactions in which global certificates
are to be transferred by the respective clearing systems, through their
respective depositaries, to a DTC participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL participant or Euroclear
participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct their respective depositaries, as appropriate,
to deliver the certificates to the DTC participant's account against payment.
Payment will include interest accrued on the global certificates from and
including the last coupon payment date to and excluding the settlement date.
The payment will then be reflected in the account of the CEDEL participant or
Euroclear participant the following day, and receipt of the cash proceeds in
the CEDEL participant's or Euroclear participant's account would be back-valued
to the value date (which would be the preceding day, when settlement occurred
in New York). Should the CEDEL participant or Euroclear participant have a line
of credit with its clearing system and elect to be in debit in anticipation of
receipts of the sale proceeds in its account, the bank-valuation will
extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (i.e., the trade fails),
receipt of the cash proceeds in the CEDEL participant's or Euroclear
participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase global
certificates from DTC participants for delivery to CEDEL participants or
Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the global certificates in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the global
certificates sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the CEDEL
participant or Euroclear participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global certificates holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30%
A-3
<PAGE>
U.S. withholding tax that generally applies to payments of interest (including
original issue discount) on registered debt issued by U.S. persons, unless: (1)
each clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements; and (2) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of
certificates that are non-U.S. persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status) and a certificate under penalties of
perjury (the "Tax Certificate") that such beneficial owner is (i) not a
controlled foreign corporation (within the meaning of Section 957(a) of
the IRS Code) that is related (within the meaning of Section 846(d)(4) of
the IRS Code) to the trust or the transferor and (ii) not a 10%
shareholder (within the meaning of Section 871(h)(3)(B) of the IRS Code)
of the trust or the transferor. If the information shown on Form W-8 or
the tax certificate changes, a new Form W-8 or tax certificate, as the
case may be, must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (exemption from
withholding of tax on income effectively connected with the conduct of a
trade or business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners of
certificates residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (ownership, exemption or reduced rate
certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of certificates or
such owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (payer's
request for taxpayer identification number and certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global certificate or, in the case of a Form 1001 or a Form 4224 filer,
such owner's agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form W-8 and
Form 1001 are effective for three calendar years and Form 4224 is effective
for one calendar year.
The term "U.S. Person" means:
(1) a citizen or resident of the United States;
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<PAGE>
(2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof (except, in the
case of a partnership, to the extent provided in regulations);
(3) an estate the income of which is includible in gross income for United
States tax purposes, regardless of its source; or
(4) a trust other than a foreign trust within the meaning of Section 7701
(1)(31) of the IRS Code. To the extent prescribed in regulations by
the secretary of the treasury, which regulations have not yet been
issued, a trust which was in existence on August 20, 1996 (other than
a trust treated as owned by the grantor under Subpart E of Part 1 of
Subchapter J of Chapter 1 of the IRS Code), and which was treated as a
United States person on August 19, 1996, may elect to continue to be
treated as a United States person notwithstanding the previous
sentence. This summary does not deal with all aspects of U.S. federal
income tax withholding that may be relevant to foreign holders of the
global certificates. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and
disposing of the global certificates.
A-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Base Prospectus No. 5
Unsecured Home Improvement Loans
and High-LTV Home Equity Loans--Owner Trust
Green Tree Financial Corporation, Seller and Servicer
Home Improvement and Home Equity Loan Trusts
(Issuable In Series)
We are offering loan-backed notes and loan-backed certificates for home
improvement and home equity loans under this prospectus and a prospectus
supplement. We will form a trust for each series, and the trust will issue the
securities of that series. The securities of any series may comprise several
different classes. A trust may also issue one or more other interests in the
trust that will not be offered under this prospectus.
The right of each class of securities within a series to receive payments may
be senior or subordinate to the rights of one or more of the other classes of
securities. In addition, a series of securities may include one or more classes
which on the one hand are subordinated to one or more classes of securities,
while on the other hand are senior to one or more classes of securities. The
rate of principal and interest payment on the securities of any class will
depend on the priority of payment of that class and the rate and timing of
payments of the related home equity loans.
-----------
The securities will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
This prospectus may not be used to consummate sales of any securities unless
accompanied by the prospectus supplement relating to that series.
Prospectus dated , 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the securities in two separate documents that progressively
provide more detail: (1) this prospectus, which provides general information,
some of which many not apply to a particular series of securities, including
your series; and (2) the prospectus supplement for the particular terms of your
series of securities.
If the description of the terms of your series of securities varies between
this prospectus and the prospectus supplement, you should rely on the
information in your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
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<PAGE>
THE TRUSTS
For each series of securities, we will establish a trust under the related
trust documents. Before the sale and assignment of the related loans under the
related trust documents, the trust will have no assets or obligations. The
trust will not engage in any business activity other than acquiring and holding
the trust property, issuing the notes and the certificates, if any, of such
series and distributing payments.
Each note will represent an obligation of, and each certificate, if any, will
represent a fractional undivided interest in, the related trust. The trust
property of each trust will include:
(1) a loan pool,
(2) amounts as from time to time may be held in the collection account,
including all investments in the collection account and all income
from the investment of funds and all proceeds and certain other
accounts, including the proceeds,
(3) proceeds from FHA insurance, with respect to any FHA-insured home
improvement loan included in the loan pool,
(4) 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 securities,
(5) other rights under the trust documents and
(6) other property as may be specified in the related prospectus
supplement. See "The Loans" and "Description of the Trust Documents--
Collections."
The trust property will also include, if so specified in the related prospectus
supplement, monies on deposit in a pre-funding account to be established with
the indenture trustee or the trustee, which will be used to purchase subsequent
loans from us, and as frequently as daily, during the pre-funding period
specified in the related prospectus supplement. Any subsequent loans purchased
will be included in the related loan pool forming part of the trust property,
subject to the prior rights of the related indenture trustee and the
noteholders. In addition, to the extent specified in the related prospectus
supplement, a form of credit enhancement may be issued or held by the trustee
or the indenture trustee for the benefit of holders of one or more classes of
securities. Holders of securities of a series will have interests only in the
loan pool and will have no interest in the loan pool created with respect to
any other series of securities, except with respect to FHA insurance reserves.
Except as otherwise specified in the related prospectus supplement, we will
have originated all of the loans in the ordinary course of our business.
Specific information respecting the loans included in each trust will be
provided in the related prospectus supplement and, if not contained in the
related prospectus supplement, in a report on Form 8-K to be filed with the SEC
within fifteen days after the initial issuance of the securities. A copy of the
sale and servicing agreement for each series of securities 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 loans relating to that series
3
<PAGE>
will be attached to the sale and servicing agreement delivered to the trustee
upon delivery of the securities.
When we use terms in this prospectus such as loan pool, trust, sale and
servicing agreement, interest rate or pass-through rate, those terms apply,
unless the context otherwise indicates, to one specific loan pool and trust,
each sale and servicing agreement, each interest rate applicable to the related
class of notes and each pass-through rate applicable to the related class of
certificates.
The Contract Pools
Except as otherwise specified in the related prospectus supplement, the loan
pool will consist of home improvement contracts and promissory notes, and
closed-end home equity loans we originated on an individual basis in the
ordinary course of business. The home improvement loans may be conventional
home improvement contracts or contracts insured by FHA. The home improvement
loans will not be secured by any lien on the related real estate, and the home
equity loans may have a loan-to-value ratio substantially in excess of 100%.
Except as otherwise specified in the related prospectus supplement, the loans
will be fully amortizing and will bear interest at a fixed or variable annual
percentage rate.
For each series of securities, we will assign the loans constituting the loan
pool to the trustee named in the related prospectus supplement. We, as
servicer, will service the loans under the sale and servicing agreement. See
"Description of the Trust Documents--Servicing." Unless we specify otherwise in
the related prospectus supplement, the loan documents will be held by the
trustee or a custodian.
The related prospectus supplement will specify for the loans contained in the
related loan pool, the range of the dates of origination of the loans; the
range of the loan rates and the weighted average loan rate; the minimum and
maximum outstanding principal balances and the average outstanding principal
balance as of the cut-off date; the aggregate principal balance of the loans
included in the loan 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 range of original maturities of the loans and the last maturity date
of any loan; and the geographic location of improved real estate securing the
loans. If the trust includes a pre-funding account, the related prospectus
supplement will specify the conditions that must be satisfied before any
transfer of subsequent loans, including the requisite characteristics of the
subsequent loans.
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material respects of information furnished to the trustee for each such loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the securityholders in a loan, we will be obligated to
cure the breach in all material respects, or to repurchase or substitute for
the loan as described below. This repurchase obligation constitutes the sole
remedy available to the securityholders or the trustee for a breach of
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<PAGE>
representation or warranty by us. See "Description of the Trust Documents--Sale
and Assignment of the Loans."
The Trustee
The trustee for each trust will be specified in the related prospectus
supplement. The trustee's liability in connection with the issuance and sale of
the securities of such series will be limited solely to the express obligations
of such trustee described in the related trust documents. A trustee may resign
at any time, in which event the general partner will be obligated to appoint a
successor trustee. The general partner may also remove the trustee if the
trustee ceases to be eligible to continue as trustee under the related trust
documents or if the trustee becomes insolvent. In such circumstances, the
general partner will be obligated to appoint a successor trustee. Any
resignation or removal of a trustee and appointment of a successor trustee will
be subject to any conditions or approvals specified in the related prospectus
supplement and will not become effective until acceptance of the appointment by
the successor trustee.
GREEN TREE FINANCIAL CORPORATION
General
We are a Delaware corporation that, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Through our various
divisions, we purchase, pool, sell and service retail conditional sales
contracts for manufactured housing and retail installment sales contracts for
home improvements, a variety of consumer products and equipment finance, and
home equity loans. We are the largest servicer of government-insured
manufactured housing contracts and conventional manufactured housing contracts
in the United States. Servicing functions are performed through Green Tree
Financial Servicing Corporation, our wholly owned subsidiary. Through our
principal offices in St. Paul, Minnesota, and service centers throughout the
United States, we serve all 50 states. We began financing FHA-insured home
improvement loans in April 1989 and conventional home improvement loans in
September 1992. We also purchase, pool and service installment sales contracts
for various consumer products. Our principal executive offices are located at
1100 Landmark Towers, St. Paul, Minnesota 55102-1639 (telephone (651) 293-
3400). Our annual report on Form 10-K for the year ended December 31, 1998 and,
when available, subsequent quarterly and annual reports are available from us
upon written request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We are incorporating by reference the following documents into
this prospectus and the prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10-K for the
year ended December 31, 1998.
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<PAGE>
. Green Tree Financial Corporation's quarterly report on Form 10Q for
the quarter ended March 31, 1999.
All documents filed by the servicer, on behalf of any trust, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this prospectus and before the termination of the offering of the
securities issued by that trust, will be incorporated by reference into this
prospectus.
Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports and other information. You can read and copy these documents at the
public reference facility maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. You can also read and copy
such reports, proxy statements and other information at the following regional
offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Contract Origination
Home Improvement Contracts. Through our centralized loan processing
operations in St. Paul, Minnesota, we arrange to purchase contracts from home
improvement contractors located throughout the United States. Our regional
sales managers contact home improvement contractors and explain our available
financing plans, terms, prevailing rates and credit and financing policies. If
the contractor wishes to use our available customer financing, the contractor
must make an application for contractor approval. We have a contractor
approval process under to which the financial condition, business experience
and qualifications of the contractor are reviewed prior to his or her approval
to sell contracts to us. In addition, we have a centralized compliance group
which reviews and updates contractor financial condition and reviews
contractors on an annual basis to determine whether the contractor's approval
will be continued. We also review monthly contractor trend reports which show
the default and delinquency trends of the particular contractor on contracts
sold to us. We occasionally will originate directly a home improvement
promissory note involving a home improvement transaction.
All contracts that we originate are written on forms provided or approved by
us and are purchased on an individually approved basis in accordance with our
guidelines. The contractor submits the customer's credit application and
construction contract to our office where an analysis of the creditworthiness
of the customer is made using a proprietary credit scoring system that was
implemented by us in June 1993. If we determine that the application meets our
underwriting guidelines and applicable FHA regulations, for FHA-
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<PAGE>
insured contracts, and the credit is approved, we purchase the contract from
the contractor when the customer verifies satisfactory completion of the work,
or, in the case of staged funding, we follow up with the customer for the
completion certificate 90 days after funding.
The types of home improvements we finance include:
(1) exterior renovations, including windows, siding and roofing;
(2) pools and spas;
(3) kitchen and bath remodeling; and
(4) room additions and garages. We may also, under some limited
conditions, extend additional credit beyond the purchase price of the
home improvement for the purpose of debt consolidation.
The original principal amount of an unsecured FHA-insured home improvement
contract currently may not exceed $7,500 without specific FHA approval, with a
maximum term of 20 years. Some other criteria for home improvement contracts
eligible for FHA insurance are described under the caption "Description of FHA
Insurance."
We began financing conventional home improvement loans in September 1992.
Conventional home improvement loans are not insured by FHA. The unsecured
conventional program allows for an amount financed from $2,500 to $15,000,
except in Massachusetts where the loan limit may be $20,000. The allowable term
of unsecured contracts is 24 to 120 months. Our underwriting standards for
unsecured home improvement contracts are, in general, more stringent than its
underwriting standards for secured home improvement contracts with similar
terms. Eligible property includes an owner-occupied single family home, up to
four unit multiple-family dwelling, owner-occupied condominium or town house,
or an owner-occupied manufactured home located in a Green Tree-approved park or
attached to the real estate.
Home Equity Contracts. We have originated closed-end home equity loans since
January 1996. As of December 31, 1998, we had approximately $7,302,696,406
aggregate principal amount of outstanding closed-end home equity loans.
Through a system of regional offices, we market our home equity lending
directly to consumers using a variety of marketing techniques. We also review
and re-underwrite loan applications forwarded by correspondent lenders.
Our credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less favorable equity position, the
creditworthiness of the borrower must be stronger, or may be weaker. The loan-
to-value ratio of the requested loan, combined with any existing loans with a
senior lien position, may not exceed 95% without senior management approval. In
most circumstances, an appraisal of the property is required. Currently, loans
secured by a first
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<PAGE>
mortgage with an obligor having a superior credit rating may not exceed
$300,000 without senior management approval, and loans secured by a second
mortgage with an obligor having a superior credit rating may not exceed
$250,000 without senior management approval.
Loss and Delinquency Information
Each prospectus supplement will include our loss and delinquency experience
for our entire servicing portfolio of home improvement contracts and home
equity loans. We cannot assure you that this experience will be an indicator of
the performance of the loans included in a particular loan pool.
Ratio of Earnings to Fixed Charges for Green Tree
The table below describes our ratios of earnings to fixed charges for the
past five years. For the purposes of compiling these ratios, earnings consist
of earnings before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..................... 7.98 7.90 5.44 3.94 0.62
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to our merger with
Conseco, Inc.
YIELD CONSIDERATIONS
The interest rates, pass-through rates and the weighted average loan rate of
the loans, as of the related cut-off date relating to each series of securities
will be described in the related prospectus supplement.
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 securities 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 class of
securities that is offered at a premium to its principal amount or without any
principal amount.
The yield on some types of securities which may be offered, such as stripped
notes, interest only certificates, principal only certificates and fast
pay/slow pay certificates, may be particularly sensitive to prepayment rates,
and to changes in prepayment rates, on the underlying loans. If stated in the
related prospectus supplement, the yield on some types of securities which may
be offered could change and may be negative under some prepayment rate
scenarios. Accordingly, some types of securities may not be legal or
appropriate investments for some financial institutions, pension funds or
others. See "ERISA
8
<PAGE>
Considerations" and "Legal Investment Considerations." In addition, the timing
of changes in the rate of prepayment on the loans included in a loan 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 loans occur, the
greater the effect on the investor's yield to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise described in an applicable prospectus supplement, all of the
loans will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. FHA-
insured loans may be prepaid at any time without penalty. We have no
significant experience with respect to the rate of principal prepayments on
home improvement contracts and home equity loans. Because the loans have
scheduled due dates throughout the calendar month, and because, unless
otherwise specified in the related prospectus supplement, all principal
prepayments will be passed through to securityholders of the related series on
the payment date following the due period in which the principal prepayment
occurred, prepayments on the loans would affect the amount of funds available
to make distributions on the securities on any payment date only if a
substantial portion of the loans prepaid prior to their respective due dates in
a particular month, thus paying less than 30 days' interest for that due period
while very few loans prepaid after their respective due dates in that month. In
addition, liquidations of defaulted loans or the servicer's or Green Tree's
exercise of its option to repurchase the entire remaining pool of loans, see
"Description of the Trust Documents--Termination," will affect the timing of
principal distributions on the securities of a series.
Information regarding the prepayment standard or model or any other rate of
assumed prepayment will be described in the prospectus supplement for a series
of securities. Although the related prospectus supplement will specify the
prepayment assumptions used to price any series of securities, we cannot assure
you that the loans will prepay at that rate, and it is unlikely that
prepayments or liquidations of the loans will occur at any constant rate.
See "Description of the Trust Documents--Termination" for a description of
Green Tree's or the servicer's option to repurchase the loans comprising part
of a trust when the aggregate principal balance of the loans as of the related
cut-off date is less than a specified percentage of the cut-off date principal
balance of the loans. See also "The Trusts--The Loan Pools" for a description
of our obligations to repurchase a loan in case of a breach of a representation
or warranty relative to the loan.
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POOL FACTOR
The certificate pool factor for each class of certificates will be an eight-
digit decimal which the servicer will compute indicating the outstanding
balance with respect to the certificates as of each distribution date, after
giving effect to all distributions of principal made on such distribution date,
as a fraction of the original certificate balance of the certificates. The note
pool factor for each class of notes will be an eight-digit decimal which the
servicer will compute indicating the remaining outstanding principal balance
for such notes as of each distribution date, after giving effect to all
distributions of principal on the distribution date as a fraction of the
initial outstanding principal balance of the class of notes. Each certificate
pool factor and each note pool factor will initially be 1.00000000; thereafter,
the certificate pool factor and the note pool factor will decline to reflect
reductions in the certificate balance of the applicable class of certificates
or reductions in the outstanding principal balance of the applicable class of
notes, as the case may be. The amount of a certificateholder's pro rata share
of the certificate balance for the related class of certificates can be
determined by multiplying the original denomination of the certificateholder's
certificate by the then applicable certificate pool factor. The amount of a
noteholder's pro rata share of the aggregate outstanding principal balance of
the applicable class of notes can be determined by multiplying the original
denomination of the noteholder's note by the then applicable note pool factor.
For each trust and under the related trust documents, on each distribution
date or payment date, as the case may be, the related certificateholders and
noteholders will receive periodic reports from the trustee stating the
certificate pool factor or the note pool factor, as the case may be, and
containing various other items of information. Unless and until definitive
certificates or definitive notes are issued, the reports will be sent on behalf
of the trust to the trustee and the indenture trustee and Cede & Co., as
registered holder of the certificates and the notes and the nominee of DTC.
Certificate owners and note owners may receive such reports, upon written
request, together with a certification that they are certificate owners or note
owners and payment of any expenses associated with the distribution of the
reports, from the trustee and the indenture trustee at the addresses specified
in the related prospectus supplement. See "Certain Information Regarding the
Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless we specify otherwise in the related prospectus supplement, the net
proceeds to be received by the trust from the sale of each series of securities
will be used to pay to us the purchase price for the loans and to make the
deposit of the pre-funded amount into the pre-funding account, if any, to repay
warehouse lenders and/or to provide for other forms of credit enhancement
specified in the related prospectus supplement. The net proceeds we will
receive will be used for our general corporate purposes, including the
origination or acquisition of additional home improvement loan contracts and
home equity loans, costs of carrying such contracts until sale of the related
certificates and to pay other expenses connected with pooling the loans and
issuing the securities.
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<PAGE>
THE NOTES
General
For each series of securities, one or more classes of notes will be issued
under the terms of an indenture, a form of which has been filed as an exhibit
to the registration statement of which this prospectus forms a part. Unless we
specify otherwise in the related prospectus supplement, no notes will be issued
as a part of any series. The following summary does not claim to be complete
and is subject to, and is qualified in its entirety by reference to, all of the
provisions of the notes and the indenture, and the following summary will be
supplemented in whole or in part by the related prospectus supplement. Where
particular provisions of or terms used in the indenture are referred to, the
actual provisions are incorporated by reference as part of this summary.
Unless we specify otherwise in the related prospectus supplement, each class
of notes will initially be represented by a single note registered in the name
of the nominee of the depository. See "Certain Information Regarding the
Securities--Book-Entry Registration." Unless otherwise specified in the related
prospectus supplement, notes will be available for purchase in denominations of
$1,000 and in integral multiples of $1,000. Notes may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with the transfer or exchange. Unless
otherwise provided in the related prospectus supplement, the indenture trustee
will initially be designated as the registrar for the notes.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, interest
rate and amount of or method of determining payments of principal and interest
on the notes will be described in the related prospectus supplement. The right
of holders of any class of notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any class or classes
of notes of such series, or any class of certificates, as described in the
related prospectus supplement. Unless otherwise provided in the related
prospectus supplement, payments of interest on the notes will be made before
payments of principal. A series may include one or more classes of stripped
notes entitled to: (1) principal payments with disproportionate, nominal or no
interest payment, or (2) interest payments with disproportionate, nominal or no
principal payments. Each class of notes may have a different interest rate,
which may be a fixed, variable or adjustable interest rate, and which may be
zero for certain classes of stripped notes, or any combination of the
foregoing. The related prospectus supplement will specify the interest rate for
each class of notes, or the initial interest rate and the method for
determining the interest rate. One or more classes of notes of a series may be
redeemable under the circumstances specified in the related prospectus
supplement.
Unless we specify otherwise in the related prospectus supplement, payments
for interest to noteholders of all classes within a series will have the same
priority. Under some circumstances, the amount available for the payments could
be less than the amount of
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interest payable on the notes on any of the dates specified for payments in the
related prospectus supplement in which case each class of noteholders will
receive their ratable share, based upon the aggregate amount of interest due to
that class of noteholders, of the aggregate amount available to be distributed
for interest on the notes.
In the case of a series of securities which includes two or more classes of
notes, the timing, sequential order and priority of payment for principal and
interest, and any schedule or formula or other provisions applicable to the
determination, of each class will be set forth in the related prospectus
supplement. Unless we specify otherwise in the related prospectus supplement,
payments for principal and interest of any class of notes will be made on a pro
rata basis among all of the notes of that class.
The Indenture
A form of indenture has been filed as an exhibit to the registration
statement of which this prospectus is a part. We will provide a copy of the
applicable indenture, without exhibits, upon request to a holder of notes
issued.
Modification of Indenture Without Noteholder Consent. Each trust and related
indenture trustee, on behalf of the trust may, without consent of the related
noteholders, enter into one or more supplemental indentures for any of the
following purposes:
(1) to correct or amplify the description of the collateral or add
additional collateral;
(2) to provide for the assumption of the note and the indenture
obligations by a permitted successor to the trust;
(3) to add additional covenants for the benefit of the related
noteholders;
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(5) to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture;
(6) to provide for the acceptance of the appointment of a successor
indenture trustee or to add to or change any of the provisions of the
indenture or any supplemental indenture which may be inconsistent with
any other provision of the indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee;
(7) to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939, as amended; and
(8) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the indenture or modify in any manner the rights of
noteholders under the indenture; provided that any action specified in
this clause shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any related
noteholder unless noteholder consent is otherwise obtained as
described below.
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Modifications of Indenture With Noteholder Consent. For each trust, with the
consent of the holders representing a majority of the principal balance of the
outstanding related notes, the owner trustee and the indenture trustee may
execute a supplemental indenture to add provisions, to change in any manner or
eliminate any provisions of, the related indenture, or modify in any manner the
rights of the related noteholders.
Without the consent of the holder of each outstanding related note affected,
however, no supplemental indenture may:
(1) change the due date of any installment of principal of or interest on
any note or reduce the principal amount, the interest rate specified
or the redemption price or change the manner of calculating any
payment, any place of payment where, or the coin or currency in which
any note or any interest is payable;
(2) impair the right to institute suit for the enforcement of provisions
of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding notes
unless under certain circumstances the consent of the holders is
obtained.
(4) modify or alter the provisions of the indenture regarding the voting
of notes held by the related trust, any other obligor on the notes,
Green Tree or an affiliate of any of them;
(5) reduce the percentage of the aggregate outstanding amount of the notes
the consent of the holders of which is required to direct the
indenture trustee to sell or liquidate the loans if the proceeds of
the sale would be insufficient to pay the principal amount and accrued
but unpaid interest on the outstanding notes;
(6) decrease the percentage of the aggregate principal amount of the notes
required to amend the sections of the Indenture which specify the
applicable percentage of aggregate principal amount of the notes
necessary to amend the indenture or other related agreements; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture with respect to any of the collateral for
the notes or, except as otherwise permitted or contemplated in the
indenture, terminate the lien of the indenture on any collateral or
deprive the holder of any note of the security afforded by the lien of
the indenture.
Events of Default; Rights Upon Event of Default. With respect to each trust,
unless otherwise specified in the related prospectus supplement, events of
default under the indenture will consist of:
(1) a default for five days or more in the payment of interest on any
note;
(2) a default in the payment of the principal or any installment of the
principal of any note when the same becomes due and payable;
(3) a default in the observance or performance in any material respect of
any covenant or agreement of the trust made in the indenture, or any
representation or warranty
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made by the trust in the indenture or in any certificate delivered or
in connection with having been incorrect as of the time made, and the
continuation of any default or the failure to cure the breach of a
representation or warranty for a period of 30 days after notice is
given to the trust by the indenture trustee or to the trust and the
indenture trustee by the holders of at least 25% in principal amount
of the notes outstanding; or
(4) some events of bankruptcy, insolvency, receivership or liquidation of
the trust.
However, the amount of principal due and payable on any class of notes on any
payment date, before the final scheduled payment date, if any, for that class
will generally be determined by amounts available to be deposited in the note
distribution account for the payment date. As a result, unless otherwise
specified in the related prospectus supplement, the failure to pay principal
on a class of notes generally will not result in the occurrence of an event of
default unless that class of notes has a final scheduled payment date, and
then not until that final scheduled payment date for that class of notes.
Unless we specify otherwise in the related prospectus supplement, if an
event of default should occur and be continuing for the notes of any series,
the related indenture trustee or a note majority may declare the principal of
the notes to be immediately due and payable. This declaration may, under some
circumstances, be rescinded by a note majority.
Unless we specify otherwise in the related prospectus supplement, if the
notes of any series have been declared due and payable following an event of
default, the related indenture trustee may institute proceedings to collect
amounts due or foreclose on trust property, exercise remedies as a secured
party, sell the related loans or elect to have the trust maintain possession
of the loans and continue to apply collections on the loans as if there had
been no declaration of acceleration. Unless we specify otherwise in the
related prospectus supplement, the indenture trustee, however, will be
prohibited from selling the related loans following an event of default,
unless:
(1) the holders of all outstanding related notes consent to such sale;
(2) the proceeds of the sale are sufficient to pay in full the principal
and the accrued interest on the outstanding notes at the date of the
sale; or
(3) the indenture trustee determines the proceeds of the loans would not
be sufficient on an ongoing basis to make all payments on the notes as
the payments would have become due if the obligations had not been
declared due and payable, and the indenture trustee obtains the
consent of the holders of 66 2/3% of the aggregate outstanding amount
of the notes.
Unless we specify otherwise in the related prospectus supplement, following a
declaration upon an event of default that the notes are immediately due and
payable, (1) note owners will be entitled to ratable repayment of principal on
the basis of their respective unpaid principal balances and (2) repayment in
full of the accrued interest on and unpaid principal balances of the notes
will be made before any further payment of interest or principal on the
certificates.
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Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing for a series
of notes, the indenture trustee will be under no obligation to exercise any of
the rights or powers under the indenture at the request or direction of any of
the holders of the notes, if the indenture trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities which
might be incurred by it in complying with the request. Subject to the
provisions for indemnification and certain limitations contained in the
indenture, a note majority in a series will have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
indenture trustee, and a note majority may, in certain cases, waive any
default, except a default in the payment of principal or interest or a default
for a covenant or provision of the indenture that cannot be modified without
the waiver or consent of all of the holders of the outstanding notes.
No holder of a note of any series will have the right to institute any
proceeding with respect to the related indenture, unless:
(1) such holder previously has given to the indenture trustee written
notice of a continuing event of default;
(2) the holders of not less than 25% in principal amount of the
outstanding notes of such series have made written request of the
indenture trustee to institute such proceeding in its own name as
indenture trustee;
(3) the holder or holders have offered the indenture trustee reasonable
indemnity;
(4) the indenture trustee has for 60 days failed to institute the
proceeding; and
(5) no direction inconsistent with the written request has been given to
the indenture trustee during the 60-day period by the holders of a
majority in principal amount of the outstanding notes.
If an event of default occurs and is continuing and if it is known to the
indenture trustee, the indenture trustee will mail to each noteholder notice of
the event of default within 90 days after it occurs. Except in the case of a
failure to pay principal or interest on any note, the indenture trustee may
withhold the notice if it determines in good faith that withholding the notice
is in the interests of the noteholders.
In addition, each indenture trustee and the related noteholders, by accepting
the related notes, will covenant that they will not at any time institute
against the seller or the related trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
Neither the indenture trustee nor the trustee in its individual capacity, nor
any holder of a certificate including, without limitation, Green Tree, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of the related
notes or for any agreement or covenant of the related trust contained in the
indenture.
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Certain Covenants. Each indenture will provide that the related trust may not
consolidate with or merge into any other entity, unless:
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state;
(2) the entity expressly assumes the trust's obligation to make due and
punctual payments upon the notes and the performance or observance of
every agreement and covenant of the trust under the indenture;
(3) no event of default shall have occurred and be continuing immediately
after the merger or consolidation;
(4) the trustee has been advised that the current rating of the related
notes or certificates in effect would not be reduced or withdrawn by
the rating agencies as a result of the merger or consolidation;
(5) the trustee has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the trust or to any related note owner or certificate owner.
Each trust will not:
(1) except as expressly permitted by the indenture, the trust documents
or certain related documents for the trust, sell, transfer, exchange
or otherwise dispose of any of the assets of the trust,
(2) claim any credit or make any deduction from the principal and
interest payable for the related notes, other than amounts withheld
under the IRS Code or applicable state law or assert any claim
against any present or former holder of the notes because of the
payment of taxes levied or assessed upon the trust,
(3) dissolve or liquidate in whole or in part,
(4) permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations with respect to the related notes under such indenture
except as may be expressly permitted, or
(5) except as expressly permitted by the related documents, permit any
lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or
burden the assets of the trust or any part thereof, or any interest
or proceeds.
No trust may engage in any activity other than as specified under the section
of the related prospectus supplement entitled "The Trust." No trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred under the
related notes and the related indenture or otherwise in accordance with the
related documents.
Annual Compliance Statement. Each trust will be required to file annually
with the related indenture trustee a written statement as to the fulfillment of
its obligations under the indenture.
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Indenture Trustee's Annual Report. The indenture trustee will be required to
mail each year to all related noteholders a brief report relating to its
eligibility and qualification to continue as indenture trustee under the
related indenture, any amounts advanced by it under the indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the trust to
the indenture trustee in its individual capacity, the property and funds
physically held by the indenture trustee and any action taken by it that
materially affects the notes and that has not been previously reported. Note
owners may receive these reports upon written request, together with a
certification that they are note owners and payment of reproduction and postage
expenses associated with the distribution of the reports, from the indenture
trustee at the address specified in the related prospectus supplement.
Satisfaction and Discharge of Indenture. The indenture will be discharged
with respect to the collateral securing the related notes upon the delivery to
the related Indenture trustee for cancellation of all notes or, with certain
limitations, upon deposit with the indenture trustee of funds sufficient for
the payment in full of all of the notes.
The Indenture Trustee
The indenture trustee for a series of notes will be specified in the related
prospectus supplement. The indenture trustee may resign at any time, in which
event the seller will be obligated to appoint a successor trustee. We may also
remove the indenture trustee if the indenture trustee ceases to be eligible to
continue as such under the indenture or if the indenture trustee becomes
insolvent. In such circumstances, We will be obligated to appoint a successor
trustee. Any resignation or removal of the indenture trustee and appointment of
a successor trustee will be subject to any conditions or approvals, if any,
specified in the related prospectus supplement and will not become effective
until acceptance of the appointment by a successor trustee.
THE CERTIFICATES
General
A series of securities may include one or more classes of certificates issued
under trust documents to be entered into between Green Tree, as seller and as
servicer, and the trustee, forms of which have been filed as exhibits to the
registration statement of which this prospectus forms a part. The following
summary does not claim to be complete and is subject to, and is qualified in
its entirety by reference to, all of the material provisions of the trust
documents. Where particular provisions or terms used in the trust documents are
referred to, the actual provisions are incorporated by reference as part of
this summary.
If the certificates of a series are issued in more than one class, the
certificates of all or less than all of those classes may be sold under this
prospectus, and there may be separate prospectus supplements relating to one or
more of the classes sold. Any reference in this prospectus 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 under this prospectus. Any reference in this prospectus to the
certificates of a
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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 subclasses of that class.
Unless we specify otherwise in the related prospectus supplement, each class
of certificates will initially be represented by a single certificate
registered in the name of the nominee of DTC. See "Certain Information
Regarding the Securities--Book-Entry Registration." Unless otherwise specified
in the related prospectus supplement, the certificates evidencing interests in
a trust will be available for purchase in denominations of $1,000 initial
principal amount and integral multiples thereof, except that one certificate
evidencing an interest in the trust may be issued in a denomination that is
less than $1,000 initial principal amount. Certificates may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with such transfer or exchange.
Unless otherwise specified in the related prospectus supplement, the trustee
will initially be designated as the registrar for the certificates.
Distributions of Interest and Principal
The timing and priority of distributions, seniority, allocations of loss,
pass-through rate and amount of or method of determining distributions with
respect to principal and interest, or, where applicable, for principal only or
interest only, on the certificates of any series will be described in the
related prospectus supplement. Distributions of interest on the certificates
will be made on the dates specified in the related prospectus supplement and,
unless otherwise specified in the related prospectus supplement, will be made
prior to distributions with respect to principal. A series may include one or
more classes of certificates which are subordinated in right of distribution to
one or more other classes of 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 referred to as 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 describe, 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 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 those
certificateholders to
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receive current distributions from the loan pool. If a series of certificates
contains more than one class of subordinated certificates, losses will be
allocated among those classes in the manner described in the prospectus
supplement. If 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 under this prospectus and the prospectus
supplement.
If specified in a prospectus supplement, a series may include one or more
classes of certificates which:
(1) are entitled to receive distributions only in respect of principal,
interest or any combination thereof, or in specified proportions for
such payments; and/or
(2) are entitled to receive distributions for principal before or after
specified principal distributions have been made on one or more other
classes within such series, or on a planned amortization schedule or
targeted amortization schedule or upon the occurrence of other
specified events.
The prospectus supplement will describe the rate at which interest will be paid
to certificateholders of each class of a given series. Such pass-through rate
may be fixed, variable or adjustable, as specified in the related prospectus
supplement.
The related prospectus supplement will specify the pass-through rate for each
class of certificate, or the initial pass-through rate and the method for
determining the pass-through rate. Unless we specify otherwise in the related
prospectus supplement, interest on the certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Unless we specify
otherwise in the related prospectus supplement, distributions for the
certificates will be subordinate to payments for the notes, if any, as more
fully described in the related prospectus supplement. Distributions in respect
of principal of any class of certificates will be made on a pro rata basis
among all of the certificateholders of that class.
In the case of a series of certificates which includes two or more classes of
certificates, the timing, sequential order, priority of payment or amount of
distributions for principal, and any schedule or formula or other provisions
applicable to the determination, of each class shall be as described in the
related prospectus supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless otherwise provided in the related prospectus supplement, the
securities of each series will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
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organizations and facilitates the clearance and settlement of securities
transactions between participants in those securities through electronic book-
entry changes in accounts of participants, eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks and trust companies and clearing corporations and may include other
organizations. Indirect access to the DTC system is also available to banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Certificate owners and note owners who are not participants but desire to
purchase, sell or otherwise transfer ownership of securities may do so only
through participants unless and until definitive certificates or definitive
notes, are issued. In addition, certificate owners and note owners will receive
all distributions of principal of, and interest on, the securities from the
trustee or the indenture trustee, through DTC and participants. Certificate
owners and note owners will not receive or be entitled to receive certificates
representing their respective interests in the securities, except under the
limited circumstances described below and other circumstances as may be
specified in the related prospectus supplement.
Unless and until definitive securities are issued, it is anticipated that the
only certificateholder of the certificates and the only noteholder of the
notes, if any, will be Cede & Co., as nominee of DTC. Certificate owners and
note owners will not be recognized by the trustee as certificateholders or by
the indenture trustee as noteholders as those terms are used in the related
trust documents or indenture. Certificate owners and note owners will be
permitted to exercise the rights of certificateholders or noteholders only
indirectly through participants and DTC.
With respect to any series of securities, while the securities are
outstanding under the rules, regulations and procedures creating and affecting
DTC and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal of, and interest
on, the securities. Participants with whom certificate owners or note owners
have accounts for securities are similarly required to make book-entry
transfers and receive and transmit distributions on behalf of their respective
certificate owners and note owners. Accordingly, although certificate owners
and note owners will not possess securities, the rules provide a mechanism by
which certificate owners and note owners will receive distributions and will be
able to transfer their interests.
With respect to any series of securities, unless otherwise specified in the
related prospectus supplement, certificates, if any, and notes will be issued
in registered form to certificate owners and note owners, or their nominees,
rather than to DTC, only if:
(1) DTC, Green Tree or the servicer advises the trustee or the indenture
trustee, as the case may be, in writing that DTC is no longer willing
or able to discharge properly its responsibilities as nominee and
depository for the certificates or the notes, and Green Tree, the
servicer, the trustee or the indenture trustee, as the case may be, is
unable to locate a qualified successor;
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(2) Green Tree or the administrator, if any, at its sole option has
advised the trustee or the indenture trustee, as the case may be, in
writing that it elects to terminate the book-entry system through DTC;
and
(3) after the occurrence of a servicer termination event, the holders
representing a majority of the certificate balance or a note majority
advises the trustee or the indenture trustee through DTC, that
continuation of a book-entry system is no longer in their best
interests.
Upon issuance of definitive certificates or definitive notes to certificate
owners or note owners, such certificates or notes will be transferable
directly, and not exclusively on a book-entry basis and registered holders will
deal directly with the trustee or the indenture trustee with respect to
transfers, notices and distributions.
DTC has advised Green Tree that, unless and until definitive certificates or
definitive notes are issued, DTC will take any action permitted to be taken by
a certificateholder or a noteholder under the related trust documents or
indenture only at the direction of one or more participants to whose DTC
accounts the certificates or notes are credited. DTC has advised us that DTC
will take action with respect to any fractional interest of the certificates or
the notes only at the direction of and on behalf of those participants
beneficially owning a corresponding fractional interest of the certificates or
the notes. DTC may take actions, at the direction of the related participants,
for some certificates or notes which conflict with actions taken for other
certificates or notes.
Issuance of certificates and notes in book-entry form rather than as physical
certificates or notes may adversely affect the liquidity of certificates or
notes in the secondary market and the ability of the certificate owners or note
owners to pledge them. In addition, since distributions on the certificates and
the notes will be made by the trustee or the indenture trustee to DTC and DTC
will credit such distributions to the accounts of its participants, with the
participants further crediting such distributions to the accounts of indirect
participants or certificate owners or note owners, certificate owners and note
owners may experience delays in the receipt of distributions.
Statements to Securityholders
On or before each distribution date, the servicer will prepare and provide to
the trustee a statement to be delivered to the related certificateholders on
that distribution date. On or prior to each distribution date, the servicer
will prepare and provide to the indenture trustee a statement to be delivered
to the related noteholders on such distribution date. Such statements will be
based on the information in the related servicer's certificate listing some
information required under the trust documents. Unless we specify otherwise in
the related prospectus supplement, each statement to be delivered to
certificateholders will include the following information as to the
certificates for such distribution date or the period since the previous
distribution date, as applicable, and each such statement to be delivered to
noteholders will include the following information as to the notes for such
distribution date or the period since the previous distribution date:
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(1) the amount of the distribution allocable to interest on or for each
class of securities;
(2) the amount of the distribution allocable to principal on or for each
class of securities;
(3) the certificate balance and the certificate pool factor for each class
of certificates and the aggregate outstanding principal balance and
the note pool factor for each class of notes, after giving effect to
all payments reported under (2) above on that date;
(4) the amount of the monthly servicing fee paid to the servicer for the
related due period or periods;
(5) the pass-through rate or interest rate for the next period for any
class of certificates or notes with variable or adjustable rates;
(6) the amount of advances made by the servicer for such distribution
date, and the amount paid to the servicer on that distribution date as
reimbursement of advances made on previous distribution dates;
(7) the amount distributed to certificateholders and noteholders
applicable to payments under the related form of credit enhancement,
if any;
(8) our FHA insurance reserve amount;
(9) the number and aggregate principal balance of loans delinquent (i) 31-
59 days, (ii) 60-89 and (iii) 90 or more days;
(10) the number of loans liquidated during the due period ending
immediately before the payment date;
(11) such customary factual information as is necessary to enable
securityholders to prepare their tax returns; and
(12) such other information as may be specified in the prospectus
supplement.
Each amount described in subclauses (1), (2), (4) and (6) with respect to
certificates or notes will be expressed as a dollar amount per $1,000 of the
initial certificate balance or the initial principal balance of the notes.
Unless and until definitive certificates or definitive notes are issued, the
reports with respect to a series of securities will be sent on behalf of the
related trust to the trustee, the indenture trustee and Cede & Co., as
registered holder of the certificates and the notes and the nominee of DTC.
Certificate owners and note owners may receive copies of the reports upon
written request, together with a certification that they are certificate owners
or note owners, as the case may be, and payment of reproduction and postage
expenses associated with the distribution of the reports, from the trustee or
the indenture trustee. See "Reports to Securityholders" and "--Book-Entry
Registration" above.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year during the term of a trust, the trustee and the indenture
trustee will mail to
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each holder of a class of securities who at any time during that calendar year
has been a securityholder, and received any payment, a statement containing
information for the purposes of that securityholder's preparation of federal
income tax returns. DTC will convey that information to its participants, who
in turn will convey that information to their related indirect participants in
accordance with arrangements among DTC and those participants. Certificate
owners and note owners may receive the reports upon written request, together
with a certification that they are certificate owners or note owners and
payment of reproduction and postage expenses associated with the distribution
of that information, from the trustee, for certificate owners, or from the
indenture trustee, for note owners, at the addresses specified in the related
prospectus supplement. See "Certain Federal Income Tax Consequences."
Lists of Securityholders
Unless we state otherwise in the prospectus supplement, for each series of
certificates, at such time, if any, as definitive certificates have been
issued, the trustee will, upon written request by three or more
certificateholders or one or more holders of certificates evidencing not less
than 25% of the certificate balance, within five business days after provision
to the trustee of a statement of the applicants' desire to communicate with
other certificateholders about their rights under the regarding trust documents
or the certificates and a copy of the communication that the applicants propose
to transmit, afford the certificateholders access during business hours to the
current list of certificateholders for purposes of communicating with other
certificateholders with respect to their rights under the trust documents.
Unless otherwise specified in the prospectus supplement, the trust documents
will not provide for holding any annual or other meetings of
certificateholders.
Unless otherwise provided in the prospectus supplement, for each series of
notes, at such time as definitive notes have been issued, the indenture trustee
will, upon written request by three or more noteholders or one or more holders
of notes evidencing not less than 25% of the aggregate principal balance of the
related notes, within five business days after provision to the indenture
trustee of a statement of the applicants' desire to communicate with other
noteholders about their rights under the related indenture or the notes and a
copy of the communication that the applicants propose to transmit, afford such
noteholders access during business hours to the current list of noteholders for
purposes of communicating with other noteholders with respect to their rights
under the indenture. Unless we specify otherwise in the prospectus supplement,
the indenture will not provide for holding any annual or other meetings of
noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as otherwise specified in the prospectus supplement, the following
summary describes terms of the sale and servicing agreements and the trust
agreements under which we will sell and assign the loans to a trust and the
servicer will agree to service the loans on behalf of the trust, and pursuant
to which the trust will be created and certificates will be issued. Forms of
the trust documents have been filed as exhibits to the registration statement
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of which this prospectus forms a part. We will provide a copy of those
agreements upon request to a holder of securities. This summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the trust documents. Where particular
provisions or terms used in the trust documents are referred to, the actual
provisions are incorporated by reference as part of that summary.
Sale and Assignment of the Loans
On the closing date, we will sell and assign to the trust, without recourse,
our entire interest in the related loans, including all principal and interest
received on or for the loans other than receipts of principal and interest due
on the loans before the cut-off date. Each loan transferred by us to the trust
will be identified in a schedule appearing as an exhibit to the trust
documents. Concurrently with the sale and assignment, the trustee will execute
and the indenture trustee will authenticate and deliver the notes to or upon
our order and the trustee will execute and deliver the related certificates
representing the certificates, if any, to or upon our order.
The schedule of loans will include the amount of monthly payments due on each
loan as of the date of issuance of the securities, the loan rate on each loan
and the maturity date of each loan. The list will be available for inspection
by any securityholder at the principal executive office of the servicer. Before
the conveyance of the loans to the trustee, our internal audit department will
complete a review of all of the loan files confirming the accuracy of the list
of loans delivered to the trustee. Any loan discovered not to agree with that
list in a manner that is materially adverse to the interests of the
securityholders will be repurchased or substituted for by us, or, if the
discrepancy relates to the unpaid principal balance of a loan, we may deposit
cash in the separate account maintained at an eligible institution in the name
of the trustee in an amount sufficient to offset the discrepancy. If the trust
includes a pre-funding account, the prospectus supplement will specify the
conditions that must be satisfied any transfer of subsequent loans, including
the requisite characteristics of the subsequent loans.
Unless we specify otherwise in the prospectus supplement, the trustee or its
custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and our accounting records and computer systems will also reflect the
sale and assignment.
Our counsel identified in the prospectus supplement will render an opinion to
the trustee that the transfer of the loans from us to the trust would, in the
event we became a debtor under the United States Bankruptcy Code, be treated as
a true sale and not as a pledge to secure borrowings. If the transfer of the
loans from us to the trust were treated as a pledge to secure our borrowings,
the distribution of proceeds of the loans to the trust might be subject to the
automatic stay provisions of the United States Bankruptcy Code, which would
delay the distribution of the proceeds for an uncertain period of time. In
addition, a bankruptcy trustee would have the power to sell the loans if the
proceeds of the sale could satisfy the amount of the debt deemed owed by us, or
the bankruptcy trustee could substitute other
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collateral in lieu of the loans to secure that debt, or that debt could be
subject to adjustment by the bankruptcy trustee if Green Tree were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code.
Unless we specify otherwise in the prospectus supplement, we will make
representations and warranties in the sale and servicing agreement for each
loan as of the related closing date, including that:
(1) as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
(2) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(3) each loan 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;
(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each FHA-insured home improvement loan was originated in accordance
with applicable FHA regulations and is insured, without set off,
surcharge or defense, by FHA insurance;
(6) each loan was either (a) entered into by a home improvement contractor
in the ordinary course of such contractor's business and, immediately
upon funding, assigned to us or (b) was originated by a home equity
lender in the ordinary course of such lender's business and assigned
to us or (c) was originated by us directly;
(7) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest therein pursuant to the sale and servicing agreement or the
securities unlawful;
(8) each loan complies with all requirements of law;
(9) no loan has been satisfied, subordinated to a lower lien ranking than
its original position, if any, or rescinded;
(10) all parties to each loan had full legal capacity to execute such
loan;
(11) no loan has been sold, conveyed and assigned or pledged to any other
person and Green Tree has good and marketable title to each loan free
and clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to the trustee;
(12) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clause (1) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under loan, and we have not waived any of the foregoing;
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(13) each loan is a fully-amortizing loan with a fixed rate of interest
and provides for level payments over the term of the loan;
(14) the description of each loan described in the list delivered to the
trustee is true and correct;
(15) there is only one original of each loan; and
(16) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
Our warranties will be made as of the execution and delivery of the trust
documents and will survive the sale, transfer and assignment of the related
loans and other trust property to the trust but will speak only as of the date
made.
Under the terms of the sale and servicing agreement, if we become aware of a
breach of any representation or warranty that materially adversely affects the
interests of the note owners, the certificate owners, or the related trust in
any loan, or receive written notice of such a breach from the trustee or the
servicer, then we will be obligated either to cure that breach or to repurchase
or, if so provided in the related prospectus supplement, substitute for the
affected loan, in each case under the conditions further described and in the
prospectus supplement. This repurchase obligation will constitute the sole
remedy available to the trust and the securityholders for a breach of a
representation or warranty under the sale and servicing agreement for the
loans, but not for any other breach by us of our obligations under the sale and
servicing agreement.
The purchase amount of a loan at any time means the outstanding principal
amount of that loan, without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable loan rate on that loan from the
end of the due period for which the obligor last made a payment, without giving
effect to any advances made by the servicer or the trustee through the end of
the immediately preceding due period.
Upon the purchase by us of a loan due to a breach of a representation or
warranty, the trustee will convey that loan and the related trust property to
us.
Collections
With respect to each trust, the servicer will establish one or more
collection accounts in the name of the indenture trustee for the benefit of the
related securityholders. If specified in the prospectus supplement, the
indenture trustee will establish and maintain for each series an account, in
the name of the indenture trustee on behalf of the noteholders, in which
amounts released from the collection account and any pre-funding account and
any amounts received from any source of credit enhancement for payment to those
noteholders will be deposited and from which all distributions to those
noteholders will be made. For any series including one or more classes of
certificates, the trustee will establish and maintain for each series an
account, in the name of the trustee on behalf of the related
certificateholders, in which amounts released from the collection account and
any pre-funding account and any amounts received from any source of credit
enhancement for distribution to certificateholders
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will be deposited and from which all distributions to certificateholders will
be made. The collection account, the certificate distribution account, and the
note distribution account, are referred to herein collectively as the
"Designated Accounts." Any other accounts to be established with respect to a
trust will be described in the prospectus supplement.
Each designated account will be an eligible account maintained with the
trustee, the indenture trustee and/or other depository institutions. Eligible
account means any account which is:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the trustee, which depository institution or trust
company has capital and surplus, or, if such depository institution or
trust company is a subsidiary of a bank holding company system, the
capital and surplus of the bank holding company, of not less than
$50,000,000 and the securities of such depository institution, or, if
such depository institution is a subsidiary of a bank holding company
system and such depository institution's securities are not rated, the
securities of the bank holding company, has a credit rating from each
rating agency rating such series of notes and/or certificates in one
of its generic credit rating categories which signifies investment
grade; or
(4) an account that will not cause any rating agency to downgrade or
withdraw its then-current rating assigned to the securities, as
confirmed in writing by each rating agency.
Eligible institution means any depository institution organized under the laws
of the United States or any state, the deposits of which are insured to the
full extent permitted by law by the Bank Insurance Fund, currently administered
by the Federal Deposit Insurance Corporation, whose short-term deposits have
been rated in one of the two highest rating categories or such other rating
category as will not adversely affect the ratings assigned to the securities of
the series. On the closing date specified in the prospectus supplement, the
servicer will cause to be deposited in the collection account all payments on
the loans received by the servicer after the cut-off date and on or before the
second business day preceding the closing date.
Unless we specify otherwise in the prospectus supplement, the servicer will
deposit in the collection account on a daily basis all proceeds and collections
received or made by it for the related loans 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, including:
(1) all obligor payments on account of principal, including principal
prepayments, on the loans;
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(2) all obligor payments on account of interest on the loans;
(3) all FHA insurance payments received by the servicer;
(4) all amounts received and retained in connection with the liquidation
of defaulted loans;
(5) any advances made as described under "Advances" below and other
amounts required under the sale and servicing agreement to be
deposited in the collection account;
(6) all amounts received from any credit enhancement provided a series of
securities; and
(7) all proceeds of any loan or property acquired in respect thereof
repurchased by the servicer or Green Tree, as described under "Sale
and Assignment of the Loans" above or under "Repurchase Option" below.
Notwithstanding the foregoing and unless we provide otherwise in the
prospectus supplement, the servicer may utilize an alternative remittance
schedule, if the servicer provides to the trustee and the indenture trustee
written confirmation from each rating agency that such alternative remittance
schedule will not result in the downgrading or withdrawal by such rating agency
of the rating(s) then assigned to the securities. Green Tree will also deposit
into the collection account on or before the deposit date the purchase amount
of each loan to be purchased by it for breach of a representation or warranty.
For any series of securities, funds in the designated accounts and any other
accounts identified in the prospectus supplement will be invested, as provided
in the trust documents, at the direction of the servicer in United States
government securities and certain other high-quality investments meeting the
criteria specified in the trust documents ("Eligible Investments"). Eligible
investments shall mature no later than the business day preceding the
applicable distribution date for the due period to which the amounts relate.
Investments in eligible investments will be made in the name of the trustee or
the indenture trustee and such investments will not be sold or disposed of
prior to their maturity.
Unless otherwise specified in the prospectus supplement, collections or
recoveries on a loan, other than late fees or other similar fees or charges
received during a due period and purchase amounts deposited with the trustee
before a distribution date will be applied first to any outstanding advances
made by the servicer for the loan, and then to interest and principal on the
loan in accordance with the terms of the loan.
Servicing
Under the sale and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as more fully described below. The
servicer will perform diligently all services and duties specified in each sale
and servicing agreement, in the same manner as prudent lending institutions of
home improvement contracts of the same type as the loans in those jurisdictions
where the related real properties are located or as otherwise specified in the
sale and servicing agreement. The duties to be performed by the servicer will
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include collection and remittance of principal and interest payments, as well
as submission of FHA insurance claims where applicable.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the sale and servicing agreement and any
FHA insurance, will follow the collection procedures for the loans as it
follows with respect to loans or contracts serviced that are comparable to the
loans.
Evidence as to Compliance. Unless we specify otherwise in the prospectus
supplement, each sale and servicing agreement will require the servicer to
deliver to the trustee a monthly report before each payment date, describing
information regarding the loan pool and the securities of the series as is
specified in the prospectus supplement. Each report to the trustee will be
accompanied by a statement from an appropriate officer of the servicer
certifying the accuracy of the report and stating that the servicer has not
defaulted in the performance of its obligations under the sale and servicing
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 the
firm has examined documents and records for the servicing of home improvement
contracts serviced by the servicer under agreements similar to the sale and
servicing agreement and stating that the servicing has been conducted in
compliance with the sale and servicing agreement, except for any exceptions
described in the report.
Certain Matters Regarding the Servicer. The servicer may not resign from its
obligations and duties under a sale and servicing agreement except upon a
determination that its duties 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 the sale and
servicing agreement. The servicer can only be removed as servicer upon the
occurrence of an event of termination as discussed below.
The servicer shall keep in force throughout the term of the sale and
servicing agreement:
. a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the sale and servicing
agreement, and
. a fidelity bond.
The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home
improvement contracts having an aggregate principal amount of $10 million or
more and which are generally regarded as servicers acceptable to institutional
investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which we may assign for each due period, paid on the next
succeeding payment date equal to 1/12th of the product of the annual servicing
fee rate described in the applicable prospectus supplement and the aggregate
principal balance for the payment date. As long as we are the servicer, the
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trustee will pay us its monthly servicing fee from any monies remaining after
the securityholders have received all payments of principal and interest for
the payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include:
. collecting and recording payments,
. communicating with obligors,
. investigating payment delinquencies,
. providing billing and tax records to obligors, and
. maintaining internal records with respect to each loan.
Administrative services performed by the servicer on behalf of the trust
include:
. selecting and packaging the loans,
. calculating distributions to securityholders, and
. providing related data processing and reporting services for
securityholders and on behalf of the trustee.
Expenses incurred in connection with servicing of the loans and paid by Green
Tree from its monthly servicing fees include:
. payment of FHA Insurance premiums,
. payment of fees and expenses of accountants,
. payments of all fees and expenses incurred in connection with the
enforcement of loans, including submission of FHA Insurance claims, if
applicable or payment of trustee's fees, and
. payment of expenses incurred in connection with distributions and
reports to securityholders, except that the servicer shall be
reimbursed out of the liquidation proceeds of a liquidated loan,
including FHA Insurance proceeds for customary out-of-pocket
liquidation expenses incurred.
Events of Termination. Unless we specify otherwise in the prospectus
supplement, events of termination under each sale and servicing agreement will
occur if:
(1) any failure by the servicer to deliver to the indenture trustee for
distribution to the noteholders or to the trustee for distribution to
the certificateholders any required payment which continues unremedied
for 5 days, or such other period specified in the prospectus
supplement, after the giving of written notice;
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(2) any failure by the servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the trust
documents that materially and adversely affects the interests of
securityholders, which, in either case, continues unremedied for 30
days after the giving of written notice of the failure or breach;
(3) any assignment or delegation by the servicer of its duties or rights
under the trust documents, except as specifically permitted under the
trust documents, or any attempt to make such an assignment or
delegation;
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the servicer;
(5) the servicer is no longer an eligible servicer, as defined in the
trust documents; or
(6) if Green Tree is the servicer, Green Tree's receiving rights under its
master seller-servicer contract with GNMA are terminated. Notice means
notice to the servicer by the trustee, the indenture trustee, or Green
Tree, or to Green Tree, the servicer, the indenture trustee, and the
trustee by the holders of securities representing interests
aggregating not less than 25% of the outstanding principal balance of
the securities issued by the trust.
Unless otherwise specified in the prospectus supplement, if a servicer
termination event occurs and is continuing, the trustee, the indenture trustee
or the holders of at least 25% in aggregate principal balance of the
outstanding securities issued by the trust, by notice given in writing to the
servicer, and to the trustee and the indenture trustee if given by the
securityholders, may terminate all of the rights and obligations of the
servicer under the trust documents. Immediately upon the giving of such notice,
and, in the case of a successor servicer other than the trustee, the acceptance
by such successor servicer of its appointment, all authority of the servicer
will pass to the trustee or other successor servicer. The trustee, the
indenture trustee and the successor servicer may set off and deduct any amounts
owed by the servicer from any amounts payable to the outgoing servicer.
On and after the time the servicer receives a notice of termination, the
trustee or other successor servicer specified in the prospectus supplement will
be the successor in all respects to the servicer and will be subject to all the
responsibilities, restrictions, duties and liabilities of the servicer under
the trust documents; provided, however, that the successor servicer shall have
no liability with respect to any obligation which was required to be performed
by the prior servicer before the date that the successor servicer becomes the
servicer or any claim of a third party, including a securityholder based on any
alleged action or inaction of the prior servicer.
In addition, the trustee will notify FHA of Green Tree's termination as
servicer of the loans and will request that the portion of Green Tree's FHA
insurance reserves allocable to the FHA-insured loans be transferred to the
trustee or a successor servicer. See "Description of FHA Insurance."
