424(b)(5)
333-58497
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED AUGUST 20, 1998)
$295,907,927
(Oakwood Mortgage Investors Logo appears here)
Oakwood Mortgage Investors, Inc., Depositor
Senior/Subordinated Pass-Through Certificates, Series 1998-C
(Oakwood Acceptance Corporation, Servicer)
---------------
The Senior/Subordinated Pass-Through Certificates, Series 1998-C (the
"Certificates"), will represent interests in a pool (the "Asset Pool") of
fixed-rate manufactured housing installment sales contracts (the "Contracts")
and fixed-rate and adjustable-rate mortgage loans secured by first liens on the
real estate to which the related Manufactured Homes are deemed permanently
affixed (the "Mortgage Loans" and, together with the Contracts, the "Assets")
and certain related property (with the Assets, the "Trust Estate"). The Assets
were originated or purchased by Oakwood Acceptance Corporation ("Oakwood") in
the ordinary course of Oakwood's business and will be conveyed by Oakwood to
Oakwood Mortgage Investors, Inc. (the "Company"). The Company will convey the
Trust Estate to OMI Trust 1998-C (the "Trust") pursuant to the Pooling and
Servicing Agreement referred to herein. Oakwood will serve as servicer of the
Assets (the "Servicer"). Capitalized terms used herein and not defined herein
shall have the meanings assigned to them in the Glossary on page 89 of the
Prospectus.
The Certificates will consist of the Class A-1 ARM Certificates, the Class A
Certificates (collectively, the "Senior Certificates"), the Class M-1
Certificates, the Class M-2 Certificates (collectively, the "Class M
Certificates"), the Class B-1 Certificates, the Class B-2 Certificates
(collectively, the "Class B Certificates"), the Class X Certificates and the
Class R Certificates (collectively with the Class M and Class B Certificates,
the "Subordinated Certificates"). Only the Class A-1 ARM, Class A, Class M and
Class B-1 Certificates are being offered hereby (collectively, the "Offered
Certificates"). The Class A-1 ARM, Class A, Class M-1 and Class M-2
Certificates will evidence in the aggregate approximate initial undivided
interests in the principal of the Asset Pool of 2.47%, 77.53%, 7.50% and 4.75%,
respectively. The Class B-1 and Class B-2 Certificates will evidence in the
aggregate approximate initial undivided interests in the principal of the Asset
Pool of 3.50% and 4.25%, respectively.
Distributions of principal of and interest on the Certificates will be
distributed to Certificateholders on the 15th day of each month (or if the
15th day is not a business day, the next business day) (each, a "Distribution
Date"), beginning in September 1998. For any Distribution Date, the
Pass-Through Rate for the Class A-1 ARM Certificates will be the per annum
rate equal to the lesser of One-Month LIBOR, as determined on the applicable
Floating Rate Determination Date, plus the Class A-1 ARM Margin (as defined
below), and the Weighted Average Net Asset Rate of the Adjustable Rate Assets.
The Class A-1 ARM Margin shall equal 0.25% on any Distribution Date which
occurs on or prior to the Call Option Date (as defined herein), and shall
equal 0.50% on any other Distribution Date. For any Distribution Date, the
Pass-Through Rates for the remaining Classes of Offered Certificates will be
6.450% per annum, in the case of the Class A Certificates, 6.775% per annum,
in the case of the Class M-1 Certificates, 7.075% per annum, in the case of
the Class M-2 Certificates, and 7.400% per annum, in the case of the Class B-1
Certificates, provided that the Pass-Through Rates on the Class M and Class
B-1 Certificates shall not exceed the Weighted Average Net Asset Rate.
(Cover continued on next page)
FOR A DISCUSSION OF CERTAIN SIGNIFICANT MATTERS AFFECTING INVESTMENTS IN THE
OFFERED CERTIFICATES, SEE RISK FACTORS HEREIN AT PAGE S-13 AND IN THE
PROSPECTUS AT PAGE 11.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH
IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
INITIAL PRINCIPAL PRICE TO PROCEEDS TO
AMOUNT PUBLIC (1) UNDERWRITING DISCOUNT COMPANY (1)(2)
------------------- ---------------- ----------------------- ---------------
<S> <C> <C> <C> <C>
Class A-1 ARM ......... $ 7,625,927 100.000000% 0.225% 99.775000%
Class A ............... $239,608,000 99.931000% 0.200% 99.731000%
Class M-1 ............. $ 23,178,000 99.891000% 0.500% 99.391000%
Class M-2 ............. $ 14,680,000 99.869000% 0.600% 99.269000%
Class B-1 ............. $ 10,816,000 99.913000% 0.750% 99.163000%
Total ................ $295,907,927 $295,688,693 $781,464 $294,907,229
</TABLE>
(1) Per Certificate, plus accrued interest, if any, at the applicable
Pass-Through Rate from August 1, 1998, or from the Closing Date with
respect to the Class A-1 ARM Certificates.
(2) Before deducting expenses payable by the Company, estimated to be $325,000.
---------------
The Offered Certificates are offered by the underwriters specified below
(the "Underwriters"), subject to prior sale, when, as and if delivered to and
accepted by the Underwriters and subject to their right to reject orders in
whole or in part. It is expected that delivery of the Offered Certificates will
be made in book-entry form only through the Same Day Funds Settlement system of
The Depository Trust Company on or about August 27, 1998.
CREDIT SUISSE FIRST BOSTON FIRST CHICAGO CAPITAL MARKETS, INC.
The date of this Prospectus Supplement is August 20, 1998.
<PAGE>
(Cover continued from previous page)
Elections will be made to treat certain assets of the Trust as two separate
real estate mortgage investment conduits (each, a "REMIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). The Offered Certificates and the
Class X Certificates will represent "regular interests" in one of such REMICs.
The Class R Certificates will represent beneficial ownership of the "residual
interest" in each of such REMICs. See "Federal Income Tax Consequences --
REMIC Certificates" in the Prospectus.
The Offered Certificates will not be listed on any exchange. Although the
Underwriters intend to make a secondary market in the Offered Certificates,
they have no obligation to do so. There can be no assurance that a secondary
market for the Offered Certificates will develop, or if it does develop, that
it will continue to exist or provide sufficient liquidity.
As further described herein, the Subordinated Certificates are subordinated to
the Senior Certificates; the Class M-2, Class B, Class X and Class R
Certificates are subordinated to the Class A-1 ARM Certificates and the Class A
Certificates and the Class M-1 Certificates; the Class B, Class X and Class R
Certificates are subordinated to the Class A-1 ARM, Class A and Class M
Certificates; and the Class B-2, Class X and Class R Certificates are
subordinated to the Class B-1 Certificates. This subordination will be
accomplished by the preferential application of the Available Distribution
Amount to the more senior Classes of Certificates as against the Classes that
are subordinated to such senior Classes and by the allocation of Writedown
Amounts to the more subordinated Classes of Certificates. See "Description of
the Offered Certificates -- Distributions -- Priority of Distributions" and
"Description of the Offered Certificates -- Allocation of Writedown Amounts"
herein.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED CERTIFICATES,
INCLUDING OVER-ALLOTMENT, STABILIZING, AND SHORT-COVERING TRANSACTIONS IN SUCH
CERTIFICATES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING OF THE OFFERED CERTIFICATES. FOR A DISCUSSION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
NEITHER THE CERTIFICATES NOR THE ASSETS TRANSFERRED TO THE TRUST WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY, BY THE
COMPANY, BY ANY UNDERWRITER, BY THE SERVICER OR ANY OF THEIR AFFILIATES, EXCEPT
AS PROVIDED HEREIN. THE CERTIFICATES DO NOT REPRESENT AN OBLIGATION OF OR
INTEREST IN THE COMPANY, OAKWOOD OR ANY PERSON OTHER THAN THE TRUST.
DISTRIBUTIONS ON THE CERTIFICATES WILL BE PAYABLE SOLELY FROM THE ASSETS
TRANSFERRED TO THE TRUST FOR THE BENEFIT OF THE CERTIFICATEHOLDERS, INCLUDING
WITH RESPECT TO THE CLASS B-2 CERTIFICATES, THE LIMITED GUARANTEE.
Until November 18, 1998, all dealers effecting transactions in the Offered
Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and the Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus Supplement and
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
---------------
The Certificates offered by this Prospectus Supplement will be part of a
separate Series of Pass-Through Certificates being offered by the Company from
time to time pursuant to its Prospectus dated August 20, 1998, of which this
Prospectus Supplement is a part and which accompanies this Prospectus
Supplement. The Prospectus contains important information about the offering of
the Offered Certificates that is not contained herein, and prospective
investors are urged to read both this Prospectus Supplement and the Prospectus
in full. Sales of the Offered Certificates may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
The Company may sell from time to time under this Prospectus Supplement and the
Prospectus and other related prospectus supplements up to $3,500,000,000 in
aggregate principal amount of Pass-Through Certificates, issuable in Series. As
of the date of this Prospectus Supplement, the Seller has publicly sold or
committed to sell $2,648,353,582 in aggregate principal amount of Pass-Through
Certificates, including the Offered Certificates.
The Seller has filed with the Commission certain materials relating to the
Assets and the Certificates on Form 8-K. Such materials were prepared by the
Underwriters for certain prospective investors, and the information included in
such materials is subject to, and is superseded by, the information set forth
in this Prospectus Supplement.
S-2
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT AND IN THE
ATTACHED PROSPECTUS DATED AUGUST 20, 1998 (THE "PROSPECTUS"). WHENEVER
REFERENCE IS MADE HEREIN TO A PERCENTAGE OF THE INITIAL ASSETS OR A WEIGHTED
AVERAGE STATISTIC RELATING TO THE INITIAL ASSETS, THE PERCENTAGE OR WEIGHTED
AVERAGE STATISTIC IS CALCULATED BASED ON THE SCHEDULED PRINCIPAL BALANCES OF
THE INITIAL ASSETS AS OF THE CUT-OFF DATE (AS DEFINED BELOW). CAPITALIZED TERMS
USED AND NOT OTHERWISE DEFINED HEREIN HAVE THE RESPECTIVE MEANINGS ASSIGNED TO
THEM IN THE GLOSSARY ON PAGE 89 IN THE PROSPECTUS OR ELSEWHERE IN THIS
PROSPECTUS SUPPLEMENT.
TITLE OF SERIES................. Senior/Subordinated Pass-Through
Certificates, Series 1998-C (the
"Certificates"). The Certificates will
evidence in the aggregate the entire
beneficial ownership interest in a trust (the
"Trust") established by the Company. The
Trust will consist primarily of manufactured
housing installment sales contracts (the
"Contracts") and residential mortgage loans
(the "Mortgage Loans" and, together with the
Contracts, the "Assets").
CLASS DESIGNATIONS
SENIOR CERTIFICATES............ Class A-1 ARM and Class A Certificates.
CLASS M CERTIFICATES........... Class M-1 and Class M-2 Certificates.
CLASS B CERTIFICATES........... Class B-1 and Class B-2 Certificates.
SUBORDINATED CERTIFICATES...... Class M, Class B, Class X and Class R
Certificates.
OFFERED CERTIFICATES........... Class A-1 ARM, Class A, Class M and Class
B-1 Certificates.
OFFERED SUBORDINATED
CERTIFICATES.................. Class M and Class B-1 Certificates.
OTHER CERTIFICATES.............. The Class B-2, Class X and Class R
Certificates are not being offered hereby.
The Class B-2 Certificates are expected to be
sold in a private placement at or around the
Closing Date, and will be acquired in the
interim by an affiliate of the Company. The
Class X Certificates and the Class R
Certificates are expected to be sold
initially to an affiliate of the Company,
which may offer the Class X and Class R
Certificates in the future in one or more
privately negotiated transactions. The Class
B-2 Certificates will have an initial
Certificate Principal Balance of
approximately $13,135,281. The Class X and
Class R Certificates have no Certificate
Principal Balance, and the Class R
Certificates have no right to receive any
distributions of interest or principal. See
"Description of the Offered Certificates"
herein.
CERTIFICATE STRUCTURE
CONSIDERATIONS.................. The primary credit support for the Senior
Certificates is the subordination of the
Subordinated Certificates, effected by the
preferential application of the Available
Distribution Amount to the Senior
Certificates relative to the Subordinated
Certificates and the allocation of Writedown
Amounts as described herein. The primary
credit support for the Class M-1 Certificates
is the subordination of the Class M-2, Class
B, Class X and Class R Certificates. The
primary credit support for the Class M-2
Certificates is the subordination of the
Class B, Class X and Class R Certificates.
The primary credit support for the Class B-1
Certificates is the subordination of the
Class B-2, Class X and Class R Certificates.
DENOMINATIONS................... The Offered Certificates will be Book-Entry
Certificates. One or more certificates
representing each Class of Offered
Certificates will be registered in the name
of the nominee of The Depository Trust
Company (together with any successor
depository selected by the Company, the
"Depository") and beneficial interests will
be held by investors through the book-entry
facilities of the Depository, as described
herein, in minimum denominations of $1,000
and integral multiples of $1 in excess
thereof. See "Description of the Offered
Certificates -- General" herein.
S-3
<PAGE>
DEPOSITOR....................... Oakwood Mortgage Investors, Inc. (the
"Company"), a North Carolina corporation that
is a wholly-owned, limited purpose subsidiary
of Oakwood Acceptance Corporation
("Oakwood"), which is a wholly-owned
subsidiary of Oakwood Homes Corporation
("Oakwood Homes"). Neither Oakwood Homes nor
any of its affiliates, including Oakwood and
the Company, has guaranteed or is otherwise
obligated with respect to the Certificates.
See "Risk Factors -- 2. Certificateholders
Must Look Solely to The Trust Estate for
Distributions of Principal and Interest"
herein and "Risk Factors -- 5. Certificate
holders Must Look Solely to The Trust Estate
for Distributions of Principal and Interest"
in the Prospectus.
SERVICER........................ Oakwood will act as servicer for all the
Assets (in such capacity, the "Servicer"). As
Servicer, Oakwood will be entitled to (1) a
monthly fee (the "Servicing Fee") in respect
of each Collection Period equal to 1.00% per
annum (the "Servicing Fee Rate") multiplied
by the aggregate Scheduled Principal Balance
of the Assets at the beginning of such
Collection Period (without taking into
account any Principal Prepayments, Net
Liquidation Proceeds or Repurchase Prices
received (or Realized Losses incurred) during
the related Prepayment Period) and (2) other
additional servicing compensation described
herein. See "Servicing of the Assets --
Servicing Compensation and Payment of
Expenses" herein and "Sale and Servicing of
Contracts and Mortgage Loans" in the
Prospectus.
ADVANCES........................ For each Distribution Date, the Servicer
will make an advance (a "P&I Advance") equal
to the difference between the Available
Distribution Amount for such Distribution
Date (calculated without taking into account
such P&I Advance) and the amount of funds
available in the Certificate Account. The
Servicer will also be obligated to make
advances ("Servicing Advances" and, together
with P&I Advances, "Advances") in respect of
Liquidation Expenses and certain taxes and
insurance premiums not paid by an Obligor on
a timely basis, to the extent the Servicer
deems such Servicing Advances recoverable out
of Liquidation Proceeds or from collections
on the related Asset. Advances are
reimbursable to the Servicer as described
herein under "Servicing of the Assets --
Advances."
TRUSTEE......................... PNC Bank, National Association.
CUT-OFF DATE.................... August 1, 1998.
CLOSING DATE.................... The date of the initial issuance of the
Certificates, expected to be on or about
August 27, 1998.
DISTRIBUTION DATES.............. The 15th day of each month (or if such 15th
day is not a business day, the next
succeeding business day), commencing in
September 1998.
RECORD DATES.................... With respect to each Distribution Date
other than the first Distribution Date, the
close of business on the last business day of
the month preceding the month in which such
Distribution Date occurs, and with respect to
the first Distribution Date, the close of
business on the Closing Date (each, a "Record
Date").
COLLECTION PERIOD............... With respect to each Distribution Date, the
period commencing on the second day of the
month preceding the month in which the
Distribution Date occurs and ending at the
close of business on the first day of the
month in which the Distribution Date occurs
(each, a "Collection Period").
INTEREST ACCRUAL PERIOD......... With respect to each Distribution Date (i)
for the Class A-1 ARM Certificates, the
period commencing on the 15th day of the
preceding
S-4
<PAGE>
month through the 14th day of the month in
which such Distribution Date is deemed to
occur (except that the first Interest
Accrual Period for the Class A-1 ARM
Certificates will be the period from the
Closing Date through September 14, 1998),
and (ii) for the other Classes of Offered
Certificates, the calendar month preceding
the month in which the Distribution Date
occurs (each, an "Interest Accrual Period").
Interest on the Class A-1 ARM Certificates
will be calculated on the basis of a 360-day
year and the actual number of days elapsed
in the applicable Interest Accrual Period.
Interest on the other Classes of Offered
Certificates will be calculated on the basis
of a 360-day year consisting of twelve
30-day months.
PREPAYMENT PERIOD............... With respect to each Distribution Date, the
calendar month preceding the month in which
the Distribution Date occurs (each, a
"Prepayment Period").
AGREEMENT....................... The Pooling and Servicing Agreement, dated
as of August 1, 1998 (the "Series
Agreement"), by and among the Company, the
Servicer and PNC Bank, National Association,
as trustee (the "Trustee"), which
incorporates by reference the Company's
Standard Terms to Pooling and Servicing
Agreement (July 1998 Edition) (the "Standard
Terms" and, together with the Series
Agreement, the "Agreement").
THE ASSETS...................... The Trust will consist of (1) manufactured
housing installment sales contracts
(collectively, the "Contracts") secured by
security interests in manufactured homes, as
defined herein (the "Manufactured Homes"),
and, with respect to certain of the Contracts
("Land Secured Contracts"), secured by liens
on the real estate on which the related
Manufactured Homes are located, and (2)
mortgage loans secured by first liens on the
real estate to which the related Manufactured
Homes are deemed permanently affixed (the
"Mortgage Loans," and collectively, the
"Assets"). The Asset Pool will consist of
approximately 7,102 Assets having an
aggregate Scheduled Principal Balance as of
the Cut-off Date of approximately
$309,043,208.84. Approximately 11.00% of the
Assets are Mortgage Loans and approximately
5.57% of the Assets are Land Secured
Contracts. Oakwood funded the origination of
each Asset, either in its own name or in the
name of Oakwood Mobile Homes, Inc. ("OMH"),
an affiliate of Oakwood engaged in the retail
sale of manufactured homes, or in the name of
another manufactured housing dealer. Each
Asset not originated directly in Oakwood's
name was assigned to Oakwood immediately
after its origination.
FIXED RATE ASSETS. As of the Cut-off Date,
7,003 Assets, aggregating $301,417,281.15
are fixed rate Assets ("Fixed Rate Assets").
Approximately 8.74% of the Fixed Rate Assets
are Mortgage Loans and approximately 3.18%
of the Fixed Rate Assets are Land Secured
Contracts. Based on the Cut-off Date Pool
Scheduled Principal Balance, approximately
90.37% of the Fixed Rate Assets are secured
by Manufactured Homes which were new,
approximately 1.64% of the Fixed Rate Assets
are secured by Manufactured Homes which were
used, approximately 7.17% of the Fixed Rate
Assets are secured by Manufactured Homes
which were repossessed and approximately
0.82% of the Fixed Rate Assets are secured
by Manufactured Homes which were
transferred. As of the Cut-off Date, the
Fixed Rate Assets were secured by
Manufactured Homes or Mortgaged Properties
(or Real Properties, in the case of Land
Secured Contracts) located in 38 states, and
approximately 21.35% and 20.62% of the Fixed
Rate Assets were secured by Manufactured
Homes or Mortgaged Properties located in
Texas and
S-5
<PAGE>
North Carolina, respectively (based on the
mailing addresses of the Obligors on the
Assets as of the Cut-off Date). Each Fixed
Rate Asset bears interest at an annual
percentage rate (an "Asset Rate" or "APR")
of at least 6.90% and not more than 14.50%.
The weighted average Asset Rate of the Fixed
Rate Assets as of the Cut-off Date was
approximately 9.86%. The Fixed Rate Assets
have remaining terms to maturity as of the
Cut-off Date of at least 6 months but not
more than 360 months and original terms to
stated maturity of at least 12 months but
not more than 360 months. As of the Cut-off
Date, the Fixed Rate Assets had a weighted
average original term to stated maturity of
approximately 290 months, and a weighted
average remaining term to stated maturity of
approximately 289 months. The final
scheduled payment date on the Fixed Rate
Asset with the latest maturity occurs in
August 2028.
ADJUSTABLE RATE ASSETS. As of the Cut-off
Date, 99 Assets aggregating $7,625,927.69,
are variable rate Assets ("Adjustable Rate
Assets"). As of the Cut-off Date, all
Adjustable Rate Assets are Mortgage Loans
secured by Manufactured Homes which were
new. As of the Cut-off Date, the Adjustable
Rate Assets were secured by Mortgaged
Properties located in 20 states, and
approximately 23.18% and 20.87% of the
Adjustable Assets were secured by Mortgaged
Properties located in North Carolina and
Tennessee, respectively (based on the
mailing addresses of the Obligors on the
Assets as of the Cut-off Date). Each
Adjustable Rate Asset currently bears
interest at an Asset Rate as of the Cut-off
Date of at least 7.00% and not more than
8.75%. The weighted average Asset Rate of
the Adjustable Rate Assets as of the Cut-off
Date was approximately 8.00%. The Adjustable
Rate Assets have remaining terms to maturity
as of the Cut-off Date of at least 233
months but not more than 360 months and
original terms to stated maturity of at
least 240 months but not more than 360
months. As of the Cut-off Date, the
Adjustable Rate Assets had a weighted
average original term to stated maturity of
approximately 357 months, and a weighted
average remaining term to stated maturity of
approximately 353 months. The Adjustable
Rate Assets have gross margins as of the
Cut-off Date of at least 3.25% but not more
than 4.75%. The weighted average gross
margin of the Adjustable Rate Assets as of
the Cut-off Date was approximately 4.08%.
The final scheduled payment date on the
Adjustable Rate Asset with the latest
maturity occurs in September 2028. All
Adjustable Rate Assets adjust annually based
on the monthly average yield on the United
States treasury securities adjusted to a
constant maturity of one year. All
Adjustable Rate Assets have annual caps of
2%. The weighted average lifetime cap of the
Adjustable Rate Assets as of the Cut-off
Date was approximately 14%.
The Assets being sold to the Trust include,
except for certain Assets insured by the
FHA, substantially all those owned by
Oakwood as of the Cut-off Date and as to
which it had the necessary information and
could make the representations and
warranties required by the Sales Agreement
(such as those pertaining to the
enforceability of the Asset and
delinquency). See "Sale and Servicing of
Contracts and Mortgage Loans --
Representations and Warranties" in the
Prospectus.
The Agreement requires the Servicer to
maintain or cause to be maintained standard
hazard insurance coverage with respect to
each Manufactured Home and Mortgaged
Property in an amount at least equal
S-6
<PAGE>
to the lesser of its maximum insurable value
or the remaining principal balance of the
related Asset. The standard hazard insurance
policies, at a minimum, are required to
provide fire and extended coverage on terms
and conditions customary in manufactured
housing hazard insurance policies, with
customary deductible amounts. See "The
Trusts -- Insurance -- Hazard Insurance --
Standard Hazard Insurance Policies" in the
Prospectus for a more complete description
of such standard hazard insurance policies.
No other insurance policies or guarantees
will be provided with respect to any Asset
or the Asset Pool other than the Limited
Guarantee described below.
AVAILABLE DISTRIBUTION AMOUNT... The "Available Distribution Amount" for a
Distribution Date will include (1)(a) Monthly
Payments of principal and interest due on the
Assets during the related Collection Period,
to the extent such payments were actually
collected from the Obligors or advanced by
the Servicer and (b) unscheduled payments
received with respect to the Assets during
the related Prepayment Period, including
Principal Prepayments, proceeds of
repurchases, Net Liquidation Proceeds and net
Insurance Proceeds, less (2)(a) if Oakwood is
not the Servicer, Servicing Fees for the
related Collection Period, (b) amounts
required to reimburse the Servicer for
previously unreimbursed Advances in
accordance with the Agreement, (c) amounts
required to reimburse the Company or the
Servicer for certain reimbursable expenses in
accordance with the Agreement and (d) amounts
required to reimburse any party for an
overpayment of a Repurchase Price for an
Asset in accordance with the Agreement.
DISTRIBUTIONS................... Distributions on a Class of Offered
Certificates will be allocated among the
Certificates of such Class in proportion to
their respective Percentage Interests. As
more fully described herein under
"Description of the Offered Certificates --
Distributions," distributions to
Certificateholders generally will be applied
first to the distribution of interest and
interest shortfalls, second to the
distribution of any previously unpaid
principal and third, if any principal is due,
to the distribution of principal, in each
case to the related Class or Classes of
Offered Certificates.
Generally, principal paid in respect of the
Adjustable Rate Assets will be allocated to
the holders of the Class A-1 ARM
Certificates, and principal paid in respect
of the Fixed Rate Assets will be allocated
to the holders of the Class A, Class M and
Class B Certificates. See "Description of
the Offered Certificates -- Distributions --
Principal."
Certain collections of excess interest will
be applied, to the extent available, to make
accelerated payments of principal on the
Class A Certificates. See "Description of
the Offered Certicates -- Distributions --
Overcollateralization."
REALIZED LOSSES ON
LIQUIDATED LOANS................ The Principal Distribution Amount for any
Distribution Date is intended to include the
Scheduled Principal Balance of each Asset
that became a Liquidated Loan during the
related Prepayment Period. A Realized Loss
will be incurred on a Liquidated Loan in the
amount, if any, by which the Net Liquidation
Proceeds from such Liquidated Loan are less
than the Unpaid Principal Balance of such
Liquidated Loan, plus accrued and unpaid
interest thereon, plus amounts reimbursable
to the Servicer for previously unreimbursed
Servicing Advances. To the extent that the
amount of the Realized Loss is in excess of
the sum of (i) interest collected on the
nondefaulted Assets in excess of certain
interest payments due to be distributed on
the Class A-1 ARM, Class A, Class M and Class
B Certificates and any portion of such
S-7
<PAGE>
required to be paid to a Servicer other than
Oakwood as servicing compensation ("Excess
Interest") and (ii) the Current
Overcollateralization Amount, then the
amount of such shortfall will be allocated
to the Subordinated Certificates. See " --
Allocation of Writedown Amounts" below.
ALLOCATION OF
WRITEDOWN AMOUNTS............... The Writedown Amount will be allocated among
the Classes of Subordinated Certificates in
the following order of priority:
(1) first, to the Class B-2 Certificates, to
be applied in reduction of the Adjusted
Certificate Principal Balance of such
Class until it has been reduced to zero;
(2) second, to the Class B-1 Certificates,
to be applied in reduction of the
Adjusted Certificate Principal Balance of
such Class until it has been reduced to
zero;
(3) third, to the Class M-2 Certificates, to
be applied in reduction of the Adjusted
Certificate Principal Balance of such
Class until it has been reduced to zero;
and
(4) fourth, to the Class M-1 Certificates,
to be applied in reduction of the
Adjusted Certificate Principal Balance of
such Class until it has been reduced to
zero.
EFFECT OF PRIORITY SEQUENCE OF PRINCIPAL
DISTRIBUTIONS.................. The distribution of Principal Distribution
Amounts in the priorities described herein
under "Description of the Offered
Certificates -- Distributions" will have the
effect of accelerating the amortization of
the Class A-1 ARM and Class A Certificates
and delaying the amortization of the Class M
Certificates and the Class B Certificates,
from what would otherwise be the case without
such prioritization, thereby increasing the
interest in the Trust evidenced by the Class
M Certificates and the Class B Certificates.
Increasing the interest of the Class M
Certificates and the Class B Certificates
relative to that of the Class A-1 ARM and
Class A Certificates is intended to preserve
the availability to the Class A-1 ARM and
Class A Certificates on each Distribution
Date of the subordination provided by the
Class M Certificates and the Class B
Certificates. See "Description of the Offered
Certificates" herein.
PREPAYMENT CONSIDERATIONS
AND RISKS....................... In general, the Assets may be prepaid at any
time without penalty and, accordingly, the
rate of principal payments thereon is likely
to vary considerably from time to time. Any
of the Offered Certificates may be sold at a
discount from their principal amounts. A
slower than anticipated rate of principal
payments on the Assets is likely to result in
a lower than anticipated yield on the Offered
Certificates that are sold at a discount from
their principal amounts. See "Maturity and
Prepayment Considerations" and "Yield on the
Offered Certificates" herein and "Yield
Considerations" and "Maturity and Prepayment
Considerations" in the Prospectus.
SECURITY INTERESTS AND OTHER ASPECTS OF
THE ASSETS..................... Oakwood will assign to the Company the
first mortgage liens on Mortgaged Properties
securing the Mortgage Loans, and the security
interests created by the Contracts in the
related Manufactured Homes (and, in the case
of the Land Secured Contracts, the liens on
the Real Properties on which the related
Manufactured Homes are located), and the
Company will assign such security interests
and liens to the Trustee. Oakwood will not
deliver any assignments in recordable form
for the mortgages or deeds of trust (each, a
"Mortgage") evidencing the liens on Real
Properties that secure the Land Secured
Contracts, although
S-8
<PAGE>
it will record assignments of Mortgages with
respect to each of the Mortgage Loans.
However, Oakwood will deliver to the Trustee
a power of attorney authorizing the Trustee
to prepare, execute and record assignments
of Mortgages securing the Land Secured
Contracts, in the event that the recordation
of such assignments becomes necessary to
foreclose upon any related Real Property. In
some states, in the absence of the
recordation of such an assignment to the
Trustee of the Mortgage securing a Land
Secured Contract or a Mortgage Loan, the
assignment of the Mortgage to the Trustee
may not be effective against creditors of or
purchasers from Oakwood, or the Company or a
trustee in bankruptcy of either. See "Risk
Factors -- 3. Certificateholders May Realize
Losses If The Servicer Is Unable to Realize
on Assets Because of Provisions of
Applicable State Law" in the Prospectus.
Under the laws of most states, Manufactured
Homes constitute personal property, and
perfection of a security interest in a
Manufactured Home is obtained, depending on
applicable state law, by noting the security
interest on the certificate of title for the
Manufactured Home, by delivery of certain
required documents and payment of a fee to
the appropriate state motor vehicle
authority to re-register the home, by filing
a financing statement under the Uniform
Commercial Code ("UCC") or, in some states,
through a combination of the aforementioned
methods. Neither Oakwood nor the Company
will be required to cause notations to be
made on any document of title relating to
any Manufactured Home or to take any other
steps to re-register the Manufactured Home
in the name of the Trustee with the
appropriate state motor vehicle authority,
to deliver any such document of title to the
Trustee or to execute any transfer
instrument (be it a UCC-3 assignment or
other form) relating to any Manufactured
Home (other than a notation or a transfer
instrument necessary to show Oakwood itself
as the lienholder or legal titleholder).
Consequently, as to the Contracts secured by
Manufactured Homes located in certain
states, it is unclear whether the security
interests created by the Contracts in the
Manufactured Homes will be effectively
transferred to the Trustee or perfected in
the Trustee, and it is thus unclear whether
the assignment of a security interest
created by a Contract in the related
Manufactured Home will be effective against
creditors of the Company or Oakwood or a
trustee in bankruptcy of the Company or
Oakwood. See "Risk Factors -- 3.
Certificateholders May Realize Losses If The
Servicer Is Unable to Realize on Assets
Because of Provisions of Applicable State
Law" in the Prospectus.
To the extent Oakwood's security interests
in the Manufactured Homes are effectively
transferred to the Trustee and are perfected
in the Trustee, the Trustee would have a
prior claim over creditors of Oakwood and
the Company, subsequent purchasers of the
Manufactured Homes and holders of security
interests in the Manufactured Homes
perfected after perfection of the Trustee's
security interest. Even if the Trustee's
security interest in a Manufactured Home is
perfected, however, if a Manufactured Home
were relocated across state lines without
reperfection of the security interest in the
Trustee, or if the Manufactured Home were to
become attached to its site and a court were
to determine that the security interest was
subject to real estate title and recording
laws, or as a result of fraud or negligence,
the Trustee could lose its prior perfected
security interest in the Manufactured Home.
S-9
<PAGE>
See "Certain Legal Aspects of Contracts and
Mortgage Loans -- The Contracts -- Security
Interests in the Manufactured Homes" in the
Prospectus.
Federal and state consumer protection laws
impose requirements upon creditors in
connection with extensions of credit and
collections on installment sales contracts,
and certain of these laws make an assignee
of such a contract, such as the Trust,
liable to the obligor thereon for any
violation by the lender.
FINAL SCHEDULED
DISTRIBUTION DATE............... The following table is based on the Modeling
Assumptions contained herein under the
heading "Maturity and Prepayment
Considerations -- Modeling Assumptions and
MHP Tables," except that (i) it is assumed
that the Servicer does not exercise its right
of optional termination, (ii) no prepayments
occur on the Assets (I.E., the assumed rate
of prepayments occurs at 0% MHP) and (iii)
there are no Accelerated Principal Payments.
<TABLE>
<CAPTION>
TITLE OF FINAL SCHEDULED
CLASS DISTRIBUTION DATE
- ----------- -------------------
<S> <C>
A-1 ARM October 15, 2027
A September 15, 2027
M-1 April 15, 2026
M-2 October 15, 2025
B-1 November 15, 2024
</TABLE>
Because the rate of distributions in
reduction of the Certificate Principal
Balances of the Offered Certificates will
depend on the rate of amortization of and
Realized Losses on the Assets (including
amortization due to prepayments and
defaults), the actual final distribution on
any Class of Offered Certificates could
occur significantly earlier or later than
the Final Scheduled Distribution Date set
forth above. The rate of payments on the
Assets will depend on their particular
characteristics, as well as on interest
rates prevailing from time to time and other
economic factors, and no assurance can be
given as to the actual payment or default
experience of the Assets.
OPTIONAL TERMINATION............ The Servicer, subject to the limitations
imposed by the Agreement, may terminate the
Trust by purchasing all Assets, Repo
Properties and REO Properties remaining in
the Trust on any Distribution Date (the "Call
Option Date") occurring on or after the
Distribution Date on which the sum of the
Certificate Principal Balance of the
Certificates is less than 10% of the sum of
the original Certificate Principal Balance of
the Certificates. The Trust also may be
terminated (and the Certificates retired) on
any Distribution Date upon the Servicer's
determination, based on an opinion of
counsel, that the REMIC status of either the
Pooling REMIC or the Issuing REMIC, each as
described herein under " -- Federal Income
Tax Consequences," has been lost or that a
substantial risk exists that such status will
be lost for the then current taxable year.
See "The Trust -- Optional Termination"
herein.
AUCTION SALE.................... If the Servicer does not exercise its
optional termination right within 90 days
after it first becomes eligible to do so, the
Trustee shall solicit bids for the purchase
of all Assets, REO Properties and Repo
Properties remaining in the Trust. The
Trustee shall sell such Assets, REO
Properties and Repo Properties only if the
net proceeds to the Trust from such sale
would at least equal the Termination Price.
See "The Trust -- Auction Sale" herein.
FEDERAL INCOME
TAX CONSEQUENCES................ An election will be made to treat the Assets
and certain other assets of the Trust as a
REMIC for federal income tax purposes (the
"Pooling REMIC"). An election also will be
made to treat the "regular
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<PAGE>
interests" in the Pooling REMIC and certain
other assets of the Trust as another REMIC
for federal income tax purposes (the
"Issuing REMIC"). The Class A-1 ARM
Certificates, the Class A Certificates, the
Class M Certificates, the Class B
Certificates and the Class X Certificates
will be designated as "regular interests" in
the Issuing REMIC and the Class R
Certificates will represent the beneficial
ownership of the "residual interest" in each
of the Pooling REMIC and the Issuing REMIC.
Because the Offered Certificates will be
considered REMIC regular interests, they
will be taxable debt obligations under the
Code, and interest paid or accrued on such
Certificates, including any original issue
discount, will be taxable to the holders of
such Certificates in accordance with the
accrual method of accounting, regardless of
such Certificateholders' usual methods of
accounting. The Class A Certificates bear
interest at a fixed rate and, therefore,
will be issued with original issue discount
only if their stated principal amount
exceeds the issue price. See "Federal Income
Tax Consequences -- REMIC Certificates --
Original Issue Discount" in the Prospectus.
The Class A-1 ARM, Class M-1, Class M-2 and
Class B-1 Certificates constitute Non-VRDI
Certificates and, therefore, will be treated
as issued with original issue discount as
described in "Federal Income Tax
Consequences -- REMIC Certificates --
Interest Weighted Certificates and Non-VRDI
Certificates" in the Prospectus. The
prepayment assumption that should be used in
determining the rate of accrual of original
issue discount, if any, with respect to the
Offered Certificates is 200% MHP. However,
no representation is made herein as to the
rate at which prepayments actually will
occur. See "Maturity and Prepayment
Considerations" herein.
For federal income tax purposes, the Offered
Certificates generally will be treated as
"regular interests in a REMIC" for domestic
building and loan associations and "real
estate assets" for real estate investment
trusts ("REITs"), subject to the limitations
described in "Federal Income Tax
Consequences" in the Prospectus. Similarly,
interest on the Offered Certificates will be
considered "interest on obligations secured
by mortgages on real property" for REITs,
subject to the limitations described in
"Federal Income Tax Consequences" in the
Prospectus.
RATINGS......................... It is a condition to the issuance of the
Certificates that each Class of Offered
Certificates obtain the following ratings by
Fitch IBCA, Inc. ("Fitch") and Moody's
Investors Service, Inc. ("Moody's").
<TABLE>
<CAPTION>
FITCH MOODY'S
------- --------
<S> <C> <C>
Class A-1 ARM AAA Aaa
Class A AAA Aaa
Class M-1 AA Aa3
Class M-2 A- A2
Class B-1 BBB Baa2
</TABLE>
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 organization.
LEGAL INVESTMENT................ The Class A-1 ARM Certificates, the Class A
Certificates and the Class M-1 Certificates
will constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") for so long
as they are rated in one of the two highest
rating categories by one or more nationally
recognized statistical rating organizations,
and accordingly, the Class A-1 ARM
Certificates, the Class A Certificates and
the Class M-1 Certificates will be legal
S-11
<PAGE>
investments for certain entities to the
extent provided in SMMEA, subject to state
laws overriding SMMEA. A number of states
have enacted legislation overriding the
legal investment provisions of SMMEA. The
appropriate characterization of the Class
M-2 and Class B-1 Certificates under various
legal investment restrictions, and thus the
ability of investors subject to these
restrictions to purchase the Class M-2 and
Class B-1 Certificates, is subject to
significant interpretive uncertainties.
Accordingly, investors whose investment
authority is subject to legal restrictions
should consult their own legal advisors to
determine whether and to what extent the
Class M-2 and Class B-1 Certificates
constitute legal investments for them.
THE CLASS M-2 AND CLASS B-1 CERTIFICATES ARE
NOT "MORTGAGE RELATED SECURITIES" FOR
PURPOSES OF SMMEA BECAUSE SUCH CERTIFICATES
ARE NOT RATED IN ONE OF THE TWO HIGHEST
RATING CATEGORIES BY A NATIONALLY RECOGNIZED
RATING AGENCY. See "Legal Investment
Considerations" herein and in the
Prospectus.
ERISA CONSIDERATIONS............ Fiduciaries of employee benefit plans and
certain other retirement plans and
arrangements, including individual retirement
accounts and annuities, Keogh plans, and
collective investment funds in which such
plans, accounts, annuities or arrangements
are invested, that are subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or corresponding
provisions of the Code (any of the foregoing,
a "Plan"), persons acting on behalf of a
Plan, or persons using the assets of a Plan
("Plan Investors") should consult with their
own counsel to determine whether the purchase
or holding of the Offered Certificates could
give rise to a transaction that is prohibited
either under ERISA or the Code. Certain
prohibited transaction exemptions may be
applicable to the purchase and holding of
certain Offered Certificates as described
herein. Nevertheless, any Plan Investor
contemplating an investment in Offered
Certificates should note that the duties and
obligations of the Trustee and the Servicer
are limited to those expressly set forth in
the Agreement, and such specified duties and
obligations may not comport with or satisfy
the provisions of ERISA setting forth the
fiduciary duties of Plan fiduciaries.
BECAUSE THE OFFERED SUBORDINATED
CERTIFICATES ARE SUBORDINATED SECURITIES,
THEY WILL NOT SATISFY THE REQUIREMENTS OF
CERTAIN PROHIBITED TRANSACTION EXEMPTIONS.
AS A RESULT, THE PURCHASE OR HOLDING OF ANY
OF THE OFFERED SUBORDINATED CERTIFICATES BY
A PLAN INVESTOR MAY CONSTITUTE A NON-EXEMPT
PROHIBITED TRANSACTION OR RESULT IN THE
IMPOSITION OF EXCISE TAXES OR CIVIL
PENALTIES. ACCORDINGLY, NONE OF THE OFFERED
SUBORDINATED CERTIFICATES ARE OFFERED FOR
SALE, AND ARE NOT TRANSFERABLE, TO PLAN
INVESTORS, UNLESS SUCH PLAN INVESTOR
PROVIDES THE COMPANY AND THE TRUSTEE WITH A
BENEFIT PLAN OPINION (AS DEFINED HEREIN), OR
THE CIRCUMSTANCES DESCRIBED IN CLAUSE (II)
BELOW ARE SATISFIED. UNLESS SUCH OPINION IS
DELIVERED, EACH PERSON ACQUIRING AN OFFERED
SUBORDINATED CERTIFICATE WILL BE DEEMED TO
REPRESENT TO THE TRUSTEE, THE COMPANY, AND
THE SERVICER THAT EITHER (I) SUCH PERSON IS
NOT A PLAN INVESTOR SUBJECT TO ERISA OR
SECTION 4975 OF THE CODE, OR (II) SUCH
PERSON IS AN INSURANCE COMPANY THAT IS
PURCHASING AN OFFERED SUBORDINATED
CERTIFICATE WITH FUNDS FROM ITS "GENERAL
ACCOUNT" AND THE PROVISIONS OF PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60 WILL APPLY
TO EXEMPT THE PURCHASE OF SUCH CERTIFICATE
FROM THE PROHIBITED TRANSACTION RULES OF
ERISA AND THE CODE. SEE "ERISA
CONSIDERATIONS" HEREIN AND IN THE
PROSPECTUS.
S-12
<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with an investment in any of the Offered
Certificates.
1. CERTIFICATEHOLDERS SUBJECT TO LOSS IF RATE OF DELINQUENCIES AND AMOUNT
OF REALIZED LOSSES EXCEED CERTAIN LEVELS. The geographic dispersion of the
Manufactured Homes and Mortgaged Properties, which are heavily concentrated in
North Carolina and Texas, is set forth herein under "The Asset Pool."
Regardless of its location, manufactured housing generally depreciates in
value. Consequently, the market values of the Manufactured Homes could be or
become lower than the principal balances of the Assets they secure. This
depreciation could exacerbate the negative effects on Certificateholders of
defaults on Assets, because it will result in Realized Losses on Liquidated
Loans being more severe than would have been the case had the value of the
underlying Manufactured Homes not declined. Sufficiently high defaults and
Realized Losses on the Assets will have the effect of reducing, and could
eliminate the protection against loss afforded to the Class A-1 ARM
Certificates, the Class A Certificates and the Class M Certificates by the
subordination of the Class B, Class X and Class R Certificates. If such
protection is eliminated, the Class A-1 ARM Certificateholders, the Class A
Certificateholders and the Class M Certificateholders will bear the risk of
losses on the Assets. See "Description of the Certificates -- Subordination of
the Subordinated Certificates." With respect to the Class B-1 Certificates,
sufficiently high delinquencies and Realized Losses on the Assets will have the
effect of reducing, and could eliminate, the protection against loss afforded
by the amounts otherwise distributable to the Class B-2, Class X and Class R
Certificateholders. If such protection is eliminated, the Class B-1
Certificateholders will bear the risk of losses on the Assets.
Certain statistical information relating to the losses experienced by
Oakwood as servicer upon its liquidation of certain manufactured housing
contracts is set forth herein under "Servicing of the Assets -- Delinquency and
Loan Loss/Repossession Experience." Such statistical information relates only
to certain manufactured housing contracts and residential mortgage loans
serviced by Oakwood during the periods indicated and is included herein only
for illustrative purposes. There is no assurance that the Assets will have
characteristics similar to those of the manufactured housing contracts and
residential mortgage loans to which such statistical information relates. In
addition, the losses experienced upon the liquidation of manufactured housing
contracts historically has been sharply affected by downturns in regional or
local economic conditions. The Asset Pool consists primarily of Contracts.
These regional or local economic conditions are often volatile. No predictions
can be made regarding future economic losses upon liquidation of any Contract
or Mortgage Loan. In light of the foregoing, no assurance can be given that the
losses experienced upon the liquidation of defaulted Assets will be similar to
any statistical information provided herein under "Servicing of the Assets --
Delinquency and Loan Loss/Repossession Experience."
The statistical information provided reflects an increase in delinquencies
and loan losses since 1994. Increases in delinquencies reflect increased
obligor bankruptcies and the fact that the 1994 figures, in the opinion of
Oakwood's management, represent unsustainable record low delinquency levels.
Increases in loan losses reflect an industry-wide trend toward lower down
payments (resulting in greater loss severity per asset) and an increased
frequency of repossession. In addition, net losses from liquidations include
accrued and unpaid interest with respect to a greater percentage of
liquidations in more recent periods than in earlier periods presented. In
addition, delinquencies and losses historically have been sharply affected by
down-turns in regional or local economic conditions. These regional or local
economic conditions are often volatile. No predictions can be made regarding
future delinquencies or losses. The June 30, 1998 delinquency information
provided herein notes a material increase over year-end 1997 results. The
Servicer does not yet know whether this trend will continue, however, any
continuation likely would cause higher than historical credit losses.
Furthermore, Oakwood has relatively little experience originating and servicing
adjustable rate Assets. The Adjustable Rate Assets may have materially
different delinquency and default characteristics from the Servicer's
historical fixed-rate portfolio's characteristics included herein. In light of
the foregoing, no assurance can be given that the delinquency and loss
characteristics of the Assets will be similar to any statistical information
provided herein under "Servicing of the Assets -- Delinquency and Loans/Loss
Repossession Experience."
2. CERTIFICATEHOLDERS MUST LOOK SOLELY TO THE TRUST ESTATE FOR
DISTRIBUTIONS OF PRINCIPAL AND INTEREST. The Certificates will not represent an
interest in or obligation of the Company or any Servicer (including Oakwood).
The Certificates will not be insured or guaranteed by any government agency or
instrumentality, by any Underwriter or by the Company. The Certificates will be
payable only from amounts collected on or with respect to the Assets (which
will include Obligor payments, P&I Advances, Liquidation Proceeds and proceeds
of Standard Hazard Insurance Policies maintained with respect to the Assets).
S-13
<PAGE>
3. THERE WILL BE A LIMITED MARKET FOR THE OFFERED CERTIFICATES. There can
be no assurance that a secondary market will develop for the Offered
Certificates or, if it does develop, that it will provide the holders of the
Offered Certificates with liquidity of investment or that it will continue to
exist for the term of the Certificates. In addition, the liquidity of the
Offered Subordinated Certificates may be adversely affected by restrictions
relating to the transfer of the Offered Certificates to Plan Investors.
4. THE WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES IS UNCERTAIN. The
prepayment experience on the Assets (including prepayments resulting from
defaults and subsequent foreclosure on the Assets) will affect the average life
of the Certificates, and will affect the yield to maturity on any Certificates
purchased at a premium over or at a discount from their principal balances.
Prepayments on the Assets may be influenced by a variety of economic,
geographic, social and other factors, including repossessions, seasoning of the
Assets and interest rates. Other factors affecting prepayment rates on the
Assets include changes in housing needs, job transfers and unemployment.
Prepayments on the Adjustable Rate Assets may be affected by factors other than
those affecting the Fixed Rate Assets; prepayments on the Adjustable Rate
Assets may be materially different from those on the Fixed Rate Assets. See
"Maturity and Prepayment Considerations" and "Yield on the Offered
Certificates" herein and "Maturity and Prepayment Considerations" in the
Prospectus.
5. CREDIT RISK FROM SUBORDINATION OF THE OFFERED SUBORDINATED CERTIFICATES
TO THE CLASS A CERTIFICATES. As described herein, payments of principal and
interest on the Assets will be available to make distributions on the Offered
Subordinated Certificates only after required distributions have been made on
the Class A Certificates. Further, all Realized Losses on the Assets generally
will be allocated to the Offered Subordinated Certificates prior to being
allocated to the Class A-1 ARM Certificates and the Class A Certificates.
Realized Losses on the Assets in excess of the available credit support will
adversely affect the yield on the Offered Certificates.
It is not possible to predict with certainty the timing of the Cross-over
Date or the date, if any, on which the Class A Principal Balance will be
reduced to zero, or whether the Principal Distribution Tests will be met as to
any Distribution Date. Generally, prior to the time that the Certificate
Principal Balance of a Class of Class A Certificates with a lower numerical
designation is reduced to zero, the holders of any Class of Class A
Certificates with a higher numerical designation will not receive any
distributions of principal. Likewise, prior to the Cross-Over Date and prior to
the time that the Certificate Principal Balance of all Classes of the Class A
Certificates is reduced to zero, the holders of the Offered Subordinated
Certificates will not receive any distributions of principal. It is not
possible to predict the timing of the occurrence of the Distribution Date, if
any, on which the aggregate Certificate Principal Balance of any Class of the
Class A Certificates or the Offered Subordinated Certificates will be reduced
to zero.
The timing of the occurrence of the Cross-over Date or of the date on
which the Certificate Principal Balance of any Class of the Offered
Certificates is reduced to zero will be affected by the rate of voluntary
principal prepayments in addition to prepayments due to defaults on Assets and
the resulting liquidations of the underlying Manufactured Homes or Mortgaged
Properties. In addition, the satisfaction of the Principal Distribution Tests
in respect of any Distribution Date will be dependent on the rate and severity
of Realized Losses and delinquencies on the Assets. See "Description of the
Offered Certificates -- Distributions" herein.
6. THE SERVICER'S ABILITY TO REALIZE ON ASSETS MAY BE LIMITED BY
APPLICABLE STATE LAW. A variety of factors may limit the Servicer's ability to
repossess or foreclose on and liquidate the Manufactured Homes or Mortgaged
Properties securing the Contracts and Mortgage Loans on behalf of the
Certificateholders or may limit the amount realized upon any such liquidation
to less than the amount due under the related Asset. See "Risk Factors -- 3.
Certificateholders May Realize Losses if The Servicer Is Unable to Realize on
Assets Because of Provisions of Applicable State Law" and "Certain Legal
Aspects of Contracts and Mortgage Loans" in the Prospectus.
7. RECHARACTERIZATION OF THE TRANSACTION IN BANKRUPTCY CASES COULD RESULT
IN DELAYS OR ACCELERATION OF DISTRIBUTIONS ON THE OFFERED CERTIFICATES. Oakwood
and the Company intend that the transfer of the Assets to the Trust constitutes
a sale rather than a pledge of the Assets to secure indebtedness of Oakwood.
However, if Oakwood or one of its affiliates were to become a debtor under the
federal bankruptcy code, it is possible that a creditor or
trustee-in-bankruptcy of Oakwood (or such affiliate), or Oakwood (or such
affiliate) as a debtor-in-possession, may argue that the sale of the Assets by
Oakwood is a pledge of the Assets rather than a sale. This position, if argued
before or accepted by a court, could result in a delay in or reduction of
distributions to the Certificateholders. In addition, if an affiliate of
Oakwood were to become insolvent, a creditor, receiver, conservator or
trustee-in-bankruptcy of such affiliate may argue that Oakwood's assets should
be substantively consolidated into such affiliate's estate. This position, if
argued before or accepted by a court, could similarly result in a delay in or
reduction of distributions to the Certificateholders.
S-14
<PAGE>
A case (OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir.),
CERT. DENIED 114 S. Ct. 554 (1993)) decided by the United States Court of
Appeals for the Tenth Circuit contains language to the effect that accounts
sold by a debtor under Article 9 of the UCC would remain property of the
debtor's bankruptcy estate. Although the Contracts constitute chattel paper
under the UCC rather than accounts, sales of chattel paper are similarly
governed by Article 9 of the UCC. If, following a bankruptcy of Oakwood, a
court were to follow the reasoning of the Tenth Circuit and apply such
reasoning to chattel paper, then delays or reductions in payments of
collections on or in respect of the Contracts could occur. Counsel to Oakwood
has advised Oakwood that the facts of the Octagon case are distinguishable from
those relating to the sale of the Contracts from Oakwood to the Company and
that the reasoning of the Octagon case is inconsistent with precedent and the
Uniform Commercial Code.
8. FLOATING RATE CERTIFICATES ARE SUBJECT TO RISK OF VARIABILITY OF YIELD.
The yield to maturity of the Class A-1 ARM Certificates will be affected by the
performance of One-Month LIBOR (as defined herein), which is uncertain and
which moves in a manner different from other indices. See "Description of the
Offered Certificates -- Distributions -- Floating Rate Determination" and
"Yield on the Offered Certificates" herein.
THE ASSET POOL
GENERAL
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a Trust consisting primarily of the Assets. The Trust
will be established pursuant to a pooling and servicing agreement dated as of
August 1, 1998 (together with the Standard Terms thereto (July 1998 Edition),
the "Agreement"), among the Company, the Servicer and PNC Bank, National
Association, as trustee (the "Trustee"). The Company will acquire the Assets
from Oakwood pursuant to the Sales Agreement. Oakwood will have funded the
origination of each Asset, either in its own name or in the name of OMH or
another manufactured housing dealer. Each Asset not originated directly in
Oakwood's name will have been assigned to Oakwood immediately after its
origination. Each Asset will be either an installment sales contract secured by
a unit of manufactured housing (manufactured housing installment sales
contracts are referred to herein as "manufactured housing contracts" or
"contracts"), or a residential mortgage loan secured by a lien on the real
estate on which the related Manufactured Home is deemed permanently affixed (a
"Mortgaged Property"). A description of Oakwood's general practice with respect
to the origination or purchase of manufactured housing contracts and mortgage
loans is set forth in the Prospectus under "Underwriting Policies."
Under the Agreement, the manufactured homes securing the Assets (the
"Manufactured Homes") are required to comply with the requirements of certain
federal statutes. These statutes generally require the Manufactured Homes to
have a minimum of 400 square feet of living space and a minimum width of 102
inches and to be of a kind customarily used at a fixed location. Such statutes
also require the Manufactured Homes to be transportable in one or more
sections, and to be built on a permanent chassis and designed to be used as
dwellings, with or without permanent foundations, when connected to the
required utilities. The Manufactured Homes include the plumbing, heating, air
conditioning and electrical systems contained therein. Oakwood's management
estimates that in excess of 90% of the Manufactured Homes are used as primary
residences by the related Obligors.
The Agreement requires the Servicer to maintain or cause to be maintained
Standard Hazard Insurance Policies with respect to each Manufactured Home and
Mortgaged Property in the amounts and manner set forth in the Prospectus under
"The Trusts -- Insurance -- Hazard Insurance -- Standard Hazard Insurance
Policies." Generally, no other insurance will be maintained with respect to the
Manufactured Homes, the Mortgaged Properties, the Assets or the Asset Pool.
The Company will convey to the Trustee the Assets and all rights to
receive (1) payments due on the Assets after August 1, 1998 (the "Cut-off
Date"), including scheduled payments due after the Cut-off Date but received
prior to such date, and (2) prepayments and other unscheduled collections in
respect of the Assets received on or after the Cut-off Date. The right to
payments that were due on or prior to the Cut-off Date but which are received
after such date will not be conveyed to the Company by Oakwood, and such
payments will be the property of Oakwood when collected. The Servicer will
retain physical possession of the Contract Documents. Except to the extent
required to service a Mortgage Loan, the Trustee will maintain physical
possession of the Mortgage Loan Documents. See " -- Conveyance of Assets"
below.
FIXED RATE ASSETS
The Asset Pool will consist of 7,003 Fixed Rate Assets having Scheduled
Principal Balance as of the Cut-off Date of approximately $301,417,281. A total
of 2,404 Fixed Rate Assets, representing 40.20% of the Fixed Rate Assets, are
Step-up
S-15
<PAGE>
Rate Loans. The remainder of the Fixed Rate Assets are Level Payment Loans. See
"The Trust -- The Assets" in the Prospectus. Step-up Rate Loans are Assets that
provide for periodic increases of 0.50%, 1.00%, 1.25%, 1.50% or 1.75% in the
applicable Asset Rates at the end of certain intervals ranging from six to
twelve months during the first five years following origination (the applicable
"Step-up Periods"), after which the Asset Rates are fixed. The total amount and
the principal portion of each Monthly Payment on any Step-up Rate Loan during
any period is determined on a basis that would cause the Asset to be fully
amortized over its term if the Asset were to bear interest during its entire
term at the Asset Rate applicable during such period and as if the Asset were
to provide for level payments over its entire term based on such Asset Rate.
The total amount and principal portion of each Monthly Payment that is due on a
Step-up Rate Loan at the time of each adjustment of its Asset Rate will be
determined on a basis that would cause the Asset (which would be bearing
interest at an increased Asset Rate after such adjustment) to be fully
amortized over its remaining term on a level-payment basis. In addition to
being subject to interest rate adjustments during their Step-up Periods,
certain Step-up Rate Loans will be subject to a one-time increase in their
Asset Rates with respect to their final Monthly Payments. The statistical
information concerning the Fixed Rate Assets set forth below, to the extent it
relates to the Asset Rates of the Step-up Rate Loans, takes into account only
the Asset Rates borne by such Assets as of the Cut-off Date.
Except in the case of the Step-up Rate Loans during their Step-up Periods,
each Fixed Rate Asset bears interest at a fixed annual percentage rate (its
"APR" or "Asset Rate") and provides for level payments over the term of such
Asset that fully amortize the principal balance of the Asset. All of the Fixed
Rate Assets are actuarial obligations. The portion of each Monthly Payment for
any Fixed Rate Asset allocable to principal is equal to the total amount of
such Monthly Payment less the portion thereof allocable to interest. The
portion of each Monthly Payment due in a particular month that is allocable to
interest is a precomputed amount equal to one month's interest on the principal
balance of the Fixed Rate Asset, which principal balance is determined by
reducing the initial principal balance by the principal portion of all Monthly
Payments that were due in prior months (regardless of whether such Monthly
Payments were made in a timely fashion) and all prior partial principal
prepayments. Thus, each scheduled Monthly Payment on an Asset will be applied
to interest and to principal in accordance with such precomputed allocation
regardless of whether such Monthly Payment was received in advance of or
subsequent to its Due Date. See "Servicing of the Assets -- Collection and
Other Servicing Procedures" herein.
As of the Cut-off Date, approximately 3.18% of the Fixed Rate Assets were
Land Secured Contracts. For each Land Secured Contract, the originator financed
the purchase of the related Manufactured Home and either took as additional
security a Mortgage on the property on which the Manufactured Home is located
or took a Mortgage on the property on which the Manufactured Home is located in
lieu of all or a portion of the Obligor's required down payment. As of the
Cut-off Date, approximately 8.74% of the Fixed Rate Assets were Mortgage Loans.
As of the Cut-off Date, each Fixed-Rate Asset had an Asset Rate of at
least 6.90% and not more than 14.50%. The weighted average Asset Rate of the
Fixed-Rate Assets was approximately 9.86% (without giving effect to any
subsequent increase in the Asset Rates of the Step-up Rate Loans). The Fixed
Rate Assets had remaining terms to stated maturity as of the Cut-off Date of at
least 6 months but not more than 360 months and original terms to stated
maturity of at least 12 months but not more than 360 months. Each Fixed Rate
Asset was originated on or after January 24, 1997. As of the Cut-off Date, the
Fixed Rate Assets had a weighted average original term to stated maturity of
approximately 290 months, and a weighted average remaining term to stated
maturity of approximately 289 months. The remaining term to stated maturity of
an Asset is calculated as the number of Monthly Payments scheduled to be made
on the Asset over its term less the number of Monthly Payments made or
scheduled to have been made on or before the Cut-off Date. The average
Scheduled Principal Balance of the Fixed Rate Assets as of the Cut-off Date was
approximately $43,041 and the Scheduled Principal Balance of the Fixed Rate
Assets as of the Cut-off Date ranged from $1,673 to $180,734.
Approximately 49.48% of the Fixed Rate Assets have Loan-to-Value Ratios
greater than 95%. Oakwood computes each Contract Loan-to-Value Ratio with
respect to which a lien on land has been granted in lieu of a cash down payment
by determining the ratio (expressed as a percentage) of the principal amount of
the related Contract to the sum of the purchase price of the home (including
taxes, insurance and any land improvements), the tax value or the appraised
value of the land and the amount of any prepaid finance charges or closing
costs that are financed. Oakwood computes each Contract Loan-to-Value Ratio for
all other Contracts by determining the ratio (expressed as a percentage) of the
principal amount of such Contract to the purchase price of the home (including
taxes, insurance and any land improvements) and the amount of any prepaid
finance charges or closing costs that are financed. Oakwood computes each
Mortgage Loan-to-Value Ratio by determining the ratio (expressed as a
percentage) of the principal amount of such Mortgage Loan to either (i) the sum
of the appraised value of the land and improvements, and the amount of any
prepaid finance charges or closing costs that are financed or (ii) the sum of
the purchase price of the home (including taxes, insurance and any land
improvements), the appraised value of the land and the amount of any prepaid
finance charges or closing costs that are financed. Manufactured
S-16
<PAGE>
Homes, unlike site-built homes, generally depreciate in value. Consequently, at
any time after origination it is possible, especially in the case of Assets
with high Loan-to-Value Ratios at origination, that the market value of a
Manufactured Home may be lower than the principal amount outstanding under the
related Asset.
The Fixed Rate Assets are secured by Manufactured Homes or Mortgaged
Properties (or Real Properties, in the case of Land Secured Contracts) located
(based on the mailing addresses of the related Obligors as of the Cut-off Date)
in 38 states. Approximately 21.35% and 20.62% of the Fixed Rate Assets were
secured as of the Cut-off Date by Mortgaged Properties or Manufactured Homes
(or Real Properties, in the case of Land Secured Contracts) located (based on
the mailing addresses of the related Obligors as of the Cut-off Date) in Texas
and North Carolina, respectively. As of the Cut-off Date, no fewer than 90.37%
of the Fixed Rate Assets were secured by Manufactured Homes which were new at
the time the related Assets were originated. As of the Cut-off Date, no more
than 1.64%, 7.17% and 0.82% of the Fixed Rate Assets were secured by
Manufactured Homes which were used, repossessed or transferred to an assignee
of the original Obligor, respectively, at the time the related Assets were
originated.
ADJUSTABLE RATE ASSETS
The Asset Pool will consist of 99 Adjustable Rate Assets having an
aggregate Scheduled Principal Balance as of the Cut-off Date of approximately
$7,625,928.
Each Adjustable Rate Asset has an Asset Rate that adjusts annually based
on the monthly average yield on United States treasury securities adjusted to a
constant maturity of one year, and provides for level payments over the term of
such Asset that fully amortize the principal balance of the Asset. All of the
Adjustable Rate Assets are actuarial obligations. Each Adjustable Rate Asset
has an annual cap of 2%. The weighted average lifetime cap of the Adjustable
Rate Assets as of the Cut-off Date was approximately 14%. The Adjustable Rate
Assets had Gross Margins as of the Cut-off Date of at least 3.25% but not more
than 4.75%, with a weighted average Gross Margin of approximately 4.08%. The
portion of each Monthly Payment for any Adjustable Rate Asset allocable to
principal is equal to the total amount of such Monthly Payment less the portion
thereof allocable to interest. The portion of each Monthly Payment due in a
particular month that is allocable to interest is a precomputed amount equal to
one month's interest on the principal balance of the Adjustable Rate Asset,
which principal balance is determined by reducing the initial principal balance
by the principal portion of all Monthly Payments that were due in prior months
(regardless of whether such Monthly Payments were made in a timely fashion) and
all prior partial principal prepayments. Thus, each scheduled Monthly Payment
on an Asset will be applied to interest and to principal in accordance with
such precomputed allocation regardless of whether such Monthly Payment was
received in advance of or subsequent to its Due Date. See "Servicing of the
Assets -- Collection and Other Servicing Procedures" herein. As of the Cut-off
Date all of the Adjustable Rate Assets were Mortgage Loans.
As of the Cut-off Date, each Adjustable Rate Asset had an Asset Rate of at
least 7.00% and not more than 8.75%. The weighted average Asset Rate of the
Adjustable Rate Assets was approximately 8.00% (without giving effect to any
subsequent increase in the Asset Rates of the Adjustable Rate Loans). The
Adjustable Rate Assets had remaining terms to stated maturity as of the Cut-off
Date of at least 233 months but not more than 360 months and original terms to
stated maturity of at least 240 months but not more than 360 months. Each
Adjustable Rate Asset was originated on or after August 25, 1997. As of the
Cut-off Date, the Adjustable Rate Assets had a weighted average original term
to stated maturity of approximately 357 months, and a weighted average
remaining term to stated maturity of approximately 353 months. The remaining
term to stated maturity of an Asset is calculated as the number of Monthly
Payments scheduled to be made on the Asset over its term less the number of
Monthly Payments made or scheduled to have been made on or before the Cut-off
Date. The average Scheduled Principal Balance of the Adjustable Rate Assets as
of the Cut-off Date was approximately $77,030 and the Scheduled Principal
Balance of the Adjustable Rate Assets as of the Cut-off Date ranged from
$42,856 to $130,067. Approximately 45.94% of the Adjustable Rate Assets have
Loan-to-Value Ratios greater than 95%.
The Adjustable Rate Assets are secured by Mortgaged Properties located
(based on the mailing addresses of the related Obligors as of the Cut-off Date)
in 20 states. Approximately 23.18% and 20.87% of the Adjustable Rate Assets
were secured as of the Cut-off Date by Mortgaged Properties located (based on
the mailing addresses of the related Obligors as of the Cut-off Date) in North
Carolina and Tennessee, respectively.
SELECTED DATA
Certain data with respect to the Assets to be transferred by the Company
to the Trust as of the Cut-off Date are set forth below. The Company believes
that the information set forth herein will be representative of the
characteristics of the
S-17
<PAGE>
actual Assets, although prior to the issuance of the Certificates, Assets may
be prepaid in full or in part or otherwise removed from the pool of Assets to
be transferred to the Trust.
Whenever reference is made herein to a percentage of the Assets (or to a
percentage of the Scheduled Principal Balance of the Assets), the percentage is
calculated based on the Scheduled Principal Balances ("SPB") of the Assets as
of the Cut-off Date. In addition, numbers in any columns in the tables below
may not sum exactly to the total number at the bottom of the column due to
rounding.
FIXED RATE ASSETS.
GEOGRAPHIC DISTRIBUTION OF MANUFACTURED HOMES -- FIXED RATE ASSETS (1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
FIXED RATE SCHEDULED FIXED RATE ASSET
GEOGRAPHIC LOCATION ASSETS PRINCIPAL BALANCE POOL BY SPB
- --------------------------- ------------ ------------------- -----------------
<S> <C> <C> <C>
Alabama ................ 236 $ 9,387,820 3.11%
Arizona ................ 215 12,211,491 4.05
Arkansas ............... 145 5,792,930 1.92
California ............. 18 1,033,866 0.34
Colorado ............... 70 3,573,885 1.19
Delaware ............... 35 1,334,383 0.44
Florida ................ 198 9,301,388 3.09
Georgia ................ 272 11,598,769 3.85
Idaho .................. 65 3,414,477 1.13
Illinois ............... 12 556,443 0.18
Indiana ................ 5 141,066 0.05
Iowa ................... 1 39,817 0.01
Kansas ................. 55 2,382,093 0.79
Kentucky ............... 178 6,731,943 2.23
Louisiana .............. 208 9,105,326 3.02
Maryland ............... 16 617,732 0.20
Mississippi ............ 237 9,893,883 3.28
Missouri ............... 136 5,290,464 1.76
Montana ................ 1 60,030 0.02
Nevada ................. 20 1,035,471 0.34
New Jersey ............. 1 7,618 0.00
New Mexico ............. 264 11,497,837 3.81
New York ............... 3 207,533 0.07
North Carolina ......... 1,500 62,139,207 20.62
North Dakota ........... 1 49,675 0.02
Ohio ................... 35 1,406,380 0.47
Oklahoma ............... 109 4,680,265 1.55
Oregon ................. 39 2,507,560 0.83
Pennsylvania ........... 1 53,130 0.02
South Carolina ......... 430 17,521,548 5.81
Tennessee .............. 322 13,072,481 4.34
Texas .................. 1,500 64,338,474 21.35
Utah ................... 31 1,691,110 0.56
Virginia ............... 389 15,159,267 5.03
Washington ............. 123 8,991,751 2.98
West Virginia .......... 130 4,501,890 1.49
Wisconsin .............. 1 56,883 0.02
Wyoming ................ 1 31,396 0.01
----- ------------ ------
Total ................ 7,003 $301,417,281 100.00%
===== ============ ======
</TABLE>
- ---------
(1) Based on the mailing address of the Obligor on the related Fixed Rate Asset
as of the Cut-Off Date.
S-18
<PAGE>
DISTRIBUTION OF ORIGINAL FIXED RATE ASSET AMOUNTS (1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED FIXED RATE ASSET
ORIGINAL FIXED RATE ASSET AMOUNT ASSETS PRINCIPAL BALANCE POOL BY SPB
- ---------------------------------- ----------- ------------------- -----------------
<S> <C> <C> <C>
$ 4,999 or less................ 15 $ 54,126 0.02%
5,000 - 9,999 .............. 104 823,180 0.27
10,000 - 14,999 .............. 165 2,071,599 0.69
15,000 - 19,999 .............. 216 3,770,229 1.25
20,000 - 24,999 .............. 419 9,516,075 3.16
25,000 - 29,999 .............. 719 19,839,079 6.58
30,000 - 34,999 .............. 1,030 33,563,081 11.14
35,000 - 39,999 .............. 900 33,469,982 11.10
40,000 - 44,999 .............. 493 20,873,890 6.93
45,000 - 49,999 .............. 558 26,549,454 8.81
50,000 - 54,999 .............. 597 31,259,211 10.37
55,000 - 59,999 .............. 549 31,572,198 10.47
60,000 - 64,999 .............. 519 32,322,279 10.72
65,000 - 69,999 .............. 288 19,347,619 6.42
70,000 - 74,999 .............. 158 11,399,198 3.78
75,000 - 79,999 .............. 85 6,572,440 2.18
80,000 - 84,999 .............. 42 3,453,187 1.15
85,000 - 89,999 .............. 25 2,183,518 0.72
90,000 - 94,999 .............. 36 3,306,124 1.10
95,000 - 99,999 .............. 24 2,347,262 0.78
100,000 or more ............... 61 7,123,552 2.36
----- ------------ ------
Total ....................... 7,003 $301,417,281 100.00%
===== ============ ======
</TABLE>
- ---------
(1) The highest original Fixed Rate Asset amount was $180,943, which represents
approximately 0.06% of the aggregate principal balance of the Fixed Rate
Assets at origination. The average original principal amount of the Fixed
Rate Assets was approximately $43,104 as of the Cut-Off Date.
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS OF FIXED RATE ASSETS(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED FIXED RATE ASSET
LOAN-TO VALUE RATIO (2) ASSETS PRINCIPAL BALANCE POOL BY SPB
- ------------------------- ----------- ------------------- -----------------
<S> <C> <C> <C>
50% or less ......... 48 $ 1,485,641 0.49%
51% - 55% .......... 19 608,294 0.20
56% - 60% .......... 21 826,161 0.27
61% - 65% .......... 35 1,157,085 0.38
66% - 70% .......... 64 2,310,013 0.77
71% - 75% .......... 115 3,927,922 1.30
76% - 80% .......... 196 6,895,741 2.29
81% - 85% .......... 421 15,334,833 5.09
86% - 90% .......... 851 32,987,026 10.94
91% - 95% .......... 2,089 86,756,508 28.78
96% - 100% .......... 3,144 149,128,056 49.48
----- ------------ ------
Total .............. 7,003 $301,417,281 100.00%
===== ============ ======
</TABLE>
- ---------
(1) The weighted average original Loan-to-Value Ratio of the Fixed Rate Assets
was approximately 93.58% as of the Cut-Off Date.
(2) Rounded to nearest 1%.
S-19
<PAGE>
FIXED RATE ASSET RATES (1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
FIXED RATE SCHEDULED FIXED RATE ASSET
ASSET RATE ASSETS PRINCIPAL BALANCE POOL BY SPB
- ------------------------------ ------------ ------------------- -----------------
<S> <C> <C> <C>
6.000% - 6.999% ......... 1,186 $ 67,482,855 22.39%
7.000% - 7.999% ......... 224 12,921,805 4.29%
8.000% - 8.999% ......... 1,150 57,852,650 19.19
9.000% - 9.999% ......... 758 35,941,309 11.92
10.000% - 10.999% ......... 435 22,322,578 7.41
11.000% - 11.999% ......... 355 14,019,690 4.65
12.000% - 12.999% ......... 1,749 54,309,955 18.02
13.000% - 13.999% ......... 1,145 36,544,595 12.12
14.000% - 14.999% ......... 1 21,844 0.01
----- ------------ ------
Total ................... 7,003 $301,417,281 100.00%
===== ============ ======
</TABLE>
- ---------
(1) The weighted average Fixed Rate Asset Rate was approximately 9.86% as of
the Cut-Off Date. This table reflects the Asset Rates of the Step-up Rate
Loans as of the Cut-Off Date and does not reflect any subsequent increases
in the Asset Rates of the Step-up Rate Loans.
YEAR OF ORIGINATION OF FIXED RATE ASSETS (1)
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF SCHEDULED PERCENTAGE OF ASSET
YEAR OF ORIGINATION ASSETS PRINCIPAL BALANCE POOL BY SPB
- --------------------- ----------- ------------------- --------------------
<S> <C> <C> <C>
1997 ............. 19 $ 875,128 0.29%
1998 ............. 6,984 300,542,153 99.71
----- ------------ ------
Total ........... 7,003 $301,417,281 100.00%
===== ============ ======
</TABLE>
- ---------
(1) The weighted average seasoning of the Fixed Rate Assets was
approximately 1 month as of the Cut-Off Date.
REMAINING TERMS TO MATURITY (IN MONTHS) OF FIXED RATE ASSETS(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
FIXED RATE SCHEDULED FIXED RATE ASSET
REMAINING TERM TO MATURITY ASSETS PRINCIPAL BALANCE POOL BY SPB
- ----------------------------- ------------ ------------------- -----------------
<S> <C> <C> <C>
1 - 60 months ......... 144 $ 1,296,192 0.43%
61 - 96 months ......... 130 1,802,091 0.60
97 - 120 months ......... 175 3,620,194 1.20
121 - 156 months ......... 200 4,248,998 1.41
157 - 180 months ......... 1,315 40,844,741 13.55
181 - 216 months ......... 90 2,933,713 0.97
217 - 240 months ......... 1,475 54,861,577 18.20
241 - 300 months ......... 1,461 66,871,803 22.19
301 - 360 months ......... 2,013 124,937,974 41.45
----- ------------ ------
Total .................. 7,003 $301,417,281 100.00%
===== ============ ======
</TABLE>
- ---------
(1) The weighted average remaining term to maturity of the Fixed Rate Assets
was approximately 289 months as of the Cut-Off Date.
S-20
<PAGE>
ORIGINAL TERMS TO MATURITY (IN MONTHS) OF FIXED RATE ASSETS(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
FIXED RATE SCHEDULED FIXED RATE ASSET
ORIGINAL TERM TO MATURITY ASSETS PRINCIPAL BALANCE POOL BY SPB
- ----------------------------- ------------ ------------------- -----------------
<S> <C> <C> <C>
1 - 60 months ......... 144 $ 1,296,192 0.43%
61 - 96 months ......... 130 1,802,091 0.60
97 - 120 months ......... 175 3,620,194 1.20
121 - 156 months ......... 200 4,248,998 1.41
157 - 180 months ......... 1,315 40,844,741 13.55
181 - 216 months ......... 89 2,901,589 0.96
217 - 240 months ......... 1,476 54,893,701 18.21
241 - 300 months ......... 1,461 66,871,803 22.19
301 - 360 months ......... 2,013 124,937,974 41.45
----- ------------ ------
Total .................. 7,003 $301,417,281 100.00%
===== ============ ======
</TABLE>
- ---------
(1) The weighted average original term to maturity of the Fixed Rate Assets
was approximately 290 months as of the Cut-Off Date.
ADJUSTABLE RATE ASSETS.
GEOGRAPHIC DISTRIBUTION OF MANUFACTURED HOMES -- ADJUSTABLE RATE ASSETS (1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTABLE RATE SCHEDULED ADJUSTABLE RATE ASSET
GEOGRAPHIC LOCATION ASSETS PRINCIPAL BALANCE POOL BY SPB
- ------------------------- ----------------- ------------------- ----------------------
<S> <C> <C> <C>
Arizona ................ 1 $ 80,282 1.05%
California ............. 1 94,490 1.24
Colorado ............... 5 443,078 5.81
Delaware ............... 1 71,406 0.94
Florida ................ 8 563,494 7.39
Georgia ................ 2 165,307 2.17
Idaho .................. 6 529,023 6.94
Kentucky ............... 8 674,988 8.85
Louisiana .............. 1 69,983 0.92
Michigan ............... 1 74,283 0.97
New Mexico ............. 5 365,714 4.80
North Carolina ......... 23 1,767,918 23.18
Oklahoma ............... 1 91,695 1.20
Oregon ................. 2 166,108 2.18
South Carolina ......... 3 241,611 3.17
Tennessee .............. 24 1,591,546 20.87
Texas .................. 1 51,432 0.67
Virginia ............... 2 170,265 2.23
Washington ............. 3 338,828 4.44
West Virginia .......... 1 74,475 0.98
-- ---------- ------
Total ................. 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) Based on the mailing address of the Obligor on the related Adjustable Rate
Asset as of the Cut-Off Date.
S-21
<PAGE>
DISTRIBUTION OF ORIGINAL ADJUSTABLE RATE ASSET AMOUNTS(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTABLE RATE SCHEDULED ADJUSTABLE RATE ASSET
ORIGINAL ADJUSTABLE RATE ASSET AMOUNT ASSETS PRINCIPAL BALANCE POOL BY SPB
- --------------------------------------- ----------------- ------------------- ----------------------
<S> <C> <C> <C>
$ 40,000 - $44,999.................... 2 $ 87,117 1.14%
45,000 - 49,999 ................... 3 141,460 1.85
50,000 - 54,999 ................... 4 209,088 2.74
55,000 - 59,999 ................... 6 341,929 4.48
60,000 - 64,999 ................... 5 307,151 4.03
65,000 - 69,999 ................... 11 734,169 9.63
70,000 - 74,999 ................... 14 1,013,431 13.29
75,000 - 79,999 ................... 14 1,075,777 14.11
80,000 - 84,999 ................... 9 733,480 9.62
85,000 - 89,999 ................... 11 951,653 12.48
90,000 - 94,999 ................... 8 731,414 9.59
95,000 - 99,999 ................... 3 291,705 3.83
100,000 or more ..................... 9 1,007,553 13.21
-- ---------- ------
Total ............................... 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The highest original Adjustable Rate Asset amount was $130,221, which
represents approximately 1.70% of the aggregate principal balance of the
Adjustable Rate Assets at origination. The average original principal
amount of the Adjustable Rate Assets was approximately $77,261.15 as of
the Cut-Off Date.
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS OF ADJUSTABLE RATE ASSETS(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTABLE RATE SCHEDULED ADJUSTABLE RATE ASSET
LOAN-TO VALUE RATIO (2) ASSETS PRINCIPAL BALANCE POOL BY SPB
- ------------------------- ----------------- ------------------- ----------------------
<S> <C> <C> <C>
61% - 65% ............ 1 $ 84,933 1.11%
66% - 70% ............ 1 42,856 0.56
76% - 80% ............ 4 268,100 3.52
81% - 85% ............ 7 529,407 6.94
86% - 90% ............ 15 1,045,749 13.71
91% - 95% ............ 28 2,151,864 28.22
96% - 100% ............ 43 3,503,019 45.94
-- ---------- ------
Total ................. 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The weighted average original Loan-to-Value Ratio of the Adjustable Rate
Assets was approximately 93.11% as of the Cut-Off Date.
(2) Rounded to nearest 1%.
CURRENT ASSET RATES -- ADJUSTABLE RATE ASSETS(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ADJUSTABLE RATE ASSET
ASSET RATE ASSETS PRINCIPAL BALANCE POOL BY SPB
- ----------------------------- ----------- ------------------- ----------------------
<S> <C> <C> <C>
7.000% - 7.999% ......... 43 $3,186,456 41.78%
8.000% - 8.999% ......... 56 4,439,472 58.22
-- ---------- ------
Total ................... 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The weighted average Adjustable Rate Asset Rate was approximately 8.00% as
of the Cut-Off Date. This table reflects the Asset Rates of the Adjustable
Rate Loans as of the Cut-Off Date and does not reflect any subsequent
increases in the Asset Rates of the Adjustable Rate Loans.
S-22
<PAGE>
YEAR OF ORIGINATION OF ADJUSTABLE RATE ASSETS(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ADJUSTABLE RATE ASSET
YEAR OF ORIGINATION ASSETS PRINCIPAL BALANCE POOL BY SPB
- --------------------- ----------- ------------------- ----------------------
<S> <C> <C> <C>
1997 ................ 23 $1,607,807 21.08%
1998 ................ 76 6,018,121 78.92%
-- ---------- ------
Total .............. 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The weighted average seasoning of the Adjustable Rate Assets was
approximately 4 months as of the Cut-Off Date.
