<PAGE>
Filed Pursuant to Rule 424(B)(2)
File Nos. 333-92313 & 333-92313-01
PROSPECTUS SUPPLEMENT
(To prospectus dated September 22, 2000)
[Conseco Logo]
$289,500,000 (Approximate)
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Corp.
Servicer
Certificates for Home Improvement Loans
Series 2000-E
----------------
The certificates will consist of ten classes, eight of which are offered
under this prospectus supplement.
<TABLE>
<CAPTION>
Approximate Pass-Through Underwriting Proceeds to
Class Principal Amount Rate Price to Public Discount Company
----- ---------------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
A-1..................... $114,800,000 6.98% 100.0000% 0.200% 99.8000%
A-2..................... $ 31,500,000 7.01% 99.9809% 0.250% 99.7309%
A-3..................... $ 43,000,000 7.27% 99.9667% 0.300% 99.6667%
A-4..................... $ 33,400,000 7.57% 99.9619% 0.350% 99.6119%
A-5..................... $ 33,050,000 8.02%(1)(2) 99.9791% 0.400% 99.5791%
M-1..................... $ 18,600,000 8.13%(1) 99.9590% 0.600% 99.3590%
M-2..................... $ 7,800,000 9.01%(1) 99.9671% 0.750% 99.2171%
B-1..................... $ 7,350,000 10.26%(1) 99.9719% 0.950% 99.0219%
------------ ------------ ----------- ------------
Total................... $289,500,000 $289,447,774 $926,375.00 $288,521,399
============ ============ =========== ============
</TABLE>
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(1)Or the weighted average of the rates on the loans minus 0.50%, if less.
(2)Subject to increase if the purchase option described on page S-50 is not
exercised.
The approximate principal amount of each class listed above may vary plus or
minus 5%. Any increase or decrease will be allocated proportionately among all
classes. The price to public will be the percentage total in the table above
plus any accrued interest beginning on September 28, 2000.
Consider carefully the risk factors beginning on page S-10 in this prospectus
supplement.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement is truthful or complete. Any representation to the
contrary is a criminal offense.
The Attorney General of the State of New York has not passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
These certificates will be delivered on or about September 28, 2000.
The underwriter named below will offer the eight classes of certificates
listed in the table above to the public at the offering price listed on this
cover page and it will receive the discount listed above. See "Underwriting" on
page S-67 in this prospectus supplement and on page 69 in the prospectus.
----------------
Credit Suisse First Boston
The date of this prospectus supplement is September 22, 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Certificates................................. S-4
Risk Factors............................................................. S-10
Structure of the Transaction............................................. S-12
Use of Proceeds.......................................................... S-13
The Loans................................................................ S-13
Yield and Prepayment Considerations...................................... S-21
Conseco Finance Corp..................................................... S-30
Description of the Certificates.......................................... S-32
Federal Income Tax Consequences.......................................... S-60
ERISA Considerations..................................................... S-60
Underwriting............................................................. S-67
Legal Matters............................................................ S-68
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trust................................................................ 3
Use of Proceeds.......................................................... 7
Conseco Finance Corp..................................................... 8
Conseco Finance Securitizations Corp..................................... 11
Yield Considerations..................................................... 11
Maturity and Prepayment Considerations................................... 12
Description of the Certificates.......................................... 13
Legal Aspects of the Loans; Repurchase Obligations....................... 28
ERISA Considerations..................................................... 41
Federal Income Tax Consequences.......................................... 44
Legal Investment Considerations.......................................... 68
Ratings.................................................................. 68
Underwriting............................................................. 69
Legal Matters............................................................ 70
Experts.................................................................. 70
Glossary................................................................. 71
</TABLE>
You should rely only on the information contained in this prospectus
supplement and prospectus. Conseco Finance, Conseco Securitizations 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. Conseco Finance, Conseco Securitizations and the
underwriter are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
S-2
<PAGE>
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Conseco Finance Corp., about our
home improvement lending business, and about any series of certificates for
home improvement loans that we may wish to sell. This prospectus supplement
contains more detailed information about the specific terms of this series of
certificates. If the description of the terms of your certificate varies
between this prospectus supplement and the prospectus, you should rely on the
information in this prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from us or the underwriter by asking for it.
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.
S-3
<PAGE>
SUMMARY OF THE TERMS OF THE CERTIFICATES
This summary highlights selected information regarding the certificates, and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the certificates,
read this entire prospectus supplement and the accompanying prospectus. In
particular, we will refer throughout this summary to sections of this
prospectus supplement or the prospectus, or both, which will contain more
complete descriptions of the matters summarized. All these references will be
to sections of this prospectus supplement only unless we note otherwise. 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.
Conseco Finance Home Improvement Loan Trust 2000-E will issue the classes of
certificates listed in the table below. We are not offering the Class B-2 or
Class C certificates through this prospectus supplement. Conseco
Securitizations intends to offer the Class B-2 certificates privately. Conseco
Securitizations or one of its affiliates initially will retain the Class C
certificates, but may sell any or all of them at a later date.
<TABLE>
<CAPTION>
Pass-Through Approximate S&P Fitch Moody's
Class Rate Principal Amount(1) Rating Rating Rating
----- ------------ ------------------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
A-1.................. 6.98% $114,800,000 AAA AAA --
A-2.................. 7.01% 31,500,000 AAA AAA --
A-3.................. 7.27% 43,000,000 AAA AAA --
A-4.................. 7.57% 33,400,000 AAA AAA --
A-5.................. 8.02%(1)(2) 33,050,000 AAA AAA --
M-1.................. 8.13%(1) 18,600,000 AA AA --
M-2.................. 9.01%(1) 7,800,000 A A --
B-1.................. 10.26%(1) 7,350,000 BBB BBB Baa2
B-2.................. 11.50%(1) 10,500,000 BB BB Ba2
Class C.............. (3) -- -- -- --
</TABLE>
--------
(1)Or the weighted average of the rates on the loans minus 0.50%, if less.
(2)The Class A-5 pass-through rate will increase to 9.02% if the purchase
option described on page S-50 is not exercised.
(3)The Class C certificates are not entitled to any distributions of interest.
We will not issue or sell the certificates unless S&P, Fitch and Moody's
assign to each class at least the rating listed above. The ratings on each
class of certificates by S&P, Fitch and Moody's address 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.
Issuer...................... Conseco Finance Home Improvement Loan Trust
2000-E.
Seller...................... Conseco Finance Securitizations Corp., 300
Landmark Towers, 345 St. Peter Street, St. Paul,
Minnesota 55102, telephone: (651) 293-3400.
S-4
<PAGE>
Servicer.................... Conseco Finance Corp., 1100 Landmark Towers, 345
St. Peter Street, St. Paul, Minnesota 55102,
telephone: (651) 293-3400. Prior to November 1,
1999 Conseco Finance Corp. was known as Green
Tree Financial Corporation. Conseco Finance is a
wholly owned subsidiary of Conseco, Inc., but
Conseco, Inc. has not guaranteed any of the
obligations of Conseco Finance or Conseco
Securitizations with respect to the loans or the
trust.
Trustee..................... U.S. Bank Trust National Association, Saint Paul,
Minnesota.
Payment Date................ The fifteenth day of each month, or if that day
is not a business day, the following business
day. The first payment date will be October 16,
2000.
Record Date................. The business day just before the payment date.
Distributions on the
Certificates................ Distributions on the certificates will be made
primarily from amounts collected during the prior
calendar month on the home improvement loans. On
each payment date distributions of principal and
interest on the certificates will be made in the
following order of priority:
- payment of the monthly servicing fee;
- Class A interest;
- Class M-1 interest;
- Class M-2 interest;
- Class B-1 interest;
- Class B-2 interest;
- Class A principal;
- Class M-1 principal;
- Class M-2 principal;
- Class B-1 principal; and
- Class B-2 principal.
This prospectus supplement summarizes on the next
page the amounts of interest and principal to be
paid on each payment date. See "Description of
the Certificates--Payments on Loans."
S-5
<PAGE>
A. Interest on the Class A,
Class M and Class B
Certificates............. Interest will be payable first to each class of
Class A certificates concurrently, then to the
Class M-1 certificates, then to the Class M-2
certificates, then to the Class B-1 certificates
and then to the Class B-2 certificates, to the
extent of the amount available. See "Description
of the Certificates--Distributions on
Certificates" and "--Losses on Liquidated Loans."
B. Principal on the Class
A, Class M, and Class B
Certificates ............ The trustee will then apply the remaining amount
available to pay principal on the Class A, Class
M-1, Class M-2, Class B-1 and Class B-2
certificates. The amount to be distributed will
be a formula amount based on the amount of
scheduled and unscheduled payments and other
recoveries on the loans for that payment date.
Prior to a stepdown date, or on any payment date
thereafter if a trigger event is in effect, 100%
of the formula principal distribution amount will
be payable to the Class A certificates, in
sequential order until retired, and then to the
Class M-1, Class M-2, Class B-1 and Class B-2
certificates, in the order of priority described
in "Description of the Certificates--
Distributions on Certificates. After the stepdown
date and as long as no trigger event is in
effect, the trustee will allocate the formula
principal distribution amount among the Class A
(in sequential order), Class M-1, Class M-2,
Class B-1 and Class B-2 certificates, in the
order of priority described in "Description of
the Certificates--Distributions on Certificates."
Overcollateralization....... The certificateholders will be entitled to
receive additional distributions in respect of
principal on each payment date, to the extent the
remaining amount available is sufficient, until
the overcollateralization amount equals the
Target Overcollateralization Amount. The
overcollateralization amount will be $0.00 on the
closing date and will build on each payment date
beginning with the November 2000 payment date
until
S-6
<PAGE>
the overcollateralization amount equals the
Target Overcollateralization Amount, which
initially equals $7,500,000. The
overcollateralization amount will be maintained
at the Target Overcollaterization Amount to the
extent funds are available on each payment date.
See "Description of the Certificates--
Overcollateralization."
Loans....................... The pool will consist of fixed rate home
improvement loans. This prospectus supplement
provides information regarding a portion of the
loans representing about 95.13% of all the loans
that we expect the trust will own. We will
transfer the remaining loans to the trust on the
closing date, or within 90 days after the closing
date.
As of the statistical cut-off date the initial
loans have the following characteristics:
. all are secured by a lien on the related
real property;
. the related properties are located in 48
states and the District of Columbia;
. there are 12,192 loans;
. the loan rates range from 6.00% to 21.99%,
with a weighted average of 12.69%;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was 234 months,
. no loan has a principal balance at
origination of more than $255,000;
. the weighted average term to scheduled
maturity was 230 months.
. the latest scheduled maturity date was in
July 2030.
Pre-Funding Account......... If the aggregate principal balance of the loans
transferred by Conseco Securitizations to the
trust on the closing date is less than the
aggregate original principal balance of the
certificates, that difference will be deposited
in a pre-funding account, and those funds will be
used to purchase loans from time to time until
December 14, 2000. If those funds are not
completely used by that date any remaining funds
will be
S-7
<PAGE>
distributed as principal on the Class A
certificates on the December 2000 payment date.
Advances.................... The servicer will make advances each month of any
scheduled payments on the loans that were due but
not received during the prior due period, but it
will be entitled to reimbursement for any
advance. See "Description of the Certificates--
Advances" in this prospectus supplement and in
the prospectus.
Repurchase or Substitution
Obligations.................
Conseco Finance will make representations and
warranties about the loans when Conseco
Securitizations transfers them to the trust. If a
representation or warranty is breached in a way
that materially and adversely affects the
interests of the certificateholders, then Conseco
Finance must, within 90 days, either (1) cure the
breach or (2) repurchase the defective loans.
During the first two years after the closing
date, Conseco Finance may substitute other loans
instead of repurchasing defective loans. See
"Description of the Certificates--Conveyance of
Loans" in this prospectus supplement and in the
prospectus.
Purchase Option............. Beginning on the payment date when the scheduled
principal balance of the loans is less than 20%
of the cut-off date principal balance of the
loans, the holder of the Class C certificates
will have the right to repurchase all of the
outstanding loans, at a price sufficient to pay
the aggregate unpaid principal balance of the
certificates and all accrued and unpaid interest
thereon.
If the holder of the Class C certificates does
not exercise this purchase option, then on the
next payment date the Class A-5 pass-through rate
will increase from 8.02% to 9.02%. See
"Description of the Certificates--Purchase
Option" in this prospectus supplement.
Tax Status.................. In the opinion of our counsel, for federal income
tax purposes a segregated portion of the trust
will be treated as a REMIC. The Class A, Class M
and Class B certificates will constitute regular
interests in the REMIC and generally will be
treated as debt instruments of the trust for
federal income tax purposes. You will be
S-8
<PAGE>
required to include as income all interest paid
on the certificates under the accrual method of
accounting, even if you usually use the cash
method of accounting. See "Federal Income Tax
Consequences" in this prospectus supplement and
in the prospectus for a more detailed description
of the tax status of the certificates.
ERISA Considerations........ If and when the prohibited transaction exemption
proposed on August 23, 2000 is adopted by the
Department of Labor in final form and subject to
the conditions described under "ERISA
Considerations," employee benefit plans that are
subject to ERISA may purchase Class A
certificates. An employee benefit plan may not
purchase any other class of certificates, unless
it satisfies the conditions described under
"ERISA Considerations" in this prospectus
supplement and in the prospectus.
Legal Investment
Considerations..............
The certificates will not constitute mortgage
related securities for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 because a
number of the loans are not secured by first
liens on the related real estate. This means that
many institutions that have the legal authority
to invest in mortgage related securities may not
be legally authorized to invest in the
certificates. You should consult with your own
legal advisor to decide whether and how much you
may legally invest in the certificates.
Reports to Holders of
Certificates................
We will provide to the holder of the certificates
monthly and annual reports about the certificates
and the trust. See "Description of the
Certificates--Reports to Certificateholders" in
the prospectus.
S-9
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the offered certificates.
A number of the liens on the real estate securing the loans will be junior to
other liens on that real estate, which increases the risk of loss upon default.
Because the liens securing many of the loans are junior, the rights of the
trust to cause the property securing the loan to be sold upon default of the
mortgagor or trustor are subordinate to those of the senior mortgagee or
beneficiary. This extinguishes the junior mortgagee's or junior beneficiary's
lien unless the servicer on behalf of the trust asserts its subordinate
interest in the property in foreclosure litigation and, possibly, satisfies the
defaulted senior loan or loans. For a more complete description of the risks
associated with junior mortgage liens, see "Legal Aspects of the Loans;
Repurchase Obligations" in the prospectus.
Some of the home improvement loans have high loan-to-value ratios, which may
result in more loan defaults and higher losses following a default.
We expect a substantial portion of the loans included in a loan pool to have
combined loan-to-value ratios of 90% or more, based on the total of the
outstanding principal balances of all senior mortgages or deeds of trust and of
the loan on the one hand, and the value of the home, on the other. For a more
complete description, see "Conseco Finance Corp.--Loan Origination." An overall
decline in the residential real estate market, the general condition of a
property securing a loan or other factors could adversely affect the value of
the property securing a loan. As a result, the remaining balance of that loan,
together with that of any senior liens on the related property, could equal or
exceed the value of the property.
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
lives of the certificates. Obligors may prepay their loans at any time 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 Conseco Finance as a result of certain uncured breaches of its
representations and 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 pooling and servicing agreement, distribution of any unused pre-funding
amount or the holder of the Class C certificate 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 certificates.
There may be no secondary market for the certificates, which means you may have
trouble selling them.
We cannot assure to you that a secondary market will develop for the
certificates or, if a secondary market does develop, that it will provide the
holders of any of the certificates with liquidity of investment. We also cannot
assure you that if a secondary market does develop, that it will continue to
exist for the term of the certificates.
S-10
<PAGE>
The assignment of each mortgage to the trust will not be recorded, which in
some states could make the trust's security interest ineffective; this could
adversely affect the trust's ability to pay on the certificates.
We will not record the assignment from Conseco Finance to Conseco Finance
Securitizations and then 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 trustee of the mortgage or deed of trust securing a loan may not be
effective against creditors of or purchasers from Conseco Finance or Conseco
Finance Securitizations or a trustee in bankruptcy for Conseco Finance or
Conseco Finance Securitizations. This could leave the trust unable to foreclose
on the real estate following a loan default, which could result in increased
losses on the loans. These losses could result in delays or reductions in
payments on your certificates.
Some 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.
HOEPA adds certain additional provisions to Regulation Z, the implementing
regulation of the Federal Truth-in-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to non-
purchase money mortgage loans with high interest rates or up-front fees and
charges. A violation of these provisions of HOEPA 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 in the loan
pool. If Conseco Finance is found to have violated provisions of HOEPA
regarding any loan that is subject to HOEPA, the trust may be unable to collect
on that loan. Conseco Finance would, however, be obligated to repurchase that
loan because of the breach of its representation and warranty.
The return on your certificates may be particularly sensitive to changes in
economic conditions and changes in real estate markets in specific regions.
One risk of investing in certificates backed by home improvement loans is
created by any concentration of the related properties, and the obligors on the
loans, in one or more geographic regions. If the economy or the housing market
weakens in that region, the loans in that region may experience higher rates of
delinquency and default, and greater losses upon default, which could result in
a loss on your investment in the certificates. A region's economic condition
and housing market may be adversely affected by a variety of events, including
natural disasters such as earthquakes, hurricanes, floods and eruptions, and
civil disturbances such as riots.
Bankruptcy proceedings could delay distributions on the certificates.
We intend that each transfer of loans to the related trust will constitute a
sale, rather than a pledge of the loans to secure our indebtedness. However, if
either Conseco Finance or Conseco Securitizations were to become a debtor under
the federal bankruptcy code, it is possible that a creditor or trustee in
bankruptcy for Conseco Finance or Conseco
S-11
<PAGE>
Securitizations, or Conseco Finance or Conseco Securitizations as debtor-in-
possession, may argue that the sale of the loans by us was a pledge of the
loans rather than a sale. This position, if presented to or accepted by a
court, could result in a delay in or reduction of distributions to the holders
of the certificates. See "Conseco Finance Corp.--Recent Developments."
The historical delinquency experience with home improvement loans may not be an
accurate prediction of the performance of the loans in the pool.
Conseco Finance began purchasing and servicing FHA-insured home improvement
loans in April 1989, and conventional home improvement loans in September 1992,
and thus has limited historical experience with respect to the performance,
including the rate of prepayments, of home improvement loans. Accordingly,
Conseco Finance's delinquency experience and loan loss and liquidation
experience set forth under "The Loans" may not be indicative of the performance
of the loans.
STRUCTURE OF THE TRANSACTION
On or about the closing date, September 28, 2000, Conseco Finance will
transfer the initial and additional loans to Conseco Securitizations pursuant
to a transfer agreement to be dated as of September 1, 2000, between Conseco
Finance and Conseco Securitizations. Conseco Securitizations will then
establish the trust under a pooling and servicing agreement to be dated as of
September 1, 2000, between Conseco Securitizations, as seller, Conseco Finance,
as servicer, and the trustee.
The certificates will be issued by the trust. The property of the trust will
consist primarily of home improvement loans. The Cut-off Date is July 31, 2000
for the initial loans, which are described in this prospectus supplement;
August 31, 2000 for each additional loan that Conseco Securitizations transfers
to the trust on the closing date; and for each subsequent loan, the last day of
the calendar month in which that subsequent loan is purchased by the trust.
Payments and recoveries in respect of principal and interest on the loans
will be paid into a certificate account maintained at an eligible institution
(initially U.S. Bank Trust National Association, Saint Paul, Minnesota) in the
name of the trust, no later than one business day after receipt. Payments
deposited in the certificate account in respect of each Due Period, as defined
below, will be applied on the fifteenth day of the next month, or, if that day
is not a business day, the next succeeding business day, to make the
distributions to the certificateholders as of the immediately preceding record
date as described under "Description of the Certificates--Distributions on the
Certificates" and to pay certain monthly fees to the servicer as compensation
for its servicing of the loans.
The servicer will be obligated to advance any scheduled payments on the loans
that were due but not received during the calendar month preceding the month in
which the payment date occurs. The servicer will be entitled to reimbursement
of an advance from funds available in the certificate account. The servicer
will not be required to make any advance to the extent that it does not expect
to recoup the advance from subsequent funds
S-12
<PAGE>
available in the certificate account. If the servicer fails to make any advance
required under the pooling and servicing agreement, the trustee is obligated,
subject to certain conditions, to make such advance.
Following the transfer of the loans from Conseco Finance to Conseco
Securitizations, the obligations of Conseco Finance are limited to:
(1)its obligation as servicer to service the loans,
(2) certain representations and warranties in the pooling and servicing
agreement as described under "Description of the Certificates--
Conveyance of Loans," and
(3)certain indemnities.
Conseco Finance is obligated under the pooling and servicing agreement to
repurchase any loan that is materially and adversely affected by a breach of a
representation and warranty with respect to the loan made in the pooling and
servicing agreement if such breach has not been cured within 90 days of the day
it was or should have been discovered by the servicer or the trustee or, at its
option during the first two years after the closing date, to substitute another
loan for that loan. After this two-year period has ended, Conseco Finance no
longer has the option to substitute a loan and is obligated under the pooling
and servicing agreement to repurchase the loan as described in the previous
sentence. Conseco Finance also has certain obligations to repurchase loans and
to indemnify the trustee and certificateholders with respect to other matters.
USE OF PROCEEDS
Conseco Securitizations will pay the net proceeds received from the sale of
the certificates, after paying its expenses, to Conseco Finance. Conseco
Finance will use those proceeds for working capital and general corporate
purposes, including building a portfolio of home improvement loans, providing
warehouse financing for the purchase of loans and other costs of maintaining
loans until they are pooled and sold to other investors.
THE LOANS
This prospectus supplement contains information regarding the initial loans,
which represent approximately 95.13% of all the loans that we expect the trust
to own, and which consist of fixed rate loans originated through August 2000.
The information for each initial loan is as of July 31, 2000, the Cut-off Date
for the initial loans. The initial loans have an aggregate principal balance of
approximately $285,393,689.10 as of the applicable Cut-off Date. Under the
pooling and servicing agreement, the trust may purchase additional loans on the
closing date and may purchase subsequent loans through December 14, 2000. See
"Description of the Certificates--Conveyance of Subsequent Loans and Pre-
Funding Account" below.
Each initial loan is a home improvement loan originated by a home improvement
contractor approved by Conseco Finance and purchased by Conseco Finance, or a
home improvement promissory note originated by Conseco Finance directly, except
for 548 loans,
S-13
<PAGE>
with an aggregate principal balance of $12,969,664.68 as of the applicable Cut-
off Date, which Conseco Finance purchased from correspondent originators. Each
loan finances improvements to a one- to four-family residential property, an
owner-occupied condominium or town house or a manufactured home which either
qualifies as real estate under state law or is located in a park approved by
Conseco Finance. Each loan is secured by a lien on the related real estate. The
loans were originated or acquired by Conseco Finance in the ordinary course of
its business.
Conseco Finance will make certain representations and warranties in the
pooling and servicing agreement, including that:
(1) each loan is fully amortizing with a fixed contractual rate of
interest and provides for level monthly payments over the term of the
loan,
(2) each loan has its last scheduled payment due no later than November
30, 2030,
(3) each FHA-insured loan was originated in accordance with applicable FHA
regulations and is insured, without set-off, surcharge or defense, by
FHA Insurance, and
(4) each loan is secured by a lien, which is typically a subordinate lien
on the related real estate.
Approximately 1.38% of the initial loans, by principal balance as of the
applicable Cut-off Date, are insured by FHA as described in "Description of FHA
Insurance" in the prospectus. Each of the initial loans has a loan rate of at
least 6.00% per annum and not more than 21.99% and the weighted average of the
loan rates of the loans as of the applicable Cut-off Date is 12.69%. As of the
applicable Cut-off Date, the initial loans had remaining maturities of at least
6 months but not more than 360 months and original maturities of at least 24
months but not more than 360 months. The initial loans had a weighted average
term to scheduled maturity, as of origination, of 234 months, and a weighted
average term to scheduled maturity, as of the applicable Cut-off Date, of 230
months. The average principal balance of the loans as of the applicable Cut-off
Date was $23,408.28 and the principal balances on the initial loans as of the
applicable Cut-off Date ranged from $1,196.49 to $253,213.16. The initial loans
arise from loans relating to real property located in 48 states and the
District of Columbia. By principal balance as of the applicable Cut-off Date,
approximately 14.76% of the initial loans financed improvements to real estate
located in California, 9.07% in New York, 8.13% in Texas, 6.46% in Pennsylvania
and 5.10% in New Jersey. No other state represented 5% or more of the initial
loans by principal balance. Substantially none of the loans provide for
recourse to the originating contractor in the event of a default by the
obligor.
The tables below describe additional characteristics of the initial loans as
of the applicable Cut-off Date. Due to rounding, the percentages may not sum to
100%.
S-14
<PAGE>
Geographical Distribution of Initial Loans
<TABLE>
<CAPTION>
% of
Number Aggregate Principal Loan Pool by
of Balance Outstanding Principal
Loans Outstanding Balance
------ ------------------- ---------------------
<S> <C> <C> <C>
Alabama........................ 201 $ 5,370,819.88 1.88%
Arizona........................ 338 7,768,704.86 2.72
Arkansas....................... 262 3,983,345.81 1.40
California..................... 1,285 42,137,122.80 14.76
Colorado....................... 267 4,519,645.68 1.58
Connecticut.................... 212 4,910,777.83 1.72
Delaware....................... 66 1,656,731.64 0.58
District of Columbia........... 8 67,380.03 0.02
Florida........................ 620 14,080,222.46 4.93
Georgia........................ 358 7,828,381.02 2.74
Idaho.......................... 18 408,623.36 0.14
Illinois....................... 574 10,993,898.57 3.85
Indiana........................ 320 5,908,867.16 2.07
Iowa........................... 73 1,830,666.76 0.64
Kansas......................... 98 1,839,469.37 0.64
Kentucky....................... 38 808,517.00 0.28
Louisiana...................... 90 2,448,073.69 0.86
Maine.......................... 102 2,237,533.30 0.78
Maryland....................... 132 3,429,407.18 1.20
Massachusetts.................. 158 3,648,709.06 1.28
Michigan....................... 575 12,704,426.39 4.45
Minnesota...................... 140 3,126,968.82 1.10
Mississippi.................... 102 1,718,649.55 0.60
Missouri....................... 359 6,521,192.73 2.28
Montana........................ 34 818,766.08 0.29
Nebraska....................... 39 876,253.16 0.31
Nevada......................... 175 4,932,574.52 1.73
New Hampshire.................. 49 1,230,926.66 0.43
New Jersey..................... 652 14,557,770.60 5.10
New Mexico..................... 150 3,391,539.27 1.19
New York....................... 1,020 25,898,299.45 9.07
North Carolina................. 194 4,320,085.90 1.51
North Dakota................... 22 645,508.58 0.23
Ohio........................... 405 7,420,162.24 2.60
Oklahoma....................... 144 2,642,455.80 0.93
Oregon......................... 64 1,798,781.43 0.63
Pennsylvania................... 770 18,443,078.05 6.46
Rhode Island................... 40 681,011.58 0.24
South Carolina................. 143 3,496,257.76 1.23
South Dakota................... 25 666,567.82 0.23
Tennessee...................... 66 841,332.53 0.29
Texas.......................... 937 23,190,355.17 8.13
Utah........................... 20 359,256.91 0.13
Vermont........................ 31 694,182.33 0.24
Virginia....................... 380 8,903,236.90 3.12
Washington..................... 240 4,880,849.72 1.71
West Virginia.................. 61 1,675,450.52 0.59
Wisconsin...................... 100 2,481,683.11 0.87
Wyoming........................ 35 599,168.06 0.21
------ --------------- ------
Total...................... 12,192 $285,393,689.10 100.00%
====== =============== ======
</TABLE>
S-15
<PAGE>
Years of Origination of Initial Loans
<TABLE>
<CAPTION>
% of
Loan Pool By
Number of Aggregate Principal Outstanding Principal
Year of Origination Loans Balance Outstanding Balance
------------------- --------- ------------------- ---------------------
<S> <C> <C> <C>
1990........................ 1 $ 8,477.48 *
1991........................ 12 63,360.55 0.02%
1992........................ 320 1,828,914.64 0.64
1993........................ 90 585,079.65 0.21
1994........................ 1 22,394.03 0.01
1995........................ 2 28,239.14 0.01
1996........................ 6 62,602.78 0.02
1997........................ 10 279,480.76 0.10
1998........................ 158 5,716,568.83 2.00
1999........................ 1,770 40,736,340.74 14.27
2000........................ 9,822 236,062,230.50 82.71
------ --------------- ------
Total................... 12,192 $285,393,689.10 100.00%
====== =============== ======
</TABLE>
--------
* Indicates an amount greater than zero but less than .005% of the aggregate
principal balance of the initial loans as of the applicable Cut-off Date.
S-16
<PAGE>
Distribution of Original Loan Amounts--Initial Loans
<TABLE>
<CAPTION>
% of
Loan Pool by
Original Loan Number of Aggregate Original Outstanding Principal
Amount (in Dollars) Loans Principal Balance (1) Balance
------------------- --------- --------------------- ---------------------
<S> <C> <C> <C>
Less than $ 10,000....... 1,759 $ 11,533,804.18 4.04%
Between$ 10,000--
$ 19,999................ 4,196 60,829,658.92 21.31
Between$ 20,000--
$ 29,999................ 3,137 75,967,451.68 26.62
Between$ 30,000--
$ 39,999................ 1,592 54,015,145.12 18.93
Between$ 40,000--
$ 49,999................ 819 35,731,118.95 12.52
Between$ 50,000--
$ 59,999................ 389 20,500,861.39 7.18
Between$ 60,000--
$ 69,999................ 89 5,718,248.30 2.00
Between$ 70,000--
$ 79,999................ 71 5,258,346.35 1.84
Between$ 80,000--
$ 89,999................ 44 3,694,573.38 1.29
Between$ 90,000--
$ 99,999................ 20 1,886,565.70 0.66
Between$100,000--
$109,999................ 13 1,328,682.26 0.47
Between$110,000--
$119,999................ 15 1,706,372.37 0.60
Between$120,000--
$129,999................ 14 1,762,106.49 0.62
Between$130,000--
$139,999................ 10 1,339,526.24 0.47
Between$140,000--
$149,999................ 8 1,133,055.32 0.40
Between$150,000--
$159,999................ 6 922,183.73 0.32
Between$160,000--
$169,999................ 1 162,801.71 0.06
Between$180,000--
$189,999................ 3 552,184.51 0.19
Between$200,000--
$209,999................ 2 409,284.41 0.14
Between$210,000--
$219,999................ 1 210,258.21 0.07
Between$230,000--
$239,999................ 1 230,214.48 0.08
Between$240,000--
$249,999................ 1 248,032.24 0.09
Between$250,000--
$259,999................ 1 253,213.16 0.09
------ --------------- ------
Total................ 12,192 $285,393,689.10 100.00%
====== =============== ======
</TABLE>
--------
(1) The original principal balances shown in the table for those loans
purchased by Conseco Finance from correspondent originators reflect the
outstanding principal balances at the time of acquisition by Conseco
Finance and thus may differ from the actual balances of the loans at the
time of their origination.
S-17
<PAGE>
Current Loan Rates--Initial Loans
<TABLE>
<CAPTION>
% of
Loan Pool by
Range of Loans by Number of Aggregate Principal Outstanding Principal
Loan Rate Loans Balance Outstanding Balance
----------------- --------- ------------------- ---------------------
<S> <C> <C> <C>
Below 7.000%................ 6 $ 202,610.92 0.07%
Between 7.000%-- 7.999%.... 63 2,229,956.77 0.78
Between 8.000%-- 8.999%.... 422 14,266,608.32 5.00
Between 9.000%-- 9.999%.... 1158 31,866,717.99 11.17
Between 10.000%--10.999%.... 1245 31,365,514.05 10.99
Between 11.000%--11.999%.... 1860 45,542,021.11 15.96
Between 12.000%--12.999%.... 2188 47,984,239.02 16.81
Between 13.000%--13.999%.... 1950 41,776,608.41 14.64
Between 14.000%--14.999%.... 1423 30,713,742.58 10.76
Between 15.000%--15.999%.... 962 19,614,238.96 6.87
Between 16.000%--16.999%.... 549 11,743,941.48 4.11
Greater than 16.999%........ 366 8,087,489.49 2.83
------ --------------- ------
Total................... 12,192 $285,393,689.10 100.00%
====== =============== ======
</TABLE>
Remaining Months to Maturity--Initial Loans
<TABLE>
<CAPTION>
% of
Loan Pool by
Months Remaining to Number of Aggregate Principal Outstanding Principal
Scheduled Maturity Loans Balance Outstanding Balance
------------------- --------- ------------------- ---------------------
<S> <C> <C> <C>
Less than 31................ 190 $ 692,477.45 0.24%
31-60....................... 660 6,060,825.38 2.12
61-90....................... 509 4,907,443.23 1.72
91-120...................... 2,155 32,797,701.67 11.49
121-150..................... 85 1,336,185.50 0.47
151-180..................... 3,003 66,052,499.47 23.14
181-210..................... 18 360,383.92 0.13
211-240..................... 1,556 39,335,413.09 13.78
241-270..................... 7 155,965.24 0.05
271-300..................... 3,998 132,886,263.44 46.56
331-360..................... 11 808,530.71 0.28
------ --------------- ------
Total................... 12,192 $285,393,689.10 100.00%
====== =============== ======
</TABLE>
S-18
<PAGE>
Lien Position of Initial Loans
<TABLE>
<CAPTION>
% of
Loan Pool by
Number of Aggregate Principal Outstanding Principal
Loans Balance Outstanding Balance
--------- ------------------- ---------------------
<S> <C> <C> <C>
First....................... 1,184 $ 41,994,246.64 14.71%
Second...................... 9,073 199,458,735.08 69.89
Third....................... 1,925 43,766,072.18 15.34
Fourth...................... 10 174,635.20 0.06
------ --------------- ------
Total................... 12,192 $285,393,689.10 100.00%
====== =============== ======
</TABLE>
The following tables show the delinquency experience for the periods
indicated of the portfolios of conventional and FHA-insured secured home
improvement loans serviced by Conseco Finance other than loans already in
repossession. The number of loans in the table excludes defaulted loans that
have not yet been liquidated. Conseco Finance considers a loan to be delinquent
if any payment of $25 or more is past-due by 30 days or more. Conseco Finance
does not treat as delinquent the home improvement loans of obligors that have
entered bankruptcy, so long as those obligors are current under their
bankruptcy payment plan.
Delinquency Experience--Conventional Loans
<TABLE>
<CAPTION>
As of
June 30, At December 31,
-------- -------------------------------
2000 1999 1998 1997 1996
-------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of Loans Outstanding........ 118,806 113,575 98,888 85,958 74,021
Number of Loans Delinquent
30-59 Days....................... 1,483 2,217 1,493 946 656
60-89 Days....................... 594 555 411 258 241
90 Days or More.................. 1,546 988 622 338 279
------- ------- ------ ------ ------
Total Loans Delinquent............. 3,623 3,760 2,526 1,542 1,176
Delinquencies as a Percent of Loans
Outstanding....................... 3.05% 3.31% 2.55% 1.79% 1.59%
</TABLE>
Delinquency Experience--FHA Insured Loans
<TABLE>
<CAPTION>
As of
June 30, At December 31,
-------- -----------------------------------------------
2000 1999 1998 1997 1996 1995
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of Loans
Outstanding............ 17,410 19,891 19,447 17,539 22,001 25,925
Number of Loans
Delinquent
30-59 Days............ 533 809 613 439 459 462
60-89 Days............ 184 204 152 95 123 121
90 Days or More....... 225 106 71 141 198 183
------ ------ ------ ------ ------ ------
Total Loans Delinquent.. 942 1,119 836 675 780 766
Delinquencies as a
Percent of Loans
Outstanding............ 5.41% 5.63% 4.30% 3.85% 3.55% 2.95%
</TABLE>
The following tables show the loan loss and repossession experience for the
periods indicated of the portfolios of secured conventional and FHA-insured
home improvement loans serviced by Conseco Finance, other than loans already in
repossession. The principal balance for the loans is calculated for the end of
the indicated period and includes defaulted
S-19
<PAGE>
loans not yet liquidated. Conseco Finance considers a loan to be in default
when it has commenced foreclosure or enforcement proceedings or the loan is 180
days delinquent. Net losses do not include any estimated losses for defaulted
loans not yet liquidated and are calculated as a percentage of the principal
amount of loans being serviced for the end of the indicated period.
