<PAGE>
Filed Pursuant to Rule 424(b)(5)
File No. 333-63305 and 333-75623
PROSPECTUS SUPPLEMENT
(To prospectus dated June 18, 1999)
$351,600,000 (Approximate)
GREEN TREE
Seller and Servicer
Green Tree Home Improvement and Home Equity Loan Trust 1999-B
Loan-Backed Notes
--------------
The trust will issue seven classes of securities, but we are offering only
the classes listed below now:
<TABLE>
<CAPTION>
Approximate
Principal Interest Underwriting Proceeds to
Class Amount Rate Price to Public Discount Company
- ----- ------------ -------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
A-1 Notes.. $193,400,000 7.11% 99.984375% 0.35% 99.634375%
A-2 Notes.. $100,000,000 7.11% 99.96875% 0.35% 99.61875%
M-1 Notes.. $ 34,600,000 8.38% 100% 0.5% 99.5%
M-2 Notes.. $ 23,600,000 10.54% 99.96875% 0.65% 99.31875%
------------ --------------- ------------- ---------------
Total...... $351,600,000 $351,531,156.25 $1,353,300.00 $350,177,856.25
</TABLE>
The approximate principal amount of the classes of securities may vary plus
or minus 5%. The price to public will be the percentage listed in the table
above plus any accrued interest beginning on June 30, 1999.
A note insurance policy, to be issued by Financial Security Assurance Inc.,
will guarantee specified payments on the Class A-1 and Class A-2 notes, but
only at the times and to the extent described in this prospectus supplement.
Consider carefully the risk factors beginning on page S-11 in this
prospectus supplement.
--------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
The notes will be delivered on or about June 30, 1999.
The underwriter named below will offer the notes to the public at the
offering price listed on this cover page and will receive the discount listed
above. See "Underwriting" on page S-73 in this prospectus supplement and on
page 63 in the prospectus.
--------------
Lehman Brothers
June 18, 1999
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Notes........................................ S-4
Risk Factors............................................................. S-11
The Trust................................................................ S-14
The Trust Property....................................................... S-15
Use of Proceeds.......................................................... S-17
The Loans................................................................ S-17
Yield and Prepayment Considerations...................................... S-27
Green Tree Financial Corporation......................................... S-35
Description of the Notes................................................. S-36
The Note Insurer......................................................... S-63
The Note Insurance Policy................................................ S-65
Description of the Limited Guaranty...................................... S-69
Federal and State Income Tax Consequences................................ S-70
ERISA Considerations..................................................... S-71
Where You Can Find More Information...................................... S-72
Experts.................................................................. S-73
Underwriting............................................................. S-73
Legal Matters............................................................ S-74
Annex I.................................................................. A-1
Prospectus
Important Notice About Information Presented In This Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trusts............................................................... 3
Green Tree Financial Corporation......................................... 5
Yield Considerations..................................................... 8
Maturity and Prepayment Considerations................................... 8
Pool Factor.............................................................. 9
Use of Proceeds.......................................................... 10
The Notes................................................................ 11
The Certificates......................................................... 17
Certain Information Regarding the Securities............................. 19
Description of the Trust Documents....................................... 23
Description of FHA Insurance............................................. 38
Certain Legal Aspects of the Loans; Repurchase Obligations............... 39
Federal Income Tax Consequences.......................................... 52
State Income Tax Considerations.......................................... 61
ERISA Considerations..................................................... 62
Legal Investment Considerations.......................................... 62
Ratings.................................................................. 63
Underwriting............................................................. 63
Legal Matters............................................................ 65
Experts.................................................................. 65
Glossary................................................................. 66
</TABLE>
S-2
<PAGE>
You should rely only on the information contained in this prospectus. We
and the underwriter have not authorized any other person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. We and the underwriter are not making
an offer to sell these securities in any jurisdiction where the offer or sale
is not permitted.
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Green Tree Financial Corporation,
about our home equity and home improvement lending business, and about any
series of certificates or notes for home improvement and home equity loans that
we may wish to sell. This prospectus supplement contains more detailed
information about the specific terms of this series of notes. If the
description of the terms of your note varies between this prospectus supplement
and the prospectus, you should rely on the information in this prospectus
supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from us or the underwriter by asking for it.
No prospectus regarding these notes has been or will be published in the
United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulations 1995. These notes may not be offered or sold, or re-offered or re-
sold, to persons in the United Kingdom, except (1) to persons whose ordinary
activities involve them in acquiring, holding, managing and disposing of
investments, as principal or agent, for the purpose of their businesses, or (2)
in circumstances that will not constitute or result in an offer of securities
to the public in the United Kingdom within the meaning of the United Kingdom
Public Offers of Securities Regulations 1995. You may not pass this prospectus
supplement and prospectus, or any other document inviting applications or
offers to purchase notes or offering notes for purchase, to any person in the
United Kingdom who (1) does not fall within article 8 of the Financial Services
Act 1986 (Investment Advisements) (Exemptions) (No. 2) Order 1996 or (2) is not
otherwise a person to whom passing this prospectus supplement and prospectus
would be lawful.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE NOTES
This summary highlights selected information regarding the notes, and does
not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the notes, read this
entire prospectus supplement and the accompanying prospectus. In particular, we
will refer throughout this summary to sections of this prospectus supplement or
the prospectus, or both, which will contain more complete descriptions of the
matters summarized. All these references will be to sections of this prospectus
supplement only unless we note otherwise. We have provided a glossary at the
end of the prospectus defining the capitalized terms that we use in this
prospectus supplement and in the prospectus.
Green Tree Home Improvement and Home Equity Loan Trust 1999-B will issue
the classes of securities listed in the table below. We are not offering those
classes in italics now. Green Tree or one of its affiliates initially will
retain those classes of securities, but may sell any or all of these securities
at a later date.
<TABLE>
<CAPTION>
Interest Approximate Moody's S&P
Class Rate Principal Amount Rating Rating
- ----- -------- ---------------- ------- ------
<S> <C> <C> <C> <C>
A-1 Notes.............................. 7.11% $193,400,000 Aaa AAA
A-2 Notes.............................. 7.11% $100,000,000 Aaa AAA
M-1 Notes.............................. 8.38% $ 34,600,000 Aa3 AA
M-2 Notes.............................. 10.54% $ 23,600,000 A2 A
B-1 Notes.............................. 13.55% $ 22,200,000 Baa2 BBB
B-2 Notes.............................. 11.16% $ 26,200,000 Ba1 BBB-
Certificates........................... -- -- -- --
</TABLE>
The approximate principal amount of the classes of securities listed above
may vary plus or minus 5%.
We will not issue the notes unless Moody's and S&P assign to each class the
rating listed above. The rating of each class of notes by Moody's and S&P
addresses the likelihood of timely receipt of interest and ultimate receipt of
principal. A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating agency. The ratings of the Class B-2 notes are based in part
on an assessment of Green Tree's ability to make payments under the Class B-2
limited guaranty. Any reduction in the rating of Green Tree's debt securities
may result in a similar reduction in the ratings of the Class B-2 notes.
Issuer ..................... Green Tree Home Improvement and Home Equity Loan
Trust 1999-B.
Seller and Servicer......... Green Tree Financial Corporation, 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota
55102, telephone: (651) 293-3400.
S-4
<PAGE>
Indenture Trustee........... U.S. Bank Trust National Association.
Owner Trustee............... Wilmington Trust Company.
Payment Date................ The fifteenth day of each month, or, if that
fifteenth day is not a business day, the
following business day, beginning on July 15,
1999.
Record Date................. The business day just before the payment date.
Note Insurer and Insurance
Policy...................... Financial Security Assurance Inc. will
irrevocably and unconditionally guarantee
specified payments to the indenture trustee for
the benefit of the holders of the Class A-1 and
Class A-2 notes, but only at the times and to the
extent described under "The Note Insurance
Policy--Note Insurance Policy."
Distributions on Notes...... Distributions on the notes on any payment date
will be made primarily from amounts collected on
the home improvement and home equity loans during
the prior calendar month. On each payment date,
the indenture trustee will make distributions of
principal and interest in the following order of
priority:
- Class A-1 and Class A-2 interest;
- Class M-1 interest;
- Class M-2 interest;
- Class B-1 interest;
- Class A-1 and Class A-2 principal;
- Class M-1 principal;
- Class M-2 principal;
- Class B-1 principal;
- Class B-2 interest; and
- Class B-2 principal.
This prospectus supplement summarizes in the next
two pages the amounts of interest and principal
to be paid on the notes. See "Description of the
Notes--Payments on Contracts."
A. Interest on the Class A,
Class M and Class B-1
Notes.................... Interest is payable first to the Class A-1 and
Class A-2 notes concurrently, then to the Class
M-1 notes, then to
S-5
<PAGE>
the Class M-2 notes and then to the Class B-1
notes up to the amount available for
distribution. See "Description of the Notes--
Distributions on the Notes" and "--Losses on
Liquidated Contracts" for a more detailed
description of the calculation of interest due on
the notes.
B. Principal on the Class
A, Class M and Class B-1
Notes....................
The indenture trustee will then apply the
remaining amount available to pay principal on
the Class A notes, then to pay any reimbursement
amount due to Financial Security and then to pay
principal on the Class M and Class B-1 notes.
Initially, any principal payable will be paid
only on the Class A notes, and the Class M and
Class B notes will probably receive no principal
distributions before July 2003. For purposes of
determining the amount of principal due on the
Class A notes, the loan pool will be divided into
group 1 loans and group 2 loans. The group 1
formula amount will be paid to the Class A-1
notes and the group 2 formula amount will be paid
to the Class A-2 notes, until they are retired.
Beginning with the payment date in July 2003,
assuming delinquencies, defaults and losses on
the loans remain below the levels specified in
the sale and servicing agreement, the Class M and
Class B-1 notes will begin to receive a portion
of the principal to be paid on each payment date.
See "Description of the Notes--Distributions on
the Notes."
C. Interest on the Class B-
2 Notes .................
The indenture trustee will then apply the
remaining amount available to pay interest on the
Class B-2 notes.
D. Principal on the Class
B-2 Notes ...............
Beginning with the payment date in July 2003,
assuming that delinquencies, defaults and losses
on the loans remain below the levels specified in
the sale and servicing agreement, the Class B-2
notes will begin to receive a portion of the
principal to be paid on each payment date. The
principal balance of the Class B-2 notes will
generally not be reduced below $2,000,000 until
the Class A, Class M and Class B-1 notes have
been paid in full.
S-6
<PAGE>
Class B-2 Limited
Guaranty................. We will guarantee payment of interest and
principal on the Class B-2 notes. See
"Description of the Class B-2 Limited Guaranty."
The Loan Pool............... The loan pool will include conventional home
improvement contracts and promissory notes and
home equity loans. These loans will be divided
into two groups, group 1 and group 2. The
criteria for placing a loan into group 1 or group
2 are described in "The Loans--General."
The loans are divided into group 1 and group 2
solely for the purpose of calculating the amounts
of principal to which the Class A-1 and Class A-2
notes are entitled. Actual payments received from
both group 1 and group 2 will be used to make
payments of interest and principal on each class
of notes.
A. Group 1 Loans............ The group 1 loans as of the cut-off date have the
following characteristics:
. all are conventional loans and not FHA-
insured loans;
. 4,366 are home improvement contracts and
6,518 are home equity loans;
. all are secured by a lien on the related
real property;
. the related properties are located in 48
states and the District of Columbia;
. the interest rates range from 6.94% to
20.14%, with a weighted average of 14.55%;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was 231 months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was 228
months; and
. the latest scheduled maturity date was in
August 2028.
See "The Loans--Group 1 Loans."
B. Group 2 Loans............ This prospectus supplement provides information
regarding a portion of the group 2 loans,
representing approximately 29.95% of all the
group 2 loans. We expect to transfer the
remainder of the group 2 loans to the trust on
the closing date.
S-7
<PAGE>
The initial group 2 loans as of the cut-off date
have the following characteristics:
. all are conventional, not FHA-insured
loans;
. 710 are home improvement contracts and
1,030 are home equity loans;
. all are secured by a lien on the related
real property;
. the related properties are located in 47
states and the District of Columbia;
. the interest rates range from 8.75% to
19.69%, with a weighted average of 14.59%;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was 233 months;
. the weighted average term to scheduled
maturity, as of the cut-off date, was 231
months; and
. the latest scheduled maturity date was in
May 2024.
See "The Loans--Group 2 Loans."
Pre-Funding Account......... Although we expect to deliver enough additional
group 2 loans along with the group 1 loans on the
closing date to equal the full principal amount
of the notes, if the aggregate principal balance
of the group 1 and group 2 loans transferred by
us to the trust on the closing date is less than
the aggregate original principal balance of the
notes, that difference will be deposited in a
pre-funding account. Those funds will be used to
purchase group 2 loans from time to time until
July 31, 1999. If those funds are not completely
used by July 31, 1999, the remaining funds will
be distributed as principal on the Class A-2
notes on the August, 1999 payment date.
Repurchase Obligations...... We will make representations and warranties about
the loans when we transfer them to the trust. If
a representation or warranty is breached in a way
that materially and adversely affects the
interests of the noteholders or the note insurer,
then we must, within 90 days, either (1) cure the
breach or (2) repurchase the defective loans. See
"Description of the Notes-- Conveyance of Loans"
in this prospectus supplement and in the
prospectus.
S-8
<PAGE>
Advances.................... If the amount collected on a loan during a due
period is less than the scheduled amount due, the
servicer or the trustee will be obligated to make
an advance of the uncollected amount. See
"Description of the Notes--Advances."
Repurchase Option........... After the scheduled principal balance of the
loans is less than 10% of the aggregate principal
balance of the loans as of the cut-off date, we
in our capacity as servicer will have the option
to purchase all of the outstanding loans.
Financial Security has a similar right to
purchase the loans. See "Description of the
Notes--Repurchase Option" in this prospectus
supplement and in the prospectus.
Tax Status.................. In the opinion of our counsel, for federal and
Minnesota income tax purposes, the notes will be
characterized as debt, and the trust will not be
characterized as an association, or a publicly
traded partnership, taxable as a corporation and
neither the trust nor any portion of the trust
will constitute a taxable mortgage pool taxable
as a corporation. Each noteholder, by the
acceptance of a note, will agree to treat the
notes as debt. See "Federal and State Income Tax
Consequences" in this prospectus supplement and
"Federal Income Tax Consequences" and "State
Income Tax Consequences" in the prospectus.
ERISA Considerations........ We believe that the notes should be treated as
indebtedness without substantial equity features
under a regulation issued by the United States
Department of Labor. If this is correct, the
acquisition or holding of notes by or on behalf
of a benefit plan will not cause the assets of
the trust to become plan assets. This generally
prevents the application of certain prohibited
transaction rules of ERISA and the Internal
Revenue Code that otherwise might be applicable.
See "ERISA Considerations" in this prospectus
supplement and in the prospectus.
Legal Investment
Considerations..............
The notes will not constitute mortgage related
securities for purposes of the Secondary Mortgage
Market
S-9
<PAGE>
Enhancement Act of 1984 because a number of the
loans are not secured by first liens on the
related real estate, as required by SMMEA. This
means that many institutions that have the legal
authority to invest in mortgage related
securities may not be legally authorized to
invest in the notes. You should consult with your
own legal advisor to decide whether and to what
extent you may legally invest in the notes.
Reports to Holders of We will provide to the holders of the notes
Notes....................... monthly and annual reports about the notes and
the trust. See "Description of the Notes--Reports
to Noteholders" in the prospectus supplement and
"Description of Notes--Statements to
Securityholders" in the prospectus.
S-10
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase notes.
A substantial number of the liens on the real estate securing the loans are
junior to other liens on that real estate.
This subordinates the rights of the trust, and consequently the
noteholders, to those of the mortgagee under the senior mortgage, including
the prior rights of the senior mortgagee to cause the property securing the
loan to be sold upon default of the mortgagor. This kind of sale would
extinguish the trust's lien unless the servicer on behalf of the trust asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior loan or loans. See "Legal Aspects of
the Loans--Repurchase Obligations."
The loans have high loan-to-value ratios, which may result in more loan
defaults and higher losses following a default.
A substantial portion of the loans have loan-to-value ratios of 100% or
more, based on the total of the outstanding principal balances of all senior
mortgages or deed of trust and of the loans on the one hand, and the value of
the property on the other. See "Green Tree Financial Corporation--Contract
Origination." An overall decline in the residential real estate market, the
general condition of the property securing a loan or other factors could
adversely affect the value of the property securing a loan such that the
remaining balance on the loan, together with that of any senior liens on the
related property, could equal or exceed the value of the property.
The loans were originated with a limited expectation of recovering any
amounts from the foreclosure of the related mortgaged property and were
underwritten with an emphasis on the creditworthiness of the borrowers. If the
loans go into foreclosure and are liquidated, there may be no amounts
recovered from the related mortgaged property unless the value of the property
has increased or the principal amount of the related senior liens has been
reduced to the point where the value of the property, less any related
foreclosure costs, is greater than the principal amount of the related senior
liens. To the extent that any losses are incurred on any of the loans that are
not covered by the credit enhancement described herein, the holders of the
notes will bear all risk of losses resulting from defaults by borrowers.
The servicing of high loan-to-value ratio loans requires special skill and
diligence and requires more attention to each account and earlier and more
frequent contact with borrowers in default. If the servicer does not exercise
the requisite level of skill and effort, the trust could experience higher
losses and you could suffer a loss on your note.
The loans may be prepaid before their scheduled maturity, which will affect
your yield.
Full or partial prepayments on the loans will reduce the weighted average
life of the notes. Obligors may prepay their loans without penalty.
Prepayments may result from payments by obligors, liquidations due to default,
the receipt of proceeds from physical damage or credit insurance, repurchases
by us as a result of certain uncured breaches of the
S-11
<PAGE>
warranties, purchases by the servicer as a result of certain uncured breaches
of the covenants with respect to the loans made by it in the sale and servicing
agreement, the servicer or Financial Security exercising the option to purchase
all of the remaining loans. You will bear all reinvestment risk resulting from
the timing of payments of principal on the notes.
We have no historical loss or delinquency data with high loan-to-value loans
that may be referred to for estimating the future delinquency and loss
experience on the contracts.
We have not included our historical delinquency and loan loss and
liquidation experience with home improvement contracts and home equity loans
because this information is not a meaningful predictor of the performance of
the loans in the trust.
Some of the loans in the pool will be subject to the Home Ownership and Equity
Protection Act of 1994, which, if not complied with, can affect enforceability
of a loan.
The Home Protection Act adds certain additional provisions to Regulation Z,
the implementing regulation of the Federal Truth-in-Lending Act. These
provisions impose additional disclosure and other requirements on creditors for
non-purchase money mortgage loans with high interest rates or up-front fees and
charges. A violation of these provisions of the Home Protection Act can affect
the enforceability of the related loan, and it subjects any assignee of the
loan, such as the trust, to all the claims and defenses that the consumer could
assert against the creditor, including the right to rescind the loan. The
return on your investment will depend largely on the performance of the loans
contained in the loan pool. If we are found to have violated the provisions of
the Home Protection Act regarding any loan that is subject to the Home
Protection Act, the trust may be unable to collect on that loan. We would,
however, be obligated to repurchase that loan because of the breach of our
representation and warranty.
This prospectus supplement provides information regarding only a portion of the
group 2 loans and additional loans added to the loan pool could have different
characteristics.
The additional group 2 loans will have characteristics that differ somewhat
from the group 2 loans described in this prospectus supplement. All of the
additional group 2 loans will be transferred to the trust on or shortly after
the closing date and must satisfy various criteria specified in the sale and
servicing agreement. If you purchase a note, you must not assume that the
characteristics of the loan pool will be identical to the characteristics of
the loans disclosed in this prospectus supplement. We will file a Form 8-K
following the purchase of loans by the trust on the closing date. This report
will include the same type of information regarding the entire pool of group 2
loans as this prospectus supplement contains about the initial group 2 loans.
Bankruptcy proceedings involving us could delay distributions on the notes.
We intend that any transfer of loans to the trust will constitute a sale,
rather than a pledge of the loans to secure our indebtedness. However, if we
were to become a debtor
S-12
<PAGE>
under the federal bankruptcy code or similar applicable state laws, our trustee
in bankruptcy might argue that such sale of loans by us was a pledge of the
loans rather than a sale. If this argument were accepted by a court, it would
cause the trust to experience a delay in or reduction of collections on the
loans.
There may be no secondary market for the notes, which means you may have
trouble selling them when you want to.
We cannot assure you that a secondary market will develop for the notes,
or, if a secondary market does develop, that it will provide the holders of any
of the notes with liquidity of investment. We also cannot assure you that if a
secondary market does develop, that it will continue to exist for the term of
the notes.
Other rating agencies could provide unsolicited ratings on the notes that could
be lower than the requested ratings.
Although we have not requested a rating of the notes from any rating
agencies other than Moody's and S&P, other rating agencies may rate the notes.
These ratings could be higher or lower than the ratings Moody's and S&P
initially give to the notes. There is a risk that a lower rating of your note
from another rating agency could reduce the market value or liquidity of your
note.
The assignment to the trust will not be recorded, which in some states could
make our security interest ineffective; this could result in increased losses.
We will not record the assignment to the trustee of the mortgage or deed of
trust securing any loan, because of the expense and administrative
inconvenience involved. In some states, in the absence of a recordation, the
assignment to the related trustee of the mortgage or deed of trust securing a
loan may not be effective against creditors of or purchasers from us or a
trustee in our bankruptcy. This could leave the trust unable to foreclose on
the real estate following a loan default, which could result in increased
losses on the loans. These losses could result in delays or reductions in
payments on your notes.
S-13
<PAGE>
THE TRUST
The following information supplements the information contained in the
accompanying prospectus. You should consider, in addition to the information
below, the information under "The Trusts" in the accompanying prospectus.
General
Green Tree Home Improvement and Home Equity Loan Trust 1999-B is a business
trust formed under the laws of the State of Delaware and the trust agreement
for the transactions described in this prospectus supplement. After its
formation, the trust will not engage in any activity other than:
(1) acquiring, holding and managing the loans and the other assets of the
trust and proceeds therefrom;
(2) issuing the notes and the certificates;
(3) making payments on the notes and the certificates; and
(4) engaging in other activities that are necessary, suitable or
convenient to accomplish the above or are incidental or connected to
those activities.
The trust will be capitalized with the proceeds of the initial sale of the
notes, which will be used by the trust to purchase the loans from us under the
sale and servicing agreement between Green Tree and the indenture trustee.
The trust's principal offices are in Wilmington, Delaware, at the address
listed below under "--The Owner Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the trust as of the
cut-off date, as if the issuance of the notes had taken place on that date:
<TABLE>
<S> <C>
Class A-1 notes.............................................. $193,400,000
Class A-2 notes.............................................. $100,000,000
Class M-1 notes.............................................. $ 34,600,000
Class M-2 notes.............................................. $ 23,600,000
Class B-1 notes.............................................. $ 22,200,000
Class B-2 notes.............................................. $ 26,200,000
------------
Total...................................................... $400,000,000
============
</TABLE>
The Owner Trustee
Wilmington Trust Company is the owner trustee under the trust agreement.
Wilmington Trust is a Delaware banking corporation and its principal offices
are located at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001. The owner trustee will perform limited administrative
functions under the trust agreement, including making distributions from the
certificate distribution account. The owner trustee's liability in connection
with the issuance and sale of the certificates and the notes is limited solely
to the express obligations of the owner trustee as set forth in the trust
agreement.
S-14
<PAGE>
THE TRUST PROPERTY
The trust property will consist of:
(1) a pool of conventional home improvement contracts and promissory notes
and home equity loans;
(2) the mortgage, deed of trust or security deed granted by or on behalf
of the related obligor, including the lien on the related real
property;
(3) all other security interests or liens and property subject to the
loans from time to time purporting to secure payment of such loans,
whether pursuant to the agreement giving rise to such loan or
otherwise, together with all financing statements signed by the
obligor describing any collateral securing such contract;
(4) all rights we may have against the originator of the loan if other
than Green Tree;
(5) all rights under hazard insurance, if applicable, on the property
described in the loan;
(6) all rights in any title insurance policy with respect to a loan;
(7) all guarantees, insurance and other agreements or arrangements of
whatever character from time to time supporting or securing payment of
such loan whether pursuant to the agreement giving rise to such loan
or otherwise;
(8) all records in respect of such loan; and
(9) the note insurance policy issued by Financial Security Assurance Inc.
for the benefit of the Class A noteholders.
To protect the trust's ownership interest in the loans, we will file a UCC-
1 financing statement in Minnesota to give notice of the trust's ownership of
the loans and the related trust property.
Under the indenture, the trust will grant a security interest in favor of
the indenture trustee and Financial Security in the trust property, the rights
of the trust under the sale and servicing agreement, including our Class B-2
limited guaranty for the benefit of the Class B-2 noteholders, and the
collection account and note distribution account. Any proceeds of the property
will be distributed according to the indenture, as described below under
"Description of the Trust Documents and Indenture--Distributions."
The indenture trustee or its custodian will hold each original contract or
promissory note, as well as copies of documents and instruments relating to
that loan and evidencing the security interest in the real property securing
the loan.
Payments and recoveries in respect of principal and interest on the loans
will be paid into a separate trust account maintained at an eligible
institution, initially U.S. Bank National Association, Minneapolis, Minnesota,
in the name of the indenture trustee, no later than one business day after
receipt. The indenture trustee will, on the fifteenth day of each month or, if
such day is not a business day, the next succeeding business day, deposit funds
from the
S-15
<PAGE>
collection account into the note distribution account. Payments on deposit in
the note distribution account will be applied by the indenture trustee on each
payment date to make the distributions to the noteholders as of the
immediately preceding record date as described under "Description of the
Notes--Distributions on the Notes" herein and to pay certain monthly fees to
the servicer as compensation for its servicing of the loans and premiums and
other payments to Financial Security.
Following the transfer of the loans from us to the trust, our obligations
are limited to:
(1) our obligations as servicer to service the loans;
(2) representations and warranties in the sale and servicing agreement as
described under "Description of the Notes--Conveyance of Loans" in
this prospectus supplement;
(3) indemnities and fees; and
(4) the Class B-2 limited guaranty.
We are obligated under the sale and servicing agreement to repurchase any loan
on the first payment date which is more than 90 days after we become aware, or
we receive written notice from the indenture trustee or Financial Security, of
any breach of any representation and warranty in the sale and servicing
agreement that materially and adversely affects the noteholders' or Financial
Security's interest in the loan if the breach has not been cured prior to that
date. The sale and servicing agreement also provides that we have obligations
to repurchase loans and to indemnify the indenture trustee, noteholders and
Financial Security about other matters. We are obligated to indemnify
Financial Security for matters under the note insurance policy. We are also
obligated to pay fees of the owner trustee and indenture trustee.
S-16
<PAGE>
USE OF PROCEEDS
We will use the net proceeds received from the sale of the notes for
working capital and general corporate purposes, including building a portfolio
of home improvement contracts and home equity loans, providing warehouse
financing for the purchase of contracts and loans and paying other costs of
maintaining the contracts and loans until they are pooled and sold to other
investors.
THE LOANS
General
The loan pool will consist of home improvement loans and home equity loans,
and will be divided into group 1 and group 2. Group 1 will not include:
. any loans secured by a third priority or more subordinate lien on the
mortgaged property,
. any loans secured by anything other than a single or two family
mortgaged property,
. any loans secured by a first priority lien on a single family mortgaged
property with an original principal balance in excess of $240,000,
. any loans secured by a first priority lien on a two family mortgaged
property with an original principal balance in excess of $307,100,
. any loans secured by a second priority lien on a single family mortgaged
property with a first and second lien combined original principal
balance in excess of $240,000, or
. any loans secured by a second priority lien on a two family mortgaged
property with a first and second lien combined original principal
balance in excess of $307,100.
Group 2 will include home improvement and home equity loans that fit these
criteria. The loans are divided into group 1 and group 2 solely for the purpose
of calculating the respective amounts of principal to which the Class A-1 and
Class A-2 notes are entitled. Actual payments received from both group 1 and
group 2 will be used to make payments of interest and principal on each class
of notes.
Home Improvement Loans
This prospectus supplement contains information regarding some home
improvement loans, which will represent approximately 79.59% of all home
improvement loans by aggregate principal balance as of the cut-off date, and
which consist of home improvement loans and promissory notes originated through
April 21, 1999. The information for the initial home improvement loans is as of
the cut-off date for those loans. The remaining home improvement loans will be
purchased by the trust on or shortly after the closing date and each subsequent
home improvement loan transferred to the trust will be included in group 2.
S-17
<PAGE>
The initial home improvement loans have an aggregate principal balance as
of the cut-off date of $139,280,600.91. Each home improvement loan is a home
improvement loan originated by a home improvement contractor that we approved
and that we purchased, or a home improvement promissory note that we originated
directly. The primary loan purpose of the initial home improvement loans is
debt consolidation. Each home improvement loan is secured by a lien on the
related real estate, which consists of a one- to four-family residential
property, an owner-occupied condominium or town house or a manufactured home
which either qualifies as real estate under state law or is located in a park
that we approved. Substantially all of the liens are second or third liens.
We originated or acquired the home improvement loans in the ordinary course
of our business. A detailed listing of the home improvement loans will be
delivered to the indenture trustee. All of the home improvement loans are
conventional loans, meaning they are not FHA-insured. Each of the initial home
improvement loans has a contract rate of at least 8.25% per year and not more
than 19.99% and the weighted average of the contract rates of the initial home
improvement loans as of the cut-off date is 13.87%. As of the cut-off date, the
initial home improvement loans had remaining maturities of at least 34 months
but not more than 300 months and original maturities of at least 36 months but
not more than 300 months. The initial home improvement loans had a weighted
average term to scheduled maturity, as of origination, of 240 months, and a
weighted average term to scheduled maturity, as of the cut-off date, of 238
months. The average principal balance per initial home improvement loan as of
the cut-off date was $27,439.05 and the principal balances on the initial home
improvement loans as of the cut-off date ranged from $1,946.02 to $176,994.80.
The initial home improvement loans arise from loans relating to real property
located in 47 states and the District of Columbia. By principal balance as of
the cut-off date, approximately 9.77% of the initial home improvement loans
were secured by real property located in California, 8.24% in New York, 7.89%
in Florida, 5.75% in Virginia, 5.71% in Pennsylvania and 5.32% in New Jersey.
No other state represented 5% or more of the aggregate principal balance as of
the cut-off date of the initial home improvement loans. Almost none of the
initial home improvement loans provide for recourse to the originating
contractor in the event of a default by the obligor.
Home Equity Loans
The following summary information about the home equity loans is as of the
cut-off date for these loans.
The home equity loans have an aggregate principal balance of
$165,220,832.61. Each home equity loan is a closed-end home equity loan
originated by us or by a correspondent lender approved by us and purchased by
us. Approximately 73.43% of the home equity loans by principal balance are for
the primary purpose of debt consolidation. Each home equity loan is secured by
a lien on the related real estate, substantially all of which are second or
third liens.
We originated or acquired the home equity loans in the ordinary course of
our business. A detailed listing of the home equity loans will be delivered to
the indenture trustee. All of
S-18
<PAGE>
the home equity loans are conventional loans, meaning they are not FHA-insured.
Each of the home equity loans has a contract rate of at least 6.94% per annum
and not more than 20.14% and the weighted average of the contract rates of the
initial home equity loans as of the cut-off date is 15.13%. As of the cut-off
date, the home equity loans had remaining maturities of at least 29 months but
not more than 351 months and original maturities of at least 36 months but not
more than 360 months. The home equity loans had a weighted average term to
scheduled maturity, as of origination, of 225 months, and a weighted average
term to scheduled maturity, as of the cut-off date, of 220 months. The average
principal balance per home equity loan as of the cut-off date was $21,889.35
and the principal balances on the initial home equity loans as of the cut-off
date ranged from $186.56 to $59,959.86. The home equity loans arise from loans
relating to real property located in 48 states and the District of Columbia. By
principal balance as of the cut-off date, approximately 11.28% of the home
equity loans were secured by real property located in California, 7.12% in
Florida and 6.35% in Illinois. No other state represented 5% or more of the
cut-off date pool principal balance of the home equity loans.
Group 1 Loans
The group 1 loans consist of home improvement loans and home equity loans.
The weighted average of the contract rates of the group 1 loans as of the cut-
off date is 14.55%. As of the cut-off date, the group 1 loans had remaining
maturities of at least 29 months but not more than 351 months and original
maturities of at least 36 months but not more than 360 months. The group 1
loans had a weighted average term to scheduled maturity, as of origination, of
231 months, and a weighted average term to scheduled maturity, as of the cut-
off date, of 228 months. The average principal balance per group 1 loan as of
the cut-off date was $24,225.23 and the principal balances on the group 1 loans
as of the cut-off date ranged from $186.56 to $103,195.04. The group 1 loans
arise from loans relating to real property located in 48 states and the
District of Columbia. By principal balance as of the cut-off date,
approximately 9.10% of the group 1 loans were secured by real property located
in California, 7.73% in Florida, 5.35% in New York, 5.31% in Illinois and 5.16%
in Virginia. No other state represented 5% or more of the cut-off date pool
principal balance of the group 1 loans.
The tables below describe the characteristics of the group 1 loans.