REMAINING TERMS TO MATURITY (IN MONTHS) -- ADJUSTABLE RATE ASSETS(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ADJUSTABLE RATE ASSET
REMAINING TERM TO MATURITY ASSETS PRINCIPAL BALANCE POOL BY SPB
- ---------------------------- ----------- ------------------- ----------------------
<S> <C> <C> <C>
217 - 240 months ........... 1 $ 79,333 1.04%
241 - 300 months ........... 5 285,882 3.75
301 - 360 months ........... 93 7,260,713 95.21
-- ---------- ------
Total ..................... 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The weighted average remaining term to maturity of the Adjustable Rate
Assets was approximately 353 months as of the Cut-Off Date.
ORIGINAL TERMS TO MATURITY (IN MONTHS) -- ADJUSTABLE RATE ASSETS(1)
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ADJUSTABLE RATE ASSET
ORIGINAL TERM TO MATURITY ASSETS PRINCIPAL BALANCE POOL BY SPB
- --------------------------- ----------- ------------------- ----------------------
<S> <C> <C> <C>
217 - 240 months .......... 1 $ 79,333 1.04%
241 - 300 months .......... 5 285,882 3.75
301 - 360 months .......... 93 7,260,713 95.21
-- ---------- ------
Total .................... 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The weighted average original term to maturity of the Adjustable Rate
Assets was approximately 357 months as of the Cut-Off Date.
MONTH OF NEXT ASSET RATE ADJUSTMENT
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTABLE RATE SCHEDULED ADJUSTABLE RATE ASSET
MONTH OF NEXT ASSET RATE ADJUSTMENT ASSETS PRINCIPAL BALANCE POOL BY SPB
- ------------------------------------- ----------------- ------------------- ----------------------
<S> <C> <C> <C>
September 1, 1998 ................... 1 $ 71,836 0.94%
October 1, 1998 ..................... 4 272,255 3.57
November 1, 1998 .................... 1 55,305 0.73
December 1, 1998 .................... 6 429,563 5.63
January 1, 1999 ..................... 11 778,849 10.21
February 1, 1999 .................... 5 388,869 5.10
March 1, 1999 ....................... 6 461,260 6.05
April 1, 1999 ....................... 8 639,549 8.39
May 1, 1999 ......................... 12 926,761 12.15
June 1, 1999 ........................ 21 1,719,256 22.54
July 1, 1999 ........................ 19 1,467,850 19.25
August 1, 1999 ...................... 5 414,575 5.44
-- ---------- ------
Total ............................. 99 $7,625,928 100.00%
== ========== ======
</TABLE>
S-23
<PAGE>
DISTRIBUTION OF GROSS MARGINS(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTABLE RATE SCHEDULED ADJUSTABLE RATE ASSET
GROSS MARGIN ASSETS PRINCIPAL BALANCE POOL BY SPB
- -------------------------- ----------------- ------------------- ----------------------
<S> <C> <C> <C>
3.250% to 3.750% ......... 43 $3,222,279 42.25%
4.500% to 4.750% ......... 56 4,403,649 57.75
-- ---------- ------
Total .................. 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The weighted average Gross Margin of the Adjustable Rate Assets was
approximately 4.08% as of the Cut-Off Date.
MAXIMUM ASSET RATES(1)
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE PERCENTAGE OF
ADJUSTABLE RATE SCHEDULED ADJUSTABLE RATE ASSET
MAXIMUM ASSET RATE ASSETS PRINCIPAL BALANCE POOL BY SPB
- ---------------------------- ----------------- ------------------- ----------------------
<S> <C> <C> <C>
13.000% to 13.625% ......... 43 $3,186,456 41.78%
14.250% to 14.750% ......... 56 4,439,472 58.22
-- ---------- ------
Total .................... 99 $7,625,928 100.00%
== ========== ======
</TABLE>
- ---------
(1) The weighted average maximum Asset Rate was approximately 14.00% as of the
Cut-Off Date.
UNDERWRITING GUIDELINES
The Assets were underwritten by Oakwood and were underwritten and
originated substantially in accordance with the guidelines described in the
Prospectus under "Underwriting Policies."
CONVEYANCE OF ASSETS
On the date of issuance of the Certificates, the Company will transfer to
the Trustee, without recourse, all of its right, title and interest in and to
the Assets, including all principal and interest received on or with respect to
such Assets (not including principal and interest due on the Assets on or
before the Cut-off Date and any other amounts collected on the Assets before
the Cut-off Date other than early collections of Monthly Payments that were due
after the Cut-off Date), and all rights under the Standard Hazard Insurance
Policies maintained with respect to the related Manufactured Homes, Real
Properties and Mortgaged Properties. On the date of issuance of the
Certificates the Assets will be listed on a schedule attached to the Agreement
(the "Asset Schedule"). The Asset Schedule will identify the Scheduled
Principal Balance of each Asset, the amount of each Monthly Payment due on each
Asset, and the Asset Rate on each Asset, in each case as of the Cut-off Date.
Prior to the conveyance of the Assets to the Trustee, Oakwood's operations
department will complete a review of all of the Contract Files, including the
certificates of title to (or other evidence of a perfected security interest
in) the Manufactured Homes and the Mortgages relating to the Land Secured
Contracts to check the accuracy of the Contract Schedule delivered to the
Trustee. The Trustee will complete a review of the Mortgage Loan Files to check
the accuracy of the Mortgage Loan Schedule. Oakwood will be required to
repurchase any Asset that is discovered not to agree with the Asset Schedule in
a manner that materially and adversely affects the interests of the
Certificateholders or, subject to the conditions specified in the penultimate
paragraph under this heading, replace any such Asset with a Qualified
Substitute Asset, except that if the discovered discrepancy relates to the
Scheduled Principal Balance of an Asset, subject to the conditions specified in
the penultimate paragraph under this heading, Oakwood may deposit cash into the
Certificate Account in the amount of any deficiency.
The Company will represent and warrant only that (1) the information set
forth in the Asset Schedule was true and correct as of the date or dates on
which such information was furnished; (2) the Company is the owner of, or
holder of a first-priority security interest in, each Asset; (3) the Company
acquired its ownership of, or security interest in, each Asset in good faith
without notice of any adverse claim; (4) except for the sale of the Assets to
the Trustee, the Company has not assigned any interest or participation in any
Asset that has not been released; and (5) the Company has the full right to
sell the Trust Estate to the Trustee.
The Servicer, on behalf of the Certificateholders, will hold the original
Contracts and copies of documents and instruments relating to each Contract and
the security interest in the Manufactured Home and any Real Property relating
to each Contract. In order to provide notice of the assignment of the Assets to
the Trustee, UCC-1 financing statements identifying the Trustee as the secured
party or purchaser and identifying all the Assets as collateral will be filed
in the appropriate offices
S-24
<PAGE>
in the State of North Carolina. Despite these filings, if a subsequent
purchaser were able to take physical possession of the Contracts without notice
of the assignment of the Contracts to the Trustee, the Trustee's interest in
the Contracts could be defeated. To provide some protection against this
possibility, in addition to filing UCC-1 financing statements, within one week
after the initial delivery of the Certificates or after each Subsequent
Transfer Date, as applicable, the Contracts will be stamped or otherwise marked
to reflect their assignment to the Trustee. See "Certain Legal Aspects of
Contracts and Mortgage Loans" in the Prospectus. The Trustee, on behalf of the
Certificateholders, will hold the original Mortgage Notes and copies of
documents and instruments relating to each Mortgage Loan and the lien on the
Mortgaged Property securing each Mortgage Loan.
Oakwood will make certain representations and warranties in the Sales
Agreement in respect of each Asset, including the following: (1) as of the
Cut-off Date, no Monthly Payment is more than 30 days past due; (2) each Asset
is a legal, valid and binding obligation of the Obligor and is enforceable in
accordance with its terms (except as such enforceability may be limited by laws
affecting creditors' rights generally or by general equity principles); (3) no
Asset is subject to any right of rescission, set-off, counterclaim or defense;
(4) each Asset is covered by hazard insurance substantially as described under
"The Trusts -- Insurance -- Hazard Insurance -- Standard Hazard Insurance
Policies" in the Prospectus; (5) each Asset complied with all requirements of
applicable law at the time of its origination; and (6) immediately following
the sale of the Assets to the Company, the Company will own such Assets, free
and clear of any prior lien, mortgage, security interest, pledge, charge or
other encumbrance (assuming assignments of mortgage from Oakwood to the Company
were properly recorded to reflect the transfer of any Mortgage relating to a
Land Secured Contract or Mortgage Loan), except any lien created by the
Agreement. Under the terms of the Agreement and the Sales Agreement, and
subject to Oakwood's option to effect a substitution as described in the next
paragraph, Oakwood will be obligated to repurchase any Asset for its Repurchase
Price (as defined below) within 90 days after Oakwood's discovery, or receipt
of written notice from the Trustee or the Servicer, of a breach of any
representation or warranty made by Oakwood in the Sales Agreement that
materially and adversely affects the Trustee's interest in any Asset if such
breach has not been cured by such 90th day. The "Repurchase Price" for any
Asset will be the unpaid principal balance of such Asset at the close of
business on the date of such repurchase, plus accrued and unpaid interest
thereon to the next Due Date for such Asset following such repurchase. Prior to
being distributed to Certificateholders, this Repurchase Price will be used to
reimburse the Servicer for any previously unreimbursed Advances made by the
Servicer in respect of the repurchased Asset and, if the repurchaser is the
Servicer, the Repurchase Price may be remitted net of such reimbursement
amounts.
In lieu of repurchasing an Asset as specified in the preceding paragraph,
during the two-year period following the date of the initial issuance of the
Certificates, Oakwood may, at its option, substitute a Qualified Substitute
Asset for the Asset that it would otherwise be obligated to repurchase
(referred to herein as the "Replaced Asset"). Oakwood will deposit cash into
the Certificate Account in the amount, if any, by which the aggregate of the
Unpaid Principal Balances of any Replaced Assets exceeds the aggregate of the
Unpaid Principal Balances of the Assets being substituted for the Replaced
Assets. Such deposit will be treated as a partial Principal Prepayment. Also,
if it is discovered that the actual Scheduled Principal Balance of an Asset is
less than the Scheduled Principal Balance identified for such Asset on the
Asset Schedule, Oakwood may, at its option, deposit the amount of the
discrepancy into the Certificate Account instead of repurchasing the Asset.
Such deposit will be treated as a partial Principal Prepayment.
In addition, Oakwood is required to indemnify the Company and its
assignees (including the Trust) against losses and damages they incur as a
result of breaches of Oakwood's representations and warranties. Oakwood's
obligation to repurchase or substitute for an Asset affected by a breach of a
representation or warranty and to indemnify the Company and its assignees for
losses and damages caused by such a breach constitute the sole remedies
available to the Trustee and the Certificateholders for a breach of a
representation or warranty under the Agreement or the Sales Agreement with
respect to the Assets.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Assets had terms to maturity at origination ranging from 12 months to
360 months, but may be prepaid in full or in part at any time. The prepayment
experience of the Assets (including prepayments due to liquidations of
defaulted Assets) will affect the weighted average life of each Class of the
Certificates. Based on Oakwood's experience with the portfolio of conventional
manufactured housing contracts it services, the Company anticipates that a
number of Assets will be liquidated or prepaid in full prior to their
respective maturities. A number of factors, including homeowner mobility,
general and regional economic conditions and prevailing interest rates, may
influence prepayments. In addition, any repurchases of Assets on account of
certain breaches of representations and warranties as described above under
"The Asset Pool --
S-25
<PAGE>
Conveyance of Assets" will have the same effect as prepayments of such Assets
and therefore will affect the life of the Certificates. Natural disasters may
also influence prepayments. Most of the Contracts and Mortgage Loans contain
provisions that prohibit the related Obligors from selling an underlying
Manufactured Home or Mortgaged Property without the prior consent of the holder
of the related Asset. Such provisions may not be enforceable in certain states.
See "The Contracts -- Transfers of Manufactured Homes; Enforceability of
Due-on-Sale' Clauses" and " -- The Mortgage Loans -- Due-on-Sale' Clauses"
under "Certain Legal Aspects of Contracts and Mortgage Loans" in the
Prospectus. Oakwood's policy (as Servicer) is to permit most sales of
Manufactured Homes and Mortgaged Properties without accelerating the related
Contracts or Mortgage Loans where the proposed buyer meets Oakwood's
then-current underwriting standards and either enters into an assumption
agreement or executes a new contract for the unpaid balance of the existing
Contract or Mortgage Loan. The execution of a new contract or mortgage note and
mortgage would have the same effect as a prepayment of the existing Contract or
Mortgage Loan in full.
WEIGHTED AVERAGE LIVES OF THE OFFERED CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Assets on the weighted average life of each Class of the
Offered Certificates under the stated assumptions and is not a prediction of
the prepayment rate that might actually be experienced with respect to the
Assets.
Weighted average life refers to the average amount of time that will
elapse 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 lives of
the Offered Certificates will be affected by the rate at which principal on the
Assets is paid. Principal payments on Assets may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
any voluntary prepayment by an Obligor, the receipt of Liquidation Proceeds
upon disposition of the property securing any defaulted Contract or Mortgage
Loan and the receipt of the Repurchase Price for any Asset upon the repurchase
thereof by Oakwood as a result of any breaches of its representations and
warranties). Prepayments on contracts and mortgage loans may be measured
relative to a prepayment standard or model. The Prepayment Model used in this
Prospectus Supplement (the "MHP") is based on an assumed rate of prepayment
each month of the then unpaid principal balance of a pool of new manufactured
housing installment sales contracts and mortgage loans. A prepayment assumption
of 100% MHP assumes constant prepayment rates of 3.7% per annum of the then
unpaid principal balance of such contracts and mortgage loans in the first
month of the life of the contracts and mortgage loans and an additional 0.1%
per annum in each month thereafter until the 24th month. Beginning in the 24th
month and in each month thereafter during the life of all of the contracts and
mortgage loans, 100% MHP assumes a constant prepayment rate of 6.0% per annum
each month.
As used in the following tables "0% MHP" assumes no prepayments on the
Assets; "100% MHP" assumes the Assets will prepay at rates equal to 100% of the
MHP assumed prepayment rates; "200% MHP" assumes the Assets will prepay at
rates equal to 200% of the MHP assumed prepayment rates; and so on.
There is no assurance, however, that the rate of prepayments of the Assets
will conform to any level of the MHP model, and no representation is made that
the Assets will prepay at the prepayment rates shown or any other prepayment
rate. The Company makes no representations as to the appropriateness of the MHP
model.
MODELING ASSUMPTIONS AND MHP TABLES
The mobile home prepayment tables set forth below (the "MHP Tables") were
prepared based upon the assumptions that there are no delinquencies on the
Assets and that, on each Distribution Date, there will be a sufficient
Available Distribution Amount to distribute all accrued interest and the
Principal Distribution Amount due to the Certificateholders (collectively, the
"Modeling Assumptions").
The percentages and weighted average lives in the following tables were
determined assuming that (1) scheduled interest and principal payments on the
Assets will be received each month on the applicable Due Dates and full
prepayments on the Assets will be received on the last day of each month,
commencing in August 1998, and will include 30 days of interest thereon; (2)
the Servicer exercises the right of optional termination described herein at
the earliest possible date; (3) the Assets will, as of the Cut-off Date, be
grouped into pools having the characteristics set forth in the two tables
provided below; (4) the initial Certificate Principal Balance and Pass-Through
Rate of each Class of the Certificates are as described herein (except for the
Class B-2 Certificates, which are assumed to have a Pass-Through Rate equal to
9.200% per annum); (5) no Due Date Interest Shortfalls will arise in connection
with prepayments in full or liquidations of the Assets; (6) no losses will be
experienced on any Assets included in the Asset Pool; (7) the Closing Date for
the issuance of the Certificates will be August 27, 1998; (8) cash
distributions will be received by the holders of the Certificates on September
15, 1998
S-26
<PAGE>
and on the 15th day of each month thereafter until retirement of the
Certificates, (9) the Assets will prepay monthly at the percentages of MHP
indicated in the MHP Tables and (10) no Accelerated Prinicipal Distribution
Amounts are paid. No representation is made that the Assets will experience
delinquencies or losses at the respective rates assumed above or at any other
rates.
ASSUMED FIXED RATE ASSET CHARACTERISTICS
<TABLE>
<CAPTION>
SCHEDULED REMAINING
PRINCIPAL BALANCE TERM TO
AS OF THE MATURITY SEASONING
CUT-OFF DATE ASSET RATE (MONTHS) (MONTHS)
LEVEL PAY ASSETS ------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
1 ................ $ 6,492,548.48 12.375% 95 1
2 ................ 42,588,758.71 12.997 175 1
3 ................ 45,197,241.56 12.108 237 1
4 ................ 30,378,236.45 11.020 299 1
5 ................ 55,583,037.34 9.395 359 1
</TABLE>
STEP-UP RATE ASSETS
<TABLE>
<CAPTION>
SCHEDULED REMAINING
PRINCIPAL BALANCE TERM TO
AS OF THE ASSET MATURITY SEASONING
CUT-OFF DATE RATE (MONTHS) (MONTHS)
------------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
1 ...... $ 142,441.22 10.243% 301 16
2 ...... 42,224,528.82 8.634 310 1
3 ...... 78,810,488.57 7.216 332 1
<CAPTION>
MONTHS TO MONTHS TO MONTHS TO FIRST STEP SECOND STEP THIRD STEP
FIRST SECOND THIRD RATE RATE RATE
STEP STEP STEP INCREASE INCREASE INCREASE
----------- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 ...... 13 * * 1.441% * *
2 ...... 11 23 * 1.500 1.502% *
3 ...... 11 23 35 1.500 1.500 1.500%
</TABLE>
- ---------
* Not applicable.
ASSUMED ADJUSTABLE RATE ASSET CHARACTERISTICS
<TABLE>
<CAPTION>
SCHEDULED REMAINING
PRINCIPAL BALANCE TERM TO
AS OF THE ASSET MATURITY SEASONING
CUT-OFF DATE RATE (MONTHS) (MONTHS)
------------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1 ...... $ 7,625,927.69 8.004% 353 4
<CAPTION>
MONTHS TO
NEXT LIFTIME RESET
GROSS RATE RATE PERIODIC FREQUENCY
MARGIN CHANGE CAP RATE CAP INDEX (MONTHS)
----------- ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1 ...... 4.082% 8 14.004% 2.000% 1 year CMT 12
</TABLE>
There will be discrepancies between the Assets actually included in the
Trust and the assumptions made as to the characteristics of such Assets in
preparing the MHP Tables. It is unlikely that the Assets will prepay at a
constant rate or that all of the Assets will prepay at the same rate. To the
extent that the Assets actually included in the Trust have characteristics that
differ from those assumed in preparing the MHP Tables, the Offered Certificates
are likely to have weighted average lives that are shorter or longer than those
indicated. There is no assurance that prepayment of the Assets will conform to
any of the constant percentages of MHP described in the MHP Tables or any other
constant rate. Among other things, the MHP Tables assume that the Assets prepay
at the indicated constant percentages of MHP, notwithstanding the fact that
such Assets may vary substantially as to Asset Rates and original terms to
maturity. Variations in actual prepayment experience for the Assets will
increase or decrease the percentages of initial principal balances (and
weighted average lives) shown in the MHP Tables. Assuming no prepayments, the
Step-up Rate Loans will cause the Weighted Average Asset Rate for the Assets to
rise from approximately 8.817% per annum at the Cut-off Date to a maximum of
approximately 10.390% per annum, as the Asset Rates on the Step-up Rate Loans
increase.
The MHP Tables indicate the weighted average life of each Class of the
Offered Certificates and set forth the percentage of the initial Certificate
Principal Balance of each Class of the Offered Certificates that would be
outstanding after each of the dates shown assuming prepayments of the Assets
occur at various percentages of MHP. See "Maturity and Prepayment
Considerations" in the Prospectus. The weighted average life of each Class set
forth in the MHP Tables has been determined by (1) multiplying the amount of
each principal payment on such Class by the number of years from the date of
delivery of the Certificates of such Class to the related Distribution Date,
(2) summing the results and (3) dividing the sum by the total principal to be
paid on the Certificates of such Class.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates based on their
own assumptions as to the matters discussed herein.
S-27
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 ARM CERTIFICATES AT THE FOLLOWING
PERCENTAGES OF MHP
------------------------------------------------------
FIXED RATE ASSETS 0% 100% 150% 200% 250% 300%
ADJUSTABLE RATE ASSETS 0% 125% 200% 275% 350% 425%
- --------------------------- --------- -------- -------- -------- -------- --------
DISTRIBUTION DATE
- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percent ........... 100 100 100 100 100 100
August 15, 1999 ........... 99 93 90 87 83 80
August 15, 2000 ........... 98 86 79 72 66 60
August 15, 2001 ........... 98 79 69 60 52 44
August 15, 2002 ........... 97 72 60 50 40 33
August 15, 2003 ........... 96 66 52 41 32 24
August 15, 2004 ........... 95 61 46 34 25 18
August 15, 2005 ........... 94 55 40 28 19 13
August 15, 2006 ........... 92 51 34 23 15 10
August 15, 2007 ........... 91 46 30 19 12 7
August 15, 2008 ........... 89 42 26 16 9 5
August 15, 2009 ........... 88 38 22 13 7 0
August 15, 2010 ........... 86 34 19 10 5 0
August 15, 2011 ........... 84 31 16 8 0 0
August 15, 2012 ........... 82 28 14 7 0 0
August 15, 2013 ........... 79 25 12 0 0 0
August 15, 2014 ........... 77 22 10 0 0 0
August 15, 2015 ........... 74 20 9 0 0 0
August 15, 2016 ........... 70 18 0 0 0 0
August 15, 2017 ........... 67 15 0 0 0 0
August 15, 2018 ........... 63 13 0 0 0 0
August 15, 2019 ........... 58 0 0 0 0 0
August 15, 2020 ........... 54 0 0 0 0 0
August 15, 2021 ........... 48 0 0 0 0 0
August 15, 2022 ........... 43 0 0 0 0 0
August 15, 2023 ........... 36 0 0 0 0 0
August 15, 2024 ........... 29 0 0 0 0 0
August 15, 2025 ........... 0 0 0 0 0 0
August 15, 2026 ........... 0 0 0 0 0 0
August 15, 2027 ........... 0 0 0 0 0 0
August 15, 2028 ........... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 20.3 9.5 6.8 5.2 4.1 3.4
<CAPTION>
CLASS A CERTIFICATES AT THE FOLLOWING
PERCENTAGES OF MHP
------------------------------------------------------
FIXED RATE ASSETS 0% 100% 150% 200% 250% 300%
ADJUSTABLE RATE ASSETS 0% 125% 200% 275% 350% 425%
- --------------------------- --------- -------- -------- -------- -------- --------
DISTRIBUTION DATE
- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percent ........... 100 100 100 100 100 100
August 15, 1999 ........... 96 90 88 85 82 79
August 15, 2000 ........... 94 82 76 71 66 60
August 15, 2001 ........... 92 74 66 58 50 43
August 15, 2002 ........... 90 66 56 46 37 29
August 15, 2003 ........... 88 59 47 38 29 21
August 15, 2004 ........... 85 52 40 33 24 17
August 15, 2005 ........... 82 45 36 28 20 14
August 15, 2006 ........... 79 40 31 24 16 11
August 15, 2007 ........... 76 37 28 20 14 9
August 15, 2008 ........... 72 33 24 17 11 7
August 15, 2009 ........... 68 30 21 15 9 0
August 15, 2010 ........... 64 27 19 12 7 0
August 15, 2011 ........... 59 24 16 10 0 0
August 15, 2012 ........... 53 21 14 8 0 0
August 15, 2013 ........... 48 19 12 0 0 0
August 15, 2014 ........... 43 16 10 0 0 0
August 15, 2015 ........... 40 14 8 0 0 0
August 15, 2016 ........... 37 13 0 0 0 0
August 15, 2017 ........... 33 11 0 0 0 0
August 15, 2018 ........... 30 9 0 0 0 0
August 15, 2019 ........... 27 0 0 0 0 0
August 15, 2020 ........... 24 0 0 0 0 0
August 15, 2021 ........... 20 0 0 0 0 0
August 15, 2022 ........... 16 0 0 0 0 0
August 15, 2023 ........... 12 0 0 0 0 0
August 15, 2024 ........... 8 0 0 0 0 0
August 15, 2025 ........... 0 0 0 0 0 0
August 15, 2026 ........... 0 0 0 0 0 0
August 15, 2027 ........... 0 0 0 0 0 0
August 15, 2028 ........... 0 0 0 0 0 0
Weighted Average
Life (years) ............. 14.8 8.1 6.4 5.1 4.1 3.4
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Assets, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-28
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS M-1 CERTIFICATES AT THE FOLLOWING
PERCENTAGES OF MHP
--------------------------------------------------------
FIXED RATE ASSETS 0% 100% 150% 200% 250% 300%
ADJUSTABLE RATE ASSETS 0% 125% 200% 275% 350% 425%
- ------------------------------- --------- --------- --------- -------- -------- --------
DISTRIBUTION DATE
- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percent ............... 100 100 100 100 100 100
August 15, 1999 ............... 100 100 100 100 100 100
August 15, 2000 ............... 100 100 100 100 100 100
August 15, 2001 ............... 100 100 100 100 100 100
August 15, 2002 ............... 100 100 100 100 100 100
August 15, 2003 ............... 100 100 100 93 92 91
August 15, 2004 ............... 100 100 93 80 76 73
August 15, 2005 ............... 100 100 83 69 63 58
August 15, 2006 ............... 100 93 73 59 52 46
August 15, 2007 ............... 100 85 65 50 43 37
August 15, 2008 ............... 100 77 57 43 35 29
August 15, 2009 ............... 100 70 50 36 29 0
August 15, 2010 ............... 100 63 43 30 23 0
August 15, 2011 ............... 100 56 37 25 0 0
August 15, 2012 ............... 100 49 31 20 0 0
August 15, 2013 ............... 100 43 27 0 0 0
August 15, 2014 ............... 100 38 23 0 0 0
August 15, 2015 ............... 94 33 19 0 0 0
August 15, 2016 ............... 87 29 0 0 0 0
August 15, 2017 ............... 78 25 0 0 0 0
August 15, 2018 ............... 70 20 0 0 0 0
August 15, 2019 ............... 63 0 0 0 0 0
August 15, 2020 ............... 56 0 0 0 0 0
August 15, 2021 ............... 47 0 0 0 0 0
August 15, 2022 ............... 38 0 0 0 0 0
August 15, 2023 ............... 28 0 0 0 0 0
August 15, 2024 ............... 19 0 0 0 0 0
August 15, 2025 ............... 0 0 0 0 0 0
August 15, 2026 ............... 0 0 0 0 0 0
August 15, 2027 ............... 0 0 0 0 0 0
August 15, 2028 ............... 0 0 0 0 0 0
Weighted Average Life (years) . 22.3 14.4 11.5 9.5 8.6 7.8
<CAPTION>
CLASS M-2 CERTIFICATES AT THE FOLLOWING
PERCENTAGES OF MHP
--------------------------------------------------------
FIXED RATE ASSETS 0% 100% 150% 200% 250% 300%
ADJUSTABLE RATE ASSETS 0% 125% 200% 275% 350% 425%
- ------------------------------- --------- --------- --------- -------- -------- --------
DISTRIBUTION DATE
- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percent ............... 100 100 100 100 100 100
August 15, 1999 ............... 100 100 100 100 100 100
August 15, 2000 ............... 100 100 100 100 100 100
August 15, 2001 ............... 100 100 100 100 100 100
August 15, 2002 ............... 100 100 100 100 100 100
August 15, 2003 ............... 100 100 100 93 92 91
August 15, 2004 ............... 100 100 93 80 76 73
August 15, 2005 ............... 100 100 83 69 63 58
August 15, 2006 ............... 100 93 73 59 52 46
August 15, 2007 ............... 100 85 65 50 43 37
August 15, 2008 ............... 100 77 57 43 35 29
August 15, 2009 ............... 100 70 50 36 29 0
August 15, 2010 ............... 100 63 43 30 23 0
August 15, 2011 ............... 100 56 37 25 0 0
August 15, 2012 ............... 100 49 31 20 0 0
August 15, 2013 ............... 100 43 27 0 0 0
August 15, 2014 ............... 100 38 23 0 0 0
August 15, 2015 ............... 94 33 19 0 0 0
August 15, 2016 ............... 87 29 0 0 0 0
August 15, 2017 ............... 78 25 0 0 0 0
August 15, 2018 ............... 70 20 0 0 0 0
August 15, 2019 ............... 63 0 0 0 0 0
August 15, 2020 ............... 56 0 0 0 0 0
August 15, 2021 ............... 47 0 0 0 0 0
August 15, 2022 ............... 38 0 0 0 0 0
August 15, 2023 ............... 28 0 0 0 0 0
August 15, 2024 ............... 18 0 0 0 0 0
August 15, 2025 ............... 0 0 0 0 0 0
August 15, 2026 ............... 0 0 0 0 0 0
August 15, 2027 ............... 0 0 0 0 0 0
August 15, 2028 ............... 0 0 0 0 0 0
Weighted Average Life (years) . 22.3 14.3 11.5 9.5 8.6 7.8
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Assets, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-29
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS B-1 CERTIFICATES AT THE FOLLOWING
PERCENTAGES OF MHP
--------------------------------------------------------
FIXED RATE ASSETS 0% 100% 150% 200% 250% 300%
ADJUSTABLE RATE ASSETS 0% 125% 200% 275% 350% 425%
- --------------------------------------- --------- --------- --------- -------- -------- --------
DISTRIBUTION DATE
- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Initial Percent ....................... 100 100 100 100 100 100
August 15, 1999 ....................... 100 100 100 100 100 100
August 15, 2000 ....................... 100 100 100 100 100 100
August 15, 2001 ....................... 100 100 100 100 100 100
August 15, 2002 ....................... 100 100 100 100 100 100
August 15, 2003 ....................... 100 100 100 93 92 91
August 15, 2004 ....................... 100 100 93 80 76 73
August 15, 2005 ....................... 100 100 83 69 63 58
August 15, 2006 ....................... 100 93 73 59 52 46
August 15, 2007 ....................... 100 85 65 50 43 37
August 15, 2008 ....................... 100 77 57 43 35 21
August 15, 2009 ....................... 100 70 50 36 21 0
August 15, 2010 ....................... 100 63 43 24 8 0
August 15, 2011 ....................... 100 56 37 13 0 0
August 15, 2012 ....................... 100 49 27 2 0 0
August 15, 2013 ....................... 100 43 16 0 0 0
August 15, 2014 ....................... 100 38 8 0 0 0
August 15, 2015 ....................... 94 31 0 0 0 0
August 15, 2016 ....................... 87 21 0 0 0 0
August 15, 2017 ....................... 78 11 0 0 0 0
August 15, 2018 ....................... 70 2 0 0 0 0
August 15, 2019 ....................... 63 0 0 0 0 0
August 15, 2020 ....................... 56 0 0 0 0 0
August 15, 2021 ....................... 47 0 0 0 0 0
August 15, 2022 ....................... 38 0 0 0 0 0
August 15, 2023 ....................... 19 0 0 0 0 0
August 15, 2024 ....................... 0 0 0 0 0 0
August 15, 2025 ....................... 0 0 0 0 0 0
August 15, 2026 ....................... 0 0 0 0 0 0
August 15, 2027 ....................... 0 0 0 0 0 0
August 15, 2028 ....................... 0 0 0 0 0 0
Weighted Average Life (years) ......... 22.1 13.9 11.0 9.2 8.4 7.8
</TABLE>
The MHP Table above has been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Assets, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
FACTORS AFFECTING PREPAYMENTS
The rate of principal payments on pools of manufactured housing contracts
and mortgage loans is influenced by a variety of economic, geographic, social
and other factors, including the prevailing level of interest rates from time
to time and the rate at which owners of manufactured homes sell their
manufactured homes or default on their contracts or mortgage loans. Other
factors affecting prepayment of manufactured housing contracts and mortgage
loans include changes in obligors' housing needs, job transfers, unemployment
and obligors' net equity in the manufactured homes and mortgaged properties. In
the case of mortgage loans secured by site-built homes, in general, if
prevailing mortgage interest rates fall significantly below the interest rates
on such mortgage loans, the mortgage loans are likely to be subject to higher
prepayment rates than if prevailing mortgage interest rates remained at or
above the rates borne by such mortgage loans, because the mortgagors in many
cases could refinance and obtain alternative mortgage loans with lower interest
rates and lower monthly payments. Conversely, if prevailing mortgage interest
rates rise above the interest rates on such mortgage loans, the rate of
prepayment would be expected to decrease because alternative mortgage loans
would bear higher interest rates and require
S-30
<PAGE>
higher monthly payments. The outstanding principal balances of manufactured
housing contracts are, in general, much smaller than mortgage loan balances and
the original terms to maturity of such contracts are generally shorter than
those of mortgage loans. As a result, changes in interest rates will not affect
the monthly payments on available alternative manufactured housing contracts to
the same degree that changes in mortgage interest rates will affect the monthly
payments on available alternative mortgage loans. Consequently, the effect of
changes in prevailing interest rates on the prepayment rates on manufactured
housing contracts may not be similar to the effects of such changes on mortgage
loan prepayment rates, or such effects may be similar to the effects of such
changes on mortgage loan prepayment rates, but to a smaller degree.
Generally, the Assets may be prepaid by the Obligors at any time without
imposition of any prepayment fee or penalty. In addition, defaults on Assets,
leading to repossession (and foreclosure in the case of Land Secured Contracts
and Mortgage Loans) and the ultimate liquidation of the related Manufactured
Homes and Mortgaged Properties (and Real Properties, in the case of Land
Secured Contracts), may occur with greater frequency during their early years.
Prepayments, liquidations and repurchases of the Assets will result in
distributions of principal to Certificateholders of amounts that would
otherwise have been distributed over the remaining terms of the Assets. See
"Yield on the Offered Certificates" herein and "Yield Considerations" and
"Maturity and Prepayment Considerations" in the Prospectus.
Oakwood, as seller under the Sales Agreement, may be required to
repurchase certain Assets if it breaches its representations and warranties
contained in the Sales Agreement, including those relating to the qualification
of the Assets for REMIC purposes. See "The Asset Pool -- Conveyance of
Contracts" herein. Any repurchase of an Asset will have the same effect as a
prepayment in full of such Asset and will affect an investor's yield to
maturity.
The Servicer (regardless of whether Oakwood remains the Servicer) has the
option to terminate the Trust, thereby causing the retirement of all
outstanding Certificates, on any Distribution Date on or after the Distribution
Date on which the sum of the Certificate Principal Balance of the Certificates
is less than 10% of the sum of the original Certificate Principal Balance of
the Certificates. See "The Trust -- Optional Termination" herein. If the
Servicer does not exercise its optional termination rights within 90 days after
becoming eligible to do so, the Trustee shall solicit bids for the purchase of
all Assets, REO Properties and Repo Properties remaining in the Trust. Such a
purchase, if consummated, would likewise cause the retirement of all
outstanding Certificates. See "The Trust -- Auction Sale" herein.
YIELD ON THE OFFERED CERTIFICATES
Distributions of interest on the Offered Certificates (other than the
Class A-1 ARM Certificates) on any Distribution Date will include interest
accrued thereon through the last day of the month preceding the month in which
such Distribution Date occurs. Because interest will not be distributed on such
Certificates until the 15th day (or, if such day is not a business day, then on
the next succeeding business day) of the month following the month in which
such interest accrues on such Certificates, the effective yield to the holders
of such Classes of Offered Certificates will be lower than the yield otherwise
produced by the Pass-Through Rate and purchase price.
The yield to maturity of, and the aggregate amount of distributions on,
each Class of the Offered Certificates will be related to the rate and timing
of principal payments on the Assets. The rate of principal payments on the
Assets will be affected by the amortization schedules of the Assets and by the
rate of principal prepayments thereon (including for this purpose payments
resulting from refinancings, liquidations of the Assets due to defaults,
casualties, condemnations and repurchases by or on behalf of the Company or
Oakwood, as the case may be). NO ASSURANCE CAN BE GIVEN AS TO THE RATE OF
PRINCIPAL PAYMENTS OR PREPAYMENTS ON THE ASSETS.
Delinquencies on Assets could produce payment delays and could lead to
repossessions of Manufactured Homes and foreclosures in the case of Land
Secured Contracts and Mortgage Loans. Repossession of a Manufactured Home or
foreclosure on a Real Property or Mortgaged Property and the subsequent resale
of the home securing a Contract or a property securing a Mortgage Loan may
produce Net Liquidation Proceeds that are less than the Scheduled Principal
Balance of the related Contract or Mortgage Loan plus interest accrued thereon
and the expenses of sale. Such a shortfall upon repossession and disposition of
a Manufactured Home or foreclosure on a Real Property or Mortgaged Property
would result in a Realized Loss on such Contract or Mortgage Loan. The rate of
principal payments on, the aggregate amount of distributions on, and the yield
to maturity of, any Class of the Offered Certificates will be affected by the
rate of Obligor defaults resulting in liquidations of Contracts and Mortgage
Loans.
The timing of changes in the rate of prepayments and defaults on the
Assets may affect an investor's actual yield to maturity significantly, even if
the average rate of principal payments and defaults experienced over time is
consistent with an investor's expectations. In general, the earlier a
prepayment of principal of or a default on an Asset, the greater will be
S-31
<PAGE>
the effect on the investor's yield to maturity. As a result, the effect on an
investor's yield of principal payments or defaults occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Certificates would not be fully
offset by a subsequent like reduction (or increase) in the rate of principal
payments or defaults.
The allocation of distributions to the Certificateholders in accordance
with the Agreement will have the effect of amortizing the Class A Certificates
at a faster rate than the rate at which such Certificates would have been
amortized if the Principal Distribution Amount were required to be allocated
among the Classes of the Certificates pro rata prior to the Cross-over Date. To
the extent that, on a Distribution Date prior to the Cross-over Date, the
Available Distribution Amount is not sufficient to permit a full distribution
of the Principal Distribution Amount on the Class A Certificates, the effect
will be to delay the amortization of such Class of Class A Certificates.
The holders of the Offered Subordinated Certificates will not be entitled
to receive any distributions of principal on any Distribution Date unless
either (1) the Cross-over Date has occurred and the Principal Distribution
Tests are satisfied for such Distribution Date or (2) the Certificate Principal
Balance of the Class A Certificates has been reduced to zero. It is not
possible to predict with certainty the timing of the date, if any, on which the
Cross-over Date will occur, or whether the Principal Distribution Tests will be
met as to any Distribution Date. A high level of Realized Losses or
delinquencies could result in the Principal Distribution Tests not being met
for one or more Distribution Dates. This would delay the amortization of the
Offered Subordinated Certificates, particularly the Class B-1 Certificates,
beyond what would otherwise have been the case.
While partial prepayments of principal on the Assets are applied on Due
Dates for such Assets, Obligors are not required to pay interest on the Assets
after the date of a full prepayment of principal. As a result, full prepayments
of Assets in advance of their Due Dates in a particular Collection Period will
reduce the amount of interest received from Obligors during that Collection
Period to less than one month's interest on all the Assets (such shortfalls in
interest collected being referred to herein as "Due Date Interest Shortfalls").
If a sufficient number of Assets are prepaid in full during a given Prepayment
Period in advance of their respective Due Dates, then interest payable on all
of the Assets during the related Collection Period may be less than the
interest payable on all of the Certificates with respect to such Collection
Period. If the level of Due Date Interest Shortfalls were large enough, such
shortfalls could result in a Writedown Amount being allocated to the
Subordinated Certificates. See "Description of the Offered Certificates --
Distributions" and " -- Allocation of Writedown Amounts" herein.
If a purchaser of Certificates of a Class calculates its anticipated yield
based on an assumed rate of default and an assumed amount of Realized Losses
that are lower than the default rate and amount of Realized Losses actually
incurred and such amount of Realized Losses actually incurred is not entirely
covered by Excess Interest or by the subordination of the Certificates of
Classes subordinated to such purchaser's Class, the purchaser's actual yield to
maturity will be lower than that so calculated. The timing of Realized Losses
on Liquidated Loans will also affect an investor's actual yield to maturity,
even if the rate of defaults and severity of losses are consistent with an
investor's expectations. There can be no assurance that the delinquency or
repossession experience set forth herein under "Servicing of the Assets --
Delinquency and Loan Loss/Repossession Experience" will be representative of
the results that may be experienced with respect to the Assets. There can be no
assurance as to the delinquency, repossession, foreclosure or loss experience
with respect to the Assets.
If the purchaser of a Certificate offered at a discount from its Parity
Price (as defined below) calculates its anticipated yield to maturity based on
an assumed rate of payment of principal that is faster than that actually
experienced on the Assets, the actual yield to maturity will be lower than that
so calculated. Similarly, if the purchaser of a Certificate offered at a
premium above its Parity Price calculates its anticipated yield to maturity
based on an assumed rate of payment of principal that is slower than that
actually experienced on the Assets, the actual pre-tax yield to maturity will
be lower than that so calculated. "Parity Price" is the price at which a
security will yield its coupon.
Investors in the Class A-1 ARM Certificates should understand that at
levels of One-Month LIBOR (as defined herein) greater than the Weighted Average
Net Asset Rate of the Adjustable Rate Assets less the Class A-1 ARM Margin per
annum, the Pass-Through Rate of such Class will remain at its maximum rate of
the Weighted Average Net Asset Rate of the Adjustable Rate Assets. Investors in
such Class should also consider the risk that lower than anticipated levels of
One-Month LIBOR could result in actual yields to such investors that are lower
than anticipated yields.
Investors in the Class A-1 ARM Certificates should understand that the
timing of changes in the level of One-Month LIBOR may affect the actual yields
to such investors even if the average level is consistent with such investor's
expectations. Each investor must make an independent decision as to the
appropriate One-Month LIBOR assumption to be used in deciding whether to
purchase a Class A-1 ARM Certificate.
S-32
<PAGE>
Because the Pass-Through Rate on the Offered Subordinated Certificates may
vary on the basis of the Weighted Average Net Asset Rate, such Pass-Through
Rate and the yield on such Certificates could be affected by disproportionate
collections of principal in respect of Assets with different Asset Rates
(including Obligor prepayments and such collections resulting from liquidations
and repurchases of Assets). Accordingly, (i) the yield to maturity of the Class
M-1 Certificates will be lower than that which would otherwise result if all or
a substantial portion of the Assets with Net Rates higher than 6.775% per annum
prepaid prior to those with Net Rates lower than 6.775% per annum, (ii) the
yield to maturity of the Class M-2 Certificates will be lower than that which
would otherwise result if all or a substantial portion of the Assets with Net
Rates higher than 7.075% per annum prepaid prior to those with Net Rates lower
than 7.075% per annum, and (iii) the yield to maturity of the Class B-1
Certificates will be lower than that which would otherwise result if all or a
substantial portion of the Assets with Net Rates higher than 7.400% per annum
prepaid prior to those with Net Rates lower than 7.400% per annum.
The aggregate amount of distributions and the yield to maturity of the
Offered Certificates will also be affected by early payments of principal on
the Assets resulting from any purchases of Assets not conforming to certain
representations and warranties of Oakwood and by the exercise by the Servicer
of its option to purchase the Assets and other assets of the Trust, thereby
effecting early retirement of any outstanding Classes of Offered Certificates
as described under "The Trust -- Optional Termination" herein. If the Servicer
does not exercise its optional termination right within 90 days after it first
becomes eligible to do so, the Trustee shall solicit bids for the purchase of
all Assets, REO Properties and Repo Properties remaining in the Trust. See "The
Trust -- Auction Sale" herein. The Trustee shall sell such Assets, REO
Properties and Repo Properties only if the net proceeds to the Trust from such
sale would at least equal the Termination Price, and the net proceeds from such
sale will be distributed first to the Servicer to reimburse it for all
previously unreimbursed Liquidation Expenses paid and Advances made by, and not
previously reimbursed to, it with respect to the Assets and second to the
Holders of the Certificates and the Servicer in accordance with the
distribution priorities set forth in "Description of the Offered Certificates
- -- Distributions on the Certificates -- Priority of Distributions" herein. If
the net proceeds from such sale would not at least equal the Termination Price,
the Trustee shall decline to sell the Assets, REO Properties and Repo
Properties and shall not be under any obligation to solicit any further bids or
otherwise negotiate any further sale of the Assets, REO Properties and Repo
Properties.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Senior/Subordinated Pass-Through Certificates, Series 1998-C, will
consist of the Class A-1 ARM, Class A, Class M-1, Class M-2, Class B-1, Class
B-2, Class X and Class R Certificates. Only the Offered Certificates are
offered hereby. The Offered Certificates will be issued in book-entry form
only, in denominations of $1,000 and integral multiples of $1 in excess
thereof. Definitive Certificates, if issued, will be transferable and
exchangeable at the corporate trust office of the Trustee at its Corporate
Trust Department. No service charge will be made for any registration of
exchange or transfer, but the Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge incurred in connection with such
exchange or transfer.
The Company will cause the Assets to be assigned to the Trustee. Oakwood,
as Servicer, will service the Assets pursuant to the Agreement. The Contract
Documents will be held for the benefit of the Trustee by the Servicer. The
Trustee will hold the Mortgage Loan Documents on behalf of the
Certificateholders.
Distributions of principal and interest on the Certificates will be made
on the 15th day of each month, or, if such day is not a business day, on the
next succeeding business day (each, a "Distribution Date"), beginning in
September 1998, to the persons in whose names the Certificates are registered
at the close of business on the last business day of the month preceding the
month in which the Distribution Date occurs with respect to each Distribution
Date other than the first Distribution Date, and the close of business on the
Closing Date with respect to the first Distribution Date (the "Record Date").
Each distribution with respect to a Book-Entry Certificate will be paid to the
Depository, which will credit the amount of such distribution to the accounts
of its Participants in accordance with its normal procedures. Each Participant
will be responsible for disbursing such distribution to the Beneficial Owners
that it represents and to each indirect participating brokerage firm (a
"brokerage firm" or "indirect participating firm") for which it acts as agent.
Each brokerage firm will be responsible for disbursing funds to the Beneficial
Owners that it represents. All such credits and disbursements with respect to
Book-Entry Certificates are to be made by the Depository and the Participants
in accordance with the Depository's rules.
The Class X Certificates are interest-only securities that have no stated
Certificate Principal Balance, but are entitled to receive a distribution on
each Distribution Date of certain interest amounts, as more fully set forth in
the Agreement (the
S-33
<PAGE>
"Class X Strip Amount"). The Class R Certificates will have no stated
Certificate Principal Balance or Pass-Through Rate, and will represent the
beneficial ownership of the "residual interest" in each of the REMICs.
BOOK-ENTRY CERTIFICATES
The Offered Certificates will be Book-Entry Certificates as described in
the Prospectus under "Description of the Certificates -- Book-Entry
Procedures." As such, the Offered Certificates will initially be registered in
the name of Cede & Co., the nominee of the Depository Trust Corporation
("DTC").
Unless and until the Offered Certificates are issued in certificated,
fully-registered form (which will only happen under the limited circumstances
described in the Prospectus under "Description of the Certificates --
Book-Entry Procedures"), it is anticipated that the only "Certificateholder" of
the Offered Certificates will be Cede & Co., as nominee of DTC. Beneficial
Owners will not be Certificateholders as that term is used in the Agreement.
Beneficial Owners are only permitted to exercise the rights of
Certificateholders indirectly through Depository Participants and DTC.
COLLECTION OF PAYMENTS ON ASSETS
The Servicer will establish and maintain the Certificate Account for the
benefit of the Trustee. The Certificate Account must be an Eligible Account.
The Certificate Account is to be held in trust for the benefit of the Trustee
on behalf of the Certificateholders, and shall be either in the Trustee's name
or designated in a manner that reflects the custodial nature of the account and
that all funds in such account are held for the benefit of the Trustee. A
single Certificate Account may be maintained for more than one Series of
Certificates provided that in any such event, the Servicer shall cause separate
accounting and records to be maintained within the Certificate Account with
respect to each separate Series. Funds in the Certificate Account will be
invested in Eligible Investments (as defined in the Agreement) that will mature
or be subject to redemption not later than the business day preceding the
applicable monthly Distribution Date. Earnings on amounts deposited into the
Certificate Account shall be credited to the account of the Servicer as
servicing compensation in addition to the Servicing Fee and may be used to
offset P&I Advances due from the Servicer in respect of the Distribution Date
next succeeding the date on which such earnings were made or, at the Servicer's
option, may be released to the Servicer on such Distribution Date. The amount
of any losses incurred in respect of any such investments shall be deposited
into the Certificate Account by the Servicer out of its own funds promptly
after any such losses are incurred.
All payments in respect of principal and interest on the Assets received
by the Servicer on or after the Cut-off Date (exclusive of collections relating
to scheduled payments due on or prior to the Cut-off Date), including Principal
Prepayments and Net Liquidation Proceeds, will be deposited into the
Certificate Account no later than the second business day following the
Servicer's receipt thereof. Amounts collected as late payment fees, extension
fees, assumption fees or similar fees will be retained by the Servicer as part
of its servicing compensation. In addition, amounts paid by Oakwood for Assets
repurchased as a result of breach of a representation or warranty under the
Agreement and amounts required to be deposited upon substitution of a Qualified
Substitute Asset because of a breach of a representation or warranty, as
described under "The Asset Pool -- Conveyance of Assets" above, will be paid
into the Certificate Account.
Subject to the following sentence, on or prior to the business day before
each Distribution Date (the related "Remittance Date"), the Servicer will remit
the Remittance Amount and the amount of all required P&I Advances to the
Trustee for deposit into the Distribution Account. If, however, the Certificate
Account is maintained by the Trustee, the Trustee may withdraw the Remittance
Amount (and any portion of the P&I Advance to be covered by investment earnings
on the Certificate Account) from the Certificate Account on the applicable
Distribution Date and deposit it into the Distribution Account. In such event,
the Servicer will remit the portion, if any, of the required P&I Advance that
is not to be covered by investment earnings on the Certificate Account to the
Trustee on the related Remittance Date for deposit into the Distribution
Account. The Distribution Account shall be an Eligible Account established and
maintained by the Trustee.
The Trustee or its Paying Agent will withdraw funds from the Distribution
Account (but only to the extent of the related Available Distribution Amount)
to make distributions to Certificateholders as specified under " --
Distributions -- Priority of Distributions" below.
From time to time, as provided in the Agreement, the Servicer will also
withdraw funds from the Certificate Account for other purposes as permitted by
the Agreement.
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<PAGE>
DISTRIBUTIONS
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for a Distribution Date will include
(1)(a) Monthly Payments of principal and interest due on the Assets during the
related Collection Period, regardless of whether such payments were actually
collected from the Obligors or advanced by the Servicer and (b) unscheduled
payments received with respect to the Assets during the related Prepayment
Period, including Principal Prepayments, proceeds of repurchases, Net
Liquidation Proceeds and net Insurance Proceeds, less (2)(a) if Oakwood is not
the Servicer, Servicing Fees for the related Collection Period, (b) amounts
required to reimburse the Servicer for previously unreimbursed Advances in
accordance with the Agreement, (c) amounts required to reimburse the Company or
the Servicer for certain reimbursable expenses in accordance with the Agreement
and (d) amounts required to reimburse any party for an overpayment of a
Repurchase Price for an Asset.
DISTRIBUTIONS
Distributions will be made on each Distribution Date to holders of record
on the preceding Record Date, except that the final distribution in respect of
the Certificates will only be made upon presentation and surrender of the
Certificates at the office or agency appointed by the Trustee for that purpose.
Distributions on a Class of Certificates will be allocated among the
Certificates of such Class in proportion to their respective Percentage
Interests.
INTEREST
On each Distribution Date, holders of the Class A-1 ARM Certificates and
each Class of Class A Certificates will be entitled to receive, to the extent
of the Available Distribution Amount as described above (1) interest accrued on
such Class during the related Interest Accrual Period at the then-applicable
Pass-Through Rate on the Certificate Principal Balance of such Class
immediately prior to that Distribution Date (the "Interest Distribution Amount"
for such Class), plus (2) any amounts distributable under clause (1) above or
this clause (2) on such Class on the previous Distribution Date but not
previously distributed, plus interest accrued on any such amount during the
related Interest Accrual Period at the then applicable Pass-Through Rate (the
"Carryover Interest Distribution Amount" for such Class and Distribution Date).
On each Distribution Date, holders of the Subordinated Certificates will be
entitled to receive, to the extent of the Available Distribution Amount and on
a subordinated basis as described below under " -- Priority of Distributions"
(1) interest accrued on such Class during the related Interest Accrual Period
at the then-applicable Pass-Through Rate on the Adjusted Certificate Principal
Balance of such Class immediately prior to that Distribution Date (the
"Interest Distribution Amount" for such Class), plus (2) any amounts
distributable under clause (1) above or this clause (2) on such Class on the
previous Distribution Date but not previously distributed, plus interest
accrued on any such amount during the related Interest Accrual Period at the
then applicable Pass-Through Rate (the "Carryover Interest Distribution Amount"
for such Class and Distribution Date).
The Pass-Through Rate for the Class A-1 ARM Certificates on any
Distribution Date will be the per annum rate equal to the lesser of One-Month
LIBOR, as determined on the second London Banking Day prior to the commencement
of the related Interest Accrual Period (each, a "Floating Rate Determination
Date") plus the Class A-1 ARM Margin, and the Weighted Average Net Asset Rate
of the Adjustable Rate Assets. The Class A-1 ARM Margin shall equal 0.25% on
any Distribution Date which occurs on or prior to the Call Option Date, and
shall equal 0.50% on any other Distribution Date. For any Distribution Date,
the Pass-Through Rates for the Class A Certificates will be 6.450% per annum.
The Pass-Through Rate for the Class M-1 Certificates will equal the lesser of
6.775% per annum and the Weighted Average Net Asset Rate, the Pass-Through Rate
for the Class M-2 Certificates will equal the lesser of 7.075% per annum and
the Weighted Average Net Asset Rate, and the Pass-Through Rate for the Class
B-1 Certificates will equal the lesser of 7.400% per annum and the Weighted
Average Net Asset Rate.
In addition, on each Distribution Date, to the extent of the Available
Distribution Amount and on a subordinated basis as described below under " --
Priority of Distributions" the holders of the Subordinated Certificates will be
entitled to receive (1) interest accrued during the related Interest Accrual
Period at the applicable Pass-Through Rate on any related Writedown Amount (the
"Writedown Interest Distribution Amount" for such Class and Distribution Date),
plus (2) any amounts distributable under clause (1) above or this clause (2) on
such Class on the previous Distribution Date but not previously distributed,
plus interest accrued on any such amount during the related Interest Accrual
Period at the then applicable Pass-Through Rate (the "Carryover Writedown
Interest Distribution Amount" for such Class and Distribution Date). See " --
Realized Losses on Liquidated Loans."
S-35
<PAGE>
FLOATING RATE DETERMINATION
On each Floating Rate Determination Date, the Servicer will determine the
arithmetic mean of the LIBOR quotations for one-month Eurodollar deposits
("One-Month LIBOR") for the succeeding Interest Accrual Period on the basis of
the Reference Banks' offered LIBOR quotations provided to the Servicer as of
11:00 a.m. (London time) on such Floating Rate Determination Date. As used
herein with respect to a Floating Rate Determination Date, "Reference Banks"
means leading banks engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Bloomberg Screen US0001M Index page
on the Floating Rate Determination Date in question and (iii) which have been
designated as such by the Servicer and are able and willing to provide such
quotations to the Servicer on each Floating Rate Determination Date; and
"Bloomberg Screen US0001M Index Page" means the display designated as page
"US0001M" on the Bloomberg Financial Markets Commodities News (or such other
pages as may replace such page on that service for the purpose of displaying
LIBOR quotations of major banks). If any Reference Bank should be removed from
the Bloomberg Screen US0001M Index Page or in any other way fails to meet the
qualifications of a Reference Bank, the Servicer may, in its sole discretion,
designate an alternative Reference Bank.
On each Floating Rate Determination Date, One-Month LIBOR for the next
succeeding Interest Accrual Period will be established by the Servicer as
follows:
(i) If, on any Floating Rate Determination Date, two or more of the
Reference Banks provide such offered One-Month LIBOR quotations on the
Bloomberg Screen US0001M Index Page, One-Month LIBOR for the next
applicable Interest Accrual Period will be the arithmetic mean of such
offered quotations (rounding such arithmetic mean, if necessary, to the
nearest five decimal places).
(ii) If, on any Floating Rate Determination Date, only one or none of the
Reference Banks provides such offered quotations, One-Month LIBOR for the
next applicable Interest Accrual Period will be the higher of (x) One-Month
LIBOR as determined on the previous Floating Rate Determination date and
(y) the Reserve Interest Rate. The "Reserve Interest Rate" will be the rate
per annum that the Servicer determines to be either (A) the arithmetic mean
(rounding such arithmetic mean upwards if necessary to the nearest five
decimal places) of the one-month Eurodollar lending rate that New York City
banks selected by the Servicer are quoting, on the relevant Floating Rate
Determination Date, to the principal London offices of at least two leading
banks in the London interbank market or (B) in the event that the Servicer
can determine no such arithmetic mean, the lowest one-month Eurodollar
lending rate that the New York City banks selected by the Servicer are
quoting on such Floating Rate Determination Date to leading European banks.
(iii) If, on any Floating Rate Determination Date, the Servicer is
required but is unable to determine the Reserve Interest Rate in the manner
provided in paragraph (ii) above, One-Month LIBOR for the next applicable
Interest Accrual Period will be One-Month LIBOR as determined on the
previous Floating Rate Determination Date.
Notwithstanding the foregoing, One-Month LIBOR for an Interest Accrual
Period shall not be based on One-Month LIBOR for the previous Interest Accrual
Period for two consecutive Floating Rate Determination Dates. If, under the
priorities described above, One-Month LIBOR for an Interest Accrual Period
would be based on One-Month LIBOR for the previous Floating Rate Determination
Date for the second consecutive Floating Rate Determination Date, the Servicer
shall select an alternative index (over which the Servicer has no control) used
for determining one-month Eurodollar lending rates that is calculated and
published (or otherwise made available) by an independent third party.
The establishment of One-Month LIBOR (or an alternative index) by the
Servicer and the Servicer's subsequent calculation of the Pass-Through Rate on
the Class A-1 ARM Certificates for the relevant Interest Accrual Period, in the
absence of manifest error, will be final and binding.
S-36
<PAGE>
Listed below are monthly One-Month LIBOR rates beginning in 1991, as
published by BLOOMBERG. The following does not purport to be a prediction of
the performance of One-Month LIBOR in the future.
<TABLE>
<CAPTION>
MONTH 1998 1997 1996 1995 1994 1993 1992 1991
- --------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January ............ 5.60% 5.44% 5.44% 6.09% 3.13% 3.19% 4.19% 7.06%
February ........... 5.69 5.44 5.31 6.13 3.56 3.19 4.25 7.00
March .............. 5.69 5.69 5.44 6.13 3.69 3.19 4.25 6.38
April .............. 5.66 5.69 5.44 6.06 4.00 3.13 3.94 6.00
May ................ 5.66 5.69 5.43 6.06 4.38 3.25 4.00 6.00
June ............... 5.66 5.69 5.47 6.13 4.56 3.19 3.94 6.13
July ............... 5.66 5.63 5.46 5.88 4.50 3.19 3.38 5.94
August ............. 5.66 5.44 5.88 4.88 3.19 3.50 5.69
September .......... 5.66 5.43 5.88 5.06 3.19 3.13 5.44
October ............ 5.65 5.38 5.83 5.06 3.19 3.25 5.19
November ........... 5.97 5.56 5.98 6.06 3.56 4.25 4.75
December ........... 5.72 5.50 5.69 6.00 3.25 3.31 4.69
</TABLE>
Each of the above rates represents One-Month LIBOR on the last day of the
related calendar month.
PRINCIPAL
The "Principal Distribution Amount" for any Distribution Date will equal
the sum of the following amounts: (1) the sum of the principal components of
all Monthly Payments scheduled to be made on the Due Date occurring during the
related Collection Period on the Assets that were outstanding at the opening of
business on such Due Date (regardless of whether such Monthly Payments were
received by the Servicer from the related Obligors), not including any Monthly
Payments due on Liquidated Loans or repurchased Assets; (2) the sum of the
amounts of all Principal Prepayments received by the Servicer on the Assets
during the related Prepayment Period; (3) with respect to any Asset that became
a Liquidated Loan during the related Prepayment Period, the Scheduled Principal
Balance thereof on the date of liquidation thereof (determined without giving
effect to such liquidation); and (4) with respect to any Asset that was
purchased or repurchased by the Servicer, Oakwood or the Company pursuant to
the Agreement during the related Prepayment Period, the Scheduled Principal
Balance thereof on the date of purchase or repurchase thereof (determined
without giving effect to such purchase or repurchase) less (5) the
Overcollateralization Reduction Amount (as defined below under " --
Overcollateralization"), if any, for such Distribution Date. The "Principal
Distribution Shortfall Carryover Amount" for any Distribution Date will be,
with respect to each Class of Certificates, an amount equal to all Principal
Distribution Amounts distributable on such Class from previous Distribution
Dates that have not yet been distributed on such Class of Certificates.
The "Class A-1 ARM Principal Distribution Amount" for any Distribution
Date will equal the lesser of that portion of the Principal Distribution Amount
attributable to Adjustable Rate Assets and the then current Certificate
Principal Balance of the Class A-1 ARM Certificates. The "Class A Principal
Distribution Amount" for any Distribution Date will equal (i) prior to the
Cross-over Date, the Principal Distribution Amount, less the Class A-1 ARM
Principal Distribution Amount, (ii) on any Distribution Date as to which the
Principal Distribution Tests are not met, the Principal Distribution Amount,
less the Class A-1 ARM Principal Distribution Amount or (iii) on any other
Distribution Date, the Class A Percentage of the difference between the
Principal Distribution Amount, and the Class A-1 ARM Principal Distribution
Amount.
The "Class M-1 Principal Distribution Amount" for any Distribution Date
will equal (i) as long as the Class A Certificate Principal Balance has not
been reduced to zero and prior to the Cross-over Date, zero, (ii) on any
Distribution Date as to which the Principal Distribution Tests are not met and
the Class A Certificate Principal Balance has not been reduced to zero, zero,
(iii) on any Distribution Date as to which the Principal Distribution Tests are
not met and the Class A Certificate Principal Balance has been reduced to zero,
the Principal Distribution Amount, less the Class A-1 ARM Principal
Distribution Amount, or (iv) on any other Distribution Date, the Class M-1
Percentage of the difference between the Principal Distribution Amount, and the
Class A-1 ARM Principal Distribution Amount. The "Class M-2 Principal
Distribution Amount" for a Distribution Date will equal (i) as long as the
Class A Certificate Principal Balance and the Class M-1 Certificate Principal
Balance have not been reduced to zero and prior to the Cross-over Date, zero;
(ii) on any Distribution Date as to which the Principal Distribution Tests are
not met and the Class A Certificate Principal Balance and the Class M-1
Certificate Principal Balance have not been reduced to zero, zero, (iii) on any
Distribution Date as to which the Principal Distribution Tests are not met and
the Class A Certificate Principal Balance and the Class M-1 Certificate
Principal Balance have been reduced
S-37
<PAGE>
to zero, the Principal Distribution Amount, less the Class A-1 ARM Principal
Distribution Amount, or (iv) on any other Distribution Date, the Class M-2
Percentage of the difference between the Principal Distribution Amount and the
Class A-1 ARM Principal Distribution Amount.
The "Class B-1 Principal Distribution Amount" for any Distribution Date
will equal (i) as long as the Class A Certificate Principal Balance and the
Class M Certificate Principal Balance have not been reduced to zero and prior
to the Cross-over Date, zero, (ii) on any Distribution Date as to which the
Principal Distribution Tests are not met and the Class A Certificate Principal
Balance and the Class M Certificate Principal Balance have not been reduced to
zero, zero, (iii) on any Distribution Date as to which the Principal
Distribution Tests are not met and the Class A Certificate Principal Balance
and the Class M Certificate Principal Balance each have been reduced to zero,
the Principal Distribution Amount, less the Class A-1 ARM Principal
Distribution Amount, or (iv) on any other Distribution Date, the Class B-1
Percentage of the difference between the Principal Distribution Amount, and the
Class A-1 ARM Principal Distribution Amount. The "Class B-2 Principal
Distribution Amount" for any Distribution Date will equal (i) as long as the
Class A Certificate Principal Balance, the Class M Certificate Principal
Balance and the Class B-1 Certificate Principal Balance have not been reduced
to zero and prior to the Cross-over Date, zero, (ii) on any Distribution Date
as to which the Principal Distribution Tests are not met and the Class A
Certificate Principal Balance, the Class M Certificate Principal Balance and
the Class B-1 Certificate Principal Balance have not been reduced to zero,
zero, (iii) on any Distribution Date as to which the Principal Distribution
Tests are not met and the Class A Certificate Principal Balance, the Class M
Certificate Principal Balance and the Class B-1 Certificate Principal Balance
each have been reduced to zero, the Principal Distribution Amount, less the
Class A-1 ARM Principal Distribution Amount, or (iv) on any other Distribution
Date, the Class B-2 Percentage of the difference between the Principal
Distribution Amount and the Class A-1 ARM Principal Distribution Amount.
For any Distribution Date, if the "Class A-1 ARM Principal Distribution
Amount," the "Class A Principal Distribution Amount," the "Class M-1 Principal
Distribution Amount," the "Class M-2 Principal Distribution Amount," the "Class
B-1 Principal Distribution Amount" or the "Class B-2 Principal Distribution
Amount" exceeds the Certificate Principal Balance with respect to the related
Class of Certificates, less the Principal Distribution Shortfall Carryover
Amount with respect to such Class and Distribution Date, then such amounts
shall be allocated to the Principal Distribution Amount of the relatively next
junior Class of Certificates or, in the case of the Class A-1 ARM Certificates,
to the Class A Certificates. If the Class A Certificate Principal Balance, the
Class M Certificate Principal Balance and the Class B-1 Certificate Principal
Balance have not been reduced to zero on or before a Distribution Date, then
amounts then allocable to the Class B-2 Principal Distribution Amount shall be
allocated first to the Class B-1 Principal Distribution Amount, next to the
Class M-2 Principal Distribution Amount, next to the Class M-1 Principal
Distribution Amount, next to the Class A Principal Distribution Amount, and
finally to the Class A-1 ARM Principal Distribution Amount, to the extent that
allocation of such amounts to the Class B-2 Principal Distribution Amount would
reduce the Class B-2 Certificate Principal Balance below the Class B-2 Floor
Amount.
The "Certificate Principal Balance" of each Class of Certificates is its
original aggregate principal amount reduced by all distributions on such Class
in reduction of its Certificate Principal Balance. The "Class A Percentage" for
a Distribution Date will generally be the percentage derived from the fraction
(which shall not be greater than 1), the numerator of which is the Class A
Certificate Principal Balance immediately prior to such Distribution Date and
the denominator of which is the sum of the Class A Certificate Principal
Balance, the Class M Adjusted Certificate Principal Balance and the Class B
Adjusted Certificate Principal Balance, each immediately prior to such
Distribution Date. The "Class M-1 Percentage" for a Distribution Date will
generally be the percentage derived from the fraction (which shall not be
greater than 1), the numerator of which is the Class M-1 Adjusted Certificate
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the sum of the Class A Certificate Principal Balance,
the Class M Adjusted Certificate Principal Balance and the Class B Adjusted
Certificate Principal Balance, each immediately prior to such Distribution
Date. The "Class M-2 Percentage" for a Distribution Date will generally be the
percentage derived from the fraction (which shall not be greater than 1), the
numerator of which is the Class M-2 Adjusted Certificate Balance immediately
prior to such Distribution Date and the Denominator of which is the sum of the
Class A Principal Balance, the Class M Adjusted Certificate Principal Balance
and the Class B Adjusted Certificate Principal Balance, each immediately prior
to such Distribution Date. The "Class B-1 Percentage" for a Distribution Date
will generally be the percentage derived from the fraction (which shall not be
greater than 1), the numerator of which is the Class B-1 Adjusted Certificate
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the sum of the Class A Certificate Principal Balance,
the Class M Adjusted Certificate Principal Balance and the Class B Adjusted
Certificate Principal Balance, each immediately prior to such Distribution
Date. The "Class B-2 Percentage" for a Distribution Date will generally be the
percentage derived from
S-38
<PAGE>
the fraction (which shall not be greater than 1), the numerator of which is the
Class B-2 Adjusted Certificate Principal Balance immediately prior to such
Distribution Date and the denominator of which is the sum of the Class A
Certificate Principal Balance, the Class M Adjusted Certificate Principal
Balance and the Class B Adjusted Certificate Principal Balance, each
immediately prior to such Distribution Date.
OVERCOLLATERALIZATION
The "Accelerated Principal Distribution Amount" for any Distribution Date
shall be the positive difference, if any, between the Target
Overcollateralization Amount and the Current Overcollateralization Amount. The
"Current Overcollateralization Amount" shall mean, for any Distribution Date,
the positive difference, if any, between the Scheduled Principal Balance of the
Assets and the Certificate Principal Balance of all then outstanding Classes of
Certificates. The "Overcollateralization Reduction Amount" for any Distribution
Date shall equal the positive difference, if any, between the Current
Overcollateralization Amount and the Target Overcollateralization Amount;
provided, however, that if on any Distribution Date the Principal Distribution
Tests are not satisfied, then the Overcollateralization Reduction Amount shall
equal zero. The "Target Overcollateralization Amount" (i) for any Distribution
Date prior to the Cross-over Date shall equal 2.00% of the Pool Scheduled
Principal Balance of the Assets as of the Cut-off Date and (ii) for any other
Distribution Date shall equal the lesser of (x) 2.00% of the Pool Scheduled
Principal Balance of the Assets as of the Cut-off Date and (y) 3.50% of the
then current Scheduled Principal Balance; PROVIDED, HOWEVER, that in no event
shall the Target Overcollateralization Amount be less than 0.50% of the Pool
Scheduled Principal Balance of the Assets as of the Cut-off Date.
PRIORITY OF DISTRIBUTIONS
On each Distribution Date the Available Distribution Amount will be
distributed in the following amounts and in the following order of priority:
(1) first, concurrently, to the Class A-1 ARM Certificates and the Class A
Certificates (a) first, the related Interest Distribution Amount for such
Distribution Date and (b) second, the related Carryover Interest Distribution
Amount, if any, for such Distribution Date;
(2) second, to the Class M-1 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(3) third, to the Class M-2 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(4) fourth, to the Class B-1 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(5) fifth, to the Class B-2 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(6) sixth, concurrently, to the Class A-1 ARM Certificates and the Class A
Certificates, the related Principal Distribution Shortfall Carryover Amount for
each such Class, if any, for such Distribution Date; allocated between the
Class A-1 ARM Certificates and the Class A Certificates pro rata based on their
respective Principal Distribution Shortfall Carryover Amount;
(7) seventh, concurrently, to the Class A-1 ARM Certificates, the Class
A-1 ARM Principal Distribution Amount and to the Class A Certificates, the
Class A Principal Distribution Amount, in reduction of the Certificate
Principal Balance of such Classes, until reduced to zero;
(8) eighth, to the Class M-1 Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Distribution Date, (b) second,
any related Carryover Writedown Interest Distribution Amount for such
Distribution Date, (c) third, any related Principal Distribution Shortfall
Carryover Amount, and (d) fourth, any related Principal Distribution Amount
until the Class M-1 Certificate Principal Balance is reduced to zero;
(9) ninth, to the Class M-2 Certificates, (a) first, any related Writedown
Interest Distribution Amount for such Distribution Date, (b) second, any
related Carryover Writedown Distribution Amount for such Distribution Date, (c)
third, any related Principal Distribution Shortfall Carryover Amount, and (d)
fourth, any related Principal Distribution Amount until the Class M-2
Certificate Principal Balance is reduced to zero;
(10) tenth, to the Class B-1 Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Distribution Date, (b) second,
any related Carryover Writedown Interest Distribution Amount for such
Distribution Date, (c) third,
S-39
<PAGE>
any related Principal Distribution Shortfall Carryover Amount, and (d) fourth,
any related Principal Distribution Amount until the Class B-1 Certificate
Principal Balance is reduced to zero;
(11) eleventh, to the Class B-2 Certificates, (a) first any related
Writedown Interest Distribution Amount for such Distribution Date, (b) second,
any related Carryover Writedown Interest Distribution Amount for such
Distribution Date, (c) third, any related Principal Distribution Shortfall
Carryover Amount, and (d) fourth, any related Principal Distribution Amount
until the Class B-2 Certificate Principal Balance is reduced to zero;
(12) twelfth, if Oakwood is the Servicer, to the Servicer in the following
sequential order:
(i) the Servicing Fee with respect to such Distribution Date; and
(ii) any Servicing Fees from previous Distribution Dates remaining
unpaid;
(13) thirteenth, first to the Class A Certificates, the Accelerated
Principal Distribution Amount for such Distribution Date in reduction of the
Certificate Principal Balance of such Class, until reduced to zero; second, to
the Class A-1 ARM Certificates, the Accelerated Principal Distribution Amount
for such Distribution Date in reduction of the Certificate Principal Balance of
such Class, until reduced to zero; and finally, sequentially to the Class M-1,
Class M-2, Class B-1 and Class B-2 Certificates, in that order, the Accelerated
Principal Distribution Amount for such Distribution Date in reduction of the
Certificate Principal Balance of each such Class, until reduced to zero; in
each case allocated among such Classes pro rata based on their Certificate
Principal Balances;
(14) fourteenth, to the Class X Certificates, in the following sequential
order;
(i) the current Class X Strip Amount; and
(ii) any Class X Strip Amounts from previous Distribution Dates remaining
unpaid; and
(15) finally, any remainder to the Class R Certificates.
The "Cross-over Date" will be the later to occur of (1) the Distribution
Date occurring in March 2003 or (2) the first Distribution Date on which the
percentage equivalent of a fraction (which shall not be greater than 1) the
numerator of which is the aggregate Adjusted Certificate Balance of the
Subordinated Certificates plus the Current Overcollateralization Amount for
such Distribution Date and the denominator of which is the Pool Scheduled
Principal Balance on such Distribution Date, equals or exceeds 1.925 times the
percentage equivalent of a fraction (which shall not be greater than 1) the
numerator of which is the initial aggregate Adjusted Certificate Balance of the
Subordinated Certificates and the denominator of which is the Pool Scheduled
Principal Balance as of the Cut-off Date.
The "Principal Distribution Tests" are met in respect of a Distribution
Date if the following conditions are satisfied: (1) the Average Sixty Day
Delinquency Ratio (as defined in the Agreement) as of such Distribution Date
does not exceed 5.00%; (2) the Average Thirty-Day Delinquency Ratio (as defined
in the Agreement) as of such Distribution Date does not exceed 7.00%; (3) the
Cumulative Realized Losses (as defined in the Agreement) as of such
Distribution Date do not exceed a certain specified percentage of the original
Pool Scheduled Principal Balance, depending on the year in which such
Distribution Date occurs; and (4) the Current Realized Loss Ratio (as defined
in the Agreement) as of such Distribution Date does not exceed 2.75%. The
Average Sixty-Day Delinquency Ratio and the Average Thirty-Day Delinquency
Ratio are, in general, the ratios of the average of the aggregate principal
balances of Assets delinquent 60 days or more and 30 days or more,
respectively, for the preceding three Collection Periods to the average Pool
Scheduled Principal Balance for such periods. Cumulative Realized Losses are,
in general, the aggregate Realized Losses incurred in respect of Liquidated
Loans since the Cut-off Date. The Current Realized Loss Ratio is, in general,
the ratio of the aggregate Realized Losses incurred on Liquidated Loans for the
periods specified in the Agreement to an average Pool Scheduled Principal
Balance specified in the Agreement.
With respect to any Distribution Date the "Class B-2 Floor Amount" will
mean (a) 1.50% of the Pool Scheduled Principal Balance as of the Cut-off Date,
if the Class A Certificate Principal Balance, the Class M Certificate Principal
Balance and the Class B-1 Certificate Principal Balance have not been reduced
to zero immediately prior to such Distribution Date, and (b) zero, if the Class
A Certificate Principal Balance, the Class M Certificate Principal Balance and
the Class B-1 Certificate Principal Balance have been reduced to zero
immediately prior to such Distribution Date.
S-40
<PAGE>
REALIZED LOSSES ON LIQUIDATED LOANS
The Principal Distribution Amount for any Distribution Date is intended to
include the Scheduled Principal Balance of each Asset that became a Liquidated
Loan during the related Prepayment Period. A Realized Loss will be incurred on
a Liquidated Loan in the amount, if any, by which the Net Liquidation Proceeds
from such Liquidated Loan are less than the Unpaid Principal Balance of such
Liquidated Loan, plus accrued and unpaid interest thereon, plus amounts
reimbursable to the Servicer for previously unreimbursed Servicing Advances. To
the extent that the amount of the Realized Loss is in excess of the sum of (i)
interest collected on the nondefaulted Assets in excess of certain interest
payments due to be distributed on the Class A-1 ARM, Class A, Class M and Class
B Certificates and any portion of such interest required to be paid to a
Servicer other than Oakwood as servicing compensation ("Excess Interest") and
(ii) the Current Overcollateralization Amount, then the amount of such
shortfall will be allocated to the Subordinated Certificates. See " --
Allocation of Writedown Amounts" herein and "Federal Income Tax Consequences --
Consequences of Realized Losses" in the Prospectus.
ALLOCATION OF WRITEDOWN AMOUNTS
The Writedown Amount will be allocated among the Classes of Subordinated
Certificates in the following order of priority:
(1) first, to the Class B-2 Certificates, to be applied in reduction of
the Adjusted Certificate Principal Balance of such Class until it has been
reduced to zero;
(2) second, to the Class B-1 Certificates, to be applied in reduction of
the Adjusted Certificate Principal Balance of such Class until is has been
reduced to zero;
(3) third, to the Class M-2 Certificates, to be applied in reduction of
the Adjusted Certificate Principal Balance of such Class until it has been
reduced to zero; and
(4) fourth, to the Class M-1 Certificates, to be applied in reduction of
the Adjusted Certificate Principal Balance of such Class until it has been
reduced to zero.
SUBORDINATION OF THE SUBORDINATED CERTIFICATES
The primary credit support for the Senior Certificates is the
subordination of the Subordinated Certificates, effected by the allocation of
Writedown Amounts as described herein and by the preferential application of
the Available Distribution Amount to the Class A Certificates relative to the
Subordinated Certificates to the extent described herein. The primary credit
support for the Class M-1 Certificates is the subordination of the Class M-2,
Class B, Class X and Class R Certificates, effected by the allocation of
Writedown Amounts as described herein and by the preferential allocation of the
Available Distribution Amount to the Class M-1 Certificates relative to the
Class M-2, Class B, Class X and Class R Certificates to the extent described
herein. The primary credit support for the Class M-2 Certificates is the
subordination of the Class B, Class X and Class R Certificates, effected by the
allocation of Writedown Amounts as described herein and by the preferential
allocation of the Available Distribution Amount to the Class M-2 Certificates
relative to the Class B, Class X and Class R Certificates to the extent
described herein. The primary credit support for the Class B-1 Certificates is
the subordination of the Class B-2, Class X and Class R Certificates, effected
by the allocation of Writedown Amounts as described herein and by the
preferential allocation of the Available Distribution Amount to the Class B-1
Certificates relative to the Class B-2, Class X and Class R Certificates to the
extent described herein. See " -- Distributions -- Priority of Distributions"
above.
S-41
<PAGE>
THE TRUST
GENERAL
The Certificates will be issued pursuant to the Agreement. The summary of
the provisions of the Agreement contained herein does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Agreement. Reference is made to the Prospectus for important
information in addition to that set forth herein regarding the terms and
conditions of the Offered Certificates. See "The Pooling and Servicing
Agreements" in the Prospectus. A copy of the Standard Terms to Pooling and
Servicing Agreement (July 1998 Edition) has been filed with the Securities and
Exchange Commission (the "SEC") as an exhibit to the Company's Registration
Statement on Form S-3 of which the Prospectus is a part. A copy of the Pooling
and Servicing Agreement relating to the Certificates, in the form in which it
was executed by the Company, the Servicer and the Trustee (without exhibits),
will be filed with the SEC in a Current Report on Form 8-K within 15 days after
the Closing Date.
The Trust created pursuant to the Agreement will consist of (1) the
Assets, including all rights to receive payments due on the Assets after the
Cut-off Date; (2) such assets as from time to time are identified as deposited
in any account held for the benefit of Certificateholders (including the
Certificate Account and the Distribution Account); (3) any Manufactured Home,
Real Property or Mortgaged Property acquired on behalf of Certificateholders by
repossession, foreclosure or by deed in lieu of foreclosure; (4) the rights of
the Trustee to receive the proceeds of any Standard Hazard Insurance Policies
maintained with respect to the Manufactured Homes and Mortgaged Properties in
accordance with the Agreement and of any FHA insurance maintained with respect
to the Assets; and (5) certain rights of the Company relating to the
enforcement of representations and warranties made by Oakwood relating to the
Assets.
THE TRUSTEE
The Trustee is PNC Bank, National Association. Any notices to the Trustee
relating to the Certificates or the Agreement should be sent to PNC Bank,
National Association, Corporate Trust Department, 1600 Market Street, 30th
Floor, Philadelphia, Pennsylvania 19103.
Investors may contact the Trustee's corporate trust office by telephone to
ascertain the Certificate Principal Balance of each Class of Offered
Certificates and the then current Pass-Through Rate applicable to each Class of
the Offered Certificates. As of the date of this Prospectus Supplement, the
telephone number maintained by the Trustee for the purpose of reporting this
information is (800) 685-7974. The Company will file a Current Report on Form
8-K with the Securities and Exchange Commission within 15 days following the
Closing Date. This Current Report on Form 8-K will specify the initial
principal amount of each Class of the Certificates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Company 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.
The Agreement requires the Trustee to maintain, at its own expense, 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 in respect of the Certificates pursuant to the
Agreement may be served.
