<PAGE>
Filed Pursuant to Rule 424(b)(5)
File No. 333-75623
PROSPECTUS SUPPLEMENT
(To prospectus dated June 24, 1999)
$1,116,700,000 (Approximate)
GREEN TREE
Seller and Servicer
Certificates for Home Equity Loans
Series 1999-C
---------------
The certificates will consist of 14 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................ $ 250,000,000 (1) 100% 0.3% 99.7%
A-1B ARM................ $ 100,000,000 (2) 100% 0.3% 99.7%
A-1..................... $ 275,000,000 5.99% 100% 0.21% 99.79%
A-2..................... $ 210,750,000 6.67% 100% 0.26% 99.74%
A-3..................... $ 67,100,000 6.77% 99.96875% 0.4% 99.56875%
A-4..................... $ 76,925,000 7.18% 99.96875% 0.46% 99.50875%
A-5..................... $ 66,075,000 7.12% 99.984375% 0.48% 99.504375%
A-6 IO.................. $ (3) 14.25% 21.859375% 0.16% 21.699375%
M-1..................... $ 70,850,000 7.77% 99.953125% 0.5% 99.453125%
-------------- ----------------- ------------- -----------------
Total................... $1,116,700,000 $1,129,727,082.03 $3,565,115.00 $1,126,161,967.03
============== ================= ============= =================
</TABLE>
(1) The lesser of one-month LIBOR plus 0.26% or the available funds pass-
through rate, but in no case more than 14%.
(2) The lesser of one-month LIBOR plus 0.30% or the available funds pass-
through rate, but in no case more than 14%.
(3) The Class A-6 IO certificates pay interest only. Interest will be based on
a notional principal amount. That notional principal amount will equal
$60,000,000 or the Class A principal balance, if less, for the first 20
payment dates and will equal zero after that.
The approximate principal amount of each class listed above may vary plus or
minus 5%. Any increase or decrease will be allocated proportionately among all
classes. The price to public will be the percentage total in the table above
plus any accrued interest beginning on June 30, 1999. The proceeds to company
are before deducting expenses, which we estimate to be $425,000.
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 June 30, 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-96 in this prospectus supplement and
on page 63 in the prospectus.
---------------
Underwriters of the certificates, other than the Class A-6 IO certificates:
Lehman Brothers
Banc of America Securities LLC
Chase Securities Inc.
Credit Suisse First Boston
First Union Capital Markets
Merrill Lynch & Co.
---------------
Underwriter of the Class A-6 IO certificates:
Lehman Brothers
The date of this prospectus supplement is June 24, 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-52
Description of the Certificates.......................................... S-54
Description of the Class B-2 Limited Guaranty............................ S-89
Certain Federal Income Tax Consequences.................................. S-90
ERISA Considerations..................................................... S-91
Underwriting............................................................. S-96
Legal Matters............................................................ S-97
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
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 a 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 published in
the United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulations 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 of
securities to the public in the United Kingdom within the meaning of the United
Kingdom Public Offers of Securities Regulations 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 8 of the Financial Services Act 1986 (Investment Advisements)
(Exemptions) (No.2) 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 of these references will
be to sections of this prospectus supplement only unless we note otherwise.
The 14 classes of certificates, Series 1999-C, listed on the table below will
represent interests in a trust. We are not offering the classes listed in
italics now. We or one of our affiliates initially will retain these classes of
certificates, but may sell any or all of these certificates at a later date.
The trust will own a pool of home equity loans.
<TABLE>
<CAPTION>
Pass-Through Approximate S&P Fitch
Class Rate Principal Amount Rating Rating
- ----- ------------ ---------------- ------ ------
<S> <C> <C> <C> <C>
A-1A ARM............................ (1) $250,000,000 AAA AAA
A-1B ARM............................ (2) 100,000,000 AAA AAA
A-1................................. 5.99% 275,000,000 AAA AAA
A-2................................. 6.67 210,750,000 AAA AAA
A-3................................. 6.77 67,100,000 AAA AAA
A-4................................. 7.18 76,925,000 AAA AAA
A-5................................. 7.12 66,075,000 AAA AAA
A-6 IO.............................. 14.25 (3) AAAr AAA
M-1................................. 7.77 70,850,000 AA AA
M-2................................. 8.36(4) 70,200,000 A A
B-1................................. 9.48(4) 46,800,000 BBB BBB
B-2................................. 9.95(4) 66,300,000 BBB- BBB+
C Master............................ (5)
C Subsidiary........................ (5)
</TABLE>
- --------
(1) The lesser of one-month LIBOR plus 0.26% or the available funds pass-
through rate, but in no case more than 14%.
(2) The lesser of one-month LIBOR plus 0.30% or the available funds pass-
through rate, but in no case more than 14%.
(3) The Class A-6 IO certificates pay interest only. Interest will be based on
a notional principal amount. That notional principal amount will equal
$60,000,000 or the Class A principal balance, if less, for the first 20
payment dates and will equal zero after that.
(4) Or the weighted average of the rates on the loans, if less.
(5) Neither the Class C Master nor the Class C Subsidiary certificates are
entitled to any distributions of interest.
We will not issue or sell the certificates unless S&P and Fitch assign to
each class at least the rating listing above.
The ratings on each class of certificates by S&P and Fitch 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.
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.
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, Saint Paul,
Minnesota.
Payment Date................ The fifteenth day of each month, or if that day
is not a business day, the following business
day. The first payment date will be on July 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
distributions of principal and interest on the
certificates will be made in the following order
of priority:
- Class A interest;
- Class M-1 interest;
- Class M-2 interest;
- Class B-1 interest;
- Class A principal;
- Class M-1 principal;
- Class M-2 principal;
- Class B-1 principal;
- Class B-2 interest; and
- Class B-2 principal.
S-5
<PAGE>
This prospectus supplement summarizes in the next
three 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-1, Class M-2
and Class B-1
Certificates ............
The trustee will then apply the remaining amount
available to pay principal on the Class A, Class
M-1, Class M-2 and Class B-1 certificates. For
purposes of determining the amount of principal
due to the Class A-1A ARM and Class A-1B ARM
certificates, the adjustable rate home equity
loans will be divided into two groups. Payments
of principal will be made 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 group I adjustable
rate home equity loans for that payment
date to the Class A-1A ARM certificates and
the amount of principal due on the group II
adjustable rate home equity loans for that
payment date to the Class A-1B ARM
certificates.
. Second, the trustee will distribute a
predetermined senior class percentage of
scheduled and unscheduled principal
payments
S-6
<PAGE>
and other recoveries on the fixed-rate home
equity loans for that payment date. These
distributions will be made:
- first, to the Class A-5 certificates,
in an amount equal to the Class A-5
lockout pro rata distribution amount,
then
- to the Class A-1 certificates until
retired, then
- to the Class A-2 certificates until
retired, then
- to the Class A-3 certificates until
retired, then
- to the Class A-4 certificates until
retired, then
- to the Class A-5 certificates until
retired, then
- to the Class M-1 certificates until
retired, and then
- to the Class M-2 certificates until
retired.
The trustee will pay principal on the Class B-1
certificates from available funds in an amount
equal to a percentage of the loan payments and
recoveries on the home equity loans for that
payment date. Prior to the payment date in July
2002, the percentage will probably be zero. After
that date, assuming delinquencies, defaults and
losses on the home equity loans remain below
specific thresholds and that the ratio of the
aggregate outstanding principal balance of the
Class B certificates to the total outstanding
balance of the pool has become at least 17.4%,
the percentage will generally equal 100% minus
the senior percentage. See "Description of the
Certificates--Distributions on Certificates."
C. Class B-2 Interest....... The trustee will then apply the remaining amount
available to pay interest on the Class B-2
certificates.
D. Class B-2 Principal...... The trustee will then apply the remaining amount
available to pay principal due on the Class B-2
S-7
<PAGE>
certificates. Class B-2 certificates will not be
paid principal before the Class B-1 principal
balance has been reduced to zero and other tests
are satisfied. Principal will be distributed
generally according to a formula amount dictated
by the principal balance of the home equity
loans.
E. 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.
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
52% 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;
. the related properties are located in 48
states, the District of Columbia and a U.S.
military base;
. there are 7,783 loans;
. the loan rates range from 5.74% to 19.80%,
with a weighted average of 11.09%;
. the weighted average term to schedule
maturity, as of their dates of origination,
was 258 months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was 257
months;
S-8
<PAGE>
. 1,604 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 11.17%;
. the balloon loans had a weighted average
term to scheduled maturity, as of their
dates of origination, of 200 months; and a
weighted average term to maturity as of the
cut-off date of 199 months; and
. the latest scheduled maturity date was in
May 2029.
See "The Loans--Fixed Rate Loans," which includes
the permissible characteristics of 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 33% 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.
This prospectus supplement provides information
regarding the initial group I adjustable rate
loans and the initial group II adjustable rate
loans. The criteria for placing a loan into group
I or group II are described in "The Loans--
Adjustable Rate Loans."
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 41
states and the District of Columbia;
. there are 699 loans;
. each loan accrues interest at a fixed rate
for no more than 36 months, and after that
the interest rate adjusts annually or
semiannually to equal the sum of the six-
month LIBOR and the gross margin specified
in the loan;
S-9
<PAGE>
. the weighted average term to scheduled
maturity, as of their dates of origination,
was 360 months; and
. the weighted average term to scheduled
maturity, as of the cut-off date, was 359
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 38
states and the District of Columbia;
. there are 342 loans;
. each loan accrues interest at a fixed rate
for no more than 36 months, and after that
the interest rate adjusts annually or
semiannually to equal the sum of the six-
month LIBOR and the gross margin specified
in the loan;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was 360 months; and
. the weighted average term to scheduled
maturity, as of the cut-off date, was 358
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 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
September 12, 1999. If those funds are not
completely used by that date, the 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 September 1999
payment date.
Capitalized Interest On the closing date, we will establish a
Account..................... capitalized interest account to cover interest
payments on the certificates on the payment dates
in July, August and
S-10
<PAGE>
September 1999 in the event interest payments on
the loans are insufficient. To establish the
account, we will deposit an amount that is
approved by the rating agencies. If we do not
collect enough on the loans to make a full
interest distribution on the certificates on the
payment dates in July, August and September 1999,
the trustee will withdraw the amount of the
shortfall from the capitalized interest account
and deposit it in the certificate account. The
trustee will release any funds remaining in the
capitalized interest account after the
distribution to certificateholders in September
1999 to one of our subsidiaries.
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 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 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, in our capacity as servicer, 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 will consist of two
segregated asset
S-11
<PAGE>
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 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 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................
The trustee 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-12
<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, which increases the risk of
loss upon default.
Because the liens are junior, the rights of the trust to cause the property
securing the loan to be sold upon default of the mortgagor or trustor are
subordinate to those of the senior mortgagee or beneficiary. 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. Approximately 13% of the cut-off date principal balance represented
loans which were 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 foreclose upon and sell the collateral. For
a more complete description of the risks associated with junior mortgage liens,
see "Certain Legal Aspects of the Loans--Repurchase Obligations."
A secondary market for the certificates may not develop, which means you may
have trouble selling them when you want to.
We cannot assure 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 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, which in some states could
make our security interest ineffective; this could affect the trust's ability
to pay on the certificates.