Loan Default and Loss Experience--Conventional Loans
(Dollars in thousands)
<TABLE>
<CAPTION>
As of Twelve Months
June 30, Ended December 31,
---------- --------------------------------------------------------
2000 1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of
Loans Serviced......... $2,435,193 $2,244,343 $1,816,425 $1,435,535 $1,147,111 $824,419
Loan Defaults
Percentage............ 1.06% 1.98% 1.47% 1.60% 1.25% 0.53%
Net Losses:
Dollars............... $ 23,141 $ 34,311 $ 23,082 $ 16,034 $ 11,072 $ 3,424
Percentage............ 0.95% 1.53% 1.27% 1.12% 0.97% 0.42%
</TABLE>
Loan Default and Loss Experience--FHA Insured Loans
(Dollars in thousands)
<TABLE>
<CAPTION>
As of Twelve Months
June 30, Ended December 31,
-------- ------------------------------------------------
2000 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of
Loans Serviced......... $148,689 $167,600 $159,626 $128,657 $161,438 $191,364
Loan Defaults
Percentage............ 2.89% 16.20% 4.01% 3.17% 2.90% 1.81%
Net Losses:
Dollars............... $ 154 $ 8,239 $ 782 $ 500 $ 874 $ 291
Percentage............ 0.10% 4.92% 0.49% 0.39% 0.54% 0.15%
</TABLE>
Conseco Finance's management is not aware of any trends or anomalies which
have adversely affected the delinquency, loan default and loss experience of
its portfolio of home improvement loans.
The data presented in the tables above are for illustrative purposes only and
there is no assurance that the delinquency, loan default and loss experience of
the loans will be similar to that described above. Because Conseco Finance
began originating and purchasing FHA-insured home improvement loans in April
1989, and secured conventional home improvement loans in September 1992, it is
likely that Conseco Finance's portfolio is not yet sufficiently seasoned to
show the delinquencies and losses that would be experienced if such data were
collected over a longer period of time. The delinquency, loan default and loss
experience of home improvement loans may be adversely affected by a downturn in
regional or local economic conditions. Regional and local economic conditions
are often volatile, and no predictions can be made regarding future economic
conditions in any particular area.
S-20
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any certificate will depend on the price paid by the
certificateholder, the timing of principal payments, and the timing and amount
of any liquidation losses on the loans.
Higher than expected principal prepayments will increase the yield on
certificates purchased at a price less than par and will decrease the yield on
certificates purchased at a price greater than par. Conseco Finance has no
significant experience relating to the rate of principal prepayments on home
improvement loans. Because the loans have scheduled due dates throughout the
calendar month, and because all principal prepayments are passed through to
certificateholders on the payment date following the Due Period in which such
principal prepayment occurred, prepayments on the loans would affect the amount
of funds available to make distributions on the certificates on any payment
date only if a substantial portion of the loans prepaid prior to their
respective due dates in a particular month, while very few loans prepaid after
their due dates in that month. In addition, liquidations of defaulted loans or
the Class C certificateholder's exercise of its option to repurchase the entire
remaining pool of loans will affect the timing of principal distributions on
the certificates. Conseco Finance has the option of substituting new loans for
those loans in the loan pool that are prepaid in full prior to December 28,
2000. See "Description of the Certificates--Conveyance of Loans."
Prepayments on mortgage loans and other consumer installment obligations are
commonly measured relative to a prepayment standard or model. The Constant
Prepayment Rate model assumes that the outstanding principal balance of a pool
of loans prepays each month at a specified constant annual rate. The 100%
prepayment assumption assumes a constant prepayment of 12% per annum of the
then outstanding principal balance of such loans in the first month of the life
of such loans and approximately an additional 0.91% per year in each month
thereafter until the twelfth month. In each month thereafter, the 100%
prepayment assumption assumes a constant prepayment rate of 22% per annum each
month. The certificates were priced using a 100% prepayment assumption. There
can be no assurance that the loans will prepay at such rate, and it is unlikely
that prepayments or liquidations of the loans will occur at any constant rate.
The Class A-1 certificates will be prepaid in part on the first payment date
after the funding period in the event that any pre-funded amount remains in the
pre-funding account on such payment date after the purchase by the trust of the
subsequent loans. Any amounts remaining which had been allocated to the
purchase of subsequent loans will be paid to the Class A-1 certificateholders
and, if the principal balance of such class has been reduced to zero, then to
the Class A-2, Class A-3, Class A-4, Class A-5, Class M-1, Class M-2, Class B-1
and Class B-2 certificateholders, in that order of priority. Conseco
Securitizations believes that the principal amount of subsequent loans to be
purchased by the trust, if any, will require the application of substantially
all of the pre-funded amount. If there is a pre-funded amount, it is unlikely
that the aggregate principal amount of subsequent loans purchased by the trust
will be identical to that pre-funded amount, so it is likely that the Class A-1
certificateholders will receive some prepayment of principal from the pre-
funding account.
S-21
<PAGE>
The amount of interest to which the certificateholders of any class are
entitled on any payment date will be the product of the related pass-through
rate and the principal balance in the case of the Class A certificates, or the
adjusted principal balance in the case of the Class M and Class B certificates,
immediately following the preceding payment date, based on a 360-day year
consisting of 12 months of 30 days each. Certificateholders will receive
payments in respect of principal on each payment date to the extent that funds
available in the certificate account are sufficient, in the priority described
under "Description of the Certificates--Distributions on the Certificates."
Interest paid by obligors on the loans is usually computed according to the
simple interest method. Principal and interest payable on the certificates will
be computed according to the actuarial method.
The final scheduled payment date on the initial loan with the latest maturity
as of the applicable Cut-off Date is in July 2030.
The final scheduled maturity of the Class A-1, Class A-2, Class A-3 and Class
A-4 certificates, based on the assumption that there are no defaults,
prepayments or delinquencies with respect to payments due under the loans and
the assumption that the Class C certificateholder has not exercised its
purchase option, and the final scheduled maturity of the Class A-5, Class M,
and Class B certificates, calculated as the final scheduled payment date on the
initial loan with the latest maturity plus thirteen months, are as follows:
<TABLE>
<CAPTION>
Final Scheduled
Maturity
----------------
<S> <C>
A-1...................................................... June 15, 2011
A-2...................................................... October 15, 2013
A-3...................................................... July 15, 2018
A-4...................................................... May 15, 2022
A-5...................................................... August 15, 2031
M-1...................................................... August 15, 2031
M-2...................................................... August 15, 2031
B-1...................................................... August 15, 2031
B-2...................................................... August 15, 2031
</TABLE>
Weighted Average Life of the Certificates
The following information is given solely to illustrate the effect of
prepayments of the loans on the weighted average life of each class of
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the loans.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the certificates will be
influenced by the rate at which principal on the loans is paid. Principal
payments on loans may be in the form of scheduled amortization or prepayments.
For this purpose, the term prepayment includes repayments and liquidations due
to default or other dispositions of the loans.
There is no assurance, however, that prepayment of the loans will conform to
any level of the prepayment scenarios, and no representation is made that the
loans will prepay at the
S-22
<PAGE>
prepayment rates shown or any other prepayment rate. The rate of principal
payments on pools of home improvement loans is influenced by a variety of
economic, geographic, social and other factors, including the level of interest
rates and the rate at which homeowners sell their homes or default on their
loans. Other factors affecting prepayment of loans include changes in obligors'
housing needs, job transfers, unemployment and obligors' net equity in their
homes. In the case of home improvement loans secured by real estate, in
general, if prevailing interest rates fall significantly below the interest
rates on such home improvement loans, the home improvement loans are likely to
be subject to higher prepayment rates than if prevailing interest rates
remained at or above the rates borne by such home improvement loans.
Conversely, if prevailing interest rates rise above the interest rates on such
home improvement loans, the rate of prepayment would be expected to decrease.
The percentages and weighted average lives in the following tables were
determined assuming that:
(1) scheduled interest and principal payments on the loans are received in
a timely manner and prepayments are made at the indicated prepayment
scenarios;
(2) the holder of the Class C Certificates does not exercise its option to
purchase the loans, as described under "Description of the
Certificates--Purchase Option," except with respect to the line titled
"Weighted Average Life (Years) to Call;"
(3) the initial loans will, as of the applicable Cut-off Date, be grouped
into nine pools having the characteristics described below under
"Assumed Loan Characteristics--Initial Loans" and the additional loans
will, as of the applicable Cut-off Date, be grouped into nine pools
having the characteristics described below under "Assumed Loan
Characteristics--Additional Loans;"
(4) each class of the certificates has an original principal balance and
pass-through rate as shown on page S-4 of this prospectus supplement;
(5) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(6) no delinquencies or losses are experienced on the loans;
(7) distributions are made on the certificates on the 15th day of each
month, commencing in October 2000; and
(8) the certificates are issued on September 28, 2000. No representation
is made that the loans will not experience delinquencies or losses.
S-23
<PAGE>
Assumed Loan Characteristics--Initial Loans
<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.......................... $11,156,611.39 12.77% 102 109
2.......................... 15,783,392.66 12.79 176 180
3.......................... 9,544,294.85 12.65 237 240
4.......................... 48,642,124.41 12.21 296 300
5.......................... 808,530.71 11.82 356 360
6.......................... 33,301,836.34 12.99 103 111
7.......................... 51,605,292.31 13.01 177 179
8.......................... 30,151,502.16 12.84 236 239
9.......................... 84,400,104.27 12.60 298 300
</TABLE>
Assumed Loan Characteristics--Additional Loans
<TABLE>
<CAPTION>
Weighted Weighted
Cut-off Date Weighted Average Average
Pool Average Remaining Term Original Term
Principal Loan to Maturity to Maturity
Pool Balance Rate (months) (months)
---- ------------- -------- -------------- -------------
<S> <C> <C> <C> <C>
1........................... $ 570,989.97 12.77% 109 109
2........................... 807,786.40 12.79 180 180
3........................... 488,472.39 12.65 240 240
4........................... 2,489,480.39 12.21 300 300
5........................... 41,380.21 11.82 360 360
6........................... 1,704,371.87 12.99 111 111
7........................... 2,641,133.89 13.01 179 179
8........................... 1,543,139.29 12.84 239 239
9........................... 4,319,556.49 12.60 300 300
</TABLE>
It is not likely that the loans will prepay at any constant percentage of CPR
to maturity or that all of the loans will prepay at the same rate. We cannot
assure you that the holder of the Class C certificates will exercise its
purchase option.
You are urged to make your investment decisions on a basis that includes your
determination as to anticipated prepayment rates under a variety of the
assumptions discussed.
S-24
<PAGE>
Based on these assumptions, the following tables indicate the projected
weighted average lives of each class of certificates and set forth the
percentages of the original principal balance of each class that would be
outstanding after each of the dates shown at the indicated percentages of the
prepayment assumption specified for each scenario below.
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
I II III IV V
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Prepayment Assumption.............. 75% 100% 125% 150% 175%
</TABLE>
The weighted average life of a class of certificates is determined by: (a)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of issuance of
such certificate to the stated payment date, (b) adding the results, and (c)
dividing the sum by the initial principal balance of such certificate.
S-25
<PAGE>
Percentage of the Original Principal Balance of the Class A-1
Certificates at the Respective Percentages of the Prepayment Assumption Set
Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 47% 34% 21% 8% 0%
September 15, 2002............... 7% 0% 0% 0% 0%
September 15, 2003............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 1.00 0.77 0.62 0.52 0.44
Weighted Average Life (years) to
call............................ 1.00 0.77 0.62 0.52 0.44
</TABLE>
Percentage of the Original Principal Balance of the Class A-2
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 80%
September 15, 2002............... 100% 48% 0% 0% 0%
September 15, 2003............... 7% 0% 0% 0% 0%
September 15, 2004............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 2.63 2.00 1.60 1.32 1.11
Weighted Average Life (years) to
call............................ 2.63 2.00 1.60 1.32 1.11
</TABLE>
Percentage of the Original Principal Balance of the Class A-3
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 100%
September 15, 2002............... 100% 100% 82% 32% 0%
September 15, 2003............... 100% 36% 0% 0% 0%
September 15, 2004............... 46% 0% 0% 0% 0%
September 15, 2005............... 7% 0% 0% 0% 0%
September 15, 2006............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 3.98 3.00 2.28 1.88 1.58
Weighted Average Life (years) to
call............................ 3.98 3.00 2.28 1.88 1.58
</TABLE>
S-26
<PAGE>
Percentage of the Original Principal Balance of the Class A-4
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 100%
September 15, 2002............... 100% 100% 100% 100% 81%
September 15, 2003............... 100% 100% 69% 3% 0%
September 15, 2004............... 100% 99% 49% 3% 0%
September 15, 2005............... 100% 49% 4% 0% 0%
September 15, 2006............... 66% 11% 0% 0% 0%
September 15, 2007............... 31% 0% 0% 0% 0%
September 15, 2008............... 3% 0% 0% 0% 0%
September 15, 2009............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 6.51 5.05 3.88 2.66 2.20
Weighted Average Life (years) to
call............................ 6.44 5.00 3.84 2.65 2.20
</TABLE>
Percentage of the Original Principal Balance of the Class A-5
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 100%
September 15, 2002............... 100% 100% 100% 100% 100%
September 15, 2003............... 100% 100% 100% 100% 46%
September 15, 2004............... 100% 100% 100% 100% 46%
September 15, 2005............... 100% 100% 100% 71% 46%
September 15, 2006............... 100% 100% 72% 45% 27%
September 15, 2007............... 100% 82% 50% 29% 16%
September 15, 2008............... 100% 60% 34% 18% 9%
September 15, 2009............... 81% 44% 23% 11% 4%
September 15, 2010............... 64% 33% 16% 6% 0%
September 15, 2011............... 50% 24% 11% 2% 0%
September 15, 2012............... 39% 17% 7% 0% 0%
September 15, 2013............... 30% 12% 3% 0% 0%
September 15, 2014............... 22% 9% 0% 0% 0%
September 15, 2015............... 17% 5% 0% 0% 0%
September 15, 2016............... 13% 2% 0% 0% 0%
September 15, 2017............... 10% 0% 0% 0% 0%
September 15, 2018............... 6% 0% 0% 0% 0%
September 15, 2019............... 3% 0% 0% 0% 0%
September 15, 2020............... 1% 0% 0% 0% 0%
September 15, 2021............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 11.85 9.39 7.64 6.34 4.57
Weighted Average Life (years) to
call............................ 7.38 5.80 4.63 3.80 2.97
</TABLE>
S-27
<PAGE>
Percentage of the Original Principal Balance of the Class M-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 100%
September 15, 2002............... 100% 100% 100% 100% 100%
September 15, 2003............... 100% 100% 100% 100% 100%
September 15, 2004............... 88% 67% 50% 50% 85%
September 15, 2005............... 70% 50% 35% 24% 17%
September 15, 2006............... 56% 37% 24% 15% 9%
September 15, 2007............... 44% 28% 17% 10% 5%
September 15, 2008............... 35% 20% 11% 6% 0%
September 15, 2009............... 27% 15% 8% 3% 0%
September 15, 2010............... 22% 11% 5% 0% 0%
September 15, 2011............... 17% 8% 2% 0% 0%
September 15, 2012............... 13% 6% 0% 0% 0%
September 15, 2013............... 10% 4% 0% 0% 0%
September 15, 2014............... 7% 0% 0% 0% 0%
September 15, 2015............... 6% 0% 0% 0% 0%
September 15, 2016............... 4% 0% 0% 0% 0%
September 15, 2017............... 1% 0% 0% 0% 0%
September 15, 2018............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 7.51 5.92 5.04 4.64 4.70
Weighted Average Life (years) to
call............................ 6.05 4.75 4.06 3.76 3.21
</TABLE>
Percentage of the Original Principal Balance of the Class M-2
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 100%
September 15, 2002............... 100% 100% 100% 100% 100%
September 15, 2003............... 100% 100% 100% 100% 100%
September 15, 2004............... 88% 67% 50% 37% 27%
September 15, 2005............... 70% 50% 35% 24% 16%
September 15, 2006............... 56% 37% 24% 15% 9%
September 15, 2007............... 44% 28% 17% 10% 4%
September 15, 2008............... 35% 20% 11% 6% 0%
September 15, 2009............... 27% 15% 8% 0% 0%
September 15, 2010............... 22% 11% 3% 0% 0%
September 15, 2011............... 17% 8% 0% 0% 0%
September 15, 2012............... 13% 6% 0% 0% 0%
September 15, 2013............... 10% 0% 0% 0% 0%
September 15, 2014............... 7% 0% 0% 0% 0%
September 15, 2015............... 4% 0% 0% 0% 0%
September 15, 2016............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 7.45 5.86 4.92 4.40 4.19
Weighted Average Life (years) to
call............................ 6.05 4.74 3.98 3.61 3.21
</TABLE>
S-28
<PAGE>
Percentage of the Original Principal Balance of the Class B-1
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 100%
September 15, 2002............... 100% 100% 100% 100% 100%
September 15, 2003............... 100% 100% 100% 100% 100%
September 15, 2004............... 88% 67% 50% 37% 27%
September 15, 2005............... 70% 50% 35% 24% 16%
September 15, 2006............... 56% 37% 24% 15% 9%
September 15, 2007............... 44% 28% 17% 10% 0%
September 15, 2008............... 35% 20% 11% 0% 0%
September 15, 2009............... 27% 15% 6% 0% 0%
September 15, 2010............... 22% 11% 0% 0% 0%
September 15, 2011............... 17% 7% 0% 0% 0%
September 15, 2012............... 13% 0% 0% 0% 0%
September 15, 2013............... 10% 0% 0% 0% 0%
September 15, 2014............... 5% 0% 0% 0% 0%
September 15, 2015............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 7.39 5.80 4.84 4.29 4.00
Weighted Average Life (years) to
call............................ 6.05 4.73 3.95 3.54 3.21
</TABLE>
Percentage of the Original Principal Balance of the Class B-2
Certificates at the Respective Percentages of the
Prepayment Assumption Set Forth Below:
<TABLE>
<CAPTION>
Scenario Scenario Scenario Scenario Scenario
Date I II III IV V
---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Initial Percentage............... 100% 100% 100% 100% 100%
September 15, 2001............... 100% 100% 100% 100% 100%
September 15, 2002............... 100% 100% 100% 100% 100%
September 15, 2003............... 100% 100% 100% 100% 100%
September 15, 2004............... 88% 67% 50% 37% 27%
September 15, 2005............... 70% 50% 35% 24% 13%
September 15, 2006............... 56% 37% 24% 12% 1%
September 15, 2007............... 44% 28% 14% 2% 0%
September 15, 2008............... 35% 20% 5% 0% 0%
September 15, 2009............... 27% 11% 0% 0% 0%
September 15, 2010............... 22% 4% 0% 0% 0%
September 15, 2011............... 15% 0% 0% 0% 0%
September 15, 2012............... 8% 0% 0% 0% 0%
September 15, 2013............... 3% 0% 0% 0% 0%
September 15, 2014............... 0% 0% 0% 0% 0%
Weighted Average Life (years) to
maturity........................ 7.19 5.62 4.67 4.10 3.76
Weighted Average Life (years) to
call............................ 6.05 4.73 3.92 3.46 3.21
</TABLE>
S-29
<PAGE>
CONSECO FINANCE CORP.
General
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under the heading "Conseco Finance Corp."
Ratio of Earnings to Fixed Charges for Conseco Finance
The table below shows Conseco Finance's ratios of earnings to fixed charges
for the past five years and the six months ended June 30, 2000. For the
purposes of compiling these ratios, earnings consist of earnings before income
taxes plus fixed charges. Fixed charges consist of interest expense and the
interest portion of rent expense.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31, June 30,
------------------------ ----------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges.................................. 7.90 5.44 3.94 .62* 1.10 1.00
</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 Green Tree Financial
Corporation's merger with Conseco, Inc.
Recent Developments
In recent months, rating agencies lowered their ratings of the debt
obligations of Conseco Finance and placed some ratings of Conseco Finance's
debt obligations on review as the rating agencies analyze the impact of
developing events. The uncertainty surrounding the ultimate outcome of Conseco,
Inc.'s efforts to sell Conseco Finance, which Conseco, Inc. announced in March
2000, made it more difficult for Conseco Finance to complete new public
securitization transactions.
On July 27, 2000, Conseco, Inc. announced a restructuring program for Conseco
Finance that includes selling or running off five of Conseco Finance's business
units. Conseco Finance's mortgage services division is not one of these five
units, but Conseco Finance does plan to streamline operations in its home
improvement division by, among other actions, reducing the number of field
offices from 48 to 33.
On August 8, 2000, Moody's reduced the rating of the long-term senior
unsecured debt obligations of Conseco Finance to B1 from Ba3 and S&P revised
the CreditWatch status of the ratings on Conseco Finance to negative from
developing. We cannot assure you that further downgrades will not occur.
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were generally
filed as purported class actions on behalf of persons or entities who purchased
common stock or options to purchase common stock of Conseco Finance during
alleged class periods that generally run from February 1995 to January 1998.
One of these lawsuits did not include class action claims. In addition to
Conseco Finance, some of Conseco Finance's 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 Conseco
S-30
<PAGE>
Finance's common stock and the other relating to an alleged class of traders in
options for Conseco Finance's common stock. In addition to these two
complaints, a separate non-class action lawsuit containing similar allegations
was also filed. Plaintiffs in the lawsuits assert claims under Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934. In each case, plaintiffs
allege that Conseco Finance and the other defendants violated federal
securities laws by making false and misleading statements about Conseco
Finance's current state and Conseco Finance's future prospects, particularly
about prepayment assumptions and performance of some of our loan portfolios,
which allegedly rendered Conseco Finance's financial statements false and
misleading. Conseco Finance filed motions to dismiss these lawsuits. On August
24, 1999, Conseco Finance's motions to dismiss were granted with prejudice. The
plaintiffs subsequently appealed the decision to the U.S. Court of Appeals for
the 8th Circuit, and the appeal is currently pending. Conseco Finance believes
that the lawsuits are without merit and intends to defend the lawsuits
vigorously. However, the ultimate outcome of these lawsuits cannot be predicted
with certainty.
S-31
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under "Description of the Certificates."
The certificates will be issued under the pooling and servicing agreement
among Conseco Finance, as originator and servicer, Conseco Securitizations, as
seller, and the trustee. A copy of the execution form of the pooling and
servicing agreement will be filed in a current report on Form 8-K with the SEC
after the initial issuance of the certificates. The following summary describes
the material provisions of the pooling and servicing agreement, reference to
which is made for a complete recital of its terms.
General
The certificates will be issued in fully registered, certificated form only
in denominations of $1,000 or any integral multiple of $1,000. The certificates
initially will be represented by certificates registered in the name of Cede as
the nominee of DTC, and will only be available in the form of book-entries on
the records of DTC and participating members. See "--Registration of the
Certificates" below. The trust consists primarily of the loans and the rights,
benefits, obligations and proceeds, including liens on the related real estate,
amounts held in the certificate account and the pre-funding account and rights
under applicable FHA Insurance for FHA-insured home improvement loans.
Distributions on the certificates will be made by the paying agent on each
payment date to persons in whose names the certificates are registered as of
the business day immediately preceding such payment date. See "--Registration
of the Certificates" below. The first payment date for the certificates will be
in October 2000. Payments will be made by check mailed to such
certificateholder at the address appearing on the certificate register, except
that a certificateholder who holds an aggregate percentage interest of at least
5% of a class of certificates may request payment by wire transfer. Final
payments will be made only upon tender of the certificates to the trustee for
cancellation.
Conveyance of Loans
On the closing date, Conseco Finance will transfer to Conseco Securitizations
all right, title and interest of Conseco Finance in the initial and additional
loans, including all principal and interest received after the related Cut-off
Date with respect to such loans, other than receipts of principal and interest
due on such loans on or before the related Cut-off Date. Conseco
Securitizations will then establish the trust and transfer to the trust all of
its right, title and interest in the initial and additional loans. The pooling
and servicing agreement permits the trust to purchase subsequent loans through
December 14, 2000. If Conseco Finance transfers subsequent loans to Conseco
Securitizations, Conseco Securitizations will transfer them to the trust. See
"--Conveyance of Subsequent Loans and Pre-Funding Account" below.
On behalf of the trust, as the issuer of the certificates, the trustee,
concurrently with the conveyance of the initial and additional loans, will
execute and deliver the certificates to or upon the order of Conseco
Securitizations. The loans will be described on a list delivered to
S-32
<PAGE>
the trustee and certified by a duly authorized officer of Conseco Finance. This
list will include the amount of monthly payments due on each loan as of the
date of issuance of the certificates, the current loan rate on each loan and
the maturity date of each loan. The list will be attached as an exhibit to the
pooling and servicing agreement and will be available for inspection by any
certificateholder at the principal office of Conseco Finance. Before the
conveyance of the loans to Conseco Securitizations, Conseco Finance will have
completed a review of all the loan files, confirming the accuracy of each item
on the list of loans delivered to the trustee. Any loan discovered not to agree
with such list in a manner that is materially adverse to the interests of the
certificateholders will be repurchased by Conseco Finance, or, if the
discrepancy relates to the unpaid principal balance of a loan, Conseco Finance
may deposit cash in the certificate account in an amount sufficient to offset
such discrepancy.
The trustee, directly or through a custodian, will maintain possession of the
promissory notes and any other documents contained in the loan files. Uniform
Commercial Code financing statements will be filed in Minnesota, reflecting the
conveyance and assignment of the loans to Conseco Securitizations and then to
the trustee. Conseco Finance's and Conseco Securitizations' accounting records
and computer systems will also reflect the conveyance and assignment.
Dorsey and Whitney LLP, counsel to Conseco Finance and Conseco
Securitizations, will give an opinion to the trustee that the transfer of the
loans from Conseco Finance to Conseco Securitizations and from Conseco
Securitizations to the trust each would be treated as a true sale and not as a
pledge to secure borrowings in the event that either Conseco
Finance or Conseco Securitizations became a debtor under the United States
Bankruptcy Code. If, however, either transfer were treated as a pledge to
secure borrowings by the transferor, 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 to the trust for an
uncertain period of time. In addition, a bankruptcy trustee would have the
power to sell the loans if the proceeds could satisfy the amount of the debt
deemed owed by Conseco Finance or Conseco Securitizations, or the bankruptcy
trustee could substitute other collateral in lieu of the loans to secure such
debt, or such debt could be subject to adjustment by the bankruptcy trustee if
Conseco Finance or Conseco Securitizations were to file for reorganization
under Chapter 11 of the United States Bankruptcy Code.
Conseco Finance will make certain representations and warranties in the
pooling and servicing agreement with respect to the initial, additional and
subsequent loans, including the following:
(1) for each initial loan as of the applicable Cut-off Date, the most
recent scheduled payment was made or was not delinquent more than 31
days and for each additional and subsequent loan as of the applicable
Cut-Off Date, the most recent scheduled payment was made or was not
delinquent more than 30 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;
S-33
<PAGE>
(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 in the
ordinary course of its business or was originated by Conseco Finance
directly, except for 548 initial loans, with an aggregate principal
balance of $12,969,664.68 as of the applicable Cut-off Date, which
Conseco Finance purchased from correspondent originators;
(6) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest in the loan 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 first, second, third or fourth
lien on the related real estate;
(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 Conseco Finance has good and marketable title to each loan
free and clear of any encumbrance, equity, lien, pledge, charge,
claim or security interest, and is the sole owner and has full right
to transfer such loan to Conseco Securitizations and then to the
trustee;
(12) as of the applicable Cut-off Date there was no default, breach,
violation or event permitting acceleration under any loan, except for
payment delinquencies permitted by (1) above, no event that with
notice and the expiration of any grace or cure period would
constitute a default, breach, violation or event permitting
acceleration under such loan, and Conseco Finance has not waived any
of the foregoing;
(13) each loan is a fully-amortizing loan and provides for level monthly
payments based on its applicable loan rate 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 set forth in the list delivered to the
trustee is true and correct;
(16) there is only one original of the related mortgage note;
(17) each loan was originated or purchased in accordance with Conseco
Finance's then-current underwriting guidelines;
(18) each loan is a qualified mortgage under section 860G(a)(3) of the
Internal Revenue Code;
(19) the proceeds of the loan were used solely to finance an improvement
to the related real estate or, if a portion of the proceeds were used
for debt consolidation, the loan had a combined loan-to-value ratio,
based on the loan's current principal balance, not greater than 100%;
and
S-34
<PAGE>
(20) no loan had an original term to maturity at origination of more than
360 months.
Conseco Finance will also make certain representations and warranties with
respect to the loans in the aggregate, including that:
(1) no more than 1% of the loans, by principal balance as of the
applicable Cut-off Date, were secured by properties located in an area
with the same zip code;
(2) no more than 5% of the loans, by principal balance as of the
applicable Cut-off Date, were originated by any one lender except for
Conseco Finance;
(3) the weighted average interest rate on the loans will not be more than
10 basis points below the weighted average interest rate of the
initial loans;
(4) No more than 70.00% of the initial loans were secured by a second
mortgage, no more than 16.00% of the initial loans were secured by a
third mortgage, and no more than 0.10% of the initial loans were
secured by a fourth mortgage, and the purchase of the additional and
subsequent loans will not cause the second lien percentage to increase
by more than 2%, the third lien percentage to increase by more than
0.50% and the fourth lien percentage to increase at all; and
(5) no adverse selection procedures were employed in selecting the loans
from Conseco Finance's portfolio.
In addition, each additional loan must satisfy the following criteria:
. as a result of the purchase of the additional loans, the offered
certificates will not receive from S&P, Moody's or Fitch a lower
credit rating than the rating assigned each class based upon the
initial loans;
. no additional loan will be a Title I loan; and
. as a result of the purchase of the additional loans, which additional
loans will not have a weighted average FICO Score less than 600, the
percentage of loans in the loan pool, by aggregate principal balance,
with a FICO Score less than 620 will not increase by more than 2%.
Conseco Finance will make certain additional representations and warranties
with respect to the subsequent loans. See "--Conveyance of Subsequent Loans and
Pre-Funding Account" below.
Under the terms of the pooling and servicing agreement, and subject to
Conseco Finance's option to effect a substitution as described in the next
paragraph, Conseco Finance has agreed to repurchase, at the Repurchase Price,
any loan that is materially and adversely affected by a breach of a
representation and warranty with respect to the loan made in the pooling and
servicing agreement if such breach has not been cured within 90 days of the day
it was or should have been discovered by the servicer or the trustee. The
Repurchase Price, with respect to any loan to be so repurchased or with respect
to a liquidated loan, means the outstanding principal balance of such loan,
without giving effect to any advances made by the servicer or the trustee, plus
interest on such loan at the pass-through rate from the end of the Due Period
with respect to which the obligor last made a scheduled payment through the
date of such repurchase or liquidation.
S-35
<PAGE>
Instead of repurchasing a loan as specified in the preceding paragraph,
during the two-year period following the closing date, Conseco Finance may, at
its option, substitute an eligible substitute loan for the loan that it is
otherwise obligated to repurchase. An eligible substitute loan is a loan that
satisfies, as of the date of its substitution, the representations and
warranties specified in the pooling and servicing agreement, has an outstanding
principal balance that is not greater than the outstanding principal balance of
the replaced loan, has a loan rate that is at least equal to the loan rate of
the replaced loan and has a remaining term to scheduled maturity that is not
greater than the remaining term to scheduled maturity of the replaced loan.
Conseco Finance will be required to deposit in the certificate account cash in
the amount, if any, by which the outstanding principal balance of the replaced
loan exceeds the outstanding principal balance of the loan being substituted.
The deposit will be deemed to be a partial principal prepayment.
The repurchase or substitution of loans constitute the sole remedies
available to the trust and the certificateholders for a breach of a
representation or warranty, but not with respect to any other breach by Conseco
Finance of its obligations.
Conseco Finance may, at its option, substitute new loans for loans which are
prepaid in full on or before December 28, 2000. Any such substitute loans must
be eligible substitute loans and must be substituted prior to the Determination
Date immediately following the calendar month in which the prepayment was
received by the servicer. In the event the aggregate amount of principal
received in respect of loans prepaid in full in a given calendar month exceeds
the aggregate of the outstanding principal balances of eligible substitute
loans substituted therefor, such excess will be distributed to
certificateholders on the related payment date as a prepayment of principal.
Notwithstanding the foregoing, there is no assurance that Conseco Finance will
elect to make any substitutions or that eligible substitute loans will be
available.
Conveyance of Subsequent Loans and Pre-Funding Account
If the aggregate cut-off date principal balance of the initial and additional
loans transferred to the trust on the closing date is less than $300,000,000,
then a pre-funding account will be established by the trustee and funded by
Conseco Securitizations on the closing date with a pre-funded amount equal to
that difference, to provide the trust with funds to purchase subsequent loans.
In no event will the pre-funded amount represent more than 25% of the original
certificate principal balance of the offered certificates. The pre-funding
account will be used to purchase subsequent loans during the period from the
closing date until the earliest of:
(1) the date on which the amount on deposit in the pre-funding account is
less than $10,000;
(2) December 14, 2000; or
(3) the date on which an event of termination occurs under the pooling and
servicing agreement.
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The pre-funded amount will be reduced during the funding period by the amount
used to purchase subsequent loans in accordance with the pooling and servicing
agreement.
Under the pooling and servicing agreement, the trust will be obligated to
purchase subsequent loans from Conseco Securitizations during the funding
period, subject to their availability. In connection with the purchase of
subsequent loans on such dates of transfer, the trust will be required to pay
to Conseco Securitizations from amounts on deposit in the pre-funding account a
cash purchase price of 100% of the principal balance. The amount paid from the
pre-funding account on each subsequent transfer date will not include accrued
interest on the related subsequent loans. Following each subsequent transfer
date, the aggregate principal balance of the subsequent loans will increase by
an amount equal to the aggregate principal balance of the loans so purchased
and the amount in the pre-funding account will decrease accordingly.
Any pre-funded amount remaining after the end of the funding period will be
applied on the next payment date to prepay principal on the Class A-1
certificates and, if the principal balance of such class has been reduced to
zero, then to the Class A-2, Class A-3, Class A-4, Class A-5, Class M-1, Class
M-2, Class B-1 and Class B-2 certificateholders, in that order of priority.
Although no assurance can be given, Conseco Securitizations anticipates that
the principal amount of the subsequent loans purchased by the trust will
require the application of substantially all of the pre-funded amount and that
there should be no material amount of principal prepaid to the Class A-1
certificateholders from the pre-funding account. However, it is unlikely that
Conseco Securitizations will be able to deliver subsequent loans with an
aggregate principal balance identical to the remaining pre-funded amount.
