Rule 424 (b)(5)
File No. 333-72621
Prospectus Supplement to Prospectus dated November 23, 1999
[GRAPHIC]
OMI Trust 1999-E
Issuer
Oakwood Mortgage Investors, Inc.
Depositor
$254,602,000
Senior/Subordinated Pass-Through Certificates
Series 1999-E
Oakwood Acceptance Corporation
Servicer
---------------
The trust initially will consist of contracts and mortgage loans secured
by manufactured homes and related real estate with an aggregate principal
balance of approximately $293,828,356. An election will be made to treat a
portion of the assets of the trust as one or more REMICs under the Internal
Revenue Code, and the offered certificates will be regular interests in one of
the REMICs. The underlying accounts, contracts, and mortgage loans are not
insured or guaranteed by any governmental agency.
INVESTING IN THE CERTIFICATES INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE S-4 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 1 OF THE PROSPECTUS.
<TABLE>
<CAPTION>
UNDERWRITING
PRINCIPAL CLASS PRICE TO DISCOUNTS AND PROCEEDS TO
AMOUNT INTEREST RATE (*) PUBLIC COMMISSIONS ISSUER
--------------- ------------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
A-1 Certificates . $224,778,000 7.608% 100.000000% 0.225% 99.775000%
M-1 Certificates . $ 18,658,000 8.297% 100.000000% 0.400% 99.600000%
M-2 Certificates . $ 11,166,000 8.400%
Total ............ $254,602,000 $243,436,000 $580,382 $242,855,618
</TABLE>
(*) The class interest rate on each class of certificates is capped at the
weighted average net asset rate.
Banc of America Securities LLC and Credit Suisse First Boston Corporation
will offer the class M-2 certificates at varying prices from time to time.
Delivery of the certificates will be made in book-entry form only on or
about November 30, 1999.
The price to the public is per certificate, plus accrued interest from
November 1, 1999. Proceeds to issuer have been calculated before deducting
expenses payable by Oakwood Mortgage, estimated to be approximately $400,000.
The first monthly distribution date will be December 15, 1999. The record
date for each distribution date will be the last business day of the month
preceding a distribution date.
Neither the SEC nor any state securities commission has approved or
disapproved of these securities or determined if this prospectus supplement or
the prospectus to which it relates is truthful or complete. Any representation
to the contrary is a criminal offense.
Joint Bookrunners
BANC OF AMERICA SECURITIES LLC CREDIT SUISSE FIRST BOSTON
Prospectus Supplement dated November 23, 1999.
<PAGE>
IMPORTANT NOTICE ABOUT THE INFORMATION WE PRESENT IN THIS PROSPECTUS
SUPPLEMENT AND IN THE ACCOMPANYING PROSPECTUS.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
We provide information to you about the certificates in two separate
documents that progressively provide more detail: the accompanying prospectus,
which provides general information, some of which may not apply to your
certificates and this prospectus supplement, which describes the specific terms
of your certificates.
Your certificates will not be listed on any securities exchange.
This prospectus supplement and the accompanying prospectus include
cross-references to captions in these materials where you can find further
related discussions. The following table of contents and the table of contents
included in the accompanying prospectus provide the pages on which these
captions are located.
Although the underwriters intend to make a secondary market in your
certificates, they are not required to do so. A secondary market for your
certificates may not develop. If one does develop, it may not continue or
provide sufficient liquidity.
We have filed preliminary information regarding the trust's assets and the
certificates with the SEC. The information contained in this document
supersedes all of that preliminary information, which was prepared by the
underwriters for prospective investors.
Until February 21, 2000, all dealers that sell the offered certificates,
whether or not participating in this offering, may be required to deliver a
prospectus and prospectus supplement. This requirement is in addition to the
dealer's obligation to deliver a prospectus and prospectus supplement when
acting as underwriters with respect to their unsold allotments or
subscriptions.
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TABLE OF CONTENTS
<TABLE>
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PAGE
PROSPECTUS SUPPLEMENT -----
<S> <C>
Summary of Terms .......................................... S-1
Risk Factors .............................................. S-4
Description of the Offered Certificates ................... S-6
General ................................................ S-6
Book-Entry Certificates ................................ S-7
Collection of Payments on Assets ....................... S-7
Realized Losses on Liquidated Loans .................... S-8
Allocation of Writedown Amounts ........................ S-9
Distributions .......................................... S-9
Subordination of the Subordinated Certificates ......... S-15
The Asset Pool ............................................ S-15
General ................................................ S-15
The Assets ............................................. S-16
Selected Data .......................................... S-18
Underwriting Guidelines ................................ S-22
Conveyance of Assets ................................... S-22
Maturity and Prepayment Considerations .................... S-25
Weighted Average Lives of the Offered Certificates ..... S-25
Modeling Assumptions and MHP Tables .................... S-26
Factors Affecting Prepayments .......................... S-30
Yield on the Offered Certificates ...................... S-30
The Trust ................................................. S-33
General ................................................ S-33
The Trustee ............................................ S-33
Optional Termination ................................... S-34
Auction Sale ........................................... S-35
Termination of the Agreement ........................... S-35
Voting Rights .......................................... S-35
Reports to Certificateholders .......................... S-36
Servicing of the Assets ................................... S-37
The Servicer ........................................... S-37
Servicing Portfolio .................................... S-37
Delinquency and Loan Loss/Repossession Experience....... S-38
Collection and Other Servicing Procedures .............. S-40
Servicing Compensation and Payment of Expenses ......... S-40
Advances ............................................... S-41
Successors to Servicer, Delegation of Duties ........... S-42
Use of Proceeds ........................................... S-42
Recent Developments ....................................... S-42
Underwriting .............................................. S-43
Legal Matters ............................................. S-44
ERISA Considerations ...................................... S-44
Ratings ................................................... S-47
Legal Investment Considerations ........................... S-48
PROSPECTUS PAGE
----
Risk Factors .............................................. 1
Description of the Certificates ........................... 5
General ................................................ 5
Book-Entry Procedures .................................. 7
Allocation of Collections from the Assets .............. 9
Optional Redemption or Termination ..................... 10
Maturity and Prepayment Considerations .................... 12
Maturity ............................................... 12
Prepayment Considerations .............................. 12
</TABLE>
<TABLE>
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Yield Considerations ....................................... 13
The Trusts ................................................. 14
General ................................................. 14
The Assets .............................................. 14
Substitution of Contracts or Mortgage Loans ............. 18
Pre-Funding ............................................. 19
Distribution Account .................................... 20
Reserve Funds ........................................... 20
Insurance ............................................... 20
Delivery of Additional Assets ........................... 25
Investment of Funds ..................................... 25
Certificate Guarantee Insurance ......................... 26
Oakwood Homes Guarantee ................................. 26
Alternate Credit Enhancement ............................ 26
Underwriting Policies ...................................... 27
Oakwood's Contract Underwriting Guidelines .............. 27
General Underwriting Standards for Mortgage Loans .......... 28
Sale and Servicing of Contracts and Mortgage Loans ......... 29
Assignment of Contracts and Mortgage Loans .............. 29
Representations and Warranties .......................... 30
Servicing ............................................... 32
Advances ................................................ 34
Compensating Interest ................................... 35
Maintenance of Insurance Policies and Other
Servicing Procedures .................................. 36
The Pooling and Servicing Agreements ....................... 38
The Servicer ............................................ 38
The Trustee ............................................. 38
Reports to Certificateholders ........................... 39
Events of Default ....................................... 39
Certificateholder Rights ................................ 40
Amendment ............................................... 40
Termination ............................................. 41
Legal Aspects of Contracts and Mortgage Loans ........... 41
The Contracts ........................................... 41
The Mortgage Loans ...................................... 47
Environmental Considerations ............................ 51
Enforceability of Considerations ........................ 52
Use of Proceeds ............................................ 53
The Company ................................................ 53
The Servicer ............................................... 53
Federal Income Tax Consequences ............................ 53
General ................................................. 54
REMIC Certificates ...................................... 54
Tax Treatment of Residual Certificates .................. 68
Taxation of Certain Foreign Holders of REMIC
Certificates .......................................... 82
Reporting and Tax Administration ........................ 84
Non-REMIC Certificates .................................. 85
State Tax Considerations ................................... 91
ERISA Considerations ....................................... 91
Available Information ...................................... 94
Incorporation of Certain Documents by Reference ............ 94
Plan of Distribution ....................................... 95
Legal Investment Considerations ............................ 95
Experts .................................................... 96
Legal Matters .............................................. 96
Index of Terms ............................................. 97
</TABLE>
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SUMMARY OF TERMS
o THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT YOU NEED TO CONSIDER IN MAKING YOUR
INVESTMENT DECISION. TO UNDERSTAND MORE COMPLETELY ALL OF THE TERMS OF AN
OFFERING OF THE CERTIFICATES, READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
PROSPECTUS.
o THIS SUMMARY PROVIDES AN OVERVIEW OF CALCULATIONS, CASH FLOWS AND OTHER
INFORMATION TO AID YOUR UNDERSTANDING AND IS QUALIFIED BY THE FULL DESCRIPTION
OF THIS INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
INFORMATION ABOUT YOUR TRUST
Your certificates are being offered by OMI Trust 1999-E, which will be
established by Oakwood Mortgage Investors, Inc., a Nevada corporation. On May
28, 1999, Oakwood Mortgage Investors, Inc., a North Carolina corporation, was
merged into Oakwood Mortgage and the Nevada company now possesses all of the
rights and obligations of the North Carolina company. Oakwood Mortgage
maintains its principal office at 101 Convention Center Drive, Suite 850, Las
Vegas, Nevada 89109. Its telephone number is (702) 949-0056. Your trust will
acquire contracts and mortgage loans from Oakwood Mortgage. These contracts and
mortgage loans will secure payment of your certificates.
Only the class A-1, class M-1 and class M-2 certificates are being offered by
this prospectus supplement.
The trustee is Chase Manhattan Trust Company, National Association. The
trustee's corporate trust office's address is One Liberty Place, Suite 5210,
1650 Market Street, Philadelphia, Pennsylvania 19163. Its telephone number is
(215) 988-1322.
NEITHER YOUR CERTIFICATES NOR THE UNDERLYING ASSETS WILL BE GUARANTEED OR
INSURED BY ANY GOVERNMENT AGENCY OR ANY OTHER INSURER.
Issuance of your certificates is scheduled for November 30, 1999.
CREDIT ENHANCEMENT -- SUBORDINATION AND OVERCOLLATERALIZATION
The subordination of the class M-1, M-2, B-1, B-2, X and R certificates and
overcollateralization provides credit support for the class A-1 certificates.
The subordination of the class M-2, B-1, B-2, X and R certificates and
overcollateralization provides credit support for the class M-1 certificates.
The subordination of the class B-1, B-2, X and R certificates and
overcollateralization provides credit support for the class M-2 certificates.
SEE "DESCRIPTION OF THE OFFERED CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL
In the ordinary course, monies received on the contracts and mortgage loans
will be applied first to distributions of interest on each class of
certificates in the order of their priority, and then to principal. Until the
occurrence of events described in this prospectus supplement, principal
distributions will be applied first to the class A-1 certificates, and only
thereafter to the other classes of certificates. If performance criteria are
met, a portion of principal may be distributed to subordinated classes
simultaneously with principal distributions on the class A-1 certificates.
SEE "DESCRIPTION OF THE OFFERED CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
SERVICING OF THE ASSETS OF YOUR TRUST
Oakwood Acceptance will act as servicer for the assets. It will make advances
in respect of delinquent payments on the assets and in respect of liquidation
expenses, taxes and insurance premiums not paid by an obligor on a timely
basis, if recoverable. Also, the servicer will pay compensating interest on
assets that prepay on a date other than their due date.
Oakwood Acceptance will be entitled to a monthly fee for servicing the assets
equal to 1.00% per annum of the scheduled principal balance of the assets.
S-1
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SEE "SERVICING OF THE ASSETS" IN THIS PROSPECTUS SUPPLEMENT.
THE ASSETS CONTAINED IN YOUR TRUST
The primary assets of your trust are:
o manufactured housing installment sales contracts secured by interests in
manufactured homes and, in some cases, by liens on the real estate on
which the manufactured homes are located, and
o mortgage loans secured by first liens on the real estate on which
manufactured homes are permanently affixed.
The total number of assets is 5,782. Their total principal balance is
approximately $293,828,356. Of the total number of assets, 5,776 are fixed-rate
assets and 6 are adjustable-rate assets.
Approximately 1.27% of the assets, having an aggregate scheduled principal
balance on the cut-off date of approximately $3,730,033, were acquired by
Oakwood Acceptance from IndyMac, Inc.
SEE "THE ASSET POOL" IN THIS PROSPECTUS SUPPLEMENT.
THE FINAL SCHEDULED DISTRIBUTION DATE
Assuming that there are no prepayments on the assets, that the servicer does
not exercise its right of optional termination and the auction referred to
below does not succeed, and that otherwise the modeling assumptions contained
in this prospectus supplement occur, the final scheduled distribution date for
each class of offered certificates will be the distribution date occurring in
March 2030. This date was determined by adding three months to the maturity
date of the asset with the latest stated maturity.
Because the rate of principal distributions on the certificates will depend
upon the rate of principal payments, including prepayments, on the assets, the
actual final distribution on the classes of certificates could occur
significantly earlier than this date. We can provide no assurance as to the
actual payment experience of the assets.
OPTIONAL TERMINATION OF YOUR TRUST BY THE SERVICER
The servicer may terminate the trust by buying all of the assets at any time
when the current aggregate principal balance of all certificates is less than
10% of their original amount. THE TERMINATION PRICE PAID FOR YOUR TRUST'S
ASSETS DURING AN OPTIONAL TERMINATION MAY, IN SOME CIRCUMSTANCES, BE LESS THAN
THE OUTSTANDING PRINCIPAL BALANCE AND UNPAID INTEREST OF THE CERTIFICATES.
The servicer may also terminate the trust if it determines that there is a
substantial risk that either the pooling REMIC or the issuing REMIC will lose
its REMIC status.
SEE "THE TRUST -- OPTIONAL TERMINATION" IN THIS PROSPECTUS SUPPLEMENT.
AUCTION SALE OF YOUR TRUST'S ASSETS
If the servicer does not exercise its optional termination rights when it is
initially permitted to do so, the trustee will solicit bids on the assets
remaining in the trust. THE TERMINATION PRICE PAID FOR YOUR TRUST'S ASSETS
DURING AN AUCTION SALE MAY, IN SOME CIRCUMSTANCES, BE LESS THAN THE OUTSTANDING
PRINCIPAL BALANCE AND UNPAID INTEREST OF THE CERTIFICATES.
SEE "THE TRUST -- AUCTION SALE" IN THIS PROSPECTUS SUPPLEMENT.
FEDERAL INCOME TAX CONSEQUENCES TO YOU
The assets of the trust will be treated as a pooling REMIC for federal income
tax purposes. The regular interests of the pooling REMIC will be treated as a
different REMIC, an issuing REMIC, for federal income tax purposes. The Class
A-1, M-1, M-2, B-1, B-2 and X certificates will be regular interests in the
issuing REMIC, and will evidence debt obligations under the Internal Revenue
Code of 1986, as amended. Interest paid or accrued on your certificates will be
taxable to you, and must be included in your income under an accrual method of
tax accounting, even if you otherwise are a cash method taxpayer. By acceptance
of your certificates, you will be deemed to have agreed to treat your
certificate as a debt instrument for purposes of federal and state income tax,
franchise tax, and any other tax measured by income. Although the
S-2
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treatment of certificates such as the class A-1, M-1 and M-2 certificates is
not entirely clear under current law, the issuer intends to treat those
certificates as contingent payment obligations that are issued with original
issue discount regardless of their issue prices. We will use 200% of the
manufactured housing prepayment model as the prepayment assumption to calculate
the accrual rate of original issue discount. However, there is no assurance as
to what the rate of prepayment will be.
SEE "FEDERAL INCOME TAX CONSEQUENCES" IN THE PROSPECTUS.
ERISA CONSIDERATIONS FOR PLANS AND PLAN INVESTORS
Fiduciaries of employee benefit plans and certain other retirement plans that
propose to cause a plan to acquire any of the offered certificates 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 Internal Revenue Code. Certain prohibited transaction
exemptions may be applicable to the purchase and holding of the class A-1
certificates.
BECAUSE THE CLASS M-1 AND M-2 CERTIFICATES ARE SUBORDINATED TO THE CLASS A-1
CERTIFICATES, THE REQUIREMENTS OF CERTAIN PROHIBITED TRANSACTION EXEMPTIONS
WILL NOT BE SATISFIED. AS A RESULT, THE PURCHASE OR HOLDING OF ANY OF THESE
CERTIFICATES BY A PLAN INVESTOR MAY CONSTITUTE A NON EXEMPT PROHIBITED
TRANSACTION OR RESULT IN THE IMPOSITION OF EXCISE TAXES OR CIVIL PENALTIES.
ACCORDINGLY, THE CLASS M-1 AND M-2 CERTIFICATES ARE NOT OFFERED TO OR
TRANSFERABLE TO PLAN INVESTORS UNLESS THE PLAN INVESTOR MEETS CERTAIN
REQUIREMENTS.
SEE "ERISA CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE PROSPECTUS.
YOUR CERTIFICATES MAY BE LEGAL INVESTMENTS FOR REGULATED ORGANIZATIONS
The class A-1 and M-1 certificates will be mortgage related securities for
purposes of SMMEA as long as they are rated in one of the two highest rating
categories by one or more nationally recognized statistical rating
organizations.
THE CLASS M-2 CERTIFICATES WILL NOT BE MORTGAGE RELATED SECURITIES FOR PURPOSES
OF SMMEA BECAUSE THEY ARE NOT RATED IN ONE OF THE TWO HIGHEST RATING
CATEGORIES.
SEE "LEGAL INVESTMENT CONSIDERATIONS" IN THIS PROSPECTUS SUPPLEMENT AND IN THE
PROSPECTUS.
THE RATINGS ASSIGNED TO YOUR CERTIFICATES
It is a condition to the issuance of the certificates that the classes of
certificates obtain the following ratings by S&P and Fitch:
<TABLE>
<CAPTION>
S&P FITCH
----- ------
<S> <C> <C>
Class A-1 AAA AAA
Class M-1 AA AA
Class M-2 A A
</TABLE>
SEE "RATINGS" IN THIS PROSPECTUS SUPPLEMENT.
S-3
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RISK FACTORS
In addition to the risk factors in the prospectus, you should note the
following:
YOU MAY EXPERIENCE A LOSS ON YOUR Manufactured housing usually
INVESTMENT IF LOSSES AND DELINQUENCIES depreciates in value. Over time, the
ON ASSETS IN THE TRUST ARE HIGH market values of the manufactured
homes could be less than the amount
of the loans they secure.
This may cause delinquencies and may
increase the amount of loss
following default. In this event,
your trust may not be able to
recover the full amount owed, which
may result in a loss on your
certificates. We can provide you
with no assurance that the
performance of the trust's assets
will be similar to the statistical
information provided, in part
because the values of manufactured
homes can be sharply affected by
downturns in regional or local
economic conditions, and because
past performance does not guarantee
or predict future performance.
Generally, the statistical
information provided reflects higher
delinquencies and loan losses since
1995. The statistical information
related to the loss experience of
Oakwood Acceptance as servicer is
available under "SERVICING OF THE
ASSETS" in this prospectus
supplement.
LOSSES WILL AFFECT SUBORDINATED The class M-1 and class M-2
CERTIFICATES BEFORE AFFECTING MORE certificates are subordinated to the
SENIOR CERTIFICATES class A-1 certificates. Losses in
excess of the credit support
provided by the class B-1, class
B-2, class X, class R certificates
will be experienced first by the
class M-2 certificates, and next by
the class M-1 certificates.
Thereafter, losses on the assets
exceeding the amount of the
subordinated certificates could
result in a loss being realized by
the class A-1 certificates.
Obligors are not required to pay
PREPAYMENTS MAY CAUSE CASH interest on their assets after the
SHORTFALLS date of a full prepayment of
principal. As a result, to the
extent that this interest shortfall
exceeds the servicing fee for the
related period -- which is the
maximum amount that the servicer
must cover -- or the servicer
defaults in its obligation to pay
compensating interest, a full
prepayment may reduce the amount of
interest received from obligors
during that collection period to
less than one month's interest on
the assets. If a sufficient number
of assets are prepaid in full, then
interest payable on the assets
during that collection period may be
less than the interest due on the
certificates.
LOSSES AND DELINQUENCIES ON THE IndyMac, Inc. originated
INDYMAC ASSETS MAY BE HIGHER THAN approximately 1.27% of the assets,
THOSE OF ASSETS ORIGINATED BY having an aggregate scheduled
OAKWOOD ACCEPTANCE principal balance on November 1,
1999 of approximately $3,730,033.
Oakwood Acceptance acquired these
assets from
S-4
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IndyMac, Inc. in a single bulk loan
sale. IndyMac, Inc. did not use
Oakwood Acceptance's underwriting
guidelines in originating these
assets. The historic loss and
delinquency experience of assets
originated by IndyMac according to
its guidelines differs from that of
assets originated by Oakwood
Acceptance according to its
guidelines. We cannot assure you
that the IndyMac assets in the trust
will perform in a manner as
favorable to you as Oakwood
Acceptance originated assets have
historically performed. Losses on
the IndyMac assets in the trust that
are not fully covered by credit
enhancement will be allocated to the
certificates in the same manner as
losses on the assets originated by
Oakwood Acceptance.
THE CREDIT RATING OF OAKWOOD HOMES Oakwood Homes reported a net loss
HAS BEEN LOWERED for the year ended September 30,
1999. In October and November 1999
S&P, Fitch and Moody's each
downgraded Oakwood Homes' senior
unsecured debt ratings.
SEE "RECENT DEVELOPMENTS" IN THIS
PROSPECTUS SUPPLEMENT.
YEAR 2000 INFORMATION SYSTEMS The servicer has analyzed the
PROCEDURES potential effects of "year 2000"
issues on the computer systems that
support its business. This review
included issues associated with the
servicer's internally developed
software and software licensed from
others. The servicer also is in the
process of reviewing year 2000
issues faced by significant third
parties with whom it conducts
business.
The servicer has begun remediation
of internally developed software to
resolve year 2000 compliance issues.
The costs incurred by the servicer
to date have not been material, and
the servicer does not anticipate
that the expected remaining costs
will be material. Based upon its
assessment of internally developed
and licensed software and the status
of remediation undertaken to date,
the servicer believes that all of
its significant computer systems
will be year 2000 compliant before
January 1, 2000. The servicer
continues to test and monitor year
2000 compliance issues, and this
testing may or may not be
successful. You may experience
losses or delays in payment if the
servicer does not achieve year 2000
compliance.
RECENT FEDERAL LEGISLATION MAY CAUSE In July 1999, the President signed
DELAYS IN DISTRIBUTIONS TO YOU into law legislation that generally
limits legal liability for losses
caused by year 2000 computer-related
errors. Among other things, the
legislation provides a grace period
from foreclosure
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for delinquent obligors whose
mortgage and other payments are not
processed in an accurate or timely
manner because of an actual year
2000 failure.
This legislation does not extinguish
an obligor's payment obligations,
but merely delays their enforcement.
This legislation could delay the
servicer's ability to repossess or
foreclose upon the assets of the
trust during the first quarter of
the year 2000. These delays,
consequently, could affect the
timing of payments to you.
