<PAGE>
Filed pursuant to Rule 424(b)(2)
File Nos. 333-92313 and 333-92313-01
PROSPECTUS SUPPLEMENT
(To prospectus dated November 22, 1999)
$295,500,000 (Approximate) [CONSECO LOGO]
Conseco Finance Securitizations Corp.
Seller
Conseco Finance Corp.
Servicer
Certificates for Home Equity Loans
Series 2000-A
----------------
The trust will issue 7 classes of certificates, 5 of which are offered under
this prospectus supplement.
<TABLE>
<CAPTION>
Approximate Pass-Through Underwriting Proceeds to
Principal Amount Rate Price to Public Discount Seller
---------------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
AV...................... $237,150,000 (1) 100.000% 0.245% 99.755%
MV-1.................... $ 17,250,000 (2) 100.000% 0.500% 99.500%
MV-2.................... $ 18,000,000 (3) 100.000% 0.600% 99.400%
BV-1.................... $ 9,300,000 (4) 100.000% 0.750% 99.250%
BV-2.................... $ 13,800,000 (5) 100.000% 0.800% 99.200%
------------ ------------ -------- ------------
Total................. $295,500,000 $295,500,000 $955,418 $294,544,583
============ ============ ======== ============
</TABLE>
- --------
(1) The lesser of one-month LIBOR plus 0.28% or the available funds pass-
through rate, but in no case more than 14%.
(2) The lesser of one-month LIBOR plus 0.50% or the available funds pass-
through rate, but in no case more than 14%.
(3) The lesser of one-month LIBOR plus 0.95% or the available funds pass-
through rate, but in no case more than 14%.
(4) The lesser of one-month LIBOR plus 2.50% or the available funds pass-
through rate, but in no case more than 14%.
(5) The lesser of one-month LIBOR plus 2.80% or the available funds pass-
through rate, but in no case more than 14%.
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 February 24, 2000.
Consider carefully the risk factors beginning on page S-12 in this
prospectus supplement.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus 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.
The certificates will be delivered on or about February 24, 2000.
The underwriters named below will offer these securities to the public at
the offering price listed on this cover page and they will receive the
discount listed above. See "Underwriting" on page S-75 in this prospectus
supplement and on page 64 in the prospectus.
----------------
Credit Suisse First Boston Banc of America Securities LLC
----------------
Underwriter of the Class BV-2 Certificates
Banc of America Securities LLC
The date of this prospectus supplement is February 4, 2000.
<PAGE>
TABLE OF CONTENTS
Prospectus Supplement
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Terms of the Certificates................................. S-4
Risk Factors............................................................. S-12
Structure of the Transaction............................................. S-15
Use of Proceeds.......................................................... S-16
The Loans................................................................ S-16
Yield and Prepayment Considerations...................................... S-25
Conseco Finance Corp. ................................................... S-33
Description of the Certificates.......................................... S-34
Description of the Class BV-2 Limited Guaranty........................... S-66
Federal Income Tax Consequences.......................................... S-67
ERISA Considerations..................................................... S-69
Where You Can Find More Information...................................... S-74
Underwriting............................................................. S-75
Legal Matters............................................................ S-76
Annex I.................................................................. A-1
Prospectus
Important Notice about Information Presented in this Prospectus and the
Accompanying Prospectus Supplement...................................... 2
The Trust................................................................ 3
Use of Proceeds.......................................................... 8
Conseco Finance Corp. ................................................... 9
Conseco Finance Securitizations Corp..................................... 10
Yield Considerations..................................................... 11
Maturity and Prepayment Considerations................................... 11
Description of the Certificates.......................................... 12
Servicing................................................................ 21
Legal Aspects of the Loans; Repurchase Obligations....................... 24
ERISA Considerations..................................................... 36
Federal Income Tax Consequences.......................................... 40
Legal Investment Considerations.......................................... 63
Ratings.................................................................. 63
Underwriting............................................................. 64
Legal Matters............................................................ 65
Experts.................................................................. 65
Glossary................................................................. 66
</TABLE>
You should rely only on the information contained in this prospectus
supplement and prospectus. We and the underwriters have not authorized any
other person to provide you with different information. If anyone provides you
with different or inconsistent information, you should not rely on it. We and
the underwriters are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
S-2
<PAGE>
This document consists of a prospectus supplement and a prospectus. The
prospectus provides general information about Conseco Finance, about our home
equity lending business, and about any series of certificates for home equity
loans that we may wish to sell. This prospectus supplement contains more
detailed information about the specific terms of this series of certificates.
If the description of the terms of a certificate varies between this prospectus
supplement and the prospectus, you should rely on the information in this
prospectus supplement.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from Conseco Finance, Conseco Securitizations or an underwriter by
asking for it.
No prospectus regarding these certificates has been or will be published in
the United Kingdom pursuant to the United Kingdom Public Offers of Securities
Regulations 1995. These certificates may not be offered or sold, or re-offered
or re-sold, to persons in the United Kingdom, except (1) to persons whose
ordinary activities involve them in acquiring, holding, managing and disposing
of investments, as principal or agent, for the purpose of their businesses, or
(2) in circumstances that will not constitute or result in an offer of
securities to the public in the United Kingdom within the meaning of the United
Kingdom Public Offers of Securities Regulations 1995. You may not pass this
prospectus supplement and prospectus, or any other document inviting
applications or offers to purchase certificates or offering certificates for
purchase, to any person in the United Kingdom who (1) does not fall within
article 8 of the Financial Services Act 1986 (Investment Advisements)
(Exemptions) (No. 2) Order 1996 or (2) is not otherwise a person to whom
passing this prospectus supplement and prospectus would be lawful.
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 supplement, the 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, which will contain more complete
descriptions of the matters summarized. All of these references will be to
sections of this prospectus supplement only, unless we note otherwise. 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 Equity Loan Trust 2000-A will issue the classes of
certificates listed in the table below. We are not offering the Class P or
Class C certificates. Conseco Securitizations or one of its affiliates
initially will retain those classes of certificates, but may sell any or all of
them at a later date.
<TABLE>
<CAPTION>
Pass-Through Approximate S&P Moody's Duff &
Class Rate Principal Amount Rating Rating Phelps Rating
- ----- ------------ ---------------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
AV.................. (1) $237,150,000 AAA Aaa AAA
MV-1................ (2) 17,250,000 AA Aa2 AA
MV-2................ (3) 18,000,000 A A2 A
BV-1................ (4) 9,300,000 BBB Baa1 BBB+
BV-2................ (5) 13,800,000 BBB- Baa3 BBB
Class P
Certificate........ (6) 100 -- -- --
Class C
Certificate........ (6) -- -- -- --
</TABLE>
- --------
(1) The lesser of one-month LIBOR plus 0.28% or the available funds pass-
through rate, but in no case more than 14%.
(2) The lesser of one-month LIBOR plus 0.50% or the available funds pass-
through rate, but in no case more than 14%.
(3) The lesser of one-month LIBOR plus 0.95% or the available funds pass-
through rate, but in no case more than 14%.
(4) The lesser of one-month LIBOR plus 2.50% or the available funds pass-
through rate, but in no case more than 14%.
(5) The lesser of one-month LIBOR plus 2.80% or the available funds pass-
through rate, but in no case more than 14%.
(6) The Class P and Class C certificates are not entitled to any distributions
of interest.
We will not issue or sell the certificates unless S&P, Moody's and Duff &
Phelps assign to each class at least the rating listed above. The ratings on
each class of certificates by S&P, Moody's and Duff & Phelps 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. In addition, the ratings do not address the likelihood of payment of
the available
S-4
<PAGE>
funds cap carryover amount. The ratings of the Class BV-2 certificates are
based mainly on an assessment of Conseco Finance's ability to make payments
under the Class BV-2 limited guaranty. Any reduction in the rating of Conseco
Finance's debt securities is likely to result in a similar reduction in the
ratings of the Class BV-2 certificates.
Issuer...................... Conseco Finance Home Equity Loan Trust 2000-A.
Seller...................... Conseco Finance Securitizations Corp., 300
Landmark Towers, 345 St. Peter Street, Saint
Paul, Minnesota 55102, telephone: (651) 293-3400.
Servicer.................... Conseco Finance Corp., 1100 Landmark Towers, 345
St. Peter Street, Saint Paul, Minnesota 55102,
telephone: (651) 293-3400. Conseco Finance Corp.
was previously named 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, the certificates 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 March 15,
2000.
Record Date................. The business day just before the payment date.
Distributions on the
Certificates................
Distributions on the certificates on any payment
date will be made primarily from amounts
collected during the prior calendar month on the
loans. On each payment date, distributions of
principal and interest on the certificates will
be made in the following order of priority:
1. Class AV interest;
2. Class MV-1 interest;
3. Class MV-2 interest;
4. Class BV-1 interest;
5. Class AV principal;
S-5
<PAGE>
6. Class MV-1 principal;
7. Class MV-2 principal;
8. Class BV-1 principal;
9. Class BV-2 interest; and
10. Class BV-2 principal.
This prospectus supplement summarizes in the next
two pages the amounts of interest and principal
to be paid on the certificates. In each case, the
payments will be made only to the extent the
amount available, after making any payments with
a higher priority, is sufficient. See
"Description of the Certificates--Payments on
Loans."
A. Interest on the Class
AV, Class MV-1, Class
MV-2 and Class BV-1
Certificates.............
Interest will be payable
. first to the Class AV certificates,
. then to the Class MV-1 certificates,
. then to the Class MV-2 certificates, and
. then to the Class BV-1 certificates.
See "Description of the Certificates--
Distributions on Certificates" and "--Losses on
Liquidated Loans."
B. Principal on the Class
AV, Class MV-1, Class
MV-2 and Class BV-1
Certificates ............
The trustee will then apply the remaining amount
available to pay principal on the Class AV, Class
MV-1, Class MV-2 and Class BV-1 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 AV certificates. After
the stepdown date and as long as no trigger event
is in effect, the trustee will
S-6
<PAGE>
allocate the formula principal distribution
amount among the Class AV, Class MV-1, Class MV-2
and Class BV-1 certificates, in the order of
priority described in "Description of the
Certificates--Distributions on Certificates."
C. Class BV-2 Interest...... The trustee will then apply the remaining amount
available to pay interest on the Class BV-2
certificates.
D. Class BV-2 Principal..... The trustee will then apply the remaining amount
available to pay principal due on the Class BV-2
certificates.
Class BV-2 Limited Conseco Finance will guarantee payment of
Guaranty................. interest and principal on the Class BV-2
certificates. See "Description of the Class BV-2
Limited Guaranty" for a complete description of
Conseco Finance's obligation under the Class BV-2
Limited Guaranty.
Initial The sum of the aggregate cut-off date principal
Overcollateralization.... balance of the loans included in the trust as of
the closing date plus the amount on deposit in
the pre-funding account on the closing date will
exceed the aggregate principal balance of the
certificates on the closing date by approximately
$4,500,000, which represents approximately 1.5%
of the aggregate cut-off date principal balance
of the loans included in the trust as of the
closing date plus the amount on deposit in the
pre-funding account on the closing date. This
overcollateralization amount will be maintained
at its initial level to the extent that funds are
available.
Loans....................... The pool will consist of adjustable rate home
equity loans. This prospectus supplement provides
information regarding a portion of the loans,
representing about 53.74% of all the loans.
Conseco Securitizations will transfer another
portion of the loans to the trust on the closing
date, and will transfer the remaining loans to
the trust within 90 days after the closing date.
The initial loans have the following
characteristics as of the cut-off date:
. all are secured by a first lien on the
related real property;
S-7
<PAGE>
. the related properties are located in 43
states and the District of Columbia;
. there are 1,339 loans;
. each loan accrues interest at a fixed rate
for no more than 36 months, and after that,
the interest rate adjusts semiannually to
equal the sum of the six-month LIBOR and the
gross margin specified in the loan;
. the weighted average term to scheduled
maturity, as of their dates of origination,
was 359 months; and
. the weighted average term to scheduled
maturity, as of the cut-off date, was 359
months.
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
$300,000,100, that difference will be deposited
by the trustee in a pre-funding account, and
those funds will be used to purchase loans from
time to time until May 12, 2000. If those funds
are not completely used by that date, the
remaining funds will be distributed as principal
on the Class AV certificates on the May 2000
payment date.
Capitalized Interest On the closing date, Conseco Securitizations will
Account..................... establish a capitalized interest account to cover
interest payments on the certificates on the
payment dates in March, April and May 2000 in the
event interest payments on the loans are
insufficient. To establish the account, Conseco
Securitizations will deposit an amount that is
approved by the rating agencies, which may be
zero. If there is not enough collected on the
loans to make a full interest distribution on the
certificates on the payment dates in March, April
or May 2000, the trustee will withdraw the amount
of the shortfall from the capitalized interest
account and deposit it in the certificate
account. The trustee will release any funds
remaining in the capitalized interest account
after the distribution to certificateholders in
May 2000 to one of Conseco Finance's
subsidiaries.
S-8
<PAGE>
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, as originator, 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 or Auction
Sale; Additional Principal
Distributions...............
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 certificate 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 certificate does not
exercise this purchase option, then on the next
payment date the trustee will begin an auction
process to sell the loans and the other trust
assets, but the trustee cannot sell the trust
assets and liquidate the trust unless the
proceeds of that sale are sufficient to pay the
aggregate unpaid principal balance of the
certificates and all accrued and unpaid interest
thereon. If the first auction of the trust
property is not successful because the highest
bid received was too low, then the trustee will
conduct an auction of the loans every third month
thereafter, unless and until an acceptable bid is
received for the trust property.
S-9
<PAGE>
If the holder of the Class C certificate does not
exercise the purchase option, then an additional
principal distribution amount equal to the
remaining amount available after paying all
interest and principal then due on the
certificates and payment of the monthly servicing
fee will be paid monthly:
1. to the Class AV certificates until retired,
then
2. to the remaining Class MV-1, Class MV-2,
Class BV-1 and Class BV-2 certificates pro
rata, based on the outstanding principal
balance of each class, until retired.
See "Description of the Certificates--Purchase
Option or Auction Sale; Additional Principal
Distributions" 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 AV, Class
MV and Class BV 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 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. The Class AV, Class MV and
Class BV certificates also will represent the
contractual right to receive, under some
circumstances, payments from the available funds
cap carryover reserve account. 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........ Subject to the conditions described under "ERISA
Considerations," employee benefit plans that are
subject to ERISA may purchase Class AV
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..............
When the pre-funded amount has been reduced to
zero, the Class AV, Class MV-1 and Class MV-2
certificates will constitute mortgage related
securities for purposes
S-10
<PAGE>
of the Secondary Mortgage Market Enhancement Act
of 1984. The Class BV-1 and Class BV-2
certificates will not constitute mortgage related
securities for purposes of SMMEA. You should
consult with your own legal advisor to decide
whether and how much you may legally invest in
the certificates.
Reports to Holders of the
Certificates................
The trustee will provide to the holders of the
certificates monthly and annual reports about the
certificates and the trust. See "Description of
the Certificates--Reports to Certificateholders"
in the prospectus.
S-11
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase certificates.
The loans may be prepaid before their scheduled maturity, which will affect
your yield.
Full or partial prepayments on the loans will reduce the weighted average
life of the certificates. Obligors may prepay their loans at any time.
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 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.
The assignment to the trust will not be recorded, which in some states could
make the trust's security interest ineffective; this could affect the trust's
ability to pay on the certificates.
We will not record the assignment from Conseco Finance to Conseco
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 related 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
Securitizations or a trustee in Conseco Finance's or Conseco Securitizations'
bankruptcy. This could leave the trust unable to foreclose on the real estate
following a loan default, which could result in increased losses on the loans.
These losses could result in delays or reductions in payments on your
certificates.
Bankruptcy proceedings could delay distributions on the certificates.
We intend that any transfer of loans by Conseco Finance to Conseco
Securitizations will constitute a sale, rather than a pledge of the loans to
secure Conseco Finance's indebtedness. However, if Conseco Finance were to
become a debtor under the federal bankruptcy code or similar applicable state
laws, Conseco Finance's trustee in bankruptcy might argue that such sale of
loans by Conseco Finance was a pledge of the loans rather than
S-12
<PAGE>
a sale. Conseco Finance's trustee in bankruptcy might also argue that the
assets and the liabilities of Conseco Securitizations should be consolidated
with those of Conseco Finance. If either of these arguments were accepted by a
court, it would cause the trust to experience a delay in or reduction of
collections on the loans. This delay or reduction could result in a delay or
reduction in payments on your certificates.
Conseco Finance's historical delinquency and loss experience with home equity
loans may not be an accurate prediction of the performance of the loans in the
pool.
If you purchase a certificate, the return on your investment will depend
largely on the performance of the loans constituting the underlying pool.
Conseco Finance has disclosed its historical delinquency and loss experience
with home equity loans under "The Loans" in this prospectus supplement, but the
historical experience may not be an accurate prediction of the performance of
the home equity loans constituting the pool for several reasons.
. Conseco Finance began purchasing and servicing home equity loans in
January 1996. If Conseco Finance's historical experience were
longer, or involved a larger number of home equity loans, the data
might well be substantially different.
. Historical experience with the performance of one portfolio or
group of loans is never a completely reliable indicator of the
future performance of another portfolio or group of loans.
. The information incorporates experience with some home equity loans
that are not of the type to be included in the pool, and therefore
the information presented is not necessarily indicative of Conseco
Finance's delinquency or loss experience with home equity loans
similar to the home equity loans comprising the pool.
You must not assume that the loans in the pool will experience delinquencies
and losses identical to the historical data presented here.
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.
The Home Protection Act adds certain additional provisions to Regulation Z,
the implementing regulation of the Federal Truth-in-Lending Act. These
provisions impose additional disclosure and other requirements on creditors
with respect to non-purchase money mortgage loans with high interest rates or
up-front fees and charges. A violation of these provisions of the Home
Protection Act can affect the enforceability of the related loan, and it
subjects any assignee of the loan, such as the trust, to all the claims and
defenses that the consumer could assert against the creditor, including the
right to rescind the loan. 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 the Home Protection Act regarding any loan that is
subject to the Home Protection Act, the trust may be unable to collect on that
loan. Conseco Finance would, however, be obligated to repurchase that loan
because of the breach of its representation and warranty.
S-13
<PAGE>
This prospectus supplement describes only a portion of the loans, and
additional loans added to the loan pool could have different characteristics.
The additional loans that we deliver on the closing date and the subsequent
loans that we deliver after the closing date will have characteristics that
differ somewhat from the initial loans described in this prospectus supplement.
However, each of the additional loans and subsequent loans must satisfy various
criteria specified in the pooling and servicing agreement. You must not assume
that the characteristics of the loan pool will be identical to the
characteristics of the loans described in this prospectus supplement. We will
file a Form 8-K following the transfer of additional loans to the trust on the
closing date and following the transfer of all the loans to the trust. These
reports will include the same type of information regarding the entire pool of
loans as this prospectus supplement contains about the initial loans.
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 equity 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.
Other rating agencies could provide unsolicited ratings on the certificates
that could be lower than the requested ratings.
Although we have not requested a rating of the certificates from any rating
agencies other than S&P, Moody's and Duff & Phelps, other rating agencies may
rate the certificates. These ratings could be higher or lower than the ratings
S&P, Moody's and Duff & Phelps initially give to the certificates. There is a
risk that a lower rating of your certificate from another rating agency could
reduce the market value or liquidity of your certificate.
S-14
<PAGE>
STRUCTURE OF THE TRANSACTION
On or about the closing date, February 24, 2000, Conseco Finance will
transfer the initial and additional loans to Conseco Securitizations, pursuant
to a transfer agreement between Conseco Finance and Conseco Securitizations.
Conseco Securitizations will then establish Conseco Finance Home Equity Loan
Trust 2000-A pursuant to a pooling and servicing agreement among Conseco
Securitizations, as seller, Conseco Finance, as originator, servicer and
limited guarantor, and the trustee.
The certificates will be issued by the trust. The property of the trust will
consist primarily of the loans, including all rights to receive payments due on
the loans after the Cut-off Date, liens on the related real estate and amounts
held for the trust in the certificate account. The Cut-off Date is December 31,
1999 for the initial loans, which are described in this prospectus supplement;
January 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 the subsequent loans are 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 on
deposit in the certificate account and constituting the Amount Available will
be applied on the fifteenth day of each month or, if that day is not a business
day, the next succeeding business day, to make the distributions to the
certificateholders as of the immediately preceding record date, to pay certain
monthly fees to the servicer as compensation for its servicing of the loans and
to pay a guaranty fee to Conseco Finance for providing the Class BV-2 limited
guaranty.
The servicer will be obligated to advance for each payment date any scheduled
payments on the loans that were due but not received during the prior Due
Period. The servicer will be entitled to reimbursement of an advance from funds
available in the certificate account. The servicer will not be required to make
any advance to the extent that it does not expect to recoup the advance from
subsequent funds available in the certificate account. If the servicer fails to
make any advance required under the pooling and servicing agreement, the
trustee is obligated, subject to certain conditions, to make the advance.
Following the transfer of the loans from Conseco Finance to Conseco
Securitizations, the obligations of Conseco Finance are limited to:
(1) its obligations as servicer to service the loans;
(2) certain representations and warranties in the pooling and servicing
agreement as described under "Description of the Certificates--
Conveyance of Loans;"
(3) certain indemnities; and
(4) the Class BV-2 limited guaranty.
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
S-15
<PAGE>
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 equity 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 will represent approximately 53.74% of all loans, and which consist of
closed-end loans originated through December 31, 1999. The information for each
initial loan is as of the Cut-off Date for the loan. The initial loans have an
aggregate principal balance of approximately $161,233,173.85 as of the 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
May 12, 2000. See "Description of the Certificates--Conveyance of Subsequent
Loans and Pre-Funding Account" below.
Each loan is a closed-end home equity loan originated by Conseco Finance or
by a company-approved correspondent lender and purchased by Conseco Finance.
Each loan is secured by a first lien on the related real estate.
The initial loans have loan rates subject to semiannual adjustment after an
initial period of up to 36 months on the day of the month specified in the
loan, to equal the sum of:
(1) the six-month LIBOR index; and
(2) a fixed percentage amount specified in the related loan, subject to
periodic caps.
The loan rates will not increase on any adjustment date by more than 6% per
year. Substantially all of the initial loans further provide that the loan rate
will in no event be more than the fixed percentage set forth in the loan. Each
initial loan provides that in no event will the loan rate be less than a
specified lifetime interest rate floor.
At the time of the first payment due on an initial loan after each related
adjustment date, the monthly payment will be adjusted to an amount which will
fully amortize the outstanding principal balance of that loan over its
remaining term, and pay interest at the
S-16
<PAGE>
loan rate as so adjusted. All of the initial loans were originated with a loan
rate less than the sum of:
(1) the six-month LIBOR index at the time the initial loan rate was
established, and
(2) the gross margin.
The six-month LIBOR index is an annual rate equal to the average of interbank
offered rates for six-month U.S. dollar-denominated deposits in the London
market based on quotations of major banks, as published in The Wall Street
Journal and as most recently available as of the date specified in the related
loan.
Conseco Finance will make certain representations and warranties in the
pooling and servicing agreement, including that:
(1) all but two of the loans are fully amortizing and provide for monthly
payments over the term of the loan, computed on the simple interest
method;
(2) each loan has its last scheduled payment due no later than January
2030; and
(3) each loan is secured by a first lien on the related real estate.
The loans will be originated or acquired by Conseco Finance in the ordinary
course of Conseco Finance's business. A detailed listing of the loans will be
attached to the pooling and servicing agreement. See "Description of the
Certificates" in this prospectus supplement and in the prospectus.
As of the Cut-off Date, the initial loans had loan rates ranging from 7.60%
to 14.40% and a weighted average loan rate of 9.837%. As of the Cut-off Date,
the weighted average maximum loan rate of the initial loans was 16.182%, with
maximum loan rates that range from 12.990% to 24.150%. As of the Cut-Off Date,
the initial loans had a weighted average gross margin of 6.318% and gross
margins ranging from 3.750% to 9.950%. As of the Cut-off Date, the initial
loans had remaining maturities of at least 174 months but not more than 360
months and original maturities of at least 180 months but not more than 360
months. The initial loans had a weighted average term to scheduled maturity, as
of origination, of 359 months, and a weighted average term to scheduled
maturity, as of the Cut-off Date, of 359 months. The average principal balance
of the initial loans as of the Cut-off Date was approximately $120,413.12 and
the principal balances on the initial loans as of the Cut-off Date ranged from
$11,251.93 to $386,784.34. The initial loans arise from loans relating to real
property located in 43 states and the District of Columbia. By principal
balance as of the Cut-off Date, approximately 12.67% of the initial loans were
secured by real property located in California, 7.73% in Maryland, 7.18% in
Colorado, 6.15% in Washington, 5.52% in Ohio and 5.20% inVirginia. No other
state represented 5% or more of the aggregate Cut-off Date principal balance of
the initial loans. All of the initial loans are secured by a first lien on the
related real estate and have a loan-to-value ratio, based on the current
principal balances as of the Cut-off Date, less than or equal to 100%.
S-17
<PAGE>
The tables below show additional characteristics of the initial loans.