Any conveyance of subsequent loans on a subsequent transfer date is subject
to a number of conditions, including:
(1) each subsequent loan must satisfy the representations and warranties
specified in the related subsequent transfer instrument and the
pooling and servicing agreement;
(2) Conseco Finance may not select subsequent loans in a manner that it
believes is adverse to the interests of the certificateholders;
(3) as of the related subsequent Cut-off Date the subsequent loans must
satisfy the following criteria:
(a) no subsequent loan may be more than 30 days contractually
delinquent;
(b) the remaining stated term to maturity of each subsequent loan may
not exceed 360 months;
(c) no subsequent loan may have an interest rate lower than 6.00%;
(d) each subsequent loan must have been underwritten in accordance
with Conseco Finance's standard underwriting criteria;
(e) as a result of the purchase of the subsequent loans, the weighted
average loan to value ratio of the loan pool will not be more than
200 basis points more than such ratio with respect to the initial
loans;
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(f) as a result of the purchase of the subsequent loans, the offered
certificates will not receive from S&P, Fitch or Moody's a lower
credit rating than the rating assigned at the initial issuance of
such certificates;
(g) an independent accountant retained by Conseco Finance will provide
a letter to Conseco Finance stating whether or not the
characteristics of the subsequent loans conform to the
characteristics described in this prospectus supplement;
(h) no subsequent loan may be a Title I loan; and
(i) as a result of the purchase of the subsequent loans, which
subsequent loans will not have a weighted average FICO Score less
than 600, the percentage of loans in the loan pool, by aggregate
principal balance, with a FICO Score less than 620 will not
increase by more than 2%.
Payments on Loans
The servicer, on behalf of the trust, will establish and maintain a
certificate account in an eligible account at a depository institution with
trust powers organized under the laws of
the United States or any state, the deposits of which are insured to the full
extent permitted by law by the FDIC, whose short-term deposits have been rated
A-1+ by S&P, F-1+ by Fitch and P-1 by Moody's if the deposits are to be held in
the certificate account for less than 30 days or whose unsecured long-term debt
has been rated at least AA- by S&P, AA- by Fitch and Aa3 by Moody's if the
deposits are to be held in the certificate account for 30 days or more, and
which is subject to supervision and examination by federal or state
authorities. Eligible account means any account which is:
(1) an account maintained with an eligible institution;
(2) an account or accounts the deposits in which are fully insured by
either the Bank Insurance Fund or the Savings Association Insurance
Fund of the FDIC;
(3) a segregated trust account maintained with the corporate trust
department of a federal or state chartered depository institution
subject to regulations regarding fiduciary funds on deposit similar to
federal regulations or trust company with trust powers and acting in
its fiduciary capacity for the benefit of the trustee, which
depository institution or trust company has capital and surplus of not
less than $50,000,000; or
(4) an account that will not cause S&P, Fitch or Moody's to downgrade or
withdraw its then-current ratings assigned to the certificates, as
evidenced in writing by S&P, Fitch and Moody's.
The servicer may authorize the trustee to invest the funds in the certificate
account in Eligible Investments that will mature not later than the business
day preceding the applicable payment date. Eligible Investments include:
. obligations of the United States backed by the full faith and
credit of the United States, federal funds, certificates of
deposit, time deposits and bankers acceptances sold by eligible
commercial banks;
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. any other demand or time deposit or certificate of deposit fully
insured by the FDIC;
. investments in certain money-market funds;
. certain repurchase agreements of United States government
securities with eligible commercial banks;
. securities bearing interest or sold at a discount issued by a
corporation which has a credit rating of at least "AA" from S&P
and from Fitch, representing not more than 10% of amounts in the
certificate account at the time of such investment; and
. commercial paper assigned a rating of at least A-1+ by S&P, at
least F1+ by Fitch and at least P-1 by Moody's. Any losses on such
investments will be deducted from other investment earnings or
from other funds in the certificate account.
Conseco Securitizations will deposit an amount equal to any losses on such
investments into the certificate account.
All payments from obligors on the loans, including principal prepayments and
advance payments from obligors not constituting principal prepayments, shall be
paid into the certificate account no later than one business day following
receipt thereof, except amounts received as extension fees or assumption fees
not allocated to regular installments due on loans, which are retained by the
servicer as part of its servicing fees and are not paid into the certificate
account and except for certain proceeds from liquidated loans which are used to
reimburse the servicer for customary out-of-pocket liquidation expenses. See
"Description of the Certificates--Servicing Compensation and Payment of
Expenses." In addition, any advances by the servicer or the trustee as
described under "Description of the Certificates-- Advances," and amounts paid
by Conseco Finance for loans repurchased, or upon substitution for a loan
otherwise required to be repurchased, as a result of a breach of
representations or warranties, as described under "Description of the
Certificates--Conveyance of Loans," will be paid into the certificate account.
On the second business day preceding each payment date, the servicer will
determine the Amount Available and the amount of funds necessary to make all
payments to be made on the next payment date from the certificate account. Not
later than one business day after this Determination Date, Conseco Finance will
deposit in the certificate account the Repurchase Price of any loans required
to be repurchased on such payment date, or any amounts required to be deposited
upon substitution for any loan otherwise required to be repurchased on that
payment date, as a result of a breach of representations and warranties.
Distribution of Amount Available
On each payment date, the trustee will withdraw the Amount Available from the
certificate account and make the following payments, in the following order of
priority:
(1) to pay the monthly servicing fee to the servicer;
(2) to pay interest and principal on the certificates, in the manner and
the order of priority described below;
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<PAGE>
(3) to reimburse the servicer or the trustee, as applicable, for any
unreimbursed advances with respect to the loans made in respect of
current or prior payment dates;
(4) to reimburse the holder of the Class C certificate for expenses
incurred by and reimbursable to it with respect to taxes or charges
imposed upon the trust as a REMIC or otherwise; and
(5) to pay any remaining amounts to the holder of the Class C certificate.
The Amount Available for any payment date will consist primarily of
. amounts collected on the loans during the prior calendar month,
including scheduled payments by obligors, prepayments, and liquidation
proceeds from liquidated loans, but not including scheduled payments
made by obligors in advance of the month in which the payment was due,
and
. advances made by the servicer with respect to delinquent payments.
Distributions on Certificates
Distributions of interest and principal on the certificates will be made on
each payment date to the extent of the Amount Available, in the amounts and
order of priority described below.
Interest on the Class A, Class M-1, Class M-2, Class B-1 and Class B-2
Certificates.
Interest will be distributable:
. first to each class of Class A certificates concurrently,
. then to the Class M-1 certificates,
. then to the Class M-2 certificates,
. then to the Class B-1 certificates, and
. then to the Class B-2 certificates.
Interest will accrue on the outstanding principal balance of each class of
Class A certificates, and on the adjusted principal balances of the Class M-1,
Class M-2, Class B-1 and Class B-2 certificates, at the related pass-through
rate from September 28, 2000, or from the most recent payment date on which
interest has been paid, to but excluding the following payment date. The pass-
through rates for the Class A, Class M and Class B certificates are shown on
the table on page S-4 of this prospectus supplement. Interest on each class of
certificates will be computed on the basis of a 360-day year of twelve 30-day
months.
The principal balance of a class of certificates as of any payment date is
the original principal balance of that class less all principal amounts
previously distributed to that class. The adjusted principal balance of the
Class M-1, Class M-2, Class B-1 or Class B-2 certificates as of any payment
date is the principal balance of that class less any liquidation loss principal
amounts allocated to that class as described below under "Losses on Liquidated
Loans."
In the event that, on a particular payment date, the Amount Available is not
sufficient to make a full distribution of interest to the holders of the Class
A certificates, Class M-1
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<PAGE>
certificates, Class M-2 certificates, Class B-1 certificates or Class B-2
certificates after payment of interest on each class of certificates that is
senior to that class of certificates (the Class A certificates being treated as
a single class for such purpose), the amount of interest to be distributed for
that class will be allocated among the outstanding certificates 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 pass-through rate, to
the extent legally permissable.
Principal on the Class A, Class M-1, Class M-2, Class B-1 and Class B-2
Certificates.
Holders of a class of certificates will be entitled to receive, as payments
of principal, the formula principal distribution amount for that class, or the
outstanding principal balance of that class, if less. The formula principal
distribution amount for a class on each payment date will depend on (1) whether
or not that payment date is prior to the Stepdown Date and (2) whether or not a
Trigger Event is in effect.
On each payment date, after payment of all interest then accrued on the Class
A principal balance and Class M-1, Class M-2, Class B-1 and Class B-2 adjusted
principal balances, principal will be distributable:
. to the Class A certificates, according to the Class A Formula
Principal Distribution Amount, then
. to the Class M-1 certificates, according to the Class M-1 Formula
Principal Distribution Amount, then
. to the Class M-2 certificates, according to the Class M-2 Formula
Principal Distribution Amount, then
. to the Class B-1 certificates, according to the Class B-1 Formula
Principal Distribution Amount, then
. to the Class B-2 certificates, according to the Class B-2 Formula
Principal Distribution Amount.
The Class A Formula Principal Distribution Amount will be distributed, to the
extent of the Amount Available after payment of all interest then accrued on
the principal balance of each class of Class A certificates, on the Class M-1
adjusted principal balance, on the Class M-2 adjusted principal balance, on the
Class B-1 adjusted principal balance and on the Class B-2 adjusted principal
balance, as follows:
. first, to the Class A-1 certificateholders until the Class A-1
principal balance has been reduced to zero, then
. to the Class A-2 certificateholders until the Class A-2 principal
balance has been reduced to zero, then
. to the Class A-3 certificateholders until the Class A-3 principal
balance has been reduced to zero, then
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<PAGE>
. to the Class A-4 certificateholders until the Class A-4 principal
balance has been reduced to zero, and then
. to the Class A-5 certificateholders until the Class A-5 principal
balance has been reduced to zero.
Class A Formula Principal Distribution Amount. The Class A Formula Principal
Distribution Amount will generally be equal to:
(i) if the payment date is before the Stepdown Date or if a Trigger
Event exists, the Formula Principal Distribution Amount (but in no event
more than the Class A principal balance); or
(ii) if the payment date is on or after the Stepdown Date and no Trigger
Event exists, the excess of (A) the Class A principal balance over (B) the
lesser of (x) 65.50% of the Pool Scheduled Principal Balance or (y) the
Pool Scheduled Principal Balance minus $1,500,000.
Formula Principal Distribution Amount. The Formula Principal Distribution
Amount for any payment date will generally be equal to:
(1) all scheduled payments of principal due on each outstanding loan
during the related Due Period; plus
(2) the scheduled principal balance of each loan which, during the
related Due Period, was purchased by Conseco Finance pursuant to the
pooling and servicing agreement on account of certain breaches of its
representations and warranties; plus
(3) all partial principal prepayments applied and principal prepayments
in full received on each loan during the related Due Period; plus
(4) the scheduled principal balance of each loan that became a liquidated
loan during the related Due Period; plus
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the certificate account; plus
(6) the amount of any Overcollateralization Increase amount for that
payment date; minus
(7) the amount of any Overcollateralization Decrease Amount for that
payment date.
The Overcollateralization Increase Amount, for any payment date beginning on
the payment date in November 2000, will be equal to the lesser of the Excess
Amount Available and the amount needed to reach the Target
Overcollateralization Amount.
The Overcollateralization Decrease Amount for any payment date will be equal
to the lesser of (A) the sum of (1) through (5) of the definition of the
Formula Principal Distribution Amount and (B) the excess, if any, of the
overcollateralization amount over the Target Overcollateralization Amount.
The Excess Amount Available will equal the excess of the Amount Available
over the sum of (a) the interest distributed to the Class A, Class M and Class
B certificateholders,
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<PAGE>
(b) the sum of (1) through (5) of the definition of the Formula Principal
Distribution Amount and (c) the monthly servicing fee.
The Scheduled Principal Balance of a loan with respect to any payment date
is its principal balance as of the scheduled payment date in the calendar
month preceding that payment date as specified in its amortization schedule,
after giving effect to any previous partial principal prepayments and to the
scheduled payment due on such due date, but without giving effect to any
delinquency in payment or adjustments due to bankruptcy or similar
proceedings. The Pool Scheduled Principal Balance as of any payment date is
the aggregate of the Scheduled Principal Balances of loans comprising the loan
pool that were outstanding on the last day of the preceding Due Period. A
liquidated loan is a defaulted loan as to which all amounts that the servicer
expects to recover on account of such loan have been received.
Stepdown Date. The Stepdown Date for the certificates is the later to occur
of:
(i) the payment date in October 2003 and
(ii) the first payment date on which the Class A principal balance is
less than or equal to 65.50% of the Pool Scheduled Principal
Balance.
Trigger Event. A Trigger Event is in effect for the certificates if on that
payment date:
(i) the three month rolling average percentage of the loans that are 60
days or more delinquent in payment of principal and interest exceeds
the product of (a) the Senior Enhancement Percentage for the
certificates and (b) 12.00%; or
(ii) the Cumulative Realized Losses Test is not satisfied.
Senior Enhancement Percentage. The Senior Enhancement Percentage for the
certificates on any payment date will equal the percentage obtained by
dividing:
(i) the excess of (a) the Pool Scheduled Principal Balance over (b) the
aggregate principal balance of the Class A certificates by
(ii) the Pool Scheduled Principal Balance.
Cumulative Realized Losses Test. The Cumulative Realized Losses Test is
satisfied for any payment date if the cumulative realized loss ratio for the
loans for such payment date is less than or equal to the percentage set forth
below for the specified period:
<TABLE>
<CAPTION>
Month Percentage
----- ----------
<S> <C>
37-48........................................................... 6.00%
49-60........................................................... 7.13%
61-84........................................................... 7.50%
85 and thereafter............................................... 8.00%
</TABLE>
Class M-1 Formula Principal Distribution Amount. The Class M-1 Formula
Principal Distribution Amount will generally be equal to:
(i) if the payment date is (A) before the Stepdown Date or (B) on or
after the Stepdown Date and a Trigger Event exists, the Formula
Principal Distribution
Amount less the Class A Formula Principal Distribution Amount (but in
no event more than the Class M-1 principal balance); or
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<PAGE>
(ii) if the payment date is on or after the Stepdown Date and no Trigger
Event exists, the excess (but in no event more than the Class M-1
principal balance) of
(A) (1) the sum of the Class A principal balance and the Class M-1
adjusted principal balance, minus (2) the amount of principal
actually distributed on such payment date on the Class A
certificates, over
(B) the lesser of (x) 77.90% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $1,500,000.
Class M-2 Formula Principal Distribution Amount. The Class M-2 Formula
Principal Distribution Amount will generally be equal to:
(i) if the payment date is (A) before the Stepdown Date or (B) on or
after the Stepdown Date and a Trigger Event exists, the Formula
Principal Distribution Amount less the sum of the Class A Formula
Principal Distribution Amount and the Class M-1 Formula Principal
Distribution Amount (but in no event more than the Class M-2
principal balance); or
(ii) if the payment date is on or after the Stepdown Date and no Trigger
Event exists, the excess (but in no event more than the Class M-2
principal balance) of
(A) (1) the sum of the Class A principal balance, the Class M-1
adjusted principal balance and the Class M-2 adjusted principal
balance, minus (2) the amount of principal actually distributed
on such payment date on the Class A and Class M-1 certificates,
over
(B) the lesser of (x) 83.10% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $1,500,000.
Class B-1 Formula Principal Distribution Amount. The Class B-1 Formula
Principal Distribution Amount will generally be equal to:
(i) if the payment date is (A) before the Stepdown Date or (B) on or
after the Stepdown Date and a Trigger Event exists, the Formula
Principal Distribution
Amount less the sum of the Class A Formula Principal Distribution
Amount, the Class M-1 Formula Principal Distribution Amount and the
Class M-2 Formula Principal Distribution Amount (but in no event more
than the Class B-1 principal balance); or
(ii) if the payment date is on or after the Stepdown Date and no Trigger
Event exists, the excess (but in no event more than the Class B-1
principal balance) of
(A) (1) the sum of the Class A principal balance, the Class M-1
adjusted principal balance, the Class M-2 adjusted principal
balance and the Class B-1 adjusted principal balance, minus (2)
the amount of principal actually distributed on such payment date
on the Class A, Class M-1 and Class M-2 certificates, over
(B) the lesser of (x) 88.00% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $1,500,000.
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<PAGE>
Class B-2 Formula Principal Distribution Amount. The Class B-2 Formula
Principal Distribution Amount will generally be equal to:
(i) if the payment date is (A) before the Stepdown Date or (B) on or
after the Stepdown Date and a Trigger Event exists, the Formula
Principal Distribution
Amount less the sum of the Class A Formula Principal Distribution
Amount, the Class M-1 Formula Principal Distribution Amount, the Class
M-2 Formula Principal Distribution Amount and the Class B-1 Formula
Principal Distribution Amount (but in no event more than the Class B-2
principal balance); or
(ii) if the payment date is on or after the Stepdown Date and no Trigger
Event exists, the excess (but in no event more than the Class B-2
principal balance) of
(A) (1) the sum of the Class A principal balance, 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 adjusted principal balance, minus (2) the amount of principal
actually distributed on such payment date on the Class A, Class
M-1, Class M-2 and Class B-1 certificates, over
(B) the lesser of (x) 95.00% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $1,500,000.
Liquidation Loss Interest
If the Class M-1, Class M-2, Class B-1 or Class B-2 adjusted principal
balances have been reduced by any liquidation loss principal amounts, then
interest on those liquidation loss principal amounts will be distributable
from the remaining amount available after payment of the interest and
principal described above, first to the Class M-1 certificates, then to the
Class M-2 certificates, then to the Class B-1 certificates and then to the
Class B-2 certificates. Interest on any Class M-1 liquidation loss principal
amount, Class M-2 liquidation loss principal amount, Class B-1 liquidation
loss principal amount and Class B-2 liquidation loss principal amount, as
applicable, will accrue from the payment date on which the liquidation loss
principal amount was incurred. Liquidation loss principal amounts are
described below under "Losses on Liquidated Loans." In the event that, on a
particular payment date, the remaining Amount Available is not sufficient to
make a full distribution of liquidation loss interest accrued on any
liquidation loss principal amounts, after payment of any liquidation loss
interest to any class of certificates with accrued liquidation loss interest
that is senior to that class of certificates, the remaining Amount Available
will be allocated among the certificates of that class pro rata, and the
amount of the shortfall will be carried forward and added to the liquidation
loss interest such holders will be entitled to receive on the next payment
date. Any such amount so carried forward will bear interest at the applicable
pass-through rate, to the extent legally permissible.
Subordination of Class M Certificates and Class B Certificates
The rights of the holders of the Class M certificates and Class B
certificates to receive distributions with respect to the loans, as well as
any other amounts constituting the Amount Available, will be subordinated to
the rights of the holders of the Class A certificates. This subordination is
intended to enhance the likelihood of regular receipt by the holders of the
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Class A certificates of the full amount of their scheduled monthly payments of
interest and principal and to afford those holders protection against losses on
liquidated loans.
A portion of the protection afforded to the holders of the Class A
certificates by means of the subordination of the Class M and Class B
certificates will be accomplished by the preferential right of the Class A
certificateholders to receive on any payment date the amount of interest due on
the Class A certificates, including any interest due on a prior payment date
but not received, prior to any distribution being made on a payment date in
respect of interest on the Class M and Class B certificates. After that, any
remaining Amount Available will be applied to the payment of interest due on
the Class M-1 adjusted principal balance, then to the payment of interest due
on the Class M-2 adjusted principal balance, then to the payment of interest
due on the Class B-1 adjusted principal balance and then to the payment of
interest due on the Class B-2 adjusted principal balance.
After payment of all interest accrued on the Class A principal balance, Class
M-1 adjusted principal balance, Class M-2 adjusted principal balance, Class B-1
adjusted principal balance and Class B-2 adjusted principal balance, any
remaining Amount Available will be distributed in the following order of
priority:
. first, the applicable formula principal distribution amount will be
distributed to the Class A, Class M-1, Class M-2, Class B-1 and Class
B-2 certificateholders in the order of priority described under
"Principal on the Class A, Class M-1, Class M-2, Class B-1 and Class B-
2 Certificates";
. second, any unpaid Class M-1 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class M-1 certificateholders;
. third, any unpaid Class M-2 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class M-2 certificateholders;
. fourth, any unpaid Class B-1 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class B-1 certificateholders; and
. fifth, any unpaid Class B-2 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class B-2 certificateholders.
Overcollateralization
The overcollateralization amount will be $0.00 on the closing date and will
build, beginning on the payment date in November 2000, to the Target
Overcollateralization Amount, which will initially equal $7,500,000. With
respect to any payment date, the overcollateralization amount will be the
excess, if any, of (a) the Pool Scheduled Principal Balance immediately
following such payment date and the amount on deposit in the pre-funding
account, if any, over (b) the aggregate principal balances of the Class A,
Class M
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<PAGE>
and Class B certificates after taking into account principal payments on the
certificates on that payment date. On each payment date, beginning with the
payment date in November 2000, the Formula Principal Distribution Amount
payable to the certificateholders will include the amount, if any, by which the
overcollateralization amount is less than the Target Overcollateralization
Amount. Conversely, the Formula Principal Distribution Amount for each payment
date will be reduced by the amount, if any, by which the overcollateralization
amount exceeds the Target Overcollateralization Amount.
After the first payment date but prior to the Stepdown Date, the Target
Overcollateralization Amount will equal $7,500,000. On or after the Stepdown
Date, and as long as no Trigger Event exists, the Target Overcollateralization
Amount will equal the lesser of
(i)$7,500,000, or
(ii)the greater of
(A) 5.00% of the Pool Scheduled Principal Balance, or
(B) $1,500,000.
If a Trigger Event exists on any payment date on or after the Stepdown Date,
the Target Overcollateralization Amount will equal the Target
Overcollateralization Amount immediately prior to that payment date.
Losses on Liquidated Loans
The formula principal distribution amount for each class on any payment date
includes the Scheduled Principal Balance of each corresponding loan that became
a liquidated loan during the preceding Due Period. If the net Liquidation
Proceeds from a liquidated loan are less than the Scheduled Principal Balance
of that liquidated loan plus accrued and unpaid interest thereon, the
deficiency will, because of the priorities of payment described above, be
absorbed on the following payment date
. first, by the Class C certificateholder,
. then by a reduction in the overcollateralization amount,
. then by the Class B-2 certificateholders,
. then by the Class B-1 certificateholders,
. then by the Class M-2 certificateholders, and
. then by the Class M-1 certificateholders,
since a portion of the Amount Available equal to such deficiency and otherwise
distributable to them will be paid to the Class A certificateholders.
Likewise, to the extent the Class M-1 certificateholders, the Class M-2
certificateholders, the Class B-1 certificateholders or Class B-2
certificateholders are entitled to receive distributions of principal, similar
deficiencies could result for each class of certificates with a lower payment
priority.
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<PAGE>
Severe losses and delinquencies on the loan pool could cause the Amount
Available for a payment date to be insufficient to distribute the full formula
principal distribution amounts for that payment date to the certificateholders
and, as a result, the aggregate outstanding principal balance of the
certificates will decline on that payment date by an amount less than the
decline in the Pool Scheduled Principal Balance for that payment date. These
losses and delinquencies will reduce, and could eliminate, the credit
enhancement afforded by the overcollateralization amount. If on any payment
date the sum of the Class A principal balance, the Class M-1 principal balance,
the Class M-2 principal balance, the Class B-1 principal balance and the Class
B-2 principal balance was greater than the Pool Scheduled Principal Balance and
no further liquidation loss principal amounts could be allocated to reduce the
overcollateralization amount, any further liquidation loss principal amounts
would be allocated to reduce the Class B-2 adjusted principal balance. If the
Class B-2 adjusted principal balance were reduced to zero, 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 that 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 such liquidation loss principal
amounts would be reduced on subsequent payment dates to the extent that the
Amount Available on such subsequent payment dates is sufficient to permit the
distribution of principal due, but not paid, on the certificates on prior
payment dates. In the event the adjusted principal balance of the Class M-1,
Class M-2, Class B-1 or Class B-2 certificates 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 pass-through rate on any liquidation loss interest amount due on a
prior payment date but not paid, would be paid to the certificateholders of
that class from the Amount Available, after distributions of principal on all
Class A, Class M and Class B certificates, in the order of priority described
above under "Subordination of Class M Certificates and Class B Certificates."
But for the effect of the subordination of the Class M-2, Class B and Class C
certificates and the overcollateralization amount, the Class M-1
certificateholders will absorb all losses on each liquidated loan.
But for the effect of the subordination of the Class B and Class C
certificates and the overcollateralization amount, the Class M-2
certificateholders will absorb all losses on each liquidated loan.
But for the effect of the subordination of the Class B-2 and Class C
certificates and the overcollateralization amount, the Class B-1
certificateholders will absorb all losses on each liquidated loan.
But for the payments under the subordination of the Class C certificates and
the overcollateralization amount, the Class B-2 certificateholders will absorb
all losses on each liquidated loan.
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The pooling and servicing agreement does not permit the allocation of losses
to the Class A certificates.
Advances
To the extent that collections on a loan in any Due Period are less than the
scheduled payment due, the servicer will be obligated to make an advance of the
uncollected portion of
the scheduled payment. The servicer will be obligated to advance a delinquent
payment on a loan only to the extent that the servicer, in its sole discretion,
expects to recoup that advance from subsequent funds available in the
certificate account.
If the servicer fails to make an advance required under the pooling and
servicing agreement, the trustee will be obligated to deposit the amount of
that advance in the certificate account on the payment date. The trustee will
not, however, be obligated to deposit any of this amount if (1) the trustee
does not expect to recoup the advance from subsequent funds available in the
certificate account, or (2) the trustee determines that it is not legally able
to make the advance.
Reports to Certificateholders
The servicer will furnish to the trustee, and the trustee will include with
each distribution to the Class A, Class M-1, Class M-2, Class B-1 and Class B-2
certificateholders, as applicable, a statement in respect of the related
payment date setting forth, among other things:
(a) the amount of such distribution to holders of the certificates
allocable to interest (separately identifying any unpaid interest
shortfall included);
(b) the amount of such distribution to holders of the certificates
allocable to principal (separately identifying the aggregate amount of
any principal prepayments included);
(c) the amount, if any, by which the formula principal distribution amount
for a certificate exceeds the distribution amount for that certificate
for such payment date;
(d) the principal balance of the certificates after giving effect to the
distribution of principal on such payment date;
(e) any unpaid interest on any liquidation loss principal amounts, after
giving effect to payments of such interest on such payment date;
(f) the Pool Scheduled Principal Balance for such payment date;
(g) the pool factor;
(h) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days; and
(i) the overcollateralization amount and the Target Overcollateralization
Amount.
Information furnished pursuant to clauses (a) through (g) will be expressed as
dollar amounts for the applicable certificate with a 1% interest or per $1,000
denomination of that certificate.
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In addition, within a reasonable period of time after the end of each
calendar year, the servicer will furnish a report to each certificateholder of
record at any time during such calendar year as to the aggregate of amounts
reported pursuant to (a) and (b) above for such calendar year.
Purchase Option
Beginning on the payment date when the Scheduled Principal Balance of the
loans is less than 20% of the Pool Scheduled Principal Balance as of the Cut-
off Date, the holder of the Class C certificate will have the right to purchase
or arrange for the purchase of all outstanding loans (other than any loan as to
which title to the underlying property has been assigned) at a price sufficient
to pay
(1) the aggregate unpaid principal balance of the certificates,
(2) the monthly interest due on all certificates on the payment date
occurring in the month following the date of purchase, and
(3) any accrued but unpaid interest on the certificates.
This amount will be distributed on the payment date occurring in the month
following the date of purchase.
If the holder of the Class C certificate does not exercise this purchase
option on or before the following payment date, then the applicable pass-
through rate on Class A-5 will increase by 1.00% to 9.02%, subject to a maximum
of the weighted average of the rates on the loans less 0.50%.
Collection and Other Servicing Procedures
The servicer will manage, administer, service and make collections on the
loans, exercising the degree of skill and care consistent with the highest
degree of skill and care that the servicer exercises with respect to similar
loans serviced by the servicer. The servicer will not be required to cause to
be maintained, or otherwise monitor the maintenance of, hazard insurance on the
improved properties. Conseco Finance does, however, as a matter of its own
policy, monitor proof of hazard insurance coverage and require that it be named
as an additional loss payee on all first lien secured loans and generally on
junior lien secured loans with amounts financed of over $20,000.
Servicing Compensation and Payment of Expenses
The servicer will receive a monthly servicing fee for each Due Period for
servicing the loans equal to one-twelfth of the product of 0.50% and the
remaining Pool Scheduled Principal Balance plus the related pre-funded amount,
if any.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on
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behalf of the trust. The servicer is also entitled to reimbursement out of the
Liquidation Proceeds of a liquidated loan for customary out-of-pocket
liquidation expenses incurred by it.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records with
respect to each loan. Administrative services performed by the servicer on
behalf of the trust include selecting and packaging the loans, calculating
distributions to certificateholders and providing related data processing and
reporting services for certificateholders and on behalf of the trustee.
Expenses incurred in connection with the servicing of the loans and paid by the
servicer from its servicing fees include payment of fees and expenses of
accountants, payments of all fees and expenses incurred in connection with the
enforcement of loans or foreclosure on collateral relating thereto, payment of
trustee's fees, and payment of expenses incurred in connection with
distributions and reports to certificateholders.
Evidence as to Compliance
The pooling and servicing agreement provides for delivery to the trustee of a
monthly report by the servicer no later than one business day following the
Determination Date, setting forth the information described under "--Reports to
Certificateholders" above. Each report to the trustee will be accompanied by a
statement from an appropriate officer of the servicer certifying the accuracy
of such report and stating that the servicer has not defaulted in the
performance of its obligations under the pooling and servicing agreement. On or
before May 1 of each year, beginning in 2001, the servicer will deliver to the
trustee a report
of PricerwaterhouseCoopers LLP, or another nationally recognized accounting
firm, stating that such firm has examined certain documents and records
relating to the servicing of loans serviced by the servicer and stating that,
on the basis of such examination, such servicing has been conducted in
compliance with the pooling and servicing agreement, except for any exceptions
set forth in such report.
The pooling and servicing agreement provides that the servicer shall furnish
to the trustee such reasonably pertinent underlying data as can be generated by
the servicer's existing data processing system without undue modification or
expense.
The pooling and servicing agreement provides that a certificateholder holding
certificates representing at least 5% of the aggregate certificate principal
balance will have the same rights of inspection as the trustee and may upon
written request to the servicer receive copies of all reports provided to the
trustee.
Transferability
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code. See "ERISA Considerations" in this
prospectus supplement and in the prospectus.
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Certain Matters Relating to Conseco Finance
The pooling and servicing agreement provides that Conseco Finance may not
resign from its obligations and duties as servicer thereunder, except upon a
determination that its performance of its duties is no longer permissible
under the pooling and servicing agreement or applicable law, and prohibits
Conseco Finance from extending credit to any certificateholder for the
purchase of a certificate, purchasing certificates in any agency or trustee
capacity or lending money to the trust. Conseco Finance can be removed as
servicer only in an event of termination as discussed below.
Events of Termination
An event of termination under the pooling and servicing agreement will occur
if:
(1) the servicer fails to make any payment or deposit required under the
pooling and servicing agreement (including an advance) and such
failure continues for four business days;
(2) the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for thirty days;
(3) the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
(4) a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
appoints a receiver, liquidator, assignee, custodian, trustee, or
sequestrator (or similar official) of the servicer, as the case may
be, or enters a decree or order for any substantial liquidation of its
affairs;
(5) the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any such law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or its creditors, or fails
to, or admits in writing its inability to, pay its debts as they
become due, or takes any corporate action in furtherance of the
foregoing; or
(6) the servicer fails to be an eligible servicer.
The servicer will be required under the pooling and servicing agreement to
give the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of such event.
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Rights Upon an Event of Termination
If an event of termination has occurred and is continuing, either the trustee
or holders of certificates representing 25% or more of the aggregate
certificate principal balance may terminate all of the servicer's management,
administrative, servicing and collection functions under the pooling and
servicing agreement. Upon such termination, the trustee or its designee will
succeed to all the responsibilities, duties and liabilities of Conseco Finance
as servicer under the pooling and servicing agreement and will be entitled to
similar compensation arrangements; provided, however, that neither the trustee
nor any successor servicer will assume any accrued obligation of the prior
servicer or any obligation of Conseco Finance to repurchase loans for breaches
of representations and warranties, and the trustee will not be liable for any
acts or omissions of the servicer occurring prior to a transfer of the
servicer's servicing and related functions or for any breach by the servicer of
any of its representations and warranties contained in the pooling and
servicing agreement or any related document or agreement. Notwithstanding such
termination, the servicer shall be entitled to payment of certain amounts
payable to it prior to such termination, for services rendered prior to such
termination. No such termination will affect in any manner Conseco Finance's
obligation to repurchase certain loans for breaches of representations or
warranties under the pooling and servicing agreement. In the event that the
trustee is unwilling or unable so to act, it may appoint, or petition a court
of competent jurisdiction for the appointment of, an eligible servicer to act
as successor to the servicer under the pooling and servicing agreement. The
trustee and such successor may agree upon the servicing compensation to be paid
(after receiving comparable bids from other eligible servicers), which may not
be greater than the monthly servicing fee payable to Conseco Finance as
servicer under the pooling and servicing agreement without the consent of all
of the certificateholders.
Any transfer of servicing creates the risk of servicing disruptions due to,
among other things, misapplied payments, misdirected notices, data input errors
and system incompatibilities. Any servicing disruptions may result in increased
levels of delinquencies, defaults and losses, at least temporarily. There can
be no assurance as to the duration or severity of any servicing disruptions due
to a transfer of servicing following an event of termination. In addition,
there can be no assurance that a successor servicer will produce lower levels
of delinquency, defaults and losses on the loans than the terminated servicer.
Termination of the Agreement
The pooling and servicing agreement will terminate on the earlier of (a) the
payment date on which the Pool Scheduled Principal Balance is reduced to zero;
or (b) the payment date occurring in the month following the Class C
certificateholder's purchase of the loans as described under "Description of
the Certificates--Purchase Option." However, Conseco Finance's and Conseco
Securitizations' representations, warranties and indemnities will survive any
termination of the pooling and servicing agreement.
Amendment; Waiver
The pooling and servicing agreement may be amended by agreement of the
trustee, the servicer, Conseco Finance and Conseco Securitizations at any time
without the consent of
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the certificateholders to cure any ambiguity, to correct or supplement any
provision which may be inconsistent with any other provision or to add other
provisions not inconsistent with the pooling and servicing agreement, upon
receipt of an opinion of counsel to the servicer that such amendment will not
adversely affect in any material respect the interests of any
certificateholder.
The pooling and servicing agreement may also be amended from time to time by
the trustee, the servicer, Conseco Finance and Conseco Securitizations with
the consent of holders of certificates representing 66 2/3% or more of the
aggregate certificate principal balance, and holders of certificates
representing 51% or more of the aggregate certificate principal balance may
vote to waive any event of termination, provided that no such amendment or
waiver shall (a) reduce in any manner the amount of, or delay the timing of,
collections of payments on loans or distributions which are required to be
made on any certificate, or (b) reduce the aggregate amount of certificates
required for any amendment of the pooling and servicing agreement, without the
unanimous consent of the certificateholders.
The trustee is required under the pooling and servicing agreement to furnish
certificateholders with notice promptly upon execution of any amendment to the
pooling and servicing agreement.
Indemnification
The pooling and servicing agreement provides that Conseco Finance and
Conseco Securitizations will defend and indemnify the trust, the trustee and
the certificateholders against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
expenses of litigation:
(a) arising out of or resulting from the use or ownership by Conseco
Finance or any affiliate thereof of any real estate securing a loan;
(b) for any taxes which may at any time be asserted with respect to, and
as of the date of, the conveyance of the loans to the trust (but not
including any federal, state or
other tax arising out of the creation of the trust and the issuance of
the certificates); and
(c) with respect to certain other tax matters.
The pooling and servicing agreement also provides that the servicer will
defend and indemnify the trust, the trustee and the certificateholders (which
indemnification will survive any removal of the servicer) against any and all
costs, expenses, losses, damages, claims and liabilities, including reasonable
fees and expenses of counsel and expenses of litigation, in respect of any
action taken by Conseco Finance as servicer with respect to any loan.