Capitalized terms used in this prospectus supplement but not defined will
have the definitions given to them in the accompanying prospectus. SEE "INDEX
OF TERMS" IN THE PROSPECTUS.
DESCRIPTION OF THE OFFERED CERTIFICATES
GENERAL
The Senior/Subordinated Pass-Through Certificates, Series 1999-E, will
consist of the class A-1, class M-1, class M-2, class B-1, class B-2, class X
and class R certificates. Only the class A-1, class M-1 and class M-2
certificates are offered by this prospectus supplement. The class M-1, class
M-2, class B-1, class B-2, class X and class R certificates will be
subordinated to the class A-1 certificates in respect of distributions of
principal and interest. The offered certificates will be issued in book-entry
form only, in denominations of $1,000 and integral multiples of $1 in excess of
this amount. Definitive certificates, if issued, will be transferable and
exchangeable at the corporate trust office of Chase Manhattan Trust Company,
National Association 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 the exchange or transfer.
Distributions of principal and interest on the offered certificates will
be made on the 15th day of each month, or, if this day is not a business day,
on the next succeeding business day, beginning in December, 1999, to the
persons in whose names the certificates are registered on the record date,
which is the close of business on the last business day of the month preceding
the month in which the distribution date occurs. Each distribution with respect
to a book-entry certificate will be paid to the Depository, which will credit
the amount of this distribution to the accounts of its Participants in
accordance with its normal procedures. Each Participant will be responsible for
disbursing this 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 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 B-1 certificates will have an initial certificate principal
balance of $13,516,000 and will have a pass-through rate set forth in the
pooling and servicing agreement. The class B-2 certificates will have an
initial certificate principal balance of $16,895,000 and will have a
pass-through rate set forth in the pooling and servicing agreement. 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
pooling and servicing agreement. 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.
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BOOK-ENTRY CERTIFICATES
The offered certificates will be book-entry certificates as described in
the prospectus under "DESCRIPTION OF THE CERTIFICATES -- BOOK-ENTRY
PROCEDURES." The offered certificates will initially be registered in the name
of Cede & Co., the nominee of the Depository Trust Company.
Unless and until the offered certificates are issued in certificated,
fully-registered form, 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 pooling and
servicing agreement. Beneficial Owners are only permitted to exercise the
rights of certificateholders indirectly through Depository Participants and
DTC.
DTC management is aware that some computer applications, systems, and the
like for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter Year 2000 problems.
DTC has informed its Participants and other members of the financial community
that it has developed and is implementing a program so that its systems, as the
same relate to the timely payment of distributions, including principal and
income payments, to certificateholders, book-entry deliveries, and settlement
of trades within DTC continue to function appropriately. This program includes
a technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the industry that it is contacting, and will
continue to contact, third party vendors from whom DTC acquires services to:
o impress upon them the importance of these services being Year 2000
compliant; and
o determine the extent of their efforts for Year 2000 remediation and, as
appropriate, testing of their services.
In addition, DTC is in the process of developing contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any kind.
COLLECTION OF PAYMENTS ON ASSETS
Oakwood Acceptance 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 this 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 this 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 that will mature or be redeemed 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 these earnings were
made or, at the servicer's option, may be released to the servicer on the
related distribution date. The amount of any losses incurred in respect of any
of these investments
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shall be deposited into the certificate account by the servicer out of its own
funds promptly after any of these 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. 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 Acceptance for
assets repurchased as a result of breach of a representation or warranty under
the pooling and servicing 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" IN THIS PROSPECTUS SUPPLEMENT, will be paid into the certificate
account.
On or prior to the business day before each distribution date, the
servicer will remit all scheduled payments of principal and interest due on the
assets during the Collection Period and collected by the servicer and all
unscheduled collections in respect of principal and interest on the assets
received during the related Prepayment Period, in each case to the extent these
collections comprise part of the Available Distribution Amount for the upcoming
distribution date, together with the amount of any required Advances and any
compensating interest payment to the trustee for deposit into the distribution
account. If, however, the certificate account is maintained by the trustee, the
trustee may withdraw this amount, and any portion of the P&I Advance or any
portion of the compensating interest payment 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 or compensating interest payment that is not to be covered by
investment earnings on the certificate account to the trustee on the business
day preceding the distribution 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 Available Distribution Amount, to make
distributions to certificateholders as specified under
" -- DISTRIBUTIONS -- PRIORITY OF DISTRIBUTIONS" IN THIS PROSPECTUS SUPPLEMENT.
From time to time, as provided in the pooling and servicing agreement, the
servicer will also withdraw funds from the certificate account for other
purposes as permitted by the pooling and servicing agreement.
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 the liquidated loan are less than the unpaid principal balance of the
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 (a)
interest collected on the nondefaulted assets reduced by (i) certain interest
payments due to be distributed on the offered certificates, and (ii) any
portion of this interest required to be paid to a servicer other than Oakwood
Acceptance as servicing compensation ("Excess Interest") and (b) the Current
Overcollateralization Amount, then the amount of this shortfall will be
allocated to the subordinated certificates as a Writedown Amount. SEE
" -- ALLOCATION OF WRITEDOWN AMOUNTS."
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ALLOCATION OF WRITEDOWN AMOUNTS
Any Writedown Amount on a distribution date will be allocated to reduce to
zero the certificate principal balance of a class, as adjusted for write-downs,
in the following order:
o first, to the class B-2 certificates;
o second, to the class B-1 certificates;
o third, to the class M-2 certificates; and
o fourth, to the class M-1 certificates.
DISTRIBUTIONS
INTEREST DEFICIENCY EVENT AND INTEREST DEFICIENCY AMOUNT
With respect to the class M-1, class M-2, class B-1 and class B-2
certificates, an interest deficiency occurs on a distribution date if, after
the distribution of the Available Distribution Amount in the order described in
this prospectus supplement, there remains unpaid any current Interest
Distribution Amounts, Interest Distribution Amounts remaining unpaid from prior
distribution dates plus interest on this carryover amount, Writedown Interest
Distribution Amounts or Carryover Writedown Interest Distribution Amounts on
these classes (the "Interest Deficiency Amount"). If an interest deficiency
event occurs on a distribution date, collections received after the end of the
related Collection Period and prior to the related distribution date will be
applied, up to a limited amount determined by the rating agencies, to remedy
this deficiency in order of class seniority. Any remaining deficiency will be
carried forward as shortfall for the next distribution date.
AVAILABLE DISTRIBUTION AMOUNT
The Available Distribution Amount for a distribution date will include
o monthly payments of principal and interest due on the assets during the
related Collection Period, regardless of whether these payments were
actually collected from the obligors or advanced by the servicer and
unscheduled payments received with respect to the assets during the
related Prepayment Period, including principal prepayments, Compensating
Interest, proceeds of repurchases, net liquidation proceeds and net
insurance proceeds, less
o if Oakwood Acceptance is not the servicer, Servicing Fees for the related
Collection Period, amounts required to reimburse the servicer for
previously unreimbursed Advances in accordance with the pooling and
servicing agreement, amounts required to reimburse Oakwood Mortgage or the
servicer for reimbursable expenses in accordance with the pooling and
servicing agreement, the Interest Deficiency Amount or portion, if any,
paid from collections on the preceding distribution date, and 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. Distributions on a class of certificates will be
allocated among the certificates of the class in proportion to their percentage
interests.
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INTEREST
On each distribution date, holders of the class A-1 certificates will be
entitled to receive, to the extent of the Available Distribution Amount:
o interest accrued on their class during the related Interest Accrual
Period at the then-applicable pass-through rate on the certificate
principal balance of their class immediately prior to the distribution
date (the "Interest Distribution Amount"), plus
o any interest amounts remaining unpaid from a previous distribution date,
plus interest accrued on this amount during the related Interest Accrual
Period, at the then applicable pass-through rate.
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 under " -- PRIORITY OF DISTRIBUTIONS":
o interest accrued on their class during the related Interest Accrual
Period at the then-applicable pass-through rate on the certificate
principal balance immediately following the most recently preceding
distribution date, reduced by all Writedown Amounts allocated on that
distribution date, of their class immediately prior to the distribution
date (the "Interest Distribution Amount"), plus
o any interest amounts remaining unpaid from a previous distribution date,
plus interest accrued on this amount during the related Interest Accrual
Period, at the then applicable pass-through rate.
Interest Accrual Period shall mean, with respect to each distribution
date, the calendar month preceding the month in which the distribution date
occurs.
Interest on the offered certificates will be calculated on the basis of a
360-day year consisting of twelve 30-day months.
The pass-through rate for the classes of offered certificates on any
distribution date will be the per annum rates set forth on the cover page of
this prospectus supplement.
In addition, on each distribution date, to the extent of the Available
Distribution Amount and on a subordinated basis as described under
" -- PRIORITY OF DISTRIBUTIONS" the holders of the offered subordinated
certificates will be entitled to receive
o interest accrued during the related Interest Accrual Period at the
applicable pass-through rate on any related Writedown Amount (the class
"Writedown Interest Distribution Amount"), plus
o any of these interest amounts remaining unpaid from a previous
distribution date, plus interest accrued on this amount during the related
Interest Accrual Period at the then applicable pass-through rate (the
class "Carryover Writedown Interest Distribution Amount"). SEE
" -- REALIZED LOSSES ON LIQUIDATED LOANS."
PRINCIPAL
The Principal Distribution Amount for any distribution date will equal the
sum of the following amounts:
o 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 this Due Date,
regardless of whether such monthly payments were received by the servicer
from the obligors, not including any monthly payments due on liquidated
loans or repurchased assets;
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o the sum of the amounts of all principal prepayments received by the
servicer on the assets during the related Prepayment Period;
o the Scheduled Principal Balance of any asset that became a liquidated
loan during the related Prepayment Period; and
o the Scheduled Principal Balance of any asset that was purchased or
repurchased by the Servicer, Oakwood Acceptance or Oakwood Capital during
the related Prepayment Period; less;
o the Overcollateralization Reduction Amount, if any, for such
distribution date.
The Class A-1 Principal Distribution Amount for any distribution date will
equal
o prior to the Cross-over Date, the Principal Distribution Amount,
o on any distribution date as to which the Principal Distribution Tests are
not met, the Principal Distribution Amount, or
o on any other distribution date, the class A-1 percentage of the
Principal Distribution Amount.
The Class M-1 Principal Distribution Amount for any distribution date will
equal
o as long as any class A-1 certificates remain outstanding and prior to
the Cross-over Date, zero,
o on any distribution date as to which the Principal Distribution Tests are
not met and any class A-1 certificates remain outstanding, zero,
o on any distribution date as to which the Principal Distribution Tests are
not met and the class A-1 certificates have been retired, the Principal
Distribution Amount, or
o on any other distribution date, the class M-1 percentage of the
Principal Distribution Amount.
The Class M-2 Principal Distribution Amount for a distribution date will
equal
o as long as any class A-1 certificates or any class M-1 certificates
remain outstanding and prior to the Cross-over Date, zero;
o on any distribution date as to which the Principal Distribution Tests are
not met and any class A-1 certificates or any class M-1 certificates
remain outstanding, zero,
o on any distribution date as to which the Principal Distribution Tests are
not met and the class A-1 certificates and the class M-1 certificates have
been retired, the Principal Distribution Amount, or
o on any other distribution date, the class M-2 percentage of the
Principal Distribution Amount.
The Class B-1 Principal Distribution Amount for any distribution date will
equal
o as long as any class A-1 certificates or any class M certificates remain
outstanding and prior to the Cross-over Date, zero,
o on any distribution date as to which the Principal Distribution Tests are
not met and any class A-1 certificates or any class M certificates remain
outstanding, zero,
o on any distribution date as to which the Principal Distribution Tests are
not met and the class A-1 certificates and the class M certificates have
been retired, the Principal Distribution Amount, or
o on any other distribution date, the class B-1 percentage of the
Principal Distribution Amount.
The Class B-2 Principal Distribution Amount for any distribution date will
equal
o as long as any class A-1 certificates, any class M certificates or any
class B-1 certificates remain outstanding and prior to the Cross-over
Date, zero,
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o on any distribution date as to which the Principal Distribution Tests are
not met and any class A-1 certificates, any class M certificates or any
class B-1 certificates remain outstanding, zero,
o on any distribution date as to which the Principal Distribution Tests are
not met and the class A-1 certificates, the class M certificates and the
class B-1 certificates have been retired, the Principal Distribution
Amount, or
o on any other distribution date, the class B-2 percentage of the
Principal Distribution Amount.
For any distribution date, if the Principal Distribution Amount for a
class exceeds the certificate principal balance of that class, less any
Principal Distribution Amounts remaining unpaid from previous distribution
dates, with respect to this class and distribution date, then these amounts
shall be allocated to the Principal Distribution Amount of the relatively next
junior class of certificates.
If the certificate principal balances of each of the class A-1, class M-1,
class M-2 and class B-1 certificates have not been reduced to zero on or before
any distribution date, then amounts otherwise allocable to the Class B-2
Principal Distribution Amount shall be allocated sequentially to the principal
distribution amounts of the class B-1, class M-2, class M-1, class A-1, and
finally to the class B-2 certificates, to the extent that allocation of these
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 principal distribution percentage for any class is the percentage
derived from the fraction, which shall not be greater than 1, the numerator of
which is the certificate principal balance of the class, as adjusted for
write-downs, immediately prior to the related distribution date, and the
denominator of which is the sum of the outstanding certificate principal
balances for all of the classes, as adjusted for write-downs, of the assets
immediately prior to this 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 Overcollat-eralization Amount. The
"Current Overcollateralization Amount" shall mean, for any distribution date,
the positive difference, if any, between the Pool Scheduled Principal Balance
of the assets and the certificate principal balance of all then outstanding
classes of certificates immediately prior to the distribution date. 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 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, 4.00% of the Pool Scheduled Principal Balance of the Assets as
of the Cut-off Date and (ii) for any other distribution date, the lesser of (x)
4.00% of the Pool Scheduled Principal Balance of the assets as of the Cut-off
Date and (y) 7.00% of the then-outstanding Pool Scheduled Principal Balance of
the assets; 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. On the closing date the initial
overcollateralization amount shall equal approximately 3.00% of the Pool
Scheduled Principal Balance of the assets as of the Cut-off Date.
The "Pool Scheduled Principal Balance" for any distribution date, will be
the aggregate of the Scheduled Principal Balances, immediately prior to the
beginning of the related Collection Period, of the assets that were outstanding
at the beginning of that Collection Period, without giving effect to any
principal prepayments, net liquidation proceeds or Repurchase Prices received
(or Realized Losses incurred) on the assets on the day preceding the beginning
of that Collection Period, plus the aggregate of the principal components of
any monthly payments that were due at or prior to the beginning of that
Collection Period on the assets, but which monthly payments were not collected
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from an obligor or advanced by the servicer and which were not reflected in a
corresponding reduction of the certificate principal balance. The Pool
Scheduled Principal Balance on any date of determination that is not a
distribution date shall be the Pool Scheduled Principal Balance for the next
upcoming distribution 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, to the class A-1 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(2) second, to the class M-1 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(3) third, to the class M-2 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(4) fourth, to the class B-1 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(5) fifth, to the class B-2 certificates, their Interest Distribution
Amount for that distribution date and then any Interest Distribution Amounts
remaining unpaid from any previous distribution date, plus interest on this
carryover amount, if any, for that distribution date;
(6) sixth, to the class A-1 certificates, any related Principal
Distribution Amounts remaining unpaid from any previous distribution dates (the
"Principal Distribution Shortfall Carryover Amount" for each class);
(7) seventh, to the class A-1 certificates, the Class A-1 Principal
Distribution Amount, in reduction of their certificate principal balance, until
reduced to zero;
(8) eighth, to the class M-1 certificates, any related Writedown Interest
Distribution Amount for that distribution date, any related Carryover Writedown
Interest Distribution Amount for that distribution date, any related Principal
Distribution Shortfall Carryover Amounts, and 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, any related Writedown Interest
Distribution Amount for that distribution date, any related Carryover Writedown
Interest Distribution Amount for that distribution date, any related Principal
Distribution Shortfall Carryover Amounts, and 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, any related Writedown Interest
Distribution Amount for that distribution date, any related Carryover Writedown
Interest Distribution Amount for that distribution date, any related Principal
Distribution Shortfall Carryover Amounts, and 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, any related Writedown
Interest Distribution Amount for that distribution date, any related Carryover
Writedown Interest Distribution Amount for that distribution date, any related
Principal Distribution Shortfall Carryover Amounts, and any related Principal
Distribution Amount until the class B-2 certificate principal balance is
reduced to zero;
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(12) twelfth, if Oakwood Acceptance is the servicer, to the servicer in
the following sequential order: first the Servicing Fee for the related
Collection Period, and thereafter all Servicing Fees from previous distribution
dates remaining unpaid;
(13) thirteenth, sequentially, to the class A-1, class M-1, class M-2,
class B-1 and class B-2 certificates, the Accelerated Principal Distribution
Amount for that distribution date, in reduction of the certificate principal
balance of each class until such principal balance has been reduced to zero;
(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) fifteenth, finally, any remainder to the class R certificates.
The Cross-over Date will be the later to occur of
o the distribution date occurring in June 2004, and
o 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
sum of the aggregate certificate principal balance -- as adjusted for
write-downs -- of the subordinated certificates and the Current
Overcollateralization Amount for that distribution date and the
denominator of which is the Pool Scheduled Principal Balance on that
distribution date, equals or exceeds 1.825 times the percentage equivalent
of a fraction, which shall not be greater than 1, the numerator of which
is the sum of the initial aggregate certificate principal balance -- as
adjusted for write-downs -- of the subordinated certificates and the
Current Overcollateralization Amount as of the Cut-off Date 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:
o the Average Sixty Day Delinquency Ratio as of the related distribution
date does not exceed 5.5%;
o the Cumulative Realized Losses as of the related distribution date do not
exceed the following percentages of the original Pool Scheduled Principal
Balance:
<TABLE>
<S> <C>
June 2004 through November 2005 ..... 7%
December 2005 through November 2006 . 8%
December 2006 through May 2008 ...... 9.5%
June 2008 and after ................. 10.5%
</TABLE>
o the Current Realized Loss Ratio as of the related distribution date does
not exceed 3%.
The Average Sixty-Day Delinquency Ratio is, in general, the ratio of the
average of the aggregate principal balances of assets delinquent 60 days or
more for the preceding three Collection Periods to the average Pool Scheduled
Principal Balance for this period. 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 pooling and servicing agreement to an average Pool Scheduled
Principal Balance specified in the pooling and servicing agreement.
With respect to any distribution date, the Class B-2 Floor Amount shall
mean
o if the certificate principal balances of each of the class A-1, class
M-1, class M-2 and class B-1 certificates have not been reduced to zero
immediately prior to this distribution date, then the
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Class B-2 Floor Amount shall equal 1.50% of the Pool Scheduled Principal
Balance of the assets as of the Cut-off Date, or
o if the certificate principal balances of each of the class A-1, class
M-1, class M-2 and class B-1 certificates has been reduced to zero prior
to this distribution date, then the Class B-2 Floor Amount shall equal
zero.
SUBORDINATION OF THE SUBORDINATED CERTIFICATES
The primary credit support for the class A-1 certificates is the
subordination of the subordinated certificates, effected by the allocation of
Writedown Amounts as described in this prospectus supplement and by the
preferential application of the Available Distribution Amount to the class A-1
certificates relative to the subordinated certificates to the extent described
in this prospectus supplement. SEE " -- DISTRIBUTIONS -- PRIORITY OF
DISTRIBUTIONS" IN THIS PROSPECTUS SUPPLEMENT.
THE ASSET POOL
GENERAL
The certificates represent the entire beneficial ownership interest in OMI
Trust 1999-E. This trust will be established by the pooling and servicing
agreement dated as of November 1, 1999, together with the standard terms, May
1999 Edition, among Oakwood Mortgage Investors, Inc., the servicer and the
trustee. Oakwood Mortgage will acquire the assets from Oakwood Acceptance and
Oakwood Capital Corp. under sales agreements on the closing date. Oakwood
Acceptance will have funded the origination of each asset, either in its own
name or in the name of Oakwood Mobile Homes, Inc. or another manufactured
housing dealer, PROVIDED, HOWEVER, that approximately 1.27% of the assets (the
"IndyMac assets") were acquired by Oakwood Acceptance from IndyMac, Inc.
Oakwood Acceptance acquired the IndyMac assets from IndyMac, Inc. in a loan
sale following the origination of these assets. Each asset not originated
directly in Oakwood Acceptance's name will have been assigned to Oakwood
Acceptance immediately after its origination, or, in the case of the IndyMac
assets, were assigned to Oakwood Acceptance in connection with the sale of
these assets to Oakwood Acceptance. Each asset will be either an installment
sales contract secured by a unit of manufactured housing or a residential
mortgage loan secured by a lien on the real estate on which the manufactured
home is deemed permanently affixed. You will find a description of Oakwood
Acceptance's general practices with respect to the origination of manufactured
housing contracts and mortgage loans in the prospectus under "UNDERWRITING
POLICIES."
Under the pooling and servicing agreement, the manufactured homes securing
the assets either comply with federal law requirements or the requirements of
state or local building codes. The Federal statutes require that the
manufactured homes have a minimum of 400 square feet of living space, a minimum
width of 102 inches and be of a kind customarily used at a fixed location.
These statutes also require that the manufactured homes be transportable in one
or more sections, 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. Oakwood Acceptance's management estimates
that in excess of 90% of the manufactured homes are used as primary residences
by the obligors.
The pooling and servicing agreement requires the servicer to maintain or
cause to be maintained standard hazard insurance policies with respect to each
manufactured home and mortgaged property. Generally, no other insurance will be
maintained with respect to the manufactured homes, the mortgaged properties or
the assets. SEE "THE TRUSTS -- INSURANCE -- HAZARD INSURANCE -- STANDARD HAZARD
INSURANCE POLICIES" IN THE PROSPECTUS.
Oakwood Mortgage will convey to the trustee the assets and all rights to
receive payments due after November 1, 1999 (the "Cut-off Date"), including
scheduled payments due after the Cut-off
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Date but received prior to this date, and prepayments and other unscheduled
collections on 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
later will not be conveyed to Oakwood Mortgage by Oakwood Acceptance or Oakwood
Capital, as the case may be, and these payments will be the property of Oakwood
Acceptance or Oakwood Capital 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" IN THIS PROSPECTUS SUPPLEMENT.
THE ASSETS
The assets will consist of 5,782 assets having an aggregate Scheduled
Principal Balance as of the Cut-off Date of approximately $293,828,356. A total
of 640 assets, representing approximately 13.54% of the assets, are step-up
rate loans. A total of 6 assets, representing approximately 0.12% of the
assets, are adjustable-rate assets. The remainder of the assets are Level
Payment Loans. Step-up rate loans are assets that provide for periodic
increases of, in general, 1.00%, 1.50% or 2.00% in the applicable asset rates
at the end of intervals of twelve months during the first five years following
origination (the "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 this period and as if the
asset were to provide for level payments over its entire term based on the
asset rate. In addition to interest rate adjustments during their Step-up
Periods, some step-up rate loans will experience a one-time increase in their
asset rates with respect to their final Monthly Payments. The statistical
information concerning the assets sets forth only the asset rates borne by
these assets as of the Cut-off Date. SEE "THE TRUST -- THE ASSETS" IN THE
PROSPECTUS.