Geographical Distribution of Mortgaged Properties--Initial Loans
<TABLE>
<CAPTION>
% of Initial Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
as of Cut-off Date as of Cut-off Date Cut-off Date
------------------ ------------------- ---------------------
<S> <C> <C> <C>
Alabama................. 22 $ 2,163,067.39 1.34%
Arizona................. 33 3,389,862.17 2.10
Arkansas................ 3 235,971.83 0.15
California.............. 115 20,426,922.20 12.67
Colorado................ 82 11,571,297.36 7.18
Connecticut............. 2 297,330.76 0.18
Delaware................ 6 554,248.78 0.34
District Of Columbia.... 14 1,827,016.72 1.13
Florida................. 34 3,703,280.85 2.30
Georgia................. 71 7,850,641.32 4.87
Idaho................... 8 907,294.00 0.56
Illinois................ 61 6,685,488.10 4.15
Indiana................. 70 6,290,455.30 3.90
Iowa.................... 2 135,395.54 0.08
Kansas.................. 9 791,062.67 0.49
Kentucky................ 19 1,648,700.40 1.02
Louisiana............... 8 921,430.94 0.57
Maryland................ 75 12,468,310.16 7.73
Massachusetts........... 13 1,694,396.36 1.05
Michigan................ 44 4,066,057.08 2.52
Minnesota............... 10 1,405,770.85 0.87
Mississippi............. 12 1,011,435.06 0.63
Missouri................ 25 2,329,481.52 1.44
Montana................. 3 195,191.40 0.12
Nebraska................ 1 75,650.00 0.05
Nevada.................. 27 3,185,918.11 1.98
New Jersey.............. 25 4,141,022.57 2.57
New Mexico.............. 6 672,711.95 0.42
New York................ 3 335,085.44 0.21
North Carolina.......... 47 5,155,047.33 3.20
Ohio.................... 90 8,893,191.78 5.52
Oklahoma................ 8 708,478.59 0.44
Oregon.................. 49 6,121,667.66 3.80
Pennsylvania............ 24 2,079,181.94 1.29
Rhode Island............ 10 1,168,967.76 0.73
South Carolina.......... 23 1,573,512.12 0.98
Tennessee............... 31 2,829,101.91 1.75
Texas................... 55 5,283,167.50 3.28
Utah.................... 43 5,507,984.88 3.42
Virginia................ 57 8,382,917.34 5.20
Washington.............. 74 9,915,308.95 6.15
West Virginia........... 4 489,935.11 0.30
Wisconsin............... 20 1,977,214.15 1.23
Wyoming................. 1 167,000.00 0.10
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
</TABLE>
S-18
<PAGE>
Years of Origination--Initial Loans
<TABLE>
<CAPTION>
% of Initial Loans by
Aggregate Principal Outstanding Principal
Number of Loans Balance Outstanding Balance as of
Year of Origination as of Cut-off Date as of Cut-off Date Cut-off Date
- ------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
1998.................... 9 $ 1,334,758.02 0.83%
1999.................... 1,330 159,898,415.83 99.17
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
Distribution of Original Loan Amounts--Initial Loans
<CAPTION>
% of Initial Loans by
Aggregate Principal Outstanding Principal
Original Loan Amount Number of Loans Balance Outstanding Balance as of
(in Dollars) as of Cut-off Date as of Cut-off Date Cut-off Date
-------------------- ------------------ ------------------- --------------------- ---
<S> <C> <C> <C> <C>
$ 10,000.01 to
$ 20,000.00............ 1 $ 11,251.93 0.01%
$ 20,000.01 to
$ 30,000.00............ 13 359,425.62 0.22
$ 30,000.01 to
$ 40,000.00............ 25 904,156.68 0.56
$ 40,000.01 to
$ 50,000.00............ 36 1,637,493.31 1.02
$ 50,000.01 to
$ 60,000.00............ 91 5,045,106.13 3.13
$ 60,000.01 to
$ 70,000.00............ 101 6,566,231.74 4.07
$ 70,000.01 to
$ 80,000.00............ 134 10,014,278.20 6.21
$ 80,000.01 to
$ 90,000.00............ 101 8,602,176.82 5.34
$ 90,000.01 to
$100,000.00............ 125 11,888,006.95 7.37
$100,000.01 to
$110,000.00............ 89 9,378,483.92 5.82
$110,000.01 to
$120,000.00............ 101 11,648,133.53 7.22
$120,000.01 to
$130,000.00............ 76 9,478,574.41 5.88
$130,000.01 to
$140,000.00............ 64 8,614,529.09 5.34
$140,000.01 to
$150,000.00............ 52 7,555,464.88 4.69
$150,000.01 to
$160,000.00............ 51 7,881,962.91 4.89
$160,000.01 to
$170,000.00............ 26 4,290,716.76 2.66
$170,000.01 to
$180,000.00............ 37 6,456,429.97 4.00
$180,000.01 to
$190,000.00............ 32 5,940,118.33 3.68
$190,000.01 to
$200,000.00............ 23 4,491,420.63 2.79
$200,000.01 to
$210,000.00............ 14 2,885,849.59 1.79
$210,000.01 to
$220,000.00............ 24 5,170,773.29 3.21
$220,000.01 to
$230,000.00............ 18 4,051,118.71 2.51
$230,000.01 to
$240,000.00............ 19 4,478,843.96 2.78
$240,000.01 to
$250,000.00............ 17 4,170,094.22 2.59
$250,000.01 to
$260,000.00............ 17 4,328,337.48 2.68
$260,000.01 to
$270,000.00............ 14 3,730,675.30 2.31
$270,000.01 to
$280,000.00............ 5 1,365,254.15 0.85
$280,000.01 to
$290,000.00............ 5 1,422,165.00 0.88
$290,000.01 to
$300,000.00............ 7 2,061,781.67 1.28
Over $300,000.00........ 21 6,804,318.67 4.22
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
</TABLE>
S-19
<PAGE>
Current Loan Rates--Initial Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Initial Loans by
Number of Loans Balance Outstanding Outstanding Principal
Range of Loan Rates as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
Less than 8.001%........ 6 $ 890,910.32 0.55%
8.001% to 8.500%...... 26 3,584,173.77 2.22
8.501% to 9.000%...... 226 31,476,575.69 19.52
9.001% to 9.500%...... 217 29,561,243.47 18.33
9.501% to 10.000%...... 375 45,296,412.89 28.09
10.001% to 10.500%...... 197 21,999,543.80 13.64
10.501% to 11.000%...... 163 17,582,932.25 10.91
11.001% to 11.500%...... 57 5,596,680.97 3.47
11.501% to 12.000%...... 42 3,114,818.37 1.93
12.001% to 12.500%...... 12 1,043,221.57 0.65
12.501% to 13.000%...... 12 702,481.33 0.44
13.001% to 13.500%...... 3 100,834.91 0.06
13.501% to 14.000%...... 1 210,656.58 0.13
14.001% to 14.500%...... 2 72,687.93 0.05
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
Remaining Months to Maturity--Initial Loans
<CAPTION>
Months Remaining to Aggregate Principal % of Initial Loans by
Scheduled Maturity Number of Loans Balance Outstanding Outstanding Principal
as of Cut-off Date as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
169 to 180.............. 4 $ 435,640.21 0.27%
217 to 228.............. 1 234,390.00 0.15
337 to 348.............. 8 1,110,965.77 0.69
349 to 360.............. 1,326 159,452,177.87 98.90
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
Original Loan-to-Value Ratio--Initial Loans
<CAPTION>
Aggregate Principal % of Initial Loans by
Number of Loans Balance Outstanding Outstanding Principal
Loan-to-Value Ratio as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
Less than 20.00%........ 1 $ 40,000.00 0.02%
20.01% to 30.00%....... 1 29,693.87 0.02
30.01% to 40.00%....... 2 167,467.29 0.10
40.01% to 50.00%....... 3 136,752.43 0.08
50.01% to 60.00%....... 5 370,408.29 0.23
60.01% to 70.00%....... 32 2,627,287.55 1.63
70.01% to 80.00%....... 316 34,782,170.56 21.57
80.01% to 90.00%....... 652 76,196,723.38 47.26
90.01% to 100.00%....... 325 46,511,884.66 28.85
Over 100.00%............ 2 370,785.82 0.23
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
</TABLE>
S-20
<PAGE>
Month of Next Rate Adjustment--Initial Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Initial Loans by
Number of Loans Balance Outstanding Outstanding Principal
Month of Next Rate Adjustment as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ----------------------------- ------------------ ------------------- --------------------------
<S> <C> <C> <C>
April 2000.................. 1 $ 118,882.97 0.07%
June 2000................... 4 267,579.12 0.17
October 2000................ 2 438,957.20 0.27
November 2000............... 3 466,242.56 0.29
December 2000............... 1 94,786.89 0.06
January 2001................ 2 287,442.25 0.18
February 2001............... 2 159,197.30 0.10
March 2001.................. 1 245,457.25 0.15
May 2001.................... 1 82,525.82 0.05
June 2001................... 4 377,594.88 0.23
July 2001................... 5 899,012.25 0.56
August 2001................. 9 920,692.22 0.57
September 2001.............. 28 3,201,840.08 1.99
October 2001................ 116 13,332,237.86 8.27
November 2001............... 425 47,882,764.81 29.70
December 2001............... 503 62,931,177.88 39.03
January 2002................ 125 17,086,670.00 10.60
March 2002.................. 1 72,431.36 0.04
May 2002.................... 1 65,348.87 0.04
July 2002................... 1 163,611.40 0.10
August 2002................. 2 269,276.46 0.17
September 2002.............. 1 100,664.81 0.06
October 2002................ 3 344,025.89 0.21
November 2002............... 20 1,882,863.72 1.17
December 2002............... 65 7,895,640.00 4.90
January 2003................ 13 1,646,250.00 1.02
----- --------------- ------
Total................... 1,339 $161,233,173.85 100.00%
===== =============== ======
</TABLE>
S-21
<PAGE>
Distribution of Gross Margin--Initial Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Initial Loans
Number of Loans Balance Outstanding by Outstanding Principal
Gross Margin as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------ ------------------ ------------------- --------------------------
<S> <C> <C> <C>
3.501% to 4.000%........ 2 $ 154,333.40 0.10%
4.001% to 4.500%........ 9 1,292,745.72 0.80
4.501% to 5.000%........ 33 4,299,562.83 2.67
5.001% to 5.500%........ 147 19,897,097.69 12.34
5.501% to 6.000%........ 274 37,385,619.69 23.19
6.001% to 6.500%........ 323 39,251,540.13 24.34
6.501% to 7.000%........ 314 35,455,236.88 21.99
7.001% to 7.500%........ 143 14,864,623.56 9.22
7.501% to 8.000%........ 48 4,552,019.99 2.82
8.001% to 8.500%........ 26 2,519,370.11 1.56
8.501% to 9.000%........ 15 1,211,967.57 0.75
9.001% to 9.500%........ 3 186,477.38 0.12
9.501% to 10.000%....... 2 162,578.90 0.10
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
</TABLE>
Maximum Loan Rates--Initial Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Initial Loans by
Number of Loans Balance Outstanding Outstanding Principal
Maximum Loan Rates as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------------ ------------------ ------------------- --------------------------
<S> <C> <C> <C>
12.501% to 13.000%...... 4 $ 874,400.60 0.54%
13.001% to 13.500%...... 1 96,260.90 0.06
13.501% to 14.000%...... 3 272,047.66 0.17
14.001% to 14.500%...... 22 3,012,951.56 1.87
14.501% to 15.000%...... 170 23,367,100.20 14.49
15.001% to 15.500%...... 135 17,663,265.51 10.96
15.501% to 16.000%...... 300 37,206,035.05 23.08
16.001% to 16.500%...... 226 28,427,288.98 17.63
16.501% to 17.000%...... 222 25,420,593.15 15.77
17.001% to 17.500%...... 91 9,311,273.53 5.78
17.501% to 18.000%...... 92 9,561,224.80 5.93
18.001% to 18.500%...... 28 2,538,972.96 1.57
18.501% to 19.000%...... 29 2,270,746.75 1.41
19.001% to 19.500%...... 7 426,870.75 0.26
19.501% to 20.000%...... 2 134,800.00 0.08
20.001% to 20.500%...... 3 283,344.51 0.18
20.501% to 21.000%...... 2 123,949.54 0.08
21.501% to 22.000%...... 1 71,400.00 0.04
24.001% to 24.500%...... 1 170,647.40 0.11
----- --------------- ------
Total............... 1,339 $161,233,173.85 100.00%
===== =============== ======
</TABLE>
S-22
<PAGE>
Minimum Loan Rates--Initial Loans
<TABLE>
<CAPTION>
Aggregate Principal % of Initial Loans by
Number of Loans Balance Outstanding Outstanding Principal
Minimum Loan Rates as of Cut-off Date as of Cut-off Date Balance as of Cut-off Date
- ------------------ ------------------ ------------------- -------------------------- ---
<S> <C> <C> <C> <C>
Less than 5.001%........ 8 $ 908,940.33 0.56%
5.001% to 5.500%...... 59 8,426,977.09 5.23
5.501% to 6.000%...... 61 9,269,457.67 5.75
6.001% to 6.500%...... 68 8,059,628.87 5.00
6.501% to 7.000%...... 66 7,508,241.52 4.66
7.001% to 7.500%...... 41 4,297,020.76 2.67
7.501% to 8.000%...... 26 2,761,706.42 1.71
8.001% to 8.500%...... 30 3,567,822.55 2.21
8.501% to 9.000%...... 147 19,655,583.18 12.19
9.001% to 9.500%...... 173 23,474,989.39 14.56
9.501% to 10.000%...... 292 35,299,230.83 21.89
10.001% to 10.500%...... 148 16,542,030.36 10.26
10.501% to 11.000%...... 124 13,483,232.14 8.36
11.001% to 11.500%...... 42 4,129,983.26 2.56
11.501% to 12.000%...... 28 2,126,800.64 1.32
12.001% to 12.500%...... 8 634,868.09 0.39
12.501% to 13.000%...... 12 702,481.33 0.44
13.001% to 13.500%...... 3 100,834.91 0.06
13.501% to 14.000%...... 1 210,656.58 0.13
14.001% to 14.500%...... 2 72,687.93 0.05
----- --------------- ------
Total................. 1,339 $161,233,173.85 100.00%
===== =============== ======
</TABLE>
Delinquency, Loan Default and Loss Information
The following tables set forth information relating to Conseco Finance's
delinquency, loan default and loss experience with respect to all home equity
loans serviced by Conseco Finance. Not all of such home equity loans are of the
type to be included in the loan pool, and thus the information presented is not
necessarily indicative of Conseco Finance's delinquency, default and loss
experience with respect to home equity loans similar to the loans in the loan
pool. In addition, Conseco Finance began originating, purchasing and servicing
home equity loans in January 1996, and as a result Conseco Finance's experience
with respect to the performance of such loans is limited. Moreover, because all
of Conseco Finance's loans have been recently originated, it is likely that
this experience is not indicative of the delinquency, default and loss
experience to be expected from a more seasoned portfolio.
S-23
<PAGE>
Delinquency Experience
<TABLE>
<CAPTION>
At At December 31,
September 30, ----------------------
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C> <C>
Principal Balance of Loans
Serviced........................... $8,860,029 $6,192,622 $3,171,040
Principal Balance of Loans
Delinquent
30-59 Days........................ 126,111 116,720 51,213
60-89 Days........................ 34,139 29,884 12,768
90 Days or More (1)............... 175,129 110,577 31,852
Total Loans Delinquent.............. 335,379 257,181 95,833
Delinquencies as a Percent of Loans
Serviced........................... 3.79% 4.15% 3.02%
</TABLE>
- --------
(1) Calculation of "90 Days or More" delinquencies include both delinquent
loans for which the servicer has not initiated recourse and those for which
it has initiated foreclosure proceedings.
The principal balance of loans in the table above 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 equity loans of obligors
that have entered bankruptcy, so long as those obligors are current under their
bankruptcy payment plan.
Loan Default and Loss
<TABLE>
<CAPTION>
At At December 31,
September 30, ----------------------
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Principal Balance of Loans Serviced...... $8,860,029 $6,192,622 $3,171,040
Principal Balance of Liquidated Loans.... 2.62% 2.41% 0.94%
Net Losses:
Dollars................................ $ 38,799 $ 19,833 $ 4,977
Percent................................ 0.44% 0.32% 0.16%
</TABLE>
In the above table, the principal balance of loans serviced is as of the end
of the period and includes loans already in liquidation. The principal balance
of loans liquidated is calculated as a percent of the principal balance of
loans serviced as of the end of the period. The dollar calculation of net
losses includes interest to the date of foreclosure and liquidation. Finally,
the percentage of net losses is the percentage of the principal balance of
loans serviced as of the end of the period.
S-24
<PAGE>
YIELD AND PREPAYMENT CONSIDERATIONS
The yield to maturity of any certificate will depend on the price paid by the
certificateholder and will be sensitive to the rate and timing of principal
payments on the loans, which may fluctuate significantly from time to time. The
loans generally may be prepaid in full or in part at any time.
Higher than expected principal prepayments will increase the yield on
certificates purchased at a price less than the undivided ownership interest in
the aggregate principal balance of the loans represented by those certificates
and will decrease the yield on certificates purchased at a price greater than
the undivided ownership interest in the aggregate principal balance of the
loans represented by those certificates. Conseco Finance has no significant
experience with respect to the rate of principal prepayments on home equity
loans. Because the loans have scheduled due dates throughout the calendar
month, prepayments on the loans would affect the amount of funds available to
make distributions on the certificates on any payment date only if a
substantial portion of the loans prepaid prior to their due dates in the
preceding month, while very few loans prepaid after their due dates in the
preceding month. In addition, liquidations of defaulted loans or the Class C
certificateholder's exercise of its option to purchase 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 which are prepaid in full prior to May 24, 2000.
See "Description of the Certificates--Conveyance of Loans." There is no
assurance that Conseco Finance will exercise its option to make substitutions
or that any loans meeting the eligibility criteria for substitution will be
available. To the extent any substitutions are made, the impact on the loan
pool and the certificates of what would otherwise have constituted a principal
prepayment will be averted.
The Class AV 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 AV certificateholders
and, if the principal balance of such class has been reduced to zero, then to
the Class MV-1, Class MV-2, Class BV-1 and Class BV-2 certificateholders, in
that order of priority. Conseco Securitizations believes that the principal
amount of subsequent loans to be purchased by the trust will require the
application of substantially all of the pre-funded amount. It is unlikely,
however, that the aggregate principal amount of subsequent loans purchased by
the trust will be identical to the pre-funded amount, so it is likely that the
Class AV certificateholders will receive some prepayment of principal.
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, or adjusted principal balance if applicable, of
that class, immediately following the preceding payment date. Interest on the
certificates will be computed on the basis of actual days elapsed in a 360-day
year. Certificateholders will receive payments in respect of principal on each
payment date to the extent that funds available in the certificate account are
sufficient,
S-25
<PAGE>
in the priority described under "Description of the Certificates--Distributions
on Certificates." Interest paid by obligors on the loans is computed according
to the simple interest method.
The final scheduled payment date on the initial loan with the latest maturity
is in January 2030.
The final scheduled maturity of each class of certificates, based on the
assumptions that there are no defaults, prepayments or delinquencies with
respect to payments due under the loans and that the purchase option has not
been exercised, are as follows:
<TABLE>
<CAPTION>
Final Scheduled
Maturity
-----------------
<S> <C>
AV...................................................... February 15, 2031
MV-1.................................................... February 15, 2031
MV-2.................................................... February 15, 2031
BV-1.................................................... February 15, 2031
BV-2.................................................... February 15, 2031
</TABLE>
Weighted Average Lives 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).
The rate of principal payments on pools of home equity loans is influenced by
a variety of economic, geographic, social and other factors, including the
level of interest rates and the rate at which homeowners sell their homes or
default on their loans. Other factors affecting prepayment of loans may
include:
. changes in obligors' housing needs,
. job transfers,
. unemployment,
. obligors' net equity in their homes, and
. obligors' improved credit standing.
In the case of home equity loans, in general, if prevailing interest rates fall
significantly below the interest rates on these loans, the loans are likely to
be subject to higher prepayment rates than if prevailing interest rates
remained at or above the rates borne by
S-26
<PAGE>
such loans. Conversely, if prevailing interest rates rise above the interest
rates on such home equity loans, the rate of prepayment generally 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 certificate does not exercise its right to
purchase the loans, as described under "Description of the
Certificates--Purchase Option or Auction Sale; Additional Principal
Distributions" except with respect to the line titled "Weighted
Average Life (years) to call;"
(3) the initial loans will, as of the Cut-off Date, have the additional
characteristics described below under "Assumed Initial Loan
Characteristics," and the additional and subsequent loans will have
the additional characteristics described below under "Assumed
Additional and Subsequent Loan Characteristics;"
(4) the additional and subsequent loans will have their first scheduled
payment date in February 2000;
(5) each class of the certificates has an original principal balance as
shown on the cover page of this prospectus supplement;
(6) the rate for one-month LIBOR is 5.8900%;
(7) the rate for six-month LIBOR is 6.3137%;
(8) the subsequent loans will have their first scheduled payment date in
March 2000;
(9) no interest shortfalls will arise in connection with prepayments in
full of the loans;
(10) no delinquencies or losses are experienced on the loans;
(11) distributions are made on the certificates on the 15th day of each
month, commencing in March 2000;
(12) the certificates are issued on February 24, 2000; and
(13) the Class P certificate does not receive principal or interest
payments.
No representation is made that the loans will not experience delinquencies or
losses.
We cannot assure you that the holder of the Class C certificate will exercise
its purchase option. If the purchase option is not exercised, we cannot assure
you that any auction of the trust property will be successful.
The percentages and weighted average life information for the certificates in
the following tables are based on a Conditional Prepayment Rate model that
assumes that the outstanding principal balance of the loans will prepay at the
percentages of CPR outlined in the prepayment scenarios table below.
S-27
<PAGE>
The certificates were priced using a prepayment assumption of 30% of CPR. It
is not likely that the loans will prepay at any constant percentage of the
prepayment assumption or of the CPR to maturity or that all of the loans will
prepay at the same rate.
You should make your investment decisions on a basis that includes your own
determination as to anticipated prepayment rates under a variety of the
assumptions discussed here.
Assumed Initial Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average Weighted
Weighted Remaining Original Weighted Weighted Weighted Average
Cut-off Date Average Term to Term to Average Weighted Average Average Month(s)
Pool Principal Loan Maturity Maturity Gross Average Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Life Cap Floor Cap Change
- ---- -------------- -------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. ..................... $ 1,386,448.74 10.473% 349 360 6.660% 16.640% 9.876% 1.241% 9
2. ..................... 1,152,217.50 9.443 345 353 6.079 16.068 8.940 1.241 15
3. ..................... 899,012.25 9.764 355 360 6.261 16.090 9.764 1.000 19
4. ..................... 920,692.22 9.829 342 346 6.833 16.026 9.295 1.137 20
5. ..................... 3,201,840.08 9.927 357 360 6.689 16.195 8.758 1.014 21
6. ..................... 13,332,237.86 9.750 354 356 6.495 15.917 8.744 1.128 22
7. ..................... 47,882,764.81 9.877 359 360 6.427 16.145 8.976 1.088 23
8. ..................... 62,931,177.88 9.779 359 359 6.215 16.152 8.914 1.109 24
9. ..................... 29,526,782.51 9.915 360 360 6.220 16.414 8.919 1.140 29
</TABLE>
S-28
<PAGE>
Assumed Additional and Subsequent Loan Characteristics
<TABLE>
<CAPTION>
Weighted Weighted
Average Average Weighted
Weighted Remaining Original Weighted Weighted Weighted Average
Cut-off Date Average Term to Term to Average Weighted Average Average Month(s)
Pool Principal Loan Maturity Maturity Gross Average Life Periodic to Rate
Pool Balance Rate (months) (months) Margin Life Cap Floor Cap Change
- ---- -------------- -------- --------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. ..................... $ 1,193,259.96 10.473% 360 360 6.660% 16.640% 9.876% 1.241% 24
2. ..................... 991,666.68 9.443 353 353 6.079 16.068 8.940 1.241 24
3. ..................... 773,743.23 9.764 360 360 6.261 16.090 9.764 1.000 24
4. ..................... 792,402.30 9.829 346 346 6.833 16.026 9.295 1.137 24
5. ..................... 2,755,693.35 9.927 360 360 6.689 16.195 8.758 1.014 24
6. ..................... 11,474,514.14 9.750 356 356 6.495 15.917 8.744 1.128 24
7. ..................... 41,210,745.54 9.877 360 360 6.427 16.145 8.976 1.088 24
8. ..................... 54,162,301.79 9.779 359 359 6.215 16.152 8.914 1.109 24
9. ..................... 25,412,499.16 9.915 360 360 6.220 16.414 8.919 1.140 36
</TABLE>
Based on these assumptions, the following tables indicate the projected
weighted average life of each class of certificates, and outline the
percentages of the original principal balance of each class that would be
outstanding after each of the dates shown, under the indicated prepayment
scenarios.
The weighted average life of a class of certificates is determined by (a)
multiplying the amount of cash distributions in reduction of the principal
balance of such certificate by the number of years from the date of issuance of
such certificate to the stated payment date, (b) adding the results, and (c)
dividing the sum by the initial principal balance of such certificate.
Prepayment Scenarios
<TABLE>
<CAPTION>
Scenario I Scenario II Scenario III Scenario IV Scenario V
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
CPR percentage...... 18% 24% 30% 36% 42%
</TABLE>
S-29
<PAGE>
Percentage of the Original Principal Balance of the Class AV
Certificates at the Respective Percentages of the
CPR Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
February 15, 2001....... 76 68 60 52 45
February 15, 2002....... 57 45 34 24 15
February 15, 2003....... 41 27 15 5 0
February 15, 2004....... 32 24 15 4 0
February 15, 2005....... 26 18 11 0 0
February 15, 2006....... 21 13 3 0 0
February 15, 2007....... 17 7 0 0 0
February 15, 2008....... 14 1 0 0 0
February 15, 2009....... 8 0 0 0 0
February 15, 2010....... 3 0 0 0 0
February 15, 2011....... 0 0 0 0 0
Weighted Average Life
(years) to maturity.... 3.46 2.52 1.87 1.32 1.04
Weighted Average Life
(years) to call........ 3.24 2.34 1.71 1.29 1.04
</TABLE>
Percentage of the Original Principal Balance of the Class MV-1 Certificates at
the Respective Percentages of the CPR Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
February 15, 2001....... 100 100 100 100 100
February 15, 2002....... 100 100 100 100 100
February 15, 2003....... 100 100 100 100 61
February 15, 2004....... 88 64 67 100 38
February 15, 2005....... 71 49 34 73 15
February 15, 2006....... 58 37 34 30 1
February 15, 2007....... 47 36 26 2 0
February 15, 2008....... 39 36 7 0 0
February 15, 2009....... 37 22 0 0 0
February 15, 2010....... 37 6 0 0 0
February 15, 2011....... 34 0 0 0 0
February 15, 2012....... 18 0 0 0 0
February 15, 2013....... 4 0 0 0 0
February 15, 2014....... 0 0 0 0 0
Weighted Average Life
(years) to maturity.... 7.86 5.99 5.22 5.60 3.83
Weighted Average Life
(years) to call........ 6.29 4.71 4.15 3.56 2.89
</TABLE>
S-30
<PAGE>
Percentage of the Original Principal Balance of the Class MV-2
Certificates at the Respective Percentages of the
CPR Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
February 15, 2001....... 100 100 100 100 100
February 15, 2002....... 100 100 100 100 100
February 15, 2003....... 100 100 100 100 100
February 15, 2004....... 88 64 46 60 63
February 15, 2005....... 71 49 33 42 25
February 15, 2006....... 58 37 33 17 1
February 15, 2007....... 47 35 25 1 0
February 15, 2008....... 39 35 7 0 0
February 15, 2009....... 37 21 0 0 0
February 15, 2010....... 37 6 0 0 0
February 15, 2011....... 34 0 0 0 0
February 15, 2012....... 18 0 0 0 0
February 15, 2013....... 4 0 0 0 0
February 15, 2014....... 0 0 0 0 0
Weighted Average Life
(years) to maturity.... 7.85 5.93 4.98 4.82 4.42
Weighted Average Life
(years) to call........ 6.29 4.67 3.93 3.56 2.89
</TABLE>
Percentage of the Original Principal Balance of the Class BV-1
Certificates at the Respective Percentages of the
CPR Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
February 15, 2001....... 100 100 100 100 100
February 15, 2002....... 100 100 100 100 100
February 15, 2003....... 100 100 100 100 100
February 15, 2004....... 88 64 46 32 63
February 15, 2005....... 71 49 33 22 25
February 15, 2006....... 58 37 33 9 1
February 15, 2007....... 47 35 25 1 0
February 15, 2008....... 39 35 7 0 0
February 15, 2009....... 37 21 0 0 0
February 15, 2010....... 37 6 0 0 0
February 15, 2011....... 34 0 0 0 0
February 15, 2012....... 18 0 0 0 0
February 15, 2013....... 4 0 0 0 0
February 15, 2014....... 0 0 0 0 0
Weighted Average Life
(years) to maturity.... 7.85 5.91 4.87 4.14 4.42
Weighted Average Life
(years) to call........ 6.29 4.66 3.83 3.50 2.89
</TABLE>
S-31
<PAGE>
Percentage of the Original Principal Balance of the Class BV-2 Certificates at
the Respective Percentages of the CPR Set Forth Below:
<TABLE>
<CAPTION>
Date Scenario I Scenario II Scenario III Scenario IV Scenario V
- ---- ---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Initial Percentage...... 100% 100% 100% 100% 100%
February 15, 2001....... 100 100 100 100 100
February 15, 2002....... 100 100 100 100 100
February 15, 2003....... 100 100 100 100 100
February 15, 2004....... 84 53 29 10 12
February 15, 2005....... 62 32 11 4 5
February 15, 2006....... 45 16 11 2 0
February 15, 2007....... 30 13 8 0 0
February 15, 2008....... 19 13 2 0 0
February 15, 2009....... 16 8 0 0 0
February 15, 2010....... 16 2 0 0 0
February 15, 2011....... 15 0 0 0 0
February 15, 2012....... 8 0 0 0 0
February 15, 2013....... 2 0 0 0 0
February 15, 2014....... 0 0 0 0 0
Weighted Average Life
(years) to maturity.... 6.48 4.78 3.93 3.44 3.47
Weighted Average Life
(years) to call........ 5.79 4.29 3.57 3.27 2.89
</TABLE>
S-32
<PAGE>
CONSECO FINANCE CORP.
General
The following information supplements, and if inconsistent supersedes, the
information in the prospectus under the heading "Conseco Finance Corp." Conseco
Finance Corp. was previously named Green Tree Financial Corporation.
Conseco Finance is a Delaware corporation which, on December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Conseco Finance purchases,
pools, sells and services conditional sales contracts for manufactured homes
and other consumer installment sales contracts, as well as home equity loans.
Conseco Finance is the largest servicer of government-insured manufactured
housing contracts and conventional manufactured housing contracts in the United
States. Servicing functions are performed through Conseco Finance Servicing
Corporation, a wholly owned subsidiary of Conseco Finance. Through its
principal offices in Saint Paul, Minnesota, and service centers throughout the
United States, Conseco Finance serves all 50 states. Conseco Finance began
financing home equity loans in January 1996. Conseco Finance also purchases,
pools and services installment sales contracts for various consumer products.
Conseco Finance's principal executive offices are located at 1100 Landmark
Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102-1639 (telephone
(651) 293-3400). Conseco Finance's quarterly and annual reports, which are
incorporated by reference in this prospectus supplement and in the prospectus,
are available from Conseco Finance upon written request.
