<PAGE>
As filed with the Securities and Exchange Commission on March 31, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
GREEN TREE FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
---------------
Delaware 41-1807858
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1100 Landmark Towers
345 St. Peter Street
Saint Paul, Minnesota 55102-1639
(612) 293-3400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Joel H. Gottesman
300 Landmark Towers
345 St. Peter Street
Saint Paul, Minnesota 55102-1639
(612) 293-3400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Charles F. Sawyer Cathy M. Kaplan
Dorsey & Whitney LLP Brown & Wood LLP
220 South Sixth Street One World Trade Center
Minneapolis, Minnesota 55402 New York, New York 10048
---------------
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of each class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered Registered per unit(1) offering price fee(2)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Manufactured Housing
Contract
Pass-Through
Certificates......... $4,000,000,000 100% $4,000,000,000 $1,112,000
- -----------------------------------------------------------------------------------
Limited Guarantee of
Green Tree Financial
Corporation.......... (3) (3) (3) (3)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum aggregate offering price, pursuant to
Rule 457(c).
(2) The amount of Manufactured Housing Contract Pass Through Certificates
being carried forward from Registration Statement No. 333-63265 pursuant
to Rule 429 is $639,782,945, and the Registrant previously paid a filing
fee with respect to such securities of $188,736 (calculated at the rate of
$295 per $1,000,000 of the amount of securities registered, the rate in
effect at the time such Registration Statement was filed).
(3) No additional consideration will be paid for the Limited Guarantee;
accordingly, no separate filing fee is being paid herewith pursuant to
Rule 457(n).
---------------
Pursuant to Rule 429, the Prospectus contained in this Registration
Statement relates to and constitutes Post-Effective Amendment No. 1 to
Registration Statement No. 333-63265, which first became effective on
September 25, 1998.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This preliminary Prospectus Supplement and the information contained herein +
+are subject to completion or amendment and prospective purchasers are +
+referred to the related final Prospectus Supplement for definitive +
+information on any matter contained herein. This preliminary Prospectus +
+Supplement shall not constitute an offer to sell or the solicitation of an +
+offer to buy nor shall there be any sale of these securities in any +
+jurisdiction in which such offer, solicitation or sale would be unlawful +
+prior to registration or qualification under the securities laws of any such +
+jurisdiction. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT
(To Prospectus dated February , 1999)
$ (Approximate)
GREEN TREE
Seller and Servicer
Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates
Series 1999-
The Certificates will consist of 14 classes, but we are offering only the
following classes now:
<TABLE>
<CAPTION>
Remittance Approximate Price to Underwriting Proceeds to
Class Rate Principal Amount(1) Public(2) Discount Company(3)
----- ---------- ------------------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
A-1....... % $ % % %
A-2....... % $ % % %
A-3....... % $ % % %
A-4....... % $ % % %
A-5....... % $ % % %
A-6....... % $ % % %
A-7....... %(4) $ % % %
M-1....... %(4) $ % % %
M-2....... %(4) $ % % %
B-1....... %(4) $ % % %
B-2....... %(4) $ % % %
----- -----
Total..... $ $
===== =====
</TABLE>
-----
(1) May vary plus or minus 5%.
(2) Plus any accrued interest beginning on , 1999.
(3) Before deducting expenses, which we estimate to be $515,000.
(4) Or the weighted average of the rates on the contracts in the contract
pool, if less.
Consider carefully the Risk Factors beginning on page S-9 in this
prospectus supplement and on page 9 in the prospectus.
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.
These Certificates will be delivered through the Same-Day Funds Settlement
System of the Depository Trust Company on or about , 1999.
The underwriters named below will offer 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-57 in this prospectus supplement and
on page 58 in the prospectus.
[Underwriters]
The date of this prospectus supplement is , 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Offered Certificates........................... S-3
Risk Factors............................................................... S-9
Structure of the Transaction............................................... S-11
The Contract Pool.......................................................... S-11
Green Tree Financial Corporation........................................... S-16
Yield and Prepayment Considerations........................................ S-19
Description of the Certificates............................................ S-32
Use of Proceeds............................................................ S-53
ERISA Considerations....................................................... S-54
Legal Investment Considerations............................................ S-56
Underwriting............................................................... S-57
Legal Matters.............................................................. S-58
</TABLE>
Prospectus
<TABLE>
<S> <C>
Important Information About Information Presented in this Prospectus and
the Accompanying Prospectus Supplement................................... 2
Reports to Holders of the Certificate..................................... 2
Where You Can Find More Information....................................... 2
Summary of the Terms of the Certificates.................................. 4
Risk Factors.............................................................. 9
The Trust Fund............................................................ 11
Use of Proceeds........................................................... 13
Green Tree Financial Corporation.......................................... 13
Yield Considerations...................................................... 15
Maturity and Prepayment Considerations.................................... 16
Description of the Certificates........................................... 16
Description of FHA Insurance and VA Guarantees............................ 32
Certain Legal Aspects of the Contracts.................................... 33
ERISA Considerations...................................................... 39
Certain Federal Income Tax Consequences................................... 41
Legal Investment Considerations........................................... 58
Ratings................................................................... 59
Underwriting.............................................................. 59
Legal Matters............................................................. 60
Experts................................................................... 60
Glossary.................................................................. 61
</TABLE>
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy,
the Certificates in any jurisdiction where, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
an implication that there has not been any change in the facts set forth in
this Prospectus or in the affairs of the Trust since the date hereof.
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation
("Green Tree" or the "Company"), about Green Tree's manufactured housing
lending business, and about any series of certificates for manufactured housing
loans that Green Tree may wish to sell. This prospectus supplement contains
more detailed information about this series of certificates. Since the terms of
this series may differ from the general information provided in the prospectus,
you should rely on the information in this prospectus supplement rather than
any different information in the prospectus.
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.
S-2
<PAGE>
SUMMARY OF THE TERMS OF THE OFFERED 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.
The classes of Certificates (the "Certificates"), Series 1999, listed
in the table below will represent interests in a trust (the "Trust") consisting
of a pool of manufactured housing contracts and installment loan agreements.
<TABLE>
<CAPTION>
Approximate S&P Fitch
Class Remittance Rate Principal Amount (1) Rating Rating
- ----- --------------- -------------------- ------ ------
<S> <C> <C> <C> <C>
A-1.......................... % $
A-2..........................
A-3..........................
A-4..........................
A-5..........................
A-6..........................
A-7.......................... (2)
M-1.......................... (2)
M-2.......................... (2)
B-1.......................... (2)
B-2.......................... (2)
B-3I......................... (3)
C Master..................... (4)
C Subsidiary................. (4)
</TABLE>
- -------
(1) May vary plus or minus 5%.
(2) Or the weighted average of the rates on the contracts in the contract pool,
if less.
(3) This class is entitled to any excess interest on each remittance date.
(4)This class is not entitled to any distributions of interest.
Only some classes of the Certificates are being offered pursuant to this
prospectus supplement and prospectus, and they are identified on the cover page
of this prospectus supplement. Green Tree (or an affiliate) initially will
retain the Class B-2 Certificates, but may sell any or all of these
Certificates in negotiated transactions or otherwise at varying prices to be
determined at the time of the sale. The proceeds to the Company from any sale
of the Class B-2 Certificates will be the purchase price paid by the purchaser,
less any expenses payable by the Company and any compensation payable to any
underwriter and dealer.
Seller and Servicer........ Green Tree Financial Corporation.
Trustee.................... [Trustee]
Remittance Date............ The first day of each month, or, if that first
day is not a business day, the next succeeding
business day, beginning in 1999.
Record Date................ The business day just before the related
remittance date.
Priority of Distributions on the Certificates on any
Distributions............. remittance date will be made primarily from
amounts collected on the Contracts during the
prior calendar month (the "Amount Available"). On
each remittance date, the Trustee will apply the
Amount Available to make distributions of
principal and interest on the Certificates in the
following order of priority:
^ Class A interest
^ Class M-1 interest
S-3
<PAGE>
^ 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
^ Class B-2 principal
See "Description of the Certificates--Payments on
Contracts; Distributions on Certificates" for a
detailed description of the amounts that will
constitute the Amount Available for any
remittance date.
A. Interest on the Class
A, Class M-1, Class M-2
and Class B-1
Certificates............. Interest will be payable on each remittance date
first to each Class of Class A Certificates
concurrently, then to the Class M-1 Certificates,
then to the Class M-2 Certificates, and then to
the Class B-1 Certificates to the extent of the
Amount Available. See "Description of the
Certificates--Distributions" and "--Losses on
Liquidated Contracts" for a more detailed
description of the calculation of interest
payable on the Certificates.
B. Principal on the Class
A, Class M-1, Class M-2
and Class B-1
Certificates............. After paying the amounts of interest due on the
Certificates described above, 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. The applicable class
percentage of a formula amount dictated by the
principal due (whether or not collected) and
certain other collections on the Contracts for
that remittance date will be paid:
^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 A-6 Certificates until
retired, then
^to the Class A-7 Certificates until
retired, then
^to the Class M-1 Certificates, then
^to the Class M-2 Certificates, and then
^to the Class B-1 Certificates.
Prior to the Remittance Date in the applicable
class percentage for the Class M Certificates and
the Class B Certificates will probably be zero.
Thereafter, assuming delinquencies, defaults and
losses on the Contracts remain below certain
thresholds, the applicable class percentage for
each class will probably be proportionate to its
outstanding
S-4
<PAGE>
balance. See "Description of the Certificates--
Distributions" for a more detailed description of
the calculation of principal payable on the
Certificates.
C. Class B-2 Interest...... After paying the amounts of interest and
principal due on the other Certificates described
above, the Trustee will then apply the remaining
Amount Available to pay interest on the Class B-2
Certificates. See "Description of the
Certificates--Distributions" and "--Losses on
Liquidated Contracts."
D. Class B-2 Principal..... After paying the amounts of interest and
principal due on the Certificates described
above, the Trustee will then apply the remaining
Amount Available to pay principal due on the
Class B-2 Certificates. In general, principal
will not be payable on the Class B-2 Certificates
until the Class B-1 Certificates have been
retired. After that has occurred, the Class B-2
Certificates will be entitled to receive
principal in an amount equal to the Class B
Percentage of the formula principal distribution
amount described above. See "Description of the
Certificates--Distributions" and "--Losses on
Liquidated Contracts."
Subordination of Class M-
1, Class M-2, Class B,
Class B-3I and Class C
Certificates.............. The Class M-1 Certificates, Class M-2
Certificates, Class B Certificates, Class B-3I
Certificates and Class C Certificates will be
subordinated to the Class A Certificates in
payment of both interest and principal:
^the Trustee will apply the Amount
Available to pay all interest then due on
the Class A Certificates before paying the
interest then due on the Class M-1
Certificates, Class M-2 Certificates,
Class B Certificates or Class B-3I
Certificates; and
^the subordinated certificates are entitled
to principal distributions only after the
principal then due on the Class A
Certificates is paid.
This increases the possibility that the Class A
Certificates would be paid in full but the other
classes of certificates would not. The Class B
Certificates will be subordinated to the Class A
and Class M Certificates in the same manner, with
interest paid from the Amount Available only
after all interest then due on the Class A and
Class M Certificates has been paid, and principal
paid only after payment of all principal then due
on the Class A and Class M Certificates. The
Class B-3I and Class C Certificates will be
subordinated to all the other Certificates. See
"Description of the Certificates--Distributions"
for a more detailed description of the manner and
order of priority of distributions on the
Certificates.
In addition, in the event of severe losses and
delinquencies on the Contracts, those losses will
first be imposed on the
S-5
<PAGE>
Class B-2 Certificates, and then on the Class B-1
Certificates, and so on through classes of
increasing seniority. See "Description of
Certificates--Losses on Liquidated Contracts" for
a more detailed description of the allocation of
losses on the Contracts.
Class B-2 Limited We will guarantee payment of interest and
Guarantee................. principal on the Class B-2 Certificates. The
Class B-2 Limited Guarantee does not benefit any
other class of Certificates. The Class B-2
Limited Guarantee will be an unsecured general
obligation of Green Tree and will not be
supported by any letter of credit or other credit
enhancement. See "Description of the
Certificates--Limited Guarantee of the Company"
for a complete description of our obligation
under the Class B-2 Limited Guarantee.
Capitalized Interest On the closing date, we will establish a
Account .................. capitalized interest account to cover interest
payments on the Certificates on the remittance
dates in and 1999 in the event interest
payments on the Contracts 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 Contracts to make a
full interest distribution on the Certificates on
the remittance dates in and 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 1999 to one of our
subsidiaries.
Repurchase Option.......... After the aggregate principal balance of the
Contracts is less than 10% of their aggregate
principal balance at the time they were
transferred to the Trust, we will have the option
to purchase all of the outstanding Contracts. See
"Description of the Certificates--Repurchase
Option" herein and in the prospectus for a more
detailed description of the terms of this
repurchase option.
The Contracts.............. The Contract Pool will consist of fixed rate
manufactured housing installment sale contracts
and installment loan agreements. This prospectus
supplement provides information regarding a
portion of the contracts, representing about 78%
of the Contract Pool, which are referred to as
the "Initial Contracts." We will transfer another
portion of the Contracts, referred to as the
"Additional Contracts," to the Trust on the
Closing Date. If the aggregate principal balance
of the Initial Contracts and the Additional
Contracts is less than the aggregate original
principal balance of the Certificates, we may
transfer Contracts representing the difference to
the Trust no later than . This last group
of Contracts is referred to as the "Subsequent
Contracts."
S-6
<PAGE>
With respect to the Initial Contracts (as of
, 1999):
^ all are conventional and none are FHA-
insured or VA-guaranteed;
^ the related properties are located in
states;
^ the Contract rates range from % to %, with
a weighted average of %;
^ the weighted average term to scheduled
maturity, as of their dates of origination,
is months, and the weighted average term
to scheduled maturity is months; and
^ the latest scheduled maturity date is in
See "The Contract Pool" for a more detailed
description of the first group of Contracts and
the permissible characteristics of the second and
third groups of Contracts.
Pre-Funding Account........ If the aggregate principal balance of the
Contracts we transfer to the Trust on the Closing
Date (the Initial Contracts and Additional
Contracts) is less than the aggregate original
principal balance of the Certificates, that
difference will be deposited by the Trustee in
the pre-funding account, and those funds will be
used to purchase Contracts from time to time
until , 1999. If those funds are not
completely used by , 1999, the remaining
funds (if any) will be distributed as principal
on the Class A-1 Certificates on the first
remittance date on or after the last day of the
pre-funding period.
Tax Status................. In the opinion of counsel to Green Tree, for
federal income tax purposes, the Trust will
consist of two segregated asset pools--the
"Master REMIC" and the "Subsidiary REMIC"--and
each will be treated as a separate "real estate
mortgage investment conduit" or "REMIC," as
described in the Internal Revenue Code of 1986,
as amended. The Class A Certificates, the Class M
Certificates, the Class B Certificates and the
Class B-3I 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. The Class C
Certificates will constitute "residual interests"
in the Master REMIC and the Subsidiary REMIC. As
a holder of Certificates, you will be required to
include as income interest on your Certificates
(including any original issue discount) in
accordance with the accrual method of accounting,
even if you usually use the cash method of
accounting. See "Certain Federal Income Tax
Consequences" in the prospectus for a more
detailed description of the federal income tax
consequences of an investment in the
Certificates.
S-7
<PAGE>
Money Market Eligibility... The Class A-1 Certificates will have a final
maturity date of , 2000. The Class A-1
Certificates will be eligible securities for
purchase by money market funds under Rule 2a-7
under the Investment Company Act of 1940. A fund
should consult with its advisor regarding the
eligibility of the Class A-1 Certificates under
Rule 2a-7 and the fund's investment policies and
objectives.
ERISA Considerations....... Subject to the conditions described under "ERISA
Considerations," employee benefit plans that are
subject to the Employee Retirement Income
Security Act of 1974, as amended, may purchase
the Class A Certificates. An employee benefit
plan may not purchase any other class of
Certificates, unless it satisfies the conditions
described under "ERISA Considerations" herein and
in the prospectus.
Legal Investment The Class A Certificates and the Class M-1
Considerations............ Certificates will not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
until the amount in the Pre-Funding Account is
zero. At such time, the Class A Certificates and
Class M-1 Certificates will be "legal
investments" for certain types of institutional
investors to the extent provided in SMMEA. The
Class M-2 Certificates and the Class B
Certificates also will not constitute "mortgage
related securities" for purposes of SMMEA because
they will not be rated in one of the two highest
ratings by Standard & Poor's Rating Services, a
division of The McGraw-Hill Companies, Inc.
("S&P"), and by Fitch IBCA, Inc. ("Fitch"). This
means that many institutions that have the legal
authority to invest in "mortgage related
securities" may not be legally authorized to
invest in the Certificates. You should consult
with your own legal advisor to decide whether and
to what extent you may legally invest in the
Certificates.
Ratings.................... The Certificates will not be issued and sold
unless S&P and Fitch have assigned the ratings
specified on page S-3 (or better) to the
Certificates.
The rating of each class of Certificates by S&P
addresses the likelihood of timely receipt of
interest and ultimate receipt of principal. The
rating of each class of Certificates by Fitch
addresses the likelihood of timely payment of
interest and ultimate payment of principal. A
security rating is not a recommendation to buy,
sell or hold securities and may be subject to
revision or withdrawal at any time by the
assigning rating agency. The ratings of the Class
B-2 Certificates are based in part on an
assessment of the Company's ability to make
payments under the Limited Guarantee.
Although the Company has not requested a rating
of the Certificates from any rating agencies
other than S&P and Fitch, other rating agencies
may assign a rating to the Certificates. These
ratings could be higher or lower than the ratings
initially given by S&P and Fitch to the
Certificates.
S-8
<PAGE>
RISK FACTORS
Consider the following risk factors in deciding whether to purchase
Certificates. More risk factors, applicable to any series of certificates like
these, are printed in the prospectus, and you should consider those risk
factors also.
Risks That May Cause Increased Delinquencies and Losses on the Contracts
Payments on the Certificates will be made primarily from payments on the
Contracts. If the obligors on the Contracts do not make timely payments, the
Trust may not be able to make timely payment of interest and principal on your
Certificate. If an obligor defaults on a contract, then the Trust will be
relying on the Servicer's ability to repossess and resell that manufactured
home. If delinquencies are higher than expected, or defaults are higher than
expected, or losses after default are higher than expected, you may lose some
or all of your investment. You should consider several risks that might cause
higher than expected delinquencies, defaults or losses:
General Economic Conditions. Downturns in regional or local
economic conditions historically have caused increased delinquency,
defaults and losses on manufactured housing loans. An economic downturn
in any region where a number of the obligors on the Contracts are
located might cause higher delinquencies, defaults and losses on the
Contracts.
Depreciation in Value of Manufactured Homes. A manufactured home
generally depreciates over time. As a result, the market value of a
manufactured home may decline faster than the outstanding principal
balance of the loan for that home. If the value of the manufactured
homes securing the Contracts declines faster than expected, then
defaults and losses on the Contracts may rise.
Security Interests and Certain Other Aspects of the Contracts. If
an obligor defaults on a Contract, the Servicer may not be able to
repossess that manufactured home, or it may not be able to recover the
full amount due on that Contract. For more information, see "Risk
Factors" in the prospectus.
Risks Resulting from High Delinquency and Liquidation Losses
Different classes of Certificates will bear different risks of
delinquencies and defaults on the Contracts. The more subordinate classes face
greater risks from delinquencies and defaults. Delinquencies and defaults on
the Contracts will result in a smaller amount of cash available for
distribution on a payment date. Because the available cash is distributed in a
specified priority, Certificates that are lower in that priority may not
receive some or even any of the amount due to them on that payment date. In
addition, a high rate of defaults and losses on the Contracts could result in
the outstanding principal balance of the Contracts being lower than the
outstanding principal balance of the Certificates. Any such discrepancy would
result in a liquidation loss, which would be imposed first on the Class B-2
Certificates until their principal balance was reduced to zero, then on the
Class B-1 Certificates until their principal balance was reduced to zero, and
so on in increasing order of seniority.
The only protection against delinquencies and liquidation losses for the
more senior classes of Certificates is the subordination of the more
subordinate classes. For example, if there are high delinquencies or
liquidation losses on the Contracts, the Class B-1 Certificates would lose the
protection against losses afforded by the subordination of the Class B-2
Certificates, Class B-3I Certificates and Class C Certificates, and investors
in the Class B-1 Certificates might suffer a loss on their investment. Even
higher delinquencies or liquidation losses on the Contracts would eliminate
the protection the Class M-2 Certificates have from the subordination of the
Class B-1 Certificates, and so on for the Class M-1 Certificates and then the
Class A Certificates. For more information, see "Description of the
Certificates--Subordination of Class M-1 Certificates, Class M-2 Certificates,
Class B Certificates, Class B-3I Certificates and Class C Certificates."
S-9
<PAGE>
Risks of Contract Prepayments
The Contracts may be prepaid in full or in part at any time before their
scheduled maturity due to various factors, such as:
.homeowner mobility,
.general and regional economic conditions,
.prevailing interest rates, and
.natural disasters.
The prepayment experience on manufactured housing contracts varies
greatly and may affect the average life of the Certificates. If you purchase a
Certificate at a discount, then slower than expected prepayments on the
Contracts will reduce the yield on your Certificate. If you purchase a
Certificate at a premium, then faster than expected prepayments on the Contract
will reduce the yield on your Certificate. You must not assume that the
Contracts will prepay at any particular rate, or at a constant rate. For more
information, see "Yield and Prepayment Considerations" in this prospectus
supplement and "Maturity and Prepayment Considerations" in the prospectus.
Uncertain Timing of Distributions of Principal
The Class M-1, Class M-2 and Class B Certificates will not receive
distributions of principal until certain tests are satisfied, and those
distributions of principal will stop if those tests are not met later. Those
tests depend on the rate of prepayments on the Contracts and on the level of
delinquencies, defaults and losses of the Contracts. We cannot predict when the
tests for distributions of principal on the Class M-1, Class M-2 and Class B
Certificates will be satisfied, or when principal will be paid on the Class M-
1, Class M-2 or Class B Certificates. For more information, see "Yield and
Prepayment Considerations" in this prospectus supplement and "Maturity and
Prepayment Considerations" in the prospectus.
Risk of Limited Liquidity of Certificates
The Class A Certificates and the Class M-1 Certificates will not
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA") until the amount in the Pre-Funding
Account (as described in "Description of the Certificates--Conveyance of
Subsequent Contracts and Pre-Funding Account") is zero. At such time, the Class
A Certificates and Class M-1 Certificates will be "legal investments" for
certain types of institutional investors to the extent provided in SMMEA. The
Class M-2 Certificates and the Class B Certificates also will not constitute
"mortgage related securities" for purposes of SMMEA because they will not be
rated in one of the two highest ratings by S&P and Fitch. As a result, the
market for these securities will be limited because many institutions that have
the legal authority to invest in "mortgage related securities" may not have
legal authority to invest in these Certificates.
Bankruptcy
If we become involved in bankruptcy proceedings, distributions to you
could be delayed or reduced. For more information, see "Risk Factors" in the
prospectus.
S-10
<PAGE>
STRUCTURE OF THE TRANSACTION
The Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series1999- (the "Certificates") will represent interests in a
trust (the "Trust") consisting of a pool (the "Contract Pool") of manufactured
housing installment sale contracts and installment loan agreements
(collectively, the "Contracts") and certain related property conveyed by Green
Tree Financial Corporation (in such capacity referred to herein as "Green Tree"
or the "Company"). The Company will establish the Trust and transfer the
Contracts and related rights to the Trust pursuant to a Pooling and Servicing
Agreement (the "Agreement") between Green Tree and [Trustee], as trustee (the
"Trustee"). The Certificates represent fractional undivided interests in the
Trust, the corpus of which will consist of the Contracts (including all rights
to receive payments due on or after the related Cut-off Date (as defined below)
for each Contract and security interests in the Manufactured Homes securing
such Contracts), rights under certain hazard insurance policies with respect to
the Manufactured Homes, amounts held for the Trust in the Certificate Account
(as defined below) and additional accounts, if any, and all proceeds in any way
derived from any of the foregoing. The Company will also service the Contracts
for the Trust. [Custodian] will act as custodian to hold the documents relating
to all Land-and-Home Contracts, meaning those Contracts that are primarily
secured by a lien on real estate (including the manufactured home, which is
considered permanently affixed to the real estate). Green Tree will hold all
the other Contracts on behalf of the Trustee.
Payments by obligors on the Contracts will be deposited in a separate
Eligible Account maintained in the name of the Trustee (the "Certificate
Account") no later than one Business Day after receipt. Funds in the
Certificate Account will be applied on the first day of each month (or, if such
day is not a Business Day, the next succeeding business day) (a "Remittance
Date") to make the distributions to Certificateholders described under
"Description of the Certificates--Distributions" and to pay certain monthly
fees to the Company as compensation for servicing the Contracts. The Company,
in its capacity as Servicer of the Contracts, and any successor servicer are
referred to herein as the "Servicer." The Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class A-6, Class A-7, Class M-1, Class M-2 and Class B-1
Certificates are referred to herein as the "Offered Certificates."
Terms used and not otherwise defined herein shall have the respective
meanings ascribed to such terms in the Prospectus.
THE CONTRACT POOL
This Prospectus Supplement contains information regarding the Initial
Contracts, which consist of manufactured housing installment sale contracts and
installment loan agreements originated through , 1999. The Agreement
provides that additional manufactured housing contracts (the "Additional
Contracts") will be purchased by the Trust on , 1999 (the "Closing
Date"), and that, if necessary, other manufactured housing contracts (the
"Subsequent Contracts") will be purchased by the Trust from time to time after
the Closing Date until , 1999. Although the Additional Contracts and
Subsequent Contracts will have characteristics that differ somewhat from the
Initial Contracts described herein, the Company does not expect that the
characteristics of the Additional Contracts and Subsequent Contracts will vary
materially from the Initial Contracts. In addition, the Additional Contracts
and Subsequent Contracts must conform to certain representations and warranties
set forth in the Agreement. See "Description of the Certificates" herein.
The Trust is entitled to all payments due or made on each Contract on or
after the Cut-off Date for such Contract. The "Cut-off Date" for the Initial
Contracts and Additional Contracts is , 1999 (or the date of
origination, if later). For Subsequent Contracts purchased on or before ,
1999, the "Cut-off Date" is , 1999 (or the date of origination, if
later). For Subsequent Contracts purchased from through , 1999, the
"Cut-off Date" is , 1999 ( or the date of origination, if later). For
Subsequent Contracts purchased on or after , 1999, the "Cut-off Date" is
, 1999 (or the date of origination, if later).
S-11
<PAGE>
The Company expects that the Contract Pool will have an aggregate
principal balance as of the date of their transfer to the Trust of
approximately $ . The Initial Contracts have an aggregate principal
balance as of the Cut-off Date of $ , or approximately % of the
Contract Pool. All of the Contracts will have been originated by a manufactured
housing dealer and purchased by the Company from such dealer, or will have been
originated by the Company directly. The Contracts will have been originated or
acquired by the Company in the ordinary course of the Company's business.
Manufactured housing installment sale contracts and manufactured housing
installment loan agreements are hereinafter collectively referred to as
"manufactured housing contracts" or "contracts." Each Contract will be secured
by a Manufactured Home or, in the case of a Land-and-Home Contract, will be
secured by a lien on real estate to which the Manufactured Home is deemed
permanently affixed. As of the Cut-off Date, a total of , or % by
aggregate principal amount of the Initial Contracts, were Land-and-Home
Contracts.
Each Contract will bear a fixed contract rate of interest (the "Contract
Rate"). Most of the Contracts, other than "step-up rate" Contracts, provide for
level payments over the entire term of the Contract. Of the Initial Contracts,
a total of , or % by aggregate principal amount, are step-up rate
Contracts. The Contract Rate of a step-up rate Contract steps up on a
particular date from its initial Contract Rate. A total of step-up rate
Contracts, or % of the Initial Contracts by aggregate principal amount,
provide for two increases in the Contract Rate from the initial Contract Rate
and the remaining step-up rate Contracts provide for a single increase in the
Contract Rate. All of the Initial Contracts that are step-up rate Contracts are
still bearing interest at their initial Contract Rate (the period during which
such Contracts bear interest at their initial Contract Rate being referred to
herein as the "Low Rate Period"). During the Low Rate Period, the total amount
and the principal portion of each Scheduled Payment is determined on a basis
that would cause the Contract to be fully amortized over its term if the
Contract were to bear interest during its entire term at its initial Contract
Rate and were to have level payments over its entire term. The total amount and
principal portion of each scheduled payment due after the end of the applicable
Low Rate Period is determined on a basis that would cause the Contract (which
would then be bearing interest at a stepped-up rate) to be fully amortized over
its remaining term on a level-payment basis. Of the Initial Contracts, the Low
Rate Periods for those step-up rate Contracts providing for a single increase
in the Contract Rate will end no earlier than 1999 and no later than
2000. The Contract Rates for such step-up rate Contracts will increase by %
or %. Of the Initial Contracts, the Low Rate Periods for those step-up
rate Contracts providing for two increases in the Contract Rate will end no
later than 2000, and the period with the interim applicable Contract Rate
will end in 2001. The Contract Rates for such step-up rate Contracts will
increase first by % and then by an additional %. The combined increases
in scheduled payments for all step-up rate Contracts range from $ to
$ per month. The statistical information concerning the Initial Contracts
which is set forth below, to the extent it relates to the Contract Rates of the
step-up rate Contracts, takes into account only their Contract Rates as of the
Cut-off Date.
The Initial Contracts were originated between 1985 and .
Approximately 75% of the aggregate principal amount of the Initial Contracts is
attributable to loans to purchase Manufactured Homes which were new and
approximately % is attributable to loans to purchase Manufactured Homes which
were used at the time the related Initial Contract was originated. All of the
Initial Contracts are conventional contracts and none are FHA-insured or VA-
guaranteed. The Contract Rate on the Initial Contracts ranged from % to
% with a weighted average of approximately %. The Initial Contracts
have remaining maturities, as of the Cut-off Date, of at least months but not
more than months and original maturities of at least months but not more
than months, and a weighted average remaining term to scheduled maturity, as
of the Cut-off Date, of months. The average remaining principal balance per
Initial Contract as of the Cut-off Date was $ and the outstanding
principal balances of the Initial Contracts as of the Cut-off Date ranged from
$298.07 to $ . The Obligors on the Initial Contracts are located in
states. The Obligors on approximately % of the Initial Contracts by
remaining principal balance are located in , % in , % in ,
% in , % in and % in . No other state represented more
than 5% of the Initial Contracts.
S-12
<PAGE>
Set forth below is a description of certain additional characteristics of
the Initial Contracts as of the Cut-off Date.
Geographical Distribution of Initial Contract Obligors(1)
<TABLE>
<CAPTION>
% of Contract
Aggregate Pool by
% of Contract Principal Balance Outstanding
Number of Pool by Number of Outstanding Principal
Contracts as of Contracts as of as of Cut- Balance as of
State Cut-off Date Cut-off Date off Date Cut-off Date
- ----- --------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C>
Alabama................. % $ %
Alaska..................
Arizona.................
Arkansas................
California..............
Colorado................
Connecticut.............
Delaware................
Florida.................
Georgia.................
Hawaii..................
Idaho...................
Illinois................
Indiana.................
Iowa....................
Kansas..................
Kentucky................
Louisiana...............
Maine...................
Maryland................
Massachusetts...........
Michigan................
Minnesota...............
Mississippi.............
Missouri................
Montana.................
Nebraska................
Nevada..................
New Hampshire...........
New Jersey..............
New Mexico..............
New York................
North Carolina..........
North Dakota............
Ohio....................
Oklahoma................
Oregon..................
Pennsylvania............
South Carolina..........
South Dakota............
Tennessee...............
Texas...................
Utah....................
Vermont.................
Virginia................
Washington..............
West Virginia...........
Wisconsin...............
Wyoming.................
----- ------ -------- ------
Total................... 100.00% $ 100.00%
===== ====== ======== ======
</TABLE>
- --------
[* Indicates an amount greater than zero but less than .005% of the aggregate
principal balance of the Initial Contracts as of the Cut-off Date.]
(1) Based on obligor's billing address.
S-13
<PAGE>
Years of Origination of Initial Contracts
<TABLE>
<CAPTION>
Number of Aggregate % of Contract Pool by
Contracts Principal Balance Outstanding Principal
as of Outstanding Balance as of
Year of Origination(1) Cut-off Date as of Cut-off Date Cut-off Date
- ---------------------- ------------ ------------------ ---------------------
<S> <C> <C> <C>
1985..................... $ %
1988.....................
1989.....................
1990.....................
1991.....................
1992.....................
1993.....................
1994.....................
1995.....................
1996.....................
1997.....................
1998.....................
1999.....................
----- -------- ------
Total................. $ 100.00%
===== ======== ======
</TABLE>
- --------
[* Indicates an amount greater than zero but less than .005% of the aggregate
principal balance of the Initial Contracts as of the Cut-off Date.]
(1) The Initial Contracts shown in the above table with earlier years of
origination primarily represent Contracts originated by the Company and
subsequently refinanced through the Company. The Company retains the first
origination dates on its records with respect to such refinanced Contracts.
Distribution of Original Initial Contract Amounts
<TABLE>
<CAPTION>
Number of Aggregate % of Contract Pool by
Contracts Principal Balance Outstanding Principal
Original Contract as of Outstanding Balance as of
Amount (in Dollars)(1) Cut-off Date as of Cut-off Date Cut-off Date
- ---------------------- ------------ ------------------ ---------------------
<S> <C> <C> <C>
Less than $10,000....... $ %
Between $10,000 and
$19,999................
Between $20,000 and
$29,999................
Between $30,000 and
$39,999................
Between $40,000 and
$49,999................
Between $50,000 and
$59,999................
Between $60,000 and
$69,999................
Between $70,000 and
$79,999................
Between $80,000 and
$89,999................
Between $90,000 and
$99,999................
Between $100,000 and
$109,999...............
Between $110,000 and
$119,999...............
Between $120,000 and
$129,999...............
Between $130,000 and
$139,999...............
Between $140,000 and
$149,999...............
Between $150,000 and
$159,999...............
Between $160,000 and
$169,999...............
Between $170,000 and
$179,999...............
Between $180,000 and
$189,999...............
Between $190,000 and
$199,999...............
Between $200,000 and
$249,999...............
----- -------- ------
Total................ $ 100.00%
===== ======== ======
</TABLE>
- --------
(1) The largest original Initial Contract amount is $ , which represents
% of the aggregate principal balance of the Initial Contracts as of the
Cut-off Date.
S-14
<PAGE>
Distribution of Original Loan-to-Value Ratios of Initial Contracts
<TABLE>
<CAPTION>
Aggregate Principal % of Contract Pool by
Number of Contracts Balance Outstanding Outstanding Principal
Loan-to-Value Ratio (1) as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ----------------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
Less than 61%........... $ %
61% to 65%..............
66% to 70%..............
71% to 75%..............
76% to 80%..............
81% to 85%..............
86% to 90%..............
91% to 95%..............
Over 95%................
----- --------- ------
Total................ $ 100.00%
===== ========= ======
</TABLE>
- --------
(1) Rounded to the nearest 1%. The method of calculating loan-to-value ratios
is described in the Prospectus.
Initial Contract Rates
<TABLE>
<CAPTION>
Aggregate Principal % of Contract Pool by
Range of Contracts by Number of Contracts Balance Outstanding Outstanding Principal
Contract Rate as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- --------------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
0.00000% to 5.00000%.... $ %
5.00001% to 6.00000%....
6.00001% to 7.00000%....
7.00001% to 8.00000%....
8.00001% to 9.00000%....
9.00001% to 10.00000%...
10.00001% to 11.00000%..
11.00001% to 12.00000%..
12.00001% to 13.00000%..
13.00001% to 14.00000%..
14.00001% to 15.00000%..
15.00001% to 16.00000%..
16.00001% to 17.00000%..
----- ----------- ------
Total................ $ 100.00%
===== =========== ======
</TABLE>
Remaining Months to Maturity of Initial Contracts
<TABLE>
<CAPTION>
Aggregate Principal % of Contract Pool by
Months Remaining Number of Contracts 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>
Less than 31............ $ %
31 to 60................
61 to 90................
91 to 120...............
121 to 150..............
151 to 180..............
181 to 210..............
211 to 240..............
241 to 270..............
271 to 300..............
301 to 330..............
331 to 360..............
------- -------- ------
Total................ $ 100.00%
======= ======== ======
</TABLE>
S-15
<PAGE>
GREEN TREE FINANCIAL CORPORATION
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading
"Green Tree Financial Corporation."
Delinquency, Loan Loss and Repossession Experience
The following table sets forth the delinquency experience for the periods
indicated of the portfolio of conventional manufactured housing contracts
serviced by the Company (other than contracts already in repossession). The
Company has from time to time subserviced manufactured housing contracts
originated by other lenders. These subserviced contracts are not reflected in
the following table.
Delinquency Experience
<TABLE>
<CAPTION>
At
At December 31, ,
------------------------------------------- -----
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Outstanding (1)............ 237,566 322,495 416,436 503,076 584,814
Number of Contracts
Delinquent (2):
30-59 Days................ 2,030 2,809 4,404 6,475 6,567
60-89 Days................ 657 903 1,571 2,121 2,382
90 Days or More........... 1,167 1,440 2,426 3,668 4,016
Total Contracts Delinquent.. 3,854 5,152 8,401 12,264 12,965
Delinquencies as a Percent
of Contracts
Outstanding (3)............ 1.62% 1.60% 2.02% 2.44% 2.22% %
</TABLE>
- --------
(1) Excludes contracts already in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month. The information for December 31, 1996 and later does
not include as delinquent those manufactured housing contracts whose
obligors have entered bankruptcy proceedings and had their scheduled
payment changed under a bankruptcy payment plan, provided that such
obligors are current under their bankruptcy payment plan.
(3) By number of contracts.
S-16
<PAGE>
The following table sets forth the loan loss and repossession experience
for the periods indicated of the portfolio of conventional manufactured housing
contracts serviced by the Company. The Company has from time to time
subserviced manufactured housing contracts originated by other lenders. These
subserviced contracts are not reflected in the following table.
Loan Loss/Repossession Experience
(Dollars in thousands)
<TABLE>
<CAPTION>
At December 31, At
------------------------------------------------------------- --------
1993 1994 1995 1996 1997 1998
---------- ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)........... 238,951 324,141 419,090 507,539 590,327
Principal Balance of
Contracts
Serviced (1)........... $4,630,659 $7,033,882 $10,182,676 $13,553,080 $17,038,136 $
Contract Liquida-
tions (2).............. 1.77% 1.44% 1.45% 2.01% 2.72% %
Net Losses:
Dollars (3)........... $ 42,547 $ 42,402 $ 55,162 $ 98,632 $ 180,699 $
Percentage (4)........ .92% .60% .54% .73% 1.06% %
</TABLE>
- --------
(1) As of period end. Includes contracts already in repossession.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4) As a percentage of the principal balance of contracts being serviced as of
period end.
The data presented in the foregoing tables are for illustrative purposes
only and there is no assurance that the delinquency, loan loss or repossession
experience of the Contracts will be similar to that set forth above. The
delinquency, loan loss and repossession experience of manufactured housing
contracts historically has been sharply affected by a downturn in regional or
local economic conditions. These regional or local economic conditions are
often volatile, and no predictions can be made regarding future economic
conditions in any particular area. These downturns have tended to increase the
severity of loss on repossession because of the increased supply of used units,
which in turn may affect the supply in other regions. In order to achieve
geographic dispersion and to limit the effect of regional and local economic
conditions on the Contract Pool, Contracts with obligors located in any one
state generally will not exceed 10% of the Cut-off Date Pool Principal Balance
(although it is possible that one or more states would exceed this threshold
after the transfer of all Additional Contracts).
S-17
<PAGE>
Ratio of Earnings to Fixed Charges for the Company
Set forth below are the Company's ratios of earnings (losses) to fixed
charges for the past five years and the months ended . For the
purposes of compiling these ratios, earnings (losses) consist of earnings
(losses) before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
Months
Ended
Year Ended December 31,
------------------------ -----------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges................................. 4.81 7.98 7.90 5.44 3.94 *
</TABLE>
- --------
[* On July 6, 1998, Conseco announced a second-quarter charge of $498 million,
net of income taxes, related to the acquisition of Green Tree. The charges
are directly related to (1) $148 million in merger-related costs, and (2) a
$350 million non-cash supplemental reserve against the valuation of Green
Tree's interest-only securities and servicing rights. As a result, the ratio
of earnings (losses) to fixed charges was less than 1.00 for the nine months
ended September 30, 1998 and earnings were inadequate to cover fixed charges
for such period. The amount of the coverage deficiency for such period was
$251,600,000.]
Recent Developments
The Company has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were filed by
certain stockholders of the Company as purported class actions on behalf of
persons or entities who purchased common stock of the Company or traded in
options during the alleged class periods. In addition to the Company, certain
current and former officers and directors of the Company 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 the
Company's common stock and the other relating to an alleged class of traders in
options for the Company's common stock. In addition to these two complaints, a
separate non-class action lawsuit containing similar allegations was also
filed. Plaintiffs in the lawsuits assert claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. In each case, plaintiffs allege that
the Company and the other defendants violated federal securities laws by, among
other things, making false and misleading statements about the current state
and future prospects of the Company (particularly with respect to prepayment
assumptions and performance of certain of the Company's loan portfolios) which
allegedly rendered the Company's financial statements false and misleading. The
Company believes that the lawsuits are without merit and intends to defend such
lawsuits vigorously.