OPTIONAL TERMINATION
The Servicer, subject to the limitations imposed by the Agreement, may
terminate the Trust by purchasing all Assets, REO Properties and Repo
Properties remaining in the Trust on any Distribution Date (the "Call Option
Date") occurring on or after the Distribution Date on which the sum of the
Certificate Balance of the Certificates is less than 10% of the sum of the
original Certificate Principal Balance of the Certificates. The Trust also may
be terminated (and the Certificates retired) on any Distribution Date upon the
Servicer's determination, based on an opinion of counsel, that the REMIC status
of either the Pooling REMIC or the Issuing REMIC described herein under
"Summary of Terms -- Federal Income Tax Consequences" has been lost or that a
substantial risk exists that such status will be lost for the then current
taxable year. See "Description of the Certificates -- Optional Redemption or
Termination" in the Prospectus.
The "Termination Price" will equal the greater of (a) the sum of (1) any
Liquidation Expenses incurred by the Servicer in respect of any Asset that has
not yet been liquidated; (2) all amounts required to be reimbursed or paid to
the Servicer in respect of previously unreimbursed Advances; and (3) the sum of
(i) the aggregate Unpaid Principal Balance of the Assets,
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<PAGE>
plus accrued and unpaid interest thereon at the Asset Rates borne by such
Assets through the end of the month preceding the month of the terminating
purchase, plus (ii) the lesser of (A) the aggregate Unpaid Principal Balance of
each Asset that had been secured by any REO Property or Repo Property remaining
in the Trust, plus accrued interest thereon at the Asset Rates borne by such
Assets through the end of the month preceding the month of the terminating
purchase, and (B) the current appraised value of any such REO Property or Repo
Property (net of Liquidation Expenses to be incurred in connection with the
disposition of such property estimated in good faith by the Servicer), such
appraisal to be conducted by an appraiser mutually agreed upon by the Servicer
and the Trustee, plus all previously unreimbursed P&I Advances made in respect
of such REO Property or Repo Property, and (b) the aggregate fair market value
of the assets of the Trust (as determined by the Servicer as described in the
Agreement) plus all previously unreimbursed P&I Advances made with respect to
the Assets. The fair market value of the assets of the Trust as determined for
purposes of a terminating purchase shall be deemed to include accrued interest
at the applicable Asset Rate on the Unpaid Principal Balance of each Asset
(including any Asset that has become a REO Property or a Repo Property, which
REO Property or Repo Property has not yet been disposed of by the Servicer)
through the end of the month preceding the month of the terminating purchase.
The basis for any such valuation shall be furnished by the Servicer to the
Certificateholders upon request. See "Description of the Certificates --
Optional Redemption or Termination" in the Prospectus.
On the date of any termination of the Trust, the Termination Price shall
be distributed (1) first to the Servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by and not previously
reimbursed to the Servicer with respect to the Assets and (2) second to the
Certificateholders in accordance with the distribution priorities set forth
under " -- Distributions -- Priority of Distributions" above. The Termination
Price shall be deemed to be a Principal Prepayment in full, together with
related interest, received during the related Prepayment Period for purposes of
determining the allocation of such distributions. Upon the termination of the
Trust and payment of all amounts due on the Certificates and all administrative
expenses associated with the Trust, any remaining assets of the REMICs shall be
sold and the proceeds distributed pro rata to the holders of the Class R
Certificates. See "Description of the Certificates -- Optional Redemption or
Termination" in the Prospectus.
AUCTION SALE
If the Servicer does not exercise its optional termination right within 90
days after it first becomes eligible to do so, the Trustee shall solicit bids
for the purchase of all Assets, REO Properties and Repo Properties remaining in
the Trust. The Trustee shall sell such Assets, REO Properties and Repo
Properties only if the net proceeds to the Trust from such sale would at least
equal the Termination Price, and the net proceeds from such sale will be
distributed first to the Servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by, and not previously
reimbursed to, it with respect to the Assets and second to the
Certificateholders and the Servicer in accordance with the distribution
priorities set forth under "Description of the Offered Certificateholders --
Distributions -- Priority of Distributions" herein. If the net proceeds from
such sale would not at least equal the Termination Price, the Trustee shall
decline to sell the Assets, REO Properties and Repo Properties and shall not be
under any obligation to solicit any further bids or otherwise negotiate any
further sale of the Assets, REO Properties and Repo Properties.
TERMINATION OF THE AGREEMENT
The Agreement will terminate upon the last action required to be taken by
the Trustee on the final Distribution Date following the later of (1) the
purchase by the Servicer of all Assets and all property acquired in respect of
any Asset remaining in the Trust Estate, as described under " -- Optional
Termination" and "Auction Sale" above or (2) the final payment or other
liquidation (or any advance with respect thereto) of the last Asset remaining
in the Trust Estate or the disposition of all property acquired upon
repossession of any Manufactured Home or foreclosure on any Mortgaged Property.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed, to the extent of available funds, to the
Certificateholders on the final Distribution Date the amounts due them in
accordance with the Agreement. The amount remaining on deposit in the
Certificate Account (other than amounts retained to meet claims), after all
required distributions have been made to the Class A-1 ARM, Class A, Class M,
Class B and Class X Certificateholders, or to the Termination Account, will be
paid to the Class R Certificateholders pro rata (based upon such holders'
respective Percentage Interests) in accordance with the provisions of the
Agreement.
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<PAGE>
VOTING RIGHTS
The voting rights of the Trust will be allocated 0.5% to the Class R
Certificates, 0.5% to the Class X Certificates and 99% to the other
Certificates in proportion to their respective Certificate Principal Balances.
For a description of the limited matters on which the Certificateholders may
vote, see "The Pooling and Servicing Agreements" in the Prospectus.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will furnish the Certificateholders with monthly statements
prepared by the Servicer (each, a "Remittance Report") containing information
with respect to principal and interest distributions on the Certificates and
Realized Losses on the Assets. Any financial information contained in such
reports will not have been examined or reported upon by an independent public
accountant. Copies of such monthly statements and any annual reports prepared
by the Servicer evidencing the status of its compliance with the provisions of
an Agreement will be furnished to related Certificateholders upon request
addressed to the Trustee.
A Remittance Report for a Distribution Date will identify the following
items:
(1) the Available Distribution Amount for such Distribution Date;
(2) the Interest Distribution Amount and the Carryover Interest
Distribution Amount, as well as any Writedown Interest Distribution Amount and
any Carryover Writedown Interest Distribution Amount, for each Class of the
Certificates for such Distribution Date, and the amount of interest of each
such category to be distributed on each such Class based upon the Available
Distribution Amount for such Distribution Date;
(3) the amount to be distributed on such Distribution Date on each Class
of the Certificates to be applied to reduce the Certificate Principal Balance
of such Class, separately identifying any portion of such amount attributable
to prepayments, and the aggregate Principal Distribution Shortfall Carryover
Amount for each Class of the Certificates for such Distribution Date, and the
amount to be distributed to reduce the Principal Distribution Shortfall
Carryover Amount on each such Class based upon the Available Distribution
Amount for such Distribution Date, and separately identifying any Accelerated
Principal Distribution Amount to be distributed on the Certificates, the
Current Overcollateralization Amount and the Target Overcollateralization
Amount;
(4) the aggregate amount of P&I Advances required to be made by the
Servicer with respect to such Distribution Date;
(5) the amount of any Realized Losses incurred on the Assets during the
related Prepayment Period and in the aggregate since the Cut-off Date and the
amount of any Writedown Amount to be allocated to any Class of the Offered
Subordinated Certificates;
(6) the Certificate Principal Balance of each Class of the Certificates
and the Adjusted Certificate Principal Balance of each Class of the Offered
Subordinated Certificates after giving effect to the distributions to be made
(and any Writedown Amounts to be allocated) on such Distribution Date;
(7) the aggregate Interest Distribution Amount remaining unpaid, if any,
and the aggregate Carryover Interest Distribution Amount remaining unpaid, if
any, for each Class of Certificates, after giving effect to the distributions
to be made on such Distribution Date;
(8) the aggregate Writedown Interest Distribution Amount remaining unpaid,
if any, and the aggregate Carryover Writedown Interest Distribution Amount
remaining unpaid, if any, for each Class of Certificates, after giving effect
to the distributions to be made on such Distribution Date;
(9) the aggregate Principal Distribution Shortfall Carryover Amount
remaining unpaid, if any, for each Class of Certificates, after giving effect
to the distributions to be made on such Distribution Date;
(10) the amount of the aggregate Servicing Fee in respect of such
Distribution Date;
(11) the aggregate number and the aggregate of the Unpaid Principal
Balances of outstanding Assets that are (a) delinquent one month (I.E., 30 to
59 days) as of the end of the related Prepayment Period, (b) delinquent two
months (I.E., 60 to 89 days) as of the end of the related Prepayment Period,
(c) delinquent three months (I.E., 90 days or longer) as of the end of the
related Prepayment Period and (d) as to which repossession, foreclosure or
other comparable proceedings have been commenced as of the end of the related
Prepayment Period;
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<PAGE>
(12) (a) the aggregate number and the aggregate Unpaid Principal Balance
of outstanding Contracts and outstanding Mortgage Loans, stated separately, for
which the Obligor is also a debtor, whether voluntary or involuntary, in a
proceeding under the Bankruptcy Code; and (b) the aggregate number and the
aggregate Unpaid Principle Balance of outstanding Contracts and outstanding
Mortgage Loans for which the Obligor is also a debtor, whether voluntary or
involuntary, in a proceeding under the Bankruptcy Code, stated separately, that
are (i) delinquent one month (i.e., 30 to 59 days) as of the end of the related
Prepayment Period, (ii) delinquent two months (i.e., 60 to 89 days) as of the
end of the related Prepayment Period, and (iii) delinquent three months (i.e.,
90 days or longer) as of the end of the related Prepayment Period; and
(13) any other information required to be provided to Certificateholders
by the REMIC Provisions.
In the case of information furnished pursuant to clauses (2) and (3) above, the
amounts shall be expressed, with respect to any Certificate, as a dollar amount
per $1,000 denomination.
SERVICING OF THE ASSETS
THE SERVICER
Oakwood Acceptance Corporation ("Oakwood") was incorporated in 1984 in the
state of North Carolina as a wholly-owned subsidiary of Oakwood Homes
Corporation ("Oakwood Homes"). Oakwood is primarily engaged in the business of
underwriting, originating, pooling, selling and servicing installment sales
contracts for sales of manufactured housing units. Oakwood's principal offices
are located at 7800 McCloud Road, Greensboro, North Carolina 27409-9634
(telephone (336) 664-2500).
Oakwood Homes is a vertically-integrated manufacturer and retailer of
manufactured homes. Homes manufactured by Oakwood Homes are sold primarily at
retail through its approximately 339 (as of June 30, 1998) sales centers
located in 28 states. Oakwood Homes also sells manufactured homes purchased
from other manufacturers at certain of its sales centers.
Oakwood underwrites and funds the origination of manufactured housing
contracts and residential mortgage loans on an individual basis from its
principal office and from additional loan origination offices in Austin, Texas
and Mesa, Arizona. Contracts for the financing of sales of manufactured homes
at Oakwood's sales centers as well as mortgage loans are typically originated
in the name of Oakwood Mobile Homes, Inc., a wholly-owned retailing subsidiary
of Oakwood Homes ("OMH"), or in the name of a third party manufactured housing
dealer, in either case using funds provided by Oakwood, and are assigned to
Oakwood following origination, although some assets are originated directly in
Oakwood's name. Oakwood underwrites all such assets. From time to time, Oakwood
purchases seasoned portfolios of manufactured housing contracts from third
parties.
SERVICING PORTFOLIO
Oakwood services all of the manufactured housing contracts it originates
or purchases (except for certain contract portfolios which it sells on a
servicing-released basis), collecting loan payments, insurance premiums and
other payments from borrowers and remitting principal and interest payments to
the holders of the contracts. The following table shows the composition of
Oakwood's servicing portfolio of manufactured housing contracts and residential
mortgage loans on the dates indicated.
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<PAGE>
ASSET SERVICING PORTFOLIO
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
------------- ------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Number of Serviced Assets
Oakwood Originated ............. 28,938 39,273 51,566 67,120 89,411
Acquired Portfolios ............ 1,591 5,773 4,872 4,177 3,602
Aggregate Outstanding Principal
Balance of Serviced Assets
Oakwood Originated ............. $ 507,394 $ 757,640 $ 1,130,378 $ 1,687,406 $ 2,499,794
Acquired Portfolios ............ $ 30,498 $ 85,227 $ 70,853 $ 57,837 $ 47,027
Average Outstanding Principal
Balance per Serviced Asset
Oakwood Originated ............. $ 17.5 $ 19.3 $ 21.9 $ 25.1 $ 28.0
Acquired Portfolios ............ $ 19.2 $ 14.8 $ 14.5 $ 13.8 $ 13.1
Weighted Average Interest Rate of
Serviced Assets
Oakwood Originated ............. 12.8% 12.2% 12.0% 11.5% 11.0%
Acquired Portfolios ............ 9.4% 11.0% 11.3% 11.2% 11.1%
<CAPTION>
AT JUNE 30,
-------------------------------
1997 1998
--------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total Number of Serviced Assets
Oakwood Originated ............. 81,599 105,689
Acquired Portfolios ............ 3,762 3,019
Aggregate Outstanding Principal
Balance of Serviced Assets
Oakwood Originated ............. $ 2,211,153 $ 3,223,299
Acquired Portfolios ............ $ 50,043 $ 38,227
Average Outstanding Principal
Balance per Serviced Asset
Oakwood Originated ............. $ 27.1 $ 30.5
Acquired Portfolios ............ $ 13.3 $ 12.7
Weighted Average Interest Rate of
Serviced Assets
Oakwood Originated ............. 11.1% 10.9%
Acquired Portfolios ............ 11.2% 11.1%
</TABLE>
DELINQUENCY AND LOAN LOSS/REPOSSESSION EXPERIENCE
The following tables set forth certain information concerning (1) the
delinquency experience and (2) the loan loss and repossession experience of the
portfolio of manufactured housing installment sales contracts and residential
mortgage loans serviced by Oakwood, in each case for each of Oakwood's fiscal
years from 1993 through 1997 and the nine-month periods ended June 30, 1997 and
1998. Because delinquencies, losses and repossessions are affected by a variety
of economic, geographic and other factors, there can be no assurance that the
delinquency and loss experience of the Assets will be comparable to that set
forth below.
DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT JUNE 30,
------------------------------------------------------ ----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Serviced Assets
Oakwood Originated .............................. 28,938 39,273 51,566 67,120 89,411 81,599 105,689
Acquired Portfolios ............................. 1,591 5,773 4,872 4,177 3,602 3,763 3,019
Number of Delinquent Assets (2)
Oakwood Originated:
30 to 59 days past due ......................... 244 350 601 835 1,171 1,013 2,401
60 to 89 days past due ......................... 51 97 185 308 476 384 794
90 days or more past due ....................... 150 198 267 492 716 656 1,005
Total Number of Assets Delinquent ............... 445 645 1,053 1,635 2,363 2,053 4,200
Acquired Portfolios:
30-59 days past due ............................ 37 127 63 66 90 71 104
60-89 days past due ............................ 26 49 17 23 23 17 35
90 days or more past due ....................... 16 98 76 62 75 81 50
Total Number of Assets Delinquent ............... 79 274 156 151 188 169 189
Total Delinquencies as a Percentage of Serviced
Assets (3)
Oakwood Originated .............................. 1.5% 1.6% 2.0% 2.4% 2.6% 2.5% 4.0%
Acquired Portfolios ............................. 5.0% 4.7% 3.2% 3.6% 5.2% 4.5% 6.3%
</TABLE>
- ---------
(1) Assets that are already the subject of repossession or foreclosure
procedures are not included in "delinquent assets" for purposes of this
table.
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<PAGE>
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a payment
due on the first day of a month is not 30 days delinquent until the first
day of the following month.
(3) By number of assets.
LOAN LOSS/REPOSSESSION EXPERIENCE
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEAR
ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Number of Serviced
Assets (1) ..................... 30,529 45,046 56,438 71,297 93,013
Average Number of Serviced
Assets During Period ........... 25,990 37,788 50,742 63,868 82,155
Number of Serviced Assets
Repossessed .................... 902 1,241 1,718 2,746 3,885
Serviced Assets Repossessed
as a Percentage of Total
Serviced Assets (2) ............ 2.95% 2.75% 3.04% 3.85% 4.18%
Serviced Assets Repossessed
as a Percentage of Average
Number of
Serviced Assets ................ 3.47% 3.28% 3.39% 4.30% 4.73%
Average Outstanding Principal
Balance of Assets (3) ..........
Oakwood Originated ............. $531,199 $701,875 $976,905 $1,409,467 $2,065,033
Acquired Portfolios ............ $ 15,249 $ 30,432 $ 30,235 $ 27,351 $ 22,943
Net Losses from Asset
Liquidations (4):
Total Dollars (3)
Oakwood Originated ........... $ 3,328 $ 4,630 $ 7,303 $ 14,248 $ 26,872
Acquired Portfolios .......... $ 0 $ 203 $ 473 $ 592 $ 528
As a Percentage of Average
Outstanding Principal
Balance of Assets (3)(5)
Oakwood Originated ........... 0.63% 0.66% 0.75% 1.01% 1.30%
Acquired Portfolios .......... 0.00% 0.67% 1.56% 2.16% 2.30%
<CAPTION>
AT OR FOR THE NINE MONTHS
ENDED JUNE 30,
----------------------------------------
1997 1998
-------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total Number of Serviced
Assets (1) ..................... 85,361 108,708
Average Number of Serviced
Assets During Period ........... 78,329 100,861
Number of Serviced Assets
Repossessed .................... 2,835 3,839
Serviced Assets Repossessed
as a Percentage of Total
Serviced Assets (2) ............ 4.43%(6) 4.71%(6)
Serviced Assets Repossessed
as a Percentage of Average
Number of
Serviced Assets ................ 4.83%(6) 5.07%(6)
Average Outstanding Principal
Balance of Assets (3) ..........
Oakwood Originated ............. $1,924,180 $2,820,956
Acquired Portfolios ............ $ 23,561 $ 19,545
Net Losses from Asset
Liquidations (4):
Total Dollars (3)
Oakwood Originated ........... $ 19,329 $ 31,773
Acquired Portfolios .......... $ 475 $ 162
As a Percentage of Average
Outstanding Principal
Balance of Assets (3)(5)
Oakwood Originated ........... 1.34%(6) 1.50%(6)
Acquired Portfolios .......... 2.69%(6) 1.11%(6)
</TABLE>
- ---------
(1) As of period end.
(2) Total number of serviced assets repossessed during the applicable period
expressed as a percentage of the total number of serviced assets at the
end of the applicable period.
(3) Includes assets originated by Oakwood and serviced by Oakwood or others.
(4) Net losses represent all losses incurred on Oakwood-serviced portfolios.
Such amounts include estimates of net losses with respect to certain
defaulted assets. Charges to the loss reserves in respect of a defaulted
asset generally are made before the defaulted asset becomes a liquidated
asset. The length of the accrual period for the amount of accrued and
unpaid interest included in the calculation of the net loss varies
depending upon the period in which the loss was charged and whether the
asset was owned by an entity other than Oakwood.
(5) Total net losses incurred on assets liquidated during the applicable
period expressed as a percentage of the average outstanding principal
balance of all assets at the end of the applicable period.
(6) Annualized.
Oakwood has informed the Company that Oakwood believes that its historical
loss experience has been favorably affected by its ability to resell
repossessed units through OMH and dealers supervised by OMH, and its engagement
of OMH to make needed repairs on repossessed units through the facilities of
such dealers, rather than having to hire unaffiliated parties to perform such
services at higher rates. If Oakwood is replaced as Servicer of the Assets, the
successor Servicer will
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<PAGE>
not have access to OMH or its network of dealers and, as a consequence, the
loss experience on the Assets (particularly the Contracts) may be adversely
affected. See "Risk Factors -- Certificateholders Subject to Loss if Rate of
Delinquencies and Amount of Realized Losses Exceed Certain Levels" herein. The
June 30, 1998 delinquency information provided herein notes a material increase
over year-end 1997 results. The Servicer does not yet know whether this trend
will continue, however, any continuation likely would cause higher than
historical credit losses.
The data in the foregoing tables are presented for illustrative purposes
only, and there is no assurance that the delinquency, loan loss and
repossession experience of the Assets will be similar to that set forth above.
The delinquency, loan loss and repossession experience of manufactured housing
contracts historically has been sharply affected by downturns in regional or
local economic conditions. For instance, such a downturn was experienced in
areas dependent on the oil and gas industry in the 1980s, causing increased
levels of delinquencies, repossessions and loan losses on manufactured housing
installment sales contracts in the affected areas. The Asset Pool consists
primarily of Contracts. Regional and local economic conditions are often
volatile, and no predictions can be made regarding their effects on future
economic losses upon repossessions or as to the levels of losses that will be
incurred as a result of any repossessions of or foreclosures on Assets. See
"Risk Factors -- Certificateholders Subject to Loss if Rate of Delinquencies
and Amount of Realized Losses Exceed Certain Levels" herein. Information
regarding the geographic location, at origination, of the Manufactured Homes
and Mortgaged Properties securing the Initial Assets in the Asset Pool is set
forth under "The Asset Pool" herein.
COLLECTION AND OTHER SERVICING PROCEDURES
The Servicer will administer, service and make collections on the Assets,
exercising the degree of care that the Servicer exercises with respect to
similar contracts serviced by the Servicer.
Except for the Step-up Rate Loans during their Step-up Periods, each Fixed
Rate Asset bears interest at a fixed annual percentage rate (its "APR" or
"Asset Rate") and provides for level payments over the term of such Asset that
fully amortize the principal balance of the Asset. All of the Assets are
actuarial obligations. The portion of each Monthly Payment for any Asset
allocable to principal is equal to the total amount of such Monthly Payment
less the portion thereof allocable to interest. The portion of each Monthly
Payment due in a particular month that is allocable to interest is a
precomputed amount equal to one month's interest on the principal balance of
the Asset, which principal balance is determined by reducing the initial
principal balance by the principal portion of all Monthly Payments that were
due in prior months (regardless of whether such Monthly Payments were made in a
timely fashion) and all prior partial principal prepayments. Thus, each
scheduled Monthly Payment on an Asset will be applied to interest and to
principal in accordance with such precomputed allocation regardless of whether
such Monthly Payment is received in advance of or subsequent to its Due Date.
All payments received on the Assets (other than payments allocated to items
other than principal and interest or payments sufficient to pay the outstanding
principal balance of and all accrued and unpaid interest on such Assets) will
be applied when received first to any previously unpaid scheduled Monthly
Payments, and then to the currently due Monthly Payment, in the chronological
order of occurrence of the Due Dates for such Monthly Payments. Any payments on
an Asset that exceed the amount necessary to bring the Asset current are
applied to the partial prepayment of principal of the Asset if the Servicer
determines (based on specific directions from the Obligor as to such payment or
on a course of dealing with such Obligor) that the Obligor intended such
payment as a partial principal prepayment. If the Servicer cannot determine the
Obligor's intent with respect to any such excess payment, the Servicer will
apply such excess payment as an early payment of scheduled Monthly Payments for
subsequent Due Dates to the extent such excess payment is an integral multiple
of such Obligor's scheduled Monthly Payment, and will apply the remainder of
such excess payment as a partial principal prepayment.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
For its servicing of the Assets, with respect to each Asset the Servicer
will be entitled to receive, on each Distribution Date, a monthly Servicing Fee
equal to 1.00% per annum (the "Servicing Fee Rate") multiplied by the aggregate
Scheduled Principal Balance of the Assets at the beginning of the related
Collection Period (without giving effect to any Principal Prepayments, Net
Liquidation Proceeds and Repurchase Prices received (or Realized Losses
incurred) during the related Prepayment Period). If Oakwood is the Servicer,
the Servicing Fee in respect of a Distribution Date will be paid pursuant to
clause (12) under "Description of the Offered Certificates -- Distributions"
above and only to the extent of funds available pursuant to such clause, except
that it may retain its Servicing Fee out of collections on the Assets to the
extent that the amount already on deposit in the Certificate Account for the
related Distribution Date will allow the full distribution of all amounts
required to be distributed pursuant to clauses (1) through (11) under
"Description of the Offered Certificates -- Distributions -- Priority of
Distributions" above on the related Distribution Date. If Oakwood is not the
Servicer, the Servicing Fee in respect of each Asset may be retained by the
Servicer at the time of the related collection on such Asset (or
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<PAGE>
may be withdrawn from the Certificate Account at a later time), in which case
such amount will not be part of the Available Distribution Amount.
The Servicing Fee provides compensation for customary manufactured housing
contract third-party servicing activities to be performed by the Servicer for
the Trust and for additional administrative services performed by the Servicer
on behalf of the Trust. Customary servicing activities include collecting and
recording payments, communicating with Obligors, investigating payment
delinquencies, providing billing and tax records to Obligors and maintaining
internal records with respect to each Asset. Administrative services performed
by the Servicer on behalf of the Trust include calculating distributions to
Certificateholders and providing related data processing and reporting services
for Certificateholders and on behalf of the Trustee. Expenses incurred in
connection with servicing of the Assets and paid by the Servicer from its
monthly Servicing Fee include, without limitation, payment of fees and expenses
of accountants, payment of all fees and expenses incurred in connection with
the enforcement of Contracts or Mortgage Loans (except Liquidation Expenses as
described below) and payment of expenses incurred in connection with
distributions and reports to Certificateholders. The Servicer will be
reimbursed out of the Liquidation Proceeds of a defaulted Asset for all
reasonable, out-of-pocket Liquidation Expenses incurred by it in repossessing,
foreclosing on (if applicable) and liquidating the related Manufactured Home or
Mortgaged Property.
As part of its servicing fees, the Servicer will also be entitled to
retain, as compensation for the additional services provided in connection with
the Agreement, any late payment fees made by Obligors, extension fees paid by
Obligors for the extension of scheduled payments and assumption fees paid in
connection with permitted assumptions of Assets by purchasers of the related
Manufactured Homes and Mortgaged Properties, as well as investment earnings on
funds in the Certificate Account.
ADVANCES
On or prior to the Remittance Date for each Distribution Date, the
Servicer will either (1) deposit from its own funds the related aggregate P&I
Advance into the Certificate Account; (2) cause appropriate entries to be made
in the records of the Certificate Account that funds in the Certificate Account
that are not part of the Available Distribution Amount for the related
Distribution Date have been used to make the aggregate P&I Advance; (3) if the
Certificate Account is maintained by the Trustee, instruct the Trustee to use
investment earnings on the Certificate Account to defray the Servicer's P&I
Advance obligation; or (4) make (or cause to be made) the aggregate P&I Advance
through any combination of the methods described in clauses (1), (2) and (3)
above. Any funds held for future distribution and used in accordance with
clause (2) above must be restored by the Servicer from its own funds or from
early payments collected on the Assets when they become part of a future
Available Distribution Amount. The aggregate required P&I Advance for a
Distribution Date is the positive difference, if any, between the Available
Distribution Amount for such Distribution Date (calculated without taking into
account such P&I Advance) and the amount of funds available in the Certificate
Account.
P&I Advances are intended to maintain a regular flow of scheduled interest
and principal payments to Certificateholders rather than to guarantee or insure
against losses.
The Servicer will also be obligated to make advances ("Servicing
Advances"), to the extent the Servicer deems such Advances recoverable out of
Liquidation Proceeds of, or from collections on, the related Contract or
Mortgage Loan, in respect of Liquidation Expenses and certain taxes and
insurance premiums not paid by an Obligor on a timely basis.
The Servicer may reimburse itself for Servicing Advances out of
collections of the late payments in respect of which such Advances were made
and, upon the determination that a Non-recoverable Advance has been made in
respect of an Asset or upon an Asset becoming a Liquidated Loan, out of Funds
in the Certificate Account for unreimbursed amounts advanced by it in respect
of such Asset. In addition, the Servicer may reimburse itself out of funds in
the Certificate Account for unreimbursed amounts advanced by it in respect of
P&I Advances.
SUCCESSORS TO SERVICER; DELEGATION OF DUTIES
Any entity with which the Servicer is merged or consolidated, or any
entity resulting from any merger, conversion or consolidation to which the
Servicer is a party, or any entity succeeding to the business of the Servicer,
will be the successor to the Servicer under the Agreement so long as each
Rating Agency has delivered to the Trustee a letter to the effect that such
successorship will not result in a downgrading of the rating then assigned by
such Rating Agency to any Class of the Certificates. The Servicer may delegate
certain computational, data processing, collection and foreclosure (including
repossession) duties under the Agreement without any notice to or consent from
the Company or the Trustee, provided that the Servicer will remain fully
responsible for the performance of such duties.
S-49
<PAGE>
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Certificates will be used to purchase the Assets and to pay other expenses
connected with pooling the Assets and issuing the Certificates.
UNDERWRITING
The Company and Oakwood have entered into an underwriting agreement dated
August 20, 1998 (the "Underwriting Agreement"), with Credit Suisse First Boston
Corporation and First Chicago Capital Markets, Inc. (the "Underwriters"), for
whom Credit Suisse First Boston Corporation is acting as representative (the
"Representative"). Subject to the terms and conditions set forth in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters and
the Underwriters have agreed to purchase, the principal amount of the Offered
Certificates set forth below opposite each of their names.
<TABLE>
<CAPTION>
CLASS A-1 ARM CLASS A
--------------- ---------------
<S> <C> <C>
Credit Suisse First Boston Corporation .......... $3,813,000 $119,804,000
First Chicago Capital Markets, Inc. ............. 3,812,927 119,804,000
Total ........................................ $7,625,927 $239,608,000
</TABLE>
<TABLE>
<CAPTION>
CLASS M-1 CLASS M-2 CLASS B-1
-------------- ------------- --------------
<S> <C> <C> <C>
Credit Suisse First Boston Corporation .......... $11,589,000 $ 7,340,000 $10,816,000
First Chicago Capital Markets, Inc. ............. 11,589,000 7,340,000 0
Total ........................................ $23,178,000 $14,680,000 $10,816,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Offered Certificates if
any of the Offered Certificates are purchased. In the event of default by any
Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriter may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representative that the several
Underwriters propose to offer the Offered Certificates to the public initially
at the respective public offering prices set forth on the cover page of this
Prospectus Supplement, and to certain dealers at such prices less a concession
not in excess of the amount set forth below for each Class. The Underwriters
and such dealers may allow a discount not in excess of the amount set forth
below for each Class to certain other dealers. After the initial public
offering of the Offered Certificates, the public offering prices and
concessions and discounts to dealers may be changed by the Representative.
<TABLE>
<CAPTION>
CONCESSION DISCOUNT
(PERCENT OF (PERCENT OF
PRINCIPAL PRINCIPAL
AMOUNT) AMOUNT)
------------- ------------
<S> <C> <C>
Class A-1 ARM ................ 0.135% 0.125%
Class A ...................... 0.120% 0.125%
Class M-1 .................... 0.300% 0.125%
Class M-2 .................... 0.360% 0.125%
Class B-1 .................... 0.450% 0.125%
</TABLE>
The Underwriters and any dealers that participate with the Underwriters in
the distribution of the Offered Certificates may be deemed to be underwriters,
and any discounts, concessions or commissions received by them, and any profit
on the resale of the Offered Certificates purchased by them, may be deemed to
be underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Act").
The Company and Oakwood have agreed to indemnify the several Underwriters
against certain liabilities, including civil liabilities under the Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
Until the distribution of the Offered Certificates is completed, rules of
the Securities and Exchange Commission may limit the ability of the
Underwriters and certain selling group members to bid for and purchase the
Offered Certificates. As an exception to these rules, the Underwriters are
permitted to engage in certain transactions that stabilize the price of the
Offered Certificates. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the Offered
Certificates.
S-50
<PAGE>
In general, purchases of a security for the purpose of stabilization could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither the Company or any of its affiliates nor either of the
Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Offered Certificates. In addition, neither the Company or any of
its affiliates nor either of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Hunton &
Williams, Richmond, Virginia, and for the Underwriters by Simpson Thacher &
Bartlett, New York, New York. The material federal income tax consequences of
the Offered Certificates will be passed upon for the Company by Hunton &
Williams.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement plans
and arrangements, including individual retirement accounts and annuities, Keogh
plans, and collective investment funds in which such plans, accounts, annuities
or arrangements are invested, that are subject to ERISA or corresponding
provisions of the Code (collectively, "Plans"), persons acting on behalf of a
Plan, or persons using the assets of a Plan ("Plan Investors") should carefully
review with their legal advisors whether the purchase or holding of any
Certificates could result in unfavorable consequences for the Plan or its
fiduciaries under the Plan Asset Regulations (as defined in the Prospectus) or
the prohibited transaction rules of ERISA or the Code. Prospective investors
should be aware that, although certain exceptions from the application of the
Plan Asset Regulations and the prohibited transaction rules exist, there can be
no assurance that any such exception will apply with respect to the acquisition
of a Certificate. See "ERISA Considerations" in the Prospectus.
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit
certain transactions that involve (1) a Plan that is subject to ERISA and any
party in interest or disqualified person with respect to the Plan and (2) plan
assets. The Plan Asset Regulations define "plan assets" to include not only
securities (such as the Certificates) held by a Plan but also the underlying
assets of the issuer of any equity securities (the "Look-Through Rule"), unless
one or more exceptions specified in the regulations are satisfied. The Offered
Certificates will be treated as equity securities for purposes of the Plan
Asset Regulations. The Look-Through Rule would not apply to the Offered
Certificates if one or more of the exceptions specified in the Plan Asset
Regulations are satisfied. However, based on the information available to the
Underwriters at the time of the printing of the Prospectus, there can be no
assurance that either the Publicly Offered Exception or the Insignificant
Participation Exception will apply to the initial or any subsequent purchases
of the Offered Certificates. See "ERISA Considerations" in the Prospectus.
The U.S. Department of Labor has granted an administrative exemption to
Credit Suisse First Boston Corporation (Prohibited Transaction Exemption 89-90;
Exemption Application No. D-6555, 54 Fed. Reg. 42,581 (1989), referred to
herein as the "Exemption") from certain of the prohibited transaction rules of
ERISA and the related excise tax provisions of Section 4975 of the Code with
respect to the initial purchase, the holding and the subsequent resale by Plans
of certificates in pass-through trusts that consist of certain receivables,
loans, and other obligations and that meet the conditions and requirements of
the Exemption. The receivables covered by the Exemption include manufactured
housing installment sales contracts such as the Contracts and mortgage loans
such as the Mortgage Loans.
Among the general conditions that must be satisfied for the Exemption to
apply are the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the 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 certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the related trust;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest generic rating
categories from either Moody's, Standard & Poor's Rating Services, a division
of The McGraw-Hill Companies, Inc. ("S&P"), Fitch or Duff & Phelps Credit
Rating Co. ("D&P") (collectively, the "Exemption Rating Agencies");
S-51
<PAGE>
(4) the trustee of the related trust must not be an affiliate of any other
member of the Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the Underwriters in
connection with the distribution of the certificates represents not more than
reasonable compensation for underwriting the certificates;
(6) the sum of all payments made to and retained by the Company pursuant
to the assignment of the loans to the trust represents not more than the fair
market value of such loans; and
(7) the sum of all payments made to and retained by the Servicer
represents not more than reasonable compensation for such person's services
under any servicing agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith.
The Exemption defines the term "reasonable compensation" by reference to
DOL Regulation ss.2550.408c-2, 29 C.F.R. ss.2550.480c-2, which states that
whether compensation is reasonable depends upon the particular facts and
circumstances of each case. Each fiduciary of a Plan considering the purchase
of an Offered Certificate should satisfy itself that all amounts paid to or
retained by the Underwriter, the Company and the Servicer represent reasonable
compensation for purposes of the Exemption. In addition, it is a condition to
application of the Exemption that the Plan investing in the certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Act. Furthermore, in order for its
certificates to qualify under the Exemption, a trust must meet the following
requirements: (a) the corpus of the trust must consist solely of assets of the
type that have been included in other investment pools; (b) certificates in
such other investment pools must have been rated in one of the three highest
rating categories of S&P, Moody's, D&P or Fitch for at least one year prior to
the Plan's acquisition of certificates; and (c) certificates evidencing
interests in such other investment pools must have been purchased by investors
other than Plans for at least one year prior to any Plan's acquisition of
certificates.
The Exemption does not apply to Plans sponsored by the Company, the
Underwriters, Oakwood, the Trustee, the Servicer and any Obligor with respect
to Assets included in the Trust constituting more than five percent of the
aggregate unamortized principal balance of the Assets in the Trust, or any
affiliate of such parties (the "Restricted Group"). Moreover, the Exemption
provides certain Plan fiduciaries relief from certain self-dealing/conflict of
interest prohibited transactions only if, among other requirements, (a) in the
case of an acquisition in connection with the initial issuance of certificates,
at least 50% of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least 50% of the
aggregate interest in the trust is acquired by persons independent of the
Restricted Group; (b) such fiduciary (or its affiliate) is an obligor with
respect to five percent or less of the fair market value of the obligations
contained in the trust; (c) the Plan's investment in certificates of any class
does not exceed 25% of all of the certificates of that class outstanding at the
time of the acquisition; and (d) immediately after the acquisition, no more
than 25% of the assets of the Plan with respect to which such person is a
fiduciary is invested in certificates representing an interest in one or more
trusts containing assets sold or serviced by the same entity.
The Exemption may apply to the acquisition and holding of the Class A-1
ARM and the Class A Certificates by Plans provided that all conditions to
application of the Exemption are met. Prospective investors should be aware,
however, that even if the conditions specified in the Exemption are met, the
scope of the relief provided by the Exemption might not cover all acts that
might be construed as prohibited transactions. In addition, one or more
alternative exemptions may be available with respect to certain prohibited
transactions to which the Exemption is not applicable, depending in part upon
the Class of Certificate to be acquired, the type of Plan fiduciary that is
making the decision to acquire such Certificate and the circumstances under
which such decision is made, including, but not limited to, (a) PTCE 95-60,
regarding investments by insurance company general accounts; (b) PTCE 91-38,
regarding investments by bank collective investment funds; (c) PTCE 90-1,
regarding investments by insurance company pooled separate accounts; or (d)
PTCE 83-1, regarding acquisitions by Plans of interests in mortgage pools.
Before purchasing Class A-1 ARM or Class A Certificates, a Plan subject to the
fiduciary responsibility provisions of ERISA or described in Section 4975(e)(1)
of the Code should consult with its counsel to determine whether the conditions
to application of the Exemption or any other exemptions would be met. A
purchaser of Class A-1 ARM or Class A Certificates should be aware, however,
that even if the conditions specified in one or more of the alternative
exemptions are met, the scope of the relief provided by such exemptions might
not cover all acts that might be construed as prohibited transactions. In
addition, any Plan Investor contemplating an investment in the Class A-1 ARM or
the Class A Certificates should note that the duties and obligations of the
Trustee and the Servicer are limited to those expressly set forth in the
Agreement, and such specified duties and obligations may not comport with or
satisfy the provisions of ERISA setting forth the fiduciary duties of Plan
fiduciaries.
S-52
<PAGE>
BECAUSE THE OFFERED SUBORDINATED CERTIFICATES ARE SUBORDINATED SECURITIES,
AND THE CLASS B-1 CERTIFICATES ARE NOT EXPECTED TO BE RATED IN ONE OF THE THREE
HIGHEST RATING CATEGORIES BY THE RATING AGENCIES, THE EXEMPTION AND CERTAIN OF
THE ALTERNATIVE EXEMPTIONS NOTED ABOVE WILL NOT APPLY TO THE PURCHASE, SALE, OR
HOLDING OF THE OFFERED SUBORDINATE CERTIFICATES. ACCORDINGLY, THE OFFERED
SUBORDINATED CERTIFICATES WILL NOT BE OFFERED FOR SALE, AND ARE NOT
TRANSFERABLE, TO PLAN INVESTORS UNLESS SUCH PLAN INVESTOR PROVIDES THE COMPANY
AND THE TRUSTEE WITH A BENEFIT PLAN OPINION, OR THE CIRCUMSTANCES DESCRIBED IN
CLAUSE (II) BELOW ARE SATISFIED. A BENEFIT PLAN OPINION IS AN OPINION OF
COUNSEL TO THE EFFECT THAT THE PURCHASE OF AN OFFERED SUBORDINATED CERTIFICATE
WILL NOT (A) CAUSE THE ASSETS OF THE TRUST TO BE REGARDED AS PLAN ASSETS FOR
PURPOSES OF THE PLAN ASSET REGULATIONS, (B) GIVE RISE TO A FIDUCIARY DUTY UNDER
ERISA ON THE PART OF THE SELLER, THE SERVICER OR THE TRUSTEE OR (C) BE TREATED
AS, OR RESULT IN, A PROHIBITED TRANSACTION UNDER SECTIONS 406 OR 407 OF ERISA
OR SECTION 4975 OF THE CODE. UNLESS SUCH OPINION IS DELIVERED, EACH PERSON
ACQUIRING AN OFFERED SUBORDINATED CERTIFICATE WILL BE DEEMED TO REPRESENT TO
THE TRUSTEE, THE COMPANY, AND THE SERVICER THAT EITHER (I) SUCH PERSON IS NOT A
PLAN INVESTOR SUBJECT TO ERISA OR SECTION 4975 OF THE CODE, OR (II) SUCH PERSON
IS AN INSURANCE COMPANY THAT IS PURCHASING AN OFFERED SUBORDINATED CERTIFICATE
WITH FUNDS FROM ITS "GENERAL ACCOUNT" AND THE PROVISIONS OF PROHIBITED
TRANSACTION CLASS EXEMPTION 95-60 WILL APPLY TO EXEMPT THE PURCHASE OF SUCH
CERTIFICATE FROM THE PROHIBITED TRANSACTION RULES OF ERISA AND THE CODE.
RATINGS
It is a condition to the issuance of the Certificates that each Class of
Offered Certificates obtain the following ratings by Fitch and Moody's:
<TABLE>
<CAPTION>
FITCH MOODY'S
------- --------
<S> <C> <C>
Class A-1 ARM .......... AAA Aaa
Class A ................ AAA Aaa
Class M-1 .............. AA Aa3
Class M-2 .............. A- A2
Class B-1 .............. BBB Baa2
</TABLE>
The ratings on asset-backed pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying assets to which they are entitled. Rating opinions address the
structural, legal and issuer-related aspects associated with the securities,
including the nature of the underlying assets. Ratings on pass-through
certificates do not represent any assessment of the likelihood that principal
prepayments will be made by borrowers with respect to the underlying assets or
of the degree to which the rate of such prepayments might differ from that
originally anticipated. As a result, the ratings do not address the possibility
that holders of the Offered Certificates purchased at a premium might suffer a
lower than anticipated yield in the event of rapid prepayments of the Assets or
in the event that the Trust is terminated prior to the Final Scheduled
Distribution Date for the Certificates.
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 organization. Each security rating should be evaluated independently of
any other security rating.
The Company will request Fitch and Moody's to rate the Offered
Certificates. There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue a rating and,
if so, what such rating would be. A rating assigned to the Offered Certificates
by a rating agency that has not been requested by the Company to do so may be
lower than the rating assigned by a Rating Agency pursuant to the Company's
request.
LEGAL INVESTMENT CONSIDERATIONS
The Class A-1 ARM Certificates, the Class A Certificates and the Class M-1
Certificates will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") for so long as they
are rated in one of the two highest rating categories by one or more nationally
recognized statistical rating organizations. As "mortgage related securities,"
the Class A Certificates and the Class M-1 Certificates will be legal
investments for certain entities to the extent provided in SMMEA, subject to
state laws overriding SMMEA. A number of states have enacted legislation
overriding the legal investment provisions of SMMEA. See "Legal Investment
Considerations" in the Prospectus.
S-53
<PAGE>
THE CLASS M-2 AND CLASS B-1 CERTIFICATES WILL NOT CONSTITUTE "MORTGAGE
RELATED SECURITIES" FOR PURPOSES OF SMMEA BECAUSE THEY ARE NOT RATED IN ONE OF
THE TWO HIGHEST RATING CATEGORIES BY A NATIONALLY-RECOGNIZED STATISTICAL RATING
ORGANIZATION. The appropriate characterization of the Class M-2 and Class B-1
Certificates under various legal investment restrictions, and thus the ability
of investors subject to legal restrictions to purchase the Class M-2 and Class
B-1 Certificates, is subject to significant interpretive uncertainties. Any
financial institution that is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration, any state insurance commission, or any other
federal or state agency with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing any Certificates.
Financial institutions should review and consider the applicability of the
Federal Financial Institutions Examination Counsel Supervisory Policy Statement
on the Selection of Securities Dealers and Unsuitable Investment Practices (to
the extent adopted by their respective federal regulators), which, among other
things, sets forth guidelines for investing in certain types of mortgage
related securities and prohibits investment in certain "high-risk" mortgage
securities.
The Company makes no representations as to the proper characterization of
any Class of the Offered Certificates for legal investment or other purposes,
or as to the legality of investment by particular investors in any Class of the
Offered Certificates under applicable legal investment restrictions.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute
legal investments under SMMEA or are subject to investment, capital or other
restrictions. See "Legal Investment Considerations" in the Prospectus.
S-54
<PAGE>
PROSPECTUS
- ----------
OAKWOOD MORTGAGE INVESTORS, INC., DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The Pass-Through Certificates (the "Certificates") offered hereby and by
the related Prospectus Supplements will be offered from time to time in one or
more series (each, a "Series"). Capitalized terms used herein and not defined
herein shall have the respective meanings assigned to them in the Glossary on
page 87 herein.
The Certificates of each Series will evidence specified interests in
separate pools ("Asset Pools") comprised of manufactured housing installment
sales contracts ("Contracts") and/or mortgage loans secured by first liens on
one- to four-family residential real properties ("Mortgage Loans"). The Asset
Pool underlying a Series of Certificates (collectively, the "Trust Estate")
will be conveyed by Oakwood Mortgage Investors, Inc. ("OMI" or the "Company")
to the trust (the "Trust") that issues such Series. The Asset Pool will be
described in the related Prospectus Supplement. The Asset Pool is expected to
be acquired by the Company from Oakwood Acceptance Corporation ("Oakwood"), the
parent of the Company. The seller of Contracts or Mortgage Loans to the
Company, whether it be Oakwood or another entity, is sometimes referred to
herein as the "Seller." The Assets in a Trust Estate will be serviced by one or
more servicers (each, a "Servicer"), which in most cases will be Oakwood. In
addition to the related Asset Pool, if so specified in the related Prospectus
Supplement, the Trust Estate will include monies on deposit in a trust account
to be established with the Trustee (a "Pre-Funding Account"), which will be
used by the Trust to purchase additional Assets beyond those delivered on the
related Closing Date ("Pre-Funded Assets") from the Company from time to time
during a Pre-Funding Period specified in the related Prospectus Supplement. In
addition, if so specified in the related Prospectus Supplement, a pool
insurance policy, letter of credit, cash reserve fund, surety bond, guarantee,
or other forms of credit enhancement, or any combination of the foregoing, may
be provided with respect to a Series of Certificates or certain Classes of
Certificates of a Series and may be included in the related Trust Estate.
The Certificates of a Series are obligations of the related Trust only,
and holders of Certificates of a Series may look only to the assets of the
related Trust for distributions on such Certificates. The only obligations of
the Company with respect to the Certificates will be pursuant to certain
limited representations and warranties, as described further herein. The
Servicer's obligations with respect to the Certificates are limited to its
contractual servicing and certificate administration obligations. The Seller of
Assets to the Company will make certain representations, warranties and
covenants to the Company concerning such Assets, and the Company will assign
its rights to enforce such representations, warranties and covenants to the
related Trust. See "Description of the Certificates."
The effective yield to Certificateholders will be lower than the yield
otherwise produced by the applicable Pass-Through Rates and purchase prices of
the Certificates because, although interest will accrue on the Certificates
from the first day of each month, the distributions of such interest will not
be made until the Distribution Date in the month following the month of such
accrual. In addition, the effective yield on the Certificates will be reduced
by any Shortfalls and Realized Losses allocated to such Certificates.
CERTAIN RISK FACTORS SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF ANY
CERTIFICATES OFFERED HEREBY. SEE "RISK FACTORS" HEREIN AT PAGE 11 AND IN THE
RELATED PROSPECTUS SUPPLEMENT.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF CERTIFICATES UNLESS
ACCOMPANIED BY THE RELATED PROSPECTUS SUPPLEMENT.
THE CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR BY ANY OTHER PERSON OR ENTITY, INCLUDING THE COMPANY, THE SERVICER OR
ANY OF THEIR AFFILIATES (EXCEPT AS MAY BE SET FORTH HEREIN). SEE "RISK FACTORS"
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING
THE CERTIFICATES OF ANY SERIES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
THE DATE OF THIS PROSPECTUS IS AUGUST 20, 1998.
<PAGE>
Each Series of Certificates will consist of one or more Classes of
Certificates, which may include one or more senior Classes of Certificates (the
"Senior Certificates") and one or more subordinate Classes of Certificates (the
"Subordinated Certificates"). The related Prospectus Supplement will specify
the Classes of each Series being offered thereby. Such Classes may represent
interests in specified percentages of distributions of principal or interest,
or both, on the Asset Pool relating to such Series, as specified in the related
Prospectus Supplement. Each Prospectus Supplement will describe the Series and
Classes of Certificates offered thereby.
The Company may elect to cause the Trust Estate relating to a Series of
Certificates (or one or more segregated Asset Pools thereof) to be treated as
one or more "real estate mortgage investment conduits" ("REMICs") for federal
income tax purposes. See "Federal Income Tax Consequences" herein.
The Prospectus Supplement relating to a Series of Certificates will set
forth, among other things, the following information if applicable to such
Series: (1) the allocations and order of application of principal and interest
collections on the Asset Pool held by the related Trust to the respective
Classes of such Certificates; (2) certain information as to the nature of the
Contracts or Mortgage Loans and any other assets assigned or pledged to the
related Trust; (3) the dates on which periodic distributions will be made on
the Certificates of such Series; (4) the aggregate principal amount or notional
amount and the Pass-Through Rate (or the manner of determining the Pass-Through
Rate) for each Class of the Certificates of such Series; (5) the optional
redemption or termination features pertaining to such Certificates; (6) certain
information regarding the subordination of certain Classes' rights to receive
distributions to the rights of other Classes; and (7) additional information
concerning the plan of distribution of such Certificates.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at 7 World Trade
Center, New York, New York 10048; and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can be obtained from the Public Reference Section of the Commission at
its principal office in Washington, D.C., at prescribed rates. The Commission
maintains a web site that contains reports, proxy and information statements
and other information regarding registrants, including the Company, that file
electronically with the Commission at http://www.sec.gov.
This Prospectus does not contain all the information set forth in the
Registration Statement (of which this Prospectus is a part) and exhibits
relating thereto which the Company has filed with the Commission in Washington,
D.C. Copies of the information and the exhibits are on file at the offices of
the Commission and may be obtained, upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Copies of the Pooling and Servicing Agreement for a Series will be filed by the
Company with the Commission (without exhibits) on a Current Report on Form 8-K
within 15 days after the applicable Closing Date.
Each Trust will file periodic reports with the Commission in compliance
with the requirements of the Exchange Act.
The Company and the Servicer are not obligated with respect to the
Certificates. Accordingly, the Company has determined that financial statements
of the Company and the Servicer are not material to the offering made hereby.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
With respect to any Class of Certificates that is supported by a guarantee
of Oakwood Homes Corporation, a North Carolina corporation ("Oakwood Homes") or
one of its affiliates, the following documents have been filed by Oakwood Homes
with the Commission pursuant to the Exchange Act and are incorporated herein by
reference and made a part of this Prospectus and any Prospectus Supplement: (a)
the Oakwood Homes Quarterly Report on Form 10-Q for the quarter ended March 31,
1998 and June 30, 1998 and (b) the Oakwood Homes Annual Report on Form 10-K for
the fiscal year ended September 30, 1997.
All documents filed by the Company or Oakwood Homes Corporation pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended, after the date of this Prospectus and prior to the termination of
the offering of the Certificates shall be deemed, in the case of the Company,
to be incorporated by reference into this Prospectus and, in the case of
Oakwood Homes Corporation, to be incorporated by reference into this Prospectus
and the Prospectus Supplement relating to a Class of Certificates that is
supported by a guarantee of Oakwood Homes Corporation or one of its affiliates,
in each case to be a part thereof from the respective dates of filing of such
documents. Any statement contained herein or in a document all or any portion
of which is incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus and the
related Prospectus Supplement to the extent that a statement contained herein
or therein or in any other subsequently filed document which also is or deemed
to be incorporated by reference herein or therein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus and the
related Prospectus Supplement.
The Company will provide without charge to each person to whom this
Prospectus and any Prospectus Supplement are delivered on request of such
person, a copy of any or all of the documents incorporated herein by reference
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests should be directed to
Oakwood Mortgage Investors, Inc., in writing at 7800 McCloud Road, Greensboro,
North Carolina, 27425-7081 (Telephone (336) 664-2400), Attn: Secretary.
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION ............................................ ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE .................. iii
SUMMARY OF TERMS ................................................. 1
RISK FACTORS ..................................................... 11
DESCRIPTION OF THE CERTIFICATES .................................. 15
General ......................................................... 15
Book-Entry Procedures ........................................... 16
Allocation of Collections from the Assets ....................... 18
Optional Redemption or Termination .............................. 19
MATURITY AND PREPAYMENT CONSIDERATIONS ........................... 20
Maturity ........................................................ 20
Prepayment Considerations ....................................... 20
YIELD CONSIDERATIONS ............................................. 21
THE TRUSTS ....................................................... 21
General ......................................................... 21
The Assets ...................................................... 21
Substitution of Contracts or Mortgage Loans ..................... 25
Pre-Funding ..................................................... 26
Distribution Account ............................................ 26
Reserve Funds or Liquidity Accounts ............................. 27
Insurance ....................................................... 27
Delivery of Additional Assets ................................... 34
Investment of Funds ............................................. 34
Certificate Guarantee Insurance ................................. 34
Oakwood Homes Guarantee ......................................... 35
Alternate Credit Enhancement .................................... 35
UNDERWRITING POLICIES ............................................ 35
Oakwood's Contract Underwriting Guidelines ...................... 35
General Underwriting Standards for Mortgage Loans ............... 36
SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS ............... 37
Assignment of Contracts and Mortgage Loans ...................... 37
Representations and Warranties .................................. 38
Servicing ....................................................... 39
Advances ........................................................ 42
Compensating Interest ........................................... 43
Maintenance of Insurance Policies and Other Servicing Procedures 43
THE POOLING AND SERVICING AGREEMENTS ............................. 45
The Servicer .................................................... 45
The Trustee ..................................................... 46
Reports to Certificateholders ................................... 46
Events of Default ............................................... 47
Certificateholder Rights ........................................ 47
Amendment ....................................................... 47
Termination ..................................................... 48
CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS ............ 48
The Contracts ................................................... 49
The Mortgage Loans .............................................. 53
Environmental Considerations .................................... 56
Enforceability of Certain Provisions ............................ 57
USE OF PROCEEDS .................................................. 57
THE COMPANY ...................................................... 58
THE SERVICER ..................................................... 58
</TABLE>
iv
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<TABLE>
<S> <C>
FEDERAL INCOME TAX CONSEQUENCES .................................... 58
General ........................................................... 59
REMIC Certificates ................................................ 59
Tax Treatment of Residual Certificates ............................ 69
Taxation of Certain Foreign Holders of REMIC Certificates ......... 79
Reporting and Tax Administration .................................. 80
Non-REMIC Certificates ............................................ 81
STATE TAX CONSIDERATIONS ........................................... 85
ERISA CONSIDERATIONS ............................................... 85
PLAN OF DISTRIBUTION ............................................... 87
LEGAL INVESTMENT CONSIDERATIONS .................................... 87
EXPERTS ............................................................ 88
LEGAL MATTERS ...................................................... 88
GLOSSARY ........................................................... 89
</TABLE>
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<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Capitalized terms used herein shall have the respective
meanings assigned them in the "Glossary" on page 87 herein.
SECURITIES OFFERED.............. Pass-Through Certificates (the
"Certificates") evidencing interests in
separate pools of Contracts and/or Mortgage
Loans (each as defined below) may be issued
from time to time in one or more Series
(each, a "Series") pursuant to separate
Pooling and Servicing Agreements (each, an
"Agreement") among Oakwood Mortgage
Investors, Inc. (the "Company"), Oakwood
Acceptance Corporation ("Oakwood" or the
"Servicer"), and the Trustee (the "Trustee")
specified in the Prospectus Supplement for
such Series of Certificates.
SELLER.......................... The Company is a wholly owned, limited
purpose subsidiary of Oakwood Acceptance
Corporation, which is a wholly owned
subsidiary of Oakwood Homes Corporation.
Neither Oakwood Homes Corporation nor any of
its affiliates, including the Company and the
Servicer, have guaranteed distributions on
the Certificates, nor are any of such
entities otherwise obligated with respect to
the Certificates of any Series. See "Risk
Factors" herein.
SERVICER........................ Oakwood Acceptance Corporation, the parent
of the Company, will service the Contracts
and Mortgage Loans and administer the
Certificates.
THE ASSET POOLS................. The Asset Pools supporting the Certificates
will consist of Contracts and Mortgage Loans
(collectively, the "Assets").
The Contracts supporting a Series of
Certificates will consist of manufactured
housing installment sales contracts. Each
Contract may be secured by a new, used or
repossessed Manufactured Home or by a
Manufactured Home that has been transferred
from a previous owner to a new Obligor. The
Contracts may be fixed or adjustable rate
Contracts and may be conventional Contracts
or Contracts insured by the FHA or partially
guaranteed by the VA.
The Mortgage Loans supporting a Series of
Certificates, as specified in the related
Prospectus Supplement, will be first
mortgage loans secured by one-to four-family
residential properties (each a "Mortgaged
Property"). The Mortgage Loans may be fixed
or adjustable rate Mortgage Loans. The
Mortgage Loans may be conventional Mortgage
Loans ("Conventional Mortgage Loans") or
Mortgage Loans insured by the FHA ("FHA
Mortgage Loans") or partially guaranteed by
the VA ("VA Mortgage Loans"). Mortgage Loans
generally will have a 15- to 30-year term to
maturity at origination and a loan-to-value
ratio at origination (as defined herein, the
"Mortgage Loan-to-Value Ratio") not to
exceed 95%. Mortgage Loans generally will
not be covered by a Primary Mortgage
Insurance Policy. See "The Trusts --
Insurance -- Credit Insurance" herein.
The adjustable rate Contracts and Mortgage
Loans (together, the "Adjustable Rate
Assets") will, as described in the related
Prospectus Supplement, permit or require
periodic changes in the interest rates borne
by the Mortgage Loans, and in the Monthly
Payments made on such Assets. The Assets
included in a Trust Estate may be subject to
various types of payment provisions, and may
include Level Payment Loans, Buy-Down Loans,
GPM Loans, Step-up Rate Loans, Interest
Reduction Loans, GEM Loans, Balloon Payment
Loans, Convertible
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<PAGE>
Loans, Bi-Weekly Loans, Level Payment
Buy-Down Loans, Increasing Payment Loans or
other types of Assets specified and
described in the related Prospectus
Supplement. See "The Trusts -- General"
herein.
The Prospectus Supplement for each Series
will provide information with respect to (1)
the approximate aggregate principal balance
of the Assets comprising the Asset Pool, as
of the date specified in the Prospectus
Supplement (the "Cut-off Date") and the
percentage of the Assets (by principal
balance as of the Cut-off Date) comprised of
Contracts and Mortgage Loans, respectively;
(2) the weighted average Contract Rate on
the Contracts, the weighted average Mortgage
Rate on the Mortgage Loans, the weighted
average Asset Rate on the Assets (each based
on outstanding principal balances as of the
Cut-off Date) and the range of Contract
Rates, Mortgage Rates and Asset Rates as of
the Cut-off Date and, in the case of
Adjustable Rate Assets, the method to be
used to determine the Contract Rates,
Mortgage Rates and Asset Rates on the
Assets; (3) the weighted average term to
scheduled maturity of the Assets as of
origination (based on outstanding principal
balances as of the Cut-off Date); (4) the
weighted average remaining term to scheduled
maturity of the Assets as of the Cut-off
Date (based on outstanding principal
balances as of the Cut-off Date) and the
range of remaining terms to maturity of the
Assets; (5) the percentages of the Contracts
included in the Asset Pool (by principal
balance as of the Cut-off Date) secured by
new Manufactured Homes, used Manufactured
Homes, repossessed Manufactured Homes, and
Manufactured Homes that were transferred to
an assignee of the original Obligor,
respectively; (6) the types of Mortgaged
Properties securing any Mortgage Loans
included in the Asset Pool (e.g., second
homes, investor-owned, manufactured homes);
(7) the average outstanding principal
balance of the Contracts, the Mortgage Loans
and the Assets as an entirety as of the
Cut-off Date; (8) the weighted average
(based on outstanding principal balances as
of the Cut-off Date) and range of Contract
Loan-to-Value Ratios of the Contracts and
Mortgage Loan-to-Value Ratios of the
Mortgage Loans; (9) the aggregate
outstanding principal balance, if any, of
Conventional Contracts and Conventional
Mortgage Loans, FHA Contracts and FHA
Mortgage Loans, VA Contracts and VA Mortgage
Loans, Level Payment Loans, Adjustable Rate
Assets, Buy-Down Loans, GPM Loans, Step-up
Rate Loans, Interest Reduction Loans, GEM
Loans, Balloon Payment Loans, Convertible
Loans, Bi-Weekly Loans, Level Payment
Buy-Down Loans, Increasing Payment Loans and
any other type of Assets included in the
related Asset Pool as of the Cut-off Date;
(10) the amount of any hazard insurance
required to be maintained with respect to
each Manufactured Home and each Mortgaged
Property; (11) the amount of any Pool
Insurance Policy, Special Hazard Insurance
Policy and Obligor Bankruptcy Insurance
(each as hereinafter described) to be
maintained with respect to all or any
portion of the Asset Pool; (12) the amount
and terms of any form of credit enhancement
to be provided with respect to the related
Series, if any; and (13) the geographic
location of the Manufactured Homes and
Mortgaged Properties securing the Contracts
and the Mortgage Loans.
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<PAGE>
The Company will acquire the Contracts and
the Mortgage Loans from Oakwood or another
Seller, which may have originated the
Contracts or may have acquired them in the
open market or in privately negotiated
transactions.
DESCRIPTION OF CERTIFICATES..... Each Series of Certificates may consist of
one or more Classes, one or more of which may
be Senior Certificates and one or more of
which may be Subordinated Certificates. Each
such Class will evidence the right to receive
a specified portion of collections of
principal or interest, or both, on the
underlying Assets and certain other property
held in trust for the benefit of the
Certificateholders (the "Trust Estate"). Each
Class of a Series may be assigned a principal
balance (the "Certificate Principal Balance")
and a fixed or adjustable stated annual
interest rate (the "Pass-Through Rate"), and
may represent entitlement to receive
distributions in reduction of its Certificate
Principal Balance to the extent of funds
available therefor in the manner, priority
and amounts specified in the related
Prospectus Supplement. A Class of
Certificates may be a "Compound Interest
Class," which consists of Certificates on
which interest will accrue, but on which
interest will not be paid for the period set
forth in the related Prospectus Supplement.
The Certificates may be Book-Entry
Certificates or Definitive Certificates
issuable in fully registered form, in either
case in the authorized denominations
specified in the related Prospectus
Supplement. See "Description of the
Certificates" herein. Certain Series or
Classes of Certificates may be enhanced by
pool insurance, letters of credit, surety
bonds, guarantees, or any combination
thereof, or other forms of credit enhancement
including the subordination of Subordinated
Certificates, if any.
THE CERTIFICATES WILL NOT BE GUARANTEED OR
INSURED BY ANY GOVERNMENT AGENCY OR, UNLESS
OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, ANY OTHER INSURER.
UNLESS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT, NEITHER THE CONTRACTS
NOR THE MORTGAGE LOANS COMPRISING ANY
RELATED ASSET POOL WILL BE GUARANTEED OR
INSURED BY ANY GOVERNMENT AGENCY OR ANY
OTHER INSURER EXCEPT TO THE LIMITED EXTENT
OF ANY LIMITED GUARANTEE.
SUBORDINATED CERTIFICATES
AND RESERVE FUNDS.............. One or more Classes of any Series of
Certificates may be Subordinated
Certificates, as specified in the related
Prospectus Supplement. The rights of the
Subordinated Certificateholders to receive
any or a specified portion of distributions
with respect to the Assets will be
subordinated to the rights of Senior
Certificateholders to the extent and in the
manner specified in the related Prospectus
Supplement. In addition, Realized Losses
and/or Shortfalls may be allocated on each
Distribution Date to Subordinated
Certificates before being allocated to Senior
Certificates, in any event to the extent and
in the manner described in the related
Prospectus Supplement. This subordination is
intended to enhance the likelihood of regular
receipt by Senior Certificateholders of the
full amount of scheduled monthly
distributions of principal and interest due
them and to protect the Senior
Certificateholders against losses. If a
Series of Certificates contains more than one
Class of Subordinated Certificates,
distributions and losses will be allocated
among such Classes in the manner specified
3
<PAGE>
in the related Pooling and Servicing
Agreement and described, as to those Classes
offered hereby, in the related Prospectus
Supplement.
Certain Classes of Certificates may be
granted preferential rights over the rights
of other Classes of Certificates to receive
current distributions from the related Asset
Pool or as to the allocation of Realized
Losses and/or Shortfalls to the extent
specified in the related Prospectus
Supplement. Protection also may be afforded
certain Classes of Certificates by the
establishment of a reserve fund (a "Reserve
Fund"). A Reserve Fund may be funded, to the
extent specified in the related Prospectus
Supplement, by an initial cash deposit, the
retention of specified periodic
distributions of principal or interest or
both otherwise payable to holders of
Subordinated or Residual Certificates, or
the provision of a letter of credit,
guarantee, insurance policy or other form of
credit enhancement, or any combination of
any of the aforementioned methods.
INSURANCE AND CREDIT
ENHANCEMENT.................... As an alternative, or in addition, to the
credit enhancement afforded by subordination
of Subordinated Certificates and/or the
establishment of a Reserve Fund, credit
enhancement with respect to a Series of
Certificates may be provided by contract pool
insurance and/or mortgage pool insurance, a
guarantee of Oakwood Homes Corporation or one
of its affiliates with respect to certain
collections with respect to the Asset Pool of
such Series, or other forms of credit
enhancement or liquidity enhancement
acceptable to a nationally recognized rating
agency rating one or more Classes of a Series
of Certificates. Credit enhancement through
hazard insurance or credit insurance is
summarized below. See "The Trusts --
Insurance" below.
STANDARD HAZARD INSURANCE AND SPECIAL
HAZARD INSURANCE............... All of the Manufactured Homes and Mortgaged
Properties will be covered by Standard Hazard
Insurance Policies insuring against losses
due to various causes, including fire,
lightning and windstorm. Certain other
physical risks that are not otherwise insured
against (such as earthquake, flood, nuclear
accident or war) may be covered by a Special
Hazard Insurance Policy or Policies, as
specified in the related Prospectus
Supplement. Each Special Hazard Insurance
Policy will be limited in scope and will
cover losses in an initial amount equal to a
set percentage of the aggregate principal
balance of the covered Mortgage Loans and/or
Contracts as of the Cut-off Date or other
maximum coverage, as set forth in the related
Prospectus Supplement. Any hazard losses not
covered by insurance or other credit
enhancement will be borne by the related
Certificateholders. See "The Trusts --
Insurance -- Hazard Insurance" herein.
POOL INSURANCE.................. A Pool Insurance Policy or Policies may be
obtained with respect to all or part of an
Asset Pool. Any Pool Insurance Policy will be
limited in scope, covering defaults on the
related Contracts and/or Mortgage Loans in an
initial amount of not less than a specified
percentage of the aggregate principal balance
thereof as of the related Cut-off Date as
set forth in the related Prospectus
Supplement. See "The Trusts -- Insurance --
Credit Insurance -- Pool Insurance" herein.
OBLIGOR BANKRUPTCY INSURANCE.... As specified in the related Prospectus
Supplement, Obligor Bankruptcy Insurance may
be obtained to cover certain losses resulting
from action which may be taken by a
bankruptcy court in connection with a
Mortgage Loan or Contract. The level of
coverage of such
4
<PAGE>
insurance, if any, will be specified in the
applicable Prospectus Supplement. See "The
Trusts -- Insurance -- Credit Insurance --
Obligor Bankruptcy Insurance" herein.
FHA INSURANCE AND
VA GUARANTEES................... To the extent specified in the related
Prospectus Supplement, all or a portion of
the Contracts or Mortgage Loans may be
subject to FHA insurance and all or a portion
of the Contracts or Mortgage Loans may be
partially guaranteed by the VA. See "The
Trusts -- Insurance -- Credit Insurance --
FHA Insurance and VA Guarantees on Contracts"
herein.
CERTIFICATE GUARANTEE
INSURANCE....................... If so specified in the related Prospectus
Supplement, credit enhancement for a Series
may be provided by an insurance policy (the
"Certificate Guarantee Insurance") issued by
one or more insurers. Such Certificate
Guarantee Insurance may guarantee timely
distributions of interest and full
distributions of principal on the basis of a
schedule of principal distributions set forth
in or determined in the manner specified in
the related Prospectus Supplement. See "The
Trusts -- Certificate Guarantee Insurance"
herein.
OAKWOOD HOMES GUARANTEE......... If so specified in the related Prospectus
Supplement, some or all of the collections of
principal of and interest on the Asset Pool
of a Series may be guaranteed by Oakwood
Homes or one of its affiliates. The terms of
and limitations on any such guarantee will be
described in the related Prospectus
Supplement. See "The Trusts -- Oakwood Homes
Guarantee" herein.
ALTERNATE CREDIT ENHANCEMENT.... To the extent specified in the related
Prospectus Supplement, the Company may
provide for alternative credit enhancement
for all or part of the related Trust Estate
or Asset Pool, in the form of a letter of
credit, guarantee, surety bond or insurance
policy, or any combination thereof, in each
case satisfactory to a rating agency rating
the Series of Certificates. See "The Trusts
-- Delivery of Additional Assets" herein.
Certain insurance policies or other forms of
credit enhancement obtained for any
particular Series of Certificates may
previously have been pledged to secure other
Series of Certificates or other pass-through
securities or collateralized mortgage or
manufactured housing contract obligations to
the extent described in the related
Prospectus Supplement. In addition, any such
insurance policies or other forms of credit
enhancement provided for a Series may be
further pledged to secure other securities
or obligations after the issuance of such
Series to the extent so provided in the
related Prospectus Supplement and to the
extent such further pledge will not result
in a downgrading of any rating assigned to
Certificates of such Series by a nationally
recognized rating agency identified in the
related Prospectus Supplement.
With respect to any Series of Certificates
secured by insurance policies or other forms
of credit enhancement, the Company will have
the right to substitute comparable coverage
from another insurer or to provide
equivalent protection for any of such
insurance policies or other forms of credit
enhancement so long as such substitution
will not result in the downgrading of any
rating assigned to Certificates of such
Series by a nationally recognized rating
agency identified in the related Prospectus
Supplement.
ADVANCES........................ The Servicer will make advances of
delinquent payments of principal and interest
("P&I Advances"), as well as advances of
delinquent payments of taxes, insurance
premiums and escrowed items, as well as
5
<PAGE>
liquidation-related expenses ("Servicing
Advances" and, together with P&I Advances,
"Advances"), with respect to the Contracts
and Mortgage Loans unless (i) the Servicer
concludes that the Advance cannot be
recovered out of the Liquidation Proceeds of
the related Asset or (ii) the Advance would
exceed a limit specified by the applicable
Rating Agencies.
COMPENSATING INTEREST........... If a Contract or Mortgage Loan is prepaid
in full or liquidated other than on a Due
Date, the Obligor generally is only required
to pay interest to the date of prepayment or
liquidation. In such event, if provided in
the Prospectus Supplement, for so long as
Oakwood is the Servicer of the related Asset,
the Servicer may be obligated to pay interest
from the last day for which interest was due
from the Obligor to the next succeeding Due
Date, so long as such amount does not exceed
the Servicer's servicing compensation for
such month ("Compensating Interest").
POOLING AND
SERVICING AGREEMENT............. Each Series of Certificates will be issued
pursuant to one or more Pooling and Servicing
Agreements among the Company, the Servicer
and the Trustee identified in the related
Prospectus Supplement. Pursuant to the
Pooling and Servicing Agreement, the Company
will sell and assign the Asset Pool and other
assets comprising the related Trust Estate to
the trustee named in the related Prospectus
Supplement (the "Trustee") in exchange for a
Series of Certificates. Following the closing
for a Series, payments of principal,
including prepayments, and interest on the
Contracts and Mortgage Loans with respect to
the Series (together with payments from any
Reserve Fund or other funds for such Series)
and, if applicable, reinvestment income
thereon, will be passed through to the Trust
as specified in the Prospectus Supplement.
The Trustee will periodically allocate such
amounts, to the extent actually collected,
advanced or received during the applicable
Collection Period or Prepayment Period (as
appropriate), net of various fees, premiums
and expenses (the "Available Distribution
Amount") among the Classes of Certificates of
the related Series in the proportion and
order of application set forth in the related
Pooling and Servicing Agreement and described
in the related Prospectus Supplement. The
Available Distribution Amount may be
allocated so that amounts paid as interest on
the Contracts and Mortgage Loans may be
distributed as principal on the Certificates
and amounts paid as principal on the
Contracts and Mortgage Loans may be
distributed as interest on the Certificates.
DISTRIBUTIONS OF INTEREST....... Interest will be distributed periodically
by the Trustee on each Class of Certificates
entitled to interest distributions on the
dates specified in the related Prospectus
Supplement (each, a "Distribution Date").
Interest will accrue on each Class of the
Certificates entitled to interest
distributions at the applicable Pass-Through
Rate on the outstanding actual or notional
principal amount of such Certificates or in
accordance with such other formula as may be
specified in the related Prospectus
Supplement. Each periodic distribution of
interest on the Certificates of a particular
Class will be distributed among holders of
such Class pro rata in accordance with their
respective percentage ownership interests in
the outstanding Certificates of such Class.
Each such distribution of interest will
include all interest accrued through the
Accounting Date immediately preceding the
applicable Distribution Date or to another
date specified in the related Prospectus
Supplement, provided that distributions of
interest on the Certificates of a
6
<PAGE>
Series may be reduced as a result of
delinquencies or losses on Contracts and
Mortgage Loans in the related Trust.
DISTRIBUTIONS OF PRINCIPAL...... Principal will be distributed periodically
by the Trustee on the Distribution Dates
specified in the related Prospectus
Supplement. Each periodic distribution of
principal on the Certificates of a particular
Class will be distributed among holders of
such Class pro rata in accordance with their
respective percentage ownership interests in
the outstanding Certificates of such Class,
or in such other manner specified in the
related Prospectus Supplement. Distributions
of principal on the Certificates of a Series
may be reduced to the extent of delinquencies
or losses on the Contracts and Mortgage Loans
in the related Trust.
The Final Scheduled Distribution Date for
each Class of a Series is the date after
which no Certificates of such Class will
remain outstanding, assuming timely payments
are made on the Contracts and Mortgage Loans
in the related Trust in accordance with
their terms, and that no Contracts or
Mortgage Loans are prepaid in whole or in
part. The Final Scheduled Distribution Date
for a Class will be determined by reference
to the maturity date of the Contract or
Mortgage Loan in the related Trust which has
the latest stated maturity or will be
determined on the basis of the assumptions
set forth in the related Prospectus
Supplement. The actual maturity date of the
Certificates of a Series will depend
primarily upon the level of prepayments and
defaults with respect to the Contracts and
Mortgage Loans comprising the related Asset
Pool. The actual maturity of any Certificate
is likely to occur earlier and may occur
substantially earlier than its Final
Scheduled Distribution Date as a result of
the application of prepayments to the
reduction of the principal amounts of the
Certificates. See "Maturity and Prepayment
Considerations" and "Yield Considerations"
herein.
ALLOCATION OF LOSSES
AND SHORTFALLS.................. With respect to any defaulted Contract or
Mortgage Loan that is finally liquidated for
cash (a "Liquidated Loan") through
repossession and resale of the underlying
Manufactured Home or through foreclosure sale
or other liquidation of the underlying
Mortgaged Property, disposition of the
related Mortgaged Property if acquired by
deed in lieu of foreclosure, or otherwise,
the amount of loss realized, if any (a
"Realized Loss"), will equal the sum of (a)
(1) the Unpaid Principal Balance of the
Liquidated Loan, plus (2) amounts
reimbursable to the Servicer or Trustee for
related previously unreimbursed costs,
expenses and advances, plus (3) amounts
attributable to interest accrued but not paid
on such Liquidated Loan, minus (b)
Liquidation Proceeds with respect to the
Liquidated Loan. Liquidation Proceeds will be
allocated first to reimburse the Servicer for
previously unreimbursed Advances it made in
respect of the related Asset, second to
reduce accrued and unpaid interest on such
Asset, and finally to reduce the Unpaid
Principal Balance of such Asset.
Realized Losses also include Obligor
Bankruptcy Losses, Special Hazard Losses and
Fraud Losses. Obligor Bankruptcy Losses
result when the Unpaid Principal Balance of
a Contract or Mortgage Loan is reduced in
connection with bankruptcy proceedings
concerning the Obligor. Special Hazard
Losses are losses attributable to physical
damage to Mortgaged Properties or
Manufactured Homes of a type which is not
covered by standard hazard insurance
policies, but do not include
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losses caused by war, nuclear reaction,
nuclear or atomic weapons, insurrection or
normal wear and tear. Fraud Losses are
losses on Contracts or Mortgage Loans as to
which there was fraud in connection with the
origination of the Contract or Mortgage Loan
or fraud, dishonesty or misrepresentation in
connection with the application for any
insurance obtained as to such Contract or
Mortgage Loan.
In the event that P&I Advances are not made
or are insufficient to cover delinquencies
in principal and interest payments on the
related Asset Pool, such delinquencies may
result in reduced principal and interest
distributions on the Certificates. A
shortfall of interest may also result (1)
from the application of the Soldiers' and
Sailors' Civil Relief Act of 1940, which
caps the interest rate payable by certain
Obligors who enter military service after
entering into their Contracts or Mortgage
Loans ("Soldiers' and Sailors' Shortfall");
(2) from the receipt of Liquidation Proceeds
and Insurance Proceeds in an amount
insufficient to pay accrued and unpaid
interest on a liquidated Contract or
Mortgage Loan ("Realized Interest Losses");
(3) from the prepayment in full or
liquidation of a Contract or Mortgage Loan
to the extent such shortfall is not covered
by a Compensating Interest payment by the
Servicer as described above ("Due Date
Interest Shortfall") and (4) from a
shortfall in interest collected on an Asset
that accompanies a Special Hazard Loss,
Obligor Bankruptcy Loss or Fraud Loss.
A Series may include one or more Classes of
Certificates as to which the right to
receive distributions with respect to the
Asset Pool will be subordinate to the rights
of holders of more Senior Certificates of
such Series. Such subordination may only be
to the extent of a specific amount specified
in the related Prospectus Supplement (the
"Subordination Amount") or may require
allocation of all Realized Losses or
Shortfalls to a Subordinated Class of
Certificates until its Certificate Principal
Balance has been reduced to zero. If so
provided in the related Prospectus
Supplement, certain types of Realized Losses
or Shortfalls may be allocated differently
than other Realized Losses or Shortfalls.
Any allocation of a Realized Loss to a Class
of Certificates generally will be made by
reducing the Certificate Principal Balance
thereof as of the applicable Distribution
Date by an amount equal to the amount of
such Realized Loss.
OPTIONAL REDEMPTION
OR TERMINATION.................. To the extent specified in the related
Prospectus Supplement, the Certificates of a
Series may be redeemed or otherwise retired
early by the party specified therein under
certain circumstances. See "Description of
the Certificates -- Termination" herein.
FEDERAL INCOME
TAX CONSIDERATIONS.............. If an election is made to treat all or a
portion of the Trust Estate relating to a
Series of Certificates as a real estate
mortgage investment conduit (a "REMIC"), each
Class of Certificates of such Series will
constitute "regular interests" in a REMIC or
"residual interests" in a REMIC, as specified
in the related Prospectus Supplement. If no
election is made to treat all or any portion
of the Trust Estate relating to a Series of
Certificates as a REMIC, the Trust Estate
will be classified as a grantor trust and not
as an association taxable as a corporation
for federal income tax purposes, and
therefore holders of Certificates will be
treated as the owners of undivided pro rata
interests in the Asset Pool and any other
assets held by the Trust. See "Federal Income
Tax Consequences" herein.
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YIELD CONSIDERATIONS............ The Prospectus Supplement for a Series may
specify certain weighted average life
calculations, based upon an assumed rate of
prepayment or a range of prepayment
assumptions on the related Asset Pool. A
higher level of principal prepayments on the
Contracts and Mortgage Loans than anticipated
is likely to have an adverse effect on the
yield on any Certificate that has a purchase
price greater than its principal amount
("Premium Certificates") and a lower level of
principal prepayments on the Contracts and
Mortgage Loans than anticipated is likely to
have an adverse effect on the yield on any
Certificate that has a purchase price less
than its principal amount ("Discount
Certificates"). It is possible under certain
circumstances for holders of Premium
Certificates not only to suffer a lower than
anticipated yield but, in extreme cases, to
fail to recoup fully their initial
investment.
PRE-FUNDING..................... If so specified in the related Prospectus
Supplement, a portion of the issuance
proceeds of the Certificates of a particular
Series (such amount, the "Pre-Funded Amount")
will be deposited in an account (the "Pre-
Funding Account") to be established with the
Trustee, which will be used to acquire
additional Mortgage Loans or Contracts from
time to time during the period specified in
the related Prospectus Supplement (the
"Pre-Funding Period"). Prior to the
investment of the Pre-Funded Amount in
additional Mortgage Loans or Contracts, such
Pre-Funded Amount may be invested in one or
more Eligible Investments. Any Eligible
Investment must mature no later than the
Business Day prior to the next Distribution
Date. See "The Trusts -- Pre-Funding"
herein.