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. This could leave the trust unable to foreclose on the
real estate following a loan default, which could result in increased losses on
the loans. These losses could result in delays or reductions in payments on
your certificates.
Bankruptcy proceedings could delay distributions on the certificates.
We intend that each transfer of loans to the trust 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 claim, if presented to or
accepted by a court, could result in a delay in or reduction of distributions
to the holders of the certificates.
S-13
<PAGE>
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 indicator of
the performance of the pool.
. Historical experience with the performance of one portfolio or
group of loans is never a completely reliable indicator of the
future performance of another portfolio or group of loans.
. The information incorporates some home equity loans that are not of
the type to be included in the trust, 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 trust.
You must not assume that the loans in the trust will experience delinquencies
and losses identical to the historical data presented here.
Many of the loans are balloon loans, which have an increased risk of default.
Approximately 22% 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 trust. If a
substantial number of the balloon loans in the trust default, causing higher
than expected defaults and losses, you may suffer a loss on your investment.
Some loans in the trust will be subject to the Home Ownership and Equity
Protection Act of 1994 which, if not complied with, can affect enforceability
of a loan.
The 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 the Protection Act can affect the enforceability of
the related loan, and it subjects any assignee of the loan, such
S-14
<PAGE>
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 trust. If we are found to have
violated provisions of the Protection Act with respect to any loan that is
subject to the 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 describes only a portion of the loans, and
additional loans added to the trust after closing could have different
characteristics.
The additional loans and the subsequent loans that we deliver on and 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 additional loans and 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-15
<PAGE>
STRUCTURE OF THE TRANSACTION
On or about the closing date, June 30, 1999, Green Tree will establish the
trust pursuant to a pooling and servicing agreement to be dated as of June 1,
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, 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 on or
after the Cut-off Date, liens on the related real estate and amounts held for
the trust in the certificate account. The Cut-off Date is May 1, 1999 for each
loan other than the subsequent loans, and for each subsequent loan, the date on
which the loan is purchased by the trust. 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 Trust National Association, Saint Paul, 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, to pay certain
monthly fees to the servicer as compensation for its servicing of the loans and
to pay a guaranty fee to Green Tree for providing the Class B-2 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 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";
(3) certain indemnities; and
(4) the Class B-2 limited guaranty.
Green Tree is obligated under the pooling and servicing agreement to repurchase
any loan that is materially and adversely affected by a breach of a
representation and warranty with respect to the loan made in the pooling and
servicing agreement if such breach has not been
S-16
<PAGE>
cured within 90 days of the day it was or should have been discovered by the
servicer or the trustee or, at its option, to substitute another loan for that
loan. 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 52% of all fixed-rate loans, and
which consist of closed-end home equity loans originated through April 1999.
The information for each initial fixed-rate loan is as of the Cut-off Date for
the loan. The initial fixed-rate loans have an aggregate principal balance of
approximately $493,031,959.69 as of the Cut-off Date. The trust may purchase
additional fixed-rate loans on the closing date and may purchase subsequent
fixed-rate loans through September 12, 1999. See "Description of the
Certificates--Conveyance of Subsequent Loans and Pre-Funding Account" below.
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 May 24, 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
5.74% per annum and not more than 19.80% and the weighted average of the loan
rates of the initial fixed-rate loans as of the Cut-off Date is 11.09%. As of
the Cut-off Date, the initial fixed-rate loans had remaining maturities of at
least 35 months but not more than 360 months and original maturities of at
least 36 months but not more than 360 months. The initial fixed-rate loans had
a weighted average term to scheduled maturity, as of origination,
S-17
<PAGE>
of 258 months, and a weighted average term to scheduled maturity, as of the
Cut-off Date, of 257 months. The average principal balance per initial fixed-
rate loan as of the Cut-off Date was $63,347.29 and the principal balances on
the initial fixed-rate loans as of the Cut-off Date ranged from $5,124.68 to
$400,500.00. The balloon loans included in the initial fixed-rate loans
consisted of 1,604 closed-end home equity loans and have a principal balance as
of the cut-off date of approximately $133,624,641.53. The weighted average of
the loan rates of such balloon loans as of the Cut-off Date was 11.17%, and
such balloon loans had a weighted average term to scheduled maturity, as of
origination, of 200 months, and a weighted average term to scheduled maturity,
as of the Cut-off Date, of 199 months. The initial fixed-rate loans arise from
loans relating to real property located in 48 states, the District of Columbia
and a U.S. military base. By principal balance as of the Cut-off Date,
approximately 10.28% of the initial fixed-rate loans were secured by real
property located in California, 6.18% in Michigan and 6.05% in Ohio. No other
state represented 5% or more of the Cut-off Date pool principal balance of the
initial fixed-rate loans.
S-18
<PAGE>
The tables below show additional characteristics of the initial fixed-rate
loans.
Geographical Distribution of Mortgaged Properties-- Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial
% of Initial 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................. 259 3.33% $ 14,844,615.17 3.01%
Arizona................. 110 1.41 5,863,165.30 1.19
Arkansas................ 81 1.04 4,016,511.64 .81
California.............. 530 6.82 50,615,052.25 10.28
Colorado................ 177 2.27 10,646,964.84 2.16
Connecticut............. 83 1.07 6,675,958.14 1.35
Delaware................ 17 .22 1,422,538.13 .29
District of Columbia.... 8 .10 535,605.31 .11
Florida................. 354 4.55 19,250,151.75 3.90
Georgia................. 272 3.49 17,298,936.48 3.51
Idaho................... 37 .48 1,810,005.91 .37
Illinois................ 361 4.64 22,251,304.46 4.51
Indiana................. 236 3.03 12,782,238.89 2.59
Iowa.................... 122 1.57 7,413,434.40 1.50
Kansas.................. 168 2.16 10,073,133.41 2.04
Kentucky................ 176 2.26 9,984,394.90 2.03
Louisiana............... 228 2.93 11,828,239.48 2.40
Maine................... 14 .18 818,032.39 .17
Maryland................ 130 1.67 10,127,364.78 2.05
Massachusetts........... 93 1.19 6,870,141.22 1.39
Michigan................ 468 6.01 30,460,327.18 6.18
Minnesota............... 127 1.63 7,265,711.54 1.47
Mississippi............. 114 1.46 5,790,080.70 1.17
Missouri................ 246 3.16 12,969,902.77 2.63
Montana................. 29 .37 2,338,929.34 .47
Nebraska................ 65 .84 3,822,194.92 .78
Nevada.................. 54 .69 3,994,557.37 .81
New Hampshire........... 14 .18 967,895.81 .20
New Jersey.............. 111 1.43 9,041,013.09 1.83
New Mexico.............. 37 .48 1,823,439.53 .37
New York................ 275 3.53 18,522,216.77 3.76
North Carolina.......... 351 4.51 21,813,964.91 4.42
North Dakota............ 21 .27 830,115.41 .17
Ohio.................... 529 6.81 29,847,899.52 6.05
Oklahoma................ 53 .68 2,344,421,34 .48
Oregon.................. 77 .99 5,761,315.91 1.17
Pennsylvania............ 327 4.20 21,270,292.10 4.31
Rhode Island............ 31 .40 2,303,064.81 .47
South Carolina.......... 178 2.29 10,760,371.64 2.18
South Dakota............ 49 .63 3,048,762.04 .62
Tennessee............... 194 2.49 11,897,840.36 2.41
Texas................... 333 4.28 15,475,768.46 3.14
Utah.................... 68 .87 5,157,807.85 1.05
Vermont................. 5 .06 226,101.77 .05
Virginia................ 190 2.44 15,233,040.33 3.09
Washington.............. 151 1.94 10,942,324.53 2.22
West Virginia........... 33 .42 1,773,534.94 .36
Wisconsin............... 172 2.21 10,689,428.32 2.17
Wyoming................. 24 .31 1,513,172.70 .31
Non-U.S. based military
personnel.............. 1 .01 18,674.88 *
----- ------ --------------- ------
Total................... 7,783 100.00% $493,031,959.69 100.00%
===== ====== =============== ======
</TABLE>
- --------
* Indicates an amount greater than zero but less than .05% of the aggregate
principal balance of the initial fixed-rate loans.
S-19
<PAGE>
Years of Origination--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial
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>
1977...................... 1 $ 26,322.78 .01%
1978...................... 1 19,464.91 *
1995...................... 1 27,442.95 .01
1996...................... 11 266,110.73 .05
1997...................... 25 795,748.61 .16
1998...................... 785 66,603,936.31 13.51
1999...................... 6,959 425,292,933.40 86.26
----- --------------- ------
Total................. 7,783 $493,031,959.69 100.00%
===== =============== ======
</TABLE>
- --------
* Indicates an amount greater than zero but less than .05% of the aggregate
principal balance of the initial fixed-rate loans.