S-18
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading
"Yield Considerations."
The Contracts will have original terms to scheduled maturity ranging from
approximately months to months, but may be prepaid in full or in part at
any time. The prepayment experience of the Contracts (including prepayments due
to liquidations of defaulted Contracts) will affect the average life of the
Offered Certificates. Based on the Company's experience with the portfolio of
manufactured housing contracts serviced by it, the Company anticipates that a
number of the Contracts will be prepaid prior to their maturity. A number of
factors, including homeowner mobility, general and regional economic conditions
and prevailing interest rates, may influence prepayments. Natural disasters may
also influence prepayments. In addition, repurchases of Contracts on account of
certain breaches of representations and warranties, including repurchases of
staged-funding Contracts that have not been fully disbursed within 90 days,
have the effect of prepaying such Contracts and therefore would affect the
average life of the Offered Certificates. Approximately % of the Initial
Contracts by aggregate principal balance as of the Cut-off Date were staged-
funding Contracts. The prepayment experience on manufactured housing contracts
varies greatly. Most of the Contracts contain a "due-on-sale" clause that would
permit the Servicer to accelerate the maturity of a Contract upon the sale of
the related Manufactured Home. In the case of those Contracts that do contain
due-on-sale clauses, the Company will permit assumptions of such Contracts if
the purchaser of the related Manufactured Home satisfies the Company's then-
current underwriting standards. See "Maturity and Prepayment Considerations" in
the Prospectus.
The allocation of distributions to the Class A Certificateholders on each
Remittance Date on which the Class M-1 Distribution Test is not satisfied, on
each Remittance Date on which the Class M-2 Distribution Test is not satisfied,
or on each Remittance Date on which the Class B Distribution Test is not
satisfied, will have the effect of accelerating the amortization of the Class A
Certificates from the amortization that would be applicable if the principal
were distributed pro rata according to the Class A Principal Balance, the Class
M-1 Principal Balance, the Class M-2 Principal Balance and the Class B
Principal Balance. If the Class A Certificates are purchased at a discount and
the purchaser calculates its anticipated yield to maturity based on an assumed
rate of payment of principal on the Class A Certificates that is faster than
the rate actually realized, such purchaser's actual yield to maturity will be
lower than the yield so calculated by such purchaser. See "Description of the
Certificates--Class A Principal."
On any Remittance Date on which the Class M-1 Distribution Test, the
Class M-2 Distribution Test and the Class B Distribution Test is not satisfied,
the Class A Certificateholders will receive 100% of the Formula Principal
Distribution Amount (as described under "Description of the Certificates--Class
A Principal"), subject to the limit of the Amount Available. The rate of
principal payments on the Class M-1 Certificates, Class M-2 Certificates and
Class B Certificates and the aggregate amount of distributions on the Class M-1
Certificates, Class M-2 Certificates and Class B Certificates will be affected
by the rate of obligor defaults resulting in delinquencies on the Contracts and
losses on Liquidated Contracts, by the severity of those losses and by the
timing of those delinquencies and losses. See "Description of the
Certificates--Subordination of Class M-1 Certificates, Class M-2 Certificates,
Class B Certificates, Class B-3I Certificates and Class C Certificates" for a
description of the manner in which such losses are borne by the Class M-1
Certificates, the Class M-2 Certificates and each Class of the Class B
Certificates. If a Class of Class B Certificates, Class M-2 Certificates or
Class M-1 Certificates are purchased at a discount and the purchaser calculates
its anticipated yield to maturity based on an assumed rate of payment of
principal on the Class B Certificates, Class M-2 Certificates or Class M-1
Certificates that is faster than the rate actually realized, such purchaser's
actual yield to maturity will be lower than the yield so calculated by such
purchaser. See "Description of the Certificates--Class B-1 Principal."
Obligors who have entered bankruptcy proceedings and have had their
monthly scheduled payment reduced as a result of an extension of the term of
the related Contract may not be pursued by the Company as delinquent, and
accordingly the Company uses the reduced monthly payment in calculating the
Formula Principal Distribution Amount for each Remittance Date thereafter. If,
however, the principal amount of the Contract were reduced in such bankruptcy
proceedings, such reduction would be recognized as a loss immediately and added
to the Formula Principal Distribution Amount.
S-19
<PAGE>
There can be no assurance that the delinquency or repossession experience
set forth under "Green Tree Financial Corporation--Delinquency, Loan Loss and
Repossession Experience" will be representative of the results that may be
experienced with respect to the Contracts.
The Servicer and the Company each have the option to purchase from the
Trust all remaining Contracts, and thereby effect early retirement of the
Certificates, on any Remittance Date when the Pool Scheduled Principal Balance
is less than 10% of the Cut-off Date Pool Principal Balance. See "Description
of the Certificates--Repurchase Option."
If the aggregate principal balance of the Contracts transferred to the
Trust on the Closing Date (the Initial Contracts and Additional Contracts) is
less than the aggregate original principal balance of the Certificates, an
account (the "Pre-Funding Account") will be established by the Trustee and
funded by the Company on the Closing Date to provide the Trust with sufficient
funds to purchase Subsequent Contracts. Any amounts remaining in the Pre-
Funding Account which have not been used to purchase Subsequent Contracts will
be paid to the Class A-1 Certificateholders no later than . The Company
believes that if a Pre-Funding Account is established, substantially all of the
amounts in the account will be used to acquire the Subsequent Contracts. It is
unlikely, however, that the aggregate principal amount of Subsequent Contracts
purchased by the Trust will be identical to the amount in the Pre-Funding
Account, and consequently, Class A-1 Certificateholders will receive some
prepayment of principal. See "Description of Certificates--Conveyance of
Subsequent Contracts and Pre-Funding Account."
Although partial prepayments of principal on Contracts are applied on
scheduled payment dates for such Contracts, Obligors are not required to pay
interest on Contracts after the date of a full prepayment of principal. As a
result, full prepayments on Contracts in advance of the scheduled payment dates
for such Contracts in any Due Period will reduce the amount of interest
received from Obligors during such Due Period. Subject to the availability of
the subordination provided by the Class M-1, Class M-2, Class B-1, Class B-2,
Class B-3I and Class C Certificates, such subordination would apply to the net
shortfall of interest received on account of prepayments in full in any Due
Period so that the amount of interest paid on the Class A Certificates on the
following Remittance Date would not be affected by such shortfall.
The expected final scheduled payment date on the Initial Contract with
the latest maturity is in . 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 Contracts
and that the repurchase option has not been exercised, are as follows: for the
Class A-2 Certificates, ; for the Class A-3 Certificates, ; for
the Class A-4 Certificates, ; for the Class A-5 Certificates, ;
for the Class A-6 Certificates, ; for the Class A-7 Certificates,
; for the Class M-1 Certificates, ; for the Class M-2 Certificates,
; for the Class B-1 Certificates, ; and for the Class B-2
Certificates, .
Certain statistical information relating to the prepayment behavior of
certain pools of manufactured housing contracts sold and serviced by the
Company is set forth in the table below. The table relates to the Company's 40
sold pools for which prepayment information is available covering a period of
at least 36 months and which had an aggregate principal balance as of the first
day of the month of sale of at least $100,000,000. In evaluating the
information contained in the table and its relationship to the expected
prepayment behavior of the Contracts, prospective Certificateholders should
consider the following: the Company has performed no statistical analysis to
determine whether the contracts to which the table relates constitute a
statistically significant sample of manufactured housing contracts for purposes
of determining expected prepayment behavior. Furthermore, the Contracts in the
Contract Pool may have an average age as of the Cut-off Date substantially
different from the average ages (as of the first day of the month of sale) of
the contracts in the sold pools to which the table relates and may have
S-20
<PAGE>
other characteristics substantially different from the contracts in any sold
pool. For these reasons, and because of the unpredictable nature of the factors
described under "Weighted Average Life of the Class A, Class M-1, Class M-2 and
Class B Certificates" which may influence the amount of prepayments of
manufactured housing contracts, no assurance can be given that the prepayment
experience of the Contracts will exhibit prepayment behavior similar to the
behavior summarized in the table for the periods covered thereby. In addition
to the foregoing, prospective Class A, Class M-1, Class M-2 and Class B
Certificateholders should consider that the table is limited to the periods
covered therein and thus cannot reflect the effects, if any, of aging on the
prepayment behavior of manufactured housing contracts beyond such periods.
The table below sets forth with respect to each sold pool (a) the initial
aggregate principal balance (calculated as of the first day of the month of the
sale), (b) the weighted average Contract Rate ("WAC") of the contracts in each
pool as of the first day of the month of the sale of each pool, (c) the
original weighted average maturity ("WAM") of the contracts in each pool, (d)
the estimated average age of the pool as of the first day of the month of the
sale of each pool, (e) the aggregate principal balance of each pool as of
, (f) the WAC of the contracts in each pool as of , and (g) the
percentage of the Manufactured Housing Prepayment Model ("MHP") (as described
in "Weighted Average Life of the Class A, Class M-1, Class M-2 and Class B
Certificates" below) for the life of each sold pool through
(calculated as the annual rate of the decline in the outstanding aggregate
principal balance exhibited over the life of the pool).
<TABLE>
<CAPTION>
Aggregate Current
Principal Original Average Aggregate
Month and Balance WAC WAM Age at Sale Principal Current Percentage
Year of Sale at Sale at Sale (months) (months) Balance WAC of MHP
- ------------ ------------ ------- -------- ----------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 1987........... $112,294,744 13.68% 172 2 $ % %
March 1988.............. 106,739,475 13.56 170 8
September 1988.......... 132,287,851 13.64 176 1
December 1988........... 105,566,962 13.76 172 1
June 1989............... 121,205,258 14.39 178 0
September 1989.......... 153,845,599 13.93 179 4
December 1989........... 127,799,125 13.74 182 1
June 1990............... 118,256,826 14.23 178 1
September 1990.......... 133,311,855 14.21 182 1
December 1990........... 117,246,945 14.07 182 2
March 1991.............. 103,147,656 14.09 181 14
June 1991............... 137,954,723 14.25 179 18
September 1991.......... 169,226,610 13.49 188 8
December 1991........... 163,375,476 13.07 185 8
March 1992.............. 671,900,943 13.55 176 53
June 1992............... 220,603,657 12.22 190 2
September 1992.......... 254,409,783 11.89 197 1
December 1992........... 288,323,475 11.28 201 2
March 1993.............. 250,400,638 11.36 206 1
June 1993............... 450,602,539 10.65 204 1
September 1993.......... 663,353,326 10.23 203 1
December 1993........... 725,268,946 9.73 203 1
March 1994.............. 561,614,157 9.81 211 1
May 1994................ 387,789,118 10.29 205 1
June 1994............... 197,004,761 10.67 211 1
July 1994............... 307,948,034 11.03 214 1
August 1994............. 384,942,940 11.14 224 1
September 1994.......... 463,885,067 11.45 217 1
November 1994........... 353,492,359 11.42 223 1
December 1994........... 523,188,855 11.53 225 1
February 1995........... 378,339,823 11.85 239 1
March 1995.............. 328,256,612 12.04 246 1
May 1995................ 502,186,400 11.61 250 1
June 1995............... 319,783,607 11.13 255 1
July 1995............... 451,233,973 10.65 268 1
August 1995............. 396,694,720 10.27 269 1
September 1995.......... 347,754,066 10.12 271 1
October 1995............ 479,886,809 10.11 274 1
November 1995........... 398,796,644 10.15 276 1
December 1995........... 405,121,766 10.05 281 1
</TABLE>
S-21
<PAGE>
Weighted Average Life of the Class A, Class M-1, Class M-2 and Class B
Certificates
The following information is given solely to illustrate the effect of
prepayments of the Initial Contracts on the weighted average life of the Class
A Certificates, Class M-1 Certificates, Class M-2 Certificates and Class B
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security will
be repaid to the investor. The weighted average life of the Class A, Class M-1,
Class M-2 and Class B Certificates will be influenced by the rate at which
principal on the Contracts is paid. Principal payments on Contracts may be in
the form of scheduled amortization or prepayments (for this purpose, the term
"prepayment" includes repayments and liquidations due to default or other
dispositions of Contracts). Prepayments on Contracts may be measured by a
prepayment standard or model. The model used in this Prospectus Supplement, the
Manufactured Housing Prepayment Model, is based on an assumed rate of
prepayment each month of the then unpaid principal balance of a pool of new
Contracts. A prepayment assumption of 100% MHP assumes constant prepayment
rates of 3.7% per annum of the then unpaid principal balance of such Contracts
in the first month of the life of the Contracts and an additional 0.1% per
annum in each month thereafter until the 24th month. Beginning in the 24th
month and in each month thereafter during the life of all of the Contracts,
100% MHP assumes a constant prepayment rate of 6.0% per annum each month.
As used in the following tables "75% MHP" assumes the Contracts will
prepay at rates equal to 75% of the MHP assumed prepayment rates; 150% assumes
the Contracts will prepay at rates equal to 150% of the MHP assumed prepayment
rates, and so forth.
There is no assurance, however, that prepayment of the Contracts will
conform to any level of the MHP, and no representation is made that the
Contracts will prepay at the prepayment rates shown or any other prepayment
rate. The rate of principal payments on pools of manufactured housing contracts
is influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates and the rate at which homeowners sell
their manufactured homes or default on their contracts. Increased competition
among manufactured housing lenders and recently declining interest rates have
had the effect of increasing the prepayment rates of the Company's contracts.
Other factors affecting prepayment of contracts include changes in obligors'
housing needs, job transfers, unemployment and obligors' net equity in the
manufactured homes. In the case of mortgage loans secured by site-built homes,
in general, if prevailing interest rates fall significantly below the interest
rates on such mortgage loans, the mortgage loans are likely to be subject to
higher prepayment rates than if prevailing interest rates remained at or above
the rates borne by such mortgage loans. Conversely, if prevailing interest
rates rise above the interest rates on such mortgage loans, the rate of
prepayment would be expected to decrease. In the case of manufactured housing
contracts, however, because the outstanding principal balances are, in general,
much smaller than mortgage loan balances and the original term to maturity of
the contracts is generally shorter, the reduction or increase in the size of
the monthly payment on a contract arising from a change in the interest rate
thereon is generally much smaller. Consequently, changes in prevailing interest
rates may not have a similar effect, or may have a similar effect but to a
smaller degree, on the prepayment rates on manufactured housing contracts.
As described under "Description of the Certificates--Class M-1
Principal," payments of principal on the Class M-1 Certificates will not
commence until the Remittance Date on which (i) the Class A Principal Balance
has been reduced to zero or (ii) the Class M-1 Distribution Test is satisfied.
This will have the effect of accelerating the amortization of the Class A
Certificates while increasing the respective interest in the Trust of the Class
M-1, Class M-2 and Class B Certificates. As described under "Description of the
Certificates--Class M-2 Principal," payments of principal on the Class M-2
Certificates will not commence until the Remittance Date on which (i) the Class
A Principal Balance and Class M-1 Principal Balance have been reduced to zero
or (ii) the Class M-2 Distribution Test is satisfied. This will have the effect
of accelerating the amortization of the Class A Certificates and Class M-1
Certificates while increasing the respective interest in the Trust of the Class
M-2 Certificates and Class B
S-22
<PAGE>
Certificates. As described under "Description of the Certificates--Class B-1
Principal," payments of principal on the Class B Certificates will not commence
until the Remittance Date on which (i) the Class A Principal Balance, the Class
M-1 Principal Balance and the Class M-2 Principal Balance have been reduced to
zero or (ii) the Class B Distribution Test is satisfied. This will have the
effect of accelerating the amortization of the Class A Certificates, Class M-1
Certificates and Class M-2 Certificates while increasing the respective
interest in the Trust of the Class B Certificates.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the MHP set forth in the table; (ii) either the
Company or the Servicer exercises its right of optional termination described
above; (iii) the aggregate principal balance of the Initial Contracts as of the
Cut-off Date is $ and the Initial Contracts have the characteristics
described under "The Contract Pool" and have their first scheduled payment due
in 1999; (iv) the Additional Contracts and Subsequent Contracts will have the
characteristics set forth in the table following this paragraph and will have
their first scheduled payment due in and 1999; (v) each Class of
Certificates has the Approximate Principal Amount and the Remittance Rate shown
for such Class under "Summary of the Terms of the Offered Certificates" herein;
(vi) no interest shortfalls will arise in connection with prepayment in full of
the Contracts; (vii) no delinquencies or losses are experienced on the
Contracts; (viii) distributions are made on the Certificates on the first day
of each month, commencing in 1999; and (ix) the Certificates are issued on
, 1999. No representation is made that the Contracts will not experience
delinquencies or losses.
Assumed Characteristics of Additional and Subsequent Contracts as of the Cut-
off Date
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Remaining Months Aggregate Principal Original Term Remaining Term Weighted Average
to Maturity Balance Outstanding (months) (months) Contract Rate
- ---------------- ------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
0 to
120 $ %
121 to
180
181 to
240
241 to
300
301 to
360
---- --- --- ---
Total $ %
====
</TABLE>
It is not likely that Contracts will prepay at any constant percentage of
the MHP to maturity or that all Contracts will prepay at the same rate.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average life of the Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates, the Class
A-5 Certificates, the Class A-6 Certificates, the Class A-7 Certificates, the
Class M-1 Certificates, the Class M-2 Certificates, the Class B-1 Certificates
and the Class B-2 Certificates and set forth the percentages of the Original
Class A-1 Principal Balance, the Original Class A-2 Principal Balance, the
Original Class A-3 Principal Balance, the Original Class A-4 Principal Balance,
the Original Class A-5 Principal Balance, the Original Class A-6 Principal
Balance, the Original Class A-7 Principal Balance, the Original Class M-1
Principal Balance, the Original Class M-2 Principal Balance, the Original Class
B-1 Principal Balance and the Original Class B-2 Principal Balance that would
be outstanding after each of the dates shown at the indicated percentages of
the MHP.
S-23
<PAGE>
Percentage of the Original Principal Balance of the Class A-1
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
75% 100% 125% 150% 175% 200% 250% 300% 350%
Date ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000.........
Weighted Average Life (1)
(Years).................
</TABLE>
- --------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
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 Class A-1 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-1 Certificate.
Percentage of the Original Principal Balance of the Class A-2
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
75% 100% 125% 150% 175% 200% 250% 300% 350%
Date ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000.........
February 1, 2001.........
February 1, 2002.........
Weighted Average Life (1)
(Years).................
</TABLE>
- --------
(1) The weighted average life of a Class A-2 Certificate is determined by (i)
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 Class A-2 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-2 Certificate.
Percentage of the Original Principal Balance of the Class A-3
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
75% 100% 125% 150% 175% 200% 250% 300% 350%
Date ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000.........
February 1, 2001.........
February 1, 2002.........
February 1, 2003.........
February 1, 2004.........
February 1, 2005.........
February 1, 2006.........
Weighted Average Life (1)
(Years).................
</TABLE>
- --------
(1) The weighted average life of a Class A-3 Certificate is determined by (i)
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 Class A-3 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-3 Certificate.
S-24
<PAGE>
Percentage of the Original Principal Balance of the Class A-4
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
75% 100% 125% 150% 175% 200% 250% 300% 350%
Date ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000.........
February 1, 2001.........
February 1, 2002.........
February 1, 2003.........
February 1, 2004.........
February 1, 2005.........
February 1, 2006.........
February 1, 2007.........
February 1, 2008.........
February 1, 2009.........
February 1, 2010.........
February 1, 2011.........
Weighted Average Life (1)
(Years).................
</TABLE>
- --------
[ * Indicates an amount greater than zero but less than .5% of the Original
Class A-4 Principal Balance.]
(1) The weighted average life of a Class A-4 Certificate is determined by (i)
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 Class A-4 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-4 Certificate.
Percentage of the Original Principal Balance of the Class A-5
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
75% 100% 125% 150% 175% 200% 250% 300% 350%
Date ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000.........
February 1, 2001.........
February 1, 2002.........
February 1, 2003.........
February 1, 2004.........
February 1, 2005.........
February 1, 2006.........
February 1, 2007.........
February 1, 2008.........
February 1, 2009.........
February 1, 2010.........
February 1, 2011.........
February 1, 2012.........
February 1, 2013.........
February 1, 2014.........
February 1, 2015.........
February 1, 2016.........
Weighted Average Life (1)
(Years).................
</TABLE>
- --------
(1) The weighted average life of a Class A-5 Certificate is determined by (i)
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 Class A-5 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-5 Certificate.
S-25
<PAGE>
Percentage of the Original Principal Balance of the Class A-6
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
75% 100% 125% 150% 175% 200% 250% 300% 350%
Date ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000.........
February 1, 2001.........
February 1, 2002.........
February 1, 2003.........
February 1, 2004.........
February 1, 2005.........
February 1, 2006.........
February 1, 2007.........
February 1, 2008.........
February 1, 2009.........
February 1, 2010.........
February 1, 2011.........
February 1, 2012.........
February 1, 2013.........
February 1, 2014.........
February 1, 2015.........
February 1, 2016.........
February 1, 2017.........
February 1, 2018.........
February 1, 2019.........
Weighted Average Life (1)
(Years).................
</TABLE>
- --------
(1) The weighted average life of a Class A-6 Certificate is determined by (i)
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 Class A-6 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-6 Certificate.
S-26
<PAGE>
Percentage of the Original Principal Balance of the Class A-7
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
75% 100% 125% 150% 175% 200% 250% 300% 350%
Date ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage....... 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000.........
February 1, 2001.........
February 1, 2002.........
February 1, 2003.........
February 1, 2004.........
February 1, 2005.........
February 1, 2006.........
February 1, 2007.........
February 1, 2008.........
February 1, 2009.........
February 1, 2010.........
February 1, 2011.........
February 1, 2012.........
February 1, 2013.........
February 1, 2014.........
February 1, 2015.........
February 1, 2016.........
February 1, 2017.........
February 1, 2018.........
February 1, 2019.........
February 1, 2020.........
February 1, 2021.........
February 1, 2022.........
February 1, 2023.........
February 1, 2024.........
Weighted Average Life (1)
(Years).................
</TABLE>
- --------
(1) The weighted average life of a Class A-7 Certificate is determined by (i)
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 Class A-7 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-7 Certificate.
S-27
<PAGE>
Percentage of the Original Principal Balance of the Class M-1
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200% 250% 300% 350%
- ---- --- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000..........
February 1, 2001..........
February 1, 2002..........
February 1, 2003..........
February 1, 2004..........
February 1, 2005..........
February 1, 2006..........
February 1, 2007..........
February 1, 2008..........
February 1, 2009..........
February 1, 2010..........
February 1, 2011..........
February 1, 2012..........
February 1, 2013..........
February 1, 2014..........
February 1, 2015..........
February 1, 2016..........
February 1, 2017..........
February 1, 2018..........
February 1, 2019..........
February 1, 2020..........
February 1, 2021..........
February 1, 2022..........
February 1, 2023..........
February 1, 2024..........
Weighted Average Life (1)
(Years)..................
</TABLE>
- --------
(1) The weighted average life of a Class M-1 Certificate is determined by (i)
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 Class M-1 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class M-1 Certificate.
S-28
<PAGE>
Percentage of the Original Principal Balance of the Class M-2
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200% 250% 300% 350%
- ---- --- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000..........
February 1, 2001..........
February 1, 2002..........
February 1, 2003..........
February 1, 2004..........
February 1, 2005..........
February 1, 2006..........
February 1, 2007..........
February 1, 2008..........
February 1, 2009..........
February 1, 2010..........
February 1, 2011..........
February 1, 2012..........
February 1, 2013..........
February 1, 2014..........
February 1, 2015..........
February 1, 2016..........
February 1, 2017..........
February 1, 2018..........
February 1, 2019..........
February 1, 2020..........
February 1, 2021..........
February 1, 2022..........
February 1, 2023..........
February 1, 2024..........
Weighted Average Life (1)
(Years)..................
</TABLE>
- --------
(1) The weighted average life of a Class M-2 Certificate is determined by (i)
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 Class M-2 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class M-2 Certificate.
S-29
<PAGE>
Percentage of the Original Principal Balance of the Class B-1
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200% 250% 300% 350%
- ---- --- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000..........
February 1, 2001..........
February 1, 2002..........
February 1, 2003..........
February 1, 2004..........
February 1, 2005..........
February 1, 2006..........
February 1, 2007..........
February 1, 2008..........
February 1, 2009..........
February 1, 2010..........
February 1, 2011..........
February 1, 2012..........
February 1, 2013..........
Weighted Average Life (1)
(Years)..................
</TABLE>
- --------
(1) The weighted average life of a Class B-1 Certificate is determined by (i)
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 Class B-1 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class B-1 Certificate.
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<PAGE>
Percentage of the Original Principal Balance of the Class B-2
Certificates at the Respective Percentages of the
MHP Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200% 250% 300% 350%
- ---- --- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage........ 100% 100% 100% 100% 100% 100% 100% 100% 100%
February 1, 2000..........
February 1, 2001..........
February 1, 2002..........
February 1, 2003..........
February 1, 2004..........
February 1, 2005..........
February 1, 2006..........
February 1, 2007..........
February 1, 2008..........
February 1, 2009..........
February 1, 2010..........
February 1, 2011..........
February 1, 2012..........
February 1, 2013..........
February 1, 2014..........
February 1, 2015..........
February 1, 2016..........
February 1, 2017..........
February 1, 2018..........
February 1, 2019..........
February 1, 2020..........
February 1, 2021..........
February 1, 2022..........
February 1, 2023..........
February 1, 2024..........
Weighted Average
Life (1) (Years).........
</TABLE>
- --------
(1) The weighted average life of a Class B-2 Certificate is determined by (i)
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 Class B-2 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class B-2 Certificate.
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<PAGE>
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "Description of
the Certificates."
The Certificates will be issued pursuant to the Agreement. A copy of the
execution form of the Agreement will be filed in a Current Report on Form 8-K
with the Securities and Exchange Commission after the initial issuance of the
Certificates. The following summary describes certain terms of the Agreement,
does not purport to be complete and is qualified in its entirety by the
Agreement, which is incorporated herein by reference.
General
The Certificates will be issued in fully registered form only in
denominations equal to $1,000 or any integral multiple of $1,000 in excess
thereof. The "Percentage Interest" of a Class A Certificate will be equal to
the percentage obtained from dividing its denomination by the Original Class A-
1 Principal Balance, the Original Class A-2 Principal Balance, the Original
Class A-3 Principal Balance, the Original Class A-4 Principal Balance, the
Original Class A-5 Principal Balance, the Original Class A-6 Principal Balance
or the Original Class A-7 Principal Balance, as appropriate. The Class A
Certificates in the aggregate will represent an initial % (approximate)
undivided interest in the Trust. The "Percentage Interest" of a Class M-1
Certificate will be equal to the percentage obtained by dividing its
denomination by the Original Class M-1 Principal Balance. The Class M-1
Certificates in the aggregate will represent an initial % (approximate)
undivided interest in the Trust. The "Percentage Interest" of a Class M-2
Certificate will be equal to the percentage obtained by dividing its
denomination by the Original Class M-2 Principal Balance. The Class M-2
Certificates in the aggregate will represent an initial % (approximate)
undivided interest in the Trust. The "Percentage Interest" of a Class B
Certificate will be equal to the percentage obtained from dividing its
denomination by the Original Class B-1 Principal Balance or the Original Class
B-2 Principal Balance, as appropriate. The Class B Certificates in the
aggregate will represent an initial % (approximate) undivided interest in the
Trust. The Trust will consist of the Contracts and the rights, benefits,
obligations and proceeds arising therefrom or in connection therewith, proceeds
from certain hazard insurance on individual Manufactured Homes, proceeds from
the errors and omissions protection policy to the extent such proceeds relate
to the Contracts and amounts held for the Trust in the Certificate Account and
Capitalized Interest Account, and all proceeds in any way derived from any of
the foregoing. (Section 1.02.)
Distributions on the Certificates will be made by the Paying Agent on
each Remittance Date to persons in whose names the Certificates are registered
as of the preceding Record Date. The Remittance Date for the Certificates will
be the first day of each month (or if such first day is not a business day, the
next succeeding business day) commencing in 1999. Payments will be made by
check mailed on the Remittance Date to such Certificateholder at the address
appearing on the Certificate Register; provided that a Certificateholder who
holds an aggregate Percentage Interest of at least 5% of a Class of
Certificates may request payment by wire transfer of immediately available
funds pursuant to written instructions delivered to the Trustee at least 10
days prior to such Remittance Date. Final payments will be made only upon
tender of the Certificates to the Paying Agent for cancellation. (Articles I
and VIII.)
Conveyance of Contracts
On the Closing Date, the Company will establish the Trust and transfer,
assign, set over and otherwise convey to the Trust all right, title and
interest of the Company in the Initial and Additional Contracts, including all
principal and interest received on or with respect to such Contracts (other
than receipts of principal and interest due on such Contracts before the Cut-
off Date). The Agreement permits the Trust to purchase Subsequent Contracts on
one or more dates through , 1999 (each, a "Subsequent Transfer Date"). See
"Conveyance of Subsequent Contracts and Pre-Funding Account" herein.
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<PAGE>
In addition to the representations and warranties described in the
Prospectus under "Description of Certificates--Conveyance of Contracts," the
Company will make certain warranties with respect to the Initial Contracts,
including that (i) the aggregate principal amount payable by the Obligors on
the Initial Contracts as of the Cut-off Date equals $ ; (ii) as of the Cut-
off Date, the Obligors on no more than 10% of the Initial Contracts by
remaining principal balance are located in any one state, the Obligors on no
more than 5% of the Initial Contracts by remaining principal balance are
located in an area with the same zip code and the Obligors on not more than 1%
of the Initial Contracts by remaining principal balance are located in
California in an area with the same zip code; (iii) approximately % of the
aggregate principal amount of Initial Contracts as of the Cut-off Date is
attributable to loans to purchase new Manufactured Homes and approximately %
is attributable to loans to purchase used Manufactured Homes; (iv) no Initial
Contract has a remaining maturity of more than 360 months; (v) the date of each
Initial Contract is on or after ; and (vi) no adverse selection
procedures were employed in selecting the Initial Contracts. (Article III.) The
Company will make certain additional representations and warranties with
respect to the Additional Contracts and Subsequent Contracts.
Conveyance of Subsequent Contracts and Pre-Funding Account
If the aggregate principal balance of the Contracts transferred to the
Trust on the Closing Date (the Initial Contracts and Additional Contracts) is
less than the aggregate original principal balance of the Certificates, a Pre-
Funding Account will be established by the Trustee and funded by the Company on
the Closing Date to provide the Trust with sufficient funds to purchase
Subsequent Contracts. The amount deposited in the Pre-Funding Account (as
reduced from time-to-time, the "Pre-Funded Amount") will initially equal the
difference between $ and the aggregate principal balance as of the Cut-off
Date of the Initial Contracts and Additional Contracts. The Pre-Funding Account
will be used to purchase Subsequent Contracts during the period from the
Closing Date until the earliest of (i) the date on which the amount in the Pre-
Funding Account is less than $10,000, (ii) , 1999, or (iii) the date on
which an Event of Termination occurs under the Agreement (the "Pre-Funding
Period"). The Pre-Funded Amount will be reduced during the Pre-Funding Period
by the amount used to purchase Subsequent Contracts in accordance with the
Agreement. The Pre-Funding Account will be part of the Trust but not part of
the Master REMIC or the Subsidiary REMIC. Any reimbursement income earned on
amounts on deposit in the Pre-Funding Account will be taxable to the Company.
Under the Agreement, following the initial issuance of the Certificates,
the Trust will be obligated to purchase Subsequent Contracts from the Company
during the Pre-Funding Period, subject to the availability thereof. Each
Subsequent Contract will have been underwritten in accordance with the
Company's standard underwriting criteria. Subsequent Contracts will be
transferred to the Trust pursuant to subsequent transfer instruments between
the Company and the Trust. In connection with the purchase of Subsequent
Contracts on such dates of transfer (the "Subsequent Transfer Dates"), the
Trust will be required to pay to the Company from amounts on deposit in the
Pre-Funding Account a cash purchase price of 100% of the principal balance
thereof as of the Cut-off Date. The amount paid from the Pre-Funding Account on
each Subsequent Transfer Date will not include accrued interest on the related
Subsequent Contracts. Following each Subsequent Transfer Date, the aggregate
principal balance of the Subsequent Contracts in the Trust will increase by an
amount equal to the aggregate principal balance of the Contracts so purchased
and the amount in the Pre-Funding Account will decrease accordingly. Any Pre-
Funded Amount remaining after the purchase of Subsequent Contracts will be
applied on the first Remittance Date on or after the last day of the Pre-
Funding Period to prepay principal on the Class A-1 Certificates.
Any conveyance of Subsequent Contracts on a Subsequent Transfer Date is
subject to certain conditions including, but not limited to: (a) each
Subsequent Contract must satisfy the representation and warranties specified in
the related subsequent transfer instrument and the Agreement; (b) the Company
will not select Subsequent Contracts in a manner that it believes is adverse to
the interests of the Certificateholders; (c) as of its respective Cut-off Date,
each Subsequent Contract must satisfy the
S-33
<PAGE>
following criteria: (i) no Subsequent Contract may be more than 30 days
contractually delinquent; (ii) the remaining stated term to maturity of each
Subsequent Contract may not exceed 360 months; (iii) each Subsequent Contract
must be underwritten in accordance with the Company's standard underwriting
criteria; and (iv) no Subsequent Contract may have a loan-to-value ratio
greater than 100%; (d) the Contract Pool following the addition of the
Subsequent Contracts must satisfy the following criteria: (i) the weighted
average Contract Rate must not be less than 9.00%; (ii) the weighted average
loan-to-value ratio must not be greater than 89%; (iii) not less than 70% of
the Cut-off Date Pool Principal Balance must be attributable to loans to
purchase new Manufactured Homes; (iv) not more than 30% of the Cut-off Date
Pool Principal Balance must be secured by single-wide Manufactured Homes and
not less than 70% of the Cut-off Date Pool Principal Balance must be secured by
double-wide Manufactured Homes; and (v) at least 27% of the Cut-off Date Pool
Principal Balance must consist of Land-and-Home Contracts; (e) as a result of
the purchase of the Subsequent Contracts, the Certificates will not receive
from S&P or Fitch a lower credit rating than the rating assigned at the initial
issuance of such Class of Certificates; and (f) an independent accountant will
provide a letter stating whether or not the characteristics of the Subsequent
Contracts conform to the characteristics described herein.
Payments on Contracts; Distributions on Certificates
The Trustee, on behalf of the Trust, will establish and maintain the
Certificate Account in an Eligible Account (as defined below). (Section 1.02.)
"Eligible Account" means any account which is (i) an account maintained with an
Eligible Institution (as defined below); (ii) a "segregated trust account"
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository institution
or trust company has capital and surplus (or, if such depository institution or
trust company is a subsidiary of a bank holding company system, the capital and
surplus of the bank holding company) of not less than $50,000,000 and the
securities of such depository institution or trust company (or, if such
depository institution or trust company is a subsidiary of a bank holding
company system and such depository institution's or trust company's securities
are not rated, the securities of the bank holding company) has a credit rating
from each of Moody's Investors Service, Inc. ("Moody's") (if rated by Moody's),
S&P (if rated by S&P) and Fitch (if rated by Fitch) in one of its generic
credit rating categories which signifies investment grade; or (iii) an account
that will not cause S&P or Fitch to downgrade or withdraw its then-current
rating assigned to the Certificates, as confirmed in writing by S&P and Fitch.
"Eligible Institution" means any depository institution organized under the
laws of the United States or any state, the deposits of which are insured to
the full extent permitted by law by the Bank Insurance Fund (currently
administered by the Federal Deposit Insurance Corporation), whose short-term
deposits have been rated P-1 by Moody's (if rated by Moody's), A-1+ by S&P (if
rated by S&P) and F-1 by Fitch, or in one of the two highest rating categories
by Moody's (if rated by Moody's), S&P (if rated by S&P) and Fitch in the case
of unsecured long-term debt, and which is subject to supervision and
examination by federal or state authorities. The Servicer may authorize the
Trustee to invest the funds in the Certificate Account in Eligible Investments
(as defined in the Agreement) that will mature not later than the business day
preceding the applicable monthly Remittance Date. Eligible Investments include,
among other investments, direct obligations of, and obligations fully
guaranteed by, the United States or of any agency thereof backed by the full
faith and credit of the United States and which are noncallable; federal funds,
certificates of deposit, time deposits and bankers' acceptances sold by
eligible financial institutions; certain repurchase agreements with eligible
institutions; securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least Aa2 from Moody's, at least
AAA by S&P and in one of the two highest rating categories from Fitch, not in
excess of 10% of amounts in the Certificate Account at the time of such
investment; commercial paper assigned at least a P-1 rating by Moody's and at
least an A-1+ rating by S&P (if rated by S&P) at the time of such investment;
and shares of certain registered investment companies whose shares are
registered under the Securities Act of 1933 and have the highest credit rating
than available from Moody's and Fitch (if rated by Fitch) and are rated AAAm or
AAAm-G by S&P.
S-34
<PAGE>
All payments from Obligors on the Contracts received by the Servicer,
including Principal Prepayments and advance payments by Obligors not
constituting Principal Prepayments ("Advance Payments"), must be paid into the
Certificate Account no later than one business day following receipt thereof,
except amounts received as late payment fees, extension fees, assumption fees
or similar fees. Such fees are included as part of the Servicer's servicing
fees. See "Servicing Compensation and Payment of Expenses" in the Prospectus.
In addition, amounts paid by the Company for Contracts repurchased as a result
of breach of warranties under the Agreement ("Purchased Contracts"), and
amounts required to be deposited upon substitution of a Contract because of
breach of warranties, as described under "Conveyance of Contracts" in the
Prospectus, must be paid into the Certificate Account. The Servicer will not
make any advances in respect of delinquent payments on the Contracts.
On the third business day prior to each Remittance Date (the
"Determination Date"), the Servicer will determine the Amount Available and the
amounts to be distributed on the Certificates for such Remittance Date. The
"Amount Available" on each Remittance Date generally includes (i) payments on
the Contracts due and received during the related Due Period (as defined
below), (ii) prepayments and other unscheduled collections received during the
related Due Period, (iii) all collections of principal on the Contracts
received during the Due Period in which such Remittance Date occurs up to and
including the third business day prior to such Remittance Date (but in no event
later than the 25th day of the month prior to such Remittance Date), minus (iv)
with respect to all Remittance Dates other than the Remittance Date in
1999, all collections in respect of principal on the Contracts received during
the related Due Period up to and including the third business day prior to the
preceding Remittance Date (but in no event later than the 25th day of the prior
month). The Amount Available will also be reduced by the following amounts:
Advance Payments in respect of the related Due Period; amounts payable to the
Servicer to reimburse it for any REMIC "prohibited transaction" tax imposed on
the Trust and paid by the Servicer; Liquidation Expenses incurred and taxes and
insurance (on repossessed Manufactured Homes) advanced by the Servicer in
respect of Manufactured Homes that are reimbursable to the Servicer under the
Agreement; and any amounts incorrectly deposited in the Certificate Account.
"Liquidation Expenses" are out-of-pocket expenses incurred by the Servicer in
connection with the liquidation of a defaulted Contract, including, without
limitation, legal fees and disbursements. (Sections 1.02 and 8.02.)
The "Due Period" with respect to all Remittance Dates, other than the
Remittance Date in 1999, is the period from and including the 15th day of
the second month preceding such Remittance Date, to and including the 14th day
of the month immediately preceding such Remittance Date. With respect to the
Remittance Date in 1999, the Due Period will be the period from and
including 1, 1999 to and including 14, 1999.
The Trustee will withdraw funds from the Certificate Account to make
payments to Certificateholders. From time to time, as provided in the
Agreement, the Trustee will also withdraw funds from the Certificate Account to
make payments to the Servicer. (Sections 1.02 and 8.02.)
Distributions
On each Remittance Date, distributions on the Certificates will be made
first with respect to interest on the Class A Certificates, then with respect
to interest on the Class M-1 Certificates, then with respect to interest on the
Class M-2 Certificates, then with respect to interest on the Class B-1
Certificates, then with respect to principal on the Class A Certificates, then
with respect to principal on the Class M-1 Certificates, then with respect to
principal on the Class M-2 Certificates, then with respect to principal on the
Class B-1 Certificates. Following distribution of interest and principal on the
Class A, Class M-1, Class M-2 and Class B-1 Certificates, distributions will be
made first with respect to interest on the Class B-2 Certificates, then with
respect to principal on the Class B-2 Certificates, all as more fully described
below.
Each distribution with respect to a Book-Entry Certificate will be paid
to DTC, which will credit the amount of such distribution to the accounts of
its Participants in accordance with its normal
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<PAGE>
procedures. Each Participant will be responsible for disbursing such
distribution to the Certificate Owners that it represents and to each indirect
participating brokerage firm (a "brokerage firm" or "indirect participating
firm") for which it acts as agent. Each brokerage firm will be responsible for
disbursing funds to the Certificate Owners that it represents. All such credits
and disbursements with respect to a Book-Entry Certificate are to be made by
DTC and the Participants in accordance with DTC's rules.