During any Pre-Funding Period, the Company
will be obligated (subject only to the
availability thereof) to transfer to the
related Trust additional Mortgage Loans or
Contracts from time to time during such
Pre-Funding Period. Such additional Mortgage
Loans or Contracts will be required to
satisfy certain eligibility criteria more
fully set forth in the related Prospectus
Supplement, which eligibility criteria will
be consistent with the eligibility criteria
of the Mortgage Loans or Contracts included
in the Trust as of the Closing Date, subject
to such exceptions as are expressly stated
in such Prospectus Supplement.
Although the specific parameters of the
Pre-Funding Account with respect to any
issuance of Certificates will be specified
in the related Prospectus Supplement, it is
anticipated that: (a) the Pre-Funding Period
will not exceed three months from the
related Closing Date, (b) the additional
Mortgage Loans or Contracts to be acquired
during the Pre-Funding Period will be
subject to the same representations and
warranties as the Mortgage Loans or
Contracts included in the related Trust on
the Closing Date (although additional
criteria may also be required to be
satisfied, as described in the related
Prospectus Supplement) and (c) the
Pre-Funded Amount will not exceed 25% of the
principal amount of the Certificates issued
pursuant to a particular offering.
ERISA CONSIDERATIONS............ A fiduciary of any employee benefit plan
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or the Code, should review carefully with its
legal advisors whether the purchase or
holding of Certificates could give rise to a
transaction that is prohibited under ERISA or
the Code. See "ERISA Considerations" herein.
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<PAGE>
LEGAL INVESTMENT
CONSIDERATIONS.................. If so specified in the Prospectus Supplement
relating to a Series of Certificates, one or
more Classes within such Series will
constitute "mortgage related securities"
under the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") if and for
so long as they are rated in one of the two
highest rating categories by the Rating
Agency or Agencies identified in the related
Prospectus Supplement. Certificates that are
"mortgage related securities" for SMMEA
purposes would be "legal investments" for
certain types of institutional investors to
the extent provided in SMMEA, subject to
state laws overriding SMMEA. A number of
states have enacted legislation overriding
the state securities registration and/or
legal investment provisions of SMMEA.
Some Classes of Certificates offered hereby
may not be rated in one of the two highest
rating categories by the appropriate Rating
Agency or Agencies, and thus would not
constitute "mortgage related securities"
under SMMEA. Certificates may not qualify as
"mortgage related securities" for other
reasons as well. Certificates that do not
constitute "mortgage-related securities"
under SMMEA may require registration,
qualification or an exemption under
applicable state securities laws and may not
be "legal investments" to the same extent as
"mortgage related securities." See "Legal
Investment Considerations" herein.
USE OF PROCEEDS................. Substantially all of the net proceeds from
the sale of a Series of Certificates offered
hereby and by the related Prospectus
Supplement will be applied to the
simultaneous purchase of the Contracts and
Mortgage Loans underlying such Series of
Certificates or to reimburse the amounts
previously used to effect the purchase of the
Contracts and Mortgage Loans underlying the
Certificates, the costs of carrying the
Contracts and Mortgage Loans until sale of
the Certificates and to pay other expenses
connected with pooling the Contracts and
Mortgage Loans and issuing the Certificates.
Any excess will be used by the Company for
its general corporate purposes. See "Use of
Proceeds" herein.
RATING.......................... It is a condition to the issuance of the
Certificates to be offered hereunder that
they be rated in one of the four highest
rating categories (without regard to
modifiers) by at least one nationally
recognized statistical rating organization,
such as Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.,
Moody's Investors Service, Inc., Fitch IBCA,
Inc. or Duff & Phelps Credit Rating Co.
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<PAGE>
RISK FACTORS
Prospective Certificateholders should consider the following factors,
among others, in connection with the purchase of the Certificates.
1. VALUE OF CONTRACTS AND MORTGAGE LOANS IN WHICH CERTIFICATEHOLDERS HAVE
INVESTED IS DEPENDENT ON CONDITIONS BEYOND THE COMPANY'S CONTROL.
VALUE OF CONTRACTS SENSITIVE TO AMBIENT ECONOMIC CONDITIONS AND LIKELY
WILL DECREASE OVER TIME. An investment in Certificates evidencing interests in
Contracts may be affected by, among other things, downturns in regional or
local economic conditions. Regional or local economic conditions are often
volatile, and historically have affected the delinquency, loan loss and
repossession experience of manufactured housing installment sales contracts.
Holders of the Certificates of a Series will bear all risk of loss resulting
from defaults by Obligors on the underlying Contracts and will have to look
primarily to the value of the related Manufactured Homes for recovery of the
outstanding principal and unpaid interest of the defaulted Contracts to the
extent that losses on the Contracts underlying such Series are not absorbed by
other Certificates, if any, that are subordinated to such Holders'
Certificates, by applicable insurance policies, if any, or by any other credit
enhancement. The value of Manufactured Homes typically declines over time, and
the amount recoverable upon repossession and resale of a Manufactured Home may
not be sufficient to pay all principal and interest due on the defaulted
Contract it secured. See "The Trusts -- The Assets -- The Contracts" herein.
Contracts differ from Mortgage Loans in certain material respects. In
general, Contracts may experience a higher level of delinquencies than Mortgage
Loans, because the credit underwriting standards applied to borrowers under
manufactured housing installment sales contracts generally are not as stringent
as those applied to borrowers under many conventional residential first-lien
mortgage loans. See "Underwriting Policies -- Oakwood's Contract Underwriting
Guidelines" herein. As noted above, Manufactured Homes generally decline in
value over time, which may not necessarily be the case with respect to
Mortgaged Properties underlying Mortgage Loans. Consequently, the losses
incurred upon repossession of or foreclosure on Manufactured Homes securing the
Contracts generally may be expected to be more severe than the losses that
would be incurred upon foreclosure on Mortgaged Properties securing Mortgage
Loans (in each case measured as a percentage of the outstanding principal
balances of the related Assets). The servicing of manufactured housing
installment sales contracts is generally similar to the servicing of
conventional residential mortgage loans, except that, in general, servicers of
manufactured housing installment sales contracts place greater emphasis on
making prompt telephone contact with delinquent borrowers than is generally
customary in the case of the servicing of conventional residential mortgage
loans. See "Sale and Servicing of Contracts and Mortgage Loans -- Servicing"
herein. Realization on defaulted Contracts is generally accomplished through
repossession and subsequent resale of the underlying Manufactured Homes by or
on behalf of the Servicer, whereas realization on defaulted Mortgage Loans is
generally accomplished through foreclosure on the underlying Mortgaged
Properties or similar proceedings. Realization on defaulted Land Secured
Contracts may involve a combination of repossession and foreclosure-related
procedures. See "Certain Legal Aspects of Contracts and Mortgage Loans" herein.
Certificates evidencing interests in Contracts may also be subject to other
risks that are not present in the case of Certificates evidencing interests in
Mortgage Loans. See " -- 3. Certificateholders May Realize Losses If The
Servicer Is Unable to Realize on Assets Because of Provisions of Applicable
State Law," and " -- 4. Compliance with Federal and State Lender Regulations
May Cause Certain Credit and Prepayment Risks to Certificateholders," below and
"Certain Legal Aspects of Contracts and Mortgage Loans" herein.
VALUE OF MORTGAGE LOANS SENSITIVE TO CHANGES IN RESIDENTIAL REAL ESTATE
MARKETS. An investment in Certificates evidencing interests in mortgage loans
may be affected, among other things, by declines in real estate values or
downturns in regional or local economic conditions. If the residential real
estate market should experience an overall decline in property values such that
the outstanding balances of the Mortgage Loans underlying a Series, together
with any secondary financing on the related Mortgaged Properties, become equal
to or greater than the value of the related Mortgaged Properties, the actual
rates of delinquencies, foreclosures and losses on such Mortgage Loans could be
higher than those now generally experienced in the mortgage lending industry.
Holders of the Certificates evidencing interests in such Mortgage Loans will
bear all risk of loss resulting from default by the related mortgagors and will
have to look primarily to the value of the related Mortgaged Properties for
recovery of the outstanding principal of and unpaid interest on the defaulted
Mortgage Loans to the extent that such losses are not covered by other
Certificates, if any, that are subordinated to such Holders' Certificates, by
applicable insurance policies, if any, or by any other credit enhancement. See
"The Trusts -- The Assets -- The Mortgage Loans" herein.
VALUE OF ASSETS TRANSFERRED TO THE TRUST ESTATE MAY DECREASE. If the
assets assigned to a Trust were to be sold, there can be no assurance that the
proceeds of any such sale would be sufficient to distribute in full the
outstanding principal
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<PAGE>
amount of the related Certificates and all accrued interest due thereon. The
market value of the Assets included in any Trust Estate generally will
fluctuate with changes in prevailing rates of interest, among other factors.
Consequently, the items included in the Trust Estate for a Series may be
liquidated at a discount from their par value or from their purchase price, in
which case the proceeds of such liquidation might be less than the aggregate
outstanding principal amount of the Certificates of that Series, plus interest
at the Pass-Through Rate allocated to each Class of such Certificates. In such
event, any shortfalls in the amounts necessary to make required distributions
on the Certificates would be borne by the Certificateholders.
2. PREPAYMENTS, YIELD AND CREDIT RISKS TO CERTIFICATEHOLDERS FROM
OWNERSHIP OF FIXED POOL OF CONTRACTS AND MORTGAGE LOANS.
PREPAYMENT TIMING AND FREQUENCY MAY ADVERSELY AFFECT YIELD OF
CERTIFICATEHOLDERS. Yields realized by holders of certain Classes of
Certificates entitled to disproportionate allocations of principal or interest
on the underlying Asset Pool will be extremely sensitive to levels of
prepayments (including for this purpose, payments resulting from refinancings,
liquidations due to defaults, casualties, condemnations and purchases by or on
behalf of the Company or the Seller) on the Assets in the related Trust. In
general, yields on Premium Certificates will be adversely affected by higher
than anticipated levels of prepayments on the Assets and enhanced by lower than
anticipated levels of prepayments. Conversely, yields on Discount Certificates
are likely to be enhanced by higher than expected levels of prepayments and
adversely affected by lower than anticipated levels of prepayments. The level
of sensitivity of a Class to prepayment levels will be magnified as the
disproportion of the allocation of principal and interest payments on the
Assets to such Class increases. Holders of certain Classes of Certificates
could fail to recover their initial investments.
The rate of principal payments on the Contracts and Mortgage Loans will be
affected by the amortization schedules of such Contracts and Mortgage Loans and
the rate of principal prepayments thereon (including for this purpose payments
resulting from refinancings, liquidations due to defaults, casualties,
condemnations and purchases by or on behalf of the Company or the Seller). The
rate of principal prepayments on pools of Contracts and Mortgage Loans is
influenced by a variety of economic, geographic, social, tax, legal and other
factors. In general, however, if the Contracts and Mortgage Loans are not
subject to prepayment penalties and if prevailing interest rates fall
significantly below the interest rates on the Contracts and Mortgage Loans,
such Contracts and Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Contracts and Mortgage Loans. This is because, in a declining
interest rate environment, the Obligors may be able to secure alternative
financing of their Manufactured Homes or Mortgaged Properties with lower
interest rates and lower Monthly Payments than those borne by their current
Contracts or Mortgage Loans. Conversely, an Obligor is less likely to prepay
his Contract or Mortgage Loan when market interest rates are higher than those
in effect when the Contract or Mortgage Loan was originated. This general
causal relationship may be more pronounced in the case of Mortgage Loans than
in the case of Contracts, because Contracts typically have smaller principal
balances than Mortgage Loans and, consequently, the effect of interest rate
changes on Monthly Payments due on Contracts may be less dramatic than the
effect of such changes on Monthly Payments due on Mortgage Loans.
The holder of a Contract or Mortgage Loan (I.E., the Trustee, and through
it, the Certificateholders) generally does not want the Contract or Mortgage
Loan to be prepaid when prevailing interest rates are lower than they were at
the time of the holder's investment in the related Certificates and generally
does want the Contract or Mortgage Loan to be prepaid when prevailing interest
rates are higher than they were at the time of the holder's investment in the
related Certificates. This conflict between the Obligor and the holder of the
Contract or Mortgage Loan exposes the holder to reinvestment risk when
prevailing interest rates are lower than at the time of the holder's investment
(it can only reinvest the proceeds of prepayment of a Contract or Mortgage Loan
in investments bearing a lower rate of interest than that borne by the
Certificate backed by the prepaid Contract or Mortgage Loan) and the loss of
reinvestment opportunity when prevailing interest rates are higher than at the
time of the holder's investment (it cannot reinvest its funds in higher
yielding instruments).
YIELD TO CERTIFICATEHOLDERS WILL BE ADVERSELY AFFECTED BY ACCRUAL PERIODS,
SHORTFALLS AND REALIZED LOSSES. The effective yield to Certificateholders will
be lower than the yield otherwise produced by the applicable Pass-Through Rates
and purchase prices of the Certificates because, although interest will accrue
on the Certificates from the first day of each month, the distribution of such
interest will not be made until the Distribution Date in the month following
the month of such accrual. In addition, the effective yield on the Certificates
will be reduced by any Shortfalls and Realized Losses allocated to such
Certificates.
CREDIT RATINGS PROVIDED BY RATING AGENCIES DO NOT ADDRESS ALL RISKS IN AN
INVESTMENT IN THE OFFERED CERTIFICATES. Each Class of Certificates of a Series
offered hereby and by means of the related Prospectus Supplement will be rated
in not less than the fourth highest rating category by the Rating Agency or
Agencies identified in such Prospectus Supplement. Any such rating does not
constitute a recommendation to buy, sell or hold the rated Certificates and is
subject to revision
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<PAGE>
or withdrawal at any time by the Rating Agency that issued the rating. An
investor may obtain further details with respect to any rating on the
Certificates from the Rating Agency that issued the rating. In addition, any
such rating will be based, among other things, on the credit quality of the
underlying Asset Pool only and will represent only an assessment of the
likelihood of receipt by Certificateholders of payments with respect to such
Asset Pool. Such rating will not represent any assessment of the likelihood
that prepayment experience may differ from prepayment assumptions and,
accordingly, will not constitute any assessment of the possibility that holders
of Premium Certificates will fail to recoup their initial investment if a high
rate of principal prepayments is experienced on the related Assets. Security
ratings assigned to Classes of Certificates representing a disproportionate
entitlement to principal or interest collections on the underlying Assets
should be evaluated independently of similar security ratings assigned to other
kinds of securities.
3. CERTIFICATEHOLDERS MAY REALIZE LOSSES IF THE SERVICER IS UNABLE TO
REALIZE ON ASSETS BECAUSE OF PROVISIONS OF APPLICABLE STATE LAW. Each Contract
is secured by a security interest in a Manufactured Home. Perfection of
security interests in Manufactured Homes are subject to a number of state laws,
including, in some states, the Uniform Commercial Code (the "UCC") as adopted
in such states and, in other states, such states' motor vehicle titling
statutes. In some states, perfection of security interests in Manufactured
Homes is governed both by the applicable UCC and by motor vehicle titling
statutes. The steps necessary to perfect a security interest in a Manufactured
Home will vary from state to state. Because of the expense and administrative
inconvenience involved, neither the Seller nor the Company will amend any
certificates of title to change the lienholder specified therein from Oakwood
(or any other Seller) to the Trustee or take any other steps to effect
re-registration of any Manufactured Home in the Trustee's name with the
appropriate state motor vehicle authority. In addition, neither the Seller nor
the Company will deliver any certificate of title to the Trustee or note
thereon the Trustee's interest or file any UCC-3 financing statements or other
instruments evidencing the assignment to the Trustee of the Seller's security
interest in any Manufactured Home. In some states, in the absence of such an
amendment to the certificate of title or such a filing under the applicable
UCC, it is unclear whether the assignment to the Trustee of the security
interest created by a Contract in the underlying Manufactured Home will be
effective or whether the Trustee's security interest in the Manufactured Home
will be perfected. In addition, in the absence of notation of the Trustee's
interest in a Manufactured Home on the related certificate of title or
re-registration of the Manufactured Home in the Trustee's name with the
appropriate state motor vehicle authority or delivery of the certificate of
title to the Trustee or filing of an appropriate transfer instrument under the
applicable UCC, it is unclear whether the assignment to the Trustee of the
security interest created by a Contract in the underlying Manufactured Home
will be effective against creditors of the Seller or a trustee in bankruptcy of
the Seller. The Seller will make certain warranties relating to the validity,
perfection and priority of the security interest created by each Contract in
the underlying Manufactured Home in favor of the Contract's originator. A
breach of any such warranty that materially and adversely affects the Trust's
interest in any Contract or Mortgage Loan would create an obligation on the
part of the Seller to repurchase or substitute for such Contract or Mortgage
Loan unless such breach is cured within 90 days after the Seller's discovery of
or receipt of notice of such breach.
4. COMPLIANCE WITH FEDERAL AND STATE LENDER REGULATIONS MAY CAUSE CERTAIN
CREDIT AND PREPAYMENT RISKS TO CERTIFICATEHOLDERS. Numerous federal and state
consumer protection laws impose requirements on lending under mortgage loans or
retail installment sales contracts such as the Contracts, and the failure by
the lender or seller of goods to comply with such requirements could give rise
to liabilities on the part of such lender's assignees to the Obligors for
amounts due under such mortgage loans or contracts or to an Obligor's right of
set-off against claims by such assignees as a result of such lender's or
seller's noncompliance. To the extent these laws affect the Contracts or the
Mortgage Loans, these laws would apply to the Trustee as assignee of the
Contracts and the Mortgage Loans. The Seller will warrant that the origination
of each Contract and Mortgage Loan complied with all requirements of law and
that there exists no right of rescission, set-off, counterclaim or defense in
favor of the Obligor under any Contract and that each Asset is enforceable
against the related Obligor in accordance with its terms, subject to applicable
bankruptcy and similar laws, laws affecting creditors' rights generally and
general principles of equity. A breach of any such warranty that materially and
adversely affects the Trust's interest in any Contract or Mortgage Loan would
create an obligation on the part of the Seller to repurchase or substitute for
such Contract or Mortgage Loan unless such breach is cured within 90 days after
the Seller's discovery of such breach or after notice of such breach is
provided to the Seller. If the credit support provided by any Subordinated
Certificates, any insurance or any other credit enhancement is exhausted,
application of these consumer protection laws could limit the ability of the
Certificateholders to realize upon Manufactured Homes or Mortgaged Properties
securing defaulted Contracts and Mortgage Loans or could limit the amount
collected on such defaulted Contracts and Mortgage Loans to less than the
amount due thereunder. See "Certain Legal Aspects of the Contracts and Mortgage
Loans -- The Contracts -- Enforcement of Security Interests in Manufactured
Homes" and " -- Consumer Protection Laws" herein and "Certain Legal Aspects of
the Contracts and Mortgage Loans -- The Mortgage Loans -- Anti-Deficiency
Legislation and Other Limitations on Lenders" herein.
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5. CERTIFICATEHOLDERS MUST LOOK SOLELY TO THE TRUST ESTATE FOR
DISTRIBUTIONS OF PRINCIPAL AND INTEREST. The Certificates of a Series are
obligations of the related Trust only, and holders of Certificates of a Series
may look only to the assets of the related Trust for distributions on such
Certificates. The Certificates will not represent an interest in or obligation
of the Company, the Servicer or any Underwriter, or any affiliates of the
Company, the Servicer or any Underwriter, except to the extent described
herein. See "The Trusts -- Certificate Guarantee Insurance," " -- Oakwood Homes
Guarantee" and " -- Alternate Credit Enhancement." The Certificates will not be
insured or guaranteed by any government agency or instrumentality, the Company,
the Servicer or any Underwriter or any of their affiliates, except as described
herein. See "The Trusts -- Certificate Guarantee Insurance," " -- Oakwood Homes
Guarantee" and " -- Alternate Credit Enhancement."
The Limited Guarantee, if any, with respect to a Series of Certificates
will be an unsecured general obligation of Oakwood Homes and will not be
supported by any letter of credit or other credit enhancement arrangement.
6. THERE WILL BE A LIMITED MARKET FOR THE OFFERED CERTIFICATES. There can
be no assurance that a secondary market will develop for the Certificates of
any Series or, if it does develop, that it will provide the holders of such
Certificates with liquidity of investment or that any such liquidity will
continue to exist for the term of such Certificates. Certificates issued in
book-entry form may be less liquid than Certificates issued in fully-registered
certificated form. See "Description of the Certificates -- Book-Entry
Procedures" herein.
7. AVAILABILITY OF EXTERNAL CREDIT ENHANCEMENT DOES NOT ELIMINATE RISKS OF
REALIZED LOSSES ON THE OFFERED CERTIFICATES. If insurance policies or other
credit enhancement are provided with respect to a Series of Certificates, the
insurance policies (including FHA insurance and any VA guarantees) or other
credit enhancement on the Contracts or the Mortgage Loans or any other part of
the related Trust Estate will not provide protection against all contingencies
and will cover certain contingencies only to a limited extent. See "The Trusts
- -- Insurance" herein.
8. CERTIFICATEHOLDERS SUBJECT TO LOSS IF RATE OF DELINQUENCIES AND AMOUNT
OF REALIZED LOSSES EXCEED CERTAIN LEVELS. With respect to Certificates of a
Series that includes a Class of Subordinated Certificates, while the
subordination feature is intended to enhance the likelihood of timely payment
of principal and interest to Senior Certificateholders, the available
subordination may be limited, as specified in the related Prospectus
Supplement. In addition, with respect to Certificates of a Series supported by
a Reserve Fund, the Reserve Fund could be depleted under certain circumstances.
In either case, shortfalls could result for both the Senior Certificates and
the Subordinated Certificates of such Series. Prospective purchasers of a Class
of Certificates should carefully review the credit risks entailed in such Class
resulting from its subordination or from the timing of the distributions
intended to be made on such Class.
9. CERTIFICATES PURCHASED AT A DISCOUNT OR PREMIUM FROM THEIR PARITY PRICE
ARE SUBJECT TO PARTICULAR TAX CONSIDERATIONS. Discount Certificates generally
will be treated as issued with original issue discount for federal income tax
purposes. In addition, certain classes of Premium Certificates (E.G.,
interest-only securities) may be treated by the Trustee under applicable
provisions of the Code as stripped coupons issued with original issue discount.
The Trustee will report original issue discount with respect to such Discount
and Premium Certificates on an accrual basis, which may be prior to the receipt
of cash associated with such income. See "Federal Income Tax Consequences"
herein.
10. REMIC RESIDUAL CERTIFICATES SUBJECT TO PARTICULAR TAX RISKS. Residual
Certificates are subject to certain special tax considerations that differ from
those applicable to REMIC Regular Certificates and to Certificates in a Series
for which no REMIC election is made. See "Federal Income Tax Consequences"
herein.
11. RECHARACTERIZATION OF THE TRANSACTION IN BANKRUPTCY CASES COULD RESULT
IN DELAYS OR ACCELERATION OF DISTRIBUTIONS ON THE OFFERED CERTIFICATES. The
Seller and the Company intend that the transfer of an Asset Pool to the related
Trust constitute a sale rather than a pledge of such Asset Pool to secure
indebtedness of the Seller. However, if the Seller were to become a debtor
under the federal bankruptcy code, it is possible that a creditor, a bankruptcy
trustee of the Seller, or the Seller itself as debtor-in-possession may argue
that the sale of the Asset Pool by the Seller is a pledge of the Asset Pool
rather than a sale. This position, if argued before or accepted by a court,
could result in a delay in or reduction of distributions to the related
Certificateholders. In addition, if an affiliate of the Seller were to become
insolvent, a creditor, a bankruptcy trustee of such affiliate, or such
affiliate itself as debtor-in-possession may argue that the Seller's assets
should be substantively consolidated into such affiliate's estate. This
position, if argued before or accepted by a court, could similarly result in a
delay in or reduction of distributions to the related Certificateholders.
A case (OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir.),
CERT. DENIED 114 S.Ct. 554 (1993)) decided by the United States Court of
Appeals for the Tenth Circuit contains language to the effect that accounts
sold by a debtor under Article 9 of the UCC would remain property of the
debtor's bankruptcy estate. Although the Contracts constitute chattel
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paper under the UCC rather than accounts, sales of chattel paper are similarly
governed by Article 9 of the UCC. If, following a bankruptcy of Oakwood, a
court were to follow the reasoning of the Tenth Circuit and apply such
reasoning to chattel paper, then delays or reductions in payments of
collections on or in respect of the Contracts could occur.
12. THE RATE OF PAYMENTS ON THE CERTIFICATES IS DEPENDENT ON THE PAYMENT
PROVISIONS OF THE ASSETS AND THE ASSETS MAY CONTAIN A VARIETY OF PAYMENT
PROVISIONS. The Assets included in the Trust for a Series may be subject to
various types of payment provisions. As more fully described herein under "The
Trusts -- The Assets," such Assets may consist of Level Payment Loans,
Adjustable Rate Assets, Buy-Down Loans, Interest Reduction Loans, GEM Loans,
GPM Loans, Step-up Rate Loans, Balloon Payment Loans, Convertible Loans,
Bi-Weekly Loans, Level Payment Buy-Down Loans, Increasing Payment Loans, and
such other types of Assets as are specified and described in the related
Prospectus Supplement.
In general, Buy-Down Loans, Level Payment Buy-Down Loans, Increasing
Payment Loans, GEM Loans, GPM Loans and Step-up Rate Loans involve lower
Monthly Payment obligations for some period following their origination,
followed by higher Monthly Payment obligations thereafter. Obligors on these
types of Assets may be more likely to default on their obligations to make
Monthly Payments than Obligors on Level Payment Loans, particularly as their
Monthly Payments increase. The Monthly Payments payable by Obligors on Balloon
Payment Loans are not sufficient to provide for complete amortization of their
loans by their stated maturity dates, and, on the stated maturity date for a
Balloon Payment Loan, the related Obligor is required to make a "balloon"
payment in excess, and likely substantially in excess, of the Monthly Payments
required from such Obligor during preceding months. Obligors on Balloon Payment
Loans are generally more likely to default on their final "balloon" payments
than are Obligors on Level Payment Loans to default in making their Monthly
Payments. As a result, the rate of repossession of and foreclosure on
Manufactured Homes and Mortgaged Properties securing Buy-Down Loans, Level
Payment Buy-Down Loans, Increasing Payment Loans, GEM Loans, GPM Loans, Step-up
Rate Loans and Balloon Payment Loans may be higher than the rate of
repossession of and foreclosure on Manufactured Homes and Mortgaged Properties
securing Level Payment Loans, and the likelihood that Realized Losses will be
allocated to Certificates may be higher than would otherwise be the case to the
extent the related Trust Estate includes Buy-Down Loans, Level Payment Buy-Down
Loans, Increasing Payment Loans, GEM Loans, GPM Loans, Step-up Rate Loans
and/or Balloon Payment Loans in addition to or instead of Level Payment Loans.
The interest rates on Adjustable Rate Assets will adjust periodically to
equal the sum of the applicable Index and Gross Margin. As the Index applicable
to an Adjustable Rate Asset increases, the amount of the related Obligor's
Monthly Payments will be increased, subject to certain limitations. As a
result, Obligors on Adjustable Rate Assets may be more likely to default on
their obligations to make Monthly Payments than Obligors on Assets bearing
interest at fixed rates in rising interest rate environments. In addition, the
Seller of any Convertible Loan, to the extent provided in the related
Prospectus Supplement, may be required to repurchase such Asset if the related
Obligor elects to convert the related Asset Rate from an adjustable rate to a
fixed rate of interest. Any such repurchase of a Convertible Loan included in
an Asset Pool will have the same effect on the holders of the Certificates of
the related Series as a prepayment in full of such Asset. Certificates may be
subject to a higher rate of prepayments of the underlying Assets than would
otherwise be the case to the extent the related Trust Estate includes
Convertible Loans and to the extent the related Seller has such a repurchase
obligation.
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Series Agreement") among the Company, as seller of
the Certificates, Oakwood, as the Servicer (or another Servicer if one is named
in the related Prospectus Supplement) and the Trustee named in the related
Prospectus Supplement. A copy of the form of the Series Agreement, together
with standard terms thereto (the "Standard Terms," and, together with the
applicable Series Agreement, the "Agreement") is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Prospectus
Supplement for each Series will describe any provisions of the Series Agreement
relating to such Series which differ materially from the form of the Agreement
filed as an exhibit to the Registration Statement.
The Company may sell to investors one or more Classes of a Series of
Certificates in transactions not requiring registration under the Securities
Act of 1933, as amended.
The Offered Certificates of each Series of Certificates will be rated upon
issuance as specified in the related Prospectus Supplement by the Rating Agency
or Agencies identified therein. The following summaries describe certain
provisions common to each Series of Certificates. The summaries do not purport
to be complete and are subject to, and are qualified
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in their entirety by reference to, the provisions of the particular Agreement
relating to the Series of Certificates. When particular provisions or terms
used in the Agreement are referred to, the actual provisions thereof (including
definitions of terms therein) are incorporated by reference.
The Certificates of each Series will represent interests in a separate
Trust created pursuant to the related Agreement, as specified in the related
Prospectus Supplement. The Trust Estate for a Series will be held by the
related Trustee for the benefit of the related Certificateholders. Each Trust
Estate, to the extent specified in the related Prospectus Supplement, will
include: (1) the Assets which are subject to the related Agreement from time to
time; (2) such assets as from time to time are identified as deposited in any
account held for the benefit of the Certificateholders (including the
Certificate Account and the Distribution Account maintained pursuant to the
related Agreement); (3) with respect to a Series of Certificates evidencing
interests in Contracts, underlying Manufactured Homes and Real Properties
acquired by the Trust through repossession, foreclosure or otherwise; (4) with
respect to a Series of Certificates evidencing interests in Mortgage Loans,
property which secured a Mortgage Loan and which was acquired by foreclosure or
deed in lieu of foreclosure; (5) (a) the Standard Hazard Insurance Policies
maintained with respect to the underlying Manufactured Homes and Mortgaged
Properties, (b) the related Pool Insurance Policy, if any, (c) the related
Special Hazard Insurance Policy, if any, (d) the related Obligor Bankruptcy
Insurance, if any, (e) any Primary Mortgage Insurance Policies, FHA insurance
and VA guarantees and (f) the Buy-Down Fund and GPM Fund, if any; (6) the
Reserve Fund, if any; (7) any letter of credit, guarantee or surety bond,
insurance policy or other credit enhancement securing payment of all or part of
the related Series of Certificates; (8) if specified in the related Prospectus
Supplement, any related Pre-Funding Account; (9) such other property as may be
specified in the related Prospectus Supplement; and (10) proceeds of any of the
foregoing.
The Agreement for a Series will generally provide that Certificates may be
issued thereunder up to the aggregate principal amount authorized by the
Company. Each Series will consist of one or more Classes of Certificates and
may include: (1) one or more Classes of Senior Certificates entitled to certain
preferential rights to distributions of principal and interest; (2) one or more
Classes of Subordinated Certificates; (3) one or more Classes of Certificates
representing an interest only in a specified portion of interest payments on
the Assets in the related Trust and that may have no principal balance, a
nominal principal balance or a Notional Principal Amount ("Strip Classes"); (4)
one or more Classes of Certificates representing an interest only in specified
payments of principal on the Assets ("Principal Only Classes"); (5) one or more
Classes of Certificates upon which interest will accrue but will not be
distributed until certain other Classes of Certificates of the same Series have
received their final distributions ("Compound Interest Classes" and "Capital
Appreciation Classes" and, collectively, "Accretion Classes"); and (6) one or
more Classes of Certificates entitled to fixed principal payments under certain
conditions ("PAC Classes") and companion classes thereto ("Companion Classes").
Each Series as to which a REMIC election has been or is to be made will consist
of one or more Classes of REMIC Regular Certificates (which may consist of
Certificates of the types specified in the preceding sentence) and one Class of
Residual Certificates for each related REMIC.
The Certificates of each Series will be issued in fully-registered
certificated or book-entry form in authorized denominations for each related
Class as specified in the related Prospectus Supplement. The Certificates of
each Series issued in certificated form may be transferred or exchanged at the
corporate trust office of the Trustee without the payment of any service
charge, other than any tax or other governmental charge payable in connection
with a transfer. The Trustee will make distributions of principal and interest
on each certificated Certificate by check or wire transfer to each person in
whose name such Certificate is registered as of the close of business on the
Record Date for such distribution (as specified in the related Prospectus
Supplement) at the address appearing in the Certificate Register, except that
the final distributions in retirement of each certificated Certificate will be
made only upon presentation and surrender of such Certificate at the corporate
trust office of the Trustee. The Trustee will make distributions with respect
to Book-Entry Certificates as set forth below.
BOOK-ENTRY PROCEDURES
The Prospectus Supplement for a Series may specify that certain Classes of
Certificates initially will be issued as Book-Entry Certificates in the
authorized denominations specified in such Prospectus Supplement. Each such
Class will be represented by a single certificate registered in the Certificate
Register in the name of a nominee of the depository, which is expected to be
The Depository Trust Company ("DTC" and, together with any successor or other
depository (which must be a Clearing Agency) selected by the Company, the
"Depository"). No person acquiring a Book-Entry Certificate (a "Beneficial
Owner") will be entitled to receive a definitive certificate representing its
Certificate.
DTC performs services for its Participants, some of whom (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the Book-Entry
Certificates,
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whether held for its own account or as a nominee for another person. In
general, beneficial ownership of Book- Entry Certificates will be subject to
the rules, regulations and procedures governing the Depository and Depository
Participants as in effect from time to time.
A Beneficial Owner's ownership of a Book-Entry Certificate will be
reflected in the records of the brokerage firm, bank, thrift institution or
other financial intermediary (any of the foregoing, a "Financial Intermediary")
that maintains such Beneficial Owner's account for such purpose. In turn, the
Financial Intermediary's ownership of such Book-Entry Certificate will be
reflected in the records of the Depository (or of a participating firm that
acts as agent for the Financial Intermediary whose interest in turn will be
reflected in the records of the Depository, if the Beneficial Owner's Financial
Intermediary is not a direct Depository Participant). Therefore, the Beneficial
Owner must rely on the procedures of its Financial Intermediary or
Intermediaries and of the Depository in order to evidence its beneficial
ownership of a Book-Entry Certificate, and beneficial ownership of a Book-Entry
Certificate may only be transferred by compliance with the procedures of such
Financial Intermediaries and Depository participants.
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
Securities Exchange Act of 1934, as amended. DTC accepts securities for deposit
from its participating organizations ("Depository Participants") and
facilitates the clearance and settlement of securities transactions between
Depository Participants in such securities through electronic book-entry
changes in accounts of Depository Participants, thereby eliminating the need
for physical movement of certificates. Depository 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
Depository Participant, either directly or indirectly ("indirect
participants").
Distributions of principal and interest on the Book-Entry Certificates
will be made on each Distribution Date to the Depository. The Depository will
be responsible for crediting the amount of such distributions to the accounts
of the applicable Depository Participants in accordance with the Depository's
normal procedures. Each Depository Participant will be responsible for
disbursing such payments to the Beneficial Owners of the Book-Entry
Certificates that it represents and to each Financial Intermediary for which it
acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the Beneficial Owners of the Book-Entry Certificates that
it represents. As a result of the foregoing procedures, Beneficial Owners of
the Book Entry Certificates may experience some delay in their receipt of
payments.
While the Offered Certificates are outstanding (except if the Offered
Certificates are subsequently issued in certificated, fully-registered form,
which can only occur under the limited circumstances described below), under
the rules, regulations and procedures creating and affecting DTC and its
operations (the "Rules"), DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Offered Certificates
and is required to receive and transmit distributions of principal of, and
interest on, the Offered Certificates. Unless and until the Offered
Certificates are issued in certificated form, Beneficial Owners who are not
Participants may transfer ownership of the Offered Certificates only through
Participants by instructing such Participants to transfer the Offered
Certificates, by book-entry transfer, through DTC for the account of the
purchasers of such Certificates, which account is maintained with such
purchasers' respective Participants. Under the Rules and in accordance with
DTC's normal procedures, transfers of ownership of the Offered Certificates
will be executed through DTC and the accounts of the respective Participants at
DTC will be debited and credited. Because transactions in Book-Entry
Certificates can be effected only through the Depository, participating
organizations, indirect participants and certain banks, the ability of a
Beneficial Owner of a Book-Entry Certificate to pledge such Certificate to
persons or entities that are not Depository Participants, or otherwise to take
actions in respect of such Certificate, may be limited due to the lack of a
physical certificate representing such Certificate. Issuance of the Book-Entry
Certificates in book-entry form may reduce the liquidity of such Certificates
in the secondary trading market because investors may be unwilling to purchase
Book-Entry Certificates for which they cannot obtain physical certificates.
The Book-Entry Certificates will be issued in fully-registered,
certificated form to Beneficial Owners of such Book- Entry Certificates or
their nominees, rather than to the Depository or its nominee, only if (1) the
Company advises the Trustee in writing that the Depository is no longer willing
or able to discharge properly its responsibilities as depository with respect
to the Book-Entry Certificates and the Company is unable to locate a qualified
successor within 30 days or (2) the Company, at its option, elects to terminate
the book-entry system maintained through the Depository. Upon the occurrence of
either event described in the preceding sentence, the Trustee is required to
notify the Depository, which in turn will notify
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all Beneficial Owners of Book-Entry Certificates through Depository
participants, of the availability of certificated Certificates. Upon surrender
of the Depository of the certificates representing the Book-Entry Certificates
and receipt of instructions for re-registration, the Trustee will reissue the
Book-Entry Certificates as certificated Certificates to the Beneficial Owners
of the Book-Entry Certificates. Upon issuance of certificated Certificates to
Beneficial Owners, such Certificates will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Trustee with respect to transfers, notices and distributions.
DTC has advised the Company and the Trustee that, unless and until the
Offered Certificates are issued in certificated, fully-registered form under
the circumstances described above, DTC will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one
or more Participants to whose DTC accounts the Certificates are credited. DTC
has advised the Company that DTC will take such action with respect to any
Percentage Interests of the Offered Certificates only at the direction of and
on behalf of such Participants with respect to such Percentage Interests of the
Offered Certificates. DTC may take action, at the direction of the related
Participants, with respect to some Offered Certificates which conflict with
actions taken with respect to other Offered Certificates.
Neither the Company, Oakwood, the Servicer nor the Trustee will have any
liability for any aspect of the records relating to or payment made on account
of beneficial ownership interests of the Book-Entry Certificates held by the
Depository, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
ALLOCATION OF COLLECTIONS FROM THE ASSETS
The Prospectus Supplement for a Series will specify the Available
Distribution Amount for such Series, which in general will be equal to the
amount of principal and interest actually collected, advanced or otherwise
received with respect to the related Asset Pool during the applicable
Collection Period or Prepayment Period, net of applicable servicing,
administrative, guarantee and other fees, insurance premiums, the costs of any
other credit enhancement and amounts required to reimburse any unreimbursed
advances. The Available Distribution Amount will be allocated among the Classes
of Certificates of the related Series in the proportion and order of
application set forth in the related Agreement and described in the related
Prospectus Supplement. The Available Distribution Amount may be allocated so
that amounts paid as interest on the Assets may be distributed as principal on
the Certificates and amounts paid as principal on the Assets may be distributed
as interest on the Certificates.
A Class of Certificates entitled to distributions of interest may receive
such interest at a specified rate (a "Pass-Through Rate"), which may be fixed
or adjustable. The Classes of Certificates within a Series may have the same or
different Pass-Through Rates. The related Prospectus Supplement will specify
the Pass-Through Rate, or the method for determining the Pass-Through Rate, for
each applicable Class, and the method of determining the amount to be
distributed on any Strip Classes on each Distribution Date. Residual
Certificates offered hereby may or may not have a Pass-Through Rate. In
addition to representing entitlement to regular distributions of principal and
interest, if any, that are allocated to the Residual Certificates, Residual
Certificates also generally will represent entitlement to receive amounts
remaining in the Distribution Account on any Distribution Date after allocation
of scheduled distributions to all other outstanding Classes of Certificates of
that Series and after all required deposits have been made into any related
Reserve Funds. Certain Classes of Certificates may have a Notional Principal
Amount. A "Notional Principal Amount" of a Certificate is used solely for
purposes of determining the amount of interest distributions and certain other
rights and obligations of the holder of such Certificate and does not represent
any beneficial interest in principal payments on the Assets in the related
Trust. Interest distributions on the Certificates generally will include
interest accrued through the Accounting Date preceding the applicable
Distribution Date or through another date specified in the related Prospectus
Supplement. Interest will be computed on the basis of a 360-day year consisting
of twelve 30-day months, or on the basis of actual elapsed days, as specified
in the related Prospectus Supplement.
With respect to a Series that includes one or more Classes of Subordinated
Certificates, the Senior Certificates will generally not bear any Realized
Losses on the related Contracts or Mortgage Loans, until the Subordinated
Certificates of that Series have borne Realized Losses up to a specified
Subordination Amount or loss limit or until the principal amount of the
Subordinated Certificates has been reduced to zero, either through the
allocation of Realized Losses, distributions of principal, or both.
Distributions of interest may be reduced to the extent of Shortfalls on
Contracts or Mortgage Loans comprising the Assets of the related Trust. With
respect to a Series that includes a Class of Subordinated Certificates, any
Shortfall may result in a reallocation of amounts otherwise distributable to
less senior Certificates for distribution to more senior Certificates.
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Principal and interest distributable on a Class of Certificates may be
distributed among the Certificates of such Class pro rata in the proportion
that the outstanding principal or notional amount of each Certificate of such
Class (or each Certificate's designated "percentage interest," in the case of
Certificates with no Certificate Principal Balance or notional principal
amount) bears to the aggregate outstanding principal or notional amount of all
Certificates of such Class (or to a "percentage interest" of 100%, in the case
of Certificates with no Certificate Principal Balance or notional principal
amount), or in such other manner as may be detailed in the related Prospectus
Supplement. Interest distributable on a Class of Certificates will be allocated
among the Certificates of such Class pro rata in the proportion that the
outstanding principal or notional amount of each Certificate of such Class (or
each Certificate's designated "percentage interest," in the case of
Certificates with no Certificate Principal Balance or notional principal
amount) bears to the aggregate outstanding principal or notional amount of all
Certificates of such Class (or to a "percentage interest" of 100%, in the case
of Certificates with no Certificate Principal Balance or notional principal
amount), or in such other manner as may be detailed in the related Prospectus
Supplement.
The Final Scheduled Distribution Date for each Class of Certificates will
be the date on which the last distribution of the principal thereof is
scheduled to occur, assuming no prepayments of principal with respect to the
Assets included in the Trust for that Series.
OPTIONAL REDEMPTION OR TERMINATION
To the extent and under the circumstances specified in the related
Prospectus Supplement, the Certificates of a Series may be redeemed prior to
their Final Scheduled Distribution Date at the option of the Company, the
Servicer or such other party as may be specified in the related Prospectus
Supplement by purchase of the outstanding Certificates of such Series. Unless
otherwise specified in the related Prospectus Supplement, the right so to
redeem the Certificates of a Series will be conditioned upon (1) the passage of
a certain date specified in the Prospectus Supplement and/or (2) (a) the
decline of the aggregate Scheduled Principal Balance of the Assets in the Trust
to less than a percentage (specified in the related Prospectus Supplement) of
the aggregate Scheduled Principal Balance of the Assets in the Trust at the
related Cut-off Date or (b) the decline of the aggregate Certificate Principal
Balance of a specified Class or Classes of Certificates to less than a
percentage (specified in the related Prospectus Supplement) of the aggregate
Certificate Principal Balance of the applicable Class or Classes of
Certificates at the Closing Date for the Series. The percentage balances of the
aggregate Scheduled Principal Balance of the Assets and the aggregate
Certificate Principal Balance of a Class referred to in (2)(a) and (2)(b),
respectively, above, may range from 5% to 25%. In the event the option to
redeem the Certificates is exercised, the purchase price distributed with
respect to each Certificate offered hereby and by the related Prospectus
Supplement will equal 100% of its then outstanding principal amount, plus
accrued and unpaid interest thereon at the applicable Pass-Through Rate, less
any unreimbursed Advances and unrealized losses allocable to such Certificate.
Notice of the redemption of the Certificates will be given to
Certificateholders as provided in the related Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Company or the Servicer or the holders of a majority in
interest of any Class of Residual Certificates of the related Series may at
their respective options repurchase all related Contracts and Mortgage Loans
remaining outstanding at a time specified in the related Prospectus Supplement,
which will be when the aggregate Scheduled Principal Balance of such Contracts
or Mortgage Loans is less than a percentage (specified in the related
Prospectus Supplement, but may range from 5% to 25%) of the aggregate Scheduled
Principal Balance of the Contracts or Mortgage Loans on the Cut-off Date, or
when the aggregate Certificate Principal Balance of a specified Class or
Classes of Certificates is less than a percentage (specified in the related
Prospectus Supplement, but may range from 5% to 25%) of the aggregate
Certificate Principal Balance of such Class or Classes at the Closing Date. The
termination price for a Trust will be specified in the related Agreement, and
will generally equal the sum of (1) any Liquidation Expenses incurred by the
Servicer in respect of any Contract or Mortgage Loan that has not yet been
liquidated; (2) all amounts required to be reimbursed or paid to the Servicer
in respect of previously unreimbursed Servicing Advances; and (3) the greater
of (a) the sum of (i) the aggregate Unpaid Principal Balance of the related
Contracts and Mortgage Loans, plus accrued and unpaid interest thereon through
the preceding Accounting Date for the date of repurchase at the Asset Rates
borne by such Contracts and Mortgage Loans, plus (ii) the lesser of (A) the
aggregate Unpaid Principal Balance of each Contract and Mortgage Loan that had
been secured by any Repo Property or REO Property remaining in the Trust, plus
accrued interest thereon at the Asset Rates borne by such Contracts and
Mortgage Loans through the Accounting Date preceding such purchase, and (B) the
current appraised value of any such Repo Property or REO Property (net of
Liquidation Expenses to be incurred in connection with the disposition of such
property estimated in good faith by the Servicer), such appraisal to be
conducted by an appraiser mutually agreed upon by the Servicer and the Trustee,
plus all previously unreimbursed P&I Advances made in respect of such Repo
Property or REO Property, and (b) the aggregate fair market value of the assets
of the related Trust (as reasonably determined by the Servicer as described in
the related Agreement) plus all previously
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unreimbursed P&I Advances made with respect to the related Assets. The fair
market value of the assets of a Trust as determined for purposes of a
terminating purchase shall be deemed to include accrued interest through the
Accounting Date preceding the date of such purchase at the applicable Asset
Rate on the Unpaid Principal Balance of each Contract and Mortgage Loan
(including any Contract that has become a Repo Property and any Mortgage Loan
that has become a REO Property, which Repo Property or REO Property has not yet
been disposed of by the Servicer). The basis for any such valuation shall be
furnished by the Servicer to the Certificateholders upon request.
On the date set for termination of a Trust, the termination price shall be
distributed (1) first to the Servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by the Servicer with
respect to the related Assets and (2) second to the Certificateholders in
accordance with the payment priorities that apply on each Distribution Date as
described in the related Prospectus Supplement. This will result in the
distribution with respect to each Certificate offered hereby and by the related
Prospectus Supplement of an amount equal to 100% of its then outstanding
principal amount, plus accrued and unpaid interest thereon at the applicable
Pass-Through Rate, less any unreimbursed Advances and unrealized losses
allocable to such Certificate.
MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
No more than 1% of the Contracts and Mortgage Loans securing a Series will
have maturities at origination of more than 30 years.
PREPAYMENT CONSIDERATIONS
The prepayment experience on an Asset Pool will affect (1) the average
life of the related Certificates and each Class thereof issued by the related
Trust; (2) the timing of the final distribution for each Class (and whether
such final distribution occurs prior to its Final Scheduled Distribution Date);
and (3) the effective yield on each Class of such Certificates. Because
prepayments will be passed through to the holders of Certificates of each
Series as distributions of principal, it is likely that in the event of such
prepayments, the final distribution on each Class of Certificates of a Series
will occur prior to its Final Scheduled Distribution Date.
Contracts and Mortgage Loans generally may be prepaid in full or in part
without penalty. FHA Contracts and Mortgage Loans and VA Contracts and Mortgage
Loans may be prepaid at any time without penalty. The Company anticipates that
a significant number of the Contracts and Mortgage Loans will be paid in full
prior to their maturity. A number of factors, including homeowner mobility,
national and local economic conditions, age of the Contracts and Mortgage
Loans, interest rates and the availability of alternative financing may affect
the prepayment experience of a particular Asset Pool.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing market
interest rates fall significantly below the interest rates borne by particular
Contracts or Mortgage Loans, the Contracts and Mortgage Loans are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above the interest rates borne by such Contracts and Mortgage Loans.
However, the rate of principal prepayments on Contracts and Mortgage Loans is
influenced by a variety of economic, geographic, social, tax, legal and other
factors. Accordingly, there can be no assurance that any Contracts or Mortgage
Loans included in an Asset Pool will conform to past prepayment experience or
any assumed rate of prepayment.
It is customary in the mortgage industry in quoting yields (1) on a pool
of 30-year fixed-rate, level payment mortgages, to compute the yield as if the
pool were a single loan that is amortized according to a 30-year schedule and
is then prepaid in full at the end of the 12th year and (2) on a pool of
15-year fixed-rate, level payment mortgages, to compute the yield as if the
pool were a single loan that is amortized according to a 15-year schedule and
then is prepaid in full at the end of the seventh year.
Information regarding the prepayment model utilized in preparing any
Prospectus Supplement will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
See "Description of the Certificates -- Optional Redemption or
Termination" for a description of the Company's or other party's option to
repurchase the Contracts or Mortgage Loans comprising part of a Trust Estate
when certain triggering events occur. See also "The Trusts -- The Contracts"
and " -- The Mortgage Loans" and "Sale and Servicing of Contracts and Mortgage
Loans -- Representations and Warranties" herein for a description of the
obligations of the Company, the Servicer or another party, as specified in the
related Prospectus Supplement, to repurchase a Contract or Mortgage Loan in
case of a breach of a representation or warranty relative to such Contract or
Mortgage Loan. Any such repurchase will have the effect of a full prepayment of
the outstanding principal balance of the related Contract or Mortgage Loan. See
also "Yield Considerations" herein.
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YIELD CONSIDERATIONS
Distributions of interest on the Certificates generally will include
interest accrued through the Accounting Date for the applicable Distribution
Date. Because distributions to the Certificateholders generally will not be
made until the Distribution Date following the preceding Accounting Date, the
effective yield to the holder of a Certificate will be lower than the yield
otherwise produced by the applicable Pass-Through Rate and purchase price for
the Certificate.
The yield to maturity of any Certificate will be affected by the rate and
timing of payment of principal of the underlying Contracts and Mortgage Loans.
If the purchaser of a Certificate offered at a discount from its Parity Price
(as defined below) calculates the anticipated yield to maturity of such
Certificate based on an assumed rate of payment of principal that is faster
than that actually received on the underlying Contracts and Mortgage Loans, the
actual yield to maturity will be lower than that so calculated. Similarly, if
the purchaser of a Certificate offered at a premium over its Parity Price
calculates the anticipated yield to maturity of such Certificate based on an
assumed rate of payment of principal that is slower than that actually received
on the underlying Contracts and Mortgage Loans, the actual yield to maturity
will be lower than that so calculated. "Parity Price" is the price at which a
Certificate will yield its coupon, after giving effect to any payment delay.
The timing of changes in the rate of prepayments on the Contracts and
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. In general, the earlier a prepayment
of principal on an Asset, the greater will be the effect on a related
investor's yield to maturity. As a result, the effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the
issuance of the Certificates would not be fully offset by a subsequent like
reduction (or increase) in the rate of principal payments. Because the rate of
principal payments on the underlying Assets affects the weighted average life
and other characteristics of any Class of Certificates, prospective investors
are urged to consider their own estimates as to the anticipated rate of future
prepayments on the underlying Contracts and Mortgage Loans and the suitability
of the applicable Certificates to their investment objectives. For a discussion
of factors affecting principal prepayments on the Contracts and Mortgage Loans
underlying a Series of Certificates, see "Maturity and Prepayment
Considerations" above.
The yield on each Class of Certificates also will be affected by Realized
Losses or Shortfalls allocated to such Class.
THE TRUSTS
GENERAL
A Trust Estate may include Contracts and/or Mortgage Loans. Each Trust
Estate also may include (1) such assets as from time to time are identified as
deposited in any account held for the benefit of the Certificateholders
(including the Certificate Account and the Distribution Account) maintained
pursuant to the related Agreement; (2) any Manufactured Home or Real Property
which initially secured a related Contract and which is acquired by
repossession, foreclosure or otherwise; (3) any property which initially
secured a related Mortgage Loan and which is acquired by foreclosure or deed in
lieu of foreclosure or otherwise; (4) if so specified in the related Prospectus
Supplement, any related Reserve Fund; (5) if specified in the related
Prospectus Supplement, any related Pre-Funding Account; (6) any insurance
policies, guarantees and any other credit enhancement maintained with respect
to the related Certificates, the related Contracts, the related Mortgage Loans
or all or any part of such Trust Estate that is required to be maintained
pursuant to the related Agreement; and (7) such other property as is specified
in the related Prospectus Supplement.
THE ASSETS
GENERAL
Each Certificate will evidence an interest in one Trust Estate, containing
one or more Asset Pools comprised of Contracts and/or Mortgage Loans having the
aggregate principal balance as of the Cut-off Date specified in the related
Prospectus Supplement. Holders of Certificates of a Series will have interests
only in the related Asset Pool(s) and will have no interest in any Asset Pools
created with respect to any other Series of Certificates.
The Company will acquire the underlying Contracts and Mortgage Loans from
Oakwood, which may have originated the Contracts and Mortgage Loans or may have
acquired them in the open market or in privately negotiated transactions. A
brief description of the Contracts and Mortgage Loans expected to be included
in the Trust Estates is set forth under " -- The Contracts" and " -- The
Mortgage Loans" below. Specific information respecting the Contracts and
Mortgage Loans
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included in a particular Trust Estate will be provided in the related
Prospectus Supplement and, to the extent such information is not fully provided
in the related Prospectus Supplement, in a Current Report on Form 8-K to be
filed with the Securities and Exchange Commission within fifteen days after the
initial issuance of such Certificates. A copy of the Pooling and Servicing
Agreement with respect to each Series of Certificates will be attached to the
related Current Report on Form 8-K and will be available for inspection at the
corporate trust office of the Trustee (the location of which will be specified
in the related Prospectus Supplement).
Whenever in this Prospectus terms such as "Asset Pool," "Trust Estate,"
"Agreement" or "Pass-Through Rate" are used, those terms apply, unless the
context otherwise indicates, to one specific Asset Pool, Trust Estate,
Agreement and the Pass-Through Rates applicable to the related Series of
Certificates.
For each Series of Certificates, the Company will cause the Contracts and
Mortgage Loans included in the related Asset Pool to be assigned to the trustee
named in the related Prospectus Supplement (the "Trustee"). Oakwood Acceptance
Corporation, as servicer (the "Servicer"), the parent of the Company, will
service the Contracts and Mortgage Loans and administer the Certificates,
either exclusively or through other servicing institutions ("Sub-servicers").
See "Sale and Servicing of the Contracts and Mortgage Loans -- Servicing"
herein. With respect to those Contracts and Mortgage Loans serviced by the
Servicer through a Sub-servicer, the Servicer will remain liable for its
servicing obligations under the Agreement as if the Servicer alone were
servicing such Contracts and Mortgage Loans. The Servicer may delegate certain
computational, data processing, collection and foreclosure (including
repossession) duties under any Agreement without appointing a Sub-servicer and
without any notice to or consent from the Company or the Trustee, provided that
the Servicer remains fully responsible for the performance of such duties.
TYPES OF ASSETS
The Assets included in the Trust for a Series may be subject to various
types of payment provisions. Such Assets may consist of (1) "Level Payment
Loans," which may provide for the payment of interest and full repayment of
principal in level Monthly Payments with a fixed rate of interest computed on
their declining principal balances; (2) "Adjustable Rate Assets," which may
provide for periodic adjustments to their rates of interest to equal the sum
(which may be rounded) of a fixed margin and an index; (3) "Buy-Down Loans,"
which are Assets for which funds have been provided by someone other than the
related Obligors to reduce the Obligors' Monthly Payments during the early
period after origination of such Assets; (4) "Level Payment Buy-Down Loans," as
described below; (5) "Increasing Payment Loans," as described below; (6)
"Interest Reduction Loans," which provide for the one-time reduction of the
interest rate payable thereon; (7) "GEM Loans," which provide for (a) Monthly
Payments during the first year after origination that are at least sufficient
to pay interest due thereon, and (b) an increase in such Monthly Payments in
subsequent years at a predetermined rate resulting in full repayment over a
shorter term than the initial amortization terms of such Assets; (8) "GPM
Loans," which allow for payments during a portion of their terms which are or
may be less than the amount of interest due on the Unpaid Principal Balances
thereof, and which unpaid interest will be added to the principal balances of
such Assets and will be paid, together with interest thereon, in later years;
(9) "Step-up Rate Loans," which provide for Asset Rates that increase over
time; (10) "Balloon Payment Loans," which include Assets on which only interest
is payable until maturity, as well as Assets that provide for the full
amortization of principal over a certain amortization period, but require all
remaining principal to be paid at the end of a shorter period; (11)
"Convertible Loans," which are Adjustable Rate Assets subject to provisions
pursuant to which, subject to certain limitations, the related Obligors may
exercise an option to convert the adjustable Asset Rate to a fixed Asset Rate;
and (12) "Bi-Weekly Loans," which provide for Obligor payments to be made on a
bi-weekly basis. The Assets included in a Trust also may include Level Payment
Buy-Down Loans and Increasing Payment Loans, which are described below.
A Level Payment Buy-Down Loan is an Asset that provides for a reduction in
the Obligor's Monthly Payments thereunder for a period of up to the first four
years after origination of such Asset and as to which funds have been provided
by someone other than the Obligor to cover such reductions during those years.
Accordingly, payments due on Level Payment Buy-Down Loans will be the same as
payments due on Level Payment Loans without buy-down provisions, except that
the former will include amounts to be collected from the related Servicers
pursuant to either buy-down or subsidy agreements in addition to amounts to be
collected from the related Obligors.
An Increasing Payment Loan is an Asset that provides for Obligor Monthly
Payments that are fixed for an initial period of six, 12 or 24 months, and
which increase thereafter (at a predetermined rate expressed as a percentage of
the Obligor's Monthly Payment during the preceding payment period, subject to
any caps on the amount of any single Monthly Payment increase) for a period not
to exceed nine years from the date of origination, after which the Obligor's
Monthly Payment is fixed at a level-payment amount so as to fully amortize the
Asset over its remaining term to maturity. The scheduled Monthly
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Payment with respect to an Increasing Payment Loan is the total amount required
to be paid each month in accordance with its terms and equals the sum of (1)
the Obligor's Monthly Payments referred to in the preceding sentence and (2) in
the case of certain Increasing Payment Loans, payments made by the respective
Servicers pursuant to buy-down or subsidy agreements. The Obligor's initial
Monthly Payments for each Increasing Payment Loan are set at the level-payment
amount that would apply to an otherwise identical Level Payment Loan having an
Asset Rate a certain number of percentage points below the Asset Rate of such
Increasing Payment Loan. The Obligor's Monthly Payments on each Increasing
Payment Loan, together with any payments made thereon by the related Servicers
pursuant to buy-down or subsidy agreements, will in all cases be sufficient to
allow payment of accrued interest on such Increasing Payment Loan at the
related Asset Rate, without negative amortization. An Obligor's Monthly
Payments on such an Asset may, however, not be sufficient to result in any
reduction of the principal balance of such Asset until after the period when
such payments may be increased.
"DUE-ON-SALE" CLAUSES
A Contract or the Mortgage Note or Mortgage used in originating a
conventional Mortgage Loan may contain a "due-on-sale" provision permitting the
holder of the Contract or Mortgage Loan to accelerate the maturity of the
Contract or Mortgage Loan upon the Obligor's conveyance of the underlying
Manufactured Home or Mortgaged Property. See " -- The Contracts -- Transfers of
Manufactured Homes; Enforceability of Due-on-Sale' Clauses" and " -- The
Mortgage Loans -- Due-On-Sale' Clauses," in each case under the heading
"Certain Legal Aspects of Contracts and Mortgage Loans" herein. The Prospectus
Supplement for a Series will specify the approximate percentages of the
underlying Contracts and Mortgage Loans, respectively, that contain
"due-on-sale" provisions. Enforcement of a "due-on-sale" clause applicable to a
Contract or Mortgage Loan will have the same effect on Certificates backed by
such Contract or Mortgage Loan as a prepayment in full of such Contract or
Mortgage Loan. The weighted average lives of Certificates of a Series will be
decreased to the extent that sales of Manufactured Homes and Mortgaged
Properties result in prepayments of the Assets underlying such Certificates.
See "Maturity and Prepayment Considerations" and "Yield Considerations" herein
for a discussion of the effect of Asset prepayments on the weighted average
lives of and yields to maturity on the related Certificates.
To the extent the Assets underlying a Series do not contain "due-on-sale"
clauses, or to the extent the Servicer does not enforce "due-on-sale" clauses,
the weighted average lives of the Certificates of such Series may be expected
to be longer than would have been the case had such Assets been subject to
"due-on-sale" clauses and had the Servicer enforced such clauses, because the
assumption of a Contract or Mortgage Loan by the buyer of the underlying
Manufactured Home or Mortgaged Property would have the effect of avoiding a
prepayment of the assumed Contract or Mortgage Loan. While it is expected that
most Contracts will contain "due-on-sale" provisions, the Servicer will be
permitted to allow proposed assumptions of Contracts in accordance with the
guidelines described below. To the extent the Servicer has knowledge of any
conveyance or prospective conveyance by any Mortgagor of any property securing
a Mortgage Loan, the Servicer will be required to exercise the right to
accelerate the maturity of such Mortgage Loan under any applicable
"due-on-sale" clause to the extent, under the circumstances, and in the manner
in which the Servicer enforces such clauses with respect to other Mortgage
Loans held in its own portfolio. The Servicer will not be permitted to allow
assumptions of Assets if prohibited by law from doing so or if the exercise of
such rights would affect adversely or jeopardize any coverage under any
applicable insurance policy, and the Servicer will only be permitted to allow
the assumption of an Asset if the Servicer has reasonably determined that the
assumption will not increase materially the risk of nonpayment of amounts due
under the Asset.
If the Servicer determines not to enforce such "due-on-sale" clause, the
Servicer will be required to enter into an assumption and/or modification
agreement with the person to whom such property has been conveyed or is
proposed to be conveyed, pursuant to which such person becomes liable under the
Asset and pursuant to which, to the extent permitted by applicable law and
deemed appropriate in the Servicer's reasonable judgment, the original obligor
remains liable thereon. FHA Contracts, FHA Mortgage Loans, VA Contracts and VA
Mortgage Loans are not permitted to contain "due-on-sale" clauses, and so are
freely assumable. The rate of prepayments of FHA Contracts, FHA Mortgage Loans,
VA Contracts and VA Mortgage Loans therefore may be lower than the rate of
prepayments of Conventional Mortgage Loans bearing interest at comparable
rates.
Prepayments on manufactured housing installment sales contracts and
mortgage loans are commonly measured relative to a prepayment standard or model
(a "Prepayment Model"), which represents an assumed rate of prepayment of
Assets in an Asset Pool relative to the aggregate outstanding principal balance
of such Asset Pool from time to time. The Prospectus Supplement for a Series of
Certificates may contain a table setting forth percentages of the original
Certificate Principal Balances of certain Classes of Certificates of such
Series anticipated to be outstanding on certain dates specified in the table
assuming that prepayments of the underlying Assets occur in accordance with the
applicable Prepayment Model and at different rates determined by applying
different percentages to the rates of prepayment assumed under the Prepayment
Model.
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It is unlikely that the prepayment of the Assets of any Trust will conform to
any of the percentages of the rates assumed under the applicable Prepayment
Model set forth in any such table.
The FHA has compiled prepayment statistics relating to one- to
four-family, level payment mortgage loans insured by the FHA under the National
Housing Act of 1934, as amended, at various interest rates, all of which permit
assumption by a new buyer of the mortgaged property. Such statistics indicate
that while some of such mortgage loans remain outstanding until their scheduled
maturities, a substantial number are paid prior to their respective stated
maturities. The Actuarial Division of HUD has prepared tables which, assuming
full mortgage loan prepayments at the rates experienced by FHA on FHA mortgage
loans, set forth the percentages of the original number of FHA mortgage loans
included in pools of Level Payment Mortgage Loans with varying maturities that
will remain outstanding on each anniversary of the origination date of such
mortgage loans (assuming they all have the same origination date) (such tables
being referred to as the "FHA Prepayment Experience").
REPRESENTATIONS AND WARRANTIES
The Seller will make certain representations and warranties concerning the
Contracts and Mortgage Loans included in an Asset Pool, in order to ensure the
accuracy in all material respects of certain information furnished to the
Trustee in respect of each Contract and Mortgage Loan included in such Asset
Pool. Upon a breach of any representation that materially and adversely affects
the interests of the Certificateholders in a Contract or Mortgage Loan, the
Seller will be obligated to cure the breach in all material respects within 90
days after the Seller's discovery of or receipt of written notice of such
breach or, in the alternative, either to repurchase the Contract or Mortgage
Loan from the Trust, or to substitute another Contract or Mortgage Loan as
described below. In addition, each Seller will be required to indemnify the
Company and its assignees (including the Trust) against losses and damages they
incur as a result of breaches of the Seller's representations and warranties.
The Seller's obligations to repurchase or substitute for an Asset affected by a
breach of a representation or warranty and to indemnify the Company and its
assignees for losses and damages caused by such a breach constitute the sole
remedies available to the Certificateholders or the Trustee for a breach of
representation by the Seller. See "Sale and Servicing of the Contracts and
Mortgage Loans -- Representations and Warranties" herein.
THE CONTRACTS
The Contracts supporting a Series of Certificates will consist of
manufactured housing installment sales contracts originated by Oakwood (which
may have been originated in the name of OMH or another manufactured housing
dealer with funds provided by Oakwood) or originated by other originators not
affiliated with Oakwood, in any case in the ordinary course of the originator's
business. The Contracts may be conventional manufactured housing contracts or
contracts insured by the FHA or partially guaranteed by the VA. Each Contract
is secured by a Manufactured Home. The Contracts will be fully amortizing and
will bear interest at a fixed or adjustable annual percentage rate ("Contract
Rate") or at a Contract Rate which steps up on a particular date (a "Step-up
Rate").
The Seller will represent that the Manufactured Homes securing the
Contracts consist of manufactured homes within the meaning of 42 United States
Code, Section 5402(6), which defines a "manufactured home" as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is
built on a permanent chassis and designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which
meets all the requirements of [this] paragraph except the size requirements and
with respect to which the manufacturer voluntarily files a certification
required by the Secretary of Housing and Urban Development and complies with
the standards established under [Chapter 70 under Title 42 of the United States
Code]."
Each Contract will bear interest at a fixed or adjustable Contract Rate or
at a Step-up Rate, as specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Monthly Payments
for Contracts bearing interest at an interest rate that increases over time
(sometimes referred to herein as "Step-up Rate Contracts") will increase on the
dates on which the Contract Rates are stepped up.
With respect to the Contracts expected to be contained in an Asset Pool,
the related Prospectus Supplement will specify, to the extent known, (1) the
range of dates of origination of the Contracts; (2) the range of Contract Rates
on the Contracts and the weighted average Contract Rate as of the Cut-off Date;
(3) the range of Contract Loan-to-Value Ratios; (4) the minimum and maximum
outstanding principal balances of the Contracts as of the Cut-off Date and the
weighted average
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outstanding principal balance of the Contracts as of the Cut-off Date; (5) the
range of original terms to maturity of the Contracts, the range of remaining
terms to maturity of the Contracts and the last maturity date of any of the
Contracts; (6) the geographic distribution of the underlying Manufactured
Homes; and (7) the range of original principal balances of the Contracts.
THE MORTGAGE LOANS
The Mortgage Loans supporting a Series of Certificates will consist of
conventional mortgage loans, FHA-insured mortgage loans or VA-guaranteed
mortgage loans evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages or deeds of trust or other similar security instruments ("Mortgages")
creating first liens on one-to four-family residential properties (the
"Mortgaged Properties"). To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include investment properties,
vacation and second homes, or land upon which a residence is to be built. The
Company expects that the Mortgage Loans will have been originated by
FHA-approved mortgagees or FNMA/FHLMC-approved seller/servicers in the ordinary
course of their real estate lending activities.
Each Mortgage Loan will bear interest at a fixed or adjustable annual rate
of interest ("Mortgage Rate") or at a Mortgage Rate which steps up on a
particular date (a "Step-up Rate"), as specified in the Prospectus Supplement.
Each registered holder of a Certificate will be entitled to receive periodic
distributions of all or a portion of the payments of principal and/or interest
collected on the underlying Mortgage Loans.
With respect to the Mortgage Loans expected to be contained in an Asset
Pool, the related Prospectus Supplement will specify, to the extent known, (1)
the range of dates of origination of the Mortgage Loans; (2) the range of
Mortgage Rates, and in the case of Adjustable Rate Assets, the range of initial
adjustable mortgage rates, the Index, if any, used to determine the adjustable
mortgage rate and the range of maximum permitted adjustable mortgage rates, if
any, and the range of then-current adjustable mortgage rates; (3) the range of
Mortgage Loan-to-Value Ratios; (4) the minimum and maximum outstanding
principal balances of the Mortgage Loans as of the Cut-off Date and the average
outstanding principal balance of the Mortgage Loans as of the Cut-off Date; (5)
the range of outstanding principal balances of the Conventional Mortgage Loans,
FHA Mortgage Loans and VA Mortgage Loans (in each case to the extent such
Mortgage Loans are included in such Asset Pool) included in the Asset Pool; (6)
the range of original maturities of the Mortgage Loans and the last maturity
date of any of the Mortgage Loans; (7) the geographic distribution of the
underlying Mortgaged Properties; and (8) the range of original principal
balances of the Mortgage Loans.
SUBSTITUTION OF CONTRACTS OR MORTGAGE LOANS
The Company or the Seller may, within three months after the Closing Date,
deliver to the Trustee other Assets in substitution for any one or more Assets
initially included in the Trust Estate for such Series. In addition, if there
is a breach of any representation or warranty made as to an Asset by the
Company or the Seller (or in certain cases where an incomplete or defective
Contract File or Trustee Mortgage Loan File is delivered by the Seller), which
breach, defect or incompleteness is not cured within 90 days after the
breaching party's receipt of notice of such breach, defect or incompleteness,
the breaching party generally must repurchase the affected Asset for its
Repurchase Price, but generally may, as an alternative to such a repurchase,
substitute one or more new Assets for the affected Asset (but only if the
substitution is to take place no later than two years after the related Closing
Date). In general, any substitute Asset must, on the date of such substitution
(1) have an Unpaid Principal Balance not greater than (and not more than
$10,000 less than) the Unpaid Principal Balance of the replaced Asset; (2) have
an Asset Rate not less than (and not more than one percentage point in excess
of) the Asset Rate of the replaced Asset; (3) have a Net Rate equal to the Net
Rate of the replaced Asset; (4) have a remaining term to maturity not greater
than (and not more than one year less than) that of the replaced Asset; and (5)
comply with each representation and warranty relating to the replaced Asset
and, if the Seller is effecting the substitution, comply with each
representation and warranty set forth in the Sales Agreement pursuant to which
the Seller conveyed the replaced Asset(s) to the Company. If Contracts or
Mortgage Loans are being substituted, the substitute Contract or Mortgage Loan
must have a Loan-to-Value Ratio as of the first day of the month in which the
substitution occurs equal to or less than the Loan-to-Value Ratio of the
replaced Contract or Mortgage Loan as of such date (in each case, using the
value of the underlying Manufactured Home or Mortgaged Property at origination,
and after taking into account the payments due on the substituted Asset and the
replaced Asset on such date). Further, no Adjustable Rate Asset may be
substituted for any Asset in a Trust Estate unless the deleted Asset is also an
Adjustable Rate Asset. A substituted Adjustable Rate Asset must (1) have a
minimum lifetime Mortgage Rate that is not less than the minimum lifetime
Mortgage Rate on the replaced Adjustable Rate Asset; (2) have a maximum
lifetime Mortgage Rate that is not less than the maximum lifetime Mortgage Rate
on the replaced Adjustable Rate Asset; (3) provide for a lowest possible Net
Rate that is not lower than the lowest possible Net Rate for the replaced
Adjustable Rate Asset and a highest possible Net Rate that is not lower than
the highest possible Net Rate for the
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replaced Adjustable Rate Asset; (4) have a Gross Margin not less than the Gross
Margin of the replaced Adjustable Rate Asset; (5) have a Periodic Rate Cap
equal to the Periodic Rate Cap on the replaced Adjustable Rate Asset; (6) have
a next Interest Adjustment Date that is the same as the next Interest
Adjustment Date for the replaced Adjustable Rate Asset or occurs not more than
two months prior to the next Interest Adjustment Date for the replaced
Adjustable Rate Asset; and (7) not have an interest rate that is convertible
from an adjustable rate to a fixed rate unless the Asset Rate on the replaced
Adjustable Rate Asset is so convertible. In the event that more than one Asset
is substituted for one or more replaced Assets, one or more of the foregoing
characteristics may be applied on a weighted average basis as described in the
Pooling and Servicing Agreement.
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Certificates of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding
Account") to be established with the Trustee, which will be used to acquire
additional Contracts or Mortgage Loans from time to time during the time period
specified in the related Prospectus Supplement (the "Pre-Funding Period").
Prior to the investment of the Pre-Funded Amount in additional Contracts or
Mortgage Loans, such Pre-Funded Amount may be invested in one or more Eligible
Investments. Any Eligible Investment must mature no later than the Business Day
prior to the next Distribution Date.
During any Pre-Funding Period, the Company will be obligated (subject only
to the availability thereof) to transfer to the related Trust additional
Contracts or Mortgage Loans from time to time during such Pre-Funding Period.
Such additional Contracts or Mortgage Loans will be required to satisfy certain
eligibility criteria more fully set forth in the related Prospectus Supplement,
which eligibility criteria will be consistent with the eligibility criteria of
the Contracts or Mortgage Loans included in the Trust as of the Closing Date,
subject to such exceptions as are expressly stated in such Prospectus
Supplement.
Use of a Pre-Funding Account with respect to any issuance of Certificates
will be subject to the following general conditions: (a) the Pre-Funding Period
will not exceed three months from the related Closing Date, (b) the additional
Assets to be acquired during the Pre-Funding Period will be subject to the same
underwriting standards, representations and warranties as the Contracts or
Mortgage Loans included in the related Trust on the Closing Date (although
additional criteria may also be required to be satisfied, as described in the
related Prospectus Supplement), (c) the Pre-Funded Amount will be not exceed
25% of the principal amount of the Certificates issued pursuant to a particular
offering, (d) the Pre-Funded Amount will not exceed 25% of the Scheduled
Principal Balance of the Assets (inclusive of the related Pre-Funded Amount) as
of the Cut-off Date, and (e) the Pre-Funded Amount shall be invested in
Eligible Investments.
To the extent that amounts on deposit in the Pre-Funding Account have not
been fully applied to the purchase of additional Contracts or Mortgage Loans by
the end of the Pre-Funding Period, the Certificateholders of the related Series
of Certificates then entitled to receive distributions of principal will
receive a prepayment of principal in an amount equal to the related Pre-Funded
Amount remaining in the Pre-Funding Account on the first Distribution Date
following the end of the Pre-Funding Period. Any such prepayment of principal
would have an adverse effect on the yield to maturity of Certificates purchased
at a premium, and would expose Certificateholder to the risk that alternative
investments of equivalent value may not be available at such later time.
A maximum of 5% of the Assets (including Assets acquired after Closing
with Pre-Funded Amounts) included in the Trust Estate will deviate from the
characteristics of the Assets described in the related Prospectus Supplement.
Further, information regarding additional Assets acquired by a Trust Estate
during the Pre-Funding Period comparable to the disclosure regarding the Assets
in the related Prospectus Supplement will be filed on a Current Report in Form
8-K (in addition to any other reporting requirements of the Trust under the
Exchange Act) within fifteen days following the end of the Pre-Funding Period.
DISTRIBUTION ACCOUNT
Payments on the Contracts and Mortgage Loans included in the Trust for a
Series will be remitted to the Certificate Account and then to the Distribution
Account for such Series. Such deposits may be made net of amounts required to
pay servicing fees and any amounts which are to be included in any Reserve Fund
as set forth in the related Prospectus Supplement. All or a portion of the
amounts in such Distribution Account, together with reinvestment income thereon
if payable to the Certificateholders, will be available, to the extent
specified in the related Prospectus Supplement, for the payment of
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previously unpaid servicing and administrative fees and distributions of
principal and interest on each Class of the Certificates of such Series in the
manner described in the related Prospectus Supplement.
RESERVE FUNDS OR LIQUIDITY ACCOUNTS
If so stated in the Prospectus Supplement for a Series, the Company will
establish one or more Reserve Funds or Liquidity Accounts, which may be used by
the Trustee to make any required distributions of principal or interest on the
Certificates of the Series to the extent funds are not otherwise available. The
Company may fund a Reserve Fund by depositing cash, certificates of deposit
and/or letters of credit therein at the Closing Date, or a Reserve Fund may be
funded by the Trustee's deposit therein of Available Distribution Amounts not
required to pay servicing or administrative fees or to make distributions on
the Certificates on each Distribution Date until amounts on deposit in the
Reserve Fund equal an initial required amount. The method of funding any
Reserve Fund will be described in the related Prospectus Supplement. Any
Reserve Fund will be maintained in trust but may or may not constitute a part
of the Trust Estate for the related Series. The Company may have certain rights
on any Distribution Date to cause the Trustee to make withdrawals from the
Reserve Fund for a Series and to pay such amounts in accordance with the
instructions of the Company to the extent that such funds are no longer
required to be maintained for the Certificateholders.
INSURANCE
To the extent specified in the related Prospectus Supplement, the
Certificates of a Series or all or any part of the related Trust Estate may be
supported by insurance policies or alternate forms of credit enhancement
described below.
The insurers under Standard Hazard Insurance Policies are selected by the
related Obligors and are generally not required to meet any credit rating
criteria. Any other type of insurance supporting a Series of Certificates will
not in and of itself be subject to any specific credit rating requirements.
However, any such insurance obtained with respect to a Series will be
considered a part of the aggregate credit enhancement provided for such Series,
and the total credit enhancement obtained to support any Series must be in
sufficient quantity and of sufficient quality for the Classes of the
Certificates of such Series to merit the ratings assigned to such Classes by
each applicable Rating Agency, as described in the related Prospectus
Supplement. The acceptability of the insurers to the applicable Rating Agencies
is the only criterion used in the selection of any insurers other than insurers
under Standard Hazard Insurance Policies.
HAZARD INSURANCE
The following descriptions are general and do not purport to be complete.
Such descriptions are qualified in their entirety by reference to the
description of any material variances from such description contained in the
related Prospectus Supplement. In general, coverage under Standard Hazard
Insurance Policies and Special Hazard Insurance Policies varies among insurers.
STANDARD HAZARD INSURANCE POLICIES. The terms of an Agreement may require
the Servicer to cause to be maintained with respect to each Contract and
Mortgage Loan one or more Standard Hazard Insurance Policies. With respect to
Contracts, each such policy will provide, at a minimum, the same coverage as
that provided by a standard fire and extended coverage insurance policy that is
customary for manufactured housing and issued by a company authorized to issue
such policies in the state in which the related Manufactured Home is located.
The Standard Hazard Insurance Policies maintained for Mortgage Loans will
provide coverage at least equal to the applicable state standard form of fire
insurance policy with extended coverage. In general, the standard form of fire
and extended coverage policy will cover physical damage to, or destruction of,
the improvements on the related Manufactured Home or Mortgaged Property caused
by fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specific to each policy.
Because the Standard Hazard Insurance Policies relating to the Contracts and
Mortgage Loans will be underwritten by different insurers and will cover
Manufactured Homes and Mortgaged Properties located in various states, such
policies will not contain identical terms and conditions. The basic terms,
however, generally will be determined by state law and generally will be
similar. Most such policies typically will not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides, and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. When a Manufactured Home or Mortgaged Property is located (at
the time of origination of the related Contract or Mortgage Loan) in a flood
area identified by HUD pursuant to the National Flood Insurance Act of 1968, as
amended, the Servicer will cause to be maintained flood insurance providing
coverage in the same amount as that provided by the related Standard Hazard
Insurance Policy with respect to such Manufactured Home or Mortgaged Property,
to the extent such coverage is available.
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Each Standard Hazard Insurance Policy must provide coverage in an amount
at least equal to the lesser of (1) the maximum insurable value of the
Manufactured Home or Mortgage Property or (2) the principal balance due from
the Obligor on the related Contract or Mortgage Loan; PROVIDED, HOWEVER, that
the amount of coverage provided by each Standard Hazard Insurance Policy must
in any event be sufficient to avoid the application of any co-insurance clause
contained in the policy.1
Each Standard Hazard Insurance Policy caused to be maintained by the
Servicer shall contain a standard loss payee clause in favor of the Servicer
and its successors and assigns. If any Obligor is in default in the payment of
premiums on its Standard Hazard Insurance Policy or Policies, the Servicer
shall pay such premiums out of its own funds, and may add such premium to the
Obligor's obligation as provided by the Contract or Mortgage Loan, but may not
add such premium to the remaining principal balance of the Contract or Mortgage
Loan. All amounts collected by the Servicer under any Standard Hazard Insurance
Policy maintained with respect to a Mortgage Loan (less amounts to be applied
to the restoration or repair of the Mortgaged Property and other amounts
necessary to reimburse the Servicer for previously incurred advances or
approved expenses, which may be retained by the Servicer) will be deposited to
the applicable Certificate Account.
To the extent a Standard Hazard Insurance Policy is not maintained with
respect to a Manufactured Home or Mortgaged Property, the related Contract or
Mortgage Loan will be covered by one or more blanket insurance policies
maintained by the Servicer to insure against losses on the Contracts and
Mortgage Loans resulting from the absence or insufficiency of individual
Standard Hazard Insurance Policies. The Servicer shall pay the premium for such
blanket policy and shall pay any deductible amount with respect to claims under
such blanket policy.