Distribution of Original Loan Amounts--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial
Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
Original Loan as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ---------------------
<S> <C> <C> <C>
Less than$ 10,000........ 35 $ 266,151.24 .05%
Between$ 10,000 to
$ 19,999................ 1,074 15,934,729.32 3.23
Between$ 20,000 to
$ 29,999................ 1,041 25,565,114.92 5.19
Between$ 30,000 to
$ 39,999................ 866 29,994,603.25 6.08
Between$ 40,000 to
$ 49,999................ 749 33,526,781.00 6.80
Between$ 50,000 to
$ 59,999................ 738 40,264,689.91 8.17
Between$ 60,000 to
$ 69,999................ 668 42,993,249.54 8.71
Between$ 70,000 to
$ 79,999................ 542 40,489,015.07 8.21
Between$ 80,000 to
$ 89,999................ 409 34,496,705.08 7.00
Between$ 90,000 to
$ 99,999................ 333 31,500,653.30 6.39
Between$100,000 to
$109,999................ 233 24,461,978.14 4.96
Between$110,000 to
$119,999................ 214 24,579,526.31 4.99
Between$120,000 to
$129,999................ 165 20,563,088.28 4.17
Between$130,000 to
$139,999................ 124 16,732,541.79 3.39
Between$140,000 to
$149,999................ 116 16,764,196.37 3.40
Between$150,000 to
$159,999................ 101 15,570,300.55 3.16
Between$160,000 to
$169,999................ 64 10,537,681.04 2.14
Between$170,000 to
$179,999................ 59 10,300,497.89 2.09
Between$180,000 to
$189,999................ 37 6,810,781.34 1.38
Between$190,000 to
$199,999................ 37 7,192,313.86 1.46
Between$200,000 to
$249,999................ 104 22,904,223.00 4.65
Between$250,000 to
$299,999................ 53 14,435,066.95 2.93
Over $300,000.......... 21 7,148,071.54 1.45
----- --------------- ------
Total................ 7,783 $493,031,959.69 100.00%
===== =============== ======
</TABLE>
S-20
<PAGE>
Loan Rates--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial 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>
Less than 9.01%........ 498 $ 58,703,760.75 11.91%
From 9.01% to 10.00%... 916 94,592,373.77 19.19
From 10.01% to 11.00%... 1,572 128,520,000.07 26.06
From 11.01% to 12.00%... 1,443 91,617,003.86 18.58
From 12.01% to 13.00%... 1,334 54,917,244.50 11.14
From 13.01% to 14.00%... 1,328 43,115,254.95 8.74
From 14.01% to 15.00%... 422 13,511,315.37 2.74
From 15.01% to 16.00%... 145 4,620,673.63 .94
From 16.01% to 17.00%... 88 2,543,811.51 .52
Over 17.00%............. 37 890,521.28 .18
----- --------------- ------
Total............... 7,783 $493,031,959.69 100.00%
===== =============== ======
</TABLE>
Remaining Months to Maturity--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial
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 to 60.................. 91 $ 1,649,612.35 .33%
61 to 90.................. 54 1,312,535.84 .27
91 to 120................. 423 11,973,100.31 2.43
121 to 150................ 21 745,625.57 .15
151 to 180................ 2,647 140,529,992.63 28.50
181 to 210................ 16 664,555.57 .13
211 to 240................ 2,416 145,557,312.50 29.53
241 to 270................ 2 81,600.00 .02
271 to 300................ 845 57,378,876.38 11.64
301 to 330................ 1 150,300.00 .03
331 to 360................ 1,267 132,988,448.54 26.97
----- --------------- ------
Total................. 7,783 $493,031,959.69 100.00%
===== =============== ======
</TABLE>
Lien Position--Initial Fixed-Rate Loans
<TABLE>
<CAPTION>
% of Initial
Fixed-Rate
Number of Home Equity Loans by
Loans Aggregate Principal Outstanding Principal
as of Cut- Balance Outstanding Balance as of
off Date as of Cut-off Date Cut-off Date
---------- ------------------- ---------------------
<S> <C> <C> <C>
First..................... 5,044 $414,699,620.88 84.11%
Second.................... 2,722 77,800,745.27 15.78
Third..................... 17 531,593.54 .11
----- --------------- ------
Total................. 7,783 $493,031,959.69 100.00%
===== =============== ======
</TABLE>
S-21
<PAGE>
Combined Loan-to-Value Ratio--Initial Fixed-Rate Home Equity Loans
<TABLE>
<CAPTION>
% of Initial
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% to 10.00%......... 5 $ 82,300.00 .02%
From 10.01% to 20.00%........ 9 146,681.16 .03
From 20.01% to 30.00%........ 38 942,947.59 .19
From 30.01% to 40.00%........ 51 1,565,410.91 .32
From 40.01% to 50.00%........ 90 3,194,537.71 .65
From 50.01% to 60.00%........ 135 5,444,522.72 1.10
From 60.01% to 70.00%........ 313 15,950,965.63 3.24
From 70.01% to 80.00%........ 1,025 56,437,573.09 11.45
From 80.01% to 90.00%........ 2,272 146,054,654.67 29.62
Over 90.00%.................. 3,845 263,212,366.21 53.38
----- --------------- ------
Total.................... 7,783 $493,031,959.69 100.00%
===== =============== ======
</TABLE>
Adjustable Rate Loans
This prospectus supplement contains information regarding the initial
adjustable rate loans, which will represent approximately 33% of all adjustable
rate loans, and which consist of closed-end loans originated through April
1999. The information for each initial adjustable rate loan is as of the Cut-
off Date for the loan. The initial adjustable rate loans have an aggregate
principal balance of approximately $114,318,014.86 as of the Cut-off Date.
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 through September 12, 1999. 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
(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 3% per
year. Substantially 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.
S-22
<PAGE>
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 2029; 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.
Group I will not include:
. any loans secured by a second priority or more subordinate lien on the
mortgaged property,
. any loans secured by anything other than a single or two family
mortgaged property,
. any loans secured by a first priority lien on a single family mortgaged
property with an original principal balance in excess of $240,000, or
. any loans secured by a first priority lien on a two family mortgaged
property with an original principal balance in excess of $307,100.
Group II will include home equity loans that meet or exceed these criteria.
This prospectus supplement provides information regarding the initial group I
adjustable rate loans and the initial group II adjustable rate loans.
S-23
<PAGE>
Group I Adjustable Rate Loans
As of the Cut-off Date, the initial group I adjustable rate loans had loan
rates ranging from 7.24% to 13.55% and a weighted average loan rate of 9.79%.
As of the Cut-off Date, the weighted average maximum loan rate of the initial
group I adjustable rate loans was 16.05%, with maximum loan rates that range
from 9.49% to 20.55%. As of the Cut-Off Date, the initial group I adjustable
rate loans had a weighted average gross margin of 6.83% and gross margins
ranging from 4.50% to 9.62%. As of the Cut-off Date, the initial group I
adjustable rate loans had remaining maturities of at least 299 months but not
more than 360 months and original maturities of at least 300 months but not
more than 360 months. The initial group I adjustable rate loans had a weighted
average term to scheduled maturity, as of origination, of 360 months, and a
weighted average term to scheduled maturity, as of the Cut-off Date, of 359
months. The average principal balance of the initial group I adjustable rate
loans as of the Cut-off Date was $108,718.40 and the principal balances on the
initial group 1 adjustable rate loans as of the Cut-off Date ranged from
$21,975.00 to $239,736.28. The initial group I adjustable rate loans arise from
loans relating to real property located in 41 states and the District of
Columbia. By principal balance as of the Cut-off Date, approximately 10.65% of
the initial group I adjustable rate loans were secured by real property located
in Ohio, 9.15% in California, 8.18% in Washington, 5.37% in Illinois, 5.33% in
North Carolina and 5.19% in Texas. No other state represented 5.00% or more of
the aggregate Cut-off Date principal balance of the initial group I adjustable
rate loans.
S-24
<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................. 30 4.29% $ 2,786,143.66 3.67%
Arizona................. 22 3.15 2,067,583.64 2.72
Arkansas................ 1 .14 105,717.66 .14
California.............. 44 6.29 6,961,718.15 9.15
Colorado................ 30 4.29 3,445,218.07 4.53
Connecticut............. 3 .43 277,829.61 .37
Delaware................ 2 .29 187,165.56 .25
District Of Columbia.... 2 .29 262,629.48 .35
Florida................. 25 3.58 3,007,468.26 3.96
Georgia................. 22 3.15 2,492,176.35 3.28
Idaho................... 3 .43 303,900.00 .40
Illinois................ 38 5.44 4,085,656.18 5.37
Indiana................. 20 2.86 1,603,485.04 2.11
Iowa.................... 3 .43 421,376.51 .55
Kansas.................. 8 1.14 1,150,717.42 1.51
Kentucky................ 9 1.29 792,897.86 1.04
Louisiana............... 12 1.72 1,099,342.21 1.45
Maryland................ 28 4.01 3,636,473.14 4.79
Massachusetts........... 2 .29 261,773.67 .34
Michigan................ 24 3.43 2,162,792.51 2.85
Minnesota............... 4 .57 588,045.06 .77
Mississippi............. 5 .72 372,445.51 .49
Missouri................ 15 2.15 1,326,718.45 1.75
Nebraska................ 1 .14 59,962.23 .08
Nevada.................. 10 1.43 1,186,211.19 1.56
New Hampshire........... 1 .14 164,809.92 .22
New Jersey.............. 5 .72 593,443.16 .78
New Mexico.............. 2 .29 190,901.93 .25
New York................ 5 .72 810,518.65 1.07
North Carolina.......... 48 6.87 4,053,332.76 5.33
Ohio.................... 88 12.58 8,098,143.87 10.65
Oklahoma................ 3 .43 376,374.12 .50
Oregon.................. 11 1.57 1,311,837.37 1.73
Pennsylvania............ 11 1.57 1,256,572.83 1.65
Rhode Island............ 4 .57 522,500.00 .69
South Carolina.......... 10 1.43 810,044.45 1.07
Tennessee............... 34 4.86 3,067,216.93 4.04
Texas................... 38 5.44 3,946,911.54 5.19
Utah.................... 10 1.43 980,409.07 1.29
Virginia................ 14 2.00 2,058,807.40 2.71
Washington.............. 44 6.29 6,221,117.01 8.18
Wisconsin............... 8 1.14 885,772.42 1.17
--- ------ -------------- ------