Duties and Immunities of the Trustee
The trustee will make no representations as to the validity or sufficiency
of the pooling and servicing agreement, the certificates or any loan, loan
file or related documents, and will not be accountable for the use or
application by Conseco Finance of any funds paid to Conseco Finance in
consideration of the conveyance of the loans, or deposited into the
certificate account by the servicer. If no event of termination has occurred,
the trustee will be
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required to perform only those duties specifically required of it under the
pooling and servicing agreement. However, upon receipt of the various
certificates, reports or other instruments required to be furnished to it, the
trustee will be required to examine them to determine whether they conform to
the requirements of the pooling and servicing agreement.
Under the pooling and servicing agreement the servicer will agree:
(1) to pay to the trustee from time to time reasonable compensation for
all services rendered by it;
(2) to reimburse the trustee upon its request for all reasonable
expenses, disbursements and advances incurred by the trustee in accordance
with any provision of the pooling and servicing agreement, including
reasonable compensation and the expenses and disbursements of its agents
and counsel, except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify the trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or
administration of the trust, including the costs and expenses of defending
itself against any claim or liability in connection with the exercise or
performance of any of its powers or duties thereunder.
The trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the pooling
and servicing agreement if there is a reasonable ground for believing that the
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured.
The pooling and servicing agreement also provides that the trustee will
maintain at its expense in Minneapolis or Saint Paul, Minnesota, an office or
agency where certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the trustee and the
certificate registrar and transfer agent in respect of the certificates to the
pooling and servicing agreement may be served. On the date of this prospectus
supplement the trustee's office for these purposes is located at 180 East Fifth
Street, Saint Paul, Minnesota 55101. The trustee will promptly give written
notice to Conseco Finance, the servicer, Conseco Securitizations and the
certificateholders of any change of address.
The Trustee
U.S. Bank Trust National Association has its corporate trust offices at 180
East Fifth Street, Saint Paul, Minnesota 55101.
The trustee may resign from its duties under the pooling and servicing
agreement at any time, in which event the servicer will be obligated to appoint
a successor trustee. The servicer may also remove the trustee if the trustee
ceases to be eligible to continue as such under the pooling and servicing
agreement or if the trustee becomes insolvent. In such circumstances, the
servicer will also be obligated to appoint a successor trustee. Any resignation
or removal of the trustee and appointment of a successor trustee will not
become effective until acceptance of the appointment by the successor trustee.
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Registration of the Certificates
The offered certificates initially will be represented by certificates
registered in the name of Cede & Co., the nominee of DTC. The interests of
beneficial owners of the certificates will be represented by book entries on
the records of the participating members of DTC. Definitive certificates will
be available only under the limited circumstances described herein. Holders of
the certificates may hold through DTC (in the United States), Clearstream or
Euroclear in Europe if they are Participants of such systems, or indirectly
through organizations that are Participants in such systems.
Clearstream and Euroclear will hold omnibus positions in the certificates on
behalf of the Clearstream Participants and the Euroclear Participants,
respectively, through customers' securities accounts in Clearstream's and
Euroclear's names on the books of their respective depositaries, which in turn
will hold such positions in customers' securities accounts in the depositaries'
names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the State
of New York, a member of the Federal Reserve System, a clearing corporation
within the meaning of the New York Uniform Commercial Code, and a clearing
agency registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC accepts securities for deposit from its participating organizations
and facilitates the clearance and settlement of securities transactions between
Participants in such securities through electronic book-entry changes in
accounts of Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
The beneficial owners of certificates who are not Participants but desire to
purchase, sell or otherwise transfer ownership of the certificates may do so
only through Participants (unless and until definitive certificates are
issued). In addition, certificate owners will receive all distributions of
principal of, and interest on, the certificates from the trustee through DTC
and Participants. Certificate owners will not receive or be entitled to receive
certificates representing their respective interests in the certificates,
except under the limited circumstances described below.
Unless and until definitive certificates are issued, it is anticipated that
the only certificateholder of the certificates will be Cede & Co., as nominee
of DTC. Certificate owners will not be recognized by the trustee as
certificateholders as that term is used in the pooling and servicing agreement.
Certificate owners are only permitted to exercise the rights of
certificateholders indirectly through Participants and DTC.
While certificates are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the certificates and is
required to receive and transmit distributions of
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principal of, and interest on, the certificates. Participants with whom
certificate owners have accounts with respect to certificates are similarly
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective certificate owners. Accordingly,
although certificate owners will not possess certificates, the rules provide a
mechanism by which certificate owners will receive distributions and will be
able to transfer their interests.
Definitive certificates will be issued in registered form to certificate
owners, or their nominees, rather than to DTC, only if (1) DTC or Conseco
Finance advises the trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the certificates and Conseco Finance or the trustee is unable to locate a
qualified successor or (2) Conseco Finance at its sole option advises the
trustee in writing that it elects to terminate the book-entry system through
DTC. Upon issuance of definitive certificates to certificate owners, such
certificates will be transferable directly and registered holders will deal
directly with the trustee with respect to transfers, notices and distributions.
DTC has advised Conseco Finance that, unless and until definitive
certificates are issued, DTC will take any action permitted to be taken by a
certificateholder under the pooling and servicing agreement only at the
direction of one or more Participants to whose DTC accounts the certificates
are credited. DTC has advised Conseco Finance that DTC will take this action
with respect to any fractional interest of the certificates only at the
direction of and on behalf of such Participants beneficially owning a
corresponding fractional interest of the certificates. DTC may take actions, at
the direction of the Participants, with respect to some certificates which
conflict with actions taken with respect to other certificates.
Issuance of certificates in book-entry form rather than as definitive
certificates may adversely affect the liquidity of the certificates in the
secondary market and the ability of certificate owners to pledge them. In
addition, since distributions on the certificates will be made by the trustee
to DTC and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect Participants or certificate owners, certificate owners may
experience delays in the receipt of such distributions.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Clearstream
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 depository; 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. Clearstream
Participants and Euroclear Participants may not deliver instructions directly
to the depositaries.
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Because of time-zone differences, credits of securities in Clearstream or
Euroclear as a result of a transaction with a participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Clearstream Participant or Euroclear Participant on such business day. Cash
received in Clearstream or Euroclear as a result of sales of securities by or
through a Clearstream 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 Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
Clearstream is incorporated under the laws of Luxembourg as a limited
liability company. Clearstream holds securities for its participating
organizations, which are called Clearstream Participants, and facilitates the
clearance and settlement of securities transactions between Clearstream
Participants through electronic book-entry changes in accounts of Clearstream
Participants, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream in any of 28
currencies, including United States dollars. Clearstream provides to its
Clearstream Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
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 underwriter.
Indirect access to Clearstream is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for Participants
of the Euroclear System and to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in Euroclear in any of 32 currencies, including
United States dollars. The Euroclear System includes various other services,
including securities lending and borrowing, and interfaces with domestic
markets in several countries generally similar to the arrangements for cross-
market transfers with DTC described in Annex I hereto. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium
office, under loan with Euroclear Clearance System, S.C., a Belgian cooperative
corporation. All operations are conducted by the Euroclear Operator, and all
Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the cooperative. Euroclear Clearance
System, S.C. establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the underwriter. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
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The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related operating procedures of the Euroclear System and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the Euroclear
System. All securities in the Euroclear System are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the terms and conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
Distributions with respect to certificates held through Clearstream or
Euroclear will be credited to the cash accounts of Clearstream Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by its depository. Such distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. See "Federal Income Tax Consequences" in the prospectus and
"Global Clearance, Settlement and Tax Documentation Procedures" in Annex I to
this prospectus supplement.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of certificates among Participants
of DTC, Clearstream 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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FEDERAL INCOME TAX CONSEQUENCES
Our counsel, Dorsey & Whitney LLP, will deliver its opinion that, assuming
ongoing compliance with the terms of the pooling and servicing agreement, upon
the issuance of the certificates, the trust will qualify as a REMIC for federal
income tax purposes. The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5,
Class M-1, Class M-2, Class B-1 and Class B-2 certificates will constitute
regular interests in the REMIC. The Class C certificate, which is not being
offered, will constitute the sole class of residual interests in the REMIC.
It is not anticipated that any of the certificates will be issued with
original issue discount for federal income tax purposes. The prepayment
assumption that will be used to determine the rate of accrual of market
discount and premium, if any, will be based on the assumption that the loans
will prepay at a rate equal to 100% of the prepayment assumption.
Certificates held by financial institutions, thrift institutions taxed as
domestic building and loan associations and real estate investment trusts will
represent loans secured by an interest in real property and real estate assets
for purposes of Sections 7701(a)(19)(C) or 856(c)(5) of the IRS Code,
respectively. Furthermore, interest paid with respect to certificates held by a
real estate investment trust will be considered to be interest on obligations
secured by mortgages on real property or on interests in real property for
purposes of Section 856(c)(3) of the IRS code.
For further information regarding federal income tax consequences of
investing in the certificates, see "Federal Income Tax Consequences--REMIC
Series" in the prospectus.
ERISA CONSIDERATIONS
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under "ERISA Considerations."
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain restrictions on employee benefit plans that are subject to ERISA and on
persons who are fiduciaries with respect to these plans. Employee benefit plans
that are governmental plans, as defined in section 3(32) of ERISA, and some
church plans, as defined in Section 3(33) of ERISA, are not subject to ERISA
requirements. Accordingly, assets of those plans may be invested in the Class A
certificates without regard to the ERISA restrictions described in this
section, subject to applicable provisions of other federal and state laws.
However, any governmental or church plan which is qualified under section
401(a) of the Internal Revenue Code and exempt from taxation under section
501(a) of the Internal Revenue Code is subject to the prohibited transaction
rules described in section 503 of the Internal Revenue Code.
The U.S. Department of Labor has granted administrative exemptions to Credit
Suisse First Boston Corporation (Prohibited Transaction Exemption No. 89-90;
Exemption Application No. D-6555, 54 Fed. Reg. 42,581 (1989)), from certain of
the prohibited transaction rules of ERISA and the Internal Revenue Code. They
provide an exemption from
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certain of the prohibited transaction rules of ERISA and the Internal Revenue
Code with respect to the initial purchase, the holding and the subsequent
resale by plans of certificates representing interests in asset-backed pass-
through trusts that consist exclusively of certain receivables, loans and other
obligations that meet the conditions and requirements of the exemption. The
receivables covered by the exemption include home improvement loans, such as
the loans that will comprise the pool, that are secured by real estate. Conseco
Finance believes that the exemption will apply to the acquisition, holding, and
resale of the Class A certificates by a plan, provided that specified
conditions are met, including those described in the paragraph below.
Among the conditions which must be satisfied for the exemption to apply to
the Class A certificates are the following:
(1) the acquisition of the Class A certificates by a plan is on terms,
including the price for the Class A certificates, that are at least as
favorable to the plan as they would be in an arm's-length transaction
with an unrelated party;
(2) the rights and interests evidenced by the Class A certificates
acquired by the plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) the Class A certificates acquired by the plan have received a rating
at the time of such acquisition that is in one of the three highest
generic rating categories from S&P, Moody's or Fitch (the "Exemption
Rating Agencies");
(4) the trustee is not an affiliate of any other member of the restricted
group, as defined below;
(5) the sum of all payments made to the underwriters in connection with
the distribution of the Class A certificates represents not more than
reasonable compensation for underwriting the Class A certificates. The
sum of all payments made to and retained by Conseco Securitizations
pursuant to the sale of the loans to the trust represents not more
than the fair market value of such loans. The sum of all payments made
to and retained by the servicer represents not more than reasonable
compensation for the servicer's services under the pooling and
servicing agreement and reimbursement of the servicer's reasonable
expenses in connection therewith; and
(6) the plan investing in the Class A certificates is an accredited
investor as defined in Rule 501(a)(1) of Regulation D under the
Securities Act of 1933.
The exemption provides relief to mortgage-backed and asset-backed securities
transactions using pre-funding accounts for trusts issuing pass-through
certificates. The exemption generally allows mortgage loans or other secured
receivables (the "Obligations") supporting payments to certificateholders, and
having a value equal to no more than 25% of the total principal amount of the
certificates being offered by the trust, to be transferred to the trust within
a 90-day or three-month pre-funding period following the closing date,
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instead of requiring that all such Obligations be either identified or
transferred on or before the closing date. The relief is available when the
following conditions are met:
(1) the ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered must not
exceed 25%;
(2) all additional Obligations transferred after the closing date must
meet the same terms and conditions for eligibility as the original
Obligations used to create the trust, which terms and conditions have
been approved by a rating agency;
(3) the transfer of the additional Obligations to the trust during the
pre-funding period must not result in the certificates to be covered
by the exemption receiving a lower credit rating from an Exemption
Rating Agency upon termination of the pre-funding period than the
rating that was obtained at the time of the initial issuance of the
certificates by the trust;
(4) solely as a result of the use of a pre-funding period, the weighted
average annual percentage interest rate for all of the Obligations in
the trust at the end of the pre-funding period must not be more than
100 basis points lower than the average interest rate for the
Obligations transferred to the trust on the closing date;
(5) in order to insure that the characteristics of the additional
Obligations are substantially similar to the original Obligations
which were transferred to the trust:
. the characteristics of the additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
. an independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to each rating
agency rating the certificates, the related underwriter and the
related trustee) stating whether or not the characteristics of the
additional Obligations conform to the characteristics described in
the related prospectus or prospectus supplement and/or pooling and
servicing agreement. In preparing this letter, the independent
accountant must use the same type of procedures as were applicable
to the Obligations transferred to the trust as of the closing
date;
(6) the period of pre-funding must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the
pooling and servicing agreement or an event of default occurs;
(7) amounts transferred to any pre-funding account and used in connection
with the pre-funding may be invested only in certain permitted
investments;
(8) the related prospectus or prospectus supplement must describe:
. any pre-funding account;
. the duration of the period of pre-funding;
. the percentage and/or dollar amount of the pre-funding limit for
the trust; and
. that the amounts remaining in the pre-funding account at the end
of the pre-funding period will be remitted to certificateholders
as repayments of principal;
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(9) the related pooling and servicing agreement must describe these
permitted investments for the pre-funding account and, if not
disclosed in the related prospectus or prospectus supplement, the
terms and conditions for eligibility of additional Obligations.
Moreover, the exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements,
. in the case of the acquisition of Class A certificates in
connection with the initial issuance, at least fifty percent (50%)
of the Class A certificates are acquired by persons independent of
the restricted group,
. the plan's investment in Class A certificates does not exceed
twenty-five percent (25%) of all of the Class A
certificates outstanding at the time of the acquisition, and
. immediately after the acquisition, no more than twenty-five
percent (25%) of the assets of the plan are invested in
certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity.
The exemption does not apply to plans sponsored by Conseco Finance, Conseco
Securitizations, the underwriter, the trustee, the servicer, any obligor with
respect to loans included in the trust constituting more than five percent (5%)
of the aggregate unamortized principal balance of the assets in the trust or
any affiliate of such parties.
In its prefatory comments to the amendment as proposed by DOL (62 Fed. Reg.
28,502), the DOL stated its interpretive position that a transaction which
satisfied the conditions of the exemption, but did not satisfy the conditions
of the amendment as proposed, could nevertheless qualify for exemptive relief
if it included a pre-funding account that was used only to acquire assets that
are specifically identified by the sponsor or originator as of the closing
date, but transferred to the trust after the closing date for administrative or
other reasons. Although the pre-funding account may not satisfy the conditions
of the amendment in that the pre-funding account may exceed 25% of the total
principal amount of the related certificates, funds in the pre-funding account
in excess of such 25% threshold will be used by the trust solely to purchase
subsequent home improvement loans in accordance with the pooling and servicing
agreement from a fixed pool of loans that will have been specifically
identified prior to the closing date. It is expected that all of the loans in
such fixed pool, except for those which are determined not to meet the criteria
for purchase set forth in the pooling and servicing agreement, will be acquired
using the pre-funding account. Accordingly, Conseco Finance believes that the
existence of the pre-funding account should not cause the exemption to be
inapplicable.
This exemption does not currently apply to securities issued by issuers whose
assets include one or more receivables secured by collateral with a fair market
value that is less than the outstanding principal balance of the receivable.
Under an amendment to the exemption proposed by the Department of Labor on
August 16, 2000 (65 Fed. Reg. 51454, August 23, 2000), the scope of the
exemption would be expanded to include securities issued
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by issuers whose assets consist of any combination of home equity consumer
loans, manufactured housing consumer loans, single family residential, multi-
family residential, manufactured housing and commercial mortgage loans secured
by collateral with a fair market value, at the time of transfer of the loan to
the issuer, that is greater than 100%, but not greater than 125%, of the
outstanding principal balance of the receivable on the following additional
conditions:
. the securities have been assigned a rating from an Exemption Rating
Agency (at the time of acquisition of the securities) that is in one
of the two highest generic rating categories; and
. the rights and interests evidenced by the securities are not
subordinated to the rights and interests evidenced by other securities
of the same issuer.
Under the same amendment, the exemption would be expanded to include both debt
and equity, senior and subordinated, securities that have been assigned a
rating (at the time of acquisition of the securities) from an Exemption Rating
Agency that is in one of the four highest generic rating categories issued by
issuers whose assets consist of these same types of loans where each loan, at
the time of transfer to the issuer, is secured by collateral with a fair market
value that is not greater than 100% of the outstanding principal balance of the
loan. The amendment would also add the following general conditions to the
exemption, in addition to those described above:
. The legal documents establishing the issuer must contain (1)
restrictions on the issuer's ability to borrow money or issue debt
other than in connection with the securitization of its assets and on
the issuer's ability to merge with another entity, reorganize,
liquidate or sell assets (other than in connection with the
securitization of its assets), and restrictions limiting the issuer's
activities to activities relating to the securitization of its assets;
(2) if the issuer is not a trust, provisions for the election of at
least one independent director, partner or member whose affirmative
consent is required before a voluntary bankruptcy petition can be
filed by the issuer and requirements that each independent director,
partner or member be an individual that does not have a significant
interest in, or other relationships with, the sponsor or any of its
affiliates.
. The pooling and servicing agreement and other agreements establishing
the contractual relationships between the parties must contain
covenants prohibiting all parties from filing an involuntary
bankruptcy petition against the issuer or initiating any other form of
insolvency proceeding until after the securities have been paid.
. Prior to the issuance by the issuer of any securities, the issuer must
receive a legal opinion which states that either (1) a "true sale" of
the assets being transferred to the issuer by the sponsor has occurred
and that such transfer is not being made pursuant to a financing of
the assets by the sponsor or (2) in the event of the insolvency of the
sponsor, the assets transferred to the issuer will not be part of the
estate of the sponsor.
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. Prior to the issuance by the issuer of any debt securities, a legal
opinion is received by the issuer which states that the debt holders
have a perfected security interest in the issuer's assets.
Because the trust includes loans with combined loan-to-value ratios in excess
of 100%, none of the certificates are covered by the exemption in its current
form. However, Conseco Finance believes that the conditions of the proposed
amendment should be satisfied in the case of the Class A certificates and that,
if adopted in the form proposed, the proposed amendment would be available for
purchases and sales of Class A certificates on and after the effective date of
the amendment.
In addition to the exemption, some or all of the transactions involving the
purchase, holding and resale of certificates that might otherwise constitute
prohibited transactions under ERISA or the Internal Revenue Code might qualify
for relief from the prohibited transaction rules and related taxes and
penalties under certain class exemptions granted by the DOL, including
Prohibited Transaction Class Exemption 83-1, which exempts certain transactions
involving employee benefit plans and mortgage pool investment trusts, PTCE 86-
128, which exempts certain transactions involving employee benefit plans and
certain broker-dealers, PTCE 90-1, which exempts certain transactions involving
employee benefit plans and insurance company pooled separate accounts, PTCE 91-
38, which exempts certain transactions involving employee benefit plans and
bank collective investment funds and PTCE 96-23, which exempts certain
transactions involving employee benefit plans, PTCE 95-60, which exempts
certain transactions involving insurance company general accounts and in-house
asset managers. There also may be other exemptions applicable to a particular
transaction involving the trust. A plan that intends to acquire any class of
the certificates should consult with its own counsel regarding whether such
investment would cause a prohibited transaction to occur and whether the terms
and conditions of an applicable class exemption may be satisfied.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides certain exemptive relief from the provisions of
Part 4 of Title I of ERISA and Section 4975 of the Internal Revenue Code,
including the prohibited transaction restrictions imposed by ERISA and the
related excise taxes imposed by the Internal Revenue Code, for transactions
involving an insurance company general account. Pursuant to Section 401(c) of
ERISA, the DOL published final regulations on January 5, 2000 which provide
guidance for the purpose of determining, in cases where insurance policies
supported by an insurer's general account are issued to or for the benefit of a
plan on or before December 31, 1998, which general account assets constitute
plan assets. Section 401(c) of ERISA generally provides that, until the date
which is 18 months after the 401(c) Regulations became final, no person will be
subject to liability under Part 4 of Title I of ERISA and Section 4975 of the
Internal Revenue Code on the basis of a claim that the assets of an insurance
company general account constitute plan assets, unless (1) as otherwise
provided by the Secretary of Labor in the 401(c) Regulations to prevent
avoidance of the regulations or (2) an action is brought by
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the Secretary of Labor for certain breaches of fiduciary duty which would also
constitute a violation of federal or state criminal law. Any assets of an
insurance company general account which support insurance policies issued to a
plan after December 31, 1998 or issued to plans on or before December 31, 1998
for which the insurance company does not comply with the 401(c) Regulations may
be treated as plan assets. In addition, because Section 401(c) does not relate
to insurance company separate accounts, separate account assets are still
treated as plan assets of any plan invested in such separate account. Insurance
companies contemplating the investment of general account assets in the
certificates should consult with their legal counsel with respect to the
applicability of Section 401(c) of ERISA, including the general account's
ability to continue to hold the certificates after the date which is 18 months
after the date on which the 401(c) Regulations became final.
Unless and until the proposed amendment to the exemption issued to Credit
Suisse First Boston Corporation is adopted in final form, no transfer of any
class of certificates issued in definitive form will be permitted to be made to
a plan unless the plan, at its expense, delivers to the trustee and Conseco
Finance an opinion of counsel, in form satisfactory to the trustee and Conseco
Finance, to the effect that the purchase or holding of any other class of
certificates by the plan will not result in the assets of the trust being
deemed to be plan assets and subject to the prohibited transaction provisions
of ERISA and the Internal Revenue Code and will not subject the trustee,
Conseco Securitizations, Conseco Finance or the servicer to any obligation or
liability in addition to those undertaken in the pooling and servicing
agreement. Unless this opinion is delivered and in the case of certificates
which are not issued in definitive form, each person acquiring such a
certificate will be deemed to represent to the trustee, Conseco
Securitizations, Conseco Finance and the servicer either (1) the person is
neither a plan, nor acting on behalf of a plan, subject to ERISA or to Section
4975 of the Internal Revenue Code or (2) that the purchase and holding of the
certificate by the plan will not result in the assets of the trust being deemed
to be plan assets and subject to the prohibited transaction provisions of ERISA
and the Internal Revenue Code and will not subject the trustee, Conseco
Securitizations, Conseco Finance or the servicer to any obligation or liability
in addition to those undertaken in the pooling and servicing agreement. If the
proposed amendment to the exemptions is adopted in final form without material
change, it is anticipated purchases and sales of Class A certificates will be
permitted without compliance with these procedures.
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UNDERWRITING
The underwriter, Credit Suisse First Boston Corporation, has agreed, subject
to the terms and conditions of the underwriting agreement, to purchase from
Conseco Securitizations the offered certificates at the prices set forth on the
cover page of this prospectus supplement.
The underwriting agreement provides that the underwriter is obligated to
purchase all of the offered certificates if any are purchased.
The underwriter proposes to offer the certificates initially at the public
offering prices on the cover page of this prospectus supplement and to selling
group members at that price less a concession not in excess of the respective
amounts set forth in the table below (expressed as a percentage of the related
certificate principal balance). The underwriter may allow and selling group
members may reallow a discount not in excess of the respective amounts set
forth in the table below to other broker dealers.
<TABLE>
<CAPTION>
Underwriting Selling Reallowance
Class Discount Concession Discount
----- ------------ ---------- -----------
<S> <C> <C> <C>
A-1................................. 0.200% 0.120% 0.060%
A-2................................. 0.250% 0.150% 0.075%
A-3................................. 0.300% 0.180% 0.090%
A-4................................. 0.350% 0.210% 0.105%
A-5................................. 0.400% 0.240% 0.120%
M-1................................. 0.600% 0.360% 0.180%
M-2................................. 0.750% 0.450% 0.225%
B-1................................. 0.950% 0.570% 0.285%
</TABLE>
The underwriter has informed Conseco Securitizations that the underwriter
does not expect discretionary sales by it to exceed 5% of the principal balance
of the offered certificates.
The underwriter may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934. Over-allotment involves syndicate
sales in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the offered certificates in the open
market after the distribution has been completed in order to cover syndicate
short positions. Penalty bids permit the underwriter to reclaim a selling
concession from a syndicate member when the offered certificates originally
sold by syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the offered certificates
to be higher than it would otherwise be in the absence of these transactions.
These transactions, if commenced, may be discontinued at any time.
Conseco Finance and Conseco Securitizations have agreed to indemnify the
underwriter against liabilities, including civil liabilities under the
Securities Act of 1933, or contribute to payments which the underwriter may be
required to make in respect thereof.
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Conseco Securitizations or its affiliates may apply all or any portion of the
net proceeds of this offering to the repayment of debt, including "warehouse"
debt secured by the home improvement loans (prior to their sale to the trust).
The underwriter (or affiliates of the underwriter) may have acted as a
"warehouse lender" to Conseco Securitizations or its affiliates, and may
receive a portion of such proceeds as repayment of such warehouse debt.
We estimate that Conseco Securitizations' expenses in connection with the
sale of the offered certificates will be $425,000.
LEGAL MATTERS
The validity of the certificates will be passed upon for Conseco Finance and
Conseco Securitizations and the trust by Dorsey & Whitney LLP, Minneapolis,
Minnesota, and for the underwriter by Thacher Proffitt & Wood, New York, New
York. The material federal income tax consequences of the certificates will be
passed upon for Conseco Finance and Conseco Securitizations by Dorsey & Whitney
LLP.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the securities will be available
only in book-entry form. These securities are called global securities.
Investors in the global securities may hold such global securities through any
of DTC, Clearstream or Euroclear. The global securities will be tradeable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding global securities through
Clearstream 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 securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
participants holding securities will be effected on a delivery-against-payment
basis through the respective depositaries of Clearstream and Euroclear (in such
capacity) and DTC participants.
Non-U.S. holders (as described below) of global securities 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 securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the global securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Clearstream 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 securities 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 securities through Clearstream 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 securities 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 Clearstream or Euroclear Participants. Secondary market
trading between Clearstream participants or Euroclear participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC participant
to the account of a Clearstream participant or a Euroclear participant, the
purchaser will send instructions to Clearstream or Euroclear through a
Clearstream participant or Euroclear participant at least one business day
prior to settlement. Clearstream or Euroclear, as applicable, will instruct its
depositary to receive the global securities against payment. Payment will
include interest accrued on the global securities 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 securities. After settlement has been completed, the global
securities will be credited to the applicable clearing system and by the
clearing system, in accordance with its usual procedures, to the Clearstream
participant's or Euroclear participant's account. The global securities credit
will appear the next day (European time) and the cash debit will be back-valued
to, and the interest on the global securities 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 Clearstream or Euroclear cash debit will be valued instead as of the actual
settlement date.
Clearstream 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 Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the global securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of credit
to them, Clearstream 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, Clearstream participants or Euroclear
participants purchasing global securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the global securities were
credited to their accounts. However, interest on the global securities would
accrue from the value date. Therefore, in many cases the investment income on
the global securities
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earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although this result will depend on each Clearstream
participant's or Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global securities to
the respective depositary for the benefit of Clearstream 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 Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream participants and Euroclear
participants may employ their customary procedures for transactions in which
global securities are to be transferred by the respective clearing systems,
through their respective depositaries, to a DTC participant. The seller will
send instructions to Clearstream or Euroclear through a Clearstream participant
or Euroclear participant at least one business day prior to settlement. In
these cases, Clearstream or Euroclear will instruct their respective
depositaries, as appropriate, to deliver the securities to the DTC
participant's account against payment. Payment will include interest accrued on
the global securities 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 Clearstream participant or Euroclear participant the following
day, and receipt of the cash proceeds in the Clearstream 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
Clearstream 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 Clearstream participant's or Euroclear participant's account would
instead be valued as of the actual settlement date. Finally, day traders that
use Clearstream or Euroclear and that purchase global securities from DTC
participants for delivery to Clearstream 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 Clearstream or Euroclear for one day (until the
purchase side of the day trade is reflected in their Clearstream or
Euroclear accounts) in accordance with the clearing system's customary
procedures;
(b) borrowing the global securities in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the global
securities sufficient time to be reflected in their Clearstream 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 Clearstream
participant or Euroclear participant.
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Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global securities holding securities through
Clearstream or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally
applies to payments of interest (including original issue discount) on
registered debt issued by U.S. persons, unless: (1) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements; and (2) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption of non-U.S. Persons (Form W-8 or Form W-8BEN). Beneficial
owners of securities 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) or Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding) and a
certificate under penalties of perjury 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 864(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 Form W-8BEN or the tax certificate
changes, a new Form W-8 or Form W-8BEN or tax certificate, as the case may
be, must be filed within 30 days of such change. After December 31, 2000,
only Form W-8BEN will be acceptable.
Exemption for non-U.S. Persons with effectively connected income (Form
4224 or Form W-8ECI). 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 or Form W-8ECI
(Certificate of Foreign Person's Claim for Exemption from Withholding of
Income Effectively Connected with the Conduct of a Trade or Business in
the United States)). After December 31, 2000, only Form W-8ECI will be
acceptable.
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001 or Form W-8BEN). Non-U.S. persons that are beneficial
owners of securities 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 (holdership, exemption or Reduced
Rate Certificate) or Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding). Form 1001 may be
filed by the beneficial owner of securities or such owner's agent. After
December 31, 2000, only Form W-8BEN will be acceptable.
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).
A-4
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U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
global security or, in the case of a Form 1001 or a Form 4224 filer, 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,
Form 4224 and Form 1001 are effective until December 31, 2000. Form W-8BEN
and Form W-8ECI are effective until the third succeeding calendar year from
the date the form is signed.
The term "U.S. Person" means:
(1) a citizen or resident of the United States;
(2) a corporation or partnership organized in or under the laws of the
United States, any state thereof or the District of Columbia;
(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(a)(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 U.S. Person on August 19, 1996, may elect to continue to be
treated as a U.S. 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 securities. Investors are advised
to consult their own tax advisors for specific tax advice concerning their
holding and disposing of the global securities.
A-5
<PAGE>
PROSPECTUS
[Conseco Logo]
Conseco Finance Corp., Servicer
Conseco Finance Securitizations Corp., Seller
Certificates for Home Loans
We are offering certificates for home improvement loans under this prospectus
and a prospectus supplement. The prospectus supplement will be prepared
separately for each series of certificates offered. Conseco Finance
Securitizations Corp. will form a trust for each series, and the trust will
issue the certificates of that series. The certificates of any series may
comprise several different classes. A trust may also issue one or more other
interests in the trust that will not be offered under this prospectus.
The right of each class of certificates within a series to receive payments
may be senior or subordinate to the rights of one or more of the other classes
of certificates. In addition, a series of certificates may include one or more
classes which on the one hand are subordinated to one or more classes of
certificates, while on the other hand are senior to one or more classes of
certificates. The rate of principal and interest payment on the certificates of
any class will depend on the priority of payment of that class and the rate and
timing of payments of the related home improvement loans.
----------------
The certificates will represent obligations of the related trust and will not
represent any interest in or obligation of Conseco Finance Corp., Conseco
Finance Securitizations Corp. or any of their affiliates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
----------------
This prospectus may not be used to consummate sales of any certificates
unless accompanied by the prospectus supplement relating to that series.
Prospectus dated September 22, 2000
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (2) the prospectus supplement for the
particular terms of your series of certificates.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
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THE TRUST
General
Certificates evidencing interests in pools of home improvement loans may be
issued from time to time in series under a separate pooling and servicing
agreement between Conseco Securitizations, as seller, Conseco Finance, as
servicer, and the trustee.
The certificates of each series may be issued in one or more classes or
subclasses as and on the terms specified in the related prospectus supplement,
each of which will evidence the interest specified in the related prospectus in
the loan pool and other property held in a trust fund for the benefit of
certificateholders. Each trust will include:
(1) a loan pool,
(2) the amounts held from time to time in a trust certificate account
maintained by the trustee pursuant to separate pooling and servicing
agreements,
(3) proceeds from FHA insurance, with respect to any FHA-insured home
improvement loan included in the loan pool,
(4) any letter of credit, guarantee, surety bond, insurance policy, cash
reserve fund or other credit enhancement securing payment of all or
part of a series of certificates, and
(5) other property as may be specified in the related prospectus
supplement.
Each certificate will evidence the interest specified in the prospectus
supplement in one trust, containing one loan pool comprised of loans having the
aggregate principal balance as of the specified day of the month of the
creation of the pool specified in the prospectus supplement. Holders of
certificates of a series will have interests only in such loan pool and will
have no interest in the loan pool created for any other series of certificates,
except for FHA insurance reserves. If specified in the related prospectus
supplement, the loan pool may be divided into two or more sub-pools, in which
event the certificates of certain specified classes may be payable primarily
from, and in respect of, the loans comprising a given sub-pool. If specified in
the related prospectus supplement, the trust may include a pre-funding account
which would be used to purchase subsequent loans from Conseco Securitizations
during the pre-funding period specified in the related prospectus supplement.
The related prospectus supplement will specify the conditions that must be
satisfied before any transfer of subsequent loans, including the requisite
characteristics of the subsequent loans.
Except as otherwise specified in the related prospectus supplement, all of
the loans will have been originated by Conseco Finance in the ordinary course
of its business. Specific information regarding the loans included in each
trust will be provided in the related prospectus supplement and, if not
contained in the related prospectus supplement, in a report on Form 8-K to be
filed with the SEC within fifteen days after the initial issuance of the
certificates. A copy of the pooling and servicing agreement for each series of
certificates will be attached to the Form 8-K and will be available for
inspection at the corporate trust office of the trustee specified in the
prospectus supplement. A schedule of the loans relating to that series will be
attached to the pooling and servicing agreement delivered to the trustee upon
delivery of the certificates.
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The Loan Pools
Except as otherwise specified in the related prospectus supplement, the loan
pool will consist of home improvement loans and promissory notes.
The home improvement loans may be conventional home improvement loans or loans
insured by FHA. All loans will be secured by the related real estate. Except as
we specify otherwise in the applicable prospectus supplement, the loans will be
fully amortizing and will bear interest at a fixed or variable annual
percentage rate, which we refer to as the loan rate.
For each series of certificates, we will assign the loans constituting the
loan pool to the trustee named in the prospectus supplement. We, as servicer,
will service the loans under the pooling and servicing agreement. See
"Description of the Certificates--Servicing." Unless we specify otherwise in
the prospectus supplement, the loan documents will be held by the trustee or a
custodian on its behalf.
Each loan pool will be composed of loans bearing interest at the loan rates
specified in the prospectus supplement. Unless we specify otherwise in the
prospectus supplement, each registered holder of a certificate will be entitled
to receive periodic distributions, which will be monthly unless we specify
otherwise in the related prospectus supplement, of all or a portion of
principal on the underlying loans or interest on the principal balance of the
certificate, or on some other principal balance unrelated to that of the
certificate, at the pass-through rate, or both.
The prospectus supplement will specify for the loans contained in the loan
pool:
. the range of the dates of origination of the loans;
. the range of the loan rates and the weighted average loan rate;
. the minimum and maximum outstanding principal balances and the average
outstanding principal balance as of the Cut-off Date;
. the aggregate principal balance of the loans included in the loan pool
as of the cut-off date;
. the weighted average and range of scheduled terms to maturity as of
origination and as of the Cut-off Date;
. the range of original maturities of the loans and the last maturity
date of any loan; and
. the geographic location of improved real estate securing the loans.