The Servicer will furnish to the Trustee, and the Trustee will send with
each distribution on a Remittance Date to each holder of the Offered
Certificates, a statement or statements setting forth, among other things,
(i) the amount of such distribution allocable to principal (including Principal
Prepayments, if any) and (ii) the amount of such distribution allocable to
interest. Such amounts will be expressed as a dollar amount per Class A,
Class M-1, Class M-2 or Class B Certificate with a 1% Percentage Interest or
per $1,000 denomination of Class A, Class M-1, Class M-2 or Class B
Certificate. (Section 6.05.)
Class A Interest
One month's interest (computed, with respect to the Class A-1
Certificates, on the basis of the actual number of days elapsed from and
including the most recent Remittance Date to but excluding the current
Remittance Date and a 360-day year, and with respect to all other Class A
Certificates, on the basis of a 360-day year of twelve 30-day months) will be
paid to the holders of the Class A Certificates on each Remittance Date, to the
extent of the Amount Available in the Certificate Account on such date, at the
Class A Remittance Rate on the then outstanding Principal Balance of the Class
A Certificates. Interest on the Class A Certificates will accrue from ,
1999, or from the most recent Remittance Date on which interest has been paid,
to but excluding the following Remittance Date. (Sections 1.02 and 8.03.)
The Remittance Rates for the Class A-1, Class A-2, Class A-3, Class A-4,
Class A-5, Class A-6 and Class A-7 Certificates are set forth on the cover of
this Prospectus Supplement.
The Principal Balance of any Class of Class A Certificates as of any
Remittance Date is the Original Principal Balance of such Class less all
amounts previously distributed to holders of such Class on account of
principal. The Class A Principal Balance as of any Remittance Date is the sum
of the Class A-1 Principal Balance, the Class A-2 Principal Balance, the Class
A-3 Principal Balance, the Class A-4 Principal Balance, the Class A-5 Principal
Balance, the Class A-6 Principal Balance and the Class A-7 Principal Balance.
(Section 1.02.)
In the event that, on a particular Remittance Date, the Amount Available
in the Certificate Account is not sufficient to make a full distribution of
interest to the holders of the Class A Certificates, the Amount Available will
be distributed among the outstanding Class A Certificates pro rata based on the
aggregate amount of interest due on each such Class, 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 Remittance Date. (Section 1.02) Such a
shortfall could occur, for example, if delinquencies or losses realized on the
Contracts were exceptionally high and were concentrated in a particular Due
Period. Any such amount so carried forward will bear interest at the Remittance
Rate for each Class of Class A Certificates, to the extent permitted by law.
The Class A-7 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the weighted average of the Contract
Rates on the Contracts in the Contract Pool, computed on the basis of a 360-day
year of twelve 30-day months. In all but the most unusual prepayment scenarios,
it is anticipated that the Class A-7 Remittance Rate will be %. In the
unlikely event that a large number of Contracts having Contract Rates higher
than % were to prepay while the Contracts having Contract Rates equal to or
lower than % did not prepay, with the result that the interest collections on
the remaining Contracts were not sufficient to support a Class A-7 Remittance
Rate of %, then the Class A-7 Remittance Rate would be equal to the weighted
average of the Contract Rates on the Contracts remaining in the Contract Pool.
Of the Initial Contracts, % by aggregate
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<PAGE>
principal balance as of the Cut-off Date had Contract Rates higher than %.
The weighted average of the Contract Rates on the Initial Contracts as of the
Cut-off Date was approximately %.
Class M-1 Interest
Interest will be paid to the Class M-1 Certificateholders on each
Remittance Date, to the extent of the Amount Available in the Certificate
Account after payment of interest on the Class A Certificates. Interest on the
outstanding Class M-1 Adjusted Principal Balance will accrue from , 1999,
or from the most recent Remittance Date on which interest has been paid, to but
excluding the following Remittance Date. The Class M-1 Principal Balance is the
Original Class M-1 Principal Balance less the sum of all amounts previously
distributed to Class M-1 Certificateholders on account of principal. The Class
M-1 Adjusted Principal Balance as of any Remittance Date is the Class M-1
Principal Balance less any Class M-1 Liquidation Loss Amount. In the event
that, on a particular Remittance Date, the remaining Amount Available in the
Certificate Account is not sufficient to make a full distribution of interest
to the Class M-1 Certificateholders, other funds in the Certificate Account
representing collections received prior to that Remittance Date, up to a
limited amount, will be applied to such deficiency, and any remaining
deficiency will be carried forward and added to the amount such holders will be
entitled to receive on the next Remittance Date. Any such amount so carried
forward will bear interest at the Class M-1 Remittance Rate, to the extent
permitted by law.
The Class M-1 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the weighted average of the Contract
Rates on the Contracts in the Contract Pool, computed on the basis of a 360-day
year of twelve 30-day months. In all but the most unusual prepayment scenarios,
it is anticipated that the Class M-1 Remittance Rate will be %. In the
unlikely event that a large number of Contracts having Contract Rates higher
than % were to prepay while the Contracts having Contract Rates equal to or
lower than % did not prepay, with the result that the interest collections on
the remaining Contracts were not sufficient to support a Class M-1 Remittance
Rate of %, then the Class M-1 Remittance Rate would be equal to the weighted
average of the Contract Rates on the Contracts remaining in the Contract Pool.
Of the Initial Contracts, % by aggregate principal balance as of the Cut-off
Date had Contract Rates higher than %. The weighted average of the Contract
Rates on the Initial Contracts as of the Cut-off Date was approximately %.
Class M-2 Interest
Interest will be paid to the Class M-2 Certificateholders on each
Remittance Date, to the extent of the Amount Available in the Certificate
Account after payment of interest on the Class A Certificates and the Class M-1
Certificates. Interest on the outstanding Class M-2 Adjusted Principal Balance
will accrue from , 1999, or from the most recent Remittance Date on which
interest has been paid, to but excluding the following Remittance Date. The
Class M-2 Principal Balance is the Original Class M-2 Principal Balance less
the sum of all amounts previously distributed to Class M-2 Certificateholders
on account of principal. The Class M-2 Adjusted Principal Balance as of any
Remittance Date is the Class M-2 Principal Balance less any Class M-2
Liquidation Loss Amount. In the event that, on a particular Remittance Date,
the remaining Amount Available in the Certificate Account is not sufficient to
make a full distribution of interest to the Class M-2 Certificateholders, other
funds in the Certificate Account representing collections received prior to
that Remittance Date, up to a limited amount, will be applied to such
deficiency, and any remaining deficiency will be carried forward and added to
the amount such holders will be entitled to receive on the next Remittance
Date. Any such amount so carried forward will bear interest at the Class M-2
Remittance Rate, to the extent permitted by law.
The Class M-2 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the weighted average of the Contract
Rates on the Contracts in the Contract Pool, computed on the basis of a 360-day
year of twelve 30-day months. In all but the most unusual prepayment scenarios,
it is anticipated that the Class M-2 Remittance Rate will be %. In the
unlikely event that a large number of Contracts having Contract Rates higher
than % were to prepay while the Contracts having Contract Rates equal to or
lower than % did not prepay, with the result that the
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<PAGE>
interest collections on the remaining Contracts were not sufficient to support
a Class M-2 Remittance Rate of %, then the Class M-2 Remittance Rate would be
equal to the weighted average of the Contract Rates on the Contracts remaining
in the Contract Pool. Of the Initial Contracts, % by aggregate principal
balance as of the Cut-off Date had Contract Rates higher than %. The weighted
average of the Contract Rates on the Initial Contracts as of the Cut-off Date
was approximately %.
Class B-1 Interest
Interest will be paid to the Class B-1 Certificateholders on each
Remittance Date, to the extent of the Amount Available in the Certificate
Account after payment of interest on the Class A Certificates, Class M-1
Certificates and Class M-2 Certificates. Interest on the outstanding Class B-1
Adjusted Principal Balance will accrue from , 1999 or from the most recent
Remittance Date on which interest has been paid, to but excluding the following
Remittance Date. The Class B-1 Principal Balance is the Original Class B-1
Principal Balance less the sum of all amounts previously distributed to Class
B-1 Certificateholders on account of principal. The Class B-1 Adjusted
Principal Balance as of any Remittance Date is the Class B-1 Principal Balance
less any Class B-1 Liquidation Loss Amount. In the event that, on a particular
Remittance Date, the remaining Amount Available in the Certificate Account is
not sufficient to make a full distribution of interest to the Class B-1
Certificateholders, other funds in the Certificate Account representing
collections received prior to that Remittance Date, up to a limited amount,
will be applied to such deficiency, and any remaining deficiency will be
carried forward and added to the amount such holders will be entitled to
receive on the next Remittance Date. Any such amount so carried forward will
bear interest at the Class B-1 Remittance Rate, to the extent permitted by law.
The Class B-1 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the weighted average of the Contract
Rates on the Contracts in the Contract Pool, computed on the basis of a 360-day
year of twelve 30-day months. In all but the most unusual prepayment scenarios,
it is anticipated that the Class B-1 Remittance Rate will be %. In the
unlikely event that a large number of Contracts having Contract Rates higher
than % were to prepay while the Contracts having Contract Rates equal to or
lower than % did not prepay, with the result that the interest collections on
the remaining Contracts were not sufficient to support a Class B-1 Remittance
Rate of %, then the Class B-1 Remittance Rate would be equal to the weighted
average of the Contract Rates on the Contracts remaining in the Contract Pool.
Of the Initial Contracts, % by aggregate principal balance as of the Cut-off
Date had Contract Rates higher than %. The weighted average of the Contract
Rates on the Initial Contracts was approximately %.
Class A Principal
Holders of the Class A Certificates will be entitled to receive a payment
of principal on each Remittance Date, to the extent of the Amount Available in
the Certificate Account on such date after payment of interest on the Class A
Principal Balance, the Class M-1 Adjusted Principal Balance, the Class M-2
Adjusted Principal Balance and the Class B-1 Adjusted Principal Balance, in an
amount equal to the Class A Percentage of the sum (such sum being referred to
hereinafter as the "Formula Principal Distribution Amount") of:
(i) all scheduled payments of principal due on each outstanding
Contract during the related Due Period (after adjustments for previous
Partial Principal Prepayments and after any adjustments to a Contract's
amortization schedule as a result of a bankruptcy or a similar
proceeding involving the related obligor),
(ii) the Scheduled Principal Balance of each Contract which,
during the month preceding the related Due Period, was purchased by the
Company pursuant to the Agreement on account of certain breaches of its
representations and warranties,
(iii) all partial principal prepayments applied and all principal
prepayments in full received during the related Due Period,
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(iv) the scheduled Principal Balance of each Contract that became
a Liquidated Contract during the related Due Period, plus the amount of
any reduction in the outstanding principal balance of a Contract during
the related Due Period ordered as the result of a bankruptcy or similar
proceeding involving the related obligor,
(v) without duplication of the foregoing, all collections in
respect of principal on the Contracts received during the Due Period in
which such Remittance Date occurs up to and including the third business
day prior to such Remittance Date (but in no event later than the 25th
day of the month prior to such Remittance Rate), minus
(vi) with respect to all Remittance Dates other than the
Remittance Date in 1999, the amount included in the Formula
Principal Distribution Amount for the preceding Remittance Date by
virtue of clause (v) above, plus
(vii) with respect to the Remittance Date in 2000, the amount,
if any, by which the Class A-1 Principal Balance as of such Remittance
Date exceeds the sum on such Remittance Date of the amounts described in
clause (i) through (vi) above; minus
(viii) with respect to the Remittance Date in 2000, the amount,
if any, distributed in respect of principal on the Class A-1
Certificates on the Remittance Date in 2000 pursuant to clause (vii)
above.
When the Principal Balance of a Class of Class A Certificates is reduced to
zero, no further distributions of principal will be made to the holders of such
Class.
The Class A Percentage for any Remittance Date will equal a fraction,
expressed as a percentage, the numerator of which is the Class A Principal
Balance as of such Remittance Date, and the denominator of which is the sum of:
(i) the Class A Principal Balance, (ii) if the Class M-1 Distribution Test is
satisfied on such Remittance Date, the Class M-1 Principal Balance, otherwise
zero, (iii) if the Class M-2 Distribution Test is satisfied on such Remittance
Date, the Class M-2 Principal Balance, otherwise zero, and (iv) if the Class B
Distribution Test is satisfied on such Remittance Date, the Class B Principal
Balance, otherwise zero, all as of such Remittance Date.
The Scheduled Principal Balance of a Contract as of any Remittance Date
is the unpaid principal balance of such Contract as specified in the
amortization schedule at the time relating thereto 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 such Due Date and irrespective of any
delinquency in payment on such Contract. The Pool Scheduled Principal Balance
as of any Remittance Date is the aggregate of the Scheduled Principal Balances
of Contracts outstanding at the end of the related Due Period. A Liquidated
Contract is a defaulted Contract as to which all amounts that the Servicer
expects to recover through the date of disposition of the Manufactured Home
have been received. (Section 1.02.)
The Class A Percentage of the Formula Principal Distribution Amount will
be distributed, to the extent of the Amount Available after payment of interest
accrued on the Class A Principal Balance, Class M-1 Adjusted Principal Balance,
Class M-2 Adjusted Principal Balance and Class B-1 Adjusted Principal Balance,
as follows: first to the Class A-1 Certificateholders until the Class A-1
Principal Balance has been reduced to zero, then to the Class A-2
Certificateholders until the Class A-2 Principal Balance has been reduced to
zero, then to the Class A-3 Certificateholders until the Class A-3 Principal
Balance has been reduced to zero, 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 A-6 Certificateholders until the Class A-6
Principal Balance has been reduced to zero and then to the Class A-7
Certificateholders until the Class A-7 Principal Balance has been reduced to
zero.
The Class A-1 Certificates will have a final maturity date of .
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Mandatory Prepayments on the Class A-1 Certificates
If the aggregate principal balance of the Contracts transferred to the
Trust on the Closing Date (the Initial Contracts and Additional Contracts) is
less than the aggregate original principal balance of the Certificates, a Pre-
Funding Account will be established by the Trustee and funded by the Company on
the Closing Date to provide the Trust with sufficient funds to purchase
Subsequent Contracts. The Class A-1 Certificates will be prepaid in part on the
first Remittance Date after the Pre-Funding Period (in no event later than ,
1999) in the event that any Pre-Funded Amount remains in the Pre-Funding
Account on such Remittance Date. The Company believes that if a Pre-Funding
Account is established, substantially all of the Pre-Funded Amount will be used
to purchase the Subsequent Contracts. It is unlikely, however, that the
aggregate principal amount of Subsequent Contracts purchased by the Trust will
be identical to the Pre-Funded Amount, and consequently, Class A-1
Certificateholders will receive some prepayment of principal.
Class M-1 Principal
Holders of the Class M-1 Certificates will be entitled to receive a
payment of principal on each Remittance Date on which (i) the Class A Principal
Balance has been reduced to zero or (ii) the Class M-1 Distribution Test is
satisfied. The amount of principal paid on the Class M-1 Certificates on any
such Remittance Date will be the Class M-1 Percentage of the Formula Principal
Distribution Amount, subject to the limit of the Amount Available in the
Certificate Account on such date remaining after payment of interest on the
Class A Principal Balance, the Class M-1 Adjusted Principal Balance, the Class
M-2 Adjusted Principal Balance and the Class B-1 Adjusted Principal Balance and
the payment of principal due on the Class A Certificates.
The Class M-1 Percentage for any Remittance Date will equal (a) zero, if
the Class A Principal Balance has not yet been reduced to zero and the Class M-
1 Distribution Test is not satisfied or (b) a fraction, expressed as a
percentage, the numerator of which is the Class M-1 Principal Balance as of
such Remittance Date, and the denominator of which is the sum of: (i) the Class
A Principal Balance, if any, (ii) the Class M-1 Principal Balance, (iii) if the
Class M-2 Distribution Test is satisfied on such Remittance Date, the Class M-2
Principal Balance, otherwise zero and (iv) if the Class B Distribution Test is
satisfied on such Remittance Date, the Class B Principal Balance, otherwise
zero, all as of such Remittance Date.
The Class M-1 Distribution Test will be satisfied if each of the
following tests is satisfied: (i) the Remittance Date occurs in or after ;
(ii) the Average Sixty-Day Delinquency Ratio Test (as defined in the Agreement)
as of such Remittance Date must not exceed 4.50%; (iii) Cumulative Realized
Losses (as defined in the Agreement) as of such Remittance Date must not exceed
a certain specified percentage of the Cut-off Date Pool Principal Balance,
depending on the year in which such Remittance Date occurs; (iv) the Current
Realized Loss Ratio (as defined in the Agreement) as of such Remittance Date
must not exceed 2.75%; and (v) the sum of the Class M-1 Principal Balance, the
Class M-2 Principal Balance and the Class B Principal Balance divided by the
Pool Scheduled Principal Balance as of the immediately preceding Remittance
Date must be equal to or greater than %.
After payment of all principal then distributable on the Class M-1
Certificates, any Class M-1 Liquidation Loss Interest Amount that has accrued
and has not previously been paid will be distributed, together with interest
thereon at the Class M-1 Remittance Rate to the extent legally permissible, to
the extent of the remaining Amount Available.
Class M-2 Principal
Holders of the Class M-2 Certificates will be entitled to receive a
payment of principal on each Remittance Date on which (i) the Class A Principal
Balance and the Class M-1 Principal Balance have
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been reduced to zero or (ii) the Class M-2 Distribution Test is satisfied. The
amount of principal paid on the Class M-2 Certificates on any such Remittance
Date will be the Class M-2 Percentage of the Formula Principal Distribution
Amount, subject to the limit of the Amount Available in the Certificate Account
on such date remaining after payment of interest on the Class A Principal
Balance, the Class M-1 Adjusted Principal Balance, the Class M-2 Adjusted
Principal Balance and the Class B-1 Adjusted Principal Balance and the payment
of principal due on the Class A and Class M-1 Certificates.
The Class M-2 Percentage for any Remittance Date will equal (a) zero, if
the Class A Principal Balance and the Class M-1 Principal Balance have not yet
been reduced to zero and the Class M-2 Distribution Test is not satisfied or
(b) a fraction, expressed as a percentage, the numerator of which is the Class
M-2 Principal Balance as of such Remittance Date, and the denominator of which
is the sum of: (i) the Class A Principal Balance, if any, (ii) the Class M-1
Principal Balance, if any, (iii) the Class M-2 Principal Balance, and (iv) if
the Class B Distribution Test is satisfied on such Remittance Date, the Class B
Principal Balance, otherwise zero, all as of such Remittance Date.
The Class M-2 Distribution Test will be satisfied if each of the
following tests is satisfied: (i) the Remittance Date occurs in or after ;
(ii) the Average Sixty-Day Delinquency Ratio Test (as defined in the Agreement)
as of such Remittance Date must not exceed 4.50%; (iii) Cumulative Realized
Losses (as defined in the Agreement) as of such Remittance Date must not exceed
a certain specified percentage of the Cut-off Date Pool Principal Balance,
depending on the year in which such Remittance Date occurs; (iv) the Current
Realized Loss Ratio (as defined in the Agreement) as of such Remittance Date
must not exceed 2.75%; and (v) the sum of the Class M-2 Principal Balance and
the Class B Principal Balance divided by the Pool Scheduled Principal Balance
as of the immediately preceding Remittance Date must be equal to or greater
than %.
After payment of all principal then distributable on the Class M-2
Certificates, any Class M-2 Liquidation Loss Interest Amount that has accrued
and has not previously been paid will be distributed, together with interest
thereon at the Class M-2 Remittance Rate to the extent legally permissible, to
the extent of the remaining Amount Available.
Class B-1 Principal
Holders of the Class B-1 Certificates will be entitled to receive a
payment of principal on each Remittance Date on which (i) the Class A Principal
Balance, the Class M-1 Principal Balance and the Class M-2 Principal Balance
have been reduced to zero or (ii) the Class B Distribution Test is satisfied.
The amount of principal paid on the Class B-1 Certificates on any such
Remittance Date will be the Class B Percentage of the Formula Principal
Distribution Amount, subject to the limit of the Amount Available in the
Certificate Account on such date remaining after payment of interest on the
Class A Principal Balance, the Class M-1 Adjusted Principal Balance, the Class
M-2 Adjusted Principal Balance and the Class B-1 Adjusted Principal Balance and
the payment of principal due on the Class A, Class M-1 and Class M-2
Certificates.
The Class B Percentage for any Remittance Date will equal (a) zero, if
the Class A Principal Balance, the Class M-1 Principal Balance and the Class M-
2 Principal Balance have not yet been reduced to zero and the Class B
Distribution Test is not satisfied or (b) a fraction, expressed as a
percentage, the numerator of which is the Class B Principal Balance as of such
Remittance Date, and the denominator of which is the sum of: (i) the Class A
Principal Balance, if any, (ii) the Class M-1 Principal Balance, if any, (iii)
the Class M-2 Principal Balance, if any, and (iv) the Class B Principal
Balance, all as of such Remittance Date.
The Class B Distribution Test will be satisfied if each of the following
tests is satisfied: (i) the Remittance Date occurs in or after ; (ii) the
Average Sixty-Day Delinquency Ratio Test (as defined in the Agreement) as of
such Remittance Date must not exceed 4.50%; (iii) the Cumulative Realized
Losses (as defined in the Agreement) as of such Remittance Date must not exceed
a certain specified percentage of the Cut-off Date Pool Principal Balance,
depending on the year in which such
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Remittance Date occurs; (iv) the Current Realized Loss Ratio (as defined in the
Agreement) as of such Remittance Date must not exceed 2.75%; (v) the Class B
Principal Balance divided by the Pool Scheduled Principal Balance as of the
immediately preceding Remittance Date must be equal to or greater than 12.00%;
and (vi) the Class B Principal Balance must not be less than $ .
After payment of all principal then distributable on the Class B-1
Certificates, any Class B-1 Liquidation Loss Interest Amount that has accrued
and has not previously been paid will be distributed, together with interest
thereon at the Class B-1 Remittance Rate to the extent legally permissible, to
the extent of the remaining Amount Available.
Class B-2 Interest
Interest will be paid to the Class B-2 Certificateholders on each
Remittance Date, to the extent of (i) the remaining Amount Available, if any,
and (ii) the amount, if any, paid pursuant to the Limited Guarantee. Interest
on the outstanding Class B-2 Principal Balance will accrue from , 1999, or
from the most recent Remittance Date on which interest has been paid, to but
excluding the following Remittance Date. The Class B-2 Principal Balance is the
Original Class B-2 Principal Balance less the sum of all amounts previously
distributed to Class B-2 Certificateholders on account of principal. In the
event that, on a particular Remittance Date, the remaining Amount Available in
the Certificate Account is not sufficient to make a full distribution of
interest to the Class B-2 Certificateholders and the Company fails to pay such
amount under the Limited Guarantee, the amount of such deficiency will be
carried forward and added to the amount such holders will be entitled to
receive on the next Remittance Date. Any such amount so carried forward will
bear interest at the Class B-2 Remittance Rate, to the extent permitted by law.
The Class B-2 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the weighted average of the Contract
Rates on the Contracts in the Contract Pool, computed on the basis of a 360-day
year of twelve 30-day months. In all but the most unusual prepayment scenarios,
it is anticipated that the Class B-2 Remittance Rate will be %. In the
unlikely event that a large number of Contracts having Contract Rates higher
than % were to prepay while the Contracts having Contract Rates equal to or
lower than % did not prepay, with the result that the interest collections on
the remaining Contracts were not sufficient to support a Class B-2 Remittance
Rate of %, then the Class B-2 Remittance Rate would be equal to the weighted
average of the Contract Rates on the Contracts remaining in the Contract Pool.
Of the Initial Contracts, % by aggregate principal balance as of the Cut-off
Date had Contract Rates higher than %. The weighted average of the Contract
Rates on the Initial Contracts as of the Cut-off Date was approximately %.
Class B-2 Principal
Except for payments of the Class B-2 Liquidation Loss Amount (as
described below), the Class B-2 Certificateholders will be entitled to receive
principal only on Remittance Dates on which (i) the Class B-1 Principal Balance
has been reduced to zero (the "Class B-1 Cross-over Date") and (ii) the Class B
Distribution Test is satisfied; provided, however, that if the Class A
Principal Balance, the Class M-1 Principal Balance, the Class M-2 Principal
Balance and the Class B-1 Principal Balance have been reduced to zero, the
Class B-2 Certificateholders will nevertheless be entitled to receive
principal.
On each Remittance Date on or after the Class B-1 Cross-over Date on
which each Class B Distribution Test is satisfied, the Class B Percentage of
the Formula Principal Distribution Amount will be distributed, to the extent of
the remaining Amount Available 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.
The Class B Percentage for any Remittance Date will equal (a) zero, if
the Class A Principal Balance, the Class M-1 Principal Balance and the Class M-
2 Principal Balance have not yet been reduced to zero and the Class B
Distribution Test is not satisfied or (b) a fraction, expressed as a
percentage, the
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numerator of which is the Class B Principal Balance as of such Remittance Date,
and the denominator of which is the sum of: (i) the Class A Principal Balance,
if any, (ii) the Class M-1 Principal Balance, if any, (iii) the Class M-2
Principal Balance, if any, and (iv) the Class B Principal Balance, all as of
such Remittance Date.
Subordination of Class M-1 Certificates, Class M-2 Certificates, Class B
Certificates, Class B-3I Certificates and Class C Certificates
The rights of the holders of the Class M-1 Certificates, the Class M-2
Certificates, the Class B Certificates, the Class B-3I Certificates and the
Class C Certificates to receive distributions with respect to the Contracts in
the Trust will be subordinated to such rights of the Class A
Certificateholders, to the extent described herein. 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
principal and interest and to afford such holders protection against losses on
Liquidated Contracts. The protection afforded to the Class A Certificateholders
by means of the subordination feature will be accomplished by the preferential
right of the Class A Certificateholders to receive on any Remittance Date the
amount of interest due on the Class A Certificates, including any interest due
on a prior Remittance Date but not received, prior to any distribution being
made on a Remittance Date in respect of interest on the Class M-1 Certificates,
the Class M-2 Certificates, the Class B Certificates and the Class B-3I
Certificates. Thereafter, any remaining Amount Available in the Certificate
Account will be applied to the payment of interest due on the Class M-1
Certificates, then to the Class M-2 Certificates, and then to the payment of
interest due on the Class B-1 Certificates.
After payment of all interest due on the Class A Principal Balance, the
Class M-1 Adjusted Principal Balance, the Class M-2 Adjusted Principal Balance
and the Class B-1 Adjusted Principal Balance, any remaining Amount Available
will be distributed in the following order of priority: first, the Class A
Percentage of the Formula Principal Distribution Amount will be distributed to
the Class A Certificateholders; then, to the extent the remaining Amount
Available is sufficient therefor, the Class M-1 Percentage of the Formula
Principal Distribution Amount plus any unpaid Class M-1 Liquidation Loss
Interest Amount will be distributed to the Class M-1 Certificateholders; then,
to the extent the remaining Amount Available is sufficient therefor, the Class
M-2 Percentage of the Formula Principal Distribution Amount plus any unpaid
Class M-2 Liquidation Loss Interest Amount will be distributed to the Class M-2
Certificateholders; then, to the extent the remaining Amount Available is
sufficient therefor, the Class B Percentage of the Formula Principal
Distribution Amount plus any unpaid Class B-1 Liquidation Loss Interest Amount
will be distributed to the Class B-1 Certificateholders. After distribution of
all interest and principal then payable on the Class A, Class M-1, Class M-2
and Class B-1 Certificates, the Class B-2 Certificateholders will be entitled
to distribution of all interest and principal then payable on the Class B-2
Certificates.
In addition, the rights of the holders of the Class B-2 Certificates, the
Class B-3I Certificates and the Class C Certificates to receive distributions
will be subordinate to such rights of the Class B-1 Certificateholders. This
subordination is intended to enhance the likelihood of regular receipt by the
holders of the Class B-1 Certificates of the full amount of their scheduled
monthly payments of principal and interest and to afford such holders
protection against losses on Liquidated Contracts. The protection afforded to
the Class B-1 Certificateholders by means of the subordination feature will be
accomplished by the preferential right of the Class B-1 Certificateholders to
receive, prior to any distribution being made on a Remittance Date in respect
of the Class B-2 Certificates, the Class B-3I Certificates and the Class C
Certificates, the amount of principal and interest due them on each Remittance
Date out of the remaining Amount Available on deposit on such date in the
Certificate Account and by the right of the Class B-1 Certificateholders to
receive future distributions on the Contracts that would otherwise be payable
to the holders of Class B-2 Certificates.
The rights of the Class B-3I and Class C Certificateholders to receive
distributions will be subordinated to the rights of the Class B-2
Certificateholders. On each Remittance Date the Class B-3I Certificateholders
will receive the remaining Amount Available, if any, after payment of the
amount
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distributed to the Class A, Class M-1, Class M-2, Class B-1 and Class B-2
Certificateholders as described above (less the Monthly Servicing Fee and
amounts retained by the Servicer to reimburse itself for taxes paid in respect
of prohibited transactions), but in no event greater than the Excess Interest
(as defined in the Agreement). On each Remittance Date, the Class C Subsidiary
Certificateholders will be entitled to receive any portion of the remaining
Amount Available, after payment of all amounts described above, attributable to
aggregate Repossession Profits (as defined in the Agreement).
As described above, prior to the time that the Class A Principal Balance
is reduced to zero, the distribution of principal to the Class A
Certificateholders on any Remittance Date is intended to include the Class A
Percentage of the Scheduled Principal Balance of each Contract that became a
Liquidated Contract during the related Due Period. If the Liquidation Proceeds,
net of related Liquidation Expenses, from such Liquidated Contract are less
than its Scheduled Principal Balance plus accrued interest thereon, the
deficiency will, in effect, be absorbed by the Class M-1, Class M-2, Class B,
Class B-3I and Class C Certificateholders and the Company, since a portion of
the Amount Available equal to such deficiency and otherwise distributable to
them will be paid to the Class A Certificateholders. 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 Remittance Date, then the amount
distributable to the Class A Certificateholders, the Class M-1
Certificateholders or the Class M-2 Certificateholders, as applicable, will be
increased on future Remittance Dates by the amount of such deficiency plus the
applicable interest on such amount. To the extent such deficiency is not
covered by future Collections or is not absorbed by the Class B-3I
Certificateholders or the Monthly Servicing Fee (so long as Green Tree is the
Servicer), the Class B Certificateholders will absorb such deficiencies. If the
Amount Available is sufficient to cover the amounts distributable in respect of
principal to the Class A Certificateholders, the Class M-1 Certificateholders
or Class M-2 Certificateholders but is not sufficient to cover the amounts
distributable in respect of principal to the Class B-1 Certificateholders (if
any) on a particular Remittance Date, the amount of the deficiency will be
carried forward as an amount that the Class B-1 Certificateholders are entitled
to receive on the next Remittance Date. Consequently, but for the effect of the
relative subordination of the Monthly Servicing Fee payable to the Servicer (so
long as the Company is the Servicer) and amounts otherwise distributable to the
Class B-2, Class B-3I and Class C Certificateholders, the Class B-1
Certificateholders will absorb (i) all losses on each Liquidated Contract in
the amount by which its Liquidation Proceeds, net of the related Liquidation
Expenses, are less than its unpaid principal balance plus accrued and unpaid
interest thereon less the Monthly Servicing Fee and (ii) all delinquent
payments on the Contracts. But for the effect of the relative subordination of
the Monthly Servicing Fee payable to the Servicer (so long as Green Tree is the
Servicer) and amounts otherwise distributable to the Class B-3I and the Class C
Certificateholders on each Remittance Date, and amounts paid under the Limited
Guarantee as described below, the Class B-2 Certificateholders will absorb (i)
all losses on each Liquidated Contract in the amount by which its Liquidation
Proceeds, net of the related Liquidation Expenses, are less than its unpaid
principal balance plus accrued and unpaid interest thereon less the Monthly
Servicing Fee and (ii) all delinquent payments on the Contracts. Class B-2
Certificateholders, however, will be entitled to receive Guarantee Payments and
amounts otherwise distributable on Remittance Dates as (i) the Class B-3I
Distribution Amount and (ii) the Monthly Servicing Fee payable to the Servicer
(so long as the Company is the Servicer), and would be entitled to receive
those amounts, if any, not received by the Class B-2 Certificateholders on a
prior Remittance Date. If the Company fails to make a payment required under
the Limited Guarantee, the Class B-2 Certificateholders will incur a loss on
their investment in the Class B-2 Certificates.
Losses on Liquidated Contracts
In the event the Amount Available in the Certificate Account for any
Remittance Date is insufficient to distribute the full Formula Principal
Distribution Amount for such Remittance Date to the Certificateholders, the
aggregate outstanding Principal Balance of the Certificates will be greater
than the Pool Scheduled Principal Balance for such Remittance Date. In such
event, the amount of such deficiency (the "Liquidation Loss Amount") would be
allocated first to the Class B-2 Certificates (a "Class B-2 Liquidation Loss
Amount"), and Green Tree would be obligated to pay the amount of such Class B-2
Liquidation Loss Amount to the Class B-2 Certificateholders pursuant to the
Limited Guarantee. If on any
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Remittance 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 were equal to the Pool Scheduled Principal Balance, no further
Liquidation Loss Amounts could be allocated to the Class B-2 Certificates and
any further Liquidation Loss Amounts realized would be allocated to reduce the
Class B-1 Adjusted Principal Balance (a "Class B-1 Liquidation Loss Amount").
If the Class B-1 Adjusted Principal Balance were reduced to zero, any further
Liquidation Loss Amounts realized would be allocated to reduce the Class M-2
Adjusted Principal Balance (a "Class M-2 Liquidation Loss Amount"). If the
Class M-2 Adjusted Principal Balance were reduced to zero, any further
liquidation Loss Amounts realized would be allocated to the Class M-1 Adjusted
Principal Balance (a "Class M-1 Liquidation Loss Amount"). Any such Liquidation
Loss Amounts would be reduced on subsequent Remittance Dates to the extent that
the Amount Available in the Certificate Account on such Remittance Dates is
sufficient to permit the distribution of principal due on the Certificates on
prior Remittance Dates but not paid. In the event the Adjusted Principal
Balance of a Class of Certificates were reduced by a Liquidation Loss Amount,
interest accruing on such Class (other than the Class B-2 Certificates) would
be calculated on the Adjusted Principal Balance of such Class. The interest
accruing on such Class's Liquidation Loss Amount each month (such Class's
"Liquidation Loss Interest Amount"), plus interest at the applicable
Certificate Rate on any Liquidation Loss Interest Amount due on a prior
Remittance Date but not paid, would be paid to the Certificateholders of such
Class from the Amount Available after distribution of principal on such Class
but prior to any distribution of principal on a subordinate Class.
Capitalized Interest Account
Because payments received with respect to interest on the Contracts may
be insufficient to cover payments of interest on the Offered Certificates on
the Remittance Dates in and 1999, an account (the "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 Contracts; Distributions on Certificates"). If the Amount
Available is insufficient to make a full distribution of interest on the
Offered Certificates (other than the Class B-2 Certificates) on the Remittance
Dates in and 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 Company will be obligated under the Limited Guarantee
to make a Guarantee Payment equal to any shortfall in the amount distributable
on the Class B-2 Certificates, as described below under "--Limited Guarantee of
the Company." 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 1999 will be released to a subsidiary of the
Company.
Limited Guarantee of the Company
In order to mitigate the effect of the subordination of the Class B-2
Certificates and liquidation losses and delinquencies on the Contracts, the
Company will provide a guarantee (the "Limited Guarantee") against losses that
would otherwise be absorbed by the Class B-2 Certificates. Each payment
required to be made under the Limited Guarantee is referred to as a "Guarantee
Payment." Prior to the Class B-1 Cross-over Date, or on any Remittance Date on
or after the Class B-1 Cross-over Date on which the Class B Distribution Test
is not satisfied (unless the Class A Principal Balance, the Class M-1 Principal
Balance and the Class M-2 Principal Balance have been reduced to zero), the
Guarantee Payment will equal the amount, if any, by which (i) the Class B-2
Formula Distribution Amount for such Remittance Date (which will be equal to
accrued and unpaid interest on the Class B-2 Certificates for such Remittance
Date plus the Class B-2 Liquidation Loss Amount for such Remittance Date, if
any) exceeds (ii) the Class B-2 Distribution Amount for such Remittance Date.
The Class B-2 Liquidation Loss Amount for any Remittance Date equals the
amount, if any, by which the sum of the Class A Principal Balance, the Class
M-1 Principal Balance, the Class M-2 Principal Balance, the Class B-1 Principal
Balance and the Class B-2 Principal Balance for such Remittance Date exceeds
the Pool Scheduled Principal Balance for such Remittance Date. On each
Remittance Date on or after the Class B-1 Cross-over Date, if the Class B
Distribution Test is satisfied on such Remittance Date (or if the Class
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A Principal Balance, the Class M-1 Principal Balance and the Class M-2
Principal Balance have been reduced to zero), the Guarantee Payment will equal
the amount, if any, by which (i) the Class B-2 Formula Distribution Amount for
such Remittance Date (which will include both interest and principal and the
Class B-2 Liquidation Loss Amount, if any) exceeds (ii) the remaining Amount
Available for such Remittance Date.
The Limited Guarantee will be an unsecured general obligation of the
Company and will not be supported by any letter of credit or other credit
enhancement arrangement. The Limited Guarantee will not benefit in any way, or
result in any payment to, the Class A, Class M-1, Class M-2, Class B-1, Class
B-3I or Class C Certificateholders. The ratings assigned to the Class B-2
Certificates may be affected by the ratings of the Company's debt securities.
See "Summary of the Terms of the Offered Certificates--Rating."
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 in respect
of the related Remittance Date setting forth, among other things:
(a) the amount of such distribution to holders of the Class A Certificates
allocable to interest (separately identifying any prior Class A
interest shortfall included in the distribution and any remaining Class
A interest shortfall after giving effect to such distribution);
(b) the amount of such distribution to holders of the Class A Certificates
allocable to principal (separately identifying the aggregate amount of
any Principal Prepayments included in the distribution and any
remaining Class A principal shortfall after giving effect to such
distribution);
(c) the Principal Balance of the Class A Certificates after giving effect
to the distribution of principal on such Remittance Date;
(d) the Pool Scheduled Principal Balance of the Contracts for such
Remittance Date;
(e) the Class A Percentage for such Remittance Date and the following
Remittance Date;
(f) 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-1
Principal Balance, the Class M-2 Principal Balance and the Class B
Principal Balance and the denominator of which is the Cut-off Date Pool
Principal Balance);
(g) the number and aggregate principal balance of Contracts delinquent (i)
30-59 days and (ii) 60 or more days;
(h) the number of Manufactured Homes that were repossessed during the
related Due Period;
(i) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the related Due Period;
(j) the Class M-1 Distribution Test;
(k) the Class M-2 Distribution Test;
(l) the Class B Distribution Test;
(m) the weighted average Contract Rate of all outstanding Contracts;
(n) the deficiency, if any, in the amount available to pay the Class M-1
Interest for such Remittance Date;
(o) the deficiency, if any, in the amount available to pay the Class M-2
Interest for such Remittance Date; and
(p) the deficiency, if any, in the amount available to pay the Class B-1
Interest for such Remittance Date.
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Information furnished pursuant to clauses (a) and (b) 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. (Section 6.05.)
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 Remittance 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 prior
Class M-1 interest shortfall included in the distribution and any
remaining Class M-1 interest shortfall after giving effect to such
distribution, and any Class M-1 Liquidation Loss Interest Amount);
(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 in the
distribution and any remaining Class M-1 principal shortfall after
giving effect to such distribution);
(c) the Principal Balance and Adjusted Principal Balance (if different) of
the Class M-1 Certificates after giving effect to the distribution of
principal on such Remittance Date;
(d) the Class M-1 Percentage for such Remittance Date and the following
Remittance Date;
(e) the Pool Scheduled Principal Balance of the Contracts for such
Remittance Date;
(f) the Pool Factor;
(g) the number and aggregate principal balance of Contracts delinquent (i)
30-59 days and (ii) 60 or more days;
(h) the number of Manufactured Homes that were repossessed during the
related Due Period;
(i) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the related Due Period;
(j) the Class M-1 Distribution Test;
(k) the Class M-2 Distribution Test;
(l) the Class B Distribution Test; and
(m) the weighted average Contract Rate of all outstanding Contracts.
Information furnished pursuant to clauses (a) and (b) 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. (Section 6.05.)
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 Remittance 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 prior
Class M-2 interest shortfall included in the distribution and any
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remaining Class M-2 interest shortfall after giving effect to such
distribution, and any Class M-2 Liquidation Loss Interest Amount);
(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 in the
distribution and any remaining Class M-2 principal shortfall after
giving effect to such distribution);
(c) the Principal Balance and Adjusted Principal Balance (if different) of
the Class M-2 Certificates after giving effect to the distribution of
principal on such Remittance Date;
(d) the Class M-2 Percentage for such Remittance Date and the following
Remittance Date;
(e) the Pool Scheduled Principal Balance of the Contracts for such
Remittance Date;
(f) the Pool Factor;
(g) the number and aggregate principal balance of Contracts delinquent (i)
30-59 days and (ii) 60 or more days;
(h) the number of Manufactured Homes that were repossessed during the
related Due Period;
(i) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the related Due Period;
(j) the Class M-1 Distribution Test;
(k) the Class M-2 Distribution Test;
(l) the Class B Distribution Test; and
(m) the weighted average Contract Rate of all outstanding Contracts.
Information furnished pursuant to clauses (a) and (b) 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. (Section 6.05.)