Total............... 699 100.00% $75,994,160.85 100.00%
=== ====== ============== ======
</TABLE>
S-25
<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>
1996.................... 1 $ 162,000.00 .21%
1997.................... 5 560,676.24 .74
1998.................... 93 10,077,091.62 13.26
1999.................... 600 65,194,392.99 85.79
--- -------------- ------
Total............... 699 $75,994,160.85 100.00%
=== ============== ======
</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>
$ 20,000 to $ 29,999.... 4 $ 107,218.73 .14%
$ 30,000 to $ 39,999.... 20 715,359.06 .94
$ 40,000 to $ 49,999.... 37 1,676,988.06 2.21
$ 50,000 to $ 59,999.... 46 2,506,484.29 3.30
$ 60,000 to $ 69,999.... 73 4,735,454.45 6.23
$ 70,000 to $ 79,999.... 63 4,727,900.86 6.22
$ 80,000 to $ 89,999.... 51 4,334,777.02 5.70
$ 90,000 to $ 99,999.... 53 5,055,747.74 6.65
$100,000 to $109,999.... 52 5,452,686.37 7.18
$110,000 to $119,999.... 44 5,030,360.60 6.62
$120,000 to $129,999.... 40 4,995,755.03 6.57
$130,000 to $139,999.... 42 5,642,486.70 7.43
$140,000 to $149,999.... 30 4,357,972.72 5.73
$150,000 to $159,999.... 24 3,714,454.18 4.89
$160,000 to $169,999.... 26 4,281,208.85 5.63
$170,000 to $179,999.... 20 3,508,735.40 4.62
$180,000 to $189,999.... 22 4,038,170.75 5.31
$190,000 to $199,999.... 7 1,356,177.61 1.78
$200,000 to $249,999.... 45 9,756,222.43 12.85
--- -------------- ------
Total............... 699 $75,994,160.85 100.00%
=== ============== ======
</TABLE>
S-26
<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>
7.001% to 8.000%....... 9 $ 902,289.77 1.19%
8.001% to 9.000%....... 135 17,660,666.07 23.24
9.001% to 10.000%...... 296 32,823,088.13 43.19
10.001% to 11.000%...... 181 17,538,824.06 23.08
11.001% to 12.000%...... 63 6,053,887.33 7.97
12.001% to 13.000%...... 12 884,215.93 1.16
13.001% to 14.000%...... 3 131,189.56 .17
--- -------------- ------
Total............... 699 $75,994,160.85 100.00%
=== ============== ======
</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>
271 to 330.............. 1 $ 51,079.41 .07%
331 to 360.............. 698 75,943,081.44 99.93
--- -------------- ------
Total............... 699 $75,994,160.85 100.00%
=== ============== ======
</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........ 699 $75,994,160.85 100.00%
--- -------------- ------
Total.... 699 $75,994,160.85 100.00%
=== ============== ======
</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>
30.01% to 40.00%........ 1 $ 49,972.63 .07%
40.01% to 50.00%........ 3 288,932.81 .38
50.01% to 60.00%........ 8 538,434.52 .71
60.01% to 70.00%........ 40 2,660,537.20 3.50
70.01% to 80.00%........ 167 17,671,540.61 23.25
80.01% to 90.00%........ 378 41,503,305.35 54.61
90.01% to 100.00%....... 102 13,281,437.73 17.48
--- -------------- ------
Total............... 699 $75,994,160.85 100.00%
=== ============== ======
</TABLE>
S-27
<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>
May 1999.................... 1 $ 159,921.30 .21%
July 1999................... 2 310,198.21 .41
August 1999................. 4 339,501.71 .45
November 1999............... 2 291,803.31 .38
December 1999............... 2 228,828.78 .30
January 2000................ 1 97,970.43 .13
February 2000............... 2 336,720.79 .44
March 2000.................. 1 78,576.38 .10
May 2000.................... 1 234,277.63 .31
July 2000................... 1 70,521.07 .09
September 2000.............. 9 1,072,129.76 1.41
October 2000................ 14 1,441,891.34 1.90
November 2000............... 20 1,971,619.33 2.59
December 2000............... 36 3,948,461.15 5.20
January 2001................ 64 6,751,900.06 8.88
February 2001............... 176 18,784,883.04 24.72
March 2001.................. 274 30,601,154.26 40.27
April 2001.................. 61 6,400,146.90 8.42
May 2001.................... 5 575,975.00 .76
July 2001................... 1 76,500.00 .10
September 2001.............. 1 65,363.30 .09
October 2001................ 1 128,460.67 .17
November 2001............... 3 126,572.71 .17
January 2002................ 4 323,524.35 .43
February 2002............... 9 1,019,609.37 1.34
March 2002.................. 4 557,650.00 .73
--- -------------- ------
Total................... 699 $75,994,160.85 100.00%
=== ============== ======
</TABLE>
S-28
<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>
4.500% to 4.749%........ 3 $ 229,740.42 .30%
4.750% to 4.999%........ 3 269,564.62 .35
5.000% to 5.249%........ 8 657,764.62 .87
5.250% to 5.499%........ 11 1,164,344.18 1.53
5.500% to 5.749%........ 22 2,832,750.99 3.73
5.750% to 5.999%........ 21 2,748,348.99 3.62
6.000% to 6.249%........ 50 5,922,746.78 7.79
6.250% to 6.499%........ 90 9,929,088.13 13.07
6.500% to 6.749%........ 115 12,772,324.00 16.81
6.750% to 6.999%........ 95 10,972.246.27 14.44
7.000% to 7.249%........ 62 6,112,987.84 8.04
7.250% to 7.499%........ 67 7,245,620.76 9.53
7.500% to 7.749%........ 58 5,962,315.00 7.85
7.750% to 7.999%........ 34 3,841,103.79 5.05
8.000% to 8.249%........ 16 1,510,723.02 1.99
8.250% to 8.499%........ 17 1,785,703.19 2.35
8.500% to 8.749%........ 13 1,096,113.66 1.44
8.750% to 8.999%........ 1 44,959.66 .06
9.000% to 9.249%........ 8 634,677.09 .84
9.250% to 9.499%........ 3 175,767.18 .23
9.500% to 9.749%........ 2 85,270.66 .11
--- -------------- ------
Total............... 699 $75,994,160.85 100.00%
=== ============== ======
</TABLE>
S-29
<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>
9.250% to 9.499%....... 1 $ 46,454.05 .06%
9.500% to 9.749%....... 1 105,000.00 .14
11.000% to 11.249%...... 1 181,537.60 .24
12.750% to 12.999%...... 1 161,400.00 .21
13.000% to 13.249%...... 1 67,910.27 .09
13.250% to 13.499%...... 1 76,500.00 .10
13.500% to 13.749%...... 4 386,379.50 .51
13.750% to 13.999%...... 2 330,750.00 .44
14.000% to 14.249%...... 4 487,927.89 .64
14.250% to 14.499%...... 9 1,329,068.65 1.75
14.500% to 14.749%...... 22 2,594,325.40 3.41
14.750% to 14.999%...... 74 9,933,707.79 13.06
15.000% to 15.249%...... 18 2,054,263.08 2.70
15.250% to 15.499%...... 76 8,610,914.31 11.32
15.500% to 15.749%...... 46 5,027,902.80 6.62
15.750% to 15.999%...... 79 8,948,739.18 11.77
16.000% to 16.249%...... 39 4,130,318.02 5.44
16.250% to 16.499%...... 50 5,264,483.47 6.93
16.500% to 16.749%...... 53 5,553,506.77 7.31
16.750% to 16.999%...... 66 6,923,598.55 9.11
17.000% to 17.249%...... 31 2,971,891.53 3.91
17.250% to 17.499%...... 33 2,763,559.33 3.64
17.500% to 17.749%...... 33 3,096,821.26 4.08
17.750% to 17.999%...... 16 1,668,342.97 2.20
18.000% to 18.249%...... 12 1,053,325.57 1.39
18.250% to 18.499%...... 6 651,487.46 .86
18.500% to 18.749%...... 8 743,020.64 .98
18.750% to 18.999%...... 4 280,289.66 .37
19.000% to 19.249%...... 2 282,260.95 .37
19.500% to 19.749%...... 2 70,082.47 .09
19.750% to 19.999%...... 1 83,500.00 .11
Greater Than 19.999%.... 3 114,891.68 .15
--- -------------- ------
Total............... 699 $75,994,160.85 100.00%
=== ============== ======
</TABLE>
S-30
<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>
5.000% to 5.249%..... 1 $ 107,046.19 .14%
5.500% to 5.749%..... 1 105,300.00 .14
5.750% to 5.999%..... 2 386,928.07 .51
6.000% to 6.249%..... 8 945,200.91 1.24
6.500% to 6.749%..... 5 699,201.31 .92
6.750% to 6.999%..... 20 2,686,349.29 3.53
7.000% to 7.249%..... 7 921,468.28 1.21
7.250% to 7.499%..... 11 1,154,249.33 1.52
7.500% to 7.749%..... 11 1,070,105.78 1.41
7.750% to 7.999%..... 5 619,173.53 .81
8.000% to 8.249%..... 11 1,135,510.81 1.49
8.250% to 8.499%..... 19 2,459,715.27 3.24
8.500% to 8.749%..... 28 3,352,203.36 4.41
8.750% to 8.999%..... 72 9,379,874.27 12.35
9.000% to 9.249%..... 21 2,341,306.12 3.08
9.250% to 9.499%..... 81 9,090,092.54 11.96
9.500% to 9.749%..... 63 7,229,944.70 9.51
9.750% to 9.999%..... 97 10,122,015.05 13.33
10.000% to 10.249%..... 39 3,670,235.73 4.83
10.250% to 10.499%..... 49 4,985,529.83 6.56
10.500% to 10.749%..... 50 4,631,342.51 6.09
10.750% to 10.999%..... 32 3,159,008.49 4.16
11.000% to 11.249%..... 19 1,840,157.86 2.42
11.250% to 11.499%..... 11 806,968.67 1.06
11.500% to 11.749%..... 13 1,358,392.28 1.79
11.750% to 11.999%..... 9 774,430.99 1.02
12.000% to 12.249%..... 6 648,766.90 .85
12.500% to 12.749%..... 4 153,260.85 .20
13.000% to 13.249%..... 1 29,192.37 .04
13.250% to 13.499%..... 2 80,110.15 .11
13.500% to 13.749%..... 1 51,079.41 .07
--- -------------- ------
Total................ 699 $75,994,160.85 100.00%
=== ============== ======
</TABLE>
S-31
<PAGE>
Group II Adjustable Rate Loans
As of the Cut-off Date, the initial group II adjustable rate loans had loan
rates ranging from 7.20% to 12.75% and a weighted average loan rate of 9.66%.
As of the Cut-off Date, the weighted average maximum loan rate of the initial
group II adjustable rate loans was 15.92%, with maximum loan rates that range
from 11.63% to 19.40%. As of the Cut-Off Date, the initial group II adjustable
rate loans had a weighted average gross margin of 6.74% and gross margins
ranging from 4.05% to 9.50%. As of the Cut-off Date, the initial group II
adjustable rate loans had remaining maturities of at least 342 months but not
more than 360 months and original maturities of at least 360 months but not
more than 360 months. The initial group II adjustable rate loans had a weighted
average term to scheduled maturity, as of origination, of 360 months and a
weighted average term to scheduled maturity, as of the Cut-off Date, of 358
months. The average principal balance of the initial group II adjustable rate
loans as of the Cut-off Date was $112,058.05 and the principal balances of the
initial group II adjustable rate loans as of the Cut-off Date ranged from
$28,463.92 to $412,502.21. The initial group II adjustable rate loans arise
from loans relating to real property located in 38 states and the District of
Columbia. By principal balance as of the Cut-off Date, approximately 7.98% of
the initial group II adjustable rate loans were secured by real property
located in Ohio, 7.14% in Illinois, 6.31% in North Carolina, 6.07% in Maryland,
5.97% in Texas, 5.93% in California and 5.73% in Washington. No other state
represented 5.00% or more of the aggregate Cut-off Date principal balance of
the initial group II adjustable rate loans.