If the Servicer repossesses a Manufactured Home or forecloses on a
Mortgaged Property on behalf of the Trustee, the Servicer shall either (1)
maintain at its expense hazard insurance with respect to such Manufactured Home
or Mortgaged Property, or (2) indemnify the Trustee against any damage to such
Manufactured Home or Mortgaged Property prior to resale, foreclosure sale, or
other disposition thereof.
Any losses incurred with respect to Contracts or Mortgage Loans due to
uninsured risks (including earthquakes, mudflows and floods) or insufficient
hazard insurance proceeds may, to the extent such losses are not covered by the
Special Hazard Insurance Policy for a Series, affect payments to holders of
Certificates of such Series.
SPECIAL HAZARD INSURANCE POLICY. To the extent provided in the related
Prospectus Supplement, a special hazard insurance policy ("Special Hazard
Insurance Policy") will be obtained from the insurer or insurers (the "Special
Hazard Insurer") specified in the related Prospectus Supplement. Subject to the
limitations described below, a Special Hazard Insurance Policy will insure
against (1) loss by reason of damage to Manufactured Homes or Mortgaged
Properties underlying defaulted Contracts or Mortgage Loans caused by certain
hazards (including vandalism and earthquakes and, except where the related
Obligor is required to obtain flood insurance, floods and mudflows) not covered
by the Standard Hazard Insurance Policies covering such Contracts or Mortgage
Loans and (2) loss from partial damage to the Manufactured Homes or Mortgaged
Properties securing such defaulted Contracts or Mortgage Loans caused by reason
of the application of the coinsurance clause contained in the applicable
Standard Hazard Insurance Policies. The Special Hazard Insurance Policy for a
Series, however, will not cover losses occasioned by war, certain governmental
actions, nuclear reaction and certain other perils. The amount of coverage, if
any, under the Special Hazard Insurance Policy with respect to a Series will be
specified in the related Prospectus Supplement.
Subject to the foregoing limitations, the Special Hazard Insurance Policy
with respect to a Series will provide that, when there has been damage to the
Manufactured Home or Mortgaged Property securing a defaulted Contract or
Mortgage Loan and such damage is not covered by the Standard Hazard Insurance
Policy maintained by the related Obligor or the Servicer, the Special Hazard
Insurer will pay the lesser of (a) the cost of repair of such property or (b)
upon transfer of such property to the Special Hazard Insurer, the unpaid
principal amount of such Contract or Mortgage Loan at the time of the
acquisition of such property, plus accrued interest to the date of claim
settlement (excluding late charges and penalty interest) and certain expenses
incurred in respect of such property. No claim may be validly presented under a
Special Hazard
- ---------
1 Each Standard Hazard Insurance Policy may contain a "coinsurance" clause
which, in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of
the dwellings, sturctures and other improvements on the related Manufactured
Home or Mortgaged Property in order to recover the full amount of any partial
loss. If the insured's coverage falls below this specified percentage, such
clause will provide that the insurer's liability in the event of partial loss
will not exceed the lesser of (1)the actual cash value (the replacement cost
less physical depteciation) of the dwellings, structures and other improvements
damaged or destroyed or (2)such proportion of the loss, without deduction for
depreciation, as the amount of insurance carried bears to the specified
percentage of the full replacement cost of such dwellings, structures and other
improvements.
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Insurance Policy unless (1) the Standard Hazard Insurance Policy covering the
Manufactured Home or Mortgaged Property securing the Contract or Mortgage Loan
has been kept in force and other reimbursable protection, preservation and
foreclosure expenses have been paid (all of which must be approved in advance
as necessary by the Special Hazard Insurer) and (2) the insured has acquired
title to the Manufactured Home or Mortgaged Property as a result of default by
the related Obligor. If the sum of the unpaid principal amount plus accrued
interest on a Contract or Mortgage Loan, plus certain related expenses, is paid
by the Special Hazard Insurer, the amount of further coverage under the Special
Hazard Insurance Policy will be reduced by the amount of such payment less any
net proceeds from the sale of the Manufactured Home or Mortgaged Property. Any
amount paid as the cost of repair of the Manufactured Home or Mortgaged
Property will reduce coverage by such amount.
The Agreement with respect to a Series will require the Servicer to
maintain any Special Hazard Insurance Policy for such Series in full force and
effect, subject to certain conditions. See "Sale and Servicing of the Mortgage
Loans -- Maintenance of Insurance Policies and Other Servicing Procedures"
herein. The Servicer also must present claims, on behalf of the
Certificateholders and the Trustee, for all losses not otherwise covered by the
applicable Standard Hazard Insurance Policies and take all reasonable steps
necessary to permit recoveries on such claims. See "Sale and Servicing of the
Mortgage Loans -- Maintenance of Insurance Policies and Other Servicing
Procedures -- Presentation of Claims" herein.
To the extent provided in the related Prospectus Supplement, in lieu
(partially or wholly) of maintaining a Special Hazard Insurance Policy with
respect to a Series, a deposit of cash, a certificate of deposit, a letter of
credit or any other instrument acceptable to each Rating Agency rating the
Series as described in the related Prospectus Supplement may be provided in an
amount and for a term acceptable to each such Rating Agency. Such a deposit
will be credited to a Special Hazard or similar fund and the Trustee or
Servicer will be permitted to draw on the fund to recover losses that would
otherwise be covered by a Special Hazard Insurance Policy ("Special Hazard
Losses"). Special Hazard Losses may also be allocated to the Certificates of a
Series on the terms and subject to the conditions and limitations set forth in
the related Prospectus Supplement. The Company may also elect to insure against
Special Hazard Losses by the delivery of Additional Assets to the Trust rather
than through a Special Hazard Insurance Policy or special hazard fund.
A Special Hazard Insurance Policy, if any, securing a Series may insure
against losses on Contracts or Mortgage Loans assigned to Trusts for other
Series of Certificates or that secure other pass-through securities or
collateralized mortgage or manufactured housing contract obligations issued by
the Company or one of its affiliates; PROVIDED, HOWEVER, that the extension of
coverage (and corresponding assignment of the Special Hazard Insurance Policy)
to secure any other Series or such other securities or obligations will not be
permitted if it would result in the downgrading of the credit rating of any
outstanding Certificates of any Series offered hereby assigned by any Rating
Agency identified in the related Prospectus Supplement.
CREDIT INSURANCE
Any credit insurance relating to the Contracts or Mortgage Loans
underlying a Series of Certificates will be described in the Prospectus
Supplement.
Mortgage Loans underlying a Series of Certificates will, to the extent
described in the related Prospectus Supplement, be covered by primary mortgage
insurance policies ("Primary Mortgage Insurance Policies"). Contracts and
Mortgage Loans underlying a Series may, to the extent described in the related
Prospectus Supplement, be supported by FHA insurance, VA guarantees or one or
more pool insurance policies (each a "Pool Insurance Policy") or any
combination thereof (collectively, and together with any related Primary
Mortgage Insurance Policies, FHA insurance or VA guarantees, the "Credit
Insurance" for such Series).
No Mortgage Loan will be covered by a Primary Mortgage Insurance Policy.
To the extent so specified in the related Prospectus Supplement, the Servicer
will maintain a Primary Mortgage Insurance Policy on any Conventional Mortgage
Loan with an initial Mortgage Loan-to-Value Ratio of greater than 80%. Any
Primary Mortgage Insurance Policy that is so maintained will provide coverage
on at least the principal amount of the covered Mortgage Loan in excess of 75%
of the original appraised value of the related Mortgaged Property, which
coverage will remain in force until the principal balance of such Mortgage Loan
is reduced to 80% of such original appraised value. A Primary Mortgage
Insurance Policy also may be canceled, with the consent of the Servicer and any
applicable Pool Insurer, after the policy has been in effect for more
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than two years if the Mortgage Loan-to-Value Ratio of such Mortgage Loan has
declined to 80% or less based upon the current fair market value of the related
Mortgaged Property.
Certain other Mortgage Loans may also be covered by Primary Mortgage
Insurance Policies. Certain Primary Mortgage Insurance Policies may, to the
extent required by the related Prospectus Supplement, and subject to their
provisions and to certain conditions and exclusions described below, provide
full coverage against any loss sustained by reason of nonpayments by the
related Mortgagor (a "Full Coverage Insurance Policy").
The Pool Insurance Policy or Policies for a Series, if any, will be
designed to provide coverage for all Conventional Mortgage Loans which are not
covered by Full Coverage Insurance Policies. However, neither the Primary
Mortgage Insurance Policies nor the Pool Insurance Policies will insure against
certain losses sustained in the event of a personal bankruptcy of the Mortgagor
under a Mortgage Loan. See "Certain Legal Aspects of Contracts and Mortgage
Loans -- The Mortgage Loans -- Anti-Deficiency Legislation and Other
Limitations on Lenders" herein. Such losses may be covered to the extent
provided by the Obligor Bankruptcy Insurance, if any, described below for such
Series.
The Credit Insurance policies will not provide coverage against hazard
losses. Certain hazard risks will be covered by Standard Hazard Insurance
Policies or Special Hazard Insurance Policies, but other hazard risks will not
be insured and thus may affect payments to holders of related Certificates. See
" -- Hazard Insurance" above.
To the extent that Primary Mortgage Insurance Policies, FHA insurance or
VA guarantees do not cover all losses on a defaulted or foreclosed Contract or
Mortgage Loan, and to the extent such losses are not covered by the Pool
Insurance Policy for the related Series of Certificates, if any, such losses
would affect payments to holders of related Certificates.
The following descriptions of Credit Insurance policies and the coverage
thereunder are provided for general informational purposes only, and do not
purport to be complete. There can be no assurance that the actual policies and
coverage with respect to a specific Series will comply with these descriptions.
PRIMARY MORTGAGE INSURANCE. Any Primary Mortgage Insurance Policy covering
Mortgage Loans will be issued by the related Mortgage Insurer pursuant to the
Mortgage Insurer's applicable master policy. The Company and the Trustee as
assignee of the Mortgage Loans will be the insureds or assignees of record (the
"Insured"), as their interests may appear, under each such Primary Mortgage
Insurance Policy. The Agreement with respect to such Series will require the
Servicer to cause a Primary Mortgage Insurance Policy to be maintained in full
force and effect with respect to each Mortgage Loan covered by the Agreement
(to the extent such insurance is required by such Agreement) and to act on
behalf of the Insured with respect to all actions required to be taken by the
Insured under each such Primary Mortgage Insurance Policy.
The amount of a claim for benefits (the "Loss") under a Primary Mortgage
Insurance Policy covering a Mortgage Loan will generally consist of the insured
portion of the unpaid principal balance of the covered Mortgage Loan (as
described herein) and accrued and unpaid interest thereon and reimbursement of
certain expenses, less (1) all rents or other payments collected or received by
the Insured (other than the proceeds of hazard insurance) that are derived from
or in any way related to the related Mortgaged Property; (2) hazard insurance
proceeds in excess of the amount required to restore the related Mortgaged
Property and which have not been applied to the payment of the Mortgage Loan;
(3) amounts expended but not approved by the Mortgage Insurer; (4) claim
payments previously made by the Mortgage Insurer; and (5) unpaid premiums.
As conditions precedent to the filing of or payment of a claim under a
Primary Mortgage Insurance Policy covering a Mortgage Loan, the Insured will
generally be required to (1) pay (a) all hazard insurance premiums and (b) as
necessary and approved in advance by the Mortgage Insurer, (i) real estate
property taxes, (ii) all expenses required to maintain the related Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (iii)
property sales expenses, (iv) any outstanding liens (as defined in such Primary
Mortgage Insurance Policy) on the Mortgaged Property and (v) foreclosure costs,
including court costs and reasonable attorneys' fees; (2) in the event of any
physical loss or damage to the related Mortgaged Property, restore and repair
the Mortgaged Property to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and
tear excepted; and (3) tender to the Mortgage Insurer good and merchantable
title to and possession of the related Mortgaged Property. A Primary Mortgage
Insurance Policy may not reimburse the Insured for attorneys' fees in respect
of a foreclosed Mortgage Loan in excess of 3% of the unpaid principal balance
plus accrued and unpaid interest on such Mortgage Loan. As a result, legal
expenses in excess of such reimbursement limitation may be charged as a loss on
the related Certificates.
Other provisions and conditions of each Primary Mortgage Insurance Policy
covering a Mortgage Loan generally will provide that: (1) no change may be made
in the terms of such Mortgage Loan without the consent of the Mortgage Insurer;
(2) written notice must be given to the Mortgage Insurer within 10 days after
the Insured becomes aware that a Mortgagor
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is delinquent in the payment of a sum equal to the aggregate of two Monthly
Payments due under such Mortgage Loan or that any proceedings affecting the
mortgagor's interest in the Mortgaged Property securing such Mortgage Loan have
been commenced, and thereafter the Insured must report monthly to the Mortgage
Insurer the status of any such Mortgage Loan until such Mortgage Loan is
brought current, such proceedings are terminated or a claim is filed; (3) the
Mortgage Insurer will have the right to purchase such Mortgage Loan, at any
time after the 10 days' notice described in clause (2) above and prior to the
commencement of foreclosure proceedings, at a price equal to the unpaid
principal amount of the Mortgage Loan plus (a) accrued and unpaid interest
thereon and (b) reimbursable amounts expended by the Insured for the real
estate taxes and fire and extended coverage insurance on the related Mortgaged
Property for a period not exceeding 12 months, less the sum of any claim
previously paid under the policy with respect to such Mortgage Loan and any due
and unpaid premium with respect to such policy; (4) the Insured must commence
proceedings at certain times specified in the policy and diligently proceed to
obtain good and merchantable title to and possession of the related Mortgaged
Property; (5) the Insured must (a) notify the Mortgage Insurer of any
proceedings described in clause (4) above and provide the Mortgage Insurer with
copies of documents relating thereto, (b) notify the Mortgage Insurer of the
price amounts specified in clause (3) above at least 15 days prior to the sale
of the related Mortgaged Property by foreclosure, and (c) bid such amount
unless the Mortgage Insurer specifies a lower or higher amount; (6) the Insured
may accept a conveyance of the related Mortgaged Property in lieu of
foreclosure with written approval of the Mortgage Insurer provided the ability
of the Insured to assign specified rights to the Mortgage Insurer are not
thereby impaired or the specified rights of the Mortgage Insurer are not
thereby adversely affected by such conveyance; (7) the Insured agrees that the
Mortgage Insurer has issued the policy in reliance upon the correctness and
completeness of the statements contained in the application for the policy and
in the appraisal, plans and specifications and other exhibits and documentation
submitted therewith or at any time thereafter; (8) under certain policies, the
Mortgage Insurer will not pay claims involving or arising out of
misrepresentation or dishonest, fraudulent, criminal or knowingly wrongful acts
(including errors or omissions) by certain persons, or claims involving or
arising out of the negligence of certain persons if such negligence is material
either to the acceptance of the risk or to the hazard assumed by the Mortgage
Insurer; and (9) the Insured must comply with other notice provisions in the
policy.
The Mortgage Insurer will generally be required to pay to the Insured
either: (1) the insured percentage of the Loss; or (2) at its option under
certain of the Primary Mortgage Insurance Policies, the sum of the delinquent
monthly payments plus any advances made by the Insured, each to the date of the
claim payment, and thereafter, monthly payments in the amount that would have
become due under the Mortgage Loan if it had not been discharged plus any
advances made by the Insured until the earlier of (A) the date the Mortgage
Loan would have been discharged in full if the default had not occurred, or (B)
an Approved Sale (as defined below under " -- Pool Insurance"). Any rents or
other payments collected or received by the Insured which are derived from or
are in any way related to the related Mortgaged Property will be deducted from
any claim payment.
FHA INSURANCE AND VA GUARANTEES ON CONTRACTS. Certain of the Contracts may
be FHA-insured or VA-guaranteed. The nature of any such FHA insurance or VA
guarantees is described generally below.
The regulations governing FHA manufactured home contract insurance provide
that insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to HUD. With respect to a defaulted
FHA contract, the servicer must follow applicable regulations before initiating
repossession procedures as a prerequisite to payment. These regulations include
requirements that the lender arrange a face-to-face meeting with the borrower,
initiate a modification or repayment plan, if feasible, and give the borrower
30 days' notice of default prior to any repossession. The insurance claim is
paid in cash by HUD. For manufactured housing contracts, the amount of
insurance benefits generally paid by the FHA currently is equal to 90% of the
sum of (1) the unpaid principal amount of the contract at the date of default
and uncollected interest earned to the date of default computed at the
applicable contract interest rate, after deducting the best price obtainable
for the collateral (based in part on a HUD-approved appraisal) and all amounts
retained or collected by the lender from other sources with respect to the
contract; (2) accrued and unpaid interest on the unpaid amount of the contract
from the date of default to the date of submission of the claim plus 15
calendar days (but in no event more than nine months) computed at a rate of
7.00% per annum; (3) costs paid to a dealer or other third party to repossess
or preserve the related manufactured home; (4) the amount of any sales
commission paid to a dealer or other third party for the resale of the
property; (5) with respect to any Land Secured Contract, property taxes,
special assessments and other similar charges and hazard insurance premiums,
prorated to the date of disposition of the property; (6) uncollected court
costs; (7) legal fees, not to exceed $1,000; and (8) expenses for recording the
assignment of the lien on the collateral to the United States, in each case
subject to applicable caps as set by regulations governing the FHA from time to
time.
The insurance available to a lender under FHA Title I insurance is subject
to the limit of a reserve amount equal to 10% of the original principal balance
of all Title I insured loans originated by the lender, which amount is reduced
by all
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claims paid to the lender and by an annual reduction in the reserve amount of
10% of the reserve amount, and which is increased by an amount equal to 10% of
the original principal balance of insured loans subsequently originated by the
lender. The obligation to pay insurance premiums to the FHA is the obligation
of Oakwood, as the servicer of the FHA-insured Contracts.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under any VA guarantee will be a percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the original
guaranteed amount.
POOL INSURANCE. The Company may obtain a Pool Insurance Policy to cover
any loss (subject to the limitations described below) incurred by reason of
default by the Obligors on the Contracts and/or Mortgage Loans (in the case of
Mortgage Loans, to the extent such loss is not covered by any Primary Mortgage
Insurance Policy). The amount of the Pool Insurance Policy (or Policies) for a
Series, if any, will be specified in the related Prospectus Supplement. A Pool
Insurance Policy for a Series, however, will not be a blanket policy against
loss, because claims thereunder may only be made for particular defaulted
Contracts or Mortgage Loans and only upon satisfaction of certain conditions
precedent described below.
The Servicer will be required to maintain any Pool Insurance Policies for
each Series and to present or cause the Sub-servicers, if any, to present
claims to the Pool Insurer on behalf of the Trustee and the Certificateholders.
As set forth in the related Prospectus Supplement, any Pool Insurance Policy
for a Series will provide that as a condition precedent to the payment of any
claim the insured will be required (1) to advance hazard premiums on the
Manufactured Home or Mortgaged Property securing the defaulted Contract or
Mortgage Loan; (2) to advance, as necessary and approved in advance by the
related insurer, (a) real estate or personal property taxes, (b) all expenses
required to preserve and repair the Manufactured Home or Mortgaged Property, to
protect the Manufactured Home or Mortgaged Property from waste, so that the
Manufactured Home or Mortgaged Property is in at least as good a condition as
it was in on the date upon which coverage under the Pool Insurance Policy with
respect to such Manufactured Home or Mortgaged Property first became effective,
ordinary wear and tear excepted, (c) property sales expenses, (d) any
outstanding liens on the Manufactured Home or Mortgaged Property, and (e)
foreclosure costs, including court costs and reasonable attorneys' fees; and
(3) if there has been physical loss or damage to the Manufactured Home or
Mortgaged Property, to restore the Manufactured Home or Mortgaged Property to
its condition (ordinary wear and tear excepted) as of the issue date of the
Pool Insurance Policy. It also will be a condition precedent to the payment of
any claim relating to a Mortgage Loan under a Pool Insurance Policy that the
Insured maintain a Primary Mortgage Insurance Policy that is acceptable to the
Pool Insurer on all Mortgage Loans covered by the Pool Insurance Policy that
have Mortgage Loan-to-Value Ratios at the time of origination in excess of 80%.
Assuming satisfaction of these conditions, the Pool Insurer will pay to the
Insured the amount of the "loss" which will generally be (1) the amount of the
unpaid principal balance of the Contract or Mortgage Loan immediately prior to
an Approved Sale of the related Manufactured Home or Mortgaged Property, plus
(2) the amount of the accumulated unpaid interest on such Contract or Mortgage
Loan to the date of claim settlement at the contractual rate of interest, plus
(3) advances made by the Insured as described above, less certain payments
(including the proceeds of any prior Approved Sale and any Primary Mortgage
Insurance Policies). An "Approved Sale" is (1) a sale of the related
Manufactured Home or Mortgaged Property acquired by the Insured because of a
default by the Obligor if the Pool Insurer has given prior approval to such
sale; (2) a foreclosure or trustee's sale of the related Manufactured Home or
Mortgaged Property at a price exceeding the minimum amount specified by the
Pool Insurer; (3) the acquisition of the Mortgaged Property under the Primary
Mortgage Insurance Policy by the Mortgage Insurer; or (4) the acquisition of
the related Manufactured Home or Mortgaged Property by the Pool Insurer. As a
condition precedent to the payment of any "loss" on any covered Contract or
Mortgage Loan, the Insured must provide the Pool Insurer with good and
merchantable title to the related Manufactured Home or Mortgaged Property if
the Pool Insurer elects to take title to such Manufactured Home or Mortgaged
Property. If any property securing a defaulted Contract or Mortgage Loan
covered by a Pool Insurance Policy is damaged and the proceeds, if any, from
the related Standard Hazard Insurance Policy or the applicable Special Hazard
Insurance Policy are insufficient to restore the damaged property to a
condition sufficient to permit recovery under the Pool Insurance Policy, the
Servicer will not be required to expend its own funds to restore the damaged
Manufactured Home or Mortgaged Property unless it determines (A) that such
restoration will increase the proceeds on liquidation of the Contract or
Mortgage Loan after reimbursement of the Servicer for its expenses and (B) that
such expenses will be recoverable by it through Liquidation Proceeds or
Insurance Proceeds.
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The Pool Insurance Policies will generally not insure (and many Primary
Mortgage Insurance Policies may not insure) against losses sustained by reason
of defaults arising from, among other things, (1) fraud or negligence in the
origination or servicing of a Contract or Mortgage Loan, including
misrepresentation by the Obligor or the originator; (2) failure to construct
Manufactured Homes or Mortgaged Properties in accordance with plans and
specifications; and (3) a claim in respect of a defaulted Mortgage Loan
occurring when the Servicer, at the time of default or thereafter, was not
approved by the Mortgage Insurer.
The original amount of coverage under any Pool Insurance Policy securing a
Series will be reduced over the life of the Certificates of such Series by the
aggregate dollar amount of claims paid under such policy, less the aggregate of
net amounts realized by the Pool Insurer upon disposition of all repossessed or
foreclosed Manufactured Home or Mortgaged Properties covered thereby. The
amount of claims paid includes certain expenses incurred by the Servicer as
well as accrued interest on delinquent Contracts or Mortgage Loans to the date
of payment of the claim. The net amounts realized by a Pool Insurer in respect
of a Contract or Mortgage Loan will depend primarily on the market value of the
Manufactured Home or Mortgaged Property securing the defaulted Contract or
Mortgage Loan. The market value of a Manufactured Home or Mortgaged Property
will be determined by a variety of economic, geographic, social, environmental
and other factors and may be affected by matters that were unknown and could
not reasonably be anticipated at the time the original loan was made.
If aggregate net claims paid under a Pool Insurance Policy securing a
Series reach the original policy limit, coverage under the Pool Insurance
Policy will lapse and any further losses will be borne by the related Trust,
and thus may affect adversely payments to the Certificateholders of such
Series. In addition, unless the Servicer can determine that a P&I Advance in
respect of a delinquent Contract or Mortgage Loan would be recoverable from the
proceeds of the liquidation of such Contract or Mortgage Loan or any other
source, the Servicer will not be obligated to make a P&I Advance with respect
to such delinquency. See "Sale and Servicing of Contracts and Mortgage Loans --
Advances" herein. The original amount of coverage under any Pool Insurance
Policy assigned to the Trust for a Series may also be reduced or canceled to
the extent each Rating Agency rating the Series confirms that such reduction
will not result in the lowering of the rating of the Certificates of such
Series.
A Pool Insurance Policy for a Series may insure against losses on the
Contracts or Mortgage Loans assigned to Trusts for other Series of Certificates
or that secure other pass-through securities or collateralized mortgage or
manufactured housing contract obligations issued by the Company or one of its
affiliates; PROVIDED, HOWEVER, that the extension of coverage (and
corresponding assignment of the Pool Insurance Policy) to secure any other
Series or such other securities or obligations will not be permitted if it
would result in the downgrading of the credit rating of any outstanding
Certificates of any Series offered hereby assigned by any Rating Agency
identified in the related Prospectus Supplement.
OBLIGOR BANKRUPTCY INSURANCE
In the event of a personal bankruptcy of an Obligor, the bankruptcy court
may establish the value of the related Manufactured Home or Mortgaged Property
at an amount less than the then Unpaid Principal Balance of the Contract or
Mortgage Loan secured by such Manufactured Home or Mortgaged Property. The
amount of the secured debt could be reduced to the value of the collateral
property, and the holder of the Contract or Mortgage Loan thus would become an
unsecured creditor to the extent the outstanding principal balance of such
Contract or Mortgage Loan exceeds the value assigned to the underlying
Manufactured Home or Mortgaged Property by the bankruptcy court. In addition,
certain other modifications of the terms of a Contract or Mortgage Loan can
result from a bankruptcy proceeding. See " -- The Contracts -- Enforcement of
Security Interests in Manufactured Homes" and " -- The Mortgage Loans --
Anti-Deficiency Legislation and Other Limitations on Lenders," each under the
heading "Certain Legal Aspects of Contracts and Mortgage Loans" herein. Losses
resulting from a bankruptcy proceeding affecting Contracts or Mortgage Loans
will, to the extent specified in the related Prospectus Supplement, be covered
by obligor bankruptcy insurance for the related Series (the "Obligor Bankruptcy
Insurance"). The amount and term of any Obligor Bankruptcy Insurance for a
Series must be acceptable to each Rating Agency rating the Series. Subject to
the terms of any Obligor Bankruptcy Insurance, the insurer may have the right
to purchase any Contract or Mortgage Loan with respect to which a payment has
been made or may be made, for an amount equal to the Unpaid Principal Balance
of such Contract or Mortgage Loan plus accrued and unpaid interest thereon. To
the extent Obligor Bankruptcy Insurance is required by a Prospectus Supplement,
the Company may, partially or entirely in lieu of Obligor Bankruptcy Insurance,
deposit or cause to be deposited cash, a certificate of deposit, a letter of
credit or any other instrument acceptable to each Rating Agency rating the
related Series as described in the related Prospectus Supplement. Such a
deposit will be credited to an obligor bankruptcy fund or similar fund and the
Trustee or Servicer will be able to draw on the fund to recover losses that
otherwise would be insured against by Obligor Bankruptcy Insurance. The amount
of any Obligor Bankruptcy Insurance for a Series or any deposit in lieu thereof
may be reduced as long as any such reduction will not result
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in a reduction of the then applicable rating of the Series by any Rating Agency
rating the Series as described in the related Prospectus Supplement. Any
Obligor Bankruptcy Insurance or any obligor bankruptcy fund maintained with
respect to a Series may insure against losses on Contracts or Mortgage Loans
assigned to Trusts for other Series of Certificates or that secure other
pass-through securities or collateralized mortgage or manufactured contract
obligations issued by the Company or one of its affiliates; PROVIDED, HOWEVER,
that the extension of coverage (and corresponding assignment of an Obligor
Bankruptcy Insurance policy or obligor bankruptcy fund) to secure any other
Series or such other securities or obligations will not be permitted if it
would result in the downgrading of the credit rating of any outstanding
Certificates of any Series offered hereby assigned by a Rating Agency
identified in the related Prospectus Supplement. The Company may elect to
deposit Additional Assets to the Trust in lieu of obtaining any required
Obligor Bankruptcy Insurance or establishing an obligor bankruptcy fund.
The foregoing description does not purport to be complete and is qualified
in its entirety by reference to any description of Obligator Bankruptcy
Insurance contained in the related Prospectus Supplement.
DELIVERY OF ADDITIONAL ASSETS
To the extent provided in the related Prospectus Supplement, in lieu of or
in addition to providing Pool Insurance, Special Hazard Insurance, Obligor
Bankruptcy Insurance or other insurance, the Company may assign to the Trust
for a Series of Certificates non-recourse guaranties of the timely payment of
principal and interest on Contracts and Mortgage Loans included in the Trust
secured by other assets satisfactory to each Rating Agency rating the Series.
The Company may also assign or undertake to deliver such other assets to any
Trust by such other means as may be specified in the related Prospectus
Supplement. Such other assets may consist of additional Contracts or Mortgage
Loans, letters of credit or other Eligible Investments ("Additional Assets").
INVESTMENT OF FUNDS
Funds deposited in or remitted to the Certificate Account, the
Distribution Account, any Reserve Fund and any other funds and accounts for a
Series are to be invested by the Trustee, as directed by the Servicer, in
certain eligible investments ("Eligible Investments"), which include (1)
obligations of the United States or any agency thereof provided such
obligations are backed by the full faith and credit of the United States; (2)
within certain limitations, securities bearing interest or sold at a discount
issued by any corporation, which securities are rated in the rating category
required to support the then applicable ratings assigned to that Series; (3)
commercial paper which is then rated in the commercial paper rating category
required to support the then applicable ratings assigned to that Series; (4)
demand and time deposits, certificates of deposit, bankers' acceptances and
federal funds sold by any depository institution or trust company incorporated
under the laws of the United States or of any state thereof, provided that
either the senior debt obligations or commercial paper of such depository
institution or trust company (or provided that either the senior debt
obligations or commercial paper of the parent company of such depository
institution or trust company) are then rated in the security rating category
required to support the then applicable ratings assigned to that Series; (5)
demand and time deposits and certificates of deposit issued by any bank or
trust company or savings and loan association and fully insured by the Federal
Deposit Insurance Corporation (the "FDIC"); (6) guaranteed reinvestment
agreements issued by any insurance company, corporation or other entity
acceptable to each Rating Agency rating that Series at the time of issuance of
the Series; (7) certain repurchase agreements relating to United States
government securities; and (8) certain money market mutual funds investing
primarily in the obligations of the United States; PROVIDED such mutual funds
are rated in a rating category sufficient to support the initial ratings
assigned to that Series.
Eligible Investments with respect to a Series will include only
obligations or securities that mature on or before the date on which the
invested funds are required or may be anticipated to be required to be applied
for the benefit of the holders of such Series. Any income, gain or loss from
such investments for a Series will be credited or charged to the appropriate
fund or account for such Series. Reinvestment Income from Eligible Investments
may be payable to the Servicer as additional servicing compensation and, in
that event, will not accrue for the benefit of the Certificateholders of that
Series.
If a reinvestment agreement is obtained with respect to a Series, the
related Agreement will require the Trustee to invest funds deposited in the
Certificate Account, the Distribution Account and the Reserve Fund, if any, for
that Series pursuant to the terms of the reinvestment agreement.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, Certificate
Guarantee Insurance, if any, with respect to a Series of Certificates may be
provided by one or more insurers. Such Certificate Guarantee Insurance may
guarantee, with respect
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to one or more Classes of Certificates of the related Series, timely
distributions of interest and full distributions of principal on the basis of a
schedule of principal distributions set forth in or determined in the manner
specified in the related Prospectus Supplement. A copy of the Certificate
Guarantee Insurance documentation for a Series, if any, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K within 15 days of
issuance of the Certificates of the related Series.
OAKWOOD HOMES GUARANTEE
If so specified in the related Prospectus Supplement, some or all of the
collections of principal of and interest on the Asset Pool of a Series may be
guaranteed by Oakwood Homes or one of its affiliates. The terms of and
limitations on any such guarantee will be described in the related Prospectus
Supplement. The Prospectus Supplement for any Series containing a guarantee of
Oakwood Homes will contain summary financial information for Oakwood Homes. In
addition, Oakwood Homes' reports under the Exchange Act will be incorporated
therein by reference. A copy of the guaranty agreement under which Oakwood
Homes provides a guarantee for the Asset Pool of a Series will be filed with
the Commission as an exhibit to a Current Report on Form 8-K within 15 days of
issuance of such Certificates.
ALTERNATE CREDIT ENHANCEMENT
From time to time with respect to a Series of Certificates, the Company or
the Servicer may obtain or cause to be obtained further or other liquidity
enhancement, insurance policies, guarantees, letters of credit, or surety bonds
(or make deposits in lieu thereof or in addition thereto) to provide for the
enhancement of the credit rating of such Certificates. To the extent any such
other enhancements are obtained or provided for with respect to a Series of
Certificates, or deposits are made in lieu thereof or in addition thereto, a
description thereof will be set forth in the related Prospectus Supplement.
UNDERWRITING POLICIES
OAKWOOD'S CONTRACT UNDERWRITING GUIDELINES
Contracts included in an Asset Pool will have been underwritten by
Oakwood. These Contracts may have been originated in the name of Oakwood Mobile
Homes, Inc. ("OMH"), a wholly-owned retailing subsidiary of Oakwood Homes, or
by a third party manufactured housing broker or dealer, in either case with
funds provided by Oakwood, or may have been originated directly in Oakwood's
name. The following is a description of the underwriting practices generally
followed by Oakwood in connection with the origination of Contracts funded by
Oakwood.
A customer desiring to obtain financing for the purchase of a manufactured
home through Oakwood must complete a loan application form at a participating
sales center. Loan applications are forwarded electronically or by facsimile by
sales centers to Oakwood's credit department for consideration.
Upon receipt of a loan application, Oakwood evaluates the ability of the
loan applicant to make the prospective required monthly payments and to pay
related charges. Oakwood utilizes a credit scoring system to evaluate credit
applicants. Oakwood's underwriting guidelines require that each applicant's
credit history, residence history, employment history and debt-to-income ratios
be examined. Oakwood's credit officers review the information relating to these
factors provided by the applicant on his or her loan application and obtain
credit reports and contact employers and other references to verify credit,
residence and employment-related information. Oakwood's automated loan
origination system computes debt-to-income ratios and assigns each applicant an
overall credit score based upon information contained in the application and in
the credit bureau report obtained with respect to such applicant. An
applicant's overall credit score is the sum of his or her credit scores in
various areas of the credit review. Each credit officer is authorized to
approve certain applicants within his lending authority (1) who are assigned
overall credit scores and credit report scores above a specified minimum score,
(2) who have acceptable debt-to-income ratios and (3) who have applied for
credit not in excess of the credit officer's authority. In order for a
prospective borrower to be approved for a loan, (1) his or her total monthly
fixed debt obligations (including the monthly payment on the contract applied
for, rental fees charged for land generally, monthly installment payments to
acquire the land on which the home is located and hazard insurance premiums
relating to the home (collectively, the "Home Payments")) should not exceed 50%
of his or her gross monthly income and (2) the proposed Home Payments should
not exceed 35% of his or her gross monthly income, however, more stringent
standards generally apply to prospective borrowers with relatively lower
monthly incomes and/or relatively higher loan to value ratios. The Company
believes that these debt-to-income ratios are generally consistent with those
employed by other lenders under manufactured housing
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installment sales contracts. These ratios are generally higher than the
comparable debt-to-income ratios employed by lenders under many types of
residential first-lien mortgage loans. To the extent the credit underwriting
criteria applied to borrowers under Contracts are less stringent than those
applied to borrowers under conventional types of residential first-lien
mortgage loans, the level of delinquencies experienced with respect to a pool
of Contracts may be expected to be higher than the level of delinquencies that
would be experienced with respect to a pool of conventional, residential
first-lien mortgage loans. Such a higher level of delinquencies could result in
a higher level of losses incurred on a pool of Contracts as compared to a pool
of conventional, residential first-lien mortgage loans.
Loan applicants who do not meet the objective criteria above may be
approved, on a case-by-case basis, by higher-level management in Oakwood's
credit department. Generally, applicants whose credit scores are less than the
minimums established for credit officer approval are approved only if other
favorable objective underwriting factors are present which are outside the
scope of the scoring systems. In addition, even if an applicant obtains an
acceptable credit score and has acceptable debt-to-income ratios, a credit
officer or manager retains the discretion to reject a credit application if the
credit officer or manager discerns objective factors outside the scope of the
scoring systems that indicate a lack of creditworthiness.
With respect to those customers deemed to be creditworthy, Oakwood
requires a down payment in the form of cash, the trade-in equity in a
previously owned manufactured home, and/or the borrower's equity in any real
property pledged as additional collateral for the loan. The value of any real
property pledged as additional collateral is estimated by a duly licensed
independent appraiser, and the borrower's equity in real property for down
payment purposes is limited to the lesser of 80% of such estimated value and
its appraised tax value. Generally, Oakwood requires a minimum down payment of
5% of the purchase price of the home for purchases of new homes, 10% of the
purchase price of the home for purchases of used homes (other than repossessed
homes), $499 for purchases of repossessed single-section homes, $999 for
purchases of repossessed multi-sectional homes, and the lesser of $1,000 or 5%
of the transfer price for homes transferred by a borrower to a new borrower. In
addition, if a borrower uses equity in real property as all or part of his or
her down payment, the total down payment must be at least equal to 5% of the
purchase price of the purchased home. The level of down payment offered by a
prospective purchaser of a new home will affect his or her overall credit
score, so that higher down payments are required from applicants with
relatively lower credit scores in areas other than down payment levels. The
purchase price of a manufactured home for purposes of determining a down
payment amount generally includes the stated cash sale price of the
manufactured home (including the stated cash sale price of any accessories sold
with the home, which may include appliances, furniture, skirting, steps,
porches and related items), sales and any other state and local taxes.
The balance of the purchase price is financed by an installment sale
contract providing for a purchase money security interest in the manufactured
home and a mortgage on any real property pledged as additional collateral. All
of these contracts funded at origination by Oakwood are written on forms
provided by Oakwood. Normally, each contract provides for level monthly
payments over the stated term of the contract, which is generally 15 to 20
years (or 20 to 30 years in the case of sales of multi-sectional homes and
larger single-section homes), at a fixed rate of interest (which may include a
step-up rate). Oakwood believes the typical manufactured home purchaser is
primarily sensitive to the amount of the monthly payment required by his or her
contract, and not to the interest rate charged thereunder.
GENERAL UNDERWRITING STANDARDS FOR MORTGAGE LOANS
Mortgage Loans underwritten by Oakwood will be underwritten substantially
according to the underwriting guidelines Oakwood uses to underwrite Contracts.
See " -- Oakwood's Contract Underwriting Guidelines" above. Any different
underwriting standards that applied to the Mortgage Loans included in any
particular Asset Pool will be described in the related Prospectus Supplement.
With respect to any Mortgage Loans underwritten by an entity other than
Oakwood, the Company expects that the originator will have underwritten and
originated such Mortgage Loans in compliance with underwriting standards which
are intended to evaluate the Obligor's credit standing and repayment ability
and the value and adequacy of the related Mortgaged Properties as collateral in
accordance with standard procedures complying with the applicable federal and
state laws and regulations. FHA Mortgage Loans and VA Mortgage Loans will
comply with the underwriting policies of FHA and VA, respectively. Conventional
Mortgage Loans will comply with the underwriting policies of the originator,
which will be described in the related Prospectus Supplement. Each Mortgage
Loan included in the Trust for a Series will have been originated by a savings
and loan association, savings bank, commercial bank, credit union, insurance
company, or similar institution which is supervised and examined by a federal
or state authority, or by a mortgagee approved by HUD.
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The adequacy of a Mortgaged Property as security for a Mortgage Loan will
be determined by a land-only appraisal performed by an appraiser who, at the
time the appraisal was made, was duly licensed and the retail sales value of
the home. The appraiser must personally inspect the property and will prepare a
report which customarily includes a market data analysis based on recent sales
of comparable properties.
The Company will obtain representations and warranties from the Seller
that each related Mortgage Loan was originated in accordance with the
underwriting guidelines described above and in the applicable Prospectus
Supplement. Any Mortgage Loan that does not comply with such standards after
inclusion in an Asset Pool must be repurchased or substituted for by its
Seller, unless such Mortgage Loan is otherwise demonstrated to be includible in
the Asset Pool, to the satisfaction of the Company. See "Description of the
Certificates -- Representations and Warranties" herein.
SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS
ASSIGNMENT OF CONTRACTS AND MORTGAGE LOANS
Pursuant to the applicable Pooling and Servicing Agreement, the Company
will cause the Contracts and Mortgage Loans and all other assets comprising the
related Trust Estate to be sold, assigned and transferred to the related
Trustee, together with all principal and interest payments due on such
Contracts and Mortgage Loans after the date specified in the related Prospectus
Supplement (the "Cut-off Date") and all prepayments of principal collected on
or after such Cut-off Date. In exchange for the Contracts and Mortgage Loans
assigned to the Trustee, the Trustee will deliver Certificates of the related
Series in authorized denominations, registered in such names as the Company may
request, representing the beneficial ownership interest in the related Trust
Estate, to the Company or its designee. Each Contract and Mortgage Loan
included in a Trust Estate will be identified in a schedule appearing as an
exhibit to the related Pooling and Servicing Agreement. Such schedule will
contain information as to the Cut-off Date Principal Balance of each Contract
or Mortgage Loan and the Asset Rate, original principal balance and certain
other information concerning each such Contract and Mortgage Loan. Such
schedule is referred to herein as the "Contract Schedule" to the extent it
identifies Contracts, the "Mortgage Loan Schedule" to the extent it identifies
Mortgage Loans, and is referred to in its entirety as the "Asset Schedule."
CONVEYANCE OF CONTRACTS. Prior to the conveyance of the Contracts to the
Trustee, the Servicer's operations department will complete a review of all of
the Contract Files, including the certificates of title to, or other evidence
of a perfected security interest in, the related Manufactured Homes, confirming
the accuracy of the related Contract Schedule delivered to the Trustee. With
respect to any Land Secured Contract, the Servicer will also review the
Mortgage and any necessary assignments thereof evidencing the Seller's interest
in the related Real Property. Any Contract discovered not to agree with such
Contract Schedule, or any Contract for which any required Contract Document is
discovered to be missing or defective, in either case in a manner that is
materially adverse to the interests of the Certificateholders, will be required
to be repurchased by the Seller at the related Repurchase Price or replaced
with another Contract as described herein if such discrepancy, incompleteness
or defect is not cured within 90 days after notice of such discrepancy,
incompleteness or defect is delivered to the Seller, except that in the case of
a discrepancy between the terms of a Contract and the Contract Schedule
relating to the Unpaid Principal Balance of a Contract, the Seller may deposit
cash in the Certificate Account in an amount sufficient to offset such
discrepancy.
The Servicer will hold the original Contracts and copies of all material
documents and instruments relating to each Contract and evidencing the security
interest created by each Contract in the related Manufactured Home or real
estate as custodian on behalf of the Certificateholders in accordance with the
related Pooling and Servicing Agreement. In order to give notice of the
Trustee's right, title and interest in and to the Contracts, UCC-1 financing
statements identifying the Trustee or a co-trustee as the secured party or
purchaser and identifying all the Contracts as collateral will be filed in the
appropriate offices in the appropriate state. If a subsequent purchaser were
able to take physical possession of the Contracts without notice of the
assignment of the Contracts to the Trustee, the Trustee's interest in the
Contracts could be defeated. To provide some protection against this
possibility, in addition to filing UCC-1 financing statements, within one week
after the initial delivery of the Certificates, the Contracts will be stamped
or otherwise marked by the Servicer to reflect their assignment to the Trustee.
See "Certain Legal Aspects of Contracts and Mortgage Loans -- The Contracts"
herein.
CONVEYANCE OF MORTGAGE LOANS. On or prior to the date of conveyance of the
Mortgage Loans to the Trustee, the Company will, as to each Mortgage Loan,
deliver or cause to be delivered to the Trustee or a custodian acting on behalf
of the Trustee (a "Custodian") the related mortgage note (a "Mortgage Note")
endorsed in blank or to the order of the Trustee, an original or a certified
copy of the related Mortgage, with evidence of recordation of the Mortgage
noted thereon or attached thereto, an assignment of the related Mortgage in
recordable form naming the Trustee as assignee (together with originals or
certified copies of all recorded assignments necessary to show an unbroken
chain of assignment of the related Mortgage
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from the original mortgagee thereunder to the Trustee), and certain other
original documents evidencing or relating to the Mortgage Loan. Within one year
after the Closing Date for a Series, the Company will cause assignments of each
related Mortgage to be recorded in the appropriate public recording offices for
real property records wherever necessary to protect the Trustee's interest in
the related Mortgage Loans. In lieu of recording assignments of Mortgages in a
particular jurisdiction, the Company may deliver or cause to be delivered to
the Trustee an opinion of local counsel to the effect that such recording is
not necessary to protect the right, title and interest of the Trustee in the
related Mortgage Loans. In addition, the Seller of a Mortgage Loan is required
to submit to the Trustee with each Trustee Mortgage Loan File a mortgagee title
insurance policy, title insurance binder, preliminary title report, or
satisfactory evidence of title insurance for the jurisdiction in which the
related Mortgaged Property is located. If a preliminary title report is
delivered initially, the Seller is required to deliver a final title insurance
policy or other satisfactory evidence of the existence of adequate title
insurance. The Trustee or a Custodian will hold the Trustee Mortgage Loan Files
for the related Mortgage Loans, except to the extent that any of the documents
contained in such files are released to the Servicer or a Sub-servicer for
servicing purposes in accordance with the terms of the related Agreement.
The Trustee or the Custodian (the latter if so specified in the related
Prospectus Supplement) will review any Trustee Mortgage Loan Files relating to
a Series. Unless otherwise provided in the Prospectus Supplement, if any
Mortgage Loan Document required to be included in a Trustee Mortgage Loan File
is missing or is found to be defective in any material respect, and the Seller
does not cure such defect within 90 days after its receipt of notice of such
missing document or document defect, the Seller will be required to repurchase
the Mortgage Loan at the related Repurchase Price or replace such Mortgage Loan
with a substitute Mortgage Loan as described under "The Trusts -- Substitution
of Contracts or Mortgage Loans" herein. Unless otherwise described in the
related Prospectus Supplement, this repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholder or the Trustee
for a missing or defective Mortgage Loan Document.
REPRESENTATIONS AND WARRANTIES
The Company will make certain representations and warranties for each
Series in the related Agreement with respect to the related Contracts and
Mortgage Loans, including representations that it either is the owner of such
Contracts and Mortgage Loans or has a perfected first priority security
interest in the Contracts and Mortgage Loans. In addition, the Seller will make
representations and warranties with respect to the Contracts and Mortgage Loans
in the sales agreement pursuant to which the Contracts and Mortgage Loans were
transferred to the Company, including representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Company and the Trustee in respect of each Contract and Mortgage Loan.
In addition, the Seller will have represented, among other things, that
(1) immediately prior to the transfer and assignment of the Contracts and
Mortgage Loans to the Company, the Seller had good title to, and was the sole
owner of, each Contract and Mortgage Loan and there had been no other sale or
assignment thereof from the Seller; (2) as of the date of such transfer, the
Contracts and Mortgage Loans are subject to no offsets, defenses or
counterclaims; (3) each Contract and Mortgage Loan at the time it was made
complied in all material respects with applicable state and federal laws,
including usury, equal credit opportunity and disclosure laws; (4) as of the
date of such transfer, each Contract creates a valid first lien on the related
Manufactured Home and such Manufactured Home is free of material damage and is
in good repair; (5) as of the date of such transfer, no Contract or Mortgage
Loan is more than the number of days delinquent in payment set forth in the
Prospectus Supplement and there are no delinquent tax or assessment liens
against the related Manufactured Home or Mortgaged Property; (6) the
Manufactured Home or Mortgaged Property securing each Contract or Mortgage Loan
is covered by a Standard Hazard Insurance Policy providing coverage in the
amount required by the related Agreement and that all premiums now due on such
insurance have been paid in full; (7) a lender's policy of title insurance was
issued on the date of the origination of each Mortgage Loan and each such
policy is valid and remains in full force and effect; (8) as of the date of
such transfer, each Mortgage subject to the Agreement evidences a valid first
lien on the related Mortgaged Property (subject only to (a) the lien of current
real property taxes and assessments, (b) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of
the date of the recording of such Mortgage, such exceptions appearing of record
and either being acceptable to mortgage lending institutions generally or
specifically reflected in the appraisal made in connection with the origination
of the related Mortgage Loan and (c) other matters to which like properties are
commonly subject which do not materially interfere with the benefits of the
security intended to be provided by the Mortgage) and such property is free of
material damage and is in good repair; (9) with respect to each Contract and
Mortgage Loan, if the related Manufactured Home or Mortgaged Property is
located in an area identified by the Federal Emergency Management Agency as
having special flood hazards and subject in certain circumstances to the
availability of
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flood insurance under the National Flood Insurance Act of 1968, as amended,
such Manufactured Home or Mortgaged Property is covered by flood insurance, if
applicable regulations at the time such Contract or Mortgage Loan was
originated required that such flood insurance coverage be obtained; (10) for
any Trust for which a REMIC election is to be made, each related Asset is a
Qualified Mortgage; and (11) any FHA Contract, FHA Mortgage Loan, VA Contract
or VA Mortgage Loan has been serviced in compliance with applicable FHA or VA
regulations, and the FHA insurance or VA guarantee with respect to any such
Asset is in full force and effect.
The Company's right to enforce a Seller's representations and warranties
with respect to an Asset Pool will be assigned to the Trustee under the related
Agreement. To the extent that a Seller makes representations and warranties
regarding the characteristics of certain Contracts and Mortgage Loans, the
Company generally will not make such representations and warranties as to such
Contracts and Mortgage Loans. In the event that the representations and
warranties of the Seller are breached, and such breach or breaches materially
and adversely affect the interests of the Certificateholders in the related
Contracts and Mortgage Loans, the Seller will be required to cure such breach
or, if such cure is not effected within 90 days after the Seller is notified in
writing of such breach, to repurchase the affected Contracts or Mortgage Loans,
in general at a price equal to the Unpaid Principal Balance of such Contracts
or Mortgage Loans, together with unpaid interest thereon at the applicable
Asset Rates through the end of the month in which such repurchase is made, or
to substitute Contracts or Mortgage Loans in accordance with the criteria set
forth herein under "The Trusts -- Substitution of Contracts or Mortgage Loans."
The Servicer will be required under each Agreement to enforce the Seller's
obligations to cure breaches or to repurchase or substitute for Assets for the
benefit of the Trustee and the Certificateholders and to indemnify the Company
and its assignees (including the Trust) against losses or damages caused by
such breaches. The Seller's obligations to repurchase or substitute for Assets
affected by its breaches and to indemnify the Company and its assignees against
losses and damages caused by such breaches will constitute the sole remedies
available to Certificateholders or the Trustee for a breach of representation
by a Seller.
Neither the Company nor the Servicer will be obligated to repurchase or
substitute for a Contract or Mortgage Loan if a Seller defaults on its
obligation to repurchase or substitute for such Asset (except to the extent
that Oakwood is both Servicer and Seller), and no assurance can be given that a
Seller will carry out its repurchase or substitution obligations with respect
to Contracts and Mortgage Loans.
SERVICING
GENERAL. The Servicer will service and administer each Asset Pool assigned
to the Trustee either exclusively or through other servicing institutions
("Sub-servicers"), as more fully set forth below.
The Servicer and any Sub-servicer (the latter subject to general
supervision by the Servicer) for any Asset Pool will perform diligently all
services and duties specified in the related Agreement, consistently with the
servicing standards and practices of prudent lending institutions with respect
to manufactured housing installment sales contracts of the same type as the
Contracts and mortgage loans of the same type as the Mortgage Loans in those
jurisdictions where the related Manufactured Homes and Mortgaged Properties are
located or as otherwise specified in the Agreement. The Servicer will monitor
the performance of each Sub-servicer, if any, and will have the right to remove
a Sub-servicer at any time if it considers such removal to be in the best
interest of the related Certificateholders. The duties to be performed by the
Servicer, directly or through a Sub-servicer, with respect to a Series will
include (1) collection and remittance of principal and interest payments on the
related Assets; (2) administration of any related mortgage escrow accounts; (3)
collection of related insurance claims; (4) if necessary, repossession of
related Manufactured Homes and/or foreclosure on related Mortgaged Properties;
and (5) if necessary, the obligation to advance funds to the extent certain
payments are not made by the Obligors and are considered recoverable from late
Obligor payments, from proceeds of any applicable insurance policies or from
Liquidation Proceeds of the related Contract or Mortgage Loan. The Servicer
shall also provide information on a periodic basis to the Company and the
Trustee concerning the Contracts and Mortgage Loans, and shall file required
reports with the Commission concerning the Trusts as required by the
Agreements. If a Sub-servicer shall be terminated by the Servicer, the
servicing function of the Sub-servicer either shall be transferred to a
substitute Sub-servicer or performed by the Servicer.
The Servicer shall keep in force throughout the term of each Agreement (1)
a policy or policies of insurance covering errors and omissions with respect to
its duties under such Agreement, and (2) a fidelity bond. Such policy or
policies and such fidelity bond shall be in such form and amount as is
generally customary among entities which service a portfolio of manufactured
housing installment sales contracts having an aggregate principal amount of
$100 million or more and which are generally regarded as servicers acceptable
to institutional investors.
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The Servicer, to the extent practicable, shall cause the Obligors to pay
all taxes and similar governmental charges when and as due. To the extent that
nonpayment of any taxes or charges would result in the creation of a lien upon
any Manufactured Home or Mortgaged Property having a priority equal or senior
to the lien of the related Contract or Mortgage Loan, the Servicer shall
advance any such delinquent tax or charge to the extent it determines that it
will be able to recover such advance from the related Obligor or from
Liquidation Proceeds of the related Contract or Mortgage Loan.
COLLECTION PROCEDURES. The Servicer, directly or through Sub-servicers,
will make reasonable efforts to collect all payments called for under the
Contracts or Mortgage Loans and, consistently with the Agreement and any Pool
Insurance Policy, any Primary Mortgage Insurance Policy, FHA insurance, VA
guaranty and Obligor Bankruptcy Insurance, will follow such collection
procedures as it follows with respect to contracts or mortgage loans serviced
by it that are comparable to the Contracts or Mortgage Loans.
Under the Agreement, the Servicer will repossess, foreclose upon or
otherwise convert the ownership of properties that secure a defaulted Contract
or Mortgage Loan if no satisfactory arrangements can be made for collection of
delinquent payments. In connection with such repossession, foreclosure or other
conversion, the Servicer will follow such practices and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
Contract and Mortgage Loan servicing activities. The Servicer, however, will
not be required to expend its own funds in connection with any repossession or
the restoration of any property unless it determines (1) that such restoration
or repossession will increase the proceeds of liquidation of the related
Contract or Mortgage Loan to the Certificateholders after reimbursement to
itself for such expenses and (2) that such expenses will be recoverable to it
either through Liquidation Proceeds or through Insurance Proceeds.
A Contract or the Mortgage Note or Mortgage used in originating a
conventional Mortgage Loan may contain a "due-on-sale" clause. See " -- The
Contracts -- Transfers of Manufactured Homes; Enforceability of Due-on-Sale'
Clauses" and " -- The Mortgage Loans -- Due-On-Sale' Clauses," in each case
under the heading "Certain Legal Aspects of Contracts and Mortgage Loans"
herein. The Servicer may enforce "due-on-sale" clauses with respect to any
Contract, Mortgage Note or Mortgage containing such a clause, provided that
such enforcement has no adverse effect on the coverage of any applicable
Insurance Policy. In any case in which a Manufactured Home or Mortgaged
Property has been or is about to be conveyed by the Obligor on the related
Contract or Mortgage Loan and the due-on-sale clause has not been enforced (or
the related Contract or Mortgage Note is by its terms assumable), the Servicer
will be authorized, on behalf of the Trustee, to enter into an assumption
agreement with the person to whom such Manufactured Home or Mortgaged Property
has been or is about to be conveyed, if such person meets certain loan
underwriting criteria, including the criteria necessary to maintain the
coverage provided by any applicable Credit Insurance policies. In the event
that the Servicer enters into an assumption agreement in connection with any
such conveyance of a Manufactured Home or Mortgaged Property, the Servicer, on
behalf of the Trustee, may release the original Obligor from liability upon the
Contract or Mortgage Loan and substitute the assuming party as the new obligor
thereon. In no event can the assumption agreement permit a decrease in the
Asset Rate or an increase in the term of the assumed Contract or Mortgage Loan.
Fees collected for entering into an assumption agreement will be retained by
the Servicer as additional servicing compensation.
The Servicer, either directly or through Sub-servicers, to the extent
permitted by law, may establish and maintain an escrow account (the "Escrow
Account") in which mortgagors under Mortgage Loans may be required to deposit
amounts sufficient to pay taxes, assessments, mortgage insurance premiums and
standard hazard insurance premiums and other comparable items and in which
Obligors under Contracts will be required to deposit amounts sufficient to pay
standard hazard insurance premiums and other comparable items. Withdrawals from
the Escrow Account maintained for mortgagors may be made to effect timely
payment of taxes, assessments, mortgage insurance and hazard insurance, to
refund to mortgagors amounts determined to be overages, to pay interest to
mortgagors on balances in the Escrow Account to the extent required by law, to
repair or otherwise protect the related Mortgaged Properties and to clear and
terminate the Escrow Account. The Servicer will be responsible for the
administration of the Escrow Account and will be obligated to make advances to
such account when a deficiency exists therein, so long as it determines that
such advances will be recoverable from the related Obligors or from Liquidation
Proceeds collected with respect to the related Assets. The Servicer may decline
to establish Escrow Accounts with respect to any Contracts or Mortgage Loans in
its discretion.
COLLECTION OF PAYMENTS ON CONTRACTS AND MORTGAGE LOANS. The Servicer will
establish and maintain a Certificate Account for the benefit of the Trustee.
The Certificate Account must be an "Eligible Account;" I.E., it must be
maintained (1) at a depository institution organized under the laws of the
United States or any state, the deposits of which are insured to the full
extent permitted by law by the Federal Deposit Insurance Corporation (the
"FDIC"), whose commercial paper or long-term unsecured debt has a rating, as
specified in the related Agreement, sufficient to support the ratings requested
on the Certificates of the related Series, and which institution is subject to
examination by federal or state authorities; (2) in the
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corporate trust department of the Trustee; or (3) at an institution otherwise
acceptable to each applicable Rating Agency. The Certificate Account is to be
held in trust for the benefit of the Trustee on behalf of the
Certificateholders and shall be designated as specified in the related
Agreement. Funds in the Certificate Account will be invested in Eligible
Investments (as defined in the Agreement) that will mature or be subject to
redemption not later than the business day preceding the applicable monthly
Remittance Date. Earnings on amounts deposited into a Certificate Account shall
be credited to the account of the Servicer as servicing compensation in
addition to its monthly Servicing Fee. The Servicer may use such earnings to
offset P&I Advances due from the Servicer in respect of the Remittance Date
next succeeding the date on which such earnings were made or, at the Servicer's
option, such earnings may be released to the Servicer on such Remittance Date.
The amount of any losses incurred in respect of any such investments shall be
deposited into the Certificate Account by the Servicer out of its own funds
promptly after such losses are incurred.
All payments in respect of principal and interest on the Contracts and
Mortgage Loans in the Asset Pool for a Series that are received by the Servicer
on or after the applicable Cut-off Date (exclusive of collections relating to
scheduled payments due on or prior to the Cut-off Date) will be deposited into
the Certificate Account no later than the second business day following the
Servicer's receipt thereof. Such payments shall include the following:
(1) all Obligor payments in respect of principal, including principal
prepayments, on the Contracts and Mortgage Loans;
(2) all Obligor payments in respect of interest on the Contracts and
Mortgage Loans, together with moneys transferred from any Buy-Down Fund or
GPM Fund;
(3) all Net Liquidation Proceeds received and retained in connection with
the liquidation or disposition of defaulted Contracts, Mortgage Loans or
property acquired in respect thereof through repossession, foreclosure or
otherwise;
(4) all proceeds received under any title, hazard or other insurance
policy covering any Contract or Mortgage Loan, other than proceeds received
as part of Liquidation Proceeds or such proceeds that are to be applied to
the restoration or repair of the related Manufactured Home or Mortgaged
Property or released to the Obligor;
(5) any condemnation awards or settlements which are not released to
Obligors in accordance with normal servicing procedures;
(6) all amounts received from credit enhancement provided with respect to
a Series of Certificates;
(7) all proceeds of any Contract or Mortgage Loan (or property acquired
in respect thereof) that is repurchased by the related Seller or by a
terminating party as described above or under "The Pooling and Servicing
Agreements -- Termination" below; and
(8) all amounts, if any, required to be transferred to the Certificate
Account from a Reserve Fund pursuant to the Agreement.
In those cases where a Sub-servicer is servicing a Contract or Mortgage
Loan, the Sub-servicer will establish and maintain an Eligible Account (a
"Sub-servicing Account") that will comply with the standards set forth above
for the Certificate Account and which is otherwise acceptable to the Servicer.
The Sub-servicer is required to deposit into the Sub-servicing Account on a
daily basis all amounts enumerated in the preceding paragraph in respect of the
Contracts or Mortgage Loans as received by the Sub-servicer, less its servicing
compensation. On the date specified in the related Prospectus Supplement, the
Sub-servicer shall remit to the Servicer all funds held in the Sub-servicing
Account with respect to each related Contract or Mortgage Loan. The
Sub-servicer, to the extent described in the related Prospectus Supplement, may
be required to advance any monthly installment of principal and interest that
was not received, less its servicing fee, by the date specified in the related
Prospectus Supplement.
With respect to each Buy-Down Loan, the Servicer will deposit into a
custodial Eligible Account (which may be interest-bearing) complying with the
requirements set forth above for the Certificate Account (the "Buy-Down Fund")
an amount which, together with investment earnings thereon, will provide funds
sufficient to support the payments on such Buy-Down Loan on a level debt
service basis. The Servicer will not be obligated to supplement any Buy-Down
Fund should investment earnings prove insufficient to maintain the scheduled
level of payments on the Buy-Down Loans (in which event distributions to the
Certificateholders may be affected).
With respect to each GPM Loan, the Servicer will, if and to the extent
provided in the related Prospectus Supplement, deposit in a custodial Eligible
Account (which may be interest-bearing) complying with the requirements set
forth above for the Certificate Account (the "GPM Fund") an amount which,
together with investment earnings thereon, will provide funds
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sufficient to support the payments thereon on a level debt service basis. The
Servicer will not be obligated to supplement any GPM Fund should investment
earnings thereon prove insufficient to maintain the scheduled level of payments
(in which event distributions to the Certificateholders may be affected).
DISTRIBUTIONS ON CERTIFICATES. On each Remittance Date, the Servicer will
withdraw from the applicable Certificate Account and remit to the Trustee for
deposit into the Distribution Account (1) all scheduled payments of principal
and interest due on the related Contracts and Mortgage Loans during the related
Collection Period and collected by the Servicer from the related Obligors or
otherwise and (2) all unscheduled collections in respect of principal and
interest on the Contracts and Mortgage Loans received during the related
Prepayment Period, in each case to the extent such collections comprise part of
the Available Distribution Amount (as specified in the related Prospectus
Supplement) for the upcoming Distribution Date (collectively, the "Remittance
Amount"). In addition, on each Remittance Date, the Servicer shall remit to the
Trustee, for deposit into the Distribution Account, the amount of its required
P&I Advance and of any Compensating Interest required to be paid by the
Servicer for the upcoming Distribution Date. See " -- Advances" and " --
Compensating Interest" below. The Remittance Date for any Distribution Date
shall be the business day preceding such Distribution Date.
The Available Distribution Amount for any Series will be allocated among
the related Classes of Certificates in the proportion and order of application
set forth in the related Agreement and described in the related Prospectus
Supplement. Prior to each Distribution Date for a Series, the Servicer will
furnish to the Trustee a report setting forth certain information concerning
the underlying Asset Pool and amounts to be distributed on each related Class
of Certificates.
ADVANCES
The Servicer will be required to advance funds to cover (1) delinquent
payments of principal and interest on related Contracts and Mortgage Loans
("P&I Advances") and (2) delinquent payments of taxes, insurance premiums and
escrowed items in respect of related Contracts and Mortgage Loans and
liquidation-related expenses ("Servicing Advances," and, together with P&I
Advances, "Advances"). The Servicer shall not be required to make an Advance to
the extent it determines, in its reasonable judgment, that such Advance, if
made, would not be recoverable from late collections from the related Obligor
or from Liquidation Proceeds or other collections in respect of the related
Contract or Mortgage Loan (such an advance being referred to as a
"Non-Recoverable Advance"). The Servicer may offset the otherwise applicable
P&I Advance for any Remittance Date by the amount of Early Payments made with
respect to the related Due Date. The failure of the Servicer to make any
required Advances under an Agreement constitutes a default under such Agreement
for which the Servicer may be terminated. Upon a default by the Servicer, the
Trustee (as substitute Servicer) may, if so provided in the related Agreement,
be required to make Advances, provided that, in its reasonable discretion, it
deems such Advances not to be Non-Recoverable Advances. With respect to certain
Assets, the Company may obtain an endorsement to an applicable Pool Insurance
Policy which obligates the Pool Insurer to advance delinquent payments of
principal and interest. The Pool Insurer would only be obligated under such
endorsement to the extent the Obligor fails to make such payment and the
Servicer fails to make a required Advance. The Servicer may agree to reimburse
the Pool Insurer for any sums the Pool Insurer pays under such endorsement.
The advance obligation of a Trustee or Pool Insurer may be limited to an
amount specified by the Rating Agency or Agencies rating the Certificates. Any
P&I Advances by the Servicer, the Trustee or a Pool Insurer, as the case may
be, must be deposited into the applicable Certificate Account or into the
Distribution Account and will be due not later than the Distribution Date to
which such delinquent payment relates. Any Advance made by the Servicer or the
Trustee or a Pool Insurer, as the case may be, will be reimbursable out of
future collections in respect of the particular Contract or Mortgage Loan in
respect of which the Advance was made (including collections of or from
Insurance Proceeds, Additional Assets or Liquidation Proceeds relating to such
Contract or Mortgage Loan) ("Related Proceeds"). If an Advance made by the
Servicer or a Trustee or a Pool Insurer later proves to be unrecoverable from
Related Proceeds, the Servicer or the Trustee or Pool Insurer, as the case may
be, will be entitled to reimbursement from funds in the Certificate Account or
Distribution Account prior to the disbursement of distributions to the
Certificateholders.
Any P&I Advances with respect to Contracts or Mortgage Loans included in
the Trust for any Series are intended to enable the Trustee to make timely
payment of the scheduled distributions of principal and interest on the
Certificates of such Series. However, neither the Servicer nor the Trustee nor
any Pool Insurer will insure or guarantee the Certificates of any Series or the
Contracts or Mortgage Loans included in the Trust for any Series.
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COMPENSATING INTEREST
If a Contract or Mortgage Loan is prepaid in full or liquidated other than
on a Due Date, the Obligor generally is only required to pay interest to the
date of prepayment or liquidation. In such event, if provided in the Prospectus
Supplement, for so long as Oakwood is the Servicer of the related Asset, the
Servicer may be obligated to pay interest from the last day for which interest
is due from the Obligor to the next Due Date, so long as such amount does not
exceed the Servicer's servicing compensation for such month ("Compensating
Interest").
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
STANDARD HAZARD INSURANCE. The Servicer will cause to be maintained for
each Asset underlying a Series, or use its best reasonable efforts to cause
each Sub-servicer to cause to be maintained for each such Asset, a Standard
Hazard Insurance Policy providing coverage in an amount at least equal to the
lesser of (a) 100% of the replacement value of the related Manufactured Home or
Mortgaged Property or (b) the outstanding principal balance of such Contract or
Mortgage Loan. The Servicer also shall maintain on any Manufactured Home
acquired by repossession or on any Real Property or Mortgaged Property acquired
through foreclosure or deed in lieu of foreclosure of any Mortgage Loan, an
open-lot coverage policy insuring against physical loss or damage in an amount
that is at least equal to the Unpaid Principal Balance of the defaulted
Contract or Mortgage Loan. To the extent permitted by applicable law and if so
specified in the related Prospectus Supplement, the Servicer may require
Obligors on Contracts or Mortgage Loans secured by Manufactured Homes, Real
Properties or Mortgaged Properties located in California to maintain earthquake
insurance on their Manufactured Homes, Real Properties or Mortgaged Properties.
Otherwise, no earthquake or other additional insurance is to be required of any
Obligor or maintained on property acquired in respect of a Contract or Mortgage
Loan, other than as required by applicable laws and regulations. If, at the
time of origination of a Contract or Mortgage Loan, the related Manufactured
Home or Mortgaged Property is located in a federally designated special flood
hazard area, the Servicer will cause to be maintained, or to use its best
reasonable efforts to cause the related Sub-servicer to cause to be maintained,
flood insurance, limited, under certain circumstances, to availability under
the National Flood Insurance Act of 1968, as amended. In the event that an
Asset is covered by a blanket policy providing coverage against losses incurred
on Assets as a result of the absence or insufficiency of individual Standard
Hazard Insurance Policies, the Servicer will be deemed conclusively to have
satisfied its obligations to cause to be maintained a Standard Hazard Insurance
Policy for such Asset. This blanket policy may contain a deductible clause, in
which case the Servicer will, in the event that there has been a loss that
would have been covered by such policy absent such deductible clause, deposit
in the Certificate Account the amount not otherwise payable under the blanket
policy because of the application of such deductible clause.
Any amounts collected by the Servicer under any such policies (other than
amounts to be applied to the restoration or repair of the related Manufactured
Home or Mortgaged Property or released to the Obligor in accordance with normal
servicing procedures) shall be deposited into the Certificate Account.
OTHER INSURANCE. The Servicer will not maintain a Primary Mortgage
Insurance Policy for any Mortgage Loan. To the extent specified in the related
Prospectus Supplement, the Servicer will maintain a Primary Mortgage Insurance
Policy on any Conventional Mortgage Loan with an initial Mortgage Loan-to-Value
Ratio in excess of 80% unless the conditions for waiver of such insurance by
the Servicer are met. See "The Trusts -- Insurance -- Credit Insurance --
Primary Mortgage Insurance" herein.
The Servicer will be required to maintain any Special Hazard Insurance
Policy, any Obligor Bankruptcy Insurance and any Pool Insurance Policy for any
Series in full force and effect throughout the term of the related Trust,
subject to payment of the applicable premiums by the Trustee. The Servicer will
be required to notify the Trustee to pay from amounts in the Trust Estate the
premiums for any such Special Hazard Insurance Policy, any such Obligor
Bankruptcy Insurance and any such Pool Insurance Policy for such Series on a
timely basis. Any such premiums may be payable on a monthly basis in advance,
or pursuant to any other payment schedule acceptable to the applicable insurer.
In the event that the Special Hazard Insurance Policy, Obligor Bankruptcy
Insurance or Pool Insurance Policy for a Series is canceled or terminated for
any reason (other than the exhaustion of total policy coverage), the Servicer
will be obligated to obtain from another insurer a comparable replacement
policy with a total coverage which is equal to the remaining coverage (or a
lesser amount if the Servicer confirms in writing with each Rating Agency
rating any Certificates of such Series that such lesser amount will not impair
the rating on such Certificates) provided by the canceled or terminated Special
Hazard Insurance Policy, Obligor Bankruptcy Insurance or Pool Insurance Policy.
However, if the cost of any such replacement policy or bond is greater than the
cost of the policy or bond which has been terminated, then the amount of the
coverage will be reduced to a level such that the applicable premium will not
exceed the cost of the premium for the policy or bond that was terminated.
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PRESENTATION OF CLAIMS. The Servicer, on behalf of itself, the Trustee and
the Certificateholders, will present claims to the issuer of each insurance
policy described herein (including the FHA and the VA), and will take such
reasonable steps as are necessary to permit recovery under such insurance
policies respecting defaulted Contracts or Mortgage Loans that are the subject
of bankruptcy proceedings. As set forth above, all collections by the Servicer
under any insurance policy are to be deposited into the Certificate Account for
the related Series and are subject to withdrawal as described above. With
respect to a Mortgage Loan or Contract that is serviced by a Sub-servicer, the
Sub-servicer, on behalf of itself, the Trustee and the Certificateholders will
present claims to the applicable insurer, and all collections shall be
deposited into the applicable Sub-servicing Account for deposit into the
Certificate Account.
If any property securing a defaulted Contract or Mortgage Loan is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, any FHA insurance or
any VA guarantee, as the case may be, the Servicer is not required to expend
its own funds to restore the damaged property unless it determines (1) that
such restoration will increase the proceeds to the Certificateholders upon
liquidation of the Contract or Mortgage Loan after reimbursement of the
expenses incurred by the Servicer and (2) that such expenses will be
recoverable by it through proceeds of the sale of the property or proceeds of
the related Pool Insurance Policy or any related Primary Mortgage Insurance
Policy, any FHA insurance, or any VA guarantee, as the case may be.
If, in respect of any defaulted Contract or Mortgage Loan, recovery under
any related Pool Insurance Policy or any related Primary Mortgage Insurance
Policy, any FHA insurance, or any VA guarantee, as the case may be, is not
available, the Servicer nevertheless is obligated to follow such normal
practices and procedures as it deems necessary or advisable to liquidate the
collateral for the defaulted Contract or Mortgage Loan. If the proceeds of any
liquidation of the related Manufactured Home or Mortgaged Property are less
than the principal balance of the defaulted Contract or Mortgage Loan plus
interest accrued thereon at the applicable Asset Rate, the related Trust will
realize a loss in the amount of such difference plus the aggregate of expenses
incurred by the Servicer in connection with such proceedings.
ALTERNATE CREDIT ENHANCEMENT. To the extent provided in a Prospectus
Supplement, the Company, the Servicer or another party, from time to time, may
be required to obtain or cause to be obtained an insurance policy, guarantee,
letter of credit or surety bond (or make deposits in lieu thereof) to enhance
the credit rating of the related Series of Certificates.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES. As compensation for its
servicing duties in respect of any Series, the Servicer will be entitled to the
Servicing Fee specified in a particular Prospectus Supplement. In addition, the
Servicer may be entitled to servicing compensation in the form of assumption
fees, late payment charges or otherwise, which fees or charges shall be
retained by the Servicer to the extent not required to be deposited into the
related Certificate Account.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with the servicing of the Contracts and Mortgage Loans
included in a Trust Estate, including, without limitation, payment of the fees
and expenses of the Trustee, payment of related insurance policy premiums
(other than premiums for Standard Hazard Insurance Policies or Primary Mortgage
Insurance Policies) and payment of expenses incurred in enforcing the
obligations of any Sub-servicers. Certain of these expenses may be reimbursable
from Liquidation Proceeds and proceeds of Pool Insurance and from specific
recoveries of costs.
The Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Contracts or
Mortgage Loans. The related Trust will suffer no loss by reason of such
expenses to the extent claims are paid under the related Pool Insurance
Policies, if any. If no Pool Insurance Policy is in effect for the Series, or
if claims are either not made or paid under the related Pool Insurance Policies
or coverage thereunder has been terminated or canceled, the related Trust will
suffer a loss to the extent that the Liquidation Proceeds of a defaulted Asset,
after reimbursement of the Servicer's related expenses, are less than the
principal balance of the Asset plus accrued interest thereon at the related
Asset Rate. In addition, the Servicer will be entitled to reimbursement of
expenditures incurred by it in connection with the restoration of any
Manufactured Home or Mortgaged Property, such right of reimbursement being
prior to the rights of the related Certificateholders to receive any related
Pool Insurance proceeds or Liquidation Proceeds.
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EVIDENCE AS TO COMPLIANCE. With respect to each Series of Certificates,
the Servicer will deliver each year to the Trustee an officer's certificate
stating that (i) a review of the activities of the Servicer and any
Sub-servicers during the preceding calendar year and of the Servicer's
performance under the related Agreement has been made under the supervision of
such officer, and (ii) to the best of such officer's knowledge, the Servicer
has fulfilled all its obligations under the Agreement throughout such year,
and, to the best of such officer's knowledge, based on such review, each
Sub-servicer has fulfilled its obligations throughout such year, or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default known to such officer and the nature and status thereof. Such
officer's certificate shall be accompanied by a statement by a firm of
independent public accountants to the effect that (1) such firm has audited the
financial statements of the Servicer for the Servicer's most recently ended
fiscal year and issued its report thereon; (2) such audit included tests of the
records and documents relating to manufactured housing installment sale
contracts and mortgage loans serviced by the Servicer for others in accordance
with the requirements of the Uniform Single Attestation Program for Mortgage
Bankers, or any successor program promulgated by the accounting profession
("USAP"); and (3) such other statements as are contemplated under USAP,
including, if called for under USAP, a statement as to whether the Servicer's
management's written assertion to such firm (which shall be attached to the
statement of such firm) that its servicing during the applicable fiscal year
complied with USAP's minimum servicing standards in all material respects is
fairly stated in all material respects. The audit tests referred to in clause
(2) of the preceding sentence in respect of any Series shall be applied to
manufactured housing installment sale contracts and mortgage loans serviced
under the related Pooling and Servicing Agreement and/or, in the sole
discretion of such firm, manufactured housing installment sale contracts and
mortgage loans serviced under pooling and servicing agreements, trust
agreements or indentures substantially similar to such Pooling and Servicing
Agreement (hereinafter referred to as "Pooling Agreements"). For purposes of
such statement, such firm may assume conclusively that all Pooling Agreements
under which the Servicer is the servicer of manufactured housing installment
sale contracts and mortgage loans for a trustee relating to certificates
evidencing an interest in manufactured housing installment sale contracts and
mortgage loans are substantially similar to one another except for any such
Pooling Agreement which by its terms specifically states otherwise.
THE POOLING AND SERVICING AGREEMENTS
The following summaries describe certain provisions of each Pooling and
Servicing Agreement, including the Standard Terms to Pooling and Servicing
Agreement to be incorporated by reference into each Series Agreement. Although
the Company believes that the following is a fair summary of the material terms
of the Pooling and Servicing Agreement, the summaries do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the Pooling and Servicing Agreement for each Series. When
particular provisions or terms used in an Agreement are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
THE SERVICER
The Servicer shall not resign from the obligations and duties imposed on
it under a Pooling and Servicing Agreement, except (1) upon appointment of a
successor servicer and receipt by the Trustee of a letter from each applicable
Rating Agency that the Servicer's resignation and the appointment of the
successor will not, in and of itself, result in a downgrading of any rated
Certificates of the affected Series or (2) upon determination by the Servicer's
Board of Directors that the performance of its duties under the Agreement are
no longer permissible under applicable law. No such resignation shall become
effective until the Trustee or a successor servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with the
applicable Agreement.
Neither the Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Trust or the Certificateholders, and
all such Persons shall be held harmless, for any action taken or not taken in
good faith pursuant to each Pooling and Servicing Agreement, or for errors in
judgment; PROVIDED, HOWEVER, that no such Person shall be protected from
liability (1) for actions or omissions resulting from willful misfeasance, bad
faith or gross negligence in the performance of such Person's duties or by
reason of reckless disregard of such Person's obligations and duties under the
Agreement or (2) for breaches of representations or warranties made by such
Person in the Agreement. The Servicer and any of the directors, officers,
employees or agents of the Servicer may rely in good faith on any document of
any kind which, PRIMA FACIE, is properly executed and submitted by any Person
respecting any matters arising under an Agreement. The Servicer shall be under
no obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under an Agreement and such action in its
opinion does not involve it in any expense or liability, except as otherwise
explicitly provided in the Agreement; PROVIDED, HOWEVER, that the Servicer may
in its discretion undertake any such action that it deems
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necessary or desirable with respect to an Agreement if the Certificateholders
offer to the Servicer reasonable security or indemnity against the costs,
expenses and liabilities that may be incurred therein or thereby.
THE TRUSTEE
The Prospectus Supplement for a Series of Certificates will specify the
Trustee for that Series. The Trustee for a Series may resign at any time, in
which event the Company will be obligated to attempt to appoint a successor
Trustee. The Company may remove a Trustee if the Trustee ceases to be eligible
to continue as Trustee under the applicable Agreement or upon the occurrence of
certain bankruptcy- or insolvency-related events with respect to the Trustee.
The Trustee for a Series will also be subject to being removed at any time by
the holders of Certificates of such Series evidencing at least 51% of the
Voting Rights of such of Series, as specified in the related Agreement. If the
Certificateholders remove the Trustee other than for reasonable cause based
upon the Trustee's failure to continue to meet the eligibility requirements set
forth in the related Agreement or the Trustee's failure to perform its duties
as described therein, then the Certificateholders so removing the Trustee shall
bear any and all costs and expenses arising from such removal and substitution.
Any resignation or removal of the Trustee and appointment of a successor
Trustee will not become effective until acceptance by the Company of the
appointment of the successor Trustee.
A Trustee must be a corporation or a national banking association
organized under the laws of the United States or any state and authorized under
the laws of the jurisdiction in which it is organized to have corporate trust
powers. It must also have combined capital and surplus of at least $50,000,000
(or be a Qualified Bank) and be subject to regulation and examination by state
or federal regulatory authorities. Although a Trustee may not be an affiliate
of the Company or the Servicer, either the Company or the Servicer may maintain
normal banking relations with the Trustee if the Trustee is a depository
institution.
REPORTS TO CERTIFICATEHOLDERS
The Trustee for a Series will furnish the related Certificateholders with
monthly statements prepared by the Servicer (each a "Remittance Report")
containing information with respect to principal and interest distributions and
Realized Losses for such Series and the assets of the related Trust. Any
financial information contained in such reports will not have been examined or
reported upon by an independent public accountant. Copies of such monthly
statements and any annual reports prepared by the Servicer evidencing the
status of its compliance with the provisions of an Agreement will be furnished
to related Certificateholders upon request addressed to the Trustee.