If the trust includes a pre-funding account, the prospectus supplement will
specify the conditions that must be satisfied before any transfer of subsequent
loans, including the requisite characteristics of the subsequent loans.
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<PAGE>
We will make representations and warranties as to the types and geographical
distribution of the loans included in a loan pool and as to the accuracy in all
material respects of information furnished to the trustee for each such loan.
Upon a breach of any representation or warranty that materially and adversely
affects the interests of the certificateholders in a loan, we will be obligated
to cure the breach in all material respects, or to repurchase or substitute for
the loan as described below under "Descriptions of the Certificates--Repurchase
Option." This repurchase obligation constitutes the sole remedy available to
the certificateholders or the trustee for a breach of representation or
warranty by us. See "Description of the Certificates--Conveyance of Loans."
Conveyance of Loans
Conseco Finance will transfer to Conseco Securitizations, and Conseco
Securitizations will then transfer to the trustee, all our right, title and
interest in the loans, including all principal and interest received on or for
the loans, other than receipts of principal and interest due on the loans
before the Cut-off Date. On behalf of the trust, as the issuer of the related
series of certificates, the trustee, together with the conveyance, will execute
and deliver the certificates upon our order of Conseco Securitizations. The
loans will be as described on a list attached to the pooling and servicing
agreement. This list will include the amount of Monthly Payments due on each
loan as of the date of issuance of the certificates, the loan rate on each loan
and the maturity date of each loan. This list will be available for inspection
by any certificateholder at the principal executive office of the servicer.
Before the conveyance of the loans to the trust, Conseco Finance's internal
audit department will complete a review of all of the loan files confirming the
accuracy of the list of loans delivered to the trustee. Any loan discovered not
to agree with that list in a manner that is materially adverse to the interests
of the certificateholders will be repurchased or substituted by us, or, if the
discrepancy relates to the unpaid principal balance of a loan, we may deposit
cash in the separate certificate account maintained at an eligible institution
in the name of the trustee in an amount sufficient to offset the discrepancy.
If the trust includes a pre-funding account, the related prospectus supplement
will specify the conditions that must be satisfied before any transfer of
subsequent loans, including the requisite characteristics of the subsequent
loans.
Unless otherwise specified in the related prospectus supplement, the trustee
or its custodian will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota reflecting the sale and assignment of the loans by
Conseco Finance to Conseco Securitizations, and by Conseco Securitizations to
the trustee, and our accounting records and computer systems will also reflect
this sale and assignment.
Our counsel identified in the applicable prospectus supplement will render an
opinion to the trustee that the transfer of the loans from Conseco Finance to
the related trust would, if we became a debtor under the United States
Bankruptcy Code, be treated as a true sale and not as a pledge to secure
borrowings. If, however, the transfer of the loans from Conseco Finance to
Conseco Securitizations were treated as a pledge to secure borrowings by
Conseco Finance, the distribution of proceeds of the loans to Conseco
Securitizations might
5
<PAGE>
be subject to the automatic stay provisions of the United States Bankruptcy
Code, which would delay the distribution of the proceeds for an uncertain
period of time. In addition, a bankruptcy trustee would have the power to sell
the loans if the proceeds of the sale could satisfy the amount of the debt
deemed owed by us, or the bankruptcy trustee could substitute other collateral
in lieu of the loans to secure the debt, or the debt could be subject to
adjustment by the bankruptcy trustee if we were to file for reorganization
under Chapter 11 of the United States Bankruptcy Code.
Our counsel will also render in opinion that, if Conseco Finance became a
debtor under the United States Bankruptcy Code, the assets and liabilities of
Conseco Securitizations would not be consolidated with those of Conseco
Finance. If, however, a bankruptcy court did order such consolidation, then
delays or reductions in distributions of proceeds of the loans to the trusts
could result.
Except as we specify otherwise in the related prospectus supplement, we will
make representations and warranties in the pooling and servicing agreement for
each loan as of the related closing date, including that:
. as of the Cut-off Date the most recent scheduled payment was made or
was not delinquent more than 59 days;
. no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
. each loan is a legal, valid and binding obligation of the obligor and
is enforceable in accordance with its terms, except as may be limited
by laws affecting creditors rights generally;
. no loan is subject to any right of rescission, set-off, counterclaim
or defense;
. each FHA-insured home improvement loan was originated in accordance
with applicable FHA regulations and is insured, without set-off,
surcharge or defense, by FHA Insurance;
. each loan was either (a) entered into by a home improvement contractor
in the ordinary course of such contractor's business and, immediately
upon funding, assigned to us, or (b) was originated by us directly;
. no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest under the pooling and servicing agreement or the certificates
unlawful;
. each loan complies with all requirements of law;
. no loan has been satisfied, subordinated to a lower lien ranking than
its original position or rescinded;
. each loan creates a valid and perfected lien on the related improved
real estate;
. all parties to each loan had full legal capacity to execute the loan;
6
<PAGE>
. no loan has been sold, conveyed and assigned or pledged to any other
person and we have good and marketable title to each loan free and
clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and is the sole owner and has full right to
transfer the loan to Conseco Securitizations;
. as of the Cut-off Date there was no default, breach, violation or
event permitting acceleration under any loan, except for payment
delinquencies permitted by the first clause above, no event that with
notice and the expiration of any grace or cure period would constitute
a default, breach, violation or event permitting acceleration under
the loan, and we have not waived any of the foregoing;
. each loan is a fully-amortizing loan with a fixed rate of interest and
provides for level payments over the term of the loan;
. each loan contains customary and enforceable provisions to render the
rights and remedies of the holder adequate for realization against the
collateral;
. the description of each loan appearing in the list delivered to the
trustee is true and correct;
. there is only one original of each loan; and
. each loan was originated or purchased in accordance with our then-
current underwriting guidelines.
Under the terms of the pooling and servicing agreement, if we become aware of
a breach of any representation or warranty that materially adversely affects
the trust's interest in any loan or receives written notice of a breach from
the trustee or the servicer, then we will be obligated either to cure the
breach or to repurchase or, if so provided in the prospectus supplement,
substitute for the affected loan, in each case under the conditions further
described in this prospectus and in the prospectus supplement. This repurchase
obligation will constitute the sole remedy available to the trust and the
certificateholders for a breach of a representation or warranty under the
pooling and servicing agreement for the loans, but not for any other breach by
us of our obligations under the pooling and servicing agreement. If a
prohibited transaction tax under the REMIC provisions of the IRS code is
incurred in connection with the repurchase, distributions otherwise payable to
residual certificateholders will be applied to pay the tax. We will be required
to pay the amount of the tax that is not funded out of the distributions.
The Repurchase Price of a loan at any time means the outstanding principal
amount of the loan, without giving effect to any Advances made by the servicer
or the trustee, plus interest at the applicable pass-through rate on the loan
from the end of the Due Period for which the obligor last made a payment,
without giving effect to any Advances made by the servicer or the trustee
through the end of the immediately preceding Due Period.
USE OF PROCEEDS
Unless we specify otherwise in the related prospectus supplement,
substantially all of the net proceeds to be received from the sale of each
series of certificates will be paid by Conseco Securitizations to Conseco
Finance as payment for the loans, and those proceeds
7
<PAGE>
will be used by Conseco Finance for general corporate purposes, including the
origination or acquisition of additional home improvement loans and home equity
loans, costs of carrying the loans and loans until sale of the related
certificates and to pay other expenses connected with pooling the loans and
issuing the certificates.
CONSECO FINANCE CORP.
General
Certificates evidencing interests in pools of home improvement loans may be
issued from time to time in series under a separate pooling and servicing
agreement between Conseco Securitizations, as seller, Conseco Finance, as
servicer, and the trustee.
Conseco Finance is a Delaware corporation which, as of June 30, 2000, had
stockholders' equity of approximately $1.837 billion. We purchase, pool, sell
and service conditional sales loans for manufactured homes and other consumer
installment sales loans, as well as home equity loans. We are the largest
servicer of government-insured manufactured housing loans and conventional
manufactured housing loans in the United States. Servicing functions are
performed through Conseco Finance Servicing Corporation, our wholly owned
subsidiary. Through our principal office in St. Paul, Minnesota, and service
centers throughout the United States, we serve all 50 states. We began
financing FHA-insured home improvement loans in April 1989, conventional home
improvement loans in September 1992 and home equity loans in January 1996. We
also purchase, pool and service installment sales loans for various consumer
products. Our principal executive offices are located at 1100 Landmark Towers,
345 St. Peter Street, St. Paul, Minnesota 55102-1639 (telephone (651) 293-
3400). Our quarterly and annual reports are available upon written request.
The SEC allows us to incorporate by reference some of the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information that we incorporate by
reference is considered to be part of this prospectus, and later information
that we file with the SEC will automatically update and supersede this
information. We are incorporating by reference the following documents into
this prospectus and the prospectus supplement:
. Conseco Finance Corp.'s annual report on Form 10-K for the year ended
December 31, 1999.
. Conseco Finance Corp.'s quarterly reports on Form 10-Q for the
quarters ended March 31, 2000 and June 30, 2000.
All documents filed by the servicer, on behalf of any trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after
the date of this prospectus and prior to the termination of the offering of the
certificates issued by that trust, will be incorporated by reference into this
prospectus.
We will provide you, upon your written or oral request, a copy of any or all
of the documents incorporated by reference in this prospectus, exhibits to
those documents. Please direct your requests for copies to Tammy Hill, Senior
Vice President, Investor Relations, 11825 Pennsylvania Street, Carmel, Indiana
46032, telephone number (317) 817-2893.
8
<PAGE>
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by reference), proxy statements and other
information. You can read and copy these documents at the public reference
facility maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. You can also read and copy these reports and
other information at the following regional offices of the SEC:
New York Regional Chicago Regional Office
Office Citicorp Center
Seven World Trade 500 West Madison Street, Suite
Center 1400
Suite 1300 Chicago, IL 60661
New York, NY 10048
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Loan Origination
We arrange to purchase certain loans from home improvement contractors
located throughout the United States. Through our centralized loan processing
operations in St. Paul, Minnesota, our regional sales managers contact home
improvement contractors and explain our available financing plans, terms,
prevailing rates and credit and financing policies. If the contractor wishes to
utilize our available customer financing, the contractor must make an
application for contractor approval. We have a contractor approval process
under which the financial condition, business experience and qualifications of
the contractor are reviewed before their approval to sell loans to us. In
addition, we have a centralized compliance group which reviews and updates
contractor financial condition and reviews contractors on an annual basis to
determine whether such contractor's approval will be continued. We also review
monthly contractor trend reports which show the default and delinquency trends
of the particular contractor with respect to loans sold to us. We occasionally
will originate directly a home improvement promissory note involving a home
improvement transaction.
All loans that we originate are written on forms provided or approved by us
and are purchased on an individually approved basis in accordance with our
guidelines. The contractor submits the customer's credit application and
construction loan to our office where an analysis of the creditworthiness of
the customer is made using a proprietary credit scoring system that was
implemented by us in June 1993. If we determine that the application meets our
underwriting guidelines and applicable FHA regulations (for FHA-insured loans)
and the credit is approved, we purchase the loan from the contractor when the
customer verifies satisfactory completion of the work, or, in the case of
staged funding, we follow up with the customer for the completion certificate
90 days after funding.
The types of home improvements financed by us include:
. exterior renovations, including windows, siding and roofing,
. pools and spas,
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<PAGE>
. kitchen and bath remodeling, and
. room additions and garages.
We may also, under certain limited conditions, extend additional credit beyond
the purchase price of the home improvement for the purpose of debt
consolidation.
The original principal amount of an FHA-insured home improvement loan with
respect to a single family property currently may not exceed $25,000 without
specific FHA approval, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up to $12,000 per unit or a $48,000 limit for
four units of owner-occupied multiple-family homes. Certain other criteria for
home improvement loans eligible for FHA Insurance are described under the
caption "Description of FHA Insurance."
We began financing conventional home improvement loans in September 1992.
Conventional home improvement loans are not insured by FHA. The original
principal amount of a conventional secured home improvement loan may not exceed
$40,000 for our secured no equity lien program, and $100,000 for our secured
equity lien program, unless a higher amount financed is approved by senior
management. The original principal amount of a conventional home improvement
loan may not exceed $100,000 for our secured lien program, unless a higher
amount financed is approved by senior management. We require that any secured
home improvement loan be secured by a recorded lien, which may be a first,
second or (with respect to FHA-insured loans and some conventional loans of
$30,000 or less) third lien, on the improved real estate.
Our underwriting guidelines and credit scoring process weight significantly
the applicant's creditworthiness and place less weight on the available equity
in the related real estate being improved. While it is our policy not to exceed
100% in loan-to-value ratio on any loan, a substantial portion of the home
improvement loans are expected to have loan-to-value ratios of 90% or more when
considering the estimated value of the real estate, other liens senior to that
of the home improvement loan, and the improvements being financed. Because we
do not require appraisals on most home improvement loans with loan amounts of
less than $30,000, which home improvement loans are expected to comprise a
substantial portion of any loan pool, and given the many other factors that can
affect the value of property securing a conventional home improvement loan, the
related prospectus supplement will not provide detailed disclosure of loan-to-
value ratios on the home improvement loans.
Our credit approval process analyzes both the equity position of the
requested loan, including both the priority of the lien and the combined loan-
to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less or more favorable equity position, the
creditworthiness of the borrower must be stronger or may be weaker. The loan-
to-value ratio of the requested loan, combined with any existing loans with a
senior lien position, may not exceed 95% without senior management approval. In
most circumstances, an appraisal of the property is required. Currently, loans
secured by a first
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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.
CONSECO FINANCE SECURITIZATIONS CORP.
Conseco Securitizations is a wholly owned subsidiary of Conseco Finance. It
was formed on September 10, 1999. Conseco Securitizations may only engage in
the business of acquiring pools of loans from Conseco Finance and transferring
those loans to trusts such as the trusts described in this prospectus, and
activities incidental or related thereto. The principal executive offices of
Conseco Securitizations are located at 300 Landmark Towers, St. Paul, Minnesota
55102-1639 and its telephone number is (651) 293-3400.
Conseco Securitizations has taken and will take steps in conducting its
business that are intended to make it unlikely that a bankruptcy of Conseco
Finance would result in the consolidation of the assets and liabilities of
Conseco Finance and Conseco Securitizations. These steps include the creation
of Conseco Securitizations as a separate, limited-purpose corporation pursuant
to a certification of incorporation containing restrictions on the permissible
business activities of Conseco Securitizations, requiring that Conseco
Securitizations have on its board of directors at least two directors who are
independent of Conseco Finance, and requiring that all business transactions or
corporate actions outside of the ordinary course of business be approved by the
independent directors.
YIELD CONSIDERATIONS
The pass-through rates and the weighted average loan rate of the loans, as of
the related Cut-off Date relating to each series of certificates are listed in
the related prospectus supplement.
The prospectus supplement for each series will indicate that a lower rate of
principal prepayments than anticipated would negatively affect the total return
to investors of any class of certificates that is offered at a discount to its
principal amount, and a higher rate of principal prepayments than anticipated
would negatively affect the total return to investors of any class of
certificates that is offered at a premium to its principal amount or without
any principal amount.
The yield on some types of certificates which we may offer, such as interest
only certificates, principal only certificates, and fast pay/slow pay
certificates, may be particularly sensitive to prepayment rates, and to changes
in prepayment rates, on the underlying loans. If stated in the related
prospectus supplement, the yield on some types of certificates which we may
offer could change and may be negative under some prepayment rate scenarios.
Accordingly, some types of certificates may not be legal or appropriate
investments for financial institutions, pension funds or others. See "ERISA
Considerations" and "Legal
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Investment Considerations" in this prospectus and in the prospectus supplement.
In addition, the timing of changes in the rate of prepayment on the loans
included in a loan pool may significantly affect an investor's actual yield to
maturity, even if the average prepayment rate over time is consistent with the
investor's expectations. In general, the earlier that prepayments on loans
occur, the greater the effect on the investor's yield to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless we describe otherwise in an applicable prospectus supplement, all of
the loans will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. FHA-
insured home improvement loans may be prepaid at any time without penalty. We
have no significant experience with the rate of principal prepayments on home
improvement loans or home equity loans. Because the loans have scheduled due
dates throughout the calendar month, and because, unless otherwise specified in
the related prospectus supplement, all principal prepayments will be passed
through to certificateholders of the related series on the payment date
following the Due Period in which the principal prepayment occurred,
prepayments on the loans would affect the amount of funds available to make
distributions on the certificates on any payment date only if a substantial
portion of the loans prepaid before their respective due dates in a particular
month, thus paying less than 30 days' interest for that Due Period, while very
few loans prepaid after their respective due dates in that month. In addition,
liquidations of defaulted loans or the servicer's or our exercise of its option
to repurchase the entire remaining pool of loans will affect the timing of
principal distributions on the certificates of a series. See "Description of
the Certificates--Repurchase Option."
Information regarding the prepayment standard or model or any other rate of
assumed prepayment, as applicable, will be set forth in the prospectus
supplement for a series of certificates. Although the related prospectus
supplement will specify the prepayment assumptions used to price any series of
certificates, we cannot assure you that the loans will prepay at that rate, and
it is unlikely that prepayments or liquidations of the loans will occur at any
constant rate.
See "Description of the Certificates--Repurchase Option" for a description of
our or the servicer's option to repurchase the loans comprising part of a trust
when the aggregate outstanding principal balance of the loans is less than a
specified percentage of the initial aggregate outstanding principal balance of
the loans as of the related Cut-off Date. See also "The Trust--The Loan Pools"
for a description of our obligations to repurchase a loan in case of a breach
of a representation or warranty relative to that loan.
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DESCRIPTION OF THE CERTIFICATES
Each series of certificates will be under a separate pooling and servicing
agreement to be entered into among Conseco Securitizations, as seller, Conseco
Finance, as servicer, and the trustee named in the applicable prospectus
supplement, and other parties as are described in the applicable prospectus
supplement. The following summaries describe provisions expected to be common
to each pooling and servicing agreement and the related certificates, but do
not claim to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the related pooling and servicing
agreement and its description set forth in the related prospectus supplement.
The provisions of the form of pooling and servicing agreement filed as an
exhibit to the registration statement of which this prospectus is a part that
are not described herein may differ from the provisions of any actual pooling
and servicing agreement. The material differences will be described in the
related prospectus supplement. Capitalized terms used in this prospectus shall
have the meanings given to them in the form of pooling and servicing agreement
filed as an exhibit to the registration statement.
Each series of certificates will have been rated in the rating category by
the rating agency or agencies specified in the related prospectus supplement.
General
The certificates may be issued in one or more classes. If the certificates of
a series are issued in more than one class, the certificates of all or less
than all of such classes may be sold under this prospectus, and there may be
separate prospectus supplements relating to one or more of the classes sold.
When we refer to the prospectus supplement relating to a series comprised of
more than one class it should be understood to refer to each of the prospectus
supplements relating to the classes sold under this prospectus. When we refer
to the certificates of a class it should be understood to refer to the
certificates of a class within a series or all of the certificates of a single-
class series, as the context may require.
The certificates of each series will be issued in fully registered form only
and will represent the interests specified in the related prospectus supplement
in a separate trust created pursuant to the related pooling and servicing
agreement. The trust will be held by the trustee for the benefit of the
certificateholders. Except as otherwise specified in the related prospectus
supplement, the certificates will be freely transferable and exchangeable at
the corporate trust office of the trustee at the address listed in the related
prospectus supplement. No service charge will be made for any registration of
exchange or transfer of certificates, but the trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
Ownership of each loan pool may be evidenced by one or more classes of
certificates, each representing the interest in the loan pool specified in the
related prospectus supplement. Each series of certificates may include one or
more classes of subordinated certificates which are subordinated in right of
distribution to one or more other classes of senior certificates as provided in
the related prospectus supplement. A series that is both senior and subordinate
are mezzanine certificates, which are subordinated to one or more classes of
certificates and are senior to one or more classes of certificates. The
prospectus supplement for a series of
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mezzanine certificates will describe the extent to which they are subordinated,
which may include a formula for determining the subordinated amount or for
determining the allocation of the Amount Available among senior certificates
and subordinated certificates, the allocation of losses among the classes of
subordinated certificates, the period or periods of such subordination, the
minimum subordinated amount, and any distributions or payments which will not
be affected by any subordination. The protection afforded to the senior
certificateholders from the subordination feature described above will be
effected by the preferential right of the certificateholders to receive current
distributions from the loan pool. If a series of certificates contains more
than one class of subordinated certificates, losses will be allocated among the
classes in the manner described in the prospectus supplement. If specified in
the applicable prospectus supplement, mezzanine certificates or other classes
of subordinated certificates may be entitled to the benefits of other forms of
credit enhancement and may, if rated in one of the four highest rating
categories by a nationally recognized statistical rating organization, be
offered under this prospectus and the prospectus supplement.
If specified in a prospectus supplement, a series of certificates may include
one or more classes which:
(1) are entitled to receive distributions only in respect of principal,
interest, or any combination of the two, or in specified proportions
of the payments;
(2) are entitled to receive distributions of principal before or after
specified principal distributions have been made on one or more other
classes within a series, or on a planned amortization schedule, or
targeted amortization schedule, or upon the occurrence of other
specified events.
The prospectus supplement will list the pass-through rate at which interest
will be paid to certificateholders of each class of a given series. The pass-
through rate may be fixed, variable or adjustable, as specified in the related
prospectus supplement.
The related prospectus supplement will specify the minimum denomination or
initial principal amount of loans evidenced by a single certificate of each
class of certificates of a series.
Distributions of principal and interest on the certificates will be made on
the payment dates listed in the related prospectus supplement to the persons in
whose names the certificates are registered at the close of business on the
related record date specified in the related prospectus supplement.
Distributions will be made by check mailed to the address of the person
entitled to the distribution as it appears on the certificate register, or, as
described in the related prospectus supplement, by wire transfer, except that
the final distribution in retirement of certificates will be made only upon
presentation and surrender of the certificates at the office or agency of the
trustee specified in the final distribution notice to certificateholders.
Global Certificates
The certificates of a class may be issued in whole or in part in the form of
one or more global certificates that will be deposited with, or on behalf of,
and registered in the name of
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a nominee for, a depositary identified in the related prospectus supplement.
The description of the certificates contained in this Prospectus assumes that
the certificates will be issued in definitive form.
Global certificates will be issued in registered form. Unless and until it is
exchanged in whole or in part for a certificate in definitive form, a global
certificate may not be transferred except as a whole by the depositary for the
global certificate to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary.
The specific terms of the depositary arrangement for any certificates of a
class will be described in the related prospectus supplement. It is anticipated
that the following provisions described in this subsection will apply to all
depositary arrangements:
Upon the issuance of a global certificate, the depositary for the global
certificate will credit, on its book-entry registration and transfer system,
the respective denominations of the certificates represented by the global
certificate to the accounts of institutions that have accounts with the
depositary. Ownership of beneficial interests in a global certificate will be
limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in the global certificate will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the depositary for the global certificate or by
Participants or persons that hold through Participants. The laws of some states
require that purchasers of securities take physical delivery of the securities
in definitive form. These limits and laws may impair the ability to transfer
beneficial interests in a global certificate.
So long as the depositary for a global certificate, or its nominee, is the
owner of the global certificate, the depositary or the nominee, as the case may
be, will be considered the sole owner or holder of the certificates represented
by the global certificate for all purposes under the pooling and servicing
agreement relating to those certificates. Except as described in the paragraph
below, owners of beneficial interests in a global certificate will not be
entitled to have certificates of the series represented by a global certificate
registered in their names, will not receive or be entitled to receive physical
delivery of certificates of that series in definitive form and will not be
considered the owners or holders under the pooling and servicing agreement
governing those certificates.
Distributions or payments on certificates registered in the name of or held
by a depositary or its nominee will be made to the depositary or its nominee,
as the case may be, as the registered owner for the holder of the global
certificate representing the certificates. In addition, all reports required
under the applicable pooling and servicing agreement to be made to
certificateholders, as described below under "Reports to Certificateholders,"
will be delivered to the depositary or its nominee, as the case may be. We, the
servicer, the trustee, or any agent, including any applicable certificate
registrar or paying agent, will not have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in a global certificate or for maintaining, supervising or
reviewing any records relating to the beneficial ownership interests or for
providing reports to the related beneficial owners.
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<PAGE>
We expect that the depositary for certificates of a class, upon receipt of
any distribution or payment in respect of a global certificate, will credit
immediately Participants' accounts with payments in amounts proportionate to
their respective beneficial interest in the global certificate as shown on the
records of the depositary. We also expect that payments by Participants to
owners of beneficial interests in the global certificate held through
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers
registered in street name, and will be the responsibility of the Participants.
If a depositary for certificates of a class is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
or on behalf of us within the time period specified in the pooling and
servicing agreement, we will cause to be issued certificates of that class in
definitive form in exchange for the related global certificate or certificates.
In addition, we may at any time and in our sole discretion determine not to
have any certificates of a class represented by one or more global certificates
and, if this occurs, will cause to be issued certificates of that class in
definitive form in exchange for the related global certificate or certificates.
Further, if we specify that the certificates of a class, an owner of a
beneficial interest in a global certificate representing certificates of that
class may, on terms acceptable to us and the depositary for the global
certificate, receive certificates of that class in definitive form. If this
occurs, an owner of a beneficial interest in a global certificate will be
entitled to physical delivery in definitive form of certificates of the class
represented by the global certificate equal in denominations to the beneficial
interest and to have the certificates registered in its name.
Payments on Loans
Each certificate account will be a trust account established by the servicer
as to each series of certificates in the name of the trustee:
(1) with a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit are rated within the
two highest rating categories, or other rating category as will not
adversely affect the ratings assigned to the certificates, by each
rating agency rating the certificates of that series,
(2) with the trust department of a national bank,
(3) in an account or accounts the deposits in which are fully insured by
the FDIC,
(4) in an account or accounts the deposits in which are insured by the
FDIC, to the limits established by the FDIC, the uninsured deposits
in which are otherwise secured so that, as evidenced by an opinion of
counsel, the certificateholders have a claim with respect to the
funds in the certificate account or a perfected first priority
security interest against any collateral securing the funds that is
superior to the claims of any other depositors or general creditors
of the depository institution with which the certificate account is
maintained or
(5) otherwise acceptable to the rating agency without reduction or
withdrawal of the rating assigned to the relevant certificates.
The collateral eligible to secure amounts in the certificate account is limited
to United States government securities and other high-quality investments
specified in the applicable pooling
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and servicing agreement. A certificate account may be maintained as an
interest-bearing account, or the funds held in the account may be invested
pending each succeeding payment date in Eligible Investments.
Unless we specify otherwise in the prospectus supplement, the servicer will
deposit in the certificate account on a daily basis all proceeds and
collections received or made by it subsequent to the Cut-off Date, including
scheduled payments of principal and interest due after the Cut-off Date but
received by the servicer on or before the Cut-off Date, including:
(1) all obligor payments on account of principal, including principal
prepayments, on the loans;
(2) all obligor payments on account of interest on the loans;
(3) all FHA Insurance payments received by the servicer;
(4) all amounts received and retained for the liquidation of defaulted
loans, net of liquidation expenses;
(5) any Advances made as described under "Advances" below and other
amounts required under the pooling and servicing agreement to be
deposited in the certificate account;
(6) all amounts received from any credit enhancement provided on a series
of certificates; and
(7) all proceeds of any loan or property acquired or repurchased by the
servicer or us, as described under "Conveyance of Loans" above or
under "Repurchase Option" below.
Distributions on Certificates
Except as we provide otherwise in the prospectus supplement, on each payment
date for a series of certificates, the trustee will withdraw from the
applicable certificate account and distribute to the certificateholders of that
series of record on the preceding record date an amount equal to, in the
aggregate, the Amount Available for that payment date. Unless we specify
otherwise in the applicable prospectus supplement, the Amount Available for a
payment date is an amount equal to the sum of all amounts on deposit in the
certificate account as of the seventh business day following the end of the
related Due Period, or another date as may be specified in the related
prospectus supplement, except:
(1) all payments on the loans that were due on or before the Cut-off
Date;
(2) all payments or collections received after the Due Period preceding
the month in which the payment date occurs;
(3) all scheduled payments of principal and interest due on a date or
dates subsequent to the Due Period preceding the Determination Date;
(4) amounts representing reimbursement for Advances, such reimbursement
being limited, if so specified in the related prospectus supplement,
to amounts received on particular loans as late collections of
principal or interest as to which the servicer has made an
unreimbursed advance; and
(5) amounts representing reimbursement for any unpaid servicing fee.
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In the case of a series of certificates which includes only one class, the
Amount Available for each distribution or payment date will be distributed pro
rata to the holders of the certificates. In the case of any other series of
certificates, the Amount Available for each payment date will be allocated and
distributed to holders of the certificates of the series according to the
method and in the order of priority specified in the applicable prospectus
supplement. We refer to the amount of principal and interest specified in the
related prospectus supplement to be distributed to certificateholders as the
Certificate Distribution Amount.
Within the time specified in the pooling and servicing agreement and
described in the related prospectus supplement, the servicer will furnish a
statement to the trustee listing the amount to be distributed on the related
payment date on account of principal and interest, stated separately, and a
statement listing information about the loans.
Example of Distributions
The following is an example of the flow of funds as it would relate to a
hypothetical series of certificates issued, and with a Cut-off Date occurring,
in March 1999. All weekdays are assumed to be business days. The initial
principal balance of the loan pool will be the aggregate principal balance of
the loans at the close of business on the Cut-off Date, after deducting
principal payments due on or before such date, which, together with
corresponding interest payments, are not part of the loan pool and will not be
passed through to certificateholders. Scheduled payments and principal
prepayments may be received at any time during this period and will be
deposited in the certificate account by the servicer for distribution to
certificateholders. When a loan is prepaid in full, interest on the amount
prepaid is collected from the obligor only to the date of payment.
Distributions on April 15 will be made to certificateholders of record at the
close of business on the last business day of March, being the month
immediately preceding the month of distribution. On April 9, the seventh
business day following the end of the prior Due Period, the servicer will
determine the amounts of principal and interest which will be passed through on
April 15. In addition, the servicer may advance funds to cover any
delinquencies, in which event the distribution to certificateholders on April
15 will include the full amounts of principal and interest due during March.
The servicer will also calculate any changes in the relative interests
evidenced by the senior certificates and the subordinated certificates in the
trust. On April 15, the amounts determined on April 9 will be distributed to
certificateholders.
<TABLE>
<S> <C>
March 1............................................. Cut-off Date.
March 1-31.......................................... Due Period. Servicer
receives scheduled payments
on the loans and any
principal prepayments made
by obligors and applicable
interest thereon.
March 31............................................ Record date.
April 9............................................. Determination Date.
Distribution amount
determined.
April 15............................................ Payment date.
</TABLE>
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Succeeding months follow the pattern of the Due Period through the payment
date. The flow of funds with respect to any series of certificates may differ
from the above example, as specified in the related prospectus supplement.
Reports to Certificateholders
The trustee will forward to each certificateholder on each payment date, or
as soon thereafter as is practicable, as specified in the related prospectus
supplement, a statement listing the following information:
(1) the amount of distribution which constitutes monthly principal,
specifying the amounts constituting scheduled payments by obligors,
principal prepayments on the loans, and other payments on the loans;
(2) the amount of such distribution which constitutes monthly interest;
(3) the remaining principal balance represented by the certificateholder's
interest;
(4) our FHA Insurance reserve amount;
(5) the amount of fees payable out of the trust;
(6) the pool factor, a percentage derived from a fraction the numerator of
which is the remaining principal balance of the certificates and the
denominator of which is the initial principal amount of the
certificates, immediately before and immediately after the payment
date;
(7) the number and aggregate principal balance of loans delinquent (a) 31-
59 days, (b) 60-89 and (c) 90 or more days;
(8) the number of loans liquidated during the Due Period ending
immediately before the payment date;
(9) other customary factual information as is necessary to enable
certificateholders to prepare their tax returns; and
(10) such other customary factual information available to the servicer
without unreasonable expense as is necessary to enable
certificateholders to comply with regulatory requirements.
Advances
Unless we specify otherwise in the prospectus supplement, to the extent that
collections on a loan in any Due Period are less than the scheduled payment
due, the servicer will be obligated to make an advance of the uncollected
portion of the scheduled payment. The servicer will be obligated to advance a
delinquent payment on a loan only to the extent that the servicer, in its sole
discretion, expects to recoup such advance from subsequent collections on the
loan or from Liquidation Proceeds of the loans. The servicer will deposit any
Advances in the certificate account no later than one business day before the
following payment date. The servicer will be entitled to recoup its Advances on
a loan from subsequent payments by or on behalf of the obligor and from
Liquidation Proceeds,
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including FHA Insurance payments or foreclosure resale proceeds, if any, of the
loan, and will release its right to reimbursements in conjunction with the
purchase of the loan by us for breach of representations and warranties. If the
servicer determines in good faith that an amount previously advanced will not
ultimately be recoverable from payments by or on behalf of the obligor or from
Liquidation Proceeds, including FHA Insurance payments or foreclosure resale
proceeds of the loan, the servicer will be entitled to reimbursement from
payments on other loans or from other funds available.
Unless we specify otherwise in the prospectus supplement, if the servicer
fails to make an advance required under the pooling and servicing agreement,
the trustee will be obligated to deposit the amount of the advance in the
certificate account on the payment date. The trustee will not be obligated to
deposit any amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from Liquidation Proceeds or
(2) the trustee determines that it is not legally able to make the
advance.
Indemnification
The pooling and servicing agreement requires us to defend and indemnify the
trust, the trustee, including any agent of the trustee and the
certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation:
(1) arising out of or resulting from the use or ownership by us or the
servicer or any affiliate of any real estate related to a loan and
(2) for any taxes which may at any time be asserted for, and as of the
date of, the transfer of the loans to the trust, but not including any
federal, state or other tax arising out of the creation of the trust
and the issuance of the certificates.
The pooling and servicing agreement also requires the servicer, in its duties
as servicer of the loans, to defend and indemnify the trust, the trustee and
the certificateholders, which indemnification will survive any removal of the
servicer as servicer of the loans, against any and all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel and expenses of litigation, for any action taken by the servicer on any
loan while it was the servicer.
Servicing
Under to the pooling and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as more fully described below in
this section. The servicer will perform diligently all services and duties
specified in each pooling and servicing agreement, in the same manner as
prudent lending institutions of home improvement loans and home equity loans of
the same type as the loans in those jurisdictions where the related real
properties are located or as otherwise specified in the pooling and servicing
agreement.
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The duties to be performed by the servicer will include collection and
remittance of principal and interest payments, collection of insurance claims
and, if necessary, foreclosure of loans.
The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the pooling and servicing agreement and
any FHA Insurance, will follow the collection procedures as it follows for
mortgage loans or loans serviced by it that are comparable to the loans.
Evidence as to Compliance. Unless we specify otherwise in the prospectus
supplement, each pooling and servicing agreement will require the servicer to
deliver to the trustee a monthly report before each payment date, describing
information about the loan pool and the certificates of the series as is
specified in the related prospectus supplement. Each report to the trustee will
be accompanied by a statement from an appropriate officer of the servicer
certifying the accuracy of the report and stating that the servicer has not
defaulted in the performance of its obligations under the pooling and servicing
agreement. On or before May 1 of each year, the servicer will deliver to the
trustee a report of a nationally recognized accounting firm stating that the
firm has examined documents and records relating to the servicing of home
improvement loans and home equity loans serviced by the servicer under pooling
and servicing agreements similar to the pooling and servicing agreement and
stating that, on the basis of those procedures, the servicing has been
conducted in compliance with the pooling and servicing agreement, except for
any exceptions described in the report.
Certain Matters Regarding the Servicer. The servicer may not resign from its
obligations and duties under the pooling and servicing agreement except upon a
determination that its duties under the agreement are no longer permissible
under applicable law. No resignation will become effective until the trustee or
a successor servicer has assumed the servicer's obligations and duties under
the pooling and servicing agreement. The servicer can only be removed as
servicer upon the occurrence of an event of termination as discussed below
under "--Events of Termination."