S-32
<PAGE>
The tables below describe 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................. 15 4.39% $ 1,692,305.98 4.42%
Arizona................. 9 2.63 911,677.80 2.38
Arkansas................ 2 .58 92,960.04 .24
California.............. 14 4.09 2,272,628.49 5.93
Colorado................ 11 3.22 1,307,358.68 3.41
Connecticut............. 4 1.17 369,543.63 .96
District Of Columbia.... 1 .29 123,432.40 .32
Florida................. 11 3.22 1,111,140.68 2.90
Georgia................. 14 4.09 1,775,484.62 4.63
Idaho................... 5 1.46 536,141.25 1.40
Illinois................ 26 7.61 2,736,731.24 7.14
Indiana................. 15 4.39 927,248.57 2.42
Iowa.................... 2 .58 62,463.92 .16
Kansas.................. 4 1.17 603,153.72 1.57
Kentucky................ 6 1.75 446,253.49 1.16
Louisiana............... 5 1.46 414,932.47 1.08
Maryland................ 15 4.39 2,326,751.55 6.07
Massachusetts........... 2 .58 224,969.55 .59
Michigan................ 12 3.51 1,285,935.29 3.36
Minnesota............... 4 1.17 948,943.60 2.48
Missouri................ 6 1.75 576,424.62 1.50
Nevada.................. 5 1.46 477,230.38 1.25
New Jersey.............. 1 .29 129,929.57 .34
New Mexico.............. 2 .58 168,448.51 .44
New York................ 2 .58 343,005.15 .90
North Carolina.......... 23 6.74 2,418,561.66 6.31
Ohio.................... 40 11.71 3,062,000.47 7.98
Oklahoma................ 2 .58 279,472.46 .73
Oregon.................. 7 2.05 677,530.21 1.77
Pennsylvania............ 5 1.46 459,270.62 1.20
South Carolina.......... 5 1.46 831,289.53 2.17
South Dakota............ 1 .29 74,000.00 .19
Tennessee............... 7 2.05 687,129.04 1.79
Texas................... 21 6.15 2,287,084.27 5.97
Utah.................... 7 2.05 1,351,216.97 3.53
Virginia................ 10 2.92 1,470,590.48 3.84
Washington.............. 14 4.09 2,195,571.38 5.73
West Virginia........... 2 .58 225,605.80 .59
Wisconsin............... 5 1.46 439,435.92 1.15
--- ------ -------------- ------
Total............... 342 100.00% $38,323,854.01 100.00%
=== ====== ============== ======
</TABLE>
S-33
<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.................... 1 $ 412,502.21 1.08%
1998.................... 61 6,856,631.63 17.89
1999.................... 280 31,054,720.17 81.03
--- -------------- ------
Total............... 342 $38,323,854.01 100.00%
=== ============== ======
</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>
$ 20,000 to $ 29,999.... 4 $ 116,098.16 .30%
$ 30,000 to $ 39,999.... 11 395,921.29 1.03
$ 40,000 to $ 49,999.... 17 754,681.45 1.97
$ 50,000 to $ 59,999.... 26 1,431,278.78 3.73
$ 60,000 to $ 69,999.... 30 1,938,756.56 5.06
$ 70,000 to $ 79,999.... 36 2,664,050.74 6.95
$ 80,000 to $ 89,999.... 36 3,044,232.75 7.94
$ 90,000 to $ 99,999.... 32 3,022,192.08 7.89
$100,000 to $109,999.... 25 2,607,954.64 6.81
$110,000 to $119,999.... 20 2,280,379.93 5.95
$120,000 to $129,999.... 29 3,627,746.97 9.47
$130,000 to $139,999.... 16 2,174,052.09 5.67
$140,000 to $149,999.... 13 1,889,451.25 4.93
$150,000 to $159,999.... 8 1,222,399.48 3.19
$200,000 to $249,999.... 4 975,227.89 2.54
$250,000 to $299,999.... 24 6,545,773.71 17.09
Greater than $299,999... 11 3,633,656.24 9.48
--- -------------- ------
Total............... 342 $38,323,854.01 100.00%
=== ============== ======
</TABLE>
S-34
<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>
7.001% to 8.000%....... 7 $ 1,464,926.88 3.82%
8.001% to 9.000%....... 68 8,829,399.34 23.04
9.001% to 10.000%...... 163 18,628,592.12 48.61
10.001% to 11.000%...... 78 7,464,588.10 19.48
11.001% to 12.000%...... 21 1,591,339.68 4.15
12.001% to 13.000%...... 5 345,007.89 .90
--- -------------- ------
Total............... 342 $38,323,854.01 100.00%
=== ============== ======
</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 to 360.............. 342 $38,323,854.01 100.00%
--- -------------- ------
Total............... 342 $38,323,854.01 100.00%
=== ============== ======
</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........ 342 $38,323,854.01 100.00%
--- -------------- ------
Total.... 342 $38,323,854.01 100.00%
=== ============== ======
</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>
20.01% to 30.00%........ 1 $ 30,000.00 .08%
40.01% to 50.00%........ 1 66,125.31 .17
50.01% to 60.00%........ 6 355,621.73 .93
60.01% to 70.00%........ 16 1,659,020.32 4.33
70.01% to 80.00%........ 99 10,033,796.58 26.18
80.01% to 90.00%........ 157 18,119,246.48 47.28
90.01% to100.00%........ 62 8,060,043.59 21.03
--- -------------- ------
Total............... 342 $38,323,854.01 100.00%
=== ============== ======
</TABLE>
S-35
<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>
May 1999.................... 1 $ 72,999.87 .19%
August 1999................. 4 362,630.37 .95
September 1999.............. 1 412,502.21 1.08
March 2000.................. 1 42,989.44 .11
July 2000................... 3 512,704.42 1.34
August 2000................. 3 167,090.90 .44
September 2000.............. 8 920,914.87 2.40
October 2000................ 9 797,288.37 2.08
November 2000............... 12 1,108,607.13 2.89
December 2000............... 15 2,261,966.98 5.90
January 2001................ 38 3,977,759.80 10.38
February 2001............... 67 7,817,396.61 20.40
March 2001.................. 127 13,791,322.73 35.99
April 2001.................. 36 4,430,821.46 11.56
May 2001.................... 4 404,180.00 1.05
November 2001............... 1 101,011.50 .26
December 2001............... 3 372,772.89 .97
February 2002............... 5 545,126.54 1.42
March 2002.................. 2 117,767.92 .31
April 2002.................. 2 106,000.00 .28
--- -------------- ------
Total................... 342 $38,323,854.01 100.00%
=== ============== ======
</TABLE>
S-36
<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>
4.000% to 4.249%........ 1 $ 63,949.57 .17%
4.500% to 4.749%........ 1 93,618.57 .24
4.750% to 4.999%........ 1 129,929.57 .34
5.000% to 5.249%........ 8 770,994.92 2.01
5.250% to 5.499%........ 3 206,348.06 .54
5.500% to 5.749%........ 11 1,247,033.53 3.25
5.750% to 5.999%........ 12 1,634,081.49 4.26
6.000% to 6.249%........ 32 3,839,011.89 10.02
6.250% to 6.499%........ 47 5,444,028.49 14.21
6.500% to 6.749%........ 37 4,359,244.86 11.37
6.750% to 6.999%........ 50 6,782,699.69 17.70
7.000% to 7.249%........ 49 5,035,971.01 13.14
7.250% to 7.499%........ 35 3,721,096.27 9.71
7.500% to 7.749%........ 21 1,871,348.62 4.88
7.750% to 7.999%........ 16 1,760,693.90 4.59
8.000% to 8.249%........ 9 716,978.87 1.87
8.250% to 8.499%........ 4 297,294.22 .78
8.500% to 8.749%........ 1 29,600.00 .08
8.750% to 8.999%........ 2 199,624.61 .52
9.250% to 9.499%........ 1 44,764.45 .12
9.500% to 9.749%........ 1 75,541.42 .20
--- -------------- ------
Total............... 342 $38,323,854.01 100.00%
=== ============== ======
</TABLE>
S-37
<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>
11.500% to 11.749%...... 1 $ 84,000.00 .22%
12.750% to 12.999%...... 3 260,338.84 .68
13.750% to 13.999%...... 1 108,500.00 .28
14.000% to 14.249%...... 4 751,206.14 1.96
14.250% to 14.499%...... 4 791,163.93 2.06
14.500% to 14.749%...... 11 1,125,169.09 2.94
14.750% to 14.999%...... 31 3,971,573.38 10.36
15.000% to 15.249%...... 15 1,631,838.77 4.26
15.250% to 15.499%...... 33 3,932,484.76 10.26
15.500% to 15.749%...... 21 2,299,762.41 6.00
15.750% to 15.999%...... 67 8,116,762.90 21.18
16.000% to 16.249%...... 23 3,121,056.58 8.14
16.250% to 16.499%...... 25 2,875,196.57 7.50
16.500% to 16.749%...... 22 2,127,579.87 5.55
16.750% to 16.999%...... 24 2,501,519.97 6.53
17.000% to 17.249%...... 9 808,666.53 2.11
17.250% to 17.499%...... 12 952,514.65 2.49
17.500% to 17.749%...... 10 713,364.46 1.86
17.750% to 17.999%...... 11 1,052,440.98 2.75
18.000% to 18.249%...... 4 284,897.90 .74
18.250% to 18.499%...... 5 460,504.52 1.20
18.500% to 18.749%...... 3 182,126.08 .48
18.750% to 18.999%...... 2 126,421.23 .33
19.250% to 19.499%...... 1 44,764.45 .12
--- -------------- ------
Total............... 342 $38,323,854.01 100.00%
=== ============== ======
</TABLE>
S-38
<PAGE>
Minimum Loan Rates--Initial Group II Adjustable Rate Loans
<TABLE>
<CAPTION>
% of Initial
Group II
Adjustable Rate
Loans by
Number of Outstanding
Loans Aggregate Principal 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>
5.500% to 5.749%............... 2 $ 296,276.49 .77%
5.750% to 5.999%............... 4 491,988.73 1.28
6.000% to 6.249%............... 6 833,429.82 2.17
6.250% to 6.499%............... 3 295,957.70 .77
6.500% to 6.749%............... 2 208,087.29 .54
6.750% to 6.999%............... 7 1,185,131.85 3.09
7.000% to 7.249%............... 9 987,024.49 2.58
7.250% to 7.499%............... 5 524,302.06 1.37
7.500% to 7.749%............... 2 204,252.74 .53
7.750% to 7.999%............... 4 629,718.57 1.64
8.000% to 8.249%............... 5 510,486.15 1.33
8.250% to 8.499%............... 6 846,262.10 2.21
8.500% to 8.749%............... 14 1,348,874.34 3.52
8.750% to 8.999%............... 35 5,012,284.82 13.08
9.000% to 9.249%............... 17 1,655,536.30 4.32
9.250% to 9.499%............... 36 4,338,780.94 11.32
9.500% to 9.749%............... 25 2,816,194.91 7.35
9.750% to 9.999%............... 59 6,546,818.89 17.09
10.000% to 10.249%............... 19 2,679,159.72 6.99
10.250% to 10.499%............... 21 2,098,375.96 5.48
10.500% to 10.749%............... 20 1,527,853.89 3.99
10.750% to 10.999%............... 15 1,416,637.82 3.70
11.000% to 11.249%............... 7 433,153.00 1.13
11.250% to 11.499%............... 5 451,520.05 1.18
11.500% to 11.749%............... 5 292,318.57 .76
11.750% to 11.999%............... 3 295,863.34 .77
12.000% to 12.249%............... 2 149,808.32 .39
12.250% to 12.499%............... 3 172,213.73 .45
12.500% to 12.749%............... 1 75,541.42 .20
--- -------------- ------
Total.......................... 342 $38,323,854.01 100.00%
=== ============== ======
</TABLE>
S-39
<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 of
such home equity loans are of the type to be included in the loan pool, and
thus the information presented is not necessarily indicative of our delinquency
experience with respect to home equity loans similar to the loans in the loan
pool. In addition, we began originating, purchasing and servicing home equity
loans in January 1996, and as a result have no significant experience with
respect to the performance of such loans. Moreover, because all of our 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
<TABLE>
<CAPTION>
At December 31,
-----------------------
At
March 31,
1999 1998 1997 1996
--------- ------- ------ ------
<S> <C> <C> <C> <C>
Number of Loans Outstanding................ 126,945 114,399 65,355 17,731
Number of Loans Delinquent
30-59 Days............................... 1,794 2,390 1,141 504
60-89 Days............................... 524 670 283 94
90 Days or More.......................... 910 801 411 52
------- ------- ------ ------
Total Loans Delinquent..................... 3,228 3,861 1,835 650
Delinquencies as a Percent of Loans
Outstanding............................... 2.54% 3.38% 2.81% 3.67%
</TABLE>
The number of loans in the table excludes defaulted loans that have not yet
been liquidated. We consider a loan to be delinquent if any payment of $25 or
more is past-due by 30 days or more. The information of 1996 and later does not
include as delinquent the home equity loans of obligors that have entered
bankruptcy, so long as those obligors are current under their bankruptcy
payment plan.
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-40
<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 October 1, 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-1A ARM, Class A-1B ARM and 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-1A ARM and 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-1A ARM, Class A-1B ARM 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 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 can be no
S-41
<PAGE>
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 May 2029.