Except in the case of the step-up rate loans during their Step-up Periods,
each asset, other than the adjustable-rate assets, bears interest at a fixed
annual percentage rate and provides for level payments over the term of the
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 the monthly payment less
the portion 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 the 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 the
precomputed allocation regardless of whether the monthly payment was received
in advance of or subsequent to its Due Date. SEE "SERVICING OF THE
ASSETS -- COLLECTION AND OTHER SERVICING PROCEDURES" IN THIS PROSPECTUS
SUPPLEMENT.
As of the Cut-off Date, approximately 0.12% of the 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 33.74% of the assets were mortgage loans.
As of the Cut-off Date, each asset had an asset rate of at least 6.125%
per annum and not more than 18.00% per annum. The weighted average asset rate
of the assets was approximately 9.50% per annum, without giving effect to any
subsequent increase in the asset rates of the step-up rate loans. The assets
had remaining terms to stated maturity as of the Cut-off Date of at least 15
months but
S-16
<PAGE>
not more than 360 months and original terms to stated maturity of at least 16
months but not more than 360 months. Each asset was originated on or after
December 22, 1994. As of the Cut-off Date, the assets had a weighted average
original term to stated maturity of approximately 322 months, and a weighted
average remaining term to stated maturity of approximately 320 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 assets as of the
Cut-off Date was approximately $50,818 and the Scheduled Principal Balance of
the assets as of the Cut-off Date ranged from $1,735 to $279,501.
Approximately 40.53% of the assets have Loan-to-Value Ratios greater than
95%. Oakwood Acceptance 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 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
Acceptance computes each Contract Loan-to-Value Ratio for all other contracts
by determining the ratio of the principal amount of the 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 Acceptance computes each Mortgage Loan-to-Value
Ratio by determining the ratio of the principal amount of the mortgage loan to
either:
o 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
o 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 homes, unlike site-built homes, usually 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 asset's principal amount
outstanding.
The assets are secured by manufactured homes or mortgaged properties, or
Real Properties, in the case of Land Secured Contracts, located in 45 states
and the District of Columbia. Approximately 15.56% and 13.51% of the 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 in
North Carolina and Texas, respectively. As of the Cut-off Date, no fewer than
approximately 84.25% of the 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 approximately 2.55%, 11.17% and 2.03% of the 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.
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
the asset that fully amortize the principal balance of the asset. All of the
adjustable rate assets are actuarial obligations.
S-17
<PAGE>
SELECTED DATA
It is possible that some of the assets may be repaid in full or in part,
or otherwise removed from the asset pool. In this event, other assets may be
transferred to the trust. Consequently, the actual asset pool may vary slightly
from the presentation in this prospectus supplement.
Whenever reference is made 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 of the assets as of the
Cut-off Date. In addition, numbers in any columns in these tables may not sum
exactly to the total number at the bottom of the column due to rounding.
S-18
<PAGE>
GEOGRAPHIC DISTRIBUTION OF MANUFACTURED HOMES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ASSET POOL
GEOGRAPHIC LOCATION ASSETS PRINCIPAL BALANCE BY SPB
- ---------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
Alabama .............. 149 $ 6,492,960 2.21%
Arizona .............. 273 20,230,785 6.89
Arkansas ............. 116 4,881,367 1.66
California ........... 54 4,424,037 1.51
Colorado ............. 109 6,060,205 2.06
Delaware ............. 33 1,390,052 0.47
Florida .............. 136 7,165,992 2.44
Georgia .............. 185 8,265,530 2.81
Idaho ................ 80 5,186,847 1.77
Illinois ............. 13 647,338 0.22
Indiana .............. 26 1,102,616 0.38
Iowa ................. 3 345,567 0.12
Kansas ............... 45 2,190,121 0.75
Kentucky ............. 160 7,404,230 2.52
Louisiana ............ 220 9,639,557 3.28
Maine ................ 1 27,827 0.01
Maryland ............. 12 535,962 0.18
Massachusetts ........ 2 67,011 0.02
Michigan ............. 63 3,420,054 1.16
Minnesota ............ 23 740,102 0.25
Mississippi .......... 165 7,171,869 2.44
Missouri ............. 139 6,320,780 2.15
Montana .............. 9 704,370 0.24
Nebraska ............. 1 90,564 0.03
Nevada ............... 34 2,545,069 0.87
New Jersey ........... 5 271,596 0.09
New Mexico ........... 160 8,119,821 2.76
New York ............. 3 204,553 0.07
North Carolina ....... 1,032 45,711,657 15.56
North Dakota ......... 6 219,007 0.07
Ohio ................. 108 5,316,176 1.81
Oklahoma ............. 99 5,089,296 1.73
Oregon ............... 163 14,999,452 5.10
Pennsylvania ......... 10 441,036 0.15
South Carolina ....... 354 14,354,434 4.89
South Dakota ......... 3 113,399 0.04
Tennessee ............ 311 14,103,771 4.80
Texas ................ 856 39,698,609 13.51
Utah ................. 24 1,681,401 0.57
Vermont .............. 1 45,677 0.02
Virginia ............. 263 12,324,494 4.19
Washington ........... 194 18,165,379 6.18
Washington DC ........ 2 130,720 0.04
West Virginia ........ 109 4,087,398 1.39
Wisconsin ............ 1 88,537 0.03
Wyoming .............. 27 1,611,131 0.55
----- ------------ ------
Total .............. 5,782 $293,828,356 100.00%
===== ============ ======
</TABLE>
- ---------
Based on the mailing address of the obligor on the related asset as of the
Cut-off Date.
S-19
<PAGE>
DISTRIBUTION OF ORIGINAL ASSET AMOUNTS
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ASSET POOL
ORIGINAL ASSET AMOUNT ASSETS PRINCIPAL BALANCE BY SPB
- -------------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
$ 4,999 or less.......... 10 $ 36,947 0.01%
$ 5,000 - $ 9,999....... 59 457,658 0.16
$ 10,000 - $ 14,999....... 128 1,623,601 0.55
$ 15,000 - $ 19,999....... 213 3,705,404 1.26
$ 20,000 - $ 24,999....... 322 7,289,502 2.48
$ 25,000 - $ 29,999....... 549 15,054,612 5.12
$ 30,000 - $ 34,999....... 664 21,476,916 7.31
$ 35,000 - $ 39,999....... 554 20,649,853 7.03
$ 40,000 - $ 44,999....... 430 18,193,980 6.19
$ 45,000 - $ 49,999....... 434 20,597,850 7.01
$ 50,000 - $ 54,999....... 392 20,526,363 6.99
$ 55,000 - $ 59,999....... 353 20,240,571 6.89
$ 60,000 - $ 64,999....... 302 18,768,871 6.39
$ 65,000 - $ 69,999....... 250 16,793,567 5.72
$ 70,000 - $ 74,999....... 196 14,159,182 4.82
$ 75,000 - $ 79,999....... 137 10,602,246 3.61
$ 80,000 - $ 84,999....... 130 10,698,399 3.64
$ 85,000 - $ 89,999....... 101 8,817,356 3.00
$ 90,000 - $ 94,999....... 89 8,211,921 2.79
$ 95,000 - $ 99,999....... 76 7,402,740 2.52
$100,000 or more.......... 393 48,520,817 16.51
--- ------------ ------
Total .................. 5,782 $293,828,356 100.00%
===== ============ ======
</TABLE>
- ---------
The highest original asset amount was $279,689, which represents
approximately 0.10% of the aggregate principal balance of the assets at
origination. The average original principal amount of the assets was
approximately $50,945 as of the Cut-off Date.
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS OF ASSETS
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ASSET POOL
LOAN-TO-VALUE RATIO ASSETS PRINCIPAL BALANCE BY SPB
- --------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
50% or less ........ 58 $ 1,732,266 0.59%
51% - 55% .......... 29 1,112,475 0.38
56% - 60% .......... 42 1,867,927 0.64
61% - 65% .......... 46 2,230,124 0.76
66% - 70% .......... 109 5,466,663 1.86
71% - 75% .......... 175 8,367,217 2.85
76% - 80% .......... 258 12,792,246 4.35
81% - 85% .......... 486 23,649,263 8.05
86% - 90% .......... 896 44,226,179 15.05
91% - 95% .......... 2,240 114,152,563 38.85
96% - 100% ......... 1,443 78,231,434 26.62
----- ------------ ------
Total ............. 5,782 $293,828,356 100.00%
===== ============ ======
</TABLE>
- ---------
The weighted average original Loan-to-Value Ratio of the assets was
approximately 90.69% as of the Cut-off Date. Loan-to-Value Ratio rounded to
nearest 1%.
S-20
<PAGE>
CURRENT ASSET RATES
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ASSET POOL
CURRENT ASSET RATE ASSETS PRINCIPAL BALANCE BY SPB
- ------------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
6.000% - 6.999% ........ 469 $ 33,467,928 11.39%
7.000% - 7.999% ........ 562 45,163,244 15.37
8.000% - 8.999% ........ 886 55,426,656 18.86
9.000% - 9.999% ........ 816 48,216,694 16.41
10.000% - 10.999% ....... 1,061 42,420,518 14.44
11.000% - 11.999% ....... 768 29,791,211 10.14
12.000% - 12.999% ....... 685 23,651,689 8.05
13.000% - 13.999% ....... 402 12,175,529 4.14
14.000% - 14.999% ....... 124 3,331,561 1.13
15.000% - 15.999% ....... 8 176,106 0.06
16.000% or more ......... 1 7,219 0.00
----- ------------ ------
Total ................. 5,782 $293,828,356 100.00%
===== ============ ======
</TABLE>
- ---------
The weighted average asset rate was approximately 9.50% 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 rates of the Step-up
Rate Loans. This table also reflects the asset rates of the adjustable rate
assets as of the Cut-off Date and does not reflect any subsequent changes in
the asset rates of the adjustable rate assets.
YEAR OF ORIGINATION
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ASSET POOL
YEAR OF ORIGINATION ASSETS PRINCIPAL BALANCE BY SPB
- --------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
1994................. 2 $ 95,195 0.03%
1995................. 1 48,876 0.02
1996................. 13 573,720 0.20
1997................. 9 363,067 0.12
1998................. 23 1,310,007 0.45
1999................. 5,734 291,437,491 99.19
----- ------------ ------
Total ............. 5,782 $293,828,356 100.00%
===== ============ ======
</TABLE>
- ---------
The weighted average seasoning of the assets was approximately 1 month as of
the Cut-off Date.
REMAINING TERMS TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ASSET POOL
REMAINING TERM TO MATURITY ASSETS PRINCIPAL BALANCE BY SPB
- ---------------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
1 - 60 months ............ 84 $ 860,994 0.29%
61 - 96 months ............ 91 1,328,442 0.45
97 - 120 months ........... 173 3,357,274 1.14
121 - 156 months ........... 210 4,635,615 1.58
157 - 180 months ........... 458 13,101,852 4.46
181 - 216 months ........... 45 1,420,726 0.48
217 - 240 months ........... 784 27,101,118 9.22
241 - 300 months ........... 1,206 49,079,553 16.70
301 - 360 months ........... 2,731 192,942,781 65.67
----- ------------ ------
Total .................... 5,782 $293,828,356 100.00%
===== ============ ======
</TABLE>
- ---------
The weighted average remaining term to maturity of the assets was approximately
320 months as of the Cut-off Date.
S-21
<PAGE>
ORIGINAL TERMS TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
NUMBER OF SCHEDULED ASSET POOL
ORIGINAL TERM TO MATURITY ASSETS PRINCIPAL BALANCE BY SPB
- --------------------------- ----------- ------------------- --------------
<S> <C> <C> <C>
1 - 60 months ........... 83 $ 805,164 0.27%
61 - 96 months ........... 91 1,355,181 0.46
97 - 120 months .......... 172 3,341,219 1.14
121 - 156 months .......... 212 4,680,761 1.59
157 - 180 months .......... 458 13,101,852 4.46
181 - 216 months .......... 38 1,168,379 0.40
217 - 240 months .......... 791 27,353,465 9.31
241 - 300 months .......... 1,206 49,079,553 16.70
301 - 360 months .......... 2,731 192,942,781 65.67
----- ------------ ------
Total ................... 5,782 $293,828,356 100.00%
===== ============ ======
</TABLE>
- ---------
The weighted average original term to maturity of the assets was
approximately 322 months as of the Cut-off Date.
UNDERWRITING GUIDELINES
The assets were underwritten by Oakwood Acceptance and were underwritten
and originated substantially in accordance with the guidelines described in the
prospectus under "UNDERWRITING POLICIES", PROVIDED, HOWEVER, that approximately
1.27% of the assets were acquired by Oakwood Acceptance from IndyMac, Inc., and
underwritten in accordance with IndyMac, Inc.'s guidelines.
CONVEYANCE OF ASSETS
On the date of issuance of the certificates, Oakwood Mortgage 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 the 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. 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
Acceptance'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 Mortgage will represent and warrant only that:
o the information set forth in the asset schedule was true and correct as
of the date or dates on which the information was furnished;
o Oakwood Mortgage is the owner of, or holder of a first-priority security
interest in, each asset;
o Oakwood Mortgage acquired its ownership of, or security interest in, each
asset in good faith without notice of any adverse claim;
o except for the sale of the assets to the trustee, Oakwood Mortgage has
not assigned any interest or participation in any asset that has not been
released; and
o Oakwood Mortgage has the full right to sell the trust estate to the
trustee.
S-22
<PAGE>
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 in the State of Nevada. 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, the contracts will be
stamped or otherwise marked to reflect their assignment to the trustee. The
trustee, on behalf of the certificateholders, will hold the original mortgage
notes and mortgages, and copies of documents and instruments relating to each
mortgage loan. SEE "LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS" IN THE
PROSPECTUS.
Oakwood Acceptance and Oakwood Capital will make representations and
warranties regarding the assets in the sales agreements. The representations
and warranties made by Oakwood Capital regarding the assets transferred by it
also have been made to Oakwood Capital by Oakwood Acceptance in an underlying
contribution and sale agreement between Oakwood Capital and Oakwood Acceptance,
and Oakwood Capital's rights under this agreement have been assigned to Oakwood
Mortgage. Accordingly, with respect to the assets transferred by Oakwood
Capital, both Oakwood Capital and Oakwood Acceptance will make such
representations and warranties. These representations and warranties are
detailed in the prospectus under the heading "SALE AND SERVICING OF THE
CONTRACTS AND MORTGAGE LOANS -- REPRESENTATIONS AND WARRANTIES."
Under the terms of the pooling and servicing agreement and the sales
agreements, and subject to Oakwood Acceptance's or Oakwood Capital's option to
effect a substitution as described in the next paragraph, each of Oakwood
Acceptance and Oakwood Capital will be obligated to repurchase any asset
transferred by it to Oakwood Mortgage for its Repurchase Price within 90 days
after its discovery, or receipt of written notice from the trustee or the
servicer, of a breach of any representation or warranty made in the sales
agreement to which it is a party that materially and adversely affects the
trustee's interest in such asset, if the breach has not been cured by the 90th
day. Oakwood Acceptance also has an obligation to repurchase assets transferred
to Oakwood Mortgage by Oakwood Capital under these terms pursuant to the
contribution and sale agreement if Oakwood Capital fails to do so. The
Repurchase Price for any repurchased asset will be the unpaid principal balance
of the asset at the close of business on the date of repurchase, plus accrued
and unpaid interest thereon to the next Due Date for the asset following the
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
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 Acceptance or Oakwood Capital may, at its option, with
respect to assets that it transfers to Oakwood Mortgage, substitute a qualified
substitute asset for any asset to be replaced. A qualified substitute asset is
any asset that, on the date of substitution,
o has an unpaid principal balance not greater than, and not more than
$10,000 less than, the unpaid principal balance of the replaced asset,
o has an asset rate not less than, and not more than one percentage point
in excess of, the asset rate of the replaced asset,
o has a net rate at least equal to the net rate of the replaced asset,
S-23
<PAGE>
o has a remaining term to maturity not greater than, and not more than one
year less than, that of the replaced asset,
o has 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 this
date, and
o complies with each representation and warranty in Section 2.05 of the
pooling and servicing agreement and in the sales agreement.
In the event that more than one asset is substituted for a replaced asset,
the unpaid principal balances may be determined on an aggregate basis, and the
asset rate, net rate and term on a weighted average basis, 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 made,
a qualified substitute asset also shall satisfy the following criteria as of
the date of its substitution for a replaced asset:
o the asset shall not be 30 or more days delinquent,
o 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,
o the REMIC loan-to-value ratio of the asset must be 125% or less either on
the date of origination of the asset, or, if any of the terms of such
asset were modified significantly other than in connection with a default
or imminent default on such asset, on the date of such modification, or on
the date of the substitution, based on an appraisal conducted within the
60 day period prior to the date of the substitution,
o no property securing such asset may be the subject of foreclosure,
bankruptcy, or insolvency proceedings, and
o 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, any replaced asset that is a mortgage loan may only be
replaced by another mortgage loan.
Oakwood Acceptance or Oakwood Capital 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.
Also, if it is discovered that the actual Scheduled Principal Balance of an
asset is less than the Scheduled Principal Balance identified for the asset on
the asset schedule, Oakwood Acceptance or Oakwood Capital may, at its option,
deposit the amount of the discrepancy into the Certificate Account instead of
repurchasing the asset. Any deposit will be treated as a partial principal
prepayment.
In addition, Oakwood Acceptance is required to indemnify Oakwood Mortgage
and its assignees, including the trust, against losses and damages they incur
as a result of breaches of Oakwood Acceptance's or Oakwood Capital's
representations and warranties. Oakwood Acceptance's and Oakwood Capital's
obligation to repurchase or substitute for an asset affected by a breach of a
representation or warranty and Oakwood Acceptance's obligation to indemnify
Oakwood Mortgage and its assignees for losses and damages caused by a breach
constitute the sole remedies available to the trustee and the
certificateholders for a breach of a representation or warranty under the
pooling and servicing agreement or the sales agreements with respect to the
assets.
S-24
<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
The assets had terms to maturity at origination ranging from 16 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 Acceptance's experience with the portfolio of
conventional manufactured housing contracts it services, Oakwood Mortgage
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 breaches of representations and warranties will have the same effect
as prepayments of the assets and accordingly will affect the life of the
certificates. Natural disasters may also influence prepayments. Most of the
assets contain provisions that prohibit the obligors from selling an underlying
manufactured home or mortgaged property without the prior consent of the holder
of the asset. These provisions may not be enforceable in some states. The
servicer's policy is to permit most sales of manufactured homes and mortgaged
properties without accelerating the assets where the proposed buyer meets
Oakwood Acceptance's then-current underwriting standards and either enters into
an assumption agreement or executes a new contract for the unpaid balance of
the existing asset. The execution of a new contract or mortgage note and
mortgage would have the same effect as a prepayment of the existing asset in
full. SEE "LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS" IN THE PROSPECTUS.
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 the 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 asset and the receipt of the
Repurchase Price for any asset upon its repurchase by Oakwood Acceptance 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 manufactured housing prepayment model (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 the 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. Oakwood Mortgage makes no representations as to the appropriateness of
the MHP model.
S-25
<PAGE>
MODELING ASSUMPTIONS AND MHP TABLES
The manufactured housing prepayment tables (the "MHP Tables") were
prepared based upon the assumptions that there are no delinquencies on the
assets and that there will be a sufficient Available Distribution Amount to
distribute all accrued interest and the Principal Distribution Amount due
(collectively, the "Modeling Assumptions").
The percentages and weighted average lives in the following tables were
determined assuming that:
o scheduled interest and principal payments on the assets will be received
each month on their Due Dates and full prepayments on and liquidations of
the assets will be received on the last day of each month, commencing in
November 1999, and will include 30 days of interest thereon;
o the servicer exercises the right of optional termination at the earliest
possible date;
o the assets have the characteristics set forth in the tables provided;
o the initial certificate principal balance and pass-through rate of each
class of the offered certificates are as described in this prospectus
supplement;
o no Due Date Interest Shortfalls will arise in connection with prepayments
in full or liquidations of the assets;
o no losses will be experienced on any assets included in the asset pool;
o the closing date for the issuance of the certificates will be November
30, 1999;
o cash distributions will be received by the holders of the certificates on
December 15, 1999 and on the 15th day of each month thereafter until
retirement of the certificates;
o 1 year CMT is assumed to be 5.52% per annum; and
o the assets will prepay monthly at the percentages of MHP indicated in
the MHP Tables.
No representation is made that the assets will experience delinquencies or
losses at the respective rates assumed or at any other rates.
ASSUMED FIXED RATE ASSET CHARACTERISTICS
<TABLE>
<CAPTION>
SCHEDULED REMAINING
PRINCIPAL BALANCE TERM TO
AS OF THE ASSET MATURITY SEASONING
CUT-OFF DATE RATE (MONTHS) (MONTHS)
LEVEL PAY ASSETS ------------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
1............... $ 5,491,214.13 11.797% 99 2
2............... 17,584,467.94 11.148 169 1
3............... 27,018,192.91 10.988 237 2
4............... 42,437,582.76 10.991 297 2
5............... 158,032,695.77 9.089 359 1
6**............. 3,227,703.58 9.336 342 0
</TABLE>
S-26
<PAGE>
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 ....... $ 1,790,628.57 8.234% 344 3
2 ....... 37,675,842.24 7.462 344 2
3 ....... 134,636.46 6.990 329 2
4** ..... 79,593.91 7.750 360 0
<CAPTION>
MONTHS MONTHS MONTHS FIRST STEP SECOND STEP THIRD STEP
TO FIRST TO SECOND TO THIRD RATE RATE RATE
STEP STEP STEP STEP STEP STEP
---------- ----------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1 ....... 9 * * 1.279% * *
2 ....... 10 22 * 1.860 1.841% *
3 ....... 10 22 34 1.500 1.500 1.500%
4** ..... 12 * * 1.000 * *
</TABLE>
- ---------
* Not applicable.
** First payment due January, 2000. All data relative to this payment date.
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 ...... $ 355,797.71 7.737% 351 9
<CAPTION>
MONTHS TO LIFETIME PERIODIC RESET
GROSS NEXT RATE RATE RATE FREQUENCY
MARGIN CHANGE CAP CAP INDEX MONTHS
----------- ----------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
1 ...... 4.462% 10 13.267% 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 the assets in
preparing the MHP Tables. 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, even
though the 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 and the Adjustable Rate Loans will cause the Weighted Average Net
Asset Rate for the assets to rise from approximately 8.405% per annum at the
Cut-off Date to a maximum of approximately 8.974% per annum, as the asset rates
on the step-up rate loans and the Adjustable Rate Loans increase. Weighted
Average Net Asset Rate means for any distribution date, a rate equal to
o 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
o the Servicing Fee Rate.
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. The weighted average life of each class
set forth in the MHP Tables has been determined by multiplying the amount of
each principal payment on the class by the number of years from the date of
delivery of the certificates of the class to the related distribution date,
summing the results and dividing the sum by the total principal to be paid on
the certificates of the class. SEE "MATURITY AND PREPAYMENT CONSIDERATIONS" IN
THE PROSPECTUS.
Please make your investment decisions on a basis that includes your
determination as to anticipated prepayment rates based on your own assumptions
as to the matters discussed in this prospectus supplement.