S-19
<PAGE>
Loan Rates--Group 1 Loans
<TABLE>
<CAPTION>
% of Group 1
Loans by
Number of Aggregate Outstanding
Loans Principal Principal
Range of Loans as of Cut- Balance Outstanding Balance as of
by Loan Rate off Date as of Cut-off Date Cut-off Date
-------------- ---------- ------------------- -------------
<S> <C> <C> <C>
Less than 9.001%................... 56 $ 1,888,786.36 0.72%
9.001%--10.000%................... 154 4,892,094.15 1.86
10.001%--11.000%................... 335 11,273,711.96 4.28
11.001%--12.000%................... 491 15,659,953.74 5.94
12.001%--13.000%................... 1,018 31,551,293.14 11.97
13.001%--14.000%................... 1,480 42,653,809.89 16.18
14.001%--15.000%................... 1,977 51,992,859.33 19.72
15.001%--16.000%................... 2,088 46,538,938.89 17.65
16.001%--17.000%................... 1,893 35,974,619.48 13.64
17.001%--18.000%................... 1,021 15,946,924.86 6.05
18.001%--19.000%................... 340 4,908,435.70 1.86
Greater than 19.000%............... 31 385,924.87 0.15
------ --------------- ------
Total.......................... 10,884 $263,667,352.37 100.00%
====== =============== ======
</TABLE>
Distribution of Current Balance--Group 1 Loans
<TABLE>
<CAPTION>
% of Group 1
Loans by
Outstanding
Number of Aggregate Principal
Loans as Principal Balance as
of Cut- Balance Outstanding of
Current Balance (in Dollars) off Date as of Cut-off Date Cut-off Date
---------------------------- --------- ------------------- ------------
<S> <C> <C> <C>
Less than$ 10,000.00.................... 730 $ 6,923,966.37 2.63%
$ 10,000.00--$ 19,999.99................ 4,236 65,000,923.16 24.65
$ 20,000.00--$ 29,999.99................ 2,939 72,998,444.34 27.69
$ 30,000.00--$ 39,999.99................ 1,702 59,127,500.31 22.43
$ 40,000.00--$ 49,999.99................ 966 42,517,798.62 16.13
$ 50,000.00--$ 59,999.99................ 289 15,458,152.00 5.86
Greater than $ 59,999.99................ 22 1,640,567.57 0.62
------ --------------- ------
Total............................... 10,884 $263,667,352.37 100.00%
====== =============== ======
</TABLE>
Distribution of Original Loan Amounts--Group 1 Loans
<TABLE>
<CAPTION>
% of Group 1
Loans by
Number of Aggregate Outstanding
Loans Principal Principal
Original Loan as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- -------------
<S> <C> <C> <C>
Less than$ 10,000.00............... 116 $ 866,515.62 0.33%
$ 10,000.00--$ 19,999.99........... 4,394 62,040,703.27 23.53
$ 20,000.00--$ 29,999.99........... 3,175 75,566,008.51 28.66
$ 30,000.00--$ 39,999.99........... 1,792 60,464,878.13 22.93
$ 40,000.00--$ 49,999.99........... 1,028 44,295,404.66 16.80
$ 50,000.00--$ 59,999.99........... 338 17,668,733.81 6.70
Greater than $59,999.99............ 41 2,765,108.37 1.05
------ --------------- ------
Total.......................... 10,884 $263,667,352.37 100.00%
====== =============== ======
</TABLE>
S-20
<PAGE>
Remaining Months to Maturity--Group 1 Loans
<TABLE>
<CAPTION>
% of Group 1
Loans by
Number of Aggregate Outstanding
Months Remaining to Loans Principal Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- -------------
<S> <C> <C> <C>
1--30............................ 1 $ 3,880.15 *%
31--60............................ 118 1,684,149.25 0.64
61--90............................ 87 1,470,745.33 0.56
91--120........................... 1,177 22,180,305.60 8.41
121--150........................... 40 860,531.21 0.33
151--180........................... 2,594 62,820,975.53 23.83
181--210........................... 166 3,641,348.28 1.38
211--240........................... 4,129 88,356,702.53 33.51
271--300........................... 2,570 82,573,376.04 31.32
331--360........................... 2 75,338.45 0.03
------ --------------- ------
Total.......................... 10,884 $263,667,352.37 100.00%
====== =============== ======
</TABLE>
- --------
*Indicates a percentage greater than 0% but less than 0.005%.
Lien Position--Group 1 Loans
<TABLE>
<CAPTION>
% of Initial Group 1
Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
Lien Position as of Cut-off Date as of Cut-off Date Cut-off Date
- ------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
First............. 37 $ 1,488,658.13 0.56%
Second............ 10,847 262,178,694.24 99.44
------ --------------- ------
Total......... 10,884 $263,667,352.37 100.00%
====== =============== ======
</TABLE>
S-21
<PAGE>
Geographical Distribution of Mortgaged Properties--Group 1 Loans
<TABLE>
<CAPTION>
% of Group 1
Loans by
Aggregate Outstanding
Number of Principal Balance Principal
Loans as of Outstanding as of Balance as of
Cut-off Date Cut-off Date Cut-off Date
------------ ----------------- -------------
<S> <C> <C> <C>
Alabama............................ 228 $ 4,586,785.21 1.74%
Arizona............................ 363 9,865,163.42 3.74
Arkansas........................... 85 1,482,185.12 0.56
California......................... 816 23,982,848.94 9.10
Colorado........................... 239 5,922,466.47 2.25
Connecticut........................ 171 4,004,809.75 1.52
Delaware........................... 57 1,158,333.58 0.44
District of Columbia............... 5 90,653.62 0.03
Florida............................ 816 20,390,075.09 7.73
Georgia............................ 401 10,172,788.08 3.86
Idaho.............................. 72 1,651,217.81 0.63
Illinois........................... 599 13,991,414.67 5.31
Indiana............................ 298 7,157,083.93 2.71
Iowa............................... 200 3,930,870.73 1.49
Kansas............................. 202 3,746,087.24 1.42
Kentucky........................... 152 3,769,143.62 1.43
Louisiana.......................... 145 3,313,777.92 1.26
Maine.............................. 37 1,006,276.55 0.38
Maryland........................... 282 7,588,233.81 2.88
Massachusetts...................... 119 2,986,286.46 1.13
Michigan........................... 450 10,644,966.59 4.04
Minnesota.......................... 227 5,101,109.42 1.93
Mississippi........................ 89 1,880,814.19 0.71
Missouri........................... 408 8,566,374.26 3.25
Montana............................ 38 683,282.49 0.26
Nebraska........................... 83 1,670,086.40 0.63
Nevada............................. 190 5,196,115.48 1.97
New Hampshire...................... 32 782,423.27 0.30
New Jersey......................... 271 7,938,299.89 3.01
New Mexico......................... 97 2,298,736.91 0.87
New York........................... 570 14,093,979.51 5.35
North Carolina..................... 279 6,339,229.04 2.40
North Dakota....................... 26 589,729.87 0.22
Ohio............................... 423 9,029,731.24 3.42
Oklahoma........................... 107 2,586,542.60 0.98
Oregon............................. 109 2,893,902.02 1.10
Pennsylvania....................... 449 11,648,221.11 4.42
Rhode Island....................... 33 673,169.95 0.26
South Carolina..................... 219 4,845,362.42 1.84
South Dakota....................... 53 1,015,893.67 0.39
Tennessee.......................... 227 4,848,985.13 1.84
Texas.............................. 34 738,336.27 0.28
Utah............................... 74 1,844,225.20 0.70
Vermont............................ 4 89,856.36 0.03
Virginia........................... 570 13,611,776.99 5.16
Washington......................... 289 7,723,797.41 2.93
West Virginia...................... 36 810,480.44 0.31
Wisconsin.......................... 153 3,533,887.50 1.34
Wyoming............................ 57 1,191,534.72 0.45
------ --------------- ------
Total.............................. 10,884 $263,667,352.37 100.00%
====== =============== ======
</TABLE>
S-22
<PAGE>
Initial Group 2 Loans
The initial group 2 loans consist of home improvement loans and home equity
loans. The weighted average of the contract rates of the initial group 2 loans
as of the cut-off date is 14.59%. As of the cut-off date, the initial group 2
loans had remaining maturities of at least 32 months but not more than 300
months and original maturities of at least 36 months but not more than 360
months. The initial group 2 loans had a weighted average term to scheduled
maturity, as of origination, of 233 months, and a weighted average term to
scheduled maturity, as of the cut-off date, of 231 months. The average
principal balance per initial group 2 loan as of the cut-off date was
$23,467.86 and the principal balances on the initial group 2 loans as of the
cut-off date ranged from $2,556.82 to $176,994.80. The initial group 2 loans
arise from loans relating to real property located in 47 states and the
District of Columbia. By principal balance as of the cut-off date,
approximately 20.24% of the initial group 2 loans were secured by real property
located in California, 5.78% in Florida, 5.16% in Virginia and 5.02% in New
York. No other state represented 5% or more of the cut-off date pool principal
balance of the initial group 2 loans.
The tables below describe the characteristics of the initial group 2 loans.
Loan Rates--Initial Group 2 Loans
<TABLE>
<CAPTION>
% of Initial Group 2
Loans by
Number of Aggregate Outstanding
Loans Principal Principal
Range of Loans as of Cut- Balance Outstanding Balance as of
by Loan Rate off Date as of Cut-off Date Cut-off Date
- -------------- ---------- ------------------- --------------------
<S> <C> <C> <C>
Less than 9.001%........... 8 $ 275,389.09 0.67%
9.001%--10.000%........... 30 1,170,446.23 2.87
10.001%--11.000%........... 54 2,366,276.00 5.79
11.001%--12.000%........... 84 2,810,896.28 6.88
12.001%--13.000%........... 152 4,517,565.41 11.06
13.001%--14.000%........... 163 4,429,008.21 10.85
14.001%--15.000%........... 239 5,853,171.60 14.33
15.001%--16.000%........... 407 8,614,535.55 21.10
16.001%--17.000%........... 379 7,155,591.76 17.52
17.001%--18.000%........... 174 2,856,151.52 6.99
18.001%--19.000%........... 46 727,001.31 1.78
Greater than 19.000%....... 4 58,048.19 0.14
----- -------------- ------
Total.................. 1,740 $40,834,081.15 100.00%
===== ============== ======
</TABLE>
S-23
<PAGE>
Distribution of Current Balance--Initial Group 2 Loans
<TABLE>
<CAPTION>
% of Initial Group 2
Number of Loans by
Loans Aggregate Outstanding
as of Principal Principal Balance as
Cut-off Balance Outstanding of
Current Balance (in Dollars) Date as of Cut-off Date Cut-off Date
- ---------------------------- --------- ------------------- --------------------
<S> <C> <C> <C>
Less than $10,000.00........ 127 $ 1,204,474.15 2.95%
$10,000.00--$19,999.99...... 776 12,352,274.70 30.25
$20,000.00--$29,999.99...... 479 11,818,417.67 28.94
$30,000.00--$39,999.99...... 145 5,030,380.13 12.32
$40,000.00--$49,999.99...... 133 5,928,470.54 14.52
$50,000.00--$59,999.99...... 74 3,950,425.55 9.67
Greater than $59,999.99..... 6 549,638.41 1.35
----- -------------- ------
Total................... 1,740 $40,834,081.15 100.00%
===== ============== ======
</TABLE>
Distribution of Original Loan Amounts--Initial Group 2 Loans
<TABLE>
<CAPTION>
% of Initial
Group 2 Loans by
Number of Aggregate Outstanding
Loans Principal Principal
Original Loan as of Cut- Balance Outstanding Balance as of
Amount (in Dollars) off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- ----------------
<S> <C> <C> <C>
Less than $10,000.00........... 24 $ 182,088.79 0.45%
$10,000.00--$19,999.99......... 747 10,757,136.25 26.34
$20,000.00--$29,999.99......... 570 13,228,443.01 32.40
$30,000.00--$39,999.99......... 180 6,000,719.68 14.70
$40,000.00--$49,999.99......... 127 5,570,856.10 13.64
$50,000.00--$59,999.99......... 79 4,128,421.95 10.11
Greater than $59,999.99........ 13 966,415.37 2.37
----- -------------- ------
Total.......................... 1,740 $40,834,081.15 100.00%
===== ============== ======
</TABLE>
Remaining Months to Maturity--Initial Group 2 Loans
<TABLE>
<CAPTION>
% of Initial
Group 2
Loans by
Number of Aggregate Outstanding
Months Remaining to Loans Principal Principal
Scheduled Maturity as of Cut- Balance Outstanding Balance as of
As of Cut-off Date off Date as of Cut-off Date Cut-off Date
------------------- ---------- ------------------- -------------
<S> <C> <C> <C>
31-- 60........................... 26 $ 375,514.72 0.92%
61-- 90........................... 9 132,864.16 0.33
91--120........................... 181 3,266,003.30 8.00
121--150........................... 6 109,609.42 0.27
151--180........................... 327 7,612,998.33 18.64
181--210........................... 23 473,017.30 1.16
211--240........................... 830 17,224,218.56 42.18
271--300........................... 338 11,639,855.36 28.51
----- -------------- ------
Total.......................... 1,740 $40,834,081.15 100.00%
===== ============== ======
</TABLE>
S-24
<PAGE>
Lien Position--Initial Group 2 Loans
<TABLE>
<CAPTION>
% of Initial
Group 2 Loans by
Number of Aggregate Outstanding
Loans Principal Principal
as of Cut- Balance Outstanding Balance as of
Lien Position off Date as of Cut-off Date Cut-off Date
- ------------- ---------- ------------------- ----------------
<S> <C> <C> <C>
First........................... 3 $ 88,676.36 0.22%
Second.......................... 480 15,004,800.29 36.75
Third........................... 1,254 25,636,926.85 62.78
Fourth.......................... 3 103,677.65 0.25
----- -------------- ------
Total....................... 1,740 $40,834,081.15 100.00%
===== ============== ======
</TABLE>
S-25
<PAGE>
Geographical Distribution of Mortgaged Properties--Initial Group 2 Loans
<TABLE>
<CAPTION>
% of Initial
Group 2 Loans
by
Aggregate Outstanding
Number of Principal Balance Principal
Loans as of Outstanding as of Balance as of
Cut-off Date Cut-off Date Cut-off Date
------------ ----------------- -------------
<S> <C> <C> <C>
Alabama............................ 27 $ 533,686.61 1.31%
Arizona............................ 50 1,258,847.37 3.08
Arkansas........................... 2 49,518.71 0.12
California......................... 301 8,263,839.37 20.24
Colorado........................... 58 1,241,883.27 3.04
Connecticut........................ 27 643,922.06 1.58
Delaware........................... 6 159,547.75 0.39
District of Columbia............... 1 19,854.25 0.05
Florida............................ 107 2,358,464.37 5.78
Georgia............................ 32 933,127.79 2.29
Idaho.............................. 21 356,372.47 0.87
Illinois........................... 90 2,019,280.71 4.95
Indiana............................ 28 512,534.10 1.26
Iowa............................... 22 419,323.80 1.03
Kansas............................. 17 385,421.04 0.94
Kentucky........................... 7 142,811.83 0.35
Louisiana.......................... 23 381,528.26 0.93
Maine.............................. 3 68,477.60 0.17
Maryland........................... 48 1,513,064.74 3.71
Massachusetts...................... 9 220,431.64 0.54
Michigan........................... 72 1,375,552.81 3.37
Minnesota.......................... 60 1,029,675.16 2.52
Mississippi........................ 3 36,956.32 0.09
Missouri........................... 61 1,117,401.74 2.74
Montana............................ 17 288,123.16 0.71
Nebraska........................... 6 128,984.10 0.32
Nevada............................. 42 982,481.02 2.41
New Jersey......................... 47 1,342,375.71 3.29
New Mexico......................... 17 384,429.25 0.94
New York........................... 73 2,049,878.50 5.02
North Carolina..................... 16 457,515.08 1.12
North Dakota....................... 11 190,253.40 0.47
Ohio............................... 70 1,566,758.91 3.84
Oklahoma........................... 8 129,964.34 0.32
Oregon............................. 20 458,831.06 1.12
Pennsylvania....................... 85 1,957,548.86 4.79
Rhode Island....................... 4 82,011.45 0.20
South Carolina..................... 10 279,700.39 0.68
South Dakota....................... 13 238,660.81 0.58
Tennessee.......................... 15 286,260.14 0.70
Texas.............................. 2 46,667.72 0.11
Utah............................... 13 273,876.21 0.67
Vermont............................ 1 12,272.53 0.03
Virginia........................... 74 2,107,941.19 5.16
Washington......................... 79 1,779,578.86 4.36
West Virginia...................... 5 112,325.21 0.28
Wisconsin.......................... 28 511,933.70 1.25
Wyoming............................ 9 124,185.78 0.30
----- -------------- ------
Total.............................. 1,740 $40,834,081.15 100.00%
===== ============== ======
</TABLE>
S-26
<PAGE>
Delinquency, Loan Default and Loss Information
Because of our limited historical experience with the performance of home
improvement and home equity loans similar to the loans in the pool, we have not
included information in this prospectus supplement about our historical loan
loss or liquidation experience. The loans in the pool have high loan-to-value
ratios and have been issued primarily for debt consolidation purposes.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any note will depend on the price paid by the noteholder, the
timing of principal payments, and the timing and amount of any liquidation
losses on the related loans.
We have no significant experience with the rate of principal prepayments on
home improvement or home equity loans. Because the loans have scheduled due
dates throughout the calendar month, prepayments on the loans would affect the
amount of funds available to make distributions on the notes on any payment
date only if a substantial portion of the loans prepaid prior to their
respective due dates in the preceding month, thus paying less than 30 days'
interest for that month, while very few loans prepaid after their respective
due dates in the preceding month. In addition, liquidations of defaulted loans
or the servicer's or Financial Security's exercise of its option to repurchase
the entire remaining pool of loans will affect the timing of principal
distributions on the notes. See "Description of the Notes--Repurchase Option."
The amount of interest to which the noteholders of any class are entitled
on any payment date will be the product of the related interest rate and, in
the absence of any liquidation loss amount adjustment, the Principal Balance of
that class immediately following the preceding payment date. Interest on each
class will be computed on the basis of a 360-day year of twelve 30-day months.
Noteholders will receive payments in respect of principal on each payment date
to the extent that funds available in the note distribution account are
sufficient therefor, in the priority described under "Description of the
Notes--Distributions on the Notes." As required by applicable state laws,
interest paid by obligors on the loans is computed according to the simple
interest method.
Weighted Average Life of the Notes
The following information is given solely to illustrate the effect of
prepayments of the related loans on the weighted average life of each class of
notes under the stated assumptions and is not a prediction of the prepayment
rate that might actually be experienced by the loans.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the notes will be
influenced by the rate at which principal on the related loans is paid.
Principal payments on loans may be in the form of scheduled amortization or
prepayments. For this purpose, the term "prepayment" includes repayments and
liquidations due to default or other dispositions of the loans.
S-27
<PAGE>
The rate of principal payments on pools of home improvement contracts and
home equity loans is influenced by a variety of economic, geographic, social
and other factors, including the level of interest rates and the rate at which
homeowners sell their homes or default on their contracts or loans. Other
factors affecting prepayment of loans include changes in obligors' housing
needs, job transfers, unemployment and obligors' net equity in their homes. In
the case of home improvement contracts and home equity loans secured by real
estate, in general, if prevailing interest rates fall significantly below the
interest rates on such contracts or loans, the contracts or loans are likely to
be subject to higher prepayment rates than if prevailing interest rates
remained at or above the rates borne by such contracts or loans. Conversely, if
prevailing interest rates rise above the interest rates on such home
improvement contracts or home equity loans, the rate of prepayment would be
expected to decrease.
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the loans are received in
a timely manner and prepayments are made at the indicated percentages
of the prepayment assumption, which is described below, set forth in
the table;
(2) the servicer exercises its option to repurchase the loans, as
described under "Description of the Notes--Repurchase Option";
(3) the aggregate principal balance of the initial loans as of the cut-off
date is approximately $304,501,433.52 and such loans have the
characteristics set forth under "The Loans";
(4) the loans will, as of the cut-off date, be grouped into pools having
the additional characteristics set forth below under "Assumed Group 1
Loan Characteristics," "Assumed Initial Group 2 Loan Characteristics"
and "Assumed Subsequent Group 2 Loan Characteristics";
(5) each class of notes has an original Principal Balance as indicated in
"Summary of the Terms of the Notes";
(6) the subsequent loans will have the characteristics set forth in the
table below and have their first scheduled payment date in June 1999;
(7) the interest rates for the notes are as indicated in "Summary of the
Terms of the Notes";
(8) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(9) no delinquencies or losses are experienced on the loans;
(10) distributions are made on the notes on the 15th day of each month,
commencing in July 1999; and
(11) the notes are issued on June 30, 1999.
No representation is made that the loans will not experience delinquencies or
losses.
Prepayments on mortgage loans and other consumer installment obligations
are commonly measured relative to a prepayment standard or model, the
prepayment
S-28
<PAGE>
assumption. The prepayment assumption used in this prospectus supplement with
respect to the home improvement and home equity loans represents an assumed
rate of prepayment each month relative to the then outstanding principal
balance of a pool of home improvement and home equity loans for the life of
such home improvement and home equity loans. The 100% prepayment assumption
assumes a constant prepayment of 0% per year of the then outstanding principal
balance of the loans in the first month of the life of the loans and an
additional 1.14% (precisely, 16/14%) per year in each month thereafter until
the fifteenth month. Beginning in the fifteenth month and in each month
thereafter during the life of such loans, the 100% prepayment assumption
assumes a constant prepayment rate of 16% per year each month.
It is not likely that the loans will prepay at any constant percentage of
the prepayment assumption or that all of the loans will prepay at the same
rate.
You are urged to make your investment decisions on a basis that includes a
determination as to anticipated prepayment rates under a variety of the
assumptions discussed herein.
Assumed Group 1 Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Weighted Average Average
Cut-off Date Average Remaining Term Original Term
Pool Principal Loan to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- -------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ........................ $ 3,788,022.35 13.981% 112 121
2. ........................ 17,213,559.67 13.717 172 180
3. ........................ 11,389,992.34 13.764 231 240
4. ........................ 24,106,614.10 13.727 292 300
5. ........................ 9,554,687.06 16.184 109 112
6. ........................ 17,526,946.94 15.732 175 180
7. ........................ 58,669,918.00 15.927 236 240
8. ........................ 2,640,901.75 14.506 290 300
9. ........................ 12,886,722.56 13.784 113 114
10. ....................... 28,187,105.84 14.158 179 180
11. ....................... 21,801,683.12 13.679 231 233
12. ....................... 55,901,198.64 13.967 299 300
</TABLE>
S-29
<PAGE>
Assumed Initial Group 2 Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Weighted Average Average
Cut-off Date Average Remaining Term Original Term
Pool Principal Loan to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- -------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ........................ $ 70,311.62 14.467% 107 120
2. ........................ 1,081,066.59 13.239 174 180
3. ........................ 604,625.11 13.919 236 240
4. ........................ 1,173,711.21 13.548 293 300
5. ........................ 1,524,613.47 16.323 109 112
6. ........................ 2,528,901.48 16.118 177 180
7. ........................ 13,170,049.14 16.118 237 240
8. ........................ 176,911.78 14.615 296 300
9. ........................ 2,179,457.09 13.848 111 112
10. ....................... 4,154,155.69 14.059 178 179
11. ....................... 3,881,045.60 13.336 233 235
12. ....................... 10,289,232.37 13.159 299 300
</TABLE>
Assumed Subsequent Group 2 Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Weighted Average Average
Cut-off Date Average Remaining Term Original Term
Pool Principal Loan to Maturity to Maturity
Pool Balance Rate (months) (months)
- ---- -------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1. ....................... $ 686,389.37 13.990% 121 121
2. ....................... 3,254,574.94 13.689 180 180
3. ....................... 2,133,816.83 13.772 240 240
4. ....................... 4,497,315.87 13.719 300 300
5. ....................... 782,581.47 16.275 67 67
6. ....................... 4,370,692.22 16.191 120 120
7. ....................... 9,328,501.90 15.780 180 180
8. ....................... 33,414,655.70 15.962 240 240
9. ....................... 1,310,639.09 14.513 300 300
10. ....................... 3,780,706.50 13.812 113 113
11. ....................... 8,377,234.38 14.134 180 180
12. ....................... 967,644.31 14.719 193 193
13. ....................... 5,618,855.40 13.439 240 240
14. ....................... 16,974,958.50 13.841 300 300
</TABLE>
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each class of notes, and outline the
percentages of the original Principal Balance of each class that would be
outstanding after each of the dates shown, at the indicated percentages of the
CPR.
S-30
<PAGE>
The weighted average life of a class of notes is determined by:
(1) multiplying the amount of cash distributions in reduction of the
Principal Balance of such note by the number of years from the date of
issuance of such note to the stated payment date;
(2) adding the results; and
(3) dividing the sum by the initial Principal Balance of the note.
Percentage of the Original Principal Balance of the Class A-1
Notes at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200%
- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100% 100%
June 15, 2000................................ 87 83 80 76 72 69
June 15, 2001................................ 70 62 55 48 41 34
June 15, 2002................................ 55 45 35 26 18 10
June 15, 2003................................ 42 30 19 10 2 0
June 15, 2004................................ 31 24 15 7 1 0
June 15, 2005................................ 26 20 11 5 * 0
June 15, 2006................................ 22 16 8 3 0 0
June 15, 2007................................ 18 12 6 0 0 0
June 15, 2008................................ 15 10 5 0 0 0
June 15, 2009................................ 12 8 0 0 0 0
June 15, 2010................................ 10 6 0 0 0 0
June 15, 2011................................ 8 0 0 0 0 0
June 15, 2012................................ 6 0 0 0 0 0
June 15, 2013................................ 0 0 0 0 0 0
Weighted Average Life (years)................ 4.5 3.6 2.8 2.3 1.8 1.6
</TABLE>
- --------
* Indicates a percentage greater than 0% but less than 0.5%.
S-31
<PAGE>
Percentage of the Original Principal Balance of the Class A-2 Notes at the
Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200%
- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100% 100%
June 15, 2000................................ 91 88 86 83 81 78
June 15, 2001................................ 74 67 60 53 47 41
June 15, 2002................................ 58 48 39 30 22 15
June 15, 2003................................ 45 33 23 13 5 0
June 15, 2004................................ 33 27 18 10 4 0
June 15, 2005................................ 28 22 14 8 3 0
June 15, 2006................................ 24 18 11 6 0 0
June 15, 2007................................ 20 15 9 0 0 0
June 15, 2008................................ 17 12 7 0 0 0
June 15, 2009................................ 14 10 0 0 0 0
June 15, 2010................................ 12 8 0 0 0 0
June 15, 2011................................ 10 0 0 0 0 0
June 15, 2012................................ 8 0 0 0 0 0
June 15, 2013................................ 0 0 0 0 0 0
Weighted Average Life (years)................ 4.9 4.0 3.1 2.6 2.1 1.8
</TABLE>
Percentage of the Original Principal Balance of the Class M-1
Notes at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200%
- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100% 100%
June 15, 2000................................ 100 100 100 100 100 100
June 15, 2001................................ 100 100 100 100 100 100
June 15, 2002................................ 100 100 100 100 100 100
June 15, 2003................................ 100 100 100 100 100 63
June 15, 2004................................ 100 82 78 74 70 42
June 15, 2005................................ 85 66 60 54 49 27
June 15, 2006................................ 72 53 46 39 0 0
June 15, 2007................................ 60 42 35 0 0 0
June 15, 2008................................ 50 34 26 0 0 0
June 15, 2009................................ 41 27 0 0 0 0
June 15, 2010................................ 34 21 0 0 0 0
June 15, 2011................................ 28 0 0 0 0 0
June 15, 2012................................ 22 0 0 0 0 0
June 15, 2013................................ 0 0 0 0 0 0
Weighted Average Life (years)................ 9.4 7.7 6.9 6.3 5.8 4.8
</TABLE>
S-32
<PAGE>
Percentage of the Original Principal Balance of the Class M-2 Notes at the
Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200%
- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100% 100%
June 15, 2000................................ 100 100 100 100 100 100
June 15, 2001................................ 100 100 100 100 100 100
June 15, 2002................................ 100 100 100 100 100 100
June 15, 2003................................ 100 100 100 100 100 100
June 15, 2004................................ 100 82 78 74 70 66
June 15, 2005................................ 85 66 60 54 49 43
June 15, 2006................................ 72 53 46 39 0 0
June 15, 2007................................ 60 42 35 0 0 0
June 15, 2008................................ 50 34 26 0 0 0
June 15, 2009................................ 41 27 0 0 0 0
June 15, 2010................................ 34 21 0 0 0 0
June 15, 2011................................ 28 0 0 0 0 0
June 15, 2012................................ 22 0 0 0 0 0
June 15, 2013................................ 0 0 0 0 0 0
Weighted Average Life (years)................ 9.4 7.7 6.9 6.3 5.8 5.4
</TABLE>
Percentage of the Original Principal Balance of the Class B-1
Notes at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200%
- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100% 100%
June 15, 2000................................ 100 100 100 100 100 100
June 15, 2001................................ 100 100 100 100 100 100
June 15, 2002................................ 100 100 100 100 100 100
June 15, 2003................................ 100 100 100 100 100 100
June 15, 2004................................ 100 82 78 74 70 66
June 15, 2005................................ 85 66 60 54 49 43
June 15, 2006................................ 72 53 46 39 0 0
June 15, 2007................................ 60 42 35 0 0 0
June 15, 2008................................ 50 34 26 0 0 0
June 15, 2009................................ 41 27 0 0 0 0
June 15, 2010................................ 34 21 0 0 0 0
June 15, 2011................................ 28 0 0 0 0 0
June 15, 2012................................ 22 0 0 0 0 0
June 15, 2013................................ 0 0 0 0 0 0
Weighted Average Life (years)................ 9.4 7.7 6.9 6.3 5.8 5.4
</TABLE>
S-33
<PAGE>
Percentage of the Original Principal Balance of the Class B-2 Notes at the
Respective Percentages of the Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Date 75% 100% 125% 150% 175% 200%
- ---- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage........................... 100% 100% 100% 100% 100% 100%
June 15, 2000................................ 100 100 100 100 100 100
June 15, 2001................................ 100 100 100 100 100 100
June 15, 2002................................ 100 100 100 100 100 100
June 15, 2003................................ 100 100 100 100 100 100
June 15, 2004................................ 100 82 78 74 70 66
June 15, 2005................................ 85 66 60 54 49 43
June 15, 2006................................ 72 53 46 39 0 0
June 15, 2007................................ 60 42 35 0 0 0
June 15, 2008................................ 50 34 26 0 0 0
June 15, 2009................................ 41 27 0 0 0 0
June 15, 2010................................ 34 21 0 0 0 0
June 15, 2011................................ 28 0 0 0 0 0
June 15, 2012................................ 22 0 0 0 0 0
June 15, 2013................................ 0 0 0 0 0 0
Weighted Average Life (years)................ 9.4 7.7 6.9 6.3 5.8 5.4
</TABLE>
S-34
<PAGE>
GREEN TREE FINANCIAL CORPORATION
General
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under the heading "Green Tree Financial
Corporation."
Ratio of Earnings to Fixed Charges for Green Tree
The table below shows our ratios of earnings (losses) to fixed charges for
the past five years and the three months ended March 31, 1999. For the purposes
of compiling these ratios, earnings (losses) consist of earnings (losses)
before both income taxes and fixed charges. Fixed charges consist of interest
expense and the interest portion of rent expense.
<TABLE>
<CAPTION>
Three
Months
Ended
Year Ended December 31, March 31,
------------------------ ---------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed Charges 7.98 7.90 5.44 3.94 .62* 4.53
</TABLE>
- --------
* For 1998, adjusted earnings were $83.4 million less than fixed charges.
Adjusted earnings for 1998 included an impairment charge of $549.4 million
and nonrecurring charges of $108.0 million related to our merger with
Conseco, Inc.
Recent Developments
Green Tree has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were filed by a
few of our stockholders as purported class actions on behalf of persons or
entities who purchased common stock or traded in options of Green Tree during
the alleged class periods. These alleged class periods run from February 1995
to January 1998. One of these lawsuits did not include class action claims. In
addition to the company, some of our current and former officers and directors
are named as defendants in one or more of the lawsuits. The lawsuits have been
consolidated into two complaints, one relating to an alleged class of
purchasers of our common stock and the other relating to an alleged class of
traders in options for our common stock. In addition to these two complaints, a
separate non-class action lawsuit containing similar allegations was also
filed. Plaintiffs in the lawsuits assert claims under Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934. In each case, plaintiffs allege that
Green Tree and the other defendants violated federal securities laws by making
false and misleading statements about the current state and future prospects of
Green Tree, particularly about prepayment assumptions and performance of some
of our loan portfolios, which allegedly rendered our financial statements false
and misleading. We believe that the lawsuits are without merit and intend to
defend the lawsuits vigorously. However, the ultimate outcome of these lawsuits
cannot be predicted with certainty. Green Tree has filed motions, which are
pending, to dismiss these lawsuits.
S-35
<PAGE>
DESCRIPTION OF THE NOTES
The following information supplements and, if inconsistent, supersedes the
information contained in the prospectus under "The Notes," "Certain Information
Regarding the Securities," and "Description of the Trust Documents."
General
The notes will be issued pursuant to the terms of the indenture, a form of
which has been filed as an exhibit to the registration statement. A copy of the
indenture, as executed, will be filed in a current report on Form 8-K with the
SEC following the issuance of the securities. The following summary describes
the terms of the notes and the indenture. The summary does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the notes and the indenture. The following summary
supplements the description of the general terms and provisions of the notes of
any given series and the related indenture set forth in the accompanying
prospectus, to which description reference is hereby made. U.S. Bank Trust
National Association, a national banking association headquartered in St. Paul,
Minnesota, will be the indenture trustee.
The notes initially will be represented by certificates registered in the
name of Cede as the nominee of DTC, and will only be available in the form of
book-entries on the records of DTC and its participating members. See
"Description of the Notes--Registration of the Notes" herein. The property held
by the indenture trustee under the indenture consists primarily of the loans
and the rights, benefits, obligations and proceeds arising from the loans,
including liens on the related real estate, amounts held in the collection
account and note distribution account, the note insurance policy for the
benefit of the Class A noteholders and our Class B-2 limited guaranty for the
benefit of the Class B-2 noteholders.
Payments on the notes will be made each month by the paying agent, which
shall initially be the indenture trustee, on each payment date to persons in
whose names the notes are registered as of the business day immediately
preceding the payment date. See "Description of the Notes--Registration of the
Notes." The first payment date for the notes will be in July 1999. Payments
will be made by check mailed to the noteholder at the address appearing on the
note register, except that a noteholder who holds an aggregate percentage
interest of at least 5% of a class of notes may request payment for its
percentage interest in the class by wire transfer. Final payments will be made
only upon tender of the notes to the indenture trustee for cancellation.
To the extent not paid in full prior to that date, the outstanding
principal amount of each class of notes will be payable on the following, final
scheduled distribution date for the class:
Class A-1: July 15, 2026
Class A-2: July 15, 2026
Class M-1: July 15, 2026
Class M-2: July 15, 2026
Class B-1: July 15, 2026
Class B-2: July 15, 2029
S-36
<PAGE>
Payments on Loans
The servicer will establish and maintain in the name of the indenture
trustee a collection account in an eligible account at a depository
institution, initially U.S. Bank National Association, Minneapolis, Minnesota,
with trust powers organized under the laws of the United States or any state,
the deposits of which are insured to the full extent permitted by law by the
FDIC, whose short-term deposits have been rated P-1 by Moody's and A-1 by S&P
if the deposits are to be held in the account for less than 30 days or whose
unsecured long-term debt has been rated in one of the two highest rating
categories by Moody's and S&P if the deposits are to be held in the account for
30 days or more, and which is subject to supervision and examination by federal
or state authorities. Eligible account means, at any time, an account which is:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the bank insurance fund or the savings association insurance
fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution
subject to regulations regarding fiduciary funds on deposit similar to
federal regulations with trust powers and acting in its fiduciary
capacity for the benefit of the indenture trustee, which depository
institution or trust company has capital and surplus of not less than
$50,000,000; or
(4) an account that will not cause Moody's or S&P to downgrade or withdraw
its then-current rating assigned to the notes without regard to the
note insurance policy, as evidenced in writing by Moody's and S&P.
The servicer may authorize the indenture trustee to invest the funds in the
collection account in eligible investments (as defined in the sale and
servicing agreement) that will mature not later than the business day preceding
the applicable monthly payment date. The eligible investments include, among
other investments, obligations of the United States or of any agency thereof
backed by the full faith and credit of the United States, federal funds,
certificates of deposit, time deposits and bankers acceptances sold by eligible
commercial banks; any other demand or time deposit or certificate of deposit
fully insured by the FDIC; investments in certain money-market funds; certain
repurchase agreements of United States government securities with eligible
commercial banks; securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least Aa2 by Moody's and AA from
S&P not in excess of 10% of amounts in the collection account at the time of
the investment; and commercial paper assigned a rating of at least P-1 by
Moody's and A-1+ by S&P. Any losses on those investments will be immediately
deposited by the servicer.