The expected final maturity of each class of certificates, based on the
assumptions that there are no defaults, prepayments or delinquencies with
respect to payments due under the loans and that the repurchase option has not
been exercised, are as follows:
<TABLE>
<CAPTION>
Class Expected Final Maturity
----- -----------------------
<S> <C>
A-1A ARM............................................. November 2025
A-1B ARM............................................. November 2025
A-1.................................................. December 2013
A-2.................................................. June 2016
A-3.................................................. July 2018
A-4.................................................. July 2019
A-5.................................................. May 2019
A-6 IO............................................... February 2001
M-1.................................................. March 2027
M-2.................................................. April 2029
B-1.................................................. December 2027
B-2.................................................. July 2029
</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.
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
S-42
<PAGE>
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 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 prepayment
scenarios;
(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 $607,349,974.55 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 eight 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 eight 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 eleven 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 eleven pools having the additional characteristics
described below under "Assumed Additional and Subsequent Group I
Adjustable Rate Loan Characteristics;"
(6) the initial group II adjustable rate loans will, as of the Cut-off
Date, be grouped into eleven pools having the additional
characteristics described below under "Assumed Initial Group II
Adjustable Rate Loan Characteristics," and the
S-43
<PAGE>
additional and subsequent group II adjustable rate loans will, as of
the Cut-off Date, be grouped into eleven pools having the additional
characteristics described below under "Assumed Additional and
Subsequent Group II 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 5.14%;
(9) the rate for six-month LIBOR is 5.4275%;
(10) the subsequent loans will have their first scheduled payment date in
July 1999;
(11) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(12) no delinquencies or losses are experienced on the loans;
(13) distributions are made on the certificates on the 15th day of each
month, commencing in July 1999; and
(14) the certificates are issued on June 30, 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 outlined in 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 should make your investment decisions on a basis that includes your own
determination as to anticipated prepayment rates under a variety of the
assumptions discussed here.
S-44
<PAGE>
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Adjustable Rate loans
(1).................... 18% 24% 30% 36% 42%
Fixed-Rate loans (2).... 75% 100% 125% 150% 175%
</TABLE>
- --------
(1) As a CPR percentage.
(2) As a percentage of the prepayment assumption.
Assumed Initial Fixed-Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted Balloon Loan
Weighted Average Average Weighted
Average Remaining Term Original Term Average
Cut-off Date Pool Loan to Maturity to Maturity Amortization
Pool Principal Balance Rate (months) (months) Term
- ---- ----------------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. ....... $ 2,561,309.03 12.420% 67 67 NA
2. ....... 12,038,262.58 12.297 118 119 NA
3. ....... 52,636,180.59 11.918 179 179 NA
4. ....... 101,526,553.35 11.672 239 240 NA
5. ....... 57,506,264.07 11.235 299 300 NA
6. ....... 133,138,748.54 10.029 357 360 NA
7. ....... 88,819,298.84 11.265 179 180 360
8. ....... 44,805,342.69 10.972 240 240 360
</TABLE>
Assumed Additional and Subsequent Fixed-Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted Balloon Loan
Weighted Average Average Weighted
Cut-off Date Average Remaining Term Original Term Average
Pool Principal Loan to Maturity to Maturity Amortization
Pool Balance Rate (months) (months) Term
- ---- --------------- -------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1. ........ $ 2,373,956.38 12.420% 67 67 NA
2. ........ 11,157,697.09 12.297 119 119 NA
3. ........ 48,785,990.08 11.918 179 179 NA
4. ........ 94,100,167.77 11.672 240 240 NA
5. ........ 53,299,840.47 11.235 300 300 NA
6. ........ 123,400,018.62 10.029 360 360 NA
7. ........ 82,322,413.66 11.265 180 180 360
8. ........ 41,527,956.24 10.972 240 240 360
</TABLE>
S-45
<PAGE>
Assumed Initial Group I Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Date Weighted Remaining Original Weighted
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. ..................... $1,577,259.37 9.993% 359 360 6.897% 16.803% 8.700% 2.063% 35
2. ..................... 1,330,253.31 10.180 352 360 6.025 16.374 9.141 1.447 5
3. ..................... 1,890,196.06 10.262 353 360 6.905 16.794 9.646 2.963 15
4. ..................... 1,441,891.34 9.758 355 360 6.520 16.094 9.075 2.595 18
5. ..................... 1,971,619.33 10.073 356 360 6.793 16.478 9.861 2.878 19
6. ..................... 3,948.461.15 10.158 357 360 6.824 16.616 10.057 2.852 20
7. ..................... 6,751,900.06 10.000 358 360 6.898 16.145 9.813 2.887 21
8. ..................... 18,784,883.04 9.816 359 360 6.708 15.976 9.509 2.811 22
9. ..................... 30,601,154.26 9.667 360 360 6.931 15.960 9.343 2.793 23
10. .................... 6,400,146.90 9.480 360 360 6.781 15.604 9.283 2.836 24
11. .................... 1,296,396.03 9.800 358 360 7.127 16.091 8.552 2.437 29
</TABLE>
Assumed Initial Group II Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Date Weighted Remaining Original Weighted
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. ..................... $ 768,894.46 9.540% 359 360 6.758% 15.944% 9.540% 2.548% 35
2. ..................... 848,132.45 9.588 350 360 5.951 15.738 9.509 1.973 5
3. ..................... 1,643,699.63 9.381 353 360 6.398 15.838 9.050 2.360 17
4. ..................... 797,288.37 10.313 355 360 6.739 16.734 8.308 2.820 18
5. ..................... 1,108,607.13 10.101 356 360 6.845 16.589 9.451 3.000 19
6. ..................... 2,261,966.98 10.136 357 360 6.746 16.641 10.136 2.732 20
7. ..................... 3,977,759.80 9.952 358 360 6.847 16.225 9.758 2.927 21
8. ..................... 7,817,396.61 9.524 359 360 6.511 15.790 9.223 2.905 22
9. ..................... 13,791,322.73 9.638 360 360 6.878 15.873 9.228 2.818 23
10. .................... 4,430,821.46 9.427 360 360 6.816 15.481 8.820 2.887 24
11. .................... 877,964.39 9.559 358 360 6.848 15.674 8.961 2.245 29
</TABLE>
Assumed Additional and Subsequent Group I Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Date Weighted Remaining Original Weighted
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. ..................... $3,611,492.48 9.949% 360 360 5.996% 16.126% 9.284% 1.651% 5
2. ..................... 3,045,916.17 9.852 360 360 6.669 16.349 9.369 2.683 16
3. ..................... 4,328,031.89 9.956 360 360 6.598 16.322 8.802 2.675 18
4. ..................... 3,301,536.72 10.083 360 360 6.811 16.518 9.713 2.922 19
5. ..................... 4,514,468.90 10.150 360 360 6.795 16.625 10.086 2.808 20
6. ..................... 9,040,895.88 9.983 360 360 6.879 16.175 9.792 2.902 21
7. ..................... 15,460,004.07 9.730 360 360 6.650 15.921 9.425 2.839 22
8. ..................... 43,012,243.31 9.658 360 360 6.915 15.933 9.307 2.801 23
9. ..................... 70,068,271.91 9.458 360 360 6.795 15.554 9.093 2.857 24
10. .................... 14,654,585.56 9.703 360 360 7.014 15.923 8.717 2.360 29
11. .................... 2,968,392.26 9.844 360 360 6.852 16.522 8.975 2.222 35
</TABLE>
S-46
<PAGE>
Assumed Additional and Subsequent Group II Adjustable Rate Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Cut-off Date Weighted Remaining Original Weighted
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. ..................... $1,237,413.31 9.949% 360 360 5.996% 16.126% 9.284% 1.651% 5
2. ..................... 1,364,934.25 9.852 360 360 6.669 16.349 9.369 2.683 16
3. ..................... 2,645,273.05 9.956 360 360 6.598 16.322 8.802 2.675 18
4. ..................... 1,283,108.79 10.083 360 360 6.811 16.518 9.713 2.922 19
5. ..................... 1,784,126.80 10.150 360 360 6.795 16.625 10.086 2.808 20
6. ..................... 3,640,275.99 9.983 360 360 6.879 16.175 9.792 2.902 21
7. ..................... 6,401,571.57 9.730 360 360 6.650 15.921 9.425 2.839 22
8. ..................... 12,580,856.15 9.658 360 360 6.915 15.933 9.307 2.801 23
9. ..................... 22,194,939.84 9.458 360 360 6.795 15.554 9.093 2.857 24
10. .................... 7,130,702.23 9.703 360 360 7.014 15.923 8.717 2.360 29
11. .................... 1,412,944.01 9.844 360 360 6.852 16.522 8.975 2.222 35
</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.
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%
June 15, 2000........... 82 76 70 65 59
June 15, 2001........... 67 58 49 41 34
June 15, 2002........... 55 44 34 26 20
June 15, 2003........... 45 33 24 17 4
June 15, 2004........... 36 25 17 3 0
June 15, 2005........... 30 19 7 0 0
June 15, 2006........... 24 14 0 0 0
June 15, 2007........... 20 3 0 0 0
June 15, 2008........... 16 0 0 0 0
June 15, 2009........... 8 0 0 0 0
June 15, 2010........... 0 0 0 0 0
Weighted Average Life
(years)................ 4.3 3.2 2.5 2.0 1.6
</TABLE>
S-47
<PAGE>
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%
June 15, 2000........... 82 76 70 64 58
June 15, 2001........... 67 57 49 41 34
June 15, 2002........... 54 43 34 26 19
June 15, 2003........... 44 33 24 17 4
June 15, 2004........... 36 25 16 3 0
June 15, 2005........... 30 19 7 0 0
June 15, 2006........... 24 14 0 0 0
June 15, 2007........... 20 3 0 0 0
June 15, 2008........... 16 0 0 0 0
June 15, 2009........... 8 0 0 0 0
June 15, 2010........... 0 0 0 0 0
Weighted Average Life
(years)................ 4.3 3.2 2.5 2.0 1.6
</TABLE>
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%
June 15, 2000........... 63 52 40 29 18
June 15, 2001........... 13 0 0 0 0
June 15, 2002........... 0 0 0 0 0
Weighted Average Life
(years)................ 1.2 1.0 0.9 0.7 0.7
</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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 86 56 27 0
June 15, 2002........... 64 24 0 0 0
June 15, 2003........... 20 0 0 0 0
June 15, 2004........... 0 0 0 0 0
Weighted Average Life
(years)................ 3.4 2.6 2.1 1.8 1.6
</TABLE>
S-48
<PAGE>
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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 100 100 100 100
June 15, 2002........... 100 100 60 0 0
June 15, 2003........... 100 53 0 0 0
June 15, 2004........... 84 0 0 0 0
June 15, 2005........... 24 0 0 0 0
June 15, 2006........... 0 0 0 0 0
Weighted Average Life
(years)................ 5.6 4.1 3.1 2.6 2.2
</TABLE>
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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 100 100 100 100
June 15, 2002........... 100 100 100 66 0
June 15, 2003........... 100 100 54 0 0
June 15, 2004........... 100 84 12 0 0
June 15, 2005........... 100 40 0 0 0
June 15, 2006........... 94 10 0 0 0
June 15, 2007........... 53 0 0 0 0
June 15, 2008........... 13 0 0 0 0
June 15, 2009........... 0 0 0 0 0
Weighted Average Life
(years)................ 8.1 5.9 4.2 3.2 2.6
</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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 100 100 100 100
June 15, 2002........... 94 92 89 84 65
June 15, 2003........... 88 85 78 44 0
June 15, 2004........... 69 57 33 0 0
June 15, 2005........... 48 27 0 0 0
June 15, 2006........... 12 * 0 0 0
June 15, 2007........... 2 0 0 0 0
June 15, 2008........... * 0 0 0 0
June 15, 2009........... 0 0 0 0 0
Weighted Average Life
(years)................ 5.6 5.0 4.4 3.7 3.1
</TABLE>
- --------
*Indicates an amount greater than zero but less than .05% of the original Class
A-5 principal balance.