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 nine months ended September 30, 1999. For the
purposes of compiling these ratios, earnings consist of earnings before both
income taxes and fixed charges. Fixed charges consist of interest expense and
the interest portion of rent expense.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
------------------------ -------------
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings (Losses) to Fixed
Charges............................... 7.98 7.90 5.44 3.94 .62* 3.55
</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
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were filed by a
few of Conseco Finance's stockholders as purported class actions on behalf of
persons or entities who purchased common stock or traded in options of Conseco
Finance during the alleged class periods. These alleged class periods run from
February 1995 to January 1998. One of these lawsuits did not include class
action claims. In addition to Conseco Finance, some of Conseco
S-33
<PAGE>
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 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,
among other things, 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 Conseco Finance's loan
portfolios, which allegedly rendered Conseco Finance's financial statements
false and misleading. 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. Conseco Finance
filed motions to dismiss these lawsuits. On August 24, 1999 Conseco Finance's
motions to dismiss were granted with prejudice. On September 21, 22 and 23, the
plaintiffs filed notices of appeal of these dismissals.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent,
supersedes the information in the prospectus under "Description of the
Certificates."
The certificates will be issued pursuant to the pooling and servicing
agreement among Conseco Finance, as originator, servicer and limited guarantor,
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 $1.00 in excess thereof.
The certificates initially will be represented by certificates registered in
the name of Cede & Co. as the nominee of DTC, and will only be available in the
form of book-entries on the records of DTC and participating members. Holders
of the certificates may hold through DTC in the United States, Clearstream,
Luxembourg or Euroclear in Europe, if they are participants of such systems, or
indirectly through organizations that are participants in such systems. See "--
Registration of the Certificates" below. The trust consists primarily of the
loans and the related rights, benefits, obligations and proceeds, including
liens on the related real estate, amounts held in the certificate account and
the Class BV-2 limited guaranty of Conseco Finance for the benefit of the Class
BV-2 certificateholders.
Distributions on the certificates will be made by the paying agent on each
payment date to persons in whose names the certificates are registered as of
the business day immediately
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<PAGE>
preceding such payment date. See "--Registration of the Certificates" below.
The first payment date for the certificates will be in March 2000. Payments
will be made by check mailed to the certificateholder at the address appearing
on the certificate register, except that a certificateholder who holds an
aggregate percentage interest of at least 5% of a class of certificates may
request payment by wire transfer. Final payments will be made only upon tender
of the certificates to the trustee for cancellation.
Conveyance of Loans
On the closing date, 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 Cut-off Date
with respect to such loans, other than receipts of principal and interest due
on such loans on or before the 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 May 12, 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 each conveyance, will execute and deliver the certificates to
or upon the order of Conseco Securitizations. The loans will be described on a
list delivered to 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 will maintain possession of the loans and any other documents
contained in the loan files. Uniform Commercial Code financing statements will
be filed in Minnesota, reflecting the conveyance and assignment of the loans to
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
S-35
<PAGE>
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 10 days;
(2) no provision of a loan has been waived, altered or modified in any
respect, except by instruments or documents included in the loan file
and reflected on the list of loans delivered to the trustee;
(3) each loan is a legal, valid and binding obligation of the obligor and
is enforceable in accordance with its terms, except as may be limited
by laws affecting creditors' rights generally;
(4) no loan is subject to any right of rescission, set-off, counterclaim
or defense;
(5) each loan was originated by a home equity lender in the ordinary
course of its business or was originated by Conseco Finance directly;
(6) no loan was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the loan or an
interest in the loan 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 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 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
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<PAGE>
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) no loan had a loan-to-value ratio, based on each loan's current
principal balance, in excess of 100%; and
(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;
(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) the percentage by principal amount of the loans on the closing date
that are debt consolidation loans will be no more than 20.00% and the
addition of the subsequent loans will not increase this percentage by
more than 3.00%; 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 Duff & Phelps a
lower credit rating than the rating assigned each class based upon the
initial loans;
. no additional loan will be a Title I loan;
. as a result of the purchase of the additional 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;
. 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
S-37
<PAGE>
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.
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 article III of the pooling and servicing agreement,
has a Scheduled Principal Balance that is not greater than the Scheduled
Principal Balance of the replaced loan, has a loan rate that is at least equal
to the loan rate of the replaced loan and has a remaining term to scheduled
maturity that is not greater than the remaining term to scheduled maturity of
the replaced loan. Conseco Finance will be required to deposit in the
certificate account cash in the amount, if any, by which the Scheduled
Principal Balance of the replaced loan exceeds the Scheduled Principal Balance
of the loan being substituted. The deposit will be deemed to be a partial
principal prepayment.
The repurchase or 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 May 24, 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 scheduled 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.
S-38
<PAGE>
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 $300,000,100,
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, less the aggregate principal balance of
subsequent loans specifically identified for purchase by the trust as of the
closing date, represent more than 25% of the original certificate principal
balance 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) May 12, 2000; or
(3) the date on which an event of termination occurs under the pooling and
servicing agreement.
The pre-funded amount will be reduced during the funding period by the amount
used to purchase subsequent loans in accordance with the pooling and servicing
agreement.
Under the pooling and servicing agreement, the trust will be obligated to
purchase subsequent loans from 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
AV certificates and, if the principal balance of such class has been reduced to
zero, then to the Class MV-1, Class MV-2, Class BV-1 and Class BV-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 AV certificateholders from the pre-
funding account. However, it is unlikely that Conseco Finance will be able to
deliver subsequent loans with an aggregate principal balance identical to the
remaining pre-funded amount.
S-39
<PAGE>
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 10 days contractually
delinquent;
(b) the remaining stated term to maturity of each subsequent loan may
not exceed 360 months;
(c) each subsequent loan must have been underwritten in accordance
with Conseco Finance's standard underwriting criteria;
(d) as a result of the purchase of the subsequent loans, the weighted
average loan to value ratio of the loan pool will not be more than
200 basis points more than such ratio with respect to the initial
loans;
(e) as a result of the purchase of the subsequent loans, the Class AV
certificates will not receive from S&P, Moody's or Duff & Phelps a
lower credit rating than the rating assigned at the initial
issuance of such certificates;
(f) an independent accountant will provide a letter stating whether or
not the characteristics of the subsequent loans conform to the
characteristics described in this prospectus supplement;
(g) no subsequent loan may be a Title I loan; and
(h) 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, P-1 by Moody's and D-1+
by Duff & Phelps 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, Aa3 by Moody's and AA- by Duff & Phelps if the deposits are to be held
in the
S-40
<PAGE>
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, Moody's or Duff & Phelps to
downgrade or withdraw its then-current rating assigned to the
certificates, as evidenced in writing by S&P, Moody's and Duff &
Phelps.
The servicer may authorize the trustee to invest the funds in the certificate
account in Eligible Investments that will mature not later than the business
day preceding the applicable Monthly Payment date. Eligible Investments
include:
. obligations of the United States backed by the full faith and
credit of the United States, federal funds, certificates of
deposit, time deposits and bankers acceptances sold by eligible
commercial banks;
. any other demand or time deposit or certificate of deposit fully
insured by the FDIC;
. investments in certain money-market funds;
. certain repurchase agreements of United States government
securities with eligible commercial banks;
. securities bearing interest or sold at a discount issued by a
corporation which has a credit rating at least equal to criteria
established by Moody's, S&P and Duff & Phelps, not in excess of
10% of amounts in the certificate account at the time of such
investment; and
. commercial paper assigned a rating at least equal to criteria
established by S&P, Moody's and Duff & Phelps.
Any losses on such investments will be deducted from other investment earnings
or from other funds in the certificate account.
All payments from obligors on the loans, including principal prepayments and
advance payments from obligors not constituting principal prepayments, shall be
paid into the certificate account no later than one business day following
receipt thereof, except amounts received as extension fees or assumption fees
not allocated to regular installments due on loans, which are retained by the
servicer as part of its servicing fees and are not paid into the certificate
account and except for certain proceeds from liquidated loans which are used to
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<PAGE>
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) if neither Conseco Finance nor any wholly owned subsidiary of Conseco
Finance is the servicer, to pay the monthly servicing fee to the
servicer;
(2) to pay interest and principal on the certificates, in the manner and
the order of priority described below;
(3) to deposit into the available funds cap carryover reserve account that
amount necessary to pay the holders of the certificates the related
Available Funds Cap Carryover Amount;
(4) if Conseco Finance or any wholly owned subsidiary of Conseco Finance
is the servicer, to pay the monthly servicing fee to the servicer;
(5) to reimburse the servicer or the trustee, as applicable, for any
unreimbursed advances with respect to the loans made in respect of
current or prior payment dates;
(6) to reimburse the holder of the Class C certificate for expenses
incurred by and reimbursable to it with respect to taxes or charges
imposed upon the trust as a REMIC or otherwise;
(7) to reimburse Conseco Finance for any prior unreimbursed Class BV-2
guaranty payments; and
(8) 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
S-42
<PAGE>
liquidated loans, but not including any prepayment charges or
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.
The Scheduled Principal Balance of a loan with respect to any payment date
is its principal balance as of the scheduled payment date in the calendar
month preceding that payment date as specified in its amortization schedule,
after giving effect to any previous partial principal prepayments and to the
scheduled payment due on such due date, but without giving effect to any
delinquency in payment or adjustments due to bankruptcy or similar
proceedings. The Pool Scheduled Principal Balance as of any payment date is
the aggregate of the scheduled principal balances of loans comprising the loan
pool that were outstanding during the preceding Due Period. A liquidated loan
is a defaulted loan as to which all amounts that the servicer expects to
recover on account of such loan have been received.
Distributions on Certificates
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 AV, Class MV-1, Class MV-2 and Class BV-1
Certificates.
Interest will be distributable:
. first to the Class AV certificates,
. then to the Class MV-1 certificates,
. then to the Class MV-2 certificates, and
. then to the Class BV-1 certificates.
Interest will accrue on the outstanding Class AV principal balance, and on the
outstanding Class MV-1, Class MV-2 and Class BV-1 adjusted principal balances,
at the related pass-through rate from February 24, 2000, or from the most
recent payment date on which interest has been paid, to but excluding the
following payment date. Interest on each class of certificates will be
computed on the basis of actual days elapsed in a 360-day year.
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 MV-1, Class MV-2 or Class BV-1 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."
The pass-through rate for each class of certificates is a floating rate
equal to the lesser of one-month LIBOR plus the pass-through margin for that
class or the available funds pass-through rate, but in no case more than 14%.
The following table gives the pass-through margin for each class of
certificates.
S-43
<PAGE>
<TABLE>
<CAPTION>
Class Pass-Through Margin
- ----- -------------------
<S> <C>
AV.......................................................... 0.28%
MV-1........................................................ 0.50%
MV-2........................................................ 0.95%
BV-1........................................................ 2.50%
BV-2........................................................ 2.80%
</TABLE>
The available funds pass-through rate for any payment date will be a rate per
year equal to the weighted average of the expense adjusted loan rates on the
then outstanding loans. The expense adjusted loan rate on any loan is equal to
the then applicable loan rate minus 0.50%. One-month LIBOR with respect to any
monthly interest period will equal the offered rate for United States dollar
deposits for one month that appears on Telerate Page 3750 as of 11:00 A.M.,
London time, on the second LIBOR business day prior to such monthly interest
period. For a description of the method used to calculate one-month LIBOR, see
"Calculation of One-Month LIBOR" on page S-48 of this prospectus supplement.
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
AV certificates, Class MV-1 certificates, Class MV-2 certificates or Class BV-1
certificates after payment of interest on each class of certificates that is
senior to that class of certificates, the amount of interest to be distributed
for that class will be allocated among the outstanding certificates of that
class pro rata, 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 AV, Class MV-1, Class MV-2 and Class BV-1
Certificates.
The Class AV, Class MV-1, Class MV-2 and Class BV-1 certificates will receive
distributions of principal in the order of priority described below, after
payment of all interest then accrued on the Class AV principal balance, Class
MV-1 adjusted principal balance, Class MV-2 adjusted principal balance and
Class BV-1 adjusted principal balance.
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.
Class AV Formula Principal Distribution Amount. The Class AV Formula
Principal Distribution Amount will generally be equal to:
(i) if the payment date is before the Stepdown Date or a Trigger Event
exists, the Formula Principal Distribution Amount (but in no event more
than the Class AV 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 AV principal
balance) of (A) the Class AV principal balance over (B) the lesser of
(x) 58.10% of the Pool Scheduled Principal Balance or (y) the Pool
Scheduled Principal Balance minus $4,500,000.
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<PAGE>
Formula Principal Distribution Amount. The Formula Principal Distribution
Amount for any payment date will generally be equal to the sum of the
following:
(1) all scheduled payments of principal due on each outstanding loan
during the related Due Period;
(2) the scheduled principal balance of each loan which, during the
related Due Period, was purchased by Conseco Finance pursuant to the
pooling and servicing agreement on account of certain breaches of its
representations and warranties;
(3) all partial principal prepayments applied and principal prepayments
in full received on each loan during the related Due Period;
(4) the scheduled principal balance of each loan that became a liquidated
loan during the related Due Period; and
(5) any amount described in clauses (1) through (4) above that was not
previously distributed because of an insufficient amount of funds
available in the certificate account.
The Scheduled Principal Balance of a loan with respect to any payment date is
its principal balance as of the scheduled payment date in the calendar month
preceding that payment date as specified in its amortization schedule, after
giving effect to any previous partial principal prepayments and to the
scheduled payment due on such due date, but without giving effect to any
delinquency in payment or adjustments due to bankruptcy or similar proceedings.
The Pool Scheduled Principal Balance as of any payment date is the aggregate of
the Scheduled Principal Balances of loans comprising the loan pool that were
outstanding during the preceding Due Period. A liquidated loan is a defaulted
loan as to which all amounts that the servicer expects to recover on account of
such loan have been received.
Stepdown Date. The Stepdown Date for the certificates is the later to occur
of:
(i) the payment date in March 2003 and
(ii) the first payment date on which the Class AV principal balance is
less than or equal to 58.10% 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) 40%; 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
principal balance of the most senior class of certificates
outstanding, by
S-45
<PAGE>
(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........................................................... 4.20%
49-60........................................................... 4.99%
61-84........................................................... 5.25%
85 and thereafter............................................... 5.75%
</TABLE>
Class MV-1 Formula Principal Distribution Amount. The Class MV-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 AV Formula Principal
Distribution Amount (but in no event more than the Class MV-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 MV-1
principal balance) of
(A) (1) the sum of the Class AV principal balance and the Class MV-1
adjusted principal balance, minus (2) the amount of principal
actually distributed on such payment date on the Class AV
certificates, over
(B) the lesser of (x) 69.60% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $4,500,000.
Class MV-2 Formula Principal Distribution Amount. The Class MV-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 AV Formula
Principal Distribution Amount and the Class MV-1 Formula Principal
Distribution Amount (but in no event more than the Class MV-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 MV-2
principal balance) of
(A) (1) the sum of the Class AV principal balance, the Class MV-1
adjusted principal balance and the Class MV-2 adjusted principal
balance, minus (2) the amount of principal actually distributed
on such payment date on the Class AV and Class MV-1 certificates,
over
(B) the lesser of (x) 81.60% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $4,500,000.
Class BV-1 Formula Principal Distribution Amount. The Class BV-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
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<PAGE>
Amount less the sum of the Class AV Formula Principal Distribution
Amount, the Class MV-1 Formula Principal Distribution Amount and the
Class MV-2 Formula Principal Distribution Amount (but in no event more
than the Class BV-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 BV-1
principal balance) of
(A) (1) the sum of the Class AV principal balance, the Class MV-1
adjusted principal balance, the Class MV-2 adjusted principal
balance and Class BV-1 adjusted principal balance, minus (2) the
amount of principal actually distributed on such payment date on
the Class AV, Class MV-1 and Class MV-2 certificates, over
(B) the lesser of (x) 87.80% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $4,500,000.
Liquidation Loss Interest
If the Class MV-1, Class MV-2 or Class BV-1 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, first to the Class MV-1 certificates, then to the Class MV-2
certificates and then to the Class BV-1 certificates. Interest on any Class
MV-1 liquidation loss principal amount, Class MV-2 liquidation loss principal
amount and Class BV-1 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.
Class BV-2 Interest
Interest will accrue on the outstanding Class BV-2 principal balance from
February 24, 2000, or from the most recent payment date on which interest has
been paid, to but excluding the following payment date, and will be computed
on the basis of actual days elapsed in a 360-day year.
If there is any remaining Amount Available on a payment date after payment
of all interest, including liquidation loss interest, and principal then
payable on the Class AV, Class MV-1, Class MV-2 and Class BV-1 certificates,
interest will be paid to the Class BV-2 certificateholders on that payment
date at the Class BV-2 pass-through rate on the then outstanding Class BV-2
principal balance. The Class BV-2 pass-through rate is a floating
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<PAGE>
rate equal to the lesser of one-month LIBOR plus 2.80% or the available funds
pass-through rate, but in no case more than 14%. The Class BV-2 principal
balance is the original Class BV-2 principal balance less all amounts
previously distributed to the Class BV-2 certificateholders in respect of
principal, including any Class BV-2 guaranty payments.
In the event that, on a particular payment date, the remaining Amount
Available plus any amounts actually paid under the Class BV-2 limited guaranty
are not sufficient to make a full distribution of interest to the Class BV-2
certificateholders, the amount of the deficiency will be carried forward as an
amount that the Class BV-2 certificateholders are entitled to receive on the
next payment date. Any amount so carried forward will, to the extent legally
permissible, bear interest at the Class BV-2 pass-through rate.
Class BV-2 Principal
Holders of the Class BV-2 certificates will generally be entitled to receive
as payments of principal an amount equal to the Class BV-2 formula principal
distribution amount. The Class BV-2 formula principal distribution amount will
be distributed, from any remaining Amount Available, after payment of all
interest, including liquidation loss interest, and principal then due on the
Class AV, Class MV-1, Class MV-2 and Class BV-1 certificates, if any, and after
payment of interest on the Class BV-2 certificates.
On each payment date, the Class BV-2 certificateholders will be entitled to
receive, pursuant to the Class BV-2 limited guaranty, the Class BV-2
liquidation loss principal amount until the Class BV-2 principal balance has
been reduced to zero. Liquidation loss principal amounts are described below
under "--Losses on Liquidated Loans." If Conseco Finance fails to pay such
Class BV-2 liquidation loss principal amount, the Class BV-2 adjusted principal
balance will be reduced by the amount not paid, but Class BV-2
certificateholders will still be entitled to receive interest accrued on the
Class BV-2 principal balance and principal equal to the Class BV-2 principal
balance.
Class BV-2 Formula Principal Distribution Amount. The Class BV-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 AV Formula
Principal Distribution Amount, the Class MV-1 Formula Principal
Distribution Amount, the Class MV-2 Formula Principal Distribution
Amount and the Class BV-1 Formula Principal Distribution Amount (but
in no event more than the Class BV-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 BV-2
principal balance) of
(A) (1) the sum of the Class AV principal balance, the Class MV-1
adjusted principal balance, the Class MV-2 adjusted principal
balance, the Class BV-1 adjusted principal balance and the
Class BV-2 adjusted principal balance, minus (2) the amount of
principal actually distributed on such payment date on the Class
AV, Class MV-1, Class MV-2 and Class BV-1 certificates, over
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(B) the lesser of (x) 97.00% of the Pool Scheduled Principal Balance
or (y) the Pool Scheduled Principal Balance minus $4,500,000.
Calculation of One-Month LIBOR
The London Interbank Offered Rate or LIBOR with respect to any monthly
interest period will be established by the calculation agent appointed by the
trust and will equal the offered rate for United States dollar deposits for one
month that appears on Telerate Page 3750 as of 11:00 A.M., London time, on the
second LIBOR business day prior to such monthly interest period. Telerate Page
3750 means the display page so designated on the Dow Jones Telerate Service (or
such other page as may replace that page on that service, or such other service
as may be designated by the calculation agent as the information vendor, for
the purpose of displaying London interbank offered rates of major banks). If
such rate appears on Telerate Page 3750, LIBOR will be such rate. "LIBOR
Business Day" means a day that is both a business day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed. If on any LIBOR Determination Date the offered
rate does not appear on Telerate Page 3750, the calculation agent will request
each of the reference banks to provide the calculation agent with its offered
quotation for United States dollar deposits for one month to prime banks in the
London interbank market as of 11:00 A.M., London time, on that date. If at
least two reference banks provide the calculation agent with offered
quotations, LIBOR on that date will be the arithmetic mean, rounded upward, if
necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-millionths
of a percentage point rounded upward, of all such quotations. If on that date
fewer than two of the reference banks provide the calculation agent with
offered quotations, LIBOR on such date will be the arithmetic mean, rounded
upward, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five one-
millionths of a percentage point rounded upward, of the offered per annum rates
that one or more leading banks in the City of New York selected by the
calculation agent are quoting as of 11:00 A.M., New York City time, on that
date to leading European banks for United States dollar deposits for one month;
provided, however, that if the banks are not quoting as described above, LIBOR
for that date will be LIBOR applicable to the monthly interest period
immediately preceding the monthly interest period. Notwithstanding the
foregoing, however, LIBOR for a payment date shall not be based on LIBOR for
the prior payment date for three consecutive payment dates. If, under the
priorities described above, LIBOR for a payment date would be based on LIBOR
for the previous payment date for the second consecutive payment date, the
calculation agent shall select an alternative comparable index over which the
calculation agent has no control used for determining one-month Eurodollar
lending rates that is calculated and published by an independent third party.
The calculation agent will initially be the trustee.
Subordination of Class MV Certificates and Class BV Certificates
The rights of the holders of the Class MV certificates and Class BV
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 AV certificates. This subordination is
intended to enhance the likelihood of regular receipt by the
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holders of the Class AV 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 AV
certificates by means of the subordination of the Class MV and Class BV
certificates will be accomplished by the preferential right of the Class AV
certificateholders to receive on any payment date the amount of interest due on
the Class AV 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 MV and Class BV certificates. After that, any
remaining Amount Available will be applied to the payment of interest due on
the Class MV-1 adjusted principal balance, then to the payment of interest due
on the Class MV-2 adjusted principal balance and then to the payment of
interest due on the Class BV-1 adjusted principal balance.
After payment of all interest accrued on the Class AV principal balance and
Class MV-1 adjusted principal balance, Class MV-2 adjusted principal balance
and Class BV-1 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 AV, Class MV and Class BV-1 certificateholders
in the order of priority described under "Principal on the Class AV,
Class MV-1, Class MV-2 and Class BV-1 Certificates";
. second, any unpaid Class MV-1 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class MV-1 certificateholders;
. third, any unpaid Class MV-2 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class MV-2 certificateholders; and
. fourth, any unpaid Class BV-1 liquidation loss interest amount, as
described below under "Losses on Liquidated Loans," will be distributed
to the Class BV-1 certificateholders.
The rights of the holders of the Class BV-2 certificates to receive
distributions with respect to the loans and other amounts in the certificate
account will be subordinated to such rights of the holders of the Class AV
certificates, Class MV certificates and Class BV-1 certificates. Thus, the
Class BV-2 certificateholders will be entitled to distributions of interest and
principal on the Class BV-2 certificates only after distributions of all
interest, including liquidation loss interest, and principal then payable on
the Class AV, Class MV and Class BV-1 certificates.
If a Class BV-2 liquidation loss amount is realized for any payment date and
Conseco Finance fails to pay that amount pursuant to its Class BV-2 limited
guaranty, the Class BV-2 certificateholders may incur losses on their
investment in the Class BV-2 certificates to the extent such losses are not
made up from future payments on the loans or the Class BV-2 limited guaranty.
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Overcollateralization
With respect to any payment date, the overcollateralization amount will be
the excess, if any, of (a) the sum of the aggregate principal balance of the
loans 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 AV, Class MV, Class BV and Class P certificates as of such payment date
(after taking into account principal payments thereon). As of the closing date,
the sum of the aggregate principal balance of the loans as of the Cut-off Date
and the original pre-funded amount will exceed the aggregate original principal
balances of the certificates by approximately $4,500,000, which represents
approximately 1.5% of the aggregate Cut-off Date principal balance of the loans
included in the trust as of the closing date plus the amount on deposit in the
pre-funding account on the closing date. This amount is referred to in this
prospectus supplement as the initial overcollateralization amount.
If on any payment date the Amount Available, after payment of all interest
then due on the Class AV, Class MV and Class BV-1 certificates, is insufficient
to pay principal on the certificates in an amount equal to the applicable
formula principal distribution amount for that payment date, then the aggregate
scheduled principal balance of the loans will decline by an amount greater than
the reduction in the principal balance of the certificates, which will reduce
the overcollateralization amount. Each formula principal distribution amount
for the following payment date will, however, be determined by the difference
between the aggregate principal balance of the certificates and the aggregate
scheduled principal balance of the loans. As a result, if and to the extent
funds are available in the certificate account on that following payment date
or on subsequent payment dates, the overcollateralization amount will be
restored to its initial level.
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 the Class BV-2 guaranty fee otherwise payable to Conseco
Finance,
. then by the monthly servicing fee otherwise payable to the servicer (so
long as Conseco Finance or any wholly owned subsidiary of Conseco
Finance is the servicer),
. then by a reduction in the overcollateralization amount,
. then by the Class BV-2 certificateholders,
. then by the Class BV-1 certificateholders,
. then by the Class MV-2 certificateholders, and
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. then by the Class MV-1 certificateholders,
since a portion of the Amount Available equal to such deficiency and otherwise
distributable to them will be paid to the Class AV certificateholders.
Likewise, to the extent the Class MV-1 certificateholders, the Class MV-2
certificateholders or the Class BV-1 certificateholders are entitled to receive
distributions of principal, similar deficiencies could result for each class of
certificates with a lower payment priority.
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. In the event of
further losses and delinquencies, the amount of the deficiency (the liquidation
loss principal amount) would be allocated first to the Class BV-2 certificates,
and Conseco Finance would be obligated to pay the amount of the Class BV-2
liquidation loss principal amount to the Class BV-2 certificateholders pursuant
to the Class BV-2 limited guaranty. If on any payment date the sum of the Class
AV principal balance, the Class MV-1 principal balance, the Class MV-2
principal balance and the Class BV-1 principal balance was equal to the pool
scheduled principal balance and no further liquidation loss principal amounts
could be allocated to the Class BV-2 certificates, any further liquidation loss
principal amounts would be allocated to reduce the Class BV-1 adjusted
principal balance. If the Class BV-1 adjusted principal balance were reduced to
zero, any further liquidation loss principal amounts realized would be
allocated to reduce the Class MV-2 adjusted principal balance. If that Class
MV-2 adjusted principal balance were reduced to zero, any further liquidation
loss principal amounts realized would be allocated to reduce the Class MV-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 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 MV-1, Class MV-2 or Class BV-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 AV, Class MV and Class
BV-1 certificates, in the order of priority described above under
"Subordination of Class MV Certificates and Class BV Certificates."
But for the effect of the subordination of the Class MV-2, Class BV and Class
C certificates, the related monthly servicing fee otherwise payable to the
servicer, and the guaranty fee payable to Conseco Finance and the
overcollateralization amount, the Class MV-1 certificateholders will absorb all
losses on each liquidated loan.
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But for the effect of the subordination of the Class BV and Class C
certificates, the related monthly servicing fee otherwise payable to the
servicer, the guaranty fee payable to Conseco Finance and the
overcollateralization amount, the Class MV-2 certificateholders will absorb all
losses on each liquidated loan.
But for the effect of the subordination of the Class BV-2 and Class C
certificates, the related monthly servicing fee otherwise payable to the
servicer, the guaranty fee payable to Conseco Finance and the
overcollateralization amount, the Class BV-1 certificateholders will absorb all
losses on each liquidated loan.
But for the payments under the Class BV-2 limited guaranty described below
and the subordination of the Class C certificates, the related monthly
servicing fee otherwise payable to the servicer, the guaranty fee payable to
Conseco Finance and the overcollateralization amount, the Class BV-2
certificateholders will absorb all losses on each liquidated loan.
The pooling and servicing agreement does not permit the allocation of losses
to the Class AV certificates or the Class P certificates.
Available Funds Cap Carryover Amount
If on any payment date, the pass-through rate for a class of certificates is
based on the available funds pass-through rate, holders of that class of
certificates will be entitled to receive from the available funds cap carryover
reserve account the Available Funds Cap Carryover Amount to the extent funds
are available. The Available Funds Cap Carryover Amount for any class and any
payment date is the sum of
(1) the excess of
(A) the amount of interest that class of certificateholders would be
entitled to receive on such payment date had interest been
calculated based on one-month LIBOR plus the applicable pass-
through margin (but in no event exceeding 14%) over
(B) the amount of interest that class would receive on that payment
date at the available funds pass-through rate, and
(2) the unpaid portion of any such excess from prior payment dates (and
interest accrued thereon at the then applicable pass-through rate,
without giving effect to the available funds pass-through rate, but
in no event exceeding 14%).