All receipts by the servicer of payments with respect to the loans,
including principal prepayments and advance payments by obligors not
constituting principal prepayments, will be paid into the collection account no
later than one business day following receipt thereof, except amounts received
as extension fees or assumption fees not allocated to regular installments due
on loans, which are retained by the servicer as part of its servicing fees and
are not paid into the collection account and except for certain proceeds from
liquidated loans
S-37
<PAGE>
which are used to reimburse the servicer for customary out-of-pocket
liquidation expenses. See "Description of the Notes--Servicing Compensation and
Payment of Expenses". In addition, any advances by the servicer or the
indenture trustee as described under "Description of the Notes--Advances," and
amounts we paid for loans repurchased as a result of a breach of
representations or warranties, as described under "Description of the Notes--
Conveyance of Loans," will be paid into the collection account.
Distribution of Amount Available
On a specified business day preceding each payment date, the servicer will
determine the Amount Available and the amount of funds necessary to make all
payments to be made on the next payment date from the collection account. Not
later than one business day after the determination date, we will deposit in
the collection account the repurchase price of any loans required to be
repurchased on that payment date as a result of a breach of representations and
warranties.
The Amount Available will consist primarily of payments made on or in
respect of the loans and will include payments made by Financial Security under
the note insurance policy and amounts payable, subject to the subordination
described in this prospectus supplement, to the servicer, so long as we or any
of our wholly owned subsidiaries is the servicer, as the monthly servicing fee
on the loans, and to the certificateholders.
On each payment date, the indenture trustee will withdraw the Amount
Available from the collection account and make the following payments, in the
following order of priority:
(1) if neither we nor any of our wholly owned subsidiaries is the
servicer, to pay the monthly servicing fee with respect to the loans
to the servicer;
(2) to pay the amount payable monthly to Financial Security, in an amount
equal to the premium rate times the sum of the Class A-1 and Class A-2
Principal Balance;
(3) to pay interest on the notes, in the following order of priority:
(A) first, to Class A-1 noteholders and the Class A-2 noteholders,
interest on the Class A-1 Principal Balance and Class A-2
Principal Balance, respectively;
(B) second, to Class M-1 noteholders, interest on the Class M-1
Adjusted Principal Balance;
(C) third, to Class M-2 noteholders, interest on the Class M-2
Adjusted Principal Balance; and
(D) fourth, to Class B-1 noteholders, interest on the Class B-1
Adjusted Principal Balance;
(4) to pay principal on the Class A notes, in the amount described below
under "Distributions on the Notes--Principal on the Class A, Class M-
1, Class M-2 and Class B-1 Notes," in respect of the Group 1 Formula
Principal Distribution Amount in the case of the Class A-1 notes, and
in respect of the Group 2 Formula Principal Distribution Amount in the
case of the Class A-2 notes;
S-38
<PAGE>
(5) to pay Financial Security for any unreimbursed insurance payments and
any other amounts owing to Financial Security under the insurance
agreement, including any unpaid premium amount, together with interest
thereon as specified in the insurance agreement;
(6) to pay principal on the Class M-1 notes, in the amount described below
under "Distributions on the Notes--Principal on the Class M-1 Notes";
(7) to pay principal on the Class M-2 notes, in the amount described below
under "Distributions on the Notes--Principal on the Class M-2 Notes";
(8) to pay principal on the Class B-1 notes, in the amount described below
under "Distributions on the Notes--Principal on the Class B-1 Notes";
(9) to pay liquidation loss interest amounts on the Class M-1, Class M-2
and Class B-1 notes as follows:
(I) first, to Class M-1 noteholders, any unpaid Class M-1 liquidation
loss interest amount;
(II) second, to Class M-2 noteholders, any unpaid Class M-2
liquidation loss interest amount; and
(III) third, to Class B-1 noteholders, any unpaid Class B-1
liquidation loss interest amount;
(10) to pay interest and principal on the Class B-2 notes, in the manner
and order of priority described below under "Distributions on the
Notes--Class B-2 Interest" and "--Class B-2 Principal;"
(11) if we or any one of our wholly owned subsidiaries is the servicer, to
pay the monthly servicing fee to the servicer;
(12) to reimburse the servicer or the indenture trustee, as applicable,
for any unreimbursed advances on the loans made for current or prior
payment dates;
(13) to pay any supplementary principal distribution amount to the Class A
notes; and
(14) to pay any remaining amounts to the holder of the certificate.
Distributions on the Notes
On each payment date, distributions on the notes will be made to the
holders of the Class A, the Class M and the Class B notes in the manner
described below.
Noteholders will be entitled to receive on each payment date commencing in
July 1999, to the extent that the Amount Available in the note distribution
account (together with, in the case of the Class B-2 notes, any Class B-2
guaranty payment, as described below) is sufficient therefor, distributions
allocable to interest and principal, as described herein. The rights of the
Class M and Class B noteholders to receive distributions in respect of the
Amount Available are subordinated to the rights of the Class A noteholders and
the note insurer's right to the premium amount and the reimbursement amount;
the rights of the Class M-2 and Class B noteholders to receive such
distributions are further subordinated to the
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rights of the Class M-1 noteholders; the rights of the Class B noteholders to
receive such distributions are further subordinated to the rights of the Class
M-2 noteholders; and the rights of the Class B-2 noteholders to receive such
distributions are further subordinated to the rights of the Class B-1
noteholders. Distributions will be made on each payment date commencing in July
1999 to holders of record on the related record date, except that the final
distribution in respect of the notes will only be made upon presentation and
surrender of the notes at the office or agency appointed by the indenture
trustee for that purpose in Minneapolis or St. Paul, Minnesota.
Interest on the Class A, Class M-1, Class M-2 and Class B-1 Notes
Interest will be distributable first to each class of Class A notes
concurrently, then to the Class M-1 notes, then to the Class M-2 notes and then
to the Class B-1 notes. The interest rates for the Class A, Class M and Class
B-1 notes are listed in "Summary of the Terms of the Notes." Interest will
accrue on the outstanding Class A Principal Balance, Class M-1 Adjusted
Principal Balance, Class M-2 Adjusted Principal Balance and Class B-1 Adjusted
Principal Balance, as applicable, at the related interest rate from June 30,
1999, or from the most recent payment date on which interest has been paid, to
but excluding the following payment date, and will be computed on the basis of
a 360-day year of twelve 30-day months. The Principal Balance of a class of
notes as of any payment date is the original Principal Balance of that class
less all amounts previously distributed on account of principal of such class.
The Class A Principal Balance as of any payment date is the sum of the Class A-
1 Principal Balance and the Class A-2 Principal Balance. The Class M Principal
Balance as of any payment date is the sum of the Class M-1 Principal Balance
and the Class M-2 Principal Balance. The Class M-1 Adjusted Principal Balance
as of any payment date is the Class M-1 Principal Balance less any Class M-1
liquidation loss principal amount described below under "--Losses on Liquidated
Loans." The Class M-2 Adjusted Principal Balance as of any payment date is the
Class M-2 Principal Balance less any Class M-2 liquidation loss principal
amount described below under "--Losses on Liquidated Loans." The Class B
Principal Balance as of any payment date is the sum of the Class B-1 Principal
Balance and the Class B-2 Principal Balance. The Class B-1 Adjusted Principal
Balance as of any payment date is the Class B-1 Principal Balance less any
Class B-1 liquidation loss principal amount described below under "--Losses on
Liquidated Loans."
In the event that, on a particular payment date, the Amount Available in
the note distribution account is not sufficient to make a full distribution of
interest to the holders of Class M-1 notes, Class M-2 notes or Class B-1 notes,
after payment of interest on each class of notes that is senior to that class
of notes, the amount of interest to be distributed in respect of that class
will be allocated among the outstanding holders of that class pro rata in
accordance with their respective entitlements to interest, and the amount of
the shortfall will be carried forward and added to the amount such holders will
be entitled to receive on the next payment date. Any such amount so carried
forward will bear interest at the applicable interest rate, to the extent
legally permissible.
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Principal on the Notes.
Holders of the Class A notes will be entitled to receive a payment of
principal on each payment date, to the extent of the Amount Available in the
note distribution account after payment of all amounts with a higher priority
as described in "--Distribution of Amount Available" above.
The Class A-1 notes will be entitled to receive an amount equal to the
Class A Percentage of the "Group 1 Formula Principal Distribution Amount" for
that payment date, which is the sum of:
(1) all scheduled payments of principal due on each outstanding group 1
loan during the related due period;
(2) the scheduled principal balance of each group 1 loan which, during
such due period, was purchased by Green Tree on account of any breach
of its representations and warranties;
(3) all partial principal prepayments applied and all principal
prepayments in full received during such due period in respect of
group 1 loans;
(4) the scheduled principal balance of each group 1 loan that became a
liquidated loan during such due period; and
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the note distribution account, if the payment date occurs
on or after the payment date on which the Class B-2 Principal Balance
has been reduced to zero, or such amount was not covered by a Class B-
2 guaranty payment and corresponding reduction in the Class B-2
Principal Balance.
The Class A-2 notes will be entitled to receive an amount equal to the
Class A Percentage of "Group 2 Formula Principal Distribution Amount" for that
payment date, which is the sum of:
(1) all scheduled payments of principal due on each outstanding group 2
loan during the related due period;
(2) the scheduled principal balance of each group 2 loan which, during
such due period, was purchased by Green Tree on account of any breach
of its representations and warranties;
(3) all partial principal prepayments applied and all principal
prepayments in full received during such due period in respect of
group 2 loans;
(4) the scheduled principal balance of each group 2 loan that became a
liquidated loan during that due period; and
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the note distribution account, if the payment date occurs
on or after the payment date on which the Class B-2 Principal Balance
has been reduced to zero, or such amount was not covered by a Class B-
2 guaranty payment and corresponding reduction in Class B-2 Principal
Balance.
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If either the Class A-1 notes or the Class A-2 notes are retired, the
remaining Class A notes will be entitled to receive the Class A Percentage of
both the Group 1 Formula Principal Distribution Amount and Group 2 Formula
Principal Distribution Amount.
The "Class A Percentage" for any payment date will equal a fraction,
expressed as a percentage, the numerator of which is the Class A Principal
Balance and the denominator of which is the sum of:
. the Class A Principal Balance,
. if the Class M-1 Distribution Test is satisfied on that payment date,
the Class M-1 Adjusted Principal Balance, otherwise zero,
. if the Class M-2 Distribution Test is satisfied on that payment date,
the Class M-2 Adjusted Principal Balance, otherwise zero,
. if the Class B-1 Distribution Test is satisfied on that payment date,
the Class B-1 Adjusted Principal Balance, otherwise zero, and
. if the Class B-2 Distribution Test is satisfied on that payment date,
the Class B-2 Principal Balance, otherwise zero.
The scheduled principal balance of a loan with respect to any payment date
is its principal balance as of the scheduled payment date in the due period,
after giving effect to any previous partial principal prepayments applied and
to the scheduled payment due on the due date, and after giving effect to any
adjustments due to bankruptcy or similar proceedings. The pool scheduled
principal balance, with respect to the loan pool as of any payment date, is the
aggregate of the scheduled principal balances of loans comprising the loan pool
that were outstanding during the preceding due period. A liquidated loan is a
defaulted loan that is 180 days delinquent, or as to which all amounts that the
servicer expects to recover on account of the loan have been received.
In addition, on each payment date on which the supplementary principal
distribution test has not been satisfied, holders of Class A notes will be
entitled to receive as payments of principal the supplementary principal
distribution amount. The supplementary principal distribution test will not be
met if the cumulative losses on the loans exceed specified percentages of the
principal balance of the loans as of the cut-off date or the average realized
losses exceed specified percentages of the pool scheduled principal balance.
Financial Security, at its sole option, may waive violations of the
supplementary principal distribution test. The supplementary principal
distribution amount on any payment date will be the remaining amount available
after payment of all interest and principal due on the notes.
Principal on the Class M-1 Notes.
Holders of the Class M-1 Notes will be entitled to receive a payment of
principal on each payment date on which the Class A Principal Balance has been
reduced to zero or the Class M-1 Distribution Test is satisfied. The amount of
principal paid on the Class M-1 notes on any payment date will be the Class M-1
Percentage of the Formula Principal
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Distribution Amount, subject to the limit of the Amount Available in the note
distribution account remaining after payment of all amounts with a higher
priority as described in "--Distribution of Amount Available" above.
The "Formula Principal Distribution Amount" for any payment date is the sum
of the Group 1 Formula Principal Distribution Amount and the Group 2 Formula
Principal Distribution Amount for that payment date.
The "Class M-1 Percentage" for any payment date will equal:
(1) 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
(2) a fraction, expressed as a percentage, the numerator of which is the
Class M-1 Principal Balance and the denominator of which is the sum
of:
. the Class A Principal Balance,
. the Class M-1 Adjusted Principal Balance,
. if the Class M-2 Distribution Test is satisfied on that payment
date, the Class M-2 Adjusted Principal Balance, otherwise zero,
. if the Class B-1 Distribution Test is satisfied on that payment
date, the Class B-1 Adjusted Principal Balance, otherwise zero,
and
. if the Class B-2 Distribution Test is satisfied on that payment
date, the Class B-2 Principal Balance, otherwise zero.
The Class M-1 Distribution Test will be satisfied if each of the following
tests is satisfied:
(1) the payment date occurs in or after July 2003;
(2) the average sixty-day delinquency ratio, as defined in the sale and
servicing agreement, as of that payment date must not exceed 10% of
the Senior Subordination Percentage as defined below;
(3) cumulative realized losses, as defined in the sale and servicing
agreement, as of the payment date must not exceed a specified
percentage of the cut-off date pool principal balance, depending on
the year in which the payment date occurs;
(4) the sum of the Class M-1 Adjusted Principal Balance, the Class M-2
Adjusted Principal Balance, the Class B-1 Adjusted Principal Balance
and the Class B-2 Principal Balance, divided by the pool scheduled
principal balance as of the preceding payment date, must be equal to
or greater than 53.30%; and
(5) the supplementary principal distribution test must be met.
The Senior Subordination Percentage for any payment date will equal:
(1) on any payment date on which the Class A Principal Balance has not
been reduced to zero, a fraction, expressed as a percentage, the
numerator of which is the sum of
. the Class M-1 Adjusted Principal Balance,
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. the Class M-2 Adjusted Principal Balance,
. the Class B-1 Adjusted Principal Balance, and
. the Class B-2 Principal Balance,
and the denominator of which is the pool scheduled principal balance of
the loans; or
(2) on any payment date on which the Class A Principal Balance has been
reduced to zero and the Class M-1 Principal Balance has not been
reduced to zero, a fraction, expressed as a percentage, the numerator
of which is the sum of
. the Class M-2 Adjusted Principal Balance,
. the Class B-1 Adjusted Principal Balance, and
. the Class B-2 Principal Balance,
and the denominator of which is the pool scheduled principal balance of
the loans; or
(3) on any payment date on which the Class M-1 Principal Balance has been
reduced to zero and the Class M-2 Principal Balance has not been
reduced to zero, a fraction, expressed as a percentage, the numerator
of which is the sum of
. the Class B-1 Adjusted Principal Balance, and
. the Class B-2 Principal Balance,
and the denominator of which is the pool scheduled principal balance of
the loans; or
(4) on any payment date on which the Class M-2 Principal Balance has been
reduced to zero and the Class B-1 Principal Balance has not been
reduced to zero, a fraction, expressed as a percentage, the numerator
of which is the Class B-2 Adjusted Principal Balance and the
denominator of which is the pool scheduled principal balance of the
loans.
Principal on the Class M-2 Notes.
Holders of the Class M-2 Notes will be entitled to receive a payment of
principal on each payment date on which the Class A Principal Balance and the
Class M-1 Principal Balance have been reduced to zero or the Class M-2
Distribution Test is satisfied. The amount of principal paid on the Class M-2
notes on any payment date will be the Class M-2 Percentage of the Formula
Principal Distribution Amount, subject to the limit of the Amount Available in
the note distribution account remaining after payment of all amounts with a
higher priority as described in --"Distribution of Amount Available" above.
The "Class M-2 Percentage" for any payment date will equal:
(1) 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
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(2) a fraction, expressed as a percentage, the numerator of which is the
Class M-2 Principal Balance and the denominator of which is the sum
of:
. the Class A Principal Balance,
. the Class M-1 Adjusted Principal Balance,
. the Class M-2 Adjusted Principal Balance,
. if the Class B-1 Distribution Test is satisfied on that payment
date, the Class B-1 Adjusted Principal Balance, otherwise zero,
and
. if the Class B-2 Distribution Test is satisfied on that payment
date, the Class B-2 Principal Balance, otherwise zero.
The Class M-2 Distribution Test will be satisfied if each of the following
tests is satisfied:
(1) the payment date occurs in or after July 2003;
(2) the average sixty-day delinquency ratio, as defined in the sale and
servicing agreement, as of that payment date must not exceed 10% of
the Senior Subordination Percentage as defined above;
(3) cumulative realized losses, as defined in the sale and servicing
agreement, as of the payment date must not exceed a specified
percentage of the cut-off date pool principal balance, depending on
the year in which the payment date occurs;
(4) the sum of the Class M-2 Adjusted Principal Balance, the Class B-1
Adjusted Principal Balance and the Class B-2 Principal Balance,
divided by the pool scheduled principal balance as of the preceding
payment date, must be equal to or greater than 36.00%; and
(5) the supplementary principal distribution test must be met.
Principal on the Class B-1 Notes.
Holders of the Class B-1 Notes will be entitled to receive a payment of
principal on each payment date on which the Class A Principal Balance, the
Class M-1 Principal Balance and the Class M-2 Principal Balance have been
reduced to zero or the Class B-1 Distribution Test is satisfied. The amount of
principal paid on the Class B-1 notes on any payment date will be the Class B-1
Percentage of the Formula Principal Distribution Amount, subject to the limit
of the Amount Available in the note distribution account remaining after
payment of all amounts with a higher priority as described in --"Distribution
of Amount Available" above.
The "Class B-1 Percentage" for any payment date will equal:
(1) zero, if the Class A Principal Balance, Class M-1 Principal Balance
and Class M-2 Principal Balance have not yet been reduced to zero and
the Class B-1 Distribution Test is not satisfied, or
(2) a fraction, expressed as a percentage, the numerator of which is the
Class B-1 Principal Balance and the denominator of which is the sum
of:
. the Class A Principal Balance,
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. the Class M-1 Adjusted Principal Balance,
. the Class M-2 Adjusted Principal Balance,
. if the Class B-1 Adjusted Principal Balance, and
. if the Class B-2 Distribution Test is satisfied on that payment
date, the Class B-2 Principal Balance, otherwise zero.
The Class B-1 Distribution Test will be satisfied if each of the following
tests is satisfied:
(1) the payment date occurs in or after July 2003;
(2) the average sixty-day delinquency ratio, as defined in the sale and
servicing agreement, as of that payment date must not exceed 10% of
the Senior Subordination Percentage as defined above;
(3) cumulative realized losses, as defined in the sale and servicing
agreement, as of the payment date must not exceed a specified
percentage of the cut-off date pool principal balance, depending on
the year in which the payment date occurs;
(4) the sum of the Class B-1 Adjusted Principal Balance and the Class B-2
Principal Balance, divided by the pool scheduled principal balance as
of the preceding payment date, must be equal to or greater than
24.20%; and
(5) the supplementary principal distribution test must be met.
Class B-2 Interest.
Interest will accrue on the outstanding Class B-2 Principal Balance from
June 30, 1999, or from the most recent payment date on which interest has been
paid, to but excluding the following payment date, and will be computed on the
basis of a 360-day year of twelve 30-day months.
To the extent of the remaining Amount Available, if any, for a payment date
after payment of all amounts with a higher priority as described in "--
Distribution of Amount Available" above, interest will be paid to the Class B-2
noteholders on such payment date at the Class B-2 interest rate on the then
outstanding Class B-2 Principal Balance. The Class B-2 Principal Balance is the
original Class B-2 Principal Balance less all amounts previously distributed to
the Class B-2 noteholders, including any Class B-2 guaranty payments on account
of principal.
If, on a particular payment date, the remaining Amount Available in the
note distribution account plus any amounts actually paid under the Class B-2
limited guaranty are not sufficient to make a full distribution of interest to
the Class B-2 noteholders, the amount of the deficiency will be carried forward
as an amount that the Class B-2 noteholders are entitled to receive on the next
payment date. Any amount so carried forward will, to the extent legally
permissible, bear interest at the Class B-2 interest rate.
Principal on the Class B-2 Notes.
Holders of the Class B-2 Notes will be entitled to receive a payment of
principal on each payment date on which the Class A Principal Balance, the
Class M-1 Principal Balance,
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the Class M-2 Principal Balance and the Class B-1 Principal Balance have been
reduced to zero or the Class B-2 Distribution Test is satisfied. The amount of
principal paid on the Class B-2 notes on any payment date will be the Class B-2
Percentage of the Formula Principal Distribution Amount, subject to the limit
of the Amount Available in the note distribution account remaining after
payment of all amounts with a higher priority as described in --"Distribution
of Amount Available" above.
The "Class B-2 Percentage" for any payment date will equal:
(1) zero, if the Class A Principal Balance, Class M-1 Principal Balance,
Class M-2 Principal Balance and the Class B-1 Principal Balance have
not yet been reduced to zero and the Class B-2 Distribution Test is
not satisfied, or
(2) a fraction, expressed as a percentage, the numerator of which is the
Class B-2 Principal Balance and the denominator of which is the sum
of:
. the Class A Principal Balance,
. the Class M-1 Adjusted Principal Balance,
. the Class M-2 Adjusted Principal Balance,
. if the Class B-1 Adjusted Principal Balance, and
. the Class B-2 Principal Balance.
The Class B-2 Distribution Test will be satisfied if each of the following
tests is satisfied:
(1) the payment date occurs in or after July 2003;
(2) the average sixty-day delinquency ratio, as defined in the sale and
servicing agreement, as of that payment date must not exceed 10% of
the Senior Subordination Percentage as defined above;
(3) cumulative realized losses, as defined in the sale and servicing
agreement, as of the payment date must not exceed a specified
percentage of the cut-off date pool principal balance, depending on
the year in which the payment date occurs;
(4) the Class B-2 Principal Balance divided by the pool scheduled
principal balance as of the preceding payment date must be equal to or
greater than 13.10%;
(5) the Class B-2 Principal Balance must not be less than $2,000,000; and
(6) the supplementary principal distribution test must be met.
On each payment date, the Class B-2 noteholders will be entitled to
receive, under the Class B-2 limited guaranty, the Class B-2 liquidation loss
principal amount until the Class B-2 Principal Balance has been reduced to
zero.
Subordination of Class M Notes and Class B Notes
The rights of the holders of the Class M notes and Class B notes to receive
distributions on the loans, as well as any other amounts constituting the
Amount Available, will be subordinated to the rights of the holders of the
Class A notes and the rights of Financial
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Security under the insurance agreement. This subordination is intended to
enhance the likelihood of regular receipt by the holders of the Class A notes
of the full amount of their scheduled monthly payments of interest and
principal and to afford holders protection against losses on Liquidated Loans.
A portion of the protection afforded to the holders of the Class A notes by
means of the subordination of the Class M and Class B notes will be
accomplished by the preferential right of the Class A noteholders to receive on
any payment date the amount of interest due on the Class A notes, including any
interest due on a prior payment date but not received, before any distribution
being made on a payment date in respect of interest on the Class M and Class B
notes. Thereafter, any remaining Amount Available in the note distribution
account will be applied to the payment of interest due on the Class M-1
Adjusted Principal Balance, then interest due on the Class M-2 Adjusted
Principal Balance and then interest due on the Class B-1 Adjusted Principal
Balance. The Class A notes will also have the benefit of the note insurance
policy.
After payment of fees to the servicer and Financial Security, all interest
then accrued on the Class A Principal Balance, Class M-1 Adjusted Principal
Balance, Class M-2 Adjusted Principal Balance and Class B-1 Adjusted Principal
Balance and reimbursement to Financial Security, any remaining Amount Available
will be distributed in the following order of priority: first, the applicable
class percentage of the Formula Principal Distribution Amount will be
distributed to the Class A, Class M-1, Class M-2 and Class B-1 noteholders in
the order of priority described above under "Distributions on the Notes--
Principal on the Class A, Class M-1, Class M-2 and Class B-1 Notes." The
remaining Amount Available will be distributed in the following order of
priority:
. any unpaid Class M-1 liquidation loss interest amount (as described
below under "Losses on Liquidated Loans") will be distributed to the
Class M-1 noteholders;
. any unpaid Class M-2 liquidation loss interest amount (as described
below under "Losses on Liquidated Loans") will be distributed to the
Class M-2 noteholders; and
. any unpaid Class B-1 liquidation loss interest amount (as described
below under "Losses on Liquidated Loans") will be distributed to the
Class B-1 noteholders.
The rights of the holders of the Class B-2 notes to receive distributions
on the loans and other amounts in the note distribution account will be
subordinated to the rights of the holders of the Class A notes, Class M notes
and Class B-1 notes and amounts payable to Financial Security. Thus, the Class
B-2 noteholders will be entitled to distribution of interest and principal on
the Class B-2 notes only after distribution of all interest and principal then
payable on the Class A, Class M and Class B-1 notes.
If a Class B-2 liquidation loss principal amount is realized for any
payment date and we fail to pay that amount under our Class B-2 limited
guaranty, the Class B-2 noteholders may incur losses on their investment in the
Class B-2 notes to the extent the losses are not made up from future payments
on the loans or the Class B-2 limited guaranty.
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Losses on Liquidated Loans
As described above, the distribution of principal to the Class A
noteholders is intended to include the Class A Percentage of the scheduled
principal balance of each loan that became a liquidated loan during the
preceding due period. If the net liquidation proceeds from the liquidated loan
are less than the scheduled principal balance of the liquidated contract plus
accrued and unpaid interest, the deficiency will, in effect, be absorbed by the
certificateholders first, then the monthly servicing fee otherwise payable to
the servicer, so long as we or one of our or any wholly owned subsidiaries is
the servicer on the loans, then the Class B-2 noteholders, then the Class B-1
noteholders, then the Class M-2 noteholders and then the Class M-1 noteholders.
Likewise, to the extent the Class M-1 noteholders, the Class M-2 noteholders or
the Class B-1 noteholders are entitled to receive distributions of principal,
similar deficiencies could result for each class of notes with a lower payment
priority.
If the Amount Available in the note distribution account for any payment
date is insufficient to distribute the full Formula Principal Distribution
Amount for that payment date to the noteholders, the aggregate outstanding
Principal Balance of the notes will be greater than the pool scheduled
principal balance for that payment date. If this happens, the amount of such
deficiency would be allocated first to the Class B-2 notes, and we would be
obligated to pay the amount of the Class B-2 liquidation loss principal amount
to the Class B-2 noteholders under the Class B-2 limited guaranty. If on any
payment date the sum of the Class A Principal Balance, the Class M-1 Principal
Balance, the Class M-2 Principal Balance and the Class B-1 Principal Balance
was equal to the pool scheduled principal balance and no further liquidation
loss principal amounts could be allocated to the Class B-2 notes and any
further liquidation loss principal amounts realized would be allocated to
reduce the Class B-1 Adjusted Principal Balance. If the Class B-1 Adjusted
Principal Balance were reduced to zero, any further liquidation loss principal
amounts realized would be allocated to reduce the Class M-2 Adjusted Principal
Balance. If the Class M-2 Adjusted Principal Balance were reduced to zero, any
further liquidation loss principal amounts realized would be allocated to
reduce the Class M-1 Adjusted Principal Balance. Any liquidation loss principal
amounts would be reduced on subsequent payment dates if the Amount Available in
the note distribution account on the subsequent payment dates is sufficient to
permit the distribution of principal due, but not paid, on the notes on prior
payment dates. If the Adjusted Principal Balance of the Class M-1, Class M-2 or
Class B-1 notes were reduced by a liquidation loss principal amount, interest
accruing on that class would be calculated on the reduced Adjusted Principal
Balance of that class. The interest accruing on that class's liquidation loss
principal amount each month, plus interest at the applicable interest rate on
any liquidation loss interest amount due on a prior payment date but not paid,
would be paid to the noteholders of that class from the Amount Available, after
distributions of principal on all Class A, Class M and Class B-1 notes, in the
order of priority described above under "Subordination of Class M and Class B
Notes."
But for the effect of the subordination of the Class M-2 and Class B notes,
the certificates and the related monthly servicing fee otherwise payable to the
servicer, so long as we or one of our wholly owned subsidiaries is the
servicer, the Class M-1 noteholders
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will absorb all losses on each liquidated loan in the amount by which its net
liquidation proceeds are less than its unpaid principal balance plus accrued
and unpaid interest less the related monthly servicing fee.
But for the effect of the subordination of the Class B notes, the
certificates and the related monthly servicing fee otherwise payable to the
servicer, so long as we or one of our wholly owned subsidiaries is the
servicer, the Class M-2 noteholders will absorb all losses on each liquidated
loan in the amount by which its net liquidation proceeds are less than its
unpaid principal balance plus accrued and unpaid interest less the related
monthly servicing fee.
But for the effect of the subordination of the Class B-2 notes, the
certificates and the related monthly servicing fee otherwise payable to the
servicer, so long as we or one of our wholly owned subsidiaries is the
servicer, the Class B-1 noteholders will absorb all losses on each liquidated
contract in the amount by which its net liquidation proceeds are less than its
unpaid principal balance plus accrued and unpaid interest less the related
monthly servicing fee.
But for the payments under the Class B-2 limited guaranty described below
and the subordination of the certificates and the related monthly servicing fee
otherwise payable to the servicer, so long as we or one of our wholly owned
subsidiaries is the servicer on the loans, the Class B-2 noteholders will
absorb all losses on each liquidated loan in the amount by which its net
liquidation proceeds are less than its unpaid principal balance plus accrued
and unpaid interest less the related monthly servicing fee.
Advances
If the amount collected on a loan during a due period is less than the
scheduled amount due, the servicer will be obligated to make an advance of the
uncollected amount. The servicer will be obligated to advance a delinquent
payment on a loan only if the servicer expects to recover the advance from
subsequent available funds. If the servicer fails to make an advance, the
indenture trustee will be obligated to deposit the amount of the advance in the
collection account on the payment date. However, the indenture trustee will not
be obligated to deposit any of this amount if the indenture trustee does not
expect to recover the advance from subsequent available funds or if the
indenture trustee determines that it is not legally able to make the advance.
Reports to Noteholders
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class A noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of each class of Class A
notes allocable to interest;
(2) the amount of the distribution to holders of each class of Class A
notes allocable to principal, separately identifying the aggregate
amount of any principal prepayments and any supplementary principal
distribution amount included;
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(3) any amount by which the Class A formula distribution amount exceeds
the Class A distribution amount for the payment date;
(4) the Principal Balance of each class of Class A notes after giving
effect to the distribution of principal on the payment date;
(5) the Class A Percentage for the payment date;
(6) the pool scheduled principal balance for the payment date;
(7) the pool factor (a percentage derived from a fraction the numerator of
which is the sum of the Class A Principal Balance, the Class M
Principal Balance and the Class B Principal Balance and the
denominator of which is the cut-off date pool principal balance;
(8) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days;
(9) the amount of any payment by Financial Security under the note
insurance policy and any reimbursement paid to Financial Security; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a Class A note with a 1% percentage interest or per $1,000
denomination of Class A note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class A noteholder of
record at any time during that calendar year as to the aggregate of amounts
reported under (1) and (2) above for such calendar year.
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class M-1 noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of the Class M-1 notes
allocable to interest, separately identifying any unpaid interest
shortfall included;
(2) the amount of such distribution to holders of the Class M-1 notes
allocable to principal, separately identifying the aggregate amount of
any principal prepayments included;
(3) any amount by which the Class M-1 formula distribution amount exceeds
the Class M-1 distribution amount for the payment date;
(4) the Principal Balance of the Class M-1 note, after giving effect to
the distribution of principal on the payment date;
(5) any unpaid Class M-1 liquidation loss interest amount, after giving
effect to payments of interest on the payment date;
(6) the Class M-1 Percentage for the payment date;
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(7) the pool scheduled principal balance for the payment date;
(8) the pool factor;
(9) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a Class M-1 note with a 1% percentage interest or per $1,000
denomination of Class M-1 note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-1 noteholder
of record at any time during that calendar year as to the aggregate of amounts
reported under (1) and (2) above for that calendar year.
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class M-2 noteholder, a
statement in respect of the related payment date showing:
(1) the amount of the distribution to holders of the Class M-2 notes
allocable to interest, separately identifying any unpaid interest
shortfall included;
(2) the amount of the distribution to holders of the Class M-2 notes
allocable to principal, separately identifying the aggregate amount of
any principal prepayments included;
(3) any amount, by which the Class M-2 formula distribution amount exceeds
the Class M-2 distribution amount for the payment date;
(4) the Principal Balance of the Class M-2 notes after giving effect to
the distribution of principal on the payment date;
(5) any unpaid Class M-2 liquidation loss interest amount, after giving
effect to payments of interest on the payment date;
(6) the Class M-2 Percentage for the payment date;
(7) the pool scheduled principal balance for the payment date;
(8) the pool factor;
(9) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a Class M-2 note with a 1% percentage interest or per $1,000
denomination of Class M-2 note.
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In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class M-2 noteholder
of record at any time during that calendar year as to the aggregate of amounts
reported pursuant to (1) and (2) above for that calendar year.
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class B-1 noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of the Class B-1 notes
allocable to interest, separately identifying any unpaid interest
shortfall included;
(2) the amount of the distribution to holders of the Class B-1 notes
allocable to principal, separately identifying the aggregate amount of
any principal prepayments included;
(3) any amount which the Class B-1 formula distribution amount exceeds the
Class B-1 distribution amount for the payment date;
(4) the Principal Balance of the Class B-1 notes after giving effect to
the distribution of principal on the payment date;
(5) any unpaid Class B-1 liquidation loss interest amount, after giving
effect to payments of interest on the payment date;
(6) the Class B-1 percentage for the payment date;
(7) the pool scheduled principal balance for the payment date;
(8) the pool factor;
(9) the number and aggregate principal balance of loans delinquent (a) 30-
59 days, (b) 60-89 days, and (c) 90 or more days; and
(10) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (4) will be expressed as
dollar amounts for a class B-1 note with a 1% percentage interest or per $1,000
denomination of Class B-1 note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-1 noteholder
of record at any time during that calendar year as to the aggregate of amounts
reported under (1) and (2) above for that calendar year.
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution to a Class B-2 noteholder, a
statement in respect of the related payment date that shows:
(1) the amount of the distribution to holders of Class B-2 notes allocable
to interest;
(2) the amount of the distribution to holders of Class B-2 notes allocable
to principal (separately identifying the aggregate amount of any
principal prepayments included);
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(3) any amount by which the sum of the Class B-2 formula distribution
amount and the Class B-2 liquidation loss principal amount, if any,
exceeds the Class B-2 distribution amount for the payment date;
(4) the Class B-2 liquidation loss principal amount for the payment date;
(5) the Class B-2 guaranty payment for the payment date;
(6) the Class B-2 Principal Balance after giving effect to the
distribution of principal on the payment date;
(7) the Class B-2 Percentage for the payment date;
(8) the pool scheduled principal balance for the payment date;
(9) the pool factor;
(10) the number and aggregate principal balance of loans delinquent (a)
30-59 days, (b) 60-89 days, and (c) 90 or more days; and
(11) the number of defaulted loans in foreclosure or foreclosed upon and
in the servicer's inventory.