S-27
<PAGE>
PERCENTAGE OF INITIAL CERTIFICATE PRINCIPAL BALANCES OUTSTANDING
<TABLE>
<CAPTION>
CLASS A-1 CERTIFICATES AT THE
FOLLOWING PERCENTAGE OF MHP
------------------------------------------------------
0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percent ............ 100 100 100 100 100 100
November 15, 2000 .......... 97 92 89 86 83 80
November 15, 2001 .......... 96 83 77 72 66 60
November 15, 2002 .......... 94 75 66 58 50 43
November 15, 2003 .......... 92 67 56 46 37 28
November 15, 2004 .......... 90 60 47 38 29 21
November 15, 2005 .......... 88 53 40 33 24 17
November 15, 2006 .......... 85 46 36 28 20 13
November 15, 2007 .......... 83 41 32 24 17 11
November 15, 2008 .......... 80 37 28 21 14 9
November 15, 2009 .......... 77 34 25 18 11 7
November 15, 2010 .......... 74 31 22 15 9 0
November 15, 2011 .......... 70 28 19 13 8 0
November 15, 2012 .......... 66 26 17 11 0 0
November 15, 2013 .......... 62 23 15 9 0 0
November 15, 2014 .......... 58 21 13 8 0 0
November 15, 2015 .......... 54 19 11 0 0 0
November 15, 2016 .......... 49 17 10 0 0 0
November 15, 2017 .......... 44 15 8 0 0 0
November 15, 2018 .......... 40 13 0 0 0 0
November 15, 2019 .......... 37 11 0 0 0 0
November 15, 2020 .......... 34 10 0 0 0 0
November 15, 2021 .......... 31 8 0 0 0 0
November 15, 2022 .......... 27 0 0 0 0 0
November 15, 2023 .......... 23 0 0 0 0 0
November 15, 2024 .......... 19 0 0 0 0 0
November 15, 2025 .......... 16 0 0 0 0 0
November 15, 2026 .......... 12 0 0 0 0 0
November 15, 2027 .......... 0 0 0 0 0 0
November 15, 2028 .......... 0 0 0 0 0 0
November 15, 2029 .......... 0 0 0 0 0 0
November 15, 2030 .......... 0 0 0 0 0 0
Avg Life In Years: ......... 16.5 8.5 6.6 5.2 4.2 3.4
<CAPTION>
CLASS M-1 CERTIFICATES AT THE
FOLLOWING PERCENTAGE OF MHP
--------------------------------------------------------
0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percent ............ 100 100 100 100 100 100
November 15, 2000 .......... 100 100 100 100 100 100
November 15, 2001 .......... 100 100 100 100 100 100
November 15, 2002 .......... 100 100 100 100 100 100
November 15, 2003 .......... 100 100 100 100 100 100
November 15, 2004 .......... 100 100 100 93 93 92
November 15, 2005 .......... 100 100 94 81 77 74
November 15, 2006 .......... 100 100 84 69 64 60
November 15, 2007 .......... 100 96 75 60 53 48
November 15, 2008 .......... 100 88 66 51 44 38
November 15, 2009 .......... 100 80 59 44 37 31
November 15, 2010 .......... 100 73 52 37 30 0
November 15, 2011 .......... 100 67 46 32 25 0
November 15, 2012 .......... 100 60 40 27 0 0
November 15, 2013 .......... 100 54 35 23 0 0
November 15, 2014 .......... 100 49 30 19 0 0
November 15, 2015 .......... 100 44 26 0 0 0
November 15, 2016 .......... 100 39 23 0 0 0
November 15, 2017 .......... 100 34 19 0 0 0
November 15, 2018 .......... 95 30 0 0 0 0
November 15, 2019 .......... 87 26 0 0 0 0
November 15, 2020 .......... 80 22 0 0 0 0
November 15, 2021 .......... 73 19 0 0 0 0
November 15, 2022 .......... 64 0 0 0 0 0
November 15, 2023 .......... 55 0 0 0 0 0
November 15, 2024 .......... 45 0 0 0 0 0
November 15, 2025 .......... 37 0 0 0 0 0
November 15, 2026 .......... 28 0 0 0 0 0
November 15, 2027 .......... 0 0 0 0 0 0
November 15, 2028 .......... 0 0 0 0 0 0
November 15, 2029 .......... 0 0 0 0 0 0
November 15, 2030 .......... 0 0 0 0 0 0
Avg Life In Years: ......... 24.2 15.3 12.0 9.8 8.8 8.0
</TABLE>
These MHP Tables have been prepared based on the Modeling Assumptions,
including the assumptions regarding the characteristics and performance of the
assets, which will differ from their actual characteristics and performance,
and should be read in conjunction with these assumptions.
S-28
<PAGE>
<TABLE>
<CAPTION>
CLASS M-2 CERTIFICATES AT THE
FOLLOWING PERCENTAGES OF MHP
--------------------------------------------------------
0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C>
Initial Percent .......... 100 100 100 100 100 100
November 15, 2000 ........ 100 100 100 100 100 100
November 15, 2001 ........ 100 100 100 100 100 100
November 15, 2002 ........ 100 100 100 100 100 100
November 15, 2003 ........ 100 100 100 100 100 100
November 15, 2004 ........ 100 100 100 93 93 92
November 15, 2005 ........ 100 100 94 81 77 74
November 15, 2006 ........ 100 100 84 69 64 60
November 15, 2007 ........ 100 96 75 60 53 48
November 15, 2008 ........ 100 88 66 51 44 38
November 15, 2009 ........ 100 80 59 44 37 31
November 15, 2010 ........ 100 73 52 37 30 0
November 15, 2011 ........ 100 67 46 32 25 0
November 15, 2012 ........ 100 60 40 27 0 0
November 15, 2013 ........ 100 54 35 23 0 0
November 15, 2014 ........ 100 49 30 19 0 0
November 15, 2015 ........ 100 44 26 0 0 0
November 15, 2016 ........ 100 39 23 0 0 0
November 15, 2017 ........ 100 34 19 0 0 0
November 15, 2018 ........ 95 30 0 0 0 0
November 15, 2019 ........ 87 26 0 0 0 0
November 15, 2020 ........ 80 22 0 0 0 0
November 15, 2021 ........ 73 19 0 0 0 0
November 15, 2022 ........ 64 0 0 0 0 0
November 15, 2023 ........ 55 0 0 0 0 0
November 15, 2024 ........ 45 0 0 0 0 0
November 15, 2025 ........ 37 0 0 0 0 0
November 15, 2026 ........ 28 0 0 0 0 0
November 15, 2027 ........ 0 0 0 0 0 0
November 15, 2028 ........ 0 0 0 0 0 0
November 15, 2029 ........ 0 0 0 0 0 0
November 15, 2030 ........ 0 0 0 0 0 0
Avg Life In Years: ....... 24.2 15.3 12.0 9.8 8.8 8.0
</TABLE>
This MHP Table has been prepared based on the Modeling Assumptions,
including the assumptions regarding the characteristics and performance of the
assets, which will differ from their actual characteristics and performance,
and should be read in conjunction with these assumptions.
S-29
<PAGE>
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 general, if prevailing interest rates fall significantly below the
interest rates on the assets in your pool, these assets are likely to
experience higher prepayment rates than if prevailing interest rates remained
at or above the rates borne by these assets, because the obligors may refinance
and obtain new loans with lower interest rates and lower monthly payments.
Conversely, if prevailing interest rates rise above the interest rates on these
assets, the rate of prepayment would be expected to decrease because new loans
would bear higher interest rates and require higher monthly payments. The
outstanding principal balances of manufactured housing contracts tend to be
smaller than mortgage loan balances and the original terms to maturity of the
contracts are generally shorter than those of mortgage loans. As a result,
changes in interest rates will not affect the monthly payments on available new
manufactured housing contracts to the same degree that changes in interest
rates will affect the monthly payments on available new mortgage loans.
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" IN THIS PROSPECTUS SUPPLEMENT.
Each of Oakwood Acceptance and Oakwood Capital, as seller under the
related sales agreement, may be required to repurchase assets if it breaches
its representations and warranties contained in the related sales agreement,
including those relating to the qualification of the assets for REMIC purposes.
Oakwood Acceptance has an obligation to repurchase assets sold by Oakwood
Capital if Oakwood Capital fails to do so. Any repurchase of an asset will have
the same effect as a prepayment in full of the asset and will affect your yield
to maturity. SEE "THE ASSET POOL -- CONVEYANCE OF ASSETS" IN THIS PROSPECTUS
SUPPLEMENT.
The servicer has the option to terminate the trust, thereby causing the
retirement of all outstanding certificates, on or after the distribution date
on which the current aggregate principal balance of all outstanding
certificates is less than 10% of their original amount. 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. This
purchase, if consummated, would likewise cause the retirement of all
outstanding certificates. SEE "THE TRUST" IN THIS PROSPECTUS SUPPLEMENT.
YIELD ON THE OFFERED CERTIFICATES
Distributions of interest on the offered certificates on any distribution
date will include interest accrued thereon through the last day of the month
preceding the month in which this distribution date occurs. Because interest
will not be distributed on the certificates until the 15th day, or, if this day
is not a business day, then on the next succeeding business day, of the month
following the month in
S-30
<PAGE>
which this interest accrues, the effective yield to the holders of the 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 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, including for this purpose payments resulting from
refinancings, liquidations of the assets due to defaults, casualties,
condemnations, the exercise of the servicer's optional termination or the
trustee's auction sale, and repurchases by Oakwood Capital or Oakwood
Acceptance, as the case may be. NO ASSURANCE CAN BE GIVEN AS TO THE RATE OF
PRINCIPAL PAYMENTS OR ON THE 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 asset plus interest accrued and the expenses of sale.
This 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 the asset.
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 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.
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 the amount of Realized Losses actually incurred is not entirely
covered by Excess Interest or by the subordination of the certificates of
classes subordinated to the 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 in this prospectus supplement under the
heading "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 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.
The holders of the offered subordinated certificates will not be entitled
to receive any distributions of principal on any distribution date unless
either the Cross-over Date has occurred and the Principal Distribution Tests
are satisfied for this distribution date or the certificate principal balance
S-31
<PAGE>
of the class A-1 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 M-2 certificates, beyond what
would otherwise be the case.
While partial prepayments of principal on the assets are applied on Due
Dates for the 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 during the 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. If a sufficient
number of assets are prepaid in full during the 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 the Collection Period. If the level of Due
Date Interest Shortfalls was large enough and exceeded any compensatory
interest paid by the servicer, these shortfalls could result in a Writedown
Amount being allocated to the subordinated certificates. A Writedown Amount is,
with respect to each distribution date, the amount, if any, by which the
aggregate certificate principal balance of all the certificates, after all
distributions have been made on the certificates on that distribution date,
exceeds the Pool Scheduled Principal Balance of the assets for the next
distribution date. SEE "DESCRIPTION OF THE OFFERED CERTIFICATES" IN THIS
PROSPECTUS SUPPLEMENT.
Because the pass-through rate on the offered certificates may vary on the
basis of the Weighted Average Net Asset Rate, the pass-through rate and the
yield on these certificates could be affected by disproportionate collections
of principal in respect of assets with different asset rates, including obligor
prepayments and collections resulting from liquidations and repurchases of
assets. Accordingly:
o the yield to maturity of the class A-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 7.608% per annum prepaid prior to those
with net rates lower than 7.608% per annum,
o 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 8.297% per annum prepaid prior to those
with net rates lower than 8.297% per annum, and
o 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 8.400% per annum prepaid prior to those
with net rates lower than 8.400% 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
representations and warranties of Oakwood Acceptance or Oakwood Capital, as the
case may be, 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. 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
these assets, REO Properties and Repo Properties only if the net proceeds to
the trust from the sale would at least equal the Termination Price. The net
proceeds from the 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. ACCORDINGLY, IT IS
POSSIBLE THAT YOUR CERTIFICATES COULD BE REDEEMED AT A PRICE LESS THAN THEIR
OUTSTANDING PRINCIPAL AMOUNT PLUS ACCRUED AND UNPAID INTEREST.
S-32
<PAGE>
If the net proceeds from the 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.
THE TRUST
GENERAL
The certificates will be issued pursuant to the pooling and servicing
agreement. This summary of the provisions of the pooling and servicing
agreement does not purport to be complete. Reference is made to the prospectus
for important information in addition to that set forth in this prospectus
supplement regarding the terms and conditions of the offered certificates. A
copy of the standard terms to pooling and servicing agreement, May 1999
Edition, has been filed with the SEC as an exhibit to Oakwood Mortgage'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 Oakwood Mortgage, 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 pooling and servicing agreement will
consist of the assets, including all rights to receive payments due on the
assets after the Cut-off Date; 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; any manufactured home,
real property or mortgaged property acquired on behalf of certificateholders by
repossession, foreclosure or by deed in lieu of foreclosure; 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 pooling and servicing agreement and of any FHA insurance
maintained with respect to the assets; and certain rights of Oakwood Mortgage
relating to the enforcement of representations and warranties made by Oakwood
Acceptance relating to the assets.
THE TRUSTEE
The trustee is Chase Manhattan Trust Company, National Association. Any
notices to the trustee relating to the certificates or the pooling and
servicing agreement should be sent to One Liberty Place, Suite 5210, 1650
Market Street, Philadelphia, Pennsylvania 19103, attention OMI Trust 1999-E.
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. The telephone number currently maintained by the
trustee for the purpose of reporting this information is (800) 275-2048.
The trustee may resign at any time, in which event Oakwood Mortgage will
be obligated to appoint a successor trustee. Oakwood Mortgage may also remove
the trustee if the trustee ceases to be eligible to continue as such under the
pooling and servicing agreement or if the trustee becomes insolvent. In these
circumstances, Oakwood Mortgage 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 pooling and servicing 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 pooling and servicing agreement may be served.
S-33
<PAGE>
OPTIONAL TERMINATION
The servicer may terminate the trust by purchasing all assets, REO
Properties and Repo Properties remaining in the trust at any time when the
aggregate principal balance of all outstanding certificates is less than 10% of
the original aggregate 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 has been lost or that a
substantial risk exists that this 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
o the sum of
o any Liquidation Expenses incurred by the servicer in respect of any
asset that has not yet been liquidated;
o all amounts required to be reimbursed or paid to the servicer in respect
of previously unreimbursed Advances; and
o the sum of
o the aggregate unpaid principal balance of the assets, plus accrued
and unpaid interest thereon at the asset rates borne by your assets
through the end of the Interest Accrual Period in respect of the date
of the terminating purchase, plus
o the lesser of
o 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
assets through the end of the month preceding the month of the
terminating purchase, and
o the current appraised value of any REO Property or Repo Property,
net of Liquidation Expenses to be incurred in connection with the
disposition of this property estimated in good faith by the
servicer, the 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 the REO Property or
Repo Property, and
o the aggregate fair market value of the assets of the trust, as determined
by the servicer, 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. ACCORDINGLY, IT
IS POSSIBLE THAT YOUR CERTIFICATES COULD BE REDEEMED BY AN OPTIONAL TERMINATION
AT A PRICE LESS THAN THEIR OUTSTANDING PRINCIPAL AMOUNT PLUS ACCRUED AND UNPAID
INTEREST. The basis for a 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 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 second to the
certificateholders in accordance with the distribution priorities set forth
under " -- DISTRIBUTIONS -- PRIORITY OF DISTRIBUTIONS" IN THIS PROSPECTUS
SUPPLEMENT. The Termination Price shall be deemed to be
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a principal prepayment in full, together with related interest, received during
the related Prepayment Period for purposes of determining the allocation of the
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 the assets, REO Properties and Repo
Properties only if the net proceeds to the trust from the sale would at least
equal the Termination Price, and the net proceeds from the 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 CERTIFICATE
HOLDERS -- PRIORITY OF DISTRIBUTIONS" IN THIS PROSPECTUS SUPPLEMENT.
ACCORDINGLY, IT IS POSSIBLE THAT YOUR CERTIFICATES COULD BE REDEEMED BY REASON
OF AN AUCTION SALE AT A PRICE LESS THAN THEIR OUTSTANDING PRINCIPAL AMOUNT PLUS
ACCRUED AND UNPAID INTEREST. If the net proceeds from the 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 pooling and servicing agreement will terminate upon the last action
required to be taken by the trustee on the final distribution date following
the later of 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" IN THIS PROSPECTUS
SUPPLEMENT and the final payment or other liquidation, or any related advance,
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 pooling and servicing 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 holders of the offered
certificates, the class B-1 certificates, the class B-2 certificates and the
class X certificates, or to the Termination Account, will be paid to the class
R certificateholders pro rata, based upon the holders' respective percentage
interests, in accordance with the provisions of the pooling and servicing
agreement.
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.
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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 these
reports will not have been examined or reported upon by an independent public
accountant. Copies of the monthly statements and any annual reports prepared by
the servicer evidencing the status of its compliance with the provisions of a
pooling and servicing 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:
o the Available Distribution Amount for the related distribution date;
o the Interest Distribution Amount and the carryover amounts, as well as
any Writedown Interest Distribution Amount and any Carryover Writedown
Interest Distribution Amount, for each class of the certificates for the
related distribution date, and the amount of interest of each category to
be distributed on each class based upon the Available Distribution Amount
for the related distribution date;
o the amount to be distributed on the related distribution date on each
class of the certificates to be applied to reduce the certificate
principal balance of each class, separately identifying any portion of the
amount attributable to prepayments, and the aggregate of any Principal
Distribution Shortfall Carryover Amounts for each class of the
certificates for the related distribution date, and the amount to be
distributed to reduce any Principal Distribution Amounts remaining unpaid
from previous distribution dates on each class based upon the Available
Distribution Amount for the related distribution date;
o the aggregate amount of P&I Advances required to be made by the servicer
with respect to the related distribution date;
o 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
subordinated certificates;
o the certificate principal balance of each class of the certificates and
the certificate principal balance as adjusted for write-downs of each
class of the subordinated certificates after giving effect to the
distributions to be made, and any Writedown Amounts to be allocated, on
the related distribution date;
o the aggregate Interest Distribution Amount remaining unpaid, if any, and
the aggregate carryover amount remaining unpaid, if any, for each class of
certificates, after giving effect to the distributions to be made on the
related distribution date;
o 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 the related distribution date;
o the aggregate of any Principal Distribution Amounts remaining unpaid from
previous distribution dates, if any, for each class of certificates, after
giving effect to the distributions to be made on the related distribution
date;
o the amount of the aggregate Servicing Fee in respect of the related
distribution date;
o the aggregate number and the aggregate of the unpaid principal balances
of outstanding assets that are delinquent one month -- 30 to 59 days -- as
of the end of the related Prepayment Period, delinquent two months -- 60
to 89 days -- as of the end of the related Prepayment
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<PAGE>
Period, delinquent three months -- 90 days or longer -- as of the end of
the related Prepayment Period and as to which repossession, foreclosure or
other comparable proceedings have been commenced as of the end of the
related Prepayment Period;
o 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 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 delinquent one month -- 30 to 59 days -- as of
the end of the related Prepayment Period, delinquent two months -- 60 to
89 days -- as of the end of the related Prepayment Period, and delinquent
three months -- 90 days or longer -- as of the end of the related
Prepayment Period; and
o any other information required to be provided to certificateholders by
the REMIC Provisions.
In the case of information furnished pursuant to the second and third
bullet points, 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 was incorporated in 1984 in the state of North Carolina
as a wholly-owned subsidiary of Oakwood Homes. Oakwood Acceptance is primarily
engaged in the business of underwriting, originating, pooling, selling and
servicing installment sales contracts for sales of manufactured housing units.
Oakwood Acceptance'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 400, as of September 30, 1999, sales centers
located in 30 states. Oakwood Homes also sells manufactured homes purchased
from other manufacturers at its sales centers.
Oakwood Acceptance underwrites and funds the origination of manufactured
housing contracts and residential mortgage loans, secured by a lien on the real
estate on which the related manufactured home is deemed permanently affixed, on
an individual basis from its principal office and from additional loan
origination offices in Austin, Texas, Mesa, Arizona, Carmel, Indiana,
Vancouver, Washington and Tallahassee, Florida. Contracts for the financing of
sales of manufactured homes at Oakwood Acceptance's sales centers as well as
mortgage loans are typically originated in the name of Oakwood Mobile, a
wholly-owned retailing subsidiary of Oakwood Homes, or in the name of a third
party manufactured housing dealer, in either case using funds provided by
Oakwood Acceptance, and are assigned to Oakwood Acceptance following
origination, although some assets are originated directly in Oakwood
Acceptance's name. Oakwood Acceptance underwrites all of these assets. From
time to time, Oakwood Acceptance purchases seasoned portfolios of manufactured
housing contracts from third parties.
SERVICING PORTFOLIO
Oakwood Acceptance services all of the manufactured housing contracts it
originates or purchases -- except for some 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 Acceptance's servicing portfolio of manufactured housing contracts and
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residential mortgage loans, secured by a lien on the real estate on which the
related manufactured home is deemed permanently affixed, on the dates
indicated.
ASSET SERVICING PORTFOLIO
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------------------------------------------------
1995 1996 1997 1998 1999
--------------- --------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Number of Serviced Assets
Oakwood Acceptance Originated ................... 51,566 67,120 89,411 111,351 122,955
Acquired Portfolios ............................. 4,872 4,177 3,602 2,818 2,160
Aggregate Outstanding Principal Balance of
Serviced Assets
Oakwood Acceptance Originated ................... $ 1,130,378 $ 1,687,406 $ 2,499,794 $ 3,536,657 $ 4,223,475
Acquired Portfolios ............................. $ 70,853 $ 57,837 $ 47,027 $ 35,882 $ 26,306
Average Outstanding Principal Balance per Serviced
Asset
Oakwood Acceptance Originated ................... $ 21.9 $ 25.1 $ 28.0 $ 31.8 $ 34.3
Acquired Portfolios ............................. $ 14.5 $ 13.8 $ 13.1 $ 12.7 $ 12.2
Weighted Average Interest Rate of Serviced Assets
Oakwood Acceptance Originated ................... 12.0% 11.5% 11.0% 10.8% 10.6%
Acquired Portfolios ............................. 11.3% 11.2% 11.1% 11.0% 10.7%
</TABLE>
DELINQUENCY AND LOAN LOSS/REPOSSESSION EXPERIENCE
The following tables set forth information concerning the delinquency
experience and the loan loss and repossession experience of the portfolio of
manufactured housing installment sales contracts and residential mortgage
loans, secured by a lien on the real estate on which the related manufactured
home is deemed permanently affixed, serviced by Oakwood Acceptance, in each
case for each of Oakwood Acceptance's fiscal years from 1995 through 1999.
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.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Number of Serviced Assets
Oakwood Acceptance Originated ............ 51,566 67,120 89,411 111,351 122,955
Acquired Portfolios ...................... 4,872 4,177 3,602 2,818 2,160
Number of Delinquent Assets
Oakwood Acceptance Originated:
30 to 59 days past due ................... 601 835 1,171 2,345 3,391
60 to 89 days past due ................... 185 308 476 906 1,046
90 days or more past due ................. 267 492 716 1,222 1,783
Total Number of Assets
Delinquent .............................. 1,053 1,635 2,363 4,473 6,220
Acquired Portfolios:
30-59 days past due ...................... 63 66 90 75 59
60-89 days past due ...................... 17 23 23 31 14
90 days or more past due ................. 76 62 75 57 45
Total Number of Assets
Delinquent .............................. 156 151 188 163 118
Total Delinquencies as a Percentage of
Serviced Assets, by Number of Assets .....