The servicer shall keep in force throughout the term of the pooling and
servicing agreement:
(1) a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the pooling and servicing
agreement, and
(2) a fidelity bond.
The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home
improvement loans and home equity loans having an aggregate principal amount of
$10 million or more and which are generally regarded as servicers acceptable to
institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which we may assign, for each Due Period, paid on the next
succeeding payment date, equal to 1/12th of
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the product of the annual servicing fee rate described in the prospectus
supplement and the Pool Scheduled Principal Balance for the payment date. As
long as we are the servicer, the trustee will pay us its monthly servicing fee
from any monies remaining after the certificateholders have received all
payments of principal and interest for the payment date.
The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records with
respect to each loan. Administrative services performed by the servicer on
behalf of the trust include selecting and packaging the loans, calculating
distributions to certificateholders and providing related data processing and
reporting services for certificateholders and on behalf of the trustee.
Expenses incurred in connection with servicing of the loans and paid by us from
our monthly servicing fees include payment of FHA insurance premiums, payment
of fees and expenses of accountants, payments of all fees and expenses incurred
in the enforcement of loans or foreclosure on collateral relating thereto,
including submission of FHA insurance claims, payment of trustee's fees, and
payment of expenses incurred in distributions and reports to
certificateholders, except that the servicer shall be reimbursed out of the
Liquidation Proceeds of a liquidated loan, including FHA insurance proceeds,
for customary out-of-pocket liquidation expenses incurred by it.
Events of Termination. Except as we specify otherwise in the prospectus
supplement, events of termination under each pooling and servicing agreement
will occur if:
(1) the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and such
failure continues for four business days;
(2) the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for 30 days;
(3) the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
(4) a court having jurisdiction in the premises enters a decree or order
for relief in respect of the servicer in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator, or similar official, of the
servicer or enters a decree or order for any substantial liquidation
of its affairs;
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(5) the servicer begins a voluntary case under any applicable bankruptcy,
insolvency or similar law, or consents to the entry of an order for
relief in an involuntary case under any law, or consents to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits
in writing its inability to, pay its debts as they become due, or
takes any corporate action in furtherance of the foregoing;
(6) the servicer fails to be an eligible servicer; or
(7) if we are the servicer, our servicing rights under its master seller-
servicer loan with GNMA are terminated.
The servicer will be required under the pooling and servicing agreement to give
the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of the event.
Rights Upon Event of Termination. Except as we specify otherwise in the
prospectus supplement, so long as an event of termination remains unremedied,
the trustee may, and at the written direction of certificateholders
representing 25% or more of the aggregate certificate principal balance of a
series shall, terminate all of the rights and obligations of the servicer under
the related pooling and servicing agreement and in and to the loans, and the
proceeds of the loans, at which time, subject to applicable law regarding the
trustee's ability to make Advances, the trustee or a successor servicer under
the pooling and servicing agreement will succeed to all the responsibilities,
duties and liabilities of the servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the trustee nor any successor servicer will assume our
obligation to repurchase loans for breaches of representations or warranties,
and the trustee and such successor servicer will not be liable for any acts or
omissions of the prior servicer occurring before a transfer of the servicer's
servicing and related functions or for any breach by the servicer of any of its
obligations contained in the pooling and servicing agreement. In addition, the
trustee will notify FHA of our termination as servicer of the loans and will
request that our portion FHA Insurance reserves allocable to the FHA-insured
home improvement loans be transferred to the trustee or a successor servicer.
See "Description of FHA Insurance." Notwithstanding the termination, the
servicer shall be entitled to payment of certain amounts payable to it before
the termination, for services rendered before the termination. No termination
will affect in any manner our obligation to repurchase certain loans for
breaches of representations or warranties under the pooling and servicing
agreement. If the trustee would be obligated to succeed the servicer but is
unwilling or unable so to act, it may appoint, or petition to a court of
competent jurisdiction for the appointment of, a servicer. Pending appointment,
the trustee is obligated to act in this capacity. The trustee and the successor
may agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the servicer under the pooling and servicing
agreement.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the pooling and servicing agreement at
the request, order or
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direction of any of the holders of certificates, unless the certificateholders
have offered to the trustee reasonable security or indemnity against the costs,
expenses and liabilities which the trustee may incur.
Repurchase Option
Unless otherwise specified in the related prospectus supplement, Conseco
Finance, the holder of the residual interest, or the servicer may at its option
regarding any series of certificates, repurchase all certificates or loans
remaining outstanding at that time as the aggregate unpaid principal balance of
the loans is less than the percentage of the aggregate unpaid principal balance
of the loans on the cut-off date specified for that series in the related
prospectus supplement. Unless otherwise provided in the related prospectus
supplement, the repurchase price will equal the principal amount of the loans
plus accrued interest from the first day of the month of repurchase to the
first day of the next succeeding month at the loan rates born by the loans. In
addition, if so specified in the related prospectus supplement, the pooling and
servicing agreement may provide for one or more auctions of the trust property
if such a purchase option is not exercised.
Amendment
Unless we specify otherwise in the prospectus supplement, the pooling and
servicing agreement may be amended by Conseco Securitizations, the servicer and
the trustee without the consent of the certificateholders:
(1) to cure any ambiguity; or
(2) to correct or supplement any provision in the agreement that may be
inconsistent with another provision; or
(3) if an election has been made for a particular series of certificates
to treat the trust as a REMIC within the meaning of Section 860D(a) of
the IRS code, to maintain the REMIC status of the trust and to avoid
the imposition of certain taxes on the REMIC; or
(4) to make any other provisions for matters or questions arising under
such pooling and servicing agreement that are not inconsistent with
its provisions, provided that the action will not adversely affect in
any material respect the interests of the certificateholders of the
related series.
Unless we specify otherwise in the prospectus supplement, the pooling and
servicing agreement may also be amended by Conseco Securitizations, the
servicer and the trustee with the consent of the certificateholders, other than
holders of residual certificates, representing 66 2/3% or more of the aggregate
certificate principal balance of a series for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the pooling and servicing agreement or of modifying in any manner the rights of
the certificateholders; provided, however, that no amendment that reduces in
any manner the amount of, or delays the timing of, any payment received on
loans which are required to be distributed on any certificate may be effective
without the consent of the holders of each certificate.
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Termination of the Agreement
The obligations created by each pooling and servicing agreement will
terminate, after distribution of all monthly principal and monthly interest
then due to certificateholders, on the earlier of:
(1) the payment date after the later of the final payment or other
liquidation of the last loan or the disposition of all property
acquired upon foreclosure of any loan;
(2) the date on which the holder of the "residual interest" in the trust
exercises its rights to order qualified liquidation of the trust, is
described under "Description of the Certificates--Repurchase Option";
or
(3) the payment date on which we or the servicer repurchase the loans as
described under "Description of the Certificates--Repurchase Option."
However, our representations, warranties and indemnities will survive
any termination of the pooling and servicing agreement.
The Trustee
The prospectus supplement for a series of certificates will specify the
trustee under the related pooling and servicing agreement. The trustee may have
customary commercial banking relationships with us or our affiliates and the
servicer or its affiliates.
The trustee may resign at any time, in which event Conseco Finance will be
obligated to appoint a successor trustee. Conseco Finance may also remove the
trustee if the trustee ceases to be eligible to continue as trustee under the
pooling and servicing agreement or if the trustee becomes insolvent. Any
resignation or removal of the trustee and appointment of a successor trustee
will not become effective until acceptance of the appointment by the successor
trustee.
The trustee will make no representation as to the validity or sufficiency of
the pooling and servicing agreement, the certificates or any loan, loan file or
related documents, and will not be accountable for the use or application by
Conseco Finance of any funds paid to Conseco Finance, as seller, in
consideration of the conveyance of the loans, or deposited into or withdrawn
from the certificate account by the servicer. If no event of termination has
occurred, the trustee will be required to perform only those duties
specifically required of it under the pooling and servicing agreement. However,
upon receipt of the various certificates, reports or other instruments required
to be furnished to it, the trustee will be required to examine them to
determine whether they conform as to form to the requirements of the pooling
and servicing agreement. Whether or not an event of termination has occurred,
the trustee is not required to expend or risk its own funds or otherwise incur
any financial liability in the performance of its duties or the exercise of its
powers if it has reasonable grounds to believe that repayment of the funds or
adequate indemnity against the risk or liability is not reasonably assured to
it.
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Under the pooling and servicing agreement, the servicer agrees to pay to the
trustee on each payment date:
. reasonable compensation for all services rendered by it under the
agreement, which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust;
and
. reimbursement for all reasonable expenses, disbursements and Advances
incurred or made by the trustee in accordance with any provision of
the pooling and servicing agreement, including FHA Insurance premiums
not paid by the servicer and reasonable compensation and the expenses
and disbursements of its agents and counsel, except any such expense,
disbursement or advance as may be attributable to the trustee's
negligence or bad faith.
We have agreed to indemnify the trustee for, and to hold it harmless against,
any loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the trust and the trustee's duties, including the costs and expenses of
defending itself against any claim or liability in connection with the exercise
or performance of any of the trustee's powers or duties.
DESCRIPTION OF FHA INSURANCE
Some of the home improvement loans may be FHA-insured, the payments upon
which are insured by the FHA under Title I of the National Housing Act and are
subject to the following discussion.
The insurance available to any trust will be subject to the limit of a
reserve amount equal to 10% of the principal balance of all Title I insured
loans originated or purchased and reported for FHA Insurance by us, which
amount will be increased by an amount equal to 10% of the lesser of the
principal balance or the purchase price of insured loans subsequently
originated or purchased of record by us. Our reserve amount may be reduced by
10% of the principal balance of any loans reported to FHA as sold without
recourse by us. In the pooling and servicing agreement, we will agree to pay
all FHA Insurance premiums required by FHA regulations. If we fail to pay any
premium, the trustee or the successor servicer for each series is obligated to
pay the premium and is entitled to be reimbursed by us and from collections on
the related home improvement loans.
As of June 30, 2000, our FHA Insurance reserve amount was equal to
approximately $61,469,331.01. These insurance reserves were available to cover
losses on approximately $474,541,00 of FHA-insured manufactured housing loans
and approximately $144,643,000 of FHA-insured home improvement loans, including
the FHA-insured home improvement loans that may be owned by a trust. If an
event of termination, as defined under "Description of the Certificates--Events
of Termination" occurs, each trustee will notify
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FHA of Conseco Finance's termination as servicer of the related FHA-insured
home improvement loans and will request that the portion of our FHA Insurance
reserves allocable to the FHA-insured home improvement loans be transferred to
the trustee or a successor servicer. Although each trustee will request a
transfer of reserves, FHA is not obligated to comply with such a request, and
may determine that it is not in FHA's interest to permit the transfer of
reserves. In addition, FHA has not specified how insurance reserves might be
allocated in such event, and there can be no assurance that any reserve amount,
if transferred to the trustee or a successor servicer, would not be
substantially less than 10% of the outstanding principal amount of the FHA-
insured home improvement loans. It is likely that the trustee or any successor
servicer would be the lender of record on other FHA Title I loans, so that any
reserves that are so permitted to be transferred would become commingled with
reserves available for other FHA Title I loans. FHA also reserves the right to
transfer reserves with "earmarking," segregating reserves so that they will not
be commingled with the reserves of the transferee, if it is in FHA's interest
to do so.
In general, FHA will insure property improvement loans up to $25,000 for a
single-family property, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up to $12,000 per unit for a $48,000 limit
for four units for owner-occupied multiple-family homes. If the loan amount is
$15,000 or more, FHA requires a drive-by appraisal, the current tax assessment
value, or a full uniform residential appraisal report dated within 12 months of
the closing to verify the property's value. The maximum loan amount on
transactions requiring an appraisal is the amount of equity in the property
shown by the market value determination of the property. The loan proceeds must
be used for the purposes described in the loan application, and those
improvements must substantially protect or improve the basic livability or
utility of the property. The secretary of HUD from time to time publishes a
list of ineligible items and activities which may not be financed with the
proceeds of an FHA-insured home improvement loan.
Following a default on an FHA-insured home improvement loan the servicer may,
subject to certain conditions, either commence foreclosure proceedings against
the improved property securing the loan, or submit a claim to FHA, but may
submit a claim to FHA after proceeding against the improved property only with
the prior approval of the secretary of HUD. The availability of FHA Insurance
following a default on an FHA-insured home improvement loan is subject to a
number of conditions, including strict compliance by us with FHA regulations in
originating and servicing the home improvement loan. Failure to comply with FHA
regulations may result in a denial of or surcharge on the FHA Insurance claim.
Prior to declaring an FHA-insured home improvement loan in default and
submitting a claim to FHA, the servicer must take certain steps to attempt to
cure the default, including personal contact with the borrower either by
telephone or in a meeting and providing the borrower with 30 days' written
notice before declaration of default. FHA may deny insurance coverage if the
borrower's nonpayment is related to a valid objection to faulty contractor
performance. In that event, we will seek to obtain payment by or a judgment
against the borrower, and may resubmit the claim to FHA following such a
judgment. As
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described under "Conseco Finance Corp.--Loan Origination," We do not purchase a
home improvement loan until the customer verifies satisfactory completion of
the work.
Upon submission of a claim to FHA, the related trust must assign its entire
interest in the home improvement loan to the United States. In general, the
claim payment will equal 90% of the sum of:
(1) the unpaid principal amount of the home improvement loan at the date
of default and uncollected interest computed at the loan rate earned
to the date of default;
(2) accrued and unpaid interest on the unpaid amount of the home
improvement loan from the date of default to the date of submission
of the claim plus 15 calendar days, but in no event more than nine
months, computed at a rate of 7% per annum;
(3) uncollected court costs;
(4) legal fees, not to exceed $500; and
(5) expenses for recording the assignment of the lien to the United
States, if applicable.
LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of our conveyance and assignment of a pool of loans to a trust,
the certificateholders of such series, as the beneficial owners of the trust,
will succeed collectively to all of the rights thereunder, including the right
to receive payment on the loans. The following discussion contains summaries of
certain legal aspects of home improvement loans and home equity loans secured
by residential properties which are general in nature. These legal aspects are
in addition to the requirements of FHA regulations described in "Description of
FHA Insurance" with respect to the FHA-insured home improvement loans. Because
these legal aspects are governed by applicable state law, which laws may differ
substantially, the summaries do not purport to be complete nor to reflect the
laws of any particular state, nor to encompass the laws of all states in which
the real estate securing the loans may be situated or which may govern any
loan. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the loans.
Mortgages and Deeds of Trust
The loans will be secured by either mortgages, deeds of trust, security deeds
or deeds to secure debt depending upon the prevailing practice in the state in
which the underlying property is located, and may have first, second or third
priority. In some states, a mortgage creates a lien upon the real property
encumbered by the mortgage or deed of trust. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent, such as, the payment of the indebtedness secured. There are two
parties to a mortgage: the mortgagor, who is the borrower, and the mortgagee,
who is the
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lender. In a mortgage state, the mortgagor delivers to the mortgagee a note or
retail installment loan evidencing the loan and the mortgage. Although a deed
of trust is similar to a mortgage, a deed of trust has three parties: the
borrower, or trustor, the lender as beneficiary, and a third-party grantee
called the trustee. Under a deed of trust, the borrower grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale,
to the trustee to secure repayment of the loan. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
applicable state law, the express provisions of the deed of trust or mortgage,
and, in some cases for deeds of trust, the directions of the beneficiary. Some
states use a security deed or deed to secure debt which is similar to a deed of
trust except that it has only two parties: a grantor, similar to a mortgagor,
and a grantee, similar to a mortgagee. Mortgages, deeds of trust and deeds to
secure debt are not prior to liens for real estate taxes and assessments and
other charges imposed under governmental police powers. Priority between
mortgages, deeds of trust and deeds to secure debt and other encumbrances
depends on their terms, the knowledge of the parties to the instrument in some
cases and generally on the order of recordation of the mortgage, deed of trust
or the deed to secure debt in the appropriate recording office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages, security deeds, deeds to secure debt
and deeds of trust securing the loans in any loan pool are expected to be
second or third mortgages or deeds of trust which are junior to mortgages or
deeds of trust held by other lenders or institutional investors. The rights of
the related trust, and therefore the certificateholders, as beneficiary under a
junior deed of trust or as mortgagee under a junior mortgage, are subordinate
to those of the mortgagee or beneficiary under the senior mortgage or deed of
trust, including the prior rights of the senior mortgagee or beneficiary to
receive hazard insurance and condemnation proceeds and to cause the property
securing the loan to be sold upon default of the mortgagor or trustor under the
senior mortgage or deed of trust, thereby extinguishing the junior mortgagee's
or junior beneficiary's lien unless the servicer on behalf of the trust asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior loan or loans. As discussed more fully
below, a junior mortgagee or beneficiary may satisfy a defaulted senior loan in
full, or in some states may cure the default and bring the senior loan current,
in either event usually adding the amounts expended to the balance due on the
junior loan. Although we generally do not cure defaults under a senior mortgage
or deed of trust, it is our standard practice to protect our interest by
attending any foreclosure sale and bidding for property only if it is in our
best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like ours, confers on the mortgagee or beneficiary the right both to
receive all proceeds collected under any hazard insurance policy and all awards
made in connection with any condemnation proceedings, and to apply such
proceeds and awards to any indebtedness secured by the mortgage or deed of
trust, in such order as the mortgagee or beneficiary may determine. Thus, in
the event improvements on the property are damaged or destroyed by fire or
other casualty, or in the event the property is taken by condemnation, the
mortgagee
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or beneficiary under the underlying first mortgage or deed of trust will have
the prior right to collect any insurance proceeds payable under a hazard
insurance policy and any award of damages in connection with the condemnation
and to apply the same to the indebtedness secured by the first mortgage or deed
of trust. Proceeds in excess of the amount of first mortgage indebtedness, in
most cases, may be applied to the indebtedness of a junior mortgage or deed of
trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a future advance clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an obligatory or optional advance. If the mortgagee or beneficiary
is obligated to advance the additional amounts, the advance is entitled to
receive the same priority as amounts initially advanced under the mortgage or
deed of trust, notwithstanding the fact that there may be junior mortgages or
deeds of trust and other liens which intervene between the date of recording of
the mortgage or deed of trust and the date of the future advance, and, in some
states, notwithstanding that the senior mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of Advances under the clause rests, in
some states, on state statutes giving priority to all Advances made under the
loan agreement to a credit limit amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste, and to appear in and defend any action or proceeding purporting to
affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. If the mortgagor or trustor fails to perform any of
these obligations, the mortgagee or beneficiary is given the right under the
mortgage or deed of trust to perform the obligation itself, at its election,
with the mortgagor or trustor agreeing to reimburse the mortgagee or
beneficiary for any sums expended by the mortgagee or beneficiary on behalf of
the mortgagor or trustor. All sums so expended by a senior mortgagee or
beneficiary generally become part of the indebtedness secured by the senior
mortgage or deed of trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk.
. First, the borrower may have difficulty servicing and repaying multiple
loans.
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. Second, acts of the senior lender which prejudice the junior lender or
impair the junior lender's security may create a superior equity in
favor of the junior lender. For example, if the borrower and the senior
lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its
priority to the extent any existing junior lender is harmed or the
borrower is additionally burdened.
. Third, if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by
junior lenders can impair the security available to the senior lender
and can interfere with or delay the taking of action by the senior
lender.
The bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action establishes a waiver, or
fraud, bad faith, oppressive or unconscionable conduct and warrants a court of
equity to refuse affirmative relief to the mortgagee. In some circumstances a
court of equity may relieve the mortgagor from an entirely technical default
where the default was not willful. Generally, the action is initiated by the
service of legal pleadings upon all parties having an interest of record in the
real property. Delays in completion of the foreclosure occasionally may result
from difficulties in locating necessary parties defendant. When the mortgagee's
right to foreclosure is contested, the legal proceedings necessary to resolve
the issue can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a referee
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, under a power of sale provided in the
mortgage. Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a
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request for a copy of a notice of default and notice of sale. In addition,
before the sale, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. Some states require that a notice of sale be posted in a
public place and, in most states, published for a specified period of time in
one or more newspapers in a specified manner before the date of trustee's sale.
In addition, some state laws require that a copy of the notice of sale be
posted on the property and sent to all parties having an interest of record in
the property.
In some states, the borrower trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Individual state laws control the amount of foreclosure expenses
and costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is not common for a third party to purchase the
property at the foreclosure sale. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. Subject to the
right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance, paying taxes and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
commonly will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss resulting from the sale may be
reduced by the receipt of any mortgage insurance proceeds.
A second or third mortgagee may not foreclose on the property securing a
second or first mortgage unless it forecloses subject to the senior mortgages,
in which case it must either pay the entire amount due on the senior mortgages
before or at the time of the foreclosure sale or make payments on the senior
mortgages in the event the mortgagor is in default thereunder, in either event
adding the amounts expended to the balance due on the junior loan, and may be
subrogated to the rights of the senior mortgagees. In addition, in the event
that the foreclosure by a junior mortgagee triggers the enforcement of a due-
on-sale clause in a senior mortgage, the junior mortgagee may be required to
pay the full amount of the senior mortgages to the senior mortgagees.
Accordingly, for those loans which are second or third mortgage loans, if the
lender purchases the property, the lender's title will be subject to all senior
liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are
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generally payable to the holders of junior mortgages or deeds of trust and
other liens and claims in order of their priority, whether or not the borrower
is in default. Any additional proceeds are generally payable to the mortgagor
or trustor. The payment of the proceeds to the holders of junior mortgages may
occur in the foreclosure action of the senior mortgagee or may require the
institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" in this
prospectus.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related trust with respect to its acquisition, by
foreclosure or otherwise, and disposition of real property securing a loan, and
any taxes or fees imposed may reduce Liquidation Proceeds with respect to the
property, as well as distributions payable to the certificateholders.
Second or Third Mortgages
The loans may be secured by second or third mortgages or deeds of trust,
which are junior to first or second mortgages or deeds of trust held by other
lenders. The rights of the certificateholders as the holders of a junior deed
of trust, junior mortgage, or junior security deed are subordinate in lien and
in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the senior deed of
trust, the junior mortgagee's or junior beneficiary's lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the loan. See "--
Foreclosure" in this prospectus.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to secure debt or security deed. In the event of a conflict
between the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed and the junior mortgage, deed of trust, deed to secure debt or
security deed, the terms of the senior mortgage, deed of trust, deed to secure
debt or security deed will govern generally. Upon a failure of the mortgagor or
trustor to perform any of its obligations, the senior mortgagee or beneficiary,
subject to the terms of the senior mortgage, deed of trust, deed to secure debt
or security deed may have the right to perform the obligation itself.
Generally, all sums so expended by the mortgagee or beneficiary become part of
the indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
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Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their equity of redemption. The doctrine of equity of redemption provides
that, until the property covered by a mortgage has been sold in accordance with
a properly conducted foreclosure and foreclosure sale, those having an interest
which is subordinate to that of the foreclosing mortgagee have an equity of
redemption and may redeem the property by paying the entire debt with interest.
In addition, in some states, when a foreclosure action has been commenced, the
redeeming party must pay the costs of the action. Those having an equity of
redemption must generally be made parties and duly summoned to the foreclosure
action in order for their equity of redemption to be barred.
In some states, after sale under a deed of trust or foreclosure of a
mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In other
states, this right of redemption applies only to sale following judicial
foreclosure, and not to sale under a non-judicial power of sale. In most states
where the right of redemption is available, statutory redemption may occur upon
payment of the foreclosure purchase price, accrued interest and expenses of
foreclosure. In other states, redemption may be authorized if the former
borrower pays only a portion of the sums due. In some states, the right to
redeem is an equitable right. The equity of redemption, which is a non-
statutory right that must be exercised before foreclosure sale, should be
distinguished from statutory rights of redemption. The effect of a right of
redemption is to diminish the ability of the lender to sell the foreclosed
property. The exercise of a right of redemption would defeat the title of any
purchaser at a foreclosure sale, or of any purchaser from the lender subsequent
to judicial foreclosure or sale under a deed of trust. Consequently, the
practical effect of the redemption right is to force the lender to maintain the
property and pay the expenses of ownership until the redemption period has run.
In some states, there is no right to redeem property after a trustee's sale
under a deed of trust.
Anti-Deficiency Legislation and Other Limitations on Lenders
Individual states have imposed statutory restrictions that limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the public sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security;
however, in some of these states, the lender, following judgment on the
personal action, may be deemed to have elected a remedy and may be precluded
from
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exercising remedies on the security. Consequently, the practical effect of the
election requirement, when applicable, is that lenders will usually proceed
first against the security rather than bringing a personal action against the
borrower.
Other statutory provisions may limit any deficiency judgment against the
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of the sale. The purpose
of these statutes is to prevent a beneficiary or a mortgagee from obtaining a
large deficiency judgment against the former borrower as a result of low or no
bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in instances where the value of the lender's security has been impaired by acts
or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, under the federal bankruptcy law, the filing of a petition acts as a
stay against virtually all actions against the debtor, including the
enforcement of remedies of collection of a debt and, often, no interest or
principal payments are made during bankruptcy proceedings. A bankruptcy court
may also grant the debtor a reasonable time to cure a payment default of a
mortgage loan on a debtor's residence by paying arrearages and reinstate the
original mortgage loan payment schedule even though the lender accelerated the
mortgage loan and final judgment of foreclosure had been entered in state
court, provided no sale of the property had yet occurred, before the filing of
the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a mortgage loan default by
paying arrearages over a number of years. In the case of a mortgage loan not
secured by the debtor's principal residence, courts with federal bankruptcy
jurisdiction may also reduce the Monthly Payments due under the mortgage loan,
change the rate of interest and alter the mortgage loan repayment schedule.
The IRS code provides priority to certain federal tax liens over the lien of
the mortgage or deed of trust. The bankruptcy code also provides priority to
certain tax liens over the lien of the mortgage or deed of trust. The laws of
some states provide priority to state tax liens over the lien of the mortgage
or deed of trust. Numerous federal and some state consumer protection laws
impose substantive requirements upon mortgage lenders in connection with the
origination, servicing and the enforcement of mortgage loans. These laws
include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, state licensing requirements, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who
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fail to comply with the provisions of the law. In some cases, this liability
may affect assignees of the mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994, which became effective on
October 1, 1995, adds provisions to Regulation Z which impose additional
disclosure and other requirements on creditors involved in non-purchase money
mortgage loans with high interest rates or high up-front fees and charges. It
is possible that some loans included in a loan pool may be subject to these
provisions. The Home Protection Act applies to mortgage loans originated on or
after the effective date of these regulations. These laws can impose specific
statutory liabilities upon creditors who fail to comply with their provisions
and may affect the enforceability of the loan.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The holder-in-due-course rule of the Federal Trade Commission is intended to
defeat the ability of the transferor of a consumer credit loan which is the
seller of goods which gave rise to the transaction, and lenders and assignees,
to transfer the loan free of notice of claims by the debtor. The effect of this
rule is to subject the assignee of the loan to all claims and defenses which
the debtor could assert against the seller of goods, such as a home improvement
contractor. Liability under this rule is limited to amounts paid under a loan;
however, the obligor also may be able to assert the rule to set off remaining
amounts due as a defense against a claim brought by the trust against obligor.
The home protection act provides that assignees of high-interest, non-purchase
money mortgage loans, which may include some home improvement loans are subject
to all claims and defenses that the debtor could assert against the original
creditor, unless the assignee demonstrates that a reasonable person in the
exercise of ordinary due diligence could not have determined that the mortgage
loan was subject to the provisions of the home protection act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to
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limitations imposed by FHA regulations with respect to FHA-insured home
improvement loans, in some states there are or may be specific limitations upon
late charges which a lender may collect from a borrower for delinquent
payments. Under the pooling and servicing agreement, late charges, to the
extent permitted by law and not waived by us will be retained by us as
additional servicing compensation.
The standard forms of note, mortgage and deed of trust also include a debt-
acceleration clause, which permits the lender to accelerate the debt upon a
monetary default of the borrower, after the applicable cure period. Courts will
generally enforce clauses providing for acceleration in the event of a material
payment default. However, courts, exercising equity jurisdiction, may refuse to
allow a lender to foreclose a mortgage or deed of trust when an acceleration of
the indebtedness would be inequitable or unjust and the circumstances would
render the acceleration unconscionable.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have required lenders to reinstate loans or recast
payment schedules to accommodate borrowers who are suffering from temporary
financial disability. In some cases, courts have limited the right of lenders
to foreclose if the default under the mortgage instrument is not monetary, such
as the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or have found
that the sale by a trustee under a deed of trust or under a mortgage having a
power of sale does not involve sufficient state action to afford constitutional
protection to the borrower.
It is our practice with some of the home improvement loans to defer the first
payment for up to 90 days, and to charge the home improvement contractor points
to cover the lost interest due to collecting only 30 days' interest on the
first payment on these deferred payment loans.
Due-on-Sale Clauses
All of the loan documents will contain due-on-sale clauses unless the
prospectus supplement indicates otherwise. These clauses permit the servicer to
accelerate the maturity of the loan on notice, which is usually 30 days, if the
borrower sells, transfers or conveys the property without the prior consent of
the mortgagee. In recent years, court decisions and legislative actions placed
substantial restrictions on the right of lenders to enforce such clauses in
many states. However, effective October 15, 1982, Congress enacted the Garn-St
Germain Depository Institutions Act of 1982, which, after a three-year grace
period,
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preempts state laws which prohibit the enforcement of due-on-sale clauses by
providing, among other matters, that due-on-sale clauses in some loans,
including the home improvement loans, made after the effective date of the
Garn-St. Germain Act are enforceable within some limitations as described in
the Garn-St. Germain Act and its regulations.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any home improvement loan which contains a due-on-sale
clause upon transfer of an interest in the mortgaged property. This ability to
accelerate will not apply to certain types of transfers, including:
. the granting of a leasehold interest which has a term of three years
or less and which does not contain an option to purchase;
. a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property;
. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property;
. the creation of a lien or other encumbrance subordinate to the
lender's security instrument which does not relate to a transfer of
rights of occupancy in the mortgaged property, provided that such lien
or encumbrance is not created under a loan for deed;
. a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety; and
. other transfers as set forth in the Garn-St. Germain Act and the
regulations thereunder.
As a result, a lesser number of loans which contain due-on-sale clauses may
extend to full maturity than earlier experience would indicate for single-
family mortgage loans. However, we cannot predict the extent of the effect of
the Garn-St. Germain Act on the average lives and delinquency rates of the
loans.
The inability to enforce a due-on-sale clause may result in home improvement
loans bearing an interest rate below the current market rate being assumed by a
new home buyer rather than being paid off, which may have an impact upon the
average life of the loans and the number of loans which may be outstanding
until maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended, provides that, subject to specific conditions,
state usury limitations shall not apply to FHA-insured loans and to first
mortgage secured conventional loans if the loan is defined as a federally
related mortgage loan, a number of states have adopted legislation overriding
Title V's exemptions, as permitted by Title V. We will represent and
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warrant in each pooling and servicing agreement that all loans comply with any
applicable usury limitations.
Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, and under some states' laws, a secured party which takes a deed-
in-lieu of foreclosure, purchases a mortgaged property at a foreclosure sale,
or operates a mortgaged property may become liable in certain circumstances for
the costs of cleaning up hazardous substances regardless of whether they have
contaminated the property. CERCLA imposes strict, as well as joint and several,
liability on several classes of potentially responsible parties, including
current owners and operators of the property who did not cause or contribute to
the contamination. Additionally, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA.
This exemption exempts from the definition of owners and operators those who,
without participating in the management of a facility, hold indicia of
ownership primarily to protect a security interest in the facility. What
constitutes sufficient participation in the management of a property securing a
loan or the business of a borrower to render the exemption unavailable to a
lender has been a matter of interpretation by the courts. CERCLA has been
interpreted to impose liability on a secured party, even absent foreclosure,
where the party participated in the financial management of the borrower's
business to a degree indicating a capacity to influence waste disposal
decisions. However, court interpretations of the secured creditor exemption
have been inconsistent. In addition, when lenders foreclose and then become
owners of collateral property, courts are inconsistent as to whether ownership
renders the secured creditor exemption unavailable. Other federal and state
laws in some circumstances may impose liability on a secured party which takes
a deed-in-lieu of foreclosure, purchases a mortgaged property at a foreclosure
sale, or operates a mortgaged property on which contaminants other than CERCLA
hazardous substances are present, including petroleum, agricultural chemicals,
hazardous wastes, asbestos, radon, and lead-based paint. Such cleanup costs may
be substantial. It is possible that such cleanup costs could become a liability
of a trust and reduce the amounts otherwise distributable to the holders of the
related series of certificates in some circumstances if such cleanup costs were
incurred. Moreover, some states by statute impose a lien for any cleanup costs
incurred by the state on the property that is the subject of the cleanup costs,
an "environmental lien." All subsequent liens on the property generally are
subordinated to such an environmental lien and, in some states, even prior
recorded liens are subordinated to environmental liens. In the latter states,
the security interest of the trustee in a related parcel of real property that
is subject to an environmental lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present on any mortgaged property before the
origination of the mortgage loan or before foreclosure or accepting a deed-in-
lieu of foreclosure. Accordingly, we have has not made and will not make these
evaluations before the origination of the
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loans. Neither we nor any replacement servicer will be required by any pooling
and servicing agreement to undertake any such evaluations before foreclosure or
accepting a deed-in-lieu of foreclosure. We do not make any representations or
warranties or assume any liability for the absence or effect of contaminants on
any related real property or any casualty resulting from the presence or effect
of contaminants. However, we will not foreclose on related real property or
accept a deed-in-lieu of foreclosure if we know or reasonably believe that
there are material contaminated conditions on the property. A failure so to
foreclose may reduce the amounts otherwise available to certificateholders of
the related series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, would adversely affect, for an indeterminate period of time, the
ability of the Servicer to collect full amounts of interest on certain of the
loans. Any shortfall in interest collections resulting from the application of
the Relief Act or similar legislation, which would not be recoverable from the
related loans, would result in a reduction of the amounts distributable to the
certificateholders. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under certain circumstances, during an additional
three month period. In the event that the Relief Act or similar legislation
applies to any loan which goes into default, there may be delays in payment on
the certificates. Any other interest shortfalls, deferrals or forgiveness of
payments on the loans resulting from similar legislation or regulations may
result in delays in payments or losses to certificateholders.
Repurchase Obligations
We will represent and warrant that each FHA-insured home improvement loan was
originated in compliance with FHA regulations and is covered by FHA Insurance.
In the event FHA were to deny insurance coverage on an FHA-insured home
improvement loan due to a violation of FHA regulations in originating or
servicing such home improvement loans, such violation would constitute a breach
of a representation and warranty under the pooling and servicing agreement and
would create an obligation of us to repurchase such home improvement loan
unless the breach is cured. See "Description of the Certificates--Conveyance of
Loans."
In addition, we will also represent and warrant under each pooling and
servicing agreement that each loan complies with all requirements of law. If
any obligor has a claim against the related trust for violation of any law and
the claim materially adversely affects the trust's interest in a loan, such
violation would constitute a breach of a representation and warranty under the
pooling and servicing agreement and would create an obligation to repurchase
the loan unless the breach is cured. See "Description of the Certificates--
Conveyance of Loans."
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to ERISA and on persons who are fiduciaries with
respect to such Plans. Generally, ERISA applies to investments made by such
plans. Among other requirements, ERISA mandates that the assets of plans be
held in trust and that the trustee, or other duly authorized fiduciary, have
exclusive authority and discretion to manage and control the assets of those
plans. ERISA also imposes duties on persons who are fiduciaries of the plans.