Information furnished under clauses (1) through (3) will be expressed as
dollar amounts for a Class B-2 note with a 1% percentage interest or per $1,000
denomination of Class B-2 note.
In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each Class B-2 noteholder
of record at any time during that calendar year as to the aggregate amounts
reported pursuant to (1) and (2) above for that calendar year.
Each of the foregoing statements will also be provided to Financial
Security, so long as the note insurance policy is in effect.
Conveyance of Loans
On the closing date, we will establish the trust and transfer, assign, set
over and otherwise convey to the trust all our right, title and interest in the
home improvement loans and the home equity loans, including all principal and
interest received on or with respect to such loans, other than receipts of
principal and interest due on such loans before the cut-off date. The trust
will pledge each loan to the indenture trustee for the benefit of the
noteholders and Financial Security under the indenture.
The indenture trustee, concurrently with each conveyance, will execute and
deliver the notes to or upon our order. The loans are described on a list
delivered to the trust and certified by a duly authorized officer of Green
Tree. The list includes the amount of monthly payments due on each loan as of
the date of issuance of the notes, the interest rate on each contract and the
maturity date of each loan. The list will be available for inspection by any
noteholder at our principal office. Before conveying the loans to the trust, we
will have completed a review of all the loan files, confirming the accuracy of
each item on the list of
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loans delivered to the indenture trustee. We will repurchase any loan
discovered not to agree with the list in a manner that is materially adverse to
the interests of the noteholders, or, if the discrepancy relates to the unpaid
principal balance of a loan, we may deposit cash in the collection account in
an amount sufficient to offset the discrepancy.
The indenture trustee will maintain possession of the loans and any other
documents contained in the loan files. Uniform Commercial Code financing
statements will be filed in Minnesota, reflecting the pledge and assignment of
the loans to the indenture trustee, and our accounting records and computer
systems will also reflect such pledge and assignment.
Dorsey & Whitney LLP, our counsel, will render an opinion to the indenture
trustee that the transfer of the loans from us to the trust would, in the event
we became a debtor under the United States Bankruptcy Code, be treated as a
true sale and not as a pledge to secure borrowings. If, however, the transfer
of the loans from us to the trust were treated as a pledge to secure our
borrowings, the distribution of proceeds of the loans to the trust might be
subject to the automatic stay provisions of the United States Bankruptcy Code,
which would delay the distribution of such proceeds for an uncertain period of
time. In addition, a bankruptcy trustee would have the power to sell the loans
if the proceeds of the sale could satisfy the amount of the debt deemed owed by
us, or the bankruptcy trustee could substitute other collateral in lieu of the
loans to secure the debt, or the debt could be subject to adjustment by the
bankruptcy trustee if we were to file for reorganization under Chapter 11 of
the United States Bankruptcy Code.
We will make representations and warranties in the sale and servicing
agreement about each loan, including that:
(1) for each loan as of the applicable cut-off date, the most recent
scheduled payment was made or was not delinquent more than 59 days;
(2) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trust;
(3) each loan is a legal, valid and binding obligation of the obligor and
is enforceable in accordance with its terms, except as may be limited
by laws affecting creditors' rights generally;
(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each loan was originated by a home improvement contractor or home
equity lender in the ordinary course of its business or was
originated by us directly;
(6) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest therein pursuant to the pooling and servicing agreement or
the notes unlawful;
(7) each loan complies with all requirements of law;
(8) no loan has been satisfied, subordinated to a lower lien ranking than
its original position or rescinded;
(9) each loan creates a valid and perfected lien on the related real
estate;
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(10) all parties to each contract had full legal capacity to execute the
loan;
(11) no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance, equity, lien, pledge, charge, claim or
security interest, and are the sole owner and have full right to
transfer the loan to the trust;
(12) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clauses (1) and (2) above, no event that
with notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under the loan, and we have not waived any of the
above;
(13) each loan is a fully-amortizing loan and provides for level monthly
payments based on its applicable loan rate, for the final monthly
payment, over the term of such loan;
(14) each loan contains customary and enforceable provisions such as to
render the rights and remedies of the holder adequate for
realization against the collateral;
(15) the description of each loan in the list delivered to the trust is
true and correct;
(16) there is only one original of each loan; and
(17) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
We will also make representations and warranties about the loans in the
aggregate, including that:
(1) the aggregate pool of loans have a weighted average rate of interest
of at least 14%;
(2) no loan had a remaining term to maturity at origination of more than
360 months;
(3) no more than 1% of the loans, by principal balance as of the cut-off
date, were secured by properties located in an area with the same zip
code;
(4) no more than 5% of the loans, by principal balance as of the cut-off
date, were originated by any one contractor or lender; and
(5) no adverse selection procedures were employed in selecting the loans
from our portfolio.
Under the terms of the sale and servicing agreement, we have agreed to
repurchase, at the repurchase price, any loan that is materially and adversely
affected by a breach of a representation and warranty regarding the loan made
in the sale and servicing agreement if the breach has not been cured within 90
days of the day it was or should have been discovered by the servicer or the
indenture trustee. The repurchase price, with respect to any loan to be so
repurchased or with respect to a liquidated loan, means the outstanding
principal balance of the loan plus interest on the loan at an interest rate
equal to the weighted average of the interest rates of the notes, from the end
of the due period with respect to which the obligor last made a scheduled
payment, without giving effect to any advances made by the servicer or the
indenture trustee, through the date of the repurchase or liquidation. This
repurchase obligation constitutes the sole remedy available to the trust and
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the noteholders for a breach of a representation or warranty under the sale and
servicing agreement regarding the loans, but not for any other breach by us of
our obligations under the sale and servicing agreement.
Pre-Funding Account
Although we expect to deliver enough additional group 2 loans along with
the group 1 loans on the closing date to equal the full principal amount of the
notes, if the aggregate principal balance of the group 1 and group 2 loans
transferred by us to the trust on the closing date is less than the aggregate
original principal balance of the notes, that difference will be deposited in a
pre-funding account. The pre-funding account will be used to purchase
subsequent group 2 loans during the period from the closing date until the
earliest of:
(1) the date on which the amount on deposit in the pre-funding account is
less than $10,000;
(2) 31 days after the closing date; or
(3) the date on which a servicer termination event occurs as described in
the sale and servicing agreement.
Collection and Other Servicing Procedures
The servicer will manage, administer, service and make collections on the
loans, exercising the degree of skill and care consistent with the highest
degree of skill and care that the servicer exercises with respect to similar
contracts (including manufactured housing contracts) serviced by the servicer.
The servicer will not be required to cause to be maintained, or otherwise
monitor the maintenance of, hazard insurance on the improved properties. We do,
however, as a matter of our own policy, monitor proof of hazard insurance
coverage, other than flood insurance and require that we be named as an
additional loss payee on all first lien secured contracts and generally on
junior lien secured loans with amounts financed of over $20,000.
Servicing Compensation and Payment of Expenses
The servicer will receive a monthly servicing fee for each due period, paid
on the next succeeding payment date for servicing the loans equal to one-
twelfth of the product of .75% and the remaining pool scheduled principal
balance of the loans.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust. The
servicer is also entitled to reimbursement out of the liquidation proceeds of a
liquidated contract for customary out-of-pocket liquidation expenses it incurs.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records on each
loan. Administrative services performed by the servicer on behalf of the trust
include selecting and packaging the loans, calculating distributions to
noteholders and providing related data processing and reporting services for
noteholders and on behalf of the indenture trustee. Expenses incurred in
connection with the servicing of the loans and paid by the servicer from its
servicing fees
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include payment of fees and expenses of accountants, payments of all fees and
expenses incurred in the enforcement of loans or foreclosure on related
collateral, payment of trustee's fees, and payment of expenses incurred in
distributions and reports to noteholders.
Events of Termination
In addition to the servicer termination events described in the prospectus
on page 31, a servicer termination event will occur if the loan pool fails to
meet specified performance tests. In addition, Green Tree's appointment as
servicer under the sale and servicing agreement will run for successive 90-day
periods and will be subject to renewal by Financial Security at the end of each
90-day period. Financial Security may, in its sole discretion, waive any
servicer termination event and may elect to renew the servicer.
Evidence as to Compliance
The sale and servicing agreement provides for delivery to the indenture
trustee and Financial Security of a monthly report by the servicer no later
than one business day following the determination date, setting forth the
information described under "Description of the Notes--Reports to the
Noteholders." Each report 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 sale and servicing agreement. On or before May 1 of each
year, beginning in 2000, the servicer will deliver to the indenture trustee and
Financial Security a report of a nationally recognized accounting firm, stating
that the firm has examined documents and records relating to the servicing of
loans serviced by the servicer and stating that, on the basis of the
examination, the servicing has been conducted in compliance with the sale and
servicing agreement, except for any exceptions listed in report.
The sale and servicing agreement provides that the servicer shall furnish
to the indenture trustee and the note insurer such reasonably pertinent
underlying data as can be generated by the servicer's existing data processing
system without undue modification or expense.
The sale and servicing agreement provides that a noteholder holding notes
representing at least 5% of the aggregate Principal Balance will have the same
rights of inspection as the indenture trustee and may upon written request to
the servicer receive copies of all reports provided to the indenture trustee.
Certain Matters Relating to Green Tree
The sale and servicing agreement provides that we may not resign from our
obligations and duties as servicer, except upon a determination that our
performance of our duties is no longer permissible under the sale and servicing
agreement or applicable law, and prohibits us from extending credit to any
noteholder for the purchase of a note, purchasing notes in any agency or
trustee capacity or lending money to the trust. We can be removed as servicer
only in an event of termination as discussed above.
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Repurchase Option
We, the servicer and Financial Security each will be permitted, at its
option, to purchase from the trust, on any distribution date immediately
following any monthly period as of the last day of which the pool scheduled
principal balance is equal to or less than 10% of the cut-off date pool
principal balance, all remaining loans and the other remaining trust property
at a price equal to the unpaid principal amount of the notes, plus accrued and
unpaid interest, provided that all amounts owed to the note insurer are paid in
full.
Administrator
Green Tree Financial Servicing Corporation will provide the notices and
perform other administrative obligations required by the indenture and the
trust agreement. The administrator, one of our subsidiaries, will enter into an
administration agreement with the trust and the indenture trustee relating to
its duties and obligations as administrator.
Registration of the Notes
The notes initially will be represented by certificates registered in the
name of Cede & Co., the nominee of DTC. The interests of beneficial owners of
the notes will be represented by book entries on the records of the
participating members of DTC. Definitive notes will be available only under the
limited circumstances described herein. Holders of the notes may hold through
DTC in the United States, CEDEL or Euroclear in Europe if they are participants
of these systems, or indirectly through organizations that are participants in
these systems.
CEDEL and Euroclear will hold omnibus positions in the notes on behalf of
the CEDEL participants and the Euroclear participants, respectively, through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective depositaries, which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered under the provisions of Section 17A of the Exchange
Act. DTC accepts securities for deposit from its participating organizations
and facilitates the clearance and settlement of securities transactions between
participants in the securities through electronic book-entry changes in
accounts of participants, eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include other organizations.
Indirect access to the DTC system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
The beneficial owners of notes who are not participants but desire to
purchase, sell or otherwise transfer ownership of the notes may do so only
through participants unless and until definitive notes, are issued. In
addition, note owners will receive all distributions of
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principal of, and interest on, the notes from the indenture trustee through DTC
and participants. Note owners will not receive or be entitled to receive
certificates representing their respective interests in the notes, except under
the limited circumstances described below.
Unless and until definitive notes are issued, it is anticipated that the
only noteholder of the notes will be Cede & Co., as nominee of DTC. Note owners
will not be recognized by the indenture trustee as noteholders as that term is
used in the sale and servicing agreement. Note owners are only permitted to
exercise the rights of noteholders indirectly through participants and DTC.
While notes are outstanding, except under the circumstances described
below, under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts for the notes and is required to receive
and transmit distributions of principal of, and interest on, the notes.
Participants with whom note owners have accounts for notes are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective note owners. Accordingly, although
note owners will not possess certificates, the rules provide a mechanism by
which note owners will receive distributions and will be able to transfer their
interests.
Notes will be issued in registered form to note owners, or their nominees,
rather than to DTC, only if (1) DTC or Green Tree advises the indenture trustee
in writing that DTC is no longer willing or able to discharge properly its
responsibilities as nominee and depository with respect to the notes and Green
Tree or the indenture trustee is unable to locate a qualified successor or (2)
Green Tree at its sole option advises the indenture trustee in writing that it
elects to terminate the book-entry system through DTC. Upon issuance of
definitive notes to note owners, such notes will be transferable directly and
registered holders will deal directly with the indenture trustee with respect
to transfers, notices and distributions.
DTC has advised us that, unless and until definitive notes are issued, DTC
will take any action permitted to be taken by a noteholder under the sale and
servicing agreement only at the direction of one or more participants to whose
DTC accounts the notes are credited. DTC has advised us that DTC will take
action on any fractional interest of the notes only at the direction of and on
behalf of the participants beneficially owning a corresponding fractional
interest of the notes. DTC may take actions, at the direction of the
participants, on some notes which conflict with actions taken on other notes.
Issuance of notes in book-entry form rather than as physical certificates
may adversely affect the liquidity of the notes in the secondary market and the
ability of note owners to pledge them. In addition, since distributions on the
notes will be made by the indenture trustee to DTC and DTC will credit
distributions to the accounts of its participants, with the participants
further crediting distributions to the accounts of indirect participants or
note owners, note owners may experience delays in the receipt of distributions.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
participants or Euroclear participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its rules
and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. CEDEL participants
and Euroclear participants may not deliver instructions directly to the
depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and credits or any transactions in the
securities settled during the processing will be reported to the relevant CEDEL
participant or Euroclear participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
participant or a Euroclear participant to a participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL or
Euroclear cash account only as of the business day following settlement in DTC.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations, which
are called CEDEL participants, and facilitates the clearance and settlement of
securities transactions between CEDEL participants through electronic book-
entry changes in accounts of CEDEL participants, thereby eliminating the need
for physical movement of certificates. Transactions may be settled in CEDEL in
any of 28 currencies, including United States dollars. CEDEL provides to its
CEDEL participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets in
several countries. As a professional depository, CEDEL is subject to regulation
by the Luxembourg Monetary Institute. CEDEL participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the underwriters. Indirect access to CEDEL
is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a CEDEL
participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of
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securities and cash. Transactions may now be settled in Euroclear in any of 32
currencies, including United States dollars. The Euroclear System includes
various other services, including securities lending and borrowing, and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described in Annex I hereto.
The Euroclear System is operated by Morgan Guaranty Trust Company of New York,
Brussels, Belgium office, under contract with Euroclear Clearance System, S.C.,
a Belgian cooperative corporation. All operations are conducted by the
Euroclear operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear operator, not the
cooperative. The cooperative establishes policy for the Euroclear System on
behalf of Euroclear participants. Euroclear participants include banks,
including central banks, securities brokers and dealers and other professional
financial intermediaries and may include the underwriters. Indirect access to
the Euroclear system is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
The Euroclear operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments on securities in the Euroclear System. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear operator acts under the terms and conditions only on behalf of
Euroclear participants and has no record of or relationship with persons
holding through Euroclear participants.
Distributions on notes held through CEDEL or Euroclear will be credited to
the cash accounts of CEDEL participants or Euroclear participants in accordance
with the relevant system's rules and procedures, to the extent received by its
depositary. The distributions will be subject to tax reporting in accordance
with relevant United States tax laws and regulations. See "Certain Federal
Income Tax Consequences" in the prospectus and "Global Clearance, Settlement
and Tax Documentation Procedures" in Annex I to this prospectus supplement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
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<PAGE>
THE NOTE INSURER
The information set forth in this section has been provided by Financial
Security Assurance Inc. No representation is made by us, the underwriter or any
of their affiliates as to the accuracy or completeness of this information or
any information related to Financial Security incorporated by reference herein.
General
Financial Security is a monoline insurance company incorporated in 1984
under the laws of the State of New York. Financial Security is licensed to
engage in the financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities--thereby enhancing the credit rating of those securities--
in consideration for the payment of a premium to the insurer. Financial
Security and its subsidiaries principally insure asset-backed, collateralized
and municipal securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or other
assets having an ascertainable cash flow or market value. Collateralized
securities include public utility first mortgage bonds and sale/leaseback
obligation bonds. Municipal securities consist largely of general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. Financial Security insures both newly issued securities sold in
the primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include White Mountains Insurance Group, Inc.,
MediaOne Capital Corporation, The Tokio Marine and Fire Insurance Co., Ltd. and
XL Capital Ltd. No shareholder of Holdings is obligated to pay any debt of
Financial Security or any claim under any insurance policy issued by Financial
Security or to make any additional contribution to the capital of Financial
Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or its
domestic or Bermuda operating insurance company subsidiaries are generally
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies
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with other reinsurers under various treaties and on a transaction-by-
transaction basis. Such reinsurance is utilized by Financial Security as a risk
management device and to comply with statutory and rating agency requirements;
it does not alter or limit Financial Security's obligations under any financial
guaranty insurance policy.
Ratings
Financial Security's insurance financial strength is rated "Aaa" by
Moody's; Financial Security's insurer financial strength is rated "AAA" by S&P
and Standard & Poor's (Australia) Pty. Ltd.; and Financial Security's claims
paying ability is rated "AAA" by Fitch IBCA, Inc. and Japan Rating and
Investment Information, Inc. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Summary of the Terms of the Notes--Ratings" herein.
Capitalization
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of March 31, 1999:
<TABLE>
<CAPTION>
March 31, 1999
--------------
(Unaudited)
(In Thousands)
<S> <C>
Deferred Premium Revenue
(net of prepaid reinsurance premiums)......................... $ 512,383
----------
Surplus Notes.................................................. 120,000
----------
Minority Interests............................................. 20,973
----------
Shareholder's Equity:
Common Stock................................................. 15,000
Additional Paid-In Capital................................... 706,117
Accumulated Other Comprehensive Income
(net of deferred income taxes).............................. 25,879
Accumulated Earnings......................................... 391,745
Total Shareholder's Equity..................................... 1,138,741
----------
Total Deferred Premium Revenue, Surplus Notes, Minority
Interests and Shareholder's Equity............................ $1,792,097
==========
</TABLE>
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security Assurance Inc. and Subsidiaries, and
the notes thereto, incorporated by reference herein. Financial Security's
financial statements are included as exhibits to the Annual Reports on Form 10-
K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange
Commission by Financial Security Assurance Holdings Ltd. and may be reviewed at
the EDGAR website maintained by the Securities and Exchange Commission and at
Financial Security Assurance Holdings' website, http://www.FSA.com. Copies of
the statutory quarterly and annual statements filed with the
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<PAGE>
State of New York Insurance Department by Financial Security are available upon
request to the State of New York Insurance Department. Copies of the statutory
quarterly and annual statements filed with the State of New York Insurance
Department by Financial Security are available upon request to the State of New
York Insurance Department.
Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial
guaranty insurance corporation licensed to do business in the State of New
York, Financial Security is subject to Article 69 of the New York Insurance Law
which, among other things, limits the business of each such insurer to
financial guaranty insurance and related lines, requires that each such insurer
maintain a minimum surplus to policyholders, establishes contingency, loss and
unearned premium reserve requirements for each such insurer, and limits the
size of individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such insurer. Other
provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and insurance of liability for
borrowings.
THE NOTE INSURANCE POLICY
Note Insurance Policy
The following summary of the terms of the note insurance policy does not
purport to be complete and is qualified in its entirety by reference to the
note insurance policy. A form of the note insurance policy may be obtained from
us upon request.
Simultaneously with the issuance of the notes, Financial Security will
deliver the note insurance policy to the indenture trustee for the benefit of
the Class A noteholders. Under the note insurance policy, Financial Security
will irrevocably and unconditionally guarantee payment on each payment date to
the indenture trustee for the benefit of the Class A noteholders of the insured
payments for such payment date calculated in accordance with the original terms
of the Class A notes when issued and without regard to any amendment or
modification of the Class A notes, the indenture or the sale and servicing
agreement, except amendments or modifications to which Financial Security has
given its prior written consent. An insured payment, if any, for a payment date
will equal the amount by which the sum of:
(1) the current interest payable on the Class A notes; and
(2) the Class A principal deficiency amount (the amount by which the
Principal Balance of the Class A notes exceeds the scheduled
principal balance of the loans); and
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(3) on the maturity date, the amount of the unpaid Principal Balance of
the Class A notes;
exceeds the cash available to pay such amount on that payment date (without
regard to any insured payment to be made with respect to such payment date).
Insured payments do not cover realized losses except if the realized losses
result in a Class A principal deficiency amount; provided, however, that
Financial Security is permitted at its sole option, but not required, to pay
any losses in connection with the liquidation of a loan in accordance with the
note insurance policy. Insured payments do not cover deficiencies in interest
payments on the Class A notes resulting from relief to debtors under the
federal Soldiers' and Sailors' Civil Relief Act of 1940. Nevertheless, the
effect of the note insurance policy is to guaranty the timely payments of
interest on, and the ultimate payment of the principal amount of, the Class A
notes.
Payment of claims under the note insurance policy will be made by Financial
Security following receipt by Financial Security of the appropriate notice for
payment on the later to occur of (a) 12:00 noon, New York City time, on the
second business day following receipt of such notice for payment and (b) 12:00
noon, New York City time, on the relevant payment date.
If any payment of an amount guaranteed by Financial Security pursuant to
the note insurance policy is avoided as a preference payment under applicable
bankruptcy, insolvency, receivership or similar law, Financial Security will
pay such amount out of the funds of Financial Security on the later of:
(1) the date when due to be paid pursuant to the order referred to below;
or
(2) the first to occur of
(a) the fourth business day following receipt by Financial Security
from the indenture trustee of
(i) a certified copy of the order of the court or other
governmental body that exercised jurisdiction to the effect
that a noteholder is required to return principal or interest
distributed with respect to a note during the term of the
note insurance policy because such distributions were
avoidable preferences under applicable bankruptcy law;
(ii) a certificate of the Class A noteholders(s) that the order
has been entered and is not subject to any stay; and
(iii) an assignment duly executed and delivered by the Class A
noteholder(s) in such form as is reasonably required by
Financial Security and provided to the Class A
noteholder(s) by Financial Security, irrevocably assigning
to Financial Security all rights and claims of the Class A
noteholder(s) relating to or arising under the Class A
notes against the debtor that made such preference payment
or otherwise with respect to such preference payment; and
(b) the date of receipt by Financial Security from the indenture
trustee of the items referred to in clauses (i), (ii) and (iii)
above if, at least four business
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days prior to such date of receipt, Financial Security shall have
received written notice from the indenture trustee that such items
were to be delivered on such date and such date was specified in
such notice.
The payment shall be disbursed to the receiver, conservator, debtor-in-
possession or trustee in bankruptcy named in the order and not to the indenture
trustee or any Class A noteholder directly, unless a Class A noteholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the order, in which case such payment shall
be disbursed to the indenture trustee for distribution to such noteholder upon
proof of such payment reasonably satisfactory to Financial Security.
The terms receipt and received, with respect to the note insurance policy,
mean actual delivery to Financial Security and to its fiscal agent appointed by
Financial Security at its option, if any, prior to 12:00 p.m., New York City
time, on a business day; delivery either on a day that is not a business day or
after 12:00 p.m., New York City time, shall be deemed to be receipt on the next
succeeding business day. If any notice or certificate given under the note
insurance policy by the indenture trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
received, and Financial Security or the fiscal agent shall promptly so advise
the indenture trustee and the indenture trustee may submit an amended notice.
Under the note insurance policy, business day means any day other than (1)
a Saturday or Sunday or (2) a day on which banking institutions in the City of
New York, New York or St. Paul, Minnesota are authorized or obligated by law or
executive order to be closed. Financial Security's obligations under the note
insurance policy to make insured payments shall be discharged to the extent
funds are transferred to the indenture trustee as provided in the note
insurance policy, whether or not such funds are properly applied by the
indenture trustee.
Financial Security shall be subrogated to the rights of each Class A
noteholder to receive payments of principal and interest, as applicable, with
respect to distributions on the Class A notes to the extent of any payment by
Financial Security under the note insurance policy. To the extent Financial
Security makes insured payments, either directly or indirectly, to the Class A
noteholders, Financial Security will be subrogated to the rights of the Class A
noteholders, as applicable, with respect to such insured payment and shall be
deemed to the extent of the payment so made to be a registered Class A
noteholder for purposes of payment.
Claims under the note insurance policy will rank equally with any other
unsecured debt and unsubordinated obligations of Financial Security except for
certain obligations in respect of tax and other payments to which preference is
or may become afforded by statute. Claims against Financial Security under the
note insurance policy constitute pari passu claims against the general assets
of Financial Security. The terms of the note insurance policy cannot be
modified or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of Green Tree. The note insurance policy may not
be canceled or revoked prior to payment in full of the notes. The note
insurance policy is governed by
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the laws of the State of New York. The note insurance policy is not covered by
the Property/Casualty Insurance Security Fund specified in Article 76 of the
New York Insurance Law.
To the fullest extent permitted by applicable law, Financial Security
agrees under the note insurance policy not to assert, and waives, for the
benefit of each Class A noteholder, all of its rights whether by counterclaim,
setoff or otherwise and defense (including, without limitation, the defense of
fraud), whether acquired by subrogation, assignment or otherwise, to the extent
that such rights and defenses may be available to Financial Security to avoid
payment of its obligations under the note insurance policy in accordance with
the express provisions of the note insurance policy.
Under the terms of the sale and servicing agreement and the indenture,
unless a note insurer default exists, Financial Security will be deemed to be a
Class A noteholder for all purposes (other than with respect to payment on the
Class A notes), will be entitled to exercise all rights of the Class A
noteholders thereunder, without the consent of the noteholders, and the Class A
noteholders may exercise such rights only with the prior written consent of
Financial Security. In addition, Financial Security will have, as a third party
beneficiary to the sale and servicing agreement, among others, the following
rights:
(1) the right to give notices of breach or to terminate the rights and
obligations of the servicer under the sale and servicing agreement in
the event of a servicer termination event; as defined in the sale and
servicing agreement and to institute proceedings against the servicer;
(2) the right to consent to or direct any waivers of defaults by the
servicer;
(3) the right to remove the indenture trustee pursuant to the indenture;
(4) the right to direct the actions of the indenture trustee during the
continuation of a servicer default;
(5) the right to require us to repurchase loans for breach of
representation and warranty or defect in documentation;
(6) the right to direct all matters relating to a bankruptcy or other
insolvency proceeding involving us; and
(7) the right to direct the indenture trustee to investigate certain
matters.
Financial Security's consent will be required prior to, among other things,
(a) the removal of the indenture trustee, (b) the appointment of any successor
indenture trustee or servicer or (c) any amendment to the sale and servicing
agreement.
Green Tree, as seller and servicer, the trust and Financial Security will
enter into an insurance and indemnity agreement pursuant to which Green Tree
and the trust will agree to reimburse, with interest, Financial Security for
amounts paid pursuant to claims under the note insurance policy. Green Tree and
the trust will further agree to pay Financial Security all reasonable charges
and expenses that Financial Security may pay or incur relative to any amounts
paid under the note insurance policy or otherwise in connection with the
transaction and to indemnify Financial Security against certain liabilities.
Except to the extent provided
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<PAGE>
therein, amounts owing under the insurance agreement will be payable solely
from the property of the trust. An event of default by Green Tree under the
insurance agreement will constitute a servicer termination event under the sale
and servicing agreement and allow Financial Security, among other things, to
direct the indenture trustee to terminate Green Tree as the servicer. See
"Description of the Notes--Events of Termination". An event of default under
the insurance agreement includes:
(1) Green Tree's or the trust's failure to pay when due any amount owed
under the insurance agreement or certain other documents;
(2) the inaccuracy or incompleteness in any material respect of any
representation, or warranty of Green Tree or the trust in the
insurance agreement, the sale and servicing agreement or certain other
documents;
(3) Green Tree's or the trust's failure to perform or to comply with any
covenant or agreement in the insurance agreement, the sale and
servicing agreement and other documents;
(4) a finding or ruling by a governmental authority or agency that the
insurance agreement, the sale and servicing agreement or other
documents are not binding on Green Tree or the trust;
(5) our failure to pay our debts in general or the occurrence of events of
insolvency or bankruptcy with respect to Green Tree or the trust; and
(6) the occurrence of performance test violations designed to measure the
performance of the loans.
DESCRIPTION OF THE LIMITED GUARANTY
To mitigate the effect of the subordination of the Class B-2 notes and
liquidation losses and delinquencies on the loans, we will provide a guaranty
against losses that would otherwise be borne by the Class B-2 notes. Each
payment required to be made under the Class B-2 limited guaranty is referred to
as a Class B-2 guaranty payment. On any payment date on which the Class B-2
principal distribution test is not satisfied, the Class B-2 guaranty payment
will equal the amount by which:
(1) the sum of
(a) accrued and unpaid interest on the Class B-2 notes for that
payment date and
(b) the Class B-2 liquidation loss principal amount, if any, for that
payment date exceeds
(2) the remaining amount available for distribution to the Class B-2
noteholders.
The Class B-2 liquidation loss principal amount for any payment date equals the
amount, if any, by which the sum of the Class A Principal Balance, the Class M
Principal Balance and the Class B Principal Balance for such payment date
exceeds the pool scheduled principal balance for such payment date, but in no
event greater than the Class B-2 Principal Balance. The Class B-2 liquidation
loss principal amount is, in substance, the amount of delinquencies and losses
experienced on the loans during the related due period that was not absorbed by
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the certificate and the monthly servicing fee otherwise payable to Green Tree,
so long as Green Tree or one of our wholly owned subsidiaries is the servicer
on the loans.
On each payment date on which the Class B-2 principal distribution test is
satisfied (or the Class A Principal Balance, the Class M Principal Balance and
the Class B-1 Principal Balance have been reduced to zero), the Class B-2
guaranty payment will equal the amount, if any, by which
(a) the sum of
(i) accrued interest and principal due on the Class B-2 notes for
that payment date and
(ii) the Class B-2 liquidation loss principal amount for that
payment date
exceeds
(b) the remaining amount available for distribution to the Class B-2
noteholders.
The Class B-2 limited guaranty will be our unsecured general obligation and
will not be supported by any letter of credit or other credit enhancement
arrangement. The Class B-2 limited guaranty will not benefit in any way, or
result in any payment to, the Class A, Class M or Class B-1 noteholders.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The following is a general discussion of federal and state income tax
consequences relating to the purchase, ownership and disposition of the notes.
The discussion is based upon the current provisions of the Internal Revenue
Code, the treasury regulations promulgated under the code, and judicial or
ruling authority, all of which are subject to change, which change may be
retroactive. See "Certain Federal Income Tax Consequences" and "Certain State
Income Tax Consequences" in the prospectus.
You should consult your own tax advisors to determine the federal, state,
local and other tax consequences of the purchase, ownership and disposition of
the notes. You should note that no rulings have been or will be sought from the
IRS about any of the federal income tax consequences discussed herein or in the
accompanying prospectus, and no assurance can be given that the IRS will not
take contrary positions. Moreover, there are no cases or IRS rulings on
transactions similar to those we describe about the trust, involving both debt
and equity interests issued by a trust with terms similar to those of the notes
and the certificates.
In the opinion of Dorsey & Whitney LLP, for Federal and Minnesota income
tax purposes, the notes will be characterized as debt and the trust will not be
characterized as an association, or a publicly traded partnership taxable as a
corporation and neither the trust nor any portion of the trust will constitute
a taxable mortgage pool taxable as a corporation. The notes will not be issued
with original issue discount.
The notes will not be treated as assets described in Section 7701(a)(19)(C)
of the Internal Revenue Code and real estate assets under Section 856(c)(4)(A)
of the Internal
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Revenue Code. In addition, interest on the notes will not be treated as
interest on obligations secured by mortgages on real property under Section
856(c)(3)(B) of the Internal Revenue Code. The notes also will not be treated
as qualified mortgages under Section 860G(a)(3)(C) of the Internal Revenue
Code.
ERISA CONSIDERATIONS
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under "ERISA Considerations."
Section 406 of the Employee Retirement Income Security Act of 1974 and
Section 4975 of the Internal Revenue Code prohibit a pension, profit-sharing or
other employee Benefit Plan, as well as individual retirement accounts and some
types of Keogh Plans from engaging in certain transactions with persons that
are parties in interest under ERISA or disqualified persons under the Internal
Revenue Code with respect to such Benefit Plan. A violation of these prohibited
transaction rules may result in an excise tax or other penalties and
liabilities under ERISA and the Internal Revenue Code for those persons. Title
I of ERISA also requires that fiduciaries of a Benefit Plan subject to ERISA
make investments that are prudent, diversified (except if prudent not to do so)
and in accordance with governing plan documents.
Some transactions involving the purchase, holding or transfer of the notes
might be deemed to constitute prohibited transactions under ERISA and the
Internal Revenue Code if assets of the trust were deemed to be assets of a
Benefit Plan. Under a regulation issued by the United States Department of
Labor (the "Plan Assets Regulation"), the assets of the trust would be treated
as plan assets of a Benefit Plan for the purposes of ERISA and the Internal
Revenue Code only if the Benefit Plan acquires an equity interest in the trust
and none of the exceptions contained in the plan assets regulation is
applicable. An equity interest is defined under the plan assets regulation as
an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. We believe
that, as of the date of this prospectus supplement, the notes should be treated
as indebtedness without substantial equity features for purposes of the plan
assets regulation. However, without regard to whether the notes are treated as
an equity interest for such purposes, the acquisition or holding of notes by or
on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the trust, the owner trustee or the indenture trustee, the owner
of collateral, the underwriters, or any of their respective affiliates is or
becomes a party in interest or a disqualified person with respect to such
Benefit Plan. In this case, certain exemptions from the prohibited transaction
rules could be applicable depending on the type and circumstances of asset
invested and the position of the plan fiduciary making the decision to acquire
a note. Included among these exemptions are: Prohibited Transaction Class
Exemption 90-1, regarding investments by insurance company pooled separate
accounts; PTCE 91-38, regarding investments by bank collective investment
funds; PTCE 84-14, regarding transactions effected by qualified professional
asset managers; and PTCE 96-23, regarding transactions effected by in-house
asset managers.
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In addition, if the notes were treated as an equity interest in the future,
the assets of the trust could be treated as plan assets of a Benefit Plan for
the purposes of ERISA and the Internal Revenue Code. In view of the investor-
specific nature of the conditions on the exemptive relief available under ERISA
and the Internal Revenue Code, each investor should determine whether it is
investing plan assets in the notes and, if it is, should determine that
appropriate exemptive relief from ERISA's prohibited transaction provisions is
available. By acquiring notes, each purchaser will be deemed to represent that
either (1) it is not acquiring the note with the assets of a Benefit Plan; or
(2) the acquisition and holding of the note will not give rise to a nonexempt
prohibited transaction under Section 406(a) of ERISA or Section 4975 of the
Internal Revenue Code.