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 Remittance 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 prior
Class B-1 interest shortfall included in the distribution and any
remaining Class B-1 interest shortfall after giving effect to such
distribution, and any Class B-1 Liquidation Loss Amount);
(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 in the
distribution and any remaining Class B-1 principal shortfall after
giving effect to such distribution);
(c) the Principal Balance and Adjusted Principal Balance (if different) of
the Class B-1 Certificates after giving effect to the distribution of
principal on such Remittance Date;
(d) the Class B Percentage for such Remittance Date and the following
Remittance Date;
(e) the Pool Scheduled Principal Balance of the Contracts for such
Remittance Date;
(f) the Pool Factor;
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(g) the number and aggregate principal balance of Contracts delinquent (i)
30-59 days and (ii) 60 or more days;
(h) the number of Manufactured Homes that were repossessed during the
related Due Period;
(i) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the related Due Period;
(j) the Class M-1 Distribution Test;
(k) the Class M-2 Distribution Test;
(l) the Class B Distribution Test; and
(m) the weighted average Contract Rate of all outstanding Contracts.
Information furnished pursuant to clauses (a) and (b) 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. (Section 6.05.)
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 Remittance Date setting forth, among other things:
(a) the amount of such distribution to holders of Class B-2 Certificates
allocable to interest (separately identifying any prior Class B-2
interest shortfall included in the distribution and any remaining Class
B-2 interest shortfall after giving effect to such distribution);
(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 in the distribution and any
remaining Class B-2 principal shortfall after giving effect to such
distribution);
(c) the amount, if any, by which the Class B-2 Formula Distribution Amount
exceeds the Class B-2 Remaining Amount Available for such Remittance
Date;
(d) the Class B-2 Principal Balance after giving effect to the distribution
of principal on such Remittance Date;
(e) the Class B Percentage for such Remittance Date and the following
Remittance Date;
(f) the Pool Scheduled Principal Balance of the Contracts for such
Remittance Date and the following Remittance Date;
(g) the Pool Factor;
(h) the Class B-2 Liquidation Loss Amount, if any, for such Remittance
Date;
(i) the Guarantee Payment, if any, for such Remittance Date;
(j) the number and aggregate principal balance of Contracts delinquent (i)
30-59 days and (ii) 60 or more days;
(k) the number of Manufactured Homes that were repossessed during the
related Due Period;
(l) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the related Due Period;
(m) the Class M-1 Distribution Test;
(n) the Class M-2 Distribution Test;
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(o) the Class B Distribution Test; and
(p) the weighted average Contract Rate of all outstanding Contracts.
Information furnished pursuant to clauses (a) through (c) 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. (Section 6.05.)
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 Agreement provides that on any Remittance Date on which the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal
Balance, the Company or the Servicer will have the option to repurchase, upon
the Company or the Servicer giving notice mailed no earlier than the first day
and no later than the 10th day of the month next preceding the month of such
final distribution, all outstanding Contracts at a price equal to the greater
of (a) the sum of (x) 100% of the Scheduled Principal Balance of each Contract
(other than any Contract as to which the related Manufactured Home has been
repossessed and whose fair market value is included pursuant to clause (y)
below) as of the final Remittance Date and (y) the fair market value of such
acquired property (as determined by the Company) and (b) the aggregate fair
market value (as determined by the Company) of all of the assets of the Trust,
plus, in each case, any unpaid interest at the applicable Class A Remittance
Rate on each Class of Class A Certificates, any unpaid interest at the Class M-
1 Remittance Rate on the Class M-1 Certificates, any unpaid interest at the
Class M-2 Remittance Rate on the Class M-2 Certificates, and any unpaid
interest at the related Remittance Rates on each Class of Class B Certificates,
as well as one month's interest at the applicable Contract Rate on the
Scheduled Principal Balance of each Contract (including any Contract as to
which the related Manufactured Home has been repossessed). (Section 8.05.)
Termination of the Agreement
The Agreement will terminate upon the last action required to be taken by
the Trustee on the final Remittance Date following the later of (i) the
purchase by the Company or the Servicer of all Contracts and all property
acquired in respect of any Contract remaining in the Trust as described under
"--Repurchase Option" or (ii) the final payment or other liquidation of the
last Contract remaining in the Trust or the disposition of all property
acquired upon repossession of any Manufactured Home.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed, in the following order of priority, to
Certificateholders on the final Remittance Date in proportion to their
respective Percentage Interests an amount equal to (i) any unpaid interest on
any Class of Class A Certificates, (ii) any unpaid interest on the Class M-1
Certificates, (iii) any unpaid interest on the Class M-2 Certificates, (iv) any
unpaid interest on the Class B-1 Certificates, (v) the Principal Balance of
each Class of Class A Certificates, (vi) the Class M-1 Principal Balance, (vii)
the Class M-2 Principal Balance, (viii) the Class B-1 Principal Balance, (ix)
any unpaid interest on the Class B-2 Certificates, (x) the Class B-2 Principal
Balance, (xi) any unpaid interest on the Class B-3I Certificates and (xii) as
to the Class C Certificates, the amount which remains on deposit in the
Certificate Account (other than amounts retained to meet claims) after
application pursuant to clauses (i)-(xi) above. (Section 12.03.)
Amendment
The Agreement may be amended by agreement of the Trustee, the Company and
the Servicer at any time, without the consent of the Certificateholders, to
correct manifest error, to cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision, to add or amend
any provision as required by S&P, Fitch or any other nationally recognized
statistical rating organization in order to improve or maintain the rating of
any Class of Class A Certificates, the Class
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M-1 Certificates, the Class M-2 Certificates or any Class of Class B
Certificates or to add other provisions not inconsistent with the 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. (Section 12.07.) Neither the Company nor the Servicer is
obligated to take any action to maintain or improve the rating given any Class
of Class A Certificates, the Class M-1 Certificates, the Class M-2 Certificates
or any Class of Class B Certificates.
The Agreement may also be amended from time to time by the Trustee, the
Company and the Servicer, with the consent of the holders of Certificates of
each Class affected thereby evidencing, as to each such Class, Percentage
Interests aggregating at least 51%, provided that no such amendment shall (a)
reduce in any manner the amount of, or delay the timing of, collections of
payments on Contracts or distributions which are required to be made on any
Certificate without the consent of the holder of each Certificate affected
thereby, (b) reduce the aforesaid percentages of Certificateholders required
for any amendment of the Agreement, without the unanimous consent of the
Certificateholders, (c) adversely affect the status of either the Subsidiary
REMIC or the Master REMIC as a REMIC or the status of the Certificates as
"regular interests" therein, or cause any tax to be imposed on the Trust, or
(d) modify in any manner the rights of the Class C Certificateholders, without
the unanimous consent of the Class C Certificateholders. (Section 12.07.)
The Agreement may also be amended from time to time, without the consent
of any Certificateholders, by the Company, the Trustee and the Servicer to
modify, eliminate or add to the provisions of the Agreement (i) to maintain the
qualification of each of the Subsidiary REMIC and the Master REMIC as a REMIC
under the Code or avoid, or reduce the risk of, the imposition of any tax on
the Trust under the Code that would be a claim against the Trust assets,
provided that (a) an Opinion of Counsel is delivered to the Trustee to the
effect that such action is necessary to maintain such qualification or avoid
any such tax or reduce the risk of its imposition and (b) such amendment shall
not materially adversely affect the interests of any Certificateholder or (ii)
to prevent the Trust from entering into any "prohibited transaction" as defined
in Section 860F of the Code.
The Trustee is required under the Agreement to furnish Certificateholders
affected thereby with notice promptly upon execution of any amendment to the
Agreement. (Section 12.07.)
The Trustee
[Trustee] (the "Trustee") is a national banking association, the
corporate trust offices of which are located at [address].
The Agreement requires the Trustee to maintain, at its own expense, an
office or agency in St. Paul, Minnesota, 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 pursuant to the Agreement may be served. On the date hereof,
the address of the Trustee for such purposes is [Trustee/address]. The Trustee
will promptly give written notice to the Certificateholders of any change
thereof. (Section 12.02.)
Registration of the Certificates
The Certificates will initially be registered in the name of Cede & Co.
("Cede"), the nominee of The Depository Trust Company ("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 1934 Act. DTC
accepts securities for deposit from its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic book-
entry changes in accounts of Participants, thereby eliminating the need for
physical movement of certificates. Participants include
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securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
Certificate Owners who are not Participants but desire to purchase, sell
or otherwise transfer ownership of the Offered Certificates may do so only
through Participants (unless and until Definitive Class A, Class M-1, Class M-2
and Class B Certificates, as defined below, are issued). In addition,
Certificate Owners will receive all distributions of principal of, and interest
on, the Offered 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 Class A, Class M-1, Class M-2
and Class B Certificates, except under the limited circumstances described
below.
Unless and until Definitive Class A, Class M-1, Class M-2 and Class B
Certificates (as defined below) are issued, it is anticipated that the only
"Certificateholder" of the Class A, Class M-1, Class M-2 and Class B
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not
be Certificateholders as that term is used in the Agreement. Certificate Owners
are only permitted to exercise the rights of Certificateholders indirectly
through Participants and DTC.
While the Class A, Class M-1, Class M-2 and Class B Certificates are
outstanding (except under the circumstances described below), under the rules,
regulations and procedures creating and affecting DTC and its operations (the
"Rules"), DTC is required to make book-entry transfers among Participants on
whose behalf it acts with respect to the Class A, Class M-1, Class M-2 and
Class B Certificates and is required to receive and transmit distributions of
principal of, and interest on, the Class A, Class M-1, Class M-2 and Class B
Certificates. Participants with whom Certificate Owners have accounts with
respect to the Class A, Class M-1, Class M-2 and Class B 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.
Class A, Class M-1, Class M-2 and Class B Certificates will be issued in
registered form to Certificate Owners, or their nominees, rather than to DTC
(such Certificates being referred to herein as "Definitive Class A, Class M-1,
Class M-2 and Class B Certificates"), only if (i) DTC or the Company advises
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
Class A, Class M-1, Class M-2 and Class B Certificates and the Company or the
Trustee is unable to locate a qualified successor or (ii) the Company at its
sole option advises the Trustee in writing that it elects to terminate the
book-entry system through DTC. Upon issuance of Definitive Class A, Class M-1,
Class M-2 and Class B Certificates to Certificate Owners, such Certificates
will be transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee with respect to
transfers, notices and distributions.
DTC has advised the Company and the Trustee that, unless and until
Definitive Class A, Class M-1, Class M-2 and Class B Certificates are issued,
DTC will take any action permitted to be taken by a Certificateholder under the
Agreement only at the direction of one or more Participants to whose DTC
accounts the Class A, Class M-1, Class M-2 and Class B Certificates are
credited. DTC has advised the Company that DTC will take such action with
respect to any Percentage Interests of the Class A, Class M-1, Class M-2 and
Class B Certificates only at the direction of and on behalf of such
Participants with respect to such Percentage Interests of the Class A, Class M-
1, Class M-2 and Class B Certificates. DTC may take actions, at the direction
of the related Participants, with respect to some Class A, Class M-1, Class M-2
and Class B Certificates which conflict with actions taken with respect to
other Class A, Class M-1, Class M-2 and Class B Certificates.
Issuance of the Class A, Class M-1, Class M-2 and Class B Certificates in
book-entry form rather than as physical certificates may adversely affect the
liquidity of the Class A, Class M-1, Class
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M-2 and Class B Certificates in the secondary market and the ability of
Certificate Owners to pledge them. In addition, since distributions on the
Class A, Class M-1, Class M-2 and Class B Certificates will be made by the
Trustee to DTC and DTC will credit such distributions to the accounts of its
Participants, which will further credit them to the accounts of indirect
participants or Certificate Owners, Certificate Owners may experience delays in
the receipt of such distributions.
DTC management is aware that some computer applications, systems, and the
like for processing data ("Systems") that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its Participants and other members of the financial
community (the "Industry") that it has developed and is implementing a program
so that its Systems, as the same relate to the timely payment of distributions
(including principal and income payments) to securityholders, book-entry
deliveries, and settlement of trades within DTC continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to:
(i) impress upon them the importance of such services being Year 2000
compliant; and (ii) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts, the costs of carrying the
Contracts until the sale of the Certificates and to pay other expenses
connected with pooling the Contracts and issuing the Certificates.
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ERISA CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "ERISA
Considerations."
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and section 4975 of the Code impose certain restrictions on employee
benefit and other plans that are subject to ERISA or to section 4975 of the
Code ("Plans") and on persons who are fiduciaries with respect to such Plans.
Employee benefit plans that are governmental plans (as defined in section 3(32)
of ERISA) and certain church plans (as defined in section 3(33) of ERISA) are
not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Class A Certificates without regard to the ERISA restrictions
described herein and in the Prospectus, subject to applicable provisions of
other federal and state laws. However, any such governmental or church plan
which is qualified under section 401(a) of the Code and exempt from taxation
under section 501(a) of the Code is subject to the prohibited transaction rules
set forth in section 503 of the Code.
The U.S. Department of Labor ("DOL") has granted substantially identical
administrative exemptions to [Underwriter] (Prohibited Transaction Exemption
; Exemption Application No. D- , Fed. Reg. ( )), to
[Underwriter] (Prohibited Transaction Exemption ; Exemption Application No.
D- , Fed. Reg. ( )), and to [Underwriter] (Prohibited Transaction
Exemption ; Exemption Application No. D- , Fed. Reg. ( ))
(collectively referred to as the "Exemption") from certain of the prohibited
transaction rules of ERISA and the 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
manufactured housing installment sale contracts and installment loan agreements
such as the Contracts. The Exemption will apply to the acquisition, holding,
and resale of the Class A Certificates by a Plan, provided that specified
conditions (certain of which are described below) are met.
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 any of Moody's, S&P, Fitch or Duff &
Phelps Credit Rating Co. (the "Exemption Rating Agencies");
(4) The trustee of the Plan is not an affiliate of any 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 compensation for underwriting the Class A Certificates. The
sum of all payments made to and retained by the Company pursuant to the
sale of the Contracts to the Trust represents not more than the fair
market value of such Contracts. 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 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 of the
Securities and Exchange Commission under the Securities Act of 1933.
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Moreover, the Exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Class A Certificates in
connection with the initial issuance, at least 50% of the Class A Certificates
are acquired by persons independent of the Restricted Group (as defined below),
(ii) the Plan's investment in Class A Certificates does not exceed 25% of all
of the Class A Certificates outstanding at the time of the acquisition and
(iii) immediately after the acquisition, no more than 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 the Company, the Underwriters, the
Trustee, the Servicer, any obligor with respect to Contracts included in the
Trust constituting more than 5% of the aggregate unamortized principal balance
of the assets in the Trust or any affiliate of such parties (the "Restricted
Group").
The Company 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 hereof, no obligor with
respect to Contracts 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 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 any exemption that may be available under PTCE 95-60 for
the purchase and holding of the Certificates by an insurance company general
account (as described in "ERISA Considerations" in the Prospectus), 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 Code, including the prohibited transaction
restrictions imposed by ERISA and the related excise taxes imposed by the Code,
for transactions involving an insurance company general account. Pursuant to
Section 401(c) of ERISA, the DOL published proposed regulations ("Proposed
401(c) Regulations") on December 22, 1997 to provide guidance for the purpose
of determining, in cases where insurance policies supported by an insurer's
general account are issued to or for the benefit of a Plan on or before
December 31, 1998, which general account assets constitute Plan assets. Section
401(c) of ERISA generally provides that, until the date which is 18 months
after the Proposed 401(c) Regulations become final, no person will be subject
to liability under Part 4 of Title I of ERISA and Section 4975 of the Code on
the basis of a claim that the assets of an insurance company general account
constitute Plan assets, unless (i) as otherwise provided by the Secretary of
Labor in the Proposed 401(c) Regulations to prevent avoidance of the
regulations or (ii) 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
Securities after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
No transfer of Class M-1, Class M-2 or Class B Certificates will be
permitted to be made to a Plan or to any person acquiring such Certificates on
behalf of or with assets of a Plan, unless such transferee, at its expense,
delivers to the Trustee and the Company an opinion of counsel (in form
satisfactory to the Trustee and the Company) to the effect that the purchase or
holding of a Class M-1, Class M-2 or Class B Certificate by such Plan will not
result in the assets of the Trust being deemed to
S-55
<PAGE>
be Plan assets and subject to the prohibited transaction provisions of ERISA
and the Code and will not subject the Trustee, the Company or the Servicer to
any obligation or liability in addition to those undertaken in the Agreement.
Alternatively, an insurance company general account may, at its expense,
deliver to the Trustee and the Company a representation that the transfer and
holding of such a Certificate are exempt under Section I and Section III of
PTCE 95-60. Unless such opinion or representation is delivered, each person
acquiring a Class M-1, Class M-2 or Class B Certificate will be deemed to
represent to the Trustee, the Company and the Servicer that such person is not
a Plan, acting on behalf of a Plan or investing assets of a Plan subject to
ERISA or to Section 4975 of the Code.
LEGAL INVESTMENT CONSIDERATIONS
After the Pre-Funding Period has ended, the Class A Certificates and the
Class M-1 Certificates offered hereby will constitute "mortgage related
securities" under the Secondary Mortgage Market Enhancement Act of 1984
("SMMEA") and will be "legal investments" for certain types of institutional
investors to the extent provided in SMMEA. Because the Class M-2 Certificates
and the Class B Certificates will not be rated in one of the two highest rating
categories by S&P or Fitch, the Class M-2 Certificates and the Class B
Certificates will not constitute "mortgage related securities" for purposes of
SMMEA. Accordingly, many institutions with legal authority to invest in more
highly rated securities based on first mortgage loans may not be legally
authorized to invest in the Class M-2 Certificates and the Class B
Certificates.
The Company makes no representation as to the proper characterization of
the Class M-2 Certificates and the Class B Certificates for legal investment or
financial institution regulatory purposes, or as to the ability of particular
investors to purchase Class M-2 Certificates or Class B Certificates under
applicable legal investment restrictions. The uncertainties described above
(and any unfavorable future determinations concerning legal investment or
financial institution regulatory characteristics of the Class M-2 Certificates
and the Class B Certificates) may adversely affect the liquidity of the Class
M-2 Certificates and the Class B Certificates.
S-56
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company the
respective principal amounts of the Offered Certificates set forth opposite
their names below.
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of
Class A-1 Class A-2 Class A-3 Class A-4
Underwriter Certificates Certificates Certificates Certificates
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
[Underwriters].............. $ $ $ $
[Underwriters]..............
[Underwriters]..............
------------ ------------ ------------ --------
Totals................... $ $ $ $
============ ============ ============ ========
Principal Principal Principal
Amount of Amount of Amount of
Class A-5 Class A-6 Class A-7
Underwriter Certificates Certificates Certificates
----------- ------------ ------------ ------------
[Underwriters].............. $ $ $
[Underwriters]..............
[Underwriters]..............
------------ ------------ ------------
Totals................... $ $ $
============ ============ ============
<CAPTION>
Principal Principal Principal
Amount of Amount of Amount of
Class M-1 Class M-2 Class B-1
Underwriter Certificates Certificates Certificates
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
[Underwriters].............. $ $ $
[Underwriters]..............
[Underwriters]..............
------------ ------------ ------------
Totals................... $ $ $
============ ============ ============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates if any Offered Certificates are purchased. In the event of default
by an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the Underwriting Agreement may be terminated.
S-57
<PAGE>
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
set forth in the table below (expressed as a percentage of the related
Certificate Principal Balance). The Offered Certificates are offered subject to
prior sale, when, as and if issued by the Trust and accepted by the
Underwriters and subject to their right to reject orders in whole or in part.
The Underwriters will purchase the Offered Certificates at the discount
specified below. The Underwriters may allow and such dealers may reallow a
discount not in excess of the respective amounts set forth in the table below
to certain other dealers.
<TABLE>
<CAPTION>
Underwriting Selling Reallowance
Class Discount Concession Discount
----- ------------ ---------- -----------
<S> <C> <C> <C>
A-1.................................... % % %
A-2.................................... % % %
A-3.................................... % % %
A-4.................................... % % %
A-5.................................... % % %
A-6.................................... % % %
A-7.................................... % % %
M-1.................................... % % %
M-2.................................... % % %
B-1.................................... % % %
</TABLE>
Until the distribution of the Offered Certificates is completed, rules of
the Commission may limit the ability of the Underwriters and certain selling
group members to bid for and purchase the Offered Certificates. As an exception
to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Offered Certificates. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Offered Certificates.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Company 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.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Underwriters may be
required to make in respect thereof.
Upon receipt of a request by an investor who has received an electronic
Prospectus Supplement and Prospectus from an Underwriter or a request by such
investor's representative within the period during which there is an obligation
to deliver a Prospectus Supplement and Prospectus, the Company or the
Underwriters will promptly deliver, or cause to be delivered, without charge, a
paper copy of the Prospectus Supplement and Prospectus.
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Company by
[Counsel to Green Tree], Minnesota, and for the Underwriters by Brown & Wood
LLP, New York, New York. The material federal income tax consequences of the
Certificates will be passed upon for the Company by [Counsel to Green Tree].
S-58
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This preliminary Prospectus Supplement and the information contained herein +
+are subject to completion or amendment and prospective purchasers are +
+referred to the related final Prospectus Supplement for definitive +
+information on any matter contained herein. This preliminary Prospectus +
+Supplement shall not constitute an offer to sell or the solicitation of an +
+offer to buy nor shall there be any sale of these securities in any +
+jurisdiction in which such offer, solicitation or sale would be unlawful +
+prior to registration or qualification under the securities laws of any such +
+jurisdiction. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Green Tree Financial Corporation,
Seller and Servicer
Manufactured Housing Contract Pass-Through Certificates
(Issuable In Series)
We are offering certificates for manufactured housing contracts under this
prospectus and a prospectus supplement. The certificates for manufactured
housing contracts are referred to as the "Certificates" and to each separate
series of Certificates as a "Series." 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 manufactured housing contracts.
The prospectus supplement will list the remittance rate that the holders of
Certificates will receive for each class in a Series. The prospectus supplement
will specify whether the remittance rate will be fixed, variable or adjustable.
Before the offering of the Certificates under this prospectus, there was no
public market for the Certificates. The underwriters named in the prospectus
supplement relating to a Series may from time to time buy and sell Certificates
of that Series.
-----------
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, except to the extent specified in the 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.
-----------
This prospectus may not be used to consummate sales of any Certificates
unless accompanied by a prospectus supplement relating to that series.
Prospectus dated March , 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: (a) this prospectus, which provides general
information, some of which many not apply to a particular series of
Certificates, including your series; and (b) the prospectus supplement related
to the particular terms of your series of Certificates.
If the terms of your series of Certificates described in the prospectus
supplement varies from this prospectus, you should rely on the information in
your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities. The information in this document
may only be accurate on the date of this document.
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.
REPORTS TO HOLDERS OF THE CERTIFICATES
We will provide to the holders of the Certificates of each series certain
monthly and annual reports concerning the Certificates and the related trust
fund. For a more complete description of the reports you will receive, please
read the section entitled "Description of the Certificates--Reports to
Certificateholders."
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with the
Securities and Exchange Commission (the "SEC"), including annual, quarterly and
special reports, proxy statements and other information. You can read and copy
these documents at the public reference facility maintained by the SEC at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You
can also read and copy such reports, proxy statements and other information at
the following regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
The SEC allows us to "incorporate by reference" some of the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We are incorporating by reference the following documents into
this prospectus and the prospectus supplement:
. Green Tree Financial Corporation's Annual Report on Form 10-K for
the year ended December 31, 1997
. Green Tree Financial Corporation's Quarterly Reports on Form 10-Q
for the periods ended March 31, 1998, June 30, 1998 and September
30, 1998
All documents that Green Tree Financial Corporation files pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") 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.
2
<PAGE>
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 (other than
certain exhibits to such 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.
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 and the accompanying prospectus supplement. We have
also defined capitalized terms in the "Glossary" section of this prospectus.
Title of the Securities..... Manufactured Housing Contract Pass-Through
Certificates, or the "Certificates."
Seller and Servicer......... Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
Securities Offered.......... We are offering Certificates evidencing interests
in pools of manufactured housing contracts. The
Certificates are issued in separate Series, and
the terms of each Series are governed by a
Pooling and Servicing Agreement between Green
Tree and the trustee for that Series. We will
identify the trustee for a Series of Certificates
in the related prospectus supplement.
Risk Factors................ There are special considerations which you should
consider before investing in the Certificates.
You should read carefully the section entitled
"Risk Factors" beginning on page of this
prospectus.
The Contracts............... We will create a pool of contracts underlying a
Series of Certificates. The contracts in the pool
will be manufactured housing installment sales
contracts and installment loan agreements and may
include (i) conventional contracts, (ii)
contracts insured by the Federal Housing
Administration, and (iii) contracts partially
guaranteed by the Veterans Administration. Each
contact will be secured by the related new or
used manufactured home. In certain cases, the
contract will be secured by a mortgage or a deed
of trust on the real estate to which the
manufactured home is deemed permanently affixed.
The prospectus supplement for each Series will
provide information about the following:
. the aggregate principal balance of the
contracts comprising the contract pool;
. the weighted average and range of contractual
rates of interest on the contracts;
. the weighted average and ranges of terms to
scheduled maturity of the contracts as of
origination and as of a date specified in the
prospectus supplement;
. the amount of contracts secured by new or
used manufactured homes;
. the average outstanding principal balance of
the contracts;
4
<PAGE>
. the range of loan-to-value ratios; and
. the geographic location of and types of
manufactured homes securing the contracts.
If we so specify in the related prospectus
supplement, the trust may purchase additional
contracts from Green Tree, during a pre-funding
period specified in the prospectus supplement,
from funds on deposit in a pre-funding account.
The contracts will have been originated by Green
Tree on an individual basis in the ordinary
course of its business, unless we specify
otherwise in the related prospectus supplement.
Description of the The trust will issue the Certificates of the
Certificates.............. related Series on the terms specified in the
prospectus supplement. Each Series of
Certificates will evidence an interest in the
related contract pool and other property held in
trust for the benefit of certificateholders. If
we so specify in the prospectus supplement, a
Series of Certificates may include classes which:
. are entitled to receive distributions of
principal only or interest only;
. are entitled to receive principal only before
or after other classes have received a
specified amount of principal; or
. are entitled to receive principal on a
planned amortization schedule or a targeted
amortization schedule.
We will issue the Certificates in fully
registered form in the authorized denominations
that we specify in the related prospectus
supplement. No government agency or other insurer
will guarantee or insure the contracts or the
Certificates, except as we specify in this
prospectus and in the prospectus supplement.
Subordinated Certificates... We may subordinate one or more classes of any
Series of Certificates, as specified in the
prospectus supplement. The rights of holders of
subordinated Certificates to receive any or a
portion of distributions on the contracts will be
subordinated to the rights of holders of senior
Certificates in the manner we specify in the
prospectus supplement. We may also issue one or
more classes of mezzanine Certificates which are
subordinated to one or more classes of
Certificates and senior to one or more classes of
Certificates. If a Series of Certificates
contains more than one class of subordinated
Certificates, distributions and losses will be
allocated among those classes in the manner
specified in the prospectus supplement. The
rights of holders of subordinated Certificates,
to the extent not subordinated, may be on a
parity with holders of senior Certificates. By
subordinating a class of Certificates, we intend
to:
. enhance the likelihood of regular receipt by
holders of senior Certificates of the full
amount of scheduled monthly payments of
principal and interest due them, and
5
<PAGE>
. protect holders of senior Certificates
against losses.
If we so specify in the applicable prospectus
supplement, we may entitle mezzanine Certificates
or other classes of subordinated Certificates to
receive the benefits of other forms of credit
enhancement that would benefit only those
subordinated Certificates. We may also offer the
mezzanine Certificates or other subordinated
Certificates under this prospectus and the
prospectus supplement if they are rated in one of
the four highest rating categories by a
nationally recognized statistical rating
organization.
Credit Enhancement.......... As an alternative, or in addition, to the credit
enhancement afforded by subordination of the
subordinated Certificates, we may provide credit
enhancement with respect to a Series of
Certificates by pool insurance, letters of
credit, surety bonds, a guarantee of Green Tree,
cash reserve funds or other forms of enhancement
acceptable to each nationally recognized rating
agency rating a Series of Certificates. We will
describe any such credit enhancement in the
prospectus supplement.
Interest.................... We will pay interest on the Certificates on the
dates specified in the prospectus supplement,
unless we indicate otherwise. The prospectus
supplement will describe the pass-through rate,
if any, for each class or the method of
determining the pass-through rate. This pass-
through rate may be fixed, variable or
adjustable. For a more complete description of
interest payable on the Certificates, see the
sections "Yield Considerations" and "Description
of the Certificates" in this prospectus. As we
specify in the prospectus supplement, classes of
a Series of Certificates may be entitled to
receive no interest or may be entitled to receive
interest which is not proportionate to the
principal allocable to the Certificates.
Principal (Including Principal collected on each contract, including
Prepayments).............. any principal prepayments, will be passed through
on each remittance date, except as we otherwise
describe in the prospectus supplement. For a more
complete description of principal payable on the
Certificates, see the sections "Maturity and
Prepayment Considerations" and "Description of
the Certificates--Distributions on Certificates"
and "--Payments on Contracts" in this prospectus.
Optional Termination........ If we so specify in the prospectus supplement,
Green Tree will have the option to repurchase all
the contracts in a Series of Certificates which
are outstanding at the time and under the
circumstances we specify in the prospectus
supplement. Unless we otherwise provide in the
prospectus supplement, the repurchase price will
equal the principal amount of the contracts plus
accrued and unpaid interest from the first day of
the month of repurchase to the first day of the
next succeeding month at the contract rate of the
contracts. For a more complete description of
optional termination of the Certificates, see the
section "Description of the Certificates--
Termination of the Agreement" in this prospectus.
6
<PAGE>
Representations and
Warranties of Green Tree
Financial Corporation.....
Green Tree will make certain representations and
warranties about the contracts. These
representations and warranties are a condition to
our conveyance of a contract pool to the trust
fund. If Green Tree becomes aware of a breach of
any representation or warranty that materially
adversely affects the trust fund's interest in
any contract or if Green Tree receives written
notice of a breach from the trustee or the
servicer, then Green Tree must, under the
conditions described in this prospectus and the
prospectus supplement:
. cure the breach;
. repurchase the affected contract; or
. substitute another contract for the affected
contract.
For a more complete description of the
representations and warranties of Green Tree
Financial Corporation, see the section in this
prospectus entitled "Description of the
Certificates-- Conveyance of Contracts."
Federal Income Tax We may elect to treat the trust fund represented
Considerations............ by a Series of Certificates or a segregated
portion of them as a real estate mortgage
investment conduit ("REMIC") under the Internal
Revenue Code of 1986, as amended. If we make this
election, the classes of Certificates that we
offer may constitute "regular interests" or
"residual interests" in that REMIC under the
Internal Revenue Code, with the tax consequences
described in this prospectus and in the
prospectus supplement. If we so specify in the
prospectus supplement, a class of Certificates
that we are offering may represent interests in a
"two-tier" REMIC, but all interests in the first
and second tier REMIC will be created under the
same Pooling and Servicing Agreement.
If we do not make a REMIC election with respect
to a Series of Certificates, the trust fund
represented by those Certificates may be treated
as a grantor trust for federal income tax
purposes and not as an association taxable as a
corporation. In such an event, each holder of a
Certificate will be treated as the owner of an
undivided pro rata interest in income and corpus
attributable to the related contract pool and any
other assets held by the trust fund and will be
considered the equitable owner of an undivided
interest in the contracts included in such
contract pool. For a more complete description of
the federal income tax considerations related to
the Certificates, see the section in this
prospectus entitled "Certain Federal Income Tax
Consequences--Non-REMIC Series."
ERISA Considerations........ If you are a fiduciary of any employee benefit
plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or the
Internal Revenue Code of 1986, as amended, you
should review carefully with your legal advisors
whether the
7
<PAGE>
purchase or holding of Certificates could result
in a transaction prohibited or otherwise
impermissible under ERISA or the Internal Revenue
Code of 1986, as amended. For a more complete
description of ERISA considerations, see the
section entitled "ERISA Considerations" in this
prospectus.
Legal Investment............ Unless the related prospectus supplement
indicates otherwise, Certificates that are rated
by at least one nationally recognized statistical
rating organization in one of its two highest
rating categories will constitute "mortgage
related securities" under the Secondary Mortgage
Market Enhancement Act of 1984, as amended, and
will be considered "legal investments" for
certain types of institutional investors as
provided in this Act. We may offer some classes
of Certificates that are not rated in one of the
two highest rating categories, and therefore
those Certificates would not constitute "mortgage
related securities." For a more complete
description of legal considerations regarding
investment in the Certificates, see the section
entitled "Legal Investment Considerations" in
this prospectus and in your prospectus
supplement.
Ratings..................... We will not issue the Certificates unless at
least one nationally recognized rating agency
assigns a rating to the Certificates in one of
its four highest rating categories. A rating is
not a recommendation to buy, sell or hold
securities and the rating agency may revise or
withdraw its rating at any time. For a more
complete description of the ratings of the
Certificates, see the section entitled "Ratings"
in this prospectus.
8
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the Certificates. You should also consider the risk factors described
in your prospectus supplement.
The contracts may have higher than expected delinquencies, defaults or losses
.
Your investment in the Certificates may be affected by various factors,
including:
General Economic Conditions. Downturns in regional or local economic
conditions historically have caused increased delinquency, defaults and
losses on manufactured housing contracts. An economic downturn in any
region where a number of the obligors on the contracts are located might
cause higher delinquencies, defaults and losses on the contracts. If
delinquencies, defaults or losses on the contracts are higher than
expected, you could suffer a loss on your interest.
Depreciation in Value of Manufactured Homes. A manufactured home generally
depreciates over time. As a result, the market value of a manufactured home
may decline faster than the outstanding principal balance of the loan for
that home. If the value of the manufactured homes securing the contracts
declines faster than expected, then defaults and losses on the contracts
may rise. If the losses on the contracts are not covered by the
subordination of other classes of Certificates, or by another form of
credit enhancement, you will bear all the risk of loss of default by
obligors and will need to look primarily to the value of the manufactured
home to recover the outstanding principal and unpaid interest on the
defaulted contract. For more complete information on Green Tree's loss
experience in manufactured housing contracts, see the section entitled "The
Trust Fund--The Contract Pools" in this prospectus.
The Certificates are not an obligation of Green Tree and they are not insured.
Unless we specify otherwise in the related prospectus supplement, the
Certificates will not represent an interest in or obligation of Green Tree.
The Certificates are not insured or guaranteed by the government, any
underwriter or its affiliates, the servicer or any other party.
The Certificates may have limited liquidity.
There is a risk that a secondary market will not develop for the
Certificates of any Series. There are also risks that if a secondary market
does develop:
.it may not provide you with liquidity of investment; or
.it may not continue for the term of any Series of Certificates.
The contracts may be prepaid before their scheduled maturity.
There is a risk that the contracts may be prepaid in full or in part at any
time before their scheduled maturity due to various factors, such as:
.homeowner mobility,
.general and regional economic conditions,
.prevailing interest rates, and
.natural disasters.
The prepayment experience on manufactured housing contracts varies greatly
and may affect the average life of the Certificates. If a contract is prepaid
in full, the interest on the contract will accrue only to the date of
prepayment. If you purchase a Certificate at a discount, then slower than
expected prepayments on the Contracts will reduce the yield on your
Certificate. If you purchase a Certificate at a premium, then faster than
expected prepayments on the contract will reduce the yield on your
Certificate. You must not assume that the contracts will prepay at any
particular rate, or at a constant rate. For more information on prepayment on
the contracts, see the section entitled "Maturity and Prepayment
Considerations" in this prospectus and "Yield and Prepayment Considerations"
in the prospectus supplement.
9
<PAGE>
Risks relating to enforceability of the contracts.
The security interest in the manufactured home may not be perfected.
Every manufactured home contract will be secured by a security interest in
either (1) the manufactured home; or (2) if it is a land-and-home contract, the
mortgage or deed of trust on the real estate where the manufactured home is
permanently affixed. Several federal and state laws, including the Uniform
Commercial Code ("UCC") as adopted in each state, govern the perfection of
security interests in the manufactured homes and the enforcement of rights to
realize upon the value of the manufactured homes as collateral for the
contracts. In most states, certificate of title statutes, although generally
not state real estate laws, also govern the perfection of security interests
and the enforcement of these rights. The steps required to perfect a security
interest in a manufactured home vary from state to state. Green Tree will
represent and warrant that each contract is secured by a perfected security
interest in the manufactured home, and Green Tree must repurchase the contract
if there is a breach of this representation and warranty. Nevertheless, a
failure by Green Tree to perfect its security interest in the manufactured
homes securing a number of contracts could cause an increase in losses on the
contracts, and you could suffer a loss on your investment as a result.
The security interest in the manufactured home may not have been assigned to
the trustee.
Due to the expense and administrative inconvenience, Green Tree will not
amend a certificate of title to a manufactured home to name the trustee as the
lienholder, note the trustee's interest on the certificate of title, or deliver
the certificate of title to the trustee. As a result, in some states the
assignment of the security interest in the manufactured home to the trustee may
not be effective against our creditors or a trustee in the event we enter
bankruptcy, or the security interest may not be perfected. We also will not
record the assignment to the trustee of the mortgage or deed of trust securing
land-and-home contracts because of the expense and administrative inconvenience
involved. As a result, in some states the assignment of the mortgage or deed of
trust to the trustee may not be effective against our creditors or purchasers.
If Green Tree is no longer the servicer and the trustee or a successor servicer
is unable to enforce the security interest in the manufactured home following a
default on a contract, losses on the contracts would increase and you could
suffer a loss on your investment as a result.
Numerous federal and state consumer protection laws impose requirements on
lenders under installment sales contracts and installment loan agreements such
as the manufactured home contracts. If the lender or seller of goods does not
comply with these requirements, the assignees may be liable for amounts due
under the contracts and may have the right of set-off against claims the
assignees bring. These laws would apply to the trust fund as assignee of the
manufactured home contracts. Green Tree has been involved in litigation,
including class actions, brought under consumer or debtor protection laws.
Green Tree will represent and warrant that each contract complies with
applicable federal and state consumer protection laws, and Green Tree must
repurchase the contract if there is a breach of this representation and
warranty. Nevertheless, a failure by Green Tree to comply with these laws could
cause an increase in defaults and losses on the contracts, and you could suffer
a loss on your investment as a result.
If Green Tree becomes insolvent, there may be delays or reductions in
distributions to holders of Certificates.
Green Tree intends to have each transfer of contracts to the related trust
fund constitute a sale, rather than a pledge of the contracts to secure
indebtedness. However, if Green Tree becomes a debtor under the federal
bankruptcy code, it is possible that Green Tree's creditors, a bankruptcy
trustee, or Green Tree as debtor-in-possession, may argue that Green Tree's
sale of the contracts was a pledge rather than a sale. If this position is
presented to or accepted by a court, it could result in a delay in or reduction
of distributions to the holders of the Certificates.
The case of Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993) contains language to the effect that accounts sold by an entity which
subsequently became bankrupt remained property of the debtor's bankruptcy
estate. Although the contracts constitute chattel paper rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, are governed by
Article 9 of the UCC. If Green Tree became a debtor
10
<PAGE>
under the federal bankruptcy code and a court follows the reasoning of the 10th
Circuit and applies this rule to chattel paper, holders of Certificates could
experience a delay or reduction in distribution.
THE TRUST FUND
General
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
Supplement in the Contract Pool and certain other property held in trust for
the benefit of the Certificateholders (the "Trust Fund"). Each Trust Fund will
include (i) a Contract Pool, (ii) the amounts held from time to time in a trust
account (the "Certificate Account") maintained by the Trustee pursuant to the
Agreement, (iii) proceeds from certain hazard insurance on individual
Manufactured Homes (as defined) and Manufactured Homes (or the related real
estate, in the case of Land-and-Home Contracts) acquired by repossession, (iv)
any letter of credit, guarantee, surety bond, insurance policy, cash reserve
fund or other credit enhancement securing payment of all or part of a Series of
Certificates, and (v) such other property as may be specified in the related
Prospectus Supplement.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, containing one Contract Pool comprised
of Contracts having the aggregate principal balance as of the close of business
on the specified day of the month of the creation of the pool (the "Cut-off
Date") specified in the related Prospectus Supplement. Holders of Certificates
of a Series will have interests only in such Contract Pool and will have no
interest in the Contract Pool created with respect to any other Series of
Certificates. If so specified in the related Prospectus Supplement, the Trust
Fund may include a Pre-Funding Account which would be used to purchase
additional Contracts ("Subsequent Contracts") from the Company during the Pre-
Funding Period specified in the related Prospectus Supplement. The related
Prospectus Supplement will specify the conditions that must be satisfied prior
to any transfer of Subsequent Contracts, including the requisite
characteristics of the Subsequent Contracts.
Except as otherwise specified in the related Prospectus Supplement, all of
the Contracts will have been originated by the Company in the ordinary course
of its business. The following is a brief description of the Contracts expected
to be included in the Trust Fund. Specific information respecting the Contracts
will be provided in the Prospectus Supplement and, to the extent not contained
in the related Prospectus Supplement, in a report on Form 8-K to be filed with
the Securities and Exchange Commission within fifteen days after the initial
issuance of such Certificates. A copy of the Agreement with respect to each
Series of Certificates will be attached to the Form 8-K and will be available
for inspection at the corporate trust office of the Trustee specified in the
related Prospectus Supplement. A schedule of the Contracts relating to such
Series will be attached to the Agreement delivered to the Trustee upon delivery
of the Certificates.