Under ERISA, and subject to exemptions not relevant to this offering, any
person who exercises any authority or control over the management or
disposition of the assets of a Plan is considered to be a fiduciary of the
plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of plans be invested and
managed for the exclusive benefit of plan Participants and beneficiaries, a
determination by the plan fiduciary that any such investment is permitted under
the governing plan instruments and is prudent and appropriate for the plan in
view of its overall investment policy and the composition and diversification
of its portfolio. Some employee benefit plans, such as governmental plans, as
defined in ERISA Section 3(32) and some church plans, as defined in ERISA
Section 3(33), are not subject to ERISA. Accordingly, assets of these plans may
be invested in certificates without regard to the ERISA considerations
described above and in the paragraphs below, subject to the provisions of
applicable state law. Any plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the IRS code, however, is subject to the
prohibited transaction rules provided in Section 503 of the IRS code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
IRS code, prohibit a broad range of transactions involving plan assets and
persons having specified relationships to a plan. These transactions are
treated as prohibited transactions under Sections 406 and 407 of ERISA and
excise taxes are imposed upon such persons by Section 4975 of the IRS code. An
investment in the certificates by a plan might constitute prohibited
transactions under the foregoing provisions unless an administrative exemption
applies. In addition, if an investing plan's assets were deemed to include an
interest in the assets of the loan pool and not merely an interest in the
certificates, transactions occurring in the operation of the loan pool might
constitute prohibited transactions unless an administrative exemption applies.
Selected exemptions which may be applicable to the acquisition and holding of
the certificates or to the servicing and operation of the loan pool are noted
in the paragraphs below.
The Department of Labor has issued a regulation (29 C.F.R. Section 2510.3-
101) concerning the definition of what constitutes the assets of a plan. This
regulation provides that, as a general rule, the underlying assets and
properties of corporations, partnerships, trusts and certain other entities in
which a plan makes an equity investment will be deemed for purposes of ERISA to
be assets of the investing plan unless certain exceptions apply. However, the
regulation provides that, generally, the assets of a corporation or partnership
in which a plan invests will not be deemed for purposes of ERISA to be assets
of such plan if the equity interest acquired by the investing plan is a
publicly-offered security. A publicly
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offered security, as defined under the regulation, is a security that is widely
held, freely transferable, and registered under the Securities Exchange Act of
1934. The certificates are not expected to be publicly offered securities under
the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA,
and from the prohibited transaction excise tax provisions of Section 4975 of
the IRS code may be found under the provisions of specific statutory or
administrative exemptive relief authorized under Section 408 of ERISA. In
Prohibited Transaction Exemption 83-1, which amended Prohibited Transaction
Exemption 81-7, the DOL exempted from ERISA's prohibited transaction rules
transactions relating to the operation of residential mortgage pool investment
trusts and the purchase, sale and holding of mortgage pool pass-through
certificates in the initial issuance of such certificates. PTE 83-1 permits,
subject to certain conditions, transactions which might otherwise be prohibited
between Plans and parties in interest with respect to those plans related to
the origination, maintenance and termination of mortgage pools consisting of
mortgage loans secured by first or second mortgages or deeds of trust on
single-family residential property, and the acquisition and holding of certain
mortgage pool pass-through certificates representing an interest in such
mortgage pools by plans. If the general conditions of PTE 83-1 are satisfied,
investments by a plan in certificates that represent interests in a mortgage
pool consisting of single family loans will be exempt from the prohibitions of
Sections 406(a) and 407 of ERISA, relating generally to transactions with
parties in interest who are not fiduciaries, if the plan purchases the
certificates at no more than fair market value, and will be exempt from the
prohibitions of Section 406(b)(1) and (2) of ERISA, relating generally to
transactions with fiduciaries, if, in addition, the purchase is approved by an
independent fiduciary, no sales commission is paid to the pool sponsor, the
plan does not purchase more than 25 percent of such certificates, and at least
50 percent of all such certificates are purchased by persons independent of the
pool sponsor or pool trustee. However, PTE 83-1 does not provide an exemption
for transactions involving subordinate certificates or for certificates
representing an interest in conditional sales contracts and installment sales
or loan agreements secured by housing like the loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing plan's assets could be
considered to include an undivided interest in the home improvement loans and
any other assets held in the loan pool. If the assets of a contract pool are
considered assets of an investing plan, we, the servicer, the trustee and other
persons, in providing services on the contracts, may be considered fiduciaries
to the plan and subject to the fiduciary responsibility provisions of Title I
of ERISA and the prohibited transaction provisions of Section 4975 of the IRS
code for transactions involving those assets unless a statutory or
administrative exemption applies.
Any plan fiduciary considering the purchase of a certificate should consult
with its counsel about the potential applicability of ERISA and the IRS code to
the investment. Moreover, each plan fiduciary should determine whether, under
the general fiduciary standards of investment prudence and diversification, an
investment in the certificates is
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appropriate for the plan, taking into account the overall investment policy of
the plan and the composition of the plan's investment portfolio.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in transactions with persons who provide
services to insurance company general accounts. PTE 95-60 also permits
transactions relating to the origination and operation of asset pool investment
trusts in which an insurance company general account has an interest as the
result of the acquisition of certificates issued by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of PTE 95-60. The receivables covered by PTE 95-60 include home
improvement loans secured by either first or second mortgages in single-family,
residential property. The exemption offered by PTE 95-60 is conditioned upon
compliance with the requirements of one of several underwriter exemptions,
other than compliance with the requirements that the certificates acquired by
the general account not be subordinated and receive a rating that is in one of
the three highest generic rating categories from either S&P, Moody's, Duff &
Phelps or Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the IRS code, including the prohibited
transaction restrictions imposed by ERISA and the related excise taxes imposed
by the IRS code, for transactions involving an insurance company general
account. Under Section 401(c) of ERISA, the DOL published proposed regulations
on December 22, 1997 to provide guidance for the purpose of determining, in
cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of a plan on or before December 31, 1998, which
general account assets constitute plan assets. Section 401(c) of ERISA
generally provides that, until the date which is 18 months after the Proposed
401(c) Regulations become final, no person will be subject to liability under
Part 4 of Title I of ERISA and Section 4975 of the IRS code on the basis of a
claim that the assets of an insurance company general account constitute plan
assets, unless
(1)as otherwise provided by the Secretary of Labor in the Proposed 401(c)
Regulations to prevent avoidance of the regulations; or
(2)an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998 or issued to plans on or
before December 31, 1998 for which the insurance company does not comply with
the Proposed 401(c) Regulations may be treated as Plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as plan assets of any
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Plan invested in the separate account. Insurance companies contemplating the
investment of general account assets in the certificates should consult with
their legal counsel about the applicability of PTCE 95-60 and Section 401(c) of
ERISA, including the general account's ability to continue to hold the
securities after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of the federal income tax consequences
relating to the purchase, ownership, and disposition of the certificates. The
discussion is based upon laws, regulations, rulings, and decisions now in
effect, including Treasury Regulations issued on December 23, 1992, and
generally effective for REMICs with startup days on or after November 12, 1991,
all of which are subject to change, including retroactive changes, or possibly
differing interpretations. The discussion does not purport to deal with federal
income tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Investors should consult their own tax
advisors to determine the federal, state, local, and any other tax consequences
of the purchase, ownership, and disposition of the certificates.
Many aspects of the federal tax treatment of the purchase, ownership, and
disposition of the certificates will depend upon whether an election is made to
treat the trust or a segregated portion thereof evidenced by a particular
series or sub-series of certificates as a REMIC within the meaning of Section
860D(a) of the IRS code. The prospectus supplement for each series will
indicate whether or not an election to be treated as a REMIC has been or will
be made. The following discussion deals first with series for which a REMIC
election is made and then with series for which a REMIC election is not made.
REMIC Series
For each series of certificates for which a REMIC election is made, at the
initial issuance of the certificates in that series our counsel identified in
the applicable prospectus supplement will have advised us that in its opinion,
assuming ongoing compliance with the applicable pooling and servicing
agreement, the trust will qualify as a REMIC and the certificates in that
series, REMIC certificates, will be treated either as regular interests in the
REMIC within the meaning of Section 860G(a)(1) of the IRS code, regular
certificates, or as residual interests in the REMIC within the meaning of
Section 860G(a)(2) of the IRS code, residual certificates.
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with requirements and the following discussion assumes that these
requirements will be satisfied by the trust so long as there are any REMIC
certificates outstanding. Substantially all of the assets of the REMIC must
consist of qualified mortgages and permitted investments as of the close of the
third month beginning after the day on which the REMIC issues all of its
regular and residual interests startup day and at all times after that. The
term
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qualified mortgage means any obligation, including a participation or
certificate of beneficial ownership in such obligation, which is principally
secured by an interest in real property that is transferred to the REMIC on the
startup day in exchange for regular or residual interests in the REMIC or is
purchased by the REMIC within the three-month period beginning on the startup
day pursuant to a fixed price loan in effect on the startup day. The REMIC
regulations provide that a home improvement loan is principally secured by an
interest in real property if the fair market value of the real property
securing the loan is at least equal to either: (1) 80% of the issue price,
generally, the principal balance, of the loan at the time it was originated or
(2) 80% of the adjusted issue price, the then-outstanding principal balance,
with adjustments, of the loan at the time it is contributed to a REMIC. The
fair market value of the underlying real property is to be determined after
taking into account other liens encumbering that real property. Alternatively,
a home improvement loan is principally secured by an interest in real property
if substantially all of the proceeds of the loan were used to acquire or to
improve or protect an interest in real property that, at the origination date,
is the only security for the loan, other than the personal liability of the
obligor. A qualified mortgage also includes a qualified replacement mortgage
that is used to replace any qualified mortgage within three months of the
startup day or to replace a defective mortgage within two years of the startup
day.
Permitted investments consist of:
. temporary investments of cash received under qualified mortgages
before distribution to holders of interests in the REMIC, cash-flow
investments,
. amounts, such as a reserve fund, if any, reasonably required to
provide for full payment of expenses of the REMIC, the principal and
interest due on regular or residual interests in the event of defaults
on qualified mortgages, lower than expected returns on cash-flow
investments, prepayment interest shortfalls or certain contingencies,
qualified reserve assets, and
. certain property acquired as a result of foreclosure of defaulted
qualified mortgages, foreclosure property.
A reserve fund will not be qualified if more than 30% of the gross income from
the assets in the reserve fund is derived from the sale or other disposition of
property held for three months or less, unless the sale is necessary to prevent
a default in payment of principal or interest on regular certificates. In
accordance with Section 860G(a)(7) of the IRS code, a reserve fund must be
promptly and appropriately reduced as payments on loans are received.
Foreclosure property will be a permitted investment only to the extent that the
property is not held for more than two years.
The IRS code requires that in order to qualify as a REMIC an entity must make
reasonable arrangements designed to ensure that certain specified entities,
generally including governmental entities or other entities that are exempt
from United States tax, including the tax on unrelated business income,
disqualified organizations, not hold residual interests in the REMIC.
Consequently, it is expected that in the case of any trust for which a REMIC
election is made the transfer, sale, or other disposition of a residual
certificate to a
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disqualified organization will be prohibited and the ability of a residual
certificate to be transferred will be conditioned on the trustee's receipt of a
certificate or other document representing that the proposed transferee is not
a disqualified organization. The transferor of a residual certificate must not,
as of the time of the transfer, have actual knowledge that the representation
is false. The IRS code further requires that reasonable arrangements must be
made to enable a REMIC to provide the IRS and other parties, including
transferors of residual interests in a REMIC, with the information needed to
compute the tax imposed by Section 860E(e)(1) of the IRS code if, in spite of
the steps taken to prevent disqualified organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest. See
"REMIC Series--Restrictions on Transfer of Residual Certificates" below.
If the trust fails to comply with one or more of the ongoing requirements for
qualification as a REMIC, the trust will not be treated as a REMIC for the year
during which the failure occurs and thereafter unless the IRS determines, in
its discretion, that the failure was inadvertent, in which case, the IRS may
require any adjustments which it deems appropriate. If the ownership interests
in the assets of the trust consist of multiple classes, failure to treat the
trust as a REMIC may cause the trust to be treated as an association taxable as
a corporation. Such treatment could result in income of the trust being subject
to corporate tax in the hands of the trust and in a reduced amount being
available for distribution to certificateholders as a result of the payment of
the taxes.
Two-Tier REMIC Structures. For certain series of certificates, two separate
elections may be made to treat segregated portions of the assets of a single
trust as REMICs for federal income tax purposes a subsidiary REMIC and a master
REMIC. Upon the issuance of any such series of certificates, counsel will have
advised Conseco Finance, as described above, that at the initial issuance of
the certificates, the subsidiary REMIC and the master REMIC will each qualify
as a REMIC for federal income tax purposes, and that the certificates in the
series will be treated either as regular certificates or residual certificates
of the appropriate REMIC. Only REMIC certificates issued by the master REMIC
will be offered under this prospectus. Solely for the purpose of determining
whether the regular certificates will constitute qualifying real estate or real
property assets for certain categories of financial institutions or real estate
investment trusts as described below, both REMICs in a two-tier REMIC structure
will be treated as one. See the discussion below under "REMIC Series--Taxation
of Regular Interests."
Taxation of Regular Interests. Regular certificates will be treated as new
debt instruments issued by the REMIC on the startup day. If a regular
certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the stated
principal amount for that regular certificate may be zero. Such a specified
portion may consist of a fixed number of basis points, a fixed percentage of
interest or a qualified variable rate on some or all of the qualified
mortgages. Stated interest on a regular certificate will be taxable as ordinary
income. Holders of regular certificates that would otherwise report income
under a cash method of accounting will be required to report on such regular
certificates under the accrual method. Under temporary
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treasury regulations, if a trust, with respect to which a REMIC election is
made, is considered to be a single-class REMIC, a portion of the REMIC's
servicing fees, administrative and other non-interest expenses, including
assumption fees and late payment charges retained by Conseco Finance, will be
allocated as a separate item of gross income and as a separate item of expense
to those regular certificateholders that are pass-through interest holders.
Generally, a single-class REMIC is defined as a REMIC that would be treated as
a fixed investment trust under applicable law but for its qualification as a
REMIC, or a REMIC that is substantially similar to an investment trust but is
structured with the principal purpose of avoiding this allocation requirement
imposed by the temporary treasury regulations. Generally, a pass-through
interest holder refers to individuals, trusts and estates, certain other pass-
through entities beneficially owned by one or more individuals, trusts or
estates, and regulated investment companies. Such an individual, estate, trust
or pass-through entity that holds a regular certificate in such a REMIC will be
allowed to deduct the foregoing separate item of expense under Section 212 of
the IRS code only to the extent that, in the aggregate and combined with other
itemized deductions, it exceeds 2% of the adjusted gross income of the holder.
In addition, Section 68 of the IRS code provides that the amount of itemized
deductions, including those provided for in Section 212 of the IRS code,
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds a threshold amount specified in the IRS code, $128,950 for 2000,
in the case of a joint return, will be reduced by the lesser of (1) 3% of the
excess of adjusted gross income over the specified threshold amount or (2) 80%
of the amount of itemized deductions otherwise allowable for that taxable year.
In determining the alternative minimum taxable income of such an individual,
trust, estate or pass-through entity that is a holder of a regular certificate
in such a REMIC, no deduction will be allowed for the holder's allocable
portion of the foregoing expenses, even though an amount equal to the total of
the expenses will be included in the holder's gross income for alternative
minimum tax purposes. Unless otherwise stated in the related prospectus
supplement, the foregoing expenses will not be allocated to holders of a
regular certificate in a REMIC. If the foregoing limitations apply, some
holders of regular certificates in single-class REMICs may not be entitled to
deduct all or any part of the foregoing expenses. Accordingly, regular
certificates in such a single class-REMIC may not be appropriate investments
for individuals, trusts, estates or pass-through entities beneficially owned by
one or more individuals, trusts or estates. Prospective investors should
carefully consult with their own tax advisors prior to making an investment in
any regular certificates.
Tax Status of REMIC Certificates. In general:
(1) regular certificates held by a thrift institution taxed as a domestic
building and loan association within the meaning of Section
7701(a)(19) of the IRS code will constitute "a regular ... interest
in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi) of the
IRS code; and
(2) regular certificates held by a real estate investment trust will
constitute real estate assets within the meaning of Section
856(c)(5)(A) of the IRS code and interest thereon will be considered
interest on obligations secured by mortgages on real property within
the meaning of Section 856(c)(3)(B) of the IRS code.
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If less than 95% of the average adjusted basis of the assets comprising the
REMIC are assets qualifying under any of the foregoing sections of the IRS
code, including assets described in Section 7701(a)(19)(C) of the IRS code,
then the regular certificates will be qualifying assets only to the extent that
the assets comprising the REMIC are qualifying assets. Furthermore, interest
paid with respect to certificates held by a real estate investment trust will
be considered "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Section 856(c)(3)(B) of
the IRS code to the same extent that the certificates themselves are treated as
real estate assets. Regular certificates held by a regulated investment company
or a real estate investment trust will not constitute government securities
within the meaning of Sections 851(b)(4)(A)(i) and 856(c)(5)(A) of the IRS
code, respectively. In addition, the REMIC regulations provide that payments on
loans held and reinvested pending distribution to certificateholders will be
considered to be "real estate assets" within the meaning of Section
856(c)(5)(A) of the IRS code. Entities affected by the foregoing provisions of
the IRS code that are considering the purchase of certificates should consult
their own tax advisors regarding these provisions.
Original Issue Discount. Regular certificates may be issued with original
issue discount. Rules governing original issue discount are set forth in
Sections 1271-1273 and 1275 of the IRS code and the treasury regulations issued
under it in January 1994. The discussion here is based in part on the OID
Regulations, which generally apply to debt instruments issued on or after April
4, 1994, but which generally may be relied upon for debt instruments issued
after December 21, 1992. Although the rules relating to original issue discount
contained in the IRS code were modified by the Tax Reform Act of 1986
specifically to address the tax treatment of securities, such as the regular
certificates, on which principal is required to be prepaid based on prepayments
of the underlying assets, regulations under that legislation have not yet been
issued. Nonetheless, the IRS code requires that a prepayment assumption be used
with respect to the underlying assets of a REMIC in computing the accrual of
original issue discount on regular certificates, and that regular adjustments
be made in the amount and the rate of accrual to reflect differences between
the actual prepayment rate and the prepayment assumption. Although regulations
have not been issued concerning the use of a prepayment assumption, the
legislative history associated with the Tax Reform Act of 1986 indicates that
such regulations are to provide that the prepayment assumption used with
respect to a regular certificate must be the same as that used in pricing the
initial offering of the regular certificate. The prepayment assumption used in
reporting original issue discount for each series of regular certificates will
be consistent with this standard and will be disclosed in the related
prospectus supplement. However, no representation is made hereby nor can there
be any assurance that the underlying assets of a REMIC will in fact prepay at a
rate conforming to the prepayment assumption or at any other rate.
Certificateholders also should be aware that the OID Regulations do not address
certain issues relevant to, or are not applicable to, prepayable securities
such as the regular certificates.
In general, in the hands of the original holder of a regular certificate,
original issue discount, if any, is the difference between the stated
redemption price at maturity of the regular certificate and its issue price.
The original issue discount with respect to a regular
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certificate will be considered to be zero if it is less than .25% of the
regular certificate's stated redemption price at maturity multiplied by the
number of complete years from the date of issue of such regular certificate to
its maturity date. The OID Regulations, however, provide a special de minimis
rule to apply to obligations such as the regular certificates that have more
than one principal payment or that have interest payments that are not
qualified stated interest as defined in the OID Regulations, payable before
maturity. Under the special rule, original issue discount on an installment
obligation is generally considered to be zero if it is less than .25% of the
principal amount of the obligation multiplied by the weighted average maturity
of the obligation as defined in the OID Regulations. Because of the possibility
of prepayments, it is not clear whether or how the de minimis rules will apply
to the regular certificates. As described above, it appears that the prepayment
assumption will be required to be used in determining the weighted average
maturity of the regular certificates. In the absence of authority to the
contrary, Conseco Finance expects to apply the de minimis rule applicable to
installment obligations by using the prepayment assumption.
Generally, the original holder of a regular certificate that includes a de
minimis amount of original issue discount other than de minimis original issue
discount attributable to a so-called teaser interest rate or initial interest
rate holiday, includes that original issue discount in income as principal
payments are made. The amount includable in income with respect to each
principal payment equals a pro rata portion of the entire amount of de minimis
original issue discount with respect to that regular certificate. Any de
minimis amount of original issue discount includable in income by a holder of a
regular certificate is generally treated as a capital gain if the regular
certificate is a capital asset in the hands of the holder thereof. Pursuant to
the OID Regulations, a holder of a regular certificate that uses the accrual
method of tax accounting or that acquired such regular certificate on or after
April 4, 1994, may, however, elect to include in gross income all interest that
accrues on a regular certificate, including any de minimis original issue
discount and market discount, by using the constant yield method described
below with respect to original issue discount.
The stated redemption price at maturity of a regular certificate generally
will be equal to the sum of all payments, whether denominated as principal or
interest, to be made with respect thereto other than qualified stated interest.
Under the OID Regulations, qualified stated interest is stated interest that is
unconditionally payable at least annually at a single fixed rate of interest,
or, under certain circumstances, a variable rate tied to an objective index,
during the entire term of the regular certificate, including short periods.
Under the OID Regulations, interest is considered unconditionally payable only
if late payment or nonpayment is expected to be penalized or reasonable
remedies exist to compel payment. It is possible that interest payable on
regular certificates may not be considered to be unconditionally payable under
the OID Regulations because regular certificateholders may not have default
remedies ordinarily available to holders of debt instruments or because no
penalties are imposed as a result of any failure to make interest payments on
the regular certificates. Until further guidance is issued, however, the REMIC
will treat the interest on regular certificates as unconditionally payable
under the OID Regulations. In addition, under the OID Regulations, certain
variable interest rates payable on regular certificates, including rates based
upon the weighted average interest rate of a loan pool, may not be treated as
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qualified stated interest. In this case, the OID Regulations would treat
interest under such rates as contingent interest which generally must be
included in income by the regular certificateholder when the interest becomes
fixed, as opposed to when it accrues. Until further guidance is issued
concerning the treatment of such interest payable on regular certificates, the
REMIC will treat such interest as being payable at a variable rate tied to a
single objective index of market rates. Prospective investors should consult
their tax advisors regarding the treatment of such interest under the OID
Regulations. In the absence of authority to the contrary and if otherwise
appropriate, Conseco Finance expects to determine the stated redemption price
at maturity of a regular certificate by assuming that the anticipated rate of
prepayment for all loans will occur in such a manner that the initial pass-
through rate for a certificate will not change. Accordingly, interest at the
initial pass-through rate will constitute qualified stated interest payments
for purposes of applying the original issue discount provisions of the IRS
code. In general, the issue price of a regular certificate is the first price
at which a substantial amount of the regular certificates of that class are
sold for money to the public, excluding bond houses, brokers or similar persons
or organizations acting in the capacity of underwriters, placement agents or
wholesalers. If a portion of the initial offering price of a regular
certificate is allocable to interest that has accrued prior to its date of
issue, the issue price of such a regular certificate generally includes that
pre-issuance accrued interest.
If the regular certificates are determined to be issued with original issue
discount, a holder of a regular certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to such income. The
amount of original issue discount, if any, required to be included in a regular
certificateholder's ordinary gross income for federal income tax purposes in
any taxable year will be computed in accordance with Section 1272(a) of the IRS
code and the OID Regulations. Under this section and the OID Regulations,
original issue discount accrues on a daily basis under a constant yield method
that takes into account the compounding of interest. The amount of original
issue discount to be included in income by a holder of a debt instrument, such
as a regular certificate, under which principal payments may be subject to
acceleration because of prepayments of other debt obligations securing such
instruments, is computed by taking into account the prepayment assumption.
The amount of original issue discount includable in income by a holder of a
regular certificate is the sum of the daily portions of the original issue
discount for each day during the taxable year on which the holder held the
regular certificate. The daily portions of original issue discount are
determined by allocating to each day in any accrual period a pro rata portion
of the excess, if any, of the sum of
(1) the present value of all remaining payments to be made on the regular
certificate as of the close of the accrual period and
(2) the payments during the accrual period of amounts included in the
stated redemption price of the regular certificate over the adjusted
issue price of the regular certificate at the beginning of the accrual
period.
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Generally, the accrual period for the regular certificates corresponds to the
intervals at which amounts are paid or compounded on such regular certificate,
beginning with their date of issuance and ending with the maturity date. The
adjusted issue price of a regular certificate at the beginning of any accrual
period is the sum of the issue price and accrued original issue discount for
each prior accrual period reduced by the amount of payments other than payments
of qualified stated interest made during each prior accrual period. The IRS
code requires the present value of the remaining payments to be determined on
the bases of
. the original yield to maturity, determined on the basis of compounding
at the close of each accrual period and properly adjusted for the
length of the accrual period,
. events, including actual prepayments, which have occurred before the
close of the accrual period and
. the assumption that the remaining payments will be made in accordance
with the original prepayment assumption.
The effect of this method is to increase the portions of original issue
discount that a regular certificateholder must include in income to take into
account prepayments with respect to the loans held by the trust that occur at a
rate that exceeds the prepayment assumption and to decrease, but not below zero
for any period, the portions of original issue discount that a regular
certificateholder must include in income to take into account prepayments with
respect to the loans that occur at a rate that is slower than the prepayment
assumption. Although original issue discount will be reported to regular
certificateholders based on the prepayment assumption, no representation is
made to regular certificateholders that the loans will be prepaid at that rate
or at any other rate.
A subsequent purchaser of a regular certificate will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
regular certificate, unless the price paid equals or exceeds the regular
certificate's remaining stated redemption price. If the price paid exceeds the
regular certificate's adjusted issue price, but does not equal or exceed the
remaining stated redemption price of the regular certificate, the amount of
original issue discount to be accrued will be reduced in accordance with a
formula set forth in Section 1272(a)(7)(B) of the IRS code. Under this
provision, the daily portions of original issue discount which must be included
in gross income will be reduced by an amount equal to this daily portion
multiplied by the fraction obtained by dividing (1) the excess of the purchase
price over the regular certificate's adjusted issue price by (2) the aggregate
original issue discount remaining to be accrued with respect to such regular
certificate.
We believe that the holder of a regular certificate determined to be issued
with more than de minimis original issue discount will be required to include
the original issue discount in ordinary gross income for federal income tax
purposes computed in the manner described above. However, the OID Regulations
either do not address or are subject to varying interpretations with respect to
several issues concerning the computation of original issue discount for
obligations such as the regular certificates.
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Adjustable Rate Regular Certificates. Regular certificates may bear interest
at an adjustable rate. Under the OID Regulations, if an adjustable rate regular
certificate provides for qualified stated interest payments computed on the
basis of certain qualified floating rates or objective rates, then any original
issue discount on a regular certificate may be computed and accrued under the
same methodology that applies to regular certificates paying qualified stated
interest at a fixed rate. See the discussion above under "REMIC Series--
Original Issue Discount." If adjustable rate regular certificates are issued,
the related prospectus supplement will describe the manner in which the
original issue discount rules may be applied and the method to be used in
preparing information returns to the holders of such adjustable rate regular
certificates and to the IRS.
For purposes of applying the original issue discount provisions of the IRS
code, all or a portion of the interest payable with respect to adjustable rate
regular certificate may not be treated as qualified stated interest in certain
circumstances, including the following:
(1) if the adjustable rate of interest is subject to one or more minimum
or maximum rate floors or ceilings which are not fixed throughout the
term of the regular certificate and which are reasonably expected as
of the issue date to cause the rate in certain accrual periods to be
significantly higher or lower than the overall expected return on the
regular certificate determined without such floor or ceiling;
(2) if it is reasonably expected that the average value of the adjustable
rate during the first half of the term of the regular certificate
will be either significantly less than or significantly greater than
the average value of the rate during the final half of the term of
the regular certificate; or
(3) if interest is not payable in all circumstances.
In these situations, as well as others, it is unclear under the OID Regulations
whether such interest payments constitute qualified stated interest payments,
or must be treated as part of a regular certificate's stated redemption price
at maturity resulting in original issue discount.
Market Discount. Regular certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the IRS code. A
purchaser of a regular certificate who purchases the regular certificate at a
market discount, such as a discount from its adjusted issue price as described
above, will be required to recognize accrued market discount as ordinary income
as payments of principal are received on such regular certificate or upon the
sale or exchange of the regular certificate. In general, the holder of a
regular certificate may elect to treat market discount as accruing either:
(1) under a constant yield method that is similar to the method for the
accrual of original issue discount or
(2) under a ratable accrual method under which the market discount is
treated as accruing in equal daily installments during the period the
regular certificate is held by the purchaser, in each case computed
taking into account the prepayment assumption.
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Because the regulations referred to above have not been issued, it is not
possible to predict what effect, if any, the regulations, when issued, might
have on the tax treatment of a regular certificate purchased at a discount in
the secondary market.
The IRS code provides that the market discount in respect of a regular
certificate will be considered to be zero if the amount allocable to the
regular certificate is less than 0.25% of the regular certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would be
allocated among a portion of each scheduled distribution representing the
stated redemption price of such regular certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The IRS code further provides that any principal payment with respect to a
regular certificate acquired with market discount or any gain on disposition of
such a regular certificate will be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of such payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
regular certificate is to be reduced by the amount previously treated as
ordinary income.
In general, limitations imposed by the IRS code that are intended to match
deductions with the taxation of income will require a holder of a regular
certificate having market discount to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry such regular certificate. Alternatively, a holder of a regular
certificate may elect to include market discount in gross income as it accrues
and, if he makes such an election, is exempt from this rule. The adjusted basis
of a regular certificate subject to such election will be increased to reflect
market discount included in gross income, reducing any gain or increasing any
loss on a sale or taxable disposition.
Amortizable Premium. A holder of a regular certificate who holds the regular
certificate as a capital asset and who purchased the Regular certificate at a
cost greater than its stated redemption price at maturity will be considered to
have purchased the regular certificate at a premium. In general, the regular
certificateholder may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A regular certificateholder's tax basis
in the regular certificate will be reduced by the amount of the amortizable
bond premium deducted. It appears that the prepayment assumption should be
taken into account in determining the term of a regular certificate for this
purpose. Amortizable bond premium with respect to a regular certificate will be
treated as an offset to interest income on such regular certificate, and a
certificateholder's deduction for amortizable bond premium will be limited in
each year to the amount of interest income derived with respect to such regular
certificate for such year. Any election to deduct amortizable bond premium will
apply to all debt instruments, other than instruments the interest on which is
excludable from gross income, held by the certificateholder at the beginning of
the first taxable year to which the election applies or later acquired, and may
be revoked only with the consent of the IRS. Bond premium on a regular
certificate held by a
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certificateholder who does not elect to deduct the premium will decrease the
gain or increase the loss otherwise recognized on the disposition of the
regular certificate. Certificateholders who pay a premium for a regular
certificate should consult their tax advisors concerning such an election and
rules for determining the method for amortizing bond premium.
Realized Losses. Holders of a regular certificate acquired in connection with
a trade or business should be allowed to deduct as ordinary losses any losses
sustained during a taxable year in which the regular certificates become wholly
or partially worthless as a result of one or more realized losses on the
underlying assets of the REMIC. However, it appears that a noncorporate holder
of a regular certificate that does not acquire such certificate in connection
with a trade or business may not be entitled to deduct such a loss until such
holder's certificate becomes wholly worthless, which may not occur until its
outstanding principal balance has been reduced to zero. Any such loss may be
characterized as a short-term capital loss.
At present, the law is unclear with respect to the timing and character of
any loss which may be realized by a holder of a regular certificate. Such a
holder may be required to accrue interest and original issue discount with
respect to such regular certificate without giving effect to any defaults or
deficiencies on the underlying assets of the REMIC until such holder can
establish that such losses will not be recoverable under any circumstances. As
a result, the holder of a regular certificate may be required to report taxable
income in excess of the amount of economic income actually accruing to the
benefit of such holder in a particular period. It is expected, however, that
the holder of such a regular certificate would eventually recognize a loss or
reduction in income attributable to such income when such loss is, in fact,
realized for federal income tax purposes.
Gain or Loss on Disposition. If a regular certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
from the sale and the seller's adjusted basis in that regular certificate. The
adjusted basis generally will equal the cost of such regular certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income with respect to such regular certificate and reduced, but
not below zero, by any payments on the regular certificate previously received
or accrued by the seller, other than qualified stated interest payments, and
any amortizable premium. Except as discussed below or with respect to market
discount, any gain or loss recognized upon a sale, exchange, retirement, or
other taxable disposition of a regular certificate will be capital gain if the
regular certificate is held as a capital asset.
Gain from the disposition of a regular certificate that might otherwise be
capital gain, including any gain attributable to de minimis original issue
discount or market discount, will be treated as ordinary income to the extent
of the excess, if any, of (1) the amount that would have been includable in the
holder's income if the yield on such regular certificate had equaled 110% of
the applicable federal rate determined as of the beginning of such holder's
holding period, over (2) the amount of ordinary income actually recognized by
the holder with respect to such regular certificate.
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Taxation of Residual Interests. Generally, the daily portions of the taxable
income or net loss of a REMIC will be includable as ordinary income or loss in
determining the taxable income of holders of residual certificates, and will
not be taxed separately to the REMIC. The daily portions are determined by
allocating the REMIC's taxable income or net loss for each calendar quarter
ratably to each day in such quarter and by allocating such daily portion among
the residual holders in proportion to their respective holdings of residual
certificates in the REMIC on that day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that:
(1) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply,
(2) all bad loans will be deductible as business bad debts, and
(3) the limitation on the deductibility of interest and expenses related
to tax-exempt income will apply.
REMIC taxable income generally means a REMIC's gross income, including
interest, original issue discount income, and market discount income, if any,
on the loans, plus any cancellation of indebtedness income due to realized
losses with respect to regular certificates and income on reinvestment of cash
flows and reserve assets, minus deductions, including interest and original
issue discount expense on the regular certificates, bad debt losses with
respect to the underlying assets of a REMIC, servicing fees on the loans, other
administrative expenses of a REMIC, and amortization of premium, if any, with
respect to the loans.
The taxable income recognized by a residual holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
interest, original issue discount or market discount income, or amortization of
premium with respect to the loans, on the one hand, and the timing of
deductions for interest, including original issue discount, on the regular
certificates, on the other hand. In the event that an interest in the loans is
acquired by a REMIC at a discount, and one or more of such loans is prepaid,
the residual holder may recognize taxable income without being entitled to
receive a corresponding cash distribution because:
(1) the prepayment may be used in whole or in part to make distributions
on regular certificates, and
(2) the discount on the loans which is includable in a REMIC's income may
exceed its deduction with respect to the distributions on those
regular certificates.
When there is more than one class of regular certificates that receive payments
sequentially, this mismatching of income and deductions is particularly likely
to occur in the early years following issuance of the regular certificates,
when distributions are being made in respect of earlier classes of regular
certificates to the extent that such classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
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general, losses would be allowed in later years as distributions on the later
classes of regular certificates are made. Taxable income may also be greater in
earlier years than in later years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of
regular certificates, may increase over time as distributions are made on the
lower yielding classes of regular certificates, whereas interest income with
respect to any given loan will remain constant over time as a percentage of the
outstanding principal amount of that loan, assuming it bears interest at a
fixed rate. Consequently, residual holders must have sufficient other sources
of cash to pay any federal, state, or local income taxes due as a result of
such mismatching, or such holders must have unrelated deductions against which
to offset such income, subject to the discussion of excess inclusions below
under "REMIC Series--Limitations on Offset or Exemption of REMIC Income." The
mismatching of income and deductions described in this paragraph, if present
with respect to a series of certificates, may have a significant adverse effect
upon the residual holder's after-tax rate of return.