Oakwood Acceptance Originated ............ 2.0% 2.4% 2.6% 4.0% 5.1%
Acquired Portfolios ...................... 3.2% 3.6% 5.2% 5.8% 5.5%
</TABLE>
Assets that are already the subject of repossession or foreclosure
procedures are not included in "delinquent assets" for purposes of this table.
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.
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<PAGE>
LOAN LOSS/REPOSSESSION EXPERIENCE
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
------------ -------------- -------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total Number of Serviced Assets at Period End ....... 56,438 71,297 93,013 114,169 125,115
Average Number of Serviced Assets During Period ..... 50,742 63,868 82,155 103,591 119,642
Number of Serviced Assets Repossessed ............... 1,718 2,746 3,885 5,411 7,790
Serviced Assets Repossessed as a Percentage of
Total Serviced Assets (1) .......................... 3.04% 3.85% 4.18% 4.74% 6.23%
Serviced Assets Repossessed as a Percentage of
Average Number of Serviced Assets .................. 3.39% 4.30% 4.73% 5.22% 6.51%
Average Outstanding Principal Balance of Assets
Oakwood Acceptance Originated ...................... $976,905 $1,409,467 $2,065,033 $2,978,235 $3,839,274
Acquired Portfolios ................................ $ 30,235 $ 27,351 $ 22,943 $ 19,179 $ 14,781
Net Losses from Asset Liquidations (2):
Total Dollars
Oakwood Acceptance Originated ..................... $ 7,303 $ 14,248 $ 26,872 $ 45,189 $ 66,037
Acquired Portfolios ............................... $ 473 $ 592 $ 528 $ 220 $ 173
As a Percentage of Average Outstanding Principal
Balance of Assets (3)
Oakwood Acceptance Originated ...................... 0.75% 1.01% 1.30% 1.52% 1.72%
Acquired Portfolios ................................ 1.56% 2.16% 2.30% 1.15% 1.17%
</TABLE>
- ---------
(1) 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.
(2) Net losses represent all losses incurred on Oakwood Acceptance-serviced
portfolios. Such amounts include estimates of net losses with respect to
certain defaulted assets. 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 Acceptance.
(3) Total net losses incurred on assets liquidated during the applicable period
expressed as a percentage of the average outstanding principal balance of
all assets.
Oakwood Acceptance owns few of the assets in the foregoing tables, and
accordingly does not maintain loan loss reserves or charge-off loans. The
policy with respect to the vast majority of loans reflected in these tables,
which Oakwood Acceptance services primarily for the accounts of securitization
trusts, is to reflect credit loss only when an REO Property or a Repo Property
has been finally disposed of and not before. In most cases, disposition occurs
shortly after the asset becomes 90 days delinquent; however it may occur before
this time and it may occur later. This policy exists because only at the final
disposition of the collateral does Oakwood Acceptance know with certainty the
amount of the loss, if any, for reporting purposes.
Oakwood Acceptance's loan loss/repossession experience has shown an
increase since 1995, and its delinquency experience also has generally trended
upward during that time. It is difficult to isolate the reason for that trend,
and it is probably attributable to a number of factors, many of which are
outside the control of Oakwood Acceptance. Although Oakwood Acceptance reviews
and revises its underwriting standards from time to time, Oakwood Acceptance
does not believe that its underwriting standards on the whole have changed
materially since 1995 except that there has been an increase in the
loan-to-value ratios over the past several years. Although Oakwood Acceptance
has not confirmed the matter statistically, there is likely a greater
probability of default as loan-to-value ratios increase. In addition, Oakwood
Acceptance believes that the loan loss/repossession experience and delinquency
experience in 1995 was low when compared to historical averages.
Macroeconomic and social conditions likely are responsible for the trend
to some extent as well, although it is difficult to say for certain. For
example, the U.S. economy has witnessed a general
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<PAGE>
increase in consumer credit over the past several years, and credit also has
been made more generally available to all economic classes than in the past.
Finally, there seems to be an increased willingness on the part of consumers to
seek the protection of federal bankruptcy laws.
Oakwood Acceptance has advised Oakwood Mortgage that Oakwood Acceptance
believes that its historical loss experience has been favorably affected by its
ability to resell repossessed units through Oakwood Mobile and its dealers. A
replacement servicer may not have similar access and, as a consequence, the
loan loss/repossession experience could be adversely affected.
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. 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, 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 -- YOU MAY EXPERIENCE A LOSS ON YOUR INVESTMENT IF LOSSES AND
DELINQUENCIES ON ASSETS IN THE TRUST ARE HIGH" IN THIS PROSPECTUS SUPPLEMENT.
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 and provides for
level payments over the term of the asset that fully amortize the principal
balance of the asset. 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 the 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
the 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 the payment or on a course of dealing with the obligor, that the
obligor intended the payment as a partial principal prepayment. If the servicer
cannot determine the obligor's intent with respect to any excess payment, the
servicer will apply the excess payment as an early payment of scheduled monthly
payments for subsequent Due Dates to the extent the excess payment is an
integral multiple of the obligor's scheduled monthly payment, and will apply
the remainder of the excess payment as a partial principal prepayment.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
On each distribution date, the servicer will be entitled to receive 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
Acceptance 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" IN THIS PROSPECTUS SUPPLEMENT and only to the
extent of funds available pursuant to clause (12), except that it may retain
its Servicing Fee out of collections on the
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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" IN THIS PROSPECTUS SUPPLEMENT on the related distribution date.
If Oakwood Acceptance 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
the asset or may be withdrawn from the certificate account at a later time, in
which case the 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,
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 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 pooling and servicing 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 business day preceding each distribution date, the
servicer will either
o deposit from its own funds the related aggregate P&I Advance into the
certificate account;
o 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;
o 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
o make or cause to be made the aggregate P&I Advance through any
combination of the methods described.
Any funds held for future distribution and used in accordance with the second
bullet point 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 sum of delinquent scheduled monthly payments due in the related
Collection Period, exclusive of all Non-Recoverable Advances.
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.
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<PAGE>
The servicer will also be obligated to make advances ("Servicing
Advances"), to the extent the servicer deems the Advances recoverable out of
Liquidation Proceeds of, or from collections on, the related contract or
mortgage loan, in respect of Liquidation Expenses and 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 the 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 the 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.
If an asset is liquidated or prepaid in full other than on a due date, the
obligor generally is only required to pay interest to the date of liquidation
or prepayment. In such event, for so long as Oakwood Acceptance is the servicer
of the asset, the servicer is obligated to pay compensating interest to the
next due date, so long as this compensating interest does not exceed the
servicer's aggregate servicing compensation for the month.
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 pooling and servicing agreement
so long as each rating agency has delivered to the trustee a letter to the
effect that the successorship will not result in a downgrading of the rating
then assigned by the rating agency to any class of the certificates. The
servicer may delegate computational, data processing, collection and
foreclosure, including repossession, duties under the pooling and servicing
agreement without any notice to or consent from Oakwood Mortgage or the
trustee, provided that the servicer will remain fully responsible for the
performance of these duties.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
certificates will be used by Oakwood Mortgage to purchase the assets and to pay
other expenses connected with pooling the assets and issuing the certificates.
RECENT DEVELOPMENTS
On November 9, 1999, Oakwood Homes announced the financial results for its
fiscal year 1999. For the fiscal year ended September 30, 1999, Oakwood Homes
reported a net loss of $31.1 million, or $0.67 per share, compared with net
income of $55.4 million, or $1.17 per share on a diluted basis for fiscal year
1998. For the fourth quarter of fiscal year 1999, Oakwood Homes reported a net
loss of $60.3 million, or $1.30 per share, compared with net income of $24.9
million, or $0.53 per share on a diluted basis in the same period in fiscal
year 1998.
For the fourth quarter of fiscal year 1999 the results included charges
of:
o $25.9 million ($16.3 million after tax) related to the restructuring of
Oakwood Homes' operations;
o $29.1 million ($18.4 million after tax) relating to the impairment of the
value of certain retained interest in securitizations and other financial
services-related charges;
o $7.4 million ($4.8 million after tax) relating to storm damage from Hurricane
Floyd; and
o $7.6 million ($4.8 million after tax) related to loss on the sale of
asset-backed securities; the loss resulted partially from historically wide
asset-backed securities spreads.
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<PAGE>
The restructuring referred to in the first bullet point above, which
includes closing of 4 manufacturing plants and 40 sales centers, is "part of a
broader plan to fundamentally change (the) business" that will allow for more
flexibility in its response to the market and less sensitive to periodic
declines in sales. Oakwood Homes plans to focus on improving sales
productivity, reducing costs and retail break-even points, lowering inventory
levels and improving cash flows.
In October and November of 1999, S&P downgraded Oakwood Homes' senior
unsecured debt ratings from BBB- to BB-, Fitch lowered the ratings from BBB- to
BB-, and Moody's lowered the rating from Baa3 to B3.
Oakwood Homes' financial condition affects, among other things, Oakwood
Acceptance's ability to make advances, to pay Compensating Interest, to service
the assets efficiently, and to repurchase assets or to provide substitute
assets for the trust.
In addition, in November 1998, four shareholder suits were filed against
Oakwood Homes and certain of its directors and officers. These suits have been
consolidated in one suit in the Middle District of North Carolina. The lawsuit
generally alleges that certain of Oakwood Homes' financial statements were
false and misleading and that certain other disclosures were inaccurate.
Oakwood Homes has filed a motion to dismiss this complaint. Oakwood Mortgage
believes that this lawsuit will not adversely affect distributions to be made
on your certificates.
UNDERWRITING
Oakwood Mortgage and Oakwood Acceptance have entered into an underwriting
agreement dated November 23, 1999 with Banc of America Securities LLC and
Credit Suisse First Boston Corporation (the "underwriters"). In the
underwriting agreement, Oakwood Mortgage has agreed to sell to the
underwriters, and the underwriters have agreed to purchase, the principal
amount of the offered certificates set forth opposite each of their names:
<TABLE>
<CAPTION>
CLASS A-1 CLASS M-1
--------------- -------------
<S> <C> <C>
Banc of America Securities LLC ........... $112,389,000 $ 9,329,000
Credit Suisse First Boston Corporation.... $112,389,000 $ 9,329,000
Total ................................. $224,778,000 $18,658,000
</TABLE>
The underwriting agreement provides 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
purchase commitments of the nondefaulting underwriter may be increased or the
offering may be terminated.
The underwriters propose to offer the offered certificates initially at
the public offering prices set forth on the cover page of this prospectus
supplement, and to selling group members at such prices less a concession not
in excess of the amount set forth for each class. The underwriters and selling
group members may allow a discount not in excess of the amount set forth for
each class to other broker/dealers. After the initial public offering of the
offered certificates, the public offering prices and concessions and discounts
to broker/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 .............. 0.135% 0.125%
Class M-1 .............. 0.240% 0.125%
</TABLE>
Distribution of the class M-2 certificates may be made by Banc of America
Securities LLC or Credit Suisse First Boston Corporation from time to time in
negotiated transactions or otherwise at varying prices determined at the time
of sale. Proceeds to Oakwood Mortgage from the class M-2
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<PAGE>
certificates are expected to be approximately $13,500,000 plus accrued
interest. In connection with the purchase and sale of the class M-2
certificates, Banc of America Securities LLC or Credit Suisse First Boston
Corporation may be determined to have received compensation from Oakwood
Mortgage in the form of underwriting discounts and commissions.
Oakwood Mortgage and Oakwood Acceptance have agreed to indemnify the
underwriters against liabilities under the Act, or contribute to payments which
the underwriters may be required to make.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
o Over-allotment involves syndicate sales in excess of the offering size, which
creates a syndicate short position.
o Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum.
o Syndicate covering transactions involve purchases of the offered certificates
in the open market after the distribution has been completed in order to
cover syndicate short positions.
o Penalty bids permit the representative to reclaim a selling concession from a
syndicate member when the offered certificates originally sold by the
syndicate member are purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
Stabilizing transactions, syndicate covering transactions and penalty bids
may cause the prices of the offered certificates to be higher than they would
otherwise be in the absence of these transactions. These transactions, if
commenced, may be discontinued at any time.
Oakwood Mortgage estimates that its expenses in connection with the
issuance and offering of the certificates will be approximately $400,000. This
information concerning Oakwood Mortgage's fees and expenses is an approximation
and may be changed by future contingencies.
The assets have been financed in a multi-seller conduit commercial paper
vehicle sponsored by Bank of America, N.A., an affiliate of Banc of America
Securities LLC. Some of the proceeds of the offering of the certificates will
be used to repay this financing vehicle.
LEGAL MATTERS
Legal matters will be passed upon for Oakwood Mortgage 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 Oakwood Mortgage 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 must follow the requirements of 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 or the prohibited
transaction rules of ERISA or the Code. Prospective investors should be aware
that, although 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.
S-44
<PAGE>
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit
certain transactions that involve:
o a Plan that must follow the requirements of ERISA and any party in
interest or disqualified person with respect to the Plan and
o 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 in
this prospectus supplement 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 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:
o 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;
o 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;
o 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 Investors Service, Inc., Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies, Inc., Fitch
IBCA, Inc. or Duff & Phelps Credit Rating Co. (collectively, the
"Exemption Rating Agencies");
o the trustee of the related trust must not be an affiliate of any other
member of the Restricted Group;
o 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;
o the sum of all payments made to and retained by Oakwood Mortgage pursuant
to the assignment of the loans to the trust represents not more than the
fair market value of such loans; and
o 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.
S-45
<PAGE>
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 underwriters, Oakwood Mortgage 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 SEC under the Securities Act. Furthermore, in order for its
certificates to qualify under the Exemption, a trust must meet the following
requirements:
o the corpus of the trust must consist solely of assets of the type that
have been included in other investment pools;
o 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
o 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 Oakwood Mortgage, the
underwriters, Oakwood Acceptance, 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,
o 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;
o 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;
o 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
o 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
certificates by Plans provided that all conditions to application of the
Exemption are met. Based upon information provided to Oakwood Mortgage by
members of the Restricted Group, Oakwood Mortgage expects that the conditions
set forth in the second, third and fourth bullet points of the fifth paragraph
of this section will be satisfied with respect to the class A-1 certificates.
Prospective investors should be aware, however, that even if all of 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. However, 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,
o PTCE 96-23, regarding investment decisions by in-house asset managers;
o PTCE 95-60, regarding investments by insurance company general accounts;
S-46
<PAGE>
o PTCE 91-38, regarding investments by bank collective investment funds;
o PTCE 90-1, regarding investments by insurance company pooled separate
accounts; or
o PTCE 84-14, regarding investment decisions made by a qualified plan
asset manager.
Before purchasing class A-1 certificates, a Plan that must follow 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. In
addition, any Plan Investor contemplating an investment in the class A-1
certificates should note that the duties and obligations of the trustee and the
servicer are limited to those expressly set forth in the pooling and servicing
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 CLASS M-1 AND CLASS M-2 CERTIFICATES ARE SUBORDINATED
SECURITIES, THE EXEMPTION WILL NOT APPLY TO THE PURCHASE, SALE OR HOLDING OF
THE OFFERED SUBORDINATED CERTIFICATES. ACCORDINGLY, THE OFFERED SUBORDINATED
CERTIFICATES WILL NOT BE OFFERED FOR SALE, AND ARE NOT TRANSFERABLE, TO PLAN
INVESTORS UNLESS SUCH PLAN INVESTOR PROVIDES OAKWOOD ACCEPTANCE 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 OAKWOOD ACCEPTANCE, 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 THIS OPINION IS DELIVERED, EACH PERSON
ACQUIRING AN OFFERED SUBORDINATED CERTIFICATE WILL BE DEEMED TO REPRESENT TO
THE TRUSTEE, OAKWOOD ACCEPTANCE AND THE SERVICER THAT EITHER (I) SUCH PERSON IS
NOT A PLAN INVESTOR THAT MUST FOLLOW 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
ACQUISITION AND HOLDING OF THE OFFERED SUBORDINATED CERTIFICATE AND THE
TRANSACTIONS IN CONNECTION WITH THE SERVICING, MANAGEMENT AND OPERATION OF THE
TRUST 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 S&P and Fitch:
<TABLE>
<CAPTION>
S&P FITCH
----- ------
<S> <C> <C>
Class A-1 ........ AAA AAA
Class M-1 ........ AA AA
Class M-2 ........ A A
</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 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.
S-47
<PAGE>
A security rating is not a recommendation to buy, sell or hold securities
and may be revised or withdrawn at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
Oakwood Mortgage will request S&P and Fitch 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 the rating would be. A rating assigned to the offered certificates
by a rating agency that has not been requested by Oakwood Mortgage to do so may
be lower than the rating assigned by a rating agency pursuant to Oakwood
Mortgage's request.
LEGAL INVESTMENT CONSIDERATIONS
The class A-1 certificates and the class M-1 certificates will constitute
mortgage related securities for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 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-1 certificates and
the class M-1 certificates will be legal investments for entities to the extent
provided in SMMEA, unless there are 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.
THE CLASS M-2 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. There are significant interpretive uncertainties in determining
the appropriate characterization of the class M-2 certificates under various
legal investment restrictions, and thus the ability of investors that face
legal restrictions to purchase the class M-2 certificates. Any financial
institution regulated by 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 "high-risk" mortgage securities.
Oakwood Mortgage 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 that must observe 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 must follow investment, capital or other restrictions. SEE "LEGAL
INVESTMENT CONSIDERATIONS" IN THE PROSPECTUS.
S-48
<PAGE>
PROSPECTUS
OAKWOOD MORTGAGE INVESTORS, INC.
DEPOSITOR
PASS-THROUGH CERTIFICATES, ISSUABLE IN SERIES
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 1 IN THIS PROSPECTUS.
Your certificates will represent obligations of your trust only and will not
represent interests in or obligations of Oakwood Mortgage or any of its
affiliates. Your certificates are not insured or guaranteed by any person.
Except as noted in this pro spectus and the accomo panying prospectus
supplement, the under lying accounts, contracts, and mortgage loans are not
insured or guaranteed by any government agency.
This prospectus may be used and to offer and any series of certifi cates only if
accompa nied by the prospectus supplement for that series.
YOUR TRUST:
o will issue certificates backed by contracts and mortgage loans in one or more
series with one or more classes; and
o will own contracts and mortgage loans and other property described on the
cover page of the accompanying pro spectus supplement.
YOUR CERTIFICATES:
o will be secured by the property of your trust and will be paid only from your
trust's assets;
o will be rated in one of the four highest rating categories by at least one
nationally recognized rating organization;
o may have one or more forms of credit enhancement; and
o will be issued as part of a designated series that may include one or more
classes of certificates and credit enhancement.
INVESTORS:
o will receive interest and principal payments from collec tions on the
contracts and mortgage loans and their trust's other assets, if any; and
o are entitled to receive payments from collections on consell tracts and
mortgage loans and other assets securing their series of certificates, but
have no entitlement to payments from contracts, mortgage loans, or other
assets.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOVEMBER 23, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We provide information to you about your investment in two separate
documents that progressively provide more detail: this prospectus, which
provides general information, some of which may not apply to your series of
certificates and the accompanying prospectus supplement, which will describe
the specific terms of your series of certificates, including:
o the timing of interest and principal payments;
o statistical and other information about the contracts and mortgage
loans;
o information about credit enhancement for each class;
o the ratings for each class; and
o the method for selling your certificates.
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. We have not authorized anyone to provide you with different
information. Your certificates are not offered in any state where the offer is
not permitted.
We have included cross-references in this prospectus and in the
accompanying prospectus supplement to captions in these materials where you can
find further related discussions. The table of contents included in the
accompanying prospectus supplement provides the pages on which these captions
are located.
i
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to purchase
the certificates.
THE TIMING AND AMOUNT OF PREPAYMENT.
PREPAYMENTS ON YOUR CERTIFICATES Prepayment levels are affected by a variety
COULD REDUCE THE YIELD TO of economic, geographic, tax, legal, and
MATURITY OF YOUR INVESTMENT other factors, including defaults on the
assets, required repurchases of the assets
and current interest rates. The assets may be
prepaid at any time. When interest rates are
going down, home buyers are more likely to
prepay so that they may obtain lower
alternative financing on their homes. In this
event, you may not be able to reinvest the
proceeds of prepayments in another investment
of similar credit risk and yield. Conversely,
prepayments are likely to decline if interest
rates rise and you could reinvest prepayment
proceeds in investments of similar credit
risk and higher yield.
YIELD.
In general, if you purchased your
certificates at a price greater than their
par value, your investment will become less
valuable if prepayments are higher than you
anticipate and will become more valuable if
prepayments are lower than you anticipate.
Conversely, if you purchased your
certificates at a price less than their par
value, your investment will become more
valuable if prepayments are higher than you
anticipate and will become less valuable if
prepayments are lower than you anticipate.
Your certificates' sensitivity to
prepayments will be magnified by any
disproportionate allocation of principal or
interest. You could fail to recover your
initial investment if your certificates
receive a disproportionate amount of
principal or interest, and if prepayments
occur differently than you anticipate. Your
yield also may be reduced by the fact that
payments of interest to fixed-rate
certificateholders are made in the month
following the month in which such
certificates accrue interest. Losses on
assets that are allocated to your class of
certificates also will reduce your yield.
REGIONAL ECONOMIC DOWNTURNS AND Downturns in regional or local economic
THE DECLINE IN THE VALUE OF conditions will affect the frequency of
MANUFACTURED HOMES COULD RESULT delinquency and amount of losses on the
IN LOSSES ON YOUR CERTIFICATES assets in your trust. If the residential real
estate market experiences a decline and the
outstanding balances of the assets exceed the
value of the manufactured homes and mortgaged
properties, the rates of delinquencies,
foreclosures and losses on the assets could
increase. Contracts may experience a higher
level of delinquencies than conventional
mortgage loans because these borrowers are
usually more severely affected by economic,
social and other factors that diminish their
ability to repay. Losses incurred upon
1
<PAGE>
repossession of manufactured homes tend to
be higher than on corresponding mortgage
loans on stationary homes because, unlike
stationary homes, manufactured homes
generally loose value over time. This may
result in losses to you if the losses on
homes are too great to be absorbed by
classes of certificates that are
subordinated to the certificates held by you
and other credit enhancement features. You
will have to look primarily to the value of
the manufactured homes and mortgaged
properties for recovery of the outstanding
principal of and unpaid interest on the
defaulted mortgage loans not covered by
credit enhancement. SEE "THE TRUSTS -- THE
ASSETS -- THE MORTGAGE LOANS" IN THIS
PROSPECTUS.
STATE LAW MAY LIMIT THE State laws, such as the uniform commercial
SERVICER'S ABILITY TO SERVICE code and motor vehicle titling statutes, may
THE ASSETS IN A MANNER THAT limit the servicer's ability to repossess,
MAXIMIZES YOUR RETURN foreclose, or liquidate the assets in order
to pay off certificates. State law may also
limit the amount the servicer may collect in
a liquidation to less than the amount due on
any particular asset. For example, state laws
regulate how a repossession can be conducted
and whether the servicer may obtain a
deficiency judgment if the proceeds of
foreclosure are not sufficient to repay the
loan.
CONTESTING THE TRUSTEE'S The steps necessary to create and perfect a
SECURITY INTEREST IN THE security interest in the manufactured homes
MANUFACTURED HOMES COULD REDUCE differ from state to state. Because of the
OR DELAY DISTRIBUTIONS expense involved, the servicer will not take
any steps to name the company or the trustee,
on behalf of the trust, as the lien-holders
of any manufactured home. As a consequence, a
person may contest the security interest of
the trustee. Whether successful or
unsuccessful, any contest of the security
interest could reduce or delay distributions
to you.