Employee Benefit Plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements. The plans may, however, be subject to
the provisions of other applicable federal and state laws, including, for any
such governmental or church plan qualified under Section 401(a) of the Internal
Revenue Code and exempt from taxation under Section 501(a) of the Internal
Revenue Code, the prohibited transaction rules set forth in Section 503 of the
Internal Revenue Code.
A plan fiduciary considering the purchase of notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
WHERE YOU CAN FIND MORE INFORMATION
In addition to the documents described in the accompanying prospectus under
"Green Tree Financial Corporation--General," the financial statements of
Financial Security included in, or as exhibits to, the following documents,
which have been filed with the Securities and Exchange Commission by Financial
Security Assurance Holdings Ltd., are incorporated by reference in this
prospectus supplement.
(a) Annual Report on Form 10-K for the year ended December 31, 1998, and
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1999.
All financial statements of Financial Security included in documents filed
by Financial Security Holdings Ltd. under section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this prospectus supplement and prior
to the termination of the offering of the securities shall be deemed to be
incorporated by reference into this prospectus supplement and to be a part of
it from the dates of filing those documents.
Green Tree will provide without charge to any person to whom this
prospectus supplement is delivered, upon the oral or written request of that
person, a copy of any or all of the foregoing financial statements incorporated
in this prospectus supplement by reference. Requests for copies should be
directed to 1100 Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota
55102-1639.
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Green Tree, on behalf of the trust, undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
trust's annual report under section 13(a) or section 15(d) of the Exchange Act
and each filing of the financial statements of Financial Security included in
or as an exhibit to the annual report of Financial Security Holdings Ltd. filed
under section 13(a) or section 15(d) of the Exchange Act that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered by this prospectus
supplement, and the offering of the securities at that time shall be deemed to
be the initial bona fide offering thereof.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc. and
Subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of income, changes in shareholder's equity, and cash flows for each
of the three years in the period ending December 31, 1998, incorporated by
reference in this Prospectus Supplement have been incorporated herein in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of that firm as experts in accounting and auditing.
UNDERWRITING
The underwriter has agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from Green Tree the respective principal
amounts of the notes shown below.
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of
Class Class Class Class
A-1 Notes A-2 Notes M-1 Notes M-2 Notes
Underwriter ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Lehman Brothers Inc........... $193,400,000 $100,000,000 $34,600,000 $23,600,000
------------ ------------ ----------- -----------
Totals...................... $193,400,000 $100,000,000 $34,600,000 $23,600,000
============ ============ =========== ===========
</TABLE>
In the underwriting agreement, the underwriter has agreed, subject to the
terms and conditions in the agreement, to purchase all of the notes offered
hereby if any such notes are purchased. In the event of a default by the
underwriter, the underwriting agreement provides that, in certain
circumstances, the underwriting agreement may be terminated.
We have been advised by the underwriter that it proposes initially to offer
the notes to the public at the respective offering prices set forth on the
cover page of this prospectus supplement and to certain dealers at such price
less a concession not in excess of the respective amounts set forth in the
table below (expressed as a percentage of the relative Principal Balance). The
underwriter may allow and such dealers may reallow a discount not in excess of
the respective amounts listed in the table below to other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1.............................................. 0.20% 0.10%
A-2.............................................. 0.20% 0.10%
M-1.............................................. 0.30% 0.15%
M-2.............................................. 0.40% 0.20%
</TABLE>
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Neither we nor the underwriter makes any representations or prediction as
to the direction or magnitude of any effect that the transactions described
above may have on the prices of the notes. In addition, neither we nor the
underwriter makes any representation that the underwriter will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Until the distribution of the notes is completed, rules of SEC may limit
the ability of the underwriter and certain selling group members to bid for
and purchase the notes. As an exception to these rules, the underwriter is
permitted to engage in certain transactions that stabilize the price of the
notes. These transactions consist of bids or purchases for the purposes of
pegging, fixing or maintaining the price of the notes. In general, purchases
of a security for the purpose of stabilization could cause the price of the
security to be higher than it might without these purchases.
The underwriting agreement provides that we will indemnify the underwriter
against liabilities, including liabilities under the Securities Act of 1933,
or contribute to payments the underwriter may be required to make.
We estimate that we will incur expenses of $500,000 in connection with
this offering.
We have agreed that for a period of 30 days from the date of this
prospectus supplement we will not offer or sell publicly any other home
improvement loan or home equity loan pass-through certificates without the
consent of the underwriter.
The underwriter or one of its affiliates has from time to time provided or
may in the future provide warehouse and other financing to us.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes will be passed
upon for Green Tree and the trust by Dorsey & Whitney LLP, Minnesota, and for
the Underwriter by Thacher Proffitt & Wood, New York, New York. The material
federal income tax consequences of the notes will be passed upon for Green
Tree by Dorsey & Whitney LLP.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the certificates will be available
only in book-entry form (the "Global Certificates"). Investors in the global
certificates may hold such global certificates through any of DTC, CEDEL or
Euroclear. The global certificates will be tradeable as home market instruments
in both the European and U.S. domestic markets. Initial settlement and all
secondary trades will settle in same-day funds.
Secondary market trading between investors holding global certificates
through CEDEL and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding global certificates
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
participants holding certificates will be effected on a delivery-against-
payment basis through the respective depositaries of CEDEL and Euroclear (in
such capacity) and DTC participants.
Non-U.S. holders (as described below) of global certificates will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All global certificates will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the global certificates
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
depositaries, which in turn will hold such positions in accounts as DTC
participants.
Investors electing to hold their global certificates through DTC will follow
the settlement practices applicable to United States corporate debt
obligations. Investors securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their global certificates through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global certificates will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
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Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between CEDEL or Euroclear Participants. Secondary market trading
between CEDEL participants or Euroclear participants will be settled using the
procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and CEDEL or Euroclear purchaser. When global
certificates are to be transferred from the account of a DTC participant to the
account of a CEDEL participant or a Euroclear participant, the purchaser will
send instructions to CEDEL or Euroclear through a CEDEL participant or
Euroclear participant at least one business day prior to settlement. CEDEL or
Euroclear, as applicable, will instruct its depositary to receive the global
certificates against payment. Payment will include interest accrued on the
global certificates from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by such Depositary to
the DTC participant's account against delivery of the global certificates.
After settlement has been completed, the global certificates will be credited
to the applicable clearing system and by the clearing system, in accordance
with its usual procedures, to the CEDEL participant's or Euroclear
participant's account. The global certificates credit will appear the next day
(European time) and the cash debit will be back-valued to, and the interest on
the global certificates will accrue from, the value date (which would be the
preceding day when settlement occurred in New York). If settlement is not
completed on the intended value date (i.e., the trade fails), the CEDEL or
Euroclear cash debit will be valued instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL or Euroclear until the global
certificates are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, CEDEL participants or Euroclear participants can elect not to pre-
position funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, CEDEL participants or Euroclear participants
purchasing global certificates would incur overdraft charges for one day,
assuming they cleared the overdraft when the global certificates were credited
to their accounts. However, interest on the global certificates would accrue
from the value date. Therefore, in many cases the investment income on the
global certificates earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each CEDEL participant's or Euroclear participant's particular cost
of funds.
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Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending Global Certificates
to the respective depositary for the benefit of CEDEL participants or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear seller and DTC purchaser. Due to time zone
differences in their favor, CEDEL participants and Euroclear participants may
employ their customary procedures for transactions in which global certificates
are to be transferred by the respective clearing systems, through their
respective depositaries, to a DTC participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL participant or Euroclear
participant at least one business day prior to settlement. In these cases,
CEDEL or Euroclear will instruct their respective depositaries, as appropriate,
to deliver the certificates to the DTC participant's account against payment.
Payment will include interest accrued on the global certificates from and
including the last coupon payment date to and excluding the settlement date.
The payment will then be reflected in the account of the CEDEL participant or
Euroclear participant the following day, and receipt of the cash proceeds in
the CEDEL participant's or Euroclear participant's account would be back-valued
to the value date (which would be the preceding day, when settlement occurred
in New York). Should the CEDEL participant or Euroclear participant have a line
of credit with its clearing system and elect to be in debit in anticipation of
receipts of the sale proceeds in its account, the bank-valuation will
extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (i.e., the trade fails),
receipt of the cash proceeds in the CEDEL participant's or Euroclear
participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase global
certificates from DTC participants for delivery to CEDEL participants or
Euroclear participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the purchase
side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the global certificates in the U.S. from a DTC participant
no later than one day prior to settlement, which would give the global
certificates sufficient time to be reflected in their CEDEL or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the CEDEL
participant or Euroclear participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global certificates holding securities through CEDEL or
Euroclear (or through DTC if the holder has an address outside the U.S.) will
be subject to the 30%
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U.S. withholding tax that generally applies to payments of interest (including
original issue discount) on registered debt issued by U.S. persons, unless: (1)
each clearing system, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business in the chain of
intermediaries between such beneficial owner and the U.S. entity required to
withhold tax complies with applicable certification requirements; and (2) such
beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
Exemption of non-U.S. Persons (Form W-8). Beneficial owners of
certificates that are non-U.S. persons generally can obtain a complete
exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status) and a certificate under penalties of
perjury (the "Tax Certificate") that such beneficial owner is (i) not a
controlled foreign corporation (within the meaning of Section 957(a) of
the Internal Revenue Code) that is related (within the meaning of Section
846(d)(4) of the Internal Revenue Code) to the trust or the transferor and
(ii) not a 10% shareholder (within the meaning of Section 871(h)(3)(B) of
the Internal Revenue Code) of the trust or the transferor. If the
information shown on Form W-8 or the tax certificate changes, a new Form
W-8 or tax certificate, as the case may be, must be filed within 30 days
of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (exemption from
withholding of tax on income effectively connected with the conduct of a
trade or business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners of
certificates residing in a country that has a tax treaty with the United
States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (ownership, exemption or reduced rate
certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of certificates or
such owner's agent.
Exemption for U.S. Persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (payer's
request for taxpayer identification number and certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global certificate or, in the case of a Form 1001 or a Form 4224 filer,
such owner's agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of
persons holding directly on the books of the clearing agency). Form W-8 and
Form 1001 are effective for three calendar years and Form 4224 is effective
for one calendar year.
The term "U.S. Person" means:
(1) a citizen or resident of the United States;
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(2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof (except, in the
case of a partnership, to the extent provided in regulations);
(3) an estate the income of which is includible in gross income for United
States tax purposes, regardless of its source; or
(4) a trust other than a foreign trust within the meaning of Section 7701
(1)(31) of the Internal Revenue Code.
To the extent prescribed in regulations by the secretary of the treasury, which
regulations have not yet been issued, a trust which was in existence on August
20, 1996 (other than a trust treated as owned by the grantor under Subpart E of
Part 1 of Subchapter J of Chapter 1 of the Internal Revenue Code), and which
was treated as a United States person on August 19, 1996, may elect to continue
to be treated as a United States person notwithstanding the previous sentence.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the global certificates.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the global certificates.
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PROSPECTUS
Green Tree Financial Corporation, Seller and Servicer
Home Improvement and Home Equity Loan Trusts
We are offering loan-backed notes and loan-backed certificates under this
prospectus and a prospectus supplement. We will form a trust for each series,
and the trust will issue the securities of that series. The securities of any
series may comprise several different classes. A trust may also issue one or
more other interests in the trust that will not be offered under this
prospectus.
The right of each class of securities within a series to receive payments may
be senior or subordinate to the rights of one or more of the other classes of
securities. In addition, a series of securities may include one or more classes
which on the one hand are subordinated to one or more classes of securities,
while on the other hand are senior to one or more classes of securities. The
rate of principal and interest payment on the securities of any class will
depend on the priority of payment of that class and the rate and timing of
payments of the related home equity loans.
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The securities will represent obligations of the related trust and will not
represent any interest in or obligation of Green Tree Financial Corporation or
any of its affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
This prospectus may not be used to consummate sales of any securities unless
accompanied by the prospectus supplement relating to that series.
Prospectus dated June 18, 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the securities in two separate documents that progressively
provide more detail: (1) this prospectus, which provides general information,
some of which many not apply to a particular series of securities, including
your series; and (2) the prospectus supplement for the particular terms of your
series of securities.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
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THE TRUSTS
For each series of securities, we will establish a trust under the related
trust documents. Before the sale and assignment of the related loans under the
related trust documents, the trust will have no assets or obligations. The
trust will not engage in any business activity other than acquiring and holding
the trust property, issuing the notes and the certificates, if any, of such
series and distributing payments.
Each note will represent an obligation of, and each certificate, if any, will
represent a fractional undivided interest in, the related trust. The trust
property of each trust will include:
(1) a loan pool,
(2) amounts as from time to time may be held in the collection account,
including all investments in the collection account and all income
from the investment of funds and all proceeds and certain other
accounts, including the proceeds,
(3) proceeds from FHA insurance, with respect to any FHA-insured home
improvement loan included in the loan pool,
(4) any letter of credit, guarantee, surety bond, insurance policy, cash
reserve fund or other credit enhancement securing payment of all or
part of a series of securities,
(5) other rights under the trust documents and
(6) other property as may be specified in the related prospectus
supplement. See "The Loans" and "Description of the Trust Documents--
Collections."
The trust property will also include, if so specified in the related prospectus
supplement, monies on deposit in a pre-funding account to be established with
the indenture trustee or the trustee, which will be used to purchase subsequent
loans from us, and as frequently as daily, during the pre-funding period
specified in the related prospectus supplement. Any subsequent loans purchased
will be included in the related loan pool forming part of the trust property,
subject to the prior rights of the related indenture trustee and the
noteholders. In addition, to the extent specified in the related prospectus
supplement, a form of credit enhancement may be issued or held by the trustee
or the indenture trustee for the benefit of holders of one or more classes of
securities. Holders of securities of a series will have interests only in the
loan pool and will have no interest in the loan pool created with respect to
any other series of securities, except with respect to FHA insurance reserves.
Except as otherwise specified in the related prospectus supplement, we will
have originated all of the loans in the ordinary course of our business.
Specific information respecting the loans included in each trust will be
provided in the related prospectus supplement and, if not contained in the
related prospectus supplement, in a report on Form 8-K to be filed with the SEC
within fifteen days after the initial issuance of the securities. A copy of the
sale and servicing agreement for each series of securities will be attached to
the Form 8-K and will be available for inspection at the corporate trust office
of the trustee specified in the related prospectus supplement. A schedule of
the loans relating to that series
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will be attached to the sale and servicing agreement delivered to the trustee
upon delivery of the securities.
When we use terms in this prospectus such as loan pool, trust, sale and
servicing agreement, interest rate or pass-through rate, those terms apply,
unless the context otherwise indicates, to one specific loan pool and trust,
each sale and servicing agreement, each interest rate applicable to the related
class of notes and each pass-through rate applicable to the related class of
certificates.
The Contract Pools
Except as otherwise specified in the related prospectus supplement, the loan
pool will consist of home improvement contracts and promissory notes, and
closed-end home equity loans we originated on an individual basis in the
ordinary course of business. The home improvement loans may be conventional
home improvement contracts or contracts insured by FHA. The home improvement
loans will not be secured by any lien on the related real estate, and the home
equity loans may have a loan-to-value ratio substantially in excess of 100%.
Except as otherwise specified in the related prospectus supplement, the loans
will be fully amortizing and will bear interest at a fixed or variable annual
percentage rate.
For each series of securities, we will assign the loans constituting the loan
pool to the trustee named in the related prospectus supplement. We, as
servicer, will service the loans under the sale and servicing agreement. See
"Description of the Trust Documents--Servicing." Unless we specify otherwise in
the related prospectus supplement, the loan documents will be held by the
trustee or a custodian.
The related prospectus supplement will specify for the loans contained in the
related loan pool, the range of the dates of origination of the loans; the
range of the loan rates and the weighted average loan rate; the minimum and
maximum outstanding Principal Balances and the average outstanding Principal
Balance as of the cut-off date; the aggregate Principal Balance of the loans
included in the loan pool as of the cut-off date; the weighted average and
range of scheduled terms to maturity as of origination and as of the cut-off
date; the range of original maturities of the loans and the last maturity date
of any loan; and the geographic location of improved real estate securing the
loans. If the trust includes a pre-funding account, the related prospectus
supplement will specify the conditions that must be satisfied before any
transfer of subsequent loans, including the requisite characteristics of the
subsequent loans.
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material respects of information furnished to the trustee for each such loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the securityholders in a loan, we will be obligated to
cure the breach in all material respects, or to repurchase or substitute for
the loan as described below. This repurchase obligation constitutes the sole
remedy available to the securityholders or the trustee for a breach of
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representation or warranty by us. See "Description of the Trust Documents--Sale
and Assignment of the Loans."
The Trustee
The trustee for each trust will be specified in the related prospectus
supplement. The trustee's liability in connection with the issuance and sale of
the securities of such series will be limited solely to the express obligations
of such trustee described in the related trust documents. A trustee may resign
at any time, in which event the general partner will be obligated to appoint a
successor trustee. The general partner may also remove the trustee if the
trustee ceases to be eligible to continue as trustee under the related trust
documents or if the trustee becomes insolvent. In such circumstances, the
general partner will be obligated to appoint a successor trustee. Any
resignation or removal of a trustee and appointment of a successor trustee will
be subject to any conditions or approvals specified in the related prospectus
supplement and will not become effective until acceptance of the appointment by
the successor trustee.
GREEN TREE FINANCIAL CORPORATION
General
We are a Delaware corporation that, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Through our various
divisions, we purchase, pool, sell and service retail conditional sales
contracts for manufactured housing and retail installment sales contracts for
home improvements, a variety of consumer products and equipment finance, and
home equity loans. We are the largest servicer of government-insured
manufactured housing contracts and conventional manufactured housing contracts
in the United States. Servicing functions are performed through Green Tree
Financial Servicing Corporation, our wholly owned subsidiary. Through our
principal offices in St. Paul, Minnesota, and service centers throughout the
United States, we serve all 50 states. We began financing FHA-insured home
improvement loans in April 1989 and conventional home improvement loans in
September 1992. We also purchase, pool and service installment sales contracts
for various consumer products. Our principal executive offices are located at
1100 Landmark Towers, St. Paul, Minnesota 55102-1639 (telephone (651) 293-
3400). Our annual report on Form 10-K for the year ended December 31, 1998 and,
when available, subsequent quarterly and annual reports are available from us
upon written request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We are incorporating by reference the following documents into
this prospectus and the prospectus supplement:
. Green Tree Financial Corporation's annual report on Form 10-K for the
year ended December 31, 1998.
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. Green Tree Financial Corporation's quarterly report on Form 10Q for
the quarter ended March 31, 1999.
All documents filed by the servicer, on behalf of any trust, under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after the
date of this prospectus and before the termination of the offering of the
securities issued by that trust, will be incorporated by reference into this
prospectus.
Federal securities law requires the filing of information with the
Securities and Exchange Commission, including annual, quarterly and special
reports and other information. You can read and copy these documents at the
public reference facility maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. You can also read and copy
such reports, proxy statements and other information at the following regional
offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite
New York, NY 10048 1400
Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Contract Origination
Home Improvement Contracts. Through our centralized loan processing
operations in St. Paul, Minnesota, we arrange to purchase contracts from home
improvement contractors located throughout the United States. Our regional
sales managers contact home improvement contractors and explain our available
financing plans, terms, prevailing rates and credit and financing policies. If
the contractor wishes to use our available customer financing, the contractor
must make an application for contractor approval. We have a contractor
approval process under to which the financial condition, business experience
and qualifications of the contractor are reviewed prior to his or her approval
to sell contracts to us. In addition, we have a centralized compliance group
which reviews and updates contractor financial condition and reviews
contractors on an annual basis to determine whether the contractor's approval
will be continued. We also review monthly contractor trend reports which show
the default and delinquency trends of the particular contractor on contracts
sold to us. We occasionally will originate directly a home improvement
promissory note involving a home improvement transaction.
All contracts that we originate are written on forms provided or approved by
us and are purchased on an individually approved basis in accordance with our
guidelines. The contractor submits the customer's credit application and
construction contract to our office where an analysis of the creditworthiness
of the customer is made using a proprietary credit scoring system that was
implemented by us in June 1993. If we determine that the
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application meets our underwriting guidelines and applicable FHA regulations,
for FHA-insured contracts, and the credit is approved, we purchase the contract
from the contractor when the customer verifies satisfactory completion of the
work, or, in the case of staged funding, we follow up with the customer for the
completion certificate 90 days after funding.
The types of home improvements we finance include:
(1) exterior renovations, including windows, siding and roofing;
(2) pools and spas;
(3) kitchen and bath remodeling; and
(4) room additions and garages. We may also, under some limited
conditions, extend additional credit beyond the purchase price of the
home improvement for the purpose of debt consolidation.
The original principal amount of an unsecured FHA-insured home improvement
contract currently may not exceed $7,500 without specific FHA approval, with a
maximum term of 20 years. Some other criteria for home improvement contracts
eligible for FHA insurance are described under the caption "Description of FHA
Insurance."
We began financing conventional home improvement loans in September 1992.
Conventional home improvement loans are not insured by FHA. The unsecured
conventional program allows for an amount financed from $2,500 to $15,000,
except in Massachusetts where the loan limit may be $20,000. The allowable term
of unsecured contracts is 24 to 120 months. Our underwriting standards for
unsecured home improvement contracts are, in general, more stringent than its
underwriting standards for secured home improvement contracts with similar
terms. Eligible property includes an owner-occupied single family home, up to
four unit multiple-family dwelling, owner-occupied condominium or town house,
or an owner-occupied manufactured home located in a Green Tree-approved park or
attached to the real estate.
Home Equity Contracts. We have originated closed-end home equity loans since
January 1996. As of December 31, 1998, we had approximately $7,302,696,406
aggregate principal amount of outstanding closed-end home equity loans.
Through a system of regional offices, we market our home equity lending
directly to consumers using a variety of marketing techniques. We also review
and re-underwrite loan applications forwarded by correspondent lenders.
Our credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less favorable equity position, the
creditworthiness of the borrower must be stronger, or may be weaker. The loan-
to-value ratio of the requested loan, combined with any existing loans with a
senior lien position, may not exceed 95% without senior management approval. In
most circumstances, an appraisal of the property is required. Currently, loans
secured by a first
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mortgage with an obligor having a superior credit rating may not exceed
$300,000 without senior management approval, and loans secured by a second
mortgage with an obligor having a superior credit rating may not exceed
$250,000 without senior management approval.
Loss and Delinquency Information
Each prospectus supplement will include our loss and delinquency experience
for our entire servicing portfolio of home improvement contracts and home
equity loans. We cannot assure you that this experience will be an indicator of
the performance of the loans included in a particular loan pool.
YIELD CONSIDERATIONS
The interest rates, pass-through rates and the weighted average loan rate of
the loans, as of the related cut-off date relating to each series of securities
will be described in the related prospectus supplement.
The prospectus supplement for each series will indicate that a lower rate of
principal prepayments than anticipated would negatively affect the total return
to investors of any class of securities that is offered at a discount to its
principal amount, and a higher rate of principal prepayments than anticipated
would negatively affect the total return to investors of any class of
securities that is offered at a premium to its principal amount or without any
principal amount.
The yield on some types of securities which may be offered, such as stripped
notes, interest only certificates, principal only certificates and fast
pay/slow pay certificates, may be particularly sensitive to prepayment rates,
and to changes in prepayment rates, on the underlying loans. If stated in the
related prospectus supplement, the yield on some types of securities which may
be offered could change and may be negative under some prepayment rate
scenarios. Accordingly, some types of securities may not be legal or
appropriate investments for some financial institutions, pension funds or
others. See "ERISA Considerations" and "Legal Investment Considerations." In
addition, the timing of changes in the rate of prepayment on the loans included
in a loan pool may significantly affect an investor's actual yield to maturity,
even if the average prepayment rate over time is consistent with the investor's
expectations. In general, the earlier that prepayments on loans occur, the
greater the effect on the investor's yield to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise described in an applicable prospectus supplement, all of the
loans will have maturities at origination of not more than 25 years.
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Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. FHA-
insured loans may be prepaid at any time without penalty. We have no
significant experience with respect to the rate of principal prepayments on
home improvement contracts and home equity loans. Because the loans have
scheduled due dates throughout the calendar month, and because, unless
otherwise specified in the related prospectus supplement, all principal
prepayments will be passed through to securityholders of the related series on
the payment date following the due period in which the principal prepayment
occurred, prepayments on the loans would affect the amount of funds available
to make distributions on the securities on any payment date only if a
substantial portion of the loans prepaid prior to their respective due dates in
a particular month, thus paying less than 30 days' interest for that due period
while very few loans prepaid after their respective due dates in that month. In
addition, liquidations of defaulted loans or the servicer's or Green Tree's
exercise of its option to repurchase the entire remaining pool of loans, see
"Description of the Trust Documents--Termination," will affect the timing of
principal distributions on the securities of a series.
Information regarding the prepayment standard or model or any other rate of
assumed prepayment will be described in the prospectus supplement for a series
of securities. Although the related prospectus supplement will specify the
prepayment assumptions used to price any series of securities, we cannot assure
you that the loans will prepay at that rate, and it is unlikely that
prepayments or liquidations of the loans will occur at any constant rate.
See "Description of the Trust Documents--Termination" for a description of
Green Tree's or the servicer's option to repurchase the loans comprising part
of a trust when the aggregate Principal Balance of the loans as of the related
cut-off date is less than a specified percentage of the cut-off date Principal
Balance of the loans. See also "The Trusts--The Loan Pools" for a description
of our obligations to repurchase a loan in case of a breach of a representation
or warranty relative to the loan.
POOL FACTOR
The certificate pool factor for each class of certificates will be an eight-
digit decimal which the servicer will compute indicating the outstanding
balance with respect to the certificates as of each distribution date, after
giving effect to all distributions of principal made on such distribution date,
as a fraction of the original certificate balance of the certificates. The note
pool factor for each class of notes will be an eight-digit decimal which the
servicer will compute indicating the remaining outstanding Principal Balance
for such notes as of each distribution date, after giving effect to all
distributions of principal on the distribution date as a fraction of the
initial outstanding Principal Balance of the class of notes. Each certificate
pool factor and each note pool factor will initially be 1.00000000; thereafter,
the certificate pool factor and the note pool factor will decline to reflect
reductions in the certificate balance of the applicable class of certificates
or reductions in the
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outstanding Principal Balance of the applicable class of notes, as the case may
be. The amount of a certificateholder's pro rata share of the certificate
balance for the related class of certificates can be determined by multiplying
the original denomination of the certificateholder's certificate by the then
applicable certificate pool factor. The amount of a noteholder's pro rata share
of the aggregate outstanding Principal Balance of the applicable class of notes
can be determined by multiplying the original denomination of the noteholder's
note by the then applicable note pool factor.
For each trust and under the related trust documents, on each distribution
date or payment date, as the case may be, the related certificateholders and
noteholders will receive periodic reports from the trustee stating the
certificate pool factor or the note pool factor, as the case may be, and
containing various other items of information. Unless and until definitive
certificates or definitive notes are issued, the reports will be sent on behalf
of the trust to the trustee and the indenture trustee and Cede & Co., as
registered holder of the certificates and the notes and the nominee of DTC.
Certificate owners and note owners may receive such reports, upon written
request, together with a certification that they are certificate owners or note
owners and payment of any expenses associated with the distribution of the
reports, from the trustee and the indenture trustee at the addresses specified
in the related prospectus supplement. See "Certain Information Regarding the
Securities--Statements to Securityholders."
USE OF PROCEEDS
Unless we specify otherwise in the related prospectus supplement, the net
proceeds to be received by the trust from the sale of each series of securities
will be used to pay to us the purchase price for the loans and to make the
deposit of the pre-funded amount into the pre-funding account, if any, to repay
warehouse lenders and/or to provide for other forms of credit enhancement
specified in the related prospectus supplement. The net proceeds we will
receive will be used for our general corporate purposes, including the
origination or acquisition of additional home improvement loan contracts and
home equity loans, costs of carrying such contracts until sale of the related
certificates and to pay other expenses connected with pooling the loans and
issuing the securities.
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THE NOTES
General
For each series of securities, one or more classes of notes will be issued
under the terms of an indenture, a form of which has been filed as an exhibit
to the registration statement of which this prospectus forms a part. Unless we
specify otherwise in the related prospectus supplement, no notes will be issued
as a part of any series. The following summary does not claim to be complete
and is subject to, and is qualified in its entirety by reference to, all of the
provisions of the notes and the indenture, and the following summary will be
supplemented in whole or in part by the related prospectus supplement. Where
particular provisions of or terms used in the indenture are referred to, the
actual provisions are incorporated by reference as part of this summary.
Unless we specify otherwise in the related prospectus supplement, each class
of notes will initially be represented by a single note registered in the name
of the nominee of the depository. See "Certain Information Regarding the
Securities--Book-Entry Registration." Unless otherwise specified in the related
prospectus supplement, notes will be available for purchase in denominations of
$1,000 and in integral multiples of $1,000. Notes may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with the transfer or exchange. Unless
otherwise provided in the related prospectus supplement, the indenture trustee
will initially be designated as the registrar for the notes.
Principal and Interest on the Notes
The timing and priority of payment, seniority, allocations of loss, interest
rate and amount of or method of determining payments of principal and interest
on the notes will be described in the related prospectus supplement. The right
of holders of any class of notes to receive payments of principal and interest
may be senior or subordinate to the rights of holders of any class or classes
of notes of such series, or any class of certificates, as described in the
related prospectus supplement. Unless otherwise provided in the related
prospectus supplement, payments of interest on the notes will be made before
payments of principal. A series may include one or more classes of stripped
notes entitled to: (1) principal payments with disproportionate, nominal or no
interest payment, or (2) interest payments with disproportionate, nominal or no
principal payments. Each class of notes may have a different interest rate,
which may be a fixed, variable or adjustable interest rate, and which may be
zero for certain classes of stripped notes, or any combination of the
foregoing. The related prospectus supplement will specify the interest rate for
each class of notes, or the initial interest rate and the method for
determining the interest rate. One or more classes of notes of a series may be
redeemable under the circumstances specified in the related prospectus
supplement.
Unless we specify otherwise in the related prospectus supplement, payments
for interest to noteholders of all classes within a series will have the same
priority. Under some circumstances, the Amount Available for the payments could
be less than the amount of
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interest payable on the notes on any of the dates specified for payments in the
related prospectus supplement in which case each class of noteholders will
receive their ratable share, based upon the aggregate amount of interest due to
that class of noteholders, of the aggregate Amount Available to be distributed
for interest on the notes.
In the case of a series of securities which includes two or more classes of
notes, the timing, sequential order and priority of payment for principal and
interest, and any schedule or formula or other provisions applicable to the
determination, of each class will be set forth in the related prospectus
supplement. Unless we specify otherwise in the related prospectus supplement,
payments for principal and interest of any class of notes will be made on a pro
rata basis among all of the notes of that class.
The Indenture
A form of indenture has been filed as an exhibit to the registration
statement of which this prospectus is a part. We will provide a copy of the
applicable indenture, without exhibits, upon request to a holder of notes
issued.
Modification of Indenture Without Noteholder Consent. Each trust and related
indenture trustee, on behalf of the trust may, without consent of the related
noteholders, enter into one or more supplemental indentures for any of the
following purposes:
(1) to correct or amplify the description of the collateral or add
additional collateral;
(2) to provide for the assumption of the note and the indenture
obligations by a permitted successor to the trust;
(3) to add additional covenants for the benefit of the related
noteholders;
(4) to convey, transfer, assign, mortgage or pledge any property to or
with the indenture trustee;
(5) to cure any ambiguity or correct or supplement any provision in the
indenture or in any supplemental indenture;
(6) to provide for the acceptance of the appointment of a successor
indenture trustee or to add to or change any of the provisions of the
indenture or any supplemental indenture which may be inconsistent with
any other provision of the indenture as shall be necessary and
permitted to facilitate the administration by more than one trustee;
(7) to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939, as amended; and
(8) to add any provisions to, change in any manner, or eliminate any of
the provisions of, the indenture or modify in any manner the rights of
noteholders under the indenture; provided that any action specified in
this clause shall not, as evidenced by an opinion of counsel,
adversely affect in any material respect the interests of any related
noteholder unless noteholder consent is otherwise obtained as
described below.
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Modifications of Indenture With Noteholder Consent. For each trust, with the
consent of the holders representing a majority of the Principal Balance of the
outstanding related notes, the owner trustee and the indenture trustee may
execute a supplemental indenture to add provisions, to change in any manner or
eliminate any provisions of, the related indenture, or modify in any manner the
rights of the related noteholders.
Without the consent of the holder of each outstanding related note affected,
however, no supplemental indenture may:
(1) change the due date of any installment of principal of or interest on
any note or reduce the principal amount, the interest rate specified
or the redemption price or change the manner of calculating any
payment, any place of payment where, or the coin or currency in which
any note or any interest is payable;
(2) impair the right to institute suit for the enforcement of provisions
of the indenture regarding payment;
(3) reduce the percentage of the aggregate amount of the outstanding notes
unless under certain circumstances the consent of the holders is
obtained.
(4) modify or alter the provisions of the indenture regarding the voting
of notes held by the related trust, any other obligor on the notes,
Green Tree or an affiliate of any of them;
(5) reduce the percentage of the aggregate outstanding amount of the notes
the consent of the holders of which is required to direct the
indenture trustee to sell or liquidate the loans if the proceeds of
the sale would be insufficient to pay the principal amount and accrued
but unpaid interest on the outstanding notes;
(6) decrease the percentage of the aggregate principal amount of the notes
required to amend the sections of the Indenture which specify the
applicable percentage of aggregate principal amount of the notes
necessary to amend the indenture or other related agreements; or
(7) permit the creation of any lien ranking prior to or on a parity with
the lien of the indenture with respect to any of the collateral for
the notes or, except as otherwise permitted or contemplated in the
indenture, terminate the lien of the indenture on any collateral or
deprive the holder of any note of the security afforded by the lien of
the indenture.
Events of Default; Rights Upon Event of Default. With respect to each trust,
unless otherwise specified in the related prospectus supplement, events of
default under the indenture will consist of:
(1) a default for five days or more in the payment of interest on any
note;
(2) a default in the payment of the principal or any installment of the
principal of any note when the same becomes due and payable;
(3) a default in the observance or performance in any material respect of
any covenant or agreement of the trust made in the indenture, or any
representation or warranty
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made by the trust in the indenture or in any certificate delivered or
in connection with having been incorrect as of the time made, and the
continuation of any default or the failure to cure the breach of a
representation or warranty for a period of 30 days after notice is
given to the trust by the indenture trustee or to the trust and the
indenture trustee by the holders of at least 25% in principal amount
of the notes outstanding; or
(4) some events of bankruptcy, insolvency, receivership or liquidation of
the trust.
However, the amount of principal due and payable on any class of notes on any
payment date, before the final scheduled payment date, if any, for that class
will generally be determined by amounts available to be deposited in the note
distribution account for the payment date. As a result, unless otherwise
specified in the related prospectus supplement, the failure to pay principal
on a class of notes generally will not result in the occurrence of an event of
default unless that class of notes has a final scheduled payment date, and
then not until that final scheduled payment date for that class of notes.