The ratings assigned to the certificates do not address the likelihood of the
payment of the Available Funds Cap Carryover Amount.
On the closing date, the trustee will establish an available funds cap
carryover reserve account to cover Available Funds Cap Carryover Amounts on the
offered certificates and into which an initial deposit will be made by the
Seller on the closing date. The available funds cap carryover reserve account
will be property of the trust, but not an asset of the REMIC. On each payment
date, following the distribution of the Amount Available as described under "--
Distribution of Amount Available" above, the trustee will withdraw
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from amounts in the available funds cap carryover reserve account and pay to
the offered certificates their related Available Funds Cap Carryover Amounts in
the following order of priority, in each case to the extent of amounts
remaining in the available funds cap carryover reserve account:
(i) to the Class AV certificates;
(ii) to the Class MV-1 certificates;
(iii) to the Class MV-2 certificates;
(iv) to the Class BV-1 certificates; and
(v) to the Class BV-2 certificates.
Capitalized Interest Account
Because payments received with respect to interest on the loans may be
insufficient to cover payments of interest on the certificates on the payment
dates in March, April and May 2000, a capitalized interest account will be
established on the closing date with a deposit of an amount approved by the
rating agencies. If Conseco Securitizations delivers a large amount of
additional loans to the trust on the closing date, the amount deposited in the
capitalized interest account could be zero. Funds on deposit in the capitalized
interest account will be invested in eligible investments (as described under
"--Payments on Loans"). If the Amount Available is insufficient to make a full
distribution of interest on the certificates (other than the Class BV-2
Certificates) on the payment dates in March, April or May 2000, the trustee
will withdraw the amount of any such shortfall from the capitalized interest
account and deposit such amount in the certificate account. The capitalized
interest account will be part of the trust but not part of the REMIC. Any funds
remaining on deposit in the capitalized interest account after the distribution
to certificateholders in May 2000 will be released to a subsidiary of Conseco
Finance.
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.
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Class P Certificates
The Class P certificate is not being offered by this prospectus supplement.
The Class P certificate will have an initial principal balance of $100 and will
not be entitled to distributions of interest. The Class P certificate will be
entitled to all prepayment charges received in respect of the loans, and any
prepayment charges received on the loans will not be available to make payments
on the offered certificates. The Class P certificate will also receive $100 of
principal after the principal balance of each class of offered certificates has
been reduced to zero. The Class P certificate will be delivered to Conseco
Securitizations or an affiliate as partial consideration for the loans.
Reports to Certificateholders
The servicer will furnish to the trustee, and the trustee will include with
each distribution to the Class AV, Class MV-1, Class MV-2, Class BV-1 and Class
BV-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) for the Class BV-2 certificateholders, the Class BV-2 guaranty
payment, if any, for such payment date;
(g) the Pool Scheduled Principal Balance for such payment date;
(h) the pool factor; and
(i) the number and aggregate principal balance of loans delinquent (1) 30-
59 days and (2) 60 or more days.
Information furnished pursuant to clauses (a) through (g) will be expressed as
dollar amounts for the applicable certificate with a 1% percentage interest or
per $1,000 denomination of that certificate.
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.
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Purchase Option or Auction Sale; Additional Principal Distributions
Beginning on the payment date when the Scheduled Principal Balance of the
loans is less than 20% of the Cut-off Date Pool Principal Balance, 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 on the next payment date
the trustee will begin an auction process to sell the loans and the other trust
assets at the highest possible price, but the trustee cannot sell the trust
assets and liquidate the trust unless at least two bids are received and the
highest bid would be sufficient to pay the aggregate unpaid principal balance
of the certificates and all accrued and unpaid interest thereon. If the first
auction of the trust property is not successful because the highest bid
received was too low, then the trustee will conduct an auction of the loans
every third month thereafter, until an acceptable bid is received for the trust
property. We cannot assure you that the first auction or any subsequent auction
will be successful. The holder of the Class C certificate may exercise its
purchase option on any payment date after the first payment date described
above, unless the trustee has accepted a qualifying bid for the trust property.
If the holder of the Class C certificate does not exercise the purchase
option, then an additional principal distribution amount equal to the remaining
amount available after paying all interest and principal then due on the
certificates and payment of the monthly servicing fee will be paid:
(1) to the Class AV certificates, until retired, and then
(2) to the Class MV-1, Class MV-2, Class BV-1 and Class BV-2 certificates
concurrently and pro rata, based on the outstanding principal balance
of each class, until retired.
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
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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 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.
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The pooling and servicing agreement provides that a certificateholder holding
certificates representing at least 5% of the aggregate certificate principal
balance will have the same rights of inspection as the trustee and may upon
written request to the servicer receive copies of all reports provided to the
trustee.
Transferability
The certificates are subject to certain restrictions on transfer to or for
the benefit of employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code. See "ERISA Considerations" in this
prospectus supplement and in the prospectus.
Certain Matters Relating to 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
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possession by a receiver, liquidator, assignee, trustee, custodian or
its creditors, or fails to, or admits in writing its inability to, pay
its debts as they become due, or takes any corporate action in
furtherance of the foregoing;
(6) the servicer fails to be an eligible servicer; or
(7) the servicer's seller-servicer contract with GNMA is terminated.
The servicer will be required under the pooling and servicing agreement to
give the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of such event.
Rights Upon an Event of Termination
If an event of termination has occurred and is continuing, either the
trustee or holders of certificates representing 25% or more of the aggregate
certificate principal balance may terminate all of the servicer's management,
administrative, servicing and collection functions under the pooling and
servicing agreement. Upon such termination, the trustee or its designee will
succeed to all the responsibilities, duties and liabilities of 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.
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 or Auction Sale; Additional Principal
Distributions." However, Conseco Finance's and Conseco
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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 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
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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 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.
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The trustee may resign from its duties under the pooling and servicing
agreement at any time, in which event the servicer will be obligated to appoint
a successor trustee. The servicer may also remove the trustee if the trustee
ceases to be eligible to continue as such under the pooling and servicing
agreement or if the trustee becomes insolvent. In such circumstances, the
servicer will also be obligated to appoint a successor trustee. Any resignation
or removal of the trustee and appointment of a successor trustee will not
become effective until acceptance of the appointment by the successor trustee.
Registration of the Certificates
The 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
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owners will not be recognized by the trustee as certificateholders as that term
is used in the pooling and servicing agreement. Certificate owners are only
permitted to exercise the rights of certificateholders indirectly through
Participants and DTC.
While certificates are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the certificates and is
required to receive and transmit distributions of principal of, and interest
on, the certificates. Participants with whom certificate owners have accounts
with respect to certificates are similarly required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective certificate owners. Accordingly, although certificate owners will
not possess certificates, the rules provide a mechanism by which certificate
owners will receive distributions and will be able to transfer their interests.
Definitive certificates will be issued in registered form to certificate
owners, or their nominees, rather than to DTC, only if (1) DTC or 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 physical
certificates may adversely affect the liquidity of the certificates in the
secondary market and the ability of certificate owners to pledge them. In
addition, since distributions on the certificates will be made by the trustee
to DTC and DTC will credit such distributions to the accounts of its
Participants, with the Participants further crediting such distributions to the
accounts of indirect Participants or certificate owners, certificate owners may
experience delays in the receipt of such distributions.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through 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 depositary; however, such
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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.
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 underwriters.
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
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described in Annex I hereto. The Euroclear System is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under loan with
Euroclear Clearance System, S.C., a Belgian cooperative corporation. All
operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the cooperative. Euroclear Clearance System, S.C.
establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related operating procedures of the Euroclear System and applicable Belgian
law. The Terms and Conditions govern transfers of securities and cash within
the Euroclear System, withdrawal of securities and cash from the Euroclear
System, and receipts of payments with respect to securities in the Euroclear
System. All securities in the Euroclear System are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the terms and conditions only on
behalf of Euroclear Participants and has no record of or relationship with
persons holding through Euroclear Participants.
Distributions with respect to certificates held through 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 depositary. 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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DESCRIPTION OF THE CLASS BV-2 LIMITED GUARANTY
In order to mitigate the effect of the subordination of the Class BV-2
certificates and liquidation losses and delinquencies on the loans, Conseco
Finance will provide a guaranty against losses that would otherwise be borne by
the Class BV-2 certificates. Each payment required to be made under the Class
BV-2 limited guaranty is a Class BV-2 guaranty payment. The Class BV-2 guaranty
payment will equal the amount by which:
(1) the sum of (a) the accrued and unpaid interest on the Class BV-2
certificates and (b) the Class BV-2 liquidation loss principal amount
for that payment date exceeds
(2) the Class BV-2 distribution amount for that payment date.
The Class BV-2 liquidation loss principal amount for any payment date equals
the amount by which the aggregate certificate principal balance exceeds the
Pool Scheduled Principal Balance for such payment date, but in no event greater
than the Class BV-2 principal balance. The Class BV-2 liquidation loss
principal amount is, in substance, the amount of delinquencies and losses
experienced on the loans during the related Due Period that was not absorbed by
eliminating a payment to the Class C certificate, deferring the related monthly
servicing fee otherwise payable to Conseco Finance (so long as Conseco Finance
or any wholly owned subsidiary of Conseco Finance is the servicer) with respect
to the loans, deferring the guaranty fee otherwise payable to Conseco Finance
and eliminating the overcollateralization amount.
The Class BV-2 limited guaranty will be an unsecured general obligation of
Conseco Finance and will not be supported by any letter of credit or other
credit enhancement arrangement. The Class BV-2 limited guaranty will not
benefit in any way, or result in any payment to, the Class AV, Class MV or
Class BV-1 certificateholders.
As compensation for providing the limited guaranty, Conseco Finance will be
entitled to receive a guaranty fee on each payment date, which generally will
be equal to the lesser of (A) one-twelfth of the product of 3.00% and the sum
of the pool scheduled principal balance and the pre-funded amount for the
immediately preceding payment date or (B) the amount available for payment
after all distributions with a higher payment priority are made.
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FEDERAL INCOME TAX CONSEQUENCES
Upon the issuance of the certificates, Dorsey & Whitney LLP, counsel to
Conseco Finance and Conseco Securitizations, will deliver its opinion that,
assuming that an election is made to treat a segregated portion of the assets
of the trust as a REMIC, and further assuming ongoing compliance with the terms
of the pooling and servicing agreement, the trust, other than the pre-funding
account, the capitalized interest account and the available funds cap carryover
reserve account, will qualify as a REMIC for federal income tax purposes. The
Class AV, Class MV, Class BV and Class P certificates will each represent
ownership of a regular interest in the REMIC. The Class C certificate, which is
not being offered here, will constitute the sole class of residual interests in
the REMIC.
Each holder of an offered certificate is deemed to own an undivided
beneficial ownership interest in two assets: a REMIC regular interest and the
right to receive the Available Funds Cap Carryover Amount from the available
funds cap carryover reserve account. The available funds cap carryover reserve
account is not an asset of the REMIC. The treatment of amounts received by a
holder of an offered certificate under such holder's right to receive the
Available Funds Cap Carryover Amount will depend on the portion, if any, of the
holder's purchase price allocable thereto. Under applicable Treasury
regulations, each holder of an offered certificate must allocate its purchase
price for the certificate between its undivided interest in the regular
interest of the REMIC and its undivided interest in the right to receive the
Available Funds Cap Carryover Amount from the available funds cap carryover
reserve account in accordance with the relative fair market values of each
property right. Because the likelihood of receiving payments from the available
funds cap carryover reserve account varies amongst the different Classes of
certificates, the portion of a certificate's purchase price that is allocable
to that right will vary from Class to Class. For federal income tax reporting
purposes, a de minimis value will be assigned to the right of a Class AV
certificateholder to receive payments from the available funds cap carryover
reserve account, and a value of approximately 11, 26, 66, and 61 basis points
of the original principal balance of the Class MV-1 certificates, Class MV-2
certificates, Class BV-1 certificates and Class BV-2 certificates,
respectively, will be assigned to the right of the holder of such certificates
to receive payments from the available funds cap carryover reserve account.
Treasury regulations also provide that the issuer's allocation of the issue
price is binding on all holders unless the holder explicitly discloses on its
tax return that its allocation is different from the issuer's allocation.
Holders of the offered certificates should consult their own tax advisors
regarding the allocation of issue price, timing, character and source of income
and deductions resulting from the ownership of the offered certificates.
Any Available Funds Cap Carryover Amount paid to the holders of the offered
certificates will be included in ordinary gross income based on Treasury
regulations relating to notional principal contracts (the "Notional Principal
Contract Regulations"). Ownership of the right to the Available Funds Cap
Carryover Amount will entitle the owner to amortize and deduct from ordinary
gross income the separate price paid for the right to the Available Funds Cap
Carryover Amount under the Notional Principal Contract Regulations.
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Upon the sale of an offered certificate the amount of the sale proceeds
allocated to the selling holder's right to receive the Available Funds Cap
Carryover Amount from the available funds cap carryover reserve account would
be considered a "termination payment" under the Notional Principal Contract
Regulations allocable to the related offered certificate. A holder of an
offered certificate will have gain or loss from such termination of the right
to receive the Available Funds Cap Carryover Amount from the available funds
cap carryover reserve account equal to (i) any termination payment it received
or is deemed to have received minus (ii) the unamortized portion of any amount
paid (or deemed paid) by the certificateholder upon entering into or acquiring
its interest in the right to receive the Available Funds Cap Carryover Amount
from the available funds cap carryover reserve account.
Gain or loss realized upon the termination of the right to receive the
Available Funds Cap Carryover Amount from the available funds cap carryover
reserve account will generally be treated as capital gain or loss. Moreover, in
the case of a bank or thrift institution, Section 582(c) of the Code likely
would not apply to treat such gain or loss as ordinary.
Although we do not expect this, the certificates offered here may be treated
as having been issued with original issue discount for federal income tax
purposes. The prepayment assumption that will be used to determine the rate of
accrual of original issue discount, market discount and premium, if any, will
be based on the assumption that the loans will prepay at a rate equal to 30% of
CPR.
The following paragraph is relevant to the offered certificates exclusive of
the rights of the holders of such certificates to receive certain payments from
outside the REMIC. Certificates held by financial institutions, thrift
institutions taxed as domestic building and loan associations and real estate
investment trusts will represent interests in loans secured by an interest in
real property and real estate assets for purposes of Sections 7701(a)(19)(C)
and 856(c)(4)(A) of the Internal Revenue Code, respectively, in the same
proportion that the assets in the REMIC consist of qualifying assets under
these sections. Interest paid with respect to certificates held by a real
estate investment trust will be considered to be interest on obligations
secured by mortgages on real property or on interests in real property for
purposes of Section 856(c)(3) of the Internal Revenue Code to the extent that
such certificates are treated as real estate assets under Section 856(c)(4)(A)
of the Internal
Revenue Code.
For further information regarding federal income tax consequences of
investing in the certificates, see "Federal Income Tax Consequences--REMIC
Series" in the prospectus.
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ERISA CONSIDERATIONS
The following information supplements, and if inconsistent, supersedes the
information in the prospectus under "ERISA Considerations."
The Employee Retirement Income Security Act of 1974, as amended, imposes
certain restrictions on employee benefit plans that are subject to ERISA and on
persons who are fiduciaries with respect to these plans. Employee benefit plans
that are governmental plans, as defined in section 3(32) of ERISA, and some
church plans, as defined in Section 3(33) of ERISA, are not subject to ERISA
requirements. Accordingly, assets of those plans may be invested in the Class
AV 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)), and Banc of
America Securities LLC (Prohibited Transaction Exemption No. 93-31; Exemption
Application No. D-9105, 58 Fed. Reg. 28619 (1992)) from certain of the
prohibited transaction rules of ERISA and the Internal Revenue Code. They
provide an exemption from 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 equity loans, such as the loans that will comprise the pool, that are
secured by real estate and have a loan-to-value ratio (when combined with
senior loans on the same property), based on the current principal balances of
the loans, of 100% or less. The exemption will apply to the acquisition,
holding, and resale of the Class AV 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 AV certificates are the following:
(1) the acquisition of the Class AV certificates by a plan is on terms,
including the price for the Class AV 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 AV certificates
acquired by the plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) the Class AV 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
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S&P, Moody's, Duff & Phelps or Fitch IBCA Inc. (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 AV certificates represents not more than
reasonable compensation for underwriting the Class AV 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 AV certificates is an accredited
investor as defined in Rule 501(a)(1) of Regulation D under the
Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an amendment to
the exemption, which extends exemptive relief to mortgage-backed and asset-
backed securities transactions using pre-funding accounts for trusts issuing
pass-through certificates. The amendment generally allows mortgage loans or
other secured receivables (the "Obligations") supporting payments to
certificateholders, and having a value equal to no more than 25% of the total
principal amount of the certificates being offered by the trust, to be
transferred to the trust within a 90-day or three-month pre-funding period
following the closing date, instead of requiring that all such Obligations be
either identified or transferred on or before the closing date. The relief is
available when the following conditions are met:
(1) the ratio of the amount allocated to the pre-funding account to the
total principal amount of the certificates being offered must not
exceed 25%;
(2) all additional Obligations transferred after the closing date must
meet the same terms and conditions for eligibility as the original
Obligations used to create the trust, which terms and conditions have
been approved by a rating agency;
(3) the transfer of the additional Obligations to the trust during the
pre-funding period must not result in the certificates to be covered
by the exemption receiving a lower credit rating from an Exemption
Rating Agency upon termination of the pre-funding period than the
rating that was obtained at the time of the initial issuance of the
certificates by the trust;
(4) solely as a result of the use of a pre-funding period, the weighted
average annual percentage interest rate for all of the Obligations in
the trust at the end of the pre-funding period must not be more than
100 basis points lower than the average interest rate for the
Obligations transferred to the trust on the closing date;
(5) in order to insure that the characteristics of the additional
Obligations are substantially similar to the original Obligations
which were transferred to the trust:
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. 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/or capitalized
interest account used in connection with the pre-funding may be
invested only in certain permitted investments;
(8) the related prospectus or prospectus supplement must describe:
. any pre-funding account and/or capitalized interest account used
in connection with a pre-funding account;
. the duration of the period of pre-funding;
. the percentage and/or dollar amount of the pre-funding limit for
the trust; and
. that the amounts remaining in the pre-funding account at the end
of the pre-funding period will be remitted to certificateholders
as repayments of principal;
(9) the related pooling and servicing agreement must describe these
permitted investments for the pre-funding account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus supplement, the terms and conditions for eligibility of
additional Obligations.
Moreover, the exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements,
. in the case of the acquisition of Class AV certificates in
connection with the initial issuance, at least fifty percent (50%)
of the Class AV certificates are acquired by persons independent
of the restricted group,
. the plan's investment in Class AV certificates does not exceed
twenty-five percent (25%) of all of the Class AV
certificates outstanding at the time of the acquisition, and
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. 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 underwriters, the trustee, the servicer, any obligor with
respect to loans included in the trust constituting more than five percent (5%)
of the aggregate unamortized principal balance of the assets in the trust or
any affiliate of such parties.
In its prefatory comments to the amendment as proposed by DOL (62 Fed. Reg.
28502), the DOL stated its interpretive position that a transaction which
satisfied the conditions of the exemption, but did not satisfy the conditions
of the amendment as proposed, could nevertheless qualify for exemptive relief
if it included a pre-funding account that was used only to acquire assets that
are specifically identified by the sponsor or originator as of the closing
date, but transferred to the trust after the closing date for administrative or
other reasons. Although the pre-funding account may not satisfy the conditions
of the amendment in that the pre-funding account may exceed 25% of the total
principal amount of the related certificates, funds in the pre-funding account
in excess of such 25% threshold will be used by the trust solely to purchase
subsequent home equity loans in accordance with the pooling and servicing
agreement from a fixed pool of loans that will have been specifically
identified prior to the closing date. It is expected that all of the loans in
such fixed pool, except for those which are determined not to meet the criteria
for purchase set forth in the pooling and servicing agreement, will be acquired
using the pre-funding account. Accordingly, Conseco Finance believes that the
existence of the pre-funding account should not cause the exemption to be
inapplicable.
Although the DOL has not expressly addressed the application of the exemption
to securities having payment terms similar to the Class AV certificates,
Conseco Finance believes that the exemption will apply to the acquisition and
holding of Class AV certificates sold by the underwriters and by plans and that
all conditions of the exemption other than those within the control of the
investors have been met. In addition, as of the date of this prospectus
supplement, no obligor with respect to loans included in the trust constitutes
more than 5% of the aggregate unamortized principal balance of the assets of
the trust. Any plan fiduciary who proposes to cause a plan to purchase Class AV
certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Internal Revenue Code of the plan's
acquisition and ownership of the Class AV certificates. Assets of a plan or
individual retirement account should not be invested in the Class AV
certificates unless it is clear that the assets of the trust will not be plan
assets or unless it is clear that the exemption or a prohibited transaction
class exemption will apply and exempt all potential prohibited transactions.
See "ERISA Considerations" in the prospectus.
In addition to the exemption, some or all of the transactions involving the
purchase, holding and resale of certificates that might otherwise constitute
prohibited transactions under ERISA or the 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
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transactions involving employee benefit plans and mortgage pool investment
trusts, PTCE 86-128, which exempts certain transactions involving employee
benefit plans and certain broker-dealers, PTCE 90-1, which exempts certain
transactions involving employee benefit plans and insurance company pooled
separate accounts, PTCE 91-38, which exempts certain transactions involving
employee benefit plans and bank collective investment funds and PTCE 96-23,
which exempts certain transactions involving employee benefit plans and in-
house asset managers. There also may be other exemptions applicable to a
particular transaction involving the trust. A plan that intends to acquire any
class of the certificates should consult with its own counsel regarding whether
such investment would cause a prohibited transaction to occur and whether the
terms and conditions of an applicable class exemption may be satisfied.
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 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.
No transfer of any class of certificates issued in definitive form other than
the Class AV certificates 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
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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.
WHERE YOU CAN FIND MORE INFORMATION
In addition to the documents described in the accompanying prospectus under
"Conseco Finance Corp.--General," the financial statements included in, or as
exhibits to, the following documents, which have been filed with the Securities
and Exchange Commission, are incorporated by reference in this prospectus
supplement:
(a) Annual Report on Form 10-K for the year ended December 31, 1998, and
(b) Quarterly Report on Form 10-Q for the period ended September 30, 1999.
Conseco Finance will provide without charge to any person to whom this
prospectus supplement is delivered, upon the oral or written request of that
person, a copy of any or all of the foregoing financial statements incorporated
in this prospectus supplement by reference. Requests for copies should be
directed to 1100 Landmark Towers, 345 St. Peter Street, Saint Paul, Minnesota
55102-1639.
Conseco Finance, on behalf of the trust, undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
trust's annual report under section 13(a) or section 15(d) of the Exchange Act
that is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered by this
prospectus supplement, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering thereof.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated February 4, 2000, Conseco Securitizations has agreed to sell to
the underwriters named below the following respective principal amounts of the
Certificates:
<TABLE>
<CAPTION>
Principal Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Amount of
Class AV Class MV-1 Class MV-2 Class BV-1 Class BV-2
Underwriters Certificates Certificates Certificates Certificates Certificates
- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Credit Suisse First
Boston Corporation..... $118,575,000 $ 8,625,000 $ 9,000,000 $4,650,000 $ -0-
Banc of America
Securities LLC......... 118,575,000 8,625,000 9,000,000 4,650,000 13,800,000
------------ ----------- ----------- ---------- -----------
Totals................ $237,150,000 $17,250,000 $18,000,000 $9,300,000 $13,800,000
============ =========== =========== ========== ===========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the certificates if any are purchased.
The underwriters propose 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 underwriters 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>
AV.................................. 0.245% 0.147% 0.075%
MV-1................................ 0.500% 0.300% 0.150%
MV-2................................ 0.600% 0.360% 0.150%
BV-1................................ 0.750% 0.450% 0.200%
BV-2................................ 0.800% 0.480% 0.250%
</TABLE>
The underwriters have informed Conseco Securitizations that the underwriters
do not expect discretionary sales by them to exceed 5% of the principal balance
of the certificates.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities 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 underwriters to reclaim a selling
concession from a syndicate member when the offered certificates originally
sold by a 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
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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
underwriters against liabilities, including civil liabilities under the
Securities Act of 1933, or contribute to payments which the underwriters may be
required to make in respect thereof.
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 equity loans (prior to their sale to the trust). One
or more of the underwriters (or their respective affiliates) 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
Securitizations, Conseco Finance and the trust by Dorsey & Whitney LLP,
Minneapolis, Minnesota, and for the underwriters by Thacher Proffitt & Wood,
New York, New York. The material federal income tax consequences of the
certificates will be passed upon for Conseco Finance and Conseco
Securitizations by Dorsey & Whitney LLP.
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<PAGE>
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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<PAGE>
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
Trading between 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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<PAGE>
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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<PAGE>
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
<PAGE>
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
[LOGO OF CONSECO]
Conseco Finance Corp., Servicer
Conseco Finance Securitizations Corp., Seller
Certificates for Home Equity Loans
We are offering certificates for home equity loans under this prospectus and
a prospectus supplement. The prospectus supplement will be prepared separately
for each series of certificates offered. 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 equity 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 November 22, 1999.
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS AND THE
ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (1) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (2) the prospectus supplement for the
particular terms of your series of certificates.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities.
2
<PAGE>
THE TRUST
General
Certificates evidencing interests in pools of home equity loans may be issued
from time to time in series under a separate pooling and servicing agreement
among 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
supplement in the loan pool and other property held in a trust for the benefit
of certificateholders. Each trust will include:
. a loan pool;
. the amounts held from time to time in a trust certificate account
maintained by the trustee under a pooling and servicing agreement;
. any letter of credit, guarantee, surety bond, insurance policy, cash
reserve fund or other credit enhancement securing payment of all or
part of a series of certificates for home equity loans; and
. other property as specified in the related prospectus supplement.
Each certificate will evidence the interest specified in the prospectus
supplement in one trust, containing one loan pool comprised of loans having the
aggregate principal balance as of the specified day of the month of the
creation of the pool specified in the prospectus supplement. Holders of
certificates of a series will have interests only in that loan pool and will
have no interest in the loan pool created for any other series of certificates.
If specified in the related prospectus supplement, the trust may include funds
on deposit in a pre-funding account which would be used to purchase subsequent
loans from 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 respecting the loans included in each
trust will be provided in the related prospectus supplement and, if not
contained in the related prospectus supplement, in a report on Form 8-K to be
filed with the Commission within fifteen days after the initial issuance of the
certificates. A copy of the pooling and servicing agreement for each series of
certificates will be attached to the Form 8-K and will be available for
inspection at the corporate trust office of the trustee specified in the
related prospectus supplement. A schedule of the loans relating to that series
will be attached to the pooling and servicing agreement delivered to the
trustee upon delivery of the certificates.
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The Loan Pools
Except as otherwise specified in the related prospectus supplement, the loan
pool will consist of the loans, originated by Conseco Finance on an individual
basis in the ordinary course of business. All loans will be secured by the
related real estate. Except as otherwise specified in the related prospectus
supplement, the loans will be fully amortizing and will bear interest at a
fixed or variable annual percentage rate.
For each series of certificates, we will assign the loans constituting the
loan pool to the trustee named in the prospectus supplement. Conseco Finance
will service the loans as servicer under the pooling and servicing agreement.
See "Description of the Certificates--Servicing." Unless otherwise specified in
the related prospectus supplement, the loan documents will be held by the
trustee or a custodian on its behalf.
Each loan pool will be composed of loans bearing interest at the loan rates
specified in the prospectus supplement. Unless we specify otherwise in the
related prospectus supplement, each registered holder of a certificate will be
entitled to receive periodic distributions, which will be monthly unless we
specify otherwise in the related prospectus supplement, of all or a portion of
principal on the underlying loans or interest on the principal balance of the
certificate, or on some other principal balance unrelated to that of the
certificate, at the pass-through rate, or both. The prospectus supplement will
list the rate at which interest will be paid to certificateholders of each
class of a given series. The pass-through rate may be fixed, variable or
adjustable, as specified in the related prospectus supplement.
The related prospectus supplement will specify for the loans contained in the
related loan pool:
. the range of the dates of origination of the loans;
. the range of the loan rates and the weighted average loan rate;
. the minimum and maximum outstanding principal balances and the average
outstanding principal balance as of the Cut-off Date;
. the aggregate principal balance of the loans included in the loan pool
as of the Cut-off Date;
. the weighted average and range of scheduled terms to maturity as of
origination and as of the Cut-off Date;
. the range of original maturities of the loans and the last maturity
date of any loan; and
. the geographic location of improved real estate securing the loans.