YOUR ABILITY TO RESELL A secondary market for any series of
CERTIFICATES WILL certificate may not BE LIMITED develop. If a
secondary market does develop, it might not
continue or it might not be sufficiently
liquid to allow you to resell any of your
certificates. Also, ERISA plans may be
prohibited from purchasing your certificates,
if noted in the prospectus supplement.
THE ENFORCEMENT OF CONSUMER A failure by Oakwood Acceptance to comply
PROTECTION LAWS MAY BE A with federal or state consumer protection
LIABILITY TO laws could create YOUR TRUST liabilities on
behalf of your trust for amounts due under
the assets. These liabilities could include a
reduction in the amount payable under the
assets, the inability to foreclose on the
manufactured home or mortgaged property, or
liability of your trust to an obligor.
Oakwood Acceptance will warrant that the
origination of each asset materially 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
2
<PAGE>
asset and that each asset is enforceable
against the related obligor in accordance
with its terms. A breach of any warranty
that materially and adversely affects your
trust's interest in any asset would create
an obligation on the part of Oakwood
Acceptance to repurchase or substitute for
the asset unless the breach is cured.
However, the failure of Oakwood Acceptance
to repurchase the defective asset or pay the
liability could expose your trust to losses.
CREDIT ENHANCEMENT OFTEN DOES NOT Insurance policies and other forms of credit
COVER ALL TYPES OF LOSSES ON YOUR enhancement only cover the matters expressly
CERTIFICATES addressed by their terms and detailed in your
prospectus supplement, and will not provide
protection against all risks of loss. SEE
"THE TRUSTS -- INSURANCE" IN THIS PROSPECTUS.
THE SUBORDINATION OF OTHER The fact that some classes are paid after
CLASSES TO YOUR CLASS WILL NOT the classes of certificates which you hold
INSULATE YOU FROM LOSS does not protect you from all risks. If
losses cannot be absorbed by the subordinated
certificates or other items of credit
support, like a reserve fund, then you may
have losses on your certificates.
YOU MAY HAVE INCOME FOR TAX Certificates purchased at a discount and
PURPOSES PRIOR TO YOUR RECEIPT other classes of certificates purchased
OF CASH at a premium that are deemed to have original
issue discount may incur tax liabilities
prior to a holder's receiving the related
cash payments. SEE "FEDERAL INCOME TAX
CONSEQUENCES" IN THIS PROSPECTUS.
YOU WILL EXPERIENCE DELAYS OR The acquisition of the contracts and mortgage
REDUCTIONS OF DISTRIBUTIONS ON loans by the trust from Oakwood Mortgage is
YOUR CERTIFICATES IF THE TRANSFER intended to be a sale. However, in the event
IS NOT CONSIDERED A SALE IN THE that Oakwood Mortgage or one of its
EVENT OF BANKRUPTCY affiliates becomes insolvent, a court may
decide that this acquisition was a loan and
not a sale. This could delay or reduce
distributions to you. Likewise, if an
affiliate of Oakwood Mortgage becomes
insolvent, a court might decide to
consolidate the assets and liabilities of
Oakwood Mortgage and its affiliates. This
could also delay or reduce distributions to
you. On the closing date for your series,
counsel to Oakwood Mortgage will provide a
legal opinion that, in the event the servicer
were to become bankrupt or insolvent, a court
properly presented with this issue would not
consolidate Oakwood Mortgage or the trust
with the servicer and would regard the
transfer as a sale. However, this opinion
contains a number of conditions and
assumptions and, in any event, is not binding
on any court.
YOUR CERTIFICATES MAY BE REDEEMED In the event your certificates are redeemed,
AT A PRICE LESS THAN THEIR the purchase price will equal 100% of your
PRINCIPAL AMOUNT PLUS ACCRUED certificates' then outstanding principal
AND UNPAID INTEREST amount, plus accrued and unpaid interest
thereon at the applicable pass-through rate,
less any
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unreimbursed advances and unrealized losses
allocable to the certificate. Accordingly,
if unreimbursed advances and losses are too
high, your certificates could be redeemed at
a price less than their outstanding
principal amount plus accrued and unpaid
interest.
THE ASSETS MAY CONTAIN VARIOUS The assets of your trust have various
PAYMENT PROVISIONS, WHICH COULD payment provisions. Some may have changing
AFFECT PAYMENTS TO YOU monthly payments, some may begin with lower
payments followed by higher payments, and
still others may have unusually large
payments due at maturity. There is a higher
risk of default on these assets than on level
payment assets. The likelihood that you will
have a loss is greater with respect to these
assets than with respect to level payment
assets.
The interest rates on adjustable rate assets
will adjust periodically. They will equal
the sum of an index, for example, one-month
LIBOR, and a margin. When an index adjusts,
the amount of obligor's monthly payments
likely will change. As a result, obligors on
adjustable rate assets may be more likely to
default on their obligations than obligors
on assets bearing interest at fixed rates.
The seller of convertible loans may be
required to repurchase convertible loans if
the obligor elects to convert the asset rate
from an adjustable rate to a fixed rate.
This repurchase of a convertible loan will
have the same effect on you as a repayment
in full of the asset. You certificates may
experience a higher rate of prepayment than
would otherwise be the case if the your
trust includes convertible loans and a
repurchase obligation.
THE RATINGS PROVIDED BY THE Your certificates will be rated in one of
RATING AGENCIES DO NOT PURPORT the four highest rating categories by
TO ADDRESS ALL RISKS CONTAINED one or more rating agencies. A rating is not
IN YOUR INVESTMENT a recommendation to buy, sell or hold your
certificates and may be revised or withdrawn
at any time. You may obtain further details
with respect to any rating on your
certificates from the rating agency that
issued the rating. A rating generally is
based on the credit quality of the underlying
assets, and will represent only an assessment
of the likelihood of receipt by you of
payments with respect to the assets. The
rating is not an assessment of the prepayment
experience, and does not rate the possibility
that you may fail to recover your initial
investment if you purchase your certificates
at a premium over par. Security ratings
assigned to the certificates representing a
disproportionate entitlement to principal or
interest on the assets should be evaluated
independently of similar security ratings
assigned to other kinds of securities.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
Each series of certificates will be issued pursuant to a pooling and
servicing agreement among Oakwood Mortgage, as seller of the certificates,
Oakwood Acceptance or another servicer, as the servicer, and the trustee named
in the prospectus supplement. A copy of the form of the pooling and servicing
agreement, together with standard terms, 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 pooling and
servicing agreement relating to a series that differ materially from the form
of the pooling and servicing agreement filed as an exhibit to the Registration
Statement.
Oakwood Mortgage 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 a
nationally-recognized statistical securities 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., and Duff & Phelps
Credit Rating Co. The following summaries describe provisions common to each
series of certificates. The summaries do not purport to be complete. When
particular provisions or terms used in the pooling and servicing agreement are
referred to, the actual provisions are incorporated by reference.
The certificates of each series will represent interests in a separate
trust created pursuant to the related pooling and servicing 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 the assets transferred under the pooling
and servicing agreement from time to time, including, as described in the
prospectus supplement:
o assets as from time to time are identified as deposited in any account held
for the benefit of the certificateholders, including the certificate
account, which is an account maintained by the servicer, into which the
servicer must deposit collections in respect of the related assets; and the
Distribution Account, which is the account maintained by the trustee from
which distributions are made on the certificates;
o manufactured housing installment sales contracts and mortgage loans,
including all rights to receive payments due on and after the Cut-off Date,
which is the date specified in the prospectus supplement as the date after
which scheduled principal and interest payments on the assets, and on and
after which unscheduled collections of principal on the related contracts
and mortgage loans;
o with respect to the assets;
o the standard hazard insurance policies maintained with respect to the
underlying manufactured homes and mortgaged properties,
o the related pool insurance policy, if any,
o the related special hazard insurance policy, if any,
o the related obligor bankruptcy insurance, if any,
o any primary mortgage insurance policies, FHA insurance and VA
guarantees,
o the buy-down fund, if any, and
o the GPM fund, which is a custodial Eligible Account established by the
servicer for any GPM Loan, to be funded with an amount which, together
with projected reinvestment
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earnings at a rate specified in the prospectus supplement, will provide
funds sufficient to support the payments required on such GPM Loan on a
level debt service basis, and a GPM Loan means a graduated payment
asset the terms of which provide for 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, if any;
o any reserve fund established and funded to make payments on the
certificates to the extent funds are not otherwise available, if any;
o 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;
o a pre-funding account, if any;
o other property as may be specified in the related prospectus supplement;
and
o proceeds of any of the foregoing, as specified in the prospectus
supplement.
The pooling and servicing agreement for a series will provide that
certificates may be issued up to the aggregate principal amount authorized by
Oakwood Mortgage. Each series will consist of one or more classes of
certificates and may include:
o one or more classes of senior certificates entitled to preferential rights
to distributions of principal and interest;
o one or more classes of subordinated certificates;
o one or more Strip Classes of certificates, which represent 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 fictional principal balance that may be assigned to a
certificate or class that is used solely for purposes of determining the
amount of interest distributions and certain other rights;
o one or more classes of certificates representing an interest only in
specified payments of principal on the assets ("Principal Only Classes");
o one or more classes of certificates upon which interest will accrue but
will not be distributed until 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
o one or more classes of certificates entitled to fixed principal payments
under identified 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. A Residual Certificate is a
certificate evidencing a residual interest in a REMIC. A REMIC is a real estate
mortgage investment conduit as defined in the Internal Revenue Code.
The certificates of each series will be issued in fully-registered
certificated or book-entry form in authorized denominations for each class as
specified in the 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 the
certificate is registered as of the close of business on the record date for
the distribution at the address appearing in the certificate register, except
that the final distributions in retirement of each
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certificated certificate will be made only upon presentation and surrender of
the certificate at the corporate trust office of the trustee. The 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, and noting the class and denomination of each
certificate of the series held by each holder.
BOOK-ENTRY PROCEDURES
The prospectus supplement for a series may specify that some classes of
certificates initially will be issued as book-entry certificates in the
authorized denominations specified in the prospectus supplement. Each
book-entry 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 (together with any successor or
other depository selected by Oakwood Mortgage). 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, including their
representatives, own DTC. Participants means the participating organizations
that utilize the services of DTC, including securities brokers and dealers,
banks and trust companies and clearing corporations and may include certain
other organizations. In accordance with its normal procedures, DTC is expected
to record the positions held by each DTC Participant in the book-entry
certificates, 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 DTC 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 a book-entry certificate will be
reflected in the records of DTC, or of a participating firm that acts as agent
for the Financial Intermediary whose interest in turn will be reflected in the
records of DTC, 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 DTC 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 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 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 other
organizations. Indirect access to the DTC system is also available to others
like 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 to DTC. DTC will be responsible for crediting the amount of these
distributions to the accounts of the applicable Depository Participants in
accordance with DTC's normal procedures. Each Depository Participant will be
responsible for disbursing these 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 Financial
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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,
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 Participants to transfer the offered certificates,
by book-entry transfer, through DTC for the account of the purchasers of
certificates, which account is maintained with the 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 DTC, participating organizations, indirect participants and banks, the
ability of a Beneficial Owner of a book-entry certificate to pledge a
certificate to persons or entities that are not Depository Participants, or
otherwise to take actions in respect of a certificate, may be limited due to
the lack of a physical certificate representing the certificate. Issuance of
the book-entry certificates in book-entry form may reduce the liquidity of your
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 book-entry certificates or their
nominees, rather than to DTC or its nominee, only if:
o Oakwood Mortgage advises the trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository
with respect to the book-entry certificates and Oakwood Mortgage is unable
to locate a qualified successor within 30 days or
o Oakwood Mortgage, at its option, elects to terminate the book-entry system
maintained through DTC.
Upon the occurrence of either event described in the preceding sentence,
the trustee is required to notify DTC, which in turn will notify all Beneficial
Owners of book-entry certificates through Depository Participants, of the
availability of certificated certificates. Upon surrender of DTC 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, they 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 Oakwood Mortgage and the trustee that, unless and until
the offered certificates are issued in certificated, fully-registered form
under the circumstances described, DTC will take any action permitted to be
taken by a certificateholder under the pooling and servicing agreement only at
the direction of one or more Participants to whose DTC accounts the
certificates are credited. DTC has advised Oakwood Mortgage that DTC will take
this action with respect to any percentage interests of the offered
certificates only at the direction of and on behalf of Participants with
respect to 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.
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Neither Oakwood Mortgage, Oakwood Acceptance or any other seller of the
assets, 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 DTC, or for maintaining,
supervising or reviewing any records relating to beneficial ownership
interests.
ALLOCATION OF COLLECTIONS FROM THE ASSETS
The prospectus supplement will specify the Available Distribution Amount
for a series, which in general will be equal to the amount of principal and
interest paid on the assets with respect to the due date in the current month
and the amount of principal prepaid during the preceding month, 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 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 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
interest at a specified 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. Classes of certificates
may have a notional principal amount, which is a fictional principal balance
used solely for determining the class' amount of distributions and other
rights. A notional principal amount is determined by reference to the principal
amount of the assets, a subset of the assets, or one or more classes of
certificates. Interest distributions on the certificates generally will include
interest accrued through the accounting date preceding the distribution date.
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 the amount of interest
due on the assets exceeds the amount of interest collected or advanced, which
may be due to Due Date Interest Shortfall or Soldiers' and Sailors' Shortfall
on the assets. Soldiers' and Sailors' Shortfall means a shortfall in respect of
an asset resulting from application of the federal Soldiers' and Sailors' Civil
Relief Act of 1940, as amended. 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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Realized Loss means
o 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 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 net liquidation proceeds in respect of the liquidated loan
or
o the amount of any principal cramdown in connection with any asset that was
the subject of a principal cramdown in bankruptcy during the the calendar
month immediately preceding the month in which the related distribution
date occurs (a "Prepayment Period").The amount of any principal cramdown
is the amount by which the unpaid principal balance of the asset exceeds,
as applicable, depending upon the type of principal cramdown that was
applied to the asset, either the portion of the unpaid principal balance
that remains secured by the manufactured home or mortgaged property after
taking the principal cramdown into account or the unpaid principal balance
after taking into account the permanent forgiveness of debt ordered by the
bankruptcy court in connection with the principal cramdown.
Due Date Interest Shortfall means, for any asset that is prepaid in full
or liquidated on other than a Due Date for the asset, the difference between
the amount of interest that would have accrued on the asset through the day
preceding the first Due Date after the 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 the amount of interest that actually accrued on the asset prior to the
prepayment in full or liquidation, net of an allocable portion of any other
administrative fees payable from interest payments on the asset during the
period commencing on the second day of the calendar month preceding the month
in which the distribution date occurs and ending on the first day of the month
in which the distribution date occurs (each, a "Collection Period").
Principal and interest distributable on a class of certificates may be
distributed among the certificates of a class pro rata in the proportion that
the outstanding principal or notional amount of each certificate of the class
bears to the aggregate outstanding principal or notional amount of all
certificates of the class, or in another manner as may be detailed in the
related prospectus supplement. Interest distributable on a class of
certificates will be allocated among the certificates of the class pro rata in
the proportion that the outstanding principal or notional amount of each
certificate of the class bears to the aggregate outstanding principal or
notional amount of all certificates of the class, or in another 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, as defined in the prospectus
supplement.
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 Oakwood Mortgage, the
servicer or another party as specified in the related prospectus supplement by
purchase of the outstanding certificates of the series. The right so to redeem
the certificates of a series may be conditioned upon
o the passage of a date specified in the prospectus supplement, 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, and
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o 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.
Scheduled Principal Balance means, as of any date of determination with
respect to any contract, Repo Property, mortgage loan or REO Property, the
principal balance as of the Cut-off Date of the asset, or of the related asset,
in the case of a Repo Property or REO Property, minus the sum of:
o the principal components of the scheduled monthly payments of principal
and interest due on the asset or on the related asset, in the case of a
Repo Property or REO Property, after the Cut-off Date and on or before the
date of determination, regardless of whether the monthly payments were
received from the obligor, plus
o all principal prepayments received by the servicer on the asset, or on the
related asset, 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 Oakwood Acceptance or another party to
repurchase the asset, on or after the Cut-off Date and on or prior to the
date of determination, plus
o all Realized Losses incurred on the asset, or the related asset, in the
case of a Repo Property or REO Property, on or after the Cut-off Date and
on or prior to the date of determination.
The percentage balances of the aggregate Scheduled Principal Balance of
the assets and the aggregate certificate principal balance of a class in order
to trigger optional redemption or termination 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 certificate
principal balance, plus accrued and unpaid interest thereon at the applicable
pass-through rate, less any unreimbursed principal or interest advances or
other advances by the Servicer, and unrealized losses allocable to the
certificates. Unrealized losses are losses that have not yet been recorded. For
example, until your trust is able to resell a mortgage that it acquired at a
foreclosure sale, it cannot calculate the exact amount of its loss with respect
to that mortgage. For optional redemption or termination purposes, the amount
of the loss will be calculated prior to sale based on the value of the real
estate owned as determined by a licensed appraiser. This appraisal permits the
amount of any loss to be calculated and allocated to the appropriate
certificates. Accordingly, it is possible that your certificates could be
redeemed at a price less than their outstanding principal amount plus accrued
and unpaid interest. Notice of the redemption of the certificates will be given
to certificateholders as provided in the related pooling and servicing
agreement.
In addition, Oakwood Mortgage 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 the 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 the class or classes at the closing date.
The termination price for a trust will be specified in the related pooling
and servicing agreement.
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
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the 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 valuation shall be furnished by the servicer to the
certificateholders upon request.
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 mortgage loan. 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 contract.
On the date set for termination of a trust, the termination price shall be
distributed 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 second to the certificateholders in
accordance with the payment priorities that apply on each distribution date as
described in the related prospectus supplement. Advances means any P&I Advance
or Servicing Advance.
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:
o the average life of the related certificates and each class thereof issued
by the related trust;
o the timing of the final distribution for each class, and whether the final
distribution occurs prior to its Final Scheduled Distribution Date; and
o the effective yield on each class of 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
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 may be prepaid in full or in part without
penalty. Oakwood Mortgage 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
experience higher prepayment rates than if prevailing interest rates remain at
or above the interest rates borne by the 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 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 on a pool of
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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.
YIELD CONSIDERATIONS
Distributions of interest on the certificates generally will include
interest accrued through the accounting date, which is, for any distribution
date, the last day of the preceding calendar month for certificates that pay
interest at a fixed rate, and the 14th day of the same calendar month for
certificate that pay at a floating rate. Your effective yield will be lower
than the yield otherwise produced by the applicable pass-through rate and
purchase price for your certificates, because distributions to you will not be
made until the distribution date following the accounting date, which causes a
delay in distributions.
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,
which is the price at which a certificate will yield its coupon, after giving
effect to any payment delay, calculates the anticipated yield to maturity of a
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 a 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.
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" IN THIS PROSPECTUS.
The yield on your certificates also will be affected by Realized Losses or
shortfalls allocated to your certificates. If Realized Losses and shortfalls
are not absorbed by certificates subordinated to your certificates or other
items of credit support, like a reserve fund, then you may have losses or
delays in payment on your certificates. Losses on your certificates will, in
turn, reduce distributions to you. Delays in payment will interrupt the timely
distribution of amounts owed to you. Losses or delays in payment will reduce
your yield.
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THE TRUSTS
GENERAL
A trust estate may include contracts and mortgage loans. Each trust estate
also may include
o assets as from time to time are identified as deposited in accounts held
for the benefit of the certificateholders, including the certificate
account and the Distribution Account;
o any manufactured home or real property -- which is a parcel of real estate
securing a Land Secured Contract -- which initially secured a related
contract and which is acquired by repossession, foreclosure or otherwise;
o any property which initially secured a related mortgage loan and which is
acquired by foreclosure or deed in lieu of foreclosure or otherwise;
o any related reserve fund;
o any related pre-funding account;
o 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 the trust
estate that is required to be maintained pursuant to the related pooling
and servicing agreement; and
o 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 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.
Oakwood Mortgage will acquire the underlying contracts and mortgage loans
from Oakwood Acceptance or another affiliate of Oakwood Mortgage serving as
seller of the assets of your trust, which may have originated the contracts and
mortgage loans or may have acquired them in the open market or in privately
negotiated transactions. Specific information respecting the contracts and
mortgage loans included in a particular trust estate will be provided in the
related prospectus supplement and, to the extent this information is not fully
provided in the related prospectus supplement, in a Current Report on Form 8-K
to be filed with the SEC within fifteen days after the initial issuance of the
certificates. A copy of the pooling and servicing agreement -- without
exhibits -- 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.
Whenever in this prospectus terms like "asset pool," "trust estate,"
"pooling and servicing agreement" or "pass-through rate" are used, those terms
apply, unless the context otherwise indicates, to one specific asset pool,
trust estate, pooling and servicing agreement and the pass-through rates
applicable to the related series of certificates.
For each series of certificates, Oakwood Mortgage 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. Oakwood Acceptance, as
servicer, the parent of Oakwood Mortgage, will service the contracts and
mortgage loans and administer the certificates, either exclusively or through
other servicing institutions. With respect to those contracts and mortgage
loans serviced by the servicer through a
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subservicer, the servicer will remain liable for its servicing obligations
under the pooling and servicing agreement as if the servicer alone were
servicing the contracts and mortgage loans. The servicer may delegate
computational, data processing, collection and foreclosure, including
repossession, duties under any pooling and servicing agreement without
appointing a subservicer and without any notice to or consent from Oakwood
Mortgage or the trustee, provided that the servicer remains fully responsible
for the performance of these duties. SEE "SALE AND SERVICING OF THE CONTRACTS
AND MORTGAGE LOANS -- SERVICING" IN THIS PROSPECTUS.
TYPES OF ASSETS
The assets included in the trust for a series may contain various payment
provisions. The assets may consist of
o 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;
o 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;
o 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 a period after origination of the assets;
o Increasing Payment Loans, which provide for monthly payments to increase
over the life of the loan, resulting in a shorter term;
o Interest Reduction Loans, which provide for the one-time reduction of the
interest rate payable thereon;
o GEM loans, which provide for
o monthly payments during the first year after origination that are at
least sufficient to pay interest due thereon, and
o an increase in monthly payments in subsequent years at a predetermined
rate resulting in full repayment over a shorter term than the initial
amortization terms of the assets;
o 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 their unpaid
principal balances, and which unpaid interest will be added to the
principal balances of the assets and will be paid, together with interest,
in later years;
o step-up rate loans, which provide for asset rates that increase over time;
o 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 an amortization period, but require all
remaining principal to be paid at the end of a shorter period;
o Convertible Loans, which are adjustable rate assets that have provisions
pursuant to which the related obligors generally may exercise an option to
convert the adjustable asset rate to a fixed asset rate; and
o Bi-Weekly Loans, which provide for obligor payments to be made on a
bi-weekly basis.
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DUE-ON-SALE CLAUSES
A contract or the mortgage note or the mortgage, deed of trust or other
instrument creating a first lien on a first priority ownership interest in or
estate in fee simple in real property securing the mortgage note used in
originating a conventional mortgage loan secured by a first lien on a one- to
four-family residential real property included in your trust 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.