Whenever in this Prospectus terms such as "Contract Pool," "Trust Fund,"
"Agreement" or "Remittance Rate" are used, those terms respectively apply,
unless the context otherwise indicates, to one specific Contract Pool, Trust
Fund, each Agreement and the Remittance Rate applicable to the related Series
of Certificates.
The Contract Pools
Except as otherwise specified in the related Prospectus Supplement, each
pool of Contracts with respect to a Series of Certificates (the "Contract
Pool") will consist of manufactured housing installment sales contracts and
installment loan agreements (collectively, the "Contracts") originated by Green
Tree Financial Corporation (the "Company") on an individual basis in the
ordinary course of business. The Contracts may be conventional manufactured
housing contracts or contracts insured by the Federal Housing Administration
("FHA") or partially guaranteed by the Veterans Administration ("VA"). Each
Contract will be secured by a Manufactured Home (as defined below) or by a
mortgage or deed of trust relating to the real estate to which the Manufactured
Home is deemed permanently affixed (a "Land-and-Home Contract"). Except as
otherwise specified in the related Prospectus Supplement, the Contracts will be
fully amortizing and will bear interest at a fixed or variable annual
percentage rate (the "Contract Rate") or at a Contract Rate which steps up on a
particular date or dates (a "step-up rate").
11
<PAGE>
The Company will represent that the Manufactured Homes securing the
Contracts consist of manufactured homes within the meaning of 42 United States
Code, Section 5402(6), which defines a "manufactured home" as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis designed to be used as a dwelling with or without
a permanent foundation when connected to the required utilities, and includes
the plumbing, heating, air-conditioning, and electrical systems contained
therein; except that such term shall include any structure which meets all the
requirements of this paragraph except the size requirements and with respect to
which the manufacturer voluntarily files a certification required by the
Secretary [of Housing and Urban Development] and complies with the standards
established under this chapter."
Certificates evidencing interests in pools of Contracts may be issued from
time to time in Series pursuant to separate Pooling and Servicing Agreements
(each, an "Agreement") between the Company, as Seller and Servicer, and the
Trustee. For each Series of Certificates, the Company will assign the Contracts
constituting the Contract Pool to the trustee named in the related Prospectus
Supplement (the "Trustee"). The Company, as Servicer (in such capacity referred
to herein as the "Servicer"), will service the Contracts pursuant to the
Agreement. See "Description of the Certificates--Servicing." Unless otherwise
specified in the related Prospectus Supplement, the Contract documents (other
than the documents relating to Land-and-Home Contracts) will be held by the
Servicer as custodian for the Trustee. The documents relating to any Land-and-
Home Contracts will be held for the benefit of the Trustee by a Custodian (the
"Custodian") appointed pursuant to a Custodial Agreement (the "Custodial
Agreement") between the Trustee and the Custodian.
Each Contract Pool will be composed of Contracts with the annual fixed or
variable weighted average contractual rates of interest (the "Contract Rate")
or step-up rates specified in the Prospectus Supplement. Unless otherwise
specified in the related Prospectus Supplement, the Monthly Payments for
Contracts bearing interest at a step-up rate (sometimes referred to herein as
"step-up rate Contracts") will increase on the dates on which the Contract
Rates are stepped up. Unless otherwise stated in the related Prospectus
Supplement, each registered holder of a Certificate will be entitled to receive
periodic distributions, which will be monthly unless otherwise specified in the
related Prospectus Supplement, of all or a portion of principal on the
underlying Contracts or interest on the principal balance of such Certificate
at the Remittance Rate, or both.
A Contract Pool may include "staged-funding" Contracts, under which the
Company makes multiple disbursements to enable the Obligor to finance both the
purchase of a Manufactured Home and the acquisition or improvement of the
related real estate. For example, the Company might make disbursements to
enable the Obligor to purchase the real estate on which the Manufactured Home
is to be located, then to make improvements on the real estate (such as a
driveway, well and septic system), then to purchase and deliver the
Manufactured Home, and then to make final site improvements. Prior to the final
disbursement, the Obligor pays only interest on the disbursed amount of the
loan; following the final disbursement, the Obligor begins making fully
amortizing payments of principal and interest. The Company will represent and
warrant in the related Agreement that all staged-funding Contracts included in
a Contract Pool will have been fully disbursed within 90 days after the related
Closing Date, and the Company will be obligated to repurchase on the next
Remittance Date any staged-funding Contract that has not been fully disbursed
by such date.
The related Prospectus Supplement will specify for the Contracts contained
in the related Contract Pool, among other things, the range of the dates of
origination of the Contracts; the range of the Contract Rates and the weighted
average Contract Rate; the Loan-to-Value Ratios; the minimum and maximum
outstanding principal balances as of the Cut-off Date and the average
outstanding principal balance as of the Cut-off Date; the aggregate principal
balances of the Contracts included in the Contract Pool as of the Cut-off Date;
the weighted average and range of scheduled terms to maturity as of origination
and as of the Cut-off Date; the original maturities of the Contracts and the
last maturity date of any Contract; and the locations of the Obligors on the
Contracts. If the Trust Fund includes a Pre-Funding Account, the related
Prospectus Supplement will specify the conditions that must be satisfied prior
to any transfer of Subsequent Contracts, including the requisite
characteristics of the Subsequent Contracts.
The Company will make representations and warranties as to the types and
geographical distribution of the Contracts included in a Contract Pool and as
to the accuracy in all material respects of certain information
12
<PAGE>
furnished to the Trustee in respect of each such Contract. Upon a breach of any
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Company will be obligated either to cure
the breach in all material respects, to purchase the Contract or to substitute
another Contract as described below. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a breach of representation by the Company. See "Description of the
Certificates--Conveyance of Contracts."
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts, costs of carrying the
Contracts until sale of the related Certificates and to pay other expenses
connected with pooling the Contracts and issuing the Certificates.
GREEN TREE FINANCIAL CORPORATION
General
The Company is a Delaware corporation which, as of December 31, 1997, had
stockholders' equity of approximately $1,332,000,000. The Company purchases,
pools, sells and services conditional sales contracts for manufactured housing
throughout the nation. The Company is the largest servicer of manufactured
housing government insured or guaranteed contracts and of conventional
manufactured housing contracts in the United States. The Company acts as
Servicer of the Contracts. Servicing functions are performed through Green Tree
Financial Servicing Corporation, a wholly owned subsidiary of the Company.
Through its principal offices in Saint Paul, Minnesota and service centers
throughout the United States, the Company serves all 50 states. The Company's
principal executive offices are located at 1100 Landmark Towers, 345 St. Peter
Street, St. Paul, Minnesota 55102-1639 (telephone (651) 293-3400). The
Company's Annual Report on Form 10-K for the year ended December 31, 1997, most
recent Proxy Statement and, when available, subsequent quarterly and annual
reports are available from the Company upon written request.
Contract Origination
Through its regional service centers, the Company arranges to purchase
manufactured housing contracts from manufactured housing dealers located
throughout the United States. The Company's regional service center personnel
contact dealers located in their region and explain the Company's available
financing plans, terms, prevailing rates and credit and financing policies. If
the dealer wishes to use the Company's available customer financing, the dealer
must make an application for dealer approval. Upon satisfactory results of the
Company's investigation of the dealer's creditworthiness and general business
reputation, the Company and the dealer execute a dealer agreement. The Company
also originates manufactured housing installment loan agreements directly with
customers, particularly in instances where a homeowner wants to refinance an
existing manufactured housing contract (which may or may not be with the
Company).
All contracts that the Company originates are written on forms provided by
the Company and are originated on an individually approved basis in accordance
with the Company's guidelines. The dealer or the customer submits the
customer's credit application and purchase order to a regional service center
where Company personnel make an analysis of the creditworthiness of the
proposed buyer. The analysis includes a review of the applicant's paying
habits, length and likelihood of continued employment, and certain other
factors. The Company uses a proprietary automated credit scoring system, which
is a statistically based scoring system that quantifies information using
variables obtained from customers' credit applications and credit reports. As
of December 31, 1997, this credit scoring system has been used in making credit
determinations on over 3.1 million applications. The Company believes the use
of this proprietary credit scoring system has contributed to the reduction in
the number of repossessions incurred as a percentage of the Company's servicing
portfolio. Manufactured housing contracts are assumable by any individual who
meets the Company's then-current underwriting criteria. If the application
meets the Company's guidelines and the credit is approved, the Company
purchases the contract after the manufactured home is delivered and set up and
the customer has moved in.
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<PAGE>
The Company computes the loan-to-value ratio with respect to each Contract
by first computing the percentage relationship that the down payment (which, in
the case of certain Contracts, including Land-and-Home Contracts, may include
the borrower's equity in land (based on the appraised value, discounted up to
20%, less encumbrances) for which a lien has been granted to the Company) bears
to the total loan amount plus any cash down payment (plus, in certain cases,
fees and insurance premiums financed), then subtracting the result from one.
For certain Contracts in which a lien on land has been granted to the Company
in lieu of or j as a supplement to a cash down payment, the loan-to-value ratio
is computed by dividing the appraised value of the land (discounted up to 20%)
by the total loan amount and subtracting the result from one. If the customer
is refinancing an existing loan, the Company may in some situations rely on an
appraisal made at the time the prior loan was originated. Manufactured Homes,
unlike site-built homes, generally depreciate in value. Consequently, at any
time after origination it is possible, especially in the case of Contracts with
high loan-to-value ratios at origination, that the market value of a
Manufactured Home may be lower than the principal amount outstanding under the
related Contract.
The volume of manufactured housing contracts purchased or originated by the
Company for the past five years and certain other information at the end of
such years were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
(Dollars in thousands except for average size)
<S> <C> <C> <C> <C> <C>
Principal balance of
contracts purchased:
FHA/VA................ $ 252,466 $ 67,260 $ 18,842 $ 14,333 $ 13,398
Conventional.......... 2,196,655 3,134,231 4,140,994 4,867,685 5,541,120
---------- ---------- ---------- ---------- ----------
Total............. $2,449,121 $3,201,491 $4,159,836 $4,882,018 $5,554,518
========== ========== ========== ========== ==========
Number of contracts pur-
chased................. 96,934 117,742 133,398 143,145 152,839
Average contract size... $ 25,266 $ 27,191 $ 31,184 $ 34,105 $ 36,342
Average interest rate... 10.1% 11.0% 10.7% 10.2% 10.3%
Weighted average remain-
ing term at purchase
(months)............... 205 218 266 291 298
</TABLE>
Pooling and Disposition of Contracts
The Company generally pools contracts for sale to investors within 15 to 120
days of purchase. In the case of FHA-insured and VA-guaranteed manufactured
housing contracts, the Company generally issues modified pass-through
certificates secured by the contracts and guaranteed by the Government National
Mortgage Association ("GNMA certificates"). The GNMA certificates provide for
the payment by the Company to registered holders of GNMA certificates of
monthly payments of principal and interest and the "pass-through" of any
prepayments of the contracts.
In the case of conventional manufactured housing contracts, the Company
sells pools of contracts through asset securitization vehicles such as the
Trust Funds described herein. The Company establishes a specified level of
recourse (which may take the form of a subordinated right to interest payments
on the Contracts, payable after the payment of scheduled principal and interest
on the related investor interests) or a cash reserve fund for losses on the
contracts comprising the pools. Upon a default under a contract and a
liquidation of the underlying collateral, any net losses are charged against
the established recourse amount or the reserve fund.
Servicing
The Company services all of the manufactured housing contracts it originates
or purchases from other originators, collecting loan payments, taxes and
insurance payments where applicable and other payments from borrowers and
remitting principal and interest payments to the holders of the conventional
contracts or of the GNMA certificates backed by FHA-insured and VA-guaranteed
contracts.
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<PAGE>
The following table shows the composition of the Company's servicing
portfolio of contracts that the Company originated, together with subserviced
Contracts not originated by the Company, including manufactured housing
contracts, recreational vehicle contracts, motorcycle contracts, special
product contracts and home improvement contracts, on the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- ---------
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Fixed term contracts................. $7,194 $9,653 $13,314 $18,965 $ 26,036
Revolving credit .................... -- 168 574 1,108 1,921
------- ------- ------- ------- ---------
Total.............................. $7,194 $9,821 $13,888 $20,073 $ 27,957
======= ======= ======= ======= =========
Number of contracts serviced......... 406,393 511,519 656,845 826,863 1,076,000
</TABLE>
YIELD CONSIDERATIONS
The Remittance Rates and the weighted average Contract Rate of the Contracts
relating to each Series of Certificates will be set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
monthly accrual of interest on a Contract is calculated at one-twelfth of the
product of the Contract Rate and the principal balance outstanding on the
scheduled payment date for such Contract in the preceding month. Unless
otherwise specified in the related Prospectus Supplement, the Remittance Rate
with respect to each Certificate will be calculated similarly.
The Prospectus Supplement for each Series will indicate that a lower rate of
principal prepayments than anticipated would negatively affect the total return
to investors of any Class of Certificates that is offered at a discount to its
principal amount, and a higher rate of principal prepayments than anticipated
would negatively affect the total return to investors of any such Class of
Certificates that is offered at a premium to its principal amount or without
any principal amount.
The yield on some types of Certificates which may be offered hereby, such as
Interest Only Certificates, Principal Only Certificates, and Fast Pay/Slow Pay
Certificates, each as further described in "Description of Certificates--
General," may be particularly sensitive to prepayment rates, and to changes in
prepayment rates, on the underlying Contracts. If so stated in the related
Prospectus Supplement, the yield on some types of Certificates which may be
offered hereby could change and may be negative under certain prepayment rate
scenarios. Accordingly, some types of Certificates may not be legal or
appropriate investments for certain financial institutions, pension funds or
others. See "ERISA Considerations" and "Legal Investment Considerations." In
addition, the timing of changes in the rate of prepayment on the Contracts
included in a Contract Pool may significantly affect an investor's actual yield
to maturity, even if the average prepayment rate over time is consistent with
the investor's expectations. In general, the earlier that prepayments on
Contracts occur, the greater the effect on the investor's yield to maturity.
If a Series of Certificates contains Classes of Certificates entitled to
receive distributions of principal or interest or both, in a specified order
other than as a specified percentage of each distribution of principal or
interest or both, the Prospectus Supplement will set forth information,
measured relative to a prepayment standard or model specified in such
Prospectus Supplement, with respect to the projected weighted average life of
each such Class and the percentage of the original principal of each such Class
that would be outstanding on specified Remittance Dates for such Series based
on the assumptions stated in such Prospectus Supplement, including assumptions
that prepayments on the Contracts in the related Trust Fund are made at rates
corresponding to the various percentages of such prepayment standard or model.
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<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise described in an applicable Prospectus Supplement, all of
the Contracts will have maturities at origination of not more than 30 years.
Prepayment Considerations
Contracts generally may be prepaid in full or in part without penalty. FHA
Contracts and VA Contracts may be prepaid at any time without penalty. Based on
the Company's experience with the portfolio of manufactured housing contracts
serviced by it, the Company anticipates that a number of the Contracts will be
prepaid prior to their maturity. A number of factors, including homeowner
mobility, general and regional economic conditions and prevailing interest
rates, may influence prepayments. In addition, repurchases of Contracts on
account of certain breaches of representations and warranties have the effect
of prepaying such Contracts and therefore would affect the average life of the
Certificates. Most of the Contracts contain a "due-on-sale" clause that would
permit the Servicer to accelerate the maturity of a Contract upon the sale of
the related Manufactured Home. In the case of those Contracts that do contain
due-on-sale clauses, the Servicer will permit assumptions of such Contracts if
the purchaser of the related Manufactured Home satisfies the Company's then-
current underwriting standards.
Information regarding the Prepayment Model or any other rate of assumed
prepayment, as applicable, will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
See "Description of the Certificates--Termination of the Agreement" for a
description of the Company's or Servicer's option to repurchase the Contracts
comprising part of a Trust Fund when the aggregate outstanding principal
balance of such Contracts is less than a specified percentage of the initial
aggregate outstanding principal balance of such Contracts as of the related
Cut-off Date. See also "The Trust Fund--The Contract Pools" for a description
of the obligations of the Company to repurchase a Contract in case of a breach
of a representation or warranty relative to such Contract.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate pooling
and servicing agreement (each, an "Agreement") to be entered into among the
Company, as Seller and Servicer, and the trustee named in the related
Prospectus Supplement (the "Trustee"), and such other parties, if any, as are
described in the applicable Prospectus Supplement. The following summaries
describe certain provisions expected to be common to each Agreement and the
related Certificates, but do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions of the related
Agreement and the description set forth in the related Prospectus Supplement.
Section references contained herein refer to sections of the form of Agreement
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the "Registration Statement"). The portions of such sections described
herein may be contained in different numbered sections in the actual Agreement
pursuant to which any Series of Certificates is issued. The provisions of the
form of Agreement filed as an exhibit to the Registration Statement that are
not described herein may differ from the provisions of any actual Agreement.
The material differences will be described in the related Prospectus
Supplement. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the form of Agreement filed as an
exhibit to the Registration Statement.
Each Series of Certificates will have been rated in the rating category by
the rating agency or agencies specified in the related Prospectus Supplement.
General
The Certificates may be issued in one or more Classes. If the Certificates
of a Series are issued in more than one Class, the Certificates of all or less
than all of such Classes may be sold pursuant to this
16
<PAGE>
Prospectus, and there may be separate Prospectus Supplements relating to one or
more of such Classes so sold. Any reference herein to the Prospectus Supplement
relating to a Series comprised of more than one Class should be understood as a
reference to each of the Prospectus Supplements relating to the Classes sold
hereunder. Any reference herein to the Certificates of a Class should be
understood to refer to the Certificates of a Class within a Series or all of
the Certificates of a single-Class Series, as the context may require. For
convenience of description, any reference in this Prospectus to a "Class" of
Certificates includes a reference to any subclass of such Class.
The Certificates of each Series will be issued in fully registered form only
and will represent the interests specified in the related Prospectus Supplement
in a separate trust fund (the "Trust Fund") created pursuant to the related
Agreement. The Trust Fund will be held by the Trustee for the benefit of the
Certificateholders. Each Trust Fund, to the extent specified in the related
Prospectus Supplement, will include (i) Contracts (the "Contract Pool") which
are subject to the Agreement from time to time, (ii) the amounts held in the
Certificate Account from time to time, (iii) proceeds from certain hazard
insurance on individual Manufactured Homes and Manufactured Homes (or the
related real estate, in the case of Land-and-Home Contracts) acquired by
repossession, (iv) any letter of credit, guarantee, surety bond, insurance
policy, cash reserve fund or other credit enhancement securing payment of all
or part of a Series of Certificates and (v) such other property as may be
specified in the related Prospectus Supplement. Except as otherwise specified
in the related Prospectus Supplement, the Certificates will be freely
transferable and exchangeable at the corporate trust office of the Trustee at
the address set forth in the related Prospectus Supplement. No service charge
will be made for any registration of exchange or transfer of Certificates, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Ownership of each Contract Pool may be evidenced by one or more Classes of
Certificates, each representing the interest in the Contract Pool specified in
the related Prospectus Supplement. Each Series of Certificates may include one
or more Classes ("Subordinated Certificates") which are subordinated in right
of distribution to one or more other Classes ("Senior Certificates"), as
provided in the related Prospectus Supplement. Certificates of a Series which
includes Senior and Subordinated Certificates are referred to herein
collectively as "Senior/Subordinated Certificates." A Series of
Senior/Subordinated Certificates may include one or more Classes ("Mezzanine
Certificates") which are subordinated to one or more Classes of Certificates
and are senior to one or more Classes of Certificates. The Prospectus
Supplement with respect to a Series of Senior/Subordinated Certificates will
set forth, among other things, the extent to which the Subordinated
Certificates are subordinated (which may include a formula for determining the
subordinated amount or for determining the allocation of the Amount Available
(hereinafter defined) among Senior Certificates and Subordinated Certificates),
the allocation of losses among the Classes of Subordinated Certificates, the
period or periods of such subordination, the minimum subordinated amount, if
any, and any distributions or payments which will not be affected by such
subordination. The protection afforded to the Senior Certificateholders from
the subordination feature described above will be effected by the preferential
right of such Certificateholders to receive current distributions from the
Contract Pool. If a Series of Certificates contains more than one Class of
Subordinated Certificates, losses will be allocated among such Classes in the
manner described in the Prospectus Supplement. If so specified in the
applicable Prospectus Supplement, Mezzanine Certificates or other Classes of
Subordinated Certificates may be entitled to the benefits of other forms of
credit enhancement and may, if rated in one of the four highest rating
categories by a nationally recognized statistical rating organization, be
offered pursuant to this Prospectus and such Prospectus Supplement.
If so specified in a Prospectus Supplement, a Series of Certificates may
include one or more Classes which (i) are entitled to receive distributions
only in respect of principal ("Principal Only Certificates"), interest
("Interest Only Certificates") or any combination thereof, or in specified
proportions in respect of such payments, and/or (ii) are entitled to receive
distributions in respect of principal before or after specified principal
distributions have been made on one or more other Classes within such Series
("Fast Pay/Slow Pay Certificates"), or on a planned amortization schedule ("PAC
Certificates") or targeted amortization schedule ("TAC Certificates") or upon
the occurrence of other specified events. The Prospectus Supplement will set
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forth the rate at which interest will be paid to Certificateholders of each
Class of a given Series (the "Pass-Through Rate"). Such Pass-Through Rate may
be fixed, variable or adjustable, as specified in the related Prospectus
Supplement.
The related Prospectus Supplement will specify the minimum denomination or
initial principal amount of Contracts evidenced by a single Certificate of each
Class of Certificates of a Series (a "Single Certificate").
Distributions of principal and interest on the Certificates will be made on
the payment dates set forth in the related Prospectus Supplement (each, a
"Remittance Date") to the persons in whose names the Certificates are
registered at the close of business on the related record date specified in the
related Prospectus Supplement (the "Record Date"). Distributions will be made
by check mailed to the address of the person entitled thereto as it appears on
the Certificate Register, or, to the extent described in the related Agreement,
by wire transfer, except that the final distribution in retirement of
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee specified in the final
distribution notice to Certificateholders.
Global Certificates
The Certificates of a Class may be issued in whole or in part in the form of
one or more global certificates (each, a "Global Certificate") that will be
deposited with, or on behalf of, and registered in the name of a nominee for, a
depositary (the "Depositary") identified in the related Prospectus Supplement.
The description of the Certificates contained in this Prospectus assumes that
the Certificates will be issued in definitive form. If the Certificates of a
Class are issued in the form of one or more Global Certificates, the term
"Certificateholder" should be understood to refer to the beneficial owners of
the Global Certificates, and the rights of such Certificateholders will be
limited as described under this subheading.
Global Certificates will be issued in registered form. Unless and until it
is exchanged in whole or in part for Certificates in definitive form, a Global
Certificate may not be transferred except as a whole by the Depositary for such
Global Certificate to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor.
The specific terms of the depositary arrangement with respect to any
Certificates of a Class will be described in the related Prospectus Supplement.
It is anticipated that the following provisions will apply to all depositary
arrangements:
Upon the issuance of a Global Certificate, the Depositary for such Global
Certificate will credit, on its book-entry registration and transfer system,
the respective denominations of the Certificates represented by such Global
Certificate to the accounts of institutions that have accounts with such
Depositary ("participants"). Ownership of beneficial interests in a Global
Certificate will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in such Global
Certificate will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such Global
Certificate or by participants or persons that hold through participants. The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Certificate.
So long as the Depositary for a Global Certificate, or its nominee, is the
owner of such Global Certificate, such Depositary or such nominee, as the case
may be, will be considered the sole owner or holder of the Certificates
represented by such Global Certificate for all purposes under the Agreement
relating to such Certificates. Except as set forth below, owners of beneficial
interests in a Global Certificate will not be entitled to have Certificates of
the Series represented by such Global Certificate registered in their names,
will not receive or be entitled to receive physical delivery of Certificates of
such Series in definitive form and will not be considered the owners or holders
thereof under the Agreement governing such Certificates.
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Distributions or payments on Certificates registered in the name of or held
by a Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner for the holder of the Global
Certificate representing such Certificates. In addition, all reports required
under the applicable Agreement to be made to Certificateholders (as described
below under "Reports to Certificateholders") will be delivered to the
Depositary or its nominee, as the case may be. None of the Company, Servicer,
Trustee, or any agent thereof (including any applicable Certificate Registrar
or Paying Agent), will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests or for providing
reports to the related beneficial owners.
The Company expects that the Depositary for Certificates of a Class, upon
receipt of any distribution or payment in respect of a Global Certificate, will
credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interest in such Global
Certificate as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in such
Global Certificate held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name," and will be the
responsibility of such participants.
If a Depositary for Certificates of a Class is at any time unwilling or
unable to continue as Depositary and a successor depositary is not appointed by
or on behalf of the Company within the time period specified in the Agreement,
the Company will cause to be issued Certificates of such Class in definitive
form in exchange for the related Global Certificate or Certificates. In
addition, the Company may at any time and in its sole discretion determine not
to have any Certificates of a Class represented by one or more Global
Certificates and, in such event, will cause to be issued Certificates of such
Class in definitive form in exchange for the related Global Certificate or
Certificates. Further, if the Company so specifies with respect to the
Certificates of a Class, an owner of a beneficial interest in a Global
Certificate representing Certificates of such Class may, on terms acceptable to
the Company and the Depositary for such Global Certificate, receive
Certificates of such Class in definitive form. In any such instance, an owner
of a beneficial interest in a Global Certificate will be entitled to physical
delivery in definitive form of Certificates of the Class represented by such
Global Certificate equal in denominations to such beneficial interest and to
have such Certificates registered in its name.
Conveyance of Contracts
The Company will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Company in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies on
the related Manufactured Homes, all documents contained in the Contract files
and all proceeds derived from any of the foregoing. (Section 2.01.) On behalf
of the Trust, as the issuer of the related Series of Certificates, the Trustee,
concurrently with such conveyance, will execute and deliver the Certificates to
the order of the Company. The Contracts will be as described on a list attached
to the Agreement. (Sections 1.02 and 2.02.) Such list will include the amount
of monthly payments due on each Contract as of the date of issuance of the
Certificates, the Contract Rate on each Contract and the maturity date of each
Contract. Such list will be available for inspection by any Certificateholder
at the principal executive office of the Servicer. (Sections 1.02 and 5.04.)
Prior to the conveyance of the Contracts to the Trust, the Company's internal
audit department will complete a review of all of the Contract files, including
the certificates of title to, or other evidence of a perfected security
interest in, the Manufactured Homes, confirming the accuracy of the list of
Contracts delivered to the Trustee. Any Contract discovered not to agree with
such list in a manner that is materially adverse to the interests of the
Certificateholders will be repurchased by the Company or replaced with another
Contract, or, if the discrepancy relates to the unpaid principal balance of a
Contract, the Company may deposit cash in the separate account maintained at an
Eligible Institution in the name of the Trustee (the
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"Certificate Account") in an amount sufficient to offset such discrepancy. If
the Trust Fund includes a Pre-Funding Account, the related Prospectus
Supplement will specify the conditions that must be satisfied prior to any
transfer of Subsequent Contracts, including the requisite characteristics of
the Subsequent Contracts.
The Agreement will designate the Company as custodian to maintain
possession, as the Trustee's agent, of the Contracts and any other documents
related to the Manufactured Homes (other than the Land-and-Home Contracts and
related documents). (Sections 2.03 and 4.01.) To facilitate servicing and save
administrative costs, the documents will not be physically segregated from
other similar documents that are in the Company's possession. Uniform
Commercial Code financing statements will be filed in Minnesota reflecting the
sale and assignment of the Contracts to the Trustee, and the Company's
accounting records and computer systems will also reflect such sale and
assignment. In addition, the Contracts will be stamped to reflect their
assignment to the Trustee. However, if through fraud, negligence or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without knowledge of the assignment, the Trustee's interest in the Contracts
could be defeated. See "Risk Factors--Security Interests and Certain Other
Aspects of the Contracts." The Agreement will designate the Trustee or another
independent custodian, as the Trustee's agent, to maintain possession of the
documents relating to all Land-and-Home Contracts.
Except as otherwise specified in the related Prospectus Supplement, the
Company will make certain warranties in the Agreement with respect to each
Contract as of the Closing Date, including that: (a) as of the Cut-off Date, or
the date of origination, if later, the most recent scheduled payment was made
or was not delinquent more than 59 days; (b) no provision of a Contract has
been waived, altered or modified in any respect, except by instruments or
documents contained in the Contract file or the Land-and-Home Contract file;
(c) each Contract is a legal, valid and binding obligation of the Obligor and
is enforceable in accordance with its terms (except as may be limited by laws
affecting creditors' rights generally); (d) no Contract is subject to any right
of rescission, set-off, counterclaim or defense; (e) each Contract is covered
by hazard insurance described under "--Servicing--Hazard Insurance"; (f) each
Contract has been originated by a manufactured housing dealer or the Company in
the ordinary course of such dealer's or the Company's business and, if
originated by a manufactured housing dealer, was purchased by the Company in
the ordinary course of business; (g) no Contract was originated in or is
subject to the laws of any jurisdiction whose laws would make the transfer of
the Contract or an interest therein to the Trustee pursuant to the Agreement or
pursuant to the Certificates unlawful; (h) each Contract complies with all
requirements of law; (i) no Contract has been satisfied, subordinated in whole
or in part or rescinded and the Manufactured Home securing the Contract has not
been released from the lien of the Contract in whole or in part; (j) each
Contract creates a valid and enforceable first priority security interest in
favor of the Company in the Manufactured Home covered thereby and, with respect
to each Land-and-Home Contract, the lien created thereby has been recorded or
will be recorded within six months, and such security interest or lien has been
assigned by the Company to the Trustee; (k) all parties to each Contract had
capacity to execute such Contract; (l) no Contract has been sold, assigned or
pledged to any other person and prior to the transfer of the Contracts by the
Company to the Trustee, the Company had good and marketable title to each
Contract free and clear of any encumbrance, equity, loan, pledge, charge, claim
or security interest, and was the sole owner and had full right to transfer
such Contract to the Trustee; (m) as of the Cut-off Date, or the date of
origination, if later, there was no default, breach, violation or event
permitting acceleration under any Contract (except for payment delinquencies
permitted by clause (a) above), no event which with notice and the expiration
of any grace or cure period would constitute a default, breach, violation or
event permitting acceleration under such Contract, and the Company has not
waived any of the foregoing; (n) as of the Closing Date there were, to the best
of the Company's knowledge, no liens or claims which have been filed for work,
labor or materials affecting a Manufactured Home or any related Mortgaged
Property securing a Contract, which are or may be liens prior or equal to the
lien of the Contract; (o) each Contract other than a step-up rate Contract is a
fully-amortizing loan with a fixed Contract Rate and provides for level
payments over the term of such Contract; (p) each Contract contains customary
and enforceable provisions such as to render the rights and remedies of the
Holder thereof adequate for realization against the collateral of the benefits
of the security; (q) the description of each Contract set forth in the list
delivered to the Trustee is true and correct; (r) there is only one original of
each Contract; (s) except as
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specified in the related Prospectus Supplement, none of the Contracts had a
Loan-to-Value Ratio at origination greater than 95% and, if the related
Manufactured Home was new at the time such Contract was originated, the
original principal balance of such Contract did not exceed 130% of the
manufacturer's invoice price plus 100% of taxes and license fees, 130% of
freight charges, 100% of the dealer's cost of dealer-installed equipment (not
to exceed 25% of the amount financed in all states except California; not to
exceed 70% of the manufacturer's invoice price in California if required to
meet park requirements) and up to $1,500 of set-up costs per module; (t) at the
time of origination of each Contract the Obligor was the primary resident of
the related Manufactured Home; (u) other than the Land-and-Home Contracts, the
related Manufactured Home is not considered or classified as part of the real
estate on which it is located under the laws of the jurisdiction in which it is
located, and as of the Closing Date such Manufactured Home was, to the best of
the Company's knowledge, free of damage and in good repair; (v) the related
Manufactured Home is a "manufactured home" within the meaning of 42 United
States Code, Section 5402(6) and each manufactured housing dealer from whom the
Company purchased a Contract was approved by the Company in accordance with the
requirements of the Secretary of Housing and Urban Development; (w) each
Contract is a "qualified mortgage" under Section 860G(a)(3) of the Code and
each Manufactured Home is "manufactured housing" within the meaning of Section
25(e)(10) of the Code; and (x) if a Contract is an FHA/VA Contract, the
Contract has been serviced in accordance with FHA/VA Regulations, the insurance
or guarantee of the Contract under the FHA/VA Regulations and related laws is
in full force and effect, and no event has occurred which, with or without
notice or lapse of time or both, would impair such insurance or guarantee.
(Article III.)
Under the terms of the Agreement, and subject to the conditions specified in
the preceding paragraph and to the Company's option to effect a substitution as
described in the next paragraph, the Company will be obligated to repurchase
for the Repurchase Price (as defined below) any Contract on the first business
day after the first Determination Date which is more than 90 days after the
Company becomes aware, or should have become aware, or the Company's receipt of
written notice from the Trustee or the Servicer, of a breach of any
representation or warranty of the Company in the Agreement that materially
adversely affects the Trust's interest in any Contract if such breach has not
been cured. (Section 3.05.) The Repurchase Price for any Contract will be the
remaining principal amount outstanding on such Contract on the date of
repurchase plus accrued and unpaid interest thereon at its Contract Rate to the
date of such repurchase. (Section 1.02.) This repurchase obligation constitutes
the sole remedy available to the Trust Fund and the Certificateholders for a
breach of a warranty under the Agreement with respect to the Contracts (but not
with respect to any other breach by the Company of its obligations under the
Agreement). If a prohibited transaction tax under the REMIC provisions of the
Code is incurred in connection with such repurchase, distributions otherwise
payable to Residual Certificateholders will be applied to pay such tax. The
Company will be required to pay the amount of such tax that is not funded out
of such distributions. (Section 6.06.)
In lieu of purchasing a Contract as specified in the preceding paragraph,
during the two-year period following the Closing Date, the Company may, at its
option, substitute an Eligible Substitute Contract (as defined below) for the
Contract that it is otherwise obligated to repurchase (referred to herein as
the "Replaced Contract"). An Eligible Substitute Contract is a Contract that
satisfies, as of the date of its substitution, the representations and
warranties specified in Article III of the Agreement, has a Scheduled Principal
Balance that is not greater than the Scheduled Principal Balance of the
Replaced Contract, has a Contract Rate that is at least equal to the Contract
Rate of the Replaced Contract and has a remaining term to scheduled maturity
that is not greater than the remaining term to scheduled maturity of the
Replaced Contract. (Section 1.02.) The Company will be required to deposit in
the Certificate Account cash in the amount, if any, by which the Scheduled
Principal Balance of the Replaced Contract exceeds the Scheduled Principal
Balance of the Contract being substituted. Such deposit will be deemed to be a
Partial Principal Prepayment. (Sections 1.02 and 3.05.)
Payments on Contracts
Each Certificate Account will be a trust account established by the Servicer
as to each Series of Certificates in the name of the Trustee (i) with a
depository institution, the long-term unsecured debt obligations of which at
the time of any deposit therein are rated within the two highest rating
categories or such
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other rating category as will not adversely affect the ratings assigned to the
Certificates by each rating agency rating the Certificates of such Series,
(ii) with the trust department of a national bank, (iii) in an account or
accounts the deposits in which are fully insured by the FDIC, (iv) in an
account or accounts the deposits in which are insured by the FDIC (to the
limits established by the FDIC), the uninsured deposits in which are otherwise
secured such that, as evidenced by an opinion of counsel, the
Certificateholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the depository institution with which the Certificate
Account is maintained or (v) otherwise acceptable to the rating agency without
reduction or withdrawal of the rating assigned to the relevant certificates.
The collateral eligible to secure amounts in the Certificate Account is
limited to United States government securities and certain other high-quality
investments specified in the applicable agreement ("Eligible Investments"). A
Certificate Account may be maintained as an interest bearing account, or the
funds held therein may be invested pending each succeeding Remittance Date in
Eligible Investments.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit in the Certificate Account on a daily basis the
following payments and collections received or made by it subsequent to the
Cut-off Date (including scheduled payments of principal and interest due after
the Cut-off Date but received by the Servicer on or before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all amounts received and retained in connection with the liquidation
of defaulted Contracts, net of liquidation expenses ("Net Liquidation
Proceeds");
(iv) all proceeds received under any hazard or other insurance policy
covering any Contract, other than proceeds to be applied to the restoration
or repair of the Manufactured Home or released to the Obligor;
(v) any Advances made as described under "Advances" and certain other
amounts required under the Agreement to be deposited in the Certificate
Account;
(vi) all amounts received from any credit enhancement provided with respect
to a Series of Certificates; and
(vii) all proceeds of any Contract or property acquired in respect thereof
repurchased by the Servicer, or the Company, or otherwise as described
above or under "Termination" below.
Distributions on Certificates
Except as otherwise provided in the related Prospectus Supplement, on each
Remittance Date, the Trustee will withdraw from the applicable Certificate
Account and distribute to the Certificateholders of each Class (other than a
Series having a Class of Subordinated Certificates, as described below),
either the specified interest of such Class in the Contract Pool times the
aggregate of all amounts on deposit in the Certificate Account as of the third
Business Day preceding the Remittance Date or such other date as may be
specified in the related Prospectus Supplement (the "Determination Date"), or,
in the case of a Series of Certificates comprised of Classes which have been
assigned a Stated Balance, payments of interest and payments in reduction of
the Stated Balance from all amounts on deposit in the Certificate Account on
the Determination Date, in the priority and calculated in the manner set forth
in the related Prospectus Supplement, except, in each case: (i) all payments
on the Contracts that were due on or before the Cut-off Date; (ii) all
payments or collections received after the Due Period preceding the month in
which the Remittance Date occurs; (iii) all scheduled payments of principal
and interest due on a date or dates subsequent to the Due Period preceding the
Determination Date; (iv) amounts representing reimbursement for Advances, such
reimbursement being limited, if so specified in the related Prospectus
Supplement, to amounts received on particular Contracts as late collections of
principal or interest as to which the Servicer has made an unreimbursed
Advance; and (v) amounts representing reimbursement for any unpaid Servicing
Fee and expenses from Liquidation Proceeds, condemnation proceeds and proceeds
of insurance policies with respect to the related Contracts. The amount of
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principal and interest specified in the related Prospectus Supplement to be
distributed to Certificateholders is referred to herein as the "Certificate
Distribution Amount." The amounts on deposit in the Certificate Account on a
Determination Date, less the amounts specified in (i) through (v) above, are
referred to herein as the "Amount Available."
Unless otherwise specified in the related Prospectus Supplement, with
respect to a Series of Certificates having a Class of Subordinated
Certificates, on each Remittance Date, the Trustee will withdraw from the
applicable Certificate Account and distribute to the Holders of Senior
Certificates, in the aggregate, the lesser of (i) the Senior Distribution
Amount plus the Outstanding Senior Shortfall (each defined below), or (ii) the
percentage interest (which may vary as specified in the related Prospectus
Supplement) of the Classes of Senior Certificates times the Amount Available
plus (a) the percentage interest (which may vary as specified in the related
Prospectus Supplement) of the Classes of Subordinated Certificates times the
Amount Available, not to exceed the Available Subordination Amount, if any, as
defined in the related Prospectus Supplement, and (b) Advances, if any, made
by the Servicer. The distribution made to the Certificateholders of each Class
of Senior Certificates shall be calculated as described in the related
Prospectus Supplement and may vary as to the allocation of principal or
interest or both. Unless otherwise specified in the related Prospectus
Supplement, the Senior Distribution Amount is an amount equal to the
percentage interest of the Classes of Senior Certificates times:
(i) all regularly scheduled payments of principal of and interest which
were due on Contracts during the related Due Period, whether or not
received, with the interest portions thereof adjusted to the Remittance
Rate;
(ii) all Principal Prepayments made by the Obligor during the prior Due
Period;
(iii) with respect to each Contract not described in (iv) below, all
insurance proceeds, all condemnation awards and any other cash proceeds
from a source other than the Obligor, to the extent required to be
deposited in the Certificate Account, which were received during the prior
Due Period, net of related unreimbursed Advances and net of any portion
thereof which, as to any Contract, constitutes late collections;
(iv) with respect to each Contract as to which a receipt of Liquidation
Proceeds has been received during the prior Due Period or other event of
termination of the Contract has occurred during the prior Due Period, an
amount equal to the principal amount of the Contract outstanding
immediately prior to the date of receipt of such Liquidation Proceeds or
such other event of termination, reduced by the principal portion of any
unpaid payments due on or before such date to the extent previously
advanced against or otherwise received by the Certificateholder, plus
interest thereon from the most recent Due Date at the Remittance Rate; and
(v) with respect to each Contract repurchased by the Company for which the
repurchase price was not distributed previously, an amount equal to the
principal amount of the Contract outstanding on the date of such repurchase
reduced by the principal portion of any unpaid payments due on or before
such date (but only to the extent advanced against or otherwise received by
the Certificateholders), plus interest thereon to the most recent Due Date.
The Outstanding Senior Shortfall for any Class of Senior Certificates means
as of any date, to the extent not previously paid, the aggregate of the
amounts by which the Senior Distribution Amount for such Class for any
Remittance Date exceeded the amount actually paid on such Remittance Date plus
interest at the Remittance Rate.
Unless otherwise specified in the related Prospectus Supplement, on each
Remittance Date, the Servicer shall distribute to the Classes of Subordinated
Certificateholders, in the order set forth in the related Prospectus
Supplement, the balance of the Amount Available, if any, after the payment to
the Senior Certificateholders, as described above.