Notwithstanding such termination, the servicer will be entitled to payment of
amounts payable to it before such termination, for services rendered before
such termination. No such termination will affect Green Tree's obligation to
repurchase loans for breaches of representations or warranties under the trust
documents. In the event that the
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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 appointment, the trustee is obligated
to act in that capacity. The trustee and 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 trust documents without the consent of all of the
securityholders.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the sale and servicing agreement at the
request, order or direction of any of the holders of securities, unless the
securityholders have offered to the trustee reasonable security or indemnity
against the costs, expenses and liabilities which the trustee may incur.
Green Tree, as servicer, will be required to pay all expenses incurred by it
in connection with its servicing activities, including fees, expenses and
disbursements of the trustee, the indenture trustee, the custodian and
independent accountants, taxes imposed on the servicer and expenses incurred in
connection with distributions and reports to certificateholders and
noteholders, except some expenses incurred in connection with realizing upon
the loans.
Upon any termination of, or appointment of a successor to, the servicer, the
trustee and the indenture trustee will each give prompt written notice to
certificateholders and noteholders at their respective addresses appearing in
the certificate register or the note register and to each rating agency.
Distributions
For each trust, beginning on the distribution date specified in the
prospectus supplement, distributions of principal and interest, or of principal
or interest only, on each class of securities entitled under this prospectus
will be made by the trustee or the indenture trustee, as applicable, to the
certificateholders and the noteholders. The timing, calculation, allocation,
order, source, priorities of and requirements for all distributions to each
class of certificateholders and all payments to each class of noteholders will
be described in the prospectus supplement.
Unless we specify otherwise in the prospectus supplement, on the third
business day before each distribution date, the servicer will determine the
amount available and the amounts to be distributed on the notes and
certificates for that distribution date. Unless we specify otherwise in the
prospectus supplement, the amount available for any distribution date will be
equal to:
(1) the funds on deposit in the collection account at the close of
business on the last day of the related due period; plus
(2) any advances to be made by the servicer for delinquent payments; plus
(3) any purchase amounts to be deposited by Green Tree for loans to be
repurchased due to a breach of a representation or warranty; minus
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(4) any amounts paid by obligors in the related due period, but to be
applied in respect of a regular monthly payment due in a subsequent
due period; minus
(5) any amounts incorrectly deposited in the collection account.
Unless we specify otherwise in the prospectus supplement, on each
distribution date, before making distributions for the notes and certificates,
the amount available will be applied, first, if Green Tree is no longer the
servicer, to pay the monthly servicing fee to the successor servicer, and
second, to reimburse the servicer, including Green Tree for any advances made
for a prior due period and subsequently recovered and for any advances
previously made that the servicer has determined are uncollectible advances.
Enhancement
The amounts and types of enhancement arrangements and the provider, if
applicable, with respect to each class of securities, will be described in the
prospectus supplement. If and to the extent provided in the prospectus
supplement, enhancement may be in the form of a financial guaranty insurance
policy, letter of credit, Green Tree guaranty, cash reserve fund, derivative
product, or other form of enhancement, or any combination, as may be described
in the prospectus supplement. If specified in the applicable prospectus
supplement, enhancement for a class of securities of a series may cover one or
more other classes of securities in that series, and accordingly may be
exhausted for the benefit of a particular class and be unavailable to other
classes. Further information regarding any provider of enhancement, including
financial information when material, will be included in the prospectus
supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the certificateholders and the noteholders of the full amount of
principal and interest due and to decrease the likelihood that the
certificateholders and the noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the prospectus
supplement. Unless we specify otherwise in the prospectus supplement, the
enhancement for a class of securities will not provide protection against all
risks of loss and will not guarantee repayment of the entire principal and
interest. If losses occur which exceed the amount covered by any enhancement or
which are not covered by any enhancement, securityholders will bear their
allocable share of deficiencies. In addition, if a form of enhancement covers
more than one class of securities of a series, securityholders of any class
will be subject to the risk that the enhancement will be exhausted by the
claims of securityholders of other classes.
Advances
Unless we specify otherwise in the prospectus supplement, the servicer will
be obligated to make advances each month of any scheduled payments on the loans
included in a trust that were due but not received during the prior due period.
The servicer will be
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entitled to reimbursement of an advance from the amount available in the
collection account for the related trust when:
(1) the delinquent payment is recovered by the trust; or
(2) the servicer has determined that the advance has become an
uncollectible advance.
The servicer will be obligated to make an advance only to the extent that it
determines that the advance will be recoverable from subsequent funds available
in the collection account for the trust. The servicer will be entitled to
recoup its advances on a loan from subsequent payments by or on behalf of the
obligor and from liquidation proceeds, including FHA insurance payments, if
any, of the loan, and will release its right to reimbursements in conjunction
with the purchase of the loan by Green Tree for breach of representations and
warranties. If the servicer determines in good faith that an amount previously
advanced will not ultimately be recoverable from payments by or on behalf of
the obligor or from net liquidation proceeds, including FHA insurance payments,
if any, of the loan, the servicer will be entitled to reimbursement from
payments on other loans or from other funds available.
Unless we specify otherwise in the prospectus supplement, if the servicer
fails to make an advance required under the sale and servicing agreement, the
trustee will be obligated to deposit the amount of that advance in the
collection account on the payment date. The trustee will not be obligated to
deposit any amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from liquidation proceeds; or
(2) the trustee determines that it is not legally able to make the
advance.
Evidence as to Compliance
On or before March 31 of each year the servicer will deliver to each trustee
and each indenture trustee a report of a nationally recognized accounting firm
stating that the firm has examined certain documents and records for the
servicing of loans serviced by the servicer under sale and servicing agreements
similar to the trust documents and stating that, on the basis of those
procedures, the servicing has been conducted in compliance with the applicable
trust documents, except for any exceptions described in the report. A copy of
the statement may be obtained by any certificate owner or note owner upon
compliance with the requirements described above. See "Certain Information
Regarding the Securities--Statements to Securityholders" above.
Indemnification and Limits on Liability
Unless we specify otherwise in the prospectus supplement, the trust documents
will provide that the servicer will be liable only to the extent of the
obligations specifically undertaken by it under the trust documents and will
have no other obligations or liabilities. The trust documents will further
provide that neither the servicer nor any of its directors, officers, employees
and agents will have any liability to the trust, the certificateholders or the
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noteholders, except as provided in the trust documents, for any action taken or
for refraining from taking any action under the trust documents, other than
liability that would otherwise be imposed by reason of the servicer's breach of
the trust documents or willful misfeasance, bad faith or negligence, or by
reason of reckless disregard of obligations and duties under the trust
documents or any violation of law.
The servicer may, with the prior consent of the trustee and the indenture
trustee, delegate duties under the trust documents to any of its affiliates. In
addition, the servicer may at any time perform the specific duty of
repossessing products through subcontractors who are in the business of
servicing consumer receivables. The servicer may also perform other specific
duties through subcontractors; provided, however, that no delegation of duties
by the servicer shall relieve the servicer of its responsibility.
Amendment
Unless we specify otherwise in the prospectus supplement, the trust documents
may be amended by Green Tree, the servicer, the trustee and the indenture
trustee, but without the consent of any of the securityholders, to cure any
ambiguity or to correct or supplement any provision, provided that such action
will not, in the opinion of counsel, which may be internal counsel to Green
Tree or the servicer reasonably satisfactory to the trustee and the indenture
trustee, materially and adversely affect the interests of the securityholders.
The trust documents may also be amended by Green Tree, the servicer and the
trustee and the indenture trustee, and a certificate majority and a note
majority, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the trust documents or of modifying, in
any manner, the rights of the certificateholders or the noteholders. No such
amendment may:
(1) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, collections of payments on the related loans or
distributions that are required to be made on any related certificate
or note or the related pass-through rate or interest rate; or
(2) reduce the percentage of the certificate balance evidenced by
certificates or of the aggregate principal amount of notes then
outstanding required to consent to any amendment, without the consent
of the holders of all certificates or all notes, as the case may be.
Termination
The obligations created by the trust documents will terminate upon the date
calculated as specified in the trust documents, generally upon:
(1) the later of the final payment or other liquidation of the last loan
subject thereto and the disposition of all property acquired upon
repossession of any product; and
(2) the payment to the securityholders of all amounts held by the
servicer or the trustee and required to be paid to the
securityholders under the trust documents.
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Unless we specify otherwise in the prospectus supplement, for each series of
securities, in order to avoid excessive administrative expense, Green Tree and
the servicer each will be permitted, at its option, to purchase from the trust,
on any distribution date immediately after any due period as of the last day of
which the aggregate principal balance is equal to or less than 10%, or other
percentage as may be specified in the prospectus supplement, of the cut-off
date principal balance, all remaining loans in the trust and the other
remaining trust property at a price equal to the aggregate of the purchase
amounts and the appraised value of any remaining trust property. The exercise
of this right will effect an early retirement of the related certificates and
notes.
If a general partner is named in the prospectus supplement, unless otherwise
specified in the prospectus supplement, the trust pooling and servicing
agreement will provide that, in the event that the general partner becomes
insolvent, withdraws or is expelled as a general partner or is terminated or
dissolved, the trust will terminate in 90 days and effect redemption of the
notes and prepayment of the certificates following the winding-up of the
affairs of the trust, unless within such 90 days the remaining general partner,
and holders of a majority of the certificates of such series agree in writing
to the continuation of the business of the trust and to the appointment of a
successor to the former general partner, and the owner trustee is able to
obtain an opinion of counsel to the effect that the trust will not thereafter
be an association, or publicly traded partnership taxable as a corporation for
federal income tax purposes.
Unless otherwise specified in the prospectus supplement, for each series of
securities, the trustee will give written notice of the final distribution for
the certificates, to each certificateholder of record and the indenture trustee
will give written notice of the final payment for the notes to each noteholder
of record. The final distribution to any certificateholder and the final
payment to any noteholder will be made only upon surrender and cancellation of
the holder's certificate or note at the office or agency of the trustee, for
certificates, or of the indenture trustee, for notes, specified in the notice
of termination. Any funds remaining in the trust, after the trustee or the
indenture trustee has taken measures to locate a certificateholder or
noteholder, as the case may be, and such measures have failed, will be
distributed to The United Way, and the certificateholders and noteholders, by
acceptance of their certificates and notes, will waive any rights with respect
to such funds.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the prospectus supplement. The trustee, in its individual capacity or
otherwise, and any of its affiliates may hold certificates or notes in their
own names or as pledgee. In addition, for the purpose of meeting the legal
requirements of some jurisdictions, the trustee, with the consent of the
servicer, will have the power to appoint co-trustees or separate trustees of
all or any part of the related trust. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the trustee by
the trust documents will be conferred or imposed upon the trustee and the
separate trustee or co-trustee jointly, or, in any jurisdiction where the
trustee is incompetent or unqualified to perform certain acts, singly
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upon the separate trustee or co-trustee who shall exercise and perform the
rights, powers, duties and obligations solely at the direction of the trustee.
The trustee of any trust may resign at any time, in which event the general
partner, specified in the prospectus supplement or, if no general partner is
specified, the servicer or its successor will be obligated to appoint a
successor trustee. The general partner specified in the prospectus supplement,
or, if no general partner is specified, the servicer, may also remove the
trustee, if:
. trustee ceases to be eligible to serve;
. becomes legally unable to act;
. is adjudged insolvent; or
. is placed in receivership or similar proceedings.
In such circumstances, the general partner specified in the prospectus
supplement or, if no general partner is specified, the servicer will be
obligated to appoint a successor trustee. Any resignation or removal of the
trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
Duties of the Trustee
The trustee will make no representation as to the validity or sufficiency of
any trust document, the certificates or the notes, other than its execution of
the certificates and the notes, the loans or any related documents, and will
not be accountable for the use or application by the servicer of any funds paid
to the servicer for the certificates, the notes or the loans before deposit in
the collection account.
The trustee will be required to perform only those duties specifically
required of it under the trust documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the servicer to the trustee under the
trust documents, in which case it will only be required to examine such
certificates, reports or instruments to determine whether they conform
substantially to the requirements of the trust documents.
The trustee will be under no obligation to exercise any of the rights or
powers vested in it by the trust documents or to institute, conduct, or defend
any litigation or relation at the request, order or direction of any of the
certificateholders or noteholders, unless such certificateholders or
noteholders have offered the trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred. No certificateholder
nor any noteholder will have any right under the trust documents to institute
any proceeding with respect to the trust documents, unless the holder has given
the trustee written notice of default and unless the holders of certificates
evidencing not less than 25% of the certificate balance or the holders of notes
evidencing not less than 25% of the aggregate principal balance of the notes
then outstanding have made written request to the trustee to institute
proceeding in its own name as trustee and have offered to the trustee
reasonable indemnity,
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and the trustee for 30 days after the receipt of the notice, request and offer
to indemnify has neglected or refused to institute any proceedings.
Administrator
If an administrator is specified in the prospectus supplement, such
administrator will enter into an agreement under which such administrator will
agree, to the extent provided in such administration agreement, to provide the
notices and to perform other administrative obligations required by the
indenture and the trust agreement.
DESCRIPTION OF FHA INSURANCE
Certain of the home improvement loans may be FHA-insured, the payments upon
which, subject to the following discussion, are insured by the FHA under Title
I of the National Housing Act.
The insurance available to any trust will be subject to the limit of a
reserve amount equal to 10% of the principal balance of all Title I insured
loans originated or purchased and reported for FHA insurance by Green Tree,
which amount will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by Green Tree. Green Tree's reserve amount
may be reduced by 10% of the principal balance of any loans reported to FHA as
sold without recourse by Green Tree. In the sale and servicing agreement, Green
Tree will agree to pay all FHA insurance premiums required by FHA regulations.
If Green Tree fails to pay any premium, the trustee or the successor servicer
with respect to each series is obligated to pay the premium and is entitled to
be reimbursed by Green Tree and from collections on the related home
improvement loans.
As of December 31, 1998, Green Tree's FHA insurance reserve amount was equal
to approximately [$ ]. These insurance reserves were available to cover
losses on approximately $[ ] of FHA-insured manufactured housing contracts
and approximately $[ ] of FHA-insured home improvement loans, including the
FHA-insured loans that may be owned by a trust. If an event of termination
occurs, each trustee will notify FHA of Green Tree's termination as servicer of
the related FHA-insured loans and will request that the portion of Green Tree's
FHA insurance reserves allocable to the FHA-insured loans be transferred to the
trustee or a successor servicer. Although each trustee will request a transfer
of reserves, FHA is not obligated to comply with a request, and may determine
that it is not in FHA's interest to permit the transfer of reserves. In
addition, FHA has not specified how insurance reserves might be allocated in
that event, and there can be no assurance that any reserve amount, if
transferred to the trustee or a successor servicer, would not be substantially
less than 10% of the outstanding principal amount of the FHA-insured loans. It
is likely that the trustee or any successor servicer would be the lender of
record on other FHA Title I loans, so that any reserves that are so permitted
to be transferred would become commingled with reserves available for other FHA
Title I loans. FHA also reserves the right
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to transfer reserves with "earmarking," segregating the reserves so that they
will not be commingled with the reserves of the transferee, if it is in FHA's
interest to do so.
In general, FHA will insure unsecured property improvement loans up to
$7,500, with a maximum term of 20 years. The loan proceeds must be used for the
purposes described in the loan application, and those improvements must
substantially protect or improve the basic livability or utility of the
property. The Secretary of HUD from time to time publishes a list of ineligible
items and activities which may not be financed with the proceeds of an FHA-
insured home improvement loan.
Following a default on an FHA-insured home improvement loan the servicer may,
subject to certain conditions, submit a claim to FHA. The availability of FHA
insurance following a default on an FHA-insured loan is subject to a number of
conditions, including strict compliance by Green Tree with FHA regulations in
originating and servicing the loan. Failure to comply with FHA regulations may
result in a denial of or surcharge on the FHA insurance claim. Before declaring
an FHA-insured home improvement loan in default and submitting a claim to FHA,
the servicer must take certain steps to attempt to cure the default, including
personal contact with the borrower either by telephone or in a meeting and
providing the borrower with 30 days' written notice before declaration of
default. FHA may deny insurance coverage if the borrower's nonpayment is
related to a valid objection to faulty contractor performance. In that event,
Green Tree will seek to obtain payment by or a judgment against the borrower,
and may resubmit the claim to FHA following such a judgment. As described under
"Green Tree Financial Corporation--Loan Origination," Green Tree does not
purchase a loan until the customer verifies satisfactory completion of the
work.
Upon submission of a claim to FHA, the trust must assign its entire interest
in the loan to the United States. In general, the claim payment will equal 90%
of the sum of:
(1) the unpaid principal amount of the home improvement loan at the date
of default and uncollected interest computed at the loan rate earned
to the date of default;
(2) accrued and unpaid interest on the unpaid amount of the loan 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 year;
(3) uncollected court costs; and
(4) legal fees, not to exceed $500.
CERTAIN LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of Green Tree's conveyance and assignment of a pool of loans to a
trust, the securityholders of the series, as the beneficial owners of the
trust, will succeed collectively to all of the rights, including the right to
receive payment on the loans. The following discussion contains summaries of
certain legal aspects of home improvement contracts which
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are general in nature. These legal aspects are in addition to the requirements
of FHA regulations described in "Description of FHA Insurance" with respect to
the FHA-insured home improvement loans. Because these 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 improved
real estate is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the loans.
Mortgages and Deeds of Trust
The home equity loans, but not the home improvement loans, will be secured by
either mortgages, deeds of trust, security deeds or deeds to secure debt
depending upon the prevailing practice in the state in which the underlying
property is located, and may have first, second or third priority. In some
states, a mortgage creates a lien upon the real property encumbered by the
mortgage or deed of trust. In other states, the mortgage conveys legal title to
the property to the mortgagee subject to a condition subsequent, such as, the
payment of the indebtedness secured. 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 retail
installment contract 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, or trustor, the 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 repayment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
applicable state law, the express provisions of the deed of trust or mortgage,
and, in some cases for deeds of trust, the directions of the beneficiary. Some
states use a security deed or deed to secure debt which is similar to a deed of
trust except that it has only two parties: a grantor (similar to a mortgagor)
and a grantee (similar to a mortgagee). Mortgages, deeds of trust and deeds to
secure debt are not prior to liens for real estate taxes and assessments and
other charges imposed under governmental police powers. Priority between
mortgages, deeds of trust and deeds to secure debt and other encumbrances
depends on their terms, the knowledge of the parties to the instrument in some
cases and generally on the order of recordation of the mortgage, deed of trust
or the deed to secure debt in the appropriate recording office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the home equity loans in any loan pool are expected
to be second or third mortgages or deeds of trust which are junior to mortgages
or deeds of trust held by other lenders or institutional investors. The rights
of the trust, as beneficiary under a junior deed of trust or as mortgagee under
a junior mortgage, are subordinate to those of the mortgagee or beneficiary
under the senior mortgage or deed of trust, including the prior rights of the
senior mortgagee or beneficiary to receive hazard insurance and condemnation
proceeds and to cause the property securing the loan to be sold upon default of
the mortgagor or trustor
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under the senior mortgage or deed of trust, thereby extinguishing the junior
mortgagee's or junior beneficiary's lien unless the servicer on behalf of the
trust asserts its subordinate interest in the property in foreclosure
litigation and, possibly, satisfies the defaulted senior loan or loans. As
discussed more fully below, a junior mortgagee or beneficiary may satisfy a
defaulted senior loan in full, or in some states may cure the default and bring
the senior loan current, in either event usually adding the amounts expended to
the balance due on the junior loan. Although we generally do not cure defaults
under a senior mortgage or deed of trust, it is our standard practice to
protect its interest by attending any foreclosure sale and bidding for property
only if it is in our best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like that of Green Tree, confers on the mortgagee or beneficiary the
right both to receive all proceeds collected under any hazard insurance policy
and all awards made in connection with any condemnation proceedings, and to
apply such proceeds and awards to any indebtedness secured by the mortgage or
deed of trust, in such order as the mortgagee or beneficiary may determine.
Thus, in the event improvements on the property are damaged or destroyed by
fire or other casualty, or in the event the property is taken by condemnation,
the mortgagee or beneficiary under the underlying first mortgage or deed of
trust will have the prior right to collect any insurance proceeds payable under
a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness, in most cases, may be applied to the indebtedness of a junior
mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a "future advance" clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an "obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially advanced under the
mortgage or deed of trust, notwithstanding the fact that there may be junior
mortgages or deeds of trust and other liens which intervene between the date of
recording of the mortgage or deed of trust and the date of the future advance,
and, in some states, notwithstanding that the senior mortgagee or beneficiary
had actual knowledge of such intervening junior mortgages or deeds of trust and
other liens at the time of the advance. Where the mortgagee or beneficiary is
not obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of advances under the clause rests, in
some states, on state statutes giving priority to all advances made under the
loan agreement to a "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all
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taxes and assessments on the property and, when due, all encumbrances, charges
and liens on the property which appear prior to the mortgage or deed of trust,
to provide and maintain fire insurance on the property, to maintain and repair
the property and not to commit or permit any waste, and to appear in and defend
any action or proceeding purporting to affect the property or the rights of the
mortgagee or beneficiary under the mortgage or deed of trust. If the mortgagor
or trustor fails to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor agreeing
to reimburse the mortgagee or beneficiary for any sums expended by the
mortgagee or beneficiary on behalf of the mortgagor or trustor. All sums
expended by a senior mortgagee or beneficiary generally become part of the
indebtedness secured by the senior mortgage or deed of trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk.
. First, the borrower may have difficulty servicing and repaying
multiple loans.
. Second, acts of the senior lender which prejudice the junior lender or
impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose
its priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened.
. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior
lender. The bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action establishes a waiver, or
fraud, bad faith, oppressive or unconscionable conduct and warrants a court of
equity to refuse affirmative relief to the mortgagee. Under certain
circumstances a court of equity may relieve the mortgagor from an entirely
technical default where such default was not willful. Generally, the action is
initiated by the service of legal pleadings
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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. After the completion of a judicial foreclosure proceeding, the court
may issue a judgment of foreclosure and appoint a referee or other officer to
conduct the sale of the property. In some states, mortgages may also be
foreclosed by advertisement, pursuant to a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states, the
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, 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 notice
of sale. In addition, before the sale, 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. Some states require that a notice
of sale be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers in a specified manner before
the date of the trustee's sale. 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. Some state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might 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. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. 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, paying taxes 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
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investment in the property. Any loss resulting from such sale may be reduced by
the receipt of mortgage insurance proceeds.
A second or third mortgagee, junior mortgagee, may not foreclose on the
property securing a second or first mortgage, senior mortgages, unless it
forecloses subject to the senior mortgages, in which case it must either pay
the entire amount due on the senior mortgages before or at the time of the
foreclosure sale or make payments on the senior mortgages in the event the
mortgagor is in default, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure by a junior
mortgagee triggers the enforcement of a "due-on-sale" clause in a senior
mortgage, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, for those loans which
are second or third mortgage loans, if the lender purchases the property, the
lender's title will be subject to all senior liens and claims and some
governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders."
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related trust for its acquisition, by foreclosure or
otherwise, and disposition of real property securing a loan, and any taxes or
fees imposed may reduce liquidation proceeds with respect to the property, as
well as distributions payable to the securityholders.
Second or Third Mortgages
The home equity loans may be secured by second or third mortgages or deeds of
trust, which are junior to first or second mortgages or deeds of trust held by
other lenders. The rights of the securityholders as the holders of a junior
deed of trust, junior mortgage, or junior security deed are subordinate in lien
and in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale under the senior deed of trust,
the junior mortgagee's or junior beneficiary's lien will be extinguished unless
the junior lienholder satisfies the
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defaulted senior loan or asserts its subordinate interest in a property in
foreclosure proceedings. Such extinguishment will eliminate access to the
collateral for the loan. See "--Foreclosure."
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to secure debt or security deed. In the event of a conflict
between the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed and the junior mortgage, deed of trust, deed to secure debt or
security deed, the terms of the senior mortgage, deed of trust, deed to secure
debt or security deed will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage, deed of trust, deed to secure debt
or security deed may have the right to perform the obligation itself.
Generally, all sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their equity of redemption. The doctrine of equity of redemption provides
that, until the property covered by a mortgage has been sold in accordance with
a properly conducted foreclosure and foreclosure sale, those having an interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay some costs of such action. Those having an equity of
redemption must generally be made parties and duly summoned to the foreclosure
action in order for their equity of redemption to be barred.
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
some other states, this right of redemption applies only to sales following
judicial foreclosure, and not to sales 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 expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. In some
states, the right to redeem is an equitable right. The equity of redemption,
which is a non-statutory right that must be exercised before foreclosure sale,
should be distinguished from statutory rights of redemption. 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
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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. In some states,
there is no right to redeem property after a trustee's sale under a deed of
trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Some states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. 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 public 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 some other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security. However, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, with respect to the federal bankruptcy law, the filing of a petition
acts as a stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default for a
mortgage loan on a debtor's residence by paying arrearages and reinstate the
original mortgage loan payment
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schedule even though the lender accelerated the mortgage loan and final
judgment of foreclosure had been entered in state court, provided no sale of
the property had yet occurred, before the filing of the debtor's Chapter 13
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that effected the
curing of a mortgage loan default by paying arrearages over a number of years.
In the case of a mortgage loan not secured by the debtor's principal residence,
courts with federal bankruptcy jurisdiction may also reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter
the mortgage loan repayment schedule.
The IRS code provides priority to certain federal tax liens over the lien of
the mortgage or deed of trust. The Bankruptcy code also provides priority to
some tax liens over the lien of the mortgage or deed of trust. The laws of some
states provide priority to some state 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, state licensing requirements, 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 mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity
Act, Regulation "B", the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994, which became effective on
October 1, 1995, adds provisions to Regulation Z which impose additional
disclosure and other requirements on creditors involved in non-purchase money
mortgage loans with high interest rates or high up-front fees and charges. It
is possible that some loans included in a loan pool may be subject to these
provisions. The Home Protection Act applies to mortgage loans originated on or
after the effective date of these regulations. These laws can impose specific
statutory liabilities upon creditors who fail to comply with their provisions
and may affect the enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the
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repossession and resale by the creditor does not involve sufficient state
action to afford constitutional protection to consumers.
The holder-in-due-course rule of the FTC 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. The effect of
this rule is to subject the assignee of such a contract to all claims and
defenses which the debtor could assert against the seller of goods, such as a
home improvement contractor. Liability under this rule is limited to amounts
paid under a loan. However, the obligor also may be able to assert the rule to
set off remaining amounts due as a defense against a claim brought by the trust
against such obligor. The Home Protection Act provides that assignees of
certain high-interest, non-purchase money mortgage loans, which may include
some loans, are subject to all claims and defenses that the debtor could assert
against the original creditor, unless the assignee demonstrates that a
reasonable person in the exercise of ordinary due diligence could not have
determined that the mortgage loan was subject to the provisions of the Home
Protection Act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to limitations imposed by FHA regulations with respect
to FHA insured home improvement loans, in some states there are or may be
specific limitations upon late charges which a lender may collect from a
borrower for delinquent payments. Under the sale and servicing agreement, late
charges, to the extent permitted by law and not waived by us, will be retained
by us as additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts will
generally enforce clauses providing for acceleration in the event of a material
payment default. However, courts, exercising equity jurisdiction, may refuse to
allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional
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provisions reflecting due process concerns for adequate notice require that
borrowers under mortgages or the deeds of trust receive notices in addition to
statutorily-prescribed minimum requirements. For the most part, these cases
have upheld the notice provisions as being reasonable or have found that the
sale by a trustee under a deed of trust or under a mortgage having a power of
sale does not involve sufficient state action to afford constitutional
protection to the borrower.
It is our practice with some of the home improvement loans to defer the first
payment for up to 90 days, and to charge the home improvement contractor points
to cover the lost interest due to collecting only 30 days' interest on the
first payment on these deferred payment contracts.
Due-on-Sale Clauses
All of the loan documents will contain due-on-sale clauses unless the
prospectus supplement indicates otherwise. These clauses permit the servicer to
accelerate the maturity of the loan on notice, which is usually 30 days, if the
borrower sells, transfers or conveys the property without the prior consent of
the mortgagee. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in
many states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982, which, after a three-year grace
period, preempts state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that due-on-sale clauses in some
loans, including the loans made after the effective date of the Garn-St.
Germain Act are enforceable within some limitations as described in the Garn-
St. Germain Act and the regulations promulgated thereunder.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any loan which contains a due-on-sale clause upon
transfer of an interest in the mortgaged property. This ability to accelerate
will not apply to certain types of transfers, including:
(1) the granting of a leasehold interest which has a term of three years
or less and which does not contain an option to purchase;
(2) a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property;
(3) a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property;
(4) the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of
rights of occupancy in the mortgaged property, provided that the lien
or encumbrance is not created pursuant to a contract for deed;
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(5) a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety; and
(6) other transfers as described in the Garn-St. Germain Act and the
regulations thereunder. As a result, a lesser number of loans which
contain "due-on-sale" clauses may extend to full maturity than earlier
experience would indicate with respect to single-family mortgage
loans.
We cannot predict the extent of the effect of the Garn-St. Germain Act on the
average lives and delinquency rates of the loans.
The inability to enforce a due-on-sale clause may result in loans bearing an
interest rate below the current market rate being assumed by a new home buyer
rather than being paid off, which may have an impact upon the average life of
the loans and the number of loans which may be outstanding until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, provides that, subject to specific conditions, state usury
limitations shall not apply to FHA-insured loans and to first mortgage secured
conventional contracts if the contract is defined as a federally related
mortgage loan, a number of states have adopted legislation overriding Title V's
exemptions, as permitted by Title V. We will represent and warrant in each sale
and servicing agreement that all loans comply with any applicable usury
limitations.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended, and under state law in individual states, a secured
party which takes a deed-in-lieu of foreclosure, purchases a mortgaged property
at a foreclosure sale, or operates a mortgaged property may become liable in
certain circumstances for the costs of cleaning up hazardous substances
regardless of whether they have contaminated the property. CERCLA imposes
strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Liability under
CERCLA is not limited to the original or unamortized principal balance of a
loan or to the value of the property securing a loan. Lenders may be held
liable under CERCLA as owners or operators unless they qualify for the secured
creditor exemption to CERCLA. This exemption exempts from the definition of
owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest in
the facility. What constitutes sufficient participation in the management of a
property securing a loan or the business of a borrower to render the exemption
unavailable to a lender has been a matter of interpretation by the courts.
CERCLA has been interpreted to impose liability on a secured party, even absent
foreclosure, where the party participated in the financial management of the
borrower's business to a degree indicating a capacity to influence waste
disposal decisions. However, court interpretations of the secured creditor
exemption have been inconsistent. In addition, when lenders foreclose and
become owners of collateral
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property, courts are inconsistent as to whether that ownership renders the
secured creditor exemption unavailable. Other federal and state laws in some
circumstances may impose liability on a secured party which takes a deed-in-
lieu of foreclosure, purchases a mortgaged property at a foreclosure sale, or
operates a mortgaged property on which contaminants other than CERCLA hazardous
substances are present, including petroleum, agricultural chemicals, hazardous
wastes, asbestos, radon, and lead-based paint. The cleanup costs may be
substantial. It is possible that the cleanup costs could become a liability of
a trust and reduce the amounts otherwise distributable to the holders of the
related series of securities in some circumstances if the cleanup costs were
incurred. Moreover, some states by statute impose a lien for any cleanup costs
incurred by the state on the property that is the subject of the cleanup costs.
All subsequent liens on the property generally are subordinated to an
environmental lien and, in some states, even prior recorded liens are
subordinated to environmental liens. In the latter states, the security
interest of the trustee in a related parcel of real property that is subject to
an environmental lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged
property before the origination of the mortgage loan or before foreclosure or
accepting a deed-in-lieu of foreclosure. Accordingly, we have not made and will
not make the evaluations before origination of the loans. Neither we nor any
replacement servicer will be required by any sale and servicing agreement to
undertake any evaluations before foreclosure or accepting a deed-in-lieu of
foreclosure. We do not make any representations or warranties or assume any
liability for the absence or effect of contaminants on any related real
property or any casualty resulting from the presence or effect of contaminants.
However, we will not foreclose on related real property or accept a deed-in-
lieu of foreclosure if we knows or reasonably believe that there are material
contaminated conditions on the property. A failure so to foreclose may reduce
the amounts otherwise available to securityholders of the related series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, would
adversely affect, for an indeterminate period of time, the ability of the
servicer to collect full amounts of interest on some of the loans. Any
shortfall in interest collections resulting from the application of the Relief
Act or similar legislation, which would not be recoverable from the related
loans, would result in a reduction of the amounts distributable to the
securityholders. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under some circumstances, during an additional
three month period. Thus, in the event that the Relief Act or similar
legislation applies to any loan which goes into default, there may be delays in
payment on the securities. Any other interest shortfalls, deferrals or
forgiveness of payments on the loans resulting from similar legislation or
regulations may result in delays in payments or losses to securityholders.
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Repurchase Obligations
Under the sale and servicing agreement, we will represent and warrant that
each FHA insured home improvement loan was originated in compliance with FHA
regulations and is covered by FHA insurance. In the event FHA were to deny
insurance coverage on an FHA insured home improvement loan due to a violation
of FHA regulations in originating or servicing the home improvement loans, that
violation would constitute a breach of a representation and warranty under the
sale and servicing agreement and we would be obligated to repurchase the home
improvement loan unless the breach is cured. See "Description of the Trust
Documents--Sale and Assignment of the Loans."
In addition, we will also represent and warrant under each sale and servicing
agreement that each loan complies with all requirements of law. Accordingly, if
any obligor has a claim against the related trust for violation of any law and
such claim materially adversely affects the trust's interest in a loan, that
violation would constitute a breach of a representation and warranty under the
sale and servicing agreement and would create an obligation to repurchase that
loan unless the breach is cured. See "Description of the Trust Documents--Sale
and Assignment of the Loans."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences relating to the purchase, ownership, and disposition of the
securities. The discussion is based upon the current provisions of the Internal
Revenue Code of 1986, the Treasury regulations and judicial or ruling
authority, all of which are subject to change, which change may be retroactive.
The discussion does not deal with federal income tax consequences applicable to
all categories of investors, some of which may be subject to special rules. You
are encouraged to consult your own tax advisor in determining the federal,
state, local, and any other tax consequences of the purchase, ownership, and
disposition of the securities.
Our counsel, Dorsey & Whitney LLP, has delivered an opinion regarding certain
federal income tax matters discussed below. Our counsel identified in the
prospectus supplement, will deliver an opinion regarding tax matters applicable
to each series of securities. Such an opinion, however, is not binding on the
IRS or the courts. The opinion of counsel will specifically address only those
issues specifically identified below as being covered by such opinion; however,
the opinion of counsel also will state that the additional discussion below
accurately sets forth counsel's advice with respect to material tax issues. No
ruling on any of the issues discussed below will be sought from the IRS.
Tax Status of the Trust
For each series of securities which includes both notes and certificates,
counsel will deliver its opinion that the trust will not be an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes. As a result, in the opinion of counsel, the trust itself will not be
subject to federal income tax but, instead, each certificateholder will be
required to take into account its distributive share of items of
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income and deduction, including deductions for distributions of interest to the
noteholders of the trust as though such items had been realized directly by the
certificateholder. This opinion will be based on the assumption that the terms
of the trust agreement and related documents will be complied with, and on
counsel's conclusion that the nature of the income of the trust will exempt it
from the rule that certain publicly traded partnerships are taxable as
corporations. There are, however, no cases or IRS rulings on transactions
involving a trust issuing both debt and equity interests with terms similar to
those of the notes and the certificates. As a result, the IRS may disagree with
all or a part of this discussion.
If the trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the loans, possibly
reduced by its interest expense on the notes. Any such corporate income tax
could materially reduce cash available to make payments on the notes and
distributions on the certificates.
Tax Consequences to Noteholders
Treatment of the Notes as Indebtedness. The owner trustee, on behalf of the
trust, will agree, and the noteholders will agree by their purchase of notes,
to treat the notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
notes is correct.
Interest Income on the Notes. Interest on the notes will be taxable as
ordinary interest income when received by noteholders utilizing the cash-basis
method of accounting and when accrued by noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the notes would be
considered issued with original issue discount ("OID") if the stated redemption
price at maturity of a note, generally equal to its principal amount as of the
date of issuance plus all interest other than qualified stated interest payable
prior to or at maturity exceeds the original issue price. Any OID would be
considered de minimis under the OID regulations if it does not exceed 1/4% of
the stated redemption price at maturity of a note multiplied by the number of
full years until its maturity date. It is anticipated that the notes will not
be considered issued with more than de minimis OID. Under the OID regulations,
an owner of a note issued with a de minimis amount of OID must include such OID
in income, on a pro rata basis, as principal payments are made on the note.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
however, the trust will treat interest payments on the notes as qualified
stated interest under the OID regulations. If the notes are issued or are
deemed to be issued with OID, all or a portion of the taxable income to be
recognized with respect to the notes would
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be includible in the income of noteholders as OID. Any amount treated as OID
would not, however, be includible again when the amount is actually received.
If the yield on a class of notes were not materially different from its coupon,
this treatment would have no significant effect on noteholders using the
accrual method of accounting. However, cash method noteholders may be required
to report income with respect to the notes in advance of the receipt of cash
attributable to such income.
A noteholder must include OID in income as interest over the term of the
notes under a constant yield method. In general, OID must be included in income
in advance of the receipt of cash representing that income. Each noteholder is
encouraged to consult its own tax advisor regarding the impact of the OID rules
if the notes are issued with OID.
Market Discount. The notes, whether or not issued with original issue
discount, will be subject to the market discount rules of Section 1276 of the
IRS code. In general, these rules provide that if a noteholder purchases the
note at a market discount, such as a discount from its original issue price
plus any accrued original issue discount, that exceeds a de minimis amount
specified in the IRS code, and thereafter recognizes gain upon a disposition,
the lesser of (1) such gain; or (2) the accrued market discount will be taxed
as ordinary interest income. Market discount also will be recognized and
taxable as ordinary interest income as payments of principal are received on
the notes to the extent that the amount of the payments does not exceed the
accrued market discount. Generally, the accrued market discount will be the
total market discount on the note multiplied by a fraction, the numerator of
which is the number of days the noteholder held the note and the denominator of
which is the number of days after the date the noteholder acquired the note
until and including its maturity date. The noteholder may elect, however, to
determine accrued market discount under the constant-yield method, which
election shall not be revoked without the consent of the IRS.
Limitations imposed by the IRS code which are intended to match deductions
with the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
note with accrued market discount. A noteholder may elect to include market
discount in gross income as it accrues and, if such noteholder makes such an
election, is exempt from this rule. The adjusted basis of a note 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. Any election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the noteholder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and is irrevocable without the consent of the IRS.
Amortizable Bond Premium. In general, if a noteholder purchases a note at a
premium, such as an amount in excess of the amount payable upon the maturity
thereof, the noteholder will be considered to have purchased the note with
amortizable bond premium equal to the amount of the excess. The noteholder may
elect to deduct the amortizable bond premium as it accrues under a constant-
yield method over the remaining term of the note. The noteholder's tax basis in
the note will be reduced by the amount of the amortizable bond premium
deducted. Amortizable bond premium with respect to a note will be treated as an
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offset to interest income on the note, and a noteholder's deduction for
amortizable bond premium for a note will be limited in each year to the amount
of interest income derived for the note for the year. Any election to deduct
amortizable bond premium shall apply to all debt instruments, other than
instruments the interest on which is excludible from gross income, held by the
noteholder at the beginning of the first taxable year to which the election
applies or thereafter acquired and is irrevocable without the consent of the
IRS. Bond premium on a note held by a noteholder who does not elect to deduct
the premium will decrease the gain or increase the loss otherwise recognized on
the disposition of the note.
Disposition of Notes. If a noteholder sells a note, the noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the noteholder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder generally will equal
the noteholder's cost for the note, increased by any market discount, OID and
gain previously included by the noteholder in income with respect to the note
and decreased by principal payments previously received by the noteholder and
the amount of bond premium previously amortized for the note. Any such gain or
loss will be capital gain or loss if the note was held as a capital asset,
except for gain representing accrued interest and accrued market discount not
previously included in income, and will be short-term, mid-term or long-term
capital gain or loss depending upon whether the note was held for more or less
than one year or for more than eighteen months. Capital losses generally may be
used only to offset capital gains.
Foreign Holders. Generally, interest paid to a noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
note in connection with a United States trade or business will be treated as
portfolio interest and will be exempt from the 30% withholding tax. Such a
noteholder will be entitled to receive interest payments on the notes free of
United States federal income tax provided that such noteholder periodically
provides the indenture trustee, or other person who would otherwise be required
to withhold tax, with a statement certifying under penalty of perjury that the
noteholder is not a United States person and providing the name and address of
such noteholder and will not be subject to federal income tax on gain from the
disposition of a note unless the noteholder is an individual who is present in
the United States for 183 days or more during the taxable year in which the
disposition takes place and some other requirements are met.
Tax Administration and Reporting. The Indenture trustee will furnish to each
noteholder with each distribution a statement describing the amount of such
distribution allocable to principal and to interest. Reports will be made
annually to the IRS and to holders of record that are not excepted from the
reporting requirements regarding information as may be required for interest
and original issue discount, if any, with respect to the notes.
Backup Withholding. Under specific circumstances, a noteholder may be subject
to backup withholding at a 31% rate. Backup withholding may apply to a
noteholder 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 indenture trustee. Backup
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withholding may apply, under certain circumstances, to a noteholder who is a
foreign person if the noteholder fails to provide the indenture trustee or the
noteholder's securities broker with the statement necessary to establish the
exemption from federal income and withholding tax on interest on the note.
Backup withholding, however, does not apply to payments on a note made to
certain exempt recipients, such as corporations and tax-exempt organizations,
and to some foreign persons. Noteholders should consult their tax advisors for
additional information concerning the potential application of backup
withholding to payments received by them on a note.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
counsel, the IRS successfully asserted that the notes did not represent debt
for federal income tax purposes, the notes might be treated as equity interests
in the trust. If so treated, the trust would be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the notes as equity
interests in such a partnership could have adverse tax consequences to certain
holders. For example, income to foreign holders generally would be subject to
federal tax and federal tax return filing and withholding requirements, income
to certain tax-exempt entities, including pension funds, would be unrelated
business taxable income, and individual holders might be subject to certain
limitations on their ability to deduct their share of trust expenses.
Tax Consequences to Certificateholders
Treatment of the Trust as a Partnership. We, the general partner and the
owner trustee will agree, and the certificateholders will agree by their
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the trust, the partners of the partnership being the certificateholders and
the general partner, and the notes being debt of the partnership. The proper
characterization of the arrangement involving the trust, the certificates, the
notes, the General Partner, we and the servicer, however, is not certain
because there is no authority on transactions closely comparable to that
contemplated herein.
A variety of alternative characterizations are possible. For example, because
the certificates have specific features characteristic of debt, the
certificates might be considered debt of the trust. Any such characterization
would not result in materially adverse tax consequences to certificateholders
as compared to the consequences from treatment of the certificates as equity in
a partnership. The following discussion assumes that the certificates represent
equity interests in a partnership.
Partnership Taxation. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the loans, including
appropriate adjustments for market discount, OID and bond premium and any gain
upon collection or disposition of the loans. The trust's deductions will
consist primarily of
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interest accruing with respect to the notes, servicing and other fees, and
losses or deductions upon collection or disposition of the loans.
The tax items of a partnership are allocable to the partners in accordance
with the IRS code, Treasury regulations and the partnership agreement (here,
the trust agreement and related documents). The trust agreement will provide,
in general, that the certificateholders will be allocated taxable income of the
trust for each month equal to the sum of:
(1) the interest that accrues on the certificates in accordance with
their terms for that month, including interest accruing at the pass-
through rate for that month and interest on amounts previously due on
the certificates but not yet distributed;
(2) any trust income attributable to discount on the loans that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
(3) prepayment premium payable to the certificateholders for that month;
and
(4) any other amounts of income payable to the certificateholders for
that month.
Although it is not anticipated that the certificates will be issued at a price
which exceeds their principal amount, the allocations of trust income to the
certificateholders will be reduced by any amortization by the trust of premium
on loans that corresponds to any excess of the issue price of certificates over
their principal amount. All remaining taxable income of the trust will be
allocated to the general partner. Based on the economic arrangement of the
parties, this approach for allocating trust income should be permissible under
applicable Treasury regulations, although no assurance can be given that the
IRS would not require a greater amount of income to be allocated to
certificateholders. Moreover, even under the foregoing method of allocation,
certificateholders may be allocated income equal to the entire pass-through
rate plus the other items described above even though the trust might not have
sufficient cash to make current cash distributions of that amount. Thus, cash
basis holders will in effect be required to report income from the certificates
on the accrual basis, and certificateholders may become liable for taxes on
trust income even if they have not received cash from the trust to pay taxes.
In addition, because tax allocations and tax reporting will be done on a
uniform basis for all certificateholders but certificateholders may be
purchasing certificates at different times and at different prices,
certificateholders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the trust.
All of the taxable income allocated to a certificateholder that is a pension,
profit sharing or employee benefit plan or other tax-exempt entity, including
an individual retirement account, will constitute unrelated business taxable
income generally taxable to such a holder under the IRS code.
A certificateholder's share of expenses of the trust, including fees to the
servicer but not interest expense will be miscellaneous itemized deductions. An
individual, an estate, or a trust that holds a certificate either directly or
through a pass-through entity will be allowed to deduct such expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with certain other itemized deductions, they exceed 2% of the
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adjusted gross income of the certificateholder. In addition, Section 68 of the
IRS code provides that the amount of itemized deductions, including those
provided for in Section 212 of the IRS code, otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds a threshold
amount determined under the IRS code ($124,500 in 1998, in the case of a joint
return) will be reduced by the lesser of: (1) 3% of the excess of adjusted
gross income over the specified threshold amount; or (2) 80% of the amount of
itemized deductions otherwise allowable for the taxable year. To the extent
that a certificateholder is not permitted to deduct servicing fees allocable to
a certificate, the taxable income of the certificateholder attributable to that
certificate will exceed the net cash distributions related to the income.
Certificateholders may deduct any loss on disposition of the loans to the
extent permitted under the IRS code.
Discount and Premium. It is believed that the loans were not issued with OID,
and, therefore, the trust should not have OID income. The purchase price paid
by the trust for the loans may exceed the remaining principal balance of the
loans at the time of purchase. If the trust is deemed to acquire the loans at a
premium or at a market discount, the trust will elect to offset any premium
against interest income on the loans or to include any discount in income
currently as it accrues over the life of the loans. The trust will make this
premium or market discount calculation on an aggregate basis but may be
required to recompute it on a loan-by-loan basis. As indicated above, a portion
of the premium deduction or market discount income may be allocated to
certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the trust. A
certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the certificateholder's adjusted basis in its certificates,
as described below under "Disposition of Certificates" immediately before the
distribution. A certificateholder will recognize loss upon termination of the
trust or termination of the certificateholder's interest in the trust if the
trust only distributes money to the certificateholder and the amount
distributed is less than the certificateholder's adjusted basis in the
certificates. Any gain or loss generally will be capital gain or loss if the
certificates are held as capital assets and will be long-term gain or loss if
the holding period of the certificates is more than one year.
Section 708 Termination. Under Section 708 of the IRS code, the trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the trust are sold or exchanged within a 12-
month period. Under Treasury regulations, if such a termination occurs, the
trust will be considered to have contributed the assets of the trust, the old
partnership, to a new partnership in exchange for interests in the new
partnership. These interests would be deemed distributed to the partners of the
old partnership in liquidation thereof, which would not constitute a sale or
exchange for United States federal income tax purposes.
Disposition of Certificates. If a certificateholder sells a certificate, the
certificateholder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale and the
seller's tax basis in the certificate. A certificateholder's tax basis in a
certificate generally will equal the certificateholder's cost increased by the
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certificateholder's share of trust income and decreased by any distributions
received on the certificate. In addition, both the tax basis in the certificate
and the amount realized on a sale of a certificate would include the
certificateholder's share of the notes and other liabilities of the trust. A
certificateholder acquiring certificates at different prices may be required to
maintain a single aggregate adjusted tax basis in such certificates, and, upon
sale or other disposition of some of the certificates, allocate a portion of
such aggregate tax basis to the certificates sold, rather than maintain a
separate tax basis in each certificate for purposes of computing gain or loss
on a sale of that certificate.
Any gain on the sale of a certificate attributable to the certificateholder's
share of unrecognized accrued market discount on the loans would generally be
treated as ordinary income to the certificateholder and would give rise to
special tax reporting requirements. The trust does not expect to have any other
assets that would give rise to such special reporting requirements. To avoid
those special reporting requirements, the trust will elect to include market
discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income, not including income attributable to disallowed itemized deductions
described above, over the life of the certificates that exceeds the aggregate
cash distributions, the excess generally will give rise to a capital loss upon
the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the related record date. As a result, a certificateholder purchasing a
certificate may be allocated tax items, which will affect the
certificateholder's tax liability and tax basis, attributable to periods before
the certificateholder actually owns the certificate. The use of such a
convention may not be permitted by existing regulations. If a monthly
convention is not permitted, or only applies to transfers of less than all of
the certificateholder's interest, taxable income or losses of the trust may be
reallocated among the certificateholders. The general partner is authorized to
revise the trust's method of allocation between transferors and transferees to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a certificateholder sells a
certificate at a profit or loss, the purchasing certificateholder will have a
higher or lower basis in the certificate than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust files an election under Section 754 of
the IRS code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make such election.
Because of this, certificateholders may be allocated a greater or lesser amount
of trust income than would be appropriate based on their own purchase price for
certificates.
Administrative Matters. Under the administration agreement, the trustee will
monitor the performance of the following responsibilities of the trust by other
service providers. The
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trust is required to keep or have kept complete and accurate books of the
trust. These books will be maintained for financial reporting and tax purposes
on an accrual basis and the fiscal year of the trust will be the calendar year.
The trust will file a partnership information return with the IRS for each
taxable year of the trust and will report each certificateholder's allocable
share of items of trust income and expense to certificateholders and the IRS on
Schedule K-1. The trust will provide the Schedule K-1 information to nominees
that fail to provide the trust with required information statements relating to
identification of beneficial owners of certificates and the nominees will be
required to forward the information to the beneficial owners. Generally,
certificateholders must file tax returns that are consistent with the
information return filed by the trust or be subject to penalties unless the
certificateholder notifies the IRS of all such inconsistencies.
We or a subsidiary identified in the prospectus supplement will be designated
as the tax matters partner in the trust agreement and, as such, will be
responsible for representing the certificateholders in any dispute with the
IRS. The IRS code provides for administrative examination of a partnership as
if the partnership were a separate and distinct taxpayer. Generally, the
statute of limitations for partnership items does not expire before three years
after the date on which the partnership information return is filed. Any
adverse determination following an audit of the return of the trust by the
appropriate taxing authorities could result in an adjustment of the returns of
the certificateholders, and, under specific circumstances, a certificateholder
may be precluded from separately litigating a proposed adjustment to the items
of the trust. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes for non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described in this prospectus. Although it is not expected that
the trust will be engaged in a trade or business in the United States for those
purposes, the trust will withhold as if it were so engaged in order to protect
the trust from possible adverse consequences of a failure to withhold. It is
expected that the trust will withhold on the portion of its taxable income that
is allocable to foreign certificateholders pursuant to Section 1446 of the IRS
code, as if the income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign certificateholders. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the trust to change its withholding procedures. In determining a
certificateholder's nonforeign status, the trust may rely on Form W-8, Form W-9
or the certificateholder's certification of nonforeign status signed under
penalties of perjury.
Each foreign certificateholder might be required to file a U.S. individual or
corporate income tax return including, in the case of a corporation, the branch
profits tax on its share of the trust's income. Each foreign certificateholder
must obtain a taxpayer identification number from the IRS and submit that
number to the trust on Form W-8 in order to assure appropriate crediting of the
taxes withheld. A foreign certificateholder generally will be
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entitled to file with the IRS a claim for refund with respect to taxes withheld
by the trust, taking the position that no taxes are due because the trust is
not engaged in a U.S. trade or business. However, the IRS may assert that
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
Backup Withholding. Under certain circumstances, a certificateholder may be
subject to backup withholding at a 31% rate. See the discussion above under "--
Tax Consequences to Noteholders--Backup Withholding."
CERTAIN STATE INCOME TAX CONSEQUENCES
The activities to be undertaken by the IRS in servicing and collecting the
loans will take place in Minnesota. The State of Minnesota imposes an income
tax on individuals, trusts and estates and a franchise tax measured by net
income on corporations. This discussion of Minnesota taxation is based upon
current statutory provisions and the regulations promulgated thereunder, and
applicable judicial or ruling authority, all of which are subject to change,
which may be retroactive. No ruling on any of the issues discussed below will
be sought from the Minnesota Department of Revenue.
If the notes are treated as debt for federal income tax purposes, in the
opinion of counsel this treatment will also apply for Minnesota tax purposes.
Noteholders not otherwise subject to Minnesota income or franchise taxation
would not become subject to such a tax solely because of their ownership of the
notes. Noteholders already subject to income or franchise taxation in Minnesota
could, however, be required to pay such a tax on all or a portion of the income
generated from ownership of the notes.
If the trust is treated as a partnership, not taxable as a corporation for
federal income tax purposes, in the opinion of counsel the trust would also be
treated as a partnership for Minnesota income tax purposes. The partnership
therefore would not be subject to Minnesota taxation. Certificateholders that
are not otherwise subject to Minnesota income or franchise taxation would not
become subject to such a tax solely because of their interests in the
partnership. Certificateholders already subject to income or franchise taxation
in Minnesota could, however, be required to pay such a tax on all or a portion
of the income from the partnership.
If the certificates are treated as ownership interests in an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, in the opinion of counsel this treatment would also apply for
Minnesota income and franchise tax purposes. Under this treatment, the trust
would be subject to the Minnesota franchise tax measured by net income, which
could result in reduced distributions to certificateholders. Certificateholders
that are not otherwise subject to Minnesota income or franchise taxation would
not become subject to such a tax solely because of their interests in the
constructive corporation. Certificateholders already subject to income or
franchise taxation in Minnesota could, however, be required to pay such a tax
on all or a portion of the income from the constructive corporation.
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ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974 ("ERISA"),
and Section 4975 of the IRS code prohibit a pension, profit sharing or other
employee benefit plan from engaging in certain transactions involving plan
assets with persons that are parties in interest under ERISA or disqualified
persons under the IRS code with respect to the plan. ERISA also imposes certain
duties and certain prohibitions on persons who are fiduciaries of plans subject
to ERISA. Under ERISA, generally 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. A violation of these prohibited
transaction rules may generate excise tax and other liabilities under ERISA and
the IRS code for such persons.
Some transactions involving the related trust might be deemed to constitute
prohibited transactions under ERISA and the IRS code with respect to a benefit
plan that purchased securities if assets of the related trust were deemed to be
assets of the benefit plan. Under a regulation issued by the United States
Department of Labor, the assets of a trust would be treated as plan assets of a
benefit plan for the purposes of ERISA and the IRS code only if the benefit
plan acquired an equity interest in the trust and none of the exceptions
contained in the plan assets regulation was applicable. An equity interest is
defined under the plan assets regulation as an interest other than an
instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. The likely treatment of notes and
certificates will be discussed in the related prospectus supplement.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements.
A plan fiduciary considering the purchase of securities should consult its
tax and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
LEGAL INVESTMENT CONSIDERATIONS
Unless we indicate otherwise in the prospectus supplement, any securities
offered under this prospectus are not expected to constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because there will be a substantial number of loans that are secured by
liens on real estate that are not first liens, as required by SMMEA.
Accordingly, many institutions with legal authority to invest in mortgage
related securities may not be legally authorized to invest in the securities.
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, some state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from
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holding securities representing residual interests, including securities
previously purchased. There may be other restrictions on the ability of some
investors, including depository institutions, either to purchase securities or
to purchase securities representing more than a specified percentage of the
investor's assets. You should consult your own legal advisors in determining
whether and to what extent the securities constitute legal investments for you.
RATINGS
Before to the issuance of any class of securities sold under this prospectus
they must 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 securities should be evaluated
independently of similar security ratings assigned to other kinds of
securities.
UNDERWRITING
We may sell securities of each series to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell and place securities directly to other
purchasers or through agents. We intend that securities 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 securities may be made through a combination of such
methods.
The distribution of the securities 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 specified in the prospectus supplement relating to a series of securities,
we or our affiliate may purchase some or all of one or more classes of
securities of the series from the underwriter or underwriters at a price
specified in the prospectus supplement. The purchaser may then offer and sell,
some or all of such securities so purchased directly, through one or more
underwriters to be designated at the time of the offering of such securities or
through broker-dealers acting as agent or principal or both. This kind of
offering may be restricted in the manner specified in the prospectus
supplement. These 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 securities, underwriters may receive
compensation from us or from purchasers of securities for whom they may act as
agents in the form of discounts, concessions or commissions. Underwriters may
sell the securities of a series to or through dealers and the 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 securities of a series may be deemed to be underwriters,
and any discounts
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or commissions received by them from us and any profit on the resale of the
securities by them may be deemed to be underwriting discounts and SEC, under
the Securities Act. Any underwriters or agents will be identified, and any
compensation received from us will be described, in the prospectus supplement.
Under agreements which may be entered into by us, underwriters and agents who
participate in the distribution of the securities may be entitled to
indemnification by us against certain liabilities, including liabilities under
the Securities Act.
If indicated in the prospectus supplement, we will authorize underwriters or
other persons acting as our agents to solicit offers by some institutions to
purchase the securities from us under contracts providing for payment and
delivery on a future date. Institutions with which their contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational charitable institutions and others, but in
all cases these institutions must be approved by us. The obligation of any
purchaser under any contract will be subject to the condition that the
purchaser of the offered securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which the purchaser is subject
from purchasing the securities. The underwriters and the other agents will not
have responsibility for the validity or performance of the contracts.
The underwriters may buy and sell securities, but there can be no assurance
that an active secondary market will develop and there is no assurance that any
market, if established, will continue.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the securities. These
types of transactions may include stabilizing, the purchase of securities to
cover syndicate short positions and the imposition of penalty bids. For a more
complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
Some of the underwriters and their associates may engage in transactions with
and perform services for us in the ordinary course of business.
The indenture trustee may invest the funds in the designated accounts in
eligible investments acquired from the underwriters.
Under each underwriting agreement, the closing of the sale of any class of
securities will be conditioned on the closing of the sale of all other such
classes.
The place and time of delivery for the securities under which this prospectus
is delivered will be described in the prospectus supplement.
LEGAL MATTERS
Various matters relating to the validity of the certificates and the notes
will be passed upon by our counsel identified in the prospectus supplement. The
validity of the certificates
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and the notes will be passed upon for the underwriters named in the prospectus
supplement by the counsel for the underwriters identified in the prospectus
supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31, 1998, incorporated by reference in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in their prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
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GLOSSARY
For the purposes of this prospectus and the prospectus supplement, the
following terms will have the following meanings:
"Amount available" with respect to any distribution date, means generally the
sum of payments on the loans due and received during the preceding month,
prepayments and other unscheduled collections received during the preceding
month, any amounts deposited in respect of purchased loans, any interest rate
cap payment, any guaranty payment, and all earnings from the investment of
funds in the collection account.