If the trust includes a pre-funding account, the related prospectus supplement
will specify the conditions that must be satisfied before any transfer of
subsequent loans, including the requisite characteristics of the subsequent
loans.
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Conseco Finance will make representations and warranties as to the types and
geographical distribution of the loans included in a loan pool and as to the
accuracy in all material respects of information furnished to the trustee for
each loan. Upon a breach of any representation or warranty that materially and
adversely affects the interests of the certificateholders in a loan, Conseco
Finance will be obligated to cure the breach in all material respects, or to
repurchase or substitute for the loan as described below under "Description of
the Certificates--Repurchase Option." This repurchase obligation constitutes
the sole remedy available to the certificateholders or the trustee for a breach
of representation or warranty by us. See "Description of the Certificates--
Conveyance of Loans."
Conveyance of Loans
Conseco Finance will transfer to Conseco Securitizations, and Conseco
Securitizations will then transfer to the trustee, all of our right, title and
interest in the loans, including all principal and interest received on or with
respect to the loans, except receipts of principal and interest due on the
loans before the Cut-off Date. On behalf of the trust, as the issuer of the
related series of certificates, the trustee, concurrently with the conveyance,
will execute and deliver the certificates to the order of 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 for by Conseco Finance, 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 Conseco Finance's and Conseco Securitizations' accounting
records and computer systems will also reflect this sale and assignment.
Our counsel will render an opinion to the trustee that the transfer of the
loans from 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 become a debtor under the United States Bankruptcy Code. If,
however, either transfer were treated as a pledge to secure
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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 the
debt, or the 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.
Our counsel will also render an 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 a consolidation, delays
or reductions in distributions of proceeds of the loans to the trusts could
result.
Except as otherwise specified in the related prospectus supplement, Conseco
Finance 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 loan was originated by a home equity lender in the ordinary course
of the lender's business and assigned to Conseco Finance or was
originated by Conseco Finance directly;
. no loan was originated in or is subject to the laws of any jurisdiction
whose laws would make the transfer of the loan or an interest in the
loan to the trustee under the pooling and servicing agreement or the
certificates unlawful;
. each loan complies with all requirements of law;
. no loan has been satisfied, subordinated to a lower lien ranking than
its original position, if any, or rescinded;
. each loan creates a valid and perfected lien on the related improved
real estate;
. all parties to each loan had full legal capacity to execute the loan;
. no loan has been sold, conveyed and assigned or pledged to any other
person and Conseco Finance has good and marketable title to each loan
free and clear of any encumbrance, equity, loan, pledge, charge, claim
or security interest, and is the sole owner and has full right to
transfer the loan to Conseco Securitizations;
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. as of the Cut-off Date there was no default, breach, violation or event
permitting acceleration under any loan, except for payment
delinquencies permitted by the first clause, no event that with notice
and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under the
loan, and Conseco Finance has not waived any of the foregoing;
. each loan is a fully-amortizing loan with a fixed rate of interest and
provides for level payments over the term of the loan;
. each loan contains customary and enforceable provisions such as to
render the rights and remedies of the holder adequate for realization
against the collateral;
. the description of each loan appearing in the list delivered to the
trustee is true and correct;
. there is only one original of each loan; and
. each loan was originated or purchased in accordance with Conseco
Finance's then-current underwriting guidelines.
Under the terms of the pooling and servicing agreement, if Conseco Finance
becomes 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 Conseco Finance will be
obligated either to cure the breach or to repurchase or, if so provided in the
related prospectus supplement, substitute for the affected loan, in each case
under the conditions further described in this prospectus and in the related
prospectus supplement. This repurchase obligation will constitute the sole
remedy available to the trust and the certificateholders for a breach of a
representation or warranty under the pooling and servicing agreement relating
to the loans, but not for any other breach by Conseco Finance of Conseco
Finance's 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. Conseco Finance
will be required to pay the amount of the tax that is not funded out of the
distributions.
The Repurchase Price of a loan at any time means the outstanding principal
amount of the loan, without giving effect to any advances made by the servicer
or the trustee, plus interest at the applicable pass-through rate on the loan
from the end of the Due Period for which the obligor last made a payment,
without giving effect to any advances made by the servicer or the trustee,
through the end of the immediately preceding Due Period.
Payments on Loans
Each certificate account will be a trust account established by the servicer
as to each series of certificates in the name of the trustee:
(1) with a depository institution, the long-term unsecured debt
obligations of which at the time of any deposit are rated within the
two highest rating categories, or other rating category as will not
adversely affect the ratings assigned to the certificates, by each
rating agency rating the certificates of that series; or
(2) with the trust department of a national bank; or
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(3) in an account or accounts the deposits in which are fully insured by
the FDIC; or
(4) in an account or accounts the deposits in which are insured by the
FDIC to the limits established by the FDIC, the uninsured deposits in
which are otherwise secured so that, as evidenced by an opinion of
counsel, the certificateholders have a claim for the funds in the
certificate account or a perfected first priority security interest
against any collateral securing the funds that is superior to the
claims of any other depositors or general creditors of the depository
institution with which the certificate account is maintained; or
(5) otherwise acceptable to the rating agency without reduction or
withdrawal of the rating assigned to the relevant certificates.
The collateral eligible to secure amounts in the certificate account is limited
to United States government securities and other high-quality investments
specified in the applicable pooling and servicing agreement. A certificate
account may be maintained as an interest-bearing account, or the funds held in
the account may be invested pending each succeeding payment date in Eligible
Investments.
Unless otherwise specified in the related prospectus supplement, the servicer
will deposit in the certificate account on a daily basis all proceeds and
collections received or made by it subsequent to the Cut-off Date, including
scheduled payments of principal and interest due after the Cut-off Date but
received by the servicer on or before the Cut-off Date, including:
. all obligor payments on account of principal, including principal
prepayments, on the loans;
. all obligor payments on account of interest on the loans;
. all amounts received and retained for the liquidation of defaulted
loans, net of liquidation expenses;
. any advances made as described under "Advances" below and other amounts
required under the applicable pooling and servicing agreement to be
deposited in the certificate account;
. all amounts received from any credit enhancement provided on a series
of certificates; and
. all proceeds of any loan or property acquired in respect thereof
repurchased by the servicer or Conseco Finance, as described under
"Conveyance of Loans" above or under "Repurchase Option" below.
USE OF PROCEEDS
Unless we specify otherwise in the related prospectus supplement,
substantially all of the net proceeds to be received from the sale of each
series of certificates will be paid by Conseco Securitizations to Conseco
Finance as payment for the loans, and those proceeds will be used by Conseco
Finance for general corporate purposes, including the origination or
acquisition of additional home equity loans, costs of carrying the loans until
sale of the related certificates and to pay other expenses connected with
pooling the loans and issuing the certificates.
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CONSECO FINANCE CORP.
General
Certificates evidencing interests in pools of home equity loans may be issued
from time to time in series under a separate pooling and servicing agreement
among Conseco Securitizations, as seller, Conseco Finance, as servicer, and the
trustee.
Conseco Finance Corp. was formerly known as Green Tree Financial Corporation.
Conseco Finance is a Delaware corporation that, as of December 31, 1998, had
stockholders' equity of approximately $2.2 billion. Conseco Finance purchases,
sells and services conditional sales contracts for manufactured homes and other
consumer installment sales contracts, as well as home equity loans. Conseco
Finance is the largest servicer of government-insured manufactured housing
contracts and conventional manufactured housing contracts in the United States.
Servicing functions are performed through Conseco Finance Servicing
Corporation, a wholly owned subsidiary of Conseco Finance. Through its
principal offices in Saint Paul, Minnesota, and service centers throughout the
United States, Conseco Finance serves all 50 states. Conseco Finance began
financing home equity loans in January 1996. Conseco Finance also purchases,
pools and services installment sales contracts for various consumer products.
Conseco Finance's principal executive offices are located at 1100 Landmark
Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102-1639 (telephone (651)
293-3400). Conseco Finance's quarterly and annual reports are available from
Conseco Finance upon written request.
The SEC allows Conseco Finance to incorporate by reference some of the
information Conseco Finance files with it, which means that we can disclose
important information to you by referring you to those documents. The
information that Conseco Finance incorporates by reference is considered to be
part of this prospectus, and later information that Conseco Finance files with
the SEC will automatically update and supersede this information. Conseco
Finance is 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, 1998.
. Conseco Finance Corp.'s quarterly report on Form 10-Q for the quarter
ended September 30, 1999.
Conseco Finance will provide you, upon your written or oral request, a copy
of any or all of the documents incorporated by reference in this prospectus.
Please direct your requests for copies to John Dolphin, Director of Investor
Relations, 11825 Pennsylvania Street, Carmel, Indiana 46032, telephone number
(317) 817-6100.
All documents filed by the servicer, on behalf of any trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, after
the date of this prospectus and prior to the termination of the offering of the
certificates issued by that trust, will be incorporated by reference into this
prospectus.
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by
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reference) and other information. You can read and copy these documents at the
public reference facility maintained by the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549. You can also read and copy
these reports and other information at the following regional offices of the
SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Loan Origination
Conseco Finance has originated closed-end home equity loans since January
1996. As of December 31, 1998, Conseco Finance had approximately $7,302,696,406
aggregate principal amount of outstanding closed-end home equity loans.
Through a system of regional offices, Conseco Finance markets its home equity
lending directly to consumers using a variety of marketing techniques. Conseco
Finance also reviews and re-underwrites loan applications forwarded by
correspondent lenders.
Conseco Finance's credit approval process analyzes both the equity position
of the requested loan, including both the priority of the lien and the combined
loan-to-value ratio, and the applicant's creditworthiness; to the extent the
requested loan would have a less or more favorable equity position, the
creditworthiness of the borrower must be stronger; to the extent the requested
loan would have a more favorable equity position, the creditworthiness of the
borrower may be weaker. The loan-to-value ratio of the requested loan, combined
with any existing loans with a senior lien position, may not exceed 95% without
senior management approval. In most circumstances, an appraisal of the property
is required. Currently, loans secured by a first mortgage with an obligor
having a superior credit rating may not exceed $300,000 without senior
management approval, and loans secured by a second mortgage with an obligor
having a superior credit rating may not exceed $250,000 without senior
management approval.
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, Saint 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
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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 and range of contractual
rates of interest of the loans, as of the related Cut-off Date, relating to
each series of certificates are listed in the related prospectus supplement.
The prospectus supplement for each series will indicate that a lower rate of
principal prepayments than anticipated would negatively affect the total return
to investors of any class of certificates that is offered at a discount to its
principal amount, and a higher rate of principal prepayments than anticipated
would negatively affect the total return to investors of any class of
certificates that is offered at a premium to its principal amount or without
any principal amount.
The yield on some types of certificates which we may offer, such as interest
only certificates, principal only certificates, and fast pay/slow pay
certificates, may be particularly sensitive to prepayment rates, and to changes
in prepayment rates, on the underlying loans. If so stated in the related
prospectus supplement, the yield on some types of certificates which we may
offer could change and may be negative under some prepayment rate scenarios.
Accordingly, some types of certificates may not be legal or appropriate
investments for financial institutions, pension funds or others. See "ERISA
Considerations" and "Legal Investment Considerations" in this prospectus and in
the prospectus supplement. In addition, the timing of changes in the rate of
prepayment on the loans included in a loan pool may significantly affect an
investor's actual yield to maturity, even if the average prepayment rate over
time is consistent with the investor's expectations. In general, the earlier
that prepayments on loans occur, the greater the effect on the investor's yield
to maturity.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise described in an applicable prospectus supplement, all of the
loans will have maturities at origination of not more than 25 years.
Prepayment Considerations
Loans generally may be prepaid in full or in part without penalty. Conseco
Finance has no significant experience with the rate of principal prepayments on
home equity loans.
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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 Conseco Finance's exercise of its option to repurchase the entire remaining
pool of loans will affect the timing of principal distributions on the
certificates of a series. See "Description of the Certificates--Repurchase
Option."
Information regarding the prepayment standard or model or any other rate of
assumed prepayment, as applicable, will be described in the prospectus
supplement for a series of certificates. Although the related prospectus
supplement will specify the prepayment assumptions used to price any series of
certificates, we cannot assure you that the loans will prepay at that rate, and
it is unlikely that prepayments or liquidations of the loans will occur at any
constant rate.
See "Description of the Certificates--Repurchase Option" for a description of
Conseco Finance's 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 Conseco Finance's obligations to
repurchase a loan in case of a breach of a representation or warranty for that
loan.
DESCRIPTION OF THE CERTIFICATES
Each series of certificates will be issued under a pooling and servicing
agreement to be entered into among Conseco Securitizations, as seller, Conseco
Finance, as servicer, and the trustee named in the related prospectus
supplement, and other parties as are described in the applicable prospectus
supplement. The following summaries describe provisions expected to be common
to each pooling and servicing agreement and the related certificates, but do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the related pooling and servicing
agreement and its description in the related prospectus supplement. The
provisions of the form of pooling and servicing agreement filed as an exhibit
to the registration statement of which this prospectus is a part that we do not
describe in this prospectus may differ from the provisions of any actual
pooling and servicing agreement. The material differences will be described in
the related prospectus supplement. Capitalized terms used in this prospectus
and not otherwise defined shall have the meanings assigned to them in the form
of pooling and servicing agreement filed as an exhibit to the registration
statement.
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Each series of certificates will have been rated in the rating category by
the rating agency or agencies specified in the related prospectus supplement.
General
The certificates may be issued in one or more classes. If the certificates of
a series are issued in more than one class, the certificates of all or less
than all of such classes may be sold under this prospectus, and there may be
separate prospectus supplements relating to one or more of the classes sold.
When we refer to the prospectus supplement relating to a series comprised of
more than one class it should be understood to refer to each of the prospectus
supplements relating to the classes sold under this prospectus. When we refer
to the certificates of a class it should be understood to refer to the
certificates of a class within a series or all of the certificates of a single-
class series, as the context may require.
The certificates of each series will be issued in fully registered form only
and will represent the interests specified in the related prospectus supplement
in a separate trust created under the related pooling and servicing agreement.
The trust will be held by the trustee for the benefit of the
certificateholders. Except as otherwise specified in the related prospectus
supplement, the certificates will be freely transferable and exchangeable at
the corporate trust office of the trustee at the address listed in the related
prospectus supplement. No service charge will be made for any registration of
exchange or transfer of certificates, but the trustee may require payment of a
sum sufficient to cover any tax or other governmental charge.
Ownership of each loan pool may be evidenced by one or more classes of
certificates, each representing the interest in the loan pool specified in the
related prospectus supplement. Each series of certificates may include one or
more classes of subordinated certificates which are subordinated in right of
distribution to one or more other classes of senior certificates, as provided
in the related prospectus supplement. A series that includes both senior and
subordinated certificates may include one or more classes of mezzanine
certificates which are subordinated to one or more classes of certificates and
are senior to one or more classes of certificates. The prospectus supplement
for a series that includes senior and subordinated certificates will describe
the extent to which the subordinated certificates are subordinated, which may
include a formula for determining the subordinated amount or for determining
the allocation of the Amount Available for distribution among senior
certificates and subordinated certificates, the allocation of losses among the
classes of subordinated certificates, the period or periods of subordination,
any minimum subordinated amount and any distributions or payments which will
not be affected by the subordination. The protection afforded to the senior
certificateholders from the subordination feature described above will be
effected by the preferential right of the certificateholders to receive current
distributions from the loan pool. If a series of certificates contains more
than one class of subordinated certificates, losses will be allocated among the
classes in the manner described in the prospectus supplement. If so specified
in the applicable prospectus supplement, mezzanine certificates or other
classes of subordinated certificates may be entitled to the benefits of other
forms of credit enhancement and may, if rated in one of the four highest
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rating categories by a nationally recognized statistical rating organization,
be offered under this prospectus and the prospectus supplement.
If specified in a prospectus supplement, a series of certificates may include
one or more classes which:
(1) are entitled to receive distributions only in respect of principal,
interest or any combination of the two, or in specified proportions
of the payments; and/or
(2) are entitled to receive distributions of principal before or after
specified principal distributions have been made on one or more other
classes within a series or on a planned amortization schedule or
targeted amortization schedule or upon the occurrence of other
specified events.
The prospectus supplement will list the pass-through rate at which interest
will be paid to certificateholders of each class of a given series. The pass-
through rate may be fixed, variable or adjustable, as specified in the related
prospectus supplement.
The related prospectus supplement will specify the minimum denomination or
initial principal amount of loans evidenced by a single certificate of each
class of certificates of a series.
Distributions of principal and interest on the certificates will be made on
the payment dates listed in the related prospectus supplement to the persons in
whose names the certificates are registered at the close of business on the
related record date specified in the related prospectus supplement.
Distributions will be made by check mailed to the address of the person
entitled to the distribution as it appears on the certificate register, or, as
described in the related prospectus supplement, by wire transfer, except that
the final distribution in retirement of certificates will be made only upon
presentation and surrender of the certificates at the office or agency of the
trustee specified in the final distribution notice to certificateholders.
Global Certificates
The certificates of a class may be issued in whole or in part in the form of
one or more global certificates that will be deposited with, or on behalf of,
and registered in the name of a nominee for, a depositary identified in the
related prospectus supplement. The description of the certificates contained in
this prospectus assumes that the certificates will be issued in definitive
form.
Global certificates will be issued in registered form. Unless and until it is
exchanged in whole or in part for a certificate in definitive form, a global
certificate may not be transferred except as a whole by the depositary for the
global certificate to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary.
The specific terms of the depositary arrangement for any certificates of a
class will be described in the related prospectus supplement. It is anticipated
that the following provisions described in this subsection will apply to all
depositary arrangements:
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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. Conseco
Finance, Conseco Securitizations, the servicer, the trustee, or any agent,
including any applicable certificate registrar or paying agent, will not have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a global
certificate or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests or for providing reports to the related
beneficial owners.
Conseco Securitizations expects that the depositary for certificates of a
class, upon receipt of any distribution or payment on a global certificate,
will credit immediately Participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the global certificate
as shown on the records of the depositary. Conseco Securitizations also expects
that payments by Participants to owners of beneficial interests in the global
certificate held through Participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in street name, and will be the responsibility
of the Participants.
If a depositary for certificates of a class is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed by
or on behalf of Conseco Securitizations within the time period specified in the
pooling and servicing agreement,
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Conseco Securitizations will cause to be issued certificates of that class in
definitive form in exchange for the related global certificate or certificates.
In addition, Conseco Securitizations may at any time and in its sole discretion
determine not to have any certificates of a class represented by one or more
global certificates and, if this occurs, will cause to be issued certificates
of that class in definitive form in exchange for the related global certificate
or certificates. Further, if Conseco Securitizations so specifies with respect
to the certificates of a class, an owner of a beneficial interest in a global
certificate representing certificates of that class may, on terms acceptable to
Conseco Securitizations and the depositary for the global certificate, receive
certificates of that class in definitive form. In any such instance, an owner
of a beneficial interest in a global certificate will be entitled to physical
delivery in definitive form of certificates of the class represented by the
global certificate equal in denominations to the beneficial interest and to
have the certificates registered in its name.
Distributions on Certificates
Except as otherwise provided in the related prospectus supplement, on each
payment date for a series of certificates, the trustee will withdraw from the
applicable certificate account and distribute to the certificateholders of that
series of record on the preceding record date an amount equal to the Amount
Available for that payment date. Unless otherwise specified in the applicable
prospectus supplement, the Amount Available for a payment date is an amount
equal to the aggregate of all amounts on deposit in the certificate account as
of the seventh business day following the end of the related Due Period, or
another date as may be specified in the related prospectus supplement except:
(1) all payments on the loans that were due on or before the Cut-off
Date;
(2) all payments or collections received after the Due Period preceding
the month in which the payment date occurs;
(3) all scheduled payments of principal and interest due on a date or
dates subsequent to the Due Period preceding the Determination Date;
(4) amounts representing reimbursement for advances, these reimbursement
being limited, if so specified in the related prospectus supplement,
to amounts received on particular loans as late collections of
principal or interest as to which the servicer has made an
unreimbursed advance; and
(5) amounts representing reimbursement for any unpaid servicing fee.
In the case of a series of certificates which includes only one class, the
Amount Available for distribution on each payment date will be distributed pro
rata to the holders of the certificates. In the case of any other series of
certificates, the Amount Available for each payment date will be allocated and
distributed to holders of the certificates of the Series according to the
method and in the order of priority specified in the applicable prospectus
supplement. We refer to the amount of principal and interest specified in the
related prospectus supplement to be distributed to certificateholders as the
Certificate Distribution Amount.
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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 in March 1999. All weekdays are
assumed to be business days. The initial principal balance of the loan pool
will be the aggregate principal balance of the loans at the close of business
on the Cut-off Date, after deducting principal payments due on or before that
date, which, together with corresponding interest payments, are not part of the
loan pool and will not be passed through to certificateholders. Scheduled
payments and principal prepayments may be received at any time during the Due
Period and will be deposited in the certificate account by the servicer for
distribution to certificateholders. When a loan is prepaid in full, interest on
the amount prepaid is collected from the obligor only to the date of payment.
Distributions on April 15 will be made to certificateholders of record at the
close of business on the last business day of March, which is the month
immediately preceding the month of distribution. On April 9 (the seventh
business day following the end of the prior Due Period), the servicer will
determine the amounts of principal and interest which will be passed through on
April 15. In addition, the servicer may advance funds to cover any
delinquencies, in which event the distribution to certificateholders on April
15 will include the full amounts of principal and interest due during March.
The servicer will also calculate any changes in the relative 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>
February 28......................................... Cut-off Date.
March 1-31.......................................... Due Period. Servicer
receives scheduled payments
on the loans and any
principal prepayments made
by obligors and applicable
interest thereon.
March 29............................................ Record date.
April 9............................................. Determination Date.
Distribution amount
determined.
April 15............................................ Payment date.
</TABLE>
Succeeding months follow the pattern of the Due Period through the payment
date. The flow of funds with respect to any series of certificates may differ
from the above example, as specified in the related prospectus supplement.
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Reports to Certificateholders
The trustee will forward to each certificateholder on each payment date, or
as soon thereafter as is practicable, as specified in the related prospectus
supplement, a statement listing the following information:
(1) the amount of the distribution which constitutes monthly principal,
specifying the amounts constituting scheduled payments by obligors,
principal prepayments on the loans, and other payments on the loans;
(2) the amount of the distribution which constitutes monthly interest;
(3) the remaining principal balance represented by the
certificateholder's interest;
(4) the amount of fees payable out of the trust;
(5) the pool factor (a percentage derived from a fraction the numerator
of which is the remaining principal balance of the certificates and
the denominator of which is the initial principal amount of the
certificates) immediately before and immediately after the payment
date;
(6) the number and aggregate principal balance of loans delinquent (a)
31-59 days, (b) 60-89 and (c) 90 or more days;
(7) the number of loans liquidated during the Due Period ending
immediately before the payment date;
(8) other customary factual information as is necessary to enable
certificateholders to prepare their tax returns; and
(9) other customary factual information available to the servicer without
unreasonable expense as is necessary to enable certificateholders to
comply with regulatory requirements.
Advances
Unless otherwise specified in the related prospectus supplement, to the
extent that collections on a loan in any Due Period are less than the scheduled
payment due, the servicer will be obligated to make an advance of the
uncollected portion of the scheduled payment. The servicer will be obligated to
advance a delinquent payment on a loan only to the extent that the servicer, in
its sole discretion, expects to recoup the advance from subsequent collections
on the loan or from Liquidation Proceeds of the loan. The servicer will deposit
any advances in the certificate account no later than one business day before
the following payment date. The servicer will be entitled to recoup its
advances on a loan from subsequent payments by or on behalf of the obligor and
from Liquidation Proceeds, including any foreclosure resale proceeds of the
loan, and will release its right to reimbursements in conjunction with the
purchase of the loan by Conseco Finance for breach of representations and
warranties. If the servicer determines in good faith that an amount previously
advanced will not ultimately be recoverable from payments by or on behalf of
the obligor or from Liquidation Proceeds, including any foreclosure resale
proceeds of the loan, the servicer will be entitled to reimbursement from
payments on other loans or from other funds available.
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Unless otherwise specified in the related prospectus supplement, if the
servicer fails to make an advance required under the applicable pooling and
servicing agreement, the trustee will be obligated to deposit the amount of the
advance in the certificate account on the payment date. The trustee will not,
however, be obligated to deposit any amount if:
(1) the trustee does not expect to recoup the advance from subsequent
collections on the loan or from any Liquidation Proceeds; or
(2) the trustee determines that it is not legally able to make the
advance.
Indemnification
Each pooling and servicing agreement requires Conseco Finance 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 Conseco
Finance or the servicer or any of its affiliates of any real estate
related to a loan; and
(2) for any taxes which may at any time be asserted for, and as of the
date of, the conveyance of the loans to the trust, but not including
any federal, state or other tax arising out of the creation of the
trust and the issuance of the certificates.
Each 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.
Repurchase Option
Unless otherwise specified in the related prospectus supplement, Conseco
Finance 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.
Amendment
Unless otherwise specified in the related prospectus supplement, each pooling
and servicing agreement may be amended by Conseco Securitizations, Conseco
Finance, the servicer and the trustee without the consent of the
certificateholders:
. to cure any ambiguity; or
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. to correct or supplement any provision in the agreement that may be
inconsistent with another provision; or
. if an election has been made for a particular series of certificates to
treat the trust as a REMIC within the meaning of Section 860D(a) of the
IRS code, to maintain the REMIC status of the trust and to avoid the
imposition of certain taxes on the REMIC; or
. to make any other provisions on matters or questions arising under the
pooling and servicing agreement that are not inconsistent with its
provisions, provided that the action will not adversely affect in any
material respect the interests of the certificateholders of the related
series.
Unless otherwise specified in the related prospectus supplement, each pooling
and servicing agreement may also be amended by Conseco Securitizations, Conseco
Finance, the servicer and the trustee with the consent of the
certificateholders, other than holders of residual certificates, representing
66 2/3% or more of the aggregate certificate principal balance of a series for
the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the pooling and servicing agreement or of
modifying in any manner the rights of the certificateholders; provided,
however, that no amendment that reduces in any manner the amount of, or delays
the timing of, any payment received on loans which are required to be
distributed on any certificate may be effective without the consent of the
holders of each certificate.
Termination of the Agreement
The obligations created by each pooling and servicing agreement will
terminate, after distribution of all monthly principal and monthly interest
then due to certificateholders, on the earlier of (1) the payment date next
succeeding the later of the final payment or other liquidation of the last loan
or the disposition of all property acquired upon foreclosure of any loan; (2)
the date on which the holder of the "residual interest" in the trust exercises
its right to order a qualified liquidation of the trust, as described under
"Description of the Certificates--Repurchase Option"; or (3) the payment date
on which Conseco Finance or the servicer repurchases the loans as described
under "Description of the Certificates--Repurchase Option." However, Conseco
Finance's representations, warranties and indemnities will survive any
termination of the pooling and servicing agreement.
The Trustee
The prospectus supplement for a series of certificates will specify the
trustee under the related pooling and servicing agreement. The trustee may have
customary commercial banking relationships with Conseco Finance or its
affiliates and the servicer or its affiliates.
The trustee may resign at any time, in which event Conseco Securitizations
will be obligated to appoint a successor trustee. Conseco Securitizations may
also remove the trustee if the trustee ceases to be eligible to continue as
trustee under a pooling and servicing agreement or if the trustee becomes
insolvent. Any resignation or removal of the trustee and
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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 Securitizations of any funds paid to Conseco Securitizations, 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.
Under the pooling and servicing agreement, the servicer agrees to pay to the
trustee on each payment date:
. reasonable compensation for all services rendered by it under the
agreement, which compensation shall not be limited by any provision of
law regarding the compensation of a trustee of an express trust; and
. reimbursement for all reasonable expenses, disbursements and advances
incurred or made by the trustee in accordance with any provision of the
pooling and servicing agreement, including reasonable compensation and
the expenses and disbursements of its agents and counsel, except any
expense, disbursement or advance as may be attributable to the
trustee's negligence or bad faith.
Conseco Finance has agreed to indemnify the trustee for, and to hold it
harmless against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the acceptance or
administration of the trust and the trustee's duties thereunder, including the
costs and expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of the trustee's powers or
duties.