Unless otherwise specified in the Prospectus Supplement relating to a
Series of Certificates, one or more Classes of which have been assigned a
Stated Balance, distributions in reduction of the Stated Balance of such
Certificates will be made on each Remittance Date to the Certificateholders of
the Class then entitled to receive
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such Certificate distributions until the aggregate amount of such distributions
have reduced the Stated Balance of the Certificates of such Class to zero or a
specified percentage. Allocation of distributions in reduction of Stated
Balance will be made to each Class of such Certificates in the order specified
in the related Prospectus Supplement, which, if so specified in such Prospectus
Supplement, may be concurrently. Unless otherwise specified in the related
Prospectus Supplement, distributions in reduction of the Stated Balance of each
Certificate of a Class then entitled to receive such distributions will be made
pro rata among the Certificates of such Class.
Unless otherwise specified in the related Prospectus Supplement, the maximum
amount which will be distributed in reduction of Stated Balance to holders of
Certificates of a Class then entitled thereto on any Remittance Date will
equal, to the extent funds are available, the sum of (i) the amount of the
interest, if any, that has accrued but is not yet payable on the Compound
Interest Certificates of such Series, if any, from the prior Remittance Date
(or since the date specified in the related Prospectus Supplement in the case
of first Remittance Date) (the "Accrual Remittance Amount"); (ii) the
Certificate Remittance Amount; and (iii) the applicable percentage of the
Excess Cash Flow, if any, specified in such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Remittance Date will equal the
amount, if any, by which the then outstanding Stated Balance of the
Certificates of the related Classes of such Series (before taking into account
the amount of interest accrued on any Class of Compound Interest Certificates
of such Series to be added to the Stated Balance thereof on such Remittance
Date) exceeds the Asset Value, as defined in the related Prospectus Supplement,
of the Contracts in the Contract Pool underlying such Series as of the end of
the applicable Due Period specified in the related Prospectus Supplement. For
purposes of determining the Certificate Remittance Amount with respect to a
Remittance Date, the Asset Value of the Contracts will be reduced to take into
account the interest evidenced by such Classes of Certificates in the principal
distributions on or with respect to such Contracts received by the Trustee
during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes of which have been assigned a Stated
Balance, Excess Cash Flow represents the excess of (i) the interest evidenced
by such Classes of Certificates in the distributions received on the Contracts
underlying such Series in the Due Period preceding a Remittance Date for such
Series (and, in the case of the first Due Period, the amount deposited in the
Certificate Account on the closing date for the sale of such Certificates),
together with income from the reinvestment thereof, (ii) the sum of all
interest accrued, whether or not then payable, on the Certificates of such
Classes since the preceding Remittance Date (or since the date specified in the
related Prospectus Supplement in the case of the first Remittance Date), the
Certificate Remittance Amount for the then current Remittance Date and, if
applicable, any payments made on any Certificates of such Class pursuant to any
special distributions in reduction of Stated Balance during such Due Period.
Within the time specified in the Agreement and described in the related
Prospectus Supplement, the Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the related Remittance Date on
account of principal and interest, stated separately, and a statement setting
forth certain information with respect to the Contracts.
If there are not sufficient funds in the Certificate Account to make the
full distribution to Certificateholders described above on any Remittance Date,
the Servicer will distribute the funds available for distribution to the
Certificateholders of each Class in accordance with the respective interests
therein, except that Subordinated Certificateholders, if any, will not, subject
to the limitations described in the related Prospectus Supplement, receive any
distributions until Senior Certificateholders receive the Senior Distribution
Amount plus the Outstanding Senior Shortfall. The difference between the amount
which the Certificateholders would have received if there had been sufficient
eligible funds in the Certificate Account and the amount actually distributed,
plus interest at the Remittance Rates of the respective Contracts to which such
shortfall is attributable, will be added to the amount which the
Certificateholders are entitled to receive on the next Remittance Date.
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Special Distributions. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes of which have been
assigned a Stated Balance and having less frequent than monthly Remittance
Dates, such Classes may receive Special Distributions in reduction of Stated
Balance ("Special Distributions") in any month, other than a month in which a
Remittance Date occurs, if, as a result of principal prepayments on the
Contracts in the related Contract Pool or low reinvestment yields, the Trustee
determines, based on assumptions specified in the related Agreement, that the
amount of cash anticipated to be on deposit in the Certificate Account on the
next Remittance Date for such Series and available to be distributed to the
Holders of the Certificates of such Classes may be less than the sum of (i) the
interest scheduled to be distributed to holders of the Certificates of such
Classes and (ii) the amount to be distributed in reduction of Stated Balance of
such Certificates on such Remittance Date. Any such Special Distributions will
be made in the same priority and manner as distributions in reduction of Stated
Balance would be made on the next Remittance Date.
Subordinated Certificates. The rights of a Class of Certificateholders of a
Series to receive any or a specified portion of distributions of principal or
interest or both with respect to the Contracts, to the extent specified in the
related Agreement and described in the related Prospectus Supplement, may be
subordinated to such rights of other Certificateholders. The Prospectus
Supplement with respect to a Series of Certificates having a Class of
Subordinated Certificates will set forth, among other things, the extent to
which such Class is subordinated (which may include a formula for determining
the subordinated amount or for determining the allocation of the Amount
Available among Senior Certificates and Subordinated Certificates), the
allocation of losses among the Classes of Subordinated Certificates, the period
or periods of such subordination, the minimum subordinated amount, if any, and
any distributions or payments which will not be affected by such subordination.
The protection afforded to the Senior Certificateholders from the subordination
feature described above will be effected by the preferential right of such
Certificateholders to receive current distributions from the Contract Pool.
Advances
To the extent provided in the related Prospectus Supplement, the Servicer is
obligated to make periodic Advances of cash from its own funds or, if so
specified in the related Prospectus Supplement, from excess funds in the
Certificate Account not then required to be distributed to Certificateholders,
for distribution to the Certificateholders in an amount equal to the difference
between the amount due to them and the amount in the Certificate Account,
eligible for distribution to them pursuant to the Agreement, but only to the
extent such difference is due to delinquent payments of principal and interest
for the preceding Due Period and only to the extent the Servicer determines
such advances are recoverable from future payments and collections on the
delinquent Contracts. The Servicer's obligation to make Advances, if any, may,
as specified in the related Prospectus Supplement, be limited in amount. If so
specified in the related Prospectus Supplement, the Servicer will not be
obligated to make Advances until all or a specified portion of the Reserve
Fund, if any, is depleted. Advances are intended to maintain a regular flow of
scheduled interest and principal payments to the Senior Certificateholders, not
to guarantee or insure against losses. Accordingly, any funds so advanced are
recoverable by the Servicer out of amounts received on particular Contracts
which represent late recoveries of principal or interest respecting which any
such Advance was made.
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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,
on January 15, 1998 (all days are assumed to be business days):
<TABLE>
<S> <C> <C>
January 15..................................... (1) Cut-off Date.
January 15-February 14......................... (2) Due Period. Servicer
receives scheduled payments
on the Contracts and any
Principal Prepayments made
by Obligors and applicable
interest thereon.
February 27.................................... (3) Record Date.
February 25.................................... (4) Determination Date.
Distribution amount
determined.
March 1........................................ (5) Remittance Date.
</TABLE>
Succeeding months follow the pattern of (2) through (5). The flow of funds
with respect to any Series of Certificates may differ from the above example,
as specified in the related Prospectus Supplement.
- --------
(1) The initial principal balance of the Contract Pool will be the aggregate
principal balance of the Contracts at the close of business on the Cut-off
Date, after deducting principal payments due on or before such date, which,
together with corresponding interest payments, are not part of the Contract
Pool and will not be passed through to Certificateholders.
(2) Scheduled payments and Principal Prepayments may be received at any time
during this period and will be deposited in the Certificate Account by the
Servicer for distribution to Certificateholders. When a Contract is prepaid
in full, interest on the amount prepaid is collected from the Obligor only
to the date of payment.
(3) Distributions on March 1 will be made to Certificateholders of record at
the close of business on the Business Day immediately preceding the related
Remittance Date.
(4) On February 25 (the third Business Day prior to the Remittance Date), the
Servicer will determine the amounts of principal and interest which will be
passed through on March 1. In addition, the Servicer may advance funds to
cover any delinquencies, in which event the distribution to
Certificateholders on March 1 will include the full amounts of principal
and interest due during the related Due Period. The Servicer will also
calculate any changes in the relative interests evidenced by the Senior
Certificates and the Subordinated Certificates in the Trust Fund.
(5) On March 1, the amounts determined on February 25 will be distributed to
Certificateholders.
Indemnification
The Agreement requires the Company to defend and indemnify the Trust Fund,
the Trustee (including any agent of the Trustee) and the Certificateholders
(which indemnification will survive any removal of the Servicer as servicer of
the Contracts) against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation (a) arising out of or resulting from the use or ownership by the
Company or the Servicer or any affiliate thereof of any Manufactured Home and
(b) for any taxes which may at any time be asserted with respect to, and as of
the date of, the conveyance of the Contracts to the Trust Fund (but not
including any federal, state or other tax arising out of the creation of the
Trust Fund and the issuance of the Certificates). (Article X).
The Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend and indemnify the Trust Fund, the Trustee
and the Certificateholders (which indemnification will survive any removal of
the Servicer as servicer of the Contracts) against any and all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel and expenses of litigation, in respect of any action taken by the
Servicer with respect to any Contract while it was the Servicer. (Section
10.04.)
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Servicing
Pursuant to the Agreement, the Servicer will service and administer the
Contracts assigned to the Trustee as more fully set forth below. The Servicer
will perform diligently all services and duties specified in each Agreement, in
the same manner as prudent lending institutions of manufactured housing
contracts of the same type as the Contracts in those jurisdictions where the
related Manufactured Homes are located or as otherwise specified in the
Agreement. The duties to be performed by the Servicer will include collection
and remittance of principal and interest payments, collection of insurance
claims and, if necessary, repossession.
The Servicer will make reasonable efforts to collect all payments called for
under the Contracts and, consistent with the Agreement and any FHA insurance
and VA guaranty, will follow such collection procedures as it follows with
respect to mortgage loans or contracts serviced by it that are comparable to
the Contracts.
Hazard Insurance. Except as otherwise specified in the related Prospectus
Supplement, the terms of the Agreement will require the Servicer to cause to be
maintained with respect to each Contract one or more Hazard Insurance Policies
which provide, at a minimum, the same coverage as a standard form fire and
extended coverage insurance policy that is customary for manufactured housing,
issued by a company authorized to issue such policies in the state in which the
Manufactured Home is located, and in an amount which is not less than the
maximum insurable value of such Manufactured Home or the principal balance due
from the Obligor on the related Contract, whichever is less; provided, however,
that the amount of coverage provided by each Hazard Insurance Policy shall be
sufficient to avoid the application of any co-insurance clause contained
therein. Each Hazard Insurance Policy caused to be maintained by the Servicer
shall contain a standard loss payee clause in favor of the Servicer and its
successors and assigns. If any Obligor is in default in the payment of premiums
on its Hazard Insurance Policy or Policies, the Servicer shall pay such
premiums out of its own funds, and may add separately such premium to the
Obligor's obligation as provided by the Contract, but may not add such premium
to the remaining principal balance of the Contract.
The Servicer may maintain, in lieu of causing individual Hazard Insurance
Policies to be maintained with respect to each Manufactured Home, and shall
maintain, to the extent that the related Contract does not require the Obligor
to maintain a Hazard Insurance Policy with respect to the related Manufactured
Home, one or more blanket insurance policies covering losses on the Obligor's
interest in the Contracts resulting from the absence or insufficiency of
individual Hazard Insurance Policies. Any such blanket policy shall be
substantially in the form and in the amount carried by the Servicer as of the
date of this Agreement. The Servicer shall pay the premium for such policy on
the basis described therein and shall pay any deductible amount with respect to
claims under such policy relating to the Contracts. If the insurer thereunder
shall cease to be acceptable to the Servicer, the Servicer shall exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to such policy.
If the Servicer shall have repossessed a Manufactured Home on behalf of the
Trustee, the Servicer shall either (i) maintain at its expense hazard insurance
with respect to such Manufactured Home, or (ii) indemnify the Trustee against
any damage to such Manufactured Home prior to resale or other disposition.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, each Agreement will require the Servicer to deliver to
the Trustee a monthly report prior to each Remittance Date, setting forth
certain information regarding the Contract Pool and the Certificates of such
Series as is specified in the related Prospectus Supplement. Each such report
to the Trustee will be accompanied by a statement from an appropriate officer
of the Servicer certifying the accuracy of such report and stating that the
Servicer has not defaulted in the performance of its obligations under the
Agreement. On or before May 1 of each year, the Servicer will deliver to the
Trustee a report of a firm of independent public accountants which is a member
of the American Institute of Certified Public Accountants stating that such
firm has examined certain documents, records and managements' assertions
relating to loans serviced by the Servicer and stating that, on the basis of
such procedures, such servicing has been conducted in compliance with the
minimum servicing standards
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identified in the Mortgage Bankers Association of America's Uniform Single
Attestation Program for Mortgage Bankers, or any successor program, except for
any significant exceptions or errors in records that, in the opinion of such
firm, generally accepted attestation standards require it to report. (Article
VI.)
Certain Matters Regarding the Servicer. The Servicer may not resign from its
obligations and duties under an Agreement except upon a determination that its
duties thereunder are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor servicer has
assumed the Servicer's obligations and duties under such Agreement. The
Servicer can only be removed as servicer pursuant to an Event of Termination as
discussed below. Any person with which the Servicer is merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer is a party, or any person succeeding to the business of the
Servicer, will be the successor to the Servicer under the Agreement so long as
such successor services at least $100 million of manufactured housing
contracts. (Section 12.01.)
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will also provide that neither the Servicer, nor any director,
officer, employee or agent of the Servicer, will be under any liability to the
Trust Fund or the Certificateholders for any action taken or for restraining
from the taking of any action in good faith pursuant to the Agreement, or for
errors in judgment; provided, however, that neither the Servicer nor any such
person will be protected against any liability which would otherwise be imposed
by reason of the failure to perform its obligations in strict compliance with
the standards of care set forth in the Agreement. The Servicer may, in its
discretion, undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust Fund and the Servicer will
be entitled to be reimbursed therefor out of the Certificate Account.
The Servicer shall keep in force throughout the term of this Agreement (i)
policy or policies of insurance covering errors and omissions for failure to
maintain insurance as required by this Agreement, and (ii) a fidelity bond.
Such policy or policies and such fidelity bond shall be in such form and amount
as is generally customary among persons which service a portfolio of
manufactured housing contracts having an aggregate principal amount of $100
million or more and which are generally regarded as servicers acceptable to
institutional investors.
The Servicer, to the extent practicable, shall cause the Obligors to pay all
taxes and similar governmental charges when and as due. To the extent that
nonpayment of any taxes or charges would result in the creation of a lien upon
any Manufactured Home having a priority equal or senior to the lien of the
related Contract, the Servicer shall advance any such delinquent tax or charge.
Servicing Compensation and Payment of Expenses. For its servicing of the
Contracts, the Servicer will receive servicing fees ("Servicing Fees") which
include a Monthly Servicing Fee (which the Company may assign) for each Due
Period (paid on the next succeeding Remittance Date) equal to 1/12th of the
product of 0.50% and the Pool Scheduled Principal Balance for the immediately
preceding Remittance Date. As long as the Company is the Servicer the Trustee
will pay the Company its Monthly Servicing Fee from any monies remaining after
the Certificateholders have received all payments of principal and interest for
such Remittance Date.
The Monthly Servicing Fee provides compensation for customary manufactured
housing contract third-party servicing activities to be performed by the
Servicer for the Trust Fund and for additional administrative services
performed by the Servicer on behalf of the Trust Fund. Customary servicing
activities include collecting and recording payments, communicating with
obligors, investigating payment delinquencies, providing billing and tax
records to obligors and maintaining internal records with respect to each
Contract. Administrative services performed by the Servicer on behalf of the
Trust Fund include calculating distributions to Certificateholders and
providing related data processing and reporting services for Certificateholders
and on behalf of the Trustee. Expenses incurred in connection with the
servicing of the Contracts and paid by the
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<PAGE>
Servicer from its Servicing Fees include, without limitation, payment of fees
and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of Contracts (except Liquidation Expenses) and
payment of expenses incurred in connection with distributions and reports to
Certificateholders. The Servicer will be reimbursed out of the Liquidation
Proceeds of a Liquidated Contract for all ordinary and necessary Liquidation
Expenses incurred by it in realization upon the related Manufactured Home.
(Section 5.08.)
As part of its Servicing Fees the Servicer will also be entitled to retain,
as compensation for the additional services provided in connection therewith,
any fees for late payments made by Obligors, extension fees paid by Obligors
for the extension of scheduled payments and assumption fees for permitted
assumptions of Contracts by purchasers of the related Manufactured Homes.
(Section 1.02.)
Events of Termination. Except as otherwise specified in the related
Prospectus Supplement, Events of Termination under each Agreement will include
(i) any failure by the Servicer to distribute to the Certificateholders any
required payment which continues unremedied for 5 days (or such other period
specified in the related Prospectus Supplement) after the giving of written
notice; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Agreement that
materially and adversely affects the interests of Certificateholders, which, in
either case, continues unremedied for 30 days after the giving of written
notice of such failure of breach; (iii) any assignment or delegation by the
Servicer of its duties or rights under the Agreement, except as specifically
permitted under the Agreement, or any attempt to make such an assignment or
delegation; (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
Servicer; and (v) the Servicer is no longer an Eligible Servicer (as defined in
the applicable Agreement). Notice as used herein shall mean notice to the
Servicer by the Trustee or the Company, or to the Company, the Servicer, if
any, and the Trustee by the Holders of Certificates representing interests
aggregating not less than 25% of the Trust Fund.
Rights Upon Event of Termination. Except as otherwise specified in the
related Prospectus Supplement, so long as an Event of Termination remains
unremedied, the Trustee may, and at the written direction of the
Certificateholders of a Series evidencing interests aggregating 25% or more of
the related Trust Fund, shall, terminate all of the rights and obligations of
the Servicer under the related Agreement and in and to the Contracts, and the
proceeds thereof, whereupon (subject to applicable law regarding the Trustee's
ability to make advances) the Trustee or a successor Servicer under the
Agreement will succeed to all the responsibilities, duties and liabilities of
the Servicer under the Agreement and will be entitled to similar compensation
arrangements; provided, however, that neither the Trustee nor any successor
Servicer will assume any obligation of the Company to repurchase Contracts for
breaches of representations or warranties, and the Trustee and such successor
Servicer will not be liable for any acts or omissions of the prior Servicer
occurring prior to a transfer of the Servicer's servicing and related functions
or for any breach by such Servicer of any of its obligations contained in the
Agreement. Notwithstanding such termination, the Servicer shall be entitled to
payment of certain amounts payable to it prior to such termination, for
services rendered prior to such termination. No such termination will affect in
any manner the Company's obligation to repurchase certain Contracts for
breaches of representations or warranties under the Agreement. In the event
that the Trustee would be obligated to succeed the Servicer but is unwilling or
unable so to act, it may appoint, or petition to a court of competent
jurisdiction for the appointment of a Servicer. Pending such appointment, the
Trustee is obligated to act in such capacity. The Trustee and such successor
may agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the Servicer under the Agreement.
No Certificateholder will have any right under an Agreement to institute any
proceeding with respect to such Agreement unless such Holder previously has
given to the Trustee written notice of default and unless the Holders of
Certificates evidencing interests aggregating not less than 25% of the related
Trust Fund requested the Trustee in writing to institute such proceeding in its
own name as Trustee and have offered to the Trustee reasonable indemnity and
the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to take any action or
institute, conduct or defend any litigation under the
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Agreement at the request, order or direction of any of the Holders of
Certificates, unless such Certificateholders have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which the Trustee may incur.
Reports to Certificateholders
The Trustee will forward to each Certificateholder on each Remittance Date,
or as soon thereafter as is practicable, as specified in the related
Prospectus Supplement, a statement setting forth, among other things:
(i) the amount of such distribution allocable to principal on the
Contracts;
(ii) the amount of such distribution allocable to interest on the
Contracts;
(iii) if the distribution to the Certificateholders is less than the full
amount that would be distributable to such Certificateholders if there were
sufficient eligible funds in the Certificate Account, the difference
between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Certificate Account and the amounts actually distributed;
(iv) the aggregate amount of Advances, if any, by the Servicer included in
the amounts actually distributed to the Certificateholders;
(v) the outstanding principal balance of the Contracts; and
(vi) the approximate weighted average Remittance Rate of the Contracts
during the Due Period immediately preceding such Remittance Date.
In addition, not more than 90 days after the end of each calendar year, the
Servicer will furnish a report to each Certificateholder of record at any time
during such calendar year (a) as to the aggregate of amounts reported pursuant
to (i) through (v) above for such calendar year or, in the event such person
was a Certificateholder of record during a portion of such calendar year, for
the applicable portion of such year, (b) such information as the Servicer
deems necessary or desirable for Certificateholders to prepare their tax
returns and (c) if so specified in the related Prospectus Supplement, a
listing of the principal balances of the Contracts outstanding at the end of
such calendar year. Information in the monthly and annual reports provided to
the Certificateholders will not have been examined and reported upon by an
independent public accountant. However, the Servicer will provide to the
Trustee annually a report by independent public accountants with respect to
the servicing of the Contracts as described under "Evidence as to Compliance"
above.
In addition, to the extent applicable, such report shall include:
(i) in the case of Certificates which are assigned a Stated Balance, the
amount of the distribution being made in reduction of Stated Balance
specified in the related Prospectus Supplement, and the Stated Balance of
each such Class of Certificates and a Single Certificate of the Holder's
Class after giving effect to the distribution in reduction of Stated
Balance made on such Remittance Date and after giving effect to all Special
Distributions since the preceding Remittance Date or since the Closing Date
in the case of the first Remittance Date; and
(ii) with respect to Compound Interest Certificates (but only if the
Holders thereof shall not have received on such Remittance Date a
distribution of interest equal to the entire amount of interest accrued on
such Certificate during the related Due Period with respect to such
Remittance Date):
(a) the interest accrued on such Class of Compound Interest
Certificates and on a Single Certificate of such Class during the Due
Period (or specified interest accrual period) with respect to such
Remittance Date and added to the principal of such Compound Interest
Certificates; and
(b) the Stated Balance of such Class of Compound Interest Certificates
and of a Single Certificate of such Class after giving effect to the
addition thereto of all interest accrued thereon during the Due Period
(or specified interest accrual period) with respect to such Remittance
Date.
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Amendment
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Company, the Servicer and the Trustee without
the consent of the Certificateholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, (iii) if an election has been made with respect to a
particular Series of Certificates to treat the Trust Fund as a real estate
mortgage investment conduit ("REMIC") within the meaning of Section 860D(a) of
the Internal Revenue Code of 1986, as amended, to maintain the REMIC status of
the Trust Fund and to avoid the imposition of certain taxes on the REMIC or
(iv) to make any other provisions with respect to matters or questions arising
under such Agreement that are not inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of the Certificateholders of the related Series. Unless otherwise
specified in the related Prospectus Supplement, the Agreement may also be
amended by the Company, the Servicer and the Trustee with the consent of the
Certificateholders (other than holders of Residual Certificates) evidencing
interests aggregating not less than 51% of the Trust Fund for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment that reduces in
any manner the amount of, or delay the timing of, any payment received on or
with respect to Contracts which are required to be distributed on any
Certificate may be effective without the consent of the Holders of each such
Certificate.
Termination of the Agreement
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (i) the later of the
final payment or other liquidation of the last Contracts subject thereto and
the disposition of all property acquired upon foreclosure of any Land-and-Home
Contract or repossession of any Manufactured Home and (ii) the payment to the
Certificateholders of all amounts held by the Servicer or the Trustee and
required to be paid to it pursuant to the Agreement. In addition, unless
otherwise specified in the related Prospectus Supplement, the Company or the
Servicer may at its option with respect to any Series of Certificates,
repurchase all Certificates or Contracts remaining outstanding at such time as
the aggregate unpaid principal balance of such Contracts is less than the
percentage of the aggregate unpaid principal balance of the Contracts on the
Cut-off Date specified with respect to such Series in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement, the
repurchase price will equal the principal amount of such Contracts plus accrued
interest from the first day of the month of repurchase to the first day of the
next succeeding month at the Contract Rates borne by such Contracts.
The Trustee
The Prospectus Supplement for a Series of Certificates will specify the
Trustee under the related Agreement. The Trustee may have normal banking
relationships with the Company or its affiliates and the Servicer or its
affiliates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. Unless otherwise specified in
the related Prospectus Supplement, the Trustee may also be removed at any time
by the Holders of Certificates evidencing interests aggregating over 50% of the
related Trust Fund as specified in the Agreement. Any resignation or removal of
the Trustee and appointment of a successor Trustee will not become effective
until acceptance of the appointment by the successor Trustee.
The Trustee will make no representation as to the validity or sufficiency of
the Agreement, the Certificates, any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Company of any funds paid to the Company, as Seller, in consideration of the
conveyance of the Contracts, or deposited into or withdrawn from the
Certificate Account by the Servicer. (Section 11.03.) If no Event of
Termination has occurred, the Trustee will be required to perform only those
duties specifically
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required of it under the Agreement. However, upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
Trustee will be required to examine them to determine whether they conform as
to form to the requirements of the Agreement. (Section 11.01.) Whether or not
an Event of Termination has occurred, the Trustee is not required to expend or
risk its own funds or otherwise incur any financial liability in the
performance of its duties or the exercise of its powers if it has reasonable
grounds to believe that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it. (Section 11.01.)
Under the Agreement, the Servicer agrees to pay to the Trustee on each
Remittance Date (a) reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and (b)
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with any provision of the Agreement
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense, disbursement or advance as
may be attributable to the Trustee's negligence or bad faith. The Company has
agreed to indemnify the Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance or administration of the
Trust Fund and the Trustee's duties thereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of the Trustee's powers or duties
thereunder. (Section 11.05.)
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts may be FHA-insured or VA-guaranteed, the payments
upon which, subject to the following discussion, are insured by the FHA under
Title I of the National Housing Act or partially guaranteed by the VA.
The regulations governing FHA manufactured home insurance provide that
insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to HUD. With respect to a defaulted
FHA contract, the servicer must follow applicable regulations before initiating
repossession procedures. These regulations include requirements that the lender
arrange a face-to-face meeting with the borrower, initiate a modification or
repayment plan, if feasible, and give the borrower 30 days' notice of default
prior to any repossession. The insurance claim is paid in cash by HUD. For
manufactured housing contracts, the amount of insurance benefits generally paid
by FHA is equal to 90% of the sum of (i) the unpaid principal amount of the
Contract at the date of default and uncollected interest earned to the date of
default computed at the Contract rate, after deducting the best price
obtainable for the collateral (based in part on a HUD-approved appraisal) and
all amounts retained or collected by the lender from other sources with respect
to the Contract, (ii) accrued and unpaid interest on the unpaid amount of the
Contract from the date of default to the date of submission of the claim plus
15 calendar days (but in no event more than nine months) computed at a rate of
7% per annum, (iii) costs paid to a dealer or other third party to repossess
and preserve the Manufactured Home, (iv) the amount of any sales commission
paid to a dealer or other third party for the resale of the property, (v) with
respect to a Land-and-Home Contract, property taxes, special assessments and
other similar charges and hazard insurance premiums, prorated to the date of
disposition of the property, (vi) uncollected court costs, (vii) legal fees,
not to exceed $500, and (viii) expenses for recording the assignment of the
lien on the collateral to the United States.
The insurance available to a lender under FHA Title I insurance is subject
to the limit of a reserve amount equal to ten percent of the original principal
balance of all Title I insured loans originated by the lender, which amount is
reduced by all claims paid to the lender and which is increased by an amount
equal to ten percent of the original principal balance of insured loans
subsequently originated by the lender. As of June 30, 1998, the Company's Title
I reserve amount was approximately $82,870,000, which amount was available to
pay claims in respect of approximately $895,090,000 of FHA-insured home
improvement loans and manufactured housing contracts serviced by the Company.
If the Company were replaced as Servicer of the Contracts under the
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Agreement, it is not clear from the FHA regulations what portion of this
reserve amount would be available for claims in respect of the FHA-insured
Contracts. The obligation to pay insurance premiums to FHA is the obligation of
the Company, as Servicer of the FHA-insured Contracts.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under the guarantee will be the percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the amount of the
original guarantee.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Contracts or Land-and-Home
Contracts is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Contracts or
Land-and-Home Contracts.
The Contracts (Other than Land-and-Home Contracts)
General. As a result of the assignment of the Contracts to the Trustee, the
Trust Fund will succeed collectively to all of the rights (including the right
to receive payment on the Contracts) and will assume the obligations of the
obligee under the Contracts. Each Contract evidences both (a) the obligation of
the Obligor to repay the loan evidenced thereby, and (b) the grant of a
security interest in the Manufactured Home to secure repayment of such loan.
Certain aspects of both features of the Contracts are described more fully
below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Company will retain possession of the Contracts
as custodian for the Trustee, and will make an appropriate filing of a UCC-1
financing statement in Minnesota to give notice of the Trustee's ownership of
the Contracts. The Contracts will be stamped to reflect their assignment from
the Company to the Trustee. However, if through negligence, fraud or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the Trustee's interest in the Contracts
could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Contracts may be located in all 50 states and the District of
Columbia. Security interests in manufactured homes may be perfected either by
notation of the secured party's lien on the certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority, depending on state law. In some nontitle states, perfection pursuant
to the provisions of the UCC is required. The Company effects such notation or
delivery of the required documents and fees, and obtains possession of the
certificate of title, as appropriate, under the laws of the state in which a
Manufactured Home is registered. In the event the Company fails, due to
clerical errors, to effect such notation or delivery, or files the security
interest under the wrong law (for example, under a motor vehicle title statute
rather than under the UCC, in a few states), the Certificateholders may not
have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured
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homes have become larger and often have been attached to their sites without
any apparent intention to move them, courts in many states have held that
manufactured homes, under certain circumstances, may become subject to real
estate title and recording laws. As a result, a security interest in a
manufactured home could be rendered subordinate to the interests of other
parties claiming an interest in the home under applicable state real estate
law. In order to perfect a security interest in a manufactured home under real
estate laws, the holder of the security interest must file either a "fixture
filing" under the provisions of the UCC or a real estate mortgage under the
real estate laws of the state where the home is located. See "Land-and-Home
Contracts" below. These filings must be made in the real estate records office
of the county where the home is located. Substantially all of the Contracts
contain provisions prohibiting the borrower from permanently attaching the
Manufactured Home to its site. So long as the borrower does not violate this
agreement, a security interest in the Manufactured Home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home becomes permanently attached to its
site, other parties could obtain an interest in the Manufactured Home which is
prior to the security interest originally retained by the seller and
transferred to the Company. The Company will represent that at the date of the
initial issuance of the related Certificates it has obtained a perfected first
priority security interest by proper notation or delivery of the required
documents and fees with respect to substantially all of the Manufactured Homes
securing the Contracts.
The Company will assign the security interest in the Manufactured Homes to
the Trustee on behalf of the Certificateholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Company nor the Trustee will
amend the certificates of title to identify the Trustee as the new secured
party, and neither the Company nor the Servicer will deliver the certificates
of title to the Trustee or note thereon the interest of the Trustee.
Accordingly, the Company will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In some states, such
assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured party succeeds to the Servicer's rights as the secured party. However,
in some states in the absence of an amendment to the certificate of title, such
assignment of the security interest in the Manufactured Home may not be held
effective or such security interests may not be perfected and in the absence of
such notation or delivery to the Trustee, the assignment of the security
interest in the Manufactured Home may not be effective against creditors of the
Company or a trustee in bankruptcy of the Company.
In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Company on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Company's security interest is not perfected, such security interest
would be subordinate to, among others, subsequent purchasers for value of the
Manufactured Homes and holders of perfected security interests. There also
exists a risk in not identifying the Trustee as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If the
owner were to relocate a Manufactured Home to another state and not re-register
the Manufactured Home in such state, and if steps were not taken to re-perfect
the Trustee's security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home
is noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its
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security interest in the Manufactured Home in the state of relocation. In
states which do not require a certificate of title for registration of a
manufactured home, re-registration could defeat perfection. In the ordinary
course of servicing the manufactured housing conditional sales contracts, the
Company takes steps to effect such re-perfection upon receipt of notice of re-
registration or information from the obligor as to relocation. Similarly, when
an obligor under a Contract sells a Manufactured Home, the Company must
surrender possession of the certificate of title or will receive notice as a
result of its lien noted thereon and accordingly will have an opportunity to
require satisfaction of the related manufactured housing conditional sales
contract before release of the lien. Under the Agreement, the Servicer is
obligated to take such steps, at the Servicer's expense, as are necessary to
maintain perfection of security interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home and liens for personal property taxes take priority over a perfected
security interest. The Company will represent in the Agreement that it has no
knowledge of any such liens with respect to any Manufactured Home securing
payment on any Contract. However, such liens could arise at any time during the
term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes. The Servicer on
behalf of the Trustee, to the extent required by the related Agreement, may
take action to enforce the Trustee's security interest with respect to
Contracts in default by repossession and resale of the Manufactured Homes
securing such Defaulted Contracts. So long as the Manufactured Home has not
become subject to real estate laws, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days' notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the debtor be given notice of any
sale prior to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and resale of a Manufactured
Home, the Trustee would be entitled to be paid out of the sale proceeds before
such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders of subsequently perfected security interests or,
thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the manufactured home securing such a debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), an Obligor who enters military service
after the origination of such Obligor's Contract (including an Obligor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by the subordination of a Class of Subordinated Certificates, could
result in losses to the holders of a Series of Certificates. In addition, the
Relief Act imposes limitations which would impair the ability of the Servicer
to foreclose on an affected Contract during the Obligor's period of active duty
status. Thus, in the event that such a Contract goes into default, there may be
delays and losses occasioned by the inability to realize upon the Manufactured
Home in a timely fashion.
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Land-and-Home Contracts
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the
state in which the underlying property is located. A mortgage creates a lien
upon the real property described in the mortgage. There are two parties to a
mortgage: the mortgagor, who is the borrower, and the mortgagee, who is the
lender. In a mortgage state, the mortgagor delivers to the mortgagee a note or
bond evidencing the loan and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust has three parties: the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed
of trust or mortgage, applicable law, and, in some cases, with respect to the
deed of trust, the directions of the beneficiary.
Foreclosure. Foreclosure of a mortgage is generally accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be time-
consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is not common for a third party to purchase the property at the
foreclosure sale. Rather, the lender generally purchases the property from the
trustee or receiver for an amount equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender commonly
will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property.
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Rights of Redemption. In some states, after sale pursuant to a deed of trust
or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies
only to sale following judicial foreclosure, and not sale pursuant to a non-
judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In some states the right to redeem
is an equitable right. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain states
have imposed statutory restrictions that limit the remedies of a beneficiary
under a deed of trust or a mortgagee under a mortgage relating to a single
family residence. In some states, statutes limit the right of the beneficiary
or mortgagee to obtain a deficiency judgment against the borrower following
foreclosure or sale under a deed of trust. A deficiency judgment is a personal
judgment against the borrower equal in most cases to the difference between the
amount due to the lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, with respect
to a Land-and-Home Contract, in a Chapter 13 proceeding under the federal
Bankruptcy Code, when a court determines that the value of a home is less than
the principal balance of the loan, the court may prevent a lender from
foreclosing on the home, and, as part of the rehabilitation plan, reduce the
amount of the secured indebtedness to the value of the home as it exists at the
time of the proceeding, leaving the lender as a general unsecured creditor for
the difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Certain court decisions have applied such relief to claims
secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the
mortgage or deed of trust. The laws of some states provide priority to certain
tax liens over the lien of the mortgage or deed of trust. Numerous federal and
some state consumer protection laws impose substantive requirements upon
mortgage lenders in connection
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with the origination, servicing and the enforcement of mortgage loans. These
laws include the federal Truth in Lending Act, Real Estate Settlement
Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair
Credit Reporting Act, and related statutes and regulations. These federal laws
and state laws impose specific statutory liabilities upon lenders who originate
or service mortgage loans and who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the Contracts.
Certain Matters Relating to Insolvency
The Company intends that each transfer of the Contracts to a Trust Fund will
constitute a sale rather than a pledge of the Contracts to secure indebtedness
of the Company. However, if the Company were to become a debtor under the
federal bankruptcy code, it is possible that a creditor, receiver, conservator
or trustee in bankruptcy of the Company or the Company as a debtor-in-
possession may argue that the sale of the Contracts by the Company was a pledge
of the Contracts rather than a sale. This position, if argued or accepted by a
court, could result in a delay in or reduction of distributions to the related
Certificateholders.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a Contract (such as the Trust Fund) to all claims and defenses
which the Obligor could assert against the seller of the Manufactured Home.
Liability under this rule is limited to amounts paid under a contract; however,
the Obligor also may be able to assert the rule to set off remaining amounts
due as a defense against a claim brought by the Trust Fund against such
Obligor. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act and the Uniform
Consumer Credit Code. In the case of some of these laws, the failure to comply
with their provisions may affect the enforceability of the related Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such
sale or transfer that is not consented to. The Company expects that it will
permit most transfers of Manufactured Homes and not accelerate the maturity of
the related Contracts. In certain cases, the transfer may be made by a
delinquent Obligor in order to avoid a repossession proceeding with respect to
a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the "due-
on-sale" clause. The Garn-St. Germain Depositary Institutions Act of 1982
preempts, subject to certain exceptions and conditions, state laws prohibiting
enforcement of "due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing. The Contracts
would be covered if they satisfy certain conditions, among other things,
governing the terms of any prepayments, late charges and deferral fees and
requiring a 30-day notice period prior to instituting any action leading to
repossession of or foreclosure with respect to the related unit.
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Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered by
Title V. The Company will represent in the applicable Agreement that all of the
Contracts comply with applicable usury law.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes certain requirements on employee benefit plans subject to ERISA
("Plans") and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by such Plans. Among other
requirements, ERISA mandates that the assets of Plans be held in trust and that
the trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of such Plans. Under ERISA, any
person who exercises any authority or control with respect to the management or
disposition of the assets of a Plan is considered to be a fiduciary of such
Plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of Plans be invested and
managed for the exclusive benefit of Plan participants and beneficiaries, a
determination by the Plan fiduciary that any such investment is permitted under
the governing Plan instruments and is prudent and appropriate for the Plan in
view of its overall investment policy and the composition and diversification
of its portfolio. Certain employee benefit plans, such as governmental plans
(as defined in ERISA Section 3(32)) and certain church plans (as defined in
ERISA Section 3(33)), are not subject to ERISA. Accordingly, assets of such
plans may be invested in Certificates without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), however, is subject to the prohibited transaction rules
set forth in Section 503 of the Code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Code, prohibit a broad range of transactions involving Plan assets and persons
having certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 and 407 of ERISA and excise taxes are imposed
upon such persons by Section 4975 of the Code. An investment in the
Certificates by a Plan might constitute prohibited transactions under the
foregoing provisions unless an administrative exemption applies. In addition,
if an investing Plan's assets were deemed to include an interest in the assets
of the Contract Pool and not merely an interest in the Certificates,
transactions occurring in the operation of the Contract Pool might constitute
prohibited transactions unless an administrative exemption applies. Certain
such exemptions which may be applicable to the acquisition and holding of the
Certificates or to the servicing and operation of the Contract Pool are noted
below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "Regulation") concerning the definition of what constitutes
the assets of a Plan. This regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing plan unless certain
exceptions apply. However, the Regulation provides that, generally, the assets
of a corporation or partnership in which a Plan invests will not be deemed for
purposes of ERISA to be assets of such Plan if the equity interest acquired by
the investing Plan is a publicly-offered security. A publicly-offered security,
as defined under the Regulation, is a security that is widely held, freely
transferable, and registered under the Securities Exchange Act of 1934, as
amended. The Certificates are not expected to be publicly-offered securities
under the terms of the Regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise tax provisions of Section 4975 of
the Code) may be found under the provisions of specific
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statutory or administrative exemptive relief authorized under Section 408 of
ERISA. In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's prohibited
transaction rules certain transactions relating to the operation of residential
mortgage pool investment trusts and the purchase, sale and holding of "mortgage
pool pass-through certificates" in the initial issuance of such certificates.
PTE 83-1 permits, subject to certain conditions, transactions which might
otherwise be prohibited between Plans and parties in interest with respect to
those Plans related to the origination, maintenance and termination of mortgage
pools consisting of mortgage loans secured by first or second mortgages or
deeds of trust on single-family residential property, and the acquisition and
holding of certain mortgage pool pass-through certificates representing an
interest in such mortgage pools by Plans. If the general conditions of PTE 83-1
are satisfied, investments by a Plan in certificates that represent interests
in a mortgage pool consisting of single family loans will be exempt from the
prohibitions of Sections 406(a) and 407 of ERISA (relating generally to
transactions with parties in interest who are not fiduciaries) if the Plan
purchases such certificates at no more than fair market value, and will be
exempt from the prohibitions of Section 406(b)(1) and (2) of ERISA (relating
generally to transactions with fiduciaries) if, in addition, the purchase is
approved by an independent fiduciary, no sales commission is paid to the pool
sponsor, the Plan does not purchase more than 25 percent of such certificates,
and at least 50 percent of all such certificates are purchased by persons
independent of the pool sponsor or pool trustee. However, PTE 83-1 does not
provide an exemption for transactions involving subordinate certificates or for
certificates representing an interest in conditional sales contracts and
installment sales or loan agreements secured by manufactured housing like the
Contracts.