The "formula principal distribution amount" for any distribution date (but
subject to the last sentence of this definition) will generally be equal to the
sum of the following amounts with respect to the monthly period, in each case
computed in accordance with the method specified in each home equity loan:
(1) all scheduled payments of principal due on each outstanding home
equity loan during the monthly period,
(2) all partial principal prepayments applied and all principal
prepayments in full received during the monthly period in respect of each
home equity loan,
(3) the scheduled principal balance of each home equity loan that became
a liquidated loan during the monthly period,
(4) the scheduled principal balance of each home equity loan which,
during the monthly period, was purchased by us as a result of a breach of
a representation or warranty or by the servicer as a result of an uncured
breach of a covenant under the sale and servicing agreement, and
(5) with respect to the distribution date in 1999, any remaining
amounts on deposit in the pre-funding account.
The formula principal distribution amount for the distribution date in
2029, will be the sum of the note principal balance and the certificate
principal balance.
"Liquidated loan" means any defaulted loan as to which the servicer has
determined that all amounts which it expects to recover from or on account of
such loan through the date of disposition of the real property have been
recovered; provided that any defaulted loan in respect of which the real
property has been realized upon and disposed of and proceeds of such
disposition have been received shall be deemed to be a liquidated loan.
"Purchased loan" means a loan that:
. We have become obligated to repurchase (or, under certain
circumstances, has elected to repurchase) as a result of an uncured
breach by us of a representation or warranty made by us for such loan
or
. the servicer has become obligated to repurchase, or, under certain
circumstances, has elected to repurchase, as a result of an uncured
breach of the covenants made by it for that such loan.
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"Noteholders' distributable amount" means, for any distribution date, the sum
of the noteholders' interest distributable amount and the noteholders'
principal distributable amount.
"Noteholders' interest distributable amount" means, for any distribution
date, the sum of the noteholders' monthly interest distributable amount for
such distribution date and the noteholders' interest carryover shortfall for
the distribution date.
"Noteholders' monthly interest distributable amount" means, for any
distribution date, interest accrued for the monthly interest period on each
class of notes at the respective interest rate for such class on:
(1) the outstanding principal balance of the notes of such class and
(2) the aggregate unreimbursed principal liquidation losses of the class
on each prior distribution date, in each case after giving effect to
all payments of principal to the noteholders of the class on the
immediately preceding distribution date.
"Principal liquidation loss" means, for any distribution date and any class
of notes, the amount by which the aggregate principal balance of the class and
each junior class and the certificate principal balance, after giving effect to
any principal liquidation losses imposed on such junior classes and
certificates, exceeds the pool scheduled principal balance, after giving effect
to all distributions of principal on such distribution date.
"Principal balance" means, with respect to any determination date and any
class of notes, the original principal balance of a class minus all amounts
previously distributed in respect of principal of the class and minus any
unreimbursed principal liquidation losses of such class.
"Noteholders' interest carryover shortfall" means, for any distribution date,
the excess of the noteholders' monthly interest distributable amount for the
preceding distribution date and any outstanding noteholders' interest carryover
shortfall on such preceding distribution date, over the amount in respect of
interest that is actually deposited in the note distribution account on the
preceding distribution date, plus interest on the amount of interest due but
not paid to noteholders on the preceding distribution date, to the extent
permitted by law, at the respective interest rate for each class of notes for
the applicable monthly interest period.
"Noteholder's principal distributable amount" means, for any distribution
date, the sum of the noteholders' monthly principal distributable amount for
the distribution date and the noteholders' unpaid principal shortfall as of the
close of the preceding distribution date; provided, however, that the
noteholders' principal distributable amount shall not exceed the outstanding
principal balance of the notes, and provided further, that the noteholders'
principal distributable amount on the final scheduled distribution date shall
not be less than the amount that is necessary, after giving effect to other
amounts to be deposited in the note distribution account on such distribution
date and allocable to principal, to reduce the outstanding principal balances,
including all unreimbursed principal liquidation losses, of all classes of
notes to zero.
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"Noteholders' monthly principal distributable amount" means, for any
distribution date, the noteholders' percentage of the formula principal
distribution amount plus the aggregate unreimbursed principal liquidation
losses of each class of notes.
"Noteholders' percentage" means, 100% until and including the distribution
date on which the aggregate principal balance of the notes are paid in full and
0% thereafter.
"Noteholders' unpaid principal shortfall" means, as of the close of any
distribution date, the excess of the noteholders' monthly principal
distributable amount and any outstanding noteholders' unpaid principal
shortfall from the preceding distribution date over the amount in respect of
principal that is actually deposited in the note distribution account on such
distribution date.
"Certificateholders' distributable amount" means, for any distribution date,
the sum of the certificateholders' interest distributable amount and the
certificateholders' principal distributable amount.
"Certificateholders' interest distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly interest
distributable amount for such distribution date and the certificateholders'
interest carryover shortfall for such distribution date.
"Certificateholders' monthly interest distributable amount" means, for any
distribution date, interest accrued at the pass-through rate on:
(1) the certificate principal balance and
(2) the aggregate unreimbursed certificate principal liquidation losses on
each prior distribution date, in each case after giving effect to all
payments of principal to the certificateholders on the immediately
preceding distribution date.
"Certificate principal liquidation loss" means, for any distribution date,
the amount by which the aggregate principal balance of the notes and the
certificate principal balance exceeds the pool scheduled principal balance,
after giving effect to all distributions of principal on such distribution
date.
"Certificate principal balance" equals, initially, approximately $ and,
after that, equals the original certificate principal balance, reduced by all
amounts allocable to principal previously distributed to certificateholders
minus any unreimbursed certificate principal liquidation losses.
"Certificateholders' interest carryover shortfall" means, for any
distribution date, the excess of the certificateholders' monthly interest
distributable amount for the preceding distribution date and any outstanding
certificateholders' interest carryover shortfall on the preceding distribution
date, over the amount in respect of interest at the pass-through rate that is
actually deposited in the certificate distribution account on such preceding
distribution date, plus interest on such excess, to the extent permitted by
law, at the pass-through rate from such preceding distribution date to but
excluding the current distribution date.
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"Certificateholders' principal distributable amount" means, for any
distribution date, the sum of the certificateholders' monthly principal
distributable amount for such distribution date and the certificateholders'
unpaid principal shortfall as of the close of the preceding distribution date;
provided, however, that the certificateholders' principal distributable amount
shall not exceed the certificate principal balance plus any unreimbursed
certificate principal liquidation losses. In addition, on the final scheduled
distribution date, the principal required to be deposited into the certificate
distribution account shall not be less than the amount that is necessary, after
giving effect to the other amounts to be deposited in the certificate
distribution account on such distribution date and allocable to principal, to
reduce to zero the certificate principal balance plus the unreimbursed
certificate principal liquidation losses.
"Certificateholders' monthly principal distributable amount" means, for any
distribution date prior to the distribution date on which the notes are paid in
full, zero; and with respect to any distribution date commencing on the
distribution date on which the notes are paid in full, the formula principal
distribution amount, less, on the distribution date on which the notes are paid
in full, the portion thereof payable on the notes.
"Certificateholders' unpaid principal shortfall" means, as of the close of
any distribution date, the excess of the certificateholders' monthly principal
distributable amount and any outstanding certificateholders' unpaid principal
shortfall from the preceding distribution date, over the amount in respect of
principal that is actually deposited in the certificate distribution account.
69
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
+ +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Supplement to Base No. 6
PROSPECTUS SUPPLEMENT
(To prospectus dated , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Certificates for Home Improvement Loans
Series 1999-
----------
The certificates will consist of classes, but we are offering only the
classes listed below now:
<TABLE>
<CAPTION>
Approximate Pass-Through Underwriting Proceeds to
Class Principal Amount(1) Rate Price to Public(2) Discount Company(3)
- ----- ------------------- ------------- ------------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Each Certificate........ $ % % %
------------ -------------- ---------- --------------
Total................... $ $ $ $
============ ============== ========== ==============
</TABLE>
- -----
(1) May vary plus or minus 5%.
(2) Plus any accrued interest beginning on , 1999.
(3) Before deducting expenses, which we estimate to be $500,000.
Consider carefully the risk factors beginning on page S-10 in this prospectus
supplement.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
These certificates will be delivered on or about , 1999.
The underwriters named below will offer these securities to the public at the
offering price listed on this cover page and they will receive the discount
listed above. See "Underwriting" on page S- in this prospectus supplement and
on page in the prospectus.
----------
Underwriters
The date of this prospectus supplement is , 1999.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Certificates................................. S-4
Risk Factors............................................................. S-10
Structure of the Transaction............................................. S-11
Use of Proceeds.......................................................... S-12
The Loans................................................................ S-13
Yield and Prepayment Considerations...................................... S-17
Green Tree Financial Corporation......................................... S-21
Description of the Certificates.......................................... S-21
Description of the Limited Guaranty...................................... S-37
Certain Federal Income Tax Consequences.................................. S-37
ERISA Considerations..................................................... S-38
Underwriting............................................................. S-39
Legal Matters............................................................ S-39
Prospectus
Important Notice about Information Presented in this Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trust................................................................ 3
Use of Proceeds.......................................................... 8
Green Tree Financial Corporation......................................... 8
Yield Considerations..................................................... 10
Maturity and Prepayment Considerations................................... 11
Description of the Certificates.......................................... 12
Description of FHA Insurance............................................. 22
Certain Legal Aspects of the Loans; Repurchase Obligations............... 28
ERISA Considerations..................................................... 30
Certain Federal Income Tax Consequences.................................. 33
Legal Investment Considerations.......................................... 40
Ratings.................................................................. 41
Underwriting............................................................. 41
Legal Matters............................................................ 42
Experts.................................................................. 42
Glossary................................................................. 43
</TABLE>
You should rely only on the information contained in this prospectus.
Green Tree and the underwriters have not authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. Green Tree and the
underwriters are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
S-2
<PAGE>
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our home improvement lending business, and about any series of
certificates for home improvement loans that we may wish to sell. This
prospectus supplement contains more detailed information about the specific
terms of this series of certificates. If the description of the terms of your
certificate varies between this prospectus supplement and the prospectus, you
should rely on the information in this prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from us or an underwriter by asking for it.
No prospectus regarding these certificates has been or will be prepared in
the United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulation 1995. These certificates may not be offered or sold, or re-offered
or re-sold, to persons in the United Kingdom, except (1) to persons whose
ordinary activities involve them in acquiring, holding, managing and disposing
of investments (as principal or agent) for the purpose of their businesses, or
(2) in circumstances that will not constitute or result in an offer to the
public in the United Kingdom within the meaning of the United Kingdom Public
Offers of Securities Regulation 1995. You may not pass this prospectus
supplement and prospectus, or any other document inviting applications or
offers to purchase certificates or offering certificates for purchase, to any
person in the United Kingdom who (1) does not fall within article 11(3) of the
Financial Services Act 1986 (Investment Advisements) (Exemptions) Order 1996 or
(2) is not otherwise a person to whom passing this prospectus supplement and
prospectus would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE CERTIFICATES
This summary highlights selected information regarding the certificates, and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the certificates,
read this entire prospectus supplement and the accompanying prospectus. In
particular, reference will be made throughout this summary to sections of this
prospectus supplement or the prospectus, or both, which will contain more
complete descriptions of the matters summarized. All these references will be
to sections of this prospectus supplement only unless otherwise noted.
The certificates for home improvement loans, Series 1999-A listed on the
table below will represent interests in a trust. The trust will own a pool of
home equity loans.
<TABLE>
<CAPTION>
Pass-Through Approximate S&P Fitch
Class Rate Principal Amount(1) Rating Rating
- ----- ------------ ------------------- ------ ------
<S> <C> <C> <C> <C>
Each Certificate................. $
</TABLE>
- --------
(1)May vary plus or minus 5%.
We will not issue or sell the certificates unless S&P and Fitch assign each
class at least the rating listed above. The rating on the certificates by S&P
addresses the likelihood of timely receipt of interest and ultimate receipt of
principal. The rating by Fitch addresses the likelihood of the receipt of
certificateholders of all distributions to which such certificateholders are
entitled. 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.
Seller and Servicer.........
Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul,
Minnesota 55102, telephone: (651) 293-3400.
Trustee.....................
[Trustee], Minnesota.
Payment Date................
The fifteenth day of each month, or if that day
is not business day, the next succeeding
business day. The first payment date will be
, .
Record Date.................
The business day just before the payment date
Distributions...............
Holders of the certificates will receive on
each payment date distribution of interest and
principal. The final distribution in respect of
the certificates will
S-4
<PAGE>
be made only upon presentation and surrender of
the certificates at the office or agency
appointed by the trustee for that purpose in
Minneapolis or St. Paul, Minnesota. The amount
available for the trust on each payment date
generally includes payments on the loans due
during the previous calendar month and received
on or prior to the determination date,
prepayments and other unscheduled collections
received on the loans during the due period,
any advances made by the servicer or the
trustee with respect to such due period and any
amounts paid by us to repurchase a loan due to
a breach of representation or warranty.
Distributions on the
Certificates
Interest..................
We will pay interest on the certificates on
each payment date in an amount equal to one
month's interest at the pass-through rate on
the aggregate certificate principal balance
immediately prior to that payment date. In the
case of the first payment date, we will only
pay interest from the closing date to ,
1999. We will compute accrued interest on the
basis of a 360-day year of twelve 30-day
months.
If there is not a sufficient amount available
in the certificate account to make a full
distribution of interest to the
certificateholders, we will allocate the amount
of interest due pro rata to the outstanding
certificates and we will carry forward the
amount of the shortfall and add it to the
amounts due on the next payment date. See
"Description of the Certificates."
Principal.................
We will pay principal on the certificates on
each payment date, to the extent of the amount
available after payment of all interest payable
on the certificates, in an amount equal to the
sum of
^ the amount of regular principal payments
on loans paid or applied during the
prior due period;
^ the amount of principal prepayments
received on loans during the prior due
period;
S-5
<PAGE>
^ the principal portion of all payments on
loans that were delinquent payments as
of the end of the prior due period;
^ the unpaid principal balance of all
loans that became liquidated loans with
respect to the prior due period;
^ the principal portion of the repurchase
price paid by us to repurchase loans for
breach of representations and warranties
with respect to the prior due period;
^ the amount of any reduction in the
principal amount deemed owed on any loan
as a result of the obligor's bankruptcy;
and
^ any principal amount described that was
not previously distributed because of an
insufficient amount of funds available
in the certificate account and we either
were not obligated to or failed to pay
amounts under the limited guaranty.
Limited Guaranty............
To mitigate the effect of liquidation losses on
the loans, we will entitle the
certificateholders to receive on each
distribution date an amount equal to the
guaranty payment, if any, under our limited
guaranty. The guaranty payment for any payment
date will equal the amount by which the formula
distribution amount exceeds the amount
available in the certificate account for that
payment date.
The limited guaranty will be our unsecured
general obligation and will not be supported by
any letter of credit or other enhancement
arrangement. The rating assigned to the
certificates may be affected by the rating of
our debt securities.
Loans.......................
The loans consist of conventional and
FHA-insured home improvement contracts and
promissory notes. The obligations of the
obligor under each loan are unsecured loans.
The loans arise from loans relating to the
improvement of real estate located in states
and the District of Columbia. The annual
interest rate on the loans as of the cut-off
date ranges from % to % with a
weighted average of
S-6
<PAGE>
%. The loans had a weighted average term
to scheduled maturity, as of origination, of
months, and a weighted average term to
scheduled maturity, as of the cut-off date, of
months. The final scheduled payment date on
the loan with the latest scheduled maturity is
in . See "The Loans" in this prospectus
supplement.
FHA Insurance...............
Approximately % of the loans by principal
balance as of the cut-off date are insured by
FHA against obligor defaults pursuant to Title
I of the National Housing Act. See "Description
of FHA Insurance" in the prospectus.
Advances....................
The servicer must make advances each month for
any scheduled payments on the loans that were
due but not received during the prior due
period. The servicer will be entitled to
reimbursement of an advance from subsequent
funds available in the certificate account. The
servicer will be obligated to make an advance
only if it determines that the advance will be
recoverable from subsequent funds available in
the certificate account. If the servicer fails
to make any advance required under the pooling
and servicing agreement, the trustee will be
obligated, subject to certain conditions, to
make that advance. See "Description of the
Certificates--Advances" in this prospectus
supplement and in the prospectus.
Repurchase or Substitution
Obligations.................
We will repurchase any loan in which the
trust's or the certificateholders' interest is
materially and adversely affected by a breach
of a representation and warranty on that loan
made in the pooling and servicing agreement if
the breach has not been cured within 90 days of
the day it was or should have been discovered
by the servicer or the trustee. Instead of
repurchasing a loan, during the 120 day period
following the closing date, we may substitute
another loan for the loan that we were
otherwise obligated to repurchase. See
"Description of the Certificates--Conveyance of
Loans" in this prospectus supplement and in the
prospectus.
S-7
<PAGE>
Repurchase Option...........
The servicer will have the option to repurchase
all of the outstanding loans on any payment
date on which the pool scheduled principal
balance is less than 10% of the cut-off date
pool principal balance. See "Description of the
Certificates--Repurchase Option" in this
prospectus supplement and in the prospectus.
Monthly Servicing Fee.......
The servicer will receive monthly compensation
for servicing the loans equal to 1/12 of the
product of .75% and the pool scheduled
principal balance. See "Description of the
Certificates--Servicing Compensation and
Payment of Expenses" and "Rights upon an Event
of Termination" in this prospectus supplement.
Tax Status..................
In the opinion of our counsel, the trust will
be classified as a grantor trust for federal
income tax purposes and not as an association
which is taxable as a corporation. Each
certificateholder will be treated for these
purposes as the owner of an undivided interest
in the loans. Accordingly, each
certificateholder must report on its federal
income tax return its share of the income from
the loans and, subject to limitations on
deductions by individuals, estates and trusts,
may deduct its share of the reasonable fees
paid by the trust, determined in accordance
with a certificateholder's tax accounting
method. See "Certain Federal Income Tax
Consequences" in this prospectus supplement and
in the prospectus.
ERISA Considerations........
No transfer of any certificates will be
permitted to be made to any employee benefit
plan subject to the Employee Retirement Income
Security Act of 1974 or to the Internal Revenue
Code of 1986 unless an opinion of counsel is
delivered to the trustee. See "ERISA
Considerations" in this prospectus supplement
and in the prospectus.
Legal Investment
Considerations..............
The certificates will not constitute mortgage
related securities for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 because the loans
S-8
<PAGE>
are not secured by first liens on the related
real estate. This means that many institutions
that have the legal authority to invest in
mortgage related securities may not be legally
authorized to invest in the certificates. You
should consult with your own legal advisor to
decide whether and to what extent you may
legally invest in the certificates.
Reports to Holders of
Certificates...........
We will provide to the holder of the
certificates monthly and annual reports about
the certificates and the trusts. See
"Description of the Certificates--Reports to
Certificateholders" in the prospectus.
S-9
<PAGE>
RISK FACTORS
You should consider the following factors in connection with the purchase of
the certificates.
We have limited experience with home improvement loans.
We began purchasing and servicing FHA-insured home improvement loans in April
1989, and conventional home improvement loans in September 1992, and thus has
limited historical experience with the performance, including the rate of
prepayments of home improvement loans. Accordingly, our delinquency experience
and loan loss and liquidation experience described under "The Loans" may not be
indicative of the performance of the loans.
There are limits on the availability of FHA insurance.
We will specify in the prospectus supplement the number and percentage of
home improvement loans in the pool that are insured by FHA pursuant to Title I
of the National Housing Act. The availability of FHA insurance following a
default on an FHA-insured home improvement loan is subject to a number of
conditions, including strict compliance by us with FHA regulations in
originating and servicing the loan. Although we are an FHA-approved lender and
we believe that we have complied with FHA regulations, these regulations are
susceptible to substantial interpretation. The law does not require us to
obtain approval from FHA of its origination and servicing practices. If we fail
to comply with FHA regulations, FHA may deny some insurance claims and we
cannot assure you that FHA's enforcement of its regulations will not become
stricter in the future. We sometimes engage in disputes with FHA over the
validity of claims submitted and our compliance with FHA regulations in
servicing loans insured by FHA. In addition, FHA will only cover 90% of the sum
of the unpaid principal on a home improvement loan, up to nine months unpaid
interest and certain liquidation costs.
The amount of FHA insurance on the loans in a given pool is limited to the
balance of a reserve amount. This reserve amount as of , 1998, was equal to
approximately $ , but will be reduced by the amount of all FHA insurance
claims paid and will be increased by an amount equal to 10% of the unpaid
principal balance of FHA Title I loans subsequently originated and reported for
insurance by us. Severe losses on our FHA-insured manufactured housing loans,
or on other FHA-insured home improvement loans originated by us, could reduce
or eliminate our FHA insurance reserves. If this happened FHA insurance would
not be available to cover losses on FHA-insured home improvement loans. If we
were terminated as servicer due to bankruptcy or otherwise, it is anticipated
that a proportionate amount of our FHA insurance reserves would be transferred
to the reserve account of the trustee or the successor servicer, but we can not
assure you of the amount, if any, that would be transferred. For a more
complete description of the limits on the availability of FHA insurance, see
"Description of FHA Insurance."
S-10
<PAGE>
The certificates will not represent an interest in or obligation of Green Tree.
Neither the government, any underwriter or its affiliates, the servicer nor
any other party will insure or guarantee any of the certificates of any series,
except as we otherwise specify in the related prospectus supplement.
The obligations of an obligor under each home improvement loan will not be
secured by an interest in the real estate.
The trust, as the owner of the home improvement loans, will be a general
unsecured creditor as to those obligations. If an obligor defaults on its home
improvement loan, the related trust will have recourse only against the
obligor's assets generally, along with all other general unsecured creditors of
the obligor. In a bankruptcy or insolvency proceeding relating to an obligor of
a home improvement loan, the obligations of an obligor under that home
improvement loan may be discharged in their entirety. An obligor on a home
improvement loan may not demonstrate concern over performance of its
obligations under the home improvement loan as in the case where such
obligations are secured by the real estate owned by the obligor.
We intend that each transfer of loans to the related trust fund will
constitute a sale, rather than a pledge of the loans to secure our
indebtedness. However, if we were to become a debtor under the federal
bankruptcy code, it is possible that our creditor or trustee in bankruptcy may
argue that the sale of the loans by us was a pledge of the loans 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 holders of the certificates.
There may be no secondary market for the securities.
We cannot assure to you that a secondary market will develop for the
certificates of any series, or, if a secondary market does develop, that it
will provide the holders of any of the certificates with liquidity of
investment. We also cannot assure to you that if a secondary market does
develop, that it will continue to exist for the term of any series of
certificates.
Unsecured home improvement loans experience a higher rate of delinquency.
Based on our experience, home improvement loans that are not secured by any
lien on the improved real estate have experienced, and are expected to continue
to experience, a higher rate of delinquency and loan default as compared with
our servicing portfolio of FHA-insured and other secured home improvement
loans. Based on our experience to date, loan defaults on unsecured home
improvement loans typically result in chargeoffs that equal or exceed 100% of
the outstanding principal balance of the loan.
STRUCTURE OF THE TRANSACTION
On or about the closing date, 1998, we will establish the trust under a
pooling and servicing agreement to be dated as of , 1999, between us, as
seller and servicer, and the trustee.
S-11
<PAGE>
The certificates will be issued by the trust, which will consist primarily of
the loans, including all rights to receive payments due on the loans on and
after , 1998, or the date of origination, if later, all rights under FHA
insurance for the FHA-insured loans, amounts held for the trust in the
certificate account, and our limited guaranty described in "Description of the
Limited Guaranty."
Payments and recoveries of principal and interest on the loans will be paid
into a separate trust account maintained at an eligible institution (initially
[trustee], , Minnesota) in the name of the trust, no later than one
business day after receipt. Payments deposited in the certificate account for
each due period will be applied on the fifteenth day of the next month, or, if
that day is not a business day, the next business day, each a payment date, to
make the distributions to the certificateholders as of the immediately
preceding record date and to pay some monthly fees to the servicer as
compensation for its servicing of the loans and to pay any remaining amounts in
the certificate account to us as compensation for providing the limited
guaranty.
The servicer will be obligated to advance any scheduled payments on the loans
that were due but not received during the prior due period. The servicer will
be entitled to reimbursement of an advance from payments on or liquidation
proceeds of the related loan and then from other funds in the certificate
account. The servicer will not be required to make any advance to the extent
that it does not expect to recoup the advance from subsequent collections on
the loan or from liquidation proceeds. If the servicer fails to make any
advance required under the agreement, the trustee is obligated, subject to
certain conditions, to make the advance.
Following the transfer of the loans from us to the trust, our obligations are
limited to:
(1) our obligation as servicer to service the loans,
(2) some representations and warranties in the agreement as described
under "Description of the Certificates--Conveyance of Contracts,"
(3) some indemnities, and
(4) the limited guaranty.
We are obligated under the agreement to repurchase at the repurchase price, or,
at its option, to substitute another contract for, any loan on the first
payment date which is more than 90 days after we become aware, or we receive
written notice from the trustee, of any breach of any representation and
warranty in the agreement that materially adversely affects the
certificateholders' interest in the loan if the breach has not been cured
before that date. The agreement also provides that we have some obligations to
repurchase loans and to indemnify the trustee and certificateholders for other
matters.
USE OF PROCEEDS
We will use the net proceeds received from the sale of the certificates for
working capital and general corporate purposes, including building a portfolio
of home improvement contracts and promissory notes, providing warehouse
financing for the purchase of contracts and other costs of maintaining these
contracts until they are pooled and sold to other investors.
S-12
<PAGE>
THE LOANS
Each loan is a home improvement loan originated by a Green Tree-approved home
improvement contractor and purchased by us, or a home improvement promissory
note originated by us directly. Each loan finances improvements to a one- to
four-family residential property, an owner-occupied condominium or town house
or a manufactured home which either qualifies as real estate under state law or
is located in a park approved by us. The loans are not secured by any mortgage
or other lien on or security interest in the related improved real estate or
any other real or personal property.
We will make various representations and warranties in the agreement,
including:
(1) each loan is fully amortizing with a fixed contractual rate of
interest and provides for level payments over the term of the loan,
computed on the simple interest method,
(2) each loan has its last scheduled payment due no later than ,
and
(3) each FHA-insured loan was originated in accordance with applicable FHA
regulations and is insured, without set-off, surcharge or defense, by
FHA insurance.
The loans were originated or acquired by us in the ordinary course of our
business. A detailed listing of the loans is attached to the agreement. See
"Description of the Certificates" in this supplement and in the prospectus.
Each of the loans has a loan rate of at least % per year and not more than
% and the weighted average of the loan rates of the loans as of the cut-
off date is %. As of the cut-off date, the loans had remaining maturities
of at least months but not more than months and original maturities of
at least 24 months but not more than months. The loans had a weighted
average term to scheduled maturity, as of origination, of months, and a
weighted average term to scheduled maturity, as of the cut-off date, of
months. The average principal balance per loan as of the cut-off date was $
and the principal balances on the loans as of the cut-off date ranged from
$ to $ . The loans arise from loans for real property located in
states and the District of Columbia. By principal balance as of the cut-off
date, approximately % of the loans financed improvements to real estate
located in California. No other state represented % or more of the cut-off
date pool principal balance. Substantially none of the loans provide for
recourse to the originating contractor in the event of a default by the
obligor.
S-13
<PAGE>
The table below describes some additional characteristics of the loans.
Geographical Distribution of Improved Real Estate
<TABLE>
<CAPTION>
% of
Loan Pool by
% of Loan Pool by Aggregate Principal Outstanding
Number of Number of Balance Principal
Loans as of Loans as Outstanding as of Balance as of
Cut-off Date of Cut-off Date Cut-off Date Cut-off Date
------------ ----------------- ------------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Alaska..................
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------- ------------ ------
Total............... 100.00% $ 100.00%
===== ======= ============ ======
</TABLE>
S-14
<PAGE>
Years of Origination of Loans
<TABLE>
<CAPTION>
% of
Loan Pool by
Number of Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
Year of Origination off Date as of Cut-off Date Cut-off Date
------------------- ---------------- ------------------- ----------------------
<S> <C> <C> <C>
.................... $ %
....................
....................
------ ------------ ------
Total............... $ 100.00%
====== ============ ======
Distribution of Original Loan Amounts
<CAPTION>
% of
Loan Pool by
Number of Loans Aggregate Principal Outstanding Principal
Original Loan as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------------- ------------------- ----------------------
<S> <C> <C> <C>
Less than $10,000....... $ %
$10,000-$19,999.........
------ ------------ ------
Total............... $ 100.00%
====== ============ ======
Loan Rates
<CAPTION>
% of
Loan Pool by
Number of Loans Aggregate Principal Outstanding Principal
Range of Loans as of Cut- Balance Outstanding Balance as of
by Loan Rate off Date as of Cut-off Date Cut-off Date
- -------------- ---------------- ------------------- ----------------------
<S> <C> <C> <C>
9.00001%-10.00000%..... $ %
10.00001%-11.00000%.....
11.00001%-12.00000%.....
12.00001%-13.00000%.....
13.00001%-14.00000%.....
14.00001%-15.00000%.....
15.00001%-16.00000%.....
16.00001%-17.00000%.....
Over 17.00000%..........
------ ------------ ------
Total............... $ 100.00%
====== ============ ======
Remaining Months to Maturity
<CAPTION>
% of
Loan Pool by
Months Remaining to Number of Loans Aggregate Principal Outstanding Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------------- ------------------- ----------------------
<S> <C> <C> <C>
Less than 31............ $ %
31 to 60................
61 to 90................
91 to 120...............
121 to 150..............
151 to 180..............
181 to 210..............
211 to 240..............
------ ------------ ------
Total............... $ 100.00%
====== ============ ======
</TABLE>
S-15
<PAGE>
Delinquency, Loan Default and Loss Information
The table below shows the delinquency experience for the periods indicated of
the portfolio of unsecured home improvement loans serviced by us.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31,
At , ------------------------
1998 1997 1996 1995
------- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding(1).......... 18,411
Number of Contracts Delinquent(2)(3)
30-59 Days................................ 115
60-89 Days................................ 44
90 Days or More........................... 14
---- ---- ---- ---- ------
Total Contracts Delinquent.................. 173
Delinquencies as a Percent of Contracts Out-
standing(4)................................ % % % % .94%
</TABLE>
- --------
(1) Excludes defaulted contracts not yet liquidated.
(2) A contract is considered delinquent by us if any payment of $25 or more is
past-due 30 days or more.
(3) The period of delinquency is based on the number of days that payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
(4) By number of contracts.
The table below shows the loan default and loss experience for the periods
indicated of the portfolio of unsecured home improvement loans serviced by us.
Loan Default and Loss Experience
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Months
Months Ended December 31,
Ended , ----------------------------------
1999 1998 1997 1996 1995
---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Principal Balance of Contracts
Serviced(1)................... $ $ $ $ $97,544
Contract Defaults(2)........... % % % % 1.38%
Net Losses:
Dollars(3)................... $ $ $ $ $ 1,710
Percentage(4)................ % % % % 1.75%
</TABLE>
- --------
(1) As of period end. Includes defaulted contracts not yet liquidated.
(2) As a percentage of the total number of contracts being serviced as of
period end. We consider a contract defaulted when we have submitted a claim
to FHA (in the case of FHA-insured contracts), we have commenced
foreclosure or enforcement proceedings, or the contract is 180 days
delinquent.
(3) Does not include any estimated losses for defaulted contracts not yet
liquidated. The calculation of net loss on FHA-insured contracts includes
unpaid interest to the date of FHA claim submission and all expenses of
liquidation, and reflects proceeds of FHA Insurance claims paid.
(4) As a percentage of the principal amount of contracts being serviced as of
period end.
Our management is not aware of any trends or anomalies which have adversely
affected the delinquency, loan default and loss experience of its portfolio of
home improvement contracts.
S-16
<PAGE>
The data presented in the foregoing tables are for illustrative purposes only
and there is no assurance that the delinquency, loan default and loss
experience of the loans will be similar to that shown above. Because we began
originating and purchasing unsecured home improvement contracts in September
1992, it is likely that our portfolio is not yet sufficiently seasoned to show
the delinquencies and losses that would be experienced if such data were
collected over a longer period of time. The delinquency, loan default and loss
experience of home improvement loans may be adversely affected by a downturn in
regional or local economic conditions. Regional and local economic conditions
are often volatile, and no predictions can be made regarding future economic
conditions in any particular area.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any certificate will depend on the price paid by the
certificateholder, the timing of principal payments, and the timing and amount
of any liquidation losses on the loans.
Higher than expected principal prepayments will increase the yield on
certificates purchased at a price less than the undivided ownership interest in
the aggregate principal balance of the loans represented by those certificates
and will decrease the yield on certificates purchased at a price greater than
the undivided ownership interest in the aggregate principal balance of the
loans represented by those certificates. Because the loans have scheduled due
dates throughout the calendar month, and because all principal prepayments are
passed through to certificateholders on the payment date following the due
period in which the principal prepayment occurred, prepayments on the loans
would affect the amount of funds available to make distributions on the
certificates on any payment date only if a substantial portion of the loans
prepaid before their respective due dates in a particular month, thus paying
less than 30 days' interest for that due period, while very few loans prepaid
after their respective due dates in that month. In addition, liquidations of
defaulted loans or the servicer's exercise of its option to repurchase the
entire remaining pool of loans will affect the timing of principal
distributions on the certificates. Prepayments on mortgage loans and other
consumer installment obligations are commonly measured relative to a prepayment
standard or model. The constant prepayment rate model ("CPR") assumes that the
outstanding principal balance of a pool of loans prepays each month at a
specified constant annual rate. The certificates were priced using a prepayment
assumption of % CPR. We cannot assure you that the loans will prepay at this
rate, and it is unlikely that prepayments or liquidations of the loans will
occur at any constant rate.
The amount of interest to which the certificateholders are entitled on any
payment date will be the product of the pass-through rate and the aggregate
certificate principal balance immediately following the preceding payment date,
based on a 360-day year consisting of 12 months of 30 days each.
Certificateholders will receive payments for principal on each payment date to
the extent that funds available in the certificate account are sufficient, in
the priority described under "Description of the Certificates--Distributions on
the Certificates." As required by applicable state laws, interest paid by
obligors on the loans is computed
S-17
<PAGE>
according to the simple interest method. Principal and interest payable on the
certificates will be computed according to the actuarial method.
The final scheduled payment date on the loan with the latest maturity is in
.
Weighted Average Life of the Certificates
The following information is given solely to illustrate the effect of
prepayments of the loans on the weighted average life of the certificates under
the stated assumptions and is not a prediction of the prepayment rate that
might actually be experienced by the loans.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the certificates will be
influenced by the rate at which principal on the loans is paid. Principal
payments on loans may be in the form of scheduled amortization or prepayments.
For this purpose, the term prepayment includes repayments and liquidations due
to default or other dispositions of the loans. Prepayments on loans may be
measured by a prepayment standard or model. The model used in this prospectus
supplement, the constant prepayment rate model, is described above.
As used in the following table, "0% CPR" assumes that none of the loans are
prepaid before maturity, " % CPR" assumes the loans will prepay at a CPR of
%, and so forth.
We cannot assure you that prepayment of the loans will conform to any level
of the CPR, and no representation is made that the loans will prepay at the
prepayment rates shown or any other prepayment rate. The rate of principal
payments on pools of home improvement contracts is influenced by a variety of
economic, geographic, social and other factors, including the level of interest
rates and the rate at which homeowners sell their homes or default on their
contracts. Other factors affecting prepayment of contracts include:
. changes in obligors' housing needs,
. job transfers,
. unemployment and
. obligors' net equity in their homes.
In the case of home improvement contracts secured by real estate, in general,
if prevailing interest rates fall significantly below the interest rates on the
home improvement contracts, the home improvement contracts are likely to be
subject to higher prepayment rates than if prevailing interest rates remained
at or above the rates borne by the home improvement contracts. Conversely, if
prevailing interest rates rise above the interest rates on the home improvement
contracts, the rate of prepayment would be expected to decrease.
The percentages and weighted average lives in the following table were
determined assuming that:
(1) scheduled interest and principal payments on the loans are received in
a timely manner and prepayments are made at the indicated percentages
of the CPR;
S-18
<PAGE>
(2) the servicer exercises its option to repurchase the loans, as
described under "Description of the Certificates--Repurchase Option";
(3) the loans will, as of the cut-off date, be grouped into four pools
having the additional characteristics described under "Assumed Loan
Characteristics";
(4) the certificates have an original series 1999- certificate principal
balance of $ and a pass-through rate of %;
(5) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(6) no delinquencies or losses are experienced on the loans;
(7) distributions are made on the certificates on the 15th day of each
month, commencing in 1998; and
(8) the certificates are issued on , 1999.
No representation is made that the loans will not experience delinquencies or
losses.
Assumed Loan Characteristics
<TABLE>
<CAPTION>
Cut-off Date Weighted Average Weighted Average
Pool Remaining Term Original Term
Principal Weighted Average to Maturity to Maturity
Pool Balance Loan Rate (months) (months)
---- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1.............. $ %
2..............
3..............
4..............
</TABLE>
It is not likely that the loans will prepay at any constant percentage of the
CPR to maturity or that all of the loans will prepay at the same rate.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed in this prospectus supplement.
Based on these assumptions, the table below indicates the projected weighted
average life of the certificates and describes the percentages of the original
series 1996-E certificate principal balance that would be outstanding after
each of the dates shown, at the indicated percentages of the CPR.
The weighted average life of a certificate is determined by:
(1) multiplying the amount of cash distributions in reduction of the
principal balance of the certificate by the number of years from the
date of issuance of that certificate to the stated payment date,
(2) adding the results, and
(3) dividing the sum by the initial principal balance of that certificate.
S-19
<PAGE>
Percentage of the Original Series 1996-E Certificate Principal Balance at
theRespective Percentages of the CPR Set Forth Below:
<TABLE>
<CAPTION>
Date 10% 15% 20% 25% 30%
- ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
Initial Percentage..................................... 100% 100% 100% 100% 100%
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
...............................................
Weighted Average Life (years)..........................
</TABLE>
S-20
<PAGE>
GREEN TREE FINANCIAL CORPORATION
General
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under the heading "Green Tree Financial
Corporation."
Ratio of Earnings to Fixed Charges for Green Tree
The table below shows Green Tree's ratios of earnings to fixed charges for
the past five years ending December 31, 1998 and the three months ended March
31, 1999. For the purposes of compiling these ratios, earnings consist of
earnings before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended December 31, March 31,
------------------------ ---------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges......... 7.98 7.90 5.44 3.94 0.62* 4.53
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to our merger with
Conseco, Inc.
Recent Developments
We have been served with various lawsuits in the United States District Court
for the District of Minnesota. These lawsuits were filed by our stockholders as
purported class actions on behalf of persons or entities who purchased common
stock or traded in options during the alleged class periods. In addition to the
company, some of our current and former officers and directors are named as
defendants in one or more of the lawsuits. The lawsuits have been consolidated
into two complaints, one relating to an alleged class of purchasers of our
common stock and the other relating to an alleged class of traders in options
for our common stock. In addition to these two complaints, a separate non-class
action lawsuit containing similar allegations was also filed. Plaintiffs in the
lawsuits assert claims under Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. In each case, plaintiffs allege that we and the other
defendants violated federal securities laws by making false and misleading
statements about our current state and our future prospects particularly about
prepayment assumptions and performance of some of our loan portfolios, which
allegedly rendered our financial statements false and misleading. We believe
that the lawsuits are without merit and intend to defend the lawsuits
vigorously.
DESCRIPTION OF THE CERTIFICATES
The following information supplements and if inconsistent, supersedes the
information in the prospectus under "Description of the Certificates."
The certificates will be issued pursuant to the pooling and servicing
agreement between us, as seller and servicer, and the trustee. A copy of the
execution form of the pooling and
S-21
<PAGE>
servicing agreement will be filed in a current report on Form 8-K with the SEC
after the initial issuance of the certificates. The following summary describes
the material provisions of the pooling and servicing agreement, reference to
which is made for a complete recital of its terms.
General
The certificates will be issued in fully registered, certificated form only
in denominations of $1,000 or any integral multiple of $1,000, except for one
certificate with a denomination representing the remainder of the original
principal balance. The certificates initially will be represented by one or
more certificates registered in the name of Cede & Co. as the nominee of DTC,
and will only be available in the form of book-entries on the records of DTC
and participating members. See "Description of the Certificates--Registration
of the Certificates" below. The trust consists primarily of the loans and the
rights, benefits, obligations and proceeds, all rights under FHA insurance for
the FHA-insured loans, amounts held in the certificate account and the limited
guaranty of Green Tree.
Distributions on the certificates will be made by the paying agent on each
payment date to persons in whose names the certificates are registered as of
the business day immediately preceding the payment date. See "Description of
the Certificates--Registration of the Certificates". The first payment date for
the certificates will be in 1999. Payments will be made by check mailed to
the certificateholder at the address appearing on the certificate register,
except that a certificateholder who holds an aggregate percentage interest of
at least 5% of the trust may request payment by wire transfer. Final payments
will be made only upon tender of the certificates to the trustee for
cancellation.
Conveyance of Loans
On the closing date, we will establish the trust and transfer, assign, set
over and otherwise convey to the trust all our right, title and interest in the
loans, including all principal and interest received the loans other than
receipts of principal and interest due on the loans before the cut-off date. On
behalf of the trust, as the issuer of the certificates offered, the trustee,
concurrently with such conveyance, will execute and deliver the certificates to
or upon our order. The loans are described on a list delivered to the trustee
and certified by a duly authorized officer of the company. This list includes
the amount of monthly payments due on each loan as of the date of issuance of
the certificates, the loan rate on each loan and the maturity date of each
loan. The list will be attached as an exhibit to the pooling and servicing
agreement and will be available for inspection by any certificateholder at our
principal office. Before the conveyance of the loans to the trust, our internal
audit department will have completed a review of all the loan files, confirming
the accuracy of each item on the list of loans delivered to the trustee. Any
loan discovered not to agree with the list in a manner that is materially
adverse to the interests of the certificateholders will be repurchased by us,
or, if the discrepancy relates to the unpaid principal balance of a loan, we
may deposit cash in the certificate account in an amount sufficient to offset
such discrepancy.
S-22
<PAGE>
The trustee will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota, reflecting the conveyance and assignment of the loans to
the trustee, and our accounting records and computer systems will also reflect
the conveyance and assignment.
Our counsel, [counsel], will render an opinion to the trustee that the
transfer of the loans from us to the trust would, in the event we became a
debtor under the United States Bankruptcy Code, be treated as a true sale and
not as a pledge to secure borrowings. If the transfer of the loans from us to
the trust were treated as a pledge to secure borrowings by us, the distribution
of proceeds of the loans to the trust might be subject to the automatic stay
provisions of the United States Bankruptcy Code, which would delay the
distribution of the proceeds for an uncertain period of time. In addition, a
bankruptcy trustee would have the power to sell the loans if the proceeds of
such sale could satisfy the amount of the debt deemed owed by us, or the
bankruptcy trustee could substitute other collateral in lieu of the loans to
secure such debt, or such debt could be subject to adjustment by the bankruptcy
trustee if we were to file for reorganization under Chapter 11 of the United
States Bankruptcy Code.
We will make certain representations and warranties in the pooling and
servicing agreement with respect to each loan, including that:
(1) as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
(2) no provision of a loan has been waived, altered or modified in any
way, except by instruments or documents included in the loan file and
reflected on the list of loans delivered to the trustee;
(3) each loan 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;
(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each loan, if it is an FHA-insured contract, was originated in
accordance with applicable FHA regulations and is insured, without
set-off, surcharge or defense, by FHA insurance;
(6) each loan was originated by a home improvement contractor in the
ordinary course of its business or was originated by us directly;
(7) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest on the loan unlawful;
(8) each loan complies with all requirements of law;
(9) no loan has been satisfied or rescinded;
(10) all parties to each loan had full legal capacity to execute the loan;
S-23
<PAGE>
(11) no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to the trustee;
(12) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clause (1) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under the loan, and Green Tree has not waived any of the
foregoing;
(13) each loan is a fully-amortizing loan with a fixed rate of interest
and provides for level monthly payments over the term of the loan;
(14) the description of each loan described in the list delivered to the
trustee is true and correct;
(15) there is only one original of each loan; and
(16) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
We will also make certain representations and warranties for the loans in the
aggregate, including that:
(1) the cut-off date pool principal balance equals at least the original
series 1999- certificate principal balance, and each loan has a
contractual rate of interest of at least %;
(2) no loan had a remaining term to maturity at origination of more than
months;
(3) no more than % of the loans, by principal balance as of the cut-off
date, related to properties located in an area with the same zip code;
and
(4) no adverse selection procedures were employed in selecting the loans
from our portfolio.
Under the terms of the pooling and servicing agreement, and subject to our
option to effect a substitution as described in the next paragraph, we have
agreed to repurchase, at the repurchase price, any loan that is materially and
adversely affected by a breach of a representation and warranty for the loan
made in the pooling and servicing agreement if the breach has not been cured
within 90 days of the day it was or should have been discovered by the servicer
or the trustee. The repurchase price, for any loan to be repurchased or for a
liquidated loan, means the outstanding principal balance of the loan without
giving effect to any advances made by the servicer or the trustee, plus
interest on the loan at the pass-through rate from the end of the due period
for which the obligor last made a payment without giving effect to any advances
made by the servicer or the trustee, through the date of the repurchase or
liquidation. This repurchase obligation constitutes the sole remedy available
to the trust and the certificateholders for a breach of a representation or
warranty
S-24
<PAGE>
under the pooling and servicing agreement for the loans, but not for any breach
by us of our obligations under the pooling and servicing agreements.
Instead of purchasing a loan as described in the preceding paragraph, during
the 120 day period following the closing date, we may, at our option,
substitute an eligible substitute loan for the loan that we are otherwise
obligated to repurchase. An eligible substitute loan is:
(1) a loan that satisfies, as of the date of its substitution, the
representations and warranties specified in article III of the
pooling and servicing agreement;
(2) has a scheduled principal balance that is not greater than the
scheduled principal balance of the replaced loan;
(3) has a loan rate that is at least equal to the loan rate of the
replaced loan; and
(4) has a remaining term to scheduled maturity that is not greater than
the remaining term to scheduled maturity of the replaced loan.
We will be required to deposit in the certificate account cash in the amount by
which the scheduled principal balance of the replaced loan exceeds the
scheduled principal balance of the loan being substituted. This deposit will be
deemed to be a partial principal prepayment.
Under the pooling and servicing agreement, the servicer will service and
administer the loans conveyed and assigned to the trustee as more fully
described below.
Payments on Loans
The servicer, on behalf of the trust, will establish and maintain a
certificate account in an "eligible account" at a depository institution
initially, [trustee], , Minnesota, with trust powers organized under the
laws of the United States or any state, the deposits of which are insured to
the full extent permitted by law by the Federal Deposit Insurance Corporation,
whose short-term deposits have been rated A-1 by S&P and F-1 by Fitch, if rated
by Fitch, or whose unsecured long-term debt has been rated in one of the two
highest rating categories by S&P and Fitch, and which is subject to supervision
and examination by federal or state authorities. "Eligible account" means an
account which is any of the following:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the bank insurance fund or the savings association insurance
fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the trustee, which depository institution or trust
company has capital and surplus of not less than $ ; or
(4) an account that will not cause S&P or Fitch to downgrade or withdraw
its then-current rating assigned to the certificates, as evidenced in
writing by S&P and Fitch.
S-25
<PAGE>
The servicer may authorize the trustee to invest the funds in the certificate
account in eligible investments that will mature not later than the business
day preceding the applicable monthly payment date. These eligible investments
include:
. obligations of the United States backed by the full faith and credit
of the United States, federal funds, certificates of deposit, time
deposits and bankers acceptances sold by eligible commercial banks;
. any other demand or time deposit or certificate of deposit fully
insured by the FDIC;
. investments in certain money-market funds;
. certain repurchase agreements of United States government securities
with eligible commercial banks;
. securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least "AA" from S&P and
Fitch, if rated by Fitch, not in excess of 10% of amounts in the
certificate account at the time of the investment; and
. commercial paper assigned a rating of at least A-1+ by S&P and F-1+ by
Fitch, if rated by Fitch. Any losses on these investments will be
deducted from other investment earnings or from other funds in the
certificate account.
All receipts by the servicer of payments for the loans, including principal
prepayments and advance payments by obligors not constituting principal
prepayments, will be paid into the certificate account no later than one
business day following receipt, except amounts received as extension fees or
assumption fees not allocated to regular installments due on loans, which are
retained by the servicer as part of its servicing fees and are not paid into
the certificate account and except for some proceeds from liquidated loans
which are used to reimburse the servicer for customary out-of-pocket
liquidation expenses. See "Description of the Certificates--Servicing
Compensation and Payment of Expenses". In addition, all payments under FHA
insurance received by the servicer, any advances by the servicer or the trustee
as described under "Description of the Certificates--Advances," amounts paid by
Green Tree for loans repurchased as a result of breach of warranties under the
pooling and servicing agreement, and amounts required to be deposited upon
substitution of a loan because of breach of warranties under the pooling and
servicing agreement, as described under "Description of the Certificates--
Conveyance of Loans," will be paid into the certificate account.
On the seventh business day of each month, the servicer will determine the
amount available in the certificate account and the amount of funds necessary
to make all payments to be made on the next payment date from the certificate
account. Not later than one business day after the determination date, we will
deposit in the certificate account the repurchase price of any loans required
to be repurchased on the payment date and any amounts required to be deposited
due to the substitution of a loan, as a result of a breach of representations
and warranties.
S-26
<PAGE>
Distributions
Holders of the certificates will be entitled to receive on the payment date,
to the extent that the amount available, together with any guaranty payment, as
described below in the certificate account is sufficient, distributions
allocable to interest and principal, as described in this prospectus
supplement. Distributions will be made on the payment date to holders of record
of the certificates on the related record date, except that the final
distribution for the certificates will be made only upon presentation and
surrender of the certificates at the office or agency appointed by the trustee
for that purpose in Minneapolis or St. Paul, Minnesota. The amount available on
the payment date generally includes scheduled payments on the loans due during
the previous calendar month and received on or before the related determination
date, prepayments and other unscheduled collections received on the loans
during the due period, any advances made by the servicer or the trustee for the
due period and any amounts paid by us to repurchase a loan due to a breach of
representation or warranty.
Distributions on Certificates
Interest on the certificates will be payable on each payment date in an
amount, referred to as the monthly interest equal to one month's interest at
the pass-through rate on the aggregate certificate principal balance
immediately before that payment date. However, in the case of the first payment
date, interest will be payable only for the period from the closing date to but
excluding , 1999. The aggregate certificate principal balance for any
payment date will equal the original series 1998- certificate principal
balance minus all distributions previously made for principal on the
certificates. Accrued interest will be computed on the basis of a 360-day year
of twelve 30-day months.
In the event that, on a particular payment date, the amount available in the
certificate account, together with any guaranty payment, is not sufficient to
make a full distribution of interest to the certificateholders, the amount of
interest to be distributed for the certificates will be allocated among the
outstanding certificates pro rata in accordance with their respective
entitlements to interest, and the amount of the shortfall will be carried
forward and added to the amount the holders will be entitled to receive on the
next payment date. Any amount so carried forward will bear interest at the
pass-through rate, to the extent legally permissible.
On each payment date, the certificateholders will be entitled to receive as
distributions of principal, to the extent of the amount available in the
certificate account after payment of all interest payable on the certificates,
an amount equal to the sum, which is referred to as the "monthly principal,"
of:
(1) the amount of regular principal payments on the loans paid or applied
during the prior due period;
(2) the amount of principal prepayments received on the loans during the
prior due period;
S-27
<PAGE>
(3) the principal portion of all payments on loans that were delinquent
payments with respect to the prior due period;
(4) the unpaid principal balance of all loans that became liquidated loans
during the prior due period;
(5) the principal portion of the repurchase price paid by us to repurchase
loans for breach of representations and warranties during the prior
due period, as described below under "Repurchases by Green Tree";
(6) the amount of any reduction in the principal amount deemed owed on any
loan as a result of the obligor's bankruptcy; and
(7) any principal amount described in clauses (1) through (6) above that
was not previously distributed because of an insufficient amount of
funds available in the certificate account and we either were not
obligated to or failed to pay the amount under the limited guaranty.
On each payment date the trustee will withdraw the amount available from the
certificate account and make the following payments, in the following order of
priority:
(1) if neither we nor our wholly owned subsidiary are the servicer, to pay
the monthly servicing fee to the servicer;
(2) to pay interest on the certificates;
(3) to pay principal on the certificates;
(4) if we or our wholly owned subsidiary are the servicer, to pay the
monthly servicing fee to the servicer;
(5) to reimburse the servicer or the trustee, as applicable, for any
unreimbursed advances made for current or prior payment dates; and
(6) to pay the remainder, if any, of the amount available to us as the fee
for providing the limited guaranty.
Advances
To the extent that collections on a loan in any due period are less than the
scheduled payment due, the servicer will be obligated to make an advance of the
uncollected portion of such scheduled payment. The servicer will be obligated
to advance a delinquent payment on a loan only to the extent that the servicer,
in its sole discretion, expects to recoup such advance from subsequent funds
available therefor in the certificate account.
If the servicer fails to make an advance required under the agreement, the
trustee will be obligated to deposit the amount of that advance in the
certificate account on the payment date. The trustee will not, however, be
obligated to deposit any such amount if:
(1) the trustee does not expect to recoup that advance from subsequent
funds available in the certificate account, or
(2) the trustee determines that it is not legally able to make such
advance.
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<PAGE>
Reports to Certificateholders
The servicer will include with each distribution to a certificateholder a
statement that shows:
(1) the amount of interest being paid to certificateholders;
(2) the amount of monthly principal, specifying the amounts constituting
scheduled payments by obligors, principal prepayments on the loans,
and other payments for the loans;
(3) the amount of principal being distributed to certificateholders;
(4) the aggregate certificate principal balance;
(5) the amount of fees paid out of the trust;
(6) the pool factor which is a percentage derived from a fraction the
numerator of which is the remaining aggregate certificate principal
balance and the denominator of which is the original series 1999-
certificate principal balance, immediately before and immediately
after the payment date;
(7) the amount of any guaranty payment being distributed on the payment
date;
(8) the remaining guaranty amount after giving effect to the distribution
on the payment date;
(9) the number and aggregate principal balance of loans delinquent
(a)31-59 days,
(b)60-89 and
(c)90 or more days;
(10) the number of loans liquidated during the due period ending
immediately before the payment date;
(11) the customary factual information as is necessary to enable
certificateholders to prepare their tax returns; and
(12) the other customary factual information available to the servicer
without unreasonable expense as is necessary to enable
certificateholders to comply with regulatory requirements.
Repurchase Option
The pooling and servicing agreement provides that at any time that the pool
scheduled principal balance is less than 10% of the cut-off date pool principal
balance, the servicer will have the option to repurchase, on 30 days' prior
written notice to the trustee, all outstanding loans at a price sufficient to
pay the aggregate certificate principal balance plus the monthly interest due
on all certificates on the payment date occurring in the month following the
date of repurchase. That amount will be distributed on such payment date.
The scheduled principal balance of a loan for any month is its principal
balance as specified in its amortization schedule, after giving effect to any
previous partial principal prepayments and to the scheduled payment due on its
scheduled payment date in that month,
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<PAGE>
but without giving effect to any adjustments due to bankruptcy or similar
proceedings. The pool scheduled principal balance for any payment date is the
aggregate of the scheduled principal balances of the loans outstanding at the
end of the prior calendar month.
Collection and Other Servicing Procedures
The servicer will manage, administer, service and make collections on the
loans, exercising the degree of skill and care required by the FHA and
otherwise consistent with the highest degree of skill and care that the
servicer exercises for similar contracts, including manufactured housing
contracts, serviced by the servicer. The servicer will not be required to cause
to be maintained, or otherwise monitor the maintenance of, hazard insurance on
the improved properties.
Servicing Compensation and Payment of Expenses
The servicer will receive a monthly servicing fee for each due period paid on
the next succeeding payment date equal to one-twelfth of the product of .75%
and the remaining pool scheduled principal balance of the loans.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust. The
servicer is also entitled to reimbursement out of the liquidation proceeds of a
liquidated loan, including FHA insurance proceeds, for customary out-of-pocket
liquidation expenses incurred.
Customary servicing activities include:
(1) collecting and recording payments;
(2) communicating with obligors;
(3) investigating payment delinquencies;
(4) providing billing and tax records to obligors; and
(5) maintaining internal records with respect to each loan.
Administrative services performed by the servicer on behalf of the trust
include selecting and packaging the loans, 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 servicing of the loans and paid by the servicer from its
servicing fees include:
(1) payment of FHA insurance premiums;
(2) payment of fees and expenses of accountants;
(3) payments of all fees and expenses incurred in connection with the
enforcement of loans, including submission of FHA insurance claims;
(4) payment of trustee's fees; and
(5) payment of expenses incurred in connection with distributions and
reports to certificateholders.
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<PAGE>
Evidence as to Compliance
The pooling and servicing agreement provides for delivery to the trustee of a
monthly report by the servicer no later than one business day following the
determination date, setting forth the information described under "Description
of the Certificates--Reports to Certificateholders." Each report to the trustee
will be accompanied by a statement from an appropriate officer of the servicer
certifying the accuracy of that and stating that the servicer has not defaulted
in the performance of its obligations under the agreement. On or before of
each year, beginning in , the servicer will deliver to the trustee a report
of [Accountant], or another nationally recognized accounting firm, stating that
such firm has examined certain documents and records relating to the servicing
of loans serviced by the servicer and stating that, on the basis of such
examination, such servicing has been conducted in compliance with the pooling
and servicing agreement, except for any exceptions described in the report.
The agreement provides that the servicer will furnish to the trustee such
reasonably pertinent underlying data as can be generated by the servicer's
existing data processing system without undue modification or expense.
The agreement provides that a certificateholder holding certificates
representing at least 5% of the interests in the trust will have the same
rights of inspection as the trustee and may upon written request to the
servicer receive copies of all reports provided to the trustee.
Transferability
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the IRS code. See "ERISA Considerations" in this
prospectus supplement and in the prospectus.
Certain Matters Relating to Green Tree
The pooling and servicing agreement provides that we may not resign from its
obligations and duties as servicer, except upon a determination that our
performance of such duties is no longer permissible under the pooling and
servicing agreement or applicable law, and prohibits us from extending credit
to any certificateholder for the purchase of a certificate, purchasing
certificates in any agency or trustee capacity or lending money to the trust.
We can be removed as servicer only pursuant to an event of termination as
discussed below.