A Remittance Report for a Distribution Date in respect of any Series of
Certificates will identify the following items:
(1) the related Available Distribution Amount for such Distribution Date;
(2) the amount of interest distributable on such Distribution Date on
each Class of the Certificates of such Series, and the amount of interest
to be distributed on each such Class based upon the Available Distribution
Amount for such Distribution Date;
(3) the amount to be distributed on such Distribution Date on each Class
of the Certificates of such Series to be applied to reduce the Certificate
Principal Balance of such Class, separately identifying any portion of such
amount attributable to prepayments;
(4) any other amounts to be distributed on the Certificates of such
Series (to the extent not covered by clauses (2) and (3) above);
(5) the aggregate amount of P&I Advances required to be made by the
related Servicer with respect to such Distribution Date in connection with
the related Asset Pool;
(6) the amount of any Realized Losses to be allocated to reduce the
Certificate Principal Balance of any Class of the Certificates of such
Series on such Distribution Date;
(7) the Certificate Principal Balance of each Class of the Certificates
of such Series after giving effect to the distributions and allocations of
any Realized Losses to be made on such Distribution Date;
(8) the amount of Due Date Interest Shortfall, Soldiers' and Sailors'
Shortfall and Realized Interest Loss, in each case if any, incurred during
the related Collection Period on the related Assets;
(9) the aggregate interest remaining unpaid, if any, for each Class of
the Certificates of such Series (exclusive of Shortfall allocated to such
Class), after giving effect to the distribution made on such Distribution
Date;
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(10) the aggregate amount of withdrawals, if any, from any Reserve Fund
or any other form of credit enhancement, and the amount, if any, available
thereunder;
(11) the amount of the Servicing Fee in respect of such Distribution
Date;
(12) the aggregate number and the aggregate of the Unpaid Principal
Balances of outstanding Contracts and outstanding Mortgage Loans, stated
separately, that are (i) delinquent one month (i.e., 30 to 59 days) as of
the end of the related Prepayment Period, (ii) delinquent two months
(i.e., 60 to 89 days) as of the end of the related Prepayment Period, (iii)
delinquent three months (i.e., 90 days or longer) as of the end of the
related Prepayment Period and (iv) as to which repossession, foreclosure or
other comparable proceedings have been commenced as of the end of the
related Prepayment Period; and
(13) in the case of a Trust (or designated assets thereof) for which a
REMIC election has been or will be made, any other information required to
be provided to Certificateholders by the REMIC Provisions.
In the case of information furnished pursuant to clauses (2), (3) and (4)
above, the amounts shall be expressed, with respect to any Certificate, as a
dollar amount per $1,000 denomination; provided, however, that if any Class of
Certificates does not have a Certificate Principal Balance, then the amounts
shall be expressed as a dollar amount per 10% Percentage Interest.
EVENTS OF DEFAULT
Events of Default by the Servicer under any Agreement will include (1) any
failure by the Servicer to remit funds to the Distribution Account as required
by the applicable Agreement, which failure continues unremedied for five days
(or such other period specified in the related Agreement) after the date upon
which such remittance was due; (2) any failure or breach by the Servicer duly
to observe or perform in any material respect any other of its covenants or
agreements that materially and adversely affects the interests of
Certificateholders, which, in either case, continues unremedied for 60 days
after the giving of written notice of such failure or breach to the Servicer by
the related Trustee or by the Holders of Certificates evidencing at least 25%
of the Voting Rights for the applicable Series; and (3) certain events
involving insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer.
So long as an Event of Default remains unremedied, the Trustee may, and,
at the written direction of the Certificateholders of the applicable Series
evidencing greater than 50% of the Voting Rights for such Series, shall,
terminate all of the rights and obligations of the Servicer under the related
Agreement and in and to the related Contracts and Mortgage Loans and the
proceeds thereof, whereupon (subject to applicable law regarding the Trustee's
ability to make advances) the related Trustee or a successor Servicer will
succeed to all the responsibilities, duties and liabilities of the terminated
Servicer under the Agreement and such successor Servicer will be entitled to
similar compensation arrangements to those provided for the terminated
Servicer. In the event that the Trustee would be obligated to succeed the
Servicer but is unwilling or unable to do so, it may appoint, or petition a
court of competent jurisdiction for the appointment of, a successor Servicer
meeting the criteria set forth in the related Agreement. Pending such
appointment, the Trustee is obligated to act as successor Servicer unless
prohibited by law from doing so. The Trustee and such successor Servicer may
agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation paid to the terminated Servicer under the
Agreement.
CERTIFICATEHOLDER RIGHTS
No Certificateholder will have any right under the related Agreement to
institute any proceeding with respect to such Agreement unless such holder
previously has provided the Trustee with written notice of a default thereunder
and unless the holders of Certificates evidencing at least 25% of the Voting
Rights for the applicable Series (a) requested the Trustee in writing to
institute such proceeding in its own name as Trustee and (b) have offered to
the Trustee reasonable indemnity and the Trustee for 15 days has neglected or
refused to institute any such proceeding. The Trustee will be under no
obligation to take any action or to institute, conduct or defend any litigation
under the related Agreement at the request, order or direction of any of the
holders of Certificates, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which the Trustee may incur.
AMENDMENT
An Agreement may be amended by the Company, the Servicer, and the related
Trustee without the consent of the related Certificateholders, (1) to cure any
ambiguity therein; (2) to correct or supplement any provision therein that may
be inconsistent with any other provision therein; (3) to maintain the REMIC
status of the Trust and to avoid the imposition of certain taxes on any related
REMIC (if applicable); or (4) to make any other provisions with respect to
matters or questions
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arising under such Agreement that are not covered by such Agreement, provided
that such action will not adversely affect in any material respect the
interests any holder of Certificates of the related Series, as evidenced by (A)
an opinion of counsel independent of the Company, the Servicer and the Trustee
or (B) a letter from each Rating Agency from whom the Company requested a
rating of any of the Certificates of such Series stating that the proposed
amendment will not result in a downgrading of the rating of any of the
Certificates of such Series rated by such Rating Agency. An Agreement may also
be amended by the Company, the Servicer and the related Trustee with the
consent of the related Certificateholders evidencing a majority of the Voting
Rights of each affected Class for the purpose of adding any provisions to, or
for the purpose of eliminating any provisions from, or for the purpose of
changing in any manner any of the provisions of, such Agreement, or for the
purpose of modifying in any manner the rights of the Certificateholders;
PROVIDED, HOWEVER, that no such amendment that (a) reduces in any manner the
amount of, or delays the timing of, any payment received on or with respect to
Contracts or Mortgage Loans which are required to be distributed on any
Certificate; (b) otherwise materially adversely affects the rights of any
Certificateholder; or (c) reduces the percentage of Certificateholders required
to consent to any amendment of the related Agreement, may be effective without
the consent of the holder of each such Certificate.
TERMINATION
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (1) the later of the
final payment or other liquidation of the last Contract or Mortgage Loan
subject thereto and the disposition of all property acquired upon repossession
of any Manufactured Home or foreclosure of (or other realization on) any
Mortgage Loan and (2) the payment to the related Certificateholders of all
amounts held by the Servicer or the Trustee and required to be paid to them
pursuant to the Agreement. In addition, (1) subject to the specifications in
the related Prospectus Supplement, a Trust may be subject to early termination
at the option of the Company, the Servicer or the holders of a majority in
interest of any related Residual Certificates and (2) if so specified in the
related Prospectus Supplement, the Certificates of a Series shall be subject to
redemption by the Company, the Servicer or any other party specified in the
related Prospectus Supplement, as described more fully herein under
"Description of the Certificates -- Optional Redemption or Termination."
CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of manufactured housing installment sales contracts and mortgage loans.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially from state to state), the summaries do not purport to be
complete or to reflect the laws of any particular state, or to encompass the
laws of all states in which the security for the Contracts or Mortgage Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Contracts and Mortgage Loans.
Contracts differ from Mortgage Loans in certain material respects. In
general, Contracts may experience a higher level of delinquencies than Mortgage
Loans, because the credit underwriting standards applied to borrowers under
manufactured housing installment sales contracts generally are not as stringent
as those applied to borrowers under many conventional residential first-lien
mortgage loans. See "Underwriting Policies -- Oakwood's Contract Underwriting
Guidelines" herein. In addition, Manufactured Homes generally decline in value
over time, which may not necessarily be the case with respect to the Mortgaged
Properties underlying Mortgage Loans. Consequently, the losses incurred upon
repossession of or foreclosure on Manufactured Homes securing the Contracts may
be expected to be more severe in many cases than the losses that would be
incurred upon foreclosure on Mortgaged Properties securing Mortgage Loans (in
each case measured as a percentage of the outstanding principal balances of the
related Assets). The servicing of manufactured housing installment sales
contracts is generally similar to the servicing of conventional residential
mortgage loans, except that, in general, servicers of manufactured housing
installment sales contracts place greater emphasis on making prompt telephone
contact with delinquent borrowers than is generally customary in the case of
the servicing of conventional residential mortgage loans. See "Sale and
Servicing of Contracts and Mortgage Loans -- Servicing" herein. Realization on
defaulted Contracts is generally accomplished through repossession and
subsequent resale of the underlying Manufactured Homes by or on behalf of the
Servicer, as described below under " -- The Contracts," whereas realization on
defaulted Mortgage Loans is generally accomplished through foreclosure on the
underlying Mortgaged Properties or similar proceedings, as described below
under " -- The Mortgage Loans." Realization on defaulted Land Secured Contracts
may involve a combination of repossession and foreclosure-related procedures.
See " -- The Contracts" below. Certificates evidencing interests in Contracts
may also
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be subject to other risks that are not present in the case of Certificates
evidencing interests in Mortgage Loans. See "Risk Factors -- 3. Security
Interests in Manufactured Homes," " -- 4. Conveyance of Contracts," and " -- 5.
Lender Regulations" herein.
THE CONTRACTS
GENERAL. As a result of the assignment of the Contracts underlying a
Series to the related Trustee, the related Trust will succeed to all of the
rights (including the right to receive payments on the Contracts), and will
assume the obligations, of the obligee under the Contracts. Each Contract
evidences both (1) the obligation of the Obligor to repay the loan evidenced
thereby, and (2) the grant of a security interest in the related Manufactured
Home to secure repayment of such loan. Certain aspects of both features of the
Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were located. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Servicer will retain possession of the
Contracts as custodian for the Trustee. Because the Servicer is not
relinquishing possession of the Contracts, the Servicer will file a UCC-1
financing statement in the appropriate recording offices in North Carolina as
necessary to perfect the Trustee's ownership interest in the Contracts.
Notwithstanding such filings, if, through negligence, fraud or otherwise, a
subsequent purchaser from the Company or from a predecessor owner of the
Contracts were able to take physical possession of the Contracts without notice
of the assignment of the Contracts to the Trustee, the Trustee's interest in
Contracts could be subordinated to the interest of such purchaser. To provide a
measure of protection against this possibility, within ten days after the
Closing Date, the Contracts will be stamped or marked otherwise to reflect
their assignment from the Company to the Trustee.
SECURITY INTERESTS IN THE MANUFACTURED HOMES. The Manufactured Homes
securing the Contracts may be located in any or all of the 50 states and the
District of Columbia. The manner in which liens on Manufactured Homes are
"perfected" is governed by applicable state law. In many states ("Title
States"), a lien on a manufactured home may be "perfected" under applicable
motor vehicle titling statutes by notation of the secured party's lien on the
related certificate of title or by delivery of certain required documents and
payment of a fee to the state motor vehicle authority to re-register the home,
depending upon applicable state law. In some states ("UCC States"), perfection
of a lien on a manufactured home is accomplished pursuant to the provisions of
the applicable UCC by filing UCC-3 financing statements or other appropriate
transfer instruments with all appropriate UCC filing offices. Some states are
both Title States and UCC States. The Company will cause the security interests
created by the Contracts in the related Manufactured Homes to be assigned to
the Trustee on behalf of the Certificateholders. However, because of the
expense and administrative inconvenience involved, neither Oakwood nor any
other Seller are expected to amend any certificate of title to change the
lienholder specified therein from Oakwood or such Seller to the Trustee,
deliver any documents or pay fees to re-register any Manufactured Home, or file
any UCC transfer instruments, and neither Oakwood nor such Seller will deliver
any certificate of title to the Trustee or note thereon the Trustee's interest.
In some states, simple assignment of the security interest created by a
Contract in the related Manufactured Home constitutes an effective conveyance
of such security interest without amendment of any lien noted on the related
certificate of title, re-registration of the underlying home, or filing of any
statement under the applicable UCC, and the assignee succeeds to the seller's
rights as the secured party as to such Manufactured Home. In other states,
however, the law is unclear whether a security interest in a Manufactured Home
is effectively assigned in the absence of an amendment to a certificate of
title, re-registration of the underlying home, or the filing of an appropriate
UCC transfer instrument, as appropriate under applicable state law. In such
event, the assignment of the security interest created by a Contract in the
related Manufactured Home may not be effective against creditors of the Company
or the Seller or a trustee in bankruptcy of the Company or the Seller.
In recent years, manufactured homes have become increasingly large and
often are attached to their sites, without appearing to be readily mobile.
Perhaps in response to these trends, courts in many states have held that
manufactured homes, under certain circumstances, are subject to real estate
title and recording laws. As a result, a security interest created by an
installment sales contract in a manufactured home located in such a state could
be rendered subordinate to the interests of other parties claiming an interest
in the home under applicable state real estate law. In order to perfect a
security interest in a manufactured home under real estate laws, the holder of
the security interest must file either a "fixture filing" under the provisions
of the applicable UCC or a real estate mortgage, deed of trust, deed to secure
debt or security deed, as appropriate under the real estate laws of the state
in which the related home is located (any of the foregoing, a "Mortgage").
These filings must be made in the real estate records office of the
jurisdiction in which the home is located. Neither Oakwood nor any other Seller
will be required to make fixture filings or to file Mortgages with respect to
any of the
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Manufactured Homes (except in the case of Land Secured Contracts, as described
below). Consequently, if a Manufactured Home is deemed subject to real estate
title or recording laws because the owner attaches it to its site or otherwise,
the Trustee's interest therein may be subordinated to the interests of others
that may claim an interest therein under applicable real estate laws.
The Trustee's security interest in a Manufactured Home would be
subordinate to, among others, subsequent purchasers for value of the
Manufactured Home and holders of perfected security interests therein, in
either case without notice to the Trustee's adverse interest in such home. In
the absence of fraud, forgery or affixation of the Manufactured Home to its
site by the Manufactured Home owner, or administrative error by state recording
officials, the notation of the lien of Oakwood (or another Seller) on the
related certificate of title or delivery of the required documents and fees
necessary to register the home in the name of Oakwood (or the other Seller) or
the public filing of appropriate transfer instruments reflecting the lien of
Oakwood (or another Seller), in each case as required under applicable state
law, will be sufficient to protect the Certificateholders against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home from anyone other than the entity
whose lien is perfected under state law (be it Oakwood or another Seller),
because they will be on notice of the interest in the home held by such entity.
Certain of the Contracts ("Land Secured Contracts") will be secured by
real estate as well as a Manufactured Home. The Seller will cause the liens
created by the Land Secured Contracts on the related real estate to be assigned
to the Trustee. The Contract File for each Land Secured Contract will be
required to include an original or a certified copy of the recorded Mortgage
relating to such Contract, together with originals or certified copies of a
chain of recorded assignments of such Mortgage sufficient to reflect the Seller
as the record holder of such Mortgage and the lien it evidences on the related
real estate. Assignments in recordable form for such Mortgages naming the
Trustee as assignee will not be prepared by the Servicer or any Seller.
However, the Seller will deliver to the Trustee a power of attorney entitling
the Trustee to prepare, execute and record such assignments of Mortgages, in
the event that recordation thereof becomes necessary to enable the Servicer to
foreclose on the related real property.
Under the laws of most states, in the event that a manufactured home is
moved to a state other than the state in which it initially is registered, any
perfected security interest in such home would continue automatically for four
months after such relocation, during which time the security interest must be
re-perfected in the new state in order to remain perfected after such
four-month period. Generally, a security interest in such a manufactured home
may be re-perfected after the expiration of such four-month period, but, for
the period between the end of such four-month period and the date of such
re-perfection, the security interest would be unperfected.
If a Manufactured Home is moved to a UCC State, an appropriate UCC
financing statement generally would have to be filed in such state within the
four-month period after the move in order for the Seller's security interest in
the Manufactured Home to remain perfected continuously. If a Manufactured Home
is moved to a Title State, re-perfection of a security interest in such home
generally would be accomplished by registering the Manufactured Home with the
Title State's motor vehicle authority. In the ordinary course of servicing its
portfolio of manufactured housing installment sales contracts, the Servicer
takes steps to re-perfect its security interests in the related manufactured
homes upon its receipt of notice of registration of such home in a new state
(which it should receive by virtue of the notation of its lien on the original
certificate of title, if the home is moved from a Title State to a Title State)
or of information from a related borrower as to relocation of such home. In
some Title States, the certificate of title to a Manufactured Home (which is
required to be in the Servicer's possession) must be surrendered before the
home could be re-registered; in such states an Obligor could not re-register a
Manufactured Home to a transferee without the Servicer's assistance. In other
Title States, when an Obligor under a Contract sells the related Manufactured
Home (if it is located in a Title State both before and after the sale), the
Seller should at least receive notice of any attempted re-registration thereof
because its lien is noted on the related certificate of title and accordingly
should have the opportunity to require satisfaction of the related Contract
before releasing its lien on the home. If the motor vehicle authority of a
Title State to which a Manufactured Home is relocated or in which a
Manufactured Home is located when it is transferred registers such Manufactured
Home in the name of the owner thereof or such owner's transferee without noting
the Seller's lien on the related certificate of title, whether because (1) such
state did not require the owner to surrender the certificate of title issued
prior to the transfer or issued by the Title State from which such home was
moved or failed to notify the Seller of re-registration and failed to note the
Seller's lien on the new certificate of title issued upon re-registration or
(2) such Manufactured Home was moved from a state that is not a Title State,
such re-registration could defeat the perfection of the Seller's lien in the
Manufactured Home. In addition, re-registration of a Manufactured Home (whether
due to a transfer or relocation thereof) in a state, such as a UCC State, which
does not require a certificate of title for registration of a Manufactured
Home, could defeat perfection of the Seller's lien thereon.
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If the Seller and the Servicer are not the same entity, the Seller will be
required to report to the Servicer any notice it receives of any
re-registration of a Manufactured Home. Under the Pooling and Servicing
Agreement, the Servicer is obligated to take all necessary steps, at its own
expense, to maintain perfection of the Trustee's security interests in the
Manufactured Homes, to the extent it receives notice of relocation, sale or
re-registration thereof (provided that, as long as Oakwood remains the
Servicer, the Servicer will not be required to cause notations to be made on
any certificate of title or to execute any instrument relating to any
Manufactured Home (other than a notation or a transfer instrument necessary to
show Oakwood (or another Seller if applicable)) as the lienholder or legal
titleholder). However, the Servicer has no independent obligation to monitor
the status of the Seller's lien on any Manufactured Home.
Under the laws of most states, liens for repairs performed on a
manufactured home and for property taxes on a manufactured home take priority
even over a prior perfected security interest. Such liens could arise at any
time during the term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES. The Servicer, on
behalf of the Trustee, to the extent required by the related Agreement, may
take action to enforce the Trustee's security interest with respect to
Contracts in default by repossession and resale of the Manufactured Homes
securing such defaulted Contracts. So long as the manufactured home has not
become subject to the real estate laws of a state, a creditor is entitled, in
most states, to repossess a manufactured home through the voluntary surrender
thereof, by "self-help" repossession that is "peaceful" (I.E., not including
any breach of the peace) or, if the creditor is unable to repossess through
either of the foregoing means, by judicial process. The holder of a Contract
must give the debtor a number of days' notice, which varies depending on the
state (usually ranging from 10 to 30 days depending on applicable state law),
prior to commencement of any repossession action. The UCC and consumer
protection laws in most states place restrictions on repossession sales; among
other things, such laws require prior notice to the debtor and commercial
reasonableness in effecting such a sale. The law in most states also requires
that the debtor be given notice prior to any resale of a repossessed home so
that the debtor may redeem the home at or before such resale. In the event of
such repossession and resale of a Manufactured Home, the Trustee would be
entitled to receive the net proceeds of such resale up to the amount of the
Unpaid Principal Balance of the related Contract plus all accrued and unpaid
interest thereon at the related Contract Rate.
Under applicable laws of most states, a creditor is entitled to obtain a
judgment against a debtor for any deficiency remaining after repossession and
resale of the manufactured home securing such debtor's loan. However, obtaining
and collecting such deficiency judgments is seldom economically feasible and,
for that reason, Oakwood generally has not attempted to obtain deficiency
judgments. In addition, some states impose prohibitions or limitations on
deficiency judgments, and certain other statutory provisions, including federal
and state bankruptcy and insolvency laws and general equitable principles, the
federal Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act") and state laws affording relief to debtors, may interfere with or
affect the ability of a secured lender to repossess and resell collateral or to
enforce a deficiency judgment. For example, in certain proceedings under the
federal Bankruptcy Code, when a court determines that the value of a home is
less than the principal balance of the loan it secures, the court may prevent a
lender from repossessing or foreclosing on the home, and, as part of the
debtor's rehabilitation plan, reduce the amount of the secured indebtedness to
the value of the home as it exists at the time of the proceeding, leaving the
lender as a general unsecured creditor for the difference between that value
and the amount of outstanding indebtedness. A bankruptcy court may grant the
debtor a reasonable time to cure a payment default, and in the case of a
manufactured housing installment sales contract not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
contract, change the rate of interest and alter the repayment schedule. Certain
court decisions have applied such relief to claims secured by the debtor's
principal residence. If a court relieves an Obligor's obligation to repay all
or any portion of the amounts otherwise due on a Contract, the Servicer will
not be required to advance such amounts, and any loss in respect thereof may
reduce amounts available for distribution on the related Certificates.
Under the terms of the federal Relief Act, an Obligor who enters military
service after the origination of such Obligor's Contract (including an Obligor
who is a member of the National Guard or who is in reserve status at the time
of the origination of the Contract and is later called to active duty) may not
be charged interest above an annual rate of 6.00% during the period of such
Obligor's active duty status, unless a court orders otherwise upon application
of the lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by the subordination of a Class of Subordinated Certificates, could
result in losses to
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Certificateholders. In addition, the Relief Act imposes limitations which would
impair the ability of the Servicer to repossess or foreclose on the
Manufactured Home securing an affected Contract during the Obligor's period of
active duty status. Thus, in the event that such a Contract goes into default,
there may be delays and losses occasioned by the inability to liquidate the
related Manufactured Home in a timely fashion.
Because of certain requirements of the REMIC Provisions, a Trust as to
which a REMIC election has been made generally must dispose of any related
Manufactured Homes acquired pursuant to repossession, foreclosure, or similar
proceedings within two years after acquisition. Consequently, if the Servicer,
acting on behalf of the Trust, is unable to sell a Manufactured Home in the
course of its ordinary commercial practices within 22 months after its
acquisition thereof (or a longer period as permitted by the Pooling and
Servicing Agreement), the Servicer will auction such home to the highest bidder
(which bidder may be the Servicer) in an auction reasonably designed to produce
a fair price. There can be no assurance that the price for any Manufactured
Home would not be substantially lower than the Unpaid Principal Balance of the
Contract relating thereto. In fact, manufactured homes, unlike site-built
homes, generally depreciate in value, and it has been Oakwood's experience
that, upon repossession and resale, the amount recoverable on a manufactured
home securing an installment sales contract is generally lower than the
principal balance of the contract.
FORECLOSURE UNDER REAL PROPERTY LAWS. If a Manufactured Home has become
attached to real estate to a degree such that the home would be treated as real
property under the laws of the state in which it is located, it may not be
legally permissible for the Servicer to repossess the home under the provisions
of the UCC or other applicable personal property laws. If so, the Servicer
could obtain possession of the home only pursuant to real estate mortgage
foreclosure laws. See " -- The Mortgage Loans -- Foreclosure" below. In
addition, in order to realize upon the Real Property securing any Land Secured
Contract, the Servicer must proceed under applicable state real estate mortgage
foreclosure laws. The requirements that the Servicer must meet in order to
foreclose on the Real Property securing a Land Secured Contract, and the
restrictions on such foreclosure, are identical to the requirements and
restrictions that would apply to foreclosure of any Mortgage Loan. For a
description of such foreclosure, see " -- The Mortgage Loans" below. Mortgage
foreclosure generally is accomplished through judicial action, rather than by
private action as permitted under personal property laws, and real estate laws
generally impose stricter notice requirements and require public sale of the
collateral. In addition, real estate mortgage foreclosure is usually far more
time-consuming and expensive than repossession under personal property laws,
and applicable real estate law generally affords debtors many more protections
than are provided under personal property laws. Rights of redemption under real
estate laws generally are more favorable to debtors than they are under
personal property laws, and in many states antideficiency judgment legislation
will be applicable in the real estate foreclosure context even if it would not
apply to repossessions under personal property laws. If real estate laws apply
to a Manufactured Home, to the extent the Seller has not perfected its security
interest in a Manufactured Home under applicable real estate laws, the Seller's
security interest in such Manufactured Home would be subordinate to a lien on
such home recorded pursuant to applicable real estate laws.
CONSUMER PROTECTION LAWS. The so-called "Holder-in-Due-Course" rule of the
Federal Trade Commission is intended to prevent a seller of goods pursuant to a
consumer credit contract (and certain related lenders and assignees) from
transferring such contract free of claims by the debtor thereunder against the
seller. The effect of this rule is to subject the assignee of a consumer credit
contract to all claims and defenses that the debtor could have asserted against
the seller under the contract. Assignee liability under this rule (which would
be applicable to the Trust, as assignee of the Contracts) is limited to amounts
paid by the debtor under the assigned contract; however, a borrower also may
assert the rule to set off remaining amounts due under such a contract as a
defense against a claim brought by the assignee of such contract against such
borrower. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission
Act, the Magnuson-Moss Warranty -- Federal Trade Commission Improvement Act,
the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt
Collection Practices Act and the Uniform Consumer Credit Code. The failure of
the originator of a Contract to have complied with the provisions of some of
these laws may result in liability of the related Trust to the Obligor
thereunder or in a reduction of the amount payable under such Contract.
However, each Seller (a) will be required to represent and warrant that each
Contract it sells to the Company complied, at the time of its origination, with
all requirements of law and (b) will be required to make certain
representations and warranties as to each Contract to be included in an Asset
Pool concerning the validity, existence, perfection and priority of its
security interest in each underlying Manufactured Home as of the related
Cut-off Date. A breach of any such representation or warranty that materially
and adversely affects a Trust's interest in any Contract would create an
obligation on the part of the related Seller to use its best efforts to cure
such breach to the satisfaction of the Trustee or to repurchase such Contract.
Nevertheless, this requirement may not eliminate the Trust's liability to an
Obligor.
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TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES.
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such
sale or transfer to which consent has not been obtained. The Servicer will act
in accordance with its customary underwriting procedures and with the terms of
the related Pooling and Servicing Agreement in determining whether to permit
such transfers in respect of Contracts included in an Asset Pool. The Servicer
will require, among other things, a satisfactory credit review of any person
proposing to assume any Contract. If the Servicer permits an assumption of a
Contract, no material term of the Contract (including the interest rate or the
remaining term to maturity of the Contract) may be modified unless the Servicer
has received an opinion of independent counsel to the effect that such
modification will not be treated, for federal income tax purposes, as an
acquisition of the modified Contract by the Trust in exchange for the
unmodified Contract on the date the modification occurs. In certain cases, a
delinquent borrower may transfer his or her manufactured home in order to avoid
a repossession proceeding with respect to such manufactured home.
APPLICABILITY OF USURY LAWS. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"),
provides, subject to certain conditions described in the next sentence, that
state usury limitations shall not apply to any loan that is secured by a first
lien on certain kinds of manufactured housing. The Contracts would be covered
under Title V if they satisfy certain conditions governing, among other things,
the terms of any prepayments, late charges and deferral fees and requiring 30
days' prior notice before the institution of any action leading to repossession
of or foreclosure with respect to the related manufactured home.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting a law or constitutional provision which expressly
rejects application of the federal law before April 1, 1983. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title
V. The Servicer will represent that all of the Contracts comply with applicable
usury laws.
THE MORTGAGE LOANS
GENERAL. Mortgage Loans as described herein are distinct from Land Secured
Contracts (which are discussed above under " -- The Contracts -- Foreclosure
under Real Property Laws"). A Mortgage Loan is secured by a Mortgaged Property
on which a one- to four-family residential structure is located, whereas a Land
Secured Contract is secured primarily by a Manufactured Home and is secured
only secondarily by a parcel of Real Property.
The Mortgage Loans will be secured by either first mortgages, deeds of
trust, deeds to secure debt or security deeds (any of the foregoing, a
"Mortgage"), depending upon the prevailing practice in the state in which the
underlying Mortgaged Property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the obligor, and the mortgagee, who is the lender. Under
a first mortgage, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed
of trust or mortgage, applicable law, and, in some cases, with respect to the
deed of trust, the directions of the beneficiary.
FORECLOSURE. Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the Mortgaged
Property. Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary 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 court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale as discussed below.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the related note or the deed of trust. In certain
states, such foreclosure also may be accomplished by judicial action in the
manner provided for foreclosure of mortgages. In some states the trustee must
record a notice of default and send a copy to the borrower-trustor and to any
person who has recorded a request for a copy of a notice of default and notice
of
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sale. In addition, the trustee must provide notice in some states to any other
individual having an interest of record in the underlying real property,
including any junior lienholders. If the deed of trust is not reinstated within
any applicable cure period, a notice of sale must be posted in a public place
and, in most states, must be published for a specified period of time in one or
more newspapers. In addition, some state laws require that a copy of the notice
of sale be posted on the property and sent to all parties having an interest of
record in the property. In some states, the borrower has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
See " -- Rights of Reinstatement and Redemption" below.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is not common for a third party to purchase the property at the
foreclosure sale. Rather, the lender generally purchases the property from the
trustee or receiver for an amount which may be as great as (but is more often
somewhat less than) the unpaid principal amount of the note, accrued and unpaid
interest and the expenses of foreclosure. Thereafter, subject to the right of
the obligor in some states to remain in possession during the redemption
period, the lender will assume the burdens of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender commonly will obtain the
services of a real estate broker and pay the broker a commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property. Any loss with respect to a Mortgage Loan may be reduced by the
receipt of mortgage insurance proceeds. See "The Trusts -- Insurance -- Credit
Insurance" and "The Trusts -- Insurance -- Hazard Insurance" herein.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve obligors 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 obligor's default and the
likelihood that the obligors will be able to reinstate the loan. In some cases,
courts have required lenders to reinstate loans or recast payment schedules to
accommodate obligors who are suffering temporary financial disabilities. In
some cases, courts have limited the right of a lender to foreclose if the
default under the related mortgage instrument is not monetary, such as a
default arising from the obligor's failure to maintain the property adequately
or the obligor's executing a second 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 obligors under deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld state statutory 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 protections to the obligor.
RIGHTS OF REINSTATEMENT AND REDEMPTION. In some states, an obligor, or any
other person having a junior encumbrance on the related real estate, may,
during a reinstatement or redemption period, cure an obligor default by paying
the entire amount in arrears plus certain of the costs and expenses incurred by
or on behalf of the lender in attempting to enforce the obligor's obligation.
Certain state laws control the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender. In some states,
an obligor under a mortgage loan has the right to reinstate the loan at any
time following default until shortly before the foreclosure sale.
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the related obligor and certain foreclosed junior lienors are given a
statutory period in which to redeem the related property from the foreclosure
sale. In certain other states, this right of redemption applies only to sale
following judicial foreclosure, and not to sale pursuant to a non-judicial
power of sale. In most states where the right of redemption is available,
statutory redemption may occur upon payment of the foreclosure purchase price,
accrued interest and taxes. The effect of a right of redemption is to diminish
the ability of the lender to sell the foreclosed property that it purchased.
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 its
purchase of the related property at a judicial foreclosure sale or sale under a
deed of trust. Consequently, the practical effect of the redemption right is to
force the lender (or other purchaser of property at a foreclosure sale) to
maintain the property and pay the expenses of ownership until the redemption
period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS. Certain
states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against a borrower following foreclosure on the related
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property or sale of the related property under a deed of trust. A deficiency
judgment is a personal judgment against the obligor equal in most cases to the
difference between the amount due to the lender and the greater of the net
amount realized upon the foreclosure sale or the market value of the related
mortgaged property.
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
obligor. In certain other states, the lender has the option of bringing a
personal action against the obligor on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising other remedies with respect to such security.
Consequently, the practical effect of the election requirement, when
applicable, is that lenders will usually proceed first against the security for
a mortgage or deed of trust rather than bringing a personal action against the
obligor.
Other statutory provisions may limit any deficiency judgment against the
former obligor under a mortgage loan following a foreclosure sale to the excess
of the outstanding debt over the fair market value of the property at the time
of such sale. The purpose of these statutes is to prevent a beneficiary or a
mortgagee from obtaining a large deficiency judgment against the former obligor
as a result of low or no bids at the foreclosure sale or sale pursuant to a
deed of trust.
In some states, exceptions to the anti-deficiency statutes are provided in
certain instances where the value of the lender's security has been impaired by
acts or omissions of the obligor, for example, in the event of waste of the
property by the obligor.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal and state
bankruptcy and insolvency laws and general equitable principles, the federal
Relief Act and state laws affording relief to debtors, may interfere with or
affect the ability of a secured mortgage lender to realize upon its security.
For example, in certain proceedings under the federal Bankruptcy Code, when a
court determines that the value of a home is less than the principal balance of
the loan it secures, the court may prevent a lender from foreclosing on the
home, and, as part of the debtor's rehabilitation plan, reduce the amount of
the secured indebtedness to the value of the home as it exists at the time of
the proceeding, leaving the lender as a general unsecured creditor for the
difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Certain court decisions have applied such relief to claims
secured by the debtor's principal residence. If a court relieves an Obligor's
obligation to repay all or any portion of the amounts otherwise due on a
Mortgage Loan, the Servicer will not be required to advance such amounts, and
any loss in respect thereof may reduce amounts available for distribution on
the related Certificates.
Under the terms of the federal Relief Act, an obligor who enters military
service after the origination of such obligor's Mortgage Loan (including an
obligor who is a member of the National Guard or who is in reserve status at
the time of the origination of the Mortgage Loan and is later called to active
duty) may not be charged interest above an annual rate of 6.00% during the
period of such obligor's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Mortgage Loans. Any
shortfall in interest collections resulting from the application of the Relief
Act, to the extent not covered by the subordination of a Class of Subordinated
Certificates, could result in losses to Certificateholders. In addition, the
Relief Act imposes limitations which would impair the ability of the Servicer
to foreclose on an affected Mortgage Loan during the obligor's period of active
duty status. Thus, in the event that such a Mortgage Loan goes into default,
there may be delays and losses occasioned by the inability to liquidate the
related Mortgaged Property in a timely fashion.
The Internal Revenue Code of 1986, as amended (the "Code") and the laws of
some states provide priority to certain tax liens over the lien of a 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 Property Settlement Procedures
Act, Equal Credit Opportunity Act, Fair Credit Billing Act, Fair Credit
Reporting Act, and related statutes and regulations. These federal laws and
state laws impose specific statutory liabilities upon lenders who originate or
service mortgage loans and who fail to comply with the provisions of the law.
In some cases, this liability may affect the lender's assignees as to the
mortgage loans.
"Due on Sale" Clauses. The forms of note, mortgage and deed of trust
relating to conventional Mortgage Loans may contain a "due-on-sale" clause
permitting acceleration of the maturity of a loan if the Mortgagor transfers
its interest in the
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underlying property. 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 Act, which purports to pre-empt state laws that prohibit the
enforcement of "due-on-sale" clauses and provides, among other things, that
"due-on-sale" clauses in certain loans (which loans include the Conventional
Mortgage Loans) made after the effective date of the Garn-St Germain Act are
enforceable, within certain limitations as set forth in the Garn-St Germain Act
and the regulations promulgated thereunder.
By virtue of the Garn-St Germain Act, the Servicer may generally be
permitted to accelerate any conventional Mortgage Loan which contains a
"due-on-sale" clause upon transfer by the Obligor of an interest in the
property subject to the related mortgage or deed of trust. With respect to any
Mortgage Loan secured by a residence occupied or to be occupied by the
mortgagor, this ability to accelerate will not apply to certain types of
transfers, including (1) the granting of a leasehold interest which has a term
of three years or less and which does not contain an option to purchase; (2) a
transfer to a family relative resulting from the death of a mortgagor, or a
transfer where the spouse or child(ren) becomes an owner of the property in
each case where the transferee(s) will occupy the property; (3) a transfer
resulting from a decree of dissolution of marriage, legal separation agreement
or from an incidental property settlement agreement by which the spouse of the
mortgagor becomes an owner of the property; (4) the creation of a lien or other
encumbrance subordinate to the lender's security instrument which does not
relate to a transfer of rights of occupancy in the property (provided that such
lien or encumbrance is not created pursuant to a contract for deed); (5) a
transfer by devise, descent or operation of law on the death of a joint tenant
or tenant by the entirety; and (6) other transfers as set forth in the Garn-St
Germain Act and the regulations thereunder. FHA and VA loans do not contain
"due-on-sale" clauses. See "Maturity and Prepayment Considerations" herein.
ADJUSTABLE RATE ASSETS. The laws of certain states may provide that
mortgage notes relating to adjustable rate loans are not negotiable instruments
under the UCC. In such event, the Trustee under a deed of trust arrangement
will not be deemed to be a "holder in due course" within the meaning of the UCC
and may take such a mortgage note subject to certain restrictions on its
ability to foreclose on the related Mortgaged Property and to certain
contractual defenses available to the related Obligor.
ENVIRONMENTAL CONSIDERATIONS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to secure recovery of the
costs of clean-up. In several states, such a lien has priority over the lien of
an existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), a lender may be
liable, as an "owner" or "operator," for costs of addressing releases or
threatened releases of hazardous substances that require remedy at a property
securing a mortgage loan owned by such lender, if agents or employees of the
lender have become sufficiently involved in the operations of the related
obligor, regardless of whether or not the environmental damage or threat was
caused by such lender's obligor or by a prior owner. A lender also risks such
liability arising out of foreclosure of a mortgaged property securing a
mortgage loan owned by such lender. Until recent legislation was adopted, it
was uncertain what actions could be taken by a secured lender in the event of a
loan default without it incurring exposure under CERCLA in the event the
property was environmentally contaminated. The Asset Conservation, Lender
Liability and Deposit Insurance Act of 1996 (the "1996 Lender Liability Act")
provides for a safe harbor for secured lenders from CERCLA liability even
though the lender forecloses and sells the real estate securing the loan,
provided the secured lender sells "at the earliest practicable, commercially
reasonable time, at commercially reasonable terms, taking into account market
conditions and legal and regulatory requirements." Although the 1996 Lender
Liability Act provides significant protection to secured lenders, it has not
been construed by the courts, and there are circumstances in which actions
taken could expose a secured lender to CERCLA liability. And, the transferee
from the secured lender is not entitled to the protections enjoyed by a secured
lender. Thus, contamination may decrease the amount that prospective buyers are
willing to pay for a Mortgaged Property and, thus, decrease the likelihood that
the Trust will recover fully on the Mortgage Loan through foreclosure.
Application of environmental laws other than CERCLA could also result in
the imposition of liability on lenders for costs associated with environmental
hazards. The most significant of these other laws is the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), and state regulatory programs
implemented thereunder. Subtitle I of RCRA imposes cleanup liabilities on
owners or operators of underground storage tanks. Some states also impose
similar liabilities on owners and operators of aboveground storage tanks. The
definition of "owner" under RCRA Subtitle I contains a security interest
exemption nearly identical to the CERCLA security interest exemption. However,
as with CERCLA costs, it is
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possible that such costs, if imposed in connection with a Mortgage Loan or a
Land Secured Contract included in a Trust Estate, could become a liability of
the related Trust in certain circumstances.
At the time the Mortgage Loans or Land Secured Contracts underlying a
Series were originated, it is possible that no environmental assessment or a
very limited environmental assessment of the related Mortgaged Properties or
Real Properties was conducted. No representations or warranties are made by the
Seller of Mortgage Loans or Contracts (including Land Secured Contracts) as to
the absence or effect of hazardous wastes or hazardous substances on any of the
related Mortgaged Properties or Real Properties. In addition, the Servicer has
not made any representations or warranties or assumed any liability with
respect to the absence or effect of hazardous wastes or hazardous substances on
any Mortgaged Property or Real Property or any casualty resulting from the
presence or effect of hazardous wastes or hazardous substances on any Mortgaged
Property or Real Property, and any loss or liability resulting from the
presence or effect of such hazardous wastes or hazardous substances will reduce
the amounts otherwise available to pay to the holders of the related
Certificates.
Pursuant to the Standard Terms, the Servicer is not required to foreclose
on any Mortgaged Property or Real Property if one of its principal officers has
actual knowledge that such property is contaminated with or affected by
hazardous wastes or hazardous substances. If the Servicer does not foreclose on
the Mortgaged Property underlying a defaulted Mortgage Loan or the Real
Property securing a Land Secured Contract, the amounts otherwise available to
pay to the holders of the Certificates may be reduced. The Servicer will not be
liable to the holders of the Certificates if it fails to foreclose on a
Mortgaged Property or Real Property that it believes may be so contaminated or
affected, even if such Mortgaged Property or Real Property is, in fact, not so
contaminated or affected. Similarly, the Servicer will not be liable to the
holders of any Certificates if the Servicer forecloses on a Mortgaged Property
or Real Property and takes title to a Mortgaged Property or Real Property that
is so contaminated or affected.
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of Contract, Note, mortgage and deed of trust used by
the originators of Contracts and Mortgage Loans may contain provisions
obligating the Obligor to pay a late charge if payments are not timely made and
in some circumstances may provide for prepayment fees or penalties if the
obligation is paid prior to maturity. In certain states, there are or may be
specific limitations upon late charges which a lender may collect from a
borrower for delinquent payments. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under each Agreement, late charges and prepayment fees on Assets in
the related Trust Estate (to the extent permitted by law and not waived by the
Servicer) will be retained by the Servicer as additional servicing
compensation.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used to purchase the Contracts and Mortgage
Loans related to such Series or to reimburse the amounts previously used to
effect such a purchase, the costs of carrying such Contracts and Mortgage Loans
until the sale of the related Certificates and other expenses connected with
pooling the Contracts and Mortgage Loans and issuing the Certificates.
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THE COMPANY
Oakwood Mortgage Investors, Inc. (the "Company") was incorporated in the
State of North Carolina on August 26, 1994 as a wholly-owned, limited purpose
finance subsidiary of Oakwood Acceptance Corporation ("Oakwood"). Oakwood is a
wholly-owned subsidiary of Oakwood Homes Corporation ("Oakwood Homes"). The
Company maintains its principal office adjacent to those of Oakwood, at 7800
McCloud Road, Greensboro, North Carolina 27409-9634. Its telephone number is
(336) 664-2400.
As described herein under "The Trusts," "Underwriting Policies," and "Sale
and Servicing of Contracts and Mortgage Loans -- Representations and
Warranties," the only obligations, if any, of the Company with respect to a
Series of Certificates may be pursuant to certain limited representations and
warranties and limited undertakings to repurchase or substitute Contracts or
Mortgage Loans under certain circumstances. The Company will have no ongoing
servicing obligations or responsibilities with respect to any Asset Pool. The
Company does not have, nor is it expected in the future to have, any
significant assets.
Neither the Company nor any Underwriter nor any of their affiliates will
insure or guarantee the Certificates of any Series.
THE SERVICER
Oakwood Acceptance Corporation ("Oakwood" or, in its capacity as servicer,
the "Servicer") was incorporated in 1984 in the State of North Carolina as a
wholly-owned subsidiary of Oakwood Homes. Oakwood is primarily engaged in the
business of underwriting, originating, pooling, selling and servicing
installment sales contracts for the sale of manufactured housing. Oakwood's
principal offices are located at 7800 McCloud Road, Greensboro, North Carolina
27409-9634 (telephone 336/664-2500).
Oakwood underwrites and funds the origination of manufactured housing
contracts on an individual basis from its principal office and from one or more
additional loan origination offices. Contracts for the financing of sales of
manufactured homes through Oakwood are typically originated in the name of
Oakwood Mobile Homes, Inc., a wholly-owned retailing subsidiary of Oakwood
Homes ("OMH"), or by a third party manufactured housing dealer, and are
assigned to Oakwood following origination, although some Contracts are
originated directly in Oakwood's name. Oakwood underwrites all such contracts.
From time to time, Oakwood purchases seasoned portfolios of manufactured
housing contracts from third parties.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder. The summary is based upon laws, regulations,
rulings, and decisions now in effect, all of which are subject to change.
Because REMIC status may be elected with respect to certain Series of
Certificates, the discussion includes a summary of the federal income tax
consequences to holders of REMIC Certificates.
The discussion does not purport to deal with the federal income tax
consequences to all categories of investors (such as banks, insurance companies
and foreign investors), some of which may be subject to special rules. The
discussion focuses primarily on investors who will hold the Certificates as
"capital assets" (generally, property held for investment) within the meaning
of section 1221 of the Code, although much of the discussion is applicable to
other investors as well. Investors should note that, although final regulations
under the REMIC Provisions have been issued by the Treasury, no currently
effective regulations or other administrative guidance has been issued with
respect to certain provisions of the Code that are or may be applicable to
Certificateholders, particularly the provisions dealing with market discount
and stripped debt instruments. Although the Treasury recently issued final
regulations dealing with original issue discount and premium, those regulations
do not address directly the treatment of Regular Certificates and certain other
types of Certificates. Furthermore, the REMIC Provisions do not address all of
the issues that arise in connection with the formation and operation of a
REMIC. Hence, definitive guidance cannot be provided with respect to many
aspects of the tax treatment of Certificateholders.
Moreover, this summary and the opinion referred to below is based on
current law, and there can be no assurance that the law will not change or that
the Internal Revenue Service (the "Service") will not take positions that would
be materially adverse to investors. Finally, the summary does not purport to
address the anticipated state income tax consequences to
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investors of owning and disposing of the Certificates. Consequently, investors
should consult their own tax advisors in determining the federal, state, local,
and any other tax consequences to them of the purchase, ownership, and
disposition of the Certificates.
GENERAL
Many aspects of the federal income tax treatment of the Certificates of a
particular Series will depend upon whether an election is made to treat the
Trust, or one or more segregated Asset Pools thereof, as a Series REMIC. The
Prospectus Supplement for each Series will indicate whether a REMIC election or
elections will be made with respect to the related Trust Estate and, if such an
election or elections are to be made, will identify all "regular interests" and
the "residual interest" in each Series REMIC. For each Series with respect to
which one or more REMIC elections are to be made, Hunton & Williams, counsel to
the Company, will deliver a separate opinion generally to the effect that,
assuming timely filing of the REMIC election or elections and compliance with
the related Pooling and Servicing Agreement and certain other documents
specified in the opinion, the Trust (or one or more segregated Asset Pools
thereof) will qualify as one or more Series REMICs. For each Series with
respect to which a REMIC election is not to be made, Hunton & Williams will
deliver a separate opinion generally to the effect that, assuming compliance
with the Pooling and Servicing Agreement and certain other documents, the Trust
will be treated as a grantor trust under subpart E, Part I of subchapter J of
the Code and not as an association taxable as a corporation. Those opinions
will be based on existing law and there can be no assurance that the law will
not change or that contrary positions will not be taken by the Service.
REMIC CERTIFICATES
REMIC Certificates will be classified as either Regular Certificates,
which generally are treated as debt for federal income tax purposes, or
Residual Certificates, which generally are not treated as debt for such
purposes, but rather as representing rights and responsibilities with respect
to the taxable income or loss of the related Series REMIC. The Prospectus
Supplement for each Series of Certificates will indicate whether one or more
REMIC elections will be made for that Series and which of the Certificates of
such Series will be designated as Regular Certificates, and which will be
designated as Residual Certificates.
REMIC Certificates held by a REIT generally will qualify as "real estate
assets" within the meaning of section 856(c)(4)(A) of the Code, and interest on
such Certificates generally will be considered Qualifying REIT Interest, in the
same proportion that the assets of the related Series REMIC would qualify as
real estate assets for REIT purposes. Similarly, REMIC Certificates held by a
Thrift Institution taxed as a "domestic building and loan association"
generally will qualify as a "loan secured by an interest in real property," for
purposes of the qualification requirements of domestic building and loan
associations set forth in section 7701(a)(19) of the Code, in the same
proportion that the assets of the related Series REMIC would so qualify.
However, if 95% or more of the assets of a given Series REMIC constitute real
estate assets for REIT purposes, the REMIC Certificates issued by such REMIC
will be treated entirely as such assets and 100% of the interest income derived
from such REMIC will be treated as Qualifying REIT Interest. Similarly, if 95%
or more of the assets of a given Series REMIC constitute loans secured by
interests in real property, the REMIC Certificates will be treated entirely as
such assets for purposes of the qualification requirement of domestic building
and loan associations. REMIC Regular and Residual Certificates held by a
financial institution to which Section 585 of the Code applies will be treated
as evidences of indebtedness for purposes of Section 582(c)(1) of the Code. The
Regular Certificates generally will be "qualified mortgages" within the meaning
of Section 860G(a)(3) of the Code with respect to other REMICs. Regular
Certificates held by a financial asset securitization investment trust (a
"FASIT") generally will qualify for treatment as "permitted assets" within the
meaning of Section 860L(c)(1)(G) of the Code. In the case of a Series for which
two or more REMICs will be created, all such Series REMICs will be treated as a
single REMIC for purposes of determining the extent to which the related
Certificates and the income thereon will be treated as qualifying assets and
income for such purposes. However, REMIC Certificates will not qualify as
"Government securities" for either REIT or RIC qualification purposes.
TAX TREATMENT OF REGULAR CERTIFICATES
Payments received by holders of Regular Certificates generally should be
accorded the same tax treatment under the Code as payments received on other
taxable corporate debt instruments. Except as described below for Regular
Certificates issued with original issue discount or acquired with market
discount or premium, interest paid or accrued on a Regular Certificate will be
treated as ordinary income to the Certificateholder and a principal payment on
such Certificate will be treated as a return of capital to the extent that the
Certificateholder's basis in the Certificate is allocable to that payment.
Holders of REMIC Regular or Residual Certificates must report income from such
Certificates under an accrual method of accounting, even if they otherwise
would have used the cash receipts and disbursements method. The Tax
Administrator, the Servicer
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or the Trustee will report annually to the Service and to Certificateholders of
record with respect to interest paid or accrued and original issue discount, if
any, accrued on the Certificates.
Under temporary Treasury regulations, holders of Regular Certificates
issued by "single-class REMICs" who are individuals, trusts, estates, or
pass-through entities in which such investors hold interests may be required to
recognize certain amounts of income in addition to interest and discount
income. A single-class REMIC, in general, is a REMIC that (i) would be
classified as an investment trust in the absence of a REMIC election or (ii) is
substantially similar to an investment trust. Under the temporary Treasury
regulations, each holder of a regular or residual interest in a single-class
REMIC is allocated (i) a share of the REMIC's "allocable investment expenses"
(I.E., expenses normally allowable under section 212 of the Code, which may
include servicing and administrative fees and insurance premiums) and (ii) a
corresponding amount of additional income. Section 67 of the Code permits an
individual, trust or estate to deduct miscellaneous itemized expenses
(including expenses allowable under section 212 of the Code) only to the extent
that such expenses, in the aggregate, exceed 2% of its adjusted gross income.
Consequently, an individual, trust or estate that holds a regular interest in a
single-class REMIC (either directly or through a pass-through entity) will
recognize additional income with respect to such regular interest to the extent
that its share of allocable investment expenses, when combined with its other
miscellaneous itemized deductions for the taxable year, fails to exceed 2% of
its adjusted gross income. Any such additional income will be treated as
interest income. In addition, Code section 68 provides that the amount of
itemized deductions otherwise allowable for the taxable year for an individual
whose adjusted gross income exceeds the applicable amount ($100,000, or $50,000
in the case of a separate return by a married individual within the meaning of
Code section 7703 for taxable year 1991 and adjusted for inflation each year
thereafter) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. The amount of such
additional taxable income recognized by holders who are subject to the
limitations of either section 67 or section 68 of the Code may be substantial
and may reduce or eliminate the after-tax yield to such holders of an
investment in the Certificates of an affected Series. Where appropriate, the
Prospectus Supplement for a particular Series will indicate that the holders of
Certificates of such Series may be required to recognize additional income as a
result of the application of the limitations of either section 67 or section 68
of the Code. Non-corporate holders of Regular Certificates evidencing an
interest in a single-class REMIC also should be aware that miscellaneous
itemized deductions, including allocable investment expenses attributable to
such REMIC, are not deductible for purposes of the alternative minimum tax.
ORIGINAL ISSUE DISCOUNT
Certain Classes of Regular Certificates may be issued with "original issue
discount" within the meaning of section 1273(a) of the Code. In general, such
original issue discount will equal the difference between the "stated
redemption price at maturity" of the Regular Certificate (generally, its
principal amount) and its issue price. Holders of Regular Certificates as to
which there is original issue discount should be aware that they generally must
include original issue discount in income for federal income tax purposes on an
annual basis under a constant yield accrual method that reflects compounding.
In general, original issue discount is treated as ordinary interest income and
must be included in income in advance of the receipt of the cash to which it
relates.
The amount of original issue discount required to be included in the
income of the holder of a Regular Certificate in any taxable year will be
computed in accordance with section 1272(a)(6) of the Code, which provides
rules for the accrual of original issue discount under a constant yield method
for certain debt instruments, such as the Regular Certificates, that are
subject to prepayment by reason of the prepayment of the underlying
obligations. Under section 1272(a)(6), the amount and rate of accrual of
original issue discount on a Regular Certificate generally is calculated based
on (i) a single constant yield to maturity and (ii) the Pricing Prepayment
Assumptions. No regulatory guidance currently exists under Code section
1272(a)(6). Accordingly, until the Treasury issues guidance to the contrary,
the Tax Administrator will, except as otherwise provided herein, base its
computations on Code section 1272(a)(6), the OID Regulations, and certain other
guidance, all as described below. There can be no assurance, however, that the
methodology described below represents the correct manner of calculating
original issue discount on the Regular Certificates. The Tax Administrator will
account for income on certain Regular Certificates that provide for one or more
contingent payments as described herein under "Federal Income Tax Consequences
- -- REMIC Certificates -- Interest Weighted Certificates and Non-VRDI
Certificates." Prospective purchasers should be aware that neither the Company,
any Servicer, nor the Trustee will make any representation that the Assets
underlying a Series will in fact prepay at a rate conforming to the Pricing
Prepayment Assumptions or at any other rate.
The amount of original issue discount on a Regular Certificate equals the
excess, if any, of the Certificate's "stated redemption price at maturity" over
its "issue price." Under the OID Regulations, a debt instrument's stated
redemption price at maturity is the sum of all payments of principal and
interest provided for on the instrument other than Qualified Stated
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Interest (I.E., the sum of its Deemed Principal Payments). Thus, in the case of
any Regular Certificate, the stated redemption price at maturity will equal the
total amount of all Deemed Principal Payments due on that Certificate. Since a
Certificate that is part of an Accretion Class generally will not require
unconditional payments of interest at least annually, the stated redemption
price at maturity of such a Certificate will equal the aggregate of all
payments due, whether designated as principal, accrued interest, or current
interest. The issue price of a Regular Certificate generally will equal the
initial price at which a substantial amount of such Certificates is sold to the
public.
Although the OID Regulations contain an aggregation rule (the "Aggregation
Rule"), under which two or more debt instruments issued in connection with the
same transaction (or related transactions in certain circumstances) generally
are treated as a single debt instrument for federal income tax accounting
purposes if issued by a single issuer to a single holder, that Rule does not
apply if the debt instruments are part of an issue (i) a substantial portion of
which is traded on an established market or (ii) a substantial portion of which
is issued for cash (or property traded on an established market) to parties who
are not related to the issuer or holder and who do not purchase other debt
instruments of the same issuer in connection with the same transaction or
related transactions. In most cases, the Aggregation Rule will not apply to
Regular Certificates of different Classes because one or both of the exceptions
to the Aggregation Rule will have been met. Although the Tax Administrator will
apply the Aggregation Rule to all regular interests in a Series REMIC that are
held by another REMIC created with respect to the same Series, it generally
will not apply the Aggregation Rule to Regular Certificates for purposes of
reporting to Certificateholders.
Under a DE MINIMIS rule, a Regular Certificate will be considered to have
no original issue discount if the amount of original issue discount on the
Certificate is less than 0.25% of the Certificate's stated redemption price at
maturity multiplied by the Certificate's WAM. Although no Treasury regulations
have been issued under the relevant provisions of the 1986 Act, it is expected
that the WAM of a Regular Certificate will be computed using the Pricing
Prepayment Assumptions. The holder of a Regular Certificate will include DE
MINIMIS original issue discount in income on a pro rata basis as stated
principal payments on the Certificate are received or, if earlier, upon
disposition of the Certificate, unless the holder of such Certificate makes the
All OID Election.
Regular Certificates of certain Series may constitute Teaser Certificates.
Under certain circumstances, a Teaser Certificate may be considered to have a
DE MINIMIS amount of original issue discount even though the amount of original
issue discount on such Certificate would be more than DE MINIMIS if determined
as described above. If the stated interest on a Teaser Certificate would be
Qualified Stated Interest but for the fact that during one or more accrual
periods its interest rate is below the rate applicable for the remainder of its
term, the amount of original issue discount on such Certificate that is
measured against the DE MINIMIS amount of original issue discount allowable on
the Certificate is the greater of (i) the excess of the stated principal amount
of the Certificate over its issue price and (ii) the amount of interest that
would be necessary to be payable on the Certificate in order for all stated
interest to be Qualified Stated Interest.
The holder of a Regular Certificate generally must include in gross income
the sum, for all days during his taxable year on which he holds the Regular
Certificate, of the "daily portions" of the original issue discount on such
Certificate. In the case of an original holder of a Regular Certificate, the
daily portions of original issue discount with respect to such Certificate
generally will be determined by allocating to each day in any accrual period
the Certificate's ratable portion of the excess, if any, of (i) the sum of (a)
the present value of all payments under the Certificate yet to be received as
of the close of such period and (b) the amount of any Deemed Principal Payments
received on the Certificate during such period over (ii) the Certificate's
"adjusted issue price" at the beginning of such period. The present value of
payments yet to be received on a Regular Certificate is computed by using the
Pricing Prepayment Assumptions and the Certificate's original yield to maturity
(adjusted to take into account the length of the particular accrual period),
and taking into account Deemed Principal Payments actually received on the
Certificate prior to the close of the accrual period. The adjusted issue price
of a Regular Certificate at the beginning of the first accrual period is its
issue price. The adjusted issue price at the beginning of each subsequent
period is the adjusted issue price of the Certificate at the beginning of the
preceding period increased by the amount of original issue discount allocable
to that period and decreased by the amount of any Deemed Principal Payments
received during that period. Thus, an increased (or decreased) rate of
prepayments received with respect to a Regular Certificate will be accompanied
by a correspondingly increased (or decreased) rate of recognition of original
issue discount by the holder of such Certificate.
The yield to maturity of a Regular Certificate is calculated based on (i)
the Pricing Prepayment Assumptions and (ii) any contingencies not already taken
into account under the Pricing Prepayment Assumptions that, considering all of
the facts and circumstances as of the issue date, are more likely than not to
occur. Contingencies, such as the exercise of "mandatory redemptions," that are
taken into account by the parties in pricing the Regular Certificate typically
will be subsumed
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in the Pricing Prepayment Assumptions and thus will be reflected in the
Certificate's yield to maturity. The Tax Administrator's determination of
whether a contingency relating to a Class of Regular Certificates is more
likely than not to occur is binding on each holder of a Certificate of such
Class unless the holder explicitly discloses on its federal income tax return
that its determination of the yield and maturity of such Certificate is
different from that of the Tax Administrator.
In many cases, Regular Certificates will be subject to optional redemption
before their stated maturity dates. Under the OID Regulations, any party
entitled to redeem Certificates will be presumed to exercise its option to
redeem for purposes of computing the accrual of original issue discount if, and
only if, by using the optional redemption date as the maturity date and the
optional redemption price as the stated redemption price at maturity, the yield
to maturity of the Certificates is lower than it would be if the Certificates
were not redeemed early. If a party entitled to do so is presumed to exercise
its option to redeem the Certificates, original issue discount on such
Certificates will be calculated as if the redemption date were the maturity
date and the optional redemption price were the stated redemption price at
maturity. In cases in which all of the Certificates of a particular Series are
issued at par or at a discount, the Certificates will not be presumed to have
been redeemed because a redemption would not lower the yield to maturity of the
Certificates. If, however, some Certificates of a particular Series are issued
at a premium, a party entitled to redeem Certificates may be able to lower the
yield to maturity of the Certificates by exercising its redemption option. In
determining whether such a party will be presumed to exercise its option to
redeem Certificates when one or more Classes of the Certificates is issued at a
premium, the Tax Administrator will take into account all Classes of
Certificates that are subject to the possibility of optional redemption to the
extent that they are expected to remain outstanding as of the optional
redemption date, based on the Pricing Prepayment Assumptions. If, determined on
a combined weighted average basis, the Certificates of such Classes were issued
at a premium, the Tax Administrator will presume that a party entitled to
redeem such Certificates will exercise its option to do so. However, the OID
Regulations are unclear as to how the redemption presumption rules should apply
to instruments such as the Certificates, and there can be no assurance that the
Service will agree with the Tax Administrator's position.
Under the OID Regulations, the holder of a Regular Certificate generally
may make an All OID Election to include in gross income all stated interest,
original issue discount, DE MINIMIS original issue discount, market discount,
and DE MINIMIS market discount that accrues on such Certificate (reduced by any
amortizable premium or acquisition premium on such Certificate) under the
constant yield method used to account for original issue discount. To make an
All OID Election, the holder of the Certificate must attach a statement to its
timely filed federal income tax return for the taxable year in which the holder
acquired the Certificate. The statement must identify the instruments to which
the election applies. An All OID Election is irrevocable unless the holder
obtains the consent of the Service. If an All OID Election is made for a debt
instrument with market discount, the holder is deemed to have made an election
to include in income currently the market discount on all of the holder's other
debt instruments with market discount, as described below under "Federal Income
Tax Consequences -- REMIC Certificates -- Tax Treatment of Regular Certificates
- -- Market Discount." In addition, if an All OID Election is made for a debt
instrument with amortizable premium, the holder is deemed to have made an
election to amortize the premium on all of the holder's other debt instruments
with amortizable premium under the constant yield method. See "Federal Income
Tax Consequences -- REMIC Certificates -- Tax Treatment of Regular Certificates
- -- Amortizable Premium" below. Certificateholders should be aware that the law
is unclear as to whether an All OID Election is effective for Interest Weighted
Certificates or Non-VRDI Certificates. See "Federal Income Tax Consequences --
REMIC Certificates -- Tax Treatment of Regular Certificates -- Interest
Weighted Certificates and Non-VRDI Certificates" below.
A Regular Certificate having original issue discount may be acquired in a
transaction subsequent to its issuance for more than its adjusted issue price.
If the subsequent holder's adjusted basis in such a Regular Certificate,
immediately after its acquisition, exceeds the sum of all Deemed Principal
Payments to be received on the Certificate after the acquisition date, the
Certificate will no longer have original issue discount, and the holder may be
entitled to reduce the amount of interest income recognized on the Certificate
by the amount of amortizable premium. See "Federal Income Tax Consequences --
REMIC Certificates -- Tax Treatment of Regular Certificates -- Amortizable
Premium" below. If the subsequent holder's adjusted basis in the Certificate
immediately after the acquisition exceeds the adjusted issue price of the
Certificate, but is less than or equal to the sum of the Deemed Principal
Payments to be received under the Certificate after the acquisition date, the
amount of original issue discount on the Certificate will be reduced by a
fraction, the numerator of which is the excess of the Certificate's adjusted
basis immediately after its acquisition over the adjusted issue price of the
Certificate and the denominator of which is the excess of the sum of all Deemed
Principal Payments to be received on the Certificate after the acquisition date
over the adjusted issue price of the Certificate. For that purpose, the
adjusted basis of a Regular Certificate generally is reduced by the amount of
any Qualified Stated Interest that is accrued but unpaid as of the acquisition
date. Alternatively, the subsequent purchaser of a Regular Certificate having
original issue discount may make an All OID Election with respect to the
Certificate.
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If the First Distribution Period with respect to a Regular Certificate
contains more days than the number of days of stated interest that are payable
on the first Distribution Date, the effective interest rate received by the
holder of such Certificate during the first Distribution Period will be less
than the Certificate's stated interest rate, making such Certificate a Teaser
Certificate. If the amount of original issue discount on the Teaser Certificate
measured under the expanded DE MINIMIS test described above exceeds the DE
MINIMIS amount of original issue discount allowable on the Certificate, the
amount by which the stated interest on the Certificate exceeds the interest
that would be payable on the Certificate at the effective rate of interest for
the First Distribution Period would be treated as part of the Certificate's
stated redemption price at maturity. Accordingly, the holder of a Teaser
Certificate may be required to recognize ordinary income arising from original
issue discount in addition to any Qualified Stated Interest that accrues in a
period.
Similarly, if the First Distribution Period with respect to a Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
and the holder of such Certificate receives interest on the first Distribution
Date based on a full accrual period, the effective rate of interest payable on
such Certificate during the First Distribution Period will be higher than the
stated rate of interest on such Certificate, making such Certificate a Rate
Bubble Certificate. A Rate Bubble Certificate that otherwise bears Qualified
Stated Interest would be issued with original issue discount unless the
Pre-Issuance Accrued Interest Rule applies or the amount of original issue
discount on the Certificate is DE MINIMIS. The amount of original issue
discount on a Rate Bubble Certificate attributable to the First Distribution
Period would be the amount by which the interest payment due on the first
Distribution Date exceeds the amount that would have been payable had the
effective rate for that Period been equal to the stated interest rate. However,
if a portion of the initial purchase price of a Rate Bubble Certificate is
allocable to Pre-Issuance Accrued Interest and such Certificate provides for a
payment of stated interest on the first payment date within one year of its
issue date that equals or exceeds the amount of such Pre-Issuance Accrued
Interest, the Tax Administrator will apply the Pre-Issuance Accrued Interest
Rule to such Certificate. Under the Pre-Issuance Accrued Interest Rule, the Tax
Administrator will (i) subtract from the issue price of a Rate Bubble
Certificate an amount of Pre-Issuance Accrued Interest equal to the excess of
(a) the amount of stated interest paid on the Certificate on the first
Distribution Date over (b) the portion of such interest that is economically
allocable to the period after the issue date, which generally should be an
amount equal to the stated interest rate on the Certificate expressed as a
daily percentage times the number of days in the first payment period (I.E.,
from the issue date to the first payment date) times the Certificate's initial
principal amount and (ii) treat a portion of the interest received on the first
Distribution Date with respect to such Certificate as a return of the
Pre-Issuance Accrued Interest excluded from the issue price of such Certificate
rather than as a payment on the Certificate. Thus, where the Pre-Issuance
Accrued Interest Rule applies, a Rate Bubble Certificate will not have original
issue discount attributable to the First Distribution Period, provided that the
increased effective interest rate for that Period is attributable solely to
Pre-Issuance Accrued Interest, as typically will be the case. The Tax
Administrator will apply the Pre-Issuance Accrued Interest Rule as described
above to each Rate Bubble Certificate for which it is available if the
Certificate's stated interest otherwise would be Qualified Stated Interest. If,
however, the First Distribution Period for a Rate Bubble Certificate is longer
than subsequent Distribution Periods, the application of the Pre-Issuance
Accrued Interest Rule typically will not prevent disqualification of the
Certificate's stated interest because its effective interest rate during the
First Distribution Period will be less than its stated interest rate. Thus, a
Regular Certificate with a long First Distribution Period typically will be a
Teaser Certificate, as discussed above. The Pre-Issuance Accrued Interest Rule
will not apply to any amount paid at issuance for such a Teaser Certificate
that is nominally allocable to interest accrued under the terms of such
Certificate before its issue date. All amounts paid for such a Teaser
Certificate at issuance, regardless of how designated, will be included in the
issue price of such Certificate for federal income tax accounting purposes.
It is not entirely clear how income should be accrued with respect to
Interest Weighted Certificates. Unless and until the Service provides contrary
administrative guidance on the income tax treatment of an Interest Weighted
Certificate, the Tax Administrator will take the position that an Interest
Weighted Certificate does not bear Qualified Stated Interest, and will account
for the income thereon as described in "Federal Income Tax Consequences --
REMIC Certificates -- Interest Weighted Certificates and Non-VRDI Certificates"
herein. Some Interest Weighted Certificates may be Superpremium Certificates.
Superpremium Certificates technically are issued with amortizable premium.
However, because of their close similarity to other Interest Weighted
Certificates it appears more appropriate to account for Superpremium
Certificates in the same manner as for other Interest Weighted Certificates.
Consequently, in the absence of further administrative guidance, the Tax
Administrator will account for Superpremium Certificates in the same manner as
other Interest Weighted Certificates. However, there can be no assurance that
the Service will not assert a position contrary to that taken by the Tax
Administrator, and, therefore, holders of Superpremium Certificates should
consider making a protective election to amortize premium on such Certificates.
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In view of the complexities and current uncertainties as to the manner of
inclusion in income of original issue discount on the Regular Certificates,
each investor should consult its own tax advisor to determine the appropriate
amount and method of inclusion in income of original issue discount on such
Certificates for federal income tax purposes.
VARIABLE RATE CERTIFICATES
Under the OID Regulations, a Variable Rate Certificate will qualify as a
VRDI Certificate only if (i) the Certificate is not issued at an Excess
Premium; (ii) stated interest on the Certificate compounds or is payable
unconditionally at least annually at (a) one or more "qualified floating
rates," (b) a single fixed rate and one or more qualified floating rates, (c) a
single "objective rate," or (d) a single fixed rate and a single objective rate
that is a "qualified inverse floating rate"; and (iii) the qualified floating
rate or the objective rate in effect during an accrual period is set at a
current value of that rate (I.E., the value of the rate on any day occurring
during the interval that begins three months prior to the first day on which
that value is in effect under the Certificate and ends one year following that
day). VRDI Certificates are subject to the rules applicable to VRDIs in the OID
Regulations that are described below.
Under the OID Regulations, a rate is a qualified floating rate if
variations in the rate reasonably can be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
debt instrument is denominated. A qualified floating rate may measure
contemporaneous variations in borrowing costs for the issuer of the debt
instrument or for issuers in general. A multiple of a qualified floating rate
is considered a qualified floating rate only if the rate is equal to either (a)
the product of a qualified floating rate and a fixed multiple that is greater
than 0.65 but not more than 1.35 or (b) the product of a qualified floating
rate and a fixed multiple that is greater than 0.65 but not more than 1.35,
increased or decreased by a fixed rate. If a Regular Certificate provides for
two or more qualified floating rates that reasonably can be expected to have
approximately the same values throughout the term of such Certificate, the
qualified floating rates together will constitute a single qualified floating
rate. Two or more qualified floating rates conclusively will be presumed to
have approximately the same values throughout the term of a Certificate if the
values of all rates on the issue date of such Certificate are within 25 basis
points of each other.
A variable rate will be considered a qualified floating rate if it is
subject to a Cap, Floor, Governor, or other similar restriction only if: (a)
the Cap, Floor, or Governor is fixed throughout the term of the related
Certificate or (b) the Cap, Floor, Governor, or similar restriction is not
reasonably expected, as of the issue date, to cause the yield on the
Certificate to be significantly less or significantly more than the expected
yield on such Certificate determined without such Cap, Floor, Governor, or
similar restriction, as the case may be. Although the OID Regulations are
unclear, it appears that a VRDI Certificate, the principal rate on which is
subject to a Cap, Floor, or Governor that itself is a qualified floating rate,
bears interest at an objective rate.
An objective rate is a rate (other than a qualified floating rate) that
(i) is determined using a single fixed formula, (ii) is based on objective
financial or economic information, and (iii) is not based on information that
either is within the control of the issuer (or a related party) or is unique to
the circumstances of the issuer (or related party), such as dividends, profits,
or the value of the issuer's (or related party's) stock. That definition would
include, in addition to a rate that is based on one or more qualified floating
rates or on the yield of actively traded personal property, a rate that is
based on changes in a general inflation index. In addition, a rate would not
fail to be an objective rate merely because it is based on the credit quality
of the issuer.
Under the OID Regulations, if interest on a Certificate is stated at a
fixed rate for an initial period of less than one year followed by a variable
rate that is either a qualified floating rate or an objective rate for a
subsequent period, and the value of the variable rate on the issue date is
intended to approximate the fixed rate, the fixed rate and the variable rate
together constitute a single qualified floating rate or objective rate. A
variable rate conclusively will be presumed to approximate an initial fixed
rate if the value of the variable rate on the issue date does not differ from
the value of the fixed rate by more than 25 basis points.
Under the OID Regulations, all interest payable on a Single Rate VRDI
Certificate is treated as Qualified Stated Interest. The amount and accrual of
OID on a Single Rate VRDI Certificate is determined, in general, by converting
such Certificate into a hypothetical fixed rate certificate and applying the
rules applicable to fixed rate certificates described under "Federal Income Tax
Consequences -- REMIC Certificates -- Original Issue Discount" above to such
hypothetical fixed rate certificate. Qualified Stated Interest or original
issue discount allocable to an accrual period with respect to a Single Rate
VRDI Certificate also must be increased (or decreased) if the interest actually
accrued or paid during such accrual period exceeds (or is less than) the
interest assumed to be accrued or paid during such accrual period under the
related hypothetical equivalent fixed rate certificate.
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Except as provided below, the amount and accrual of OID on a Multiple Rate
VRDI Certificate is determined by converting such Certificate into a
hypothetical equivalent fixed rate certificate that has terms that are
identical to those provided under the Multiple Rate VRDI Certificate, except
that such hypothetical equivalent fixed rate certificate will provide for fixed
rate substitutes in lieu of the qualified floating rates or objective rate
provided for under the Multiple Rate VRDI Certificate. A Multiple Rate VRDI
Certificate providing for a qualified floating rate or rates or a qualified
inverse floating rate is converted to a hypothetical equivalent fixed rate
certificate by assuming that each qualified floating rate or the qualified
inverse floating rate will remain at its value as of the issue date. A Multiple
Rate VRDI Certificate providing for an objective rate or rates is converted to
a hypothetical equivalent fixed rate certificate by assuming that each
objective rate will equal a fixed rate that reflects the yield that reasonably
is expected for such Multiple Rate VRDI Certificate. Qualified Stated Interest
or original issue discount allocable to an accrual period with respect to a
Multiple Rate VRDI Certificate must be increased (or decreased) if the interest
actually accrued or paid during such accrual period exceeds (or is less than)
the interest assumed to be accrued or paid during such accrual period under the
related hypothetical equivalent fixed rate certificate.
Under the OID Regulations, the amount and accrual of OID on a Multiple
Rate VRDI Certificate that provides for stated interest at either one or more
qualified floating rates or at a qualified inverse floating rate and in
addition provides for stated interest at a single fixed rate (other than an
initial fixed rate that is intended to approximate the subsequent variable
rate), is determined using the method described in the preceding paragraph
except that prior to its conversion to a hypothetical equivalent fixed rate
certificate, such Multiple Rate VRDI Certificate is treated as if it provided
for a qualified floating rate (or a qualified inverse floating rate) rather
than the fixed rate during the period in which the fixed rate applies. The
qualified floating rate (or qualified inverse floating rate) replacing the
fixed rate must be such that the fair market value of the Multiple Rate VRDI
Certificate as of its issue date would be approximately the same as the fair
market value of an otherwise identical debt instrument that provides for the
qualified floating rate (or qualified inverse floating rate), rather than the
fixed rate.
It is not entirely clear how income should be accrued with respect to
Weighted Average Certificates. Under the OID Regulations, Weighted Average
Certificates relating to a Trust (or a designated Asset Pool thereof) whose
Assets are exclusively Adjustable Rate Assets appear to bear interest at an
objective rate provided the Adjustable Rate Assets themselves bear interest at
qualified floating rates. However, Weighted Average Certificates relating to a
Trust (or a designated Asset Pool thereof) whose Assets do not bear interest at
qualified floating rates (I.E., NOWA Certificates), do not bear interest at an
objective or a qualified floating rate and, consequently, do not qualify as
VRDI Certificates described above. Accordingly, unless and until the Service
provides contrary administrative guidance on the income tax treatment of NOWA
Certificates, the Tax Administrator will treat such Certificates as debt
obligations that provide for one or more contingent payments, and will account
for the income thereon as described in "Federal Income Tax Consequences --
REMIC Certificates -- Interest Weighted Certificates and Non-VRDI Certificates"
below.
Under the OID Regulations, Inverse Floater Certificates generally bear
interest at objective rates because their rates either constitute qualified
inverse floating rates under those Regulations or, although not qualified
floating rates themselves, are based on one or more qualified floating rates.
Consequently, if such Certificates are not issued at an Excess Premium and
their interest rates otherwise meet the test for Qualified Stated Interest, the
income on such Certificates will be accounted for under the rules applicable to
VRDI Certificates described above. However, an Inverse Floater Certificate may
have an interest rate parameter equal to the weighted average of the interest
rates on some or all of the Assets of the related Trust (or designated Asset
Pool thereof) in a case where one or more of the interest rates on such Assets
is a fixed rate or otherwise may not qualify as a VRDI Certificate. Unless and
until the Service provides contrary administrative guidance on the income tax
treatment of such Inverse Floater Certificates, the Tax Administrator will
treat such Certificates as debt obligations that provide for one or more
contingent payments, and will account for the income thereon as described in
"Federal Income Tax Consequences -- REMIC Certificates -- Interest Weighted
Certificates and Non-VRDI Certificates" below.
INTEREST WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES
The treatment of a NOWA Certificate, a Variable Rate Certificate that is
issued at an Excess Premium, any other Variable Rate Certificate that does not
qualify as a VRDI Certificate (each a Non-VRDI Certificate) or an Interest
Weighted Certificate is unclear under current law. The OID Regulations contain
provisions (the "Contingent Payment Regulations") that address the federal
income tax treatment of debt obligations that provide for one or more
contingent payments ("Contingent Payment Obligations").
Under the Contingent Payment Regulations, any variable rate debt
instrument that is not a VRDI is classified as a Contingent Payment Obligation.
However, the Contingent Payment Regulations, by their terms, do not apply to
REMIC regular interests and other instruments that are subject to section
1272(a)(6) of the Code. In the absence of further guidance, the
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Tax Administrator will account for Non-VRDI Certificates, Interest Weighted
Certificates, and other Regular Certificates that are Contingent Payment
Obligations in accordance with Code section 1272(a)(6) and the accounting
methodology described in this paragraph. Income will be accrued on such
Certificates based on a constant yield that is derived from a projected payment
schedule as of the Closing Date. The projected payment schedule will take into
account the Pricing Prepayment Assumptions and the interest payments that are
expected to be made based on the value of any relevant indices on the issue
date. To the extent that actual payments differ from projected payments for a
particular taxable year, appropriate adjustments to interest income and expense
accruals will be made for that year. In the case of a Weighted Average
Certificate, the projected payment schedule will be derived based on the
assumption that the principal balances of the Assets that collateralize the
Certificate pay down pro rata.
The method described in the foregoing paragraph for accounting for
Interest Weighted Certificates, Non-VRDI Certificates, and any other Regular
Certificates that are Contingent Payment Obligations is consistent with Code
section 1272(a)(6) and the legislative history thereto. Because of the
uncertainty with respect to the treatment of such Certificates under the OID
Regulations, however, there can be no assurance that the Service will not
assert successfully that a method less favorable to Certificateholders should
apply. In view of the complexities and the current uncertainties as to income
inclusions with respect to Non-VRDI Certificates, Interest Weighted
Certificates and any other Regular Certificates that are Contingent Payment
obligations, each investor should consult his or her own tax advisor to
determine the appropriate amount and method of income inclusion on such
Certificates for federal income tax purposes.
ANTI-ABUSE RULE
Concerned that taxpayers might be able to structure debt instruments or
transactions, or apply the bright-line or mechanical rules of the OID
Regulations, in a way that produces unreasonable tax results, the Treasury
issued regulations containing an anti-abuse rule. These regulations provide
that if a principal purpose in structuring a debt instrument, engaging in a
transaction, or applying the OID Regulations is to achieve a result that is
unreasonable in light of the purposes of the applicable statutes, the Service
can apply or depart from the OID Regulations as necessary or appropriate to
achieve a reasonable result. A result is not considered unreasonable under the
regulations, however, in the absence of a substantial effect on the present
value of a taxpayer's tax liability.
MARKET DISCOUNT
A subsequent purchaser of a Regular Certificate at a discount from its
outstanding principal amount (or, in the case of a Regular Certificate having
original issue discount, its "adjusted issue price") will acquire such
Certificate with market discount. The purchaser generally will be required to
recognize the market discount (in addition to any original issue discount
remaining with respect to the Certificate) as ordinary income. A person who
purchases a Regular Certificate at a price lower than the remaining outstanding
Deemed Principal Payments but higher than its adjusted issue price does not
acquire the Certificate with market discount, but will be required to report
original issue discount, appropriately adjusted to reflect the excess of the
price paid over the adjusted issue price. See "Federal Income Tax Consequences
- -- REMIC Certificates -- Original Issue Discount" above. A Regular Certificate
will not be considered to have market discount if the amount of such market
discount is DE MINIMIS, I.E., less than the product of (i) 0.25% of the
remaining principal amount (or, in the case of a Regular Certificate having
original issue discount, the adjusted issue price of such Certificate),
multiplied by (ii) the WAM of the Certificate remaining after the date of
purchase. Regardless of whether the subsequent purchaser of a Regular
Certificate with more than a DE MINIMIS amount of market discount is a
cash-basis or accrual-basis taxpayer, market discount generally will be taken
into income as principal payments (including, in the case of a Regular
Certificate having original issue discount, any Deemed Principal Payments) are
received, in an amount equal to the lesser of (i) the amount of the principal
payment received or (ii) the amount of market discount that has "accrued" (as
described below), but that has not yet been included in income. The purchaser
may make a Current Recognition Election, which generally will apply to all
market discount instruments held or acquired by the purchaser in the taxable
year of election or thereafter, to recognize market discount currently on an
uncapped accrual basis. The Service has indicated in Revenue Procedure 92-67
the manner in which a Current Recognition Election may be made. The purchaser
also may make an All OID Election with respect to a Regular Certificate
purchased with market discount. See "Federal Income Tax Consequences -- REMIC
Certificates -- Original Issue Discount" above.