Unless we specify otherwise in the related prospectus supplement, if an
event of default should occur and be continuing for the notes of any series,
the related indenture trustee or a note majority may declare the principal of
the notes to be immediately due and payable. This declaration may, under some
circumstances, be rescinded by a note majority.
Unless we specify otherwise in the related prospectus supplement, if the
notes of any series have been declared due and payable following an event of
default, the related indenture trustee may institute proceedings to collect
amounts due or foreclose on trust property, exercise remedies as a secured
party, sell the related loans or elect to have the trust maintain possession
of the loans and continue to apply collections on the loans as if there had
been no declaration of acceleration. Unless we specify otherwise in the
related prospectus supplement, the indenture trustee, however, will be
prohibited from selling the related loans following an event of default,
unless:
(1) the holders of all outstanding related notes consent to such sale;
(2) the proceeds of the sale are sufficient to pay in full the principal
and the accrued interest on the outstanding notes at the date of the
sale; or
(3) the indenture trustee determines the proceeds of the loans would not
be sufficient on an ongoing basis to make all payments on the notes as
the payments would have become due if the obligations had not been
declared due and payable, and the indenture trustee obtains the
consent of the holders of 66 2/3% of the aggregate outstanding amount
of the notes.
Unless we specify otherwise in the related prospectus supplement, following a
declaration upon an event of default that the notes are immediately due and
payable, (1) note owners will be entitled to ratable repayment of principal on
the basis of their respective unpaid Principal Balances and (2) repayment in
full of the accrued interest on and unpaid Principal Balances of the notes
will be made before any further payment of interest or principal on the
certificates.
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Subject to the provisions of the indenture relating to the duties of the
indenture trustee, if an event of default occurs and is continuing for a series
of notes, the indenture trustee will be under no obligation to exercise any of
the rights or powers under the indenture at the request or direction of any of
the holders of the notes, if the indenture trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities which
might be incurred by it in complying with the request. Subject to the
provisions for indemnification and certain limitations contained in the
indenture, a note majority in a series will have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
indenture trustee, and a note majority may, in certain cases, waive any
default, except a default in the payment of principal or interest or a default
for a covenant or provision of the indenture that cannot be modified without
the waiver or consent of all of the holders of the outstanding notes.
No holder of a note of any series will have the right to institute any
proceeding with respect to the related indenture, unless:
(1) such holder previously has given to the indenture trustee written
notice of a continuing event of default;
(2) the holders of not less than 25% in principal amount of the
outstanding notes of such series have made written request of the
indenture trustee to institute such proceeding in its own name as
indenture trustee;
(3) the holder or holders have offered the indenture trustee reasonable
indemnity;
(4) the indenture trustee has for 60 days failed to institute the
proceeding; and
(5) no direction inconsistent with the written request has been given to
the indenture trustee during the 60-day period by the holders of a
majority in principal amount of the outstanding notes.
If an event of default occurs and is continuing and if it is known to the
indenture trustee, the indenture trustee will mail to each noteholder notice of
the event of default within 90 days after it occurs. Except in the case of a
failure to pay principal or interest on any note, the indenture trustee may
withhold the notice if it determines in good faith that withholding the notice
is in the interests of the noteholders.
In addition, each indenture trustee and the related noteholders, by accepting
the related notes, will covenant that they will not at any time institute
against the seller or the related trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
Neither the indenture trustee nor the trustee in its individual capacity, nor
any holder of a certificate including, without limitation, Green Tree, nor any
of their respective owners, beneficiaries, agents, officers, directors,
employees, affiliates, successors or assigns will, in the absence of an express
agreement to the contrary, be personally liable for the payment of the related
notes or for any agreement or covenant of the related trust contained in the
indenture.
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Certain Covenants. Each indenture will provide that the related trust may not
consolidate with or merge into any other entity, unless:
(1) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state;
(2) the entity expressly assumes the trust's obligation to make due and
punctual payments upon the notes and the performance or observance of
every agreement and covenant of the trust under the indenture;
(3) no event of default shall have occurred and be continuing immediately
after the merger or consolidation;
(4) the trustee has been advised that the current rating of the related
notes or certificates in effect would not be reduced or withdrawn by
the rating agencies as a result of the merger or consolidation;
(5) the trustee has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the trust or to any related note owner or certificate owner.
Each trust will not:
(1) except as expressly permitted by the indenture, the trust documents
or certain related documents for the trust, sell, transfer, exchange
or otherwise dispose of any of the assets of the trust,
(2) claim any credit or make any deduction from the principal and
interest payable for the related notes, other than amounts withheld
under the Internal Revenue Code or applicable state law or assert any
claim against any present or former holder of the notes because of
the payment of taxes levied or assessed upon the trust,
(3) dissolve or liquidate in whole or in part,
(4) permit the validity or effectiveness of the related indenture to be
impaired or permit any person to be released from any covenants or
obligations with respect to the related notes under such indenture
except as may be expressly permitted, or
(5) except as expressly permitted by the related documents, permit any
lien, charge, excise, claim, security interest, mortgage or other
encumbrance to be created on or extend to or otherwise arise upon or
burden the assets of the trust or any part thereof, or any interest
or proceeds.
No trust may engage in any activity other than as specified under the section
of the related prospectus supplement entitled "The Trust." No trust will incur,
assume or guarantee any indebtedness other than indebtedness incurred under the
related notes and the related indenture or otherwise in accordance with the
related documents.
Annual Compliance Statement. Each trust will be required to file annually
with the related indenture trustee a written statement as to the fulfillment of
its obligations under the indenture.
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Indenture Trustee's Annual Report. The indenture trustee will be required to
mail each year to all related noteholders a brief report relating to its
eligibility and qualification to continue as indenture trustee under the
related indenture, any amounts advanced by it under the indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the trust to
the indenture trustee in its individual capacity, the property and funds
physically held by the indenture trustee and any action taken by it that
materially affects the notes and that has not been previously reported. Note
owners may receive these reports upon written request, together with a
certification that they are note owners and payment of reproduction and postage
expenses associated with the distribution of the reports, from the indenture
trustee at the address specified in the related prospectus supplement.
Satisfaction and Discharge of Indenture. The indenture will be discharged
with respect to the collateral securing the related notes upon the delivery to
the related Indenture trustee for cancellation of all notes or, with certain
limitations, upon deposit with the indenture trustee of funds sufficient for
the payment in full of all of the notes.
The Indenture Trustee
The indenture trustee for a series of notes will be specified in the related
prospectus supplement. The indenture trustee may resign at any time, in which
event the seller will be obligated to appoint a successor trustee. We may also
remove the indenture trustee if the indenture trustee ceases to be eligible to
continue as such under the indenture or if the indenture trustee becomes
insolvent. In such circumstances, We will be obligated to appoint a successor
trustee. Any resignation or removal of the indenture trustee and appointment of
a successor trustee will be subject to any conditions or approvals, if any,
specified in the related prospectus supplement and will not become effective
until acceptance of the appointment by a successor trustee.
THE CERTIFICATES
General
A series of securities may include one or more classes of certificates issued
under trust documents to be entered into between Green Tree, as seller and as
servicer, and the trustee, forms of which have been filed as exhibits to the
registration statement of which this prospectus forms a part. The following
summary does not claim to be complete and is subject to, and is qualified in
its entirety by reference to, all of the material provisions of the trust
documents. Where particular provisions or terms used in the trust documents are
referred to, the actual provisions are incorporated by reference as part of
this summary.
If the certificates of a series are issued in more than one class, the
certificates of all or less than all of those classes may be sold under this
prospectus, and there may be separate prospectus supplements relating to one or
more of the classes sold. Any reference in this prospectus to the prospectus
supplement relating to a series comprised of more than one class should be
understood as a reference to each of the prospectus supplements relating to the
classes sold under this prospectus. Any reference in this prospectus to the
certificates of a
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class should be understood to refer to the certificates of a class within a
series or all of the certificates of a single-class series, as the context may
require. For convenience of description, any reference in this prospectus to a
"class" of certificates includes a reference to any subclasses of that class.
Unless we specify otherwise in the related prospectus supplement, each class
of certificates will initially be represented by a single certificate
registered in the name of the nominee of DTC. See "Certain Information
Regarding the Securities--Book-Entry Registration." Unless otherwise specified
in the related prospectus supplement, the certificates evidencing interests in
a trust will be available for purchase in denominations of $1,000 initial
principal amount and integral multiples thereof, except that one certificate
evidencing an interest in the trust may be issued in a denomination that is
less than $1,000 initial principal amount. Certificates may be transferred or
exchanged without the payment of any service charge other than any tax or
governmental charge payable in connection with such transfer or exchange.
Unless otherwise specified in the related prospectus supplement, the trustee
will initially be designated as the registrar for the certificates.
Distributions of Interest and Principal
The timing and priority of distributions, seniority, allocations of loss,
pass-through rate and amount of or method of determining distributions with
respect to principal and interest, or, where applicable, for principal only or
interest only, on the certificates of any series will be described in the
related prospectus supplement. Distributions of interest on the certificates
will be made on the dates specified in the related prospectus supplement and,
unless otherwise specified in the related prospectus supplement, will be made
prior to distributions with respect to principal. A series may include one or
more classes of certificates which are subordinated in right of distribution to
one or more other classes of certificates, as provided in the related
prospectus supplement. Certificates of a series which includes senior and
subordinated certificates are referred to herein collectively as
senior/subordinated certificates. A series of senior/subordinated certificates
may include one or more classes referred to as mezzanine certificates which are
subordinated to one or more classes of certificates and are senior to one or
more classes of certificates. The prospectus supplement with respect to a
series of senior/subordinated certificates will describe, among other things:
. the extent to which the subordinated certificates are subordinated,
which may include a formula for determining the subordinated amount or
for determining the allocation of the Amount Available among senior
certificates and subordinated certificates;
. the allocation of losses among the classes of subordinated
certificates;
. the period or periods of such subordination, the minimum subordinated
amount, if any; and
. any distributions or payments which will not be affected by such
subordination.
The protection afforded to the senior certificateholders from the subordination
feature described above will be effected by the preferential right of those
certificateholders to
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receive current distributions from the loan pool. If a series of certificates
contains more than one class of subordinated certificates, losses will be
allocated among those classes in the manner described in the prospectus
supplement. If specified in the applicable prospectus supplement, mezzanine
certificates or other classes of subordinated certificates may be entitled to
the benefits of other forms of credit enhancement and may, if rated in one of
the four highest rating categories by a nationally recognized statistical
rating organization, be offered under this prospectus and the prospectus
supplement.
If specified in a prospectus supplement, a series may include one or more
classes of certificates which:
(1) are entitled to receive distributions only in respect of principal,
interest or any combination thereof, or in specified proportions for
such payments; and/or
(2) are entitled to receive distributions for principal before or after
specified principal distributions have been made on one or more other
classes within such series, or on a planned amortization schedule or
targeted amortization schedule or upon the occurrence of other
specified events.
The prospectus supplement will describe the rate at which interest will be paid
to certificateholders of each class of a given series. Such pass-through rate
may be fixed, variable or adjustable, as specified in the related prospectus
supplement.
The related prospectus supplement will specify the pass-through rate for each
class of certificate, or the initial pass-through rate and the method for
determining the pass-through rate. Unless we specify otherwise in the related
prospectus supplement, interest on the certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Unless we specify
otherwise in the related prospectus supplement, distributions for the
certificates will be subordinate to payments for the notes, if any, as more
fully described in the related prospectus supplement. Distributions in respect
of principal of any class of certificates will be made on a pro rata basis
among all of the certificateholders of that class.
In the case of a series of certificates which includes two or more classes of
certificates, the timing, sequential order, priority of payment or amount of
distributions for principal, and any schedule or formula or other provisions
applicable to the determination, of each class shall be as described in the
related prospectus supplement.
CERTAIN INFORMATION REGARDING THE SECURITIES
Book-Entry Registration
Unless otherwise provided in the related prospectus supplement, the
securities of each series will be registered in the name of Cede & Co., the
nominee of DTC. DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a clearing
corporation within the meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC accepts securities for deposit from its participating
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organizations and facilitates the clearance and settlement of securities
transactions between participants in those securities through electronic book-
entry changes in accounts of participants, eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks and trust companies and clearing corporations and may include other
organizations. Indirect access to the DTC system is also available to banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Certificate owners and note owners who are not participants but desire to
purchase, sell or otherwise transfer ownership of securities may do so only
through participants unless and until definitive certificates or definitive
notes, are issued. In addition, certificate owners and note owners will receive
all distributions of principal of, and interest on, the securities from the
trustee or the indenture trustee, through DTC and participants. Certificate
owners and note owners will not receive or be entitled to receive certificates
representing their respective interests in the securities, except under the
limited circumstances described below and other circumstances as may be
specified in the related prospectus supplement.
Unless and until definitive securities are issued, it is anticipated that the
only certificateholder of the certificates and the only noteholder of the
notes, if any, will be Cede & Co., as nominee of DTC. Certificate owners and
note owners will not be recognized by the trustee as certificateholders or by
the indenture trustee as noteholders as those terms are used in the related
trust documents or indenture. Certificate owners and note owners will be
permitted to exercise the rights of certificateholders or noteholders only
indirectly through participants and DTC.
With respect to any series of securities, while the securities are
outstanding under the rules, regulations and procedures creating and affecting
DTC and its operations, DTC is required to make book-entry transfers among
participants on whose behalf it acts with respect to the securities and is
required to receive and transmit distributions of principal of, and interest
on, the securities. Participants with whom certificate owners or note owners
have accounts for securities are similarly required to make book-entry
transfers and receive and transmit distributions on behalf of their respective
certificate owners and note owners. Accordingly, although certificate owners
and note owners will not possess securities, the rules provide a mechanism by
which certificate owners and note owners will receive distributions and will be
able to transfer their interests.
With respect to any series of securities, unless otherwise specified in the
related prospectus supplement, certificates, if any, and notes will be issued
in registered form to certificate owners and note owners, or their nominees,
rather than to DTC, only if:
(1) DTC, Green Tree or the servicer advises the trustee or the indenture
trustee, as the case may be, in writing that DTC is no longer willing
or able to discharge properly its responsibilities as nominee and
depository for the certificates or the notes, and Green Tree, the
servicer, the trustee or the indenture trustee, as the case may be, is
unable to locate a qualified successor;
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(2) Green Tree or the administrator, if any, at its sole option has
advised the trustee or the indenture trustee, as the case may be, in
writing that it elects to terminate the book-entry system through DTC;
and
(3) after the occurrence of a servicer termination event, the holders
representing a majority of the certificate balance or a note majority
advises the trustee or the indenture trustee through DTC, that
continuation of a book-entry system is no longer in their best
interests.
Upon issuance of definitive certificates or definitive notes to certificate
owners or note owners, such certificates or notes will be transferable
directly, and not exclusively on a book-entry basis and registered holders will
deal directly with the trustee or the indenture trustee with respect to
transfers, notices and distributions.
DTC has advised Green Tree that, unless and until definitive certificates or
definitive notes are issued, DTC will take any action permitted to be taken by
a certificateholder or a noteholder under the related trust documents or
indenture only at the direction of one or more participants to whose DTC
accounts the certificates or notes are credited. DTC has advised us that DTC
will take action with respect to any fractional interest of the certificates or
the notes only at the direction of and on behalf of those participants
beneficially owning a corresponding fractional interest of the certificates or
the notes. DTC may take actions, at the direction of the related participants,
for some certificates or notes which conflict with actions taken for other
certificates or notes.
Issuance of certificates and notes in book-entry form rather than as physical
certificates or notes may adversely affect the liquidity of certificates or
notes in the secondary market and the ability of the certificate owners or note
owners to pledge them. In addition, since distributions on the certificates and
the notes will be made by the trustee or the indenture trustee to DTC and DTC
will credit such distributions to the accounts of its participants, with the
participants further crediting such distributions to the accounts of indirect
participants or certificate owners or note owners, certificate owners and note
owners may experience delays in the receipt of distributions.
Statements to Securityholders
On or before each distribution date, the servicer will prepare and provide to
the trustee a statement to be delivered to the related certificateholders on
that distribution date. On or prior to each distribution date, the servicer
will prepare and provide to the indenture trustee a statement to be delivered
to the related noteholders on such distribution date. Such statements will be
based on the information in the related servicer's certificate listing some
information required under the trust documents. Unless we specify otherwise in
the related prospectus supplement, each statement to be delivered to
certificateholders will include the following information as to the
certificates for such distribution date or the period since the previous
distribution date, as applicable, and each such statement to be delivered to
noteholders will include the following information as to the notes for such
distribution date or the period since the previous distribution date:
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(1) the amount of the distribution allocable to interest on or for each
class of securities;
(2) the amount of the distribution allocable to principal on or for each
class of securities;
(3) the certificate balance and the certificate pool factor for each class
of certificates and the aggregate outstanding Principal Balance and
the note pool factor for each class of notes, after giving effect to
all payments reported under (2) above on that date;
(4) the amount of the monthly servicing fee paid to the servicer for the
related due period or periods;
(5) the pass-through rate or interest rate for the next period for any
class of certificates or notes with variable or adjustable rates;
(6) the amount of advances made by the servicer for such distribution
date, and the amount paid to the servicer on that distribution date as
reimbursement of advances made on previous distribution dates;
(7) the amount distributed to certificateholders and noteholders
applicable to payments under the related form of credit enhancement,
if any;
(8) our FHA insurance reserve amount;
(9) the number and aggregate Principal Balance of loans delinquent (i) 31-
59 days, (ii) 60-89 and (iii) 90 or more days;
(10) the number of loans liquidated during the due period ending
immediately before the payment date;
(11) such customary factual information as is necessary to enable
securityholders to prepare their tax returns; and
(12) such other information as may be specified in the prospectus
supplement.
Each amount described in subclauses (1), (2), (4) and (6) with respect to
certificates or notes will be expressed as a dollar amount per $1,000 of the
initial certificate balance or the initial Principal Balance of the notes.
Unless and until definitive certificates or definitive notes are issued, the
reports with respect to a series of securities will be sent on behalf of the
related trust to the trustee, the indenture trustee and Cede & Co., as
registered holder of the certificates and the notes and the nominee of DTC.
Certificate owners and note owners may receive copies of the reports upon
written request, together with a certification that they are certificate owners
or note owners, as the case may be, and payment of reproduction and postage
expenses associated with the distribution of the reports, from the trustee or
the indenture trustee. See "Reports to Securityholders" and "--Book-Entry
Registration" above.
Within the prescribed period of time for tax reporting purposes after the end
of each calendar year during the term of a trust, the trustee and the indenture
trustee will mail to
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each holder of a class of securities who at any time during that calendar year
has been a securityholder, and received any payment, a statement containing
information for the purposes of that securityholder's preparation of federal
income tax returns. DTC will convey that information to its participants, who
in turn will convey that information to their related indirect participants in
accordance with arrangements among DTC and those participants. Certificate
owners and note owners may receive the reports upon written request, together
with a certification that they are certificate owners or note owners and
payment of reproduction and postage expenses associated with the distribution
of that information, from the trustee, for certificate owners, or from the
indenture trustee, for note owners, at the addresses specified in the related
prospectus supplement. See "Certain Federal Income Tax Consequences."
Lists of Securityholders
Unless we state otherwise in the prospectus supplement, for each series of
certificates, at such time, if any, as definitive certificates have been
issued, the trustee will, upon written request by three or more
certificateholders or one or more holders of certificates evidencing not less
than 25% of the certificate balance, within five business days after provision
to the trustee of a statement of the applicants' desire to communicate with
other certificateholders about their rights under the regarding trust documents
or the certificates and a copy of the communication that the applicants propose
to transmit, afford the certificateholders access during business hours to the
current list of certificateholders for purposes of communicating with other
certificateholders with respect to their rights under the trust documents.
Unless otherwise specified in the prospectus supplement, the trust documents
will not provide for holding any annual or other meetings of
certificateholders.
Unless otherwise provided in the prospectus supplement, for each series of
notes, at such time as definitive notes have been issued, the indenture trustee
will, upon written request by three or more noteholders or one or more holders
of notes evidencing not less than 25% of the aggregate Principal Balance of the
related notes, within five business days after provision to the indenture
trustee of a statement of the applicants' desire to communicate with other
noteholders about their rights under the related indenture or the notes and a
copy of the communication that the applicants propose to transmit, afford such
noteholders access during business hours to the current list of noteholders for
purposes of communicating with other noteholders with respect to their rights
under the indenture. Unless we specify otherwise in the prospectus supplement,
the indenture will not provide for holding any annual or other meetings of
noteholders.
DESCRIPTION OF THE TRUST DOCUMENTS
Except as otherwise specified in the prospectus supplement, the following
summary describes terms of the sale and servicing agreements and the trust
agreements under which we will sell and assign the loans to a trust and the
servicer will agree to service the loans on behalf of the trust, and pursuant
to which the trust will be created and certificates will be issued. Forms of
the trust documents have been filed as exhibits to the registration statement
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of which this prospectus forms a part. We will provide a copy of those
agreements upon request to a holder of securities. This summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the trust documents. Where particular
provisions or terms used in the trust documents are referred to, the actual
provisions are incorporated by reference as part of that summary.
Sale and Assignment of the Loans
On the closing date, we will sell and assign to the trust, without recourse,
our entire interest in the related loans, including all principal and interest
received on or for the loans other than receipts of principal and interest due
on the loans before the cut-off date. Each loan transferred by us to the trust
will be identified in a schedule appearing as an exhibit to the trust
documents. Concurrently with the sale and assignment, the trustee will execute
and the indenture trustee will authenticate and deliver the notes to or upon
our order and the trustee will execute and deliver the related certificates
representing the certificates, if any, to or upon our order.
The schedule of loans will include the amount of monthly payments due on each
loan as of the date of issuance of the securities, the loan rate on each loan
and the maturity date of each loan. The list will be available for inspection
by any securityholder at the principal executive office of the servicer. Before
the conveyance of the loans to the trustee, our internal audit department will
complete a review of all of the loan files confirming the accuracy of the list
of loans delivered to the trustee. Any loan discovered not to agree with that
list in a manner that is materially adverse to the interests of the
securityholders will be repurchased or substituted for by us, or, if the
discrepancy relates to the unpaid Principal Balance of a loan, we may deposit
cash in the separate account maintained at an eligible institution in the name
of the trustee in an amount sufficient to offset the discrepancy. If the trust
includes a pre-funding account, the prospectus supplement will specify the
conditions that must be satisfied any transfer of subsequent loans, including
the requisite characteristics of the subsequent loans.
Unless we specify otherwise in the prospectus supplement, the trustee or its
custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans to the
trustee, and our accounting records and computer systems will also reflect the
sale and assignment.
Our counsel identified in the prospectus supplement will render an opinion to
the trustee that the transfer of the loans from us to the trust would, in the
event we became a debtor under the United States Bankruptcy Code, be treated as
a true sale and not as a pledge to secure borrowings. If the transfer of the
loans from us to the trust were treated as a pledge to secure our borrowings,
the distribution of proceeds of the loans to the trust might be subject to the
automatic stay provisions of the United States Bankruptcy Code, which would
delay the distribution of the proceeds for an uncertain period of time. In
addition, a bankruptcy trustee would have the power to sell the loans if the
proceeds of the sale could satisfy the amount of the debt deemed owed by us, or
the bankruptcy trustee could substitute other
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collateral in lieu of the loans to secure that debt, or that debt could be
subject to adjustment by the bankruptcy trustee if Green Tree were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code.
Unless we specify otherwise in the prospectus supplement, we will make
representations and warranties in the sale and servicing agreement for each
loan as of the related closing date, including that:
(1) as of the cut-off date the most recent scheduled payment was made or
was not delinquent more than 59 days;
(2) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(3) each loan is a legal, valid and binding obligation of the obligor and
is enforceable in accordance with its terms, except as may be limited
by laws affecting creditors rights generally;
(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each FHA-insured home improvement loan was originated in accordance
with applicable FHA regulations and is insured, without set off,
surcharge or defense, by FHA insurance;
(6) each loan was either (a) entered into by a home improvement contractor
in the ordinary course of such contractor's business and, immediately
upon funding, assigned to us or (b) was originated by a home equity
lender in the ordinary course of such lender's business and assigned
to us or (c) was originated by us directly;
(7) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest therein pursuant to the sale and servicing agreement or the
securities unlawful;
(8) each loan complies with all requirements of law;
(9) no loan has been satisfied, subordinated to a lower lien ranking than
its original position, if any, or rescinded;
(10) all parties to each loan had full legal capacity to execute such
loan;
(11) no loan has been sold, conveyed and assigned or pledged to any other
person and Green Tree has good and marketable title to each loan free
and clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to the trustee;
(12) as of the cut-off date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by clause (1) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under loan, and we have not waived any of the foregoing;
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(13) each loan is a fully-amortizing loan with a fixed rate of interest
and provides for level payments over the term of the loan;
(14) the description of each loan described in the list delivered to the
trustee is true and correct;
(15) there is only one original of each loan; and
(16) each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
Our warranties will be made as of the execution and delivery of the trust
documents and will survive the sale, transfer and assignment of the related
loans and other trust property to the trust but will speak only as of the date
made.
Under the terms of the sale and servicing agreement, if we become aware of a
breach of any representation or warranty that materially adversely affects the
interests of the note owners, the certificate owners, or the related trust in
any loan, or receive written notice of such a breach from the trustee or the
servicer, then we will be obligated either to cure that breach or to repurchase
or, if so provided in the related prospectus supplement, substitute for the
affected loan, in each case under the conditions further described and in the
prospectus supplement. This repurchase obligation will constitute the sole
remedy available to the trust and the securityholders for a breach of a
representation or warranty under the sale and servicing agreement for the
loans, but not for any other breach by us of our obligations under the sale and
servicing agreement.
The purchase amount of a loan at any time means the outstanding principal
amount of that loan, without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable loan rate on that loan from the
end of the due period for which the obligor last made a payment, without giving
effect to any advances made by the servicer or the trustee through the end of
the immediately preceding due period.
Upon the purchase by us of a loan due to a breach of a representation or
warranty, the trustee will convey that loan and the related trust property to
us.
Collections
With respect to each trust, the servicer will establish one or more
collection accounts in the name of the indenture trustee for the benefit of the
related securityholders. If specified in the prospectus supplement, the
indenture trustee will establish and maintain for each series an account, in
the name of the indenture trustee on behalf of the noteholders, in which
amounts released from the collection account and any pre-funding account and
any amounts received from any source of credit enhancement for payment to those
noteholders will be deposited and from which all distributions to those
noteholders will be made. For any series including one or more classes of
certificates, the trustee will establish and maintain for each series an
account, in the name of the trustee on behalf of the related
certificateholders, in which amounts released from the collection account and
any pre-funding account and any amounts received from any source of credit
enhancement for distribution to certificateholders
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will be deposited and from which all distributions to certificateholders will
be made. The collection account, the certificate distribution account, and the
note distribution account, are referred to herein collectively as the
"Designated Accounts." Any other accounts to be established with respect to a
trust will be described in the prospectus supplement.
Each designated account will be an eligible account maintained with the
trustee, the indenture trustee and/or other depository institutions. Eligible
account means any account which is:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution or
trust company with trust powers and acting in its fiduciary capacity
for the benefit of the trustee, which depository institution or trust
company has capital and surplus, or, if such depository institution or
trust company is a subsidiary of a bank holding company system, the
capital and surplus of the bank holding company, of not less than
$50,000,000 and the securities of such depository institution, or, if
such depository institution is a subsidiary of a bank holding company
system and such depository institution's securities are not rated, the
securities of the bank holding company, has a credit rating from each
rating agency rating such series of notes and/or certificates in one
of its generic credit rating categories which signifies investment
grade; or
(4) an account that will not cause any rating agency to downgrade or
withdraw its then-current rating assigned to the securities, as
confirmed in writing by each rating agency.
Eligible institution means any depository institution organized under the laws
of the United States or any state, the deposits of which are insured to the
full extent permitted by law by the Bank Insurance Fund, currently administered
by the Federal Deposit Insurance Corporation, whose short-term deposits have
been rated in one of the two highest rating categories or such other rating
category as will not adversely affect the ratings assigned to the securities of
the series. On the closing date specified in the prospectus supplement, the
servicer will cause to be deposited in the collection account all payments on
the loans received by the servicer after the cut-off date and on or before the
second business day preceding the closing date.
Unless we specify otherwise in the prospectus supplement, the servicer will
deposit in the collection account on a daily basis all proceeds and collections
received or made by it for the related loans subsequent to the cut-off date,
including scheduled payments of principal and interest due after the cut-off
date but received by the servicer on or before the cut-off date, including:
(1) all obligor payments on account of principal, including principal
prepayments, on the loans;
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(2) all obligor payments on account of interest on the loans;
(3) all FHA insurance payments received by the servicer;
(4) all amounts received and retained in connection with the liquidation
of defaulted loans;
(5) any advances made as described under "Advances" below and other
amounts required under the sale and servicing agreement to be
deposited in the collection account;
(6) all amounts received from any credit enhancement provided a series of
securities; and
(7) all proceeds of any loan or property acquired in respect thereof
repurchased by the servicer or Green Tree, as described under "Sale
and Assignment of the Loans" above or under "Repurchase Option" below.
Notwithstanding the foregoing and unless we provide otherwise in the
prospectus supplement, the servicer may utilize an alternative remittance
schedule, if the servicer provides to the trustee and the indenture trustee
written confirmation from each rating agency that such alternative remittance
schedule will not result in the downgrading or withdrawal by such rating agency
of the rating(s) then assigned to the securities. Green Tree will also deposit
into the collection account on or before the deposit date the purchase amount
of each loan to be purchased by it for breach of a representation or warranty.
For any series of securities, funds in the designated accounts and any other
accounts identified in the prospectus supplement will be invested, as provided
in the trust documents, at the direction of the servicer in United States
government securities and certain other high-quality investments meeting the
criteria specified in the trust documents ("Eligible Investments"). Eligible
investments shall mature no later than the business day preceding the
applicable distribution date for the due period to which the amounts relate.
Investments in eligible investments will be made in the name of the trustee or
the indenture trustee and such investments will not be sold or disposed of
prior to their maturity.
Unless otherwise specified in the prospectus supplement, collections or
recoveries on a loan, other than late fees or other similar fees or charges
received during a due period and purchase amounts deposited with the trustee
before a distribution date will be applied first to any outstanding advances
made by the servicer for the loan, and then to interest and principal on the
loan in accordance with the terms of the loan.
Servicing
Under the sale and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as more fully described below. The
servicer will perform diligently all services and duties specified in each sale
and servicing agreement, in the same manner as prudent lending institutions of
home improvement contracts of the same type as the loans in those jurisdictions
where the related real properties are located or as otherwise specified in the
sale and servicing agreement. The duties to be performed by the servicer will
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include collection and remittance of principal and interest payments, as well
as submission of FHA insurance claims where applicable.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the sale and servicing agreement and any
FHA insurance, will follow the collection procedures for the loans as it
follows with respect to loans or contracts serviced that are comparable to the
loans.
Evidence as to Compliance. Unless we specify otherwise in the prospectus
supplement, each sale and servicing agreement will require the servicer to
deliver to the trustee a monthly report before each payment date, describing
information regarding the loan pool and the securities of the series as is
specified in the prospectus supplement. Each report to the trustee will be
accompanied by a statement from an appropriate officer of the servicer
certifying the accuracy of the report and stating that the servicer has not
defaulted in the performance of its obligations under the sale and servicing
agreement. On or before May 1 of each year, the servicer will deliver to the
trustee a report of a nationally recognized accounting firm stating that the
firm has examined documents and records for the servicing of home improvement
contracts serviced by the servicer under agreements similar to the sale and
servicing agreement and stating that the servicing has been conducted in
compliance with the sale and servicing agreement, except for any exceptions
described in the report.
Certain Matters Regarding the Servicer. The servicer may not resign from its
obligations and duties under a sale and servicing agreement except upon a
determination that its duties are no longer permissible under applicable law.
No such resignation will become effective until the trustee or a successor
servicer has assumed the servicer's obligations and duties under the sale and
servicing agreement. The servicer can only be removed as servicer upon the
occurrence of an event of termination as discussed below.
The servicer shall keep in force throughout the term of the sale and
servicing agreement:
. a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the sale and servicing
agreement, and
. a fidelity bond.
The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home
improvement contracts having an aggregate principal amount of $10 million or
more and which are generally regarded as servicers acceptable to institutional
investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which we may assign for each due period, paid on the next
succeeding payment date equal to 1/12th of the product of the annual servicing
fee rate described in the applicable prospectus supplement and the aggregate
Principal Balance for the payment date. As long as we are the servicer, the
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trustee will pay us its monthly servicing fee from any monies remaining after
the securityholders have received all payments of principal and interest for
the payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include:
. collecting and recording payments,
. communicating with obligors,
. investigating payment delinquencies,
. providing billing and tax records to obligors, and
. maintaining internal records with respect to each loan.
Administrative services performed by the servicer on behalf of the trust
include:
. selecting and packaging the loans,
. calculating distributions to securityholders, and
. providing related data processing and reporting services for
securityholders and on behalf of the trustee.
Expenses incurred in connection with servicing of the loans and paid by Green
Tree from its monthly servicing fees include:
. payment of FHA Insurance premiums,
. payment of fees and expenses of accountants,
. payments of all fees and expenses incurred in connection with the
enforcement of loans, including submission of FHA Insurance claims, if
applicable or payment of trustee's fees, and
. payment of expenses incurred in connection with distributions and
reports to securityholders, except that the servicer shall be
reimbursed out of the liquidation proceeds of a Liquidated Loan,
including FHA Insurance proceeds for customary out-of-pocket
liquidation expenses incurred.
Events of Termination. Unless we specify otherwise in the prospectus
supplement, events of termination under each sale and servicing agreement will
occur if:
(1) any failure by the servicer to deliver to the indenture trustee for
distribution to the noteholders or to the trustee for distribution to
the certificateholders any required payment which continues unremedied
for 5 days, or such other period specified in the prospectus
supplement, after the giving of written notice;
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(2) any failure by the servicer duly to observe or perform in any material
respect any other of its covenants or agreements in the trust
documents that materially and adversely affects the interests of
securityholders, which, in either case, continues unremedied for 30
days after the giving of written notice of the failure or breach;
(3) any assignment or delegation by the servicer of its duties or rights
under the trust documents, except as specifically permitted under the
trust documents, or any attempt to make such an assignment or
delegation;
(4) certain events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings regarding the servicer;
(5) the servicer is no longer an eligible servicer, as defined in the
trust documents; or
(6) if Green Tree is the servicer, Green Tree's receiving rights under its
master seller-servicer contract with GNMA are terminated. Notice means
notice to the servicer by the trustee, the indenture trustee, or Green
Tree, or to Green Tree, the servicer, the indenture trustee, and the
trustee by the holders of securities representing interests
aggregating not less than 25% of the outstanding Principal Balance of
the securities issued by the trust.
Unless otherwise specified in the prospectus supplement, if a servicer
termination event occurs and is continuing, the trustee, the indenture trustee
or the holders of at least 25% in aggregate Principal Balance of the
outstanding securities issued by the trust, by notice given in writing to the
servicer, and to the trustee and the indenture trustee if given by the
securityholders, may terminate all of the rights and obligations of the
servicer under the trust documents. Immediately upon the giving of such notice,
and, in the case of a successor servicer other than the trustee, the acceptance
by such successor servicer of its appointment, all authority of the servicer
will pass to the trustee or other successor servicer. The trustee, the
indenture trustee and the successor servicer may set off and deduct any amounts
owed by the servicer from any amounts payable to the outgoing servicer.