Events of Termination
An event of termination under the pooling and servicing agreement will occur
if:
(1) the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and such
failure continues for four business days;
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(2) the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for thirty days;
(3) the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
(4) a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or similar official) of the
servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs;
(5) the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or its creditors, or fails
to, or admits in writing its inability to, pay its debts as they
become due, or takes any corporate action in furtherance of the
foregoing;
(6) the servicer fails to be an eligible servicer; or
(7) the servicer's seller-servicer contract with GNMA is terminated. The
servicer will be required under the pooling and servicing agreement to
give the trustee and the certificateholders notice of an event of
termination promptly upon the occurrence of that event.
Rights Upon an Event of Termination
If an event of termination has occurred and is continuing, either the trustee
or holders of certificates representing 25% or more of the trust may terminate
all of the servicer's management, administrative, servicing and collection
functions under the pooling and servicing agreement. Upon such termination, the
trustee or its designee will succeed to all the responsibilities, duties and
liabilities of us as servicer under the pooling and servicing agreement and
will be entitled to similar compensation arrangements; provided, however, that
neither the trustee nor any successor servicer will assume any accrued
obligation of the prior servicer or our obligation to repurchase loans for
breach of representations and warranties, and the trustee will not be liable
for any acts or omissions of the servicer occurring before a transfer of the
servicer's servicing and related functions or for any breach by the servicer of
any of its representations and warranties contained in the pooling and
servicing agreement or any related document or agreement. In addition, the
trustee will notify FHA of the servicer's termination as servicer of the FHA-
insured loans and will request that the portion of the servicer's FHA insurance
reserves allocable to the FHA-insured loans be transferred to the trustee or a
successor servicer. See "Description of FHA Insurance" in the prospectus.
Notwithstanding such termination, the servicer will be entitled to payment of
some amounts payable to it before the termination, for services rendered before
the termination. No termination of us as servicer will affect in any manner our
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obligation to repurchase certain loans for breaches of warranties under the
pooling and servicing agreement. If the trustee is unwilling or unable so to
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, an eligible servicer to act as successor to the servicer under
the agreement. The trustee and such successor may agree upon the servicing
compensation to be paid after receiving comparable bids from other eligible
servicers which may not be greater than the monthly servicing fee payable to us
under the pooling and servicing agreement without the consent of all of the
certificateholders.
Termination of the Agreement
The pooling and servicing agreement will terminate after distribution of all
principal and interest then due to certificateholders on the earlier of:
(1) the payment date on which the aggregate certificate principal balance
is reduced to zero; or
(2) the payment date occurring in the month following the servicer's
repurchase of the loans as described under "Description of the
Certificates--Repurchase Option."
However, our representations, warranties and indemnities will survive any
termination of the pooling and servicing agreement.
Amendment; Waiver
The pooling and servicing agreement may be amended by agreement of the
trustee, the servicer and us at any time without the consent of the
certificateholders to cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision or to add other
provisions not inconsistent with the pooling and servicing agreement, upon
receipt of an opinion of counsel to the servicer that such amendment will not
adversely affect in any material respect the interests of any
certificateholder.
The pooling and servicing agreement may also be amended by agreement of the
trustee, the servicer and us at any time without the consent of the
certificateholders to effect the transfer of FHA insurance reserves to another
entity in compliance with revisions to FHA regulations, provided that before
any such amendment S&P and Fitch will have confirmed that the ratings of the
certificates will not be lowered or withdrawn following the amendment.
The pooling and servicing agreement may also be amended from time to time by
the trustee, the servicer and us with the consent of holders of certificates
representing 66 2/3% or more of the trust, the servicer and holders of
certificates representing 51% or more of the trust may vote to waive any event
of termination, provided that no amendment or waiver shall:
(1) reduce in any manner the amount of, or delay the timing of,
collections of payments on loans or distributions which are required
to be made on any certificate, or
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(2) reduce the aggregate amount of certificates required for any amendment
of the agreement, without unanimous consent of the certificateholders.
The trustee is required under the agreement to furnish certificateholders
with notice promptly upon execution of any amendment to the pooling and
servicing agreement.
Indemnification
The pooling and servicing agreement provides that we will defend and
indemnify the trust, the trustee, including any agent of the trustee, and the
certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation:
(1) for any taxes which may at any time be asserted with respect to, and
as of the date of, the conveyance of the loans to the trust, but not
including any federal, state or other tax arising out of the creation
of the trust and the issuance of the certificates, and
(2) for various other tax matters.
The pooling and servicing agreement also provides that the servicer will
defend and indemnify the trust, the trustee and the certificateholders, which
indemnification will survive any removal of the servicer, against any and all
costs, expenses, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation, for any action taken
by us as servicer for any loan.
Duties and Immunities of the Trustee
The trustee will make no representations as to the validity or sufficiency of
the agreement, the certificates or any loan, loan file or related documents,
and will not be accountable for the use or application by us of any funds paid
to us in consideration of the conveyance of the loans, or deposited into the
certificate account by the servicer. If no event of termination has occurred,
the trustee will be required to perform only those duties specifically required
of it under the pooling and servicing 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 pooling and servicing agreement.
Under the pooling and servicing agreement the servicer will agree:
(1) to pay to the trustee from time to time reasonable compensation for
all services rendered by it;
(2) to reimburse the trustee upon its request for all reasonable expenses,
disbursements and advances incurred by the trustee in accordance with
any provision of the pooling and servicing agreement, including FHA
insurance premiums not paid by the servicer and reasonable
compensation and the expenses and disbursements of its agents and
counsel, except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
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(3) 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, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties.
The trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the pooling
and servicing agreement if there is a reasonable ground for believing that the
repayment of those funds or adequate indemnity against the risk or liability is
not reasonably assured.
The pooling and servicing agreement also provides that the trustee will
maintain at its expense in Minneapolis or St. Paul, Minnesota, an office or
agency where certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the trustee and the
certificate registrar and transfer agent for the certificates under the pooling
and servicing agreement may be served. On the date of this prospectus
supplement the trustee's office for those purposes is located at 180 East Fifth
Street, St. Paul, Minnesota 55101. The trustee will promptly give written
notice to Green Tree, the servicer and the certificateholders of any change in
office.
The Trustee
[Trustee] has its corporate trust offices at [address], Minnesota .
The trustee may resign from its duties under the pooling and servicing
agreement at any time, in which event the servicer will be obligated to appoint
a successor trustee. The servicer may also remove the trustee if the trustee
ceases to be eligible to continue as such under the pooling and servicing
agreement or if the trustee becomes insolvent. In those circumstances, the
servicer will also be obligated to appoint a successor trustee. Any resignation
or removal of the trustee and appointment of a successor trustee will not
become effective until acceptance of the appointment by the successor trustee.
Any successor trustee must be an FHA Title I approved lender.
Registration of the Certificates
The certificates initially will be registered in the name of Cede & Co., the
nominee of DTC. The certificates may be held by investors only through the
book-entry facilities of DTC. DTC is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC accepts securities for deposit from its
participating organizations and facilitates the clearance and settlement of
securities transactions between participants in such securities through
electronic book-entry changes in accounts of participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and
may include some other organizations. Indirect access to the DTC system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
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The beneficial owners of certificates who are not participants but desire to
purchase, sell or otherwise transfer ownership of the certificates may do so
only through participants, unless and until definitive certificates are issued.
In addition, certificate owners will receive all distributions of principal of,
and interest on, the certificates from the trustee through DTC and
participants. Certificate owners will not receive or be entitled to receive
certificates representing their respective interests in the certificates,
except under the limited circumstances described below.
Unless and until definitive certificates are issued, it is anticipated that
the only certificateholder of the certificates will be Cede & Co., as nominee
of DTC. Certificate owners will not be recognized by the trustee as
certificateholders as that term is used in the pooling and servicing agreement.
Certificate owners are only permitted to exercise the rights of
certificateholders indirectly through participants and DTC.
While certificates are outstanding, except under the circumstances described
below, under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the certificates and is
required to receive and transmit distributions of principal of, and interest
on, the certificates. Participants with whom certificate owners have accounts
for certificates are similarly required to make book-entry transfers and
receive and transmit distributions on behalf of their respective certificate
owners. Accordingly, although certificate owners will not possess certificates,
the rules provide a mechanism by which certificate owners will receive
distributions and will be able to transfer their interests.
Certificates will be issued in registered form to certificate owners, or
their nominees, rather than to DTC only if:
(1) DTC or Green Tree advise the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as nominee
and depository, with respect to the certificates and Green Tree or the
trustee is unable to locate a qualified successor, or
(2) Green Tree at its sole option advises the trustee in writing that it
elects to terminate the book-entry system through DTC. Upon issuance
of definitive certificates to certificate owners, the certificates
will be transferable directly and registered holders will deal
directly with the trustee for transfers, notices and distributions.
DTC has advised Green Tree that, unless and until definitive certificates are
issued, DTC will take any action permitted to be taken by a certificateholder
under the pooling and servicing agreement only at the direction of one or more
participants to whose DTC accounts the certificates are credited. DTC has
advised Green Tree that DTC will take such action for any fractional interest
of the certificates only at the direction of and on behalf of the participants
beneficially owning a corresponding fractional interest of the certificates.
DTC may take actions, at the direction of the participants, for some
certificates which conflict with actions taken with respect to other
certificates.
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Issuance of certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the certificates in the
secondary market and the ability of certificate owners to pledge them. In
addition, since distributions on the certificates will be made by the trustee
to DTC and DTC will credit those distributions to the accounts of its
participants, with the participants further crediting the distributions to the
accounts of indirect participants or certificate owners, certificate owners may
experience delays in the receipt of those distributions.
DESCRIPTION OF THE LIMITED GUARANTY
In order to mitigate the effect of liquidation losses and delinquencies on
the loans, the certificateholders are entitled to receive on each payment date
subject to the limit of the guaranty amount, the amount equal to the guaranty
payment under our limited guaranty. The guaranty payment for any payment date
will equal the amount by which the formula distribution amount, which is equal
to one month's interest at the pass-through rate on the aggregate certificate
principal balance plus the monthly principal for the payment date, exceeds the
amount available in the certificate account for the payment date.
The guaranty amount initially equals $ . After that, on any payment date,
the guaranty amount will equal the lesser of:
(1) $ minus all guaranty payments previously made by us, or
(2) the aggregate certificate principal balance as of the payment date
plus three months of interest at the pass-through rate on the
aggregate certificate principal balance as of the payment date.
The limited guaranty will be our unsecured general obligation and will not be
supported by any letter of credit or other credit enhancement arrangement.
As compensation for providing the limited guaranty, we will be entitled to
receive a guaranty fee on each payment date equal to the amount available in
the certificate account less the amounts distributed to the certificateholders,
the monthly servicing fee and some amounts required to reimburse the trustee or
the servicer, as described under "Description of the Certificates--
Distributions on the Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Our counsel,[Company Counsel], will deliver its opinion that, assuming
ongoing compliance with the terms of the pooling and servicing agreement, the
trust will be classified as a grantor trust for federal income tax purposes and
not as an association which is taxable as a corporation. We do not intend to
treat the certificates as stripped certificates for federal income tax
reporting purposes. If any fees paid to us are deemed to exceed a reasonable
amount, the certificates may be required to be treated as stripped
certificates, which would require any discount at which a certificate is
purchased to be treated as original issue discount. See "Certain Federal Income
Tax Consequences--Stripped Certificates" in the prospectus.
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The certificates held by financial institutions, thrift institutions taxed
as domestic building and loan associations and real estate investment trusts
will not represent interests in qualifying real property loans, loans secured
by an interest in real property or real estate assets for purposes of Sections
593(d), 7701(a)(19)(C) or 856(c)(5) of the IRS code. Also, interest paid for
certificates held by a real estate investment trust will not be considered to
be interest on obligations secured by mortgages on real property or on
interests in real property for purposes of Section 856(c)(3) of the IRS code.
For purposes of the exemption from United States withholding tax described
in the prospectus, potential foreign investors are advised that all of the
loans were originated after July 18, 1984.
For further information regarding federal income tax consequences of
investing in the certificates, see "Certain Federal Income Tax Consequences--
Non-REMIC Series" in the prospectus.
ERISA CONSIDERATIONS
No transfer of any certificates will be permitted to be made to any employee
benefit plan subject to the Employee Retirement Income Security Act of 1974,
as amended, or Section 4975 of the IRS code unless such plan, at its expense,
delivers to the trustee and Green Tree an opinion of counsel, in form
satisfactory to the trustee and Green Tree, to the effect that the purchase or
holding of any certificates by such plan will not result in the assets of the
trust being deemed to be plan assets and subject to the prohibited transaction
provisions of ERISA and the IRS code and will not subject the trustee, Green
Tree or the servicer to any obligation or liability in addition to those
undertaken in the agreement. Unless such opinion is delivered, each person
acquiring a certificate will be deemed to represent to the trustee, Green Tree
and the servicer that such person is neither a plan, nor acting on behalf of a
plan, subject to ERISA or to Section 4975 of the IRS code.
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<PAGE>
UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from us the respective principal amounts of
the certificates listed opposite their names below.
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Certificates
----------- ----------------
<S> <C>
........................................... $
.............................................. $
----------
Total................................................ $
==========
</TABLE>
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions described in that agreement, to purchase all of the
certificates offered if any certificates are purchased. In the event of a
default by the underwriter, the underwriting agreement provides that, in some
circumstances, the underwriting agreement may be terminated.
The underwriters propose to offer the certificates in part directly to
purchasers at the initial public offering price listed on the cover page of
this prospectus supplement and in part to certain securities dealers at such
price less concessions not to exceed % of the original series 1999-
certificate principal balance. The underwriters may allow, and some dealers may
reallow, concessions not to exceed % of the original series 1999-
certificate principal balance to some brokers and dealers. After the
certificates are released for sale to the public, the offering price and other
selling terms may be varied by the underwriters.
The underwriting agreement provides that we will indemnify the underwriters
against some liabilities, including liabilities under the Securities Act of
1933 or contribute to payments the underwriters may be required to make.
We have agreed that for a period of 30 days from the date of this prospectus
supplement we will not offer or sell publicly any other home improvement
contract pass-through certificates without the consent of the underwriters.
LEGAL MATTERS
Certain legal matters relating to the issuance of the certificates will be
passed upon for us and the trust by [Company Counsel] Minneapolis, Minnesota,
and for the underwriters by [Underwriters.] The material federal income tax
consequences of the certificates will be passed upon for us by [Company
Counsel].
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus is not complete and may be +
+changed. We may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Base Prospectus No. 6 Unsecured Home Improvement Loans --Grantor Trust
PROSPECTUS
Green Tree Financial Corporation, Seller and Servicer
Certificates for Home Improvement Loans
(Issuable In Series)
We are offering certificates for home improvement loans under this prospectus
and a prospectus supplement. The prospectus supplement will be prepared
separately for each series of certificates offered. Green Tree Financial
Corporation will form a trust for each series, and the trust will issue the
certificates of that series. The certificates of any series may comprise
several different classes. A trust may also issue one or more other interests
in the trust that will not be offered under this prospectus.
The right of each class of certificates within a series to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of certificates. In addition, a series of certificates may include one or more
classes which on the one hand are subordinated to one or more classes of
certificates, while on the other hand are senior to one or more classes of
certificates. The rate of principal and interest payment on the certificates of
any class will depend on the priority of payment of that class and the rate and
timing of payments of the related home improvement loans.
-----------
The certificates will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
This prospectus may not be used to consummate sales of any certificates
unless accompanied by the prospectus supplement relating to that series.
Prospectus dated , 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (2) the prospectus supplement for the
particular terms of your series of certificates.
If the terms of your certificates varies between this prospectus and the
prospectus supplement, you should rely on the information in your prospectus
supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
2
<PAGE>
To understand all of the terms of the certificates, read this entire
prospectus and the accompanying prospectus supplement. We have also defined
terms in the "Glossary" section at the back of this prospectus.
THE TRUST
General
Certificates evidencing interests in pools of loans may be issued from time
to time in series under a separate pooling and servicing agreement between us,
as seller and servicer, and the trustee.
Each trust will include:
(1) a loan pool
(2) the amounts held from time to time in a trust account maintained by
the trustee under the pooling and servicing agreement
(3) proceeds from FHA insurance with respect to any FHA-insured loan
included in the loan pool
(4) 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
(5) other property as may be specified in the prospectus supplement.
Each certificate will evidence the interest specified in the related
prospectus supplement in one trust, containing one loan pool comprised of loans
having the aggregate principal balance as of the specified day of the month of
the creation of the pool specified in the prospectus supplement. Holders of
certificates of a series will have interests only in the loan pool and will
have no interest in the loan pool created for any other series of certificates,
except for FHA insurance reserves. If specified in the prospectus supplement,
the trust may include a pre-funding account which would be used to purchase
subsequent loans from us during the pre-funding period specified in the
prospectus supplement. The prospectus supplement will specify the conditions
that must be satisfied before any transfer of subsequent loans, including the
requisite characteristics of the subsequent loans.
Except as we specify otherwise in the prospectus supplement, all of the loans
will have been originated by us in the ordinary course of its business.
Specific information regarding the loans included in each trust will be
provided in the prospectus supplement and, if not contained in the prospectus
supplement, in a report on Form 8-K to be filed with the SEC within fifteen
days after the initial issuance of the certificates. A copy of the pooling and
servicing agreement for 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 prospectus supplement. A schedule of the loans
relating to that series will be attached to the pooling and servicing agreement
delivered to the trustee upon delivery of the certificates.
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The Loan Pools
Unless we specify otherwise in the prospectus supplement, the loan pool will
consist of home improvement contracts and promissory notes originated by us on
an individual basis in the ordinary course of business. The loans will be
conventional home improvement contracts or contracts insured by FHA. No loan
will be secured by an interest in the related real estate. Except as we specify
otherwise in the prospectus supplement, the loans will be fully amortizing and
will bear interest at a fixed or variable annual percentage rate.
For each series of certificates, we will assign the loans constituting the
loan pool to the trustee named in the prospectus supplement. We, as servicer
will service the loans pursuant to the pooling and servicing agreement. See
"Description of the Certificates--Servicing." Unless we otherwise specify in
the prospectus supplement, the loan documents will be held by the trustee or a
custodian on its behalf.
Each loan pool will be composed of loans bearing interest at the loan rates
shown in the prospectus supplement. Unless the prospectus supplement states
otherwise, each registered holder of a certificate will be entitled to receive
periodic distributions, which will be monthly unless we specify otherwise in
the prospectus supplement, of all or a portion of principal on the underlying
loans or interest on the principal balance of the certificate, or on some other
principal balance unrelated to that of the certificate at the pass-through
rate, or both.
The prospectus supplement will specify for the loans contained in the related
loan pool, among other things,
. the range of the dates of origination of the loans;
. the range of the loan rates and the weighted average loan rate;
. the minimum and maximum outstanding principal balances and the average
outstanding principal balance as of the cut-off date;
. the aggregate principal balance of the loans included in the loan 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; and
. the range of original maturities of the loans and the last maturity
date of any loan.
If the trust fund includes a pre-funding account, the prospectus supplement
will specify the conditions that must be satisfied before any transfer of
subsequent loans, including the requisite characteristics of the subsequent
loans.
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material respects of certain information furnished to the trustee for each
loan. Upon a breach of any representation or warranty that materially and
adversely affects the interests of the certificateholders in a loan, we will be
obligated to cure the breach in all material respects, or to repurchase or
substitute for the loan as described below. This repurchase obligation
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constitutes the sole remedy available to the certificateholders or the trustee
for a breach of representation or warranty by us. See "Description of the
Certificates--Conveyance of Loans."
Conveyance of Loans
We will transfer to the trustee all our right, title and interest in the
loans, including all principal and interest received on or for the loans except
receipts of principal and interest due on the loans before the cut-off date. On
behalf of the trust, as the issuer of the related series of certificates, the
trustee, concurrently with the conveyance, will execute and deliver the
certificates upon our order. The loans will be as described on a list attached
to the agreement. This list will include the amount of monthly payments due on
each loan as of the date of issuance of the certificates, the loan rate on each
loan and the maturity date of each loan. This list will be available for
inspection by any certificateholder at the principal executive office of the
servicer. Before the conveyance of the loans to the trust, our internal audit
department will complete a review of all of the loan files confirming the
accuracy of the list of loans delivered to the trustee. Any loan discovered not
to agree with that list in a manner that is materially adverse to the interests
of the certificateholders will be repurchased or substituted for by us, or, if
the discrepancy relates to the unpaid principal balance of a loan, we may
deposit cash in the separate certificate account maintained at an eligible
institution in the name of the trustee in an amount sufficient to offset the
discrepancy. If the trust includes a pre-funding account, the prospectus
supplement will specify the conditions that must be satisfied before any
transfer of subsequent loans, including the requisite characteristics of the
subsequent loans.
Unless we specify otherwise in the prospectus supplement, the trustee or its
custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and our accounting records and computer systems will also reflect this
sale and assignment.
Our counsel as identified in the applicable prospectus supplement will render
an opinion to the trustee that the transfer of the loans from us to the related
trust would, if we became a debtor under the United States Bankruptcy Code, be
treated as a true sale and not as a pledge to secure borrowings. If the
transfer of the loans from us to the trust were treated as a pledge to secure
borrowings by us, the distribution of proceeds of the loans to the trust might
be subject to the automatic stay provisions of the United States Bankruptcy
Code, which would delay the distribution of those proceeds for an uncertain
period of time. In addition, a bankruptcy trustee would have the power to sell
the loans if the proceeds of the sale could satisfy the amount of the debt
deemed owed by us, or the bankruptcy trustee could substitute other collateral
in lieu of the loans to secure the debt, or the debt could be subject to
adjustment by the bankruptcy trustee if we were to file for reorganization
under Chapter 11 of the United States Bankruptcy Code.
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Except as we specify otherwise in the prospectus supplement, we will make
some representations and warranties in the pooling and servicing agreement with
respect to each loan as of the related closing date, including that:
(1) as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
(2) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(3) each loan 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;
(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each FHA-insured loan was originated in accordance with applicable FHA
regulations and is insured, without set off, surcharge or defense, by
FHA insurance;
(6) each loan was either (a) entered into by a home improvement contractor
in the ordinary course of such contractor's business and, immediately
upon funding, assigned to us or (b) was originated by us directly;
(7) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest in the loan to the trustee under the pooling and servicing
agreement or the certificates unlawful;
(8) each loan complies with all requirements of law;
(9) no loan has been satisfied or rescinded;
(10) all parties to each loan had full legal capacity to execute the
loan;
(11) no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to the trustee;
(12) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clause (1) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under the loan, and we have not waived any of the
foregoing;
(13) each loan is a fully-amortizing loan with a fixed rate of interest
and provides for level payments over the term of the loan;
(14) the description of each loan set forth in the list delivered to the
trustee is true and correct;
(15) there is only one original of each loan; and
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(16) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
Under the terms of the pooling and servicing agreement, if we become aware of
a breach of any representation or warranty that materially adversely affects
the trust's interest in any loan or receives written notice of such a breach
from the trustee or the servicer, then we will be obligated either to cure the
breach or to repurchase or, if so provided in the prospectus supplement,
substitute the affected loan, in each case under the conditions further
described in this prospectus and in the prospectus supplement. This repurchase
obligation will constitute the sole remedy available to the trust and the
certificateholders for a breach of a representation or warranty under the
agreement relating to the loans, but not with respect to any other breach by us
of our obligations under the agreement.
The repurchase price of a loan at any time means the outstanding principal
amount of the loan, without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable pass-through rate on the loan
from the end of the due period for which the obligor last made a payment,
without giving effect to any advances made by the servicer or the trustee,
through the end of the immediately preceding due period.
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USE OF PROCEEDS
Unless we specify otherwise in the prospectus supplement, substantially all
of the net proceeds to be received from the sale of each series of certificates
will be used by us for general corporate purposes, including the origination or
acquisition of additional home improvement loan contracts, costs of carrying
the contracts until sale of the related certificates and to pay other expenses
connected with pooling the loans and issuing the certificates.
GREEN TREE FINANCIAL CORPORATION
General
Green Tree is a Delaware corporation which, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. We purchase, pool, sell and
service conditional sales contracts for manufactured homes and other consumer
installment sales contracts, as well as home equity loans. We are the largest
servicer of government-insured manufactured housing contracts and conventional
manufactured housing contracts in the United States. Servicing functions are
performed through Green Tree Financial Servicing Corporation, our wholly owned
subsidiary. Through our principal offices in St. Paul, Minnesota, and service
centers throughout the United States, we serve all 50 states. We began
financing FHA-insured home improvement loans in April 1989 and conventional
home improvement loans in September 1992. We also purchase, pool and service
installment sales contracts for various consumer products. Our principal
executive offices are located at 1100 Landmark Towers, 345 St. Peter Street,
St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Our quarterly and
annual reports are available from Green Tree upon written request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information.
We are incorporating by reference the following documents into this
prospectus and prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10-K for the
year ended December 31, 1998.
. Green Tree Financial Corporation's quarterly report on Form 10-Q for
the quarter ended March 31, 1999.
All documents filed by the servicer, on behalf of any trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, after the date of this prospectus and before the termination of the
offering of the certificates issued by that trust, will be incorporated by
reference into this prospectus.
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We will provide you, upon your written or oral request, a copy of any or all
of the documents incorporated by reference in this prospectus, exhibits to
those documents. Please direct your requests for copies to John Dolphin, Vice
President and Director of Investor Relations, 1100 Landmark Towers, 345 St.
Peter Street, St. Paul, Minnesota 55102-1639, telephone number (651) 293-3400.
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by reference), proxy statements and other
information. You can read and copy these documents at the public reference
facility maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549. You can also read and copy these reports
and other information at the following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Loan Origination
Through our centralized loan processing operations in St. Paul, Minnesota,
we arrange to purchase certain contracts from home improvement contractors
located throughout the United States. Our regional sales managers contact home
improvement contractors and explain our available financing plans, terms,
prevailing rates and credit and financing policies. If the contractor wishes
to utilize our available customer financing, the contractor must make an
application for contractor approval. We have a contractor approval process
which calls for reviewing the financial condition, business experience and
qualifications of the contractor before their approval to sell loans to us. In
addition, we have a centralized compliance group which reviews and updates
contractor financial condition and reviews contractors on an annual basis to
determine whether such contractor's approval will be continued. We also review
monthly contractor trend reports which show the default and delinquency trends
of the particular contractor with respect to contracts sold to us. We
occasionally will originate directly a home improvement promissory note
involving a home improvement transaction.
All contracts that we originate are written on forms provided or approved by
us and are purchased on an individually approved basis in accordance with our
guidelines. The contractor submits the customer's credit application and
construction contract to our office where an analysis of the creditworthiness
of the customer is made using a proprietary credit scoring system that was
implemented by us in June 1993. If we determine that the application meets our
underwriting guidelines for all contracts and applicable FHA regulations for
FHA-insured contracts and the credit is approved, we purchase the contract
from the contractor when the customer verifies satisfactory completion of the
work, or, in the
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case of staged funding, we follow up with the customer for the completion
certificate 90 days after funding.
The types of home improvements financed by us include:
(1) exterior renovations, including windows, siding and roofing,
(2) pools and spas,
(3) kitchen and bath remodeling, and
(4) room additions and garages.
We may also, under some limited conditions, extend additional credit beyond the
purchase price of the home improvement for the purpose of debt consolidation.
The original principal amount of an unsecured FHA-insured home improvement
contract currently may not exceed $7,500 without specific FHA approval, with a
maximum term of 20 years. Certain other criteria for home improvement contracts
eligible for FHA insurance are described under the caption "Description of FHA
Insurance."
We began financing conventional home improvement loans in September 1992.
Conventional home improvement loans are not insured by FHA. The unsecured
conventional program allows for an amount financed from $2,500 to $15,000,
except in Massachusetts where the loan limit may be $20,000. The allowable term
of unsecured contracts is 24 to 120 months. Our underwriting standards for
unsecured home improvement contracts are, in general, more stringent than our
underwriting standards for secured home improvement contracts with similar
terms. Eligible property includes an owner-occupied single family home, up to
four unit multiple-family dwelling, owner-occupied condominium or town house,
or an owner-occupied manufactured home located in a park approved by us or
attached to the real estate.
YIELD CONSIDERATIONS
The pass-through rates and the weighted average loan rate of the loans as of
the cut-off date, relating to each series of certificates will be set forth in
the prospectus supplement.
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, such as
interest only certificates, principal only certificates, and fast pay/slow pay
certificates, may be particularly sensitive to prepayment rates, and to changes
in prepayment rates, on the underlying loans. If stated in the prospectus
supplement, the yield on some types of certificates which we may
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offer could change and may be negative under some prepayment rate scenarios.
Accordingly, some types of certificates may not be legal or appropriate
investments for financial institutions, pension funds or others. See "ERISA
Considerations" and "Legal Investment Considerations" in this prospectus and in
the prospectus supplement. In addition, the timing of changes in the rate of
prepayment on the loans included in a loan 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 loans occur, the greater the effect on the investor's yield
to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless we describe otherwise in an applicable prospectus supplement, all of
the loans will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. FHA-
insured loans may be prepaid at any time without penalty. We have no
significant experience relating to the rate of principal prepayments on home
improvement contracts. Because the loans have scheduled due dates throughout
the calendar month, and because, unless we specify otherwise in the prospectus
supplement, all principal prepayments will be passed through to
certificateholders of the related series on the payment date following the due
period in which the principal prepayment occurred, prepayments on the loans
would affect the amount of funds available to make distributions on the
certificates on any payment date only if a substantial portion of the loans
prepaid before their respective due dates in a particular month, thus paying
less than 30 days' interest for that due period, while very few loans prepaid
after their respective due dates in that month. In addition, liquidations of
defaulted loans or the servicer's or our exercise of its option to repurchase
the entire remaining pool of loans will affect the timing of principal
distributions on the certificates of a series. See "Description of the
Certificates--Repurchase Option".
Information regarding the prepayment standard or model or any other rate of
assumed prepayment, as applicable, will be described in the prospectus
supplement for a series of certificates. Although the prospectus supplement
will specify the prepayment assumptions used to price any series of
certificates, we cannot assure you that the loans will prepay at that rate, and
it is unlikely that prepayments or liquidations of the loans will occur at any
constant rate.
See "Description of the Certificates--Repurchase Option" for a description of
our or the servicer's option to repurchase the loans comprising part of a trust
fund when the aggregate outstanding principal balance of those loans is less
than a specified percentage of the initial aggregate outstanding principal
balance of the loans as of the cut-off date. See also "The Trust Fund--The
Contract Pools" for a description of our obligation to repurchase a loan in
case of a breach of a representation or warranty for that loan.
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DESCRIPTION OF THE CERTIFICATES
Each series of certificates will be issued under a separate pooling and
servicing agreement to be entered into among us, as seller and servicer, and
the trustee named in the prospectus supplement, and other parties, as are
described in the applicable prospectus supplement. The following summaries
describe provisions expected to be common to each agreement and the
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 pooling and
servicing agreement and its description in the prospectus supplement. The
provisions of the form of the pooling and servicing agreement filed as an
exhibit to the registration statement of which this prospectus is a part that
we do not describe in this prospectus may differ from the provisions of any
actual pooling and servicing agreement. The material differences will be
described in the prospectus supplement. Capitalized terms used in this
prospecuts and not otherwise defined shall have the meanings assigned to them
in the form of pooling and servicing agreement filed as an exhibit to the
registration statement containing this prospectus.
Each series of certificates will have been rated in the rating category by
the rating agency or agencies specified in the 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 under this prospectus, and there may be
separate prospectus supplements relating to one or more of the classes sold.
When we refer to the prospectus supplement relating to a series comprised of
more than one class it should be understood to refer to each of the prospectus
supplements relating to the classes sold under this prospectus. When we refer
to the certificates of a class it 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 subclasses of that class.
The certificates of each series will be issued in fully registered form only
and will represent the interests specified in the prospectus supplement in a
separate trust created under the pooling and servicing agreement. The trust
will be held by the trustee for the benefit of the certificateholders. Except
as we specify otherwise in the prospectus supplement, the certificates will be
freely transferable and exchangeable at the corporate trust office of the
trustee at the address listed in the 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 loan pool may be evidenced by one or more classes of
certificates, each representing the interest in the loan pool specified in the
prospectus supplement. Each series of certificates may include one or more
classes which are subordinated in right of distribution to one or more other
classes, as provided in the prospectus supplement.
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Certificates of a series which includes senior and subordinated certificates
are referred to in this prospectus as senior/subordinated certificates. A
series of senior/subordinated certificates may include one or more classes
which are subordinated to one or more classes of certificates and are senior to
one or more classes of certificates. The prospectus supplement for a series of
senior/subordinated certificates will describe;
(1) 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, among senior
certificates and subordinated certificates,
(2) the allocation of losses among the classes of subordinated
certificates,
(3) the period or periods of subordination,
(4) any minimum subordinated amount, and
(5) any distributions or payments which will not be affected by the
subordination. The protection afforded to the senior
certificateholders from the subordination feature described above will
be effected by the preferential right of the certificateholders to
receive current distributions from the loan pool. If a series of
certificates contains more than one class of subordinated
certificates, losses will be allocated among the classes in the manner
described in the prospectus supplement. If 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 under this prospectus and the
prospectus supplement.
If we specify in a prospectus supplement, a series of certificates may
include one or more classes which:
(1) are entitled to receive distributions only in respect of principal,
interest or any combination of the two, or in specified proportions
payments; and
(2) 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 the series, or on a planned amortization
schedule or targeted amortization schedule or upon the occurrence of
other specified events.
The prospectus supplement will list the pass-through rate at which interest
will be paid to certificateholders of each class of a given series. The pass-
through rate may be fixed, variable or adjustable, as specified in the
prospectus supplement.
The prospectus supplement will specify the minimum denomination or initial
principal amount of loans evidenced by a single certificate of each class of
certificates of a series.
Distributions of principal and interest on the certificates will be made on
the payment dates listed in the prospectus supplement to the persons in whose
names the certificates are registered at the close of business on the related
record date specified in the prospectus supplement. Distributions will be made
by check mailed to the address of the person entitled to the distribution as it
appears on the certificate register, or, as described in the prospectus
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supplement, 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 that will be deposited with, or on behalf of,
and registered in the name of a nominee for, a depositary identified in the
prospectus supplement. The description of the certificates contained in this
prospectus assumes that the certificates will be issued in definitive form.
Global certificates will be issued in registered form. Unless and until it is
exchanged in whole or in part for a certificate in definitive form, a global
certificate may not be transferred except as a whole by the depositary for the
global certificate to a nominee of the depositary or by a nominee of such
depositary to the depositary or another nominee of such depositary.
The specific terms of the depositary arrangement for any certificates of a
class will be described in the prospectus supplement. It is anticipated that
the following provisions described in this subsection will apply to all
depositary arrangements:
Upon the issuance of a global certificate, the depositary for the global
certificate will credit, on its book-entry registration and transfer system,
the respective denominations of the certificates represented by the global
certificate to the accounts of institutions that have accounts with such
depositary. 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 the global certificate will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the depositary for the 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 the
securities in definitive form. These limits and 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 the global certificate, the depositary or such nominee, as the case
may be, will be considered the sole owner or holder of the certificates
represented by the global certificate for all purposes under the pooling and
servicing agreement relating to the certificates. Except as we describe in the
paragraph below, owners of beneficial interests in a global certificate will
not be entitled to have certificates of the series represented by the global
certificate registered in their names, will not receive or be entitled to
receive physical delivery of certificates of the series in definitive form and
will not be considered the owners or holders under the pooling and servicing
agreement governing those 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 the certificates. In
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addition, all reports required under the applicable pooling and servicing
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. Green Tree, the servicer, the trustee, or any agent, including
any applicable certificate registrar or paying agent, will not 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.
We expect that the depositary for certificates of a class, upon receipt of
any distribution or payment on a global certificate, will credit immediately
participants' accounts with payments in amounts proportionate to their
respective beneficial interest in that global certificate as shown on the
records of that depositary. We also expect that payments by participants to
owners of beneficial interests in that global certificate held through
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 the 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 us within the time period specified in the pooling and
servicing agreement, we will cause to be issued certificates of that class in
definitive form in exchange for the related global certificate or certificates.
In addition, we 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, if this occurs, will cause to be issued certificates of that class in
definitive form in exchange for the related global certificate or certificates.
Further, if we specify that the certificates of a class, an owner of a
beneficial interest in a global certificate representing certificates of that
class may, on terms acceptable to us and the depositary for the global
certificate, receive certificates of the class in definitive form. In any
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 that global certificate equal in denominations to such
beneficial interest and to have those certificates registered in its name.
Payments on Loans
Each certificate account will be a trust account established by the servicer
as to each series of certificates in the name of the trustee:
(1) with a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit 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 the series,
(2) with the trust department of a national bank,
(3) in an account or accounts the deposits in which are fully insured by
the FDIC,
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<PAGE>
(4) 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 so 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 the 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
(5) 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 pooling and servicing agreement. A
certificate account may be maintained as an interest-bearing account, or the
funds held in the account may be invested pending each succeeding payment date
in eligible investments.
Unless we otherwise specify in the prospectus supplement, the servicer will
deposit in the certificate account on a daily basis all proceeds 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, including:
(1) all obligor payments on account of principal, including principal
prepayments, on the loans;
(2) all obligor payments on account of interest on the loans;
(3) all FHA insurance payments received by the servicer;
(4) all amounts received and retained in connection with the liquidation
of defaulted loans, net of liquidation expenses;
(5) any advances made as described under "Advances" below and other
amounts required under the pooling and servicing agreement to be
deposited in the certificate account;
(6) all amounts received from any credit enhancement provided on a series
of certificates; and
(7) all proceeds of any loan or property acquired or repurchased by the
servicer or us, as described under "Conveyance of Loans" above or
under "Repurchase Option" below.
Distributions on Certificates
Except as otherwise provided in the prospectus supplement, on each payment
date for a series of certificates, the trustee will withdraw from the
applicable certificate account and distribute to the certificateholders of the
series of record on the preceding record date an amount equal to the amount
available for that payment date. Unless otherwise specified in the applicable
prospectus supplement, the amount available for a payment date is an amount
equal to the aggregate of all amounts on deposit in the certificate account as
of the seventh
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business day following the end of the related due period, or any other date as
may be specified in the prospectus supplement except:
(1) all payments on the loans that were due on or before the cut-off
date;
(2) all payments or collections received after the due period preceding
the month in which the payment date occurs;
(3) all scheduled payments of principal and interest due on a date or
dates subsequent to the due period preceding the determination date;
(4) amounts representing reimbursement for advances, the reimbursement
being limited, if so specified in the prospectus supplement, to
amounts received on particular loans as late collections of principal
or interest as to which the servicer has made an unreimbursed
advance; and
(5) amounts representing reimbursement for any unpaid servicing fee.
In the case of a series of certificates which includes only one class, the
amount available for distribution on each payment date will be distributed pro
rata to the holders of these certificates. In the case of any other series of
certificates, the amount available for each payment date will be allocated and
distributed to holders of the certificates of that series following the method
and in the order of priority specified in the applicable prospectus supplement.
The amount of principal and interest specified in the prospectus supplement to
be distributed to certificateholders is referred to in this prospectus as the
"Certificate Distribution Amount."
Within the time specified in the pooling and servicing agreement and
described in the prospectus supplement, the servicer will furnish a statement
to the trustee listing the amount to be distributed on the related payment date
on account of principal and interest, stated separately, and a statement
listing information about the loans.
Reports to Certificateholders
The trustee will forward to each certificateholder on each payment date, or
as soon after that date as is practicable, as specified in the prospectus
supplement, a statement listing the following information:
(1) the amount of such distribution which constitutes monthly principal,
specifying the amounts constituting scheduled payments by obligors,
principal prepayments on the loans, and other payments on the loans;
(2) the amount of such distribution which constitutes monthly interest;
(3) the remaining principal balance represented by the
certificateholder's interest;
(4) our FHA insurance reserve amount;
(5) the amount of fees payable out of the trust fund;
(6) the pool factor, which is a percentage derived from a fraction the
numerator of which is the remaining principal balance of the
certificates and the denominator of
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which is the initial principal amount of the certificates, immediately
before and immediately after the payment date;
(7) the number and aggregate principal balance of loans delinquent (a)
31-59 days, (b) 60-89 and (c) 90 or more days;
(8) the number of loans liquidated during the due period ending
immediately before the payment date;
(9) the customary factual information as is necessary to enable
certificateholders to prepare their tax returns; and
(10) any other customary factual information available to the servicer
without unreasonable expense as is necessary to enable
certificateholders to comply with regulatory requirements.
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 1998. All weekdays are assumed to be business days. Succeeding months
follow the pattern of the due period through the payment date. The flow of
funds for any series of certificates may differ from the above example, as
described in the prospectus supplement. The initial principal balance of the
loan pool will be the aggregate principal balance of the loans at the close of
business on the cut-off date, after deducting principal payments due on or
before that date, which, together with corresponding interest payments, are
not part of the loan pool and will not be passed through to
certificateholders. 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 loan is prepaid in full, interest on the amount prepaid is collected
from the obligor only to the date of payment. Distributions on April 15 will
be made to certificateholders of record at the close of business on the last
business day of March, which is the month immediately preceding the month of
distribution. On April 9, the seventh business day following the end of the
prior due period, 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. On April 15, the amounts
determined on April 9 will be distributed to certificateholders.
<TABLE>
<S> <C>
March 1............................................. cut-off date.
March 1-31.......................................... due period. Servicer
receives scheduled payments
on the loans and any
principal prepayments made
by obligors and applicable
interest thereon.
</TABLE>
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<TABLE>
<S> <C>
March 29.................................................... record date.
April 9..................................................... determination date.
Distribution amount
determined.
April 15.................................................... payment date.
</TABLE>
Advances
Unless we specify otherwise in the prospectus supplement, to the extent that
collections on a loan in any due period are less than the scheduled payment
due, the servicer will be obligated to make an advance of the uncollected
portion of the scheduled payment. The servicer will be obligated to advance a
delinquent payment on a loan only to the extent that the servicer, in its sole
discretion, expects to recoup the advance from subsequent collections on the
loan or from liquidation proceeds of the loans. The servicer will deposit any
advances in the certificate account no later than one business day before the
following payment date. The servicer will be entitled to recoup its advances on
a loan from subsequent payments by or on behalf of the obligor and from
liquidation proceeds, including FHA insurance payments of the loan, and will
release its right to reimbursements in conjunction with the purchase of the
loan by us for breach of representations and warranties. If the servicer
determines in good faith that an amount previously advanced will not ultimately
be recoverable from payments by or on behalf of the obligor or from liquidation
proceeds, including any FHA insurance payments of the loan, the servicer will
be entitled to reimbursement from payments on other loans or from other funds
available.
Unless we specify otherwise in the prospectus supplement, if the servicer
fails to make an advance required under the pooling and servicing agreement,
the trustee will be obligated to deposit the amount of such advance in the
certificate account on the payment date. The trustee will not be obligated to
deposit any amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from liquidation proceeds, or
(2) the trustee determines that it is not legally able to make the
advance.
Indemnification
The pooling and servicing agreement requires us to defend and indemnify the
trust, the trustee, including any agent of the trustee, and the
certificateholders, against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation:
(1) for any taxes which may at any time be asserted for, and as of the
date of, the conveyance of the loans to the trust, but not including;
(2) any federal, state or other tax arising out of the creation of the
trust and the issuance of the certificates.
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The pooling and servicing agreement also requires the servicer, in connection
with its duties as servicer of the loans, 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 loans, against any and
all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel and expenses of litigation, for any
action taken by the servicer for any loan while it was the servicer.
Repurchase Option
Unless we specify otherwise in the prospectus supplement, each agreement will
provide that on any payment date on which the pool scheduled principal balance
is less than 10% of the cut-off date pool principal balance, we or the servicer
will have the option to repurchase, on 30 days' prior written notice to the
trustee, all outstanding loans in the related loan pool at a price equal to the
greatest of:
(1) the principal balance of the loans on the prior payment date plus 30
days' accrued interest at the applicable pass-through rate and any
delinquent payments of interest, plus the fair market value, as
determined by the servicer, of any acquired properties,
(2) the fair market value of all of the assets of the trust fund, and
(3) an amount equal to the aggregate certificate principal balance of the
related certificates plus interest on the certificates payable on and
before the payment date occurring in the month following the
repurchase, less amounts on deposit in the certificate account and
available to pay the principal and interest.
The price will be paid on the payment date on which the purchase occurs to the
certificateholders of record on the last business day of the immediately
preceding due period in immediately available funds against the trustee's
delivery of the loans and any acquired properties to the servicer. The
distribution of the purchase price to certificateholders will be in lieu of any
other distribution to be made on the payment date for the related loans.
Amendment
Unless we specify otherwise in the prospectus supplement, the pooling and
servicing agreement may be amended by us, the servicer and the trustee without
the consent of the certificateholders:
(1) to cure any ambiguity,
(2) to correct or supplement any provision that may be inconsistent with
any other provision in the pooling and servicing agreement, or
(3) to make any other provisions for matters or questions arising under
the pooling and servicing agreement that are not inconsistent with
the provisions in the pooling and servicing agreement, provided that
the action will not adversely affect in any material respect the
interests of the certificateholders of the related series.
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<PAGE>
Unless we specify otherwise in the prospectus supplement, the agreement may
also be amended by us, the servicer and the trustee with the consent of the
certificateholders, other than holders of residual certificates, representing
66 2/3% or more of the aggregate certificate principal balance of a series for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the agreement or of modifying in any
manner the rights of the certificateholders; provided, however, that no
amendment that reduces in any manner the amount of, or delays the timing of,
any payment received on or with respect to loans which are required to be
distributed on any certificate may be effective without the consent of the
holders of each of those certificates.
Termination of the Agreement
The obligations created by each agreement will terminate, after distribution
of all monthly principal and monthly interest then due to certificateholders,
on the earlier of:
(1) the payment date next succeeding the final payment or other
liquidation of the last loan; or
(2) the payment date on which we or the servicer repurchases the loans as
described under "Description of the Certificates--Repurchase Option."
However, our representations, warranties and indemnities will survive any
termination of the pooling and servicing agreement.
The Trustee
The prospectus supplement for a series of certificates will specify the
trustee under the pooling and servicing agreement. The trustee may have
customary commercial banking relationships with us or our affiliates and the
servicer or its affiliates.
The trustee may resign at any time, and then we will be obligated to appoint
a successor trustee. We may also remove the trustee if the trustee ceases to be
eligible to continue as trustee under the agreement or if the trustee becomes
insolvent. Any resignation or removal of the trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
by the successor trustee.
The trustee will make no representation as to the validity or sufficiency of
the agreement, the certificates or any loan, loan file or related documents,
and will not be accountable for the use or application by us of any funds paid
to us, as seller, in consideration of the conveyance of the loans, or deposited
into or withdrawn from the certificate account by the servicer. If no event of
termination has occurred, the trustee will be required to perform only those
duties specifically required of it under the agreement. However, upon receipt
of the various certificates, reports or other instruments required to be
furnished to it, the trustee will be required to examine them to determine
whether they conform to the requirements of the agreement. Whether or not an
event of termination has
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<PAGE>
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 the funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
Under the agreement, the servicer agrees to pay to the trustee on each
payment date:
(1) reasonable compensation for all services rendered by it, which
compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust, and
(2) reimbursement for all reasonable expenses, disbursements and advances
incurred or made by the trustee in accordance with any provision of
the agreement, including FHA insurance premiums not paid by the
servicer and 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.
We have agreed to indemnify the trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the trust and the trustee's duties under the trust, 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 under the
trust.
DESCRIPTION OF FHA INSURANCE
Some of the loans may be FHA-insured, the payments upon which, subject to the
following discussion, are insured by the FHA under Title I of the National
Housing Act.
The insurance available to any trust will be subject to the limit of a
reserve amount equal to 10% of the principal balance of all Title I insured
loans originated or purchased and reported for FHA insurance by us, which
amount will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by us. Our reserve amount may be reduced by
10% of the principal balance of any loans reported to FHA as sold without
recourse by us. In the pooling and servicing agreement, we will agree to pay
all FHA insurance premiums required by FHA regulations. If we fail to pay any
premium, the trustee or the successor servicer for each series is obligated to
pay the premium and is entitled to be reimbursed by us and from collections on
the related loans.
As of December 31, 1998, our FHA insurance reserve amount was equal to
approximately $ . These insurance reserves were available to cover losses on
approximately $ of FHA-insured manufactured housing contracts and
approximately $ of FHA-insured home improvement loans, including the FHA-
insured loans that may be owned by a trust. If an event of termination, as
defined under "Description of the Certificates--Events of Termination" occurs,
each trustee will notify FHA of our
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<PAGE>
termination as servicer of the related FHA-insured loans and will request that
the portion of our FHA insurance reserves allocable to the FHA-insured loans be
transferred to the trustee or a successor servicer. Although each trustee will
request such a transfer of reserves, FHA is not obligated to comply with that
request, and may determine that it is not in FHA's interest to permit those
transfer of reserves. In addition, FHA has not specified how insurance reserves
might be allocated in that event, and there can be no assurance that any
reserve amount, if transferred to the trustee or a successor servicer, would
not be substantially less than 10% of the outstanding principal amount of the
FHA-insured loans. It is likely that the trustee or any successor servicer
would be the lender of record on other FHA Title I loans, so that any reserves
that are permitted to be transferred would become commingled with reserves
available for other FHA Title I loans. FHA also reserves the right to transfer
reserves with earmarking, segregating such reserves so that they will not be
commingled with the reserves of the transferee, if it is in FHA's interest to
do so.
In general, FHA will insure unsecured property improvement loans up to
$7,500, with a maximum term of 20 years. The loan proceeds must be used for the
purposes described in the loan application, and those improvements must
substantially protect or improve the basic livability or utility of the
property. The Secretary of HUD from time to time publishes a list of ineligible
items and activities which may not be financed with the proceeds of an FHA-
insured home improvement loan.
Following a default on an FHA-insured loan the servicer may, subject to
certain conditions, submit a claim to FHA. The availability of FHA insurance
following a default on an FHA-insured loan is subject to a number of
conditions, including strict compliance by us with FHA regulations in
originating and servicing the loan. Failure to comply with FHA regulations may
result in a denial of or surcharge on the FHA insurance claim. Before declaring
an FHA-insured loan in default and submitting a claim to FHA, the servicer must
take specific steps to attempt to cure the default, including personal contact
with the borrower either by telephone or in a meeting and providing the
borrower with 30 days' written notice prior to declaration of default. FHA may
deny insurance coverage if the borrower's nonpayment is related to a valid
objection to faulty contractor performance. In that event, we will seek to
obtain payment by or a judgment against the borrower, and may resubmit the
claim to FHA following such a judgment. As described under "Green Tree
Financial Corporation--Loan Origination." We do not purchase a loan until the
customer verifies satisfactory completion of the work.
Upon submission of a claim to FHA, the related trust must assign its entire
interest in the loan to the United States. In general, the claim payment will
equal 90% of the sum of:
(1) the unpaid principal amount of the loan at the date of default and
uncollected interest computed at the loan rate earned to the data of
default,
(2) accrued and unpaid interest on the unpaid amount of the loan 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 year,
(3) uncollected court costs, and
(4) legal fees, not to exceed $500.
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<PAGE>
Servicing
Under to the pooling and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as described below in this
section. The servicer will perform diligently all services and duties specified
in each agreement, in the same manner as prudent lending institutions of home
improvement contracts of the same type as the loans in those jurisdictions
where the related real properties are located or as otherwise specified in the
pooling and servicing agreement. The duties to be performed by the servicer
will include collection and remittance of principal and interest payments, as
well as submission of FHA insurance claims where applicable.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the pooling and servicing agreement and
any FHA insurance, will follow the collection procedures with respect to the
loans as it follows for loans or contracts serviced by it that are comparable
to the loans.
Evidence as to Compliance. Unless we specify otherwise in the prospectus
supplement, each pooling and servicing agreement will require the servicer to
deliver to the trustee a monthly report before each payment date, describing
information about the loan pool and the certificates of the series specified in
the 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 the report and stating that the servicer has not defaulted in the
performance of its obligations under the pooling and servicing 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 the firm has examined
selected documents and records relating to the servicing of home improvement
contracts serviced by the servicer under pooling and servicing agreements
similar to the pooling and servicing agreement and stating that, on the basis
of those procedures, the servicing has been conducted in compliance with the
pooling and servicing agreement, except for any exceptions described in the
report.
About the Servicer. The servicer may not resign from its obligations and
duties under a pooling and servicing agreement except upon a determination that
its duties under the pooling and servicing agreement are no longer permissible
under applicable law. No resignation will become effective until the trustee or
a successor servicer has assumed the servicer's obligations and duties under
the pooling and servicing agreement. The servicer can only be removed as
servicer upon the occurrence of an event of termination as discussed below.
The servicer shall keep in force throughout the term of the pooling and
servicing agreement:
(1) a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the pooling and
servicing agreement; and
(2) a fidelity bond.
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The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home
improvement contracts having an aggregate principal amount of $10 million or
more and which are generally regarded as servicers acceptable to institutional
investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which we may assign, for each due period, paid on the next
succeeding payment date, equal to 1/12th of the product of the annual servicing
fee rate described in the applicable prospectus supplement and the pool
scheduled principal balance for the payment date. As long as we are the
servicer, the trustee will pay us its monthly servicing fee from any monies
remaining after the certificateholders have received all payments of principal
and interest for the payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust fund, for
additional administrative services performed by the servicer on behalf of the
trust fund and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records for each
loan. Administrative services performed by the servicer on behalf of the trust
fund include selecting and packaging the loans, 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 servicing of the loans and paid by us from its monthly
servicing fees include payment of FHA insurance premiums, payment of fees and
expenses of accountants, payments of all fees and expenses incurred in the
enforcement of loans, including submission of FHA insurance claims, if
applicable, or payment of trustee's fees, and payment of expenses incurred in
connection with distributions and reports to certificateholders, except that
the servicer shall be reimbursed out of the liquidation proceeds of a
liquidated loan, including FHA insurance proceeds, for customary out-of-pocket
liquidation expenses incurred.
Events of Termination. Except as otherwise specified in the prospectus
supplement, events of termination under each pooling and servicing agreement
will occur if:
. the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and that
failure continues for four business days;
. the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for 30 days;
. the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and
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<PAGE>
servicing agreement, or attempts to make such a conveyance, assignment
or delegation;
. a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator, or similar official, of the
servicer, as the case may be, or enters a decree or order for any
substantial liquidation of its affairs;
. the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or its creditors, or fails
to, or admits in writing its inability to, pay its debts as they
become due, or takes any corporate action in furtherance of the
foregoing;
. the servicer fails to be an eligible servicer; or
. if we are the servicer, our receiving rights under our master seller-
servicer contract with GNMA will be terminated. The servicer will be
required under the pooling and servicing agreement to give the trustee
and the certificateholders notice of an event of termination promptly
after such event.
Rights Upon Event of Termination. Except as we specify otherwise in the
prospectus supplement, so long as an event of termination remains unremedied,
the trustee may, and at the written direction of certificateholders
representing 25% or more of the aggregate certificate principal balance of a
series shall, terminate all of the rights and obligations of the servicer under
the pooling and servicing agreement and in and to the loans, and the proceeds
of the contracts, at which time, subject to applicable law regarding the
trustee's ability to make advances, the trustee or a successor servicer under
the pooling and servicing agreement will succeed to all the responsibilities,
duties and liabilities of the servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the trustee nor any successor servicer will assume our
obligation to repurchase loans 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 before a transfer of the servicer's
servicing and related functions or for any breach by the servicer of any of its
obligations contained in the pooling and servicing agreement. In addition, the
trustee will notify FHA of our termination as servicer of the loans and will
request that our portion FHA insurance reserves allocable to the FHA-insured
loans be transferred to the trustee or a successor servicer. Notwithstanding
the termination, the servicer shall be entitled to payment of certain amounts
payable to it before the termination, for services rendered before the
termination. No such termination will affect in any manner our obligation to
repurchase certain loans for breaches of representations or warranties under
the pooling and servicing 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 that appointment,
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<PAGE>
the trustee is obligated to act in that capacity. The trustee and the 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 pooling and servicing
agreement without the consent of all of the certificateholders.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the agreement at the request, order or
direction of any of the holders of certificates, unless those
certificateholders have offered to the trustee reasonable security or indemnity
against the costs, expenses and liabilities which the trustee may incur.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS; REPURCHASE OBLIGATIONS
As a result of our conveyance and assignment of a pool of loans to the trust,
the certificateholders of such series, as the beneficial owners of the trust,
will succeed collectively to all of the rights under the trust, including the
right to receive payment on the loans. The following discussion contains
summaries of certain legal aspects of home improvement contracts which are
general in nature. Because the 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 improved real estate is situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the loans.
Consumer Protection Laws with respect to Loans
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit Reporting Act, and related statutes. These
laws can impose specific statutory liabilities upon creditors who fail to
comply with their provisions and may affect the enforceability of the contract.
The so-called holder-in-due-course rule of the FTC 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 loan free of notice of claims by the debtor under
the loan. The effect of this rule is to subject the assignee of a loan to all
claims and defenses which the debtor could assert against the home improvement
contractor. Liability under this rule is limited to amounts paid under a loan;
however, the obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the trust against the
obligor.
The obligations of the obligor under each loan are not secured by an interest
in the related real estate or otherwise, and the related trust, as the owner of
a loan, will be a general unsecured creditor as to such obligations. As a
consequence, in the event of a default under a loan, the related trust will
have recourse only against the obligor's assets generally, along with all other
general unsecured creditors of the obligor. In a bankruptcy or insolvency
proceeding relating to an obligor on a loan, the obligations of the obligor
under the loan may be discharged in their entirety, notwithstanding the fact
that the portion of the obligor's assets made available to the trust as a
general unsecured creditor to pay amounts due and owing under the trust are
insufficient to pay all these amounts.
Enforceability of Certain Provisions
The standard form of note generally contains provisions obligating the
borrower to pay a late charge if payments are not timely made. In addition to
limitations imposed by FHA regulations with respect to FHA-insured loans, in
some states there are or may be specific
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limitations upon late charges which a lender may collect from a borrower for
delinquent payments. Under the pooling and servicing agreement, late charges,
to the extent permitted by law and not waived by us, will be retained by us as
additional servicing compensation.
The standard form of note also includes a debt-acceleration clause, which
permits the lender to accelerate the debt upon a monetary default of the
borrower, after the applicable cure period. Courts will generally enforce
clauses providing for acceleration in the event of a material payment default.
However, courts, exercising equity jurisdiction, may refuse to allow a lender
to accelerate when an acceleration of the indebtedness would be inequitable or
unjust and the circumstances would render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
take affirmative actions to determine the causes for the borrower's default and
the likelihood that the borrower will be able to reinstate the loan. In some
cases, courts have required lenders to reinstate loans or recast payment
schedules to accommodate borrowers who are suffering from temporary financial
disability. In some cases, courts have limited the right of lenders to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage having a
power of sale does not involve sufficient state action to afford constitutional
protection to the borrower.