SERVICING
Under the pooling and servicing agreement, the servicer will service and
administer the loans assigned to the trustee as described below in this
section. The servicer will perform diligently all services and duties specified
in each pooling and servicing agreement, in the same manner as prudent lending
institutions of mortgage loans of the same type as the loans in those
jurisdictions where the related real properties are located or as otherwise
specified in the pooling and servicing agreement. The duties to be performed by
the servicer will include collection and remittance of principal and interest
payments, collection of insurance claims and, if necessary, foreclosure of
loans.
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The servicer will make reasonable efforts to collect all payments called for
under the loans and, consistent with the pooling and servicing agreement, will
follow the collection procedures it follows for mortgage loans serviced by it
that are comparable to the loans.
Evidence as to Compliance. Unless otherwise specified in the related
prospectus supplement, each pooling and servicing agreement will require the
servicer to deliver to the trustee a monthly report before each payment date,
describing information about the loan pool and the certificates of the series
as is specified in the related prospectus supplement. Each report to the
trustee will be accompanied by a statement from an appropriate officer of the
servicer certifying the accuracy of the report and stating that the servicer
has not defaulted in the performance of its obligations under the pooling and
servicing agreement. On or before May 1 of each year, the servicer will deliver
to the trustee a report of a nationally recognized accounting firm stating that
the firm has examined documents and records relating to the servicing of home
equity loans serviced by the servicer under pooling and servicing agreements
similar to the pooling and servicing agreement and stating that, on the basis
of those procedures, the servicing has been conducted in compliance with the
pooling and servicing agreement, except for any exceptions described in the
report.
About the Servicer. The servicer may not resign from its obligations and
duties under a pooling and servicing agreement except upon a determination that
its duties under the pooling and servicing agreement are no longer permissible
under applicable law. No resignation will become effective until the trustee or
a successor servicer has assumed the servicer's obligations and duties under
the pooling and servicing agreement. The servicer can only be removed as
servicer upon the occurrence of an event of termination as discussed below
under "--Events of Termination."
The servicer shall keep in force throughout the term of the pooling and
servicing agreement:
. a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by the pooling and servicing
agreement; and
. a fidelity bond.
The policy or policies and the fidelity bond shall be in the form and amount as
is generally customary among persons which service a portfolio of home equity
loans having an aggregate principal amount of $10 million or more and which are
generally regarded as servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. For its servicing of the
loans, the servicer will receive servicing fees which include a monthly
servicing fee, which Conseco Finance may assign, for each Due Period, paid on
the next succeeding payment date, equal to 1/12th of the product of the annual
servicing fee rate described in the applicable prospectus supplement and the
Pool Scheduled Principal Balance for that payment date. As long as Conseco
Finance is the servicer, the trustee will pay Conseco Finance its monthly
servicing fee from any monies remaining after the certificateholders have
received all payments of principal and interest for the payment date.
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The monthly servicing fee provides compensation for customary third-party
servicing activities to be performed by the servicer for the trust, for
additional administrative services performed by the servicer on behalf of the
trust and for expenses paid by the servicer on behalf of the trust.
Customary servicing activities include collecting and recording payments,
communicating with obligors, investigating payment delinquencies, providing
billing and tax records to obligors and maintaining internal records for each
loan. Administrative services performed by the servicer on behalf of the trust
include selecting and packaging the loans, calculating distributions to
certificateholders and providing related data processing and reporting services
for certificateholders and on behalf of the trustee. Expenses incurred in
servicing the loans and paid by Conseco Finance from its monthly servicing fees
include payment of fees and expenses of accountants, payments of all fees and
expenses incurred in the enforcement of loans or foreclosure on collateral
relating thereto, payment of trustee's fees, and payment of expenses incurred
in distributions and reports to certificateholders, except that the servicer
shall be reimbursed out of the Liquidation Proceeds of a liquidated loan for
customary out-of-pocket liquidation expenses incurred by it.
Events of Termination. Except as otherwise specified in the related
prospectus supplement, events of termination under each pooling and servicing
agreement will occur if:
. the servicer fails to make any payment or deposit required under the
pooling and servicing agreement, including an advance, and the failure
continues for four business days;
. the servicer fails to observe or perform in any material respect any
other covenant or agreement in the pooling and servicing agreement
which continues unremedied for 30 days;
. the servicer conveys, assigns or delegates its duties or rights under
the pooling and servicing agreement, except as specifically permitted
under the pooling and servicing agreement, or attempts to make such a
conveyance, assignment or delegation;
. a court having jurisdiction enters a decree or order for relief in
respect of the servicer in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect,
or appoints a receiver, liquidator, assignee, custodian, trustee, or
sequestrator, or similar official, of the servicer, as the case may be,
or enters a decree or order for any substantial liquidation of its
affairs;
. the servicer commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an
order for relief in an involuntary case under any law, or consents to
the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian or its creditors, or fails to, or admits
in writing its inability to, pay its debts as they become due, or takes
any corporate action in furtherance of the foregoing;
. the servicer fails to be an eligible servicer; or
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. if Conseco Finance is the servicer, Conseco Finance's servicing rights
under its master seller-servicer contract with GNMA are terminated.
The servicer will be required under the pooling and servicing agreement to give
the trustee and the certificateholders notice of an event of termination
promptly upon the occurrence of the event.
Rights Upon Event of Termination. Except as otherwise specified in the
related prospectus supplement, so long as an event of termination remains
unremedied, the trustee may, and at the written direction of certificateholders
representing 25% or more of the aggregate certificate principal balance of a
series will, terminate all of the rights and obligations of the servicer under
the related pooling and servicing agreement and in and to the loans, and the
proceeds of the loans, at which time, subject to applicable law regarding the
trustee's ability to make advances, the trustee or a successor servicer under
the pooling and servicing agreement will succeed to all the responsibilities,
duties and liabilities of the servicer under the pooling and servicing
agreement and will be entitled to similar compensation arrangements; provided,
however, that neither the trustee nor any successor servicer will assume any
obligation of Conseco Finance to repurchase loans for breaches of
representations or warranties, and the trustee and a successor servicer will
not be liable for any acts or omissions of the prior servicer occurring before
a transfer of the servicer's servicing and related functions or for any breach
by the servicer of any of its obligations contained in the pooling and
servicing agreement. Notwithstanding the termination, the servicer will be
entitled to payment of amounts payable to it before the termination, for
services rendered before the termination. No termination will affect in any
manner Conseco Finance's obligation to repurchase loans for breaches of
representations or warranties under the pooling and servicing agreement. If the
trustee is obligated to succeed the servicer but is unwilling or unable to do
so, it may appoint, or petition to a court of competent jurisdiction for the
appointment of, a servicer. Pending appointment, the trustee is obligated to
act in this capacity. The trustee and the successor may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation to the servicer under the pooling and servicing agreement.
The trustee will be under no obligation to take any action or to institute,
conduct or defend any litigation under the pooling and servicing agreement at
the request, order or direction of any of the holders of certificates, unless
the certificateholders have offered to the trustee reasonable security or
indemnity against the costs, expenses and liabilities which the trustee may
incur.
LEGAL ASPECTS OF THE LOANS; REPURCHASE OBLIGATIONS
As a result of Conseco Finance's conveyance and assignment of a pool of loans
to Conseco Securitizations, and Conseco Securitizations' conveyance and
assignment of that pool to a trust, the certificateholders of the series, as
the beneficial owners of the trust, will succeed collectively to all of the
rights thereunder, including the right to receive payment on
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the loans. The following discussion contains summaries of legal aspects of home
equity loans secured by residential properties which are general in nature.
Because these legal aspects are governed by applicable state law, which laws
may differ substantially, the summaries do not purport to be complete nor to
reflect the laws of any particular state, nor to encompass the laws of all
states in which the real estate securing the loans may be situated or which may
govern any loan. The summaries are qualified in their entirety by reference to
the applicable federal and state laws governing the loans.
Mortgages and Deeds of Trust
The loans will be secured by either mortgages, deeds of trust, security deeds
or deeds to secure debt depending upon the prevailing practice in the state in
which the underlying property is located, and may have first, second or third
priority. In some states, a mortgage creates a lien upon the real property
encumbered by the mortgage or deed of trust. In other states, the mortgage
conveys legal title to the property to the mortgagee subject to a condition
subsequent, such as the payment of the indebtedness secured. There are two
parties to a mortgage: the mortgagor, who is the borrower, and the mortgagee,
who is the lender. In a mortgage state, the mortgagor delivers to the mortgagee
a note or retail installment contract evidencing the loan and the mortgage.
Although a deed of trust is similar to a 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
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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
Conseco Finance generally does not cure defaults under a senior mortgage or
deed of trust, it is Conseco Finance's standard practice to protect its
interest by attending any foreclosure sale and bidding for property only if it
is in Conseco Securitizations' best interests to do so.
The standard form of the mortgage or deed of trust used by most institutional
lenders, like that of Conseco Finance, confers on the mortgagee or beneficiary
the right both to receive all proceeds collected under any hazard insurance
policy and all awards made in connection with any condemnation proceedings, and
to apply such proceeds and awards to any indebtedness secured by the mortgage
or deed of trust, in such order as the mortgagee or beneficiary may determine.
Thus, in the event improvements on the property are damaged or destroyed by
fire or other casualty, or in the event the property is taken by condemnation,
the mortgagee or beneficiary under the underlying first mortgage or deed of
trust will have the prior right to collect any insurance proceeds payable under
a hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the first
mortgage or deed of trust. Proceeds in excess of the amount of first mortgage
indebtedness, in most cases, may be applied to the indebtedness of a junior
mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a future advance clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee
or beneficiary are to be secured by the mortgage or deed of trust. The priority
of any advance made under the clause depends, in some states, on whether the
advance was an obligatory or optional advance. If the mortgagee or beneficiary
is obligated to advance the additional amounts, the advance is entitled to
receive the same priority as amounts initially advanced under the mortgage or
deed of trust, notwithstanding the fact that there may be junior mortgages or
deeds of trust and other liens which intervene between the date of recording of
the mortgage or deed of trust and the date of the future advance, and, in some
states, notwithstanding that the senior mortgagee or beneficiary had actual
knowledge of such intervening junior mortgages or deeds of trust and other
liens at the time of the advance. Where the mortgagee or beneficiary is not
obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other
liens, the advance will be subordinate to such intervening junior mortgages or
deeds of trust and other liens. Priority of advances under the clause rests, in
some states, on state statutes giving priority to all advances made under the
loan agreement to a credit limit amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens
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on the property which appear prior to the mortgage or deed of trust, to provide
and maintain fire insurance on the property, to maintain and repair the
property and not to commit or permit any waste, and to appear in and defend any
action or proceeding purporting to affect the property or the rights of the
mortgagee or beneficiary under the mortgage or deed of trust. If the mortgagor
or trustor fails to perform any of these obligations, the mortgagee or
beneficiary is given the right under the mortgage or deed of trust to perform
the obligation itself, at its election, with the mortgagor or trustor agreeing
to reimburse the mortgagee or beneficiary for any sums expended by the
mortgagee or beneficiary on behalf of the mortgagor or trustor. All sums
expended by a senior mortgagee or beneficiary generally become part of the
indebtedness secured by the senior mortgage or deed of trust.
Subordinate Financing
Where the borrower encumbers the mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the borrower
may have difficulty servicing and repaying multiple loans. Second, acts of the
senior lender which prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For
example, if the borrower and the senior lender agree to an increase in the
principal amount of or the interest rate payable on the senior loan, the senior
lender may lose its priority to the extent any existing junior lender is harmed
or the borrower is additionally burdened. Third, if the borrower defaults on
the senior loan and/or any junior loan or loans, the existence of junior loans
and actions taken by junior lenders can impair the security available to the
senior lender and can interfere with or delay the taking of action by the
senior lender. The bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the
mortgage, deed of trust, deed to secure debt or security deed. Foreclosure of a
mortgage is generally accomplished by judicial action. A foreclosure action is
regulated by statutes and rules and subject throughout to the court's equitable
powers. Generally, a mortgagor is bound by the terms of the mortgage note and
the mortgage as made and cannot be relieved from its own default. However,
since a foreclosure action is equitable in nature and is addressed to a court
of equity, the court may relieve a mortgagor of a default and deny the
mortgagee foreclosure on proof that the mortgagor's default was neither willful
nor in bad faith and that the mortgagee's action establishes a waiver, or
fraud, bad faith, oppressive or unconscionable conduct and warrants a court of
equity to refuse affirmative relief to the mortgagee. 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 defending parties. 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
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court may issue a judgment of foreclosure and appoint a referee or other
officer to conduct the sale of the property. In some states, mortgages may also
be foreclosed by advertisement, under a power of sale provided in the mortgage.
Foreclosure of a mortgage by advertisement is essentially similar to
foreclosure of a deed of trust by non-judicial power of sale.
Foreclosure of a deed of trust or a deed to secure debt is generally
accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust, security deed or deed to secure debt that authorizes the trustee
to sell the property upon any default by the borrower under the terms of the
note, deed of trust, security deed or deed to secure debt. In some states,
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states, before a sale, the trustee must
record a notice of default and send a copy to the borrower trustor and to any
person who has recorded a request for a copy of a notice of default and notice
of sale. In addition, before the sale, the trustee must provide notice in some
states to any other individual having an interest of record in the real
property, including any junior lienholders. Some states require that a notice
of sale be posted in a public place and, in most states, published for a
specified period of time in one or more newspapers in a specified manner before
the date of trustee's sale. In addition, some state laws require that a copy of
the notice of sale be posted on the property and sent to all parties having an
interest of record in the property.
In some states, the borrower trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Some state laws control the amount of foreclosure expenses and
costs, including attorney's fees, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee or other designated officer, or by the trustee, is
generally a public sale. However, because of the difficulty a potential third
party buyer at the sale might have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is not common for a third party to purchase the
property at the foreclosure sale. In some states, there is a statutory minimum
purchase price which the lender may offer for the property. Thereafter, subject
to the right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including
obtaining hazard insurance, paying taxes and making such repairs at its own
expense as are necessary to render the property suitable for sale. The lender
commonly will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property. Any loss resulting from the sale may be
reduced by the receipt of any mortgage insurance proceeds.
A second or third mortgagee may not foreclose on the property securing a
second or first mortgage unless it forecloses subject to the senior mortgages,
in which case it must either pay the entire amount due on the senior mortgages
before or at the time of the
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foreclosure sale or make payments on the senior mortgages in the event the
mortgagor is in default thereunder, in either event adding the amounts expended
to the balance due on the junior loan, and may be subrogated to the rights of
the senior mortgagees. In addition, in the event that the foreclosure by a
junior mortgagee triggers the enforcement of a due-on-sale clause in a senior
mortgage, the junior mortgagee may be required to pay the full amount of the
senior mortgages to the senior mortgagees. Accordingly, for those loans which
are second or third mortgage loans, if the lender purchases the property, the
lender's title will be subject to all senior liens and claims and certain
governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See "--
Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the related trust with respect to its acquisition, by
foreclosure or otherwise, and disposition of real property securing a loan, and
any such taxes or fees imposed may reduce Liquidation Proceeds with respect to
such property, as well as distributions payable to the certificateholders.
Second or Third Mortgages
The loans may be secured by second, third or fourth mortgages or deeds of
trust, which are junior to first or second mortgages or deeds of trust held by
other lenders. The rights of the certificateholders as the holders of a junior
deed of trust, junior mortgage, or junior security deed are subordinate in lien
and in payment to those of the holder of the senior mortgage, deed of trust, or
security deed including the prior rights of the senior mortgagee or beneficiary
to receive and apply hazard insurance and condemnation proceeds and, upon
default of the mortgagor under the senior mortgage or deed of trust, to cause a
foreclosure on the property. Upon completion of the foreclosure proceedings by
the holder of the senior mortgage or the sale pursuant to the senior deed of
trust, the junior mortgagee's or junior beneficiary's lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts its
subordinate interest in a property in foreclosure proceedings. Such
extinguishment will eliminate access to the collateral for the loan. See "--
Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, deed to secure
debt or security deed are subordinate to the terms of the senior mortgage, deed
of trust, deed to
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secure debt or security deed. In the event of a conflict between the terms of
the senior mortgage, deed of trust, deed to secure debt or security deed and
the junior mortgage, deed of trust, deed to secure debt or security deed, the
terms of the senior mortgage, deed of trust, deed to secure debt or security
deed will govern generally. Upon a failure of the mortgagor or trustor to
perform any of its obligations, the senior mortgagee or beneficiary, subject to
the terms of the senior mortgage, deed of trust, deed to secure debt or
security deed may have the right to perform the obligation itself. Generally,
all sums so expended by the mortgagee or beneficiary become part of the
indebtedness secured by the mortgage, deed of trust, deed to secure debt or
security deed. To the extent a first mortgagee expends such sums, such sums
will generally have priority over all sums due under a junior mortgage, deed of
trust, deed to secure debt or security deed.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to realize
upon its security and to bar the mortgagor, and all persons who have an
interest in the property which is subordinate to the foreclosing mortgagee,
from their "equity of redemption." The doctrine of equity of redemption
provides that, until the property covered by a mortgage has been sold in
accordance with a properly conducted foreclosure and foreclosure sale, those
having an interest which is subordinate to that of the foreclosing mortgagee
have an equity of redemption and may redeem the property by paying the entire
debt with interest. In addition, in some states, when a foreclosure action has
been commenced, the redeeming party must pay the costs of 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.
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Anti-Deficiency Legislation and Other Limitations on Lenders
Some states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the
borrower equal in most cases to the difference between the amount due to the
lender and the net amount realized upon the public sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security;
however, in some of these states, the lender, following judgment on the
personal action, may be deemed to have elected a remedy and may be precluded
from exercising remedies on the security. Consequently, the practical effect of
the election requirement, when applicable, is that lenders will usually proceed
first against the security rather than bringing a personal action against the
borrower.
Other statutory provisions may limit any deficiency judgment against the
borrower following a foreclosure sale to the excess of the outstanding debt
over the fair market value of the property at the time of the sale. The purpose
of these statutes is to prevent a beneficiary or a mortgagee from obtaining a
large deficiency judgment against the former borrower as a result of low or no
bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in instances where the value of the lender's security has been impaired by acts
or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security and/or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding, the holder may
not be able to obtain a lift of the automatic stay to foreclose if the borrower
has equity and the home is necessary to the bankruptcy reorganization.
Generally, 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
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of a mortgage loan not secured by the debtor's principal residence, courts with
federal bankruptcy jurisdiction may also reduce the monthly payments due under
the mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule.
The IRS code provides priority to federal tax liens over the lien of the
mortgage or deed of trust. The bankruptcy code also provides priority to tax
liens over the lien of the mortgage or deed of trust. The laws of some states
provide priority to state tax liens over the lien of the mortgage or deed of
trust. Numerous federal and some state consumer protection laws impose
substantive requirements upon mortgage lenders in connection with the
origination, servicing and the enforcement of mortgage loans. These laws
include the federal Truth in Lending Act, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, state licensing requirements, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the mortgage loans.
Consumer Protection Laws with respect to Loans
Numerous federal and state consumer protection laws impose substantial
requirements upon creditors involved in consumer finance. These laws include
the Federal Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity
Act, Regulation B, the Fair Credit Reporting Act, and related statutes. The
Home Ownership and Equity Protection Act of 1994, which became effective on
October 1, 1995, adds provisions to Regulation Z which impose additional
disclosure and other requirements on creditors involved in non-purchase money
mortgage loans with high interest rates or high up-front fees and charges. It
is possible that some loans included in a loan pool may be subject to these
provisions. The Home Protection Act applies to mortgage loans originated on or
after the effective date of these regulations. These laws can impose specific
statutory liabilities upon creditors who fail to comply with their provisions
and may affect the enforceability of the contract.
Courts have imposed general equitable principles upon repossession and
litigation involving deficiency balances. These equitable principles are
generally designed to relieve a consumer from the legal consequences of a
default.
In several cases, consumers have asserted that the remedies provided secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States. For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The holder-in-due-course rule of the Federal Trade Commission is intended to
defeat the ability of the transferor of a consumer credit contract which is the
seller of goods which gave rise to the transaction, and related lenders and
assignees, to transfer the contract free of notice of claims by the debtor. The
effect of this rule is to subject the assignee of the
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contract to all claims and defenses which the debtor could assert against the
seller of goods, such as a home improvement contractor. Liability under this
rule is limited to amounts paid under a loan; however, the obligor also may be
able to assert the rule to set off remaining amounts due as a defense against a
claim brought by the trust against the obligor. The Home Protection Act
provides that assignees of high-interest, non-purchase money mortgage loans,
which may include some home equity loans, are subject to all claims and
defenses that the debtor could assert against the original creditor, unless the
assignee demonstrates that a reasonable person in the exercise of ordinary due
diligence could not have determined that the mortgage loan was subject to the
provisions of the Home Protection Act.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In some states there are or may be specific limitations upon late
charges which a lender may collect from a borrower for delinquent payments.
Under the pooling and servicing agreement, late charges, to the extent
permitted by law and not waived by Conseco Finance, will be retained by Conseco
Finance 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 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.
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Due-on-Sale Clauses
All of the home equity loan documents will contain due-on-sale clauses unless
the prospectus supplement indicates otherwise. These clauses permit the
servicer to accelerate the maturity of the loan on notice, which is usually 30
days, if the borrower sells, transfers or conveys the property without the
prior consent of the mortgagee. In recent years, court decisions and
legislative actions placed substantial restrictions on the right of lenders to
enforce such clauses in many states. However, effective October 15, 1982,
Congress enacted the Garn-St Germain Depository Institutions Act of 1982,
which, after a three-year grace period, preempts state laws which prohibit the
enforcement of due-on-sale clauses by providing, among other matters, that due-
on-sale clauses in some loans, including the home equity loans made after the
effective date of the Garn-St. Germain Act are enforceable within limitations
as described in the Garn-St. Germain Act and its regulations.
By virtue of the Garn-St. Germain Act, the servicer generally may be
permitted to accelerate any home equity loan which contains a "due-on-sale"
clause upon transfer of an interest in the mortgaged property. This ability to
accelerate will not apply to certain types of transfers, including:
. the granting of a leasehold interest which has a term of three years or
less and which does not contain an option to purchase;
. a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner
of the mortgaged property in each case where the transferee(s) will
occupy the mortgaged property;
. a transfer resulting from a decree of dissolution of marriage, legal
separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged
property;
. the creation of a lien or other encumbrance subordinate to the lender's
security instrument which does not relate to a transfer of rights of
occupancy in the mortgaged property, provided that the lien or
encumbrance is not created under a contract for deed;
. a transfer by devise, descent or operation of law on the death of a
joint tenant or tenant by the entirety; and
. other transfers as described in the Garn-St. Germain Act and its
regulations.
As a result, a lesser number of loans which contain due-on-sale clauses may
extend to full maturity than earlier experience would indicate for single-
family mortgage loans. However, we cannot predict the extent of the effect of
the Garn-St. Germain Act on the average lives and delinquency rates of the home
equity loans.
The inability to enforce a due-on-sale clause may result in home equity loans
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the
average life of the loans and the number of loans which may be outstanding
until maturity.
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Environmental Legislation
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, and under some states' laws, a secured party which takes a deed-
in-lieu of foreclosure, purchases a mortgaged property at a foreclosure sale,
or operates a mortgaged property may become liable in certain circumstances for
the costs of cleaning up hazardous substances regardless of whether they have
contaminated the property. CERCLA imposes strict, as well as joint and several,
liability on several classes of potentially responsible parties, including
current owners and operators of the property who did not cause or contribute to
the contamination. Furthermore, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA.
This exemption exempts from the definition of owners and operators those who,
without participating in the management of a facility, hold indicia of
ownership primarily to protect a security interest in the facility. What
constitutes sufficient participation in the management of a property securing a
loan or the business of a borrower to render the exemption unavailable to a
lender has been a matter of interpretation by the courts. CERCLA has been
interpreted to impose liability on a secured party, even absent foreclosure,
where the party participated in the financial management of the borrower's
business to a degree indicating a capacity to influence waste disposal
decisions. However, court interpretations of the secured creditor exemption
have been inconsistent. In addition, when lenders foreclose and then become
owners of collateral property, courts are inconsistent as to whether ownership
renders the secured creditor exemption unavailable. Other federal and state
laws in some circumstances may impose liability on a secured party which takes
a deed-in-lieu of foreclosure, purchases a mortgaged property at a foreclosure
sale, or operates a mortgaged property on which contaminants other than CERCLA
hazardous substances are present, including petroleum, agricultural chemicals,
hazardous wastes, asbestos, radon, and lead-based paint. These cleanup costs
may be substantial. It is possible that cleanup costs could become a liability
of a trust and reduce the amounts otherwise distributable to the holders of the
related series of certificates in some circumstances if these cleanup costs
were incurred. Moreover, some states by statute impose an environmental lien
for any cleanup costs incurred by the state on the property that is the subject
of the cleanup costs. All subsequent liens on the property generally are
subordinated to an environmental lien and, in some states, even prior recorded
liens are subordinated to environmental liens. In the latter states, the
security interest of the trustee in a related parcel of real property that is
subject to an environmental lien could be adversely affected.
Traditionally, many residential mortgage lenders have not taken steps to
evaluate whether contaminants are present on any mortgaged property before the
origination of the mortgage loan or before foreclosure or accepting a deed-in-
lieu of foreclosure. Accordingly, Conseco Finance has not made and will not
make these evaluations before the origination of the home equity loans. Neither
Conseco Finance nor any replacement servicer will be required by any pooling
and servicing agreement to undertake any evaluations before foreclosure or
accepting a deed-in-lieu of foreclosure. Conseco Finance does not make any
representations or warranties or assume any liability for the absence or effect
of
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contaminants on any related real property or any casualty resulting from the
presence or effect of contaminants. However, Conseco Finance will not foreclose
on related real property or accept a deed-in-lieu of foreclosure if it knows or
reasonably believes that there are material contaminated conditions on such
property. A failure so to foreclose may reduce the amounts otherwise available
to certificateholders of the related series.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended, would adversely affect, for an indeterminate period of time, the
ability of the servicer to collect full amounts of interest on certain of the
loans. Any shortfall in interest collections resulting from the application of
the Relief Act or similar legislation, which would not be recoverable from the
related loans, would result in a reduction of the amounts distributable to the
certificateholders. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected mortgage, deed
of trust, deed to secured debt or security deed during the mortgagor's period
of active duty status, and, under certain circumstances, during an additional
three month period thereafter. Thus, in the event that the Relief Act or
similar legislation applies to any loan which goes into default, there may be
delays in payment on the certificates in connection therewith. Any other
interest shortfalls, deferrals or forgiveness of payments on the loans
resulting from similar legislation or regulations may result in delays in
payments or losses to certificateholders.
Repurchase Obligations
Conseco Finance will represent and warrant under each pooling and servicing
agreement that each loan complies with all requirements of law. Accordingly, if
any obligor has a claim against the related trust for violation of any law and
such claim materially adversely affects the trust's interest in a loan, such
violation would constitute a breach of a representation and warranty under the
pooling and servicing agreement and would create an obligation to repurchase
such loan unless the breach is cured. See "Description of the Certificates--
Conveyance of Loans."
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974 imposes requirements on
employee benefit plans subject to ERISA and on persons who are fiduciaries with
respect to such plans. Generally, ERISA applies to investments made by such
plans. Among other requirements, ERISA mandates that the assets of plans be
held in trust and that the trustee, or other duly authorized fiduciary, have
exclusive authority and discretion to manage and control the assets of those
plans. ERISA also imposes duties on persons who are fiduciaries of the plans.
Under ERISA, and subject to exemptions not relevant to this offering, any
person who exercises any authority or control over the management or
disposition of the assets of a plan is considered to be a fiduciary of the
plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of plans be invested and
managed for the exclusive benefit of plan Participants and
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beneficiaries, a determination by the plan fiduciary that any such investment
is permitted under the governing plan instruments and is prudent and
appropriate for the plan in view of its overall investment policy and the
composition and diversification of its portfolio. Some employee benefit plans,
such as governmental plans (as defined in ERISA Section 3(32)) and certain
church plans (as defined in ERISA Section 3(33)), are not subject to ERISA.