S-49
<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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 100 100 100 100
June 15, 2002........... 100 100 100 100 100
June 15, 2003........... 100 100 100 100 100
June 15, 2004........... 100 100 100 100 26
June 15, 2005........... 100 100 100 34 0
June 15, 2006........... 100 100 60 0 0
June 15, 2007........... 100 100 0 0 0
June 15, 2008........... 100 55 0 0 0
June 15, 2009........... 100 0 0 0 0
June 15, 2010........... 87 0 0 0 0
June 15, 2011........... 44 0 0 0 0
June 15, 2012........... 0 0 0 0 0
Weighted Average Life
(years)................ 11.7 9.0 7.1 5.8 4.7
</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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 100 100 100 100
June 15, 2002........... 100 100 100 100 100
June 15, 2003........... 100 100 100 100 100
June 15, 2004........... 100 100 100 100 100
June 15, 2005........... 100 100 100 100 0
June 15, 2006........... 100 100 100 0 0
June 15, 2007........... 100 100 0 0 0
June 15, 2008........... 100 100 0 0 0
June 15, 2009........... 100 0 0 0 0
June 15, 2010........... 100 0 0 0 0
June 15, 2011........... 100 0 0 0 0
June 15, 2012........... 0 0 0 0 0
Weighted Average Life
(years)................ 12.3 9.4 7.5 6.2 5.2
</TABLE>
S-50
<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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 100 100 100 100
June 15, 2002........... 100 100 100 100 100
June 15, 2003........... 100 52 37 25 16
June 15, 2004........... 63 11 0 0 0
June 15, 2005........... 29 0 0 0 0
June 15, 2006........... 0 0 0 0 0
Weighted Average Life
(years)................ 5.4 4.1 3.8 3.7 3.6
</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%
June 15, 2000........... 100 100 100 100 100
June 15, 2001........... 100 100 100 100 100
June 15, 2002........... 100 100 100 100 100
June 15, 2003........... 100 100 100 100 100
June 15, 2004........... 100 100 93 84 83
June 15, 2005........... 100 84 69 69 0
June 15, 2006........... 100 66 61 0 0
June 15, 2007........... 83 55 0 0 0
June 15, 2008........... 68 53 0 0 0
June 15, 2009........... 57 0 0 0 0
June 15, 2010........... 55 0 0 0 0
June 15, 2011........... 54 0 0 0 0
June 15, 2012........... 0 0 0 0 0
Weighted Average Life
(years)................ 10.5 8.0 6.8 5.9 5.1
</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, Saint 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
Green Tree, 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
S-52
<PAGE>
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, among other things, 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 &
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 "--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 July 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 $325,000,000 aggregate principal balance of subsequent loans
through September 12, 1999. 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.
Briggs and Morgan, Professional Association, 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) The Company has no reason to believe that any obligor will default
under any loan; provided that this representation will be deemed to
be breached, with respect to any loan, only if: (a) the combined
loan to value ratio for the loan was in excess of 80% as of the Cut-
off Date; (b) the loan is, within six months of the closing date, a
defaulted loan as to which the servicer has received from the
obligor, or a third party purchaser of the loan, all amounts which
the servicer reasonably and in good faith expects to recover from or
on account of the loan; (c) a net liquidation loss has been incurred
with respect to that loan; and (d) the aggregate liquidation loss
principal amount exceeds the aggregate original principal balance of
the Class M and Class B certificates;
(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 such
loan;
(16) each loan contains customary and enforceable provisions such 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.
S-56
<PAGE>
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 5.74%;
(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% of the loans, by principal balance as of the Cut-off
Date, were originated by any one lender; and
(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 the 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.
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.
The repurchase or subsitution of loans constitute the sole remedies 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.
S-57
<PAGE>
Green Tree may, at its option, substitute new loans for loans which are
prepaid in full prior to October 1, 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.
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 $325,000,000 on the
closing date to provide the trust with sufficient funds to purchase subsequent
loans. In no event will the pre-funded amount, less the aggregate principal
balance of subsequent loans specifically identified for purchase by the trust
as of the closing date, represent more than 25% of the original certificate
principal balance. 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) September 12, 1999; 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-1A ARM,
Class A-1B ARM and 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-1A ARM and 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.
S-58
<PAGE>
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-1A ARM,
Class A-1B ARM or 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;
(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 F1 by Fitch if the
deposits are to be held in the certificate account for less than 30 days or
whose unsecured long-term debt has been rated in one of the two highest rating
categories by S&P and Fitch if the deposits are to be held in the certificate
account for 30 days or more, and
S-59
<PAGE>
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
subject to regulations regarding fiduciary funds on deposit similar to
federal regulations 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.
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 F1+ 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, any advances by the servicer or the trustee as
described under "Description of the Certificates--
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<PAGE>
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.
Distribution of Amount Available
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;
(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 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;
(5) 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;
(6) to reimburse Green Tree for any prior unreimbursed Class B-2 guaranty
payments;
(7) 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.
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<PAGE>
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,
. then to the Class M-2 certificates, and
. then to the Class B-1 certificates.
Interest will accrue 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, at the related pass-through rate from June 30,
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 ARM pass-through margin or the available
funds pass-through rate, but in no case more than 14%. The Class A-1A ARM pass-
through margin will equal 0.26% per year on each payment date on which the Pool
Scheduled Principal Balance is 10% or more of the aggregate principal balance
of the certificates on the closing date, and 0.52% per year on each payment
date on which the Pool Scheduled Principal Balance is less than 10% of the
aggregate principal balance of the certificates on the closing date. 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 ARM pass-through margin or the available funds pass-
through rate, but in no
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<PAGE>
case more than 14%. The Class A-1B ARM pass-through margin will equal 0.30% per
year on each payment date on which the Pool Scheduled Principal Balance is 10%
or more of the aggregate principal balance of the certificates on the closing
date, and 0.60% per year on each payment date on which the Pool Scheduled
Principal Balance 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 loans. The
expense adjusted loan rate on any adjustable rate loan is equal to the then
applicable loan rate, minus 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 S-72 of this prospectus supplement.
Interest will be calculated on the Class A-6 IO certificates on each payment
date based on the notional principal amount, which for the first 20 payment
dates is equal to $60,000,000 (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-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
M-1, Class M-2 and 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.
Formula Principal Distribution Amount. The formula principal distribution
amount is
(A) the sum of:
(1) all scheduled payments of principal due on each outstanding loan
during the related Due Period,
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<PAGE>
(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
(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
(B) the sum of (i) the lesser of (x) the Class A-1A ARM principal balance and
(y) the sum of the amounts described in clauses (B)(1) through (5) of the
definition of group I ARM formula principal distribution amount and (ii) the
lesser of (x) the Class A-1B ARM principal balance and (y) the sum of the
amounts described in clauses (B)(1) through (5) of the definition of group II
ARM formula principal distribution amount.
Holders of the Class A-1A ARM certificates and the Class A-1B ARM
certificates will generally be entitled to receive as payments of principal an
amount equal to the group I ARM formula principal distribution amount and the
group II ARM formula principal distribution amount, respectively.
Group I ARM Formula Principal Distribution Amount. 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;
(5) the amount, if any, by which the amounts described in clauses (B)(1)
through (4) of the definition of the group II ARM formula principal
distribution amount exceed the Class A-1B ARM principal balance
immediately prior to the payment date; and
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<PAGE>
(6) 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-1A ARM
principal balance versus the Class A-1B ARM principal balance) of (a) the
Senior Percentage multiplied by the excess of the sum of the amounts
described in clauses (A) (1) through (5) of the definition of the formula
principal distribution amount over the sum of (x) the amounts described in
clauses (B)(1) through (4) of the definition of the group I ARM formula
principal distribution amount and (y) the amounts described in clauses
(B)(1) through (4) of the definition of the group II ARM 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.
Group II ARM Formula Principal Distribution Amount. 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;
(5) the amount, if any, by which the amounts described in clauses (B)(1)
through (4) of the definition of the group I ARM formula principal
distribution amount exceed the Class A-1A ARM principal balance
immediately prior to the payment date; and
(6) 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 multiplied by the excess of the sum of the amounts
described in clauses (A)(1) through (5) of the definition of the formula
principal distribution amount over the sum of (x) the amounts described in
clauses (B)(1) through (4) of the definition of the group I ARM formula
principal distribution amount and (y) the amounts described in clauses
(B)(1) through (4) of the definition of the group II ARM 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.
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.
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<PAGE>
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 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:
. first, to the Class A-5 certificateholders, in an amount equal to
the Class A-5 lockout pro rata distribution amount,
. then, 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,
. 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.
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<PAGE>
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>
July 1999 through June 2001............................... 0%
July 2001 through June 2003............................... 20%
July 2003 through June 2004............................... 80%
July 2004 through June 2005............................... 100%
July 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 payment date in July 2002.
On each payment date on or after the Class B cross-over date and on which the
Class M-2 principal balance has not 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 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 20% of the senior subordination
percentage, as defined below;
(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
17.4%.
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.
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<PAGE>
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 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.
Senior Subordination Percentage. The Senior Subordination Percentage for any
payment date will equal
(A) on any payment date on which the Class A principal balance has not been
reduced to zero, a fraction, expressed as a percentage, the numerator of which
is the sum of
. the Class M-1 adjusted principal balance, if any,
. the Class M-2 adjusted principal balance, if any,
. the Class B-1 adjusted principal balance, if any, and
. the Class B-2 principal balance, if any, and the denominator of which
is the pool scheduled principal balance of the loans or
(B) on any payment date on which the Class A principal balance has been
reduced to zero and the Class M-1 principal balance has not been reduced to
zero, a fraction, expressed as a percentage, the numerator of which is the sum
of
. the Class M-2 adjusted principal balance, if any,
. the Class B-1 adjusted principal balance, if any, and
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<PAGE>
. the Class B-2 principal balance, if any, and the denominator of which
is the pool scheduled principal balance of the loans or
(C) on any payment date on which the Class M-1 principal balance has been
reduced to zero and the Class M-2 principal balance has not been reduced to
zero, a fraction, expressed as a percentage, the numerator of which is the sum
of
. the Class B-1 adjusted principal balance, if any, and
. the Class B-2 principal balance, if any, and the denominator of which
is the pool scheduled principal balance of the loans.
Liquidation Loss Interest
Liquidation loss interest will be distributable first to the Class M-1
certificates, then to the Class M-2 certificates and then to the Class B-1
certificates. Interest on the outstanding Class M-1 liquidation loss amount,
Class M-2 liquidation loss amount and Class B-1 liquidation loss amount, as
applicable, will accrue from the settlement date, or from the most recent
payment date on which interest has been paid to but excluding the following
payment date.