On and after the time the servicer receives a notice of termination, the
trustee or other successor servicer specified in the prospectus supplement will
be the successor in all respects to the servicer and will be subject to all the
responsibilities, restrictions, duties and liabilities of the servicer under
the trust documents; provided, however, that the successor servicer shall have
no liability with respect to any obligation which was required to be performed
by the prior servicer before the date that the successor servicer becomes the
servicer or any claim of a third party, including a securityholder based on any
alleged action or inaction of the prior servicer.
In addition, the trustee will notify FHA of Green Tree's termination as
servicer of the loans and will request that the portion of Green Tree's FHA
insurance reserves allocable to the FHA-insured loans be transferred to the
trustee or a successor servicer. See "Description of FHA Insurance."
Notwithstanding such termination, the servicer will be entitled to payment of
amounts payable to it before such termination, for services rendered before
such termination. No such termination will affect Green Tree's obligation to
repurchase loans for breaches of representations or warranties under the trust
documents. In the event that the
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trustee would be obligated to succeed the servicer but is unwilling or unable
so to act, it may appoint, or petition to a court of competent jurisdiction for
the appointment of, a servicer. Pending appointment, the trustee is obligated
to act in that capacity. The trustee and successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
to the servicer under the trust documents without the consent of all of the
securityholders.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the sale and servicing agreement at the
request, order or direction of any of the holders of securities, unless the
securityholders have offered to the trustee reasonable security or indemnity
against the costs, expenses and liabilities which the trustee may incur.
Green Tree, as servicer, will be required to pay all expenses incurred by it
in connection with its servicing activities, including fees, expenses and
disbursements of the trustee, the indenture trustee, the custodian and
independent accountants, taxes imposed on the servicer and expenses incurred in
connection with distributions and reports to certificateholders and
noteholders, except some expenses incurred in connection with realizing upon
the loans.
Upon any termination of, or appointment of a successor to, the servicer, the
trustee and the indenture trustee will each give prompt written notice to
certificateholders and noteholders at their respective addresses appearing in
the certificate register or the note register and to each rating agency.
Distributions
For each trust, beginning on the distribution date specified in the
prospectus supplement, distributions of principal and interest, or of principal
or interest only, on each class of securities entitled under this prospectus
will be made by the trustee or the indenture trustee, as applicable, to the
certificateholders and the noteholders. The timing, calculation, allocation,
order, source, priorities of and requirements for all distributions to each
class of certificateholders and all payments to each class of noteholders will
be described in the prospectus supplement.
Unless we specify otherwise in the prospectus supplement, on the third
business day before each distribution date, the servicer will determine the
Amount Available and the amounts to be distributed on the notes and
certificates for that distribution date. Unless we specify otherwise in the
prospectus supplement, the Amount Available for any distribution date will be
equal to:
(1) the funds on deposit in the collection account at the close of
business on the last day of the related due period; plus
(2) any advances to be made by the servicer for delinquent payments; plus
(3) any purchase amounts to be deposited by Green Tree for loans to be
repurchased due to a breach of a representation or warranty; minus
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(4) any amounts paid by obligors in the related due period, but to be
applied in respect of a regular monthly payment due in a subsequent
due period; minus
(5) any amounts incorrectly deposited in the collection account.
Unless we specify otherwise in the prospectus supplement, on each
distribution date, before making distributions for the notes and certificates,
the Amount Available will be applied, first, if Green Tree is no longer the
servicer, to pay the monthly servicing fee to the successor servicer, and
second, to reimburse the servicer, including Green Tree for any advances made
for a prior due period and subsequently recovered and for any advances
previously made that the servicer has determined are uncollectible advances.
Enhancement
The amounts and types of enhancement arrangements and the provider, if
applicable, with respect to each class of securities, will be described in the
prospectus supplement. If and to the extent provided in the prospectus
supplement, enhancement may be in the form of a financial guaranty insurance
policy, letter of credit, Green Tree guaranty, cash reserve fund, derivative
product, or other form of enhancement, or any combination, as may be described
in the prospectus supplement. If specified in the applicable prospectus
supplement, enhancement for a class of securities of a series may cover one or
more other classes of securities in that series, and accordingly may be
exhausted for the benefit of a particular class and be unavailable to other
classes. Further information regarding any provider of enhancement, including
financial information when material, will be included in the prospectus
supplement.
The presence of enhancement may be intended to enhance the likelihood of
receipt by the certificateholders and the noteholders of the full amount of
principal and interest due and to decrease the likelihood that the
certificateholders and the noteholders will experience losses, or may be
structured to provide protection against changes in interest rates or against
other risks, to the extent and under the conditions specified in the prospectus
supplement. Unless we specify otherwise in the prospectus supplement, the
enhancement for a class of securities will not provide protection against all
risks of loss and will not guarantee repayment of the entire principal and
interest. If losses occur which exceed the amount covered by any enhancement or
which are not covered by any enhancement, securityholders will bear their
allocable share of deficiencies. In addition, if a form of enhancement covers
more than one class of securities of a series, securityholders of any class
will be subject to the risk that the enhancement will be exhausted by the
claims of securityholders of other classes.
Advances
Unless we specify otherwise in the prospectus supplement, the servicer will
be obligated to make advances each month of any scheduled payments on the loans
included in a trust that were due but not received during the prior due period.
The servicer will be entitled to reimbursement of an advance from the Amount
Available in the collection account for the related trust when:
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(1) the delinquent payment is recovered by the trust; or
(2) the servicer has determined that the advance has become an
uncollectible advance.
The servicer will be obligated to make an advance only to the extent that it
determines that the advance will be recoverable from subsequent funds available
in the collection account for the trust. The servicer will be entitled to
recoup its advances on a loan from subsequent payments by or on behalf of the
obligor and from liquidation proceeds, including FHA insurance payments, if
any, of the loan, and will release its right to reimbursements in conjunction
with the purchase of the loan by Green Tree for breach of representations and
warranties. If the servicer determines in good faith that an amount previously
advanced will not ultimately be recoverable from payments by or on behalf of
the obligor or from net liquidation proceeds, including FHA insurance payments,
if any, of the loan, the servicer will be entitled to reimbursement from
payments on other loans or from other funds available.
Unless we specify otherwise in the prospectus supplement, if the servicer
fails to make an advance required under the sale and servicing agreement, the
trustee will be obligated to deposit the amount of that advance in the
collection account on the payment date. The trustee will not be obligated to
deposit any amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from liquidation proceeds; or
(2) the trustee determines that it is not legally able to make the
advance.
Evidence as to Compliance
On or before March 31 of each year the servicer will deliver to each trustee
and each indenture trustee a report of a nationally recognized accounting firm
stating that the firm has examined certain documents and records for the
servicing of loans serviced by the servicer under sale and servicing agreements
similar to the trust documents and stating that, on the basis of those
procedures, the servicing has been conducted in compliance with the applicable
trust documents, except for any exceptions described in the report. A copy of
the statement may be obtained by any certificate owner or note owner upon
compliance with the requirements described above. See "Certain Information
Regarding the Securities--Statements to Securityholders" above.
Indemnification and Limits on Liability
Unless we specify otherwise in the prospectus supplement, the trust documents
will provide that the servicer will be liable only to the extent of the
obligations specifically undertaken by it under the trust documents and will
have no other obligations or liabilities. The trust documents will further
provide that neither the servicer nor any of its directors, officers, employees
and agents will have any liability to the trust, the certificateholders or the
noteholders, except as provided in the trust documents, for any action taken or
for refraining from taking any action under the trust documents, other than
liability that would otherwise be imposed by reason of the servicer's breach of
the trust documents or willful misfeasance,
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bad faith or negligence, or by reason of reckless disregard of obligations and
duties under the trust documents or any violation of law.
The servicer may, with the prior consent of the trustee and the indenture
trustee, delegate duties under the trust documents to any of its affiliates. In
addition, the servicer may at any time perform the specific duty of
repossessing products through subcontractors who are in the business of
servicing consumer receivables. The servicer may also perform other specific
duties through subcontractors; provided, however, that no delegation of duties
by the servicer shall relieve the servicer of its responsibility.
Amendment
Unless we specify otherwise in the prospectus supplement, the trust documents
may be amended by Green Tree, the servicer, the trustee and the indenture
trustee, but without the consent of any of the securityholders, to cure any
ambiguity or to correct or supplement any provision, provided that such action
will not, in the opinion of counsel, which may be internal counsel to Green
Tree or the servicer reasonably satisfactory to the trustee and the indenture
trustee, materially and adversely affect the interests of the securityholders.
The trust documents may also be amended by Green Tree, the servicer and the
trustee and the indenture trustee, and a certificate majority and a note
majority, for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the trust documents or of modifying, in
any manner, the rights of the certificateholders or the noteholders. No such
amendment may:
(1) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, collections of payments on the related loans or
distributions that are required to be made on any related certificate
or note or the related pass-through rate or interest rate; or
(2) reduce the percentage of the certificate balance evidenced by
certificates or of the aggregate principal amount of notes then
outstanding required to consent to any amendment, without the consent
of the holders of all certificates or all notes, as the case may be.
Termination
The obligations created by the trust documents will terminate upon the date
calculated as specified in the trust documents, generally upon:
(1) the later of the final payment or other liquidation of the last loan
subject thereto and the disposition of all property acquired upon
repossession of any product; and
(2) the payment to the securityholders of all amounts held by the
servicer or the trustee and required to be paid to the
securityholders under the trust documents.
Unless we specify otherwise in the prospectus supplement, for each series of
securities, in order to avoid excessive administrative expense, Green Tree and
the servicer each will be permitted, at its option, to purchase from the trust,
on any distribution date immediately after
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any due period as of the last day of which the aggregate Principal Balance is
equal to or less than 10%, or other percentage as may be specified in the
prospectus supplement, of the cut-off date Principal Balance, all remaining
loans in the trust and the other remaining trust property at a price equal to
the aggregate of the purchase amounts and the appraised value of any remaining
trust property. The exercise of this right will effect an early retirement of
the related certificates and notes.
If a general partner is named in the prospectus supplement, unless otherwise
specified in the prospectus supplement, the trust pooling and servicing
agreement will provide that, in the event that the general partner becomes
insolvent, withdraws or is expelled as a general partner or is terminated or
dissolved, the trust will terminate in 90 days and effect redemption of the
notes and prepayment of the certificates following the winding-up of the
affairs of the trust, unless within such 90 days the remaining general partner,
and holders of a majority of the certificates of such series agree in writing
to the continuation of the business of the trust and to the appointment of a
successor to the former general partner, and the owner trustee is able to
obtain an opinion of counsel to the effect that the trust will not thereafter
be an association, or publicly traded partnership taxable as a corporation for
federal income tax purposes.
Unless otherwise specified in the prospectus supplement, for each series of
securities, the trustee will give written notice of the final distribution for
the certificates, to each certificateholder of record and the indenture trustee
will give written notice of the final payment for the notes to each noteholder
of record. The final distribution to any certificateholder and the final
payment to any noteholder will be made only upon surrender and cancellation of
the holder's certificate or note at the office or agency of the trustee, for
certificates, or of the indenture trustee, for notes, specified in the notice
of termination. Any funds remaining in the trust, after the trustee or the
indenture trustee has taken measures to locate a certificateholder or
noteholder, as the case may be, and such measures have failed, will be
distributed to The United Way, and the certificateholders and noteholders, by
acceptance of their certificates and notes, will waive any rights with respect
to such funds.
The Trustee
The trustee or owner trustee, as applicable, for each trust will be specified
in the prospectus supplement. The trustee, in its individual capacity or
otherwise, and any of its affiliates may hold certificates or notes in their
own names or as pledgee. In addition, for the purpose of meeting the legal
requirements of some jurisdictions, the trustee, with the consent of the
servicer, will have the power to appoint co-trustees or separate trustees of
all or any part of the related trust. In the event of such appointment, all
rights, powers, duties and obligations conferred or imposed upon the trustee by
the trust documents will be conferred or imposed upon the trustee and the
separate trustee or co-trustee jointly, or, in any jurisdiction where the
trustee is incompetent or unqualified to perform certain acts, singly upon the
separate trustee or co-trustee who shall exercise and perform the rights,
powers, duties and obligations solely at the direction of the trustee.
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The trustee of any trust may resign at any time, in which event the general
partner, specified in the prospectus supplement or, if no general partner is
specified, the servicer or its successor will be obligated to appoint a
successor trustee. The general partner specified in the prospectus supplement,
or, if no general partner is specified, the servicer, may also remove the
trustee, if:
. trustee ceases to be eligible to serve;
. becomes legally unable to act;
. is adjudged insolvent; or
. is placed in receivership or similar proceedings.
In such circumstances, the general partner specified in the prospectus
supplement or, if no general partner is specified, the servicer will be
obligated to appoint a successor trustee. Any resignation or removal of the
trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by the successor trustee.
Duties of the Trustee
The trustee will make no representation as to the validity or sufficiency of
any trust document, the certificates or the notes, other than its execution of
the certificates and the notes, the loans or any related documents, and will
not be accountable for the use or application by the servicer of any funds paid
to the servicer for the certificates, the notes or the loans before deposit in
the collection account.
The trustee will be required to perform only those duties specifically
required of it under the trust documents. Generally, those duties will be
limited to the receipt of the various certificates, reports or other
instruments required to be furnished by the servicer to the trustee under the
trust documents, in which case it will only be required to examine such
certificates, reports or instruments to determine whether they conform
substantially to the requirements of the trust documents.
The trustee will be under no obligation to exercise any of the rights or
powers vested in it by the trust documents or to institute, conduct, or defend
any litigation or relation at the request, order or direction of any of the
certificateholders or noteholders, unless such certificateholders or
noteholders have offered the trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred. No certificateholder
nor any noteholder will have any right under the trust documents to institute
any proceeding with respect to the trust documents, unless the holder has given
the trustee written notice of default and unless the holders of certificates
evidencing not less than 25% of the certificate balance or the holders of notes
evidencing not less than 25% of the aggregate Principal Balance of the notes
then outstanding have made written request to the trustee to institute
proceeding in its own name as trustee and have offered to the trustee
reasonable indemnity, and the trustee for 30 days after the receipt of the
notice, request and offer to indemnify has neglected or refused to institute
any proceedings.
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Administrator
If an administrator is specified in the prospectus supplement, such
administrator will enter into an agreement under which such administrator will
agree, to the extent provided in such administration agreement, to provide the
notices and to perform other administrative obligations required by the
indenture and the trust agreement.
DESCRIPTION OF FHA INSURANCE
Certain of the home improvement loans may be FHA-insured, the payments upon
which, subject to the following discussion, are insured by the FHA under Title
I of the National Housing Act.
The insurance available to any trust will be subject to the limit of a
reserve amount equal to 10% of the Principal Balance of all Title I insured
loans originated or purchased and reported for FHA insurance by Green Tree,
which amount will be increased by an amount equal to 10% of the lesser of the
Principal Balance or the purchase price of insured loans subsequently
originated or purchased of record by Green Tree. Green Tree's reserve amount
may be reduced by 10% of the Principal Balance of any loans reported to FHA as
sold without recourse by Green Tree. In the sale and servicing agreement, Green
Tree will agree to pay all FHA insurance premiums required by FHA regulations.
If Green Tree fails to pay any premium, the trustee or the successor servicer
with respect to each series is obligated to pay the premium and is entitled to
be reimbursed by Green Tree and from collections on the related home
improvement loans.
As of December 31, 1998, Green Tree's FHA insurance reserve amount was equal
to approximately $85,874,000. These insurance reserves were available to cover
losses on approximately $688,627,000 of FHA-insured manufactured housing
contracts and approximately $158,943,000 of FHA-insured home improvement loans,
including the FHA-insured loans that may be owned by a trust. If an event of
termination occurs, each trustee will notify FHA of Green Tree's termination as
servicer of the related FHA-insured loans and will request that the portion of
Green Tree's FHA insurance reserves allocable to the FHA-insured loans be
transferred to the trustee or a successor servicer. Although each trustee will
request a transfer of reserves, FHA is not obligated to comply with a request,
and may determine that it is not in FHA's interest to permit the transfer of
reserves. In addition, FHA has not specified how insurance reserves might be
allocated in that event, and there can be no assurance that any reserve amount,
if transferred to the trustee or a successor servicer, would not be
substantially less than 10% of the outstanding principal amount of the FHA-
insured loans. It is likely that the trustee or any successor servicer would be
the lender of record on other FHA Title I loans, so that any reserves that are
so permitted to be transferred would become commingled with reserves available
for other FHA Title I loans. FHA also reserves the right to transfer reserves
with "earmarking," segregating the reserves so that they will not be commingled
with the reserves of the transferee, if it is in FHA's interest to do so.
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In general, FHA will insure unsecured property improvement loans up to
$7,500, with a maximum term of 20 years. The loan proceeds must be used for the
purposes described in the loan application, and those improvements must
substantially protect or improve the basic livability or utility of the
property. The Secretary of HUD from time to time publishes a list of ineligible
items and activities which may not be financed with the proceeds of an FHA-
insured home improvement loan.
Following a default on an FHA-insured home improvement loan the servicer may,
subject to certain conditions, submit a claim to FHA. The availability of FHA
insurance following a default on an FHA-insured loan is subject to a number of
conditions, including strict compliance by Green Tree with FHA regulations in
originating and servicing the loan. Failure to comply with FHA regulations may
result in a denial of or surcharge on the FHA insurance claim. Before declaring
an FHA-insured home improvement loan in default and submitting a claim to FHA,
the servicer must take certain steps to attempt to cure the default, including
personal contact with the borrower either by telephone or in a meeting and
providing the borrower with 30 days' written notice before declaration of
default. FHA may deny insurance coverage if the borrower's nonpayment is
related to a valid objection to faulty contractor performance. In that event,
Green Tree will seek to obtain payment by or a judgment against the borrower,
and may resubmit the claim to FHA following such a judgment. As described under
"Green Tree Financial Corporation--Loan Origination," Green Tree does not
purchase a loan until the customer verifies satisfactory completion of the
work.
Upon submission of a claim to FHA, the trust must assign its entire interest
in the loan to the United States. In general, the claim payment will equal 90%
of the sum of:
(1) the unpaid principal amount of the home improvement loan at the date
of default and uncollected interest computed at the loan rate earned
to the date of default;
(2) accrued and unpaid interest on the unpaid amount of the loan from the
date of default to the date of submission of the claim plus 15
calendar days, but in no event more than nine months, computed at a
rate of 7% per year;
(3) uncollected court costs; and
(4) legal fees, not to exceed $500.
CERTAIN LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of Green Tree's conveyance and assignment of a pool of loans to a
trust, the securityholders of the series, as the beneficial owners of the
trust, will succeed collectively to all of the rights, including the right to
receive payment on the loans. The following discussion contains summaries of
certain legal aspects of home improvement contracts which are general in
nature. These legal aspects are in addition to the requirements of FHA
regulations described in "Description of FHA Insurance" with respect to the
FHA-insured home improvement loans. Because these legal aspects are governed by
applicable state law,
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which laws may differ substantially, the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the improved real estate is situated. The summaries
are qualified in their entirety by reference to the applicable federal and
state laws governing the loans.
Mortgages and Deeds of Trust
The home equity loans, but not the home improvement loans, will be secured by
either mortgages, deeds of trust, security deeds or deeds to secure debt
depending upon the prevailing practice in the state in which the underlying
property is located, and may have first, second or third priority. In some
states, a mortgage creates a lien upon the real property encumbered by the
mortgage or deed of trust. In other states, the mortgage conveys legal title to
the property to the mortgagee subject to a condition subsequent, such as, the
payment of the indebtedness secured. There are two parties to a mortgage: the
mortgagor, who is the borrower, and the mortgagee, who is the lender. In a
mortgage state, the mortgagor delivers to the mortgagee a note or retail
installment contract evidencing the loan and the mortgage. Although a deed of
trust is similar to a mortgage, a deed of trust has three parties: the
borrower, or trustor, the lender as beneficiary, and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure repayment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
applicable state law, the express provisions of the deed of trust or mortgage,
and, in some cases for deeds of trust, the directions of the beneficiary. Some
states use a security deed or deed to secure debt which is similar to a deed of
trust except that it has only two parties: a grantor (similar to a mortgagor)
and a grantee (similar to a mortgagee). Mortgages, deeds of trust and deeds to
secure debt are not prior to liens for real estate taxes and assessments and
other charges imposed under governmental police powers. Priority between
mortgages, deeds of trust and deeds to secure debt and other encumbrances
depends on their terms, the knowledge of the parties to the instrument in some
cases and generally on the order of recordation of the mortgage, deed of trust
or the deed to secure debt in the appropriate recording office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the home equity loans in any loan pool are expected
to be second or third mortgages or deeds of trust which are junior to mortgages
or deeds of trust held by other lenders or institutional investors. The rights
of the trust, as beneficiary under a junior deed of trust or as mortgagee under
a junior mortgage, are subordinate to those of the mortgagee or beneficiary
under the senior mortgage or deed of trust, including the prior rights of the
senior mortgagee or beneficiary to receive hazard insurance and condemnation
proceeds and to cause the property securing the loan to be sold upon default of
the mortgagor or trustor under the senior mortgage or deed of trust, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
servicer on behalf of the trust asserts its subordinate interest in the
property in foreclosure litigation and, possibly, satisfies the defaulted
senior
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loan or loans. As discussed more fully below, a junior mortgagee or beneficiary
may satisfy a defaulted senior loan in full, or in some states may cure the
default and bring the senior loan current, in either event usually adding the
amounts expended to the balance due on the junior loan. Although we generally
do not cure defaults under a senior mortgage or deed of trust, it is our
standard practice to protect its interest by attending any foreclosure sale and
bidding for property only if it is in our best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like that of Green Tree, confers on the mortgagee or beneficiary the
right both to receive all proceeds collected under any hazard insurance policy
and all awards made in connection with any condemnation proceedings, and to
apply such proceeds and awards to any indebtedness secured by the mortgage or
deed of trust, in such order as the mortgagee or beneficiary may determine.
Thus, in the event improvements on the property are damaged or destroyed by
fire or other casualty, or in the event the property is taken by condemnation,
the mortgagee or beneficiary under the underlying first mortgage or deed of
trust will have the prior right to collect any insurance proceeds payable under
a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness, in most cases, may be applied to the indebtedness of a junior
mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a "future advance" clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an "obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially advanced under the
mortgage or deed of trust, notwithstanding the fact that there may be junior
mortgages or deeds of trust and other liens which intervene between the date of
recording of the mortgage or deed of trust and the date of the future advance,
and, in some states, notwithstanding that the senior mortgagee or beneficiary
had actual knowledge of such intervening junior mortgages or deeds of trust and
other liens at the time of the advance. Where the mortgagee or beneficiary is
not obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of advances under the clause rests, in
some states, on state statutes giving priority to all advances made under the
loan agreement to a "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or
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permit any waste, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee or beneficiary
under the mortgage or deed of trust. If the mortgagor or trustor fails to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or beneficiary on behalf
of the mortgagor or trustor. All sums expended by a senior mortgagee or
beneficiary generally become part of the indebtedness secured by the senior
mortgage or deed of trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk.
. First, the borrower may have difficulty servicing and repaying
multiple loans.
. Second, acts of the senior lender which prejudice the junior lender or
impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the
senior lender agree to an increase in the principal amount of or the
interest rate payable on the senior loan, the senior lender may lose
its priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened.
. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior
lender. The bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action establishes a waiver, or
fraud, bad faith, oppressive or unconscionable conduct and warrants a court of
equity to refuse affirmative relief to the mortgagee. Under certain
circumstances a court of equity may relieve the mortgagor from an entirely
technical default where such default was not willful. Generally, the action is
initiated by the service of legal pleadings 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
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resolve the issue can be time-consuming. After the completion of a judicial
foreclosure proceeding, the court may issue a judgment of foreclosure and
appoint a referee or other officer to conduct the sale of the property. In some
states, mortgages may also be foreclosed by advertisement, pursuant to a power
of sale provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states, the
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a request for a copy of a notice of default and notice
of sale. In addition, before the sale, the trustee must provide notice in some
states to any other individual having an interest of record in the real
property, including any junior lienholders. Some states require that a notice
of sale be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers in a specified manner before
the date of the trustee's sale. In addition, some state laws require that a
copy of the notice of sale be posted on the property and sent to all parties
having an interest of record in the property.
In some states, the borrower trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Some state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is not common for a third party to purchase the
property at the foreclosure sale. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. Thereafter, subject
to the right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance, paying taxes and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
commonly will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss resulting from such sale may be
reduced by the receipt of mortgage insurance proceeds.
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A second or third mortgagee, junior mortgagee, may not foreclose on the
property securing a second or first mortgage, senior mortgages, unless it
forecloses subject to the senior mortgages, in which case it must either pay
the entire amount due on the senior mortgages before or at the time of the
foreclosure sale or make payments on the senior mortgages in the event the
mortgagor is in default, in either event adding the amounts expended to the
balance due on the junior loan, and may be subrogated to the rights of the
senior mortgagees. In addition, in the event that the foreclosure by a junior
mortgagee triggers the enforcement of a "due-on-sale" clause in a senior
mortgage, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, for those loans which
are second or third mortgage loans, if the lender purchases the property, the
lender's title will be subject to all senior liens and claims and some
governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders."
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related trust for its acquisition, by foreclosure or
otherwise, and disposition of real property securing a loan, and any taxes or
fees imposed may reduce liquidation proceeds with respect to the property, as
well as distributions payable to the securityholders.
Second or Third Mortgages
The home equity loans may be secured by second or third mortgages or deeds of
trust, which are junior to first or second mortgages or deeds of trust held by
other lenders. The rights of the securityholders as the holders of a junior
deed of trust, junior mortgage, or junior security deed are subordinate in lien
and in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale under the senior deed of trust,
the junior mortgagee's or junior beneficiary's lien will be extinguished unless
the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the loan. See "--
Foreclosure."
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Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to secure debt or security deed. In the event of a conflict
between the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed and the junior mortgage, deed of trust, deed to secure debt or
security deed, the terms of the senior mortgage, deed of trust, deed to secure
debt or security deed will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage, deed of trust, deed to secure debt
or security deed may have the right to perform the obligation itself.
Generally, all sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their equity of redemption. The doctrine of equity of redemption provides
that, until the property covered by a mortgage has been sold in accordance with
a properly conducted foreclosure and foreclosure sale, those having an interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay some costs of such action. Those having an equity of
redemption must generally be made parties and duly summoned to the foreclosure
action in order for their equity of redemption to be barred.
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the borrower and certain foreclosed junior lienors are given a
statutory period in which to redeem the property from the foreclosure sale. In
some other states, this right of redemption applies only to sales following
judicial foreclosure, and not to sales pursuant to a non-judicial power of
sale. In most states where the right of redemption is available, statutory
redemption may occur upon payment of the foreclosure purchase price, accrued
interest and expenses of foreclosure. In other states, redemption may be
authorized if the former borrower pays only a portion of the sums due. In some
states, the right to redeem is an equitable right. The equity of redemption,
which is a non-statutory right that must be exercised before foreclosure sale,
should be distinguished from statutory rights of redemption. The effect of a
right of redemption is to diminish the ability of the lender to sell the
foreclosed property. The exercise of a right of redemption would defeat the
title of any purchaser at a foreclosure sale, or of any purchaser from the
lender subsequent to judicial foreclosure or sale under a deed of trust.
Consequently, the practical effect of the redemption right is to force the
lender to maintain the property and pay the expenses of ownership until the
redemption period has run. In some states, there is no right to redeem property
after a trustee's sale under a deed of trust.
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Anti-Deficiency Legislation and Other Limitations on Lenders
Some states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the public sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In some other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security. However, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, with respect to the federal bankruptcy law, the filing of a petition
acts as a stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default for a
mortgage loan on a debtor's residence by paying arrearages and reinstate the
original mortgage loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court, provided no sale of the property had yet occurred, before the filing of
the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages
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over a number of years. In the case of a mortgage loan not secured by the
debtor's principal residence, courts with federal bankruptcy jurisdiction may
also reduce the monthly payments due under such mortgage loan, change the rate
of interest and alter the mortgage loan repayment schedule.
The Internal Revenue Code provides priority to certain federal tax liens over
the lien of the mortgage or deed of trust. The Bankruptcy code also provides
priority to some tax liens over the lien of the mortgage or deed of trust. The
laws of some states provide priority to some state tax liens over the lien of
the mortgage or deed of trust. Numerous federal and some state consumer
protection laws impose substantive requirements upon mortgage lenders in
connection with the origination, servicing and the enforcement of mortgage
loans. These laws include the Federal Truth in Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act, state licensing requirements, and related
statutes and regulations. These federal laws and state laws impose specific
statutory liabilities upon lenders who originate or service mortgage loans and
who fail to comply with the provisions of the law. In some cases, this
liability may affect assignees of the mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous Federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation "Z", the Equal Credit Opportunity
Act, Regulation "B", the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994, which became effective on
October 1, 1995, adds provisions to Regulation Z which impose additional
disclosure and other requirements on creditors involved in non-purchase money
mortgage loans with high interest rates or high up-front fees and charges. It
is possible that some loans included in a loan pool may be subject to these
provisions. The Home Protection Act applies to mortgage loans originated on or
after the effective date of these regulations. These laws can impose specific
statutory liabilities upon creditors who fail to comply with their provisions
and may affect the enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The holder-in-due-course rule of the FTC is intended to defeat the ability of
the transferor of a consumer credit contract which is the seller of goods which
gave rise to the transaction, and certain related lenders and assignees to
transfer such contract free of notice
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of claims by the debtor. The effect of this rule is to subject the assignee of
such a contract to all claims and defenses which the debtor could assert
against the seller of goods, such as a home improvement contractor. Liability
under this rule is limited to amounts paid under a loan. However, the obligor
also may be able to assert the rule to set off remaining amounts due as a
defense against a claim brought by the trust against such obligor. The Home
Protection Act provides that assignees of certain high-interest, non-purchase
money mortgage loans, which may include some loans, are subject to all claims
and defenses that the debtor could assert against the original creditor, unless
the assignee demonstrates that a reasonable person in the exercise of ordinary
due diligence could not have determined that the mortgage loan was subject to
the provisions of the Home Protection Act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to limitations imposed by FHA regulations with respect
to FHA insured home improvement loans, in some states there are or may be
specific limitations upon late charges which a lender may collect from a
borrower for delinquent payments. Under the sale and servicing agreement, late
charges, to the extent permitted by law and not waived by us, will be retained
by us as additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts will
generally enforce clauses providing for acceleration in the event of a material
payment default. However, courts, exercising equity jurisdiction, may refuse to
allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage
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having a power of sale does not involve sufficient state action to afford
constitutional protection to the borrower.
It is our practice with some of the home improvement loans to defer the first
payment for up to 90 days, and to charge the home improvement contractor points
to cover the lost interest due to collecting only 30 days' interest on the
first payment on these deferred payment contracts.
Due-on-Sale Clauses
All of the loan documents will contain due-on-sale clauses unless the
prospectus supplement indicates otherwise. These clauses permit the servicer to
accelerate the maturity of the loan on notice, which is usually 30 days, if the
borrower sells, transfers or conveys the property without the prior consent of
the mortgagee. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in
many states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982, which, after a three-year grace
period, preempts state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that due-on-sale clauses in some
loans, including the loans made after the effective date of the Garn-St.
Germain Act are enforceable within some limitations as described in the Garn-
St. Germain Act and the regulations promulgated thereunder.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any loan which contains a due-on-sale clause upon
transfer of an interest in the mortgaged property. This ability to accelerate
will not apply to certain types of transfers, including:
(1) the granting of a leasehold interest which has a term of three years
or less and which does not contain an option to purchase;
(2) a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property;
(3) a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property;
(4) the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of
rights of occupancy in the mortgaged property, provided that the lien
or encumbrance is not created pursuant to a contract for deed;
(5) a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety; and
(6) other transfers as described in the Garn-St. Germain Act and the
regulations thereunder. As a result, a lesser number of loans which
contain "due-on-sale"
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clauses may extend to full maturity than earlier experience would
indicate with respect to single-family mortgage loans.
We cannot predict the extent of the effect of the Garn-St. Germain Act on the
average lives and delinquency rates of the loans.
The inability to enforce a due-on-sale clause may result in loans bearing an
interest rate below the current market rate being assumed by a new home buyer
rather than being paid off, which may have an impact upon the average life of
the loans and the number of loans which may be outstanding until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, provides that, subject to specific conditions, state
usury limitations shall not apply to FHA-insured loans and to first mortgage
secured conventional contracts if the contract is defined as a federally
related mortgage loan, a number of states have adopted legislation overriding
Title V's exemptions, as permitted by Title V. We will represent and warrant
in each sale and servicing agreement that all loans comply with any applicable
usury limitations.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended, and under state law in individual states, a secured
party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA
imposes strict, as well as joint and several, liability on several classes of
potentially responsible parties, including current owners and operators of the
property who did not cause or contribute to the contamination. Liability under
CERCLA is not limited to the original or unamortized Principal Balance of a
loan or to the value of the property securing a loan. Lenders may be held
liable under CERCLA as owners or operators unless they qualify for the secured
creditor exemption to CERCLA. This exemption exempts from the definition of
owners and operators those who, without participating in the management of a
facility, hold indicia of ownership primarily to protect a security interest
in the facility. What constitutes sufficient participation in the management
of a property securing a loan or the business of a borrower to render the
exemption unavailable to a lender has been a matter of interpretation by the
courts. CERCLA has been interpreted to impose liability on a secured party,
even absent foreclosure, where the party participated in the financial
management of the borrower's business to a degree indicating a capacity to
influence waste disposal decisions. However, court interpretations of the
secured creditor exemption have been inconsistent. In addition, when lenders
foreclose and become owners of collateral property, courts are inconsistent as
to whether that ownership renders the secured creditor exemption unavailable.
Other federal and state laws in some circumstances may impose liability on a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property on which
contaminants other than CERCLA hazardous substances are present, including
petroleum, agricultural
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chemicals, hazardous wastes, asbestos, radon, and lead-based paint. The cleanup
costs may be substantial. It is possible that the cleanup costs could become a
liability of a trust and reduce the amounts otherwise distributable to the
holders of the related series of securities in some circumstances if the
cleanup costs were incurred. Moreover, some states by statute impose a lien for
any cleanup costs incurred by the state on the property that is the subject of
the cleanup costs. All subsequent liens on the property generally are
subordinated to an environmental lien and, in some states, even prior recorded
liens are subordinated to environmental liens. In the latter states, the
security interest of the trustee in a related parcel of real property that is
subject to an environmental lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present with respect to any mortgaged
property before the origination of the mortgage loan or before foreclosure or
accepting a deed-in-lieu of foreclosure. Accordingly, we have not made and will
not make the evaluations before origination of the loans. Neither we nor any
replacement servicer will be required by any sale and servicing agreement to
undertake any evaluations before foreclosure or accepting a deed-in-lieu of
foreclosure. We do not make any representations or warranties or assume any
liability for the absence or effect of contaminants on any related real
property or any casualty resulting from the presence or effect of contaminants.