The amount of any net loss of a REMIC that may be taken into account by the
residual holder is limited to the adjusted basis of the residual certificate as
of the close of the quarter, or time of disposition of the residual certificate
if earlier, determined without taking into account the net loss for the
quarter. The initial adjusted basis of a purchaser of a residual certificate is
the amount paid for such residual certificate. Such adjusted basis will be
increased by the amount of taxable income of the REMIC reportable by the
residual holder and decreased, but not below zero, by the amount of loss of the
REMIC reportable by the residual holder. A cash distribution from the REMIC
also will reduce such adjusted basis, but not below zero. Any loss that is
disallowed on account of this limitation may be carried over indefinitely by
the residual holder for whom such loss was disallowed and may be used by such
residual holder only to offset any income generated by the same REMIC.
If a residual certificate has a negative value, it is not clear whether its
issue price would be considered to be zero or such negative amount for purposes
of determining the REMIC's basis in its assets. The REMIC regulations imply
that residual interests cannot have a negative basis or a negative issue price.
However, the preamble to the REMIC regulations indicates that, while existing
tax rules do not accommodate such concepts, the IRS is considering the tax
treatment of these types of residual interests, including the proper tax
treatment of a payment made by the transferor of such a residual interest to
induce the transferee to acquire that interest. Absent regulations or
administrative guidance to the contrary, we do not intend to treat a class of
residual certificates as having a value of less than zero for purposes of
determining the basis of the related REMIC in its assets.
Further, to the extent that the initial adjusted basis of a residual holder,
other than an original holder, in the residual certificate is in excess of the
corresponding portion of the REMIC's basis in the loans, the residual holder
will not recover such excess basis until termination of the REMIC unless
Treasury Regulations yet to be issued provide for periodic adjustments to the
REMIC income otherwise reportable by that holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a REMIC's
deductions for original issue discount will be determined in the same manner,
and subject to
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the same uncertainties, as original issue discount income on regular
certificates as described above under "REMIC Series--Original Issue Discount"
and "--Adjustable Rate Regular Certificates," without regard to the de minimis
rule.
The REMIC will have market discount income in respect of the loans if, in
general, the basis of the REMIC in such loans is exceeded by their unpaid
principal balances. The REMIC's basis in the loans is generally the fair market
value of the loans immediately after the transfer to the REMIC, which will
equal the aggregate issue prices of the REMIC certificates which are sold to
investors and the estimated fair market value of any classes of certificates
which are retained. In respect of the loans that have market discount to which
IRS code Section 1276 applies, the accrued portion of this market discount
would be recognized currently as an item of ordinary income. Market discount
income generally should accrue in the manner described above under "REMIC
Series--Market Discount."
Generally, if the basis of a REMIC in the loans exceeds the unpaid principal
balances, the REMIC will be considered to have acquired such loans at a premium
equal to the amount of such excess. As stated above, the REMIC's basis in the
loans is the fair market value of the loans immediately after the transfer to
the REMIC. Generally, a REMIC that holds a loan as a capital asset will elect
to amortize premium on the loans under a constant interest method. See the
discussion under "REMIC Series--Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. All or a portion of the
REMIC taxable income includable in determining the federal income tax liability
of a residual holder will be subject to special treatment. That portion,
referred to as the excess inclusion, is equal to the excess of REMIC taxable
income for the calendar quarter allocable to a residual certificate over the
daily accruals for such quarterly period of:
(1) 120% of the long-term applicable federal rate that would have applied
to the residual certificate, if it were a debt instrument, on the
startup day under Section 1274(d) of the IRS code, multiplied by
(2) the adjusted issue price of the residual certificate at the beginning
of such quarterly period.
For this purpose, the adjusted issue price of a residual certificate at the
beginning of a quarter is the issue price of the residual certificate, plus the
amount of such daily accruals of REMIC income described in this paragraph for
all prior quarters, decreased by any distributions made with respect to such
residual certificate prior to the beginning of such quarterly period.
The portion of a residual holder's REMIC taxable income consisting of the
excess inclusions will be subject to federal income tax in all events and may
not be offset by other deductions on such residual holder's tax return,
including net operating loss carry forwards. Further, if the residual holder is
an organization subject to the tax on unrelated business income imposed by
Section 511 of the IRS code, the residual holder's excess inclusions will be
treated as unrelated business taxable income of such residual holder for
purposes of Section 511. In addition, if the residual holder is not a U.S.
person, the residual holder's
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excess inclusions generally would be ineligible for exemption from or reduction
in the rate of United States withholding tax. Finally, if a real estate
investment trust or regulated investment company owns a residual certificate, a
portion, allocated under Treasury Regulations yet to be issued, of dividends
paid by such real estate investment trust or regulated investment company could
not be offset by net operating losses of its shareholders and would constitute
unrelated business taxable income for tax-exempt shareholders.
Additionally, for purposes of the alternative minimum tax, (1) excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and (2) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the tentative minimum tax on excess inclusions.
Restrictions on Transfer of Residual Certificates. As described above under
"REMIC Series--Qualification as a REMIC," an interest in a residual certificate
may not be transferred to a disqualified organization. If any legal or
beneficial interest in a residual certificate is, nonetheless, transferred to a
disqualified organization, a tax would be imposed in an amount equal to the
product of:
(1) the present value of the total anticipated excess inclusions with
respect to such residual certificate for periods after the transfer,
and
(2) the highest marginal federal income tax rate applicable to
corporations.
The anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the prepayment
assumption. The present value rate equals the applicable federal rate under
Section 1274(d) of the IRS code as of the date of the transfer for a term
ending on the close of the last quarter in which excess inclusions are expected
to accrue. Such rate is applied to the anticipated excess inclusions from the
end of the remaining calendar quarters in which they arise to the date of the
transfer. Such a tax generally would be imposed on the transferor of the
residual certificate, except that where such transfer is through an agent,
including a broker, nominee, or other middleman, for a disqualified
organization, the tax would instead be imposed on such agent. However, a
transferor of a residual certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit, under penalties of perjury, that the transferee is not a
disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Treasury Department if the disqualified organization promptly
disposes of the residual interest and the transferor pays such amount of tax as
the Treasury Department may require, presumably, a corporate tax on the excess
inclusion for the period the residual interest is actually held by the
disqualified organization.
In addition, if a pass-through entity has excess inclusion income with
respect to a residual certificate during a taxable year and a disqualified
organization is the record holder of an equity interest in such entity, then a
tax is imposed on such entity equal to the product of:
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(1) the amount of excess inclusions on the residual certificate that are
allocable to the interest in the pass-through entity during the
period such interest is held by such disqualified organization, and
(2) the highest marginal federal income tax rate imposed on corporations.
This tax would be deductible from the ordinary gross income of the pass-through
entity for the taxable year. The pass-through entity would not be liable for
such tax if it has received an affidavit from such record holder that it is not
a disqualified organization and, during the period such person is the record
holder of the residual certificate, the pass-through entity does not have
actual knowledge that such affidavit is false.
A pass-through entity means any regulated investment company, real estate
investment trust, common trust, partnership, trust or estate and certain
corporations operating on a cooperative basis. Except as may be provided in
Treasury Regulations, any person holding an interest in a pass-through entity
as a nominee for another will, with respect to such interest, be treated as a
pass-through entity.
Noneconomic Residual Interests. The REMIC regulations would disregard certain
transfers of residual certificates, in which case the transferor would continue
to be treated as the owner of the residual certificates and thus would continue
to be subject to tax on its allocable portion of the net income of the REMIC.
Under the REMIC regulations, a transfer of a noneconomic residual interest to a
residual holder is disregarded for all federal income tax purposes if a
significant purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A residual interest in a REMIC, including a
residual interest with a positive value at issuance, is a noneconomic residual
interest unless, at the time of transfer:
(1) the present value of the expected future distributions on the
residual interest at least equals the product of the present value of
the anticipated excess inclusions and the highest corporate income
tax rate in effect for the year in which the transfer occurs, and
(2) the transferor reasonably expects that the transferee will receive
distributions from the REMIC at or after the time at which taxes
accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes.
The anticipated excess inclusions and the present value rate are determined in
the same manner as set forth above. The REMIC Regulations explain that a
significant purpose to impede the assessment or collection of tax exists if the
transferor, at the time of the transfer, either knew or should have known that
the transferee would be unwilling or unable to pay taxes due on its share of
the taxable income of the REMIC. A safe harbor is provided if:
(1) the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and found
that the transferee historically had paid its debts as they came due
and found no significant evidence to indicate that the transferee
would not continue to pay its debts as they came due in the future,
and
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(2) the transferee represents to the transferor that it understands that,
as the holder of a non-economic residual interest, the transferee may
incur tax liabilities in excess of any cash flows generated by the
interest and that the transferee intends to pay taxes associated with
holding the residual interest as they become due.
The pooling and servicing agreement with respect to each series of REMIC
certificates will require the transferee of a residual certificate to certify
to the statements in clause (2) of the preceding sentence as part of the
affidavit described above under "Restrictions on Transfer of Residual
Certificates."
Mark-to-Market Rules. On December 24, 1996, the IRS released final
regulations, the mark-to-market regulations, relating to the requirement that a
securities dealer mark to market securities held for sale to customers. This
mark-to-market requirement applies to all securities owned by a dealer, except
to the extent that the dealer has specifically identified a security as held
for investment. The mark-to-market regulations provide that for purposes of
this mark-to-market requirement, a residual certificate acquired on or after
January 4, 1995 is not treated as a security and thus may not be marked to
market. Prospective purchasers of a residual certificate should consult their
tax advisors regarding the possible application of the mark-to-market
requirement to residual certificates.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of a
residual certificate, the residual holder will recognize gain or loss equal to
the excess, if any, of the amount realized over the adjusted basis as described
above of such residual holder in such residual certificate at the time of the
sale or exchange. In addition to reporting the taxable income of the REMIC, a
residual holder will have taxable income to the extent that any cash
distribution to him from the REMIC exceeds such adjusted basis on that
distribution date. Such income will be treated as gain from the sale or
exchange of the residual certificate. It is possible that the termination of
the REMIC may be treated as a sale or exchange of a residual holder's residual
certificate, in which case, if the residual holder has an adjusted basis in his
residual certificate remaining when his interest in the REMIC terminates, and
if he holds such Residual certificate as a capital asset, then he will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
Except as provided in Treasury Regulations, the wash sale rules of IRS code
Section 1091 will apply to dispositions of residual certificates where the
seller of the residual certificate, during the period beginning six months
before the sale or disposition of the residual certificate and ending six
months after such sale or disposition, acquires, or enters into any other
transaction that results in the application of IRS code Section 1091, any
residual interest in any REMIC or any interest in a taxable mortgage pool that
is economically comparable to a residual certificate.
Certain Other Taxes on the REMIC. The REMIC provisions of the IRS code impose
a 100% tax on any net income derived by a REMIC from certain prohibited
transactions. Such transactions are:
(1) any disposition of a qualified mortgage, other than pursuant to the
substitution of a qualified replacement mortgage for a qualified
mortgage, or the repurchase in lieu
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of substitution of a defective obligation, a disposition incident to
the foreclosure, default, or imminent default of a mortgage, the
bankruptcy or insolvency of the REMIC, or a qualified liquidation of
the REMIC;
(2) the receipt of income from assets other than qualified mortgages and
permitted investments;
(3) the receipt of compensation for services; and
(4) the receipt of gain from the dispositions of cash flow investments.
The REMIC regulations provide that the modification of the terms of a loan
occasioned by default or a reasonably foreseeable default of the loan, the
assumption of the loan, the waiver of a due-on-sale clause or the conversion
of an interest rate by an obligor pursuant to the terms of a convertible
adjustable-rate loan will not be treated as a disposition of the loan. If a
REMIC holds convertible ARM loans which are convertible at the option of the
obligor into fixed-rate, fully amortizing, level payment loans, a sale of such
loans by the REMIC under a purchase agreement or other loan with us or other
party, if and when the obligor elects to so convert the terms of the loan,
will not result in a prohibited transaction for the REMIC. The IRS code also
imposes a 100% tax on contributions to a REMIC made after the startup day,
unless such contributions are payments made to facilitate a cleanup call or a
qualified liquidation of the REMIC, payments in the nature of a guaranty,
contributions during the three-month period beginning on the startup day or
contributions to a qualified reserve fund of the REMIC by a holder of a
residual interest in the REMIC. The IRS code also imposes a tax on a REMIC at
the highest corporate rate on certain net income from foreclosure property
that the REMIC derives from the management, sale, or disposition of any real
property, or any personal property incident thereto, acquired by the REMIC in
connection with the default or imminent default of a loan. Generally, it is
not anticipated that a REMIC will incur a significant amount of such taxes or
any material amount of state or local income or franchise taxes. However, if
any such taxes are imposed on a REMIC they will be paid by us or the trustee,
if due to our breach or the trustee's obligations, as the case may be, under
the related pooling and servicing agreement or in other cases, such taxes
shall be borne by the related trust resulting in a reduction in amounts
otherwise payable to holders of the related regular or residual certificates.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a qualified liquidation. A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation, which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur and sells all of its assets, other than cash,
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of regular or residual
certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation, including all cash, less amounts retained
to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
foreign holder is a certificateholder who holds a regular certificate and who
is not
(1) a citizen or resident of the United States;
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(2) a corporation, partnership, or other entity organized in or under the
laws of the United States;
(3) an estate the income of which is includible in gross income for
United States tax purposes regardless of its source; or
(4) a trust if;
(a) a court within the United States is able to exercise primary
supervision over the administration of the trust and
(b) one or more United States trustees have authority to control all
substantial decisions of the trust.
Unless the interest on a regular certificate is effectively connected with the
conduct by the foreign holder of a trade or business within the United States,
the foreign holder is not subject to federal income or withholding tax on
interest, or original issue discount, if any, on a regular certificate, subject
to possible backup withholding of tax, discussed below. To qualify for this tax
exemption, the foreign holder will be required to provide periodically a
statement signed under penalties of perjury certifying that the foreign holder
meets the requirements for treatment as a foreign holder and providing the
foreign holder's name and address. The statement, which may be made on a Form
W-8 or substantially similar substitute form, generally must be provided in the
year a payment occurs or in either of the two preceding years. The statement
must be provided, either directly or through clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax.
This exemption may not apply to a foreign holder that owns both regular
certificates and residual certificates. If the interest on a regular
certificate is effectively connected with the conduct by a foreign holder of a
trade or business within the United States, then the foreign holder will be
subject to tax at regular graduated rates. In addition, the foregoing rules
will not apply to exempt a U.S. shareholder of a controlled foreign corporation
from taxation on such U.S. shareholder's allocable portion of the interest
income received by such controlled foreign corporation. Foreign holders should
consult their own tax advisors regarding the specific tax consequences of their
owning a regular certificate.
Any gain recognized by a foreign holder upon a sale, retirement or other
taxable disposition of a regular certificate generally will not be subject to
United States federal income tax unless either:
(1) the foreign holder is a nonresident alien individual who holds the
regular certificate as a capital asset and who is present in the
United States for 183 days or more in the taxable year of the
disposition and either the gain is attributable to an office or other
fixed place of business maintained in the U.S. by the individual or
the individual has a tax home in the United States; or
(2) the gain is effectively connected with the conduct by the foreign
holder of a trade or business within the United States.
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It appears that a regular certificate will not be included in the estate of a
foreign holder and will not be subject to United States estate taxes. However,
foreign holders should consult their own tax advisors regarding estate tax
consequences.
Unless otherwise stated in the related prospectus supplement, transfers of
residual certificates to foreign holders will be prohibited by the related
pooling and servicing agreement.
Backup Withholding. Under certain circumstances, a REMIC certificateholder
may be subject to backup withholding at a 31% rate. Backup withholding may
apply to a REMIC certificateholder who is a United States person if the holder,
among other circumstances, fails to furnish his social security number or other
taxpayer identification number to the trustee. Backup withholding may apply,
under certain circumstances, to a REMIC certificateholder who is a foreign
person if the REMIC certificateholder fails to provide the trustee or the REMIC
certificateholder's securities broker with the statement necessary to establish
the exemption from federal income and withholding tax on interest on the REMIC
certificate. Backup withholding, however, does not apply to payments on a
certificate made to certain exempt recipients, such as corporations and tax-
exempt organizations, and to certain foreign persons. REMIC certificateholders
should consult their tax advisors for additional information concerning the
potential application of backup withholding to payments received by them with
respect to a certificate.
Reporting Requirements and Tax Administration. We will report annually to the
IRS, holders of record of the regular certificates that are not excepted from
the reporting requirements and, to the extent required by the IRS code, other
interested parties, information with respect to the interest paid or accrued on
the regular certificates, original issue discount, if any, accruing on the
regular certificates and information necessary to compute the accrual of any
market discount or the amortization of any premium on the regular certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a residual
certificateholder must be designated as the REMIC's tax matters person. The tax
matters person, generally, has responsibility for overseeing and providing
notice to the other residual certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. Unless otherwise
indicated in the related prospectus supplement, Conseco Finance will be
designated as tax matters person for each REMIC, and in conjunction with the
trustee will act as the agent of the residual certificateholders in the
preparation and filing of the REMIC's federal and state income tax and other
information returns.
Non-REMIC Series
Tax Status of the Trust. In the case of a trust evidenced by a series of
certificates, or a segregated portion of them, for which a REMIC election is
not made counsel will, unless otherwise specified in the related prospectus
supplement, have advised us that, in their opinion, each loan pool and the
arrangement to be administered by us under which the
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trustee will hold and we will be obligated to service the loans and pursuant to
these non-REMIC certificates will be issued to non-REMIC certificateholders
will not be classified as an association taxable as a corporation or a taxable
mortgage pool, within the meaning of IRS code Section 7701(i), but rather will
be classified as a grantor trust under Subpart E, Part I of Subchapter J of the
IRS code. In that event, each Non-REMIC certificateholder will be treated as
the owner of a pro rata undivided interest in the ordinary income and corpus
portions of the trust attributable to the loan pool in which its certificate
evidences an ownership interest and will be considered the equitable owner of a
pro rata undivided interest in each of the loans included. The following
discussion assumes the trust will be so classified as a grantor trust.
Tax Status of Non-REMIC Certificates. In general,
(1) certificates held by a domestic building and loan association within
the meaning of Section 7701(a)(19) of the IRS code may be considered
to represent loans secured by an interest in real property within the
meaning of Section 7701(a)(19)(C)(v) of the IRS code; and
(2) certificates held by a real estate investment trust may constitute
"real estate assets" within the meaning of Section 856(c)(5)(A) of
the IRS code and interest may be considered interest on obligations
secured by mortgages on real property within the meaning of Section
856(c)(3)(B) of the IRS code.
See the discussions of such IRS code provisions above under "REMIC Series Tax
Status of REMIC Certificates." Investors should review the prospectus
supplement for a discussion of the treatment of non-REMIC certificates and
loans under these IRS code sections and should, in addition, consult with their
own tax advisors with respect to these matters.
Tax Treatment of Non-REMIC Certificates. Subject to the discussion below of
the stripped bond rules of the IRS code, non-REMIC certificateholders will be
required to report on their federal income tax returns, and in a manner
consistent with their respective methods of accounting, their pro rata share of
the entire income arising from the loans comprising such loan pool, including
interest, market or original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by us, and any gain upon
disposition of such loans. A disposition includes scheduled or prepaid
collections with respect to the loans, as well as the sale or exchange of a
non-REMIC certificate. Subject to the discussion below of certain limitations
on itemized deductions, non-REMIC certificateholders will be entitled under
Section 162 or 212 of the IRS code to deduct their pro rata share of related
servicing fees, administrative and other non-interest expenses, including
assumption fees and late payment charges retained by us. An individual, an
estate, or a trust that holds a non-REMIC certificate either directly or
through a pass-through entity will be allowed to deduct such expenses under
Section 212 of the IRS code only to the extent that, in the aggregate and
combined with certain other itemized deductions, they exceed 2% of the adjusted
gross income of the holder. In addition, Section 68 of the IRS code provides
that the amount of itemized deductions, including those provided for in Section
212 of the IRS code otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds a
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threshold amount specified in the IRS code, $128,950 for 2000, in the case of a
joint return, will be reduced by the lesser of:
(1) 3% of the excess of adjusted gross income over the specified threshold
amount or
(2) 80% of the amount of itemized deductions otherwise allowable for such
taxable year.
Furthermore, in determining the alternative minimum taxable income of an
individual, trust, estate or pass-through entity that is a holder of a non-
REMIC certificate, no deduction will be allowed for such holder's allocable
portion of the foregoing expenses, even though an amount equal to the total of
such expenses will be included in such holder's gross income for alternative
minimum tax purposes. To the extent that a non-REMIC certificateholder is not
permitted to deduct servicing fees allocable to a non-REMIC certificate, the
taxable income of the non-REMIC certificateholder attributable to that non-
REMIC certificate will exceed the net cash distributions related to such
income. Non-REMIC certificateholders may deduct any loss on disposition of the
loans to the extent permitted under the IRS code.
To the extent that any of the loans comprising a loan pool were originated on
or after March 2, 1984 and under circumstances giving rise to original issue
discount, certificateholders will be required to report annually an amount of
additional interest income attributable to the discount in the loans prior to
receipt of cash related to the discount. See the discussion above under "REMIC
Series--Original Issue Discount." Similarly, IRS code provisions concerning
market discount and amortizable premium will apply to the loans comprising a
loan pool to the extent that the loans were originated after July 18, 1984 and
September 27, 1985, respectively. See the discussions above under "REMIC
Series--Market Discount" and "REMIC Series--Amortizable Premium." However, it
is unclear whether a prepayment assumption should be used in accruing or
amortizing any such discount or premium.
Stripped Non-REMIC Certificates. Certain classes of non-REMIC certificates
may be subject to the stripped bond rules of Section 1286 of the IRS code and
for purposes of this discussion will be referred to as stripped certificates.
In general, a stripped certificate will be subject to the stripped bond rules
where there has been a separation of ownership of the right to receive some or
all of the principal payments on a loan from ownership of the right to receive
some or all of the related interest payments. Non-REMIC certificates will
constitute stripped certificates and will be subject to these rules under
various circumstances, including the following:
(1) if any servicing compensation is deemed to exceed a reasonable
amount;
(2) if Conseco Finance or any other party retains a retained yield with
respect to the loans comprising a loan pool;
(3) if two or more classes of non-REMIC certificates are issued
representing the right to non-pro rata percentages of the interest or
principal payments on the loans; or
(4) if non-REMIC certificates are issued which represent the right to
interest only payments or principal only payments.
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Although unclear, each stripped certificate should be considered to be a
single debt instrument issued on the day it is purchased for purposes of
calculating any original issue discount. Original issue discount with respect
to a stripped certificate, if any, must be included in ordinary gross income
for federal income tax purposes as it accrues in accordance with the constant-
yield method that takes into account the compounding of interest and such
accrual of income may be in advance of the receipt of any cash attributable to
such income. See "REMIC Series--Original Issue Discount" above. For purposes of
applying the original issue discount provisions of the IRS code, the issue
price of a stripped certificate will be the purchase price paid by each holder
and the stated redemption price at maturity may include the aggregate amount of
all payments to be made with respect to the stripped certificate whether or not
denominated as interest. The amount of original issue discount with respect to
a stripped certificate may be treated as zero under the original issue discount
de minimis rules described above. A purchaser of a stripped certificate will be
required to account for any discount on the certificate as market discount
rather than original issue discount if either:
(1) the amount of original issue discount with respect to the certificate
was treated as zero under the original issue discount de minimis rule
when the certificate was stripped or
(2) no more than 100 basis points, including any amount of servicing in
excess of reasonable servicing, is stripped off of the loans. See
"REMIC Series--Market Discount" above.
Although the OID Regulations suggest that a prepayment assumption is not to
be used in computing the yield on the underlying assets of a trust with respect
to which a REMIC election is not made, the IRS code appears to require that
such a prepayment assumption be used in computing yield with respect to
stripped certificates. In the absence of authority to the contrary, we intend
to base information reports and returns to the IRS and the holders of stripped
certificates taking into account an appropriate prepayment assumption. Holders
of stripped certificates should refer to the related prospectus supplement to
determine whether and in what manner the original issue discount rules will
apply thereto.
When an investor purchases more than one class of stripped certificates it is
currently unclear whether for federal income tax purposes such classes of
stripped certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
It is possible that the IRS may take a contrary position with respect to some
or all of the foregoing tax consequences. For example, a holder of a stripped
certificate may be treated as the owner of:
(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each loan; or
(2) a separate installment obligation for each loan representing the
stripped certificate's pro rata share of principal and/or interest
payments to be made.
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As a result of these possible alternative characterizations, investors should
consult their own tax advisors regarding the proper treatment of stripped
certificates for federal income tax purposes.
The servicing compensation to be received by us and the fee for credit
enhancement, if any, may be questioned by the IRS with respect to certain
certificates or loans as exceeding a reasonable fee for the services being
performed, and a portion of the servicing compensation could be recharacterized
as an ownership interest retained by us or other party in a portion of the
interest payments to be made pursuant to the loans. In this event, a
certificate might be treated as a stripped certificate subject to the stripped
bond rules of Section 1286 of the IRS code and the original issue discount
provisions rather than to the market discount and premium rules.
Gain or Loss on Disposition. Upon sale or exchange of a non-REMIC
certificate, a non-REMIC certificateholder will recognize gain or loss equal to
the difference between the amount realized in the sale and its aggregate
adjusted basis in the loans represented by the non-REMIC certificate.
Generally, the aggregate adjusted basis will equal the non-REMIC
certificateholder's cost for the non-REMIC certificate increased by the amount
of any previously reported income or gain with respect to the non-REMIC
certificate and decreased by the amount of any losses previously reported with
respect to the non-REMIC certificate and the amount of any distributions
received. Except as provided above with respect to the original issue discount
and market discount rules, any such gain or loss would be capital gain or loss
if the non-REMIC certificate was held as a capital asset.
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a non-REMIC
certificateholder who is a foreign holder will be treated as portfolio interest
and will be exempt from the 30% withholding tax. The non-REMIC
certificateholder will be entitled to receive interest payments and original
issue discount on the non-REMIC certificates free of United States federal
income tax, but only to the extent the loans were originated after July 18,
1984 and provided that such non-REMIC certificateholder periodically provides
the trustee, or other person who would otherwise be required to withhold tax,
with a statement certifying under penalty of perjury that such non-REMIC
certificateholder is not a United States person and providing the name and
address of such non-REMIC certificateholder. For additional information
concerning interest or original issue discount paid by us to a foreign holder
and the treatment of a sale or exchange of a non-REMIC certificate by a foreign
holder, which will generally have the same tax consequences as the sale of a
regular certificate, see the discussion above under "REMIC Series--Taxation of
Certain Foreign Investors."
Tax Administration and Reporting. We will furnish to each non-REMIC
certificateholder with each distribution a statement showing the amount of the
distribution allocable to principal and to interest. In addition, Conseco
Finance will furnish, within a reasonable time after the end of each calendar
year, to each non-REMIC certificateholder who was a certificateholder at any
time during such year, information regarding the amount of servicing
compensation received by Conseco Finance and any sub-servicer and such other
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customary factual information as Conseco Finance deems necessary to enable
certificateholders to prepare their tax returns. Reports will be made annually
to the IRS and to holders of record that are not excepted from the reporting
requirements regarding information as may be required with respect to interest
and original issue discount, if any, with respect to the non-REMIC
certificates.
Other Tax Consequences
No advice has been received as to local income, franchise, personal property,
or other taxation in any state or locality, or as to the tax effect of
ownership of certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of certificates.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, any
certificates offered here are not expected to constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984 because there will be a substantial number of loans that are secured by
liens on real estate that are not first liens, as required by SMMEA.
Accordingly, many institutions with legal authority to invest in mortgage
related securities may not be legally authorized to invest in the certificates.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from holding securities representing residual interests, including
securities previously purchased. There may be other restrictions on the ability
of certain investors, including depository institutions, either to purchase
certificates or to purchase certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the certificates constitute
legal investments for such investors.
RATINGS
Prior to the issuance of any class of certificates sold under this
prospectus, they must be rated by at least one nationally recognized
statistical rating organization in one of its four highest rating categories. A
security rating is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the assigning rating
agency. The security rating of any series of certificates should be evaluated
independently of similar security ratings assigned to other kinds of
securities.
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UNDERWRITING
Conseco Securitizations may sell certificates of each series to or through
underwriters by a negotiated firm commitment underwriting and public reoffering
by the underwriters, and also may sell and place certificates directly to other
purchasers or through agents. Conseco Securitizations intend that certificates
will be offered through such various methods from time to time and that
offerings may be made concurrently through more than one of these methods or
that an offering of a particular series of certificates may be made through a
combination of such methods.
The distribution of the certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the prospectus supplement relating to a series of
certificates, Conseco Finance or any of our affiliates may purchase some or all
of one or more classes of certificates of such series from the underwriter or
underwriters at a price specified in the prospectus supplement. The purchaser
may then from time to time offer and sell some or all of the certificates so
purchased directly, through one or more underwriters to be designated at the
time of the offering of the certificates or through broker-dealers acting as
agent or principal. This kind of offering may be restricted in the manner
specified in the prospectus supplement. Such transactions may be effected at
market prices prevailing at the time of sale, at negotiated prices or at fixed
prices.
In connection with the sale of the certificates, underwriters may receive
compensation from Conseco Securitizations or from purchasers of certificates
for whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell the certificates of a series to or through
dealers and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of the certificates of a series may be
deemed to be underwriters, and any discounts or commissions received by them
from Conseco Securitizations and any profit on the resale of the certificates
by them may be deemed to be underwriting discounts and commissions, under the
Securities Act of 1933. Any such underwriters or agents will be identified, and
any such compensation received from Conseco Securitizations will be described
in the prospectus supplement.
Conseco Securitizations may agree to indemnify the underwriters and agents
who participate in the distribution of the certificates against certain
liabilities, including liabilities under the Securities Act.
If so indicated in the prospectus supplement, Conseco Securitizations will
authorize underwriters or other persons acting as our agents to solicit offers
by certain institutions to purchase the certificates from Conseco
Securitizations pursuant to loans providing for payment and delivery on a
future date. Institutions with which these loans may be made include commercial
and savings banks, insurance companies, pension funds, investment
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companies, educational charitable institutions and others, but in all cases
such institutions must be approved by Conseco Securitizations. The obligation
of any purchaser under any such loan will be subject to the condition that the
purchaser of the offered certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject from purchasing such certificates. The underwriters and such other
agents will not have responsibility in respect of the validity or performance
of such loans.
The underwriters may, from time to time, buy and sell certificates, but there
can be no assurance that an active secondary market will develop and there is
no assurance that any such market, if established, will continue.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the certificates. These
types of transactions may include stabilizing, the purchase of certificates to
cover syndicate short positions and the imposition of penalty bids. For a
more complete description of these activities, please read the section entitled
"Underwriting" in the prospectus supplement.
Some of the underwriters and their associates may engage in transactions with
and perform services for us in the ordinary course of business.
LEGAL MATTERS
The legality and material federal income tax consequences of the certificates
will be passed upon for us by our counsel as identified in the applicable
prospectus supplement.
EXPERTS
The consolidated financial statements of Conseco Finance as of December 31,
1999 and for each of the years in the two-year period ended December 31, 1999
are incorporated by reference in this prospectus in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given upon their authority
as experts in accounting and auditing.
The consolidated financial statements of Conseco Finance as of December 31,
1997 and for the year ended December 31, 1997 are incorporated by reference in
this prospectus and in the registration statement in reliance upon the report
of KPMG LLP, independent certified public accountants, incorporated by
reference in this prospectus, and upon the authority of KPMG LLP as experts in
accounting and auditing.
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GLOSSARY
Below are abbreviated definitions of capitalized terms used in this prospectus
and the prospectus supplement. The pooling and servicing agreement may contain
a more complete definition of some of the terms defined here and reference
should be made to the pooling and servicing agreement for a more complete
definition of all such terms.
"Amount Available" means, for each series of certificates, amounts on deposit
in the certificate account on a Determination Date.
"Certificate Distribution Amount" means the amount of principal and interest
specified in the related prospectus supplement to be distributed to
certificateholders.
"Compound Interest Certificates" means certificates on which interest may
accrue but not be paid for the period described in the related prospectus
supplement.
"Cut-off Date" means the date specified in the related prospectus supplement as
the date after which principal and interest payments on the loans are included
in the trust.
"Determination Date" means, unless otherwise specified in the related
prospectus supplement, the third business day immediately preceding the related
payment date.
"Due Period" means, unless otherwise provided in a related prospectus
supplement, with respect to any payment date, the period from and including the
15th day of the second month preceding the month in which the payment date
occurs, to and including the 14th day of the month preceding the month in which
the payment date occurs.
"Eligible Investments" means one or more of the investments specified in the
pooling and servicing agreement in which moneys in the certificate account and
certain other accounts are permitted to be invested.
"Formula Principal Distribution Amount" means the scheduled amounts of
principal due and prepayments and other amounts received for principal on the
loans, as described in the related prospectus supplement.
"Liquidation Proceeds" means cash including insurance proceeds received in
connection with the liquidation of defaulted loans, whether through
repossession, foreclosure, sale or otherwise.
"Monthly Payment" means the scheduled Monthly Payment of principal and interest
on a loan.
"Net Liquidated Proceeds" means all amounts received and retained for the
liquidation of defaulted loans, net of liquidation expenses.
"Overcollateralization Decrease Amount" means, for any payment date, an amount
equal to the lesser of (A) the sum of (1) through (5) of the definition of
Formula Distribution Amount and (B) the excess, if any, of the
overcollateralization amount over the Target Overcollateralization Amount.
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"Overcollateralization Increase Amount" means, for any payment date beginning
on the payment date in November 2000, the lesser of the Excess Amount Available
and the amount needed to reach the Target Overcollateralization Amount.
"Participants" means institutions that have accounts with the depositary.
"Pool Scheduled Principal Balance" means, as of any payment date, the aggregate
of the Scheduled Principal Balances of loans outstanding at the end of the
related Due Period.
"Repurchase Price" means the remaining principal amount outstanding on a home
improvement loan on the date of repurchase plus accrued and unpaid interest at
its loan rate to the date of the repurchase.
"Scheduled Principal Balance" means, as of any payment date, the unpaid
principal balance of the loan as specified in the amortization schedule at the
time relating to the loan as of the due date in the related Due Period, after
giving effect to any previous partial prepayments and to the payment of
principal due on the due date and irrespective of any delinquency in payment on
the loan.
"Senior Distribution Amount" means, for a series of certificates having
Subordinated Certificates, as of each payment date and for each class of Senior
Certificates, the amount due the holders of that class of Senior Certificates.
"Senior Enhancement Percentage" for the certificates on any payment date will
equal the percentage obtained by dividing:
(i) the excess of (a) the Pool Scheduled Principal Balance over (b) the
aggregate principal balance of the Class A certificates by
(ii) the Pool Scheduled Principal Balance.
"Senior Percentage" means, for a series of certificates having Subordinated
Certificates, the percentage specified in the related prospectus supplement.
"Stepdown Date" for the certificates is the later to occur of:
(i) the payment date in October 2003 and
(ii) the first payment date on which the Class A principal balance is
less than or equal to 65.50% of the Pool Scheduled Principal
Balance.
"Subordinated Percentage" means, for a series of certificates having
Subordinated Certificates, the percentage specified in the related prospectus
supplement.
"Target Overcollateralization Amount" means, for any payment date:
(a) after the first payment date, but prior to the Stepdown Date,
$7,500,000;
(b) on or after the Stepdown Date, and as long as no Trigger Event
exists, the lesser of:
(i) $7,500,000, or
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(ii) the greater of
(A) 5.00% of the Pool Scheduled Principal Balance, or
(B) $1,500,000;
(c) on or after the Stepdown Date, if a Trigger Event exists, the Target
Overcollateralization Amount immediately prior to that payment date.
"Trigger Event" is in effect for the certificates if on that payment date:
(i) the three month rolling average percentage of the loans that are 60
days or more delinquent in payment of principal and interest exceeds
the product of (a) the Senior Enhancement Percentage and (b) 12.00%;
or
(ii) the Cumulative Realized Losses Test is not satisfied.
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[CONSECO LOGO]