It is our practice with some of the loans to defer the first payment for up
to 90 days, and to charge the home improvement contractor points to cover the
lost interest due to collecting only 30 days' interest on the first payment on
these deferred payment contracts.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, would
adversely affect, for an indeterminate period of time, the ability of the
servicer to collect full amounts of interest on some of the loans. Any
shortfall in interest collections resulting from the application of the relief
act or similar legislation, which would not be recoverable from the related
loans, would result in a reduction of the amounts distributable to the
certificateholders. In the event that the relief act or similar legislation
applies to any loan which goes into default, there may be delays in payment on
the certificates. Any other interest shortfalls, deferrals or forgiveness of
payments on the loans resulting from similar legislation or regulations may
result in delays in payments or losses to certificateholders.
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We will represent and warrant under each pooling and servicing agreement that
each loan complies with all requirements of law. Accordingly, if any obligor
has a claim against the related trust for violation of any law and such claim
materially adversely affects the trust's interest in a loan, such violation
would constitute a breach of a representation and warranty under the agreement
and would create an obligation to repurchase the loan unless the breach is
cured. See "Description of the Certificates--Conveyance of Loans."
Repurchase Obligations
We will represent and warrant that each FHA-insured loan was originated in
compliance with FHA regulations and is covered by FHA insurance. In the event
FHA were to deny insurance coverage on an FHA-insured loan due to a violation
of FHA regulations in originating or servicing the loans, such violation would
constitute a breach of a representation and warranty under the pooling and
servicing agreement and we would be obligated to repurchase the loan unless the
breach is cured. See "Description of the Certificates--Conveyance of Loans."
In addition, we will also represent and warrant under each agreement that
each loan complies with all requirements of law. Accordingly, if any obligor
has a claim against the related trust for violation of any law and that claim
materially adversely affects the trust's interest in a loan, such violation
would constitute a breach of a representation and warranty under the pooling
and servicing agreement and would create an obligation to repurchase the loan
unless the breach is cured. See "Description of the Certificates--Conveyance of
Loans."
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to ERISA 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 those
plans. ERISA also imposes duties on persons who are fiduciaries of the plans.
Under ERISA, and subject to exemptions not relevant to this offering, any
person who exercises any authority or control over the management or
disposition of the assets of a plan is considered to be a fiduciary of the
plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of plans be invested and
managed for the exclusive benefit of plan participants and beneficiaries, a
determination by the plan fiduciary that any such investment is permitted under
the governing plan instruments and is prudent and appropriate for the plan in
view of its overall investment policy and the composition and diversification
of its portfolio. Some employee benefit plans, such as governmental plans and
selected church plans, are not subject to ERISA. Accordingly, assets of these
plans may be invested in certificates without regard to the ERISA
considerations described above and in the paragraphs below, subject to the
provisions of applicable state law. Any plan which is qualified and exempt from
taxation
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under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, however,
is subject to the prohibited transaction rules provided in Section 503 of the
IRS code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
IRS code, prohibit a broad range of transactions involving plan assets and
persons having specified relationships to a plan. These 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 IRS 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 loan pool and not merely an interest in the
certificates, transactions occurring in the operation of the loan pool might
constitute prohibited transactions unless an administrative exemption applies.
Specific exemptions which may be applicable to the acquisition and holding of
the certificates or to the servicing and operation of the loan pool are noted
in the paragraphs below.
The Department of Labor has issued a regulation (29 C.F.R. Section 2510.3-
101) 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 specific 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. The certificates are not
expected to be publicly offered securities under the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
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, which amended Prohibited Transaction Exemption 81-
7, the DOL exempted from ERISA's prohibited transaction rules 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 some
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
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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. 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 housing like the loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing plan's assets could be
considered to include an undivided interest in the home improvement loans and
any other assets held in the loan pool. If the assets of a loan pool are
considered assets of an investing plan, Green Tree, the servicer, the trustee
and other persons, in providing services on the contracts, may be considered
fiduciaries to the plan and subject to the fiduciary responsibility provisions
of Title I of ERISA and the prohibited transaction provisions of Section 4975
of the IRS code for transactions involving those assets unless a statutory or
administrative exemption applies.
Any plan fiduciary considering the purchase of a certificate should consult
with its counsel about the potential applicability of ERISA and the IRS code to
the 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.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in transactions with persons who provide
services to insurance company general accounts. PTE 95-60 also permits
transactions relating to the origination and operation of asset pool investment
trusts in which an insurance company general account has an interest as the
result of the acquisition of certificates issued by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of some
receivables, loans and other obligations that meet the conditions and
requirements of PTE 95-60. The receivables covered by PTE 95-60 include home
equity loans secured by either first or second mortgages in single-family,
residential property. The exemption offered by PTE 95-60 is conditioned upon
compliance with the requirements of one of several "underwriter exemptions,"
other than compliance with the requirements that the certificates acquired by
the general account not be subordinated and receive a rating that is in one of
the three highest generic rating categories from either S&P, Moody's, Duff &
Phelps Credit Rating Co. or Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business
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Job Protection Act of 1996 added a new Section 401(c) to ERISA, which provides
exemptive relief from the provisions of Part 4 of Title I of ERISA and Section
4975 of the IRS code, including the prohibited transaction restrictions imposed
by ERISA and the related excise taxes imposed by the IRS code, for transactions
involving an insurance company general account. Under Section 401(c) of ERISA,
the DOL published proposed regulations on December 22, 1997 to provide guidance
for the purpose of determining, in cases where insurance policies supported by
an insurer's general account are issued to or for the benefit of a Plan on or
before December 31, 1998, which general account assets constitute Plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the Proposed 401(c) Regulations become final, no person will be
subject to liability under Part 4 of Title I of ERISA and Section 4975 of the
IRS code on the basis of a claim that the assets of an insurance company
general account constitute Plan assets, unless:
(1) as otherwise provided by the Secretary of Labor in the Proposed 401(c)
Regulations to prevent avoidance of the regulations; or
(2) an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998 or issued to plans on or
before December 31, 1998 for which the insurance company does not comply with
the Proposed 401(c) Regulations may be treated as plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as plan assets of any plan invested
in the separate account. Insurance companies contemplating the investment of
general account assets in the certificates should consult with their legal
counsel about the applicability of PTCE 95-60 and Section 401(c) of ERISA,
including the general account's ability to continue to hold the securities
after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the 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, all of which are subject to change, which change may be retroactive, 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.
Tax Status of the Trust Fund. Counsel will, unless otherwise specified in the
prospectus supplement, have advised us that, in their opinion, each loan pool
and the arrangement to be administered by us under which the trustee will hold
and we will be obligated to service the loans and under which certificates will
be issued to certificateholders will not be classified as an association
taxable as a corporation or a "taxable mortgage pool," within the meaning of
Section 7701(i) of the IRS code, but rather will be classified as
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a grantor trust under Subpart E, Part I of Subchapter J of the IRS code. In
that event, each 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 loan 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 loans included in the trust. The following discussion
assumes the trust will be so classified as a grantor trust.
Tax Status of Certificates. In general, (1) certificates held by a "domestic
building and loan association" within the meaning of Section 7701(a)(19) of the
IRS code will not be considered to represent loans secured by an interest in
real property within the meaning of Section 7701(a)(19)(C)(v) of the IRS code
and (2) certificates held by a real estate investment trust will not constitute
real estate assets within the meaning of Section 856(c)(5)(A) of the IRS code
and interest will not be considered interest on obligations secured by
mortgages on real property within the meaning of Section 856(c)(3)(B) of the
IRS code. Investors affected by the foregoing provisions of the IRS code should
consult with their own tax advisors concerning these matters.
Tax Treatment of Certificates. Subject to the discussion below of the
stripped bond rules of the IRS code, certificateholders will be required to
report on their federal income tax returns, and in a manner consistent with
their methods of accounting, their pro rata share of the entire income arising
from the loans comprising the loan pool, including interest, market or original
issue discount, prepayment fees, assumption fees, and late payment charges
received by us, and any gain upon disposition of the loans. For purposes of
this discussion, the term disposition, when used with respect to the loans,
includes scheduled or prepaid collections with respect to the loans, as well as
the sale or exchange of a certificate. Subject to the discussion below of
certain limitations on itemized deductions, certificateholders will be entitled
under Section 162 or 212 of the IRS 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 us. An
individual, an estate, or a trust that holds a certificate either directly or
through a pass-through entity will be allowed to deduct these expenses under
Section 212 of the IRS 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 IRS code provides
that the amount of itemized deductions, including those provided for in Section
212 of the IRS code, otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a threshold amount specified in the IRS
code, $124,500 for 1998, 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.
Furthermore, in determining the alternative minimum taxable income of an
individual, trust, estate or pass-through entity that is a holder of a
certificate, no deduction will be allowed for the holder's allocable portion of
the foregoing expenses, even though an amount equal to the total of the
expenses will be included in the holder's gross income for alternative minimum
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tax purposes. To the extent that a certificateholder is not permitted to deduct
servicing fees allocable to a certificate, the taxable income of the
certificateholder attributable to that certificate will exceed the net cash
distributions related to that income. Certificateholders may deduct any loss on
disposition of the loans to the extent permitted under the IRS code.
A certificateholder will be treated as purchasing an interest in each loan
comprising the loan pool at a price determined by allocating the purchase price
paid for the certificate among all the loans in proportion to their fair market
values at the time of purchase of the certificate. Up to that the portion of
the purchase price of a certificate allocated to a loan is greater than or less
than the portion of the principal balance of the loan allocable to the
certificate, that interest in the loan will be deemed to have been acquired
with premium or discount, respectively.
Market Discount. A certificateholder generally will be treated as having
acquired an interest in a loan at a market discount if, at the time the
certificate is acquired, the unpaid principal balance on the loan allocable to
the certificate exceeds the portion of the price paid for the certificate by
the certificateholder that is allocated to that loan. A certificateholder who
acquires an interest in a loan at a market discount will be required to
recognize accrued market discount as ordinary income as payments of principal
are received on the loan or upon the sale or exchange of the certificate.
Section 1276(b)(3) of the IRS code authorizes the issuance of regulations
providing for the method for accruing market discount on debt instruments, the
principal of which is payable in more than one installment, such as a loan.
Until these regulations are issued, the legislative history associated with
this provision indicates certain methods which are to be used. In general, the
holder of a 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) under a ratable accrual method, pursuant to which the market
discount is treated as accruing in equal daily installments during
the period the certificate is held by the purchaser, in each case
computed taking into account the prepayment assumption used in
pricing the initial offering of the certificate.
Because the regulations referred to in this section have not been issued, it is
not possible to predict what effect, if any, these regulations, when issued,
might have on the tax treatment of an interest in a loan purchased at a
discount.
The IRS code provides that the market discount in respect of a loan will be
considered to be zero if the amount of discount allocable to the loan is less
than 0.25% of the loan's stated redemption price at maturity multiplied by the
number of complete years remaining to its maturity after the holder acquired
the obligation. If market discount is treated as de minimis under this rule,
the actual discount would be allocated among a portion of each scheduled
payment representing the stated redemption price of the loan and that portion
of the discount allocable to the payment would be reported as income when the
payment occurs or is due.
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The IRS code further provides that any principal payment with respect to a
loan acquired with market discount or any gain on disposition of a loan shall
be treated as ordinary income to the extent it does not exceed the accrued
market discount at the time of the 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 a loan is to be reduced by
the amount previously treated as ordinary income.
In general, limitations imposed by the IRS code that are intended to match
deductions with the taxation of income may require a holder of an interest in a
loan having market discount to defer a portion of the interest deductions
attributable to any indebtedness incurred or continued to purchase or carry the
loan. Alternatively, a holder of an interest in a loan may elect to include
market discount in gross income as it accrues and, if he makes this election,
is exempt from this rule. The adjusted basis of a certificate subject to this
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.
The treatment of any discount will depend upon whether the discount
represents market discount or original issue discount. It is not anticipated
that the loans will have original issue discount, unless they are subject to
the stripped bond rules of the IRS code described below. If the loans are
subject to the stripped bond rules of the IRS code, the market discount rules
discussed above may not apply.
Amortizable Premium. A holder of a certificate who holds the certificate as a
capital asset and who is treated as having purchased an interest in a loan at a
cost greater than its stated redemption price at maturity will be considered to
have purchased the interest in the loan at a premium. In general, the
certificateholder may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A certificateholder's tax basis in the
certificate will be reduced by the amount of the amortizable bond premium
deducted. It appears that the prepayment assumption should be taken into
account in determining the term of a loan for this purpose. Amortizable bond
premium with respect to an interest in a loan will be treated as an offset to
interest income on the loan, and a certificateholder's deduction for
amortizable bond premium will be limited in each year to the amount of interest
income derived from the loan for such year. Any election to deduct amortizable
bond premium will apply to all debt instruments, other than instruments the
interest on which is excludable from gross income, held by the
certificateholder at the beginning of the first taxable year to which the
election applies or thereafter acquired, and may be revoked only with the
consent of the IRS. Bond premium on an interest in a loan held by a
certificateholder who does not elect to deduct the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the
certificate. Certificateholders who pay a premium for a certificate should
consult their tax advisors concerning than election and rules for determining
the method for amortizing bond premium.
Stripped Certificates. Certain classes of certificates may be subject to the
stripped bond rules of Section 1286 of the IRS 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
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some or all of the principal payments on a loan from ownership of the right to
receive some or all of the related interest payments. Certificates will
constitute stripped certificates and will be subject to these rules under
various circumstances, including the following:
(1) if any servicing compensation is deemed to exceed a reasonable
amount;
(2) if we or any other party retains a portion of the payments to be made
under the loans comprising a loan pool;
(3) if two or more classes of certificates are issued representing the
right to non-pro rata percentages of the interest or principal
payments on the loans; or
(4) if 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. Rules governing original issue
discount are set forth in Sections 1271-1273 and 1275 of the IRS code and the
treasury regulations issued thereunder. In general, in the hands of the
original holder of a stripped certificate, original issue discount is the
difference between the stated redemption price at maturity of the certificate
and its issue price. For purposes of applying the original issue discount
provisions of the IRS code, the issue price of a stripped certificate will be
the purchase price paid by each holder of the certificate 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 if it is less than .25% of the principal amount of the certificate
multiplied by the weighted average maturity of the certificate as defined in
the OID regulations. A purchaser of a stripped certificate may be required to
account for any discount on the certificate as market discount rather than
original issue discount if either:
(1) 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
(2) no more than 100 basis points, including any amount of servicing in
excess of reasonable servicing, is stripped off of the loans. See
"Market Discount" above.
Original issue discount with respect to a stripped certificate must be
included in ordinary gross income for federal income tax purposes as it accrues
in advance of the receipt of any cash attributable to that income. The amount
of original issue discount required to be included in a stripped
certificateholder's ordinary gross income in any taxable year will be computed
in accordance with Section 1272(a) of the code and the OID regulations. Under
that 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. Although the OID regulations suggest that a prepayment
assumption is not to be used in computing the yield on the underlying assets of
a trust, the IRS code appears to require that such a prepayment assumption be
used in computing yield with respect to stripped certificates. In the absence
of
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authority to the contrary, we intend to base information reports and returns to
the IRS and the holders of stripped certificates taking into account an
appropriate prepayment assumption. Holders of stripped certificates should
refer to the related prospectus supplement to determine whether and in what
manner the original issue discount rules will apply to the prospectus
supplement.
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 IRS 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:
(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each loan; or
(2) a separate installment obligation for each loan representing the
stripped certificate's pro rata share of principal and/or interest
payments to be made with respect to the loans.
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.
The servicing compensation to be received by us and the fee for credit
enhancement, if any, may be questioned by the IRS with respect to certain
certificates or loans as exceeding a reasonable fee for the services being
performed in exchange for the fee, and a portion of that servicing compensation
could be recharacterized as an ownership interest retained by us or other party
in a portion of the interest payments to be made pursuant to the loans. In this
event, a certificate might be treated as a stripped certificate subject to the
stripped bond rules of Section 1286 of the IRS code and the original issue
discount provisions rather than to the market discount and premium rules.
Gain or Loss on Disposition. Upon sale or exchange of a certificate, a
certificateholder will recognize gain or loss equal to the difference between
the amount realized in the sale and its aggregate adjusted basis in the loans
represented by the certificate. Generally, the aggregate adjusted basis will
equal the certificateholder's cost for the certificate increased by the amount
of any previously reported income or gain from the certificate and decreased by
the amount of any losses previously reported from the 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 gain or
loss would be capital gain or loss if the certificate was held as a capital
asset.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
"foreign holder" is a certificateholder who holds a certificate and who is not:
(1) a citizen or resident of the United States,
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(2) a corporation, partnership, or other entity organized in or under the
laws of the United States or a political subdivision,
(3) an estate the income of which is includible in gross income for
United States tax purposes regardless of its source;
(4) a trust if:
(a) a court within the United States is able to execute primary
supervision over the administration of the trust, and
(b) one or more United States trustees have authority to control all
substantial decisions of the trust.
Unless the interest on a 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 certificate subject to possible backup
withholding of tax, discussed below. 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. If
the interest on a 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. In addition,
the foregoing rules will not apply to exempt a U.S. shareholder of a controlled
foreign corporation from taxation on such U.S. shareholder's allocable portion
of the interest income received by such controlled foreign corporation. Foreign
holders should consult their own tax advisors regarding the specific tax
consequences of their owning a certificate.
Any gain recognized by a foreign holder upon a sale, retirement or other
taxable disposition of a certificate generally will not be subject to United
States federal income tax unless either:
(1) the foreign holder is a nonresident alien individual who holds the
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
(2) the gain is effectively connected with the conduct by the foreign
holder of a trade or business within the United States.
It appears that a certificate will not be included in the estate of a foreign
holder and will not be subject to United States estate taxes. However, foreign
holders should consult their own tax advisors regarding estate tax
consequences.
39
<PAGE>
Backup Withholding. Under certain circumstances, a certificateholder may be
subject to "backup withholding" at a 31% rate. Backup withholding may apply to
a certificateholder who is a United States person if the holder, among other
circumstances, fails to furnish their social security number or other taxpayer
identification number to the trustee. Backup withholding may apply, under
certain circumstances, to a certificateholder who is a foreign person if the
certificateholder fails to provide the trustee or the certificateholder's
securities broker with the statement necessary to establish the exemption from
federal income and withholding tax on interest on the 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. Certificateholders should consult their tax
advisors for additional information concerning the potential application of
backup withholding to payments received by them from a certificate.
Tax Administration and Reporting. We will furnish to each certificateholder
with each distribution a statement setting forth the amount of the distribution
allocable to principal and to interest. In addition, we will furnish, within a
reasonable time after the end of each calendar year, to each certificateholder
who was a certificateholder at any time during such year, information regarding
the amount of servicing compensation received by us and any sub-servicer and
such other customary factual information as we deem necessary or desirable to
enable certificateholders to prepare their tax returns. Reports will be made
annually to the IRS 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 with respect to the 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.
LEGAL INVESTMENT CONSIDERATIONS
No certificates offered under this prospectus will constitute mortgage
related securities for purposes of the Secondary Mortgage Market Enhancement
Act of 1984 because none of the loans will be secured as required by SMMEA.
Accordingly, many institutions with legal authority to invest in mortgage
related securities may not be legally authorized to invest in the certificates.
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.
40
<PAGE>
RATINGS
Before the issuance of any class of certificates sold under this prospectus,
that class must be rated by at least one nationally recognized statistical
rating organization in one of its four highest rating categories. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
The security rating of any series of certificates should be evaluated
independently of similar security ratings assigned to other kinds of
securities.
UNDERWRITING
We may sell certificates of each series to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell and place certificates directly to other
purchasers or through agents. Green Tree intends that certificates will be
offered through these 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
these 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 specified in the prospectus supplement relating to a series of
certificates, we or our affiliate may purchase some or all of one or more
classes of certificates of the series from the underwriter or underwriters at a
price specified in the prospectus supplement. The purchaser may from time to
time offer and sell, according to this prospectus, some or all of the
certificates purchased directly, through one or more underwriters to be
designated at the time of the offering of the certificates or through broker-
dealers acting as agent and/or principal. The offering may be restricted in the
manner described in the prospectus supplement. The 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 us 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 those 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 us and any profit on the
resale of the certificates by them may be deemed to be underwriting discounts
and commissions, under the Securities Act of 1933, as amended. Any underwriters
or agents will be identified, and any of their compensation received from us
will be described in the prospectus supplement.
41
<PAGE>
Under agreements which may be entered into by us, underwriters and agents who
participate in the distribution of the certificates may be entitled to
indemnification by us against certain liabilities, including liabilities under
the Securities Act.
If indicated in the prospectus supplement, we will authorize underwriters or
other persons acting as our agents to solicit offers by certain institutions to
purchase the certificates from us pursuant to contracts providing for payment
and delivery on a future date. Institutions with which these 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 us. 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 the certificates. The underwriters and other agents
will not have responsibility in respect of the validity or performance of the
contracts.
The underwriters may, from time to time, buy and sell certificates, but we
cannot assure you that an active secondary market will develop and there is no
assurance that any such market, if established, will continue.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the certificates. These
types of transactions may include stabilizing, the purchase of certificates to
cover syndicate short positions and the imposition of penalty bids. For a
more complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
Some of the underwriters and their associates may engage in transactions with
and perform services for us in the ordinary course of business.
LEGAL MATTERS
The legality and material federal income tax consequences of the certificates
will be passed upon for us by our counsel as identified in the applicable
prospectus supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31 1998, incorporated by reference in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997 are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in this prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
42
<PAGE>
GLOSSARY
Below are abbreviated definitions of terms used in this prospectus and the
prospectus supplement. The pooling and servicing agreement may contain a more
complete definition of some of the terms defined here and reference should be
made to the pooling and servicing agreement for a more complete definition of
all such terms.
"Adjustable Rate Certificates" means certificates which evidence the right to
receive distributions of income at a variable payment rate.
"Advances" means the advances made by a servicer (including from advances made
by a sub-servicer) on any payment date pursuant to a pooling and servicing
agreement.
"Amount Available" means, for each series of certificates, amounts on deposit
in the certificate account on a Determination Date.
"Certificate Distribution Amount" means the amount of principal and interest
specified in the related prospectus supplement to be distributed to
certificateholders.
"Compound Interest Certificates" means certificates on which interest may
accrue but not be paid for the period described in the related prospectus
supplement.
"Cut-off Date" means the date specified in the related prospectus supplement as
the date from which principal and interest payments on the contracts are
included in the trust.
"Determination Date" means, unless otherwise specified in the related
prospectus supplement, the third business day immediately preceding the related
payment date.
"Due Period" means, unless otherwise provided in a related prospectus
supplement, with respect to any payment date, the period from and including the
15th day of the second month preceding the payment date, to and including the
14th day of the month immediately preceding the payment date.
"Eligible Investments" means one or more of the investments specified in the
pooling and servicing agreement in which moneys in the certificate account and
certain other accounts are permitted to be invested.
"Formula Principal Distribution Amount" means the sum of:
(1) all scheduled payments of principal due on each outstanding contract
during the related due period, after adjustments for previous partial
principal prepayments and after any adjustments to a contract's
amortization schedule as a result of a bankruptcy or a similar
proceeding involving the related obligor,
(2) the Scheduled Principal Balance of each contract which, during the
month preceding the related due period, was purchased by Green Tree
under the pooling and servicing agreement on account of breaches of
its representations and warranties,
(3) all partial principal prepayments applied and all principal
prepayments in full received during the related due period,
43
<PAGE>
(4) the Scheduled Principal Balance of each contract that became a
liquidated contract during the related due period, plus the amount of
any reduction in the outstanding principal balance of a contract
during the related due period ordered as the result of a bankruptcy or
similar proceeding involving the related obligor,
(5) without repeating the above, all collections in respect of principal
on the contracts received during the due period in which the payment
date occurs up to and including the third business day prior to such
payment date, but in no event later than the 25th day of the month
before the payment rate, minus
(6) with respect to all payment dates other than the payment date in
1999, the amount included in the formula principal distribution amount
for the preceding payment date by virtue of clause (5) above, plus
(7) with respect to the payment date in 2000, any amount, by which the
Class A-1 principal balance as of the payment date exceeds the sum on
the payment date of the amounts described in clause (1) through (6)
above; minus
(8) with respect to the payment date in 2000, any amount, distributed
in respect of principal on the Class A-1 certificates on the payment
date in 2000 under clause (7) above.
"Liquidation Proceeds" means cash including insurance proceeds received in
connection with the repossession of a manufactured home.
"Monthly Payment" means the scheduled monthly payment of principal and interest
on a contract.
"Net Liquidated Proceeds" means all amounts received and retained for the
liquidation of defaulted contracts, net of liquidation expenses.
"Participants means institutions that have accounts with the depositary.
"Pool Scheduled Principal Balance" means, as of any payment date, the aggregate
of the Scheduled Principal Balances of contracts outstanding at the end of the
related due period.
"Replaced loan" means an Eligible Substitute loan substituted for a
manufactured housing contract which Green Tree is otherwise obligated to
repurchase under the pooling and servicing agreement.
"Repurchase Price" means the remaining principal amount outstanding on a
manufactured housing contract on the date of repurchase plus accrued and unpaid
interest at its contract rate to the date of the repurchase.
"Scheduled Principal Balance" means, as of any payment date, the "Scheduled
Principal Balance" of a contract as of any payment date is the unpaid principal
balance of the contract as specified in the amortization schedule at the time
relating to the contract as of the due date in the related due period, after
giving effect to any previous partial prepayments and to the payment of
principal due on the due date and irrespective of any delinquency in payment on
the contract.
44
<PAGE>
"Senior Distribution Amount" means, for a series of certificates having
Subordinated Certificates, as of each payment date and for each class of Senior
Certificates, the amount due the holders of that class of Senior Certificates.
"Senior Percentage" means, for a series of certificates having Subordinated
Certificates, the percentage specified in the related prospectus supplement.
"Subordinated Percentage" means, for a series of certificates having
Subordinated Certificates, the percentage specified in the related prospectus
supplement.
45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+maybe changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Prospectus Supplement to Base No. 7
PROSPECTUS SUPPLEMENT
(To prospectus dated , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Green Tree Home Improvement Trust 1999-
Loan-Backed Notes and Certificates
----------
The securities will consist of classes, but we are offering only the
following classes now:
<TABLE>
<CAPTION>
Approximate Interest Underwriting Proceeds to
Class Principal Amount Rate Price to Public Discount Company
- ----- ---------------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
A-1 Notes.. $ % % % %
A-2 Notes.. $ % % % %
A-3 Notes.. $ %
A-4 Notes.. $ %
Total...... $ $ $
</TABLE>
Investing in the notes and the certificates involves certain risks.
Prospective investors should consider carefully the risk factors beginning on
page S-12 in this prospectus supplement.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The attorney general of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
The notes will be delivered on or about , 1999.
The underwriters named below will offer the notes to the public at the
offering price listed on this cover page and they will receive the discount
listed above. See "Underwriting" on page S- in this prospectus supplement and
on page in the prospectus.
----------
[Underwriters]
The date of this prospectus supplement is , 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Notes........................................ S-4
Risk Factors............................................................. S-12
The Trust................................................................ S-15
The Trust Property....................................................... S-16
The Loan Pool............................................................ S-17
Green Tree Financial Corporation......................................... S-21
Yield and Prepayment Considerations...................................... S-25
Description of the Notes................................................. S-27
Description of the Counterparty.......................................... S-37
Description of the Certificates.......................................... S-37
Description of the Trust Documents and Indenture......................... S-40
Certain Federal and State Income Tax Consequences........................ S-45
ERISA Considerations..................................................... S-45
Underwriting............................................................. S-48
Legal Matters............................................................ S-49
Annex I.................................................................. A-1
Prospectus
Important Notice About Information Presented in This Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trusts............................................................... 3
Green Tree Financial Corporation......................................... 5
Yield Considerations..................................................... 7
Maturity and Prepayment Considerations................................... 8
Pool Factor.............................................................. 9
Use of Proceeds.......................................................... 9
The Notes................................................................ 10
The Certificates......................................................... 16
Certain Information Regarding the Securities............................. 19
Description of the Trust Documents....................................... 22
Description of FHA Insurance............................................. 37
Certain Legal Aspects of the Loans; Repurchase Obligations............... 38
Certain Federal Income Tax Consequences.................................. 40
Certain State Income Tax Consequences.................................... 49
ERISA Considerations..................................................... 50
Legal Investment Considerations.......................................... 53
Ratings.................................................................. 54
Underwriting............................................................. 54
Legal Matters............................................................ 56
Experts.................................................................. 56
Glossary................................................................. 57
</TABLE>
S-2
<PAGE>
You should rely only on the information contained in this prospectus. We
and the underwriters have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information. you should not rely on it. We and the underwriters are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted.
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our home improvement lending business, and about any series of
certificates or notes for home improvement loans that we may wish to sell. This
prospectus supplement contains more detailed information about the specific
terms of this series of notes and certificates. If the description of the terms
of your note or certificate varies between this prospectus supplement and the
prospectus, you should rely on the information in this prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus
in an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from us or an underwriter by asking for it.
No prospectus regarding these notes and certificates has been or will be
prepared in the United Kingdom pursuant to the United Kingdom Public Offers of
Securities Regulation 1995. These notes may not be offered or sold, or re-
offered or re-sold, to persons in the United Kingdom, except (1) to persons
whose ordinary activities involve them in acquiring, holding, managing and
disposing of investments, as principal or agent for the purpose of their
businesses, or (2) in circumstances that will not constitute or result in an
offer to the public in the United Kingdom within the meaning of the United
Kingdom Public Offers of Securities Regulation 1995. You may not pass this
prospectus supplement and prospectus, or any other document inviting
applications or offers to purchase notes or offering notes for purchase, to any
person in the United Kingdom who (1) does not fall within article 11(3) of the
Financial Services Act 1986 (Investment Advisements) (Exemptions) Order 1996 or
(2) is not otherwise a person to whom passing this prospectus supplement and
prospectus would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE NOTES
This summary highlights selected information regarding the notes, and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the notes, read this
entire prospectus supplement and the accompanying prospectus. In particular,
throughout this summary we will refer to sections of this prospectus supplement
or the prospectus, or both, which will contain more complete descriptions of
the matters summarized. All these references will be to sections of this
prospectus supplement only unless we specify otherwise.
Green Tree Home Improvement Trust 1999- will issue the classes of
securities listed in the table below. The trust will own a pool of home
improvement loans.
<TABLE>
<CAPTION>
Interest Approximate Moody's S&P
Class Rate Principal Amount Rating Rating
- ----- -------- ---------------- ------- ------
<S> <C> <C> <C> <C>
A-1 notes.............................. % $
A-2 notes..............................
A-3 notes..............................
A-4 notes..............................
Certificates...........................
</TABLE>
- --------
We will not issue or sell the notes unless Moody's and S&P assign each
class the rating listed above.
The rating of each class of notes by Moody's and S&P addresses the
likelihood of timely receipt of interest and ultimate receipt of principal. 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 certificates are not being offered under this prospectus supplement and
prospectus. We are offering all the classes of notes listed above. We, or one
of our affiliates, will initially retain the certificates.
Seller and Servicer.........
Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Indenture Trustee...........
[Indenture trustee]
Owner Trustee...............
[Owner trustee]
Distribution Date...... The fifteenth day of each month, or, if that
fifteenth day is not a business day, the next
succeeding business day, beginning on 15,
1999.
S-4
<PAGE>
Record Date.................
The business day just before the related
distribution date, beginning in 1999.
Distributions on Notes......
Distributions on the notes on any distribution
date will be made primarily from amounts
collected on the home improvement loans during
the prior calendar month. This is the amount
available for distribution. On each distribution
date, the indenture trustee will apply the amount
available, to make distributions of principal and
interest on the notes in the following order of
priority:
^Class A-1 interest;
^Class A-1 principal;
^Class A-2 interest;
^Class A-2 principal;
^Class A-3 interest;
^Class A-3 principal;
^Class A-4 interest; and
^Class A-4 principal;
This prospectus supplement summarizes in the next
3 pages the amounts of interest and principal to
be paid on each distribution date. In each case,
the payments will be made only up to the amount
available, after making any payments with a
higher priority. See "Description of the Notes--
Payments on Loans."
A. Class A-1 Interest ......
We will pay interest on the Class A-1 notes that
has accrued from the previous distribution date.
If there are not enough funds available to pay
interest on the Class A-1 notes, we will carry
the shortfall forward and add it to the amount of
interest payable on the next distribution date.
B. Class A-1 Principal......
We will pay the Class A-1 noteholders principal
on each distribution date, up to the remaining
amount available, equal to approximately % of a
formula principal distribution amount plus any
unpaid shortfall of principal from a previous
distribution date. For more information on how we
calculate the amount of principal we pay each
month on the notes, see "Description of the Trust
Documents and Indenture--Distributions."
S-5
<PAGE>
C. Class A-2 Interest.......
We will pay interest on the Class A-2 notes that
has accrued from the previous distribution date.
We will pay interest on the Class A-2 notes from
funds available after we pay interest on the
previous class of notes. If there are not enough
funds available to pay interest on the Class A-2
notes, we will carry the shortfall forward and
add it to the amount of interest payable on the
next distribution date.
D. Class A-2 Principal......
We will pay the Class A-2 noteholders principal
on each distribution date, up to the remaining
amount available after paying interest and
principal on the Class A-1 notes, equal to
approximately % of a formula principal
distribution amount plus any unpaid shortfall of
principal from a previous distribution date.
E. Class A-3 Interest.......
We will pay interest on the Class A-3 notes that
has accrued from the previous distribution date.
We will pay interest on the Class A-3 notes from
funds available after we pay interest on the
previous class of notes. If there are not enough
funds available to pay interest on the Class A-3
notes, we will carry the shortfall forward and
add it to the amount of interest payable on the
next distribution date.
F. Class A-3 Principal .....
We will pay the Class A-3 noteholders principal
on each distribution date, up to the remaining
amount available after paying interest and
principal on the Class A-1 and Class A-2 notes,
in an amount equal to approximately % of a
formula principal distribution amount plus any
unpaid shortfall of principal from a previous
distribution date.
G. Class A-4 Interest....... We will pay interest on the Class A-4 notes that
has accrued from the previous distribution date.
We will pay interest on the Class A-4 notes from
funds available after we pay interest on the
previous class of notes. If there are not enough
funds available to pay interest on the Class A-4
notes, we will carry the shortfall forward and
add it to the amount of interest payable on the
next distribution date.
S-6
<PAGE>
H. Class A-4 Principal......
We will pay the Class A-4 noteholders principal
on each distribution date, up to the remaining
amount available after paying interest and
principal on the Class A-1, Class A-2 and Class
A-3 notes, in an amount equal to approximately
% of a formula principal distribution amount
plus any unpaid shortfall of principal from a
previous distribution date.
Interest Rate Cap
Agreement................... The Class A-1 noteholders will have the benefit
of an interest rate cap agreement, dated ,
1999 between the trust and [counterparty]. Under
the interest rate cap agreement, [counterparty]
will make a payment to the trust on each
distribution date, to the extent that the Class
A-1 rate exceeds %, following a pre-set formula.
See "Description of the Notes-- Interest Rate Cap
Agreement" and "Description of the Counterparty."
Spread Account..............
The indenture trustee will hold a spread account,
and the Class A-2, Class A-3 and Class A-4
noteholders will have the benefit of a separate
sub-account for each class contained in a spread
account. On any distribution date, if there are
not enough funds to distribute interest on the
Class A-2, Class A-3 or Class A-4 notes, the
indenture trustee will withdraw the amount of the
deficiency from the applicable sub-account for
distribution to the applicable class of notes.
On the closing date, the amount on deposit in the
Class A-2, Class A-3 and Class A-4 sub-accounts
will be zero. On each distribution date, the
indenture trustee will deposit all funds
remaining in the collection account, after
distribution of all interest and principal on the
notes, first to the Class A-2 sub-account, then
to the Class A-3 sub-account and then to the
Class A-4 sub account, until the amount on
deposit in each of the sub-accounts equals
$ , $ and $ . If the indenture
trustee withdraws funds from any sub-account,
that sub-account will be replenished as provided
in the sale and servicing agreement and the
indenture. The spread account will be included in
the property of the trust. See "Description of
the Notes--The Spread Account."
S-7
<PAGE>
Reserve Account.............
Noteholders will have the benefit of a reserve
account. The indenture trustee will hold the
reserve account. On any distribution date, if the
funds in the note distribution account are
insufficient to make full payment of interest or
principal payable on a class of notes, the
indenture trustee will withdraw the amount of the
deficiency from the reserve account and deposit
that amount in the note distribution account for
distribution to the applicable class of notes.
On the closing date, the amount on deposit in the
reserve account will be zero. On each
distribution date, the indenture trustee will
deposit into the reserve account all funds
remaining in the collection account, after
distribution of all interest and principal
payable on the notes, all interest payable on the
certificates and all deposits in the spread
account, until the amount in the reserve account
equals % of the pool scheduled principal
balance. If the reserve account is drawn upon, it
will be replenished to the extent provided in the
sale and servicing agreement and the indenture.
The reserve account will be included in the trust
property. See "Description of the notes--The
Reserve Account."
Terms of the Certificates... Below are the principal terms of the
certificates. We, or one of our affiliates, will
initially retain the certificates.
A. Distributions............ Certificateholders will be entitled to receive on
each distribution date commencing in 1999,
to the extend the amount available in the
collection account including the guaranty payment
is sufficient, their distributable amount. See
"Description of the Trust Documents and
Indenture."
B. Pass-Through Rate........ % per year payable monthly at one-twelfth
the annual rate calculated on the basis of a 360-
day year consisting of twelve 30-day months.
C. Interest................. On each distribution date, the owner trustee will
distribute to the certificateholders accrued
interest at the pass-through rate on the
outstanding certificate principal balance.
Interest will accrue from , 1999 or from the
most recent distribution date up to but excluding
the
S-8
<PAGE>
following distribution date. The certificate
principal balance on any distribution date will
be the original certificate principal balance
minus all amounts previously distributed to the
certificateholders in respect of principal and
minus any unreimbursed liquidation losses
absorbed by the certificates.
We will pay interest on the certificates to the
extent of funds available on each distribution
date after payment of all interest and principal
then payable on the notes. If there are not
enough funds available to make a full
distribution of interest on the certificates, the
amount of the shortfall will be carried forward
and added to the amount of interest payable on
the next distribution date. Any amount carried
forward will bear interest at the pass-through
rate, to the extent legally permissible. See
"Description of the Certificates."
D. Principal................
We will not pay principal on the certificates
until we have paid off all of the notes in full.
On each distribution date after we have paid off
the notes, we will pay principal on the
certificates in an amount equal to the formula
principal distribution amount for that
distribution date, plus any unpaid shortfall from
prior distribution dates.
E. Limited Guarantee........
To mitigate the effect of the subordination of
the certificates and the effect of liquidation
losses on the loans, we will entitle the
certificateholders to receive on each
distribution date an amount equal to the guaranty
payment, if any, under Green Tree's limited
guaranty. The guaranty payment for any
distribution date will equal the difference
between the certificateholders' distributable
amount and the remaining funds available in the
collection account after payment of all interest
and principal on the notes and the deposit in any
sub-account of the spread account or the reserve
account of any amounts previously withdrawn and
not previously replenished. See "Limited
Guaranty."
F. Optional Prepayment......
If we exercise our option to purchase the loans
under the sale and servicing agreement, the
certificateholders will receive an amount equal
to the principal amount
S-9
<PAGE>
together with accrued interest and the
certificates will be retired. For more
information about the process of optional
prepayment, see "Description of the
Certificates--Optional Prepayment."
Collection Account;
Priority of Payments........
The servicer generally will be required to remit
payments received on the loans within one
business day to an account in the name of the
indenture trustee. This account is the collection
account. On each distribution date, the servicer
will instruct the indenture trustee to withdraw
funds on deposit in the collection account and to
apply those funds as follows:
^ if we are not the servicer, the monthly
servicing fee,
^ reimbursement of any advances made by the
servicer that were recovered during the
prior monthly period,
^ the noteholders' interest and principal and
any amounts previously withdrawn from any
sub-account of the spread account or the
reserve account,
^ the certificateholders' interest and
principal after the notes have been paid in
full,
^ amounts necessary to fully fund the Class A-
2, Class A-3 and Class A-4 sub-accounts of
the spread account,
^ the amount necessary to fully fund the
reserve account and
^ any remaining amount to us as the monthly
servicing and guaranty fee.
Pre-Funding Account.........
On the closing date, the indenture trustee will
deposit money in the pre-funding account to
provide the trust with sufficient funds to
purchase the subsequent loans. The pre-funded
amount will initially equal the difference
between $ and the aggregate principal
balance as of the cut-off date of the initial
S-10
<PAGE>
loans. The pre-funding account will be included
in the trust's property. Any reimbursement income
earned on amounts on deposit in the pre-funding
account will be taxable to us. For more detailed
information about the pre-funding account, see
"Yield and Prepayment Considerations" and
"Description of the trust Documents and
Indenture--Accounts."
Tax Status.................. In the opinion of our counsel, for federal and
Minnesota income tax purposes, the notes will be
characterized as debt, and the trust will not be
characterized as an association or a publicly
traded partnership taxable as a corporation and
neither the trust nor any portion of the trust
will constitute a taxable mortgage pool taxable
as a corporation. Each noteholder, by the
acceptance of a note, will agree to treat the
notes as debt. Each certificateholder, by the
acceptance of a certificate, will agree to treat
the trust as a partnership in which the
certificateholders are partners for federal
income tax purposes. See "Certain Federal Income
Tax Consequences."
ERISA Considerations........ If the notes are considered to be indebtedness
without substantial equity features under a
regulation issued by the United States Department
of Labor, the acquisition or holding of notes by
or on behalf of a benefit plan will not cause the
assets of the trust to become plan assets,
generally preventing the application of certain
prohibited transaction rules of ERISA and the IRS
code that otherwise would possibly be applicable.
We believe that the notes should be treated as
indebtedness without substantial equity features
for purposes of the regulations. You may not
acquire the certificates if you are an employee
benefit plan, individual retirement account or
Keogh Plan subject to either Title I of ERISA or
the IRS code of 1986, as amended. See "ERISA
Considerations."
Reports to Holders of
Certificates...........
We will provide to the holder of the certificates
monthly and annual reports about the certificates
and the trusts. See "Description of the
Certificates--Reports to Certificateholders" in
the prospectus.
S-11
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase notes.
There are limits to the availability of FHA insurance.
About % of the home improvement loans in the pool are insured by FHA
under Title I of the National Housing Act. The availability of FHA insurance
following a default on an FHA-insured home improvement loan is subject to a
number of conditions, including strict compliance by us with FHA regulations
in originating and servicing the loan. Although we are an FHA-approved lender
and believe that we have complied with FHA regulations, these regulations are
susceptible to substantial interpretation. The law does not require us to
obtain approval from FHA of our origination and servicing practices. If we
fail to comply with FHA regulations, FHA may deny some insurance claims and we
cannot assure you that FHA's enforcement of its regulations will not become
stricter in the future. We sometimes have disputes with FHA over the validity
of claims submitted and our compliance with FHA regulations in servicing loans
insured by FHA. In addition, FHA will only cover 90% of the sum of the unpaid
principal on a home improvement loan, up to nine months unpaid interest and
certain liquidation costs.
The amount of FHA insurance on the loans in a given pool is limited to the
balance of a reserve amount. This reserve amount as of December 31, 1997, was
equal to approximately $86,950,000, but will be reduced by the amount of all
FHA insurance claims paid and will be increased by an amount equal to 10% of
the unpaid principal balance of FHA Title I loans subsequently originated and
reported for insurance by us. Severe losses on our FHA-insured manufactured
housing loans, or on other FHA-insured home improvement loans originated by
us, could reduce or eliminate our FHA insurance reserves. If this happened FHA
insurance would not be available to cover losses on FHA-insured home
improvement loans. If we were terminated as servicer due to bankruptcy or
otherwise, it is anticipated that a proportionate amount of our FHA insurance
reserves would be transferred to the reserve account of the trustee or the
successor servicer, but we can not assure you of the amount, if any, that
would be transferred. For a more complete description of the limits on the
availability of FHA insurance, see "Description of FHA Insurance."
The home improvement loans will not be secured by an interest in the related
real estate.
If an obligor defaults on its home improvement loan, the trust will have
recourse only against the obligor's assets generally, along with all other
general unsecured creditors of the obligor. In a bankruptcy or insolvency
proceeding relating to an obligor on a home improvement loan, the obligations
of that obligor may be discharged in full. An obligor on an unsecured home
improvement loan may not care as much about his or her obligations under that
loan compared to his or her obligations on a loan secured by his or her real
estate.
S-12
<PAGE>
A secondary market for the certificates may not develop.
We cannot assure you that a secondary market will develop for the
securities of any series, or, if a secondary market does develop, that it will
provide the holders of any of the certificates with liquidity of investment. We
also cannot assure you that if a secondary market does develop, that it will
continue to exist for the term of any series of securities.
Issuance of certificates and notes in book-entry form rather than as
physical certificates or notes may adversely affect the liquidity of
certificates or notes in the secondary market and the ability of the
certificate owners or note owners to pledge them. In addition, since
distributions on the certificates and the notes will be made by the trustee or
the indenture trustee to DTC and DTC will credit distributions to the accounts
of its participants, with the participants further crediting such distributions
to the accounts of indirect participants or certificate owners or note owners,
certificate owners and note owners may experience delays in the receipt of
distributions.
In addition, holders of some classes of notes may have the right to take
actions that are detrimental to the interests of the holders of other classes
of notes. For example, holders of a class of more senior notes may be entitled
to instruct the trustee to liquidate the property of the trust when it is not
in the interest of holders of more junior classes of notes to do so. On the
other hand, some actions require the consent of a majority of note owners of
all classes which may mean that owners of notes of more junior classes can
prevent the owners of more senior classes from taking action.
The loans may be prepaid before their scheduled maturity.
Full or partial prepayments on the loans will reduce the weighted average
life of the notes. Obligors may prepay their loans without penalty. Prepayments
may result from payments by obligors, liquidations due to default, repurchases
by us as a result of certain uncured breaches of the warranties, purchases by
the servicer as a result of certain uncured breaches of the covenants with
respect to the loans made by it in the sale and servicing agreement, or us or
the servicer exercising our option to purchase all of the remaining loans.
You will bear all reinvestment risk resulting from the timing of payments
of principal on the securities. If you purchased your note at a premium, higher
than expected prepayments on the loans will reduce your yield.
Bankruptcy proceedings could delay distributions on the notes.
We intend that each transfer of loans to the related trust will constitute
a sale, rather than a pledge of the loans to secure our indebtedness. However,
if we were to become a debtor under the federal bankruptcy code, it is possible
that a creditor or our trustee in bankruptcy, or us as debtor-in-possession,
may argue that the sale of the loans by us were a pledge of the loans 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 holders of the notes.
S-13
<PAGE>
The Class A-2, Class A-3 and Class A-4 notes will be subordinate.
Each class of notes will be subordinate for payment of interest and
principal to the holders of the class of notes with a prior numeric
designation. The certificates will be subordinate in priority of payment of
interest and principal to the notes. We will not pay principal on the
certificates until the outstanding principal amounts of all of the notes have
been paid.
You must rely upon payments on the loans for payment of your interest and
principal. The trust will not have any significant assets or sources of funds
other than the loans, the spread account, the reserve account, the interest
rate cap payments and our limited guaranty.
We have limited delinquency, loan loss and repossession experience.
We have limited underwriting and servicing experience with home improvement
loans similar to the loans in the trust. Although we have calculated our
delinquency and net loss experience with respect to our servicing portfolio of
home improvement loans, we cannot assure you that the information presented
will reflect actual experience with respect to the loans in the trust. In
addition, we cannot assure you that the future delinquency, loan loss or
repossession experience of the trust will be better or worse than our own
experience. For more information about delinquency, loan loss and repossession
experience, see "The Loan Pool--Delinquency, Loan Loss and Repossession
Information."
The loans are located primarily in .
As of the cut-off date, obligors on approximately % of the initial
loans were located in . Accordingly, adverse economic conditions or
other factors particularly affecting this state could adversely affect the
delinquency, loan loss or repossession experience of the trust with respect to
the loans.
Other rating agencies could provide unsolicited ratings on the certificates
that could be lower than the requested ratings.
Other rating agencies could provide unsolicited ratings on the notes that
could be lower than the requested ratings. Although we have not requested a
rating of the certificates from any rating agencies other than S&P and Moody's,
other rating agencies may rate the notes. These ratings could be higher or
lower than the ratings S&P and Moody's initially give to the certificates. A
lower rating of your note from another rating agency could lower the market
value or liquidity of your note.
S-14
<PAGE>
THE TRUST
The following information supplements and, if inconsistent, supersedes the
information contained in the prospectus under the heading "The Trust".
General
Green Tree Home Improvement Loan Trust 1999- is a business trust formed
under the laws of the State of Delaware pursuant to the trust agreement for the
transactions described in this prospectus supplement. After its formation, the
trust will not engage in any activity other than:
(1) acquiring, holding and managing the loans and the other assets of the
trust and proceeds;
(2) issuing the notes and the certificates;
(3) making payments on the notes and the certificates and;
(4) engaging in other activities that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto.
The trust will initially be capitalized with equity equal to approximately
$ The equity of the trust, together with the proceeds of the initial sale
of the notes, will be used by the trust to purchase the loans from us under
pursuant to the sale and servicing agreement.
The trust's principal offices are in , Delaware, at the address listed
below under "--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cut-off date, as if the issuance and sale of the notes and certificates had
taken place on such date:
<TABLE>
<S> <C>
Class A-1 notes.............................................. $
Class A-2 notes..............................................
Class A-3 notes..............................................
Class A-4 notes..............................................
Certificates.................................................
------------
Total...................................................... $
============
</TABLE>
The Owner Trustee
[Owner Trustee name] is the owner trustee under the trust agreement. [Owner
Trustee] is a Delaware banking corporation and its principal offices are
located at , Delaware . The owner trustee will perform
limited administrative functions under the trust agreement, including making
distributions from the certificate distribution account. The owner trustee's
liability in connection with the issuance and sale of the certificates and the
notes is limited solely to the express obligations of the owner trustee as set
forth in the trust agreement.
S-15
<PAGE>
THE TRUST PROPERTY
The trust property will include:
(1) the loan;
(2) all rights to receive payments due on or after the cut-off date,
excluding some insurance premiums, late fees and other servicing
charges;
(3) the amounts as from time to time may be held in the collection
account, the spread account, the reserve account, the pre-funding
account and certain other accounts established and maintained by the
servicer under the sale and servicing agreement, as described below
(including all investments in the collection account, the spread
account, the reserve account and the other accounts and all income
from the investment of funds and all proceeds);
(4) an assignment of the mortgages on the real estate securing the various
loans; and
(5) some other rights under the trust documents.
See "The Loans" and "Description of the Trust Documents--Collections" in the
prospectus.
Each certificate will represent a fractional undivided interest in the
trust property. Under to the indenture the trust will grant a security interest
in the trust property in favor of the indenture trustee on behalf of the
noteholders. Any proceeds of the security interest in the trust property would
be distributed according to the indenture, as described below under
"Description of the Trust Documents and Indenture--Distributions."
[Indenture Trustee] or a custodian on its behalf, will hold each original
loan, as well as copies of documents and instruments relating to that loan. In
order to protect the trust's ownership interest in the loans, we will file a
UCC-1 financing statement in Minnesota and Delaware to give notice of the
trust's ownership of the loans and the related trust property.
S-16
<PAGE>
THE LOAN POOL
General
This prospectus supplement contains information regarding the initial
loans, which were originated through and will be transferred to the
trust on the closing date. The information for each initial loan is as of the
cut-off date for that loan. The initial loans had an aggregate principal
balance as of the cut-off date of $ . The sale and servicing agreement
provides that the initial loans will be purchased by the trust on the closing
date and that subsequent loans will be purchased by the trust from time to time
during the pre-funding period.
All of the loans will be purchased by us from dealers, home improvement
contractors and correspondent lenders who regularly originate and sell these
loans to us, or will be originated by us directly.
Certain Other Characteristics
The initial loans:
(1) had a remaining maturity, as of the cut-off date, of at least
months, but not more than months;
(2) had an original maturity of at least months, but not more than
months;
(3) had an original principal balance of at least $ and not more
than $ ;
(4) had a remaining principal balance as of the cut-off date of at least
$ and not more than .
Neither we nor the servicer may substitute other loans for the home improvement
loans at any time during the term of the sales and servicing agreement.
The initial loans have an aggregate principal balance as of the cut-off
date of approximately $ . The initial loans were originated between
and . A significant portion of the initial loans were
purchased by us from an independent financing company. We believe that the
underwriting standards employed by the independent financing company are
similar to the standards used by us.
Characteristics of Initial Loans
<TABLE>
<CAPTION>
Weighted
% of Average Weighted
% of Scheduled Scheduled Average Weight Original Average
Number of Initial Principal Principal Principal Average Scheduled Remaining
Asset Type Loans Loans Balance Balance Balance Rate Term Term (1)
- ------------------------ --------- -------- --------- ---------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Unsecured Home
Improvement............ % % %
Debt Consolidation
Home Improvement....... % % %
----- ------- -------- ------- ----- ------ --- ---
Total ................ 100.00% $ 100.00% $ %
===== ======= ======== ======= ===== ====== === ===
</TABLE>
- --------
(1) Based on scheduled payments due after the cut-off date and assuming no
prepayments on the loans.
S-17
<PAGE>
Geographic Concentration of Initial Loans
<TABLE>
<CAPTION>
Number of
Loans as of Percent of Number Principal Balance Percent of Cutoff Date
State (1) Cutoff Date of Loans as of Cutoff Date Principal Balance
--------- ----------- ----------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
District of Columbia....
Florida.................
Georgia.................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
Rhode Island............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ --------------- ------
Total................. 100.00% $ 100.00%
===== ====== =============== ======
</TABLE>
- --------
(1) Based on the address of the obligor set forth in Green Tree's records.
S-18
<PAGE>
Distribution of Original Loan Amounts of Initial Loans
<TABLE>
<CAPTION>
Aggregate
Principal
Balance % of Loan Pool
Outstanding by Outstanding
Number of Loans as of Cutoff Principal Balance
Original Loan Amount as of Cutoff Date Date as of Cutoff Date
-------------------- ----------------- --------------- -----------------
<S> <C> <C> <C>
Less than $10,000......... $ %
Between $10,000 and
$19,999..................
Between $20,000 and
$29,999..................
Between $30,000 and
$39,999..................
Between $40,000 and
$49,999..................
Between $50,000 and
$59,999..................
Between $60,000 and
$69,999..................
Between $70,000 and
$79,999..................
Between $80,000 and
$89,999..................
Between $90,000 and
$99,999..................
Between $100,000 and
$109,999.................
Between $110,000 and
$119,999.................
Between $120,000 and
$129,999.................
Between $130,000 and
$139,999.................
Between $140,000 and
$149,999.................
Between $150,000 and
$159,999.................
Between $160,000 and
$169,999.................
Between $170,000 and
$179,999.................
Between $180,000 and
$189,999.................
Between $190,000 and
$199,999.................
Between $200,000 and
$249,999.................
Between $250,000 and
$299,999.................
Over $300,000.............
----- --------------- ------
Total................... $ 100.00%
===== =============== ======
</TABLE>
Year of Origination of Initial Loans
<TABLE>
<CAPTION>
Aggregate % of Loan Pool
Principal Balance by Outstanding
Year of Number of Loans Outstanding Principal Balance
Oiginationr as of Cutoff Date as of Cutoff Date as of Cutoff Date
- ----------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
1989.................... $ %
1990....................
1991....................
1992....................
1993....................
1994....................
1995....................
1996....................
1997....................
------ ------------- ------
Total................. $ 100.00%
====== ============= ======
</TABLE>
S-19
<PAGE>
Initial Loan Rates
<TABLE>
<CAPTION>
Aggregate Principal % of Loan Pool by
Number of Loans Balance Outstanding Outstanding Principal
Loan Rate as of Cutoff Date as of Cutoff Date Balance as of Cutoff Date
--------- ----------------- ------------------- -------------------------
<S> <C> <C> <C>
Less than 9.00%........... $ %
9.01% to 10.00%..........
10.01% to 11.00%..........
11.01% to 12.00%..........
12.01% to 13.00%..........
13.01% to 14.00%..........
14.01% to 15.00%..........
15.01% to 16.00%..........
16.01% to 17.00%..........
Over 17.00%...............
----- ------------- ------
Total................... $ 100.00%
===== ============= ======
Remaining Months to Maturity of Initial Loans
<CAPTION>
Aggregate Principal % of Loan Pool by
Number of Loans Balance Outstanding Outstanding Principal
Remaining Months to Maturity as of Cutoff Date as of Cutoff Date Balance as of Cutoff Date
- ---------------------------- ----------------- ------------------- -------------------------
<S> <C> <C> <C>
Fewer than 31............. $ %
31 to 60................
61 to 90................
91 to 120................
121 to 150................
151 to 180................
181 to 210................
211 to 240................
241-270...................
271-300...................
301-330...................
331-360...................
----- ------------- ------
Total................... $ 100.00%
===== ============= ======
</TABLE>
S-20
<PAGE>
GREEN TREE FINANCIAL CORPORATION
The following information supplements, and if inconsistent, supersedes the
information contained in the prospectus.
Delinquency, Loan Loss and Repossession Information for the Home Improvement
Loans
The following tables show information relating to our delinquency, loan
loss and repossession information for each period indicated with respect to all
unsecured home improvement loans and all debt-consolidation home improvement
loans we have purchased and continue to service.
Delinquency Experience--Unsecured and Debt Consolidation Home Improvement Loans
<TABLE>
<CAPTION>
At December 31,
------------------------------
1994 1995 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Number of Loans Outstanding (1)................. 10,397 18,411 25,104 25,077
Number of Loans Delinquent (2)
30-59 Days.................................... 50 115 198 221
60-89 Days.................................... 18 44 68 90
90 Days or More............................... 4 14 38 140
------ ------ ------ ------
Total Loans Delinquent.......................... 72 173 304 451
====== ====== ====== ======
Delinquencies as a Percentage of Loans
Outstanding (3)................................ 0.69% 0.94% 1.21% 1.80%
</TABLE>
- --------
(1) Excludes loans already in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a loan due
on the first day of a month is not 30 days delinquent until the first day
of the next month.
(3) By number of loans.
S-21
<PAGE>
Loan Loss/Repossession Experience--Unsecured and Debt Consolidation Home
Improvement Loans
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of Loans Serviced (1).. 10,412 18,412 25,145 25,117
Principal Balance of Loans
(1)......................... $59,329 $97,544 $122,372 $113,405 $
Loan Liquidations:
Units....................... 93 254 519 603
Percentage (2).............. 0.89% 1.38% 2.06% 2.40% %
Net Losses:
Dollars (3)................. $ 578 $ 1,710 $ 2,863 $ 3,056 $
Percentage (4).............. 0.97% 1.75% 2.34% 2.69% %
</TABLE>
- --------
(1) As of period end. Includes loans already in repossession.
(2) As a percentage of the total number of loans being serviced as of period
end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of loans being serviced as of
period end.
We cannot assure you that the delinquency, loan loss and repossession
experience of the trust for the home improvement loans will be better than,
worse than or comparable to the experience shown above. See "Risk Factors--
Delinquency, Loan Loss and Repossession Experience."