Accordingly, assets of these plans may be invested in certificates without
regard to the ERISA considerations described above and in the paragraphs below,
subject to the provisions of applicable state law. Any plan which is qualified
and exempt from taxation under Sections 401(a) and 501(a) of the Internal
Revenue Code of 1986, however, is subject to the prohibited transaction rules
provided in Section 503 of the Internal Revenue Code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Internal Revenue 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 Internal
Revenue Code. An investment in the certificates by a plan might constitute
prohibited transactions under the foregoing provisions unless an administrative
exemption applies. In addition, if an investing plan's assets were deemed to
include an interest in the assets of the loan pool and not merely an interest
in the certificates, transactions occurring in the operation of the loan pool
might constitute prohibited transactions unless an administrative exemption
applies. Some exemptions which may be applicable to the acquisition and holding
of the certificates or to the servicing and operation of the loan pool are
noted in the paragraphs below.
The Department of Labor has issued a regulation (29 C.F.R. Section 2510.3-
101) concerning the definition of what constitutes the assets of a plan. This
regulation provides that, as a general rule, the underlying assets and
properties of corporations, partnerships, trusts and certain other entities in
which a plan makes an equity investment will be deemed for purposes of ERISA to
be assets of the investing plan unless certain exceptions apply. However, the
regulation provides that, generally, the assets of a corporation or partnership
in which a plan invests will not be deemed for purposes of ERISA to be assets
of such plan if the equity interest acquired by the investing plan is a
publicly-offered security. A publicly-offered security, as defined under the
regulation, is a security that is widely held, freely transferable, and
registered under the Securities Exchange Act of 1934. The certificates are not
expected to be publicly-offered securities under the terms of this regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise tax provisions of Section 4975 of
the Internal Revenue 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
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between plans and parties in interest with respect to those plans related to
the origination, maintenance and termination of mortgage pools consisting of
mortgage loans secured by first or second mortgages or deeds of trust on
single-family residential property, and the acquisition and holding of certain
mortgage pool pass-through certificates representing an interest in such
mortgage pools by plans. If the general conditions of PTE 83-1 are satisfied,
investments by a plan in certificates that represent interests in a mortgage
pool consisting of single family loans will be exempt from the prohibitions of
Sections 406(a) and 407 of ERISA (relating generally to transactions with
parties in interest who are not fiduciaries) if the plan purchases such
certificates at no more than fair market value, and will be exempt from the
prohibitions of Section 406(b)(1) and (2) of ERISA (relating generally to
transactions with fiduciaries) if, in addition, the purchase is approved by an
independent fiduciary, no sales commission is paid to the pool sponsor, the
plan does not purchase more than 25 percent of such certificates, and at least
50 percent of all such certificates are purchased by persons independent of the
pool sponsor or pool trustee. However, PTE 83-1 does not provide an exemption
for transactions involving subordinate certificates or for certificates
representing an interest in conditional sales contracts and installment sales
or loan agreements secured by housing like the loans.
We cannot assure you that any of the exceptions provided in the regulation
described in the paragraph above, PTE 83-1 or any other administrative
exemption under ERISA, will apply to the purchase of certificates offered under
this prospectus, and, as a result, an investing plan's assets could be
considered to include an undivided interest in the home equity loans and any
other assets held in the loan pool. If the assets of a loan pool are considered
assets of an investing plan, Conseco Finance, Conseco Securitizations, the
servicer, the trustee and other persons, in providing services on the loans,
may be considered fiduciaries to the plan and subject to the fiduciary
responsibility provisions of Title I of ERISA and the prohibited transaction
provisions of Section 4975 of the Internal Revenue 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 Internal
Revenue Code to the investment. Moreover, each plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the certificates is appropriate for the plan,
taking into account the overall investment policy of the plan and the
composition of the plan's investment portfolio.
PTE 95-60 exempts from ERISA's prohibited transaction rules transactions
engaged in by insurance company general accounts in which an employee benefit
plan has an interest if specified conditions are met. Additional exemptive
relief is provided for plans to engage in transactions with persons who provide
services to insurance company general accounts. PTE 95-60 also permits
transactions relating to the origination and operation of asset pool investment
trusts in which an insurance company general account has an interest as the
result of the acquisition of certificates issued by the trust.
PTE 95-60 will provide an exemption for transactions involving certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and
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other obligations that meet the conditions and requirements of PTE 95-60. The
receivables covered by PTE 95-60 include home equity loans secured by either
first or second mortgages in single-family, residential property. The exemption
offered by PTE 95-60 is conditioned upon compliance with the requirements of
one of several underwriter exemptions, other than compliance with the
requirements that the certificates acquired by the general account not be
subordinated and receive a rating that is in one of the three highest generic
rating categories from either S&P, Moody's, Duff & Phelps Credit Rating Co. or
Fitch.
In addition to any exemption that may be available under PTCE 95-60 for the
purchase and holding of the certificates by an insurance company general
account, the Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides exemptive relief from the provisions of Part 4
of Title I of ERISA and Section 4975 of the 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. 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
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 Proposed
401(c) Regulations to prevent avoidance of the regulations; or
(2) an action is brought by the Secretary of Labor for breaches of
fiduciary duty which would also constitute a violation of federal or
state criminal law.
Any assets of an insurance company general account which support insurance
policies issued to a plan after December 31, 1998 or issued to plans on or
before December 31, 1998 for which the insurance company does not comply with
the Proposed 401(c) Regulations may be treated as plan assets. In addition,
because Section 401(c) does not relate to insurance company separate accounts,
separate account assets are still treated as plan assets of any plan invested
in the separate account. Insurance companies contemplating the investment of
general account assets in the certificates should consult with their legal
counsel about the applicability of PTCE 95-60 and Section 401(c) of ERISA,
including the general account's ability to continue to hold the securities
after the date which is 18 months after the date the Proposed 401(c)
Regulations become final.
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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 Internal Revenue Code. The prospectus supplement for each series
will indicate whether or not an election to be treated as a REMIC has been or
will be made with respect thereto. The following discussion deals first with
series for which a REMIC election is made and then with series for which a
REMIC election is not made.
REMIC Series
For each series of certificates for which a REMIC election is made, at the
initial issuance of the certificates in that series the counsel to Conseco
Securitizations identified in the applicable prospectus supplement will have
advised Conseco Securitizations that in its opinion, assuming ongoing
compliance with the applicable pooling and servicing agreement, the trust will
qualify as a REMIC and the certificates in that series will be treated either
as regular interests in the REMIC within the meaning of Section 860G(a)(1) of
the Internal Revenue Code or as residual interests in the REMIC within the
meaning of Section 860G(a)(2) of the Internal Revenue Code.
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with requirements and the following discussion assumes that these
requirements will be satisfied by the trust so long as there are any REMIC
certificates outstanding. Substantially all of the assets of the REMIC must
consist of qualified mortgages and permitted investments as of the close of the
third month beginning after the day on which the REMIC issues all of its
regular and residual interests and at all times thereafter. The term qualified
mortgage means any obligation, including a participation or certificate of
beneficial ownership in such obligation, which is principally secured by an
interest in real property that is transferred to the REMIC on the startup day
in exchange for regular or residual interests in the REMIC or is purchased by
the REMIC within the three-month period beginning on the startup day under a
fixed price contract in effect on the startup day. The REMIC regulations
provide that a home equity loan is principally secured by an interest in real
property if the fair market value of the real property securing the loan is at
least equal to
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either (1) 80% of the issue price (generally, the principal balance) of the
loan at the time it was originated or (2) 80% of the adjusted issue price (the
then-outstanding principal balance, with adjustments) of the loan at the time
it is contributed to a REMIC. The fair market value of the underlying real
property is to be determined after taking into account other liens encumbering
that real property. Alternatively, a home equity loan is principally secured by
an interest in real property if substantially all of the proceeds of the loan
were used to acquire or to improve or protect an interest in real property
that, at the origination date, is the only security for the loan (other than
the personal liability of the obligor). A qualified mortgage also includes a
qualified replacement mortgage that is used to replace any qualified mortgage
within three months of the startup day or to replace a defective mortgage
within two years of the startup day.
Permitted investments consist of:
. temporary investments of cash received under qualified mortgages before
distribution to holders of interests in the REMIC;
. amounts, such as a reserve fund, if any, reasonably required to provide
for full payment of expenses of the REMIC, the principal and interest
due on regular or residual interests in the event of defaults on
qualified mortgages, lower than expected returns on cash-flow
investments, prepayment interest shortfalls or certain contingencies;
and
. property acquired as a result of foreclosure of defaulted qualified
mortgages.
A reserve fund will not be qualified if more than 30% of the gross income from
the assets in the reserve fund is derived from the sale or other disposition of
property held for three months or less, unless the sale is necessary to prevent
a default in payment of principal or interest on regular certificates. In
accordance with Section 860G(a)(7) of the Internal Revenue Code, a reserve fund
must be "promptly and appropriately" reduced as payments on contracts are
received. Foreclosure property will be a permitted investment only to the
extent that the property is not held for more than two years.
The Internal Revenue Code requires that in order to qualify as a REMIC an
entity must make reasonable arrangements designed to ensure that certain
specified entities, generally including governmental entities or other entities
that are exempt from United States tax, including the tax on unrelated business
income, not hold residual interests in the REMIC. Consequently, it is expected
that in the case of any trust for which a REMIC election is made the transfer,
sale, or other disposition of a residual certificate to a disqualified
organization will be prohibited and the ability of a residual certificate to be
transferred will be conditioned on the trustee's receipt of a certificate or
other document representing that the proposed transferee is not a disqualified
organization. The transferor of a residual certificate must not, as of the time
of the transfer, have actual knowledge that the representation is false. The
Internal Revenue 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 Internal Revenue Code if,
in spite of the steps taken to prevent disqualified organizations from holding
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residual interests, such an organization does, in fact, acquire a residual
interest. See "REMIC Series--Restrictions on Transfer of Residual Certificates"
below.
If the trust fails to comply with one or more of the ongoing requirements for
qualification as a REMIC, the trust will not be treated as a REMIC for the year
during which the failure occurs and thereafter unless the IRS determines, in
its discretion, that the failure was inadvertent (in which case, the IRS may
require any adjustments which it deems appropriate). If the ownership interests
in the assets of the trust consist of multiple classes, failure to treat the
trust as a REMIC may cause the trust to be treated as an association taxable as
a corporation. This treatment could result in income of the trust being subject
to corporate tax in the hands of the trust and in a reduced amount being
available for distribution to certificateholders as a result of the payment of
the taxes.
Two-Tier REMIC Structures. For certain series of certificates, two separate
elections may be made to treat segregated portions of the assets of a single
trust as REMICs for federal income tax purposes. Upon the issuance of any
series of certificates, counsel will have advised Conseco Securitizations, as
described above, that at the initial issuance of the certificates, the
subsidiary REMIC and the master REMIC will each qualify as a REMIC for federal
income tax purposes, and that the certificates in the series will be treated
either as regular certificates or residual certificates of the appropriate
REMIC. Only REMIC certificates issued by the master REMIC will be offered under
this prospectus. Solely for the purpose of determining whether the regular
certificates will constitute qualifying real estate or real property assets for
certain categories of financial institutions or real estate investment trusts
as described below, both REMICs in a two-tier REMIC structure will be treated
as one. See the discussion below under "REMIC Series--Taxation of Regular
Interests."
Taxation of Regular Interests. Regular certificates will be treated as new
debt instruments issued by the REMIC on the startup day. If a regular
certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the stated
principal amount for that regular certificate may be zero. Such a specified
portion may consist of a fixed number of basis points, a fixed percentage of
interest or a qualified variable rate on some or all of the qualified
mortgages. Stated interest on a regular certificate will be taxable as ordinary
income. Holders of regular certificates that would otherwise report income
under a cash method of accounting will be required to report income on such
regular certificates under the accrual method. Under Temporary Treasury
Regulations, if a trust, with respect to which a REMIC election is made, is
considered to be a single-class REMIC, a portion of the REMIC's servicing fees,
administrative and other non-interest expenses, including assumption fees and
late payment charges retained by 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
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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 Internal Revenue 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 Internal Revenue Code provides that the amount of itemized deductions
(including those provided for in Section 212 of the Internal Revenue Code)
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds a threshold amount specified in the Internal Revenue Code
($126,600 for 1999, in the case of a joint return) will be reduced by the
lesser of (1) 3% of the excess of adjusted gross income over the specified
threshold amount or (2) 80% of the amount of itemized deductions otherwise
allowable for that taxable year. Furthermore, in determining the alternative
minimum taxable income of such an individual, trust, estate or pass-through
entity that is a holder of a regular certificate in such a REMIC, no deduction
will be allowed for the holder's allocable portion of the foregoing expenses,
even though an amount equal to the total of the expenses will be included in
the holder's gross income for alternative minimum tax purposes. Unless
otherwise stated in the prospectus supplement, the foregoing expenses will not
be allocated to holders of a regular certificate in a REMIC. If the foregoing
limitations apply, some holders of regular certificates in single-class REMICs
may not be entitled to deduct all or any part of the foregoing expenses.
Accordingly, regular certificates in such a single class-REMIC may not be
appropriate investments for individuals, trusts, estates or pass-through
entities beneficially owned by one or more individuals, trusts or estates.
Prospective investors should carefully consult with their own tax advisors
prior to making an investment in any regular certificates.
Tax Status of REMIC Certificates. In general, (1) regular certificates held
by a thrift institution taxed as a domestic building and loan association
within the meaning of Section 7701(a)(19) of the Internal Revenue Code will
constitute a regular interest in a REMIC within the meaning of Section
7701(a)(19)(C)(xi) of the Internal Revenue 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 Internal Revenue Code and
interest will be considered interest on obligations secured by mortgages on
real property within the meaning of Section 856(c)(3)(B) of the Internal
Revenue Code. If less than 95% of the average adjusted basis of the assets
comprising the REMIC are assets qualifying under any of the foregoing sections
of the Internal Revenue Code (including assets described in Section
7701(a)(19)(C) of the Internal Revenue Code), then the regular certificates
will be qualifying assets only to the extent that the assets comprising the
REMIC are qualifying assets. Furthermore, interest paid on certificates held by
a real estate investment trust will be considered interest on obligations
secured by mortgages on real property or on interests in real property within
the meaning of Section 856(c)(3)(B) of the Internal Revenue 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 Internal Revenue Code,
respectively. In addition, the REMIC Treasury Regulations provide that payments
on loans held and reinvested pending distribution to
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certificateholders will be considered to be real estate assets within the
meaning of Section 856(c)(5)(A) of the Internal Revenue Code. Entities affected
by the foregoing provisions of the Internal Revenue 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 Internal Revenue Code and the Treasury
Regulations issued thereunder in January 1994 (the "OID Regulations"). The
discussion here is based in part on the OID Regulations, which generally apply
to debt instruments issued on or after April 4, 1994, but which generally may
be relied upon for debt instruments issued after December 21, 1992. Moreover,
although the rules relating to original issue discount contained in the
Internal Revenue 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 Internal Revenue Code requires that a prepayment assumption be
used for the underlying assets of a REMIC in computing the accrual of original
issue discount on regular certificates, and that regular adjustments be made in
the amount and the rate of accrual to reflect differences between the actual
prepayment rate and the prepayment assumption. Although regulations have not
been issued concerning the use of a prepayment assumption, the legislative
history associated with the Tax Reform Act of 1986 indicates that these
regulations are to provide that the prepayment assumption used for a regular
certificate must be the same as that used in pricing the initial offering of
the regular certificate. The prepayment assumption used in reporting original
issue discount for each series of regular certificates will be consistent with
this standard and will be disclosed in the related prospectus supplement.
However, no representation is made hereby nor can there be any assurance that
the underlying assets of a REMIC will in fact prepay at a rate conforming to
the prepayment assumption or at any other rate. Certificateholders also should
be aware that the OID Regulations do not address certain issues relevant to, or
are not applicable to, prepayable securities such as the regular certificates.
In general, in the hands of the original holder of a regular certificate,
original issue discount, if any, is the difference between the stated
redemption price at maturity of the regular certificate and its issue price.
The original issue discount with respect to a regular certificate will be
considered to be zero if it is less than .25% of the regular certificate's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of the regular certificate to its maturity date. The OID
Regulations, however, provide a special de minimis rule to apply to obligations
such as the regular certificates that have more than one principal payment or
that have interest payments that are not qualified stated interest as defined
in the OID Regulations, payable before maturity. Under the special rule,
original issue discount on an installment obligation is generally considered to
be zero if it is less than .25% of the principal amount of the obligation
multiplied by the weighted average maturity of the obligation as defined in the
OID Regulations. Because of the possibility of prepayments, it is not clear
whether or how the de minimis rules will apply to the regular certificates. As
described above, it appears that the prepayment assumption will be required to
be used in determining the weighted average maturity of the regular
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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. Under to the OID
Regulations, a holder of a regular certificate that uses the accrual method of
tax accounting or that acquired such regular certificate on or after April 4,
1994, may, however, elect to include in gross income all interest that accrues
on a regular certificate, including any de minimis original issue discount and
market discount, by using the constant yield method described below with
respect to original issue discount.
The stated redemption price at maturity of a regular certificate generally
will be equal to the sum of all payments, whether denominated as principal or
interest, to be made with respect thereto other than "qualified stated
interest." Under the OID Regulations, qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate of interest, or, under certain circumstances, a variable rate tied to an
objective index, during the entire term of the regular certificate (including
short periods). Under the OID Regulations, interest is considered
unconditionally payable only if late payment or nonpayment is expected to be
penalized or reasonable remedies exist to compel payment. It is possible that
interest payable on regular certificates may not be considered to be
unconditionally payable under the OID Regulations because regular
certificateholders may not have default remedies ordinarily available to
holders of debt instruments or because no penalties are imposed as a result of
any failure to make interest payments on the regular certificates. Until
further guidance is issued, however, the REMIC will treat the interest on
regular certificates as unconditionally payable under the OID Regulations. In
addition, under the OID Regulations, certain variable interest rates payable on
Regular certificates, including rates based upon the weighted average interest
rate of a loan pool, may not be treated as qualified stated interest. In this
case, the OID Regulations would treat interest under such rates as contingent
interest which generally must be included in income by the regular
certificateholder when the interest becomes fixed, as opposed to when it
accrues. Until further guidance is issued concerning the treatment of such
interest payable on regular certificates, the REMIC will treat such interest as
being payable at a variable rate tied to a single objective index of market
rates. Prospective investors should consult their tax advisors regarding the
treatment of such interest under the OID Regulations. In the absence of
authority to the contrary and if otherwise appropriate, 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
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issue discount provisions of the Internal Revenue 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
Internal Revenue Code and the OID Regulations. Under this section and the OID
Regulations, original issue discount accrues on a daily basis under a constant
yield method that takes into account the compounding of interest. The amount of
original issue discount to be included in income by a holder of a debt
instrument, such as a regular certificate, under which principal payments may
be subject to acceleration because of prepayments of other debt obligations
securing such instruments, is computed by taking into account the prepayment
assumption.
The amount of original issue discount includable in income by a holder of a
regular certificate is the sum of the daily portions of the original issue
discount for each day during the taxable year on which the holder held the
regular certificate. The daily portions of original issue discount are
determined by allocating to each day in any accrual period a pro rata portion
of the excess, if any, of the sum of (1) the present value of all remaining
payments to be made on the regular certificate as of the close of the accrual
period and (2) the payments during the accrual period of amounts included in
the stated redemption price of the regular certificate over the adjusted issue
price of the regular certificate at the beginning of the accrual period.
Generally, the accrual period for the regular certificates corresponds to the
intervals at which amounts are paid or compounded with respect to such regular
certificate, beginning with their date of issuance and ending with the maturity
date. The adjusted issue price of a regular certificate at the beginning of any
accrual period is the sum of the issue price and accrued original issue
discount for each prior accrual period reduced by the amount of payments other
than payments of qualified stated interest made during each prior accrual
period. The Internal Revenue 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.
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The effect of this method is to increase the portions of original issue
discount that a regular certificateholder must include in income to take into
account prepayments with respect to the loans held by the trust that occur at a
rate that exceeds the prepayment assumption and to decrease (but not below zero
for any period) the portions of original issue discount that a regular
certificateholder must include in income to take into account prepayments on
the loans that occur at a rate that is slower than the prepayment assumption.
Although original issue discount will be reported to regular certificateholders
based on the prepayment assumption, no representation is made to regular
certificateholders that the loans will be prepaid at that rate or at any other
rate.
A subsequent purchaser of a regular certificate will also be required to
include in the purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to the
regular certificate, unless the price paid equals or exceeds the regular
certificate's remaining stated redemption price. If the price paid exceeds the
regular certificate's adjusted issue price, but does not equal or exceed the
remaining stated redemption price of the regular certificate, the amount of
original issue discount to be accrued will be reduced in accordance with a
formula listed in Section 1272(a)(7)(B) of the Internal Revenue Code. Under
this provision, the daily portions of original issue discount which must be
included in gross income will be reduced by an amount equal to such daily
portion multiplied by the fraction obtained by dividing (1) the excess of the
purchase price therefor over the regular certificate's adjusted issue price by
(2) the aggregate original issue discount remaining to be accrued with respect
to such regular certificate.
Conseco Securitizations believes that the holder of a regular certificate
determined to be issued with more than de minimis original issue discount will
be required to include the original issue discount in ordinary gross income for
federal income tax purposes computed in the manner described above. However,
the OID Regulations either do not address or are subject to varying
interpretations regarding several issues concerning the computation of original
issue discount for obligations such as the regular certificates.
Adjustable Rate Regular Certificates. Regular certificates may bear interest
at an adjustable rate. Under the OID Regulations, if an adjustable rate regular
certificate provides for qualified stated interest payments computed on the
basis of qualified floating rates or objective rates, then any original issue
discount on a regular certificate may be computed and accrued under the same
methodology that applies to regular certificates paying qualified stated
interest at a fixed rate. See the discussion above under "REMIC Series--
Original Issue Discount." If adjustable rate regular certificates are issued,
the related prospectus supplement will describe the manner in which the
original issue discount rules may be applied and the method to be used in
preparing information returns to the holders of such adjustable rate regular
certificates and to the IRS.
For purposes of applying the original issue discount provisions of the
Internal Revenue Code, all or a portion of the interest payable on adjustable
rate regular certificate may not be treated as qualified stated interest in
certain circumstances, including the following:
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. if the adjustable rate of interest is subject to one or more minimum or
maximum rate floors or ceilings which are not fixed throughout the term
of the regular certificate and which are reasonably expected as of the
issue date to cause the rate in certain accrual periods to be
significantly higher or lower than the overall expected return on the
regular certificate determined without such floor or ceiling;
. if it is reasonably expected that the average value of the adjustable
rate during the first half of the term of the regular certificate will
be either significantly less than or significantly greater than the
average value of the rate during the final half of the term of the
regular certificate; or
. if interest is not payable in all circumstances.
In these situations, as well as others, it is unclear under the OID Regulations
whether these interest payments constitute qualified stated interest payments,
or must be treated as part of a regular certificate's stated redemption price
at maturity resulting in original issue discount.
Market Discount. Regular certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the Internal
Revenue Code. A purchaser of a regular certificate who purchases the regular
certificate at a market discount, such as, a discount from its adjusted issue
price as described in the paragraph above, will be required to recognize
accrued market discount as ordinary income as payments of principal are
received on the regular certificate or upon the sale or exchange of the regular
certificate. In general, the holder of a regular certificate may elect to treat
market discount as accruing either (1) under a constant yield method that is
similar to the method for the accrual of original issue discount or (2) under a
ratable accrual method (under which the market discount is treated as accruing
in equal daily installments during the period the regular certificate is held
by the purchaser), in each case computed taking into account the prepayment
assumption. Because the regulations referred to above have not been issued, we
cannot predict what effect, if any, these regulations, when issued, might have
on the tax treatment of a regular certificate purchased at a discount in the
secondary market.
The Internal Revenue Code provides that the market discount in respect of a
regular certificate will be considered to be zero if the amount allocable to
the regular certificate is less than 0.25% of the regular certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would be
allocated among a portion of each scheduled distribution representing the
stated redemption price of such regular certificate and that portion of the
discount allocable to the distribution would be reported as income when the
distribution occurs or is due.
The Internal Revenue Code further provides that any principal payment on a
regular certificate acquired with market discount or any gain on disposition of
the regular certificate shall be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of the payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized for subsequent payments on the Regular
certificate is to be reduced by the amount previously treated as ordinary
income.
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In general, limitations imposed by the Internal Revenue Code that are
intended to match deductions with the taxation of income will require a holder
of a regular certificate having market discount to defer a portion of the
interest deductions attributable to any indebtedness incurred or continued to
purchase or carry such regular certificate. Alternatively, a holder of a
regular certificate may elect to include market discount in gross income as it
accrues and, if he makes such an election, is exempt from this rule. The
adjusted basis of a regular certificate subject to such election will be
increased to reflect market discount included in gross income, thereby reducing
any gain or increasing any loss on a sale or taxable disposition.
Amortizable Premium. A holder of a regular certificate who holds the regular
certificate as a capital asset and who purchased the regular certificate at a
cost greater than its stated redemption price at maturity will be considered to
have purchased the regular certificate at a premium. In general, the regular
certificateholder may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A regular certificateholder's tax basis
in the regular certificate will be reduced by the amount of the amortizable
bond premium deducted. It appears that the prepayment assumption should be
taken into account in determining the term of a regular certificate for this
purpose. Amortizable bond premium with respect to a regular certificate will be
treated as an offset to interest income on the regular certificate, and a
certificateholder's deduction for amortizable bond premium will be limited in
each year to the amount of interest income derived with respect to the regular
certificate for that year. Any election to deduct amortizable bond premium will
apply to all debt instruments (other than instruments the interest on which is
excludable from gross income) held by the certificateholder at the beginning of
the first taxable year to which the election applies or acquired after that,
and may be revoked only with the consent of the IRS. Bond premium on a regular
certificate held by a certificateholder who does not elect to deduct the
premium will decrease the gain or increase the loss otherwise recognized on the
disposition of the regular certificate. Certificateholders who pay a premium
for a regular certificate should consult their tax advisors concerning such an
election and rules for determining the method for amortizing bond premium.
Realized Losses. Holders of a regular certificate acquired in connection with
a trade or business should be allowed to deduct as ordinary losses any losses
sustained during a taxable year in which the regular certificates become wholly
or partially worthless as a result of one or more realized losses on the
underlying assets of the REMIC. However, it appears that a noncorporate holder
of a regular certificate that does not acquire such certificate in connection
with a trade or business may not be entitled to deduct a loss until the
holder's certificate becomes wholly worthless, which may not occur until its
outstanding principal balance has been reduced to zero. Any loss may be
characterized as a short-term capital loss.
At present, the law is unclear with respect to the timing and character of
any loss which may be realized by a holder of a regular certificate. Such a
holder may be required to accrue interest and original issue discount on a
regular certificate without giving effect to any defaults or deficiencies on
the underlying assets of the REMIC until the holder can establish that the
losses will not be recoverable under any circumstances. As a result, the holder
of a
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regular certificate may be required to report taxable income in excess of the
amount of economic income actually accruing to the benefit of the holder in a
particular period. It is expected, however, that the holder of a regular
certificate would eventually recognize a loss or reduction in income
attributable to the income when the loss is, in fact, realized for federal
income tax purposes.
Gain or Loss on Disposition. If a regular certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
from the sale and the seller's adjusted basis in such regular certificate. The
adjusted basis generally will equal the cost of the regular certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income for the regular certificate and reduced (but not below
zero) by any payments on the regular certificate previously received or accrued
by the seller, other than qualified stated interest payments, and any
amortizable premium. Except as discussed below or with respect to market
discount, any gain or loss recognized upon a sale, exchange, retirement, or
other taxable disposition of a regular certificate will be capital gain if the
regular certificate is held as a capital asset.
Gain from the disposition of a regular certificate that might otherwise be
capital gain, including any gain attributable to de minimis original issue
discount or market discount, will be treated as ordinary income to the extent
of the excess, if any, of (1) the amount that would have been includable in the
holder's income if the yield on the regular certificate had equaled 110% of the
applicable federal rate determined as of the beginning of the holder's holding
period, over (2) the amount of ordinary income actually recognized by the
holder on the Regular certificate.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be includable as ordinary income or
loss in determining the taxable income of holders of residual certificates, and
will not be taxed separately to the REMIC. The daily portions are determined by
allocating the REMIC's taxable income or net loss for each calendar quarter
ratably to each day in the quarter and by allocating the daily portion among
the residual holders in proportion to their respective holdings of residual
certificates in the REMIC on that day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that:
(1) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply;
(2) all bad loans will be deductible as business bad debts; and
(3) the limitation on the deductibility of interest and expenses related
to tax-exempt income will apply.