Enforcement of a due-on-sale clause applicable to a contract or mortgage loan
will have the same effect on certificates backed by a contract or mortgage loan
as a prepayment in full of the contract or mortgage loan. SEE "LEGAL ASPECTS OF
CONTRACTS AND MORTGAGE LOANS" IN THIS PROSPECTUS.
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 the certificates. SEE "MATURITY AND
PREPAYMENT CONSIDERATIONS" AND "YIELD CONSIDERATIONS" IN THIS PROSPECTUS 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 the series may be expected to
be longer than would have been the case had the assets contained due-on-sale
clauses and had the servicer enforced these 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
in the next paragraph. 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 the mortgage loan under any applicable due-on-sale
clause to the extent, under the circumstances, and in the manner in which the
servicer enforces the 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 these 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 a due-on-sale clause, the
servicer will be required to enter into an assumption or modification agreement
with the person to whom the property has been conveyed or is proposed to be
conveyed, pursuant to which this 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 the 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 some classes of certificates of the series
anticipated to be outstanding on dates specified in the table
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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. 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 table.
THE CONTRACTS
The contracts supporting a series of certificates will consist of
manufactured housing installment sales contracts originated by Oakwood
Acceptance, which may have been originated in the name of Oakwood Mobile or
another manufactured housing dealer with funds provided by Oakwood Acceptance,
or originated by other originators not affiliated with Oakwood Acceptance, 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 or at an asset rate which steps up on a
particular date.
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 secured by mortgages or deeds of
trust or other similar security instruments creating first liens on one-to
four-family residential 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. Oakwood Mortgage expects that the mortgage loans will have been
originated by FHA-approved mortgagees or Fannie Mae/Freddie Mac-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 or at an asset rate which steps up on a particular date, 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 interest collected on the underlying mortgage loans.
INFORMATION IN PROSPECTUS SUPPLEMENT REGARDING CONTRACTS AND MORTGAGE LOANS
With respect to the assets expected to be contained in an asset pool, the
prospectus supplement will specify, to the extent known,
o the range of dates of origination of the assets;
o the range of asset rates on the contracts and mortgage loans and the
weighted average asset rate as of the Cut-off Date, and in the case of
adjustable rate assets, the range of initial adjustable rates, the index,
if any, used to determine the adjustable rate and the range of maximum
permitted adjustable rates, if any, and the range of then-current
adjustable mortgage rates
o the range of contract loan-to-value ratios, which means, 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
the 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 as to each other contract, the ratio,
expressed as a percentage, of the principal amount of the 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; and the range of mortgage loan-to-value ratios,
which is the ratio, expressed as percentage, of the principal amount of a
mortgage loan at the time of determination, to either the sum of the
appraised
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value of the land and improvements, and the amount of any prepaid finance
charges or closing costs that are financed or 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;
o the minimum and maximum outstanding principal balances of the assets as of
the Cut-off Date and the weighted average outstanding principal balance of
the assets as of the Cut-off Date;
o the range of original terms to maturity of the assets, the range of
remaining terms to maturity of the assets and the last maturity date of
the assets;
o the geographic distribution of the underlying manufactured homes and
mortgaged properties; and
o the range of original principal balances of the assets.
SUBSTITUTION OF CONTRACTS OR MORTGAGE LOANS
Oakwood Mortgage 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 the series. In addition, if there is
a breach of any representation or warranty made as to an asset by Oakwood
Mortgage or Oakwood Acceptance, or there is defective or incomplete
documentation with respect to an asset, which breach, defect or incompleteness
is not cured within 90 days after the breaching party's receipt of notice of
the breach, defect or incompleteness, the breaching party generally must
repurchase the affected asset for its Repurchase Price, but generally may, as
an alternative to 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. The Repurchase Price for an asset will
equal the unpaid principal balance of the asset, plus unpaid interest thereon
at the applicable asset rate through the end of the month of purchase. In
general, any substitute asset must, on the date of substitution:
o have an unpaid principal balance not greater than -- and not more than
$10,000 less than -- the unpaid principal balance of the replaced asset;
o have an asset rate not less than, and not more than one percentage point
in excess of, the asset rate of the replaced asset;
o have a net rate equal to the net rate of the replaced asset; have a
remaining term to maturity not greater than -- and not more than one year
less than -- that of the replaced asset; and
o comply with each representation and warranty relating to the replaced
asset.
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 this date,
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 the date of substitution. 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
o have a minimum lifetime asset rate that is not less than the minimum
lifetime asset rate on the replaced adjustable rate asset;
o have a maximum lifetime asset rate that is not less than the maximum
lifetime asset rate on the replaced adjustable rate asset;
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o 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 replaced adjustable rate asset;
o have a Gross Margin not less than the Gross Margin of the replaced
adjustable rate asset;
o have a Periodic Rate Cap equal to the Periodic Rate Cap on the replaced
adjustable rate asset;
o 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
o 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.
Gross Margin means, for any adjustable rate asset, the fixed percentage per
annum specified in the related contract or mortgage note that is added to the
index on each interest adjustment date to determine its new asset rate.
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. Mortgage loan documents has the meaning assigned 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 (the "Pre-Funded
Amount" will be deposited in an 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, the 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. The
distribution date will be the 15th day of each month, or the next business day
if the 15th day is not a business day, commencing in the month following the
closing date.
During any Pre-Funding Period, Oakwood Mortgage 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 the Pre-Funding Period.
Additional contracts or mortgage loans will be required to satisfy eligibility
criteria more fully set forth in the related prospectus supplement. This
eligibility criteria will be consistent with the eligibility criteria of the
contracts or mortgage loans included in the trust as of the closing date, but
exceptions may expressly be stated in the prospectus supplement.
Use of a Pre-Funding Account with respect to any issuance of certificates
will be conditioned upon the following general conditions:
o the Pre-Funding Period will not exceed three months from the related
closing date,
o the additional assets to be acquired during the Pre-Funding Period will
satisfy 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,
o the Pre-Funded Amount will be not exceed 25% of the principal amount of
the certificates issued pursuant to a particular offering,
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o 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
o 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 prepayment of principal would
have an adverse effect on the yield to maturity of certificates purchased at a
premium, and would expose certificateholders to the risk that alternative
investments of equivalent value may not be available at a later time.
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
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 the series. 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 the 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 previously unpaid
servicing and administrative fees and distributions of principal and interest
on each class of the certificates of the series in the manner described in the
related prospectus supplement.
RESERVE FUNDS
If so stated in the prospectus supplement for a series, Oakwood Mortgage
will establish one or more reserve funds, 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. Oakwood Mortgage
may fund a reserve fund by depositing cash, certificates of deposit or letters
of credit on the closing date, or a reserve fund may be funded by the trustee's
deposit 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. Oakwood Mortgage may have rights on any distribution date to cause the
trustee to make withdrawals from the reserve fund for a series and to pay these
amounts in accordance with the instructions of Oakwood Mortgage to the extent
that funds are no longer required to be maintained for the certificateholders.
INSURANCE
The trust estate for any series may be supported by insurance policies or
alternate forms of credit enhancement.
HAZARD INSURANCE
The following descriptions are a summary of the material aspects of hazard
insurance. In general, coverage under standard hazard insurance policies and
special hazard insurance policies varies among insurers.
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STANDARD HAZARD INSURANCE POLICIES. The obligor of each asset is required
to maintain a hazard insurance policy with respect to the related manufactured
home or mortgaged property. The insurers under standard hazard insurance
policies are selected by the related obligors and are generally not required to
meet any credit rating criteria. With respect to contracts, each of these
policies 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 the 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. 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, the 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 policies typically will not cover any physical damage resulting
from war, revolution, governmental actions, floods and other water-related
causes, earth movement, earthquakes, landslides, mudflows, nuclear reaction,
wet or dry rot, vermin, rodents, insects or domestic animals, theft and, in
some cases, vandalism. The foregoing list is merely indicative of some
uninsured risks and is not intended to be all-inclusive. When a manufactured
home or mortgaged property is located 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 the manufactured home or mortgaged property, to the extent such
coverage is available.
To the extent permitted by applicable law and if so specified in the
related prospectus supplement, the servicer may require obligors on assets
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.
Each standard hazard insurance policy must provide coverage in an amount
at least equal to the lesser of the maximum insurable value of the manufactured
home or Mortgage Property or 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.
Each standard hazard insurance policy 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 may pay these premiums out of its own funds,
and may add these premium to the obligor's obligation as provided by the
contract or mortgage loan, but may not add these 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
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mortgage loans resulting from the absence or insufficiency of individual
standard hazard insurance policies. The servicer shall pay the premium for this
blanket policy and shall pay any deductible amount with respect to claims under
this blanket policy.
If the servicer repossesses a manufactured home or forecloses on a
mortgaged property on behalf of the trustee, the servicer shall either maintain
at its expense hazard insurance with respect to the manufactured home or
mortgaged property, or indemnify the trustee against any damage to the
manufactured home or mortgaged property prior to resale, foreclosure sale, or
other disposition.
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 the losses are not covered by the
special hazard insurance policy for a series, affect payments to holders of
certificates of the series.
SPECIAL HAZARD INSURANCE POLICY. To the extent provided in the related
prospectus supplement, a special hazard insurance policy will be obtained from
the insurer or insurers specified in the related prospectus supplement. A
special hazard insurance policy will insure against loss by reason of damage to
manufactured homes or mortgaged properties underlying defaulted assets caused
by 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 the contracts or mortgage
loans and loss from partial damage to the manufactured homes or mortgaged
properties securing these defaulted assets 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, extreme governmental actions, nuclear reaction
and 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.
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 asset and this 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 the cost of repair of the
property or upon transfer of the property to the special hazard insurer, the
unpaid principal amount of the asset at the time of the acquisition of the
property, plus accrued interest to the date of claim settlement, excluding late
charges and penalty interest, and other limited expenses incurred in respect of
the property. No claim may be validly presented under a special hazard
insurance policy unless the standard hazard insurance policy covering the
manufactured home or mortgaged property securing the asset has been kept in
force and other reimbursable protection, preservation and foreclosure expenses
have been paid and 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 an asset, plus some
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 the payment less any net proceeds from the sale of the
manufacturedhome or mortgaged property. Any amount paid as the cost of repair
of the manufactured home or mortgaged property will reduce coverage by the same
amount. The pooling and servicing agreement with respect to a series will, with
limited exception, require the servicer to maintain any special hazard
insurance policy for the series in full force and effect. 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 the
claims. SEE "SALE AND SERVICING OF THE MORTGAGE LOANS -- MAINTENANCE OF
INSURANCE POLICIES AND OTHER SERVICING PROCEDURES -- PRESENTATION OF CLAIMS" IN
THIS PROSPECTUS.
To the extent provided in the related prospectus supplement, in lieu of
maintaining a special hazard insurance policy with respect to a series, a
deposit of cash, a certificate of deposit, a letter of
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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 rating agency. This 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 may also be
allocated to the certificates of a series on the terms and in light of the
conditions and limitations set forth in the related prospectus supplement.
A special hazard insurance policy, if any, securing a series may insure
against losses on assets 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 Oakwood Mortgage 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 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
Contracts and mortgage loans underlying a series may, to the extent
described in the related prospectus supplement, be supported by primary
insurance, FHA insurance, VA guarantees or one or more pool insurance policies
or any combination, whereby the insurer would be obligated to pay all or a
portion of the principal balance of the asset if the obligor failed to do so.
Mortgage loans underlying a series of certificates may, to the extent
described in the related prospectus supplement, be covered by primary mortgage
insurance policies. 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
the mortgage loan is reduced to 80% of the 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 than two years if the mortgage loan-to-value ratio of the mortgage
loan has declined to 80% or less based upon the current fair market value of
the related mortgaged property.
Other mortgage loans may also be covered by primary mortgage insurance
policies. Primary mortgage insurance policies may, to the extent required by
the related prospectus supplement, provide full coverage against any loss
sustained by reason of nonpayments by the related mortgagor.
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
losses sustained in the event of a personal bankruptcy of the mortgagor under a
mortgage loan These losses may be covered to the extent provided by the obligor
bankruptcy insurance, if any, for the series. See "Legal Aspects of Contracts
and Mortgage Loans -- The Mortgage Loans -- Anti-Deficiency Legislation and
Other Limitations on Lenders" in this prospectus.
The credit insurance policies will not provide coverage against hazard
losses. Some 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" IN THIS PROSPECTUS.
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 these losses
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are not covered by the pool insurance policy for the related series of
certificates, if any, these losses would affect payments to holders of related
certificates.
A more complete description of any pool insurance policy or the primary
mortgage insurance for the assets of a particular series will be provided in
the prospectus supplement, where applicable.
FHA INSURANCE AND VA GUARANTEES ON CONTRACTS
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
o 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;
o 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;
o costs paid to a dealer or other third party to repossess or preserve the
related manufactured home;
o the amount of any sales commission paid to a dealer or other third party
for the resale of the property;
o with respect to any Land Secured Contract which is a contract secured at
origination by a parcel of real estate in addition to a manufactured home
property taxes, special assessments and other similar charges and hazard
insurance premiums, prorated to the date of disposition of the property;
o uncollected court costs;
o legal fees, not to exceed $1,000; and
o expenses for recording the assignment of the lien on the collateral to the
United States, in each case in light of 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 limited
by 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 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 Acceptance, 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
o the lesser of $20,000 and 40% of the principal amount of the contract and
o the maximum amount of guaranty entitlement available to the obligor
veteran, which may range from $20,000 to zero.
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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 these 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.
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, Oakwood Mortgage 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. Oakwood Mortgage may also assign or undertake to deliver other assets
to any trust by other means as may be specified in the related prospectus
supplement. These other assets may consist of additional contracts or mortgage
loans, letters of credit or other Eligible Investments.
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
Eligible Investments, which include
o obligations of the United States or any agency thereof provided these
obligations are backed by the full faith and credit of the United States;
o within 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;
o commercial paper which is then rated in the commercial paper rating
category required to support the then applicable ratings assigned to that
series;
o 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 a
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;
o 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
FDIC;
o 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;
o repurchase agreements relating to United States government securities; and
o money market mutual funds investing primarily in the obligations of the
United States; provided that these 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 the series. Any income, gain or loss from
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these investments for a series will be credited or charged to the appropriate
fund or account for the 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 pooling and servicing 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. Certificate Guarantee Insurance may
guarantee, with respect 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 SEC 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
distributions of principal of and interest on one or more classes of
certificates of a series may be guaranteed by Oakwood Homes or one of its
affiliates. The terms of and limitations on any 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 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 SEC as an exhibit to a Current Report on Form
8-K within 15 days of issuance of the certificates.
ALTERNATE CREDIT ENHANCEMENT
From time to time with respect to a series of certificates, Oakwood
Mortgage or the servicer may obtain or cause to be obtained further or other
liquidity enhancement, insurance policies, guarantees, letters of credit, or
surety bonds to provide for the enhancement of the credit rating of the
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 of these items or in addition to these items, a description will be
included in the prospectus supplement.
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UNDERWRITING POLICIES
OAKWOOD'S CONTRACT UNDERWRITING GUIDELINES
Contracts included in an asset pool will have been underwritten by Oakwood
Acceptance. These contracts may have been originated in the name of Oakwood
Mobile Homes, Inc., 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 Acceptance, or may have been originated directly in Oakwood
Acceptance's name. The following is a description of the underwriting practices
generally followed by Oakwood Acceptance in connection with the origination of
contracts funded by Oakwood Acceptance.
A customer desiring to obtain financing for the purchase of a manufactured
home through Oakwood Acceptance must complete a loan application form at a
participating sales center. Loan applications are forwarded electronically or
by facsimile by sales centers to Oakwood Acceptance's credit department for
consideration.
Upon receipt of a loan application, Oakwood Acceptance evaluates the
ability of the loan applicant to make the prospective required monthly payments
and to pay related charges. Oakwood Acceptance utilizes a credit scoring system
to evaluate credit applicants. Oakwood Acceptance's underwriting guidelines
require that each applicant's credit history, residence history, employment
history and debt-to-income ratios be examined. Oakwood Acceptance's credit
officers review the information relating to these factors provided by the
applicant on his loan application and obtain credit reports and contact
employers and other references to verify credit, residence and
employment-related information. Oakwood Acceptance'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 this applicant. An applicant's
overall credit score is the sum of his credit scores in various areas of the
credit review. Each credit officer is authorized to approve applicants within
his lending authority who are assigned overall credit scores and credit report
scores above a specified minimum score, who have acceptable debt-to-income
ratios and 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, his
total monthly fixed debt obligations, including the monthly payment on the
contract applied for, monthly payments to acquire the land on which the home is
located or rental fees and hazard insurance premiums relating to the home
(collectively, the "Home Payments"), should not exceed 50% of his gross monthly
income and the proposed Home Payments should not exceed 35% of his gross
monthly income, however, more stringent standards generally apply to
prospective borrowers with relatively lower monthly incomes or relatively
higher loan-to-value ratios. Oakwood Mortgage believes that these
debt-to-income ratios are generally consistent with those employed by other
lenders under manufactured housing 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 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 mortgage loans. 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 mortgage loans.
Loan applicants who do not meet the objective criteria may be approved, on
a case-by-case basis, by higher-level management in Oakwood Acceptance'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
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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
Acceptance requires a down payment in the form of cash, the trade-in equity in
a previously owned manufactured home, 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 Acceptance 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.
Notwithstanding the foregoing, Oakwood Acceptance may from time to time accept
a lower down payment than the down payments indicated, and in some
circumstances may require no down payment. In addition, if a borrower uses
equity in real property as all or part of his down payment, the total down
payment generally will 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 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 Acceptance are written on
forms provided by Oakwood Acceptance. 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.
GENERAL UNDERWRITING STANDARDS FOR MORTGAGE LOANS
Mortgage loans underwritten by Oakwood Acceptance will be underwritten
substantially according to the underwriting guidelines Oakwood Acceptance uses
to underwrite contracts. 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 Acceptance, Oakwood Mortgage expects that the originator will have
underwritten and originated the 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.
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
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licensed. 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.
SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS
ASSIGNMENT OF CONTRACTS AND MORTGAGE LOANS
Pursuant to the applicable pooling and servicing agreement, Oakwood
Mortgage will cause the assets comprising the trust estate to be sold, assigned
and transferred to the trustee, together with all principal and interest
payments due on the assets after the date specified in the related prospectus
supplement (the "Cut-off Date" and all prepayments of principal collected on or
after the Cut-off Date. In exchange for the assets assigned to the trustee, the
trustee will deliver certificates of the related series in authorized
denominations, registered in the names as Oakwood Mortgage may request,
representing the beneficial ownership interest in the related trust estate, to
Oakwood Mortgage or its designee. Each asset included in a trust estate will be
identified in an asset schedule appearing as an exhibit to the related pooling
and servicing agreement. The asset schedule will contain information as to the
principal balance of each asset as of the Cut-off Date and its asset rate,
original principal balance and other information concerning each asset.
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 Oakwood Acceptance's
interest in the related real property. Any contract discovered not to agree
with the 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 Oakwood Acceptance at the related Repurchase
Price or replaced with another contract if the discrepancy, incompleteness or
defect is not cured within 90 days after notice of the discrepancy,
incompleteness or defect is delivered to Oakwood Acceptance, 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, Oakwood Acceptance may
deposit cash in the certificate account in an amount sufficient to offset the
discrepancy. Contract documents has the meaning identified in the pooling and
servicing agreement.
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 "LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS -- THE CONTRACTS" IN THIS
PROSPECTUS.
CONVEYANCE OF MORTGAGE LOANS. On or prior to the date of conveyance of the
mortgage loans to the trustee, Oakwood Mortgage 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 endorsed in blank or
to the order of the trustee, an original or a certified copy of the related
mortgage, evidence of title insurance, and evidence of primary mortgage
insurance, if any. Following the
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closing date Oakwood Mortgage will, as to each mortgage loan, deliver to the
trustee or a Custodian acting on its behalf an assignment of the 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 from the original mortgagee
thereunder to the trustee. Within one year after the closing date for a series,
Oakwood Mortgage 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,
Oakwood Mortgage may deliver or cause to be delivered to the trustee an opinion
of local counsel to the effect that recording is not necessary to protect the
right, title and interest of the trustee in the related mortgage loans. In
addition, Oakwood Acceptance is required to submit to the trustee with each
trustee mortgage loan file a title opinion, 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, Oakwood
Acceptance 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 the
files are released to the servicer or a subservicer for servicing purposes in
accordance with the terms of the related pooling and servicing agreement.
The trustee or the Custodian will review the trustee mortgage loan files
relating to a series. If any document required to be included in a trustee
mortgage loan file is missing or is found to be defective in any material
respect, and Oakwood Acceptance does not cure the defect within 90 days after
its receipt of notice of the missing document or document defect, Oakwood
Acceptance will be required to repurchase the mortgage loan at the related
Repurchase Price or replace the mortgage loan with a substitute mortgage loan
as described under "The Trusts -- Substitution of Contracts or Mortgage Loans"
IN THIS PROSPECTUS. 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
Oakwood Mortgage will make representations and warranties with respect to
the assets for each series as described in the related prospectus supplement.
In addition, Oakwood Acceptance and each other 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 Oakwood Mortgage, including representations and warranties as to the
accuracy in all material respects of information furnished to Oakwood Mortgage
and the trustee in respect of each contract and mortgage loan.
In addition, Oakwood Acceptance and each other seller will have
represented, among other things, that
o immediately prior to the transfer and assignment of the contracts and
mortgage loans to Oakwood Mortgage, 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;
o as of the date of transfer, the contracts and mortgage loans contain no
offsets, defenses or counterclaims;
o 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;
o as of the date of transfer, each contract creates a valid first lien on
the related manufactured home and the manufactured home is free of
material damage and is in good repair;
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o as of the date of 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;
o 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 pooling and servicing
agreement and that all premiums now due on the insurance have been paid in
full;
o either a title opinion or a lender's policy of title insurance was issued
on the date of the origination of each mortgage loan and each policy is
valid and remains in full force and effect;
o as of the date of transfer, each mortgage evidences a valid first lien on
the related mortgaged property, subject only to
o the lien of current real property taxes and assessments,
o covenants, conditions and restrictions, rights of way, easements and
other matters of public record as of the date of the recording of the
mortgage, 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
o 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 the property is free of material
damage and is in good repair;
o if the manufactured home or mortgaged property is located in an area
identified by the Federal Emergency Management Agency as having special
flood hazards and subject to the availability of flood insurance under the
National Flood Insurance Act of 1968, as amended, the manufactured home or
mortgaged property is covered by flood insurance, if applicable
regulations at the time the contract or mortgage loan was originated
required that flood insurance coverage be obtained;
o for any trust for which a REMIC election is to be made, each related asset
is a Qualified Mortgage; and
o 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 asset is in full force
and effect.
Oakwood Acceptance and each other asset seller will make representations
and warranties concerning the assets in order to ensure the accuracy in all
material respects of information furnished to the trustee in respect of each
asset. Upon a breach of any representation that materially and adversely
affects the interests of the certificateholders in an asset, each asset seller
will be obligated to cure the breach in all material respects within 90 days
after such asset seller's discovery of or receipt of written notice of the
breach or, in the alternative, either to repurchase the asset from the trust,
or to substitute another asset. In addition, each asset seller will be required
to indemnify Oakwood Mortgage and its assignees, including the trust, against
losses and damages they incur as a result of breaches of such asset seller's
representations and warranties. Each asset seller's obligations to repurchase
or substitute for an asset affected by a breach of a representation or warranty
and Oakwood Acceptance's obligation to indemnify Oakwood Mortgage and its
assignees for losses and damages caused by the breach constitute the sole
remedies available to the certificateholders or the trustee for a breach of
representation by such asset seller. "The Trusts -- Substitution of Contracts
or Mortgage Loans."