We cannot assure you that the delinquency, loan loss or repossession
experience of the trust for the unsecured home improvement loans will be better
than, worse than or comparable to the experience set forth above. See "Risk
Factors--Delinquency, Loan Loss and Repossession Experience."
Delinquency Information for Secured Home Improvement Loans
The following tables set forth information relating to our delinquency,
loan loss and repossession experience for each period indicated for all secured
home improvement loans serviced by us. Because of the rapid growth of our
portfolio of secured home improvement loans, the experience shown in more
recent periods may not be indicative of the experience to be expected of a more
seasoned portfolio.
S-22
<PAGE>
Delinquency Experience--Secured Home Improvement Loans
<TABLE>
<CAPTION>
At December 31, As of
------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Number of Loans Outstanding (1)..... 56,673 81,953 96,022
Number of Loans Delinquent (2)(3)
30-59 Days........................ 294 856 1,115
60-89 Days........................ 105 230 364
90 Days or More................... 161 309 477
Total Loans Delinquent.............. 560 1,395 1,956
Delinquencies as a Percent of Loans
Outstanding (4).................... 0.99% 1.70% 2.04% % %
</TABLE>
- --------
(1) Excludes defaulted loans not yet liquidated.
(2) A loan is considered delinquent by us if any payment of $25 or more is
past-due 30 days or more.
(3) The period of delinquency is based on the number of days that payments are
contractually past-due, assuming 30-day months. Consequently, a loan due on
the first day of a month is not 30 days delinquent until the first day of
the next month.
(4) By number of loans.
Loan Loss/Repossession Experience--Secured Home Improvement Loans
(Dollars in Thousands)
<TABLE>
<CAPTION>
At December 31, As of
------------------------------------------ March 30,
1994 1995 1996 1997 1998
-------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Number of Loans
Serviced (1)........... 56,710 109,030 96,230
Principal Balance of
Loans (1).............. $617,341 $1,015,783 $1,308,549 $ $
Contract Liquidations:
Units................. 541 766 1,564
Percentage (2)........ 0.95% 0.70% 1.63% % %
Net Losses:
Dollars (3)........... $ 908 $ 3,715 $ 11,646 $ $
Percentage (4)........ 0.15% 0.37% 0.89% % %
</TABLE>
- --------
(1) As of period end. Includes loans already in repossession.
(2) As a percentage of the total number of loans being serviced as of period
end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of loans being serviced as of
period end.
We cannot assure you that the delinquency, loan loss and repossession
experience of the trust with respect to the home improvement loans will be
better than, worse than or comparable to the experience set forth above. See
"Risk Factors--Delinquency, Loan Loss and Repossession Experience."
S-23
<PAGE>
Recent Developments
We have been served with various lawsuits in the United States District
Court for the District of Minnesota. These lawsuits were filed by our
stockholders as purported class actions on behalf of persons or entities who
purchased common stock or traded in options during the alleged class periods.
In addition to the company, some of our current and former officers and
directors are named as defendants in one or more of the lawsuits. The lawsuits
have been consolidated into two complaints, one relating to an alleged class of
purchasers of our common stock and the other relating to an alleged class of
traders in options for our common stock. In addition to these two complaints, a
separate non-class action lawsuit containing similar allegations was also
filed. Plaintiffs in the lawsuits assert claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. In each case, plaintiffs allege that we
and the other defendants violated federal securities laws by making false and
misleading statements about our current state and our future prospects
particularly about prepayment assumptions and performance of some of our loan
portfolios, which allegedly rendered our financial statements false and
misleading. We believe that the lawsuits are without merit and intend to defend
the lawsuits vigorously.
S-24
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements, and if inconsistent, supersedes the
information contained in the prospectus.
The servicer and we each have the option to purchase from the trust all
remaining loans, and thereby effect early redemption of the notes and early
retirement of the certificates, on any distribution date when the pool
scheduled principal balance is 10% or less of the cut-off date pool principal
balance. See "Description of the Trust Documents--Termination" in the
prospectus.
The Class A-1 notes will be prepaid in part on the first distribution date
after the pre-funding period, in no event later than , 1999, to the extent
of any pre-funded amount remaining in the pre-funding account on the
distribution date. We believe that substantially all of the pre-funded amount
will be used to acquire the subsequent loans. It is unlikely, however, that the
aggregate principal amount of subsequent loans purchased by the trust will be
identical to the pre-funded amount, and that consequently, Class A-1
noteholders will receive a prepayment of principal, in accordance with their
applicable percentage of the formula principal distribution amount.
Principal prepayments on the loans will result in accelerating principal
payments on the notes. The rate of principal payments on pools of home equity
loans and home improvement loans is influenced by a variety of economic,
geographic, social and other factors, including the level of interest rates and
the rate at which homeowners sell their homes or default on their loans. Other
factors affecting prepayment of home improvement loans include changes in
obligors' housing needs, job transfers, unemployment and obligors' net equity
in their homes. Since home improvement loans are not generally viewed by
borrowers as permanent financing, loans may experience a higher rate of
prepayments than traditional mortgage loans. In addition, if prevailing
interest rates fall significantly below the interest rates on those loans, the
loans are likely to be subject to higher prepayment rates than if prevailing
interest rates remain at or above the rates borne by those loans. Conversely,
if prevailing interest rates rise above the interest rates on those loans, the
rate of prepayment would be expected to decrease.
We have no significant experience for the rate of principal prepayments on
home improvement loans. In addition, liquidations of defaulted loans or the
exercise by us or the servicer of the option to purchase the remaining pool of
loans will affect the timing of principal distributions on the securities.
Weighted Average Life of the Notes and the Certificates
The following information is given solely to illustrate the effect of
prepayments on the loans on the weighted average life of the notes and the
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the loans.
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<PAGE>
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of that security will be
repaid to the investor. The weighted average life of the notes and the
certificates will be influenced by the rate at which principal on the loans is
paid. Principal payments on the loans may be in the form of scheduled
amortization or prepayments, including, for this purpose, liquidations due to
default.
The base case prepayment model is our management's best estimate of the
prepayment rates that may be experienced on the loans. Because we began
originating and servicing home improvement loans only recently, the estimate is
based in part on industry experience with similar loans and loans rather than
our experience. There can be no assurance that the loans will experience
prepayments at the projected rates or in the manner assumed by the prepayment
model used for that type of loan, or that the loans in the aggregate will
experience prepayments similar to the overall prepayment rate or in the manner
projected in the base case.
<TABLE>
<CAPTION>
Base Case
Product Prepayment Rate
------- ---------------
<S> <C>
Home Improvement (unsecured).............................. % CPR
Home Improvement (secured)................................ % CPR
</TABLE>
The model used in this prospectus supplement is the constant prepayment
rate. The CPR represents an assumed constant rate of prepayment each month,
expressed as a yearly percentage of the outstanding principal balance of the
loans.
As used in the following tables, the columns headed 80%, 90%, 100%, 110%
and 120% assume that prepayments on the loans are made at base case prepayment
rates of 80%, 90%, 100%, 110% and 120%. For example, unsecured home improvement
loans have been assumed to have a prepayment rate equal to % CPR and % CPR;
and secured home improvement loans have been assumed to have a prepayment rate
equal to % CPR and % CPR; CPR DOES NOT PURPORT TO BE A HISTORICAL
DESCRIPTION OF PREPAYMENT EXPERIENCE OR A PREDICTION OF THE ANTICIPATED RATE OF
PREPAYMENT OF ANY POOL OF LOANS, INCLUDING THE LOANS.
S-26
<PAGE>
DESCRIPTION OF THE NOTES
The following information supplements and, if inconsistent, supersedes the
information contained in the accompanying prospectus under "The Notes,"
"Certain Information Regarding the Securities," and "Description of the Trust
Documents."
General
The notes will be issued under the terms of the indenture, a form of which
has been filed as an exhibit to the registration statement. A copy of the
indenture, as executed, will be filed with the SEC following the issuance of
the securities. The following summary describes various terms of the notes and
the indenture. The summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
notes and the indenture. The following summary supplements the description of
the general terms and provisions of the notes of any given series and the
related indenture set forth in the accompanying prospectus, to which
description reference is made. [Indenture Trustee], a national banking
association headquartered in , will be the indenture trustee.
Distributions
Noteholders will be entitled to receive on each distribution date
commencing in 1999, to the extent that funds available are sufficient, the
noteholders' distributable amount. Distributions on the notes will be made from
funds available first to the holders of the Class A-1 notes, then to the
holders of the Class A-2 notes, then to the holders of the Class A-3 notes and
then to the holders of the Class A-4 notes, in the manner and order of priority
described below.
Class A-1 Interest
Interest on the outstanding Class A-1 principal balance will accrue from
, , or from the most recent distribution date, to but excluding the
following distribution date, at the Class A-1 rate for such monthly interest
period. The Class A-1 principal balance as of any distribution date will be the
original Class A-1 principal balance minus all amounts previously distributed
to the Class A-1 noteholders in respect of principal.
Interest will be paid on the Class A-1 notes to the extent of funds
available on the distribution date. In the event the funds available are not
sufficient to make a full distribution of interest on the Class A-1 notes, the
amount of the shortfall will be carried forward and added to the amount of
interest payable on the next distribution date. Any amount so carried forward
will bear interest at the Class A-1 rate, to the extent legally permissible.
Class A-1 Principal
To the extent of funds available after payment of all interest payable on
the Class A-1 notes, the Class A-1 noteholders will be entitled to receive on
each distribution date as
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<PAGE>
payment of principal an amount equal to the sum of approximately % of the
formula principal distribution amount for that distribution date plus the
unpaid Class A-1 principal shortfall, for that distribution date.
The formula principal distribution amount for any distribution date, but
subject to the last sentence of this definition, will generally be equal to the
sum of the following amounts for the related monthly period, in each case
computed in accordance with the method specified in each loan:
(1) all scheduled payments of principal due on each outstanding consumer
product loan during the related monthly period;
(2) all partial principal prepayments applied and all principal
prepayments in full received during the related monthly period for
each loan;
(3) the scheduled principal balance of each loan that became a liquidated
loan during the related monthly period;
(4) the scheduled principal balance of each loan which, during the related
monthly period, was purchased by us as a result of a breach of a
representation as warranty or by the servicer as a result of an
uncured breach of a covenant under the sale and servicing agreement;
and
(5) for the distribution date in 1998, any remaining amounts on
deposit in the pre-funding account. The formula principal distribution
amount for the distribution date in , will be the sum of the
note principal balance and the certificate principal balance. The
unpaid Class A-1 principal shortfall for any distribution date will
equal any amount required to be paid for the principal on the Class A-
1 notes on any prior distribution date but not paid on any intervening
distribution date.
A monthly period for a distribution date is the calendar month immediately
preceding the month in which the distribution date occurs. The scheduled
principal balance of a loan for any monthly period is its principal balance as
specified in its amortization schedule, after giving effect to any previous
partial principal prepayments and to the scheduled payment due on its scheduled
payment due date in that month, but without giving effect to any adjustments
due to bankruptcy or similar proceedings. A liquidated loan means any defaulted
loan as to which the servicer has determined that all amounts which it expects
to recover from or on account of the loan through the date of disposition of
the related real property have been recovered or any defaulted loan for which
the related real property has been realized upon and disposed of and the
proceeds of the disposition have been received.
Class A-2 Interest
Interest on the outstanding Class A-2 principal balance will accrue from
, , or from the most recent distribution date, to but excluding the
following distribution date, at the Class A-2 rate for that monthly interest
period. The Class A-2 principal balance as of any distribution date will be the
original Class A-2 principal balance minus all
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<PAGE>
principal amounts previously distributed to the Class A-2 noteholders, and
minus any unreimbursed Class A-2 principal liquidation loss, described below
under "--Losses on Liquidated Loans".
Interest will be paid on the Class A-2 notes to the extent of funds
available on the distribution date, after payment of all interest and principal
then payable on the Class A-1 notes. In the event the remaining funds available
are not sufficient to make a full distribution of interest on the Class A-2
notes, the amount of the shortfall will be carried forward and added to the
amount of interest payable on the next distribution date. Any amount carried
forward will bear interest at the Class A-2 rate, to the extent legally
permissible.
Class A-2 Principal
Class A-2 noteholders will be entitled to receive on each distribution date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-1 notes and after payment of all
interest payable on the Class A-2 notes, the sum of approximately % of the
formula principal distribution amount for that distribution date, plus any
unpaid Class A-2 principal shortfall for the distribution date.
The unpaid Class A-2 principal shortfall for any distribution date will
equal any amount required to be paid for the principal on the Class A-2 notes
on any prior distribution date but not paid on any intervening distribution
date, less any unreimbursed Class A-2 principal liquidation loss.
Class A-3 Interest
Interest on the outstanding Class A-3 principal balance will accrue from
, , or from the most recent distribution date, to but excluding the
following distribution date, at the Class A-3 rate for that monthly interest
period. The Class A-3 principal balance as of any distribution date will be the
original Class A-3 principal balance minus all principal amounts previously
distributed to the Class A-3 noteholders and minus any unreimbursed Class A-3
principal liquidation loss, described below under "--Losses on Liquidated
Loans."
Interest will be paid on the Class A-3 notes to the extent of funds
available on the distribution date, after payment of all interest and principal
then payable on the Class A-2 notes. In the event the remaining funds available
are not sufficient to make a full distribution of interest on the Class A-3
notes, the amount of the shortfall will be carried forward and added to the
amount of interest payable on the next distribution date. Any amount so carried
forward will bear interest at the Class A-3 rate, to the extent legally
permissible.
Class A-3 Principal
Class A-3 noteholders will be entitled to receive on each distribution date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-2 notes and after payment of all
interest payable on the Class A-3 notes, the
S-29
<PAGE>
sum of approximately % of the formula principal distribution amount for the
distribution date, plus any unpaid Class A-3 principal shortfall for the
distribution date.
The unpaid Class A-3 principal shortfall for any distribution date will
equal any amount required to be paid in respect of principal on the Class A-3
notes on any prior distribution date but not paid on any intervening
distribution date, less any unreimbursed Class A-3 principal liquidation loss.
Class A-4 Interest
Interest on the outstanding Class A-4 principal balance will accrue from
, , or from the most recent distribution date, to but excluding the
following distribution date, at the Class A-4 rate for that monthly interest
period. The Class A-4 principal balance as of any distribution date will be the
original Class A-4 principal balance minus all principal amounts previously
distributed to the Class A-4 noteholders and minus any unreimbursed Class A-4
principal liquidation loss, described below under "--Losses on Liquidated
Loans."
Interest will be paid on the Class A-4 notes to the extent of funds
available on the distribution date, after payment of all interest and principal
then payable on the Class A-3 notes. In the event the remaining funds available
are not sufficient to make a full distribution of interest on the Class A-4
notes, the amount of the shortfall will be carried forward and added to the
amount of interest payable on the next distribution date. Any amount carried
forward will bear interest at the Class A-4 rate, to the extent legally
permissible.
Class A-4 Principal
Class A-4 noteholders will be entitled to receive on each distribution date
as payment of principal, to the extent of funds available after payment of all
interest and principal payable on the Class A-3 notes and after payment of all
interest payable on the Class A-4 notes, the sum of approximately % of the
formula principal distribution amount for the distribution date, plus any
unpaid Class A-4 principal shortfall for that distribution date.
The unpaid Class A-4 principal shortfall for any distribution date will
equal any amount required to be paid for the principal on the Class A-4 notes
on any prior distribution date but not paid on any intervening distribution
date, less any unreimbursed Class A-4 principal liquidation loss.
Optional Redemption
The notes will be redeemed in whole, but not in part, on any distribution
date on which we exercise its option to purchase the loans. We may purchase the
loans when the pool scheduled principal balance has declined to 10% or less of
the cut-off date pool principal balance, as described in the prospectus under
"Description of the Trust Documents--Termination." The pool scheduled principal
balance is the aggregate scheduled principal balance of all outstanding loans
during a monthly period. The redemption will effect early
S-30
<PAGE>
retirement of the notes. The redemption price will be equal to the unpaid
principal amount of the notes redeemed plus accrued and unpaid interest on.
Mandatory Prepayments
The Class A-1, Class A-2, Class A-3 and Class A-4 notes will be prepaid in
part on the first distribution date after the pre-funding period, in no event
later than , 1999, to the extent of any pre-funded amount remaining in
the pre-funding account on the distribution date. We believe that substantially
all of the pre-funded amount will be used to acquire the subsequent loans. It
is unlikely that the aggregate principal amount of subsequent loans purchased
by the trust will be identical to the pre-funded amount, and consequently,
Class A-1, Class A-2, Class A-3 and Class A-4 noteholders will receive a
prepayment of principal, in accordance with their applicable percentage of the
formula principal distribution amount.
The Interest Rate Cap Agreement
Class A-1 noteholders will have the benefit of the interest rate cap
agreement between the trust and the counterparty. Under the interest rate cap
agreement, the counterparty will make a payment to the trust on each
distribution date to the extent that the Class A-1 rate exceeds %, in an
amount equal to the amount obtained by multiplying the Class A-1 principal
balance by the product of:
(1) the maximum of (x) the excess of the Class A-1 rate over 10% or (y)
0%; and
(2) the number of days in the monthly interest period divided by 360.
Payments received by the indenture trustee under the interest rate cap
agreement will be deposited in the collection account. See
"Description of the Counterparty."
The Spread Account
Class A-2, Class A-3 and Class A-4 noteholders will have the benefit of a
separate sub-account for each class contained in the spread account to be held
by the indenture trustee. On any distribution date, if the funds in the note
distribution account, after making all distributions on each class of notes
with a prior numeric designation, is insufficient to distribute all interest
then payable on the Class A-2, Class A-3 or Class A-4 notes, the indenture
trustee will withdraw the amount of the deficiency from the applicable sub-
account and deposit that such amount in the note distribution account for
distribution to the applicable class. On any distribution date, the amount of
funds in the spread account will not be available to cover a shortfall in
principal distributable on any class of notes, but would only be available to
cover a shortfall in interest distributable on the Class A-2, Class A-3 and
Class A-4 notes.
On the closing date, the amount on deposit in the Class A-2, Class A-3 and
Class A-4 sub-accounts will be zero. On each distribution date, the indenture
trustee will deposit all funds remaining in the collection account, after
distribution of all interest and principal then payable on the notes and all
interest then payable on the certificates, first to the Class A-2 sub-account,
then to the Class A-3 sub-account and then to the Class A-4 sub-account, until
S-31
<PAGE>
the amount on deposit in the sub-accounts equals $ , $ and
$ . If any sub-account is drawn upon, it will be replenished to the
extent provided in the sale and servicing agreement and the indenture. The
spread account is included in the trust property. Any amount remaining in the
spread account upon termination of the trust will be distributed to Green Tree.
The Reserve Account
Noteholders will have the benefit of the reserve account to be held by the
indenture trustee. On any distribution date, if the funds in the note
distribution account, after making all distributions on each class of notes
with a prior numeric designation, are insufficient to make full payment of
interest or principal payable on a class of notes, after making appropriate
draws upon the spread account, the indenture trustee will withdraw the amount
of the deficiency from the reserve account, and deposit the amount in the note
distribution account for distribution to the applicable class.
On the closing date, the amount on deposit in the reserve account will be
zero. On each distribution date, the indenture trustee will deposit all funds
remaining in the collection account, after distribution of all interest and
principal then payable on the notes, all interest then payable on the
certificates and all deposits in the spread account, until the amount on
deposit in the reserve account equals % of the pool scheduled principal
balance. If the reserve account is drawn upon, it will be replenished to the
extent provided in the sale and servicing agreement and the indenture. The
reserve account is included in the trust property. Any amount remaining in the
reserve account upon termination of the trust will be distributed to us.
Losses on Liquidated Loans
As described above, the distribution of principal to each class of notes is
intended to equal the applicable percentage of the formula principal
distribution amount. On each distribution date, each amount includes the
scheduled principal balance of each loan that became a liquidated loan during
the monthly period related to that distribution date. If the net liquidation
proceeds from the liquidated loan are less than the scheduled principal balance
of the liquidated loan, the deficiency will, in effect, be absorbed by the
monthly servicing and guaranty fee otherwise payable to us, then by the
certificateholders, although we will be obligated to make a guaranty payment
equal to any shortfall in the distribution to the certificateholders, and then
by each class of notes in inverse numeric order, Funds on deposit in the
reserve account will be available to pay any shortfall in the distribution of
interest and principal to any class of notes.
If the funds available for any distribution date, after making all required
distributions of interest and principal to more senior classes of notes, are
insufficient to make a full distribution of interest and/or principal to a
class of notes or the certificates, the deficiency will be carried forward and
added to the amount to be distributed to the class of notes or the certificates
on the following distribution date.
S-32
<PAGE>
If the pool scheduled principal balance for any distribution date is less
than the sum of the aggregate outstanding principal balance of the notes and
the certificate principal balance after giving effect to all distributions of
principal on that distribution date, then the certificate principal balance
will be reduced by the amount of that deficiency and will be a certificate
principal liquidation loss. We will be obligated to pay the amount of any
certificate principal liquidation loss under the limited guaranty. If we should
fail to pay that amount, however, the amount distributable on the certificates
on future distribution dates would include interest on any certificate
principal liquidation loss at the pass-through rate, and, to the extent legally
permissible, interest on any unpaid interest at the pass-through rate, accrued
from the date the certificate principal liquidation loss was incurred, and the
amount of the certificate principal liquidation loss.
Similarly, if certificate principal liquidation losses reduced the
certificate principal balance to zero and the pool scheduled principal balance
on any distribution date were less than the aggregate outstanding principal
balance of the notes after giving effect to distributions of principal on the
distribution date, then the Class A-4 principal balance would be reduced by the
amount of deficiency and will be a Class A-4 principal liquidation loss. The
funds on deposit in the reserve account will be available to pay the amount of
any Class A-4 principal liquidation loss. If the funds available in the reserve
account are insufficient to pay that amount, however, the amount distributable
on the Class A-4 notes on future distribution dates would include interest on
any Class A-4 principal liquidation loss at the Class A-4 rate and, to the
extent legally permissible, interest on the unpaid interest at the Class A-4
rate accrued from the date the Class A-4 principal liquidation loss was
incurred, and the amount of the Class A-4 principal liquidation loss. Each more
senior class of notes would similarly be subject to reduction in its
outstanding principal balance if the aggregate outstanding principal balance of
all more junior classes of notes were reduced to zero and the pool scheduled
principal balance were less than the aggregate outstanding principal balance of
the notes, and would similarly be entitled on future distribution dates to
receive interest on any principal liquidation loss at the applicable interest
rate, and the amount of that principal liquidation loss. The applicable
percentage of the formula principal distribution amount distributable to each
class of notes on each distribution date will not be affected by any principal
liquidation loss experienced by a class of notes. Accordingly, even if a class
of notes has experienced a principal liquidation loss, such class will continue
to be entitled to receive applicable percentage of the formula principal
distribution amount or, if the amount available in the collection account is
insufficient to make the distribution, the class will be entitled to receive
the amount of the deficiency on subsequent distribution dates as an unpaid
principal shortfall.
Book-Entry Registration
Holders of the notes or the certificates may hold through DTC in the United
States or, solely in the case of the notes, CEDEL or Euroclear in Europe if
they are participants of such systems, or indirectly through organizations that
are participants in these systems. The certificates may not be held, directly
or indirectly, through CEDEL or Euroclear.
S-33
<PAGE>
Cede & Co., as nominee for DTC, will hold the notes and the certificates.
CEDEL and Euroclear will hold omnibus positions in the notes on behalf of the
CEDEL participants and the Euroclear participants, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries, which in turn will hold the positions in customers'
securities accounts in the depositaries' names on the books of DTC.
Transfers between DTC's participating organizations will occur in
accordance with DTC rules. Transfers between CEDEL participants and Euroclear
participants will occur in the ordinary way in accordance with their applicable
rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
participants or Euroclear participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary; however, the cross-market transactions will
require delivery of instructions to the relevant European international
clearing system by the counterparty in that system in accordance with its rules
and procedures and within its established deadlines European time. The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures
for same-day funds settlement applicable to DTC. CEDEL participants and
Euroclear participants may not deliver instructions directly to the
depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and the credits or any transactions in the
securities settled during such processing will be reported to the relevant
CEDEL participant or Euroclear participant on that business day. Cash received
in CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
participant or a Euroclear participant to a participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
For a description of transfers between persons holding directly or
indirectly through DTC, see "Certain Information Regarding the Securities--
Book-Entry Registration" in the prospectus.
Cedel Bank, societe anonyme is incorporated under the laws of Luxembourg as
a professional depository. CEDEL holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between CEDEL participants through electronic book-entry changes
in accounts of CEDEL participants, eliminating the need for physical movement
of certificates. Transactions may be settled in CEDEL in any of 28 currencies,
including United States dollars. CEDEL provides to its CEDEL participants,
among other things, services for safekeeping, administration, clearance
S-34
<PAGE>
and settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and various other organizations
and may include the underwriters. Indirect access to CEDEL is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a CEDEL participant, either directly
or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in Euroclear in any of 32 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing, and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described in Annex I. The Euroclear System
operator is Morgan Guaranty Trust Company of New York, Brussels, Belgium
office, under loan with Euroclear Clearance System, S.C., a Belgian cooperative
corporation. All operations are conducted by the Euroclear operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear operator, not the cooperative. The cooperative
establishes policy for the Euroclear System on behalf of Euroclear
participants. Euroclear participants include banks and central banks,
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a direct or
indirect custodial relationship with a Euroclear participant.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. It is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law. These terms and conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments for the securities in the Euroclear System.
All securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the terms and conditions only on behalf of
Euroclear participants and has no record of or relationship with persons
holding through Euroclear participants.
Distributions for the notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL participants or Euroclear participants
in accordance with the
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relevant system's rules and procedures, to the extent received by its
depositary. The distributions will be subject to tax reporting in accordance
with United States tax laws and regulations. See "Certain Federal Income Tax
Consequences" in the prospectus and "Global Clearance, Settlement and Tax
Documentation Procedures" in Annex I to this prospectus supplement. CEDEL or
the Euroclear operator will take any other action permitted to be taken by a
noteholder under the indenture on behalf of a CEDEL participant or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to its depositary's ability to effect these actions on its behalf
through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform these
procedures and these procedures may be discontinued at any time.
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DESCRIPTION OF THE COUNTERPARTY
[description of counterparty]
The description of the counterparty has been provided by the counterparty.
The counterparty has not, however, been involved in the preparation of the
prospectus supplement and does not accept responsibility for the prospectus
supplement as a whole.
DESCRIPTION OF THE CERTIFICATES
The following information supplements the information contained in the
accompanying prospectus. You should consider the information in the
accompanying prospectus under "The Certificates," "Certain Information
Regarding the Securities," and "Description of the Trust Documents."
General
The certificates will be issued pursuant to the terms of the trust
agreement, a form of which has been filed as an exhibit to the registration
statement. A copy of the trust agreement, as executed, will be filed with the
commission following the issuance of the securities. The following summary
describes certain terms of the certificates and the trust agreement. The
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all the provisions of the certificates and the trust
agreement. The following summary supplements, and if inconsistent, supersedes
the description of the general terms and provisions of the certificates of any
given series and the related trust agreement set forth in the prospectus, to
which description reference is made.
Distributions
Certificateholders will be entitled to receive on each distribution date
commencing in , to the extent that funds available together with the
guaranty payment described below are sufficient, the certificateholders'
distributable amount.
Interest
On each distribution date, the owner trustee will distribute pro rata to
certificateholders accrued interest at the pass-through rate on the outstanding
certificate principal balance. Interest for the distribution date will accrue
from , 1999, or from the most recent distribution date to but excluding
the following distribution date. The certificate
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principal balance as of any distribution date will be the original certificate
principal balance, minus all amounts allocable to principal previously
distributed to certificateholders minus any unreimbursed certificate principal
liquidation loss, described below under "--Losses on Liquidated Loans."
Interest will be paid on the certificates to the extent of funds available
on the distribution date, after payment of all interest and principal then
payable on the notes and any amounts previously withdrawn from any sub-account
of the spread account or the reserve account and not previously replenished. In
the event that funds available are not sufficient to make a full distribution
of interest on the certificates, the amount of the shortfall will be carried
forward and added to the amount of interest payable on the next distribution
date. Any amount so carried forward will bear interest at the pass-through
rate, to the extent legally permissible. See "Description of the Certificates."
Principal
No distributions of principal on the certificates will be payable until all
of the notes have been paid in full. On each distribution date commencing on
the distribution date on which the notes are paid in full, principal on the
certificates will be payable in an amount equal to the formula principal
distribution amount for the distribution date (less, on the distribution date
on which the notes are paid in full, the portion thereof payable on the notes),
plus the unpaid certificate principal shortfall, from prior distribution dates.
The unpaid certificate principal shortfall for any distribution date will
equal any amount required to be paid for the principal on the certificates on
any prior distribution date but not paid on any intervening distribution date,
less any unreimbursed certificate principal liquidation loss.
Optional Prepayment
If we exercises its option to purchase the loans when the pool scheduled
principal balance declines to 10% or less of the cut-off date pool principal
balance, certificateholders will receive an amount for the certificates equal
to the outstanding principal amount together with accrued interest at the pass-
through rate, which distribution will effect early retirement of the
certificates. See "Description of the Trust Documents--Termination" in the
accompanying prospectus.
Limited Guaranty
In order to mitigate the effect of the subordination of the certificates
and the effect of liquidation losses and delinquencies on the loans, the
certificateholders are entitled to receive on each distribution date the amount
equal to the guaranty payment under our limited guaranty. The guaranty payment
for any distribution date will equal the difference between the
certificateholders' distributable amount and the remaining funds available in
the collection account after payment of all interest and principal on the notes
and the deposit in any sub-account of the spread account or the reserve account
of any amounts previously
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withdrawn therefrom and not previously replenished. The certificateholders'
distributable amount equals the unpaid and accrued interest on the
certificates, plus on each distribution date commencing on the distribution
date on which the notes are paid in full, principal in an amount equal to the
formula principal distribution amount for that distribution date (less, on the
distribution date on which the notes are paid in full, the portion thereof
payable on the notes), plus any unpaid certificate principal shortfall for that
distribution date, and plus any unreimbursed certificate principal liquidation
loss.
The limited guaranty will be our unsecured general obligation and will not
be supported by any letter of credit or other enhancement arrangement. The
ratings assigned to the certificates may be affected by the ratings of our debt
securities. Green Tree's senior debt securities were recently downgraded by S&P
from "A-" to "BBB+" and by Fitch from "A" to "A-", which has been reflected in
the ratings assigned to the certificates. See "Summary of Terms--Ratings."
The limited guaranty will not benefit in any way, or result in any payment
to, the noteholders.
As compensation for servicing the loans and providing the limited guaranty,
we will be entitled to receive the monthly servicing and guaranty fee on each
distribution date, which will be equal to the amount available remaining after
payment of the certificateholders' distributable amount and any deposits into
the spread account or the reserve account required on that distribution date.
Transfers of Certificates
Certificateholders, other than individuals or entities holding certificates
through a broker who reports sales of securities on Form 1099-B, are required
under the trust agreement to notify the owner trustee of any transfer of their
certificates in a taxable sale or exchange within 30 days of the transfer.
Losses on Liquidated Loans
As described above, the distribution of principal to the certificates is
intended to equal the formula principal distribution amount. That amount
includes the scheduled principal balance of each loan that became a liquidated
loan during the monthly period preceding the distribution date. If the net
liquidation proceeds from the liquidated loan are less than the scheduled
principal balance of the liquidated loan, the deficiency will, in effect, be
absorbed first by the monthly servicing and guaranty fee otherwise payable to
us and then by the certificateholders. We will be obligated to make a guaranty
payment equal to any shortfall in the distribution to the certificateholders.
If the funds available for any distribution date, after making all required
distributions of interest and principal to the notes, are insufficient to make
a full distribution of interest and/or principal to the certificates, the
deficiency will be carried forward and added to the amount to be distributed to
the certificates on the following distribution date.
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If the pool scheduled principal balance for any distribution date is less
than the sum of the aggregate outstanding principal balance of the notes and
the certificate principal balance after giving effect to all distributions of
principal on that distribution date, then the certificate principal balance
will be reduced by the amount of that deficiency, and will be a certificate
principal liquidation loss. We will be obligated to pay the amount of any
certificate principal liquidation loss under the limited guaranty. If we should
fail to pay the amount, however, the amount distributable on the certificates
on future distribution dates would include interest on any the certificate
principal liquidation loss at the pass-through rate and, to the extent legally
permissible, interest on any unpaid interest at the pass-through rate accrued
from the date the certificate principal liquidation loss was incurred, and the
amount of that certificate principal liquidation loss.
DESCRIPTION OF THE TRUST DOCUMENTS AND INDENTURE
The following summary describes certain terms of the sale and servicing
agreement and the trust agreement (the trust documents) and the indenture.
Forms of the trust documents and indenture, as executed, have been filed as
exhibits to the registration statement. A copy of each of the trust documents
and indenture will be filed with the commission following the issuance of the
securities. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the trust
documents and indenture. The following summary supplements, the description of
the general terms and provisions of the trust documents and indenture, as the
terms are used in the accompanying prospectus, described in the accompanying
prospectus, to which description reference is made.
Accounts
The servicer will establish and maintain one or more collection accounts,
in the name of the indenture trustee on behalf of the noteholders and the
certificateholders, into which all payments made on or for the loans will be
deposited. The servicer will establish and maintain the spread account, which
will include sub-accounts for the Class A-2, Class A-3 and Class A-4
noteholders, in the name of the indenture trustee on behalf of the noteholders,
in which amounts will be deposited to cover shortfalls in interest
distributable on the Class A-2, Class A-3 and Class A-4 notes. In addition, the
servicer will establish and maintain the reserve account in the name of the
indenture trustee on behalf of the noteholders, in which amounts will be
deposited to cover shortfalls in interest or principal distributable on the
notes. The servicer will also establish and maintain a note distribution
account account, in the name of the indenture trustee on behalf of the
noteholders, in which amounts released from the collection account, the spread
account and the reserve account for distribution to noteholders will be
deposited and from which all distributions to noteholders will be made. The
servicer will also establish and maintain a certificate distribution account
account, in the name of the owner trustee on behalf of the certificateholders,
in which amounts released from the collection account for distribution to
certificateholders will be deposited and from which all distributions to
certificateholders will be made. See "Description of the Trust Documents--
Collections" in the accompanying prospectus.
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A pre-funding account will be established by the indenture trustee and
funded by us on the closing date to provide the trust with sufficient funds to
purchase subsequent loans. The amount deposited in the pre-funding account will
initially equal the difference between $ and the aggregate principal
balance as of the cut-off date of the initial loans and additional loans. The
pre-funding account will be used to purchase subsequent loans during the period
from the closing date until the earliest of:
(1) the date on which the amount on deposit in the pre-funding account is
less than $10,000;
(2) , 1998; or
(3) the date on which an event of termination occurs under the sale and
servicing agreement. This period of time is the pre-funding period.
The pre-funded amount will be reduced during the pre-funding period by
the amount used to purchase subsequent loans in accordance with the
sale and servicing agreement.
Under the sale and servicing agreement, following the initial issuance of
the securities, the trust will be obligated to purchase subsequent loans from
us during the pre-funding period, subject to availability. Each subsequent loan
will have been underwritten in accordance with our standard underwriting
criteria. Subsequent loans will be transferred to the trust pursuant to
subsequent transfer instruments between us and the trust. In connection with
the purchase of subsequent loans on such subsequent dates of transfer, the
trust will be required to pay to us from amounts on deposit in the pre-funding
account a cash purchase price of 100% of the principal balance. We will
designate the subsequent transfer date as the cut-off date for the related
subsequent loans purchased on that date. The amount paid from the pre-funding
account on each subsequent transfer date will not include accrued interest on
the related subsequent loans. Following each subsequent transfer date, the
aggregate principal balance of the subsequent loans in the trust will increase
by an amount equal to the aggregate principal balance of the loans so purchased
and the amount in the pre-funding account will decrease accordingly. Any pre-
funded amount remaining after the purchase of subsequent loans will be applied
on the first distribution date on or after the last day of the pre-funding
period to prepay principal on the Class A-1 Class A-2, Class A-3 and Class A-4
loans.
Any conveyance of subsequent loans on a subsequent transfer date is subject
to certain conditions including, but not limited to:
(1) each subsequent loan must satisfy the representations and warranties
specified in the related subsequent transfer instrument and the sale
and servicing agreement;
(2) we will not select subsequent loans in a manner that it believes is
adverse to the interests of the securityholders;
(3) as of its respective cut-off date, each subsequent loan will satisfy
the following criteria:
(a) no subsequent loan may be more than 59 days contractually
delinquent;
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(b) the remaining stated term to maturity of each subsequent loan will
not exceed 240 months;
(c) each subsequent loan will be underwritten in accordance with our
standard underwriting criteria; and
(d) no subsequent loan will have a loan-to-value ratio greater than
100%.
Distributions
On each distribution date, the servicer will instruct the indenture trustee
to distribute from the collection account the amount available in the following
order of priority:
(1) if we or an affiliate is no longer the servicer, then to the servicer,
the servicing fee for the related monthly period;
(2) to the servicer, reimbursement for advances made for the delinquent
payments that were recovered during the prior monthly period;
(3) to the note distribution account, the noteholders' distributable
amount and any amounts previously withdrawn from any sub-account of
the spread account or the reserve account and not previously
replenished;
(4) to the certificate distribution account, the certificateholders'
interest distributable amount and, after the notes have been paid in
full, the certificateholders' principal distributable amount;
(5) to the indenture trustee for deposit in the spread account, to fund
the initial amounts required in the Class A-2, Class A-3 and Class A-4
sub-accounts;
(6) to the indenture trustee for deposit in the reserve account, to fund
the initial amount required therein;
(7) to us, the monthly servicing and guaranty fees.
On each distribution date, the indenture trustee will distribute all
amounts on deposit in the note distribution account in the following order of
priority:
(1) to the Class A-1 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods;
(2) to the Class A-2 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and
principal in respect of principal liquidation losses;
(3) to the Class A-2 sub-account of the spread account to the extent
amounts have previously been withdrawn therefrom to pay interest on
the Class A-2 notes and have not previously been replenished;
(4) to the Class A-3 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and
principal for the principal liquidation losses;
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(5) to the Class A-3 sub-account of the spread account to the extent
amounts have previously been withdrawn therefrom to pay interest on
the Class A-3 notes and have not previously been replenished;
(6) to the Class A-4 noteholders, interest, principal, interest and
principal shortfalls from prior payment periods, and interest and
principal for the principal liquidation losses;
(7) to the Class A-4 sub-account of the spread account to the extent
amounts have previously been withdrawn therefrom to pay interest on
the Class A-4 notes and have not previously been replenished; and
(8) to the reserve account to the extent amounts have previously been
withdrawn therefrom to pay interest or principal on any class of notes
and have not previously been replenished.
On each distribution date, the owner trustee or its paying agent will
distribute all amounts on deposit in the certificate distribution account to
the certificateholders.
Statements to Securityholders
On or prior to each distribution date, the servicer will prepare and
provide to the indenture trustee a statement to be delivered to the noteholders
and to the owner trustee a statement to be delivered to the certificateholders
on the distribution date. The statements will be based on the information in
the related servicer's certificate setting forth certain information required
under the trust documents. Each statement to be delivered to noteholders will
include the following information as to the notes, and each statement to be
delivered to certificateholders will include the following information as to
the certificates, for the distribution date or the period since the previous
distribution date, as applicable:
(1) the amount of the distribution allocable to interest on or for each
class of notes and to the certificates;
(2) the amount of the distribution allocable to principal on or for each
class of notes and to the certificates;
(3) the aggregate outstanding principal balance and the note pool factor
for the notes and the certificate principal balance and the
certificate pool factor for the certificates after giving effect to
all payments reported under (2) above on that date;
(4) the noteholders' interest shortfall, the noteholders' principal
shortfall, the certificateholders' interest shortfall and the
certificateholders' principal shortfall, and the change in those
amounts from the preceding statement;
(5) the amount of principal liquidation losses, aggregate unreimbursed
principal liquidation losses since the closing date and the amount of
the distribution allocable to those losses for the notes and
certificates;
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(6) the amount deposited or withdrawn from each sub-account of the spread
account and the amount on deposit in each sub-account of the spread
account after giving effect to all withdrawals and deposits on the
distribution date;
(7) the amount deposited or withdrawn from the reserve account and the
amount on deposit in the reserve account after giving effect to all
withdrawals and deposits on the distribution date;
(8) the amount of the interest rate cap payment and the guaranty payment;
(9) the amount of the monthly servicing and guaranty fee paid to the
servicer;
(10) the number and aggregate principal balances of delinquent loans, the
number of products repossessed and repossessed and remaining in
inventory, the number of foreclosures and the number of loans that
became liquidated loans for the immediately preceding monthly period;
and
(11) the aggregate amount of servicer advances made by the servicer for
the distribution date, and the aggregate amount paid to the servicer
as reimbursement of servicer advances made on prior distribution
dates.
Each amount set forth pursuant to subclauses (1) through (4) for the
certificates or notes will be expressed as a dollar amount per $1,000 of the
initial principal amount of the notes or the initial certificate principal
balance, as applicable.
Unless and until definitive notes or definitive certificates are issued,
the reports will be sent on behalf of the trust to Cede & Co., as registered
holder of the notes and the certificates and the nominee of DTC. Note owners
and certificate owners may receive copies of the reports upon written request,
together with a certification that they are note owners or certificate owners,
as the case may be, and payment of any expenses associated with the
distribution of those reports, from the indenture trustee or owner trustee. See
"Reports to Securityholders" in this prospectus supplement and "Reports to
Securityholders" and "Certain Information Regarding the Securities" in the
accompanying prospectus.
Within the required period of time after the end of each calendar year, the
indenture trustee and the owner trustee, as applicable, will furnish to each
person who at any time during that calendar year was a noteholder or
certificateholder, a statement as to the aggregate amounts of interest and
principal paid to the noteholder or certificateholder, information regarding
the amount of servicing compensation received by the servicer and the other
information as we deem necessary to enable the noteholder or certificateholder
to prepare its tax returns. See "Certain Federal Income Tax Consequences."
Administrator
Green Tree Financial Servicing Corporation, a Delaware corporation, will be
the administrator, and will provide the notices and perform other
administrative obligations required by the indenture and the trust agreement.
The administrator, one of our subsidiaries, will enter into an administration
agreement with the trust and the indenture trustee relating to its duties and
obligations as administrator.
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CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of certain federal and state income
tax consequences relating to the purchase, ownership, and disposition of the
notes and the certificates. The discussion is based upon the current provisions
of the IRS code, the treasury regulations promulgated thereunder, and judicial
or ruling authority, all of which are subject to change, which change may be
retroactive. For additional information regarding federal and state income tax
consequences, see "Certain Federal Income Tax Consequences--Owner Trust Series"
and "Certain State Income Tax Consequences" in the prospectus.
You should consult your own tax advisors to determine the federal, state,
local and other tax consequences of the purchase, ownership and disposition of
the notes and the certificates. You should note that no rulings have been or
will be sought from the IRS for any of the federal income tax consequences
discussed herein or in the accompanying prospectus, and no assurance can be
given that the IRS will not take contrary positions. Moreover, there are no
cases or IRS rulings on transactions similar to those described in this
prospectus supplement for the trust, involving both debt and equity interests
issued by a trust with terms similar to those of the notes and the
certificates.
In the opinion of [counsel to Green Tree], for federal and Minnesota income
tax purposes, the notes will be characterized as debt and the trust will not be
characterized as an association, or a publicly traded partnership, taxable as a
corporation and neither the trust nor any portion of the trust will constitute
a taxable mortgage pool taxable as a corporation. Each certificateholder, by
the acceptance of a certificate, agrees to treat the trust as a partnership in
which the certificateholders are partners for federal income tax purposes. The
notes will not be issued with OID. The Class A-1 notes provide for stated
interest at a floating rate based on LIBOR. Under treasury regulations, stated
interest payable at a variable rate is not treated as OID or contingent
interest if the variable rate is a qualified floating rate or a qualified
objective rate. The stated interest on the Class A-1 notes represents interest
payable at a qualified floating rate and will be taxable to holders of such
notes as interest and not as OID or contingent interest. The Class A-2,
Class A-3 and Class A-4 notes will not be issued with OID or contingent
interest because interest will be payable at a single fixed rate at least
annually.
ERISA CONSIDERATIONS
Section 406 of ERISA, and or Section 4975 of the IRS code, prohibit a
pension, profit-sharing or other employee benefit plan, as well as individual
retirement accounts and certain types of Keogh Plans, from engaging in some
transactions with persons that are parties in interest under ERISA or
disqualified persons under the IRS code for the benefit plan. A violation of
these prohibited transaction rules may result in an excise tax or other
penalties and liabilities under ERISA and the IRS code for the persons. Title I
of ERISA also requires that fiduciaries of a benefit plan subject to ERISA make
investments that are prudent, diversified, except if prudent not to do so and
in accordance with governing plan documents.
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Some transactions involving the purchase, holding or transfer of the
securities might be deemed to constitute prohibited transactions under ERISA
and the IRS code if assets of the trust were deemed to be assets of a benefit
plan. Under a regulation issued by the United States Department of Labor, the
assets of the trust would be treated as plan assets of a benefit plan for the
purposes of ERISA and the IRS code only if the benefit plan acquires an equity
interest in the trust and none of the exceptions contained in the plan assets
regulation is applicable. An equity interest is defined under the plan assets
regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. We believe that the notes should be treated as indebtedness without
substantial equity features for purposes of the plan assets regulation.
However, without regard to whether the notes are treated as an equity interest
for those purposes, the acquisition or holding of notes by or on behalf of a
benefit plan could be considered to give rise to a prohibited transaction if
the trust, the owner trustee or the indenture trustee, the owner of collateral,
or any of their respective affiliates is or becomes a party in interest or a
disqualified person with respect to the benefit plan. In that case, some
exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the plan fiduciary making the decision to
acquire a note. Included among these exemptions are: prohibited transaction
class exemption, PTCE 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38 regarding investments by bank collective
investment funds; and PTCE 84-14, regarding transactions effected by qualified
professional asset managers.
The certificates may not be acquired by:
(1) an employee benefit plan (as defined in Section 3(3) of ERISA) that is
subject to the provisions of Title I of ERISA;
(2) a plan described in Section 4975(e)(1) of the IRS code; or
(3) any entity whose underlying assets include plan assets by reason of a
plan's investment in the entity.
By its acceptance of a certificate, each certificateholder will be deemed
to have represented and warranted that it is not subject to this limitation. In
this regard, purchasers that are insurance companies should consult with their
counsel with respect to the United States Supreme Court case interpreting the
fiduciary responsibility rules of ERISA, John Hancock Mutual Life Insurance Co.
v. Harris Trust and Savings Bank (decided December 13, 1993). In John Hancock,
the Supreme Court ruled that assets held in an insurance company's general
account may be deemed to be plan assets for ERISA purposes under certain
circumstances. Prospective purchasers should determine whether the decision
affects their ability to make purchases of the certificates. In particular,
such an insurance company should consider the exemptive relief granted by the
Department of Labor for transactions involving insurance company general
accounts in PTCE 95-60, 60 Fed. Reg. 35925 (July 12, 1995). The Small Business
Job Protection Act of 1996, the 1996 Act became effective on August 20, 1996.
The 1996 Act amends ERISA to require the Department of Labor to issue
regulations to clarify, retroactively, the application of ERISA and the
prohibited transaction
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provisions of the IRS code to insurance company general accounts. For
additional information regarding treatment of the certificates under ERISA, see
"ERISA Considerations" in the prospectus.
Employee benefit plans that are governmental plans and certain church plans
are not subject to ERISA requirements. The plans may, however, be subject to
the provisions of other applicable federal and state laws, including, for any
such governmental or church plan qualified under Section 401(a) of the IRS code
and exempt from taxation under Section 501(a) of the IRS code, the prohibited
transaction rules set forth in Section 503 of the IRS code.
A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
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UNDERWRITING
[Underwriters] has agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from us the respective principal amounts of
notes and certificates set forth below:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4
Notes Notes Notes Notes Certificates
----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
$ $ $ $ $
</TABLE>
The underwriting agreement provides that the underwriter is obligated to
purchase all of the notes and certificates offered hereby, if any of the notes
and certificates are purchased.
We have been advised by the underwriter that it proposes initially to offer
the notes and certificates to the public at the public offering prices set
forth on the cover page of this prospectus supplement and to certain dealers at
such price less a concession not in excess of % of the Class A-1 principal
balance, % of the Class A-2 principal balance, % of the Class A-3
principal balance, % of the Class A-4 principal balance and % of the
certificate principal balance, and that the underwriter and the dealers may
reallow a discount of not in excess of % of the Class A-1 principal
balance, % of the Class A-2 principal balance, % of the Class A-3
principal balance, % of the Class A-4 principal balance and % of the
certificate principal balance, to other dealers. The public offering price and
the concession and discount to dealers may be changed by the underwriter after
the initial public offering of the notes and certificates offered hereby.
Until the distribution of the securities is completed, rules of the
commission may limit the ability of the underwriter and certain selling group
members to bid for and purchase the securities. As an exception to these rules,
the underwriter is permitted to engage in certain transactions that stabilize
the price of the securities. The transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the securities.
If the underwriter creates a short position in the securities in connection
with the offering, i.e., if they sell more securities than are set forth on the
cover page of this prospectus supplement, the underwriter may reduce that short
position by purchasing securities in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of the purchases.
Neither we nor the underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the prices of the securities. In addition, neither we nor the
underwriter makes any representation that the underwriter will engage in those
transactions or that those transactions, once commenced, will not be
discontinued without notice.
The underwriter has represented, warranted and agreed that:
(1) it has not offered or sold and, prior to the expiration of the period
of six months from the closing date, will not offer or sell any
securities to persons in the United
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Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer
to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995;
(2) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 for anything done by it in relation to the
securities in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issue of the securities to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 (as amended) or is a person to
whom the document may otherwise lawfully be issued or passed on.
The notes have not been and will not be registered under the Securities
and Exchange Law of Japan and the underwriter has agreed that it will not
offer or sell any of the notes, directly or indirectly, in Japan or to, or for
the benefit of, any resident of Japan, including any corporation or other
entity organized under the laws of Japan, except pursuant to an exemption from
the registration requirements of, and otherwise in compliance with, the
Securities and Exchange Law and any other applicable laws, regulations and
ministerial guidelines of Japan.
We have agreed to indemnify the underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
We do not intend to apply for listing of the notes and certificates on a
national securities exchange, but has been advised by the underwriter that the
underwriter currently intends to make a market in the securities as permitted
by applicable laws and regulations. The underwriter is not obligated to make a
market in the securities and any market may be discontinued at any time at the
sole discretion of the underwriter. Accordingly, no assurance can be given as
to the liquidity of, or trading markets for, the securities.
LEGAL MATTERS
Some matters on the legality of the notes and certificates and for the
federal and Minnesota income tax matters discussed under certain federal and
state income tax consequences will be passed upon for us by ,
Minnesota. The validity of the notes and certificates will be passed upon for
the underwriter by , New York, New York.
S-49
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in some limited circumstances, the notes will be available only in
book-entry form as global notes. Investors in the global notes may hold global
notes through any of DTC, CEDEL or Euroclear. The global securities will be
tradeable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding global notes through CEDEL
and Euroclear will be conducted in the ordinary way in accordance with their
normal rules and operating procedures and in accordance with conventional
eurobond practice, such as a seven calendar day settlement.
Secondary market trading between investors holding global notes through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding notes will be effected on a delivery-against-payment basis
through the respective depositaries of CEDEL and Euroclear and DTC
participants.
Non-U.S. holders of global notes will be subject to U.S. withholding taxes
unless they meet various requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
Initial Settlement
All global notes will be held in book-entry form by DTC in the name of Cede &
Co. as nominee of DTC. Investors' interests in the global notes will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC. As a result, CEDEL and Euroclear will hold
positions on behalf of their participants through their depositaries, which in
turn will hold those positions in accounts as DTC participants.
Investors electing to hold their global notes through DTC will follow the
settlement practices applicable to United States corporate debt obligations.
Investors securities custody accounts will be credited with their holdings
against payment in same-day funds on the settlement date.
Investors electing to hold their global notes through CEDEL or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no "lock-
up" or restricted period. Global notes will be credited to the securities
custody accounts on the settlement date against payments in same-day funds.
A-1
<PAGE>
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL and/or Euroclear participants. Secondary market trading
between CEDEL participants or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
notes are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its depositary to receive the global
notes against payment. Payment will include interest accrued on the global
notes from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by the depositary to the DTC
participant's account against delivery of the global notes. After settlement
has been completed, the global notes will be credited to the applicable
clearing system and by the clearing system, in accordance with its usual
procedures, to the CEDEL participant's or Euroclear participant's account. The
global notes credit will appear the next day European time and the cash debit
will be back-valued to, and the interest on the global notes will accrue from,
the value date, which would be the preceding day when settlement occurred in
New York. If settlement is not completed on the intended value date (i.e., the
trade fails), the CEDEL or Euroclear cash debit will be valued instead as of
the actual settlement date.
CEDEL participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the global
securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global notes would incur overdraft charges for one day, assuming
they cleared the overdraft when the global notes were credited to their
accounts. However, interest on the global notes would accrue from the value
date. In many cases the investment income on the global notes earned during
that one-day period may substantially reduce or offset the amount of such
overdraft charges, although this result will depend on each CEDEL participant's
or Euroclear participant's particular cost of funds.
A-2
<PAGE>
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global notes to the
respective depositary for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. The DTC participant a cross-market transaction will settle no
differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time zone
differences in their favor, CEDEL participants and Euroclear participants may
employ their customary procedures for transactions in which global notes are to
be transferred by the respective clearing systems, through their respective
depositaries, to a DTC participant. The seller will send instructions to CEDEL
or Euroclear through a CEDEL participant or Euroclear participant at least one
business day prior to settlement. In these cases, CEDEL or Euroclear will
instruct their respective depositaries, as appropriate, to deliver the notes to
the DTC participant's account against payment. Payment will include interest
accrued on the global notes from and including the last coupon payment date to
and excluding the settlement date. The payment will then be reflected in the
account of the CEDEL participant or Euroclear participant the following day,
and receipt of the cash proceeds in the CEDEL participant's or Euroclear
participant's account would be back-valued to the value date, which would be
the preceding day, when settlement occurred in New York. Should the CEDEL
participant or Euroclear participant have a line of credit with its clearing
system and elect to be in debit in anticipation of receipt of the sale proceeds
in its account, the bank-valuation will extinguish any overdraft charges
incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in
the CEDEL participant's or Euroclear participant's account would instead be
valued as of the actual settlement date. Finally, day traders that use CEDEL or
Euroclear and that purchase global notes from DTC participants for delivery to
CEDEL participants or Euroclear participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(1) borrowing through CEDEL or Euroclear for one day, until the purchase
side of the day trade is reflected in their CEDEL or Euroclear accounts,
in accordance with the clearing system's customary procedures;
(2) borrowing the global notes in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the global notes
sufficient time to be reflected in their CEDEL or Euroclear account in
order to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the CEDEL
participant or Euroclear participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global notes holding securities through CEDEL or
Euroclear, or through DTC if the holder has an address outside the U.S., will
be subject to the 30% U.S.
A-3
<PAGE>
withholding tax that generally applies to payments of interest, including
original issue discount, on registered debt issued by U.S. persons, unless: (1)
each clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between the beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements; and (2) the
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of notes that
are non-U.S. persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status) and a certificate under penalties of perjury, the tax certificate
that the beneficial owner is: (1) not a controlled foreign corporation
(within the meaning of Section 957(a) of the IRS code) that is related
(within the meaning of Section 864(d)(4) of the IRS code) to the trust or
the transferor; and (2) not a 10 percent shareholder (within the meaning
of Section 871(h)(3)(B) of the IRS code) of the trust or the transferor.
If the information shown on Form W-8 or the tax certificate changes, a new
Form W-8 or tax certificate, as the case may be, must be filed within 30
days of the change.
Exemption for non-U.S. Person with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (exemption from
withholding of tax on income effectively connected with the conduct of a
trade or business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners of
notes residing in a country that has a tax treaty with the United States
can obtain an exemption or reduced tax rate, depending on the treaty
terms, by filing Form 1001 (ownership, exemption or reduced rate
certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of notes or the
owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (payer's request for
taxpayer identification number and certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global security or, in the case of a Form 1001 or a Form 4224 filer, the
owner's agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form W-8
and Form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
The term U.S. person means:
(1) a citizen or resident of the United States;
(2) a corporation or partnership organized in or under the laws of the
United States; or
A-4
<PAGE>
(3) an estate or trust the income of which is includible in gross income
for United States tax purposes, regardless of its source.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the global notes.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the global notes.
A-5
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information contained in this prospectus supplement is not complete and +
+may be changed. We may not sell these securities until the registration +
+statement filed with the Securities and Exchange Commission is effective. +
+This prospectus supplement is not an offer to sell these securities, and it +
+is not soliciting an offer to buy these securities in any state where the +
+offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Base Prospectus No. 7
Unsecured Home Improvement Loans
--Owner Trust
Green Tree Financial Corporation, Seller and Servicer
Home Improvement Loan Trusts
(Issuable In Series)
We are offering loan-backed notes and loan-backed certificates for home
improvement loans under this prospectus and a prospectus supplement. The
prospectus supplement will be prepared separately for each series of securities
offered. Green Tree Financial Corporation will form a trust for each series,
and the trust will issue the securities of that series. The securities of any
series may comprise several different classes. A trust may also issue one or
more other interests in the trust that will not be offered under this
prospectus.
The right of each class of securities within a series to receive payments may
be senior or subordinate to the rights of one or more of the other classes of
securities. In addition, a series of securities may include one or more classes
which on the one hand are subordinated to one or more classes of securities,
while on the other hand are senior to one or more classes of securities. The
rate of principal and interest payment on the securities of any class will
depend on the priority of payment of that class and the rate and timing of
payments of the related home equity loans.
-----------
The securities will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
-----------
This prospectus may not be used to consummate sales of any securities unless
accompanied by the prospectus supplement relating to that series.
Prospectus dated , 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the securities in two separate documents that progressively
provide more detail: (1) this prospectus, which provides general information,
some of which many not apply to a particular series of securities, including
your series; and (2) the prospectus supplement related to the particular terms
of your series of securities.
If the terms of your series of securities varies between this prospectus and
the prospectus supplement, you should rely on the information in your
prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
REPORTS TO HOLDERS OF THE CERTIFICATES
We will provide to the holders of the securities of each series monthly and
annual reports concerning the securities and the related trust fund. For a more
complete description of the reports you will receive, please read the section
entitled "Description of the securities--Reports to Securityholders."
2
<PAGE>
We have defined terms in the "Glossary" section at the back of this
prospectus.
THE TRUSTS
For each series of securities, we will establish a trust under the related
trust documents. Before the sale and assignment of the loans under the trust
documents, the trust will have no assets or obligations. The trust will not
engage in any business activity other than acquiring and holding the trust
property, issuing the notes and the certificates, of the series and
distributing payments.