There can be no assurance that any of the exceptions set forth in the
Regulation, PTE 83-1 or any other administrative exemption under ERISA, will
apply to the purchase of Certificates offered hereby, and, as a result, an
investing Plan's assets could be considered to include an undivided interest in
the Contracts and any other assets held in the Contract Pool. In the event that
assets of a Contract Pool are considered assets of an investing Plan, the
Company, the Servicer, the Trustee and other persons, in providing services
with respect to the Contracts, may be considered fiduciaries to such Plan and
subject to the fiduciary responsibility provisions of Title I of ERISA and the
prohibited transaction provisions of Section 4975 of the Code with respect to
transactions involving such assets unless a statutory or administrative
exemption applies.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
Purchasers that are insurance companies should consult with their counsel
with respect to the recent United States Supreme Court case, John Hancock
Mutual Life Insurance Co. v. Harris Trust and Savings Bank (decided December
13, 1993). In John Hancock, the Supreme Court ruled that assets held in an
insurance company's general account may be deemed to be "plan assets" under
certain circumstances. Purchasers should analyze whether the decision may have
an impact with respect to purchases of the Certificates. In particular, such an
insurance company should consider the specific retroactive and prospective
exemptive relief provided in Prohibited Transaction Exemption 95-60 ("PTE 95-
60") for transactions involving insurance company general accounts in which an
employee benefit plan has an interest.
PTE 95-60 exempts from ERISA's prohibited transaction rules certain
transactions engaged in by insurance company general accounts in which an
employee benefit plan has an interest if certain 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
certain 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.
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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
manufactured housing installment sale contracts and installment loan agreements
such as the Contracts. 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. The Prospectus Supplement will indicate
whether PTE 95-60 will apply to the acquisition, holding and resale of the
Certificates by an insurance company general account.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the
Certificates. The discussion is based upon laws, regulations, rulings, and
decisions now in effect, including Treasury Regulations issued on December 23,
1992, and generally effective for REMICs with startup days on or after November
12, 1991 (the "REMIC Regulations"), all of which are subject to change or
possibly differing interpretations. The discussion does not purport to deal
with federal income tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors to determine the federal, state, local, and any other tax
consequences of the purchase, ownership, and disposition of the Certificates.
Many aspects of the federal tax treatment of the purchase, ownership, and
disposition of the Certificates will depend upon whether an election is made to
treat the Trust Fund or a segregated portion thereof evidenced by a particular
series or sub-series of Certificates as a REMIC within the meaning of Section
860D(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Prospectus Supplement for each series will indicate whether or not an election
to be treated as a REMIC has been or will be made with respect thereto. The
following discussion deals first with Series with respect to which a REMIC
Election is made and then with Series with respect to which a REMIC Election is
not made.
REMIC Series
With respect to each Series of Certificates for which a REMIC Election is
made, the counsel to the Company identified in the applicable Prospectus
Supplement will have advised the Company that in its opinion, assuming (i) the
making of that election in accordance with the requirements of the Code and
(ii) ongoing compliance with the applicable Agreement, at the initial issuance
of the Certificates in such series the Trust Fund will qualify as a REMIC and
the Certificates in such a Series ("REMIC Certificates") will be treated either
as regular interests in the REMIC within the meaning of Section 860G(a)(1) of
the Code ("Regular Certificates") or as residual interests in the REMIC within
the meaning of Section 860G(a)(2) of the Code ("Residual Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust Fund so long as there are any
REMIC Certificates outstanding. Substantially all of the assets of the REMIC
must consist of "qualified mortgages" and "permitted investments" as of the
close of the third month beginning after the day on which the REMIC issues all
of its regular and residual interests (the "Startup Day") and at all times
thereafter. The term "qualified mortgage" means any obligation (including a
participation or certificate of beneficial ownership in such obligation) which
is principally secured by an interest in real property that is transferred to
the REMIC on the Startup Day in exchange for regular or residual interests in
the REMIC or is purchased by the REMIC within the three-month period beginning
on the Startup Day if such purchase is pursuant to a fixed price contract in
effect on the Startup Day. The REMIC Regulations provide that a Contract is
principally secured by an interest in real property if the fair market value of
the real property securing the Contract is at least equal to either (i) 80% of
the issue price (generally, the principal balance) of the Contract at
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the time it was originated or (ii) 80% of the adjusted issue price (the then-
outstanding principal balance, with certain adjustments) of the Contract at the
time it is contributed to a REMIC. The fair market value of the underlying real
property is to be determined after taking into account other liens encumbering
that real property. Alternatively, a Contract is principally secured by an
interest in real property if substantially all of the proceeds of the Contract
were used to acquire or to improve or protect an interest in real property
that, at the origination date, is the only security for the Contract (other
than the personal liability of the obligor). The REMIC Regulations provide that
obligations secured by manufactured housing or mobile homes (not including
recreational vehicles, campers or similar vehicles) which are "single family
residences" under Section 25(e)(10) of the Code will qualify as obligations
secured by real property without regard to state law classifications. See the
discussion below under "REMIC Series--Status of Manufactured Housing
Contracts." A qualified mortgage also includes a qualified replacement mortgage
that is used to replace any qualified mortgage within three months of the
Startup Day or to replace a defective mortgage within two years of the Startup
Day.
"Permitted investments" consist of (a) temporary investments of cash
received under qualified mortgages before distribution to holders of interests
in the REMIC ("cash-flow investments"), (b) amounts, such as a Reserve Fund, if
any, reasonably required to provide for full payment of expenses of the REMIC,
the principal and interest due on regular or residual interests in the event of
defaults on qualified mortgages, lower than expected returns on cash-flow
investments, prepayment interest shortfalls or certain other contingencies
("qualified reserve assets"), and (c) certain property acquired as a result of
foreclosure of defaulted qualified mortgages ("foreclosure property"). A
reserve fund will not be qualified if more than 30% of the gross income from
the assets in the reserve fund is derived from the sale or other disposition of
property held for three months or less, unless such sale is necessary to
prevent a default in payment of principal or interest on Regular Certificates.
In accordance with Section 860G(a)(7) of the Code, a reserve fund must be
"promptly and appropriately" reduced as payments on contracts are received.
Foreclosure property will be a permitted investment only to the extent that
such property is not held for more than two years.
The Code requires that in order to qualify as a REMIC an entity must make
reasonable arrangements designed to ensure that certain specified entities,
generally including governmental entities or other entities that are exempt
from United States tax, including the tax on unrelated business income
("Disqualified Organizations"), not hold residual interests in the REMIC.
Consequently, it is expected that in the case of any Trust Fund for which a
REMIC Election is made the transfer, sale, or other disposition of a Residual
Certificate to a Disqualified Organization will be prohibited and the ability
of a Residual Certificate to be transferred will be conditioned on the
Trustee's receipt of a certificate or other document representing that the
proposed transferee is not a Disqualified Organization. The transferor of a
Residual Certificate must not, as of the time of the transfer, have actual
knowledge that such representation is false. The Code further requires that
reasonable arrangements must be made to enable a REMIC to provide the Internal
Revenue Service (the "Service") and certain other parties, including
transferors of residual interests in a REMIC, with the information needed to
compute the tax imposed by Section 860E(e)(1) of the Code if, in spite of the
steps taken to prevent Disqualified Organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest. See
"REMIC Series--Restrictions on Transfer of Residual Certificates" below.
If the Trust Fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the Trust Fund will not be treated
as a REMIC for the year during which such failure occurs and thereafter unless
the Service determines, in its discretion, that such failure was inadvertent
(in which case, the Service may require any adjustments which it deems
appropriate). If the ownership interests in the assets of the Trust Fund
consist of multiple classes, failure to treat the Trust Fund as a REMIC may
cause the Trust Fund to be treated as an association taxable as a corporation.
Such treatment could result in income of the Trust Fund being subject to
corporate tax in the hands of the Trust Fund and in a reduced amount being
available for distribution to Certificateholders as a result of the payment of
such taxes.
Status of Manufactured Housing Contracts. The REMIC Regulations as well as a
Notice issued by the Service provide that obligations secured by interests in
manufactured housing, which qualify as "single family residences" within the
meaning of Section 25(e)(10) of the Code, are to be treated as "qualified
mortgages"
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for a REMIC. Under Section 25(e)(10) of the Code, the term "single family
residence" includes any manufactured home which has a minimum of 400 square
feet of living space and a minimum width in excess of 102 inches and which is
of a kind customarily used at a fixed location. The Company will represent and
warrant that each of the manufactured homes securing the Contracts which are a
part of a Trust Fund meets this definition of a "single family residence." See
the discussion above under "REMIC Series--Qualification as a REMIC."
Two-Tier REMIC Structures. For certain series of Certificates, two separate
elections may be made to treat segregated portions of the assets of a single
Trust Fund as REMICs for federal income tax purposes (respectively, the
"Subsidiary REMIC" and the "Master REMIC"). Upon the issuance of any such
series of Certificates, Counsel will have advised the Company, as described
above, that at the initial issuance of the Certificates, the Subsidiary REMIC
and the Master REMIC will each qualify as a REMIC for federal income tax
purposes, and that the Certificates in such a series will be treated either as
Regular Certificates or Residual Certificates of the appropriate REMIC. Only
REMIC Certificates issued by the Master REMIC will be offered hereunder. Solely
for the purpose of determining whether such Regular Certificates will
constitute qualifying real estate or real property assets for certain
categories of financial institutions or real estate investment trusts as
described below, both REMICs in a two-tier REMIC structure will be treated as
one. See the discussion below under "REMIC Series--Taxation of Regular
Interests."
Taxation of Regular Interests. Regular Certificates will be treated as new
debt instruments issued by the REMIC on the Startup Day. If a Regular
Certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the stated
principal amount with respect to that Regular Certificate may be zero. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of interest or a qualified variable rate on some or all of the
qualified mortgages. Stated interest on a Regular Certificate will be taxable
as ordinary income. Holders of Regular Certificates that would otherwise report
income under a cash method of accounting will be required to report income with
respect to such Regular Certificates under the accrual method. Under Temporary
Treasury Regulations, if a Trust Fund, with respect to which a REMIC Election
is made, is considered to be a "single-class REMIC," a portion of the REMIC's
servicing fees, administrative and other non-interest expenses, including
assumption fees and late payment charges retained by the Company, will be
allocated as a separate item to those Regular Certificateholders that are
"pass-through interest holders." Generally, a single-class REMIC is defined as
a REMIC that would be treated as a fixed investment trust under applicable law
but for its qualification as a REMIC, or a REMIC that is substantially similar
to an investment trust but is structured with the principal purpose of avoiding
this allocation requirement imposed by the Temporary Treasury Regulations.
Generally, a pass-through interest holder refers to individuals, entities taxed
as individuals, such as certain trusts and estates, and regulated investment
companies. An individual, an estate, or a trust that holds a Regular
Certificate in such a REMIC will be allowed to deduct the foregoing expenses
under Section 212 of the Code only to the extent that, in the aggregate and
combined with certain other itemized deductions, they exceed 2% of the adjusted
gross income of the holder. In addition, Section 68 of the Code provides that
the amount of itemized deductions (including those provided for in Section 212
of the Code) otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds a threshold amount specified in the Code
($124,500 in 1998 in the case of a joint return) will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the specified threshold
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. As a result of the foregoing limitations, certain holders of
Regular Certificates in "single-class REMICs" may not be entitled to deduct all
or any part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates held
by a thrift institution taxed as a "domestic building and loan association"
within the meaning of Section 7701(a)(19) of the Code will constitute "a
regular ... interest in a REMIC" within the meaning of Section
7701(a)(19)(C)(xi) of the Code; and (ii) Regular Certificates held by a real
estate investment trust will constitute "real estate assets" within the meaning
of Section 856(c)(4)(A) of the Code and interest thereon will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code. If less than 95% of the average
adjusted basis of the assets comprising the REMIC are assets qualifying under
any of the
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foregoing Sections of the Code (including assets described in Section
7701(a)(19)(C) of the Code), then the Regular Certificates will be qualifying
assets only to the extent that the assets comprising the REMIC are qualifying
assets. Section 7701(a)(19)(C)(v) of the Code provides that "loans secured by
an interest in real property" includes loans secured by mobile homes not used
on a transient basis. Treasury Regulations promulgated pursuant to Section 856
of the Code state that local law definitions are not controlling in determining
the meaning of the term "real property" for purposes of that section, and the
Service has ruled that obligations secured by permanently installed mobile home
units qualify as "real estate assets" under this provision. Furthermore,
interest paid with respect to Certificates held by a real estate investment
trust will be considered "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code to the same extent that the Certificates themselves
are treated as real estate assets. Regular Certificates held by a regulated
investment company or a real estate investment trust will not constitute
"Government securities" within the meaning of Sections 851(b)(4)(A)(i) and
856(c)(5)(A) of the Code, respectively. In addition, the REMIC Regulations
provide that payments on Contracts held and reinvested pending distribution to
Certificateholders will be considered to be "real estate assets" within the
meaning of Section 856(c)(4)(A) of the Code. The Small Business Job Protection
Act of 1996 repealed the application of Section 593(d) of the Code to any
taxable year beginning after December 31, 1995. Entities affected by the
foregoing provisions of the Code that are considering the purchase of
Certificates should consult their own tax advisors regarding these provisions.
Original Issue Discount. Regular Certificates may be issued with "original
issue discount." Rules governing original issue discount are set forth in
Sections 1271-1273 and 1275 of the Code and the Treasury Regulations issued
thereunder in January 1994, as amended in June 1996 (the "OID Regulations").
The discussion herein is based in part on the OID Regulations, which generally
apply to debt instruments issued on or after April 4, 1994, but which generally
may be relied upon for debt instruments issued after December 21, 1992.
Moreover, although the rules relating to original issue discount contained in
the Code were modified by the Tax Reform Act of 1986 specifically to address
the tax treatment of securities, such as the Regular Certificates, on which
principal is required to be prepaid based on prepayments of the underlying
assets, regulations under that legislation have not yet been finalized.
Certificateholders also should be aware that the OID Regulations do not address
certain issues relevant to prepayable securities such as the Regular
Certificates.
In general, in the hands of the original holder of a Regular Certificate,
original issue discount, if any, is the difference between the "stated
redemption price at maturity" of the Regular Certificate and its "issue price."
The original issue discount with respect to a Regular Certificate will be
considered to be zero if it is less than .25% of the Regular Certificate's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Regular Certificate to its maturity date. The
OID Regulations, however, provide a special de minimis rule to apply to
obligations such as the Regular Certificates that have more than one principal
payment or that have interest payments that are not qualified stated interest
as defined in the OID Regulations, payable before maturity ("installment
obligations"). Under the special rule, original issue discount on an
installment obligation is generally considered to be zero if it is less than
.25% of the principal amount of the obligation multiplied by the weighted
average maturity of the obligation as defined in the OID Regulations. Because
of the possibility of prepayments, it is not clear whether or how the de
minimis rules will apply to the Regular Certificates. It is possible that the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption") will be required to be used in determining the
weighted average maturity of the Regular Certificates. In the absence of
authority to the contrary, the Company expects to apply the de minimis rule
applicable to installment obligations by using the Prepayment Assumption. The
OID Regulations provide a further special de minimis rule applicable to any
Regular Certificates that are "self-amortizing installment obligations," i.e.,
Regular Certificates that provide for equal payments composed of principal and
qualified stated interest payable unconditionally at least annually during its
entire term, with no significant additional payment required at maturity. Under
this special rule, original issue discount on a self-amortizing installment
obligation is generally considered to be zero if it is less than .167% of the
principal amount of the obligation multiplied by the number of complete years
from the date of issue of such a Regular Certificate to its maturity date.
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Generally, the original holder of a Regular Certificate that includes a de
minimis amount of original issue discount includes that original issue discount
in income as principal payments are made. The amount includable in income with
respect to each principal payment equals a pro rata portion of the entire
amount of de minimis original issue discount with respect to that Regular
Certificate. Any de minimis amount of original issue discount includable in
income by a holder of a Regular Certificate is generally treated as a capital
gain if the Regular Certificate is a capital asset in the hands of the holder
thereof. Pursuant to the OID Regulations, a holder of a Regular Certificate
that uses the accrual method of tax accounting or that acquired such Regular
Certificate on or after April 4, 1994, may, however, elect to include in gross
income all interest that accrues on a Regular Certificate, including any de
minimis original issue discount and market discount, by using the constant
yield method described below with respect to original issue discount.
The stated redemption price at maturity of a Regular Certificate generally
will be equal to the sum of all payments, whether denominated as principal or
interest, to be made with respect thereto other than "qualified stated
interest." Pursuant to the OID Regulations, qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate of interest (or, under certain circumstances, a variable rate tied to an
objective index) during the entire term of the Regular Certificate (including
short periods). Under the OID Regulations, interest is considered
unconditionally payable only if reasonable legal remedies exist to compel
timely payment or the debt instrument otherwise provides terms and conditions
that make the likelihood of late payment or nonpayment a remote contingency. It
is possible that interest payable on Regular Certificates may be considered not
to be unconditionally payable under the OID Regulations. Until further guidance
is issued, however, the REMIC will treat the interest on Regular Certificates
as unconditionally payable under the OID Regulations. In addition, under the
OID Regulations, certain variable interest rates payable on Regular
Certificates, including rates based upon the weighted average interest rate of
a Pool of Contracts, might not be treated as qualified stated interest. In such
case, the OID Regulations would treat interest under such rates as contingent
interest which generally must be included in income by the Regular
Certificateholder when the interest becomes fixed, as opposed to when it
accrues. Until further guidance is issued concerning the treatment of such
interest payable on Regular Certificates, the REMIC will treat such interest as
being payable at a variable rate tied to a single objective index of market
rates. Prospective investors should consult their tax advisors regarding the
treatment of such interest under the OID Regulations. In the absence of
authority to the contrary and if otherwise appropriate, the Company expects to
determine the stated redemption price at maturity of a Regular Certificate by
assuming that the anticipated rate of prepayment for all Contracts will occur
in such a manner that the initial Remittance Rate for a Certificate will not
change. Accordingly, interest at the initial Remittance Rate will constitute
qualified stated interest payments for purposes of applying the original issue
discount provisions of the Code. In general, the issue price of a Regular
Certificate is the first price at which a substantial amount of the Regular
Certificates of such class are sold for money to the public (excluding bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers). If a portion of the initial
offering price of a Regular Certificate is allocable to interest that has
accrued prior to its date of issue, the issue price of such a Regular
Certificate includes that pre-issuance accrued interest.
If the Regular Certificates are determined to be issued with original issue
discount, a holder of a Regular Certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to such income. The
amount of original issue discount, if any, required to be included in a Regular
Certificateholder's ordinary gross income for federal income tax purposes in
any taxable year will be computed in accordance with Section 1272(a) of the
Code and the OID Regulations. Under such Section and the OID Regulations,
original issue discount accrues on a daily basis under a constant yield method
that takes into account the compounding of interest. The amount of original
issue discount to be included in income by a holder of a debt instrument, such
as a Regular Certificate, under which principal payments may be subject to
acceleration because of prepayments of other debt obligations securing such
instruments, is computed by taking into account the Prepayment Assumption.
The amount of original issue discount includable in income by a holder of a
Regular Certificate is the sum of the "daily portions" of the original issue
discount for each day during the taxable year on which the holder
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held the Regular Certificate. The daily portions of original issue discount are
determined by allocating to each day in any "accrual period" a pro rata portion
of the excess, if any, of the sum of (i) the present value of all remaining
payments to be made on the Regular Certificate as of the close of the "accrual
period" and (ii) the payments during the "accrual period" of amounts included
in the stated redemption price of the Regular Certificate over the "adjusted
issue price" of the Regular Certificate at the beginning of the "accrual
period." Generally, the "accrual period" for the Regular Certificates
corresponds to the intervals at which amounts are paid or compounded with
respect to such Regular Certificate, beginning with their date of issuance and
ending with the maturity date. The "adjusted issue price" of a Regular
Certificate at the beginning of any accrual period is the sum of the issue
price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code requires the present value of the
remaining payments to be determined on the bases of (a) the original yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period), (b) events,
including actual prepayments, which have occurred before the close of the
accrual period, and (c) the assumption that the remaining payments will be made
in accordance with the original Prepayment Assumption. The effect of this
method is to increase the portions of original issue discount that a Regular
Certificateholder must include in income to take into account prepayments with
respect to the Contracts held by the Trust Fund that occur at a rate that
exceeds the Prepayment Assumption and to decrease (but not below zero for any
period) the portions of original issue discount that a Regular
Certificateholder must include in income to take into account prepayments with
respect to the Contracts that occur at a rate that is slower than the
Prepayment Assumption. Although original issue discount will be reported to
Regular Certificateholders based on the Prepayment Assumption, no
representation is made to Regular Certificateholders that the Contracts will be
prepaid at that rate or at any other rate.
A subsequent purchaser of a Regular Certificate will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Regular Certificate, unless the price paid equals or exceeds the Regular
Certificate's outstanding principal amount. If the price paid exceeds the sum
of the Regular Certificate's issue price plus the aggregate amount of original
issue discount accrued with respect to the Regular Certificate, but does not
equal or exceed the outstanding principal amount of the Regular Certificate,
the amount of original issue discount to be accrued will be reduced in
accordance with a formula set forth in Section 1272(a)(7)(B) of the Code.
The Company believes that the holder of a Regular Certificate determined to
be issued with non-de minimis original issue discount will be required to
include the original issue discount in ordinary gross income for federal income
tax purposes computed in the manner described above. However, the OID
Regulations either do not address or are subject to varying interpretations
with respect to several issues concerning the computation of original issue
discount for obligations such as the Regular Certificates.
Variable Rate Regular Certificates. Regular Certificates may bear interest
at a variable rate. Under the OID Regulations, if a variable rate Regular
Certificate provides for qualified stated interest payments computed on the
basis of certain qualified floating rates or objective rates, then any original
issue discount on such a Regular Certificate is computed and accrued under the
same methodology that applies to Regular Certificates paying qualified stated
interest at a fixed rate. See the discussion above under "REMIC Series--
Original Issue Discount." Accordingly, if the issue price of such a Regular
Certificate is equal to its stated redemption price at maturity, the Regular
Certificate will not have any original issue discount.
For purposes of applying the original issue discount provisions of the Code,
all or a portion of the interest payable with respect to a variable rate
Regular Certificate may not be treated as qualified stated interest in certain
circumstances, including the following: (i) if the variable rate of interest is
subject to one or more minimum or maximum rate floors or ceilings which are not
fixed throughout the term of the Regular Certificate and which are reasonably
expected as of the issue date to cause the rate in certain accrual periods to
be significantly higher or lower than the overall expected return on the
Regular Certificate determined without such floor or ceiling; (ii) if it is
reasonably expected that the average value of the variable rate during the
first
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half of the term of the Regular Certificate will be either significantly less
than or significantly greater than the average value of the rate during the
final half of the term of the Regular Certificate; or (iii) if interest is not
payable in all circumstances. In these situations, as well as others, it is
unclear under the OID Regulations whether such interest payments constitute
qualified stated interest payments, or must be treated either as part of a
Regular Certificate's stated redemption price at maturity resulting in original
issue discount, or represent contingent payments which are recognized as
ordinary gross income for federal income tax purposes only as the interest
payments become fixed in each accrual period.
If a variable rate Regular Certificate is deemed to have been issued with
original issue discount, as described above, the amount of original issue
discount accrues on a daily basis under a constant yield method that takes into
account the compounding of interest; provided, however, that the interest
associated with such a Regular Certificate generally is assumed to remain
constant throughout the term of the Regular Certificate at a rate that, in the
case of a qualified floating rate, equals the value of such qualified floating
rate as of the issue date of the Regular Certificate, or, in the case of an
objective rate, at a fixed rate that reflects the yield that is reasonably
expected for the Regular Certificate. A holder of such a Regular Certificate
would then recognize original issue discount during each accrual period which
is calculated based upon such Regular Certificate's assumed yield to maturity,
adjusted to reflect the difference between the assumed and actual interest
rate.
The OID Regulations either do not address or are subject to varying
interpretations with respect to several issues concerning the computation of
original issue discount with respect to the Regular Certificates, including
variable rate Regular Certificates. Additional information regarding the manner
of reporting original issue discount to the Service and to holders of variable
rate Regular Certificates will be set forth in the Prospectus Supplement
relating to the issuance of such Regular Certificates.
Market Discount. Regular Certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the Code. A
purchaser of a Regular Certificate who purchases the Regular Certificate at a
market discount (i.e., a discount from its original issue price plus any
accrued original issue discount, if any, as described above) will be required
to recognize accrued market discount as ordinary income as payments of
principal are received on such Regular Certificate or upon the sale or exchange
of the Regular Certificate. In general, the holder of a Regular Certificate may
elect to treat market discount as accruing either (i) under a constant yield
method that is similar to the method for the accrual of original issue discount
or (ii) in proportion to accruals of original issue discount (or, if there is
no original issue discount, in proportion to accruals of stated interest), in
each case computed taking into account the Prepayment Assumption.
The Code provides that the market discount in respect of a Regular
Certificate will be considered to be zero if the amount allocable to the
Regular Certificate is less than 0.25% of the Regular Certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would be
allocated among a portion of each scheduled distribution representing the
stated redemption price of such Regular Certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The Code further provides that any principal payment with respect to a
Regular Certificate acquired with market discount or any gain on disposition of
such a Regular Certificate shall be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of such payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
Regular Certificate is to be reduced by the amount previously treated as
ordinary income.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as the Regular Certificates. Until such time as regulations are issued,
rules described in the legislative history for these provisions of the Code
will apply. Under those rules, as described above, the holder of a Regular
Certificate with market discount may elect to accrue market
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discount either on the basis of a constant interest rate or according to
certain other methods. Certificateholders who acquire a Regular Certificate at
a market discount should consult their tax advisors concerning various methods
which are available for accruing that market discount.
In general, limitations imposed by the Code that are intended to match
deductions with the taxation of income may require a holder of a Regular
Certificate having market discount to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry such Regular Certificate. Alternatively, a holder of a Regular
Certificate may elect to include market discount in gross income as it accrues
and, if he or she makes such an election, is exempt from this rule. Any such
election made with respect to a Regular Certificate issued with market discount
will apply to all Regular Certificates acquired by the holder on or after the
first day of the first taxable year to which such election applies and may be
revoked only with the consent of the Service. The adjusted basis of a Regular
Certificate subject to such election will be increased to reflect market
discount included in gross income, thereby reducing any gain or increasing any
loss on a sale or taxable disposition.
Amortizable Premium. A holder of a Regular Certificate who holds the Regular
Certificate as a capital asset and who purchased the Regular Certificate at a
cost greater than its outstanding principal amount will be considered to have
purchased the Regular Certificate at a premium. In general, the Regular
Certificateholder may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A Regular Certificateholder's tax basis
in the Regular Certificate will be reduced by the amount of the amortizable
bond premium deducted. In addition, it appears that the same methods which
apply to the accrual of market discount on installment obligations are intended
to apply in computing the amortizable bond premium deduction with respect to a
Regular Certificate. It is not clear, however, (i) whether the alternatives to
the constant-yield method which may be available for the accrual of market
discount are available for amortizing premium on Regular Certificates and (ii)
whether the Prepayment Assumption should be taken into account in determining
the term of a Regular Certificate for this purpose. Certificateholders who pay
a premium for a Regular Certificate should consult their tax advisors
concerning such an election and rules for determining the method for amortizing
bond premium.
Gain or Loss on Disposition. If a Regular Certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
from the sale and the seller's adjusted basis in such Regular Certificate. The
adjusted basis generally will equal the cost of such Regular Certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income with respect to such Regular Certificate and reduced (but
not below zero) by any payments on the Regular Certificate previously received
or accrued by the seller (other than qualified stated interest payments) and
any amortizable premium. Similarly, a Regular Certificateholder who receives a
principal payment with respect to a Regular Certificate will recognize gain or
loss equal to the difference between the amount of the payment and the holder's
allocable portion of his or her adjusted basis in the Regular Certificate.
Except as discussed below or with respect to market discount, any gain or loss
recognized upon a sale, exchange, retirement, or other disposition of a Regular
Certificate will be capital gain if the Regular Certificate is held as a
capital asset.
Any capital gain recognized upon a sale, exchange or other disposition of a
Regular Certificate will be long-term capital gain if the seller's holding
period is more than one year and will be short-term capital gain if the
seller's holding period is one year or less. The deductibility of capital
losses is subject to certain limitations.
Gain from the disposition of a Regular Certificate that might otherwise be
capital gain, including any gain attributable to de minimis original issue
discount, will be treated as ordinary income to the extent of the excess, if
any, of (i) the amount that would have been includable in the holder's income
if the yield on such Regular Certificate had equaled 110% of the applicable
federal rate determined as of the beginning of such holder's holding period,
over (ii) the amount of ordinary income actually recognized by the holder with
respect to such Regular Certificate.
If the Company is determined to have intended on the date of issue of the
Regular Certificates to call all or any portion of the Regular Certificates
prior to their stated maturity within the meaning of Section 1271(a)(2)(A) of
the Code, any gain realized upon a sale, exchange, retirement, or other
disposition of a
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Regular Certificate would be considered ordinary income to the extent it does
not exceed the unrecognized portion of the original issue discount, if any,
with respect to the Regular Certificate. The OID Regulations provide that the
intention to call rule will not be applied to mortgage-backed securities such
as the Regular Certificates. In addition, under the OID Regulations, a
mandatory sinking fund or call option is not evidence of an intention to call.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be includable as ordinary income or
loss in determining the taxable income of holders of Residual Certificates
("Residual Holders"), and will not be taxed separately to the REMIC. The daily
portions are determined by allocating the REMIC's taxable income or net loss
for each calendar quarter ratably to each day in such quarter and by allocating
such daily portion among the Residual Holders in proportion to their respective
holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. REMIC taxable
income generally means a REMIC's gross income, including interest, original
issue discount income, and market discount income, if any, on the Contracts,
plus income on reinvestment of cash flows and reserve assets, minus deductions,
including interest and original issue discount expense on the Regular
Certificates, servicing fees on the Contracts, other administrative expenses of
a REMIC, and amortization of premium, if any, with respect to the Contracts.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
interest, original issue discount or market discount income, or amortization of
premium with respect to the Contracts, on the one hand, and the timing of
deductions for interest (including original issue discount) on the Regular
Certificates, on the other hand. In the event that an interest in the Contracts
is acquired by a REMIC at a discount, and one or more of such Contracts is
prepaid, the Residual Holder may recognize taxable income without being
entitled to receive a corresponding cash distribution because (i) the
prepayment may be used in whole or in part to make distributions on Regular
Certificates, and (ii) the discount on the Contracts which is includable in a
REMIC's income may exceed its deduction with respect to the distributions on
those Regular Certificates. When there is more than one class of Regular
Certificates that receive payments sequentially (i.e., a fast-pay, slow-pay
structure), this mismatching of income and deductions is particularly likely to
occur in the early years following issuance of the Regular Certificates, when
distributions are being made in respect of earlier classes of Regular
Certificates to the extent that such classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
general, losses would be allowed in later years as distributions on the later
classes of Regular Certificates are made. Taxable income may also be greater in
earlier years than in later years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of
Regular Certificates, may increase over time as distributions are made on the
lower yielding classes of Regular Certificates, whereas interest income with
respect to any given Contract will remain constant over time as a percentage of
the outstanding principal amount of that loan (assuming it bears interest at a
fixed rate). Consequently, Residual Holders must have sufficient other sources
of cash to pay any federal, state, or local income taxes due as a result of
such mismatching, or such holders must have unrelated deductions against which
to offset such income, subject to the discussion of "excess inclusions" below
under "REMIC Series--Limitations on Offset or Exemption of REMIC Income." The
mismatching of income and deductions 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
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adjusted basis of a purchaser of a Residual Certificate is the amount paid for
such Residual Certificate. Such adjusted basis will be increased by the amount
of taxable income of the REMIC reportable by the Residual Holder and decreased
by the amount of loss of the REMIC reportable by the Residual Holder. A cash
distribution from the REMIC also will reduce such adjusted basis (but not below
zero). Any loss that is disallowed on account of this limitation may be carried
over indefinitely by the Residual Holder for whom such loss was disallowed and
may be used by such Residual Holder only to offset any income generated by the
same REMIC.
If a Residual Certificate has a negative value, it is not clear whether its
issue price would be considered to be zero or such negative amount for purposes
of determining the REMIC's basis in its assets. The REMIC Regulations imply
that residual interests cannot have a negative basis or a negative issue price.
However, the preamble to the REMIC Regulations indicates that, while existing
tax rules do not accommodate such concepts, the Service is considering the tax
treatment of these types of residual interests, including the proper tax
treatment of a payment made by the transferor of such a residual interest to
induce the transferee to acquire that interest. Absent regulations or
administrative guidance to the contrary, the Company does not intend to treat a
class of Residual Certificates as having a value of less than zero for purposes
of determining the basis of the related REMIC in its assets.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC's basis in the Contracts, the Residual
Holder will not recover a portion of such basis until termination of the REMIC
unless Treasury Regulations yet to be issued provide for periodic adjustments
to the REMIC income otherwise reportable by such holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a REMIC's
deductions for original issue discount will be determined in the same manner as
original issue discount income on Regular Certificates as described above under
"REMIC Series--Original Issue Discount" and "--Variable Rate Regular
Certificates," without regard to the de minimis rule described therein.
The REMIC will have market discount income in respect of the Contracts if,
in general, the basis of the REMIC in such Contracts is exceeded by their
unpaid principal balances. The REMIC's basis in such Contracts is generally the
fair market value of the Contracts immediately after the transfer thereof to
the REMIC (which may equal a proportionate part of the aggregate fair market
value of the REMIC Certificates). In respect of the Contracts that have market
discount to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income. Market
discount income generally should accrue in the manner described above under
"REMIC Series--Market Discount."
Generally, if the basis of a REMIC in the Contracts exceeds the unpaid
principal balances thereof, the REMIC will be considered to have acquired such
Contracts at a premium equal to the amount of such excess. As stated above, the
REMIC's basis in the Contracts is the fair market value of the Contracts
immediately after the transfer thereof to the REMIC. Generally, a person that
holds a Contract as a capital asset may elect to amortize premium on the
Contracts under a constant interest method. See the discussion under "REMIC
Series--Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. If the aggregate value
of the Residual Certificates relative to the aggregate value of the Regular
Certificates and Residual Certificates is considered to be "significant," as
described below, then a portion (but not all) of the REMIC taxable income
includable in determining the federal income tax liability of a Residual Holder
will be subject to special treatment. That portion, referred to as the "excess
inclusion," is equal to the excess of REMIC taxable income for the calendar
quarter allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Section 1274(d) of the Code, multiplied by (ii) the
adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of
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a Residual Certificate at the beginning of a quarter is the issue price of the
Residual Certificate, plus the amount of such daily accruals of REMIC income
described in this paragraph for all prior quarters, decreased by any
distributions made with respect to such Residual Certificate prior to the
beginning of such quarterly period. The value of the Residual Certificates
would be considered significant in cases where the aggregate issue price of the
Residual Certificates is at least 2% of the aggregate issue price of the
Regular Certificates and Residual Certificates, and the anticipated weighted
average life of the Residual Certificates is at least 20% of the anticipated
weighted average life of the REMIC.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions on such
Residual Holder's tax return, including net operating loss carry forwards.
Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Section 511 of the Code, the Residual
Holder's excess inclusions will be treated as unrelated business taxable income
of such Residual Holder for purposes of Section 511. Finally, if a real estate
investment trust or regulated investment company owns a Residual Certificate, a
portion (allocated under Treasury Regulations yet to be issued) of dividends
paid by such real estate investment trust or regulated investment company could
not be offset by net operating losses of its shareholders, would constitute
unrelated business taxable income for tax-exempt shareholders, and would be
ineligible for reduction of withholding to certain persons who are not U.S.
persons.
The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant value"
within the meaning of the REMIC Regulations, effective for taxable years
beginning after December 31, 1995, except with respect to residual certificates
continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides three
rules for determining the effect of excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum taxable
income for such residual holder is determined without regard to the special
rule that taxable income cannot be less than excess inclusions. Second, a
residual holder's alternative minimum taxable income for a tax year cannot be
less than the excess inclusions for the year. Third, the amount of any
alternative minimum tax net operating loss deductions must be computed without
regard to any excess inclusions. These rules are effective for tax years
beginning after December 31, 1986, unless a residual holder elects to have such
rules apply only to tax years beginning after August 20, 1996.
Restrictions on Transfer of Residual Certificates. As described above under
"REMIC Series--Qualification as a REMIC," an interest in a Residual Certificate
may not be transferred to a Disqualified Organization. If any legal or
beneficial interest in a Residual Certificate is, nonetheless, transferred to a
Disqualified Organization, a tax would be imposed in an amount equal to the
product of (i) the present value of the total anticipated excess inclusions
with respect to such Residual Certificate for periods after the transfer, and
(ii) the highest marginal federal income tax rate applicable to corporations.
The anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the Prepayment
Assumption. The present value rate equals the applicable federal rate under
Section 1274(d) of the Code as of the date of the transfer for a term ending on
the close of the last quarter in which excess inclusions are expected to
accrue. Such rate is applied to the anticipated excess inclusions from the end
of the remaining calendar quarters in which they arise to the date of the
transfer. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee, or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit, under penalties of perjury, that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Treasury Department if the Disqualified Organization promptly
disposes of the residual interest and the transferor pays such amount of tax as
the Treasury Department may require (presumably, a corporate tax on the excess
inclusion for the period the residual interest is actually held by the
Disqualified Organization).
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In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
income tax rate imposed on corporations. Such tax would be deductible from the
ordinary gross income of the Pass-Through Entity for the taxable year. The
Pass-Through Entity would not be liable for such tax if it has received an
affidavit from such record holder that it is not a Disqualified Organization
and, during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false. For taxable years beginning after December 31 1997,
notwithstanding the preceding sentences, in the case of a REMIC Residual
Certificate held by an "electing large partnership," all interests in such
partnership shall be treated as held by disqualified organizations (without
regard to whether the recordholders of the partnership furnish statements
described in the preceding sentence) and the amount that is subject to tax is
excluded from the gross income of the partnership allocated to the partners (in
lieu of allocating to the partners a deduction for such tax paid by the
partnership).
For these purposes, a "Pass-Through Entity" means any regulated investment
company, real estate investment trust, common trust fund, partnership, trust or
estate and certain corporations operating on a cooperative basis. Except as may
be provided in Treasury Regulations, any person holding an interest in a Pass-
Through Entity as a nominee for another will, with respect to such interest, be
treated as a Pass-Through Entity.
Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus would
continue to be subject to tax on its allocable portion of the net income of the
REMIC. Under the REMIC Regulations, a transfer of a "noneconomic residual
interest" (as defined below) to a Residual Holder is disregarded for all
federal income tax purposes if a significant purpose of the transfer is to
enable the transferor to impede the assessment or collection of tax. A residual
interest in a REMIC (including a residual interest with a positive value at
issuance) is a "noneconomic residual interest" unless, at the time of transfer,
(i) the present value of the expected future distributions on the residual
interest at least equals the product of the present value of the anticipated
excess inclusions and the highest corporate income tax rate in effect for the
year in which the transfer occurs, and (ii) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. The anticipated excess inclusions and
the present value rate are determined in the same manner as set forth above.
The REMIC Regulations explain that a significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes due on its share of the taxable income of the
REMIC. A safe harbor is provided if (i) the transferor conducted, at the time
of the transfer, a reasonable investigation of the financial condition of the
transferee and found that the transferee historically had paid its debts as
they came due and found no significant evidence to indicate that the transferee
would not continue to pay its debts as they came due in the future, and (ii)
the transferee represents to the transferor that it understands that, as the
holder of a non-economic residual interest, the transferee may incur tax
liabilities in excess of any cash flows generated by the interest and that the
transferee intends to pay taxes associated with holding the residual interest
as they become due. The Pooling and Servicing Agreement with respect to each
series of REMIC Certificates will require the transferee of a Residual
Certificate to certify to the statements in clause (ii) of the preceding
sentence as part of the affidavit described above under "Restrictions on
Transfer of Residual Certificates."
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of a
Residual Certificate, the Residual Holder will recognize gain or loss equal to
the excess, if any, of the amount realized over the adjusted basis as described
above of such Residual Holder in such Residual Certificate at the time of the
sale or exchange. In addition to reporting the taxable income of the REMIC, a
Residual Holder will have taxable income to the extent that any cash
distribution to him from the REMIC exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It
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is possible that the termination of the REMIC may be treated as a sale or
exchange of a Residual Holder's Residual Certificate, in which case, if the
Residual Holder has an adjusted basis in his Residual Certificate remaining
when his interest in the REMIC terminates, and if he holds such Residual
Certificate as a capital asset, then he will recognize a capital loss at that
time in the amount of such remaining adjusted basis.
The Conference Committee Report to the Tax Reform Act of 1986 provides that,
except as provided in Treasury Regulations, the wash sale rules of Code Section
1091 will apply to dispositions of Residual Certificates where the seller of
the Residual Certificate, during the period beginning six months before the
sale or disposition of the Residual Certificate and ending six months after
such sale or disposition, acquires (or enters into any other transaction that
results in the application of Code Section 1091) any residual interest in any
REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC owner
trust) that is economically comparable to a Residual Certificate.