Until the Treasury promulgates applicable regulations, the purchaser of a
Regular Certificate with market discount generally may elect to accrue the
market discount either: (i) on the basis of a constant interest rate; (ii) in
the case of a Regular Certificate not issued with original issue discount, in
the ratio of stated interest payable in the relevant period to the total stated
interest remaining to be paid from the beginning of such period; or (iii) in
the case of a Regular Certificate issued with original issue discount, in the
ratio of original issue discount accrued for the relevant period to the total
remaining
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original issue discount at the beginning of such period. The Service indicated
in Revenue Procedure 92-67 the manner in which an election may be made to
accrue market discount on a Regular Certificate on the basis of a constant
interest rate. Regardless of which computation method is elected, the Pricing
Prepayment Assumptions must be used to calculate the accrual of market
discount.
A Certificateholder who has acquired any Regular Certificate with market
discount generally will be required to treat a portion of any gain on a sale or
exchange of the Certificate as ordinary income to the extent of the market
discount accrued to the date of disposition under one of the foregoing methods,
less any accrued market discount previously reported as ordinary income as
partial principal payments were received. Moreover, such Certificateholder
generally must defer interest deductions attributable to any indebtedness
incurred or continued to purchase or carry the Certificate to the extent they
exceed income on the Certificate. Any such deferred interest expense, in
general, is allowed as a deduction not later than the year in which the related
market discount income is recognized. If a holder of a Regular Certificate
makes a Current Recognition Election or an All OID Election, the interest
deferral rule will not apply. Under the Contingent Payment Regulations, a
secondary market purchaser of a Non-VRDI Certificate or an Interest Weighted
Certificate at a discount generally would continue to accrue interest and
determine adjustments on such Certificate based on the original projected
payment schedule devised by the issuer of such Certificate. See "Federal Income
Tax Consequences -- REMIC Certificates -- Original Issue Discount -- Interest
Weighted Certificates and Non-VRDI Certificates" herein. The holder of such a
Certificate would be required, however, to allocate the difference between the
adjusted issue price of the Certificate and its basis in the Certificate as
positive adjustments to the accruals or projected payments on the Certificate
over the remaining term of the Certificate in a manner that is reasonable
(E.G., based on a constant yield to maturity).
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those
rules. For example, the treatment of a Regular Certificate subject to optional
redemption that is acquired at a market discount is unclear. It appears likely,
however, that the market discount rules applicable in such a case would be
similar to the rules pertaining to original issue discount. Due to the
substantial lack of regulatory guidance with respect to the market discount
rules, it is unclear how those rules will affect any secondary market that
develops for a given Class of Regular Certificates. Prospective investors in
Regular Certificates should consult their own tax advisors regarding the
application of the market discount rules to those certificates.
AMORTIZABLE PREMIUM
A purchaser of a Regular Certificate who purchases the Certificate at a
premium over the total of its Deemed Principal Payments may elect to amortize
such premium under a constant yield method that reflects compounding based on
the interval between payments on the Certificates. The legislative history of
the 1986 Act indicates that premium is to be accrued in the same manner as
market discount. Accordingly, it appears that the accrual of premium on a
Regular Certificate will be calculated using the Pricing Prepayment
Assumptions. Under Treasury regulations, amortized premium generally would be
treated as an offset to interest income on a Regular Certificate and not as a
separate deduction item. If a holder makes an election to amortize premium on a
Regular Certificate, such election will apply to all taxable debt instruments
(including all REMIC regular interests) held by the holder at the beginning of
the taxable year in which the election is made, and to all taxable debt
instruments acquired thereafter by such holder, and will be irrevocable without
the consent of the Service. Purchasers who pay a premium for the Regular
Certificates should consult their tax advisors regarding the election to
amortize premium and the method to be employed.
Amortizable premium on a Regular Certificate that is subject to redemption
at the option of the Company generally must be amortized as if the optional
redemption price and date were the Certificate's principal amount and maturity
date if doing so would result in a smaller amount of premium amortization
during the period ending with the optional redemption date. Thus, a
Certificateholder would not be able to amortize any premium on a Regular
Certificate that is subject to optional redemption at a price equal to or
greater than the Certificateholder's acquisition price unless and until the
redemption option expires. In cases where premium must be amortized on the
basis of the price and date of an optional redemption, the Certificate will be
treated as having matured on the redemption date for the redemption price and
then having been reissued on that date for that price. Any premium remaining on
the Certificate at the time of the deemed reissuance will be amortized on the
basis of (i) the original principal amount and maturity date or (ii) the price
and date of any succeeding optional redemption, under the principles described
above. Under the Contingent Payment Regulations, a secondary market purchaser
of a Non-VRDI Certificate or an Interest Weighted Certificate at a premium
generally would continue to accrue interest and determine adjustments on such
Certificate based on the original projected payment schedule devised by the
issuer of such Certificate. See "Federal Income Tax Consequences -- REMIC
Certificates -- Interest Weighted Certificates and Non-VRDI Certificates"
herein. The holder of such a Certificate would be required, however, to
allocate the difference between its basis
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in the Certificate and the adjusted issue price of the Certificate as negative
adjustments to the accruals or projected payments on the Certificate over the
remaining term of the Certificate in a manner that is reasonable (E.G., based
on a constant yield to maturity).
CONSEQUENCES OF REALIZED LOSSES
Under section 166 of the Code, both corporate holders of Regular
Certificates and noncorporate holders that acquire Regular Certificates in
connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their Regular
Certificates become wholly or partially worthless as the result of one or more
Realized Losses on the underlying Assets. However, a noncorporate holder that
does not acquire a Regular Certificate in connection with its trade or business
will not be entitled to deduct a loss under Code section 166 until its Regular
Certificate becomes wholly worthless (I.E., until its outstanding principal
balance has been reduced to zero), and the loss will be characterized as
short-term capital loss.
Each holder of a Regular Certificate will be required to accrue original
issue discount income with respect to such Certificate without giving effect to
any reduction in distributions attributable to a default or delinquency on the
underlying Assets until a Realized Loss is allocated to such Certificate or
until such earlier time as it can be established that any such reduction
ultimately will not be recoverable. As a result, the amount of original issue
discount reported in any period by the holder of a Regular Certificate could
exceed significantly the amount of economic income actually realized by the
holder in such period. Although the holder of a Regular Certificate eventually
will recognize a loss or a reduction in income attributable to previously
included original issue discount that, as a result of a Realized Loss,
ultimately will not be realized, the law is unclear with respect to the timing
and character of such loss or reduction in income. Accordingly, holders of
Regular Certificates should consult with their own tax advisors with respect to
the federal income tax consequences of Realized Losses on original issue
discount.
The Tax Administrator will adjust the accrual of original issue discount
on Regular Certificates in a manner that it believes to be appropriate to
reflect Realized Losses. However, there can be no assurance that the Service
will not contend successfully that a different method of accounting for the
effect of Realized Losses is correct and that such method will not have an
adverse effect upon the holders of Regular Certificates.
GAIN OR LOSS ON DISPOSITION
If a Regular Certificate is sold, the Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale
and his adjusted basis in the Certificate. The adjusted basis of a Regular
Certificate generally will equal the cost of the Certificate to the
Certificateholder, increased by any original issue discount or market discount
previously includible in the Certificateholder's gross income with respect to
the Certificate, and reduced by the portion of the basis of the Certificate
allocable to payments on the Certificate (other than Qualified Stated Interest)
previously received by the Certificateholder and by any amortized premium.
Similarly, a Certificateholder who receives a scheduled or prepaid principal
payment with respect to a Regular Certificate will recognize gain or loss equal
to the difference between the amount of the payment and the allocable portion
of his adjusted basis in the Certificate. Except to the extent that the market
discount rules apply and except as provided below, any gain or loss on the sale
or other disposition of a Regular Certificate generally will be capital gain or
loss. Such gain or loss will be long-term gain or loss if the Certificate is
held as a capital asset for the applicable long-term capital gain holding
period.
If the holder of a Regular Certificate is a bank, thrift, or similar
institution described in section 582 of the Code, any gain or loss on the sale
or exchange of such Certificate will be treated as ordinary income or loss. In
the case of other types of holders, gain from the disposition of a Regular
Certificate that otherwise would be capital gain will be treated as ordinary
income to the extent that the amount actually includible in income with respect
to the Certificate by the Certificateholder during his holding period is less
than the amount that would have been includible in income if the yield on that
Certificate during the holding period had been 110% of a specified U.S.
Treasury borrowing rate as of the date that the Certificateholder acquired the
Certificate. Although the legislative history to the 1986 Act indicates that
the portion of the gain from disposition of a Regular Certificate that will be
recharacterized as ordinary income is limited to the amount of original issue
discount (if any) on the Certificate that was not previously includible in
income, the applicable Code provision contains no such limitation.
A portion of any gain from the sale of a Regular Certificate that might
otherwise be capital gain may be treated as ordinary income to the extent that
such Certificate is held as part of a "conversion transaction" within the
meaning of section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in Certificates or
similar property that reduce or eliminate market risk, if substantially all of
the taxpayer's return is attributable
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to the time value of the taxpayer's net investment in such transaction. The
amount of gain realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest that would
have accrued on the taxpayer's net investment at 120% of the appropriate
"applicable federal rate" (which rate is computed and published monthly by the
Service) at the time the taxpayer entered into the conversion transaction,
subject to appropriate reduction for prior inclusion of interest and other
ordinary income from the transaction.
Currently, the highest marginal individual income tax bracket is 39.6%.
The alternative minimum tax rate for individuals is 26% with respect to
alternative minimum tax income up to $175,000 and 28% with respect to
alternative minimum tax income over $175,000. The highest marginal federal tax
rate applicable to individuals with respect to net capital gain on assets held
for one year or less generally is 28%. However, the highest marginal federal
tax rate on net capital gains for individuals generally has been reduced to 20%
for assets held for more than one year, and, for taxable years beginning after
December 31, 2000, will be further reduced for assets held more than 5 years.
Accordingly, there can be a significant marginal tax rate differential between
net capital gains and ordinary income for individuals. The highest marginal
corporate tax rate is 35% for corporate taxable income over $10 million, and
the marginal tax rate on corporate net capital gains is 35%.
TAX TREATMENT OF RESIDUAL CERTIFICATES
OVERVIEW
A Residual Certificate will represent beneficial ownership of a percentage
of the "residual interest" in the Series REMIC to which it relates, and a
Regular Certificate generally will represent beneficial ownership of a
percentage of a "regular interest" in the Series REMIC to which it relates. A
REMIC is an entity for federal income tax purposes consisting of a fixed pool
of mortgages (including manufactured housing installment sales contracts) or
other mortgage-backed assets in which investors hold multiple classes of
interests. To be treated as a REMIC, the Trust (or a segregated Asset Pool
thereof) underlying a Series must meet certain continuing qualification
requirements, and a REMIC election must be in effect. See "Federal Income Tax
Consequences -- REMIC Certificates -- REMIC Qualification" below. A REMIC
generally is treated as a pass-through entity for federal income tax purposes,
I.E., as not subject to entity-level tax. All interests in a REMIC other than
the residual interest must be regular interests. As described in "Federal
Income Tax Consequences -- REMIC Certificates -- Tax Treatment of Regular
Certificates" above, a regular interest has terms analogous to those of a debt
instrument and generally is treated as a debt instrument for all federal income
tax purposes. The Regular Certificates will generate interest and, depending
upon the issue price of the Regular Certificates, original issue discount
deductions or income attributable to premium for the related Series REMIC. As a
residual interest, a Residual Certificate represents the right to (i) the
stated principal and interest on such Certificate, if any, and (ii) such
Certificate's pro rata share of the income generated by the related Series
REMIC's assets in excess of the amount necessary to service that REMIC's
regular interests and pay that REMIC's expenses.
In a manner similar to that employed in the taxation of partnerships,
REMIC taxable income or loss will be determined at the REMIC level, but passed
through to the Residual Certificateholders. Thus, REMIC taxable income or loss
will be allocated pro rata to the related Residual Certificateholders, and each
such Certificateholder will report his share of REMIC taxable income or loss on
his own federal income tax return. Prospective investors in Residual
Certificates should be aware that the obligation to account for the related
Series REMIC's income or loss will continue until all of that REMIC's Regular
Certificates have been retired, which may not occur until well beyond the date
on which the last payments on Residual Certificates are made. In addition,
because of the way in which REMIC taxable income is calculated, a Residual
Certificateholder may recognize "phantom income" (I.E., income recognized for
tax purposes in excess of income as determined under financial accounting or
economic principles) which will be matched in later years by a corresponding
tax loss or reduction in taxable income, but which could lower the yield to
Residual Certificateholders due to the lower present value of such loss or
reduction.
A portion of the income of a Residual Certificateholder may be treated
unfavorably in three contexts: (i) it may not be offset by current or net
operating loss deductions; (ii) it will be considered UBTI to tax-exempt
entities; and (iii) it is ineligible for any statutory or treaty reduction in
the 30% withholding tax otherwise available to a foreign Residual
Certificateholder.
The concepts presented in this overview are discussed more fully below.
TAXATION OF RESIDUAL CERTIFICATEHOLDERS
A Residual Certificateholder will recognize his share of the related
Series REMIC's taxable income or loss for each day during his taxable year on
which he holds the Residual Certificate. The amount so recognized will be
characterized as
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ordinary income or loss and will not be taxed separately to the Series REMIC.
If a Residual Certificate is transferred during a calendar quarter, REMIC
taxable income or loss for that quarter will be prorated between the transferor
and the transferee on a daily basis.
A REMIC generally determines its taxable income or loss in a manner
similar to that of an individual using a calendar year and the accrual method
of accounting. A REMIC's taxable income or loss generally will be characterized
as ordinary income or loss, and will consist of the REMIC's gross income,
including interest, original issue discount, and market discount income, if
any, on the REMIC's assets (including temporary cash flow investments), premium
amortization on the REMIC's Regular Certificates, income from foreclosure
property, and any cancellation of indebtedness income due to the allocation of
realized losses to the REMIC's Regular Certificates, reduced by the REMIC's
deductions, including deductions for interest and original issue discount
expense on the REMIC's Regular Certificates, premium amortization and servicing
fees with respect to the REMIC's assets, the administrative expenses of the
REMIC and the Regular Certificates, any tax imposed on the REMIC's income from
foreclosure property, and any bad debt deductions with respect to the related
Assets. The REMIC may not take into account any items allocable to a
"prohibited transaction." See "Federal Income Tax Consequences -- REMIC
Certificates -- REMIC-Level Taxes" below. The deduction of REMIC expenses by
Residual Certificateholders who are individuals is subject to certain
limitations as described below in "Federal Income Tax Consequences -- REMIC
Certificates -- Special Considerations for Certain Types of Investors --
Individuals and Pass-Through Entities" below.
The amount of the REMIC's net loss with respect to a calendar quarter that
may be deducted by a Residual Certificateholder is limited to such
Certificateholder's adjusted basis in the Residual Certificate as of the end of
that quarter (or time of disposition of the Residual Certificate, if earlier),
determined without taking into account the net loss for that quarter. A
Residual Certificateholder's basis in its Residual Certificate initially is
equal to the price paid for such Certificate. Such basis is increased by the
amount of taxable income of the REMIC reportable by the Residual
Certificateholder with respect to the Residual Certificate and decreased (but
not below zero) by the amount of distributions made and the amount of net
losses recognized with respect to that Certificate. The amount of the REMIC's
net loss allocable to a Residual Certificateholder that is disallowed under the
basis limitation may be carried forward indefinitely, but may be used only to
offset income with respect to the related Residual Certificate. The ability of
Residual Certificateholders to deduct net losses with respect to a Residual
Certificate may be subject to additional limitations under the Code, as to
which Certificateholders should consult their tax advisors. A distribution with
respect to a Residual Certificate is treated as a non-taxable return of capital
up to the amount of the Residual Certificateholder's adjusted basis in his
Residual Certificate. If a distribution exceeds the adjusted basis of the
Residual Certificate, the excess is treated as gain from the sale of such
Residual Certificate.
Although the law is unclear in certain respects, a Residual
Certificateholder effectively should be able to recover some or all of the
basis in his Residual Certificate as the related REMIC recovers the basis of
its assets through either the amortization of premium on such assets or the
allocation of basis to principal payments received on such assets. A REMIC's
initial aggregate basis in its assets generally will equal the sum of the issue
prices of its Regular Certificates and Residual Certificates. In general, the
issue price of a Regular Certificate of a particular Class is the initial price
at which a substantial amount of the Certificates of such Class is sold to the
public. In the case of a Regular Certificate of a Class not offered to the
public in substantial amounts, the issue price is either the price paid by the
first purchaser of such Certificate or the fair market value of the property
received in exchange for such Certificate, as appropriate. The REMIC's
aggregate basis will be allocated among its assets in proportion to their
respective fair market values.
The assets of certain Series REMICs may have bases that exceed their
principal amounts. Except as indicated in "Federal Income Tax Consequences --
REMIC Certificates -- Treatment by the REMIC of Original Issue Discount, Market
Discount, and Amortizable Premium" below, the premium on such assets will be
amortizable under the constant yield method and the same prepayment assumptions
used in pricing the Certificates. The amortized premium will reduce the REMIC's
taxable income or increase its tax loss for each year, which will offset a
corresponding amount of the stated interest or other residual cash flow, if
any, allocable to the Residual Certificateholders. It should be noted, however,
that the law concerning the amortization of premium on Assets is unclear in
certain respects. If the Service were to contend successfully that part or all
of the premium on the assets underlying a REMIC is not amortizable, the holders
of the Residual Certificates in such REMIC would recover the basis attributable
to the unamortizable premium only as principal payments are received on such
assets or upon the disposition or worthlessness of their Residual Certificates.
The inability to amortize part or all of the premium could give rise to timing
differences between the REMIC's income and deductions, creating phantom income
(as described below).
In the first years after the issuance of the Regular Certificates, REMIC
taxable income may include significant amounts of phantom income. Phantom
income arises from timing differences between income on the underlying Assets
and deductions on the Regular Certificates that result from the multiple-class
structure of the Certificates. Since phantom income will
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arise from timing differences between income and deductions, it will be matched
by a corresponding loss or reduction in taxable income in later years, during
which economic or financial income will exceed REMIC taxable income. Any
acceleration of taxable income, however, could lower the yield to a Residual
Certificateholder, since the present value of the tax paid on that income will
exceed the present value of the corresponding tax reduction in the later years.
The amount and timing of any phantom income are dependent upon (i) the
structure of the particular REMIC and (ii) the rate of prepayment on the Assets
held by the REMIC and, therefore, cannot be predicted without reference to a
particular REMIC.
The assets of certain Series REMICs may have bases that are less than
their principal amounts. In such a case, a Residual Certificateholder will
recover the basis in his Residual Certificate as the REMIC recovers the portion
of its basis in the assets that is attributable to the residual interest. The
REMIC's basis in the assets is recovered as it is allocated to principal
payments received by the REMIC.
A portion of a Series REMIC's taxable income may be subject to special
treatment. That portion (known as "excess inclusion income") generally is any
taxable income beyond that which the Residual Certificateholder would have
recognized had the Residual Certificate been a conventional debt instrument
bearing interest at 120% of the applicable long-term federal rate (based on
quarterly compounding) as of the date on which the Residual Certificate was
issued. Excess inclusion income generally is intended to approximate phantom
income and may result in unfavorable tax consequences for certain investors.
See "Federal Income Tax Consequences -- REMIC Certificates -- Tax Treatment of
Residual Certificates -- Limitations on Offset or Exemption of REMIC Income"
and " -- Special Considerations for Certain Types of Investors" below.
LIMITATIONS ON OFFSET OR EXEMPTION OF REMIC INCOME
Generally, a Residual Certificateholder's taxable income for any taxable
year may not be less than such Certificateholder's excess inclusion income for
that taxable year. Excess inclusion income is equal to the excess of REMIC
taxable income for the quarterly period for the Residual Certificates over the
product of (i) 120% of the long-term applicable federal rate that would have
applied to the Residual Certificates if they were debt instruments for federal
income tax purposes on the Closing Date and (ii) the adjusted issue price of
such Residual Certificates at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning of
a quarter is the issue price of the Residual Certificate, increased by the
amount of the daily accruals of REMIC income for all prior quarters, and
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. If the Residual
Certificateholder is an organization subject to the tax on UBTI imposed by Code
section 511, the Residual Certificateholder's excess inclusion income will be
treated as UBTI. In addition, under Treasury regulations yet to be issued, if a
REIT or a RIC owns a Residual Certificate that generates excess inclusion
income, a pro rata portion of the dividends paid by the REIT or the RIC
generally will constitute excess inclusion income for their shareholders.
Finally, Residual Certificateholders who are foreign persons will not be
entitled to any exemption from the 30% withholding tax or a reduced treaty rate
with respect to their excess inclusion income from the REMIC. See "Federal
Income Tax Consequences -- REMIC Certificates -- Taxation of Certain Foreign
Holders of REMIC Certificates -- Residual Certificates" below.
NON-RECOGNITION OF CERTAIN TRANSFERS FOR FEDERAL INCOME TAX PURPOSES
In addition to the limitations specified above, the REMIC Provisions
provide that the transfer of a "noneconomic residual interest" to a United
States person will be disregarded for tax purposes if a significant purpose of
the transfer was to impede the assessment or collection of tax. A Residual
Certificate will constitute a noneconomic residual interest unless, at the time
the interest is transferred, (i) the present value of the expected future
distributions with respect to the Residual Certificate equals or exceeds the
product of the present value of the anticipated excess inclusion income and the
highest corporate tax rate for the year in which the transfer occurs, and (ii)
the transferor reasonably expects that the transferee will receive
distributions from the REMIC in amounts sufficient to satisfy the taxes on
excess inclusion income as they accrue. If a transfer of a residual interest is
disregarded, the transferor would continue to be treated as the owner of the
Residual Certificate and thus would continue to be subject to tax on its
allocable portion of the net income of the related REMIC. 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 (I.E., the transferor had "improper knowledge"). Under the
REMIC Provisions, a transferor is presumed not to have such improper knowledge
if (i) the transferor conducted, at the time of the transfer, a reasonable
investigation of the financial condition of the transferee and, as a result of
the investigation, the transferor found that the transferee had historically
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 come due and
(ii) the transferee represents to the transferor that it understands that, as
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the holder of a noneconomic residual interest, it may incur tax liabilities in
excess of any cash flows generated by the interest and that it intends to pay
the taxes associated with holding the residual interest as they become due. A
similar limitation exists with respect to transfers of certain residual
interests to foreign investors. See "Federal Income Tax Consequences -- REMIC
Certificates -- Taxation of Certain Foreign Holders of REMIC Certificates --
Residual Certificates" below.
OWNERSHIP OF RESIDUAL INTERESTS BY DISQUALIFIED ORGANIZATIONS
The Code contains three sanctions that are designed to prevent or
discourage the direct or indirect ownership of a REMIC residual interest (such
as a Residual Certificate) by the United States, any state or political
subdivision thereof, any foreign government, any international organization,
any agency or instrumentality of any of the foregoing, any tax-exempt
organization (other than a farmers' cooperative described in section 521 of the
Code) unless such organization is subject to the tax on UBTI, or any rural
electrical or telephone cooperative (each a "Disqualified Organization"). A
corporation is not treated as an instrumentality of the United States or any
state or political subdivision thereof if all of its activities are subject to
tax and, with the exception of FHLMC, a majority of its board of directors is
not selected by such governmental unit.
First, REMIC status is dependent upon the presence of reasonable
arrangements designed to prevent a Disqualified Organization from acquiring
record ownership of any portion of the REMIC's residual interest. No residual
interest issued pursuant to a Pooling and Servicing Agreement (whether or not
such interest is represented by a Residual Certificate) will be offered for
sale to Disqualified Organizations. Furthermore, (i) the residual interest in
each Series REMIC will be registered as to both principal and any stated
interest with the Trustee (or its agent) and transfer of such residual interest
(or a percentage interest therein) may be effected only (A) by surrender of the
old residual interest instrument and reissuance by the Trustee of a new
residual interest instrument to the new holder or (B) through a book-entry
system maintained by the Trustee; (ii) the applicable Pooling and Servicing
Agreement will prohibit the ownership of residual interests by Disqualified
Organizations; and (iii) each residual interest instrument will contain a
legend providing notice of that prohibition. Consequently, each Series REMIC
should be considered to have made reasonable arrangements designed to prevent
the ownership of its residual interest by Disqualified Organizations.
Second, the Code imposes a one-time tax on the transferor of a residual
interest (including a Residual Certificate or an interest therein) to a
Disqualified Organization. The one-time tax equals the product of (i) the
present value of the total anticipated excess inclusions with respect to the
transferred residual interest for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. Under the
REMIC Provisions, the anticipated excess inclusions with respect to a
transferred residual interest must be based on (i) both actual prior prepayment
experience and the prepayment assumptions used in pricing the related REMIC's
interests and (ii) any required or permitted clean up calls, or required
qualified liquidation provided for in the REMIC's organizational documents. The
present value of anticipated excess inclusions is determined using a discount
rate equal to the applicable federal rate that would apply to a debt instrument
that was issued on the date the Disqualified Organization acquired the residual
interest and whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the residual interest. Where
a transferee is acting as an agent for a Disqualified Organization, the
transferee is subject to the one-time tax. For that purpose, the term "agent"
includes a broker, nominee, or other middleman. Upon the request of such
transferee or the transferor, the REMIC must furnish to the requesting party
and to the Service information sufficient to permit the computation of the
present value of the anticipated excess inclusions. The transferor of a
residual interest (including a Residual Certificate or interest therein) will
not be liable for the one-time tax if the transferee furnishes to the
transferor an affidavit that states, 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 one-time tax must be paid by April 15th of the year following the
calendar year in which the residual interest is transferred to a Disqualified
Organization. The one-time tax may be waived by the Secretary of the Treasury
if, upon discovery that a transfer is subject to the one-time tax, the
Disqualified Organization promptly disposes of the residual interest and the
transferor pays any amounts that the Secretary of the Treasury may require.
Third, the Code imposes an annual tax on any pass-through entity (I.E., a
RIC, REIT, common trust fund, partnership, trust, estate or cooperative
described in Code section 1381) that owns a direct or indirect interest in a
residual interest (including a Residual Certificate), if record ownership of an
interest in the pass-through entity is held by one or more Disqualified
Organizations. The tax imposed equals the highest corporate income tax rate
multiplied by the share of any excess inclusion income of the pass-through
entity for the taxable year allocable to interests in the pass-through entity
held by Disqualified Organizations. The same tax applies to a nominee who
acquires an interest in a residual interest (including a Residual Certificate)
on behalf of a Disqualified Organization. For example, a broker that holds an
interest in a Residual Certificate in "street name" for a Disqualified
Organization is subject to the tax. The tax due must be paid by the fifteenth
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day of the fourth month following the close of the taxable year of the
pass-through entity in which the Disqualified Organization is a record holder.
Any such tax imposed on a pass-through entity would be deductible against that
entity's ordinary income in determining the amount of its required
distributions. In addition, dividends paid by a RIC or a REIT are not
considered preferential dividends within the meaning of section 562(c) of the
Code solely because the RIC or REIT allocates such tax expense only to the
shares held by Disqualified Organizations. A pass-through entity will not be
liable for the annual tax if the record holder of the interest in the
pass-through entity furnishes to the pass-through entity an affidavit that
states, under penalties of perjury, that the record holder is not a
Disqualified Organization, and the pass-through entity does not have actual
knowledge that such affidavit is false.
The REMIC Provisions also require that reasonable arrangements be made
with respect to each REMIC to enable the REMIC to provide the Treasury and the
transferor with information necessary for the application of the one-time tax
described above. Consequently, the applicable Pooling and Servicing Agreement
will provide for the Servicer or an Affiliate thereof to perform such
information services as may be required for the application of the one-time
tax. If a Residual Certificateholder transfers an interest in a Residual
Certificate in violation of the relevant transfer restrictions and triggers the
information requirement, the Servicer or Affiliate thereof may charge such
Residual Certificateholder a reasonable fee for providing the information.
SPECIAL CONSIDERATIONS FOR CERTAIN TYPES OF INVESTORS
DEALERS IN SECURITIES. Residual Certificateholders that are dealers in
securities should be aware that, under Treasury regulations (the
"Mark-to-Market Regulations") relating to the mark-to-market accounting
provisions under section 475 of the Code dealers in securities are not
permitted to mark to market any REMIC residual interests acquired on or after
January 4, 1995. Prospective purchasers of Residual Certificates should consult
with their tax advisors regarding the possible application of the
Mark-to-Market Regulations to such Certificates.
TAX-EXEMPT ENTITIES. Any excess inclusion income with respect to a
Residual Certificate held by a tax-exempt entity, including a qualified
profit-sharing, pension, or other employee benefit plan, will be treated as
UBTI. Although the legislative history and statutory provisions imply
otherwise, the Treasury conceivably could take the position that, under pre-
existing Code provisions, substantially all income on a Residual Certificate
(including non-excess inclusion income) is to be treated as UBTI. See "Federal
Income Tax Consequences -- REMIC Certificates -- Taxation of Residual
Certificateholders" above.
INDIVIDUALS AND PASS-THROUGH ENTITIES. A Residual Certificateholder who is
an individual, trust, or estate will be permitted to deduct its allocable share
of the fees or expenses relating to servicing the assets of and administering
the related REMIC under section 212 of the Code only to the extent that the
amount of such fees and expenses, when combined with the Residual
Certificateholder's other miscellaneous itemized deductions for the taxable
year, exceeds 2% of that holder's adjusted gross income. That same limitation
will apply to individuals, trusts, or estates that hold Residual Certificates
indirectly through a grantor trust, a partnership, an S corporation, a common
trust fund, a REMIC, or a nonpublicly offered RIC. A nonpublicly offered RIC is
a RIC other than one whose shares are (i) continuously offered pursuant to a
public offering; (ii) regularly traded on an established securities market; or
(iii) held by no fewer than 500 persons at all times during the taxable year.
In addition, that limitation will apply to individuals, trusts, or estates that
hold Residual Certificates through any other person (i) that is not generally
subject to federal income tax and (ii) the character of whose income may affect
the character of the income generated by that person for its owners or
beneficiaries. Further, Code section 68 provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount ($100,000, or $50,000 in
the case of a separate return by a married individual within the meaning of
Code section 7703 for taxable year 1991 and adjusted for inflation each year
thereafter) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. In some cases, the amount
of additional income that would be recognized as a result of the foregoing
limitations by a Residual Certificateholder who is an individual, trust, or
estate could be substantial. Non-corporate holders of Residual Certificates
also should be aware that miscellaneous itemized deductions, including
allocable investment expenses attributable to the related Series REMIC, are not
deductible for purposes of the alternative minimum tax. Finally, persons
holding an interest in a Residual Certificate indirectly through an interest in
a RIC, common trust fund or one of certain corporations doing business as a
cooperative generally will recognize a share of any excess inclusion allocable
to that Residual Certificate.
EMPLOYEE BENEFIT PLANS. See "Federal Income Tax Consequences -- REMIC
Certificates -- Special Considerations for Certain Types of Investors --
Tax-exempt entities" above and "ERISA Considerations" below.
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REITS AND RICS. If a Residual Certificateholder is a REIT and the related
Series REMIC generates excess inclusion income, a portion of REIT dividends
will be treated as excess inclusion income for the REIT's shareholders, in a
manner to be provided by regulations. Thus, shareholders in a REIT that invests
in Residual Certificates could face unfavorable treatment of a portion of their
REIT dividend income for purposes of (i) using current deductions or net
operating loss carryovers or carrybacks; (ii) UBTI in the case of tax-exempt
shareholders; and (iii) withholding tax in the case of foreign shareholders
(see "Federal Income Tax Consequences -- REMIC Certificates -- Special
Considerations for Certain Types of Investors -- Foreign Residual
Certificateholders" below). Moreover, because Residual Certificateholders may
recognize phantom income (see "Federal Income Tax Consequences -- REMIC
Certificates -- Taxation of Residual Certificateholders" above), a REIT
contemplating an investment in Residual Certificates should consider carefully
the effect of any phantom income upon its ability to meet its income
distribution requirements under the Code. The same rules regarding excess
inclusion will apply to a Residual Certificateholder that is a RIC, common
trust fund, or one of certain corporations doing business as a cooperative.
A Residual Certificate held by a REIT will be treated as a real estate
asset for purposes of the REIT qualification requirements in the same
proportion that the related Series REMIC's assets would be treated as real
estate assets if held directly by the REIT, and interest income derived from
such Residual Certificate will be treated as Qualifying REIT Interest to the
same extent. If 95% or more of a Series REMIC's assets qualify as real estate
assets for REIT purposes, 100% of that REMIC's regular and residual interests
(including Residual Certificates) will be treated as real estate assets for
REIT purposes, and all of the income derived from such interests will be
treated as Qualifying REIT Interest. The REMIC Provisions provide that payments
of principal and interest on Assets that are reinvested pending distribution to
the holders of the REMIC Certificates constitute real estate assets for REIT
purposes. Two REMICs that are part of a tiered structure will be treated as one
REMIC for purposes of determining the percentage of assets of each REMIC that
constitutes real estate assets. It is expected that at least 95% of the assets
of each Series REMIC will be real estate assets throughout such REMIC's life.
The amount treated as a real estate asset in the case of a Residual Certificate
apparently is limited to the REIT's adjusted basis in the Certificate.
Significant uncertainty exists with respect to the treatment of a Residual
Certificate for purposes of the various asset composition requirements
applicable to RICs. A Residual Certificate should be treated as a "security,"
but probably will not be considered a "Government security" for purposes of
section 851(b)(4) of the Code. Moreover, it is unclear whether a Residual
Certificate will be treated as a "voting security" under that Code section.
Finally, because a Series REMIC will be treated as the "issuer" of the Residual
Certificate for purposes of that section, a RIC would be unable to invest more
than 25% of the value of its total assets in Residual Certificates issued by
the same Series REMIC.
FOREIGN RESIDUAL CERTIFICATEHOLDERS. Certain adverse tax consequences may
be associated with the holding of certain Residual Certificates by a foreign
person or with the transfer of such Certificates to or from a foreign person.
See "Federal Income Tax Consequences -- REMIC Certificates -- Taxation of
Certain Foreign Holders of REMIC Certificates -- Residual Certificates" below.
THRIFT INSTITUTIONS, BANKS, AND CERTAIN OTHER FINANCIAL INSTITUTIONS.
Residual Certificates will be treated as qualifying assets for Thrift
Institutions in the same proportion that the assets of the Series REMIC to
which they relate would be so treated. However, if 95% or more of the assets of
a given Series REMIC are qualifying assets for Thrift Institutions, 100% of
that REMIC's regular and residual interests (including Residual Certificates)
would be treated as qualifying assets. In addition, the REMIC Provisions
provide that payments of principal and interest on Assets included in a REMIC
that are reinvested pending their distribution to the holders of the related
REMIC Certificates will be treated as qualifying assets for Thrift
Institutions. Moreover, two REMICs that are part of a tiered structure will be
treated as one REMIC for purposes of determining the percentage of assets of
each REMIC that constitutes qualifying assets for Thrift Institution purposes.
It is expected that at least 95% of the assets of each Series REMIC will be
qualifying assets for Thrift Institutions throughout such REMIC's life. The
amount of a Residual Certificate treated as a qualifying asset for Thrift
Institutions, however, cannot exceed the holder's adjusted basis in that
Residual Certificate.
Generally, gain or loss arising from the sale or exchange of Residual
Certificates held by certain financial institutions will give rise to ordinary
income or loss, regardless of the length of the holding period for the Residual
Certificates. Those financial institutions include banks, mutual savings banks,
cooperative banks, domestic building and loan institutions, savings and loan
institutions, and similar institutions. See "Federal Income Tax Consequences --
REMIC Certificates -- Tax Treatment of Residual Certificates -- Disposition of
Residual Certificates" below.
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DISPOSITION OF RESIDUAL CERTIFICATES
Upon the sale or exchange of a Residual Certificate, a Residual
Certificateholder will recognize gain or loss equal to the difference between
the amount realized and its adjusted basis in the Residual Certificate. It is
possible that a disqualification of a Series REMIC (other than an inadvertent
disqualification for which relief may be provided in Treasury regulations) may
be treated as a sale or exchange of a related Residual Certificate. If the
holder has held the Residual Certificate for the applicable long-term capital
gain holding period, gain or loss on its disposition generally will be
characterized as long-term capital gain or loss. In the case of banks, thrifts,
and certain other financial institutions described in section 582 of the Code,
however, gain or loss on the disposition of a Residual Certificate will be
treated as ordinary gain or loss, regardless of the length of the holding
period. See "Federal Income Tax Consequences -- REMIC Certificates -- Special
Considerations for Certain Types of Investors" herein.
A special version of the wash sale rules of the Code applies to
dispositions of Residual Certificates. Under that rule, losses on dispositions
of Residual Certificates generally will be disallowed where, within six months
before or after the disposition, the seller of such Certificates acquires any
residual interest in a REMIC or any interest in a Taxable Mortgage Pool that is
economically comparable to a Residual Certificate. Treasury Regulations
providing for appropriate exceptions to the application of the wash sale rules
have been authorized, but have not yet been promulgated.
LIQUIDATION OF THE REMIC
A REMIC may liquidate without the imposition of entity-level tax only in a
qualified liquidation. A liquidation is considered a "qualified liquidation" if
the REMIC (i) adopts a plan of complete liquidation; (ii) sells all of its
non-cash assets within 90 days of the date on which it adopts the plan; and
(iii) credits or distributes in liquidation all of the sale proceeds plus its
cash (other than amounts retained to meet claims against it) to its
Certificateholders within that 90-day period. An early termination of a REMIC
caused by the redemption of all outstanding classes of Certificates issued by
such REMIC, and the distribution to the Residual Certificateholders of the
excess, if any, of the fair market value of the REMIC's assets at the time of
such redemption over the unpaid principal balance and accrued and unpaid
interest of such REMIC Certificates (and any administrative costs associated
with such REMIC), will constitute a complete liquidation as described in the
preceding sentence. Under the REMIC Provisions, a plan of liquidation need not
be in any special form. Furthermore, if a REMIC specifies the first day in the
90-day liquidation period in a statement attached to its final tax return, the
REMIC will be considered to have adopted a plan of liquidation on that date.
TREATMENT BY THE REMIC OF ORIGINAL ISSUE DISCOUNT, MARKET DISCOUNT, AND
AMORTIZABLE PREMIUM
ORIGINAL ISSUE DISCOUNT. Generally, a REMIC's deductions for original
issue discount expense on its REMIC Certificates will be determined in the same
manner as for determining the original issue discount income on such
Certificates as described in "Federal Income Tax Consequences -- REMIC
Certificates -- Tax Treatment of Regular Certificates -- Original Issue
Discount" above, without regard to the DE MINIMIS rule described therein.
MARKET DISCOUNT. In general, a REMIC will have market discount income with
respect to its Qualified Mortgages if the basis of the REMIC in such assets is
exceeded by their adjusted issue prices. A REMIC's aggregate initial basis in
its Qualified Mortgages (and any other assets transferred to the REMIC on the
startup day) equals the aggregate of the issue prices of the regular and
residual interests in the REMIC. That basis is allocated among the REMIC's
Qualified Mortgages based on their relative fair market values. Any market
discount that accrues on a REMIC's Qualified Mortgages will be recognized
currently as an item of REMIC ordinary income. The amount of market discount
income to be recognized in any period is determined in a manner generally
similar to that used in the determination of original issue discount, as if the
Qualified Mortgages had been issued (i) on the date they were acquired by the
REMIC and (ii) for a price equal to the REMIC's initial basis in the Qualified
Mortgages. The same prepayment assumptions used in pricing the Certificates are
used to compute the yield to maturity of a REMIC's Qualified Mortgages.
PREMIUM. Generally, if the basis of a REMIC in its Qualified Mortgages
exceeds the unpaid principal balances of those assets the REMIC will be
considered to have acquired such assets at a premium equal to the amount of
such excess. A REMIC that holds a Qualified Mortgage as a capital asset may
elect under Code section 171 to amortize premium on such asset under a constant
interest method, to the extent such asset was originated, or treated as
originated, after September 27, 1985. The legislative history to the 1986 Act
indicates that, while the deduction for amortization of premium will not be
subject to the limitations on miscellaneous itemized deductions of individuals,
it will be treated as interest expense for purposes of other provisions in the
1986 Act limiting the deductibility of interest for non-corporate taxpayers.
Because substantially all of the obligors on the Assets are expected to be
individuals, section 171 of the Code will not be available for the
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amortization of premium on such Assets to the extent they were originated on or
prior to September 27, 1985. Such premium may be amortizable under more general
provisions and principles of federal income tax law in accordance with a
reasonable method regularly employed by the holder of such Assets. The
allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Service may argue that such
premium should be allocated in a different manner, such as allocating such
premium entirely to the final payment of principal.
REMIC-LEVEL TAXES
Income from certain transactions by a REMIC, called prohibited
transactions, will not be part of the calculation of the REMIC's income or loss
that is includible in the federal income tax returns of Residual
Certificateholders, but rather will be taxed directly to the REMIC at a 100%
rate. In addition, net income from one prohibited transaction may not be offset
by losses from other prohibited transactions. Prohibited transactions generally
include: (i) the disposition of Qualified Mortgages other than pursuant to (a)
the repurchase of a defective asset, (b) the substitution for a defective asset
within two years of the closing date, (c) a substitution for any Qualified
Mortgage within three months of the closing date, (d) the foreclosure, default,
or imminent default of a Qualified Mortgage, (e) the bankruptcy or insolvency
of the REMIC, (f) the sale of an adjustable-rate asset the interest rate on
which is convertible to a fixed rate of interest upon its conversion for an
amount equal to the asset's current principal balance plus accrued but unpaid
interest (and provided that certain other requirements are met) or (g) a
qualified liquidation of the REMIC; (ii) the receipt of income from assets that
are not the type of assets or investments that a REMIC is permitted to hold;
(iii) the receipt of compensation for services by a REMIC; and (iv) the receipt
of gain from disposition of cash-flow investments other than pursuant to a
qualified liquidation of the REMIC. A disposition of a Qualified Mortgage or
cash flow investment will not give rise to a prohibited transaction, however,
if the disposition was (i) required to prevent default on a regular interest
resulting from a default on one or more of the REMIC's Qualified Mortgages or
(ii) made to facilitate a clean-up call. The REMIC Provisions define a clean-up
call as the redemption of a class of regular interests when, by reason of prior
payments with respect to those interests, the administrative costs associated
with servicing the class outweigh the benefits of maintaining the class. Under
those regulations, the redemption of a class of regular interests with an
outstanding principal balance of no more than 10% of the original principal
balance qualifies as a clean-up call. The REMIC Provisions also provide that
the modification of an asset generally will not be treated as a disposition of
that asset if it is occasioned by a default or a reasonably foreseeable
default, an assumption of the asset, the waiver of a due-on-sale or encumbrance
clause, or the conversion of an interest rate by an obligor pursuant to the
terms of a convertible adjustable rate asset.
In addition, a REMIC generally will be taxed at a 100% rate on any
contribution to the REMIC after the closing date unless such contribution is a
cash contribution that (i) takes place within the three-month period beginning
on the closing date; (ii) is made to facilitate a clean-up call (as defined in
the preceding paragraph) or a qualified liquidation (as defined in "Federal
Income Tax consequences -- REMIC Certificates -- Liquidation of the REMIC"
above); (iii) is a payment in the nature of a guarantee; (iv) constitutes a
contribution by the holder of the Residual Certificates in the REMIC to a
qualified reserve fund; or (v) is otherwise permitted by Treasury regulations
yet to be issued. The structure and operation of each Series REMIC will be
designed to avoid the imposition of the 100% tax on contributions.
To the extent that a REMIC derives certain types of income from
foreclosure property (generally, income relating to dealer activities of the
REMIC), it will be taxed on such income at the highest corporate income tax
rate. Although the relevant law is unclear, it is not anticipated that any
Series REMIC will receive significant amounts of such income.
The organizational documents governing the Regular and Residual
Certificates of a Series REMIC will be designed to prevent the imposition of
the foregoing taxes on such REMIC in any material amounts. If any of the
foregoing taxes is imposed on a Series REMIC, the Trustee will seek to place
the burden thereof on the person whose action or inaction gave rise to such
taxes. To the extent that the Trustee is unsuccessful in doing so, the burden
of such taxes will be borne by any outstanding subordinated Class of
Certificates before it is borne by a more senior Class of Certificates.
REMIC QUALIFICATION
The Trust underlying a Series (or one or more designated Asset Pools
thereof) will qualify under the Code as a REMIC if a REMIC election is in
effect and certain tests concerning (i) the composition of the assets of the
REMIC and (ii) the nature of the Certificateholders' interests in the REMIC are
met on a continuing basis.
ASSET COMPOSITION
In order for a Trust (or one or more designated Asset Pools thereof) to be
eligible for REMIC status, substantially all of the assets of the Trust (or the
designated Asset Pool) must consist of "qualified mortgages" and "permitted
investments"
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as of the close of the third month beginning after the closing date and at all
times thereafter. Substantially all of a REMIC's assets will be deemed to
consist of "Qualified Mortgages" and "permitted investments" if no more than a
DE MINIMIS amount of its assets (I.E., assets with an aggregate adjusted basis
that is less than 1% of the aggregate adjusted basis of all the REMIC's assets)
are assets other than qualified mortgages and permitted investments.
A "Qualified Mortgage" is any obligation that is principally secured by an
interest in real property, including a regular interest in another REMIC, and
that is either transferred to the REMIC on the closing date or purchased by the
REMIC pursuant to a fixed price contract within a three-month period
thereafter. Under the REMIC Provisions, a Qualified Mortgage includes any
obligation secured by manufactured housing that qualifies as a "single family
residence" within the meaning of Code section 25(e)(10). Manufactured housing
qualifies as a "single family residence" under Code Section 25(e)(10) if it:
(i) is used as a single family residence; (ii) has a minimum of 400 square feet
of living space and a minimum width in excess of 102 inches; and (iii) is of a
kind customarily used at a fixed location. A Qualified Mortgage also includes a
"qualified replacement mortgage," which is any property that would have been
treated as a Qualified Mortgage if it were transferred to the REMIC on the
closing date and that is received either in exchange for a defective asset
within a two-year period beginning on the closing date or in exchange for any
Qualified Mortgage within a three-month period beginning on that date.
The Mortgage Loans of each Series REMIC will be treated as Qualified
Mortgages. In addition, the Seller will represent and warrant in the related
Pooling and Servicing Agreement or Sales Agreement, as the case may be, that
each Contract will be secured by a Manufactured Home that meets the definition
of "single family residence" in section 25(e)(10) of the Code. Accordingly the
Contracts of each Series REMIC will be treated as Qualified Mortgages.
"Permitted Investments" include cash flow investments, qualified reserve
assets, and foreclosure property. Cash flow investments are investments of
amounts received with respect to Qualified Mortgages for a temporary period
(not to exceed thirteen months) before distribution to holders of regular or
residual interests in the REMIC. Qualified reserve assets are intangible
investment assets (other than REMIC residual interests) that are part of a
qualified reserve fund maintained by the REMIC. A qualified reserve fund is any
reasonably required reserve maintained by a REMIC to provide for full payment
of expenses of the REMIC or amounts due on the regular interests or residual
interest in such REMIC in the event of (i) defaults or delinquencies on the
Qualified Mortgages held by such REMIC; (ii) interest shortfalls on such
Qualified Mortgages caused by prepayments of those assets; (iii) lower than
expected returns on cash-flow investments; or (iv) unanticipated losses or
expenses incurred by the REMIC. A qualified reserve fund will be disqualified
if more than 30% of the gross income from the assets in such fund for the year
is derived from the sale of property held for less than three months, unless
such sale was required to prevent a default on the regular interests caused by
a default on one or more Qualified Mortgages. To the extent that the amount in
a qualified reserve fund exceeds a reasonably required amount, it must be
reduced "promptly and appropriately." Foreclosure property generally is
property acquired by the REMIC in connection with the default or imminent
default of a Qualified Mortgage. Foreclosure property may not be held for more
than three taxable years after the close of the taxable year of acquisition
unless it is established to the satisfaction of the Secretary of the Treasury
that an extension of such period is necessary for the orderly liquidation of
the foreclosure property. The Secretary of the Treasury may grant one or more
extensions, but any such extension shall not extend the grace period beyond the
date which is six years after the date such foreclosure property is acquired.
INVESTORS' INTERESTS
In addition to the foregoing asset qualification requirements, the various
interests in a REMIC also must meet certain requirements. All of the interests
in a REMIC must be issued on the Closing Date (or within a specified 10-day
period) and
belong to either of the following: (i) one or more classes of regular
interests; or (ii) a single class of residual interests on which distributions
are made pro rata. For each Series REMIC with respect to which REMIC
Certificates are issued, the Regular Certificates will constitute one or more
classes of "regular interests" in that REMIC and the Residual Certificates will
constitute the single class of "residual interests" in that REMIC.
A REMIC interest qualifies as a regular interest if (i) it is issued on the
startup day with fixed terms; (ii) it is designated as a regular interest;
(iii) it entitles its holder to a specified principal amount; and (iv) if it
pays interest, such interest either (a) constitutes a specified portion of the
interest payable on one or more of the REMIC's Qualified Mortgages, and that
portion does not vary during the period that the regular interest is
outstanding (a "specified nonvarying portion"), (b) is payable at a fixed rate
with respect to the principal amount of the regular interest, or (c) to the
extent permitted under the REMIC Provisions, is payable at a variable rate with
respect to such principal amount. Pursuant to the REMIC Provisions, the
following rates are permissible variable rates for REMIC regular interests: (i)
a qualified floating rate set at a current
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value as described in "Federal Income Tax Consequences -- REMIC Certificates --
Variable Rate Certificates" above, without regard to the rules in the OID
Regulations limiting the use of Caps, Floors, and Governors with respect to
such a rate; (ii) a rate equal to the highest, lowest, or average of two or
more qualified floating rates (E.G., a rate based on the average cost of funds
of one or more financial institutions); or (iii) a rate equal to the weighted
average of the interest rates on one or more of the Qualified Mortgages held by
the REMIC provided, however, that the Qualified Mortgages taken into account in
determining the weighted average rate bear interest at a fixed rate or a rate
that would be a permissible variable rate for a REMIC regular interest as
described in this sentence. Under the REMIC Provisions, the presence of a
ceiling or floor on the interest payable on a variable rate regular interest
will not prevent such an interest from qualifying as a regular interest. In
addition, a qualifying variable rate may be expressed as a multiple of, or a
constant number of basis points more or less than, one of the permissible types
of variable rates described above. Finally, a limitation on the amount of
interest to be paid on a variable rate regular interest based on the total
amount available for distribution is permissible, provided that it is not
designed to avoid the restrictions on qualifying variable rates. The REMIC
Provisions also provide that the specified principal amount of a REMIC regular
interest may be zero if the interest associated with such regular interest
constitutes a specified nonvarying portion of the interest on one or more of
the REMIC's Qualified Mortgages.
If the interest payable on a REMIC regular interest is disproportionately high
relative to the specified principal amount of that interest, that interest may
be treated, in whole or in part, as a second residual interest, which could
result in the disqualification of the REMIC. Under the REMIC Provisions,
interest payments (or similar amounts) are considered disproportionately high
if the issue price of a regular interest exceeds 125% of its specified
principal amount. Under the REMIC Provisions, however, interest payable at a
disproportionately high rate will not cause a regular interest to be
recharacterized as a residual interest if the interest payable on that regular
interest consists of a specified nonvarying portion of the interest payable on
one or more of the REMIC's Qualified Mortgages. None of the Regular
Certificates will have an issue price that exceeds 125% of their respective
specified principal amounts unless the interest payable on those Certificates
consists of a specified nonvarying portion of the interest payable on one or
more of the REMIC's Qualified Mortgages.
The Code requires certain arrangements to be made with respect to all REMICs.
Those arrangements, which are intended to prevent acquisitions of REMIC
residual interests (including the Residual Certificates) by certain
organizations that are not subject to federal income tax, are described in
"Federal Income Tax Consequences -- REMIC Certificates -- Tax Treatment of
Residual Certificates -- Ownership of Residual Interests by Disqualified
Organizations" above. Each Series REMIC will be structured to provide for such
arrangements.
CONSEQUENCES OF DISQUALIFICATION
If a Series REMIC fails to comply with one or more of the Code's ongoing
requirements for REMIC status during any taxable year, the Code provides that
its REMIC status may be lost for that year and thereafter. If REMIC status is
lost, the treatment of the former REMIC and the interests therein for federal
income tax purposes is uncertain. The former REMIC might be entitled to
treatment as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code, in which case no entity- level tax would be imposed on the former REMIC.
Alternatively, the Regular Certificates may continue to be treated as debt
instruments for federal income tax purposes, but the arrangement could be
treated as a Taxable Mortgage Pool. See "Federal Income Tax Consequences --
REMIC Certificates -- Taxable Mortgage Pools" above. If a Series REMIC is
treated as a Taxable Mortgage Pool, any residual income of the former REMIC
(I.E., interest and discount income from the underlying Assets less interest
and original issue discount expense allocable to the Regular Certificates and
any administrative expenses of the REMIC) would be subject to corporate income
tax at the Taxable Mortgage Pool level. On the other hand, the arrangement
could be treated under Treasury regulations as a separate association taxable
as a corporation and the Regular Certificates could be treated as stock
interests therein, rather than debt instruments. In the latter two cases,
Residual Certificates would be treated as stock interests in such Taxable
Mortgage Pool or association, respectively. The Code authorizes the Treasury to
issue regulations that address situations where a failure to meet the
requirements for REMIC status occurs inadvertently and in good faith. Such
regulations have not yet been issued. The conference report accompanying the
1986 Act indicates that disqualification relief may be accompanied by
sanctions, such as the imposition of a corporate tax on all or a portion of the
REMIC's income for the period of time in which the requirements for REMIC
status are not satisfied.
TAXABLE MORTGAGE POOLS
Corporate income tax can be imposed on the net income of certain entities
issuing non-REMIC debt obligations secured by real estate mortgages ("Taxable
Mortgage Pools"). Any entity other than a REMIC or a REIT will be considered a
Taxable Mortgage Pool if (i) substantially all of the assets of the entity
consist of debt obligations and more than 50% of such obligations consist of
"real estate mortgages" (which term, for purposes of this paragraph, includes
Mortgage Loans and Contracts), (ii) such entity is the obligor under debt
obligations with two or more maturities, and (iii) under the terms of the
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debt obligations on which the entity is the obligor, payments on such
obligations bear a relationship to payment on the obligations held by the
entity. Furthermore, a group of assets held by an entity can be treated as a
separate Taxable Mortgage Pool if the assets are expected to produce
significant cash flow that will support one or more of the entity's issues of
debt obligations. The Company generally will structure offerings of non-REMIC
Certificates to avoid the application of the Taxable Mortgage Pool rules.
TAXATION OF CERTAIN FOREIGN HOLDERS OF REMIC CERTIFICATES
REGULAR CERTIFICATES
Interest, including original issue discount, paid on a Regular Certificate
to a Foreign Person generally will be treated as "portfolio interest" and,
therefore, will not be subject to any United States withholding tax, provided
that (i) such interest is not effectively connected with a trade or business in
the United States of the Certificateholder, and (ii) the Trustee (or other
person who would otherwise be required to withhold tax) is provided with a
Foreign Person Certification. If the holder of a Regular Certificate does not
provide the Trustee (or other person who would otherwise be required to
withhold tax) with a Foreign Person Certification, interest (including original
issue discount) paid on such a Certificate may be subject to either a 30%
withholding tax or 31% backup withholding. See "Federal Income Tax Consequences
- -- Taxation of Certain Foreign Holders of REMIC Certificates -- Backup
Withholding" below.
RESIDUAL CERTIFICATES
Amounts paid to Residual Certificateholders who are Foreign Persons are
treated as interest for purposes of the 30% (or lower treaty rate) United
States withholding tax. Under temporary Treasury Regulations, non-excess
inclusion income received by Residual Certificateholders who are Foreign
Persons generally would qualify as "portfolio interest" exempt from the 30%
withholding tax (as described in the preceding paragraph) only to the extent
that (i) the Assets held by the related Series REMIC were issued in registered
form and (ii) such Assets were originated after July 18, 1984. Because the
Assets held by a Series REMIC will not be issued in registered form, amounts
received by Residual Certificateholders who are Foreign Persons will not be
exempt from the 30% withholding tax. Such amounts generally will be subject to
United States withholding tax when paid or otherwise distributed (or when the
Residual Certificate is disposed of) under rules similar to those for
withholding on debt instruments that have original issue discount. However, the
Code grants the Treasury authority to issue regulations requiring that those
amounts be taken into account earlier than otherwise provided where necessary
to prevent avoidance of tax (I.E., where the Residual Certificates, as a Class,
do not have significant value). Further, a Residual Certificateholder will not
be entitled to any exemption from the 30% withholding tax or a reduced treaty
rate on excess inclusion income.
Under the REMIC Provisions, the transfer of a Residual Certificate that
has tax avoidance potential to a Foreign Person will be disregarded for all
federal income tax purposes. A Residual Certificate is deemed to have "tax
avoidance potential" under those regulations unless, at the time of the
transfer, the transferor reasonably expects that, for each accrual of excess
inclusion, the REMIC will distribute to the transferee an amount that will
equal at least 30% of the excess inclusion, and that each such amount will be
distributed no later than the close of the calendar year following the calendar
year of accrual. A transferor of a Residual Certificate to a Foreign Person
will be presumed to have had a reasonable expectation at the time of the
transfer that, for each accrual of excess inclusion, the REMIC will distribute
to the transferee an amount that will equal at least 30% of the excess
inclusion, and that each such amount will be distributed no later than the
close of the calendar year following the calendar year of accrual, if such
distributions would be made under all Asset prepayment rates between 50% and
200% of the Pricing Prepayment Assumption. See "Federal Income Tax Consequences
- -- REMIC Certificates -- Tax Treatment of Regular Certificates -- Original
Issue Discount" above. If a Foreign Person transfers a Residual Certificate to
a United States person and the transfer, if respected, would permit avoidance
of withholding tax on accrued excess inclusion income, that transfer also will
be disregarded for federal income tax purposes and distributions with respect
to the Residual Certificate will continue to be subject to 30% withholding as
though the Foreign Person still owned the Residual Certificate. Investors who
are Foreign Persons should consult their own tax advisors regarding the
specific tax consequences to them of owning and disposing of a Residual
Certificate. Effective January 1, 2000, any foreign investor that seeks the
protection of an income tax treaty with respect to the imposition of United
States withholding tax generally will be required to obtain a taxpayer
identification number from the Service in advance and provide verification that
such investor is entitled to the protection of the relevant income tax treaty.
Foreign tax-exempt investors generally will be required to provide verification
of their tax-exempt status. Foreign investors are urged to consult with their
tax advisors with respect to those new withholding rules.
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BACKUP WITHHOLDING
Under federal income tax law, a Certificateholder may be subject to
"backup withholding" under certain circumstances. Backup withholding applies to
a Certificateholder who is a United States person if the Certificateholder,
among other things, (i) fails to furnish his social security number or other
taxpayer identification number to the Trustee; (ii) furnishes the Trustee an
incorrect taxpayer identification number; (iii) fails to report properly
interest and dividends; or (iv) under certain circumstances, fails to provide
the Trustee or the Certificateholder's securities broker with a certified
statement, signed under penalties of perjury, that the taxpayer identification
number provided to the Trustee is correct and that the Certificateholder is not
subject to backup withholding. Backup withholding applies, under certain
circumstances, to a Certificateholder who is a foreign person if the
Certificateholder fails to provide the Trustee or the Certificateholder's
securities broker with a Foreign Person Certification (as described in "Federal
Income Tax Consequences -- REMIC Certificates -- Taxation of Certain Foreign
Holders of REMIC Certificates -- Regular Certificates" above). Backup
withholding applies to "reportable payments," which include interest payments
and principal payments to the extent of accrued original issue discount, as
well as distributions of proceeds from the sale of Regular Certificates or
REMIC Residual Certificates. The backup withholding rate for reportable
payments made on or after January 1, 1993 is 31%. Backup withholding, however,
does not apply to payments on Certificates made to certain exempt recipients,
such as tax-exempt organizations, and to certain Foreign Persons.
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 AND TAX ADMINISTRATION
REGULAR CERTIFICATES
Reports will be made at least annually to holders of record of Regular
Certificates (other than those with respect to whom reporting is not required)
and to the Service as may be required by statute, regulation, or administrative
ruling with respect to (i) interest paid or accrued on the Certificates; (ii)
original issue discount, if any, accrued on the Certificates; and (iii)
information necessary to compute the accrual of any market discount or the
amortization of any premium on the Certificates.
RESIDUAL CERTIFICATES
For purposes of federal income tax reporting and administration, a Series
REMIC generally will be treated as a partnership, and the related Residual
Certificateholders as its partners. A Series REMIC will file an annual return
on Form 1066 and will be responsible for providing information to Residual
Certificateholders sufficient to enable them to report properly their shares of
the REMIC's taxable income or loss, although it is anticipated that such
information actually will be supplied by the Trustee based upon information it
receives from the Servicer in its monthly reports delivered pursuant to the
Agreement. The REMIC Provisions require reports to be made by a REMIC to its
Residual Certificateholders each calendar quarter in order to permit such
Certificateholders to compute their taxable income accurately. A person that
holds a Residual Certificate as a nominee for another person is required to
furnish those quarterly reports to the person for whom it is a nominee within
30 days of receiving such reports. A REMIC is required to file all such
quarterly reports for a taxable year with the Service as an attachment to the
REMIC's income tax return for that year. As required by the Code, a Series
REMIC's taxable year will be the calendar year.
Residual Certificateholders should be aware that their responsibilities as
holders of the residual interest in a REMIC, including the duty to account for
their shares of the REMIC's income or loss on their returns, continue for the
life of the REMIC, even after the principal and interest on their Residual
Certificates have been paid in full.
The Treasury has issued temporary and final regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMIC's tax matters person or TMP.
The TMP generally has responsibility for overseeing and providing notice to the
other Residual Certificateholders of certain administrative and judicial
proceedings regarding the REMIC's tax affairs, although other holders of the
Residual Certificates of the same Series would be able to participate in such
proceedings in appropriate circumstances. It is expected that the Servicer or
an Affiliate thereof will acquire a portion of the residual interest in each
Series REMIC in order to permit it to be designated as TMP for the REMIC and
will prepare and file the REMIC's federal and state income tax and information
returns.
Treasury regulations provide that a Residual Certificateholder is not
required to treat items on its return consistently with their treatment on the
REMIC's return if the Certificateholder owns 100% of the Residual Certificates
for the entire calendar year. Otherwise, each Residual Certificateholder is
required to treat items on its returns consistently with their
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treatment on the REMIC's return, unless the Certificateholder either files a
statement identifying the inconsistency or establishes that the inconsistency
resulted from incorrect information received from the REMIC. The Service may
assess a deficiency resulting from a failure to comply with the consistency
requirement without instituting an administrative proceeding at the REMIC
level. A Series REMIC typically will not register as a tax shelter pursuant to
Code section 6111 because it generally will not have a net loss for any of the
first five taxable years of its existence. Any person that holds a Residual
Certificate as a nominee for another person may be required to furnish the
related Series REMIC, in a manner to be provided in Treasury regulations, with
the name and address of such person and other specified information.
NON-REMIC CERTIFICATES
TREATMENT OF THE TRUST FOR FEDERAL INCOME TAX PURPOSES
In the case of Series with respect to which a REMIC election is not made,
the Trust will be classified as a grantor trust under Subpart E, Part I of
subchapter J of the Code and not as an association taxable as a corporation.
Thus, the owner of a Non-REMIC Certificate issued by such a Trust generally
will be treated as the beneficial owner of an appropriate portion of the
principal and interest payments (according to the characteristics of the
Certificate in question) to be received on the Assets assigned to a Trust for
federal income tax purposes.
TREATMENT OF THE NON-REMIC CERTIFICATES FOR FEDERAL INCOME TAX PURPOSES
GENERALLY
The types of Non-REMIC Certificates offered in a Series may include: (i)
Strip Certificates (I.E., IO Certificates, PO Certificates, and Ratio
Certificates) and (ii) Participation Certificates. The federal income tax
treatment of Strip Certificates will be determined in part by section 1286 of
the Code. Little administrative guidance has been issued under that section
and, thus, many aspects of its operation are unclear, particularly the
interaction between that section and the rules pertaining to discount and
premium. Hence, significant uncertainty exists with respect to the federal
income tax treatment of Strip Certificates, and potential investors should
consult their own tax advisors concerning such treatment.
Several Code sections provide beneficial treatment to certain taxpayers
that invest in certain types of mortgage assets. For purposes of those Code
sections, Participation Certificates will be characterized with reference to
the Assets in the related Trust, but it is not clear whether Strip Certificates
will be so characterized. The Service could take the position that the
character of the Assets is not attributable to Strip Certificates for purposes
of those Code sections. However, because Strip Certificates represent sole
ownership rights in the principal and interest payments on the Assets, Strip
Certificates, like Participation Certificates, should be characterized with
reference to the Assets in the Trust. Accordingly, all Non-REMIC Certificates
should be treated as qualifying assets for Thrift Institutions, and as real
estate assets for REITs in the same proportion that the Assets in the Trust
would be so treated. Similarly, the interest income attributable to Non-REMIC
Certificates should be considered Qualifying REIT Interest for REIT purposes to
the extent that the Assets in the Trust qualify as real estate assets for REIT
purposes.
One or more Classes of Non-REMIC Certificates may be subordinated to one
or more other Classes of Non-REMIC Certificates of the same Series. In general,
such subordination should not affect the federal income tax treatment of either
the subordinated Non-REMIC Certificates or the senior Non-REMIC Certificates.
However, to the extent indicated in "Description of the Certificates --
Allocation of Distributions from the Assets" herein and to the extent provided
in the relevant Prospectus Supplement, holders of such subordinated
Certificates will be allocated losses prior to their allocation to the holders
of more senior Classes of Certificates. Holders of such subordinated
Certificates should be able to recognize any such losses no later than the
taxable year in which they become Realized Losses. Employee benefit plans
subject to ERISA should consult their own tax advisors before purchasing any
subordinated Certificates. See "ERISA Considerations" herein and in the
Prospectus Supplement.
TREATMENT OF PARTICIPATION CERTIFICATES
The holder of a Participation Certificate issued by a Trust generally will
be treated as owning a pro rata undivided interest in each of the Assets held
by such Trust. Accordingly, each holder of a Participation Certificate will be
required to include in income its pro rata share of the entire income from the
Trust's assets, including interest and discount income, if any. Such
Certificateholder generally will be able to deduct from its income its pro rata
share of the administrative fees and expenses incurred with respect to the
Trust's assets (provided that such fees and expenses represent reasonable
compensation for the services rendered). An individual, trust, or estate that
holds a Participation Certificate directly or through a pass-through entity
will be entitled to deduct such fees and expenses under section 212 of the Code
only to the extent that the amount of the fees and expenses, when combined with
its other miscellaneous itemized deductions for the taxable year in
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question, exceeds 2% of its adjusted gross income. In addition, Code section 68
provides that the amount of itemized deductions otherwise allowable for the
taxable year for an individual whose adjusted gross income exceeds the
applicable amount ($100,000, or $50,000 in the case of a separate return by a
married individual within the meaning of Code section 7703 for taxable year
1991, adjusted each year thereafter for inflation) will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount, or (ii) 80% of the amount of itemized deductions otherwise allowable
for such taxable year. Each Participation Certificateholder generally will
determine its net income or loss with respect to the Trust in accordance with
its own method of accounting, although income arising from original issue
discount must be taken into account under the accrual method even though the
Certificateholder otherwise would use the cash receipts and disbursements
method.
The Code provisions concerning original issue discount, market discount,
and amortizable premium will apply to the Trust assets. The rules regarding
discount and premium that are applicable to Non-REMIC Certificates generally
are the same as those that apply to REMIC Regular Certificates. See the
discussions under "Federal Income Tax Consequences -- REMIC Certificates --
Original Issue Discount," " -- Variable Rate Certificates," " -- Market
Discount," and " -- Amortizable Premium" above.
For instruments to which it applies, Code section 1272(a)(6) requires the
use of an income tax accounting methodology that utilizes (i) a single constant
yield to maturity and (ii) the Pricing Prepayment Assumptions. Unlike in the
case of Regular Certificates, Code section 1272(a)(6) technically does not
apply to Non-REMIC Certificates. Although the Treasury has authority to apply
that section to certificates such as the Non-REMIC Certificates, it has not yet
done so. Nonetheless, unless and until the release of administrative guidance
to the contrary, the Tax Administrator will account for the Non-REMIC
Certificates as though section 1272(a)(6) applied to them. Thus, the Tax
Administrator will account for a class of Non-REMIC Certificates in the same
manner as it would account for a class of Regular Certificates with the same
terms. There can be no assurance, however, that the Service ultimately will
sanction the Tax Administrator's position.
The original issue discount rules generally apply to residential mortgage
loans originated after March 2, 1984, and the market discount rules apply to
any such loans originated after July 18, 1984. The rules allowing for the
amortization of premium are available with respect to mortgage loans originated
after September 27, 1985. It is anticipated that most or all of the Assets
securing any Series will be subject to the original issue discount, market
discount, and amortizable premium rules. Although most Mortgage Loans and
Contracts nominally are issued at their original principal amounts, original
issue discount could arise from the payment of points or certain other
origination charges by the Obligors if the discount attributable to such
payments exceeds the DE MINIMIS amount. If the Trust contains Assets purchased
for prices below their outstanding principal amounts, holders of Participation
Certificates will be required to take into account original issue discount not
previously accrued to the prior holder of such Assets. Moreover, if such Assets
were purchased for less than their adjusted issue prices, Participation
Certificateholders generally will be required to take into account market
discount, unless the amount of such market discount is DE MINIMIS under the
market discount rules. Finally, Participation Certificateholders generally may
elect to amortize any premium paid for Assets over the aggregate adjusted issue
price of such Assets. For a more complete elaboration of the rules pertaining
to original issue discount, market discount, and acquisition premium, see the
discussion under "Federal Income Tax Consequences -- REMIC Certificates -- Tax
Treatment of Regular Certificates" above.
TREATMENT OF STRIP CERTIFICATES
Many aspects of the federal income tax treatment of Strip Certificates are
uncertain. The discussion below describes the treatment that the Company
believes is fair and accurate, but there can be no assurance that the Service
will not take a contrary position. Potential investors, therefore, should
consult their own tax advisors with respect to the federal income tax treatment
of Strip Certificates.
Under section 1286 of the Code, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments on such
obligation results in the creation of "stripped coupons" with respect to the
separated rights to interest payments and "stripped bonds" with respect to the
principal and any undetached interest payments associated with that principal.
The issuance of IO or PO Certificates effects a separation of the ownership of
the interest and principal payments on some or all of the Assets in the Trust.
In addition, the issuance of Ratio Certificates effectively separates and
reallocates the proportionate ownership of the interest and principal payments
on the Assets. Therefore, Strip Certificates will be subject to section 1286.
For federal income tax accounting purposes, section 1286 treats a stripped
bond or a stripped coupon as a new debt instrument issued (i) on the date that
the stripped interest is purchased and (ii) at a price equal to its purchase
price or, if more than one stripped interest is purchased, the share of the
purchase price allocable to such stripped interest. Each stripped
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bond or coupon generally will have original issue discount equal to the excess
of its stated redemption price at maturity (or, in the case of a stripped
coupon, the amount payable on the due date of such coupon) over its issue
price. The Stripping Regulations, however, provide that the original issue
discount on a stripped bond or stripped coupon is zero if the amount of the
original issue discount would be DE MINIMIS under rules generally applicable to
debt instruments. For purposes of that determination, (i) the number of
complete years to maturity is measured from the date the stripped bond or
stripped coupon is purchased; (ii) an aggregation approach similar to the
Aggregation Rule (as described in "Federal Income Tax Consequences -- REMIC
Certificates -- Original Issue Discount" above) may be applied; and (iii)
unstripped coupons may be treated as stated interest with respect to the
related bonds and, therefore, may be excluded from stated redemption price at
maturity in appropriate circumstances. In addition, the Stripping Regulations
provide that, in certain circumstances, the excess of a stripped bond's stated
redemption price at maturity over its issue price is treated as market
discount, rather than as original issue discount. See "Federal Income Tax
Consequences -- Non-REMIC Certificates -- Treatment of Strip Certificates --
Determination of Income With Respect to Strip Certificates" below.
The application of section 1286 to the Strip Certificates is not entirely
clear under current law. It could be interpreted as causing: (i) in the case of
an IO Certificate, each interest payment due on the underlying Assets to be
treated as a separate debt instrument; (ii) in the case of a Ratio Certificate
entitled to a disproportionately high share of principal, each excess principal
amount (I.E., the portion of each principal payment on such Assets that exceeds
the amount to which the Ratio Certificateholder would have been entitled if he
had held an undivided interest in the underlying Assets) to be treated as a
separate debt instrument; and (iii) in the case of a Ratio Certificate entitled
to a disproportionately high share of interest, each excess interest amount to
be treated as a separate debt instrument. In addition, section 1286 would
require the purchase price of a Strip Certificate to be allocated among each of
the rights to payment on the underlying Assets to which the Certificateholder
is entitled that are treated as separate debt instruments. Despite the
foregoing, it may be appropriate to treat stripped coupons and stripped bonds
issued to the same holder as a single debt instrument under an aggregation
approach, depending on the facts and circumstances surrounding the issuance.
Facts and circumstances considered relevant for this purpose should include the
likelihood of the debt instruments trading as a unit and the difficulty of
allocating the purchase price of the unit among the individual payments. Strip
Certificates are designed to trade as whole investment units and, to the extent
that the Underwriter develops a secondary market for the Strip Certificates, it
anticipates that the Strip Certificates would trade in such market as whole
units. In addition, because no market exists for individual payments on Assets,
the proper allocation of the Certificate's purchase price to each separate
payment on the Assets in the Trust would be difficult and burdensome to
determine. Based on those facts and circumstances, it appears that all payments
of principal and interest to which the holder of a Strip Certificate is
entitled should be treated as a single installment obligation. Although the OID
Regulations do not refer directly to debt instruments that are governed by
section 1286 of the Code, the application of the OID Regulations to such
instruments is consistent with the overall statutory and regulatory scheme.
Therefore, the Tax Administrator will treat each Strip Certificate as a single
debt instrument for income tax accounting purposes.
DETERMINATION OF INCOME WITH RESPECT TO STRIP CERTIFICATES
For purposes of determining the amount of income on a Strip Certificate
that accrues in any period, the rules described under "Federal Income Tax
Consequences -- REMIC Certificates -- Original Issue Discount," " -- Variable
Rate Certificates," " -- Anti-Abuse Rule," " -- Interest Weighted Certificates
and Non-VRDI Certificates," " -- Market Discount," and " -- Amortizable
Premium" will apply. PO Certificates and certain Classes of Ratio Certificates
will be issued at a price that is less than their stated principal amount and
thus generally will be issued with original issue discount. A Strip Certificate
that would meet the definition of an Interest Weighted Certificate or a
Weighted Average Certificate if it were a Regular Certificate is subject to the
same tax accounting considerations applicable to the Regular Certificate to
which it corresponds. Thus, as described in "Federal Income Tax Consequences --
REMIC Certificates -- Interest Weighted Certificates and Non-VRDI
Certificates," certain aspects of the tax accounting treatment of such a Strip
Certificate are unclear. Unless and until the Service provides administrative
guidance to the contrary, the Tax Administrator will account for such a Strip
Certificate in the manner described for the corresponding Regular Certificate.
See "Federal Income Tax Consequences -- REMIC Certificates -- Interest Weighted
Certificates and Non-VRDI Certificates."
If a PO Certificate or a Ratio Certificate that is not considered a
Contingent Payment Obligation (an "Ordinary Ratio Certificate") subsequently is
sold, the purchaser apparently would be required to treat the difference
between the purchase price and the stated redemption price at maturity as
original issue discount. The holder of such a Certificate generally will be
required to include such original issue discount in income as described in
"Federal Income Tax Consequences -- REMIC Certificates -- Original Issue
Discount" above. PO Certificates and Ordinary Ratio Certificates issued at a
price less than their stated principal amount will be treated as issued with
market discount rather than with original issue discount if, after the most
recent disposition of the related Certificate, either (i) the amount of
original issue discount on the Certificate
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is considered to be DE MINIMIS under the Stripping Regulations or (ii) the
annual stated rate of interest payable on the Certificate is no more than 1%
lower than the annual stated rate of interest payable on the Asset from which
the Certificate was stripped. The holders of such Certificates generally would
be required to include market discount in income in the manner described in
"Federal Income Tax Consequences -- REMIC Certificates -- Market Discount"
above. Some Classes of Ordinary Ratio Certificates may be issued at a price
that exceeds their stated principal amount. Subject to the discussion of
Superpremium Certificates in "Federal Income Tax Consequences -- REMIC
Certificates -- Original Issue Discount" above, holders of such Ordinary Ratio
Certificates generally should be able to amortize that premium as described in
"Federal Income Tax Consequences -- REMIC Certificates -- Amortizable Premium"
above.
IO Certificates do not represent a right to stated principal amounts.
Rather, IO Certificates represent rights only to payments of interest which, as
a result of prepayments on the Assets in the related Trust, may never be made.
The Tax Administrator will account for IO Certificates in the same manner as
for Interest Weighted Certificates. See "Federal Income Tax Consequences --
REMIC Certificates -- Original Issue Discount," " -- Variable Rate
Certificates," and " -- Interest Weighted Certificates and Non-VRDI
Certificates" above.
PURCHASE OF COMPLEMENTARY CLASSES OF STRIP CERTIFICATES
Complementary Strip Certificates, when held in combination, provide an
aggregate economic effect equivalent to that of a Participation Certificate.
When an investor purchases Complementary Strip Certificates, it appears that,
for federal income tax purposes, each such Certificate should be treated
separately and should be subject to the rules described above. The Service
could assert, however, that Complementary Strip Certificates held in
combination should be treated as a single pass-through type instrument, with
the result that the rules governing stripped bonds and stripped coupons under
section 1286 of the Code would not be applied. Consequently, investors who
acquire Complementary Strip Certificates should consult their own tax advisors
as to the proper treatment of such Certificates.
POSSIBLE ALTERNATIVE CHARACTERIZATIONS
The Service could assert that the Strip Certificates should be
characterized for tax purposes in a manner different from that described above.
For example, the Service could contend that each Ratio Certificate whose
interest rate is higher than the related Series Rate is to be treated as being
composed of two certificates: (i) a Participation Certificate of the same
principal amount as the Ratio Certificate but generating interest at the Series
Rate; and (ii) an IO Certificate representing the excess of the rate on the
Ratio Certificate over the Series Rate. Similarly, a Ratio Certificate whose
interest rate is lower than the Series Rate could be treated as composed of a
Participation Certificate with an interest rate equal to the Series Rate and a
PO Certificate. Alternatively, the Service could interpret section 1286 to
require that each individual interest payment with respect to an IO Certificate
or a Ratio Certificate be treated as a separate debt instrument for original
issue discount purposes. The Service also might challenge the manner in which
original issue discount is calculated, contending that (i) the stated maturity
should be used to calculate yield on a Non-REMIC Certificate; (ii) the
Contingent Payment Regulations should not apply to IO Certificates; or (iii)
the Contingent Payment Regulations should apply to the Ordinary Ratio
Certificates. Given the variety of alternative treatments of Strip Certificates
and the different federal income tax consequences that could result from each
alternative, a potential investor is urged to consult its own tax advisor
regarding the proper treatment of such Certificates for federal income tax
purposes.
LIMITATIONS ON DEDUCTIONS WITH RESPECT TO STRIP CERTIFICATES
The holder of a Strip Certificate will be treated as owning an interest in
each of the Assets of the related Trust and will recognize an appropriate share
of the income and expenses associated with those Assets. Accordingly, an
individual, trust, or estate that holds a Strip Certificate directly or through
a pass-through entity will be subject to the same limitations on deductions
with respect to such Certificate as are applicable to holders of Participation
Certificates. See "Federal Income Tax Consequences -- Non-REMIC Certificates --
Treatment of Participation Certificates" above.
SALE OF A NON-REMIC CERTIFICATE
A sale of a non-REMIC Certificate prior to its maturity will result in
gain or loss equal to the difference between the amount received and the
holder's adjusted basis in such Certificate. The rules for computing the
adjusted basis of a Non- REMIC Certificate are the same as in the case of a
Regular Certificate. See "Federal Income Tax Consequences -- REMIC Certificates
- -- Tax Treatment of Regular Certificates -- Gain or Loss on Disposition" above.
Gain or loss from the sale or other disposition of a Non-REMIC Certificate
generally will be capital gain or loss to the Certificateholder if the
Certificate is held as a "capital asset" within the meaning of section 1221 of
the Code, and will be long-term or short-term depending on whether the
Certificate has been held for the applicable long-term capital gain holding
period. Ordinary income
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treatment, however, will apply to the extent mandated by the original issue
discount and market discount rules or if the Certificateholder is a financial
institution described in section 582 of the Code. See "Federal Income Tax
Consequences -- REMIC Certificates -- Gain or Loss on Disposition" above.