REMIC taxable income generally means a REMIC's gross income, including
interest, original issue discount income, and market discount income, if any,
on the loans, plus any cancellation of indebtedness income due to realized
losses on regular certificates and income on reinvestment of cash flows and
reserve assets, minus deductions, including interest and
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original issue discount expense on the regular certificates, bad debt losses
with respect to the underlying assets of a REMIC, servicing fees on the loans,
other administrative expenses of a REMIC, and amortization of premium, if any,
on the loans.
The taxable income recognized by a residual holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
interest, original issue discount or market discount income, or amortization of
premium on the loans, on the one hand, and the timing of deductions for
interest (including original issue discount) on the regular certificates, on
the other hand. In the event that an interest in the loans is acquired by a
REMIC at a discount, and one or more of the loans is prepaid, the residual
holder may recognize taxable income without being entitled to receive a
corresponding cash distribution because:
(1) the prepayment may be used in whole or in part to make distributions
on regular certificates; and
(2) the discount on the loans which is includable in a REMIC's income may
exceed its deduction with respect to the distributions on those
regular certificates.
When there is more than one class of regular certificates that receive payments
sequentially (i.e., a fast-pay, slow-pay structure), this mismatching of income
and deductions is particularly likely to occur in the early years following
issuance of the regular certificates, when distributions are being made in
respect of earlier classes of regular certificates to the extent that such
classes are not issued with substantial discount. If taxable income
attributable to such a mismatching is realized, in general, losses would be
allowed in later years as distributions on the later classes of regular
certificates are made. Taxable income may also be greater in earlier years than
in later years as a result of the fact that interest expense deductions,
expressed as a percentage of the outstanding principal amount of regular
certificates, may increase over time as distributions are made on the lower
yielding classes of regular certificates, whereas interest income with respect
to any given loan will remain 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,
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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, Conseco Securitizations does not
intend to treat a class of residual certificates as having a value of less than
zero for purposes of determining the basis of the related REMIC in its assets.
Further, to the extent that the initial adjusted basis of a residual holder
(other than an original holder) in the residual certificate is in excess of the
corresponding portion of the REMIC's basis in the loans, the residual holder
will not recover such excess basis until termination of the REMIC unless
Treasury Regulations yet to be issued provide for periodic adjustments to the
REMIC income otherwise reportable by such holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a REMIC's
deductions for original issue discount will be determined in the same manner,
and subject to the same uncertainties, as original issue discount income on
regular certificates as described above under "REMIC Series--Original Issue
Discount" and "--Adjustable Rate Regular Certificates," without regard to the
de minimis rule.
The REMIC will have market discount income in respect of the loans if, in
general, the basis of the REMIC in the loans is exceeded by their unpaid
principal balances. The REMIC's basis in such loans is generally the fair
market value of the loans immediately after their transfer to the REMIC which
will equal the aggregate issue prices of the REMIC certificates which are sold
to investors and the estimated fair market value of any classes of certificates
which are retained. In respect of the loans that have market discount to which
Internal Revenue Code Section 1276 applies, the accrued portion of the market
discount would be recognized currently as an item of ordinary income. Market
discount income generally should accrue in the manner described above under
"REMIC Series--Market Discount."
Generally, if the basis of a REMIC in the loans exceeds the unpaid principal
balances thereof, the REMIC will be considered to have acquired such loans at a
premium equal to the amount of such excess. As stated above, the REMIC's basis
in the loans is the fair market value of the loans immediately after the
transfer thereof to the REMIC. Generally, a REMIC that holds a loan as a
capital asset will elect to amortize premium on the loans under a constant
interest method. See the discussion under "REMIC Series--Amortizable Premium."
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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
Internal Revenue Code, multiplied by (2) the adjusted issue price of the
residual certificate at the beginning of the quarterly period. For this
purpose, the adjusted issue price of a residual certificate at the beginning of
a quarter is the issue price of the residual certificate, plus the amount of
such daily accruals of REMIC income described in this paragraph for all prior
quarters, decreased by any distributions made with respect to such residual
certificate before the beginning of such quarterly period.
The portion of a residual holder's REMIC taxable income consisting of the
excess inclusions will be subject to federal income tax in all events and may
not be offset by other deductions on such residual holder's tax return,
including net operating loss carry forwards. Further, if the residual holder is
an organization subject to the tax on unrelated business income imposed by
Section 511 of the Internal Revenue Code, the residual holder's excess
inclusions will be treated as unrelated business taxable income of such
residual holder for purposes of Section 511. In addition, if the residual
holder is not a U.S. person, such residual holder's excess inclusions generally
would be ineligible for exemption from or reduction in the rate of United
States withholding tax. Finally, if a real estate investment trust or regulated
investment company owns a residual certificate, a portion, allocated under
Treasury Regulations yet to be issued, of dividends paid by such real estate
investment trust or regulated investment company could not be offset by net
operating losses of its shareholders and would constitute unrelated business
taxable income for tax-exempt shareholders.
Furthermore, for purposes of the alternative minimum tax, (1) excess
inclusions will not be permitted to be offset by the alternative tax net
operating loss deduction and (2) alternative minimum taxable income may not be
less than the taxpayer's excess inclusions. The latter rule has the effect of
preventing nonrefundable tax credits from reducing the taxpayer's income tax to
an amount lower than the tentative minimum tax on excess inclusions.
Restrictions on Transfer of Residual Certificates. As described above under
"REMIC Series--Qualification as a REMIC," an interest in a residual certificate
may not be transferred to a disqualified organization. If any legal or
beneficial interest in a residual certificate is, nonetheless, transferred to a
disqualified organization, a tax would be imposed in an amount equal to the
product of (1) the present value of the total anticipated excess inclusions
with respect to such residual certificate for periods after the transfer, and
(2) the highest marginal federal income tax rate applicable to corporations.
The anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the prepayment
assumption. The present value rate equals the applicable federal rate under
Section 1274(d) of the Internal Revenue Code as of the date of
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the transfer for a term ending on the close of the last quarter in which excess
inclusions are expected to accrue. Such rate is applied to the anticipated
excess inclusions from the end of the remaining calendar quarters in which they
arise to the date of the transfer. Such a tax generally would be imposed on the
transferor of the residual certificate, except that where such transfer is
through an agent (including a broker, nominee, or other middleman) for a
disqualified organization, the tax would instead be imposed on such agent.
However, a transferor of a residual certificate would in no event be liable for
such tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit, under penalties of perjury, that the transferee is not
a disqualified organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Treasury Department if the disqualified organization promptly
disposes of the residual interest and the transferor pays such amount of tax as
the Treasury Department may require (presumably, a corporate tax on the excess
inclusion for the period the residual interest is actually held by the
Disqualified Organization).
In addition, if a pass-through entity has excess inclusion income with
respect to a residual certificate during a taxable year and a disqualified
organization is the record holder of an equity interest in the entity, then a
tax is imposed on the entity equal to the product of (1) the amount of excess
inclusions on the residual certificate that are allocable to the interest in
the pass-through entity during the period the interest is held by the
disqualified organization, and (2) the highest marginal federal income tax rate
imposed on corporations. This tax would be deductible from the ordinary gross
income of the pass-through entity for the taxable year. The pass-through entity
would not be liable for the tax if it has received an affidavit from such
record holder that it is not a disqualified organization and, during the period
the person is the record holder of the residual certificate, the pass-through
entity does not have actual knowledge that the affidavit is false.
A pass-through entity means any regulated investment company, real estate
investment trust, common trust, partnership, trust or estate and certain
corporations operating on a 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
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REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. The
anticipated excess inclusions and the present value rate are determined in the
same manner as set forth above. The REMIC regulations explain that a
significant purpose to impede the assessment or collection of tax exists if the
transferor, at the time of the transfer, either knew or should have known that
the transferee would be unwilling or unable to pay taxes due on its share of
the taxable income of the REMIC. A safe harbor is provided if:
. the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and found
that the transferee historically had paid its debts as they came due
and found no significant evidence to indicate that the transferee would
not continue to pay its debts as they came due in the future; and
. the transferee represents to the transferor that it understands that,
as the holder of a non-economic residual interest, the transferee may
incur tax liabilities in excess of any cash flows generated by the
interest and that the transferee intends to pay taxes associated with
holding the residual interest as they become due.
The pooling and servicing agreement with respect to each series of REMIC
certificates will require the transferee of a residual certificate to certify
to the statements in the second clause of the preceding sentence as part of the
affidavit described above under "Restrictions on Transfer of Residual
Certificates."
Mark-to-Market Rules. On December 24, 1996, the IRS released final mark-to-
market regulations relating to the requirement that a securities dealer mark to
market securities held for sale to customers. This mark-to-market requirement
applies to all securities owned by a dealer, except to the extent that the
dealer has specifically identified a security as held for investment. The mark-
to-market regulations provide that for purposes of this mark-to-market
requirement, a residual certificate acquired on or after January 4, 1995 is not
treated as a security and thus may not be marked to market. Prospective
purchasers of a residual certificate should consult their tax advisors
regarding the possible application of the mark-to-market requirement to
residual certificates.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of a
residual certificate, the residual holder will recognize gain or loss equal to
the excess, if any, of the amount realized over the adjusted basis as described
above of the residual holder in the residual certificate at the time of the
sale or exchange. In addition to reporting the taxable income of the REMIC, a
residual holder will have taxable income to the extent that any cash
distribution to him from the REMIC exceeds such adjusted basis on that
distribution date. This income will be treated as gain from the sale or
exchange of the residual certificate. It is possible that the termination of
the REMIC may be treated as a sale or exchange of a residual holder's residual
certificate, in which case, if the residual holder has an adjusted basis in his
residual certificate remaining when his interest in the REMIC terminates, and
if he holds such residual certificate as a capital asset, then he will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
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Except as provided in treasury regulations, the wash sale rules of Internal
Revenue Code Section 1091 will apply to dispositions of residual certificates
where the seller of the residual certificate, during the period beginning six
months before the sale or disposition of the residual certificate and ending
six months after the sale or disposition, acquires (or enters into any other
transaction that results in the application of Internal Revenue 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 Internal
Revenue Code impose a 100% tax on any net income derived by a REMIC from
certain prohibited transactions. These transactions are:
. any disposition of a qualified mortgage, other than pursuant to the
substitution of a qualified replacement mortgage for a qualified
mortgage (or the repurchase in lieu of substitution of a defective
obligation), a disposition incident to the foreclosure, default, or
imminent default of a mortgage, the bankruptcy or insolvency of the
REMIC, or a qualified liquidation of the REMIC;
. the receipt of income from assets other than qualified mortgages and
permitted investments;
. the receipt of compensation for services; and
. the receipt of gain from the dispositions of cash flow investments.
The REMIC regulations provide that the modification of the terms of a loan
occasioned by default or a reasonably foreseeable default of the loan, the
assumption of the loan, the waiver of a due-on-sale clause or the conversion of
an interest rate by an obligor pursuant to the terms of a convertible
adjustable rate loan will not be treated as a disposition of the loan. In the
event that a REMIC holds convertible ARM loans which are convertible at the
option of the obligor into fixed rate, fully amortizing, level payment loans, a
sale of such loans by the REMIC under a purchase agreement or other contract
with Conseco Securitizations 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 Internal Revenue 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
Internal Revenue 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 Conseco Finance or the trustee, if due to the breach
of Conseco Finance's or the trustee's obligations, as the case may be, under
the related pooling and servicing agreement or in other cases, such taxes shall
be borne by the related trust resulting in a reduction in amounts otherwise
payable to holders of the related regular or residual certificates.
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Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a qualified liquidation. A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation, which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur, and sells all of its assets (other than cash)
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of regular or residual
certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation (including all cash), less amounts retained
to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
foreign holder is a certificateholder who holds a regular certificate and who
is not:
(1) a citizen or resident of the United States;
(2) a corporation, partnership, or other entity organized in or under the
laws of the United States or a political subdivision thereof;
(3) an estate the income of which is includible in gross income for
United States tax purposes regardless of its source; or
(4) a trust if:
. a court within the United States is able to exercise primary
supervision over the administration of the trust; and
. one or more United States trustees have authority to control all
substantial decisions of the trust.
Unless the interest on a regular certificate is effectively connected with the
conduct by the foreign holder of a trade or business within the United States,
the foreign holder is not subject to federal income or withholding tax on
interest (or original issue discount, if any) on a regular certificate (subject
to possible backup withholding of tax, discussed below). To 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.
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Any gain recognized by a foreign holder upon a sale, retirement or other
taxable disposition of a regular certificate generally will not be subject to
United States federal income tax unless either:
(1) the foreign holder is a nonresident alien individual who holds the
regular certificate as a capital asset and who is present in the
United States for 183 days or more in the taxable year of the
disposition and either the gain is attributable to an office or other
fixed place of business maintained in the U.S. by the individual or
the individual has a tax home in the United States; or
(2) the gain is effectively connected with the conduct by the foreign
holder of a trade or business within the United States.
It appears that a regular certificate will not be included in the estate of a
foreign holder and will not be subject to United States estate taxes. However,
foreign holders should consult their own tax advisors regarding estate tax
consequences.
Unless otherwise stated in the related prospectus supplement, transfers of
residual certificates to foreign holders will be prohibited by the related
pooling and servicing agreement.
Backup Withholding. Under certain circumstances, a REMIC certificateholder
may be subject to backup withholding at a 31% rate. Backup withholding may
apply to a REMIC certificateholder who is a United States person if the holder,
among other circumstances, fails to furnish his social security number or other
taxpayer identification number to the trustee. Backup withholding may apply,
under certain circumstances, to a REMIC certificateholder who is a foreign
person if the REMIC certificateholder fails to provide the trustee or the REMIC
certificateholder's securities broker with the statement necessary to establish
the exemption from federal income and withholding tax on interest on the REMIC
certificate. Backup withholding, however, does not apply to payments on a
certificate made to certain exempt recipients, such as corporations and tax-
exempt organizations, and to 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. Conseco Finance 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
Internal Revenue 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
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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, with respect to which a REMIC
election is not made, counsel will, unless otherwise specified in the related
prospectus supplement, have advised Conseco Securitizations that, in their
opinion, each loan pool and the arrangement to be administered by Conseco
Finance under which the trustee will hold and Conseco Finance will be obligated
to service the loans and pursuant to which these non-REMIC certificates will be
issued to non-REMIC certificateholders will not be classified as an association
taxable as a corporation or a "taxable mortgage pool" within the meaning of
Internal Revenue Code Section 7701(i), but rather will be classified as a
grantor trust under Subpart E, Part I of Subchapter J of the Internal Revenue
Code. In such event, each non-REMIC certificateholder will be treated as the
owner of a pro rata undivided interest in the ordinary income and corpus
portions of the trust attributable to the loan pool in which its certificate
evidences an ownership interest and will be considered the equitable owner of a
pro rata undivided interest in each of the loans included therein. The
following discussion assumes the trust will be so classified as a grantor
trust.
Tax Status of Non-REMIC Certificates. In general:
. certificates held by a "domestic building and loan association" within
the meaning of Section 7701(a)(19) of the Internal Revenue 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 Internal Revenue
Code; and
. certificates held by a real estate investment trust may constitute real
estate assets within the meaning of Section 856(c)(5)(A) of the
Internal Revenue Code and interest on them may be considered interest
on obligations secured by mortgages on real property within the meaning
of Section 856(c)(3)(B) of the Internal Revenue Code.
See the discussions of the IRS code provisions above under "REMIC Series Tax
Status of REMIC Certificates." Investors should review the related prospectus
supplement for a discussion of the treatment of non-REMIC certificates and
loans under these Internal Revenue 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 Internal Revenue 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 Conseco Finance, and any gain upon disposition of such loans. A
disposition includes scheduled or prepaid
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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 Conseco Finance. An
individual, an estate, or a trust that holds a non-REMIC certificate either
directly or through a pass-through entity will be allowed to deduct these
expenses under Section 212 of the Internal Revenue 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 Internal Revenue Code provides that the amount of itemized deductions
(including those provided for in Section 212 of the Internal Revenue Code)
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds a threshold amount specified in the Internal Revenue Code
($126,600 for 1999, in the case of a joint return) will be reduced by the
lesser of (1) 3% of the excess of adjusted gross income over the specified
threshold amount or (2) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. Furthermore, in determining the alternative
minimum taxable income of an individual, trust, estate or pass-through entity
that is a holder of a non-REMIC certificate, no deduction will be allowed for
such holder's allocable portion of the foregoing expenses, even though an
amount equal to the total of such expenses will be included in such holder's
gross income for alternative minimum tax purposes. To the extent that a non-
REMIC certificateholder is not permitted to deduct servicing fees allocable to
a non-REMIC certificate, the taxable income of the non-REMIC certificateholder
attributable to that non-REMIC certificate will exceed the net cash
distributions related to such income. Non-REMIC certificateholders may deduct
any loss on disposition of the loans to the extent permitted under the Internal
Revenue Code.
To the extent that any of the loans comprising a loan pool were originated on
or after March 2, 1984 and under circumstances giving rise to original issue
discount, certificateholders will be required to report annually an amount of
additional interest income attributable to such discount in such loans prior to
receipt of cash related to such discount. See the discussion above under "REMIC
Series--Original Issue Discount." Similarly, Internal Revenue Code provisions
concerning market discount and amortizable premium will apply to the loans
comprising a loan pool to the extent that the loans were originated after July
18, 1984 and September 27, 1985, respectively. See the discussions above under
"REMIC Series--Market Discount" and "REMIC Series--Amortizable Premium."
However, it is unclear whether a prepayment assumption should be used in
accruing or amortizing any such discount or premium.
Stripped Non-REMIC Certificates. Some classes of non-REMIC certificates may
be subject to the stripped bond rules of Section 1286 of the Internal Revenue
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:
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. if any servicing compensation is deemed to exceed a reasonable amount;
. if Conseco Securitizations or any other party retains a retained yield
with respect to the loans comprising a loan pool;
. if two or more classes of non-REMIC certificates are issued
representing the right to non-pro rata percentages of the interest or
principal payments on the loans; or
. if non-REMIC certificates are issued which represent the right to
interest only payments or principal only payments.
Although not entirely clear, each stripped certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes
of calculating any original issue discount. Original issue discount with
respect to a stripped certificate, if any, must be included in ordinary gross
income for federal income tax purposes as it accrues in accordance with the
constant-yield method that takes into account the compounding of interest and
such accrual of income may be in advance of the receipt of any cash
attributable to such income. See "REMIC Series--Original Issue Discount" above.
For purposes of applying the original issue discount provisions of the Internal
Revenue Code, the issue price of a stripped certificate will be the purchase
price paid by each holder thereof and the stated redemption price at maturity
may include the aggregate amount of all payments to be made with respect to the
stripped certificate whether or not denominated as interest. The amount of
original issue discount with respect to a stripped certificate may be treated
as zero under the original issue discount de minimis rules described above. A
purchaser of a stripped certificate will be required to account for any
discount on the certificate as market discount rather than original issue
discount if either (1) the amount of original issue discount with respect to
the certificate was treated as zero under the original issue discount de
minimis rule when the certificate was stripped or (2) no more than 100 basis
points (including any amount of servicing in excess of reasonable servicing) is
stripped off of the loans. See "REMIC Series--Market Discount" above.
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 Internal Revenue 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,
Conseco Finance intends to base information reports and returns to the IRS and
the holders of stripped certificates taking into account an appropriate
prepayment assumption. Holders of stripped certificates should refer to the
related prospectus supplement to determine whether and in what manner the
original issue discount rules will apply thereto.
When an investor purchases more than one class of stripped certificates it is
currently unclear whether for federal income tax purposes such classes of
stripped certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
It is possible that the IRS may take a contrary position with respect to some
or all of the foregoing tax consequences. For example, a holder of a stripped
certificate may be treated as the owner of:
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(1) as many stripped bonds or stripped coupons as there are scheduled
payments of principal and/or interest on each loan; or
(2) a separate installment obligation for each loan representing the
stripped certificate's pro rata share of principal and/or interest
payments to be made with respect thereto.
As a result of these possible alternative characterizations, investors should
consult their own tax advisors regarding the proper treatment of stripped
certificates for federal income tax purposes.
The servicing compensation to be received by Conseco Finance and the fee for
credit enhancement, if any, may be questioned by the IRS for certificates or
loans as exceeding a reasonable fee for the services being performed in
exchange therefor, and a portion of such servicing compensation could be
recharacterized as an ownership interest retained by Conseco Finance 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 Internal Revenue Code and the
original issue discount provisions rather than to the market discount and
premium rules.
Gain or Loss on Disposition. Upon sale or exchange of a non-REMIC
certificate, a non-REMIC certificateholder will recognize gain or loss equal to
the difference between the amount realized in the sale and its aggregate
adjusted basis in the loans represented by the non-REMIC certificate.
Generally, the aggregate adjusted basis will equal the non-REMIC
certificateholder's cost for the non-REMIC certificate increased by the amount
of any previously reported income or gain with respect to the non-REMIC
certificate and decreased by the amount of any losses previously reported with
respect to the non-REMIC certificate and the amount of any distributions
received thereon. Except as provided above with respect to the original issue
discount and market discount rules, any such gain or loss would be capital gain
or loss if the non-REMIC certificate was held as a capital asset.
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a non-REMIC
certificateholder who is a foreign holder will be treated as portfolio interest
and therefore will be exempt from the 30% withholding tax. Such non-REMIC
certificateholder will be entitled to receive interest payments and original
issue discount on the non-REMIC certificates free of United States federal
income tax, but only to the extent the loans were originated after July 18,
1984 and provided that such non-REMIC certificateholder periodically provides
the trustee (or other person who would otherwise be required to withhold tax)
with a statement certifying under penalty of perjury that such non-REMIC
certificateholder is not a United States person and providing the name and
address of such non-REMIC certificateholder. For additional information
concerning interest or original issue discount paid by Conseco Securitizations
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."
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Tax Administration and Reporting. Conseco Finance will furnish to each non-
REMIC certificateholder with each distribution a statement setting forth the
amount of such distribution allocable to principal and to interest. In
addition, 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 customary factual information as Conseco Finance deems
necessary or desirable to enable certificateholders to prepare their tax
returns. Reports will be made annually to the IRS and to holders of record that
are not excepted from the reporting requirements regarding information as may
be required with respect to interest and original issue discount, if any, with
respect to the non-REMIC certificates.
Other Tax Consequences
No advice has been received as to local income, franchise, personal property,
or other taxation in any state or locality, or as to the tax effect of
ownership of certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of certificates.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable prospectus supplement, any
certificates offered under this prospectus are not expected to constitute
mortgage related securities for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 because there will be a substantial number of loans
that are secured by liens on real estate that are not first liens, as required
by SMMEA. Accordingly, many institutions with legal authority to invest in
mortgage related securities may not be legally authorized to invest in the
certificates.
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from holding securities representing residual interests, including
securities previously purchased. There may be other restrictions on the ability
of certain investors, including depository institutions, either to purchase
certificates or to purchase certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the certificates constitute
legal investments for such investors.
RATINGS
Before the issuance of any class of certificates sold under this prospectus,
they must be rated by at least one nationally recognized statistical rating
organization in one of its four
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highest rating categories. A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or withdrawal at any
time by the assigning rating agency. The security rating of any series of
certificates should be evaluated independently of similar security ratings
assigned to other kinds of securities.
UNDERWRITING
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 intends that certificates
will be offered through such various methods from time to time and that
offerings may be made concurrently through more than one of these methods or
that an offering of a particular series of certificates may be made through a
combination of such methods.
The distribution of the certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the prospectus supplement relating to a series of
certificates, Conseco Finance or any of its affiliates may purchase some or all
of one or more classes of certificates of such series from the underwriter or
underwriters at a price specified in the prospectus supplement. The purchaser
may then from time to time offer and sell some or all of such certificates so
purchased directly, through one or more underwriters to be designated at the
time of the offering of such certificates or through broker-dealers acting as
agent or principal or both. This kind of offering may be restricted in the
manner specified in such prospectus supplement. Such transactions may be
effected at market prices prevailing at the time of sale, at negotiated prices
or at fixed prices.
In connection with the sale of the certificates, underwriters may receive
compensation from 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 the 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.
Under agreements which may be entered into by Conseco Securitizations,
underwriters and agents who participate in the distribution of the certificates
may be entitled to indemnification by Conseco Finance and Conseco
Securitizations against certain liabilities, including liabilities under the
Securities Act.
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If so indicated in the prospectus supplement, Conseco Securitizations will
authorize underwriters or other persons acting as Conseco Securitizations'
agents to solicit offers by certain institutions to purchase the certificates
from Conseco Securitizations pursuant to contracts providing for payment and
delivery on a future date. Institutions with which these contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational charitable institutions and others, but in
all cases these institutions must be approved by Conseco Securitizations. The
obligation of any purchaser under any such contract will be subject to the
condition that the purchaser of the offered certificates shall not at the time
of delivery be prohibited under the laws of the jurisdiction to which such
purchaser is subject from purchasing such certificates. The underwriters and
such other agents will not have responsibility in respect of the validity or
performance of such contracts.
The underwriters may, from time to time, buy and sell certificates, but there
can be no assurance that an active secondary market will develop and there is
no assurance that any such market, if established, will continue.
Some persons participating in this offering may engage in transactions that
stabilize, maintain or in some way affect the price of the certificates. These
types of transactions may include stabilizing, the purchase of certificates to
cover syndicate short positions and the imposition of penalty bids. For a more
complete description of these activities, please read the section entitled
"Underwriting" in the prospectus supplement.
Certain of the underwriters and their associates may engage in transactions
with and perform services for Conseco Finance in the ordinary course of
business.
LEGAL MATTERS
The legality and material federal income tax consequences of the certificates
will be passed upon for Conseco Securitizations and Conseco Finance by the
counsel to Conseco Securitizations and Conseco Finance identified in the
applicable prospectus supplement.
EXPERTS
The consolidated financial statements of Conseco Finance as of December 31,
1998 and for the year ended December 31, 1998 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 each of the years in the two-year period ended December 31, 1997
are incorporated by reference in this prospectus and in the registration
statement in reliance upon the report of KPMG 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 terms used in this prospectus and the
prospectus supplement. The pooling and servicing agreement may contain a more
complete definition of some of the terms defined here and reference should be
made to the pooling and servicing agreement for a more complete definition of
all such terms.
"Amount Available" means, for each series of certificates, amounts on deposit
in the certificate account on a Determination Date.
"Certificate Distribution Amount" means the amount of principal and interest
specified in the related prospectus supplement to be distributed to
certificateholders.
"Compound Interest Certificates" means certificates on which interest may
accrue but not be paid for the period described in the related prospectus
supplement.
"Cut-off Date" means the date specified in the related prospectus supplement as
the date from which principal and interest payments on the loans are included
in the trust.
"Determination Date" means, unless otherwise specified in the related
prospectus supplement, the third business day immediately preceding the related
payment date.
"Due Period" means, unless otherwise provided in a related prospectus
supplement, with respect to any payment date, the period from and including the
1st day of the month immediately preceding the payment date, to and including
the last day of the month immediately preceding the payment date.
"Eligible Investments" means one or more of the investments specified in the
pooling and servicing agreement in which moneys in the certificate account and
certain other accounts are permitted to be invested.
"FICO Score" means a credit score derived on the basis of a methodology
developed by Fair Isaac and Company, a consulting firm specializing in creating
default predictive models through scoring mechanisms. The credit scores, which
are based on information obtained from national credit reporting organizations,
are numerical representations of borrowers' estimated default probability, and
can range from a low of 250 to a high of 900.
"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.
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"Net Liquidated Proceeds" means all amounts received and retained for the
liquidation of defaulted loans, net of liquidation expenses.
"Participants" means institutions that have accounts with the depositary.
"Pool Scheduled Principal Balance" means, as of any payment date, the aggregate
of the Scheduled Principal Balances of loans outstanding at the end of the
related Due Period.
"Repurchase Price" means the remaining principal amount outstanding on a home
equity loan on the date of repurchase plus accrued and unpaid interest at its
loan rate to the date of the repurchase.
"Scheduled Principal Balance" means, as of any payment date, the unpaid
principal balance of the loan as specified in the amortization schedule at the
time relating to the loan as of the due date in the related Due Period, after
giving effect to any previous partial prepayments and to the payment of
principal due on the due date and irrespective of any delinquency in payment on
the loan.
"Senior Distribution Amount" means, for a series of certificates having
Subordinated Certificates, as of each payment date and for each class of Senior
Certificates, the amount due the holders of that class of Senior Certificates.
"Senior Percentage" means, for a series of certificates having Subordinated
Certificates, the percentage specified in the related prospectus supplement.
"Subordinated Percentage" means, for a series of certificates having
Subordinated Certificates, the percentage specified in the related prospectus
supplement.
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