However, we will not foreclose on related real property or accept a deed-in-
lieu of foreclosure if we knows or reasonably believe that there are material
contaminated conditions on the property. A failure so to foreclose may reduce
the amounts otherwise available to securityholders of the related series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, would
adversely affect, for an indeterminate period of time, the ability of the
servicer to collect full amounts of interest on some of the loans. Any
shortfall in interest collections resulting from the application of the Relief
Act or similar legislation, which would not be recoverable from the related
loans, would result in a reduction of the amounts distributable to the
securityholders. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under some circumstances, during an additional
three month period. Thus, in the event that the Relief Act or similar
legislation applies to any loan which goes into default, there may be delays in
payment on the securities. Any other interest shortfalls, deferrals or
forgiveness of payments on the loans resulting from similar legislation or
regulations may result in delays in payments or losses to securityholders.
Repurchase Obligations
Under the sale and servicing agreement, we will represent and warrant that
each FHA insured home improvement loan was originated in compliance with FHA
regulations and is covered by FHA insurance. In the event FHA were to deny
insurance coverage on an FHA insured home improvement loan due to a violation
of FHA regulations in originating or
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servicing the home improvement loans, that violation would constitute a breach
of a representation and warranty under the sale and servicing agreement and we
would be obligated to repurchase the home improvement loan unless the breach is
cured. See "Description of the Trust Documents--Sale and Assignment of the
Loans."
In addition, we will also represent and warrant under each sale and servicing
agreement that each loan complies with all requirements of law. Accordingly, if
any obligor has a claim against the related trust for violation of any law and
such claim materially adversely affects the trust's interest in a loan, that
violation would constitute a breach of a representation and warranty under the
sale and servicing agreement and would create an obligation to repurchase that
loan unless the breach is cured. See "Description of the Trust Documents--Sale
and Assignment of the Loans."
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material federal income tax
consequences relating to the purchase, ownership, and disposition of the
securities. The discussion is based upon the current provisions of the Internal
Revenue Code of 1986, the Treasury regulations and judicial or ruling
authority, all of which are subject to change, which change may be retroactive.
The discussion does not deal with federal income tax consequences applicable to
all categories of investors, some of which may be subject to special rules. You
are encouraged to consult your own tax advisor in determining the federal,
state, local, and any other tax consequences of the purchase, ownership, and
disposition of the securities.
Our counsel, Dorsey & Whitney LLP, has delivered an opinion regarding certain
federal income tax matters discussed below. Our counsel identified in the
prospectus supplement, will deliver an opinion regarding tax matters applicable
to each series of securities. Such an opinion, however, is not binding on the
IRS or the courts. The opinion of counsel will specifically address only those
issues specifically identified below as being covered by such opinion; however,
the opinion of counsel also will state that the additional discussion below
accurately sets forth counsel's advice with respect to material tax issues. No
ruling on any of the issues discussed below will be sought from the IRS.
Tax Status of the Trust
For each series of securities which includes both notes and certificates,
counsel will deliver its opinion that the trust will not be an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes. As a result, in the opinion of counsel, the trust itself will not be
subject to federal income tax but, instead, each certificateholder will be
required to take into account its distributive share of items of income and
deduction, including deductions for distributions of interest to the
noteholders of the trust as though such items had been realized directly by the
certificateholder. This opinion will be based on the assumption that the terms
of the trust agreement and related documents will be complied with, and on
counsel's conclusion that the nature of the income of the trust will exempt it
from the rule that certain publicly traded partnerships are taxable
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as corporations. There are, however, no cases or IRS rulings on transactions
involving a trust issuing both debt and equity interests with terms similar to
those of the notes and the certificates. As a result, the IRS may disagree with
all or a part of this discussion.
If the trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the loans, possibly
reduced by its interest expense on the notes. Any such corporate income tax
could materially reduce cash available to make payments on the notes and
distributions on the certificates.
Tax Consequences to Noteholders
Treatment of the Notes as Indebtedness. The owner trustee, on behalf of the
trust, will agree, and the noteholders will agree by their purchase of notes,
to treat the notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the notes will be classified as debt for federal
income tax purposes. The discussion below assumes this characterization of the
notes is correct.
Interest Income on the Notes. Interest on the notes will be taxable as
ordinary interest income when received by noteholders utilizing the cash-basis
method of accounting and when accrued by noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the notes would be
considered issued with original issue discount ("OID") if the stated redemption
price at maturity of a note, generally equal to its principal amount as of the
date of issuance plus all interest other than qualified stated interest payable
prior to or at maturity exceeds the original issue price. Any OID would be
considered de minimis under the OID regulations if it does not exceed 1/4% of
the stated redemption price at maturity of a note multiplied by the number of
full years until its maturity date. It is anticipated that the notes will not
be considered issued with more than de minimis OID. Under the OID regulations,
an owner of a note issued with a de minimis amount of OID must include such OID
in income, on a pro rata basis, as principal payments are made on the note.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
however, the trust will treat interest payments on the notes as qualified
stated interest under the OID regulations. If the notes are issued or are
deemed to be issued with OID, all or a portion of the taxable income to be
recognized with respect to the notes would be includible in the income of
noteholders as OID. Any amount treated as OID would not, however, be includible
again when the amount is actually received. If the yield on a class of notes
were not materially different from its coupon, this treatment would have no
significant effect on noteholders using the accrual method of accounting.
However, cash method
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noteholders may be required to report income with respect to the notes in
advance of the receipt of cash attributable to such income.
A noteholder must include OID in income as interest over the term of the
notes under a constant yield method. In general, OID must be included in income
in advance of the receipt of cash representing that income. Each noteholder is
encouraged to consult its own tax advisor regarding the impact of the OID rules
if the notes are issued with OID.
Market Discount. The notes, whether or not issued with original issue
discount, will be subject to the market discount rules of Section 1276 of the
Internal Revenue Code. In general, these rules provide that if a noteholder
purchases the note at a market discount, such as a discount from its original
issue price plus any accrued original issue discount, that exceeds a de minimis
amount specified in the Internal Revenue Code, and thereafter recognizes gain
upon a disposition, the lesser of (1) such gain; or (2) the accrued market
discount will be taxed as ordinary interest income. Market discount also will
be recognized and taxable as ordinary interest income as payments of principal
are received on the notes to the extent that the amount of the payments does
not exceed the accrued market discount. Generally, the accrued market discount
will be the total market discount on the note multiplied by a fraction, the
numerator of which is the number of days the noteholder held the note and the
denominator of which is the number of days after the date the noteholder
acquired the note until and including its maturity date. The noteholder may
elect, however, to determine accrued market discount under the constant-yield
method, which election shall not be revoked without the consent of the IRS.
Limitations imposed by the Internal Revenue Code which are intended to match
deductions with the taxation of income may defer deductions for interest on
indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry a note with accrued market discount. A noteholder may elect
to include market discount in gross income as it accrues and, if such
noteholder makes such an election, is exempt from this rule. The adjusted basis
of a note subject to such election will be increased to reflect market discount
included in gross income, thereby reducing any gain or increasing any loss on a
sale or taxable disposition. Any election to include market discount in gross
income as it accrues shall apply to all debt instruments held by the noteholder
at the beginning of the first taxable year to which the election applies or
thereafter acquired and is irrevocable without the consent of the IRS.
Amortizable Bond Premium. In general, if a noteholder purchases a note at a
premium, such as an amount in excess of the amount payable upon the maturity
thereof, the noteholder will be considered to have purchased the note with
amortizable bond premium equal to the amount of the excess. The noteholder may
elect to deduct the amortizable bond premium as it accrues under a constant-
yield method over the remaining term of the note. The noteholder's tax basis in
the note will be reduced by the amount of the amortizable bond premium
deducted. Amortizable bond premium with respect to a note will be treated as an
offset to interest income on the note, and a noteholder's deduction for
amortizable bond premium for a note will be limited in each year to the amount
of interest income derived for the note for the year. Any election to deduct
amortizable bond premium shall apply to all
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debt instruments, other than instruments the interest on which is excludible
from gross income, held by the noteholder at the beginning of the first taxable
year to which the election applies or thereafter acquired and is irrevocable
without the consent of the IRS. Bond premium on a note held by a noteholder who
does not elect to deduct the premium will decrease the gain or increase the
loss otherwise recognized on the disposition of the note.
Disposition of Notes. If a noteholder sells a note, the noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the noteholder's adjusted tax basis in the note. The
adjusted tax basis of a note to a particular noteholder generally will equal
the noteholder's cost for the note, increased by any market discount, OID and
gain previously included by the noteholder in income with respect to the note
and decreased by principal payments previously received by the noteholder and
the amount of bond premium previously amortized for the note. Any such gain or
loss will be capital gain or loss if the note was held as a capital asset,
except for gain representing accrued interest and accrued market discount not
previously included in income, and will be short-term, mid-term or long-term
capital gain or loss depending upon whether the note was held for more or less
than one year or for more than eighteen months. Capital losses generally may be
used only to offset capital gains.
Foreign Holders. Generally, interest paid to a noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
note in connection with a United States trade or business will be treated as
portfolio interest and will be exempt from the 30% withholding tax. Such a
noteholder will be entitled to receive interest payments on the notes free of
United States federal income tax provided that such noteholder periodically
provides the indenture trustee, or other person who would otherwise be required
to withhold tax, with a statement certifying under penalty of perjury that the
noteholder is not a United States person and providing the name and address of
such noteholder and will not be subject to federal income tax on gain from the
disposition of a note unless the noteholder is an individual who is present in
the United States for 183 days or more during the taxable year in which the
disposition takes place and some other requirements are met.
Tax Administration and Reporting. The Indenture trustee will furnish to each
noteholder with each distribution a statement describing the amount of such
distribution allocable to principal and to interest. Reports will be made
annually to the IRS and to holders of record that are not excepted from the
reporting requirements regarding information as may be required for interest
and original issue discount, if any, with respect to the notes.
Backup Withholding. Under specific circumstances, a noteholder may be subject
to backup withholding at a 31% rate. Backup withholding may apply to a
noteholder who is a United States person if the holder, among other
circumstances, fails to furnish his social security number or other taxpayer
identification number to the indenture trustee. Backup withholding may apply,
under certain circumstances, to a noteholder who is a foreign person if the
noteholder fails to provide the indenture trustee or the noteholder's
securities broker with the statement necessary to establish the exemption from
federal income and withholding
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tax on interest on the note. Backup withholding, however, does not apply to
payments on a note made to certain exempt recipients, such as corporations and
tax-exempt organizations, and to some foreign persons. Noteholders should
consult their tax advisors for additional information concerning the potential
application of backup withholding to payments received by them on a note.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
counsel, the IRS successfully asserted that the notes did not represent debt
for federal income tax purposes, the notes might be treated as equity interests
in the trust. If so treated, the trust would be treated as a publicly traded
partnership that would not be taxable as a corporation because it would meet
certain qualifying income tests. Nonetheless, treatment of the notes as equity
interests in such a partnership could have adverse tax consequences to certain
holders. For example, income to foreign holders generally would be subject to
federal tax and federal tax return filing and withholding requirements, income
to certain tax-exempt entities, including pension funds, would be unrelated
business taxable income, and individual holders might be subject to certain
limitations on their ability to deduct their share of trust expenses.
Tax Consequences to Certificateholders
Treatment of the Trust as a Partnership. We, the general partner and the
owner trustee will agree, and the certificateholders will agree by their
purchase of certificates, to treat the trust as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in whole
or in part by income, with the assets of the partnership being the assets held
by the trust, the partners of the partnership being the certificateholders and
the general partner, and the notes being debt of the partnership. The proper
characterization of the arrangement involving the trust, the certificates, the
notes, the General Partner, we and the servicer, however, is not certain
because there is no authority on transactions closely comparable to that
contemplated herein.
A variety of alternative characterizations are possible. For example, because
the certificates have specific features characteristic of debt, the
certificates might be considered debt of the trust. Any such characterization
would not result in materially adverse tax consequences to certificateholders
as compared to the consequences from treatment of the certificates as equity in
a partnership. The following discussion assumes that the certificates represent
equity interests in a partnership.
Partnership Taxation. As a partnership, the trust will not be subject to
federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the trust. The trust's income will consist
primarily of interest and finance charges earned on the loans, including
appropriate adjustments for market discount, OID and bond premium and any gain
upon collection or disposition of the loans. The trust's deductions will
consist primarily of interest accruing with respect to the notes, servicing and
other fees, and losses or deductions upon collection or disposition of the
loans.
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The tax items of a partnership are allocable to the partners in accordance
with the Internal Revenue Code, Treasury regulations and the partnership
agreement (here, the trust agreement and related documents). The trust
agreement will provide, in general, that the certificateholders will be
allocated taxable income of the trust for each month equal to the sum of:
(1) the interest that accrues on the certificates in accordance with
their terms for that month, including interest accruing at the pass-
through rate for that month and interest on amounts previously due on
the certificates but not yet distributed;
(2) any trust income attributable to discount on the loans that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
(3) prepayment premium payable to the certificateholders for that month;
and
(4) any other amounts of income payable to the certificateholders for
that month.
Although it is not anticipated that the certificates will be issued at a price
which exceeds their principal amount, the allocations of trust income to the
certificateholders will be reduced by any amortization by the trust of premium
on loans that corresponds to any excess of the issue price of certificates over
their principal amount. All remaining taxable income of the trust will be
allocated to the general partner. Based on the economic arrangement of the
parties, this approach for allocating trust income should be permissible under
applicable Treasury regulations, although no assurance can be given that the
IRS would not require a greater amount of income to be allocated to
certificateholders. Moreover, even under the foregoing method of allocation,
certificateholders may be allocated income equal to the entire pass-through
rate plus the other items described above even though the trust might not have
sufficient cash to make current cash distributions of that amount. Thus, cash
basis holders will in effect be required to report income from the certificates
on the accrual basis, and certificateholders may become liable for taxes on
trust income even if they have not received cash from the trust to pay taxes.
In addition, because tax allocations and tax reporting will be done on a
uniform basis for all certificateholders but certificateholders may be
purchasing certificates at different times and at different prices,
certificateholders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the trust.
All of the taxable income allocated to a certificateholder that is a pension,
profit sharing or employee Benefit Plan or other tax-exempt entity, including
an individual retirement account, will constitute unrelated business taxable
income generally taxable to such a holder under the Internal Revenue Code.
A certificateholder's share of expenses of the trust, including fees to the
servicer but not interest expense will be miscellaneous itemized deductions. An
individual, an estate, or a trust that holds a certificate either directly or
through a pass-through entity will be allowed to deduct such expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with certain other itemized deductions, they exceed 2% of the adjusted
gross income of the certificateholder. In addition, Section 68 of the Internal
Revenue Code provides that the amount of itemized deductions, including those
provided for
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in Section 212 of the Internal Revenue Code, otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds a threshold
amount determined under the Internal Revenue Code ($124,500 in 1998, in the
case of a joint return) will be reduced by the lesser of: (1) 3% of the excess
of adjusted gross income over the specified threshold amount; or (2) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. To the
extent that a certificateholder is not permitted to deduct servicing fees
allocable to a certificate, the taxable income of the certificateholder
attributable to that certificate will exceed the net cash distributions related
to the income. Certificateholders may deduct any loss on disposition of the
loans to the extent permitted under the Internal Revenue Code.
Discount and Premium. It is believed that the loans were not issued with OID,
and, therefore, the trust should not have OID income. The purchase price paid
by the trust for the loans may exceed the remaining Principal Balance of the
loans at the time of purchase. If the trust is deemed to acquire the loans at a
premium or at a market discount, the trust will elect to offset any premium
against interest income on the loans or to include any discount in income
currently as it accrues over the life of the loans. The trust will make this
premium or market discount calculation on an aggregate basis but may be
required to recompute it on a loan-by-loan basis. As indicated above, a portion
of the premium deduction or market discount income may be allocated to
certificateholders.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the trust. A
certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the certificateholder's adjusted basis in its certificates,
as described below under "Disposition of Certificates" immediately before the
distribution. A certificateholder will recognize loss upon termination of the
trust or termination of the certificateholder's interest in the trust if the
trust only distributes money to the certificateholder and the amount
distributed is less than the certificateholder's adjusted basis in the
certificates. Any gain or loss generally will be capital gain or loss if the
certificates are held as capital assets and will be long-term gain or loss if
the holding period of the certificates is more than one year.
Section 708 Termination. Under Section 708 of the Internal Revenue Code, the
trust will be deemed to terminate for federal income tax purposes if 50% or
more of the capital and profits interests in the trust are sold or exchanged
within a 12-month period. Under Treasury regulations, if such a termination
occurs, the trust will be considered to have contributed the assets of the
trust, the old partnership, to a new partnership in exchange for interests in
the new partnership. These interests would be deemed distributed to the
partners of the old partnership in liquidation thereof, which would not
constitute a sale or exchange for United States federal income tax purposes.
Disposition of Certificates. If a certificateholder sells a certificate, the
certificateholder generally will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the sale and the
seller's tax basis in the certificate. A certificateholder's tax basis in a
certificate generally will equal the certificateholder's cost increased by the
certificateholder's share of trust income and decreased by any distributions
received on the
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certificate. In addition, both the tax basis in the certificate and the amount
realized on a sale of a certificate would include the certificateholder's share
of the notes and other liabilities of the trust. A certificateholder acquiring
certificates at different prices may be required to maintain a single aggregate
adjusted tax basis in such certificates, and, upon sale or other disposition of
some of the certificates, allocate a portion of such aggregate tax basis to the
certificates sold, rather than maintain a separate tax basis in each
certificate for purposes of computing gain or loss on a sale of that
certificate.
Any gain on the sale of a certificate attributable to the certificateholder's
share of unrecognized accrued market discount on the loans would generally be
treated as ordinary income to the certificateholder and would give rise to
special tax reporting requirements. The trust does not expect to have any other
assets that would give rise to such special reporting requirements. To avoid
those special reporting requirements, the trust will elect to include market
discount in income as it accrues.
If a certificateholder is required to recognize an aggregate amount of
income, not including income attributable to disallowed itemized deductions
described above, over the life of the certificates that exceeds the aggregate
cash distributions, the excess generally will give rise to a capital loss upon
the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the trust's
taxable income and losses will be determined monthly, and the tax items for a
particular calendar month will be apportioned among the certificateholders in
proportion to the principal amount of certificates owned by them as of the
close of the related record date. As a result, a certificateholder purchasing a
certificate may be allocated tax items, which will affect the
certificateholder's tax liability and tax basis, attributable to periods before
the certificateholder actually owns the certificate. The use of such a
convention may not be permitted by existing regulations. If a monthly
convention is not permitted, or only applies to transfers of less than all of
the certificateholder's interest, taxable income or losses of the trust may be
reallocated among the certificateholders. The general partner is authorized to
revise the trust's method of allocation between transferors and transferees to
conform to a method permitted by future regulations.
Section 754 Election. In the event that a certificateholder sells a
certificate at a profit or loss, the purchasing certificateholder will have a
higher or lower basis in the certificate than the selling certificateholder
had. The tax basis of the trust's assets will not be adjusted to reflect that
higher or lower basis unless the trust files an election under Section 754 of
the Internal Revenue Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the trust will not make
such election. Because of this, certificateholders may be allocated a greater
or lesser amount of trust income than would be appropriate based on their own
purchase price for certificates.
Administrative Matters. Under the administration agreement, the trustee will
monitor the performance of the following responsibilities of the trust by other
service providers. The trust is required to keep or have kept complete and
accurate books of the trust. These books
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will be maintained for financial reporting and tax purposes on an accrual basis
and the fiscal year of the trust will be the calendar year. The trust will file
a partnership information return with the IRS for each taxable year of the
trust and will report each certificateholder's allocable share of items of
trust income and expense to certificateholders and the IRS on Schedule K-1. The
trust will provide the Schedule K-1 information to nominees that fail to
provide the trust with required information statements relating to
identification of beneficial owners of certificates and the nominees will be
required to forward the information to the beneficial owners. Generally,
certificateholders must file tax returns that are consistent with the
information return filed by the trust or be subject to penalties unless the
certificateholder notifies the IRS of all such inconsistencies.
We or a subsidiary identified in the prospectus supplement will be designated
as the tax matters partner in the trust agreement and, as such, will be
responsible for representing the certificateholders in any dispute with the
IRS. The Internal Revenue Code provides for administrative examination of a
partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return
is filed. Any adverse determination following an audit of the return of the
trust by the appropriate taxing authorities could result in an adjustment of
the returns of the certificateholders, and, under specific circumstances, a
certificateholder may be precluded from separately litigating a proposed
adjustment to the items of the trust. An adjustment could also result in an
audit of a certificateholder's returns and adjustments of items not related to
the income and losses of the trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether the
trust will be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes for non-U.S. persons because
there is no clear authority dealing with that issue under facts substantially
similar to those described in this prospectus. Although it is not expected that
the trust will be engaged in a trade or business in the United States for those
purposes, the trust will withhold as if it were so engaged in order to protect
the trust from possible adverse consequences of a failure to withhold. It is
expected that the trust will withhold on the portion of its taxable income that
is allocable to foreign certificateholders pursuant to Section 1446 of the
Internal Revenue Code, as if the income were effectively connected to a U.S.
trade or business, at a rate of 35% for foreign holders that are taxable as
corporations and 39.6% for all other foreign certificateholders. Subsequent
adoption of Treasury regulations or the issuance of other administrative
pronouncements may require the trust to change its withholding procedures. In
determining a certificateholder's nonforeign status, the trust may rely on Form
W-8, Form W-9 or the certificateholder's certification of nonforeign status
signed under penalties of perjury.
Each foreign certificateholder might be required to file a U.S. individual or
corporate income tax return including, in the case of a corporation, the branch
profits tax on its share of the trust's income. Each foreign certificateholder
must obtain a taxpayer identification number from the IRS and submit that
number to the trust on Form W-8 in order to assure appropriate crediting of the
taxes withheld. A foreign certificateholder generally will be
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entitled to file with the IRS a claim for refund with respect to taxes withheld
by the trust, taking the position that no taxes are due because the trust is
not engaged in a U.S. trade or business. However, the IRS may assert that
additional taxes are due, and no assurance can be given as to the appropriate
amount of tax liability.
Backup Withholding. Under certain circumstances, a certificateholder may be
subject to backup withholding at a 31% rate. See the discussion above under "--
Tax Consequences to Noteholders--Backup Withholding."
STATE INCOME TAX CONSEQUENCES
The activities to be undertaken by the IRS in servicing and collecting the
loans will take place in Minnesota. The State of Minnesota imposes an income
tax on individuals, trusts and estates and a franchise tax measured by net
income on corporations. This discussion of Minnesota taxation is based upon
current statutory provisions and the regulations promulgated thereunder, and
applicable judicial or ruling authority, all of which are subject to change,
which may be retroactive. No ruling on any of the issues discussed below will
be sought from the Minnesota Department of Revenue.
If the notes are treated as debt for federal income tax purposes, in the
opinion of counsel this treatment will also apply for Minnesota tax purposes.
Noteholders not otherwise subject to Minnesota income or franchise taxation
would not become subject to such a tax solely because of their ownership of the
notes. Noteholders already subject to income or franchise taxation in Minnesota
could, however, be required to pay such a tax on all or a portion of the income
generated from ownership of the notes.
If the trust is treated as a partnership, not taxable as a corporation for
federal income tax purposes, in the opinion of counsel the trust would also be
treated as a partnership for Minnesota income tax purposes. The partnership
therefore would not be subject to Minnesota taxation. Certificateholders that
are not otherwise subject to Minnesota income or franchise taxation would not
become subject to such a tax solely because of their interests in the
partnership. Certificateholders already subject to income or franchise taxation
in Minnesota could, however, be required to pay such a tax on all or a portion
of the income from the partnership.
If the certificates are treated as ownership interests in an association or
publicly traded partnership taxable as a corporation for federal income tax
purposes, in the opinion of counsel this treatment would also apply for
Minnesota income and franchise tax purposes. Under this treatment, the trust
would be subject to the Minnesota franchise tax measured by net income, which
could result in reduced distributions to certificateholders. Certificateholders
that are not otherwise subject to Minnesota income or franchise taxation would
not become subject to such a tax solely because of their interests in the
constructive corporation. Certificateholders already subject to income or
franchise taxation in Minnesota could, however, be required to pay such a tax
on all or a portion of the income from the constructive corporation.
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ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974 ("ERISA"),
and Section 4975 of the Internal Revenue Code prohibit a pension, profit
sharing or other employee Benefit Plan from engaging in certain transactions
involving plan assets with persons that are parties in interest under ERISA or
disqualified persons under the Internal Revenue Code with respect to the plan.
ERISA also imposes certain duties and certain prohibitions on persons who are
fiduciaries of plans subject to ERISA. Under ERISA, generally any person who
exercises any authority or control with respect to the management or
disposition of the assets of a plan is considered to be a fiduciary of such
plan. A violation of these prohibited transaction rules may generate excise tax
and other liabilities under ERISA and the Internal Revenue Code for such
persons.
Some transactions involving the related trust might be deemed to constitute
prohibited transactions under ERISA and the Internal Revenue Code with respect
to a Benefit Plan that purchased securities if assets of the related trust were
deemed to be assets of the Benefit Plan. Under a regulation issued by the
United States Department of Labor, the assets of a trust would be treated as
plan assets of a Benefit Plan for the purposes of ERISA and the Internal
Revenue Code only if the Benefit Plan acquired an equity interest in the trust
and none of the exceptions contained in the plan assets regulation was
applicable. An equity interest is defined under the plan assets regulation as
an interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The likely
treatment of notes and certificates will be discussed in the related prospectus
supplement.
Employee Benefit Plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements.
A plan fiduciary considering the purchase of securities should consult its
tax and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
LEGAL INVESTMENT CONSIDERATIONS
Unless we indicate otherwise in the prospectus supplement, any securities
offered under this prospectus are not expected to constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because there will be a substantial number of loans that are secured by
liens on real estate that are not first liens, as required by SMMEA.
Accordingly, many institutions with legal authority to invest in mortgage
related securities may not be legally authorized to invest in the securities.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding
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investment in various types of mortgage-backed securities. In addition, some
state regulators have taken positions that may prohibit regulated institutions
subject to their jurisdiction from holding securities representing residual
interests, including securities previously purchased. There may be other
restrictions on the ability of some investors, including depository
institutions, either to purchase securities or to purchase securities
representing more than a specified percentage of the investor's assets. You
should consult your own legal advisors in determining whether and to what
extent the securities constitute legal investments for you.
RATINGS
Before to the issuance of any class of securities sold under this prospectus
they must be rated by at least one nationally recognized statistical rating
organization in one of its four highest rating categories, within which there
may be sub-categories or gradations indicating relative standing. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
The security rating of any series of securities should be evaluated
independently of similar security ratings assigned to other kinds of
securities.
UNDERWRITING
We may sell securities of each series to or through underwriters by a
negotiated firm commitment underwriting and public reoffering by the
underwriters, and also may sell and place securities directly to other
purchasers or through agents. We intend that securities will be offered through
such various methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of a
particular series of securities may be made through a combination of such
methods.
The distribution of the securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If specified in the prospectus supplement relating to a series of securities,
we or our affiliate may purchase some or all of one or more classes of
securities of the series from the underwriter or underwriters at a price
specified in the prospectus supplement. The purchaser may then offer and sell,
some or all of such securities so purchased directly, through one or more
underwriters to be designated at the time of the offering of such securities or
through broker-dealers acting as agent or principal or both. This kind of
offering may be restricted in the manner specified in the prospectus
supplement. These transactions may be effected at market prices prevailing at
the time of sale, at negotiated prices or at fixed prices.
In connection with the sale of the securities, underwriters may receive
compensation from us or from purchasers of securities for whom they may act as
agents in the form of discounts, concessions or commissions. Underwriters may
sell the securities of a series to or through dealers and the dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers
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for whom they may act as agents. Underwriters, dealers and agents that
participate in the distribution of the securities of a series may be deemed to
be underwriters, and any discounts or commissions received by them from us and
any profit on the resale of the securities by them may be deemed to be
underwriting discounts and SEC, under the Securities Act. Any underwriters or
agents will be identified, and any compensation received from us will be
described, in the prospectus supplement.
Under agreements which may be entered into by us, underwriters and agents who
participate in the distribution of the securities may be entitled to
indemnification by us against certain liabilities, including liabilities under
the Securities Act.
If indicated in the prospectus supplement, we will authorize underwriters or
other persons acting as our agents to solicit offers by some institutions to
purchase the securities from us under contracts providing for payment and
delivery on a future date. Institutions with which their contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational charitable institutions and others, but in
all cases these institutions must be approved by us. The obligation of any
purchaser under any contract will be subject to the condition that the
purchaser of the offered securities shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which the purchaser is subject
from purchasing the securities. The underwriters and the other agents will not
have responsibility for the validity or performance of the contracts.
The underwriters may buy and sell securities, but there can be no assurance
that an active secondary market will develop and there is no assurance that any
market, if established, will continue.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the securities. These
types of transactions may include stabilizing, the purchase of securities to
cover syndicate short positions and the imposition of penalty bids. For a more
complete description of these activities, please read the section entitled
"Underwriting" in your prospectus supplement.
Some of the underwriters and their associates may engage in transactions with
and perform services for us in the ordinary course of business.
The indenture trustee may invest the funds in the designated accounts in
eligible investments acquired from the underwriters.
Under each underwriting agreement, the closing of the sale of any class of
securities will be conditioned on the closing of the sale of all other such
classes.
The place and time of delivery for the securities under which this prospectus
is delivered will be described in the prospectus supplement.
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LEGAL MATTERS
Various matters relating to the validity of the certificates and the notes
will be passed upon by our counsel identified in the prospectus supplement. The
validity of the certificates and the notes will be passed upon for the
underwriters named in the prospectus supplement by the counsel for the
underwriters identified in the prospectus supplement.
EXPERTS
The consolidated financial statements of Green Tree as of December 31, 1998
and for the year ended December 31, 1998, incorporated by reference in this
prospectus have been audited by PricewaterhouseCoopers LLP, independent
accountants, as stated in their opinion given upon their authority as experts
in accounting and auditing.
The consolidated financial statements of Green Tree as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997
incorporated by reference in this prospectus and in the registration statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference in this prospectus, and upon the
authority of KPMG Peat Marwick LLP as experts in accounting and auditing.
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GLOSSARY
For the purposes of this prospectus and the prospectus supplement, the
following terms will have the following meanings:
"Amount Available" with respect to any distribution date, means generally the
sum of payments on the loans due and received during the preceding month,
prepayments and other unscheduled collections received during the preceding
month, any amounts deposited in respect of Purchased Loans, any interest rate
cap payment, any guaranty payment, and all earnings from the investment of
funds in the collection account.
"Benefit Plan" includes pension, profit-sharing or other employee Benefit
Plan, as well as individual retirement accounts and some types of Keogh plans.
The "Formula Principal Distribution Amount" for any distribution date (but
subject to the last sentence of this definition) will generally be equal to the
sum of the following amounts with respect to the monthly period, in each case
computed in accordance with the method specified in each home equity loan:
(1) all scheduled payments of principal due on each outstanding home
equity loan during the monthly period,
(2) all partial principal prepayments applied and all principal
prepayments in full received during the monthly period in respect of each
home equity loan,
(3) the scheduled Principal Balance of each home equity loan that became
a Liquidated Loan during the monthly period,
(4) the scheduled Principal Balance of each home equity loan which,
during the monthly period, was purchased by us as a result of a breach of
a representation or warranty or by the servicer as a result of an uncured
breach of a covenant under the sale and servicing agreement, and
(5) with respect to the distribution date in August, 1999, any remaining
amounts on deposit in the pre-funding account.
The Formula Principal Distribution Amount for the distribution date in July,
2029, will be the sum of the note Principal Balance and the Certificate
Principal Balance.
"Liquidated Loan" means any defaulted loan as to which the servicer has
determined that all amounts which it expects to recover from or on account of
such loan through the date of disposition of the real property have been
recovered; provided that any defaulted loan in respect of which the real
property has been realized upon and disposed of and proceeds of such
disposition have been received shall be deemed to be a Liquidated Loan.
"Purchased Loan" means a loan that:
. We have become obligated to repurchase (or, under certain
circumstances, has elected to repurchase) as a result of an uncured
breach by us of a representation or warranty made by us for such loan
or
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. the servicer has become obligated to repurchase, or, under certain
circumstances, has elected to repurchase, as a result of an uncured
breach of the covenants made by it for that such loan.
"Principal Liquidation Loss" means, for any distribution date and any class
of notes, the amount by which the aggregate Principal Balance of the class and
each junior class and the Certificate Principal Balance, after giving effect to
any Principal Liquidation Losses imposed on such junior classes and
certificates, exceeds the pool scheduled Principal Balance, after giving effect
to all distributions of principal on such distribution date.
"Principal Balance" means, with respect to any determination date and any
class of notes, the original Principal Balance of a class minus all amounts
previously distributed in respect of principal of the class and minus any
unreimbursed Principal Liquidation Losses of such class.
"Noteholders' Interest Carryover Shortfall" means, for any distribution date,
the excess of the Noteholders' Monthly Interest Distributable Amount for the
preceding distribution date and any outstanding Noteholders' Interest Carryover
Shortfall on such preceding distribution date, over the amount in respect of
interest that is actually deposited in the note distribution account on the
preceding distribution date, plus interest on the amount of interest due but
not paid to noteholders on the preceding distribution date, to the extent
permitted by law, at the respective interest rate for each class of notes for
the applicable monthly interest period.
"Noteholder's Principal Distributable Amount" means, for any distribution
date, the sum of the Noteholders' Monthly Principal Distributable Amount for
the distribution date and the Noteholders' Unpaid Principal Shortfall as of the
close of the preceding distribution date; provided, however, that the
noteholders' principal distributable amount shall not exceed the outstanding
Principal Balance of the notes, and provided further, that the noteholders'
principal distributable amount on the final scheduled distribution date shall
not be less than the amount that is necessary, after giving effect to other
amounts to be deposited in the note distribution account on such distribution
date and allocable to principal, to reduce the outstanding Principal Balances,
including all unreimbursed Principal Liquidation Losses, of all classes of
notes to zero.
"Noteholders' Monthly Principal Distributable Amount" means, for any
distribution date, the Noteholders' Percentage of the Formula Principal
Distribution Amount plus the aggregate unreimbursed Principal Liquidation
Losses of each class of notes.
"Noteholders' Percentage" means, 100% until and including the distribution
date on which the aggregate Principal Balance of the notes are paid in full and
0% thereafter.
"Noteholders' Unpaid Principal Shortfall" means, as of the close of any
distribution date, the excess of the Noteholders' Monthly Principal
Distributable Amount and any outstanding Noteholders' Unpaid Principal
Shortfall from the preceding distribution date over the amount in respect of
principal that is actually deposited in the note distribution account on such
distribution date.
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For 90 days after the date of this prospectus supplement, all dealers
that effect transactions in these securities, whether or not participating in
this offering, may be required to deliver a prospectus. This is in addition to
the dealers' obligation to deliver a copy of this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
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