Class A-1A ARM Available Funds Cap Carryover Amount
If on any distribution date, the Class A-1A ARM pass-through rate is based on
the available funds pass-through rate, holders of such certificates will be
entitled to receive the Available Funds Cap Carryover Amount to the extent
funds are available. The Available Funds Cap Carryover Amount is the excess of
(A) the amount of interest the Class A-1A ARM certificateholders would be
entitled to receive on such payment date had interest been calculated
based on one-month LIBOR plus the Class A-1A ARM pass-through margin
(but in no event exceeding 14.00%) over
(B) the amount of interest such Class will receive on such payment date at
the Available Funds Pass-Through Rate, together with the unpaid
portion of any such excess from prior payment dates (and interest
accrued thereon at the then applicable Class A-1A ARM pass-through
rate, without giving effect to the Available Funds Pass-Through Rate,
but in no event exceeding 14.00%).
The ratings assigned to the Class A-1A ARM certificates do not address the
likelihood of the payment of Available Funds Cap Carryover Amount.
Class A-1B ARM Available Funds Cap Carryover Amount
If on any distribution date, the Class A-1B ARM pass-through rate is based on
the available funds pass-through rate, holders of such certificates will be
entitled to receive the Available Funds Cap Carryover Amount to the extent
funds are available. The Available Funds Cap Carryover Amount is the excess of
(A) the amount of interest the Class A-1B ARM certificateholders would be
entitled to receive on such payment date had interest been calculated
based on one-month
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<PAGE>
LIBOR plus the Class A-1B ARM pass-through margin (but in no event
exceeding 14.00%) over
(B) the amount of interest such Class will receive on such payment date
at the available funds pass-through rate, together with the unpaid
portion of any such excess from prior payment dates (and interest
accrued thereon at the then applicable Class A-1B ARM pass-through
rate, without giving effect to the available funds pass-through rate,
but in no event exceeding 14.00%).
The ratings assigned to the Class A-1B ARM certificates do not address the
likelihood of the payment of Available Funds Cap Carryover Amount.
Class B-2 Interest.
Interest will accrue on the outstanding Class B-2 principal balance from
June 30, 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 on a payment date after payment
of all interest and principal then payable on the Class A, Class M-1, Class M-
2 and Class B-1 certificates, 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 9.95%, 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 Class B-1 cross-over date, which is the 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 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
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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.
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.
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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 the Amount Available, will be subordinated to the
rights of the holders of the Class A certificates. This 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-2 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-2 certificateholders will be entitled to distributions of interest and
principal on the Class B-2 certificates only after distributions of all
interest and principal then payable on the Class A, Class M and Class B-1
certificates.
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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.
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-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),
. then the Class B-2 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. Severe
losses and delinquencies on the loan pool will create this kind of a
deficiency. In this event, the amount of the deficiency would be allocated
first to the Class B-2 certificates, 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 and the Class B-1 principal balance
was 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-1 adjusted
principal balance. If the Class B-1 adjusted principal balance were reduced to
zero, any further liquidation loss amounts realized would
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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 amounts realized would be allocated to reduce the Class M-1 adjusted
principal balance. 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 or Class B-2 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, plus
interest at the applicable pass-through 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 and Class B-1 certificates, 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-2 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.
But for the payments under the Class B-2 limited guaranty described below and
the subordination of the 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.
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Capitalized Interest Account
Because payments received with respect to interest on the loans may be
insufficient to cover payments of interest on the certificates on the payment
dates in July, August and September 1999, a capitalized interest account will
be established on the closing date with a deposit of an amount approved by the
rating agencies. Funds on deposit in the capitalized interest account will be
invested in eligible investments (as described under "--Payments on Loans"). If
the Amount Available is insufficient to make a full distribution of interest on
the certificates (other than the Class B-2 Certificates) on the payment dates
in July, August and September 1999, the trustee will withdraw the amount of any
such shortfall from the capitalized interest account and deposit such amount in
the certificate account. The capitalized interest account will be part of the
trust but not part of the master REMIC or the subsidiary REMIC. Any funds
remaining on deposit in the capitalized interest account after the distribution
to certificateholders in September 1999 will be released to a subsidiary of
Green Tree.
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;
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(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;
(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.
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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.
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-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 B-1
certificates allocable to interest (separately identifying any unpaid
interest shortfall included);
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(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);
(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-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;
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(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.
Repurchase Option
The pooling and servicing agreement provides that at any time that the Pool
Scheduled Principal Balance 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,
(3) any accrued but unpaid interest thereon, including interest (to the
extent not paid on a prior payment date) on the Class A-1A 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 14.00% if less), calculated on the Class A-1A 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, and
(4) any accrued but unpaid interest thereon, including interest (to the
extent not paid on a prior payment date) on the Class 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 14.00% if less), calculated on the Class 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.
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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 .50% 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.
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
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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;
(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,
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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 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 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.
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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:
(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.
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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 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 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,
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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 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
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(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 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
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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 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
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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. Euroclear Clearance System, S.C.
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 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 the Class B-1 cross-
over date, and on any payment date on or after the Class B-1 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 accrued and unpaid interest on the Class B-2
certificates and (b) the Class B-2 liquidation loss principal amount
for that payment date exceeds:
(2) the Class B-2 distribution amount for that 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 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 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 accrued interest and principal due on the Class
B-2 certificate and (ii) the Class B-2 principal liquidation loss
amount, if any, for that payment date exceeds
(b) the Class B-2 distribution amount for that 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 or Class B-1 certificateholders.
As compensation for providing the limited guaranty, Green Tree will be
entitled to receive a guaranty fee on each distribution date, which generally
will be equal to the lesser of (A) one-twelfth of the product of 3.00% and the
sum of the pool scheduled principal balance and the pre-funded amount for the
immediately preceding payment date or (B) the amount available for payment
after all distributions on the certificates.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the certificates, Briggs and Morgan, Professional
Association, 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 a 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 a 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:
. 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 rating
agency rating the certificates, the related underwriter and the
related trustee) stating whether or not the characteristics of the
additional Obligations conform to the
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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
. 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.
S-93
<PAGE>
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 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, 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.
S-94
<PAGE>
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 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.
S-95
<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>
Lehman Brothers Inc. ... $ 41,668,000 $ 16,668,000 $ 45,834,000 $ 35,126,000 $11,184,000 $12,821,000
Banc of America
Securities LLC......... 41,666,400 16,666,400 45,833,200 35,124,800 11,183,200 12,820,800
Chase Securities Inc. .. 41,666,400 16,666,400 45,833,200 35,124,800 11,183,200 12,820,800
Credit Suisse First
Boston Corporation..... 41,666,400 16,666,400 45,833,200 35,124,800 11,183,200 12,820,800
First Union Capital
Markets.......... 41,666,400 16,666,400 45,833,200 35,124,800 11,183,200 12,820,800
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated..... 41,666,400 16,666,400 45,833,200 35,124,800 11,183,200 12,820,800
------------ ------------ ------------ ------------ ----------- -----------
Totals................ $250,000,000 $100,000,000 $275,000,000 $210,750,000 $67,100,000 $76,925,000
============ ============ ============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Principal Percentage Principal
Amount of Interest of Amount of
Class A-5 Class A-6 IO Class M-1
Underwriter Certificates Certificates Certificates
----------- ------------ ------------ ------------
<S> <C> <C> <C>
Lehman Brothers Inc. ................... $11,013,000 100% $11,808,500
Banc of America Securities LLC.......... 11,012,400 0 11,808,300
Chase Securities Inc. .................. 11,012,400 0 11,808,300
Credit Suisse First Boston Corporation.. 11,012,400 0 11,808,300
First Union Capital Markets............. 11,012,400 0 11,808,300
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..................... 11,012,400 0 11,808,300
----------- --- -----------
Totals................................ $66,075,000 100% $70,850,000
=========== === ===========
</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>
Underwriting Selling Reallowance
Class Discount Concession Discount
----- ------------ ---------- -----------
<S> <C> <C> <C>
A-1A ARM............................ 0.300% 0.200% 0.100%
A-1B ARM............................ 0.300% 0.200% 0.100%
A-1................................. 0.210% 0.150% 0.075%
A-2................................. 0.260% 0.150% 0.075%
A-3................................. 0.400% 0.250% 0.125%
A-4................................. 0.460% 0.300% 0.150%
A-5................................. 0.480% 0.300% 0.050%
A-6 IO.............................. 0.160% 0.100% 0.050%
M-1................................. 0.500% 0.300% 0.150%
</TABLE>
S-96
<PAGE>
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
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 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 Briggs and Morgan, Professional Association, Saint 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 Briggs and Morgan,
Professional Association.
S-97
<PAGE>
Green Tree Financial Corporation, Seller and Servicer
Certificates for Home Equity Loans
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 June 24, 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.
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 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, 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 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 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 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 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 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
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 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's interest in any loan or receives written notice of a breach from
the trustee or the servicer, then we
6
<PAGE>
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 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.
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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 when the
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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 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 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.
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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 includes both senior and
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 that includes senior and 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 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 with
respect to 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. 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 the 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 the 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;
(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, 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, 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.
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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, 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 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
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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 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, 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
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 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 will, 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 will 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.
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 certificateholders of the 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 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, 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 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
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, 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 chemicals,
hazardous
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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 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 for violation of any law and
such claim materially adversely affects
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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 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 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
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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 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 will be treated either as regular interests in the REMIC within
the meaning of Section 860G(a)(1) of the IRS code or as residual interests in
the REMIC within the meaning of Section 860G(a)(2) of the IRS code.
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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 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 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;
. 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 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, 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 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. 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
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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, 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 a
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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 Treasury 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 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
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loss for 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 remain
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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, 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 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. In the case of a trust 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 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 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
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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.
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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.
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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.
"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 loans 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
1st day of the second month preceding the payment date, to and including the
last 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 loan
during the related due period, after adjustments for previous partial
principal prepayments and after any adjustments to a loan's
amortization schedule as a result of a bankruptcy or a similar
proceeding involving the related obligor,
(2) the Scheduled Principal Balance of each loan 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 loan during the related due period, plus the amount of any
reduction in the outstanding principal balance of a loan 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 loans 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 10th day of the month
before the payment rate, minus
(6) with respect to all payment dates other than the payment date in July
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 September 1999, any remaining
amounts on deposit on the pre-funding account.
"Liquidation Proceeds" means cash including insurance proceeds received in
connection with the liquidation of defaulted loans, whether through
repossession, foreclosure, sale or otherwise.
"Monthly Payment" means the scheduled monthly payment of principal and interest
on a loan.
"Net Liquidated Proceeds" means all amounts received and retained for the
liquidation of defaulted loans, 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 loans outstanding at the end of the
related due period.
"Repurchase Price" means the remaining principal amount outstanding on a home
equity loan on the date of repurchase plus accrued and unpaid interest at its
loan rate to the date of the repurchase.
"Scheduled Principal Balance" means, as of any payment date, the unpaid
principal balance of the loan as specified in the amortization schedule at the
time relating to the loan 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 loan.
"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.
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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.
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