TAXATION OF CERTAIN FOREIGN HOLDERS OF NON-REMIC CERTIFICATES
Interest, including original issue discount, paid on a Non-REMIC
Certificate to a Foreign Person generally is treated as "portfolio interest"
and, therefore, is not subject to any United States tax, provided that (i) such
interest is not effectively connected with a trade or business in the United
States of the Certificateholder, and (ii) the Trustee (or other person who
would otherwise be required to withhold tax) is provided with Foreign Person
Certification. If the holder of a Non-REMIC Certificate does not provide the
Trustee (or other person who would otherwise be required to withhold tax) with
a Foreign Person Certification, interest (including original issue discount)
paid on such a Certificate may be subject to either a 30% withholding tax or
31% backup withholding.
In the case of certain Series, portfolio interest treatment will not be
available for interest paid with respect to certain classes of Non-REMIC
Certificates. Interest on debt instruments issued on or before July 18, 1984
does not qualify as "portfolio interest" and, therefore, is subject to United
States withholding tax at a 30% rate (or lower treaty rate, if applicable). IO
Certificates and PO Certificates generally are treated, and Ratio Certificates
generally should be treated, as having been issued when they are sold to an
investor. In the case of Participation Certificates, however, the issuance date
of the Certificate is determined by the issuance date of the underlying Assets.
Thus, to the extent that the interest received by a holder of a Participation
Certificate is attributable to Assets issued on or before July 18, 1984, such
interest will be subject to the 30% withholding tax. Moreover, to the extent
that a Ratio Certificate is characterized as a pass-through type certificate
and the underlying Assets were issued on or before July 18, 1984, interest
generated by the Certificate may be subject to the withholding tax. See
"Federal Income Tax Consequences -- Non-REMIC Certificates -- Treatment of
Strip Certificates -- Possible Alternative Characterizations" above. Although
recently enacted tax legislation denies portfolio interest treatment to certain
types of contingent interest, that legislation generally applies only to
interest based on the income, profits, or property values of the debtor.
Accordingly, it is not anticipated that such legislation will apply to deny
portfolio interest treatment to Certificateholders who are Foreign Persons.
However, because the scope of the new legislation is not entirely clear,
investors who are Foreign Persons should consult their tax advisors regarding
the potential application of the legislation before purchasing a Certificate.
BACKUP WITHHOLDING
The application of backup withholding to Non-REMIC Certificates generally
is the same as in the case of REMIC Certificates. See "Federal Income Tax
Consequences -- REMIC Certificates -- Backup Withholding" above.
REPORTING AND TAX ADMINISTRATION
For purposes of reporting and tax administration, the holders of Non-REMIC
Certificates will be treated in the same fashion as the holders of Regular
Certificates. See "Federal Income Tax Consequences -- REMIC Certificates --
Reporting and Tax Administration" above.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
CERTIFICATEHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE CERTIFICATES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described above under
"Federal Income Tax Consequences" above, potential investors should consider
the state income tax consequences of the acquisition, ownership, and
disposition of the Certificates. State income tax law may differ substantially
from the corresponding federal law, and this discussion does not purport to
describe any aspect of the income tax laws of any state. Therefore, potential
investors should consult their own tax advisors with respect to the various
state tax consequences of an investment in the Certificates.
ERISA CONSIDERATIONS
In considering an investment in a Certificate of the assets of any
employee benefit plan or retirement arrangement, including individual
retirement accounts and annuities, Keogh plans, and collective investment funds
in which such plans,
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accounts, annuities or arrangements are invested, that are described in or
subject to the Plan Asset Regulations, ERISA, or corresponding provisions of
the Code (each hereinafter referred to as a Plan), a fiduciary should consider,
among other things, (i) the purposes, requirements, and liquidity needs of such
Plan; (ii) the impact of the plan asset provisions of ERISA and DOL regulations
concerning the definition of plan assets; (iii) whether the investment
satisfies the diversification requirements of section 404(a)(1)(C) of ERISA;
and (iv) whether the investment is prudent, considering the nature of an
investment in a Certificate and the fact that no market in which such fiduciary
can sell or otherwise dispose of Certificates may be created or, if created,
will continue to exist for the life of the Certificates. The prudence of a
particular investment must be determined by the responsible fiduciary (usually
the trustee or investment manager) with respect to each Plan taking into
account all of the facts and circumstances of the investment.
Sections 406 and 407 of ERISA and section 4975 of the Code prohibit
certain transactions that involve (i) a Plan and any "party in interest" or
"disqualified person" with respect to such Plan, and (ii) plan assets. The Plan
Asset Regulations issued by the DOL define "plan assets" to include not only
securities (such as the Certificates) held by a Plan but also the underlying
assets of the issuer of any equity securities, unless one or more exceptions
specified in those Regulations are satisfied. Thus, under the Plan Asset
Regulations, a Plan that acquires a Certificate could be treated for ERISA
purposes as having acquired a direct interest in some or all of the assets in
the related Trust. Such treatment could cause certain transactions with respect
to such assets to be deemed "prohibited transactions" under ERISA and, in
addition, could result in a finding of an improper delegation by the plan
fiduciary of its duty to manage plan assets.
The DOL has issued several exemptions from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of section
4975 of the Code. Those exemptions include, but are not limited to: (1)
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60"), regarding
investments by insurance company general accounts; (2) Prohibited Transaction
Class Exemption 91-38 ("PTCE 91-38"), regarding investments by bank collective
investment funds; (3) Prohibited Transaction Class Exemption 90-1 ("PTCE
90-1"), regarding investments by insurance company pooled separate accounts;
(4) Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1"), regarding
acquisitions by Plans of interests in mortgage pools; and (5) various
underwriter exemptions. Before purchasing any Certificates, a Plan subject to
the fiduciary responsibility provisions of ERISA or described in section
4975(e)(1) of the Code should consult with its counsel to determine whether the
conditions of any exemption would be met. A purchaser of Certificates should be
aware, however, that certain of the exemptions do not apply to the purchase,
sale, and holding of subordinated certificates. In addition, PTCE 83-1 will not
apply to Certificates evidencing interests in a Trust Estate that contains
Contracts. Moreover, even if the conditions specified in one or more exemptions
are met, the scope of the relief provided by an exemption might not cover all
acts that might be construed as prohibited transactions.
The Plan Asset Regulations will not apply to a Certificate if (1) the
Certificate is registered under the Securities Exchange Act of 1934, is freely
transferable and is part of a class of Certificates that is held by more than
100 unrelated investors (the "Publicly Offered Exception") or (2) immediately
after the most recent acquisition of a Certificate of the same Series, benefit
plan investors do not own 25% or more of the value of any class of Certificates
in that Series (the "Insignificant Participation Exception"). A purchaser of
Certificates should be aware, however, that determining whether the
Insignificant Participation Exception applies is administratively impracticable
in many situations. Prior to purchasing a Certificate, a Plan should consult
with its counsel to determine whether the Publicly Offered Exception, the
Insignificant Participation Exception, or any other exception to the Plan Asset
Regulations would apply to the purchase of the Certificate.
Section 403 of ERISA requires that all plan assets be held in trust.
However, under regulations that became effective on June 17, 1982, even if the
underlying assets of an issuer of securities (such as the Certificates) are
deemed to be plan assets of a Plan investing in such securities, the "holding
in trust" requirement of section 403 of ERISA will be satisfied if such
securities are held in trust on behalf of the Plan.
Because the purchase or holding of Certificates may result in unfavorable
consequences for a Plan or its fiduciaries under the Plan Asset Regulations or
the prohibited transaction provisions of ERISA or the Code, (i) certain classes
of Certificates will not be offered for sale to, and are not transferable to,
any Plan Investor and (ii) certain Classes of Certificates will not be offered
for sale to, and are not transferable to, any Plan Investor unless such Plan
Investor provides the Company with a Benefit Plan Opinion (I.E., an opinion of
counsel satisfactory to the Company and the Servicer (and upon which the
Company, the Servicer, the Trustee, the TMP, and their respective counsel are
authorized to rely) generally to the effect that the ownership of a Certificate
of such class will not (1) cause any of the assets in the related Trust to be
regarded as plan assets for purposes of the Plan Asset Regulations; (2) give
rise to any fiduciary duty under ERISA on the part of the Company, the Trustee,
a Servicer, or the TMP; or (3) be treated as, or result in, a prohibited
transaction under sections 406 and 407 of ERISA or section 4975 of the Code.)
The Prospectus Supplement for an affected Series will indicate which classes of
Certificates are restricted in their availability to benefit plan investors.
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In considering the possible application of the Plan Asset Regulations,
potential Plan Investors should be aware that, with respect to certain Series
and under certain circumstances, the Servicer and the holders of a majority in
interest of the related Residual Certificates may have a right to redeem the
Certificates of such Series, at its option. In such cases, the Servicer's
purpose for the retention of such a redemption right is to enable the Servicer
to terminate its administration obligations with respect to the Certificates in
the event such obligations become unprofitable. The Servicer undertakes no
obligation to consider the interests of Certificateholders in deciding whether
to exercise any redemption right.
As described in "Federal Income Tax Consequences" above, an investment in
a Certificate may produce UBTI for tax-exempt employee benefit plans. Potential
investors also should be aware that ERISA requires that the assets of a Plan be
valued at their fair market value as of the close of the plan year. Neither the
Company, Oakwood, the Servicer nor the Underwriters currently intend to provide
valuations to Certificateholders.
Prospective purchasers of Certificates that are insurance companies should
be aware that the United States Supreme Court interpreted the fiduciary
responsibility rules of ERISA in JOHN HANCOCK MUTUAL LIFE INSURANCE CO. V.
HARRIS BANK AND TRUST. In JOHN HANCOCK, the Supreme Court ruled that assets
held in an insurance company's general account may be deemed to be "plan
assets" for ERISA purposes under certain circumstances. Prospective purchasers
of Certificates that are insurance companies should consult with their counsel
with respect to the application of the JOHN HANCOCK case and PTCE 95-60 to
their purchase of Certificates, and should be aware that certain restrictions
may apply to their purchase of Certificates.
Due to the complexity of the rules applicable to Plans and Plan
fiduciaries, and the considerable uncertainty that exists with respect to many
aspects of those rules, Plan Investors contemplating the acquisition of
Certificates should consult their legal advisors with respect to the ERISA,
Code, and other consequences of an investment in the Certificates.
PLAN OF DISTRIBUTION
The Company may sell the Certificates offered hereby either directly or
through one or more underwriters or underwriting syndicates. The Prospectus
Supplement with respect to each Series of Certificates will set forth the terms
of the offering of such Series of Certificates and each Class within such
Series, including the name or names of the Underwriter(s), the proceeds to and
their intended use by the Company, and either the initial public offering
price, the discounts and commissions to the Underwriter(s) and any discounts or
concessions allowed or reallowed to certain dealers, or the method by which the
price at which the related Underwriter(s) will sell the Certificates will be
determined.
The Certificates of a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all the Certificates of a
Series offered pursuant to the related Prospectus Supplement, if any are
purchased. If Certificates of a Series are offered otherwise than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the Company and purchasers of Certificates of such Series.
The place and time of delivery for the Certificates of a Series in respect
of which this Prospectus is delivered will be set forth in the related
Prospectus Supplement.
LEGAL INVESTMENT CONSIDERATIONS
The Prospectus Supplement for each Series of Certificates will specify
which, if any, of the Classes of Certificates of such Series will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). If so, Certificates designated as qualifying
as "mortgage related securities" will continue to qualify as such for so long
as they are rated in one of the two highest categories by at least one
nationally recognized statistical rating agency. Classes of Certificates that
qualify as "mortgage related securities" under SMMEA will be legal investments
for persons, trusts, corporations, partnerships, associations, business trusts
and business entities (including depository institutions, life insurance
companies and pension funds) created pursuant to or existing under the laws of
the United States or of any state whose authorized investments are subject to
state regulation to the same extent as, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for any such
entities. Certain states have enacted legislation specifically limiting, to
varying degrees,
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the legal investment authority of such entities with respect to "mortgage
related securities," in most cases requiring investors to rely solely upon
existing state law and not SMMEA. In any case in which any such legislation is
applicable, the Certificates will constitute legal investments for entities
subject to such legislation only to the extent provided in such state
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in
"mortgage-related securities" without limitation as to the percentage of their
assets represented thereby; federal credit unions may invest in "mortgage-
related securities"; and national banks may purchase "mortgage-related
securities" for their own account without regard to the limitations generally
applicable to investment securities set forth in 12 U.S.C. ss.24 (Seventh),
subject in each case to such regulations as the applicable federal regulatory
authority may prescribe.
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 any particular Certificates
constitute legal investments for such investors.
Certificates that do not constitute "mortgage related securities" under
SMMEA will require registration, qualification or an exemption under applicable
state securities laws in those states that have enacted legislation overriding
SMMEA's provisions pre-empting state "blue sky" laws. In addition, such
Certificates may not be "legal investments" to the same extent as "mortgage
related securities" under SMMEA. The appropriate characterization under various
legal investment restrictions of the Classes of Certificates that do not
qualify as "mortgage related securities" under SMMEA and thus the ability of
investors subject to these restrictions to purchase such Classes of
Certificates, may be subject to significant interpretive uncertainties. All
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether, and to what extent, the
Classes of Certificates that do not qualify as "mortgage related securities"
will constitute legal investments for them.
EXPERTS
The consolidated financial statements of Oakwood Homes Corporation and its
subsidiaries (collectively, "Oakwood Homes Corporation") as of September 30,
1997 and 1996 and for each of the three years in the period ended September 30,
1997, incorporated in this Prospectus by reference to Oakwood Homes
Corporation's Annual Report on Form 10-K for the year ended September 30, 1997,
have been so incorporated in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
Certain legal matters relating to the Certificates and material federal
income tax consequences concerning the Certificates will be passed upon for the
Company by Hunton & Williams, Richmond, Virginia.
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GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and each Prospectus Supplement, except as may be otherwise
specified in the Prospectus Supplement for a particular Series. The related
Agreement may contain a more complete definition of certain of the terms
defined herein and reference should be made to the Agreement for a more
complete definition of all such terms.
"1986 ACT" means the Tax Reform Act of 1986.
"ACCOUNTING DATE" means, unless otherwise specified in a Prospectus
Supplement, for any Distribution Date, the last day of the preceding calendar
month.
"ACCRETION CLASS" means a Compound Interest Class or a Capital
Appreciation Class.
"ADDITIONAL ASSETS" means, with respect to any Series, non-recourse
guarantees on Contracts and/or Mortgage Loans, additional Contracts and/or
Mortgage Loans beyond those included in the related Asset Pool, letters of
credit or other Eligible Investments delivered to any Trust in addition to the
related Trust Estate.
"ADJUSTABLE RATE ASSET" means a Contract or Mortgage Loan bearing interest
at an adjustable rate.
"ADVANCE" means any P&I Advance or Servicing Advance.
"ADJUSTED CERTIFICATE PRINCIPAL BALANCE" means with respect to each Class
of Subordinated Certificates on any date of determination, its Certificate
Principal Balance immediately following the most recently preceding
Distribution Date reduced by all Writedown Amounts allocated to such Class on
such Distribution Date.
"AFFILIATE" means, as to any specified Person, any other Person
controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control", when used with respect
to any specified Person, means the power to direct the management and Policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have the meanings correlative to the foregoing.
"AGGREGATION RULE" means the rule in the OID Regulations under which two
or more debt instruments issued in connection with the same transaction (or
related transactions in certain circumstances) are treated as a single debt
instrument for federal income tax accounting purposes if issued by a single
issuer to a single holder.
"AGREEMENT" means the Pooling and Servicing Agreement for a Series,
including the Series Agreement and the Standard Terms.
"ALL OID ELECTION" means, with respect to a Regular Certificate, an
election to include in gross income all stated interest, original issue
discount, de minimis original issue discount, market discount, and de minimis
market discount that accrues on such Certificate (reduced by any amortizable
premium or acquisition premium on such Certificate) under the constant yield
method used to account for original issue discount.
"APPROVED SALE" means, as to any Asset, (1) a sale of the related
Manufactured Home or Mortgaged Property acquired by the Insured because of a
default by the borrower if the related Pool Insurer has given prior approval to
such sale, (2) a foreclosure or trustee's sale of the related Manufactured Home
or Mortgaged Property at a price exceeding the maximum amount specified by the
Pool Insurer, (3) the acquisition of the Mortgaged Property under any related
Primary Mortgage Insurance Policy by the related Mortgage Insurer or (4) the
acquisition of the related Manufactured Home or Mortgaged Property by the Pool
Insurer.
"ASSET" means a Contract or Mortgage Loan underlying a Series of
Certificates.
"ASSET FILE" means a Contract File or Mortgage Loan File, as applicable.
"ASSET POOL" means, with respect to any Series, the pool of Contracts
and/or Mortgage Loans included in the related Trust Estate.
"ASSET RATE" means, with respect to any Asset, the related Contract Rate
or Mortgage Rate, as applicable.
"ASSET SCHEDULE" means the schedule which identifies each Asset supporting
a Series (and includes certain other information regarding each such Asset,
including its Cut-off Date Principal Balance, its Asset Rate, its original
principal balance and other information) and appears as an exhibit to the
related Agreement.
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"AVAILABLE DISTRIBUTION AMOUNT" means, as to any Distribution Date and any
Series, the amount to be distributed on the Certificates of such Series on such
Distribution Date, which will be described in the related Prospectus
Supplement.
"BALLOON PAYMENT LOAN" means an Asset that does not require any scheduled
amortization of principal prior to its scheduled maturity, or the principal of
which is amortized over a longer period than the Asset's scheduled term to
maturity.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, as amended, as
set forth in Title 11 of the United States Code.
"BENEFICIAL OWNER" means, as to any Book-Entry Certificate, the beneficial
owner thereof, whose interest therein is reflected in the records of a
Financial Intermediary.
"BENEFIT PLAN OPINION" means an opinion of counsel satisfactory to the
Company and the Servicer (and upon which the Company, the Servicer, the
Trustee, the TMP, and their respective counsel are authorized to rely)
generally to the effect that the proposed transfer of a Certificate will not
(1) cause any of the assets in the related Trust to be regarded as "plan
assets" for purposes of the Plan Asset Regulations; (2) give rise to any
fiduciary duty under ERISA on the part of the Company, the Trustee, the
Servicer, or the TMP; or (3) be treated as, or result in, a prohibited
transaction under section 406 or section 407 of ERISA or section 4975 of the
Code.
"BI-WEEKLY LOAN" means an Asset that provides for Obligor payments to be
made on a bi-weekly basis.
"BOOK-ENTRY CERTIFICATES" means Certificates of any Class specified as
such in the Prospectus Supplement for a Series and as to which Definitive
Certificates will not be issued, beneficial interests therein being maintained
through Participants or Indirect Participants in the Depository.
"BUY-DOWN FUND" means a custodial Eligible Account established by the
Servicer for any Buy-Down Loan, which must comply with the standards applicable
to the related Certificate Account, to be funded with an amount which, together
with projected reinvestment earnings thereon at a rate specified in the related
Prospectus Supplement, will provide funds sufficient to support the payments
required on such Buy-Down Loan on a level debt service basis.
"BUY-DOWN LOAN" means an Asset the amortization of which includes payments
made by the seller of the related Mortgaged Property or Manufactured Home or by
someone else other than the related Obligor.
"CAP" means a restriction or restrictions on the maximum stated interest
rate on a Certificate.
"CAPITAL APPRECIATION CLASS" means a Class of Certificates upon which
interest will accrue but will not be distributed until certain other Classes of
Certificates of the same Series have received their final distributions.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended.
"CERTIFICATE" means any Pass-Through Certificate issued pursuant to an
Agreement.
"CERTIFICATE ACCOUNT" means an account or accounts maintained by the
Servicer for any Series, into which the Servicer must deposit collections in
respect of the related Assets pending remittance thereof to the related
Distribution Account on the applicable Remittance Date.
"CERTIFICATE REGISTER" means, for any Series, the register maintained by
or at the direction of the Trustee containing the names and addresses of all
current Holders of Certificates of each Class of such Series, and noting the
Class and denomination of each Certificate of such Series held by each such
holder.
"CERTIFICATEHOLDER" means the registered holder of a Certificate.
"CERTIFICATE PRINCIPAL BALANCE" means the outstanding principal balance of
a Certificate or Class of Certificates.
"CLASS" means any class of the Certificates of a Series, as specified in
the related Prospectus Supplement.
"CLEARING AGENCY" means an entity registered pursuant to Section 17A of
the Securities Act of 1934, as amended.
"CLOSING DATE" means, for any Series, the date on which such Series is
issued, which will be specified in the related Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTION PERIOD" means, unless otherwise provided in a related
Prospectus Supplement, with respect to any Distribution Date, the period
commencing on the second day of the calendar month preceding the month in which
such Distribution Date occurs and ending on the first day of the month in which
such Distribution Date occurs.
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"COMMISSION" means the Securities and Exchange Commission.
"COMPANION CLASS" means a Class of Certificates structured to receive
principal payments on the underlying Assets on any Distribution Date only to
the extent those principal payments exceed the principal distribution amounts
scheduled to be made on a related PAC Class on such Distribution Date.
"COMPANY" means Oakwood Mortgage Investors, Inc., a North Carolina
corporation that is a wholly-owned subsidiary of Oakwood.
"COMPENSATING INTEREST" means, for any Distribution Date, the amount of
all Due Date Interest Shortfalls for the preceding Prepayment Period to the
extent such Shortfalls do not exceed the Servicer's aggregate servicing
compensation in respect of such Prepayment Period.
"COMPLEMENTARY STRIP CERTIFICATES" means different Classes of Strip
Certificates of the same Series that, when held in combination, provide an
aggregate economic effect equivalent to that of a Participation Certificate.
"COMPOUND INTEREST CERTIFICATE" means a Certificate on which interest is
accrued and is compounded and added to the principal balance thereof
periodically, but which is not unconditionally entitled to distributions of
interest at least annually.
"COMPOUND INTEREST CLASS" means a Class of Certificates on which interest
may accrue but not be paid for the period described in the related Prospectus
Supplement.
"CONTINGENT PAYMENT OBLIGATION" means a debt obligation with one or more
contingent payments as defined in the Contingent Payment Regulations.
"CONTINGENT PAYMENT REGULATIONS" means those provisions of the OID
Regulations that address the federal income tax treatment of Contingent Payment
Obligations.
"CONTRACT" means a manufactured housing installment sales contract
including any and all rights to receive payments due thereunder on and after
the Cut-off Date and any security interest in a Manufactured Home purchased
with the proceeds of such contract.
"CONTRACT DOCUMENTS" means, with respect to each Contract:
(1) the original Contract;
(2) either (a) the original title document for the related Manufactured
Home, a duplicate certified by the appropriate governmental authority that
issued the original thereof or, if such original is not yet available, a
copy of the application filed with the appropriate governmental authority
pursuant to which the original title document will issue (which copy may be
on microfilm or optical disk maintained by the Servicer in its records
separate from the other related Contract Documents), or (b) if the laws of
the jurisdiction in which the related Manufactured Home is located do not
provide for the issuance of title documents for manufactured housing units,
other evidence of ownership of the related Manufactured Home that is
customarily relied upon in such jurisdiction as evidence of title to a
manufactured housing unit;
(3) unless such Contract is a Land Secured Contract, evidence of one or
more of the following types of perfection of the Seller's or the Trustee's
security interest in the related Manufactured Home granted by such Contract
(or, if such evidence is not yet available, a copy of the application or
other filing used to obtain such security interest (which copy may be on
microfilm or optical disk maintained by the Servicer in its records
separate from the other related Contract Documents)), as appropriate in the
applicable jurisdiction: (a) notation of such security interest on the
title document, (b) a financing statement meeting the requirements of the
UCC, with evidence of recording indicated thereon, (c) a fixture filing in
accordance with the UCC, with evidence of filing indicated thereon, or (d)
such other evidence of perfection of a security interest in a manufactured
housing unit as is customarily relied upon in the jurisdiction in which the
related Manufactured Home is located;
(4) an original assignment of the Contract from the initial named payee
thereunder to the Seller (unless the Seller is the initial named payee for
such Contract);
(5) originals of any assumption agreements relating to such Contract,
together with originals of any surety or guaranty agreement relating to
such Contract or to any such assumption agreement, payable to the order of
the Trustee, or, if not so payable, endorsed to the order of, or assigned
to, the Trustee by the holder/payee thereunder without recourse;
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(6) originals of any extension, modification or waiver agreement(s)
relating to such Contract; and
(7) proof of maintenance of a Standard Hazard Insurance Policy (and a
flood insurance policy, if applicable) for the related Manufactured Home.
In the case of any Land Secured Contract, the related Contract Documents
shall consist of the following documents in lieu of those listed in clause (3)
of the foregoing paragraph: (a) the original recorded Mortgage for the related
Real Property, with evidence of recordation noted thereon or attached thereto,
or a certified copy thereof issued by the appropriate recording office (or, if
the Mortgage is in the process of being recorded, a photocopy of the Mortgage,
which may be on microfilm or optical disk maintained by the Servicer in its
records separate from the other related Contract Documents); (b) if the
Mortgage does not name the related Seller as mortgagee therein or beneficiary
thereof, an original recorded assignment or assignments of the Mortgage from
the Persons named as mortgagee in, or beneficiary of, such Mortgage, to the
related Seller, with evidence of recordation noted thereon or attached thereto,
or a certified copy of each such assignment issued by the appropriate recording
office (or, if such an original assignment is in the process of being recorded,
a photocopy of each such assignment, which may be on microfilm or optical disk
maintained by the Servicer in its records separate from the other related
Contract Documents); (c) a copy of the power of attorney delivered by the
Seller to the Trustee authorizing the Trustee to execute and record assignments
of Mortgages securing Land Secured Contracts from the Seller to the Trustee in
the event that recordation of such assignments becomes necessary for
foreclosure on the related Real Property by or on behalf of the Trustee; and
(d) if such Land Secured Contract's original principal balance was $40,000 or
greater, a copy of the title search report and bring-down thereof (or evidence
of title insurance) with respect to the related Real Property.
"CONTRACT FILE" means, with respect to any Contract, all of the related
Contract Documents.
"CONTRACT LOAN-TO-VALUE RATIO" means, (i) as to each Contract with respect
to which a lien on land is required for underwriting purposes, the ratio,
expressed as a percentage, of the principal amount of such Contract to the sum
of the purchase price of the home (including taxes, insurance and any land
improvements), the tax value or appraised value of the land and the amount of
any prepaid finance charges or closing costs that are financed; and (ii) as to
each other Contract, the ratio, expressed as a percentage, of the principal
amount of such Contract to the purchase price of the home (including taxes,
insurance and any land improvements) and the amount of any prepaid finance
charges or closing costs that are financed.
"CONTRACT RATE" means the annual percentage rate or "APR" specified in a
Contract.
"CONTRACT SCHEDULE" means an Asset Schedule to the extent it identifies
Contracts.
"CONVENTIONAL MORTGAGE LOANS" means Mortgage Loans that are not insured by
the FHA or partially guaranteed by the VA.
"CONVERTIBLE LOAN" means an Adjustable Rate Asset subject to a provision
pursuant to which, subject to certain limitations, the related Obligor may
exercise an option to convert the adjustable Asset Rate to a fixed Asset Rate.
"CREDIT INSURANCE" means the Primary Mortgage Insurance Policies, FHA
insurance, VA guarantees, and Pool Insurance Policies, if any, obtained with
respect to any Asset Pool.
"CREDIT INSURER" means a Mortgage Insurer or a Pool Insurer.
"CURRENT RECOGNITION ELECTION" means the election under section 1278(b) of
the Code to recognize market discount on a debt instrument currently on an
uncapped accrual basis.
"CUSTODIAL AGREEMENT" means the agreement, if any, among the Company, a
Trustee and a Custodian, by which the Custodian is appointed to hold the
Mortgage Loan Documents for a Trust Estate for the benefit of the Trustee.
"CUSTODIAN" means the custodian, if any, appointed pursuant to a Custodial
Agreement to hold the Mortgage Loan Documents for a Trust Estate for the
benefit of the related Trustee.
"CUT-OFF DATE" means, for any Series, the date specified in the related
Prospectus Supplement as the date after which scheduled principal and interest
payments on the related Contracts and Mortgage Loans, and on and after which
unscheduled collections of principal on the related Contracts and Mortgage
Loans, are to be included in the related Trust Estate.
"CUT-OFF DATE PRINCIPAL BALANCE" means, as to any Asset, the original
principal amount of such Asset, minus the principal portion of all Monthly
Payments due on such Asset on or before the applicable Cut-off Date and minus
all other payments applied to reduce such original principal amount before the
applicable Cut-off Date.
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"DEEMED PRINCIPAL PAYMENTS" means all payments of principal and interest
provided for on a debt instrument other than Qualified Stated Interest.
"DEFINITIVE CERTIFICATE" means any Certificate that will be issued in
fully-registered, certificated form to the owners thereof, or their nominees.
"DEPOSITORY" means DTC or any successor or other Clearing Agency selected
by the Company as depository for any Book-Entry Certificates.
"DISCOUNT CERTIFICATE" means a Certificate that has a purchase price less
than its principal amount.
"DISQUALIFIED ORGANIZATION" means either (1) the United States; (2) any
state or political subdivision thereof; (3) any foreign government; (4) any
international organization; (5) any agency or instrumentality of any of the
foregoing; (6) any tax-exempt organization (other than a farmers' cooperative
described in section 521 of the Code) unless such organization is subject to
the tax on UBTI; or (7) any rural electrical or telephone cooperative;
provided, however, that a corporation will not be treated as an instrumentality
of the United States or any state or political subdivision thereof if all of
its activities are subject to tax and, with the exception of FHLMC, a majority
of its board of directors is not selected by such governmental unit.
"DISTRIBUTION ACCOUNT" means the account maintained by the Trustee, as
specified in the related Prospectus Supplement, from which distributions are
made on the Certificates.
"DISTRIBUTION DATE" means, with respect to each Series, unless otherwise
provided in the related Prospectus Supplement, the 15th day of each month (or
the next business day if such 15th day is not a business day), commencing in
the month following the month in which the related Closing Date occurs.
"DISTRIBUTION PERIOD" means, for any Certificate, the interval between one
Distribution Date and the next Distribution Date.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
"DUE DATE" means, for any Asset, the date on which a Monthly Payment is
due on such Asset from the Obligor thereunder (without regard to any grace
period).
"DUE DATE INTEREST SHORTFALL" means, for any Asset that is prepaid in full
or liquidated on other than a Due Date for such Asset, the difference between
(1) the amount of interest that would have accrued on such Asset through the
day preceding the first Due Date after such prepayment in full or liquidation
had the Asset not been prepaid in full or liquidated (net of any other
administrative fees payable out of such interest had it accrued and been paid)
and (2) the amount of interest that actually accrued on such Asset prior to the
prepayment in full or liquidation (net of an allocable portion of any other
administrative fees payable from interest payments on such Asset during the
related Collection Period).
"EARLY PAYMENT": As to any Asset and any Due Date on which the principal
and interest payments on such Asset made with respect to such Due Date (not
including any late fees) exceed the sum of the scheduled Monthly Payment for
such Asset and Due Date plus any unpaid Monthly Payments for previous Due
Dates, if the related Obligor has not sent written notice to the Servicer with
such payment asking that the amount by which such payment exceeds the Monthly
Payment then due be treated as a Principal Prepayment and the Servicer is
unable to determine the Obligor's intended treatment of such excess payment,
the Early Payment shall be the amount by which (1) payments of principal and
interest on such Asset made with respect to such Due Date exceed (2) the
scheduled Monthly Payment for such Asset on such Due Date plus any unpaid
Monthly Payments for previous Due Dates, but only to the extent that the amount
of such excess is an integral multiple of the amount of the scheduled Monthly
Payment for such Due Date. To the extent that the amount of such excess exceeds
an integral multiple of such scheduled Monthly Payment, the excess shall be
deemed to be a Principal Prepayment of such Asset.
"ELIGIBLE ACCOUNT" means, as to any Series, an account which is maintained
(1) at a depository institution organized under the laws of the United States
or any state, the deposits of which are insured to the full extent permitted by
law by the Federal Deposit Insurance Corporation (the "FDIC"), whose commercial
paper or long-term unsecured debt has a rating, as specified in the related
Agreement, sufficient to support the ratings requested on the Certificates of
the related Series, and which institution is subject to examination by federal
or state authorities, (2) in the corporate trust department of the Trustee or
(3) at an institution otherwise acceptable to each applicable Rating Agency.
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"ELIGIBLE INVESTMENTS" means one or more of the investments specified in
an Agreement in which moneys in the related Distribution Account and certain
other accounts are permitted to be invested.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW ACCOUNT" means an account established and maintained by the
Servicer with respect to Mortgage Loans in which Mortgagors under certain
Mortgage Loans are required to deposit amounts sufficient, as applicable, to
pay taxes, assessments, hazard insurance premiums and other comparable items.
"EVENT OF DEFAULT" means, with respect to an Agreement, the occurrence of
a default as specified in such Agreement, coupled with the passage of a period
of any cure period specified in the Agreement for a default of such type
without such default having been cured. Events of Default will be as specified
in the Agreements, but will generally include (1) any failure by the Servicer
to remit funds to the Distribution Account as required by the applicable
Agreement, which failure continues unremedied for five days (or such other
period specified in the related Agreement) after the date upon which such
remittance was due; (2) any failure or breach by the Servicer duly to observe
or perform in any material respect any other of its covenants or agreements
that materially and adversely affects the interests of Certificateholders,
which, in either case, continues unremedied for 60 days after the giving of
written notice of such failure or breach to the Servicer by the related Trustee
or by the Holders of Certificates evidencing at least 25% of the Voting Rights
for the applicable Series; and (3) certain events involving insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings regarding the Servicer.
"EXCESS PREMIUM" means, with respect to a Regular Certificate, a premium
over such Certificate's noncontingent principal amount in excess of the lesser
of (1) .015 multiplied by the product of such noncontingent principal amount
and the WAM of the Certificate or (2) 15% of such noncontingent principal
amount.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"FHA CONTRACT" or "FHA MORTGAGE LOAN" means a Contract or Mortgage Loan
that is insured by the FHA.
"FHA PREPAYMENT EXPERIENCE" means certain statistical data compiled by the
Actuarial Division of HUD concerning prepayment rates on FHA mortgage loans, as
set forth in tables which, assuming full mortgage loan prepayments at the rates
experienced by FHA on FHA mortgage loans, set forth the percentages of the
original number of FHA mortgage loans included in pools of Level Payment
Mortgage Loans with varying maturities that will remain outstanding on each
anniversary of the origination date of such mortgage loans (assuming they all
have the same origination date).
"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FINAL SCHEDULED DISTRIBUTION DATE" means, for any Class, unless otherwise
provided in the related Prospectus Supplement, the date, based on the
assumptions set forth in the related Prospectus Supplement, on which the
Certificate Principal Balance of all Certificates of such Class is scheduled to
be reduced to zero, assuming no prepayments.
"FINANCIAL INTERMEDIARY" means a brokerage firm, bank, thrift institution
or any other entity that is a Depository Participant or Indirect Participant,
and that maintains a Beneficial Owner's account for the purpose of reflecting
such Beneficial Owner's interest in a Book-Entry Certificate.
"FIRST DISTRIBUTION PERIOD" means, with respect to a Certificate, the
interval between its issue date and its first Distribution Date.
"FLOOR" means a restriction or restrictions on the minimum stated interest
rate on a Certificate.
"FNMA" means the Federal National Mortgage Association.
"FOREIGN PERSON" means an alien individual that is not a United States
resident for federal income tax purposes, a foreign corporation, foreign
partnership, certain foreign estates or trusts or holders holding on behalf of
any of the foregoing.
"FOREIGN PERSON CERTIFICATION" means a written certification (signed under
penalty of perjury) provided by the beneficial owner of a Certificate that such
owner is, INTER ALIA, a Foreign Person.
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"FRAUD LOSS" means a loss incurred on a Contract or Mortgage Loan with
respect to which there was fraud in connection with the origination of such
Contract or Mortgage Loan or fraud, dishonesty or misrepresentation in
connection with the application for any insurance obtained with respect to such
Contract or Mortgage Loan.
"FULL COVERAGE INSURANCE POLICY" means a Primary Mortgage Insurance Policy
which provides full coverage against any loss maintained by reason of
nonpayments by the related Mortgagor.
"GARN-ST GERMAIN ACT" means the Garn-St Germain Depository Institutions
Act of 1982, as amended.
"GEM LOAN" means a fixed-rate fully-amortizing Asset providing for (1)
Monthly Payments during the first year after origination that are at least
sufficient to pay interest due on the Asset, and (2) an increase in such
Monthly Payments in subsequent years at a predetermined rate generally not more
than a specified percentage of the Monthly Payments due on such Asset during
the preceding year.
"GOVERNOR" means a restriction or restrictions on the amount of increase
or decrease in the stated interest rate on a Certificate on any Interest
Adjustment Date.
"GPM FUND" means a custodial Eligible Account established by the Servicer
for any GPM Loan, which must comply with the standards applicable to the
related Certificate Account, to be funded with an amount which, together with
projected reinvestment earnings thereon at a rate specified in the related
Prospectus Supplement, will provide funds sufficient to support the payments
required on such GPM Loan on a level debt service basis.
"GPM LOAN" means a "graduated payment" Asset the terms of which provide
for Monthly Payments during the initial years of its term that are less than
the actual amount of principal and interest that would be payable on a level
debt service basis.
"GROSS MARGIN" means, with respect to any Adjustable Rate Asset, the fixed
percentage per annum specified in the related Contract or Mortgage Note that is
added to the applicable Index on each related Interest Adjustment Date to
determine the new Asset Rate for such Adjustable Rate Asset.
"HOUSING ACT" means Section 306(g) of Title III of the National Housing
Act of 1934, as amended.
"HUD" means the United States Department of Housing and Urban Development.
"INCREASING PAYMENT LOAN" means an Asset that provides for Obligor Monthly
Payments that are fixed for an initial period of six, 12 or 24 months following
origination, and which increase thereafter at a predetermined rate expressed as
a percentage of the Obligor's Monthly Payment during the preceding period,
subject to any caps on the amount of any single Monthly Payment increase, for a
period not to exceed nine years after origination, after which the Monthly
Payment amount is fixed at a level-payment amount so as to amortize the Asset
fully over its remaining term.
"INDEX" means, with respect to any Adjustable Rate Asset, the index
specified in the related Contract or Mortgage Note that is added to the related
Gross Margin on each related Interest Adjustment Date to determine the new
Asset Rate for such Adjustable Rate Asset.
"INDIRECT PARTICIPANTS" means organizations which have indirect access to
a Clearing Agency, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
"INSURANCE PROCEEDS" means amounts paid or payable (as the context
requires) under any insurance policy maintained with respect to a Series, to
the extent such amounts are not applied to the restoration or repair of the
Manufactured Home or Mortgaged Property in respect of which such amounts were
paid.
"INSURED" means the Company and the Trustee, each as assignee of the
Seller.
"INTEREST ADJUSTMENT RATES" means, with respect to any Adjustable Rate
Asset, the dates on which the related Asset Rate changes in accordance with the
terms of the related Contract or Mortgage Note.
"INTEREST REDUCTION LOAN" means an Asset for which, subject to certain
conditions, the related Obligor has a one-time option to reduce the interest
rate payable with respect to such Asset.
"INTEREST WEIGHTED CERTIFICATE" means a Regular Certificate, the payments
on which consist entirely or primarily of a specified nonvarying portion of the
interest payable on one or more of the Assets held by the related Series REMIC.
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"INVERSE FLOATER CERTIFICATE" means a Regular Certificate that provides
for the payment of interest at a rate determined as the difference between two
interest rate parameters, one of which is a variable rate and the other of
which is a fixed rate or a different variable rate.
"IO CERTIFICATE" means a Non-REMIC Certificate evidencing ownership of a
percentage of the interest payments (net of certain fees) on the Assets
assigned to the related Trust.
"LAND SECURED CONTRACT" means a Contract secured at origination by a
parcel of real estate in addition to a Manufactured Home.
"LEVEL PAYMENT LOAN" means an Asset the terms of which provide for regular
level payments of principal and interest throughout its entire term.
"LEVEL PAYMENT BUY-DOWN LOAN" means an Asset that provides for a reduction
in the amount of the related Obligor's Monthly Payments for a period of up to
the first four years following origination of such Asset and as to which funds
have been provided by someone other than the Obligor to cover the reductions in
such Monthly Payments during those years, but for which the aggregate monthly
amount due on such Asset from the Obligor and anyone else are level for the
term of such Asset.
"LIQUIDATED LOAN" means a defaulted Contract or Mortgage Loan as to which
all amounts that the Servicer expects to recover through the date of
disposition of the related Manufactured Home or Mortgaged Property have been
received.
"LIQUIDATION EXPENSES" means all reasonable, out-of-pocket costs and
expenses (exclusive of the Servicer's overhead costs) incurred by the Servicer
in connection with liquidation of any Contract or Mortgage Loan or disposition
of any related Repo Property or REO Property.
"LIQUIDATION PROCEEDS" means amounts received and retained by the Servicer
in connection with the liquidation of a Liquidated Loan, whether through
foreclosure thereon or repossession and resale of the related Manufactured Home
or otherwise (including Insurance Proceeds collected in connection with such
liquidation).
"LOAN-TO-VALUE RATIO" means the Contract Loan-to-Value Ratio or the
Mortgage Loan-to-Value Ratio of an Asset, as applicable.
"MANUFACTURED HOME" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
"MARK-TO-MARKET REGULATIONS" means Treasury regulations relating to the
provisions under section 475 of the Code relating to mark-to-market accounting
for dealers in securities.
"MONTHLY PAYMENT" means the scheduled monthly payment of principal and
interest on a Contract or Mortgage Loan.
"MORTGAGE" means the mortgage, deed of trust or other instrument creating
a first lien on a first priority ownership interest in or estate in feesimple
in real property securing a Mortgage Note.
"MORTGAGE INSURER" means the insurance company or companies which issue
any Primary Mortgage Insurance Policies with respect to any Mortgage Loans.
"MORTGAGE LOAN" means a mortgage loan secured by a first lien on a one- to
four-family residential real property which is sold and assigned by the Company
to a Trustee and included in the Trust Estate for a Series of Certificates.
"MORTGAGE LOAN DOCUMENTS" means, with respect to each Mortgage Loan, the
following documents:
(1) the original Mortgage Note bearing a complete chain of endorsements,
if necessary, from the initial payee thereunder to the Seller, with a
further endorsement without recourse from the Seller in blank or to the
Trustee or its Custodian, in a form specified in the related Sales
Agreement, together with all related riders and addenda and any related
surety or guaranty agreement, power of attorney and buydown agreement;
(2) the original recorded Mortgage (or a copy thereof certified to be a
true and correct reproduction of the original thereof by the appropriate
public recording office) with evidence of recordation noted thereon or
attached thereto, or, if the Mortgage is in the process of being recorded,
a photocopy of the Mortgage, certified by an officer of the Seller or the
originator, the related title insurance company, the related
closing/settlement/escrow agent or the related closing attorney to be a
true and correct copy of the Mortgage submitted for recordation;
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(3) the original recorded assignment of the Mortgage from the Seller to
the Trustee or its Custodian, in a form specified in the related Sales
Agreement (or a copy thereof certified to be a true and correct
reproduction of the original thereof by the appropriate public recording
office) with evidence of recordation noted thereon or attached thereto, or,
if the assignment is in the process of being recorded, a photocopy of the
assignment, certified by an officer of the Seller to be a true and correct
copy of the assignment submitted for recordation;
(4) each original recorded intervening assignment of the Mortgage as is
necessary to show a complete chain of title from the original mortgagee (or
beneficiary, in the case of a deed of trust) to the Seller (or a copy of
each such assignment certified to be a true and correct reproduction of the
original thereof by the appropriate public recording office) with evidence
of recordation noted thereon or attached thereto, or, if an assignment is
in the process of being recorded, a photocopy of the assignment, certified
by an officer of the Seller to be a true and correct copy of the assignment
submitted for recordation;
(5) an original Title Insurance Policy or, if such policy has not yet
been issued or is otherwise not available, (a) a written commitment to
issue such policy issued by the applicable title insurance company and an
officer's certificate of the Seller certifying that all of the requirements
specified in such commitment have been satisfied, (b) a preliminary title
report if the related Mortgaged Property is located in a state in which
preliminary title reports are acceptable evidence of title insurance or (c)
a certificate of an officer of the Seller certifying that a Title Insurance
Policy is in full force and effect as to the related Mortgage and that such
Title Insurance Policy is freely assignable to and will inure to the
benefit of the Trustee (subject to recordation of the related Assignment of
Mortgage);
(6) for each Mortgage Loan identified in the related Agreement as having
in place a Primary Mortgage Insurance Policy, a Primary Mortgage Insurance
Policy or a certificate of primary mortgage insurance issued by the related
Mortgage Insurer or its agent indicating that such a policy is in effect as
to such Mortgage Loan or, if neither a policy nor a certificate of
insurance from the related Mortgage Insurer is available, a certificate of
an officer of the Seller certifying that a Primary Mortgage Insurance
Policy is in effect as to such Mortgage Loan;
(7) each related assumption agreement, modification, written assurance or
substitution agreement, if any; and
(8) proof of the maintenance of a Standard Hazard Insurance Policy (and a
flood insurance policy, if applicable) as to the related Mortgaged
Property.
"MORTGAGE LOAN FILE" means, as to any Mortgage Loan, all the related
Mortgage Loan Documents.
"MORTGAGE LOAN SCHEDULE" means an Asset Schedule to the extent it
identifies Mortgage Loans.
"MORTGAGE LOAN-TO-VALUE RATIO" means, as to a Mortgage Loan, the ratio,
expressed as a percentage, of the principal amount of such Mortgage Loan at the
time of determination, to either (i) the sum of the appraised value of the land
and improvements, and the amount of any prepaid finance charges or closing
costs that are financed or (ii) the sum of the purchase price of the home
(including taxes, insurance and any land improvements), the appraised value of
the land and the amount of any prepaid finance charges or closing costs that
are financed.
"MORTGAGE NOTE" means the note or other evidence of indebtedness of a
mortgagor secured by a Mortgage.
"MORTGAGE RATE" means, with respect to each Mortgage Loan, the interest
rate specified in the related Mortgage Note.
"MORTGAGED PROPERTY" means the mortgaged property securing a Mortgage
Loan.
"MORTGAGOR" means the obligor on a Mortgage Note.
"MULTIPLE RATE VRDI CERTIFICATE" means a VRDI Certificate that does not
qualify as a Single Rate VRDI Certificate.
"NEGATIVE ADJUSTMENT" means any reduction in the income accrual on a
Certificate for a period below zero.
"NET LIQUIDATION PROCEEDS" means the amount of Liquidation Proceeds
received with respect to any Liquidated Loan, net of the amount of any
Liquidation Expenses incurred with respect to such Liquidated Loan and not
previously reimbursed to the Servicer at the time of liquidation.
"NET RATE" means, as to any Asset, the Asset Rate thereon minus applicable
servicing, administration and guarantee fees and insurance premiums, if any
(plus reinvestment income thereon if payable to the related
Certificateholders), expressed as a percentage per annum of the principal
balance of such Asset.
"NON-RECOVERABLE ADVANCE" means any Advance previously made or proposed to
be made in respect of a Contract or Mortgage Loan by the Servicer (or a Trustee
or Pool Insurer) pursuant to the related Agreement, which, in the good faith
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judgment of the Servicer (or such Trustee or Pool Insurer), will not or, in the
case of a proposed Advance, would not, be ultimately recoverable by the
Servicer (or such Trustee or Pool Insurer) from Related Proceeds of such
Contract or Mortgage Loan.
"NON-REMIC CERTIFICATE" means a Certificate representing an interest in a
Trust Estate as to which no REMIC elections have been made.
"NON-REMIC STRIP CERTIFICATE" means an IO Certificate, a PO Certificate,
or a Ratio Certificate.
"NON-VRDI CERTIFICATE" means a NOWA Certificate, a Variable Rate
Certificate that is issued at an Excess Premium, or any other Variable Rate
Certificate that does not qualify as a VRDl Certificate.
"NOTIONAL PRINCIPAL AMOUNT" means a fictional principal balance that may
be assigned to a Certificate or a Class of Certificates that is to be used
solely for purposes of determining the amount of interest distributions and
certain other rights and obligations of the holder(s) of such Certificate or
Class and does not represent any beneficial interest in principal payments on
the Assets in the related Trust.
"NOWA CERTIFICATE" means a Weighted Average Certificate relating to a
Trust (or a designated Asset Pool thereof) whose Assets do not bear interest at
qualified floating rates.
"NVRI" means a residual interest that has negative value because, on the
date it is acquired, the present value of the anticipated tax liabilities
associated with holding the interest exceeds the sum of (1) the present value
of the expected future distributions on the interest and (2) the present value
of the anticipated tax savings associated with holding the interest as the
related REMIC generates losses.
"OAKWOOD" means Oakwood Acceptance Corporation, a North Carolina
corporation.
"OAKWOOD HOMES" means Oakwood Homes Corporation, a North Carolina
corporation of which Oakwood and OMH are direct wholly-owned subsidiaries and
of which the Company is an indirect (through Oakwood) wholly-owned subsidiary.
"OBLIGOR" means a person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract or a person who is the
mortgagor or borrower under a Mortgage Loan or who has acquired a Mortgaged
Property subject to a Mortgage Loan.
"OBLIGOR BANKRUPTCY INSURANCE" means an insurance policy, reserve fund or
other form of credit enhancement that provides protection against losses
resulting from the bankruptcy of an Obligor.
"OBLIGOR BANKRUPTCY LOSS" means, for any Distribution Date as to any Asset
that was the subject of a Principal Cramdown during the preceding Prepayment
Period, the related Principal Cramdown Amount.
"OFFERED CERTIFICATES" means, as to any Series, the Certificates of
Classes of such Series that are offered pursuant to the related Prospectus
Supplement and this Prospectus.
"OID REGULATIONS" means the final regulations governing original issue
discount that were issued by the Treasury.
"OMH" means Oakwood Mobile Homes, Inc., a North Carolina corporation that
is a wholly-owned retailing subsidiary of Oakwood Homes.
"ORDINARY RATIO CERTIFICATE" means a Ratio Certificate that is not
considered a Contingent Payment Obligation.
"PAC CLASS" means a "planned amortization" Class of Certificates
structured to receive fixed principal distribution amounts on designated
Distribution Dates so long as principal payments on the underlying Assets are
received at a rate that is within a range of constant percentages of the
prepayment assumption model used (as specified in the related Prospectus
Supplement).
"PARITY PRICE" means the price at which a Certificate will yield its
coupon, after giving effect to any payment delay.
"PARTICIPANTS" means the participating organizations that utilize the
services of the Depository, including securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations.
"PARTICIPATION CERTIFICATE" means a Non-REMIC Certificate evidencing
ownership of equal percentages of the principal and interest payments on the
Assets assigned to the related Trust.
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"PASS-THROUGH RATE" means, with respect to any Class of Certificates, the
per annum interest rate, if any, which will accrue on the Certificate Principal
Balance of such Class.
"PERCENTAGE INTEREST" means, with respect to a Certificate to which an
initial principal amount is assigned as of the Closing Date, the portion of the
Class of which such Certificate is a part evidenced by such Certificate,
expressed as a percentage, the numerator of which is the denomination
represented by such Certificate and the denominator of which is the initial
Certificate Principal Balance of such Class. With respect to a Certificate to
which an initial principal balance is not assigned as of the Closing Date, the
portion of the Class of which such Certificate is a part evidenced by such
Certificate, expressed as a percentage stated on the face of such Certificate.
"PERIODIC RATE CAP" means, with respect to any Adjustable Rate Asset, the
limit on the percentage increase that may be made to the related Asset Rate on
any Interest Adjustment Date.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political
subdivision thereof.
"P&I ADVANCE" means any amount advanced (or required to be advanced, as
the context requires) by the Servicer in respect of a delinquent payment of
principal and interest on a Contract or Mortgage Loan.
"PLAN" means any employee benefit plan or retirement arrangement,
including individual retirement accounts and annuities, Keogh plans, and
collective investment funds in which such plans, accounts, annuities or
arrangements are invested, that are described in or subject to the Plan Asset
Regulations, ERISA, or corresponding provisions of the Code.
"PLAN ASSET REGULATIONS" means the DOL regulations set forth in 29 C.F.R.
2510.3-101, as amended from time to time.
"PLAN INVESTOR" means any Plan, any Person acting on behalf of a Plan, or
any Person using the assets of a Plan.
"PO CERTIFICATE" means a Non-REMIC Certificate evidencing ownership of a
percentage of the principal payments on some or all of the Assets assigned to
the related Trust.
"POOLING AND SERVICING AGREEMENT" means, with respect to any Series, the
pooling and servicing agreement pursuant to which the related Trust was
established and the related Certificates were issued, which will be among the
Company, the Servicer and the related Trustee and will consist of a Series
Agreement which incorporates by reference the Standard Terms.
"POOL INSURANCE POLICY" shall have the meaning assigned and shall be as
described herein under "The Trusts -- Insurance -- Credit Insurance."
"POOL INSURER" means the insurer under any Pool Insurance Policy.
"POOL SCHEDULED PRINCIPAL BALANCE" means, on any Distribution Date for a
Series, the aggregate of the Scheduled Principal Balances, immediately prior to
the beginning of the related Collection Period, of the related Assets that were
outstanding at the beginning of such Collection Period, without giving effect
to any principal prepayments, Net Liquidation Proceeds or Repurchase Prices
received (or Realized Losses incurred) on such Assets on the day preceding the
beginning of such Collection Period, plus the aggregate of the principal
components of any Monthly Payments that were due at or prior to the beginning
of such Collection Period on such Assets, but which Monthly Payments were not
collected from a related Obligor or advanced by the Servicer and which were not
reflected in a corresponding reduction of the Certificate Principal Balance of
the Certificates on the related Distribution Date. The Pool Scheduled Principal
Balance as of any date of determination that is not a Distribution Date shall
be the Pool Scheduled Principal Balance for the next upcoming Distribution
Date.
"PRE-FUNDED AMOUNT" means the amount initially deposited into a
Pre-Funding Account for a Series.
"PRE-FUNDED ASSET" means an Asset acquired by a Trust after the related
Closing Date using funds on deposit in the related Pre-Funding Account.
"PRE-FUNDING ACCOUNT" means an account established for the purpose of
enabling a Trust to purchase Pre-Funded Assets, with an aggregate principal
balance not to exceed 25% of the Certificate Principal Balance of Certificates
issued by such Trust during the applicable Pre-Funding Period, as described
herein under "The Trusts -- Pre-Funding Accounts."
"PRE-FUNDING PERIOD" means any period specified as such in a Prospectus
Supplement not to exceed three months, during which the related Trust may
acquire Pre-Funded Assets using funds on deposit in a related Pre-Funding
Account.
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"PRE-ISSUANCE ACCRUED INTEREST" means interest that has accrued under the
terms of a Certificate prior to the issue date of such Certificate.
"PRE-ISSUANCE ACCRUED INTEREST RULE" means the rule in the OID Regulations
under which a Certificate's issue price may be computed by subtracting from the
issue price the amount of Pre-Issuance Accrued Interest on the Certificate, and
a portion of the interest received on the first Distribution Date with respect
to such Certificate would be treated as a return of such Pre-Issuance Accrued
Interest rather than as a payment on the Certificate, provided: (i) a portion
of the initial purchase price of the Certificate is allocable to Pre-Issuance
Accrued Interest and (ii) the Certificate provides for a payment of stated
interest on the first payment date within one year of the issue date that
equals or exceeds the amount of such Pre-Issuance Accrued Interest.
"PREMIUM CERTIFICATE" means a Certificate that has a purchase price
greater than its principal amount.
"PREPAYMENT MODEL" means a prepayment standard or model which represents
an assumed rate of prepayment of the Assets in an Asset Pool relative to the
aggregate outstanding principal balance of such Asset Pool from time to time.
"PREPAYMENT PERIOD" means, unless otherwise provided in a related
Prospectus Supplement, with respect to any Distribution Date, the calendar
month immediately preceding the calendar month in which such Distribution Date
occurs.
"PRICING PREPAYMENT ASSUMPTIONS" means, with respect to a Series of
Certificates, the assumptions concerning the rate and timing of principal
prepayments on the underlying Assets and concerning the reinvestment rate on
amounts held pending distribution that were assumed in pricing such
Certificates.
"PRIMARY MORTGAGE INSURANCE" means the insurance provided under any
Primary Mortgage Insurance Policy.
"PRIMARY MORTGAGE INSURANCE POLICY" means the primary mortgage insurance
policy, if applicable, covering certain Conventional Mortgage Loans for which
the initial Mortgage Loan-to-Value Ratios exceeded 80%.
"PRINCIPAL CRAMDOWN" means, as to any Asset, either (a) a decree by a
bankruptcy court to the effect that the portion of such Asset that is secured
by the underlying Manufactured Home or Mortgaged Property is less than its
Unpaid Principal Balance due to the fact that the value of such Manufactured
Home or Mortgaged Property is less than such Unpaid Principal Balance or (b)
the permanent forgiveness by a bankruptcy court of some or all of the Unpaid
Principal Balance owed by the related Obligor.
"PRINCIPAL CRAMDOWN AMOUNT" means, with respect to any Prepayment Period
as to any Asset that has been the subject of a Principal Cramdown, the amount
by which (a) the Unpaid Principal Balance of such Asset exceeds (b) as
applicable, depending upon the type of Principal Cramdown that was applied to
such Asset, either (1) the portion of such Unpaid Principal Balance that
remains secured by the related Manufactured Home or Mortgaged Property after
taking the related Principal Cramdown into account or (2) the Unpaid Principal
Balance after taking into account the permanent forgiveness of debt ordered by
the bankruptcy court in connection with the related Principal Cramdown.
"PRINCIPAL DISTRIBUTION AMOUNT" means, for any Series, except as otherwise
defined in the related Agreement, on any Distribution Date other than the
Distribution Date on which the related Trust is to be terminated, the sum of
the following amounts: (1) the sum of the principal components of all Monthly
Payments scheduled to be made on the Due Date occurring during the related
Collection Period on the related Assets that were Outstanding at the opening of
business on such Due Date (regardless of whether such Monthly Payments were
received by the Servicer from the related Obligors), not including any Monthly
Payments due on Liquidated Loans or repurchased Assets; (2) the sum of the
amounts of all Principal Prepayments received by the Servicer on the related
Assets during the related Prepayment Period; (3) with respect to any related
Asset that became a Liquidated Loan during the related Prepayment Period, the
Scheduled Principal Balance thereof on the date of liquidation thereof
(determined without giving effect to such liquidation), plus an amount equal to
the principal components of all Monthly Payments due on or prior to such date
on such Asset but theretofore unpaid by the related Obligors and not advanced
by the Servicer; (4) with respect to any related Asset that was purchased or
repurchased by the Servicer, OAC or OMI pursuant to the related Agreement
during the related Prepayment Period, the Scheduled Principal Balance thereof
on the date of purchase or repurchase thereof (determined without giving effect
to such purchase or repurchase), plus an amount equal to the principal
components of all Monthly Payments due on or prior to such date on such Asset
but theretofore unpaid by the related Obligor and not advanced by the Servicer;
and (5) an amount equal to all Principal Distribution Amounts from previous
Distribution Dates that have not yet been distributed on the Certificates (not
including any portion of such previous Principal Distribution Amounts that is
included in either of the amounts described in clause (3) or
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clause (4) above) minus the amount of any Writedown Amounts that have
previously been allocated to the Class of Certificates then entitled to receive
the Principal Distribution Amount in accordance with the related Pooling and
Servicing Agreement.
On the Distribution Date on which the Trust is terminated, the Pool
Scheduled Principal Balance for such Distribution Date.
"PRINCIPAL PREPAYMENT" means, with respect to any Asset, a payment
attributable to principal of such Asset, other than a scheduled principal
payment on such Asset, which may be received (1) from the related Obligor
together with a regular Monthly Payment, (2) from the related Obligor together
with an early Monthly Payment, or (3) in the form of net Insurance Proceeds
received by the Servicer otherwise than as a component of Liquidation Proceeds.
"PRINCIPAL-ONLY CLASS" means a Class of Certificates representing an
interest only in specified collections of principal on the underlying Assets,
which will have no Pass-Through Rate.
"QUALIFIED BANK" means any domestic bank not affiliated with Oakwood or
OMI (1) having long-term unsecured debt obligations rated in one of the two
highest rating categories (without modifiers) of at least one Rating Agency
(and of any other Rating Agency, if such bank's long-term unsecured debt
obligations are rated by such additional Rating Agency) or short-term unsecured
debt obligations rated in at least one Rating Agency's highest applicable
rating category (and of any other Rating Agency's highest applicable rating
category if such bank's short-term unsecured debt obligations are rated by such
additional Rating Agency), (2) having commercial paper or short-term unsecured
debt obligations rated in at least one Rating Agency's highest applicable
rating category (and in any other Rating Agency's highest applicable rating
category if such bank's commercial paper or short-term unsecured debt
obligations are rated by such additional Rating Agency), or (3) that is
otherwise acceptable to each applicable Rating Agency.
"QUALIFIED MORTGAGE" has the meaning assigned to such term herein under
"Federal Income Tax Consequences -- REMIC Certificates -- REMIC Qualification
- -- Asset Composition."
"QUALIFIED STATED INTEREST" means, in general, stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at (1) a single fixed rate or (2) a variable rate
thatmeets certain requirements set out in the OID Regulations.
"QUALIFIED SUBSTITUTE ASSET" means an Asset substituted by the Company,
the Seller or the Servicer for a Replaced Asset which must, on the date of such
substitution, (1) have an Unpaid Principal Balance not greater than (and not
more than $10,000 less than) the Unpaid Principal Balance of the Replaced
Asset, (2) have an Asset Rate not less than (and not more than one percentage
point in excess of) the Asset Rate of the Replaced Asset, (3) have a Net Rate
equal to the Net Rate of the Replaced Asset, (4) have a remaining term to
maturity not greater than (and not more than one year less than) that of the
Replaced Asset, (5) have a Loan-to-Value Ratio as of the first day of the month
in which the substitution occurs equal to or less than the Loan-to-Value Ratio
of the Replaced Asset as of such date (in each case, using the appraised value
at origination, and after taking into account the Monthly Payment due on such
date), and (6) comply with each representation and warranty set forth in
Section 2.05 of the Standard Terms and in the related Sales Agreement. In the
event that more than one Asset is substituted for a Replaced Asset, the amount
described in clause (1) hereof shall be determined on the basis of aggregate
Unpaid Principal Balances, the rates described in clauses (2) and (3) hereof
shall be determined on the basis of weighted average Asset Rates and Net Rates,
as the case may be, and the term described in clause (4) hereof shall be
determined on the basis of weighted average remaining terms to maturity,
provided that no Qualified Substitute Asset may have an original term to
maturity beyond the latest original term to maturity of any Asset assigned to
the Trust on the Closing Date. In the case of a Trust for which a REMIC
election has been or will be made, a Qualified Substitute Asset also shall
satisfy the following criteria as of the date of its substitution for a
Replaced Asset: (A) the Obligor shall not be 30 or more days delinquent in
payment on the Qualified Substitute Asset, (B) the Asset File for such Asset
shall not contain any material deficiencies in documentation, and shall include
an executed Contract or Mortgage Note, as applicable, and, if it is a Land
Secured Contract or a Mortgage Loan, a recorded Mortgage; (C) the Loan-to-Value
Ratio of the Asset must be 125% or less either (i) on the date of origination
of the Asset, or, if any of the terms of such Asset were modified other than in
connection with a default or imminent default on such Asset, on the date of
such modification, or (ii) on the date of the substitution, based on an
appraisal conducted within the 60 day period prior to the date of the
substitution; (D) no property securing such Asset may be subject to
foreclosure, bankruptcy, or insolvency proceedings; and (E) such Asset, if a
Land Secured Contract or a Mortgage Loan, must be secured by a valid first lien
on the related Real Property or Mortgaged Property. In addition to all other
requirements stated in this paragraph, any Replaced Asset that is a Mortgage
Loan may only be replaced by another Mortgage Loan.
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"QUALIFYING REIT INTEREST" means interest that is treated as "interest on
obligations secured by mortgages on real property" for REIT qualification
purposes.
"RATE BUBBLE CERTIFICATE" means a Regular Certificate, the effective
interest rate on which is higher during the Certificate's First Distribution
Period than during the remainder of the life of the Certificate.
"RATING AGENCY" means a nationally-recognized statistical securities
rating organization, such as Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc., Moody's investors Service, Inc., Fitch Investors Service,
Inc., and Duff & Phelps Credit Rating Co. With respect to any Series, each
Rating Agency rating any Certificates of such Series offered hereunder will be
identified in the related Prospectus Supplement.
"RATIO CERTIFICATE" means a Non-REMIC Certificate evidencing ownership of
a percentage of the interest payments and a different percentage of the
principal payments on the Assets assigned to the related Trust.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"REALIZED INTEREST LOSS" means a shortfall in interest resulting from the
receipt of Net Liquidation Proceeds in respect of a Contract or Mortgage Loan
in an amount that is insufficient to pay accrued and unpaid interest thereon.
"REALIZED LOSS" means (1) the amount of any loss realized by a Trust in
respect of any related Liquidated Loan (which may be a Special Hazard Loss or a
Fraud Loss), which shall generally equal (a) the Unpaid Principal Balance of
the Liquidated Loan, plus accrued and unpaid interest on such Liquidated Loan,
plus amounts reimbursable to the Servicer for previously unreimbursed Servicing
Advances, minus (b) Net Liquidation Proceeds in respect of the Liquidated Loan
or (2) any Obligor Bankruptcy Loss.
"REAL PROPERTY" means a parcel of real estate securing a Land Secured
Contract.
"RECORD DATE" means, for any Distribution Date, the date on which the
identities of the Certificateholders entitled to distributions on the related
Certificates on such Distribution Date are fixed, which shall be the last day
ofthe preceding calendar month unless otherwise specified in the related
Prospectus Supplement.
"REGULAR CERTIFICATE" means a Certificate evidencing a "regular interest"
in a REMIC.
"REIT" means a "real estate investment trust" as defined in the Code.
"RELATED PROCEEDS" means, with respect to any Contract or Mortgage Loan in
respect of which an Advance has been or is to be made, future collections in
respect of such Contract or Mortgage Loan (including collections of or from
Insurance Proceeds, Additional Assets or Liquidation Proceeds relating to such
Contract or Mortgage Loan).
"RELIEF ACT" means the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"REMIC" means a "real estate mortgage investment conduit" as defined in
the Code.
"REMIC CERTIFICATE" means a Certificate representing an interest in a
Trust Estate as to which one or more REMIC elections have been made.
"REMIC PROVISIONS" means provisions of the Code relating to REMICs, which
appear at Sections 860A through 860G of the Code, related Code provisions,
regulations (whether in proposed, temporary or final form), announcements and
rulings thereunder, as the foregoing may be in effect from time to time.
"REMITTANCE ACCOUNT" shall have the meaning assigned to such term herein
under "Sale and Servicing of Contracts and Mortgage Loans -- Servicing --
Distributions on Certificates."
"REMITTANCE DATE" means the business day preceding any monthly
Distribution Date.
"REMITTANCE REPORT" means, with respect to any Distribution Date, the
monthly statement relating to such Distribution Date which is to be prepared by
the Servicer and furnished by the Trustee to the related Certificateholders, as
more fully described herein under "The Pooling and Servicing Agreements --
Reports to Certificateholders."
"REO PROPERTY" means a Mortgaged Property acquired by the Servicer on
behalf of a Trust pursuant to a foreclosure or other similar proceeding in
respect of a related Mortgage Loan.
"REPLACED ASSET" means an Asset replaced or to be replaced by a Qualified
Substitute Asset.
"REPO PROPERTY" means a Manufactured Home (and any related Real Property)
acquired by the Servicer on behalf of a Trust pursuant to a repossession,
foreclosure or other similar proceeding in respect of a related Contract.
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"REPURCHASE PRICE" shall, for any Asset, have the meaning assigned in the
related Agreement. Generally, the "Repurchase Price" of an Asset will equal the
Unpaid Principal Balance thereof, plus unpaid interest thereon at the
applicable Asset Rate through the end of the month in which such price is paid
for the Asset.
"RESERVE FUND" means a fund established and funded by the Company or such
other party specified in the related Prospectus Supplement to make payments on
certain Certificates to the extent funds are not otherwise available.
"RESIDUAL CERTIFICATE" means a Certificate evidencing a "residual
interest" in a REMIC.
"RIC" means a "regulated investment company" as defined in the Code.
"SALES AGREEMENT" means, with respect to any Asset, the agreement pursuant
to which the related Seller sold such Asset to the Company.
"SCHEDULED PRINCIPAL BALANCE" means, as of any date of determination with
respect to any Contract, Repo Property, Mortgage Loan or REO Property, (1) the
Cut-off Date Principal Balance of such Contract or Mortgage Loan (or of the
related Contract or Mortgage Loan, in the case of a Repo Property or REO
Property) minus (2) the sum of (a) the principal components of any Monthly
Payments due on such Contract or Mortgage Loan (or on the related Contract or
Mortgage Loan, in the case of a Repo Property or REO Property) after the
related Cut-off Date and on or before such date of determination (regardless of
whether such Monthly Payments were received from the related Obligor) plus (b)
all principal prepayments received by the Servicer on such Contract or Mortgage
Loan (or on the related Contract or Mortgage Loan, in the case of a Repo
Property or REO Property) (including the principal portion of Net Liquidation
Proceeds and the principal portion of all amounts paid by the Seller or another
party to repurchase such Contract or Mortgage Loan) on or after the Cut-off
Date and on or prior to such date of determination, plus (c) all Realized
Losses incurred on such Contract or Mortgage Loan (or the related Contract or
Mortgage Loan, in the case of a Repo Property or REO Property) on or after the
Cut-off Date and on or prior to such date of determination.
"SELLER" means, as to any Contract or Mortgage Loan included in the Trust
Estate for a Series, the entity that sold such Contract or Mortgage Loan to the
Company under a Sales Agreement, which will be Oakwood unless otherwise
specified in the related Prospectus Supplement.
"SENIOR CERTIFICATES" means, with respect to each Series of Certificates,
the Class or Classes which have rights to receive distributions or with respect
to allocations of Realized Losses and/or Shortfalls that are preferential to
those of another Class or Classes in such Series.
"SERIES" means a series of Certificates offered pursuant to this
Prospectus and a Prospectus Supplement thereto.
"SERIES AGREEMENT" means the Pooling and Servicing Agreement for a
particular Series, not including the Standard Terms.
"SERIES RATE" means, with respect to a Series, the interest rate equal to
a weighted average of the interest rates on all of the Non-REMIC Certificates
issued in such Series.
"SERIES REMIC" means a REMIC created with respect to a particular Series.
"SERVICE" means the Internal Revenue Service.
"SERVICER" means Oakwood, in its capacity as servicer of the Mortgage
Loans and/or Contracts underlying a Series of Certificates, or such other
entity specified as the servicer in the related Prospectus Supplement.
"SERVICING ADVANCE" means an advance required to be made by the Servicer
in respect of Contracts or Mortgage Loans (other than P&I Advances) including,
but not limited to, advances for the payment of personal property taxes, real
property taxes and premiums for Standard Hazard Insurance Policies.
"SERVICING FEE" means the monthly fee paid to the Servicer in respect of a
Series, as specified in the related Prospectus Supplement, which is typically a
fixed percentage of the Pool Scheduled Principal Balance of the related Asset
Pool.
"SHORTFALL" means, for any month and any Contract or Mortgage Loan, the
amount by which the amount of interest due on such Contract or Mortgage Loan
for such month exceeds the amount of interest collected or advanced in respect
of such Contract, which may be due to Due Date Interest Shortfall or Soldiers'
and Sailors' Shortfall.
"SINGLE RATE VRDI CERTIFICATE" means a VRDI Certificate that provides for
stated interest unconditionally payable in cash or property at least annually
at a single qualified floating rate or a single objective rate.
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"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984.
"SOLDIERS' AND SAILORS' SHORTFALL" means a Shortfall in respect of a
Contract or Mortgage Loan resulting from application of the Relief Act.
"SPECIAL HAZARD INSURANCE POLICY" shall have the meaning assigned and
shall be as described herein under "The Trusts -- Insurance -- Hazard Insurance
- -- Special Hazard Insurance Policy."
"SPECIAL HAZARD INSURER" means the insurer under any Special Hazard
Insurance Policy.
"SPECIAL HAZARD LOSS" means a loss incurred on a Contract or Mortgage Loan
attributable to physical damage to the related Manufactured Home or Mortgaged
Property of a type which is not covered by standard hazard insurance policies,
excluding losses caused by war, nuclear reaction, nuclear or atomic weapons,
insurrection or normal wear and tear.
"STANDARD HAZARD INSURANCE POLICY" shall mean a policy providing standard
hazard insurance coverage with respect to a Manufactured Home or Mortgaged
Property as described herein under "The Trusts -- Insurance -- Hazard Insurance
- -- Standard Hazard Insurance Policies."
"STANDARD TERMS" means the Standard Terms to Pooling and Servicing
Agreement, incorporated by reference by any Series Agreement.
"STEP-UP RATE" means the Asset Rate on a Step-up Rate Loan.
"STEP-UP RATE LOAN" means an Asset which bears interest at an Asset Rate
that increases over time.
"STRIP CLASS" means a Class of Certificates representing an interest only
in a specified portion of interest collections on the underlying Assets, which
may have no principal balance, a nominal principal balance or a Notional
Principal Amount.
"STRIPPING REGULATIONS" means the regulations issued by the Treasury under
section 1286 of the Code.
"SUBORDINATED CERTIFICATES" means, with respect to each Series of
Certificates, the Class or Classes with rights to receive distributions or with
respect to the allocation of Realized Losses and/or Shortfalls that are
subordinate to those of another Class or Classes of such Series.
"SUBORDINATION AMOUNT" means a specific amount of subordination provided
by Subordinated Certificates, as specified, if applicable, in the related
Prospectus Supplement.
"SUB-SERVICER" means any party, if any, with whom the Servicer has entered
into a Sub-servicing Agreement.
"SUB-SERVICING ACCOUNT" means an Eligible Account established by a
Sub-servicer that must comply with all standards applicable to the related
Certificate Account, into which the Sub-servicer must deposit collections in
respect of the related Assets pending remittance thereof to the related
Certificate Account.
"SUB-SERVICING AGREEMENT" means the written contract between the Servicer
and any Sub-servicer relating to servicing and/or administration of certain
Mortgage Loans or Contracts as provided in the Agreement.
"SUPERPREMIUM CERTIFICATE" means a Certificate that provides for a
relatively small amount of principal and for interest that can be expressed as
Qualified Stated Interest at a very high fixed rate with respect to that
principal.
"TAXABLE MORTGAGE POOL" means any entity other than a REMIC or a REIT if
(i) substantially all of the assets of the entity consist of debt obligations
and more than 50% of such obligations consist of "real estate mortgages" (which
term, for purposes of this definition, includes Mortgage Loans and Contracts),
(ii) such entity is the obligor under debt obligations with two or more
maturities, and (iii) under the terms of the debt obligations on which the
entity is the obligor, payments on such obligations bear a relationship to
payment on the obligations held by the entity.
"TAXABLE MORTGAGE POOL RULES" means the Code sections governing Taxable
Mortgage Pools, and the regulations that were issued by the Treasury
thereunder.
"TAX ADMINISTRATOR" means the entity responsible for computing the amount
of original issue discount to be reported to the holders of Regular
Certificates each taxable year, which, unless otherwise provided in the related
Pooling and Servicing Agreement, will be Oakwood or an Affiliate thereof.
"TEASER CERTIFICATE" means a Regular Certificate that bears interest under
terms that provide for a teaser rate period, interest holiday, or other period
during which the rate of interest payable on such Certificate is lower than the
rate payable during the remainder of the life of the Certificate.
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"THRIFT INSTITUTION" means a thrift institution taxed as a "mutual savings
bank" or a "domestic building and loan association."
"TITLE I" means Title I of the National Housing Act, as amended.
"TITLE STATE" means a state in which a lien on a Manufactured Home is
"perfected" under applicable motor vehicle titling statues, either by notation
of the secured party's lien on the related certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority to re-register the Manufactured Home.
"TITLE V" means Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, as amended.
"TMP" means the holder of a residual interest in a REMIC that is
designated as the tax matters person of such REMIC.
"TREASURY" means the United States Treasury Department.
"TRUST" means a trust that issues a Series of Certificates.
"TRUSTEE" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"TRUSTEE MORTGAGE LOAN FILE" means, as to any Mortgage Loan, a file which
is required to contain all of the Mortgage Loan Documents for such Mortgage
Loan.
"TRUST ESTATE" means, with respect to each Series of Certificates, the
corpus of the trust created by the related Agreement, to the extent described
in such Agreement, consisting of, among other things, Contracts and/or Mortgage
Loans, such assets as shall from time to time be identified as deposited in the
related Distribution Account, property which secured a Contract or Mortgage
Loan but which has been acquired by the related Trust through repossession or
foreclosure or otherwise, any related insurance policy, any related Reserve
Fund and any related alternate credit enhancement, if any.
"UBTI" means "unrelated business taxable income" as defined in the Code.
"UCC" means the Uniform Commercial Code.
"UCC STATE" means a state in which a lien on a Manufactured Home is
"perfected" pursuant to the provisions of the applicable UCC, by filing UCC-3
financing statements or other appropriate transfer instruments with all
appropriate UCC filing offices.
"UNDERWRITER" means any firm that underwrites the purchase of the
Certificates of a Series.
"UNPAID PRINCIPAL BALANCE" means the unpaid principal balance of a
particular Contract or Mortgage Loan.
"VA" means the United States Department of Veterans Affairs.
"VA CONTRACT" OR "VA MORTGAGE LOAN" means a Contract or Mortgage Loan that
is partially guaranteed by the VA.
"VARIABLE RATE CERTIFICATE" means a Regular Certificate that bears
interest at a variable rate.
"VOTING RIGHTS" means, with respect to a Certificate, the portion of the
voting rights of all of the Certificates of the related Series which is
allocated to any such Certificate. Unless otherwise provided in the related
Agreement, (1) if any Class of Certificates does not have a Certificate
Principal Balance or has an initial Certificate Principal Balance that is less
than or equal to 1% of the aggregate Certificate Principal Balance of all the
Certificates of its Series, then 1% of the Voting Rights for such Series shall
be allocated to each such Class, and the balance of the Voting Rights for such
Series shall be allocated among the remaining Classes of Certificates of such
Series in proportion to their respective Certificate Principal Balances
following the most recent Distribution Date, and (b) if no Class of
Certificates of such Series has an initial Certificate Principal Balance less
than 1% of the aggregate Certificate Principal Balance of all Certificates of
such Series, then all of the Voting Rights for such Series shall be allocated
among all the Classes of Certificates of such Series in proportion to their
respective Certificate Principal Balances following the most recent
Distribution Date. Voting Rights allocated to each Class of Certificates shall
be allocated among the Certificates of such Class in proportion to the
respective Percentage Interests of the Holders thereof.
"VRDI" means a "variable rate debt instrument" as defined in section
1.1275-5 of the OID Regulations.
"VRDI CERTIFICATE" means a Variable Rate Certificate that qualifies as a
VRDI under the OID Regulations.
"WAM" means, with respect to a Regular Certificate, the sum of the amounts
obtained by multiplying the amount of each Deemed Principal Payment on the
Certificate by a fraction, the numerator of which is the number of complete
years
105
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from the Certificate's issue date until the payment is made, and the
denominator of which is the Certificate's stated redemption price at maturity.
"WEIGHTED AVERAGE CERTIFICATE" means a Regular Certificate that provides
for interest based on a weighted average of the interest rates on some or all
of the Assets held by the related REMIC.
"WEIGHTED AVERAGE NET ASSET RATE" means for any Distribution Date, a rate
equal to (i) the weighted average of the Asset Rates applicable to the
scheduled Monthly Payments that were due in the related Collection Period on
outstanding Assets less (ii) the Servicing Fee Rate.
"WRITEDOWN AMOUNT" means with respect to each Distribution Date, the
amount, if any, by which (i) the aggregate Certificate Principal Balance of all
the Certificates, after all distributions have been made on the Certificates on
such Distribution Date, exceeds (ii) the Pool Scheduled Principal Balance of
the Assets for the next Distribution Date.
106
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(This Page Intentionally Left Blank)
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
OFFERED CERTIFICATES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary of Terms ......................................... S-3
Risk Factors ............................................. S-13
The Asset Pool ........................................... S-15
Maturity and Prepayment Considerations ................... S-25
Yield on the Offered Certificates ........................ S-31
Description of the Offered Certificates .................. S-33
The Trust ................................................ S-42
Servicing of the Assets .................................. S-45
Use of Proceeds........................................... S-50
Underwriting ............................................. S-50
Legal Matters ............................................ S-51
ERISA Considerations ..................................... S-51
Ratings .................................................. S-53
Legal Investment Considerations .......................... S-53
PROSPECTUS
Available Information .................................... ii
Incorporation of Certain Documents by Reference .......... iii
Summary of Terms ......................................... 1
Risk Factors ............................................. 11
Description of the Certificates .......................... 15
Maturity and Prepayment Considerations ................... 20
Yield Considerations ..................................... 21
The Trusts ............................................... 21
Underwriting Policies .................................... 35
Sale and Servicing of Contracts and Mortgage
Loans ................................................. 37
The Pooling and Servicing Agreements ..................... 45
Certain Legal Aspects of Contracts and
Mortgage Loans ........................................ 48
Use of Proceeds........................................... 57
The Company .............................................. 58
The Servicer ............................................. 58
Federal Income Tax Consequences .......................... 58
State Tax Considerations ................................. 85
ERISA Considerations ..................................... 85
Plan of Distribution ..................................... 87
Legal Investment Considerations .......................... 87
Experts .................................................. 88
Legal Matters ............................................ 88
Glossary ................................................. 89
</TABLE>
Oakwood Mortgage
Investors, Inc.,
Depositor
(Oakwood Mortgage Investors, Inc. Logo appears here)
$295,907,927
Senior/Subordinated
Pass-Through Certificates,
Series 1998-C
PROSPECTUS SUPPLEMENT
CREDIT SUISSE FIRST BOSTON
FIRST CHICAGO CAPITAL MARKETS, INC.