Each note will represent an obligation of, and each certificate, if any, will
represent a fractional undivided interest in, the related trust. The trust
property of each trust will include, among other things:
(1) a loan pool;
(2) amounts as may be held in the collection account, including all
investments in the collection account and all income from the
investment of funds and all proceeds, and some other accounts,
including the proceeds;
(3) proceeds from FHA insurance with respect to any FHA-insured loan
included in the loan pool;
(4) 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 securities;
(5) some other rights under the trust documents; and
(6) such other property as may be specified in the prospectus supplement.
See "The Loans" and "Description of the Trust Documents--Collections." The
trust property will also include, if specified in the prospectus supplement,
monies on deposit in a pre-funding account to be established with the indenture
trustee or the trustee, which will be used to purchase subsequent loans from us
from time to time, and as frequently as daily, during the pre-funding period
specified in the prospectus supplement. Any subsequent loans so purchased will
be included in the loan pool forming part of the trust property, subject to the
prior rights of the indenture trustee and the noteholders. In addition, to the
extent specified in the prospectus supplement, a form of credit enhancement may
be issued to or held by the trustee or the indenture trustee for the benefit of
holders of one or more classes of securities. Holders of securities of a series
will have interests only in that loan pool and will have no interest in the
loan pool created for any other series of securities, except for FHA insurance
reserves.
Except as we specify otherwise in the prospectus supplement, all of the loans
will have been originated by us in the ordinary course of its business.
Specific information concerning the loans included in each trust will be
provided in the prospectus supplement and, to the extent not contained in the
prospectus supplement, in a report on Form 8-K to be filed with the commission
within fifteen days after the initial issuance of the securities. A copy of the
sale and servicing agreement for each series of securities 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
3
<PAGE>
prospectus supplement. A schedule of the loans relating to the series will be
attached to the sale and servicing agreement delivered to the trustee upon
delivery of the securities.
When we use terms such as loan pool, trust, sale and servicing agreement,
interest rate or pass-through rate, those terms respectively apply, unless the
context otherwise indicates, to one specific loan pool and trust, each sale and
servicing agreement, each interest rate applicable to the related class of
notes and each pass-through rate applicable to the related class of
certificates.
The Loan Pools
Except as we specify otherwise in the related prospectus supplement, the loan
pool will consist of home improvement loans and promissory notes, together
called the loans, originated by us on an individual basis in the ordinary
course of business. The loans will be conventional home improvement loans or
loans insured by FHA. No loan will be secured by an interest in the related
real estate. Except as we specify in the prospectus supplement, the loans will
be fully amortizing and will bear interest at a fixed or variable annual
percentage rate, which is the loan rate.
For each series of securities, we will assign the loans constituting the loan
pool to the trustee named in the prospectus supplement. Green Tree, in the
capacity as the servicer, which term shall include any successor to us in the
capacity under the applicable sale and servicing agreement, will service the
loans under the sale and servicing agreement. See "Description of the Trust
Documents--Servicing." Unless we specify otherwise in the prospectus
supplement, the loan documents will be held by the trustee or a custodian on
its behalf.
The prospectus supplement will specify for the loans contained in the loan
pool, among other things:
. the range of the dates of origination of the loans;
. the range of the loan rates and the weighted average loan rate;
. the minimum and maximum outstanding principal balances and the average
outstanding principal balance as of the cut-off date;
. the aggregate principal balance of the loans included in the loan 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; and
. the range of original maturities of the loans and the last maturity
date of any loan.
If the trust includes a pre-funding account, the prospectus supplement will
specify the conditions that must be satisfied before any transfer of subsequent
loans, including the requisite characteristics of the subsequent loans.
4
<PAGE>
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material respects of some information furnished to the trustee for each loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the securityholders in a loan, we will be obligated to
cure the breach in all material respects, or to repurchase or substitute for
the loan. This repurchase obligation constitutes the sole remedy available to
the securityholders or the trustee for a breach of representation or warranty
by us. See "Description of the Trust Documents--Sale and Assignment of the
Loans."
The Trustee
The trustee for each trust will be specified in the prospectus supplement.
The trustee's liability in connection with the issuance and sale of the
securities of the series will be limited solely to the express obligations of
the trustee described in the trust documents. A trustee may resign at any time,
in which event the general partner will be obligated to appoint a successor
trustee. The general partner may also remove the trustee if the trustee ceases
to be eligible to continue as trustee under the trust documents or if the
trustee becomes insolvent. In those circumstances, the general partner will be
obligated to appoint a successor trustee. Any resignation or removal of a
trustee and appointment of a successor trustee will be subject to any
conditions or approvals specified in the prospectus supplement and will not
become effective until acceptance of the appointment by the successor trustee.
GREEN TREE FINANCIAL CORPORATION
General
Green Tree is a Delaware corporation that, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Through its various
divisions, we purchase, pool, sell and service retail conditional sales loans
for manufactured housing and retail installment sales loans, as well as home
equity loans. We are the largest servicer of government-insured manufactured
housing loans and conventional manufactured housing loans in the United States.
Servicing functions are performed through Green Tree Financial Servicing
Corporation, our wholly owned subsidiary. Through our principal offices in St.
Paul, Minnesota, and service centers throughout the United States, we serve all
50 states. We also purchase, pool and service installment sales loans for
various consumer products. Our principal executive offices are located at 1100
Landmark Towers, St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). Our
annual report and, when available, subsequent quarterly and annual reports are
available from us upon written request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information.
5
<PAGE>
We are incorporating by reference the following documents into this
prospectus and the prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10-K for the
year ended December 31, 1998.
. Green Tree Financial Corporation's quarterly report on Form 10-Q for
the quarter ended March 31, 1999.
All documents filed by the servicer, on behalf of any trust, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this prospectus and before the termination of the offering of the
securities issued by that trust, will be incorporated by reference into this
prospectus.
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by reference) and other information. You can read
and copy these documents at the public reference facility maintained by the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549. You can also read and copy these reports and other information at the
following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
We will provide you, upon your written or oral request, a copy of any or all
of the documents incorporated by reference in this prospectus, exhibits to
those documents. Please direct your requests for copies to John Dolphin, Vice
President and Director of Investor Relations, 1100 Landmark Towers, 345 St.
Peter Street, St. Paul, Minnesota 55102-1639, telephone number (651) 293-3400.
Loan Origination
We have originated closed-end home equity loans since January 1996. As of
December 31, 1998, we had approximately $7,302,696,406 aggregate principal
amount of outstanding closed-end home equity loans.
Through a system of regional offices, we market our home equity lending
directly to consumers using a variety of marketing techniques. We also review
and re-underwrite loan applications forwarded by correspondent lenders.
Our credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less or more
6
<PAGE>
favorable equity position, the creditworthiness of the borrower must be
stronger, or may be weaker. The loan-to-value ratio of the requested loan,
combined with any existing loans with a senior lien position, may not exceed
95% without senior management approval. In most circumstances, an appraisal of
the property is required. Currently, loans secured by a first mortgage with an
obligor having a superior credit rating may not exceed $300,000 without senior
management approval, and loans secured by a second mortgage with an obligor
having a superior credit rating may not exceed $250,000 without senior
management approval.
Loss and Delinquency Information
Each prospectus supplement will include our loss and delinquency experience
for its entire servicing portfolio of home equity loans. However, we cannot
assure you that such experience will be indicative of the performance of the
loans included in a particular loan pool.
Ratio of Earnings to Fixed Charges for Green Tree
Shown below are our ratios of earnings to fixed charges for the past five
years and the three months ended March 31, 1999. For the purposes of compiling
these ratios, earnings (losses) consist of earnings (losses) before income
taxes plus fixed charges. Fixed charges consist of interest expense and the
interest portion of rent expense.
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
------------------------ ------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges............................... 7.98 7.90 5.44 3.94 .62* 4.53
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to our merger with
Conseco, Inc.
YIELD CONSIDERATIONS
The interest rates, pass-through rates and the weighted average loan rate of
the loans, as of the related cut-off date, relating to each series of
securities are listed in the prospectus supplement.
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 securities 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 class of
securities that is offered at a premium to its principal amount or without any
principal amount.
The yield on some types of securities which we may offer, as stripped notes,
interest only certificates, principal only certificates and fast pay/slow pay
certificates, may be
7
<PAGE>
particularly sensitive to prepayment rates, and to changes in prepayment rates,
on the underlying loans. If stated in the prospectus supplement, the yield on
some types of securities which we may offer could change and may be negative in
some prepayment rate scenarios. Accordingly, some types of securities may not
be legal or appropriate investments for some financial institutions, pension
funds or others. See "ERISA Considerations" and "Legal Investment
Considerations in this prospectus and in the prospectus supplement." In
addition, the timing of changes in the rate of prepayment on the loans included
in a loan 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 loans occur, the
greater the effect on the investor's yield to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless we describe otherwise in an applicable prospectus supplement, all of
the loans will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. FHA-
insured loans may be prepaid at any time without penalty. We have no
significant experience relating to the rate of principal prepayments on home
improvement loans. Because the loans have scheduled due dates throughout the
calendar month, and because, unless we specify otherwise in the prospectus
supplement, all principal prepayments will be passed through to securityholders
of the related series on the payment date following the due period in which the
principal prepayment occurred, prepayments on the loans would affect the amount
of funds available to make distributions on the securities on any payment date
only if a substantial portion of the loans prepaid before their respective due
dates in a particular month, thus paying less than 30 days' interest for that
due period, while very few loans prepaid after their respective due dates in
that month. In addition, liquidations of defaulted loans or the servicer's or
our exercise of its option to repurchase the entire remaining pool of loans,
see "Description of the Trust Documents--Termination," will affect the timing
of principal distributions on the securities of a series.
Information regarding the prepayment standard or model or any other rate of
assumed prepayment will be described in the prospectus supplement for a series
of securities. Although the prospectus supplement will specify the prepayment
assumptions used to price any series of securities, we cannot assure you that
the loans will prepay at that rate, and it is unlikely that prepayments or
liquidations of the loans will occur at any constant rate.
See "Description of the Trust Documents--Termination" for a description of
our or the servicer's option to repurchase the loans comprising part of a trust
when the aggregate principal balance of the loans as of the related cut-off
date is less than a specified percentage of the cut-off date principal balance
of such loans. See also "The Trusts--The Loan Pools"
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for a description of our obligation to repurchase a loan in case of a breach of
a representation or warranty relative to the loan.
POOL FACTOR
The certificate pool factor for each class of certificates will be an eight-
digit decimal which the servicer will compute indicating the outstanding
balance, which is called the certificate balance, for the certificates as of
each distribution date, after giving effect to all distributions of principal
made on that distribution date, as a fraction of the original certificate
balance of the certificates. The note pool factor for each class of notes will
be an eight-digit decimal which the servicer will compute indicating the
remaining outstanding principal balance for the notes as of each distribution
date, after giving effect to all distributions of principal on that
distribution date, as a fraction of the initial outstanding principal balance
of the class of notes. Each certificate pool factor and each note pool factor
will initially be 1.00000000; thereafter, the certificate pool factor and the
note pool factor will decline to reflect reductions in the certificate balance
of the applicable class of certificates or reductions in the outstanding
principal balance of the applicable class of notes, as the case may be. The
amount of a certificateholder's pro rata share of the certificate balance for
the class of certificates can be determined by multiplying the original
denomination of the certificateholder's certificate by the then applicable
certificate pool factor. The amount of a noteholder's pro rata share of the
aggregate outstanding principal balance of the applicable class of notes can be
determined by multiplying the original denomination of the noteholder's note by
the then applicable note pool factor.
For each trust and under the trust documents, on each distribution date or
payment date the certificateholders and noteholders will receive periodic
reports from the trustee stating the certificate pool factor or the note pool
factor, and containing various other items of information. Unless and until
definitive certificates or definitive notes are issued, the reports will be
sent on behalf of the trust to the trustee and the indenture trustee and Cede &
Co., as registered holder of the certificates and the notes and the nominee of
DTC. Certificate owners and note owners may receive the reports, upon written
request, together with a certification that they are certificate owners or note
owners and payment of any expenses associated with the distribution of the
reports, from the trustee and the indenture trustee at the addresses specified
in the prospectus supplement. See "Certain Information Regarding the
Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless we specify otherwise in the prospectus supplement, the net proceeds to
be received by the trust from the sale of each series of securities will be
used to pay to us the purchase price for the loans and to make the deposit of
the pre-funded amount into the pre-funding account, to repay warehouse lenders
and/or to provide for other forms of credit enhancement specified in the
prospectus supplement. The net proceeds to be received by us will be used for
its general corporate purposes, including the origination or
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acquisition of additional home improvement loan loans, costs of carrying these
loans until sale of the certificates and to pay other expenses connected with
pooling the loans and issuing the securities.
THE NOTES
General
For each series of securities, one or more classes of notes will be issued
under the terms of an indenture, a form of which has been filed as an exhibit
to the registration statement of which this prospectus forms a part. Unless we
specify otherwise in the prospectus supplement, no notes will be issued as a
part of any series. The following summary does not purport to be complete and
is subject to, and is qualified in its entirety by reference to, all of the
provisions of the notes and the indenture, and the following summary will be
supplemented in whole or in part by the prospectus supplement. Where particular
provisions of or terms used in the indenture are referred to, the actual
provisions are incorporated by reference as part of this summary.
Unless we specify otherwise in the prospectus supplement, each class of notes
will initially be represented by a single note registered in the name of the
nominee of the depository. See "Certain Information Regarding the Securities--
Book-Entry Registration." Unless we specify otherwise in the prospectus
supplement, notes will be available for purchase in denominations of $1,000 and
integral multiples thereof. Notes may be transferred or exchanged without the
payment of any service charge other than any tax or governmental charge payable
in connection with the transfer or exchange. Unless we provide otherwise in the
prospectus supplement, the indenture trustee will initially be designated as
the registrar for the notes.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, interest
rate and amount of or method of determining payments of principal and interest
on the notes will be described in the prospectus supplement. The right of
holders of any class of notes to receive payments of principal and interest may
be senior or subordinate to the rights of holders of any class or classes of
notes of that series, or any class of certificates, as described in the
prospectus supplement. Unless we provide otherwise in the prospectus
supplement, payments of interest on the notes will be made before payments of
principal. A series may include one or more classes of stripped notes entitled
to (1) principal payments with disproportionate, nominal or no interest
payment, or (2) interest payments with disproportionate, nominal or no
principal payments. Each class of notes may have a different interest rate,
which may be a fixed, variable or adjustable interest rate, and which may be
zero for some classes of stripped notes, or any combination of the foregoing.
The prospectus supplement will specify the interest rate for each class of
notes, or the initial interest rate and the method for determining the interest
rate. One or more classes of notes of a series may be redeemable under the
circumstances specified in the prospectus supplement.
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Unless we specify otherwise in the prospectus supplement, payments for
interest to noteholders of all classes within a series will have the same
priority. Under some circumstances, the amount available for the payments could
be less than the amount of interest payable on the notes on any of the dates
specified for payments in the prospectus supplement, which is a payment date,
in which case each class of noteholders will receive their ratable share, based
upon the aggregate amount of interest due to that class of noteholders, of the
aggregate amount available to be distributed as interest on the notes.
In the case of a series of securities which includes two or more classes of
notes, the timing, sequential order and priority of payment for principal and
interest, and any schedule or formula or other provisions applicable to the
determination, of each class will be set forth in the prospectus supplement.
Unless we specify otherwise in the prospectus supplement, payments for
principal and interest of any class of notes will be made on a pro rata basis
among all of the notes of that class.
The Indenture
A form of indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part. We will provide a copy of the
applicable indenture (without exhibits) upon request to a holder of notes
issued.
Modification of indenture without noteholder consent. Each trust and related
indenture trustee may, without consent of the related noteholders, enter into
one or more supplemental indentures for any of the following purposes:
(1) to correct or amplify the description of the collateral or add
additional collateral;
(2) to provide for the assumption of the note and the indenture
obligations by a permitted successor to the trust;
(3) to add additional covenants for the benefit of the related
noteholders;
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(5) to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture;
(6) to provide for the acceptance of the appointment of a successor
indenture trustee or to add to or change any of the provisions of the
indenture or any supplemental indenture which may be inconsistent with
any other provision of the indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee;
(7) to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939; and
(8) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the indenture or modify in any manner the rights of
noteholders under such indenture; provided that any action specified
in this clause shall not, as evidenced
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by an opinion of counsel, adversely affect in any material respect the
interests of any related noteholder unless noteholder consent is
otherwise obtained as described below.
Modifications of indenture with noteholder consent. For the trust, with the
consent of the holders representing a majority of the principal balance of the
outstanding related notes, which we refer to as a note majority, the owner
trustee and the indenture trustee may execute a supplemental indenture to add
provisions, to change in any manner or eliminate any provisions of, the related
indenture, or modify in any manner the rights of the related noteholders.
Without the consent of the holder of each outstanding related note affected
thereby, however, no supplemental indenture may:
(1) change the due date of any installment of principal of or interest on
any note or reduce the principal amount, the interest rate specified
or the redemption price or change the manner of calculating any
payment, any place of payment where, or the coin or currency in which
any note or any interest payable;
(2) impair the right to institute suit for the enforcement of various
provisions of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding notes
the consent of the holders of which is required for any supplemental
indenture or the consent of the holders of which is required for any
waiver of compliance with various provisions of the indenture or of
certain defaults thereunder and their consequences as provided for in
the indenture;
(4) modify or alter the provisions of the indenture regarding the voting
of notes held by the related trust, any other obligor on the notes, us
or an affiliate of any of them;
(5) reduce the percentage of the aggregate outstanding amount of the notes
the consent of the holders of which is required to direct the
indenture trustee to sell or liquidate the loans if the proceeds of
the sale would be insufficient to pay the principal amount and accrued
but unpaid interest on the outstanding notes;
(6) decrease the percentage of the aggregate principal amount of the notes
required to amend the sections of the indenture which specify the
applicable percentage of aggregate principal amount of the notes
necessary to amend the indenture or other related pooling and
servicing agreements; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture for any of the collateral for the notes or,
except as otherwise permitted or contemplated in the indenture,
terminate the lien of the indenture on any collateral or deprive the
holder of any note of the security afforded by the lien of the
indenture.
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Events of default; Rights upon event of default. For each trust, unless we
specify otherwise in the prospectus supplement, events of default under the
indenture will consist of:
(1) a default for five days or more in the payment of any interest on any
note;
(2) a default in the payment of the principal of or any installment of the
principal of any note when the same becomes due and payable;
(3) a default in the observance or performance in any material respect of
any covenant or agreement of the trust made in the indenture, or any
representation or warranty made by the trust in the indenture or in
any certificate delivered or in connection therewith having been
incorrect as of the time made, and the continuation of any default or
the failure to cure the breach of a representation or warranty for a
period of 30 days after notice is given to the trust by the indenture
trustee or to the trust and the indenture trustee by the holders of at
least 25% in principal amount of the notes then outstanding; or
(4) some events of bankruptcy, insolvency, receivership or liquidation of
the trust. However, the amount of principal due and payable on any
class of notes on any payment date, before the final scheduled payment
date for that class, will generally be determined by amounts available
to be deposited in the note distribution account for that payment
date.
Then, unless we specify otherwise in the prospectus supplement, the failure to
pay principal on a class of notes generally will not result in the occurrence
of an event of default unless that class of notes has a final scheduled payment
date, and then not until the final scheduled payment date for the class of
notes.
Unless we specify otherwise in the prospectus supplement, if an event of
default should occur and be continuing with respect to the notes of any series,
the indenture trustee or a note majority may declare the principal of the notes
to be immediately due and payable. That declaration may, under some
circumstances, be rescinded by a note majority.
Unless we specify otherwise in the prospectus supplement, if the notes of any
series have been declared due and payable following an event of default, the
indenture trustee may institute proceedings to collect amounts due or foreclose
on trust property, exercise remedies as a secured party, sell the related loans
or elect to have the trust maintain possession of the loans and continue to
apply collections on the loans as if there had been no declaration of
acceleration. Unless we specify otherwise in the prospectus supplement, the
indenture trustee, however, will be prohibited from selling the related loans
following an event of default, unless:
(1) the holders of all the outstanding related notes consent to the sale;
(2) the proceeds of the sale are sufficient to pay in full the principal
of and the accrued interest on the outstanding notes at the date of
the sale; or
(3) the indenture trustee determines that the proceeds of the loans would
not be sufficient on an ongoing basis to make all payments on the
notes as the payments
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would have become due if the obligations had not been declared due and
payable, and the indenture trustee obtains the consent of the holders
of 66 2/3% of the aggregate outstanding amount of the notes.
Unless we specify otherwise in the prospectus supplement, following a
declaration upon an event of default that the notes are immediately due and
payable:
(a) note owners will be entitled to ratable repayment of principal on the
basis of their respective unpaid principal balances; and
(b) repayment in full of the accrued interest on and unpaid principal
balances of the notes will be made before any further payment of
interest or principal on the certificates.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing for a
series of notes, the indenture trustee will be under no obligation to exercise
any of the rights or powers under the indenture at the request or direction of
any of the holders of the notes, if the indenture trustee reasonably believes
it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with the request.
Subject to the provisions for indemnification and various limitations
contained in the indenture, a note majority in a series will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the indenture trustee, and a note majority may, in some cases,
waive any default, except a default in the payment of principal or interest or
a default for the covenant or provision of the indenture that cannot be
modified without the waiver or consent of all of the holders of the
outstanding notes.
No holder of a note of any series will have the right to institute any
proceeding for the indenture, unless:
(1) the holder previously has given to the indenture trustee written
notice of a continuing event of default;
(2) the holders of not less than 25% in principal amount of the
outstanding notes of the series have made written request of the
indenture trustee to institute the proceeding in its own name as
indenture trustee;
(3) the holder or holders have offered the indenture trustee reasonable
indemnity;
(4) the indenture trustee has for 60 days failed to institute the
proceeding; and
(5) no direction inconsistent with the written request has been given to
the indenture trustee during the 60-day period by the holders of a
majority in principal amount of the outstanding notes.
If an event of default occurs and is continuing and if it is known to the
indenture trustee, the indenture trustee will mail to each noteholder notice
of the event of default within 90 days after it occurs. Except in the case of
a failure to pay principal of or interest on any note, the indenture trustee
may withhold the notice if and so long as it determines in good faith that
withholding the notice is in the interests of the noteholders.
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In addition, each indenture trustee and the noteholders, by accepting the
notes, will covenant that they will not at any time institute against the
seller or the trust any bankruptcy, reorganization or other proceeding under
any federal or state bankruptcy or similar law.
Neither the indenture trustee nor the trustee in its individual capacity, nor
any holder of a certificate including, without limitation, us, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express pooling
and servicing agreement to the contrary, be personally liable for the payment
of the notes or for any pooling and servicing agreement or covenant of the
trust contained in the indenture.
Certain Loans. Each indenture will provide that the trust may not consolidate
with or merge into any other entity, unless:
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state;
(2) the entity expressly assumes the trust's obligation to make due and
punctual payments upon the notes and the performance or observance of
every pooling and servicing agreement and covenant of the trust under
the indenture;
(3) no event of default shall have occurred and be continuing immediately
after the merger or consolidation;
(4) the trustee has been advised that the then current rating of the notes
or certificates then in effect would not be reduced or withdrawn by
the rating agencies as a result of that merger or consolidation;
(5) the trustee has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the trust or to any related note owner or certificate owner.
Each trust will not, among other things:
(1) except as expressly permitted by the indenture, the trust documents or
some related documents for the trust, referred to in this prospectus
as the related documents, sell, transfer, exchange or otherwise
dispose of any of the assets of the trust;
(2) claim any credit on or make any deduction from the principal and
interest payable for of the related notes, other than amounts withheld
under the IRS code or applicable state law, or assert any claim
against any present or former holder of the notes because of the
payment of taxes levied or assessed upon the trust;
(3) dissolve or liquidate in whole or in part;
(4) permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations for the related notes under the indenture except as may be
expressly permitted; or
(5) except as expressly permitted by the related documents, permit any
lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or
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extend to or otherwise arise upon or burden the assets of the trust or
any part thereof, or any interest or proceeds.
No trust may engage in any activity other than we specify under the section
of the related prospectus supplement entitled "The Trust." No trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred under the
related notes and the related indenture or otherwise in accordance with the
related documents.
Annual Compliance Statement. Each trust will be required to file annually
with the related indenture trustee a written statement as to the fulfillment of
its obligations under the indenture.
Indenture Trustee's Annual Report. The indenture trustee will be required to
mail each year to all related noteholders a brief report relating to its
eligibility and qualification to continue as indenture trustee under the
related indenture, any amounts advanced by it under the indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the trust to
the indenture trustee in its individual capacity, the property and funds
physically held by the indenture trustee as such and any action taken by it
that materially affects the notes and that has not been previously reported.
Note owners may receive these reports upon written request, together with a
certification that they are note owners and payment of reproduction and postage
expenses associated with the distribution of these reports, from the indenture
trustee at the address specified in the related prospectus supplement.
Satisfaction and Discharge of Indenture. The indenture will be discharged for
the collateral securing the related notes upon the delivery to the related
indenture trustee for cancellation of all the notes or, with certain
limitations, upon deposit with the indenture trustee of funds sufficient for
the payment in full of all of the notes.
The Indenture Trustee
The indenture trustee for a series of notes will be specified in the related
prospectus supplement. The indenture trustee may resign at any time, in which
event the seller will be obligated to appoint a successor trustee. We may also
remove the indenture trustee if the indenture trustee ceases to be eligible to
continue as the under the indenture or if the indenture trustee becomes
insolvent. In those circumstances, we will be obligated to appoint a successor
trustee. Any resignation or removal of the indenture trustee and appointment of
a successor trustee will be subject to any conditions or approvals specified in
the related prospectus supplement and will not become effective until
acceptance of the appointment by a successor trustee.
THE CERTIFICATES
General
A series of securities may include one or more classes of certificates issued
under trust documents to be entered into between us, as seller and as servicer,
and the trustee, forms of
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which have been filed as exhibits to the registration statement of which this
prospectus forms a part. The following summary does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all of
the material provisions of the trust documents. Where particular provisions of
or terms used in the trust documents are referred to, the actual provisions
are incorporated by reference as part of this summary.
If the certificates of a series are issued in more than one class, the
certificates of all or less than all of the classes may be sold under to this
prospectus, and there may be separate prospectus supplements relating to one
or more of the classes so sold. Any reference in this prospectus 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. Any reference in this prospectus 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 subclasses
of that class.
Unless we specify otherwise in the related prospectus supplement, each class
of certificates will initially be represented by a single certificate
registered in the name of the nominee of DTC, the depository, together with
any successor depository selected by us. See "Certain Information Regarding
the Securities--Book-Entry Registration." Unless we specify otherwise in the
related prospectus supplement, the certificates evidencing interests in a
trust will be available for purchase in denominations of $1,000 initial
principal amount and integral multiples thereof, except that one certificate
evidencing an interest in that trust may be issued in a denomination that is
less than $1,000 initial principal amount. Certificates may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with the transfer or exchange.
Unless we specify otherwise in the related prospectus supplement, the trustee
will initially be designated as the registrar for the certificates.
Distributions of Interest and Principal
The timing and priority of distributions, seniority, allocations of loss,
pass-through rate and amount of or method of determining distributions for
principal and interest, or, where applicable, for principal only or interest
only, on the certificates of any series will be described in the related
prospectus supplement. Distributions of interest on the certificates will be
made on the dates specified in the related prospectus supplement, each, a
distribution date and, unless otherwise specified in the related prospectus
supplement, will be made before distributions with respect to principal. A
series may include one or more classes of certificates called subordinated
certificates which are subordinated in right of distribution to one or more
other classes of certificates called senior certificates, as provided in the
related prospectus supplement. Certificates of a series which includes senior
and subordinated certificates are referred to collectively as
senior/subordinated certificates. A series of senior/subordinated certificates
may include one or more classes called mezzanine certificates that are
subordinated to one or more classes of certificates and are senior to one or
more classes of certificates. The prospectus supplement for a series of
senior/subordinated
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certificates will describe, 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 among senior certificates and subordinated certificates, the
allocation of losses among the classes of subordinated certificates, the period
or periods of that subordination, the minimum subordinated amount, and any
distributions or payments which will not be affected by that subordination. The
protection afforded to the senior certificateholders from the subordination
feature described above will be effected by the preferential right of the
certificateholders to receive current distributions from the loan pool. If a
series of certificates contains more than one class of subordinated
certificates, losses will be allocated among the classes in the manner
described in the prospectus supplement. If 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 the prospectus supplement.
If specified in a prospectus supplement, a series may include one or more
classes of certificates which (1) are entitled to receive distributions only in
respect of principal, which are called principal only certificates, interest
only certificates or any combination, or in specified proportions for the
payments, and/or (2) are entitled to receive distributions for the principal
before or after specified principal distributions have been made on one or more
other classes within the 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 describe the rate at which interest will be paid to
certificateholders of each class of a given series, which is called the pass-
through rate. The pass-through rate may be fixed, variable or adjustable, as
specified in the prospectus supplement.
The prospectus supplement will specify the pass-through rate for each class
of certificate, or the initial pass-through rate and the method for determining
the pass-through rate. Unless we specify otherwise in the prospectus
supplement, interest on the certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Unless we specify otherwise in
the prospectus supplement, distributions of the certificates will be
subordinate to payments for the notes as more fully described in the prospectus
supplement. Distributions for principal of any class of certificates will be
made on a pro rata basis among all of the certificateholders of that class.
In the case of a series of certificates which includes two or more classes of
certificates, the timing, sequential order, priority of payment or amount of
distributions for principal, and any schedule or formula or other provisions
applicable to that determination, of each class shall be as described in the
prospectus supplement.
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CERTAIN INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless we provide otherwise in the related prospectus supplement, the
securities of each series will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered under the provisions of Section 17A of the Exchange
Act. DTC accepts securities for deposit from its participating organizations
and facilitates the clearance and settlement of securities transactions between
participants in securities through electronic book-entry changes in accounts of
participants, eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks and trust companies
and clearing corporations and may include some other organizations. Indirect
access to the DTC system is also available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Certificate owners and note owners who are not participants but desire to
purchase, sell or otherwise transfer ownership of securities may do so only
through participants, unless and until definitive certificates or definitive
notes are issued. In addition, certificate owners and note owners will receive
all distributions of principal of, and interest on, the securities from the
trustee or the indenture trustee, as applicable, through DTC and participants.
Certificate owners and note owners will not receive or be entitled to receive
certificates representing their respective interests in the securities, except
under the limited circumstances described below and any other circumstances as
may be specified in the related prospectus supplement.
Unless and until definitive securities are issued, it is anticipated that the
only certificateholder of the certificates and the only noteholder of the
notes, if any, will be Cede & Co., as nominee of DTC. Certificate owners and
note owners will not be recognized by the trustee as certificateholders or by
the indenture trustee as noteholders as those terms are used in the related
trust documents or indenture. Certificate owners and note owners will be
permitted to exercise the rights of certificateholders or noteholders only
indirectly through participants and DTC.
For any series of securities, while the securities are outstanding, except
under the circumstances described below, under the rules, regulations and
procedures creating and affecting DTC and its operations (the rules), DTC is
required to make book-entry transfers among participants on whose behalf it
acts with respect to the securities and is required to receive and transmit
distributions of principal of, and interest on, the securities. Participants
with whom certificate owners or note owners have accounts with respect to
securities are similarly required to make book-entry transfers and receive and
transmit the distributions on behalf of their respective certificate owners and
note owners. Accordingly, although certificate owners and note owners will not
possess securities, the rules provide a mechanism by which certificate owners
and note owners will receive distributions and will be able to transfer their
interests.
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For any series of securities, unless we specify otherwise in the related
prospectus supplement, certificates and notes will be issued in registered form
to certificate owners and note owners, or their nominees, rather than to DTC
certificates and notes being referred to as definitive certificates and
definitive notes, only if:
(1) DTC, we or the servicer advises the trustee or the indenture trustee,
as the case may be, in writing that DTC is no longer willing or able
to discharge properly its responsibilities as nominee and depository
for the certificates or the notes, and we, the servicer, the trustee
or the indenture trustee, as the case may be, are unable to locate a
qualified successor;
(2) We or the administrator at its sole option have advised the trustee or
the indenture trustee, as the case may be, in writing that it elects
to terminate the book-entry system through DTC; and
(3) after the occurrence of a servicer termination event, the holders
representing a majority of the certificate balance, referred to as a
certificate majority, or a note majority advises the trustee or the
indenture trustee, as the case may be, through DTC, that continuation
of a book-entry system is no longer in their best interests. Upon
issuance of definitive certificates or definitive notes to certificate
owners or note owners, the certificates or notes will be transferable
directly, and not exclusively on a book-entry basis, and registered
holders will deal directly with the trustee or the indenture
trustee,for the transfers, notices and distributions.
DTC has advised us that, unless and until definitive certificates or
definitive notes are issued, DTC will take any action permitted to be taken by
a certificateholder or a noteholder under the related trust documents or
indenture only at the direction of one or more participants to whose DTC
accounts the certificates or notes are credited. DTC has advised us that DTC
will take action for any fractional interest of the certificates or the notes
only at the direction of and on behalf of the participants beneficially owning
a corresponding fractional interest of the certificates or the notes. DTC may
take actions, at the direction of the related participants, for certificates or
notes which conflict with actions taken for other certificates or notes.
Statements to Securityholders
On or before each distribution date, the servicer will prepare and provide to
the trustee a statement to be delivered to the related certificateholders on
the distribution date. On or before to each distribution date, the servicer
will prepare and provide to the indenture trustee a statement to be delivered
to the related noteholders on the distribution date. The statements will be
based on the information in the related servicer's certificate describing
information required under the trust documents . Unless we specify otherwise in
the related prospectus supplement, each statement to be delivered to
certificateholders will include the following information as to the
certificates for the distribution date or the period since the previous
distribution date, as applicable, and each statement to be delivered to
noteholders will include the following information as to the notes for the
distribution date or the period since the previous distribution date, as
applicable:
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(1) the amount of the distribution allocable to interest on for each class
of securities;
(2) the amount of the distribution allocable to principal on or for each
class of securities;
(3) the certificate balance and the certificate pool factor for each
class of certificates and the aggregate outstanding principal balance
and the note pool factor for each class of notes, after giving effect
to all payments reported under (2) above on that date;
(4) the amount of the monthly servicing fee paid to the servicer for the
related due period or periods, as the case may be;
(5) the pass-through rate or interest rate for the next period for any
class of certificates or notes with variable or adjustable rates;
(6) the amount of advances made by the servicer for the distribution
date, and the amount paid to the servicer on the distribution date as
reimbursement of advances made on previous distribution dates;
(7) the amount distributed to certificateholders and noteholders
applicable to payments under the related form of credit enhancement;
(8) our FHA insurance reserve amount;
(9) the number and aggregate principal balance of loans delinquent (i)
31-59 days, (ii) 60-89 and (iii) 90 or more days;
(10) the number of loans liquidated during the due period ending
immediately before the payment date;
(11) customary factual information as is necessary to enable
securityholders to prepare their tax returns; and
(12) other information as may be specified in the related prospectus
supplement.
Each amount described pursuant to subclauses (1), (2), (4) and (6) for
certificates or notes will be expressed as a dollar amount per $1,000 of the
initial certificate balance or the initial principal balance of the notes, as
applicable.
Unless and until definitive certificates or definitive notes are issued,
these reports with respect to a series of securities will be sent on behalf of
the related trust to the trustee, the indenture trustee and Cede & Co., as
registered holder of the certificates and the notes and the nominee of DTC.
Certificate owners and note owners may receive copies of the reports upon
written request, together with a certification that they are certificate owners
or note owners, and payment of reproduction and postage expenses associated
with the distribution of those reports, from the trustee or the indenture
trustee. See "Reports to Securityholders" and "--Book-Entry Registration"
above.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year during the term of a trust, the trustee and the indenture
trustee, as applicable, will mail to each holder of a class of securities who
at any time during the calendar year has
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been a securityholder, and received any payment, a statement containing
information for the purposes of that securityholder's preparation of federal
income tax returns. DTC will convey that information to its participants, who
in turn will convey that information to their related indirect participants in
accordance with arrangements among DTC and those participants. Certificate
owners and note owners may receive reports upon written request, together with
a certification that they are certificate owners or note owners and payment of
reproduction and postage expenses associated with the distribution of the
information, from the trustee, for certificate owners, or from the indenture
trustee, for note owners, at the addresses specified in the related prospectus
supplement. See "Certain Federal Income Tax Consequences."
Lists of Securityholders
Unless we provide otherwise in the related prospectus supplement, for each
series of certificates, at the time as definitive certificates have been
issued, the trustee will, upon written request by three or more
certificateholders or one or more holders of certificates evidencing not less
than 25% of the certificate balance, within five business days after provision
to the trustee of a statement of the applicants' desire to communicate with
other certificateholders about their rights under the related trust documents
or the certificates and a copy of the communication that the applicants propose
to transmit, afford the certificateholders access during business hours to the
current list of certificateholders for purposes of communicating with other
certificateholders for their rights under the trust documents. Unless we
specify otherwise in the related prospectus supplement, the trust documents
will not provide for holding any annual or other meetings of
certificateholders.
Unless we provide otherwise in the related prospectus supplement, for each
series of notes at that time as definitive notes have been issued, the
indenture trustee will, upon written request by three or more noteholders or
one or more holders of notes evidencing not less than 25% of the aggregate
principal balance of the related notes, within five business days after
provision to the indenture trustee of a statement of the applicants' desire to
communicate with other noteholders about their rights under the related
indenture or the notes and a copy of the communication that the applicants
propose to transmit, afford the noteholders access during business hours to the
current list of noteholders for purposes of communicating with other
noteholders for their rights under the indenture. Unless we specify otherwise
in the related prospectus supplement, the indenture will not provide for
holding any annual or other meetings of noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as we specify otherwise in the related prospectus supplement, the
following summary describes some terms of the sale and servicing agreements and
the trust agreements, which are collectively referred to as the trust
documents, under which we will sell and assign the loans to a trust and the
servicer will agree to service the loans on behalf of the trust, and under
which the trust will be created and certificates will be issued. Forms of the
trust documents have been filed as exhibits to the registration statement of
which this prospectus forms a part. We will provide a copy of the pooling and
servicing agreements,
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without exhibits, upon request to a holder of securities described in this
prospectus. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the trust
documents. Where particular provisions or terms used in the trust documents are
referred to, the actual provisions are incorporated by reference as part of
this summary.
Sale and Assignment of the Loans
On the closing date, we will sell and assign to the trust, without recourse,
our entire interest in the related loans, including all principal and interest
received on or for the loans, other than receipts of principal and interest due
on the loans before the cut-off date. Each loan transferred by us to the trust
will be identified in a schedule appearing as an exhibit to the related trust
documents. Concurrently with the sale and assignment, the trustee will execute
and the indenture trustee will authenticate and deliver the notes to or upon
the order of the seller, and the trustee will execute and deliver the related
certificates representing the certificates to or upon our order.
The schedule of loans will include the amount of monthly payments due on each
loan as of the date of issuance of the securities, the loan rate on each loan
and the maturity date of each loan. The list will be available for inspection
by any securityholder at the principal executive office of the servicer. Before
the conveyance of the loans to the trustee, our internal audit department will
complete a review of all of the loan files confirming the accuracy of the list
of loans delivered to the trustee. Any loan discovered not to agree with that
list in a manner that is materially adverse to the interests of the
securityholders will be repurchased or substituted for by us, or, if the
discrepancy relates to the unpaid principal balance of a loan, we may deposit
cash in a separate collection account maintained at an eligible institution in
the name of the trustee in an amount sufficient to offset that discrepancy. If
the trust includes a pre-funding account, the related prospectus supplement
will specify the conditions that must be satisfied before any transfer of
subsequent loans, including the requisite characteristics of the subsequent
loans.
Unless we specify otherwise in the related prospectus supplement, the trustee
or its custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and Green Tree's accounting records and computer systems will also
reflect that sale and assignment.
Our counsel identified in the applicable prospectus supplement will render
an opinion to the trustee that the transfer of the loans from us to the trust
would, in the event we became a debtor under the United States Bankruptcy Code,
be treated as a true sale and not as a pledge to secure borrowings. If, the
transfer of the loans from us to the trust were treated as a pledge to secure
borrowings by us, the distribution of proceeds of the loans to the trust might
be subject to the automatic stay provisions of the United States Bankruptcy
Code, which would delay the distribution of those proceeds for an uncertain
period of time. In addition, a bankruptcy trustee would have the power to sell
the loans if the proceeds of the
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sale could satisfy the amount of the debt deemed owed by us, or the bankruptcy
trustee could substitute other collateral in lieu of the loans to secure the
debt, or the debt could be subject to adjustment by the bankruptcy trustee if
we were to file for reorganization under Chapter 11 of the United States
Bankruptcy Code.
Except as we specify otherwise in the related prospectus supplement, we will
make some representations and warranties in the sale and servicing agreement
for each loan as of the related closing date, including that:
(a) as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
(b) no provision of a loan has been waived, altered or modified in any way
except by instruments or documents included in the loan file and
reflected on the list of loans delivered to the trustee;
(c) each loan 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 loan is subject to any right of rescission, set-off, counterclaim
or defense;
(e) each FHA-insured loan was originated in accordance with applicable FHA
regulations and is insured, without set off, surcharge or defense, by
FHA insurance;
(f) each loan was either:
(i) entered into by a home improvement loan or in the ordinary course
of the loan's business and, immediately upon funding, assigned to
us; or
(ii) was originated by us directly;
(g) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest in that loan pursuant to the sale and servicing agreement or
the securities unlawful;
(h) each loan complies with all requirements of law;
(i) no loan has been satisfied or rescinded;
(j) all parties to each loan had full legal capacity to execute that loan;
(k) no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to the trustee;
(l) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clause (1) above, no event that with notice
and the expiration of any grace or cure period
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would constitute a default, breach, violation or event permitting
acceleration under that loan, and we have not waived any of the
foregoing;
(m) each loan is a fully-amortizing loan with a fixed rate of interest and
provides for level payments over the term of that loan;
(n) the description of each loan described in the list delivered to the
trustee is true and correct;
(o) there is only one original of each loan; and
(p) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
Our warranties will be made as of the execution and delivery of the related
trust documents and will survive the sale, transfer and assignment of the
related loans and other trust property to the trust but will speak only as of
the date made.
Under the terms of the sale and servicing agreement, if we become aware of a
breach of any representation or warranty that materially adversely affects the
interests of the note owners, the certificate owners or the related trust in
any loan or receives written notice of a breach from the trustee or the
servicer, then we will be obligated either to cure the breach or to repurchase
or, if so provided in the related prospectus supplement, substitute for the
affected loan, in each case under the conditions further described in this
prospectus and in the prospectus supplement. This repurchase obligation will
constitute the sole remedy available to the trust and the securityholders for
a breach of a representation or warranty under the sale and servicing
agreement for the loans, but not for any other breach by us of its obligations
under the sale and servicing agreement.
The purchase amount of a loan at any time means the outstanding principal
amount of the loan, without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable loan rate on the loan from the
end of the due period for which the obligor last made a payment, without
giving effect to any advances made by the servicer or the trustee, through the
end of the immediately preceding due period.
Upon the purchase by us of a loan due to a breach of a representation or
warranty, the trustee will convey the loan and the related trust property to
us.
Collections
For each trust, the servicer will establish one or more collection accounts
in the name of the indenture trustee for the benefit of the related
securityholders. If we so specify in the related prospectus supplement, the
indenture trustee will establish and maintain for each series an account, in
the name of the indenture trustee on behalf of the related noteholders, in
which amounts released from the collection account and any pre-funding account
and any amounts received from any source of credit enhancement for payment to
the noteholders will be deposited and from which all distributions to the
noteholders will be made, which is the note distribution account. For any
series including one or more classes of certificates, the
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trustee will establish and maintain for each series an account, in the name of
the trustee on behalf of the related certificateholders, in which amounts
released from the collection account and any pre-funding account and any
amounts received from any source of credit enhancement for distribution to the
certificateholders will be deposited and from which all distributions to the
certificateholders will be made, which is the certificate distribution account.
The collection account, the certificate distribution account and the note
distribution account are referred to collectively as the designated accounts.
Any other accounts to be established for a trust will be described in the
prospectus supplement.
Each designated account will be an eligible account maintained with the
trustee, the indenture trustee and/or other depository institutions. Eligible
account means any account which is:
(1) an account maintained with an eligible institution as defined below;
(2) an account or accounts the deposits in which are fully insured by
either the bank insurance fund or the savings association insurance
fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the trustee, which depository institution or trust
company has capital and surplus, or, if the depository institution or
trust company is a subsidiary of a bank holding company system, the
capital and surplus of the bank holding company, of not less than
$50,000,000 and the securities of such depository institution, or, if
the depository institution is a subsidiary of a bank holding company
system and the depository institution's securities are not rated, the
securities of the bank holding company, has a credit rating from each
rating agency rating the series of notes and/or certificates in one
of its generic credit rating categories which signifies investment
grade; or
(4) an account that will not cause any rating agency to downgrade or
withdraw its then-current rating assigned to the securities, as
confirmed in writing by each rating agency. Eligible institution
means any depository institution organized under the laws of the
United States or any state, the deposits of which are insured to the
full extent permitted by law by the Bank Insurance Fund, currently
administered by the FDIC, whose short-term deposits have been rated
in one of the two highest rating categories or other rating category
as will not adversely affect the ratings assigned to the securities
of the series.
On the closing date specified in the prospectus supplement, the servicer will
cause to be deposited in the collection account all payments on the loans
received by the servicer after the cut-off date and on or before the second
business day preceding the closing date.
Unless we specify otherwise in the prospectus supplement, the servicer will
deposit in the collection account on a daily basis all proceeds and collections
received or made by it for the related loans 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, including:
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(1) all obligor payments on account of principal, including principal
prepayments, on the loans;
(2) all obligor payments on account of interest on the loans;
(3) all FHA insurance payments received by the servicer;
(4) all amounts received and retained in connection with the liquidation
of defaulted loans, net of liquidation expenses, which are the net
liquidation proceeds;
(5) any advances made as described under advances below and some other
amounts required under the sale and servicing agreement to be
deposited in the collection account;
(6) all amounts received from any credit enhancement provided for a
series of securities; and
(7) all proceeds of any loan or property acquired under this prospectus
and repurchased by the servicer or us, as described under "Sale and
Assignment of the Loans" above or under "Repurchase Option" below.
Notwithstanding the foregoing and unless we provide otherwise in the
prospectus supplement, the servicer may utilize an alternative remittance
schedule, if the servicer provides to the trustee and the indenture trustee
written confirmation from each rating agency that the alternative remittance
schedule will not result in the downgrading or withdrawal by that rating agency
of the rating(s) then assigned to the securities. We will also deposit into the
collection account on or before the deposit date the purchase amount of each
loan to be purchased by it for breach of a representation or warranty.
For any series of securities, funds in the designated accounts and any other
accounts identified in the prospectus supplement will be invested, as provided
in the related trust documents, at the direction of the servicer in United
States government securities and some other high-quality investments meeting
the criteria described in the related trust documents. Eligible investments
shall mature no later than the business day before the applicable distribution
date for the due period to which the amounts relate. Investments in eligible
investments will be made in the name of the trustee or the indenture trustee,
as the case may be, and the investments will not be sold or disposed of before
to their maturity.
Unless we specify otherwise in the prospectus supplement, collections or
recoveries on a loan, other than late fees or some other similar fees or
charges, received during a due period and purchase amounts deposited with the
trustee before to a distribution date will be applied first to any outstanding
advances made by the servicer for that loan, and then to interest and principal
on the loan in accordance with the terms of the loan.
Servicing
Under the sale and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as more fully described below. The
servicer will perform diligently all services and duties specified in each sale
and servicing agreement, in the same
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manner as prudent lending institutions of home improvement loans of the same
type as the loans in those jurisdictions where the related real properties are
located or we otherwise specify in the sale and servicing agreement. The duties
to be performed by the servicer will include collection and remittance of
principal and interest payments, and submission of FHA insurance claims where
applicable.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the sale and servicing agreement and any
FHA insurance, will follow the collection procedures for the loans as it
follows for the loans or loans serviced by it that are comparable to the loans.
Evidence as to Compliance. Unless we specify otherwise in the prospectus
supplement, each sale and servicing agreement will require the servicer to
deliver to the trustee a monthly report before each payment date, describing
information regarding the loan pool and the securities of that series as is
specified in the prospectus supplement. Each report to the trustee will be
accompanied by a statement from an appropriate officer of the servicer
certifying the accuracy of that report and stating that the servicer has not
defaulted in the performance of its obligations under the sale and servicing
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 the
firm has examined certain documents and records relating to the servicing of
home improvement loans serviced by the servicer under agreements similar to the
sale and servicing agreement and stating that, on the basis of their
procedures, the servicing has been conducted in compliance with the sale and
servicing agreement, except for any exceptions listed in the report.
Certain Matters Regarding the Servicer. The servicer may not resign from its
obligations and duties under a sale and servicing agreement except upon a
determination that its duties are no longer permissible under applicable law.
No resignation will become effective until the trustee or a successor servicer
has assumed the servicer's obligations and duties under the sale and servicing
agreement. The servicer can only be removed as servicer upon the occurrence of
an event of termination as discussed below.
The servicer shall keep in force throughout the term of the sale and
servicing agreement (1) a policy or policies of insurance covering errors and
omissions for failure to maintain insurance as required by the sale and
servicing agreement, and (2) a fidelity bond. The policy or policies and the
fidelity bond will be in the form and amount as is generally customary among
persons which service a portfolio of home improvement loans having an aggregate
principal amount of $10 million or more and which are generally regarded as
servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which Green Tree may assign, for each due period, paid on the
next succeeding payment date, equal to 1/12th of the product of the annual
servicing fee rate described in the applicable prospectus supplement and the
aggregate principal balance for that payment date. As long as Green Tree is the
servicer, the trustee will pay us its monthly servicing fee from any monies
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remaining after the securityholders have received all payments of principal and
interest for that payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records for each
loan. Administrative services performed by the servicer on behalf of the trust
include selecting and packaging the loans, calculating distributions to
securityholders and providing related data processing and reporting services
for securityholders and on behalf of the trustee. Expenses incurred in
connection with servicing of the loans and paid by us from our monthly
servicing fees include:
. payment of FHA insurance premiums;
. payment of fees and expenses of accountants;
. payments of all fees and expenses incurred in connection with the
enforcement of loans, including submission of FHA insurance claims;
. payment of trustee's fees; and
. payment of expenses incurred in connection with distributions and
reports to securityholders, except that the servicer shall be
reimbursed out of the liquidation proceeds of a liquidated loan,
including FHA Insurance proceeds, for customary out-of-pocket
liquidation expenses incurred.
Events of Termination. Except as we specify otherwise in the prospectus
supplement, events of termination under each sale and servicing agreement will
occur if:
(1) any failure by the servicer to deliver to the indenture trustee for
distribution to the noteholders or to the trustee for distribution to
the certificateholders any required payment which continues
unremedied for 5 days, or other period specified in the prospectus
supplement, after the giving of written notice;
(2) any failure by the servicer duly to observe or perform in any material
respect any other of its covenants or pooling and servicing agreements
in the trust documents that materially and adversely affects the
interests of securityholders, which, in either case, continues
unremedied for 30 days after the giving of written notice of the
failure of breach;
(3) any assignment or delegation by the servicer of its duties or rights
under the trust documents, except as specifically permitted under the
trust documents, or any attempt to make an assignment or delegation;
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(4) some events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the servicer;
(5) the servicer is no longer an eligible servicer as defined in the trust
documents or
(6) if we are the servicer, our receiving rights under its master seller-
servicer loan with GNMA are terminated.
Under the sale and servicing agreement, we, the trustee or the indenture
trustee may give notice to the servicer. The holders of 25% of the outstanding
securities by principal balance also may give notice to us, the servicer, the
indenture trustee or the trustee.
Unless we specify otherwise in the prospectus supplement, if a servicer
termination event occurs and is continuing, the trustee, the indenture trustee
or the holders of at least 25% in aggregate principal balance of the
outstanding securities issued by the trust, by notice then given in writing to
the servicer, and to the trustee and the indenture trustee if given by the
securityholders, may terminate all of the rights and obligations of the
servicer under the trust documents. Immediately upon the giving of this notice,
and, in the case of a successor servicer other than the trustee, the acceptance
by the successor servicer of its appointment, all authority of the servicer
will pass to the trustee or other successor servicer. The trustee, the
indenture trustee and the successor servicer may set off and deduct any amounts
owed by the servicer from any amounts payable to the outgoing servicer.
On and after the time the servicer receives a notice of termination, the
trustee or other successor servicer, a backup servicer, described in the
prospectus supplement will be the successor for the servicer and will be
subject to all the responsibilities, restrictions, duties and liabilities of
the servicer under the related trust documents. That the successor servicer
shall have no liability any obligation which was required to be performed by
the prior servicer before the date that the successor servicer becomes the
servicer or any claim of a third party, including a securityholder, based on
any alleged action or inaction of the prior servicer.
In addition, the trustee will notify FHA of our termination as servicer of
the loans and will request that the portion of our FHA insurance reserves
allocable to the FHA-insured loans be transferred to the trustee or a successor
servicer. See "Description of FHA Insurance." Notwithstanding this 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
termination will affect in any manner our obligation to repurchase loans for
breaches of representations or warranties under the trust documents. In the
event that the trustee would be obligated to succeed the servicer but is
unwilling or unable to, it may appoint, or petition to a court of competent
jurisdiction for the appointment of, a servicer. Pending that appointment, the
trustee is obligated to act in that capacity. The trustee and the 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 trust documents without
the consent of all of the securityholders.
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The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the sale and servicing agreement at the
request, order or direction of any of the holders of securities, unless the
securityholders have offered to the trustee reasonable security or indemnity
against the costs, expenses and liabilities which the trustee may incur.
We, as servicer, will be required to pay all expenses incurred by it in
connection with its servicing activities, including fees, expenses and
disbursements of the trustee, the indenture trustee, the custodian and
independent accountants, taxes imposed on the servicer and expenses incurred in
connection with distributions and reports to certificateholders and
noteholders, except some expenses incurred in connection with realizing upon
the loans.
Upon any termination of, or appointment of a successor to, the servicer, the
trustee and the indenture trustee, each will give prompt written notice to
certificateholders and noteholders, at their respective addresses appearing in
the certificate register or the note register and to each rating agency.
Distributions
For each trust, beginning on the distribution date stated in the prospectus
supplement, distributions of principal and interest, or, where applicable, of
principal or interest only, on each class of securities entitled under this
prospectus, will be made by the trustee or the indenture trustee, as
applicable, to the certificateholders and the noteholders. The timing,
calculation, allocation, order, source, priorities of and requirements for all
distributions to each class of certificateholders and all payments to each
class of noteholders will be described in the prospectus supplement.
Unless we specify otherwise in the prospectus supplement, on the third
business day before each distribution date, the determination date, the
servicer will determine the amount available and the amounts to be distributed
on the notes and certificates for that distribution date. Unless we specify
otherwise in the prospectus supplement, the amount available for any
distribution date will be equal to:
(1) the funds on deposit in the collection account at the close of
business on the last day of the related due period; plus
(2) any advances to be made by the servicer for delinquent payments; plus
(3) any purchase amounts to be deposited by us for loans to be repurchased
due to a breach of a representation or warranty; minus
(4) any amounts paid by obligors in the related due period, but to be
applied to a regular monthly payment due in a subsequent due period,
called an advance payment; minus
(5) any amounts incorrectly deposited in the collection account.
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Unless we specify otherwise in the prospectus supplement, on each
distribution date, before making distributions for the notes and certificates,
the amount available will be applied:
. first, if we are no longer the servicer, to pay the monthly servicing
fee to the successor servicer; and
. second, to reimburse the servicer, including us for any advances made
with respect for prior due period and subsequently recovered and for
any advances previously made that the servicer has determined are
uncollectible advances.
Enhancement
The amounts and types of enhancement arrangements and the provider, if
applicable, for each class of securities will be described in the prospectus
supplement. To the extent provided in the prospectus supplement, enhancement
may be in the form of a financial guaranty insurance policy, letter of credit,
our guaranty, cash reserve fund, derivative product, or other form of
enhancement, or any combination, as may be described in the prospectus
supplement. If specified in the applicable prospectus supplement, enhancement
for a class of securities of a series may cover one or more other classes of
securities in the series, and accordingly may be exhausted for the benefit of a
particular class and will be unavailable to other classes. Further information
regarding any provider of enhancement, including financial information when
material, will be included in the prospectus supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the certificateholders and the noteholders of the full amount of
principal and interest due and to decrease the likelihood that the
certificateholders and the noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the prospectus
supplement. Unless otherwise specified in the prospectus supplement, the
enhancement for a class of securities will not provide protection against all
risks of loss and will not guarantee repayment of the entire principal and
interest. If losses occur which exceed the amount covered by any enhancement or
which are not covered by any enhancement, securityholders will bear their
allocable share of deficiencies. In addition, if a form of enhancement covers
more than one class of securities of a series, securityholders of any class
will be subject to the risk that the enhancement will be exhausted by the
claims of securityholders of other classes.
Advances
Unless we specify otherwise in the prospectus supplement, the servicer will
be obligated to make advances each month of any scheduled payments on the loans
included in a trust that were due but not received during the prior due period.
The servicer will be entitled to reimbursement of an advance from the amount
available in the collection account for the related trust (1) when the
delinquent payment is recovered by the trust, or (2) when the servicer has
determined that the advance has become an uncollectible advance. the
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servicer will be obligated to make an advance only to the extent that it
determines that the advance will be recoverable from subsequent funds available
in the collection account for the related trust. The servicer will be entitled
to recoup its advances on a loan from subsequent payments by or on behalf of
the obligor and from liquidation proceeds, including FHA insurance payments, if
applicable of the loan, and will release its right to reimbursements in
conjunction with the purchase of the loan by us for breach of representations
and warranties. If the servicer determines in good faith that an amount
previously advanced will not ultimately be recoverable from payments by or on
behalf of the obligor or from net liquidation proceeds, including FHA insurance
payments, if applicable of the loan which is, an uncollectible advance, the
servicer will be entitled to reimbursement from payments on other loans or from
other funds available.
Unless we specify otherwise in the prospectus supplement, if the servicer
fails to make an advance required under the sale and servicing agreement, the
trustee will be obligated to deposit the amount of that advance in the
collection account on the payment date. The trustee will not be obligated to
deposit any amount if:
(1) the trustee does not expect to recoup that advance from subsequent
collections on the loan or from liquidation proceeds, or
(2) the trustee determines that it is not legally able to make the
advance.
Evidence as to Compliance
On or before March 31 of each year the servicer will deliver to each trustee
and each indenture trustee a report of a nationally recognized accounting firm
stating that the firm has examined certain documents and records relating to
the servicing of loans serviced by the servicer under pooling and servicing
agreements or sale and servicing agreements similar to the trust documents and
stating that, on the basis of these procedures, that servicing has been
conducted in compliance with the applicable trust documents, except for any
exceptions described in that report. A copy of the statement may be obtained by
any certificate owner or note owner as described above. See "Certain
Information Regarding the Securities--Statements to Securityholders" above.