Mark-to-Market of Residual Certificates. Prospective purchasers of a
Residual Certificate should be aware that the Service recently released final
regulations (the "Mark-to-Market Regulations") which provide that a Residual
Certificate acquired after January 3, 1995 cannot be marked-to-market. The
Mark-to-Market Regulations changed the temporary regulations which allowed a
Residual Certificate to be marked-to-market provided that it was not a
"negative value" residual interest and did not have the same economic effect as
a "negative value" residual interest.
Certain Other Taxes on the REMIC. The REMIC provisions of the Code impose a
100% tax on any net income derived by a REMIC from certain prohibited
transactions. Such transactions are: (i) any disposition of a qualified
mortgage, other than pursuant to the substitution of a qualified replacement
mortgage for a qualified mortgage (or the repurchase in lieu of substitution of
a defective obligation), a disposition incident to the foreclosure, default, or
imminent default of a mortgage, the bankruptcy or insolvency of the REMIC, or a
qualified liquidation of the REMIC; (ii) the receipt of income from assets
other than qualified mortgages and permitted investments; (iii) the receipt of
compensation for services; and (iv) the receipt of gain from the dispositions
of cash flow investments. The REMIC Regulations provide that the modification
of the terms of a Contract occasioned by default or a reasonably foreseeable
default of the Contract, the assumption of the Contract, the waiver of a due-
on-sale clause or the conversion of an interest rate by an Obligor pursuant to
the terms of a convertible adjustable-rate Contract will not be treated as a
disposition of the Contract. In the event that a REMIC holds Convertible ARM
Loans which are convertible at the option of the Obligor into fixed-rate, fully
amortizing, level payment Contracts, a sale of such Contracts by the REMIC
pursuant to a purchase agreement or other contract with the Company or other
party, if and when the Obligor elects to so convert the terms of the Contract,
is not expected to result in a prohibited transaction for the REMIC. The Code
also imposes a 100% tax on contributions to a REMIC made after the Startup Day,
unless such contributions are payments made to facilitate a cleanup call or a
qualified liquidation of the REMIC, payments in the nature of a guaranty,
contributions during the three-month period beginning on the Startup Day or
contributions to a qualified reserve fund of the REMIC by a holder of a
residual interest in the REMIC. The Code also imposes a tax on a REMIC at the
highest corporate rate on certain net income from foreclosure property that the
REMIC derives from the management, sale, or disposition of any real property,
or any personal property incident thereto, acquired by the REMIC in connection
with the default or imminent default of a loan. Generally, it is not
anticipated that a REMIC will generate a significant amount of such income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a "qualified liquidation." A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation (which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur) and sells all of its assets (other than cash)
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of Regular or Residual
Certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation (including all cash), less amounts retained
to meet claims.
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Taxation of Certain Foreign Investors. For purposes of this discussion, a
"Foreign Holder" is a Certificateholder who holds a Regular Certificate and who
is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity organized in or under the laws of the United
States or a political subdivision thereof (except, in the case of a
partnership, to the extent provided in regulations), (iii) an estate the income
of which is includible in gross income for United States tax purposes
regardless of its source or (iv) a trust if (A) a court within the United
States is able to exercise primary supervision over administration of the trust
and (B) one or more United States persons have authority to control all
substantial decisions of the trust. To the extent prescribed in regulations by
the Secretary of the Treasury, which regulations have not yet been issued, a
trust which was in existence on August 20, 1996 (other than a trust treated as
owned by the grantor under Subpart E of Part I of Subchapter J of Chapter 1 of
the Code), and which was treated as a United States person on August 19, 1996,
may elect to continue to be treated as a United States person notwithstanding
the previous sentence. Unless the interest on a Regular Certificate is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States, the Foreign Holder is not subject to federal
income or withholding tax on interest (or original issue discount, if any) on a
Regular Certificate (subject to possible backup withholding of tax, discussed
below), provided the Foreign Holder is not a controlled foreign corporation
related to the Company and does not own actually or constructively 10% or more
of the voting stock of the Company. To qualify for this tax exemption, the
Foreign Holder will be required to provide periodically a statement signed
under penalties of perjury certifying that the Foreign Holder meets the
requirements for treatment as a Foreign Holder and providing the Foreign
Holder's name and address. The statement, which may be made on a Form W-8 or
substantially similar substitute form, generally must be provided in the year a
payment occurs or in either of the two preceding years. The statement must be
provided, either directly or through clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax.
This exemption may not apply to a Foreign Holder that owns both Regular
Certificates and Residual Certificates. If the interest on a Regular
Certificate is effectively connected with the conduct by a Foreign Holder of a
trade or business within the United States, then the Foreign Holder will be
subject to tax at regular graduated rates. Foreign Holders should consult their
own tax advisors regarding the specific tax consequences of their owning a
Regular Certificate.
Any gain recognized by a Foreign Holder upon a sale, retirement or other
taxable disposition of a Regular Certificate generally will not be subject to
United States federal income tax unless either (i) the Foreign Holder is a
nonresident alien individual who holds the Regular Certificate as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition and either the gain is attributable to an
office or other fixed place of business maintained in the U.S. by the
individual or the individual has a "tax home" in the United States, or (ii) the
gain is effectively connected with the conduct by the Foreign Holder of a trade
or business within the United States.
A Regular Certificate will not be includible in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company.
Backup Withholding. Under certain circumstances, a REMIC Certificateholder
may be subject to "backup withholding" at a 31% rate. Backup withholding may
apply to a REMIC Certificateholder who is a United States person if the holder,
among other circumstances, fails to furnish his Social Security number or other
taxpayer identification number to the Trustee. Backup withholding may apply,
under certain circumstances, to a REMIC Certificateholder who is a foreign
person if the REMIC Certificateholder fails to provide the Trustee or the REMIC
Certificateholder's securities broker with the statement necessary to establish
the exemption from federal income and withholding tax on interest on the REMIC
Certificate. Backup withholding, however, does not apply to payments on a
Certificate made to certain exempt recipients, such as corporations and tax-
exempt organizations, and to certain foreign persons. REMIC Certificateholders
should consult their tax advisors for additional information concerning the
potential application of backup withholding to payments received by them with
respect to a Certificate.
On October 6, 1997, the Treasury Department issued new regulations which
make certain modifications to the withholding, backup withholding and
information reporting rules described above. The new regulations attempt to
unify certification requirements and modify reliance standards, and will
generally be effective for
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payments made after December 31, 1999, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding the
new regulations.
Reporting Requirements and Tax Administration. The Company will report
annually to the Service, holders of record of the Regular Certificates that are
not excepted from the reporting requirements and, to the extent required by the
Code, other interested parties, information with respect to the interest paid
or accrued on the Regular Certificates, original issue discount, if any,
accruing on the Regular Certificates and information necessary to compute the
accrual of any market discount or the amortization of any premium on the
Regular Certificates.
The Treasury Department has issued final regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMICs "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, the Company will be designated
as tax matters person for each REMIC, and in conjunction with the Trustee will
act as the agent of the Residual Certificateholders in the preparation and
filing of the REMIC's federal and state income tax and other information
returns.
Non-REMIC Series
Tax Status of the Trust Fund. In the case of a Trust Fund evidenced by a
series or sub-series of Certificates, or a segregated portion thereof, with
respect to which a REMIC Election is not made ("Non-REMIC Certificates"),
Counsel will have advised the Company that, in their opinion, each Contract
Pool and the arrangement to be administered by the Company under which the
Trustee will hold and the Company will be obligated to service the Contracts
and pursuant to which Non-REMIC Certificates will be issued to Non-REMIC
Certificateholders will not be classified as an association taxable as a
corporation or a "taxable mortgage pool, within the meaning of Code Section
7701(i), but rather will be classified as a grantor trust under Subpart E, Part
I of Subchapter J of Chapter 1 of the Code. Each Non-REMIC Certificateholder
will be treated as the owner of a pro rata undivided interest in the ordinary
income and corpus portions of the trust attributable to the Contract Pool in
which its Certificate evidences an ownership interest and will be considered
the equitable owner of a pro rata undivided interest in each of the Contracts
included therein.
Tax Status of Non-REMIC Certificates. In general; (i) Certificates held by a
"domestic building and loan association" within the meaning of Section
7701(a)(19) of the Code may be considered to represent "qualifying real
property loans" within the meaning of Section 7701(a)(19)(C)(v) of the Code;
and (ii) Certificates held by a real estate investment trust may constitute
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code and
interest thereon may be considered "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code. See the discussions of such Code provisions above under "REMIC Series Tax
Status of REMIC Certificates." Investors should review the related Prospectus
Supplement for a discussion of the treatment of Non-REMIC Certificates and
Contracts under these Code sections and should, in addition, consult with their
own tax advisors with respect to these matters.
Tax Treatment of Non-REMIC Certificates. Non-REMIC Certificateholders will
be required to report on their federal income tax returns, and in a manner
consistent with their respective methods of accounting, their pro rata share of
the entire income arising from the Contracts comprising such Contract Pool,
including interest, original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by the Company, and any gain
upon disposition of such Contracts. (For purposes of this discussion, the term
"disposition," when used with respect to the Contracts, includes scheduled or
prepaid collections with respect to the Contracts, as well as the sale or
exchange of a Non-REMIC Certificate.) Non-REMIC Certificateholders will be
entitled under Section 162 or 212 of the Code to deduct their pro rata share of
related servicing fees, administrative and other non-interest expenses,
including assumption fees and late payment charges retained by
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the Company. An individual, an estate, or a trust that holds a Non-REMIC
Certificate either directly or through a pass-through entity will be allowed to
deduct such expenses under Section 212 of the Code only to the extent that, in
the aggregate and combined with certain other itemized deductions, they exceed
2% of the adjusted gross income of the holder. In addition, Section 68 of the
Code provides that the amount of itemized deductions (including those provided
for in Section 212 of the Code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the Code ($124,500 in 1998 in the case of a joint return) will be reduced by
the lesser of (i) 3% of the excess of adjusted gross income over the specified
threshold amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. 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 Contracts to the extent permitted under the
Code.
Under current Service interpretations of applicable Treasury Regulations the
Company would be able to sell or otherwise dispose of any subordinated Non-
REMIC Certificates. Accordingly, the Company expects to offer subordinated Non-
REMIC Certificates for sale to investors. In general, such subordination should
not affect the federal income tax treatment of either the subordinated or
senior Certificates. Holders of subordinated classes of Certificates should be
able to recognize any losses allocated to such class when and if losses are
realized.
To the extent that any of the Contracts comprising a Contract Pool were
originated on or after March 2, 1984 and under circumstances giving rise to
original issue discount, Certificateholders will be required to report annually
an amount of additional interest income attributable to such discount in such
Contracts prior to receipt of cash related to such discount. To the extent that
the Non-REMIC Certificates represent an interest in any pool of debt
instruments the yield on which may be affected by reason of prepayments, for
taxable years beginning after August 5, 1997, a prepayment assumption must be
used with respect to the Contracts comprising the Contract Pool in computing
the accrual of any original issue discount, market discount or amortizable
premiums. See the discussion above under "REMIC Series--Original Issue
Discount." Similarly, Code provisions concerning market discount and
amortizable premium will apply to the Contracts comprising a Contract Pool to
the extent that the loans were originated after July 18, 1984 and September 27,
1985, respectively. See the discussions above under "REMIC Series--Market
Discount" and "REMIC Series--Amortizable Premium." It is unclear whether a
prepayment assumption would be applicable in accruing or amortizing any such
original issue or market discount or premium with respect to Non-REMIC
Certificates that do not represent an interest in any pool of debt instruments
the yield on which may be affected by reason of prepayments, or for taxable
years beginning prior to August 5, 1997.
Stripped Non-REMIC Certificates. Certain classes of Non-REMIC Certificates
may be subject to the stripped bond rules of Section 1286 of the Code and for
purposes of this discussion will be referred to as "Stripped Certificates." In
general, a Stripped Certificate will be subject to the stripped bond rules
where there has been a separation of ownership of the right to receive some or
all of the principal payments on a Contract from ownership of the right to
receive some or all of the related interest payments. Non-REMIC Certificates
will constitute Stripped Certificates and will be subject to these rules under
various circumstances, including the following: (i) if any servicing
compensation is deemed to exceed a reasonable amount; (ii) if the Company or
any other party retains a Retained Yield with respect to the Contracts
comprising a Contract Pool; (iii) if two or more classes of Non-REMIC
Certificates are issued representing the right to non-pro rata percentages of
the interest or principal payments on the Contracts; or (iv) if Non-REMIC
Certificates are issued which represent the right to interest only payments or
principal only payments.
Although not entirely clear, each Stripped Certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes
of calculating any original issue discount. Original issue discount with
respect to a Stripped Certificate, if any, must be included in ordinary gross
income for federal income tax purposes as it accrues in accordance with the
constant-yield method that takes into account
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the compounding of interest and such accrual of income may be in advance of the
receipt of any cash attributable to such income. See "REMIC Series--Original
Issue Discount" above. For purposes of applying the original issue discount
provisions of the Code, the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof and the stated redemption price at
maturity may include the aggregate amount of all payments to be made with
respect to the Stripped Certificate whether or not denominated as interest. The
amount of original issue discount with respect to a Stripped Certificate may be
treated as zero under the original issue discount de minimis rules described
above. A purchaser of a Stripped Certificate will be required to account for
any discount on the certificate as market discount rather than original issue
discount if either (i) the amount of original issue discount with respect to
the certificate was treated as zero under the original issue discount de
minimis rule when the certificate was stripped or (ii) no more than 100 basis
points (including any amount of servicing in excess of reasonable servicing) is
stripped off of the Contracts. See "REMIC Series--Market Discount" above.
To the extent the Stripped Certificates represent an interest in any pool of
debt instrument the yield on which may by affected by reason of prepayments,
for taxable years beginning after August 5, 1997, a prepayment assumption must
be used in computing yield on the underlying assets of a Trust Fund with
respect to which a REMIC election is not made. It is unclear whether a
prepayment assumption would be applicable to the Stripped Certificates that do
not represent an interest in any such pool or for taxable years beginning prior
to August 5, 1997. The Code appears to require that such a prepayment
assumption be used in computing yield with respect to Stripped Certificates
that do not represent an interest in a pool of debt instruments the yield on
which may be affected by reason of prepayments or for taxable years beginning
prior to August 5, 1997. In the absence of authority to the contrary, the
Company intends to base information reports and returns to the Service 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 Service may take a contrary position with respect to
some or all of the foregoing tax consequences. For example, a holder of a
Stripped Certificate may be treated as the owner of (i) as many stripped bonds
or stripped coupons as there are scheduled payments of principal and/or
interest on each Contract or (ii) a separate installment obligation for each
Contract representing the Stripped Certificate's pro rata share of principal
and/or interest payments to be made with respect thereto. As a result of these
possible alternative characterizations, investors should consult their own tax
advisors regarding the proper treatment of Stripped Certificates for federal
income tax purposes.
Gain or Loss on Disposition. Upon sale or exchange of a Non-REMIC
Certificate, a Non-REMIC Certificateholder will recognize gain or loss equal to
the difference between the amount realized in the sale and its aggregate
adjusted basis in the Contracts represented by the Non-REMIC Certificate.
Generally, the aggregate adjusted basis will equal the Non-REMIC
Certificateholder's cost for the Non-REMIC Certificate increased by the amount
of any previously reported gain with respect to the Non-REMIC Certificate and
decreased by the amount of any losses previously reported with respect to the
Non-REMIC Certificate and the amount of any distributions received thereon.
Except as provided above with respect to the original issue discount and market
discount rules, any such gain or loss would be capital gain or loss if the Non-
REMIC Certificate was held as a capital asset.
Recharacterization of Servicing Fees. The servicing compensation to be
received by the Company may be questioned by the Service with respect to
certain Certificates or Contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of such servicing
compensation could be recharacterized as an ownership interest retained by the
Company or other party in a portion of the interest payments to be made
pursuant to the Contracts. In this event, a Certificate might be treated as a
Stripped
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Certificate subject to the stripped bond rules of Section 1286 of the Code and
the original issue discount provisions rather than to the market discount and
premium rules. See the discussion above under "Non-REMIC Series--Stripped Non-
REMIC Certificates."
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a Non-REMIC
Certificateholder who is a Foreign Holder (as defined in "REMIC Series--
Taxation of Certain Foreign Investors") will be treated as "portfolio interest"
and therefore will be exempt from the 30% withholding tax. Such Non-REMIC
Certificateholder will be entitled to receive interest payments and original
issue discount on the Non-REMIC Certificates free of United States federal
income tax, but only to the extent the Contracts were originated after July 18,
1984 and provided that such Non-REMIC Certificateholder periodically provides
the Trustee (or other person who would otherwise be required to withhold tax)
with a statement certifying under penalty of perjury that such Non-REMIC
Certificateholder is not a United States person and providing the name and
address of such Non-REMIC Certificateholder. For additional information
concerning interest or original issue discount paid by the Company to a Foreign
Holder and the treatment of a sale or exchange of a Non-REMIC Certificate by a
Foreign Holder, which will generally have the same tax consequences as the sale
of a Regular Certificate, see the discussion above under "REMIC Series--
Taxation of Certain Foreign Investors".
Tax Administration and Reporting. The Company will furnish to each Non-REMIC
Certificateholder with each distribution a statement setting forth the amount
of such distribution allocable to principal and to interest. In addition, the
Company will furnish, within a reasonable time after the end of each calendar
year, to each Non-REMIC Certificateholder who was a Certificateholder at any
time during such year, information regarding the amount of servicing
compensation received by the Company and any sub-servicer and such other
customary factual information as the Company deems necessary or desirable to
enable Certificateholders to prepare their tax returns. Reports will be made
annually to the Service and to holders of record that are not excepted from the
reporting requirements regarding information as may be required with respect to
interest and original issue discount, if any, with respect to the Non-REMIC
Certificates.
Other Tax Consequences
No advice has been received as to local income, franchise, personal
property, or other taxation in any state or locality, or as to the tax effect
of ownership of Certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of Certificates.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
Certificates offered hereby that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") and, as such, will
be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, life insurance companies and pension funds) created pursuant to
or existing under the laws of the United States or of any state whose
authorized investments are subject to state regulation to the same extent as,
under applicable law, obligations issued by or guaranteed as to principal and
interest by the United States or any such entities. Under SMMEA, certain states
have created legislation specifically limiting the legal investment authority
of any such entities with respect to "mortgage related securities," in which
case the Certificates will constitute legal investments for entities subject to
such legislation only to the extent provided therein. SMMEA provides, however,
that in no event will the enactment of any such legislation affect the validity
of any contractual commitment to purchase, hold or invest in Certificates, or
require the sale or other disposition of Certificates, so long as such
contractual commitment was made or such Certificates were acquired prior to the
enactment of such legislation.
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SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. (S)24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Some Classes of Certificates offered hereby may not be rated in one of the
two highest rating categories and thus would not constitute "mortgage related
securities" for purposes of SMMEA.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from holding securities representing residual interests, including
securities previously purchased. There may be other restrictions on the ability
of certain investors, including depository institutions, either to purchase
Certificates or to purchase Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Certificates constitute
legal investments for such investors.
RATINGS
It is a condition precedent to the issuance of any Class of Certificates
sold under this Prospectus that they be rated by at least one nationally
recognized statistical rating organization in one of its four highest rating
categories (within which there may be sub-categories or gradations indicating
relative standing). A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. The security rating of any Series of Certificates
should be evaluated independently of similar security ratings assigned to other
kinds of securities.
UNDERWRITING
The Company may sell Certificates of each Series to or through underwriters
(the "Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters, and also may sell and place Certificates
directly to other purchasers or through agents. The Company intends that
Certificates will be offered through such various methods from time to time and
that offerings may be made concurrently through more than one of these methods
or that an offering of a particular Series of Certificates may be made through
a combination of such methods.
The distribution of the Certificates may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Company or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the Underwriter or
Underwriters at a price specified in such Prospectus Supplement. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
Underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may
be restricted in the manner specified in such Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale,
at negotiated prices or at fixed prices.
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In connection with the sale of the Certificates, Underwriters may receive
compensation from the Company or from purchasers of Certificates for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the Certificates of a Series to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the Certificates of a Series may be deemed to be
Underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of the Certificates by them may be deemed
to be underwriting discounts and commissions, under the Act. Any such
Underwriters or agents will be identified, and any such compensation received
from the Company will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Company will authorize
Underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase the Certificates from the Company pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational
charitable institutions and others, but in all cases such institutions must be
approved by the Company. The obligation of any purchaser under any such
contract will be subject to the condition that the purchaser of the offered
Certificates shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject from purchasing such
Certificates. The Underwriters and such other agents will not have
responsibility in respect of the validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and
there is no assurance that any such market, if established, will continue.
Certain of the Underwriters and their associates may engage in transactions
with and perform services for the Company in the ordinary course of business.
LEGAL MATTERS
The legality and material federal income tax consequences of the
Certificates will be passed upon for the Company by the counsel to the Company
identified in the applicable Prospectus Supplement.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1998
and for the year ended December 31 1998, incorporated by reference herein 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 the Company as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997
incorporated by reference herein have been audited by KPMG Peat Marwick LLP,
independent accountants, as stated in their report given upon their authority
as experts in accounting and auditing.
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GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and the Prospectus Supplement. The Agreement may contain a more
complete definition of certain of the terms defined herein and reference should
be made to the Agreement for a more complete definition of all such terms.
"Accrual Remittance Amount" means, with respect to the Compound Interest
Certificates of a Series of Certificates providing for sequential distributions
in reduction of the Stated Balance of the Classes of such Series, as of any
Remittance Date, the amount of interest, calculated at the Interest Rate, which
has accrued on such Compound Interest Certificates from the prior Remittance
Date.
"Adjustable Rate Certificates" means Certificates which evidence the right
to receive distributions of income at a variable Remittance Rate.
"Advances" means the advances made by a Servicer (including from advances
made by a Sub-servicer) on any Remittance Date pursuant to an Agreement.
"Agreement" means each Pooling and Servicing Agreement by and among the
Company, the Trustee and any other party specified in the related Prospectus
Supplement.
"Asset Value" means the Asset Value of the Contracts included in a Trust
Fund, determined in the manner set forth in the related Agreement.
"Amount Available" means, with respect to each Series of Certificates,
certain amounts on deposit in the Certificate Account on a Determination Date.
"Available Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement, as of any Remittance Date, the
excess, if any, of the then applicable Maximum Subordination Amount over the
Cumulative Subordination Payments as of the preceding Remittance Date.
"Certificate Account" means the account maintained by the Servicer or the
Trustee, as specified in the related Prospectus Supplement.
"Certificate Distribution Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
evidencing an interest in a Contract Pool, the amount of interest (calculated
as specified in such Prospectus Supplement) and the amount of Principal
(calculated as specified in such Prospectus Supplement) to be distributed to
Certificateholders on each Remittance Date.
"Certificate Remittance Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of
the Classes of such Series, as of any Remittance Date, the amount, if any, by
which the then outstanding Stated Balance of the Classes of Certificates of
such Series (before taking into account the amount of interest accrued on any
Class of Compound Interest Certificates to be added to the Stated Balance
thereof on such Remittance Date) exceeds the Asset Value (as defined in the
related Prospectus Supplement) of the Contracts included in the Trust Fund for
such Series as of the end of the related Due Period.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
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"Company" means Green Tree Financial Corporation.
"Compound Interest Certificates" means Certificates on which interest may
accrue but not be paid for the period described in the related Prospectus
Supplement.
"Contract Pool" means, with respect to each Series of Certificates, the
pool of manufactured housing conditional sales contracts and installment loan
agreements transferred by the Company to the Trustee.
"Contract Rate" means, with respect to each Contract, the interest rate
specified in the Contract.
"Contracts" means manufactured housing installment sales contracts and
installment loan agreements, including any and all rights to receive payments
due thereunder on and after the Cut-off Date and security interests in
Manufactured Homes purchased with the proceeds of such contracts.
"Cumulative Subordination Payments" means, with respect to a Series of
Certificates having a class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement as of any Remittance Date, the
cumulative amount equal to (i) the total of all amounts distributed to the
Senior Certificateholders, exclusive of Advances made by the Servicer and the
Initial Deposit to the Reserve Fund, up to and including such Remittance Date
minus (ii) the Senior Percentage times the Available Distribution Amount for
all Remittance Dates up to and including such Remittance Date.
"Cut-off Date" means the date specified in the related Prospectus
Supplement as the date from which principal and interest payments on the
Contracts are included in the Trust Fund.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the third Business Day immediately preceding the
related Remittance Date.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period from and including
the 15th day of the second month preceding the Remittance Date, to and
including the 14th day of the month immediately preceding the Remittance Date.
"Eligible Investments" means one or more of the investments specified in
the Agreement in which moneys in the Certificate Account and certain other
accounts are permitted to be invested.
"Excess Interest or Excess Interest Rate" means, with respect to any
Contract, the per annum percentage of the principal balance from time to time
outstanding, which may be retained by a seller, the Company or the Servicer or
allocated to a designated Class of Certificates, as specified in the related
Prospectus Supplement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"Final Scheduled Remittance Date" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the Stated
Balance of the Classes of each Series, the date, based on the assumptions set
forth in the related Prospectus Supplement, on which the Stated Balance of all
Certificates of each Class shall have been reduced to zero.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"GNMA Certificates" means individual mortgage pass-through securities
issued or guaranteed by GNMA.
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"HUD" means the United States Department of Housing and Urban Development.
"Initial Deposit" means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund on the date of the initial
issuance of the Certificates.
"Interest Rate" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of the Stated Balance of the Classes
of such Series, the interest payable on the Principal Balance outstanding of
each such Class.
"Late Collections" means, with respect to any Contract, amounts received
during any Due Period, whether as late payments of Monthly Payments, or as
Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
"Liquidation Proceeds" means cash (including insurance proceeds) received in
connection with the repossession of a Manufactured Home.
"Loan-to-Value Ratio" means the loan-to-value ratio at the time of
origination of the Contract.
"Manufactured Home" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
"Maximum Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, the amount specified
in the related Prospectus Supplement, representing the maximum amount of
Cumulative Subordination Payments which may be required to be made over the
term of the related Agreement.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Contract.
"Obligor" means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
"Record Date" means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in the
Code.
"Remittance Date" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"Remittance Rate" means, as to a Certificate, the rate or rates of interest
thereon specified in the related Prospectus Supplement.
"Senior Certificates" means, with respect to each Series of Certificates,
the Class or Classes which have rights senior to another Class or Classes in
such Series.
"Senior Distribution Amount" means, with respect to a Series of Certificates
having Subordinated Certificates, as of each Remittance Date and for each Class
of Senior Certificates, the amount due the holders of such Class of Senior
Certificates.
"Senior Percentage" means, with respect to a Series of Certificates having
Subordinated Certificates, the percentage specified in the related Prospectus
Supplement.
63
<PAGE>
"Senior Shortfall" means, with respect to a Series of Certificates having
Subordinated Certificates, as of any date, to the extent not previously paid,
the aggregate of the amounts by which the Senior Distribution Amount for any
Remittance Date exceeds the amount actually paid on such date.
"Servicer" means, with respect to each Series of Certificates evidencing
interests in Contracts, the Servicer specified in the related Prospectus
Supplement.
"Servicing Fee" means the amount of the annual fee paid to the Servicer or
the Trustee as specified in this Prospectus.
"Single Certificate" means, unless otherwise specified in the related
Prospectus Supplement, for each Class of Certificates of any Series, the
initial principal amount of Contracts evidenced by a single Certificate of
such Class.
"Stated Balance" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of Stated Balance of the Classes of
such Series, the maximum specified dollar amount (exclusive of interest at the
related Interest Rate) to which the Holder thereof is entitled from the cash
flow of the Trust Fund.
"Subordinated Certificates" means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
"Subordinated Percentage" means, with respect to a Series of Certificates
having Subordinated Certificates, the percentage specified in the related
Prospectus Supplement.
"Trust Fund" means, with respect to each Series of Certificates, the corpus
of the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Contracts, such assets as shall
from time to time be identified as deposited in the Certificate Account, the
Manufactured Home which secured a Contract, insurance, a reserve fund and
other forms of credit enhancement, if any.
"Trustee" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"VA" means the Veterans' Administration.
"Variable Rate Certificates" means Certificates which evidence the right to
receive distributions of income at a variable Remittance Rate.
64
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For 90 days after the date of this prospectus supplement, all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
[Green Tree Logo]
A Conseco Company
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
SEC registration fee........................................ $1,112,000.00
Blue Sky fees and expenses.................................. 5,000.00
Accountant's fee and expenses............................... 20,000.00
Attorney's fees and expenses................................ 168,000.00
Trustee's fees and expenses................................. 22,000.00
Printing and engraving expenses............................. 100,000.00
Rating Agency fee........................................... 180,000.00
Miscellaneous............................................... 22,500.00
-------------
Total................................................... $1,629,500.00
=============
</TABLE>
Item 15. Indemnification of Directors and Officers
Green Tree Financial Corporation is incorporated under the laws of
Delaware. Section 145 of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any persons, including officers and
directors, who are, or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation, by reason of the fact that such person was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise). The
indemnity may include expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding, provided such person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, for criminal proceedings, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify officers and directors in an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where and officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
The Certificate of Incorporation and Bylaws of Green Tree Financial
Corporation provide, in effect, that, subject to certain limited exceptions,
such corporation will indemnify its officers and directors to the extent
permitted by the Delaware General Corporation Law.
The Company maintains a directors' and officers' insurance policy.
Pursuant to the form of Underwriting Agreement, the Underwriters will
agree, subject to certain conditions, to indemnify the Company, its directors,
certain of their officers and any persons who control the Company, within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"),
against certain liabilities.
II-1
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
<C> <S> <C>
1.1 Proposed form of Underwriting Agreement (incorporated by
reference to similarly numbered exhibit on Registrant's
Registration Statement No. 333-36969)
1.2 Proposed form of alternate Underwriting Agreement (incor-
porated by reference to similarly numbered exhibit on Reg-
istrant's Registration Statement No. 333-36969)
3.1 Certificate of Incorporation of Green Tree (incorporated
by reference to Exhibit 1.2 to the Registrant's Registra-
tion Statement No. 33-60869)
3.2 Restated By-Laws of Green Tree (incorporated by reference
to Exhibit 3.2 to Registrant's Registration Statement No.
333-52233)
4.1 Form of Pooling and Servicing Agreement (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Re-
port on Form 8-K dated February 22, 1999)
*5.1 Opinion and consent of Dorsey & Whitney LLP as to legality
*8.1 Opinion of Dorsey & Whitney LLP as to tax matters
12.1 Computation of Ratio of Earnings to Fixed Charges (incor-
porated by reference to Exhibit 12.1 to the Registrant's
Annual Report on Form 10-K for the period ended December
31, 1998)
**23.1 Consent of PricewaterhouseCoopers LLC
**23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Dorsey & Whitney LLP (included as part of Ex-
hibit 5.1)
24.1 Power of attorney from officers and directors of the
Registrants signed by an attorney-in-fact (included on
page II-5)
</TABLE>
- --------
*Filed herewith.
**To be filed by amendment
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed
as a part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
II-2
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change to the information
set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act of 1933 if, in the aggregate, the
changes in volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement;
and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remains unsold at
the termination of the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is
II-3
<PAGE>
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Saint Paul, State of Minnesota, on the 29th day
of March, 1999.
Green Tree Financial Corporation
/s/ Rollin M. Dick
By___________________________________
Rollin M. Dick
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated. Each person whose signature to this Registration Statement
appears below hereby constitutes and appoints Joel H. Gottesman and Scott T.
Young and each of them, as his true and lawful attorney-in-fact and agent, with
full power of substitution, to sign on his behalf individually and in the
capacity stated below and to perform any acts necessary to be done in order to
file all amendments and post-effective amendments to this Registration
Statement, and any and all instruments or documents filed as part of or in
connection with this Registration Statement or the amendments thereto and each
of the undersigned does hereby ratify and conform all that said attorney-in-
fact and agent, or his substitutes, shall do or cause to be done by virtue
hereof.
Signature Title Date
/s/ Thomas J. Kilian Director and March 29, 1999
- ------------------------------------- President
Thomas J. Kilian
/s/ Rollin M. Dick Director/Executive March 29, 1999
- ------------------------------------- Vice President and
Rollin M. Dick Chief Financial
Officer (Principal
Financial Officer)
/s/ James S. Adams Senior Vice March 29, 1999
- ------------------------------------- President and Chief
James S. Adams Accounting Officer
(Principal
Accounting Officer)
/s/ Stephen C. Hilbert Director March 29, 1999
- -------------------------------------
Stephen C. Hilbert
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
1.1 Proposed form of Underwriting Agreement (incorporated by
reference to similarly numbered exhibit on Registrant's
Registration Statement No. 333-36969)
1.2 Proposed form of alternate Underwriting Agreement
(incorporated by reference to similarly numbered exhibit on
Registrant's Registration Statement No. 333-36969)
3.1 Certificate of Incorporation of Green Tree (incorporated by
reference to Exhibit 1.2 to the Registrant's Registration
Statement No. 33-60869)
3.2 Restated By-Laws of Green Tree (incorporated by reference to
Exhibit 3.2 to Registrant's Registration Statement No. 333-
52233)
4.1 Form of Pooling and Servicing Agreement (incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report
on Form 8-K dated August 13, 1998)
*5.1 Opinion and consent of Dorsey & Whitney LLP as to legality
*8.1 Opinion of Dorsey & Whitney LLP as to tax matters
12.1 Computation of Ratio of Earnings to Fixed Charges
(incorporated by reference to Exhibit 12.1 to the
Registrant's Annual Report on Form 10-K for the period ended
December 31, 1998)
**23.1 Consent of PricewaterhouseCoopers LLP
**23.2 Consent of KPMG Peat Marwick LLP
24.1 Power of attorney from officers and directors of the Regis-
trants signed by an attorney-in-fact (included on page II-5)
</TABLE>
- --------
*Filed herewith
**To be filed by amendment
<PAGE>
Exhibit 5.1
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
Re: Registration Statement on Form S-3
Gentlemen:
We have acted as counsel to Green Tree Financial Corporation, a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 filed by the Company with the Securities and
Exchange Commission (the "Commission") on March 31, 1999 (the "Registration
Statement"), relating to the registration by the Company of $4,000,000,000 of
Manufactured Housing Contract Pass-Through Certificates (the "Certificates").
The Certificates will be issued from time to time in series under separate
Pooling and Servicing Agreements, each in substantially the form incorporated as
an exhibit to the Registration Statement (each such agreement, a "Pooling and
Servicing Agreement"), between the Company, as seller and servicer, and a bank
or trust company, as trustee (the "Trustee"). The Company may provide a Limited
Guarantee (the "Limited Guarantee") with respect to one or more classes of any
series of Certificates.
We have examined the Registration Statement and such other documents, and
have reviewed such questions of law, as we have considered necessary and
appropriate for the purposes of this opinion. Based on the foregoing, we are of
the opinion that:
1. Each Pooling and Servicing Agreement, when it has been duly authorized
by the Board of Directors of the Company and duly executed and delivered by the
Company and the Trustee, will constitute the valid and binding obligation of the
Company and the Limited Guarantee of the Company, if any, provided for therein
will constitute the valid and binding obligation of the Company.
2. Each series of Certificates, when duly executed and delivered in
accordance with the terms of the Pooling and Servicing Agreement relating to
that series, will be legally and validly issued, and the holders of such
Certificates will be entitled to the benefits of that Pooling and Servicing
Agreement.
The opinions set forth above are subject to the following qualifications
and exceptions:
(a) In rendering the opinions set forth above, we have assumed that,
at the time of the execution of the applicable Pooling and Servicing
Agreement and the execution and delivery of the related series of
Certificates, there will not have occurred any change in the law affecting
the authorization, execution, delivery, validity or enforceability of the
Certificates or any Limited Guarantee, the Registration Statement will have
been declared effective by the Commission and will continue to be
effective, the Certificates and the Limited Guarantee will be issued and
sold as
<PAGE>
Green Tree Financial Corporation
March 31, 1999
Page 2
described in the Registration Statement, none of the particular terms of a
series of Certificates will violate any applicable law and neither the
issuance and sale thereof nor the compliance by the Company with the terms
thereof will result in a violation of any agreement or instrument then
binding upon the Company or any order of any court or governmental body
having jurisdiction over the Company.
(b) Our opinion in paragraph 1 above is subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar law of general application affecting creditors' rights.
(c) Our opinion in paragraph 1 above is subject to the effect of
general principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally (regardless
of whether considered in a proceeding in equity or at law).
(d) Minnesota Statutes ss. 290.371, Subd. 4, provides that any
corporation required to file a Notice of Business Activities Report does
not have a cause of action upon which it may bring suit under Minnesota law
unless the corporation has filed a Notice of Business Activities Report and
provides that the use of the courts of the State of Minnesota for all
contracts executed and all causes of action that arose before the end of
any period for which a corporation failed to file a required report is
precluded. Insofar as our opinion may relate to the valid, binding and
enforceable character of any agreement under Minnesota law or in a
Minnesota court, we have assumed that any party seeking to enforce such
agreement has at all times been, and will continue at all times to be,
exempt from the requirement of filing a Notice of Business Activities
Report or, if not exempt, has duly filed, and will continue to duly file,
all Notice of Business Activities Reports.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising part of the Registration Statement.
Dated: March 31, 1999
Very truly yours,
<PAGE>
Exhibit 8.1
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
Re: Federal Income Tax Consequences of Manufactured Housing
Contract Pass-Through Certificates
Ladies and Gentlemen:
We have acted as counsel to Green Tree Financial Corporation (the
"Company") in connection with the proposed registration under the Securities Act
of 1933, as amended, by the Company of $4,000,000,000 of Manufactured Housing
Contract Pass-Through Certificates (the "Certificates"), and the related
preparation and filing of a registration statement on Form S-3, filed by the
Company with the Securities and Exchange Commission on March 31, 1999 (the
"Registration Statement"). The Certificates will be issued in series under
separate Pooling and Servicing Agreements (each, an "Agreement") between the
Company, as seller and servicer, and a bank or trust company, as trustee (the
"Trustee"). The Certificates are described in the prospectus constituting Part I
of the Registration Statement (the "Prospectus"). Each series of Certificates
will be more particularly described in a supplement to the Prospectus (each, a
"Supplement").
You have requested our opinion with respect to certain federal income tax
consequences of the purchase, ownership and disposition of the Certificates. For
purposes of rendering our opinion we have examined the Registration Statement.
Each Supplement and Agreement pertaining to a specific series is to be completed
subsequent to the date of this opinion. Accordingly, we have not examined any
Supplement or Agreement relating to any specific series to be issued, and our
opinion does not address the contents of any such Supplement or Agreement except
as and to the extent that the provisions of same may be described in the
Prospectus. We understand that each Supplement will contain a discussion of any
material federal income tax consequences pertaining to the series to be offered
thereunder which are not addressed in the Prospectus.
As set forth in the Prospectus, for federal income tax purposes each series
of Certificates will be issued as either a grantor trust ("Grantor Trust") or a
real estate mortgage investment conduit ("REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code"). Each series' status as a Grantor Trust or
a REMIC is to be set forth in the Supplement related thereto.
Our opinion is based upon existing law and currently applicable Treasury
Department regulations, current published administrative positions of the
Internal Revenue Service contained in revenue
<PAGE>
Green Tree Financial Corporation
March 31, 1999
Page 2
rulings and revenue procedures, and judicial decisions, all of which are subject
to change, either prospectively or retroactively, and to possibly differing
interpretations, and is also based on the representations and warranties set
forth in the applicable Agreement and the assumptions that the Company and the
Trustee will at all times comply with the requirements of the applicable
Agreement, including, without limitation, in the case of each REMIC series of
Certificates, the requirement that a proper election to be taxed as a REMIC is
made in accordance with the applicable Agreement and the Code and that the
certificates of such series will be issued as described in the related
Supplement and any other prospectus relating to other classes of certificates of
such series. Based upon the foregoing, as of the date hereof it is our opinion
that:
(1) With respect to each Grantor Trust series of Certificates, each
pool of manufactured housing contracts and the arrangement to be
administered by the Company under which the Trustee will hold and the
Company will be obligated to service the manufactured housing contracts and
pursuant to which Certificates will be issued to certificateholders, all as
described in the Prospectus, will not be classified as an association
taxable as a corporation or as a "taxable mortgage pool," within the
meaning of Section 7701(i) of the Code, but rather will be classified as a
grantor trust under Subpart E, Part I of Subchapter J of the Code.
(2) With respect to each Grantor Trust series of Certificates, under
Section 671 of the Code, each holder of a Certificate 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 pool of manufactured
housing contracts in which such Certificate evidences an ownership interest
and will be considered the equitable owner of a pro rata undivided interest
in each of the manufactured housing contracts comprising that pool.
(3) With respect to each REMIC series of Certificates, those assets
constituting the trust fund created pursuant to the related Agreement and
designated as comprising the "real estate mortgage investment conduit"
thereunder will qualify as a REMIC under the Code.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Certain Federal Income
Tax Consequences" in the Prospectus, and we hereby confirm that, insofar as they
constitute statements of law or legal conclusions as to the likely outcome of
material issues under the federal income tax laws, the discussion under such
heading accurately sets forth our advice.
Dated: March 31, 1999
Very truly yours,