Indemnification and Limits on Liability
Unless we specify otherwise in the prospectus supplement, the trust documents
will provide that the servicer will be liable only to the extent of the
obligations specifically undertaken by it under the trust documents and will
have no other obligations or liabilities. The trust documents will further
provide that neither the servicer nor any of its directors, officers, employees
and agents will have any liability to the trust, the certificateholders or the
noteholders, except as provided in the trust documents, for any action taken or
for refraining from taking any action under the trust documents, other than any
liability that would otherwise be imposed by reason of the servicer's breach of
the trust documents or willful misfeasance, bad faith or negligence, including
errors in judgment in the performance of its duties, or by reason of reckless
disregard of obligations and duties under the trust documents or any violation
of law.
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The servicer may, with the prior consent of the trustee and the indenture
trustee delegate duties under the related trust documents to any of its
affiliates. In addition, the servicer may at any time perform the specific duty
of repossessing products through subloanors who are in the business of
servicing consumer receivables. The servicer may also perform other specific
duties through subloanors, provided that no delegation of duties by the
servicer shall relieve the servicer of its responsibility.
Amendment
Unless we specify otherwise in the prospectus supplement, the trust documents
may be amended by the seller, the servicer, the trustee and the indenture
trustee, but without the consent of any of the securityholders, to cure any
ambiguity or to correct or supplement any provision, provided that action will
not, in the opinion of counsel, which may be our internal counsel or the
servicer, reasonably satisfactory to the trustee and the indenture trustee,
materially and adversely affect the interests of the securityholders. The trust
documents may also be amended by us, the servicer and the trustee and the
indenture trustee, and a certificate majority and a note majority, for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the trust documents or of modifying, in any manner,
the rights of the certificateholders or the noteholders. No such amendment may:
(1) increase or reduce in any manner the amount of, or accelerate or delay
the timing of, collections of payments on the related loans or
distributions that are required to be made on any related certificate
or note or the related pass-through rate or interest rate; or
(2) reduce the percentage of the certificate balance evidenced by
certificates or of the aggregate principal amount of notes then
outstanding required to consent to any amendment, without the consent
of the holders of all certificates or all notes, then outstanding.
Termination
The obligations created by the trust documents will terminate upon the date
calculated as specified in the trust documents, generally upon:
(1) the later of the final payment or other liquidation of the last loan
subject to this prospectus and the disposition of all property
acquired upon repossession of any product; and
(2) the payment to the securityholders of all amounts held by the servicer
or the trustee and required to be paid to the securityholders under
the trust documents.
Unless we provide otherwise in the prospectus supplement, for each series of
securities, in order to avoid excessive administrative expense, we and the
servicer each will be permitted, at its option, to purchase from the trust, on
any distribution date immediately following any due period as of the last day
of which the aggregate principal balance is equal to or less than 10%, or other
percentage as may be specified in the related prospectus
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supplement, of the cut-off date principal balance, all remaining loans in the
related trust and the other remaining trust property at a price equal to the
aggregate of the purchase amounts and the appraised value of any other
remaining trust property. The exercise of this right will cause an early
retirement of the related certificates and notes.
If a general partner is named in the prospectus supplement, unless we specify
otherwise in the prospectus supplement, the trust agreement will provide that,
in the event that the general partner becomes insolvent, withdraws or is
expelled as a general partner or is terminated or dissolved, the trust will
terminate in 90 days and effect redemption of the notes and prepayment of the
certificates following the winding-up of the affairs of the related trust,
unless within 90 days the remaining general partner, and holders of a majority
of the certificates of that series agree in writing to the continuation of the
business of the trust and to the appointment of a successor to the former
general partner, and the owner trustee is able to obtain an opinion of counsel
to the effect that the trust will not thereafter be an association, or publicly
traded partnership, taxable as a corporation for federal income tax purposes.
Unless we specify otherwise in the prospectus supplement, for each series of
securities, the trustee will give written notice of the final distribution for
the certificates to each certificateholder of record and the indenture trustee
will give written notice of the final payment for the notes to each noteholder
of record. The final distribution to any certificateholder and the final
payment to any noteholder will be made only upon surrender and cancellation of
that holder's certificate or note at the office or agency of the trustee, for
certificates, or of the indenture trustee, for the notes, specified in the
notice of termination. Any funds remaining in the trust, after the trustee or
the indenture trustee has taken measures to locate a certificateholder or
noteholder and those measures have failed, will be distributed to The United
Way, and the certificateholders and noteholders, by acceptance of their
certificates and notes, will waive any rights to those funds.
The Trustee
The trustee or owner trustee for each trust will be specified in the
prospectus supplement. The trustee, in its individual capacity or otherwise,
and any of its affiliates may hold certificates or notes in their own names or
as pledgee. In addition, for the purpose of meeting the legal requirements of
certain jurisdictions, the trustee, with the consent of the servicer, shall
have the power to appoint co-trustees or separate trustees of all or any part
of the related trust. In the event of appointment, all rights, powers, duties
and obligations conferred or imposed upon the trustee by the related trust
documents will be conferred or imposed upon the trustee and the separate
trustee or co-trustee jointly, or, in any jurisdiction where the trustee is
incompetent or unqualified to perform certain acts, singly upon the separate
trustee or co-trustee who shall exercise and perform the rights, powers, duties
and obligations solely at the direction of the trustee.
The trustee of any trust may resign at any time, in which event the general
partner, specified in the prospectus supplement or, if no general partner is
specified, the servicer or its successor will be obligated to appoint a
successor trustee. The general partner specified
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in the prospectus supplement, or, if no general partner is specified, the
servicer may also remove the trustee, if the trustee ceases to be eligible to
serve, becomes legally unable to act, is adjudged insolvent or is placed in
receivership or similar proceedings. In those circumstances, the general
partner specified in the prospectus supplement or, if no general partner is
specified, the servicer will be obligated to appoint a successor trustee. Any
resignation or removal of the trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by the successor
trustee.
Duties of the Trustee
The trustee will make no representation as to the validity or sufficiency of
any trust document, the certificates or the notes, other than its execution of
the certificates and the notes, the loans or any related documents, and will
not be accountable for the use or application by the servicer of any funds paid
to the servicer for the certificates, the notes or the loans before deposit in
the related collection account.
The trustee will be required to perform only those duties specifically
required of it under the trust documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the servicer to the trustee under the
trust documents, in which case it will only be required to examine the
certificates, reports or instruments to determine whether they conform
substantially to the requirements of the trust documents.
The trustee will be under no obligation to exercise any of the rights or
powers vested in it by the trust documents or to institute, conduct, or defend
any litigation or at the request, order or direction of any of the
certificateholders or noteholders, unless the certificateholders or noteholders
have offered the trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred. No certificateholder nor any
noteholder will have any right under the trust documents to institute any
proceeding for the trust documents, unless the holder has given the trustee
written notice of default and unless the holders of certificates evidencing not
less than 25% of the certificate balance or the holders of notes evidencing not
less than 25% of the aggregate principal balance of the notes then outstanding,
as the case may be, have made written request to the trustee to institute the
proceeding in its own name as trustee and have offered to the trustee
reasonable indemnity, and the trustee for 30 days after the receipt of that
notice, request and offer to indemnify has neglected or refused to institute
any proceedings.
Administrator
If an administrator is specified in the related prospectus supplement, that
administrator will enter into an agreement administration agreement, under
which that administrator will agree, to the extent provided in the
administration agreement, to provide the notices and to perform other
administrative obligations required by the related indenture and the trust
agreement.
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DESCRIPTION OF FHA INSURANCE
Some of the loans may be FHA-insured, the payments upon which, subject to the
following discussion, are insured by the FHA under Title I of the National
Housing Act.
The insurance available to any trust will be subject to the limit of a
reserve amount equal to 10% of the principal balance of all title I insured
loans originated or purchased and reported for FHA insurance by us, which
amount will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by us. Our reserve amount may be reduced by
10% of the principal balance of any loans reported to FHA as sold without
recourse by us. In the sale and servicing agreement, we will agree to pay all
FHA insurance premiums required by FHA regulations. If we fail to pay any such
premium, the trustee or the successor servicer for each series is obligated to
pay that premium and is entitled to be reimbursed by us and from collections on
the related loans.
As of December 31, 1998, our FHA insurance reserve amount was equal to
approximately $ . These insurance reserves were available to cover losses on
approximately $ of FHA-insured manufactured housing loans and
approximately $ of FHA-insured home improvement loans, including the FHA-
insured loans that may be owned by a trust fund. If an event of termination
occurs, each trustee will notify FHA of our termination as servicer of the
related FHA-insured loans and will request that the portion of our FHA
insurance reserves allocable to the FHA-insured loans be transferred to the
trustee or a successor servicer. Although each trustee will request the
transfer of reserves, FHA is not obligated to comply with that request, and may
determine that it is not in FHA's interest to permit that transfer of reserves.
In addition, FHA has not specified how insurance reserves might be allocated in
this event, and there can be no assurance that any reserve amount, if
transferred to the trustee or a successor servicer, would not be substantially
less than 10% of the outstanding principal amount of the FHA-insured loans. It
is likely that the trustee or any successor servicer would be the lender of
record on other FHA Title I loans, so that any reserves that are so permitted
to be transferred would become commingled with reserves available for other FHA
Title I loans. FHA also reserves the right to transfer reserves with
earmarking, segregating those reserves so that they will not be commingled with
the reserves of the transferee, if it is in FHA's interest to do so.
In general, FHA will insure unsecured property improvement loans up to
$7,500, with a maximum term of 20 years. The loan proceeds must be used for the
purposes described in the loan application, and those improvements must
substantially protect or improve the basic livability or utility of the
property. The secretary of HUD publishes a list of ineligible items and
activities which may not be financed with the proceeds of an FHA-insured home
improvement loan.
Following a default on an FHA-insured loan the servicer may, subject to some
conditions, submit a claim to FHA. The availability of FHA insurance following
a default on
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an FHA-insured loan is subject to a number of conditions, including strict
compliance by us with FHA regulations in originating and servicing the loan.
Failure to comply with FHA regulations may result in a denial of or surcharge
on the FHA insurance claim. Before declaring an FHA-insured loan in default and
submitting a claim to FHA, the servicer must take steps to attempt to cure the
default, including personal contact with the borrower either by telephone or in
a meeting and providing the borrower with 30 days' written notice before a
declaration of default. FHA may deny insurance coverage if the borrower's
nonpayment is related to a valid objection to faulty contractor performance. In
that event, we will seek to obtain payment by or a judgment against the
borrower, and may resubmit the claim to FHA following judgment. As described
under "Green Tree Financial Corporation--Loan Origination," we do not purchase
a loan until the customer verifies satisfactory completion of the work.
Upon submission of a claim to FHA, the related trust must assign its entire
interest in the loan to the United States. In general, the claim payment will
equal 90% of the sum of:
(1) the unpaid principal amount of the loan at the date of default and
uncollected interest computed at the loan rate earned to the data of
default;
(2) accrued and unpaid interest on the unpaid amount of the loan 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 year;
(3) uncollected court costs; and
(4) legal fees, not to exceed $500.
CERTAIN LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of our conveyance and assignment of a pool of loans to a trust,
the securityholders of the series, as the beneficial owners of the trust, will
succeed collectively to all of the rights in this prospectus, including the
right to receive payment on the loans. The following discussion contains
summaries of some legal aspects of home improvement loans which are general in
nature. These legal aspects are in addition to the requirements of FHA
regulations described in "Description of FHA Insurance" for FHA-insured loans.
Because these 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 improved real estate is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the loans.
Consumer Protection Laws with Respect to Loans
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit
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Reporting Act, and related statutes. These laws can impose specific statutory
liabilities upon creditors who fail to comply with their provisions and may
affect the enforceability of the loan.
The so-called holder-in-due-course rule of the FTC is intended to defeat the
ability of the transferor of a consumer credit loan which is the seller of
goods which gave rise to the transaction, and related lenders and assignees, to
transfer the loan free of notice of claims by the debtor. The effect of this
rule is to subject the assignee of a loan to all claims and defenses which the
debtor could assert against the home improvement contractor. Liability under
this rule is limited to amounts paid under a loan; however, the obligor also
may be able to assert the rule to set off remaining amounts due as a defense
against a claim brought by the trust against the obligor.
The obligations of the obligor under each loan are not secured by an interest
in the related real estate or otherwise, and the related trust, as the owner of
a loan, will be a general unsecured creditor as to the obligations. As a
consequence, in the event of a default under a loan, the related trust will
have recourse only against the obligor's assets generally, along with all other
general unsecured creditors of the obligor. In a bankruptcy or insolvency
proceeding relating to an obligor on a loan, the obligations of the obligor
under the loan may be discharged in their entirety, notwithstanding the fact
that the portion of the obligor's assets made available to the trust as a
general unsecured creditor to pay amounts due and owing are insufficient to pay
all amounts.
Enforceability of Certain Provisions
The standard form of note generally contains provisions obligating the
borrower to pay a late charge if payments are not timely made. In addition to
limitations imposed by FHA regulations with respect to FHA insured loans, in
some states there are or may be specific limitations upon late charges which a
lender may collect from a borrower for delinquent payments. Under the sale and
servicing agreement, late charges, to the extent permitted by law and not
waived by us, will be retained by us as additional servicing compensation.
The standard form of note also includes a debt-acceleration clause, which
permits the lender to accelerate the debt upon a monetary default of the
borrower, after the applicable cure period. Courts will generally enforce
clauses providing for acceleration in the event of a material payment default.
However, courts, exercising equity jurisdiction, may refuse to allow a lender
to accelerate when an acceleration of the indebtedness would be inequitable or
unjust and the circumstances would render the acceleration unconscionable.
It is our practice with some of the loans to defer the first payment for up
to 90 days, and to charge the home improvement contractor points to cover the
lost interest due to collecting only 30 days' interest on the first payment on
these deferred payment loans.
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Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, would
adversely affect, for an indeterminate period of time, the ability of the
servicer to collect full amounts of interest on some of the loans. Any
shortfall in interest collections resulting from the application of the Relief
Act or similar legislation, which would not be recoverable from the related
loans, would result in a reduction of the amounts distributable to the
securityholders. In the event that the Relief Act or similar legislation
applies to any loan which goes into default, there may be delays in payment on
the securities. Any other interest shortfalls, deferrals or forgiveness of
payments on the loans resulting from similar legislation or regulations may
result in delays in payments or losses to securityholders.
We will represent and warrant under each sale and servicing agreement that
each loan complies with all requirements of law. Accordingly, if any obligor
has a claim against the related trust for violation of any law and claim
materially adversely affects the trust's interest in a loan, the violation
would constitute a breach of a representation and warranty under the sale and
servicing agreement and would create an obligation to repurchase the loan
unless the breach is cured. See "Description of the Trust Documents--Sale and
Assignment of the Loans."
Repurchase Obligations
Under the sale and servicing agreement, we will represent and warrant that
each FHA-insured loan was originated in compliance with FHA regulations and is
covered by FHA insurance. In the event FHA were to deny insurance coverage on
an FHA-insured loan due to a violation of FHA regulations in originating or
servicing the loans, the violation would constitute a breach of a
representation and warranty under the sale and servicing agreement and we would
be obligated to repurchase the loan unless the breach is cured. See
"Description of the Trust Documents--Sale and Assignment of the Loans."
In addition, we will also represent and warrant under each sale and servicing
agreement that each loan complies with all requirements of law. Accordingly, if
any obligor has a claim against the related trust for violation of any law and
that claim materially adversely affects the trust's interest in a loan, that
violation would constitute a breach of a representation and warranty under the
sale and servicing agreement and would create an obligation to repurchase the
loan unless the breach is cured. See "Description of the Trust Documents--Sale
and Assignment of the Loans."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences relating to the purchase, ownership, and disposition of the
securities. The discussion is based upon the current provisions of the Internal
Revenue Code of 1986, the treasury regulations promulgated under the IRS code
and judicial or ruling authority, all of which are subject to change, which
change may be retroactive. The discussion does not deal with federal income
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tax consequences applicable to all categories of investors, some of which may
be subject to special rules. Investors are encouraged to consult their own tax
advisors for the federal, state, local, and other tax consequences of the
purchase, ownership, and disposition of the securities.
Our consel, has delivered an opinion regarding federal income tax matters
discussed below. Our counsel will deliver an opinion regarding tax matters that
applies to each series of securities. The opinion, however, is not binding on
the IRS or the courts. The opinion of counsel will specifically address only
those issues specifically identified below as being covered by that opinion.
The opinion of counsel also will state that the additional discussion set forth
below accurately describes counsel's advice for the material tax issues. No
ruling on any of the issues discussed below will be sought from the IRS.
Tax Status of the Trust
For each series of securities which includes both notes and certificates,
counsel will deliver its opinion that the trust will not be an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes. As a result, in the opinion of counsel, the trust itself will not be
subject to federal income tax but, instead, each certificateholder will be
required to take into account its distributive share of items of income and
deduction, including deductions for distributions of interest to the
noteholders, of the trust as though the items had been realized directly by the
certificateholder. This opinion will be based on the assumption that the terms
of the trust agreement and related documents will be complied with, and on
counsel's conclusion that the nature of the income of the trust will exempt it
from the rule that some publicly traded partnerships are taxable as
corporations. There are, however, no cases or IRS rulings on transactions
involving a trust issuing both debt and equity interests with terms similar to
those of the notes and the certificates. As a result, the IRS may disagree with
all or a part of this discussion.
If the trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the loans, possibly
reduced by its interest expense on the notes. Any corporate income tax could
materially reduce cash available to make payments on the notes and
distributions on the certificates.
Tax Consequences to Noteholders
Treatment of the notes as indebtedness. The owner trustee, on behalf of the
trust, will agree, and the noteholders will agree by their purchase of notes,
to treat the notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
notes is correct.
Interest income on the notes. Interest on the notes will be taxable as
ordinary interest income when received by noteholders utilizing the cash-basis
method of accounting and
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when accrued by noteholders utilizing the accrual method of accounting. Under
the applicable regulations, the notes would be considered issued with OID if
the stated redemption price at maturity of a note, generally equal to its
principal amount as of the date of issuance plus all interest other than
qualified stated interest payable prior to or at maturity, exceeds the original
issue price, in this case, the initial offering price at which a substantial
amount of the notes are sold to the public. Any OID would be considered de
minimis under the OID regulations if it does not exceed 1/4% of the stated
redemption price at maturity of a note multiplied by the number of full years
until its maturity date. It is anticipated that the notes will not be
considered issued with more than de minimis OID. Under the OID regulations, an
owner of a note issued with a de minimis amount of OID must include the OID in
income, on a pro rata basis, as principal payments are made on the note.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
however, the trust will treat interest payments on the notes as qualified
stated interest under the OID regulations. If the notes are issued or are
deemed to be issued with OID, all or a portion of the taxable income to be
recognized with respect to the notes would be includible in the income of
noteholders as OID. Any amount treated as OID would not, however, be includible
again when the amount is actually received. If the yield on a class of notes
were not materially different from its coupon, this treatment would have no
significant effect on noteholders using the accrual method of accounting.
However, cash method noteholders may be required to report income or the notes
in advance of the receipt of cash attributable to that income.
A noteholder must include OID in income as interest over the term of the
notes under a constant yield method. In general, OID must be included in income
in advance of the receipt of cash representing that income. Each noteholder is
encouraged to consult its own tax advisor regarding the impact of the OID rules
if the notes are issued with OID.
Market discount. The notes, whether or not issued with original issue
discount, will be subject to the market discount rules of Section 1276 of the
IRS code. In general, these rules provide that if a noteholder purchases the
note at a market discount as a discount from its original issue price plus any
accrued original issue discount, that exceeds a de minimis amount specified in
the IRS code, and thereafter recognizes gain upon a disposition, the lesser of:
(1) gain or (2) the accrued market discount will be taxed as ordinary interest
income. Market discount also will be recognized and taxable as ordinary
interest income as payments of principal are received on the notes to the
extent that the amount of the payments does not exceed the accrued market
discount. Generally, the accrued market discount will be the total market
discount on the note multiplied by a fraction, the numerator of which is the
number of days the noteholder held the note and the denominator of which is the
number of days after the date the noteholder acquired the note until and
including its
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maturity date. The noteholder may elect, however, to determine accrued market
discount under the constant-yield method, which election shall not be revoked
without the consent of the service.
Limitations imposed by the IRS code which are intended to match deductions
with the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
note with accrued market discount. A noteholder may elect to include market
discount in gross income as it accrues and, if the noteholder makes this
election, is exempt from this rule. The adjusted basis of a note subject to
this election will be increased to reflect market discount included in gross
income, reducing any gain or increasing any loss on a sale or taxable
disposition. Any election to include market discount in gross income as it
accrues shall apply to all debt instruments held by the noteholder at the
beginning of the first taxable year to which the election applies or after
acquired and is irrevocable without the consent of the service.
Amortizable bond premium. In general, if a noteholder purchases a note at a
premium such as an amount in excess of the amount payable upon the maturity,
the noteholder will be considered to have purchased the note with amortizable
bond premium equal to the amount of the excess. The noteholder may elect to
deduct the amortizable bond premium as it accrues under a constant-yield method
over the remaining term of the note. The noteholder's tax basis in the note
will be reduced by the amount of the amortizable bond premium deducted.
Amortizable bond premium for a note will be treated as an offset to interest
income on the note, and a noteholder's deduction for amortizable bond premium
for a note will be limited in each year to the amount of interest income
derived for the note for that year. Any election to deduct amortizable bond
premium shall apply to all debt instruments, other than instruments the
interest on which is excludible from gross income held by the noteholder at the
beginning of the first taxable year to which the election applies or thereafter
acquired and is irrevocable without the consent of the service. Bond premium on
a note held by a noteholder who does not elect to deduct the premium will
decrease the gain or increase the loss otherwise recognized on the disposition
of the note.
Disposition of notes. If a noteholder sells a note, the noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the noteholder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder generally will equal
the noteholder's cost for the note, increased by any market discount, OID and
gain previously included by the noteholder in income for the note and decreased
by principal payments previously received by the noteholder and the amount of
bond premium previously amortized with respect to the note. Any the gain or
loss will be capital gain or loss if the note was held as a capital asset,
except for gain representing accrued interest and accrued market discount not
previously included in income, and will be short-term, mid-term or long-term
capital gain or loss depending upon whether the note was held for more or less
than one year or for more than eighteen months. Capital losses generally may be
used only to offset capital gains.
Foreign holders. Generally, interest paid to a noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
note in connection with a
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United States trade or business will be treated as portfolio interest and will
be exempt from the 30% withholding tax. The noteholder will be entitled to
receive interest payments on the notes free of United States federal income tax
provided that the noteholder periodically provides the indenture trustee, or
other person who would otherwise be required to withhold tax, with a statement
certifying under penalty of perjury that the noteholder is not a United States
person and providing the name and address of the noteholder and will not be
subject to federal income tax on gain from the disposition of a note unless the
noteholder is an individual who is present in the United States for 183 days or
more during the taxable year in which the disposition takes place and other
requirements are met.
Tax administration and reporting. The indenture trustee will furnish to each
noteholder with each distribution a statement describing the amount of the
distribution allocable to principal and to interest. 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 for interest
and original issue discount for the notes.
Backup withholding. Under some circumstances, a noteholder may be subject to
backup withholding at a 31% rate. Backup withholding may apply to a noteholder
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 indenture trustee. Backup withholding may apply, under some
circumstances, to a noteholder who is a foreign person if the noteholder fails
to provide the indenture trustee or the noteholder's securities broker with the
statement necessary to establish the exemption from federal income and
withholding tax on interest on the note. Backup withholding does not apply to
payments on a note made to some exempt recipients, such as corporations and
tax-exempt organizations, and to some foreign persons. Noteholders should
consult their tax advisors for additional information concerning the potential
application of backup withholding to payments received by them for a note.
Possible alternative treatment of the notes. If, contrary to the opinion of
counsel, the IRS successfully asserted that the notes did not represent debt
for federal income tax purposes, the notes might be treated as equity interests
in the trust. If so treated, the trust would be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the notes as equity
interests in a partnership could have adverse tax consequences to some holders.
For example, income to foreign holders generally would be subject to federal
tax and federal tax return filing and withholding requirements, income to some
tax-exempt entities, including pension funds, would be unrelated business
taxable income, and individual holders might be subject to some limitations on
their ability to deduct their share of trust expenses.
Tax Consequences to Certificateholders
Treatment of the trust as a partnership. Green Tree, the general partner and
the owner trustee will agree, and the certificateholders will agree by their
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of
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the partnership being the assets held by the trust, the partners of the
partnership being the certificateholders and the general partner, and the notes
being debt of the partnership. The proper characterization of the arrangement
involving the trust, the certificates, the notes, the general partner, we and
the servicer, however, are not certain because there is no authority on
transactions closely comparable to that contemplated in this prospectus.
A variety of alternative characterizations are possible. For example, because
the certificates have some features characteristic of debt, the certificates
might be considered debt of the trust. Any characterization would not result in
materially adverse tax consequences to certificateholders as compared to the
consequences from treatment of the certificates as equity in a partnership,
described below. The following discussion assumes that the certificates
represent equity interests in a partnership.
Partnership taxation. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account each holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the loans, including
appropriate adjustments for market discount, OID and bond premium, and any gain
upon collection or disposition of the loans. The trust's deductions will
consist primarily of interest accruing on the notes, servicing and other fees,
and losses or deductions upon collection or disposition of the loans.
The tax items of a partnership are allocable to the partners in accordance
with the IRS code, treasury regulations and the partnership agreement which is
the trust agreement and related documents. The trust agreement will provide, in
general, that the certificateholders will be allocated taxable income of the
trust for each month equal to the sum of:
(1) the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the pass-through
rate for that month and interest on amounts previously due on the
certificates but not yet distributed;
(2) any trust income attributable to discount on the loans that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
(3) prepayment premium payable to the certificateholders for that month;
and
(4) any other amounts of income payable to the certificateholders for that
month.
Although it is not anticipated that the certificates will be issued at a price
which exceeds their principal amount, such allocations of trust income to the
certificateholders will be reduced by any amortization by the trust of premium
on loans that corresponds to any excess of the issue price of certificates over
their principal amount.
All remaining taxable income of the trust will be allocated to the general
partner. Based on the economic arrangement of the parties, this approach for
allocating trust income should be permissible under applicable treasury
regulations, although no assurance can be given that the service would not
require a greater amount of income to be allocated to certificateholders. Even
under the foregoing method of allocation, certificateholders may be
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allocated income equal to the entire pass-through rate plus the other items
described above even though the trust might not have sufficient cash to make
current cash distributions of that amount. Cash basis holders will in effect be
required to report income from the certificates on the accrual basis, and
certificateholders may become liable for taxes on trust income even if they
have not received cash from the trust to pay those taxes. In addition, because
tax allocations and tax reporting will be done on a uniform basis for all
certificateholders but certificateholders may be purchasing certificates at
different times and at different prices, certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the trust.
All of the taxable income allocated to a certificateholder that is a pension,
profit sharing or employee benefit plan or other tax-exempt entity, including
an individual retirement account will constitute unrelated business taxable
income generally taxable to a holder under the IRS code.
A certificateholder's share of expenses of the trust, including fees to the
servicer but not interest expense will be miscellaneous itemized deductions. An
individual, an estate, or a trust that holds a certificate either directly or
through a pass-through entity will be allowed to deduct the expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with other itemized deductions, they exceed 2% of the adjusted gross
income of the certificateholder. In addition, Section 68 of the IRS code
provides that the amount of itemized deductions, including those provided for
in Section 212 of the IRS code, otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount determined
under the IRS code, $126,600 in 1999, in the case of a joint return, will be
reduced by the lesser of:
(1) 3% of the excess of adjusted gross income over the specified threshold
amount; or
(2) 80% of the amount of itemized deductions otherwise allowable for that
taxable year.
To the extent that a certificateholder is not permitted to deduct servicing
fees allocable to a certificate, the taxable income of the certificateholder
attributable to that certificate will exceed the net cash distributions related
to that income. Certificateholders may deduct any loss on disposition of the
loans to the extent permitted under the IRS code.
Discount and Premium. It is believed that the loans were not issued with OID,
and, the trust should not have OID income. The purchase price paid by the trust
for the loans may exceed the remaining principal balance of the loans when
purchased. If the trust is deemed to acquire the loans at a premium or at a
market discount, the trust will elect to offset the premium against interest
income on the loans or to include any discount in income currently as it
accrues over the life of the loans. The trust will make this premium or market
discount calculation on an aggregate basis but may be required to recompute it
on a loan-by-loan basis. As indicated above, a portion of the premium deduction
or market discount income may be allocated to certificateholders.
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Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss on distributions from the trust. A certificateholder
will recognize gain, however, to the extent that any money distributed exceeds
the certificateholder's adjusted basis in its certificates, as described below
under "Disposition of Certificates", immediately before the distribution. A
certificateholder will recognize loss upon termination of the trust or
termination of the certificateholder's interest in the trust if the trust only
distributes money to the certificateholder and the amount distributed is less
than the certificateholder's adjusted basis in the certificates. Any gain or
loss generally will be capital gain or loss if the certificates are held as
capital assets and will be long-term gain or loss if the holding period of the
certificates is more than one year.
Section 708 Termination. Under Section 708 of the IRS code, the trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the trust are sold or exchanged within a 12-
month period. Under treasury regulations, if a termination occurs, the trust
will be considered to have contributed the assets of the trust, the old
partnership, to a new partnership, in exchange for interests in the new
partnership. The interests would be deemed distributed to the partners of the
old partnership in liquidation, which would not constitute a sale or exchange
for United States federal income tax purposes.
Disposition of Certificates. If a certificateholder sells a certificate, the
certificateholder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale and the
seller's tax basis in the certificate. A certificateholder's tax basis in a
certificate generally will equal the certificateholder's cost increased by the
certificateholder's share of trust income and decreased by any distributions
received for the certificate. In addition, both the tax basis in the
certificate and the amount realized on a sale of a certificate would include
the certificateholder's share of the notes and other liabilities of the trust.
A certificateholder acquiring certificates at different prices may be required
to maintain a single aggregate adjusted tax basis in those certificates, and,
upon sale or other disposition of some of the certificates, allocate a portion
of the aggregate tax basis to the certificates sold, rather than maintain a
separate tax basis in each certificate for purposes of computing gain or loss
on a sale of that certificate.
Any gain on the sale of a certificate attributable to the certificateholder's
share of unrecognized accrued market discount on the loans would generally be
treated as ordinary income to the certificateholder and would give rise to
special tax reporting requirements. The trust does not expect to have any other
assets that would give rise to the special reporting requirements. Thus, to
avoid those special reporting requirements, the trust will elect to include
market discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income, not including income attributable to disallowed itemized deductions
described above over the life of the certificates that exceeds the aggregate
cash distributions, the excess generally will give rise to a capital loss upon
the retirement of the certificates.
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Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the related record date. As a result, a certificateholder purchasing a
certificate may be allocated tax items, which will affect the
certificateholder's tax liability and tax basis attributable to periods before
the certificateholder actually owns the certificate. The use of this convention
may not be permitted by existing regulations. If a monthly convention is not
permitted, or only applies to transfers of less than all of the
certificateholder's interest, taxable income or losses of the trust may be
reallocated among the certificateholders. The general partner is authorized to
revise the trust's method of allocation between transferors and transferees to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a certificateholder sells a
certificate at a profit or loss, the purchasing certificateholder will have a
higher or lower basis in the certificate than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust files an election under Section 754 of
the IRS code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the trust will not make that election. As a
result, certificateholders may be allocated a greater or lesser amount of trust
income than would be appropriate based on their own purchase price for
certificates.
Administrative Matters. Under to the administration agreement, the trustee
will monitor the performance of the following responsibilities of the trust by
other service providers. The trust is required to keep or have kept complete
and accurate books of the trust. The books will be maintained for financial
reporting and tax purposes on an accrual basis and the fiscal year of the trust
will be the calendar year. The trust will file a partnership information return
with the service for each taxable year of the trust and will report each
certificateholder's allocable share of items of trust income and expense to
certificateholders and the service on Schedule K-1. The trust will provide the
Schedule K-1 information to nominees that fail to provide the trust with
certain required information statements relating to identification of
beneficial owners of certificates and the nominees will be required to forward
that information to the beneficial owners. Generally, certificateholders must
file tax returns that are consistent with the information return filed by the
trust or be subject to penalties unless the certificateholder notifies the
service of all inconsistencies.
We or our subsidiary identified in the prospectus supplement will be
designated as the tax matters partner in the trust agreement and will be
responsible for representing the certificateholders in any dispute with the
IRS. The IRS code provides for administrative examination of a partnership as
if the partnership were a separate and distinct taxpayer. Generally, the
statute of limitations for partnership items does not expire before three years
after the date on which the partnership information return is filed. Any
adverse determination following an audit of the return of the trust by the
appropriate taxing authorities could result in an adjustment of the returns of
the certificateholders, and, under certain circumstances, a
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certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a certificateholder's returns and adjustments of items not related to
the income and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes for non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described in this. Although it is not expected that the trust
will be engaged in a trade or business in the United States for those purposes,
the trust will withhold as if it were so engaged in order to protect the trust
from possible adverse consequences of a failure to withhold. It is expected
that the trust will withhold on the portion of its taxable income that is
allocable to foreign certificateholders pursuant to Section 1446 of the IRS
code, as if the income were effectively connected to a U.S. trade or business,
at a rate of 35% for foreign holders that are taxable as corporations and 39.6%
for all other foreign certificateholders. Subsequent adoption of treasury
regulations or the issuance of other administrative pronouncements may require
the trust to change its withholding procedures. In determining a
certificateholder's nonforeign status, the trust may rely on Form W-8, Form W-9
or the certificateholder's certification of nonforeign status signed under
penalties of perjury.
Each foreign certificateholder might be required to file a U.S. individual or
corporate income tax return, including, in the case of a corporation, the
branch profits tax on its share of the trust's income. Each foreign
certificateholder must obtain a taxpayer identification number from the service
and submit that number to the trust on Form W-8 in order to assure appropriate
crediting of the taxes withheld. A foreign certificateholder generally will be
entitled to file with the IRS a claim for refund for the taxes withheld by the
trust, taking the position that no taxes are due because the trust is not
engaged in a U.S. trade or business. However, the IRS may assert that
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
Backup Withholding. Under certain circumstances, a certificateholder may be
subject to backup withholding at a 31% rate. See the discussion above under "--
Tax Consequences to Noteholders--Backup Withholding."
CERTAIN STATE INCOME TAX CONSEQUENCES
The activities to be undertaken by the servicer in servicing and collecting
the loans will take place in Minnesota. The state of Minnesota imposes an
income tax on individuals, trusts and estates and a franchise tax measured by
net income on corporations. This discussion of Minnesota taxation is based upon
current statutory provisions and the regulations promulgated, and applicable
judicial or ruling authority, all of which are subject to change, which may be
retroactive. No ruling on any of the issues discussed below will be sought from
the Minnesota Department of Revenue.
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If the notes are treated as debt for federal income tax purposes, in the
opinion of counsel this treatment will also apply for Minnesota tax purposes.
Noteholders not otherwise subject to Minnesota income or franchise taxation
would not become subject to the tax solely because of their ownership of the
notes. Noteholders already subject to income or franchise taxation in Minnesota
could be required to pay the tax on all or a portion of the income generated
from ownership of the notes.
If the trust is treated as a partnership, not taxable as a corporation, for
federal income tax purposes, in the opinion of counsel the trust would also be
treated as a partnership for Minnesota income tax purposes. The partnership
would not be subject to Minnesota taxation. Certificateholders that are not
otherwise subject to Minnesota income or franchise taxation would not become
subject to that a tax solely because of their interests in the partnership.
Certificateholders already subject to income or franchise taxation in Minnesota
could, however, be required to pay that a tax on all or a portion of the income
from the partnership.
If the certificates are treated as ownership interests in an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, in the opinion of counsel this treatment would also apply for
Minnesota income and franchise tax purposes. Under this treatment, the trust
would be subject to the Minnesota franchise tax measured by net income (which
could result in reduced distributions to certificateholders).
Certificateholders that are not otherwise subject to Minnesota income or
franchise taxation would not become subject to that a tax solely because of
their interests in the constructive corporation. Certificateholders already
subject to income or franchise taxation in Minnesota could, however, be
required to pay that a tax on all or a portion of the income from the
constructive corporation.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to ERISA and on persons who are fiduciaries with
respect to the 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 those
plans. ERISA also imposes duties on persons who are fiduciaries of the plans.
Under ERISA, and subject to exemptions not relevant to this offering, any
person who exercises any authority or control over the management or
disposition of the assets of a plan is considered to be a fiduciary of the
plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of plans be invested and
managed for the exclusive benefit of plan participants and beneficiaries, a
determination by the plan fiduciary that any 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. Some employee benefit plans, such as governmental plans (as defined
in ERISA Section 3(32)) and some church plans (as defined in ERISA Section
3(33)), are not subject to ERISA.
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Accordingly, assets of these plans may be invested in certificates without
regard to the ERISA considerations described above and in the paragraphs below,
subject to the provisions of applicable state law. Any plan which is qualified
and exempt from taxation under Sections 401(a) and 501(a) of the Internal
Revenue Code of 1986, however, is subject to the prohibited transaction rules
provided in Section 503 of the IRS code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
IRS code, prohibit a broad range of transactions involving plan assets and
persons having specified relationships to a plan the parties in interest within
the meaning of ERISA, and disqualified persons within the meaning of ERISA.
These transactions are treated as prohibited transactions under Sections 406
and 407 of ERISA and excise taxes are imposed upon those persons by Section
4975 of the IRS 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 loan pool and not
merely an interest in the certificates, transactions occurring in the operation
of the loan pool might constitute prohibited transactions unless an
administrative exemption applies. Various exemptions which may be applicable to
the acquisition and holding of the certificates or to the servicing and
operation of the loan pool are noted in the paragraphs below.
The Department of Labor has issued a 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 some 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 that 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. The certificates are not expected to be publicly-offered
securities under the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise tax provisions of Section 4975 of
the IRS 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 PTE 81-7, the
DOL exempted from ERISA's prohibited transaction rules 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 the certificates. PTE 83-1 permits, subject to some 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 some mortgage pool pass-through
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certificates representing an interest in the 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 the 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
the certificates, and at least 50 percent of all the certificates are purchased
by persons independent of the pool sponsor or pool trustee. However, PTE 83-1
does not provide an exemption for transactions involving subordinate
certificates or for certificates representing an interest in conditional sales
loans and installment sales or loan agreements secured by housing like the
loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing plan's assets could be
considered to include an undivided interest in the home equity loans and any
other assets held in the loan pool. If the assets of a loan pool are considered
assets of an investing plan, Green Tree, the servicer, the trustee and other
persons, in providing services on the loans, may be considered fiduciaries to
the plan and subject to the fiduciary responsibility provisions of title I of
ERISA and the prohibited transaction provisions of Section 4975 of the IRS code
for transactions involving those assets unless a statutory or administrative
exemption applies.
Any plan fiduciary considering the purchase of a certificate should consult
with its counsel about the potential applicability of ERISA and the IRS code to
the 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.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in transactions with persons who provide
services to insurance company general accounts. PTE 95-60 also permits
transactions relating to the origination and operation of asset pool investment
trusts in which an insurance company general account has an interest as the
result of the acquisition of certificates issued by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of
various receivables, loans and other obligations that meet the conditions and
requirements of PTE 95-60. The receivables covered by PTE 95-60 include home
equity installment sale loans and installment loan agreements such as the home
equity loans in the loan pool. The exemption offered by PTE 95-60 is
conditioned upon compliance with the requirements of one of several underwriter
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exemptions, other than compliance with the requirements that the certificates
acquired by the general account not be subordinated and receive a rating that
is in one of the three highest generic rating categories from either S&P,
Moody's, Duff & Phelps or Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides exemptive relief from the provisions of part 4
of title I of ERISA and Section 4975 of the IRS code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the IRS code, for transactions involving an insurance company general
account. Under Section 401(c) of ERISA, the DOL published proposed regulations,
Proposed 401(c) Regulations on December 22, 1997 to provide guidance for the
purpose of determining, in cases where insurance policies supported by an
insurer's general account are issued to or for the benefit of a plan on or
before December 31, 1998, which general account assets constitute plan assets.
Section 401(c) of ERISA generally provides that, until the date which is 18
months after the Proposed 401(c) Regulations become final, no person will be
subject to liability under part 4 of title I of ERISA and Section 4975 of the
IRS code on the basis of a claim that the assets of an insurance company
general account constitute plan assets, unless:
(1) as otherwise provided by the Secretary of Labor in the Proposed 401(c)
Regulations to prevent avoidance of the regulations; or
(2) an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998 or issued to plans on or
before December 31, 1998 for which the insurance company does not comply with
the Proposed 401(c) Regulations may be treated as plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as plan assets of any plan invested
in the separate account. Insurance companies contemplating the investment of
general account assets in the certificates should consult with their legal
counsel about the applicability of PTCE 95-60 and Section 401(c) of ERISA,
including the general account's ability to continue to hold the securities
after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
LEGAL INVESTMENT CONSIDERATIONS
No securities offered in this prospectus will constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because none of the loans will be secured as required by SMMEA.
Accordingly, many institutions with legal authority to invest in mortgage
related securities may not be legally authorized to invest in the securities.
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There may be other restrictions on the ability of some investors, including
depository institutions, either to purchase securities or to purchase
securities representing more than a specified percentage of the investor's
assets. You should consult your own legal advisors in determining whether and
to what extent the securities constitute legal investments.
RATINGS
It is a condition precedent to the issuance of any class of securities 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 securities should
be evaluated independently of similar security ratings assigned to other kinds
of securities.
UNDERWRITING
We may sell securities of each series to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell and place securities directly to other
purchasers or through agents. We intend that securities will be offered through
various methods and that offerings may be made concurrently through more than
one of these methods or that an offering of a particular series of securities
may be made through a combination of these methods.
The distribution of the securities may be effected 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 the prevailing
market prices or at negotiated prices.
If specified in the prospectus supplement relating to a series of securities,
we or our affiliates may purchase some or all of one or more classes of
securities of the series from the underwriter or underwriters at a price
specified in the prospectus supplement. The purchaser may from time to time
offer and sell, pursuant to this prospectus, some or all of the securities so
purchased directly, through one or more underwriters to be designated at the
time of the offering of the securities or through broker-dealers acting as
agent or principal or both. The offering may be restricted in the manner
specified in the prospectus supplement. The 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 securities, underwriters may receive
compensation from us or from purchasers of securities for whom they may act as
agents in the form of discounts, concessions or commissions. Underwriters may
sell the securities of a series to or through dealers and those dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters or commissions from the purchasers for whom they may act as
agents. Underwriters, dealers and agents that participate in the
54
<PAGE>
distribution of the securities of a series may be deemed to be underwriters,
and any discounts or commissions received by them from us and any profit on the
resale of the securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any underwriters or agents will be
identified, and any compensation received from us will be described, in the
prospectus supplement.
Under pooling and servicing agreements which may be entered into by us,
underwriters and agents who participate in the distribution of the securities
may be entitled to indemnification by us against some liabilities, including
liabilities under the Securities Act.
If indicated in the prospectus supplement, we will authorize underwriters or
other persons acting as our agents to solicit offers by various institutions to
purchase the securities from us under loans providing for payment and delivery
on a future date. Institutions with which these loans may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational charitable institutions and others, but in all cases the
institutions must be approved by us. The obligation of any purchaser under any
loan will be subject to the condition that the purchaser of the offered
securities shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which the purchaser is subject from purchasing the
securities. The underwriters and other agents will not have responsibility for
the validity or performance of the loans.
The underwriters may, from time to time, buy and sell securities, but there
can be no assurance that an active secondary market will develop and there is
no assurance that any market, if established, will continue.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the securities. These
types of transactions may include stabilizing, the purchase of securities to
cover syndicate short positions and the imposition of penalty bids. For a more
complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
Some of the underwriters and their associates may engage in transactions with
and perform services for us in the ordinary course of business.
The indenture trustee may, from time to time, invest the funds in the
designated accounts in eligible investments acquired from the underwriters.
Under each underwriting agreement, the closing of the sale of any class of
securities subject thereto will be conditioned on the closing of the sale of
all other classes.
The place and time of delivery for the securities for which this prospectus
is delivered will be set forth in the prospectus supplement.
55
<PAGE>
LEGAL MATTERS
Some matters with respect to the validity of the certificates and the notes
will be passed upon for us by our counsel identified in the applicable
prospectus supplement. The validity of the certificates and the notes will be
passed upon for the underwriters named in the related prospectus supplement by
the counsel for the underwriters identified in the applicable prospectus
supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31, 1998, incorporated by reference in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997 are
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in this prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
56
<PAGE>
GLOSSARY
"Amount Available" for any distribution date, means generally the sum of
payments on the loans due and received during the preceding month, prepayments
and other unscheduled collections received during the preceding month, any
amounts deposited for purchased loans, any interest rate cap payment, any
guaranty payment, and all earnings from the investment of funds in the
collection account, minus, for all distribution dates other than the
distribution date in 1999, all collections of principal on the consumer
product loans received during the preceding month up to and including the third
business day prior to the preceding distribution date (but in no event later
than the 10th day of the prior month).
The "Formula Principal Distribution Amount" for any distribution date (but
subject to the last sentence of this definition) will generally be equal to the
sum of the following amounts for the related monthly period, in each case
computed in accordance with the method specified in each loan:
(1) all scheduled payments of principal due on each outstanding loan
during the related monthly period;
(2) all partial principal prepayments applied and all principal
prepayments in full received during the related monthly period in
respect of each loan;
(3) the scheduled principal balance of each loan that became a liquidated
loan during the related monthly period;
(4) the scheduled principal balance of each loan which, during the related
monthly period, was purchased by us as a result of a breach of a
representation or warranty or by the servicer as a result of an
uncured breach of a covenant under the sale and servicing agreement;
and
(5) for the distribution date in 1999, any remaining amounts on
deposit in the pre-funding account. The formula principal distribution
amount for the distribution date in 2029, will be the sum of the
note principal balance and the certificate principal balance.
"Liquidated Loan" means any defaulted loan as to which the servicer has
determined that all amounts which it expects to recover from or on account of
the loan through the date of disposition of the related real property have been
recovered; provided that any defaulted loan for which the related real property
has been realized upon and disposed of and proceeds of the disposition have
been received shall be deemed to be a liquidated loan.
"Purchased Loan" means a loan:
(1) that we have become obligated to repurchase (or, under some
circumstances, has elected to repurchase) as a result of an uncured
breach by us of a representation or warranty made by us for the loan;
or
(2) that the servicer has become obligated to repurchase (or, under some
circumstances, has elected to repurchase) as a result of an uncured
breach of the covenants made by it for the loan.
57
<PAGE>
"Noteholders' Distributable Amount" means, for the distribution date, the sum
of the noteholders' interest distributable amount and the noteholders'
principal distributable amount.
"Noteholders' Interest Distributable Amount" means, for the any distribution
date, the sum of the noteholders' monthly interest distributable amount for the
distribution date and the noteholders' interest carryover shortfall for the
distribution date.
"Noteholders' Monthly Interest Distributable Amount" means, for any
distribution date, interest accrued for the related monthly interest period on
each class of notes at the respective interest rate for that class on
(1) the outstanding principal balance of the notes of that class; and
(2) the aggregate unreimbursed principal liquidation losses of that class
on each prior distribution date, in each case after giving effect to
all payments of principal to the noteholders of that class on the
immediately preceding distribution date.
"Principal Liquidation Loss" means, for any distribution date and any class
of notes, the amount by which the aggregate principal balance of that class and
each junior class and the certificate principal balance (after giving effect to
any principal liquidation losses imposed on such junior classes and
certificates) exceeds the pool scheduled principal balance, after giving effect
to all distributions of principal on that distribution date.
"Principal Balance" means, for any determination date and any class of notes,
the original principal balance of that class minus all amounts previously
distributed for the principal of that class and minus any unreimbursed
principal liquidation losses of that class.
"Noteholders' Interest Carryover Shortfall" means, for any distribution date,
the excess of the noteholders' monthly interest distributable amount for the
preceding distribution date and any outstanding noteholders' interest carryover
shortfall on the preceding distribution date, over the amount for the interest
that is actually deposited in the note distribution account on the preceding
distribution date, plus interest on the amount of interest due but not paid to
noteholders on the preceding distribution date, to the extent permitted by law,
at the respective interest rate for each class of notes for the applicable
monthly interest period.
"Noteholder's Principal Distributable Amount" means, for any distribution
date, the sum of the noteholders' monthly principal distributable amount for
the distribution date and the noteholders' unpaid principal shortfall as of the
close of the preceding distribution date; provided, however, that the
noteholders' principal distributable amount shall not exceed the outstanding
principal balance of the notes, and provided further, that the noteholders'
principal distributable amount on the final scheduled distribution date shall
not be less than the amount that is necessary (after giving effect to other
amounts to be deposited in the note distribution account on the distribution
date and allocable to principal) to reduce the outstanding principal balances
(including all unreimbursed principal liquidation losses) of all classes of
notes to zero.
58
<PAGE>
"Noteholders' Monthly Principal Distributable Amount" means, for any
distribution date, the noteholders' percentage of the formula principal
distribution amount plus the aggregate unreimbursed principal liquidation
losses of each class of notes.
"Noteholders' Percentage" means, 100% until and including the distribution
date on which the aggregate principal balance of the notes are paid in full and
0% thereafter.
"Noteholders' Unpaid Principal Shortfall" means, as of the close of any
distribution date, the excess of the noteholders' monthly principal
distributable amount and any outstanding noteholders' unpaid principal
shortfall from the preceding distribution date over the amount in respect of
principal that is actually deposited in the note distribution account on the
distribution date.
"Certificateholders' Distributable Amount" means, for any distribution date,
the sum of the certificateholders' interest distributable amount and the
certificateholders' principal distributable amount.
"Certificateholders' Interest Distributable Amount" means, for any
distribution date, the sum of the certificateholders' monthly interest
distributable amount for that distribution date and the certificateholders'
interest carryover shortfall for that distribution date.
"Certificateholders' Monthly Interest Distributable Amount" means, for any
distribution date, interest accrued at the pass-through rate on:
(1) the certificate principal balance; and
(2) the aggregate unreimbursed certificate principal liquidation losses on
each prior distribution date, in each case after giving effect to all
payments of principal to the certificateholders on the immediately
preceding distribution date.
"Certificate Principal Liquidation Loss" means, for any distribution date,
the amount by which the aggregate principal balance of the notes and the
certificate principal balance exceeds the pool scheduled principal balance,
after giving effect to all distributions of principal on that distribution
date.
"Certificate Principal Balance" equals, initially, $ (approximate)
and, thereafter, equals the original certificate principal balance, reduced by
all amounts allocable to principal previously distributed to certificateholders
minus any unreimbursed certificate principal liquidation losses.
"Certificateholders' Interest Carryover Shortfall" means, for any
distribution date, the excess of the certificateholders' monthly interest
distributable amount for the preceding distribution date and any outstanding
certificateholders' interest carryover shortfall on the preceding distribution
date, over the amount in respect of interest at the pass-through rate that is
actually deposited in the certificate distribution account on the preceding
distribution date, plus interest on the excess, to the extent permitted by law,
at the pass-through rate from the preceding distribution date to but excluding
the current distribution date.
59
<PAGE>
"Certificateholders' Principal Distributable Amount" means, for any
distribution date, the sum of the certificateholders' monthly principal
distributable amount for that distribution date and the certificateholders'
unpaid principal shortfall as of the close of the preceding distribution date;
provided, however, that the certificateholders' principal distributable amount
shall not exceed the certificate principal balance plus any unreimbursed
certificate principal liquidation losses. In addition, on the final scheduled
distribution date, the principal required to be deposited into the certificate
distribution account shall not be less than the amount that is necessary (after
giving effect to the other amounts to be deposited in the certificate
distribution account on the distribution date and allocable to principal) to
reduce to zero the certificate principal balance plus the unreimbursed
certificate principal liquidation losses.
"Certificateholders' Monthly Principal Distributable Amount" means, for any
distribution date prior to the distribution date on which the notes are paid in
full, zero; and for any distribution date commencing on the distribution date
on which the notes are paid in full, the formula principal distribution amount
(less, on the distribution date on which the notes are paid in full, the
portion thereof payable on the notes).
"Certificateholders' Unpaid Principal Shortfall" means, as of the close of
any distribution date, the excess of the certificateholders' monthly principal
distributable amount and any outstanding certificateholders' unpaid principal
shortfall from the preceding distribution date, over the amount for the
principal that is actually deposited in the certificate distribution account.
60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
SEC registration fee.............................................. $1,112,000
Blue Sky fees and expenses........................................ 10,000
Accountant's fee and expenses..................................... 40,000
Attorneys' fees and expenses...................................... 160,000
Trustee's fees and expenses....................................... 20,000
Printing and engraving expenses................................... 100,000
Rating Agency fee................................................. 180,000
Miscellaneous..................................................... 40,000
----------
Total......................................................... $1,162,000
==========
</TABLE>
Item 15. Indemnification of Directors and Officers
Green Tree Financial Corporation is incorporated under the laws of Delaware.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation,
by reason of the fact that such person was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise). The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, for criminal proceedings, had no reasonable cause to believe that his
conduct was illegal. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where and officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.
The Certificate of Incorporation and Bylaws of Green Tree Financial
Corporation provide, in effect, that, subject to certain limited exceptions,
such corporation will indemnify its officers and directors to the extent
permitted by the Delaware General Corporation Law.
Green Tree Financial Corporation maintains a directors' and officers'
insurance policy.
Pursuant to the form of Underwriting Agreement, a copy of which is
incorporated by reference as Exhibit 1.1 hereto, the Underwriters will agree,
subject to certain conditions, to indemnify the Company, its directors, certain
of its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), against certain
liabilities.
Item 16. Exhibits
<TABLE>
<C> <S>
1.1 Proposed form of Underwriting Agreement (1)
3.1 Certificate of Incorporation of Green Tree Financial Corporation (2)
3.2 Restated By-Laws of Green Tree Financial Corporation (2)
4.1 Form of Pooling and Servicing Agreement (REMIC) (3)
4.2 Form of Sale and Servicing Agreement (4)
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
4.3 Form of Trust Agreement (4)
4.4 Form of Indenture between the Trust and the Indenture Trustee, including form of Note (4)
4.5 Form of Pooling and Servicing Agreement (Grantor Trust) (5)
*5.1 Opinion and consent of Dorsey & Whitney LLP with respect to legality
*8.1 Opinion of Dorsey & Whitney with respect to tax matters
12.1 Computation of Ratio of Earnings to Fixed Charges (6)
**23.1 Consent of KPMG Peat Marwick LLP
**23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1)
23.4 Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1)
24.1 Power of attorney from officers and directors of the Registrant signed by an attorney-in-fact
(included on page II-5)
25.1 Form of T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of the Indenture Trustee
(7)
</TABLE>
- --------
* Previously filed
** Filed herewith
(1) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement on Form
S-3 (File No. 33-55853), as amended, which became effective on November
10, 1994.
(2) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement No. 333-
52233.
(3) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Current Report on Form 8-K
dated March 18, 1999.
(4) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Registration Statement No. 333-46457.
(5) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Report on Form 8-K dated
September 30, 1996.
(6) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1998.
(7) To be filed subsequently pursuant to Section 305(b)(2) of the Trust
Indenture Act of 1939, as amended.
II-2
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change to such information in the
registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change in the information set forth in the registration
statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<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 Amendment No. 1 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
the 3rd day of June, 1999.
Green Tree Financial Corporation
/s/ Rollin M. Dick
By __________________________________
Rollin M. Dick
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature Title Date
Director and
* President
- -------------------------------------
Thomas J. Kilian
Director/Executive
/s/ Rollin M. Dick Vice President and June 3, 1999
- ------------------------------------- Chief Financial
Rollin M. Dick Officer (Principal
Financial Officer)
Senior Vice
* President and Chief
- ------------------------------------- Accounting Officer
James S. Adams (Principal
Accounting Officer)
Director
*
- -------------------------------------
Stephen C. Hilbert
/s/ Joel H. Gottesman June 3, 1999
*By: ___________________________
Joel H. Gottesman
as Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.1 Proposed form of Underwriting Agreement (1)
3.1 Certificate of Incorporation of Green Tree (2)
3.2 Restated By-Laws of Green Tree (2)
4.1 Form of Pooling and Servicing Agreement (REMIC) (3)
4.2 Form of Sale and Servicing Agreement (4)
4.3 Form of Trust Agreement (4)
4.4 Form of Indenture between the Trust and the Indenture Trustee,
including form of
Note (4)
4.5 Form of Pooling and Servicing Agreement (Grantor Trust) (5)
*5.1 Opinion and consent of Dorsey & Whitney LLP with respect to
legality
*8.1 Opinion of Dorsey & Whitney with respect to tax matters
12.1 Computation of Ratio of Earnings to Fixed Charges (5)
**23.1 Consent of KPMG Peat Marwick LLP
**23.2 Consent of PricewaterhouseCoopers LLP
23.3 Consent of Dorsey & Whitney LLP (included as part of Exhibit
5.1)
23.4 Consent of Dorsey & Whitney LLP (included as part of Exhibit
8.1)
24.1 Power of attorney from officers and directors of the Registrant
signed by an
attorney-in-fact (included on page II-4)
25.1 Form of T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of the
Indenture Trustee (6)
</TABLE>
- -------
*Previously filed.
**Filed herewith.
(1) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement on Form
S-3 (File No. 33-55853), as amended, which became effective on November
10, 1994.
(2) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement No. 333-
52233.
(3) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Current Report on Form 8-K dated
March 18, 1999.
(4) Incorporated by reference to the similarly numbered exhibit to the
Registrant's Registration Statement No. 333-46457.
(5) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Report on Form 8-K dated
September 30, 1996.
(6) Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1998.
(7) To be filed subsequently pursuant to Section 305(b)(2) of the Trust
Indenture Act of 1939, as amended
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Green Tree Financial Corporation:
We consent to the incorporation by reference in Amendment No. 1 to the
Registration Statement (No. 333-75623) on Form S-3 of Green Tree Financial
Corporation of our report dated January 27, 1998, relating to the consolidated
balance sheet of Green Tree Financial Corporation and subsidiaries as of
December 31, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1997, and to the reference to our firm under the heading
"EXPERTS" in the Registration Statement. Our report refers to the Company's
adoption of the Financial Accounting Standards Board's Statement No. 125
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," in 1997.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 1, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF PRICEWATERHOUSECOOPERS LLP
We consent to the incorporation by reference in this Prospectus to the
Registration Statement of Green Tree Financial Corporation on Form S-3
(Registration No. 333-75623) of our report dated March 30, 1999, relating to the
consolidated financial statements of Green Tree Financial Corporation as of
December 31, 1998 and for the year then ended, which report is included in Green
Tree Financial Corporation's Annual Report on Form 10-K for the year ended
December 31, 1998. We also consent to the references to us under the captions
"Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
June 1, 1999