Neither Oakwood Mortgage nor the servicer will be obligated to repurchase
or substitute for a contract or mortgage loan if an asset seller defaults on
its obligation to repurchase or substitute for the asset, and no assurance can
be given that any asset seller will carry out its repurchase or substitution
obligations with respect to contracts and mortgage loans.
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SERVICING
GENERAL. The servicer will service and administer each asset pool assigned
to the trustee either exclusively or through other servicing institutions.
The servicer will be required to perform diligently all services and
duties specified in the related pooling and servicing 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 pooling and servicing
agreement. The servicer may delegate some or all of its duties to a
subservicer, and in this event the subservicer will service the assets and the
servicer will monitor the subservicer's performance and will have the right to
remove a subservicer at any time if it considers removal to be in the best
interest of the related certificateholders. The duties to be performed by the
servicer, directly or through a subservicer, with respect to a series will
include
o collection and remittance of principal and interest payments on the
assets;
o administration of any mortgage escrow accounts;
o collection of insurance claims;
o if necessary, repossession of manufactured homes or foreclosure on
mortgaged properties; and
o if necessary, the obligation to advance funds to the extent 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 asset.
The servicer shall also provide information on a periodic basis to Oakwood
Mortgage and the trustee concerning the contracts and mortgage loans, and shall
file required reports with the SEC concerning the trusts as required by the
pooling and servicing agreements.
The servicer shall keep in force throughout the term of each pooling and
servicing agreement a policy or policies of insurance covering errors and
omissions with respect to its duties under each pooling and servicing
agreement, and a fidelity bond. This policy or policies and fidelity bond shall
be in a 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.
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 delinquent tax or charge to the extent it determines that it will
be able to recover the advance from the related obligor or from liquidation
proceeds of the related contract or mortgage loan.
COLLECTION PROCEDURES. The servicer, directly or through subservicers,
will make reasonable efforts to collect all payments called for under the
contracts or mortgage loans and, consistently with the pooling and servicing
agreement and any insurance policy or will follow the collection procedures as
it follows with respect to assets serviced by it that are comparable to the
contracts or mortgage loans.
The servicer will repossess, foreclose upon or otherwise convert the
ownership of properties that secure a defaulted asset if no satisfactory
arrangements can be made for collection of delinquent payments. In connection
with repossession, foreclosure or other conversion, the servicer will follow
the 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
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it determines that restoration or repossession will increase the proceeds of
liquidation of the related contract or mortgage loan to the certificateholders
after reimbursement to itself for these expenses and that these expenses will
be recoverable to it either through liquidation proceeds or through insurance.
To the extent permitted by law, the servicer 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 this account when a deficiency exists, so
long as it determines that this 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,
which will be maintained 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 FDIC, whose commercial paper or long-term
unsecured debt has a rating, as specified in the related pooling and servicing
agreement, sufficient to support the ratings requested on the certificates of
the related series, and which institution is examined by federal or state
authorities; in the corporate trust department of the trustee; or at an
institution otherwise acceptable to each applicable Rating Agency (an "Eligible
Account"). Funds in the certificate account will be invested in Eligible
Investments that will mature or be redeemed not later than two business days
preceding the monthly distribution date. Earnings on amounts deposited into a
certificate account shall be credited to the account of the servicer as
servicing compensation in addition to the monthly fee paid to the servicer, as
specified in the prospectus supplement, which typically will be a fixed
percentage of the pool scheduled principal balance (the "Servicing Fee").
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. These payments shall include the following:
o all obligor payments in respect of principal, including principal
prepayments, on the contracts and mortgage loans;
o 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;
o all net liquidation proceeds received with respect to any liquidated loan,
net of the amount of any liquidation expenses incurred with respect to the
liquidated loan and not previously reimbursed to the servicer at the time
of liquidation;
o 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 proceeds that are to be applied to the
restoration or repair of the related manufactured home or mortgaged
property or released to the obligor;
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o any condemnation awards or settlements which are not released to obligors
in accordance with normal servicing procedures;
o all amounts received from credit enhancement provided with respect to a
series of certificates;
o all proceeds of any contract or mortgage loan, or property acquired in
respect of any asset, that is repurchased by the related seller or by a
terminating party; and
o all amounts, if any, required to be transferred to the certificate account
from a reserve fund pursuant to the pooling and servicing agreement.
In those cases where a subservicer is servicing assets, the subservicer
will establish and maintain an Eligible Account that will comply with the
standards for the certificate account and which is otherwise acceptable to the
servicer. The subservicer will be 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 subservicer, less
its servicing compensation. On the date specified in the related prospectus
supplement, the subservicer shall remit to the servicer all funds held in the
sub-servicing account with respect to each related contract or mortgage loan.
The subservicer, 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 and GPM Loan, the servicer will deposit
into a custodial Eligible Account, which may be interest-bearing, complying
with the requirements for the certificate account an amount which, together
with investment earnings thereon, will provide funds sufficient to support the
payments on the Buy-Down Loan or GPM 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 or GPM Loans in which event distributions to the
certificateholders may be affected.
DISTRIBUTIONS ON CERTIFICATES. On the business day preceding a
distribution date, the servicer will withdraw from the applicable Certificate
Account and remit to the trustee for deposit into the Distribution Account all
scheduled payments of principal and interest due on the assets during the
Collection Period and collected by the servicer and all unscheduled collections
in respect of principal and interest on the assets received during the
Prepayment Period, in each case to the extent these collections comprise part
of the Available Distribution Amount for the upcoming distribution date. In
addition, on the business day preceding each distribution 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.
ADVANCES
The servicer will be required to advance funds to cover delinquent
payments of principal and interest on related contracts and mortgage loans
("P&I Advances") and 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 the 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 (a "Non-Recoverable Advance") The servicer may offset
the otherwise applicable P&I Advance for any business day preceding a
distribution date by the amount of Early Payments made with respect to the
related Due Date. A Due Date is the date on which a monthly payment is due on
an asset from the obligor thereunder, without regard to any grace period. Early
Payment means, for any asset and any Due Date on which the principal and
interest payments made, not including any late
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fees, exceed the sum of the scheduled monthly payment plus any unpaid monthly
payments for previous Due Dates, if the obligor has not sent written notice to
the servicer with this payment asking that the amount by which this 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 the
excess payment, Early Payment is the amount by which these payments of
principal and interest exceed the scheduled monthly payment for the asset plus
any unpaid monthly payments for previous Due Dates, but only to the extent that
the amount of the excess is an integral multiple of the amount of the scheduled
monthly payment due. To the extent that the amount of this excess exceeds an
integral multiple of the scheduled monthly payment, the excess will be a
principal prepayment.
The failure of the servicer to make any required Advances under a pooling
and servicing agreement constitutes a default under the pooling and servicing
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 pooling and servicing agreement, be required to make Advances, provided
that, in its reasonable discretion, it deems the Advances not to be
Non-Recoverable Advances. Oakwood Mortgage 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 an endorsement to the extent the obligor fails to make the
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 an
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 the 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 the
contract or mortgage loan. If an Advance made by the servicer or a trustee or a
pool insurer later proves to be unrecoverable from these sources, 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 the 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.
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 this event, if provided in the prospectus
supplement, for so long as Oakwood Acceptance 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 this
amount does not exceed the servicer's servicing compensation for the related
month ("Compensating Interest").
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MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
PRESENTATION OF CLAIMS
The servicer, on behalf of itself, the trustee and the certificateholders,
will present claims to the issuer of each insurance policy, including the FHA
and the VA, and will take reasonable steps as are necessary to permit recovery
under the insurance policies respecting defaulted contracts or mortgage loans
that are the subject of bankruptcy proceedings. All collections by the servicer
under any insurance policy are to be deposited into the certificate account for
the related series and may be withdrawn. With respect to a mortgage loan or
contract that is serviced by a subservicer, the subservicer, 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 that the
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 that these 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 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 this difference plus the aggregate of expenses incurred
by the servicer in connection with the proceedings.
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 expenses incurred in
connection with the servicing of the contracts and mortgage loans included in a
trust estate. It also is obligated to pay the fees and expenses of the trustee
and any expenses incurred in enforcing the obligations of any subservicers.
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 a portion of its
expenses incurred in connection with the liquidation of defaulted contracts or
mortgage loans. The related trust will suffer no loss by reason of these
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
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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, this right of reimbursement
being prior to the rights of the related certificateholders to receive any
related pool insurance proceeds or liquidation proceeds.
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 a review of the
activities of the servicer and any subservicers during the preceding calendar
year and of the servicer's performance under the related pooling and servicing
agreement has been made, and to the best of this officer's knowledge, the
servicer has fulfilled all its obligations under the pooling and servicing
agreement throughout such year, and, to the best of this officer's knowledge,
based on this review, each subservicer has fulfilled its obligations throughout
the related year, or, if there has been a default in the fulfillment of any
obligation, specifying each default known to the officer and the nature and
status thereof. This officer's certificate shall be accompanied by a statement
by a firm of independent public accountants to the effect that the firm has
audited the financial statements of the servicer for the servicer's most
recently ended fiscal year and issued its report thereon; 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 any 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 this firm, which shall be attached to the
statement of the 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 the
second clause 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 or, in the sole
discretion of this firm, manufactured housing installment sale contracts and
mortgage loans serviced under pooling and servicing agreements, trust
agreements or indentures substantially similar to the pooling and servicing
agreement. For purposes of this statement, the firm may assume conclusively
that all pooling and servicing 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 pooling and servicing agreement which by its
terms specifically states otherwise.
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THE POOLING AND SERVICING AGREEMENTS
The following discussion describes the material provisions of each pooling
and servicing agreement, including the standard terms to pooling and servicing
agreement that is incorporated by reference into each pooling and servicing
agreement. When particular provisions or terms used in a pooling and servicing
agreement are referred to, the actual provisions, including definitions of
terms, are incorporated by reference in this discussion.
THE SERVICER
The servicer shall not resign from the obligations and duties imposed on
it under a pooling and servicing agreement, except 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 upon determination by the servicer's
Board of Directors that the performance of its duties under the pooling and
servicing agreement are no longer permissible under applicable law. No
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 pooling and servicing 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 of these 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 person shall be protected from
liability for actions or omissions resulting from willful misfeasance, bad
faith or gross negligence in the performance of his duties or by reason of
reckless disregard of his obligations and duties under the pooling and
servicing agreement or for breaches of representations or warranties made by
him in the pooling and servicing 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 a pooling and
servicing agreement. The servicer shall be under no obligation to appear in,
prosecute or defend any legal action unless the action is related to its duties
under a pooling and servicing agreement and the action in its opinion does not
involve it in any expense or liability, except as otherwise explicitly provided
in the pooling and servicing agreement; PROVIDED, HOWEVER, that the servicer
may in its discretion undertake any action that it deems necessary or desirable
with respect to a pooling and servicing agreement if the certificateholders
offer to the servicer reasonable security or indemnity against the costs,
expenses and liabilities.
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 Oakwood Mortgage will be obligated to attempt to appoint a
successor trustee. Oakwood Mortgage may remove a trustee if the trustee ceases
to be eligible to continue as trustee under the applicable pooling and
servicing agreement or upon the occurrence of bankruptcy or insolvency related
events with respect to the trustee. The trustee for a series will also may be
removed at any time by the holders of certificates of the series evidencing at
least 51% of the voting rights of the series, as specified in the related
pooling and servicing 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 pooling and
servicing agreement or the trustee's failure to perform its duties, then the
certificateholders so removing the trustee shall bear any and all costs and
expenses arising from removal and substitution. Any resignation or removal of
the trustee and appointment of a successor trustee will not become effective
until acceptance by Oakwood Mortgage of the appointment of the successor
trustee.
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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 also must have combined capital and surplus of at least $50,000,000,
or be a Qualified Bank, and be regulated and examined by state or federal
regulatory authorities. A Qualified Bank is any domestic bank not affiliated
with Oakwood Acceptance or Oakwood Mortgage 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 the
bank's long-term unsecured debt obligations are rated by an 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, 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 the bank's commercial paper or short-term
unsecured debt obligations are rated by an additional rating agency, or that is
otherwise acceptable to each rating agency. Although a trustee may not be an
affiliate of Oakwood Mortgage or the servicer, either Oakwood Mortgage 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 the series and the assets of the related trust. Any
financial information contained in these reports will not have been examined or
reported upon by an independent public accountant. Copies of monthly statements
and any annual reports prepared by the servicer evidencing the status of its
compliance with the provisions of a pooling and servicing agreement will be
furnished to related certificateholders upon request addressed to the trustee.
The contents of the Remittance Report for any series will be described in the
prospectus supplement for that series.
EVENTS OF DEFAULT
Events of Default by the servicer under any pooling and servicing
agreement will include
o any failure by the servicer to remit funds to the Distribution Account as
required by the applicable pooling and servicing agreement, which failure
continues unremedied for five days, or another period specified in the
related pooling and servicing agreement, after the date upon which the
remittance was due,
o 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 he interests of certificateholders, which, in either
case, continues unremedied for 60 days after the giving of written notice
of the 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
o 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 the series, shall,
terminate all of the rights and obligations of the servicer under the related
pooling and servicing agreement and in and to the related contracts and
mortgage loans and the proceeds thereof, whereupon, the related trustee or a
successor servicer will succeed to all the responsibilities, duties and
liabilities of the terminated servicer under the pooling and servicing
agreement and the successor servicer will be entitled to similar compensation
arrangements to those provided for the
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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 pooling and servicing
agreement. Pending this appointment, the trustee is obligated to act as
successor servicer unless prohibited by law from doing so. The trustee and the
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 pooling and servicing agreement. Event of Default means the
occurrence of a default noted in the pooling and servicing agreement, along
with the passage of a period of any cure period without the default having been
cured.
CERTIFICATEHOLDER RIGHTS
No certificateholder will have any right under the related pooling and
servicing agreement to institute any proceeding with respect to any pooling and
servicing agreement unless the holder previously has provided the trustee with
written notice of a default and unless the holders of certificates evidencing
at least 25% of the voting rights for the applicable series requested the
trustee in writing to institute the proceeding in its own name as trustee and
have offered to the trustee reasonable indemnity, and the trustee for 15 days
has neglected or refused to institute any proceeding. The trustee will be under
no obligation to take any action or to institute, conduct or defend any
litigation under the related pooling and servicing agreement at the request,
order or direction of any of the holders of certificates, unless the
certificateholders have offered to the trustee reasonable security or indemnity
against the costs, expenses and liabilities which the trustee may incur.
AMENDMENT
A pooling and servicing agreement may be amended by Oakwood Mortgage, the
Servicer, and the related trustee without the consent of the related
certificateholders,
o to cure any ambiguity;
o to correct or supplement any provision that may be inconsistent with any
other provision;
o to maintain the REMIC status of the trust and to avoid the imposition of
taxes on any related REMIC, if applicable; or
o to make any other provisions with respect to matters or questions arising
under the pooling and servicing agreement that are not covered by the
pooling and servicing agreement, provided that the action will not
adversely affect in any material respect the interests any holder of
certificates of the related series, as evidenced by an opinion of counsel
independent of Oakwood Mortgage, the servicer and the trustee or a letter
from each rating agency from whom Oakwood Mortgage requested a rating of
any of the certificates of the series stating that the proposed amendment
will not result in a downgrading of the rating of any of the certificates
of the series rated by any rating agency.
A pooling and servicing agreement may also be amended by Oakwood Mortgage,
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, the pooling and servicing agreement, or for the
purpose of modifying in any manner the rights of the certificateholders;
PROVIDED, HOWEVER, that no amendment that
o 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
o otherwise materially adversely affects the rights of any
certificateholder; or
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o reduces the percentage of certificateholders required to consent to any
amendment of the related pooling and servicing agreement
may be effective without the consent of the holder of each related certificate.
TERMINATION
The obligations created by each pooling and servicing agreement will
terminate upon the date calculated as specified in the pooling and servicing
agreement, generally upon 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 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 pooling and servicing agreement. In
addition, a trust may be terminated early at the option of Oakwood Mortgage,
the servicer or the holders of a majority in interest of any related Residual
Certificates and if so specified in the related prospectus supplement, the
certificates of a series shall be redeemed by Oakwood Mortgage, the servicer or
any other party specified in the related prospectus supplement. SEE
"DESCRIPTION OF THE CERTIFICATES -- OPTIONAL REDEMPTION OR TERMINATION."
LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS
The following discussion contains the material legal aspects of
manufactured housing installment sales contracts and mortgage loans. Because
legal aspects are governed by state law, which laws may differ substantially
from state to state, this discussion does not purport 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 located.
Contracts differ from mortgage loans in 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. 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. 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 under " -- THE CONTRACTS," whereas realization on
defaulted mortgage loans is generally accomplished through foreclosure on the
underlying mortgaged properties or similar proceedings, as described under
" -- THE MORTGAGE LOANS." Realization on defaulted Land Secured Contracts may
involve a combination of repossession and foreclosure-related procedures.
Certificates evidencing interests in contracts may also face other risks that
are not present in the case of certificates evidencing interests in mortgage
loans.
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
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both the obligation of the obligor to repay the loan evidenced thereby, and the
grant of a security interest in the related manufactured home to secure
repayment of the loan.
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 pooling and servicing 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 Nevada as
necessary to perfect the trustee's ownership interest in the contracts. If,
through negligence, fraud or otherwise, a subsequent purchaser from Oakwood
Mortgage 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 the 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 Oakwood Mortgage 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, Puerto
Rico 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 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. Oakwood Mortgage 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 Acceptance
nor any other seller is expected to amend any certificate of title to change
the lienholder from Oakwood Acceptance or such other 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 Acceptance, such other seller
nor Oakwood Mortgage 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 the 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 Oakwood Acceptance's or such other seller's rights as the
secured party as to the 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 this event,
the assignment of the security interest created by a contract in the related
manufactured home may not be effective against creditors of Oakwood Mortgage,
Oakwood Acceptance or any other seller or a trustee in bankruptcy of Oakwood
Mortgage, Oakwood Acceptance or such other 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
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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. These filings must be made in the real
estate records office of the jurisdiction in which the home is located. Neither
Oakwood Acceptance nor any other seller will be required to make fixture
filings or to file mortgages with respect to any of the manufactured homes,
except in the case of Land Secured Contracts. 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 may be
subordinated to the interests of others that may claim an interest in the
manufactured home 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 in the home, in
either case without notice to the trustee's adverse interest in the 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 Acceptance on the
related certificate of title or delivery of the required documents and fees
necessary to register the home in the name of Oakwood Acceptance or the public
filing of appropriate transfer instruments reflecting the lien of Oakwood
Acceptance, 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, because they will be on notice of the existing
interest in the home.
Some of the contracts ("Land Secured Contracts") will be secured by real
estate as well as a manufactured home. Oakwood Acceptance 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 the contract, together with originals or certified copies of a
chain of recorded assignments of the mortgage sufficient to reflect Oakwood
Acceptance as the record holder of the mortgage and the lien it evidences on
the related real estate. Assignments in recordable form for the mortgages
naming the trustee as assignee will not be prepared by the servicer or any
seller. However, Oakwood Acceptance will deliver to the trustee a power of
attorney entitling the trustee to prepare, execute and record the 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 the home would continue automatically for four
months after relocation, during which time the security interest must be
re-perfected in the new state in order to remain perfected after this
four-month period. Generally, a security interest in a manufactured home may be
re-perfected after the expiration of this 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 the state within the
four-month period after the move in order for Oakwood Acceptance'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 the 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
the home in a new state -- which it should receive
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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 the 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 the 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, Oakwood Acceptance
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 the manufactured home in the name of
the owner thereof or the owner's transferee without noting Oakwood Acceptance's
lien on the related certificate of title, whether because the 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 the home was moved or failed
to notify Oakwood Acceptance of re-registration and failed to note Oakwood
Acceptance's lien on the new certificate of title issued upon re-registration
or the manufactured home was moved from a state that is not a Title State,
re-registration could defeat the perfection of Oakwood Acceptance's lien in the
manufactured home. In addition, re-registration of a manufactured home, whether
due to a transfer or relocation, 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 Oakwood Acceptance's lien.
If Oakwood Acceptance and the servicer are not the same entity, Oakwood
Acceptance will be required to report to the servicer any notice it receives of
any re-registration of a manufactured home. The servicer will take all
necessary steps, at its own expense, to maintain perfection of the trustee's
security interests in each manufactured homes if it receives notice of
relocation, sale or re-registration of the manufactured home. As long as
Oakwood Acceptance 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 Acceptance as the lienholder or
legal titleholder. However, the Servicer has no independent obligation to
monitor the status of Oakwood Acceptance'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. These 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 this lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES. The servicer, on
behalf of the trustee, to the extent required by the related pooling and
servicing 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 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 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, prior to commencement of any
repossession action. The UCC and consumer protection laws in most states place
restrictions on repossession sales; among other things, laws require prior
notice to the debtor and commercial reasonableness in effecting 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 resale. In the event of repossession and resale of a manufactured home,
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the trustee would be entitled to receive the net proceeds of resale up to the
amount of the unpaid principal balance of the related contract plus all accrued
and unpaid interest thereon at the related asset 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 the debtor's loan. However, obtaining
and collecting deficiency judgments is seldom economically feasible and, for
that reason, Oakwood Acceptance generally has not attempted to obtain
deficiency judgments. In addition, some states impose prohibitions or
limitations on deficiency judgments, and other statutory provisions, including
federal and state bankruptcy and insolvency laws and general equitable
principles, the Soldiers' and Sailors' Civil 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 proceedings under the United States Bankruptcy Code,
as amended, as set forth in Title 11 of the United States Code (the "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 the contract, change
the rate of interest and alter the repayment schedule. Court decisions have
applied 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 these amounts, and any loss of this nature may reduce amounts available
for distribution on the related certificates.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act, an
obligor who enters military service after the origination of the 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 the obligor's active duty status, unless a court
orders otherwise upon application of the lender. It is possible that this
action could have an effect, for an indeterminate period of time, on the
ability of the servicer to collect full amounts of interest on the contracts.
Any shortfall in interest collections resulting from the application of the
Soldiers' and Sailors' Civil 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 Soldiers' and Sailors' Civil 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 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 the REMIC provisions of the Code, 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
three 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 it acquires the
manufactured home, or a longer period as permitted by the pooling and servicing
agreement, the servicer will auction the home to the highest bidder, which 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 Acceptance's experience that,
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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. 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 foreclosure, are identical to the
requirements and restrictions that would apply to foreclosure of any mortgage
loan. 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 Oakwood Acceptance
has not perfected its security interest in a manufactured home under applicable
real estate laws, Oakwood Acceptance's security interest in the 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 related lenders and assignees from transferring
the contract free of claims by the debtor thereunder against Oakwood
Acceptance. 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 Oakwood Acceptance under the contract. Assignee liability under this
rule 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 a contract as a defense against a claim brought by the assignee of the
contract against the 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 Real Estate
Settlement Procedures Act, the Equal Credit Opportunity Act, the Fair Credit
Billing Act, the Fair Credit Reporting 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 the contract. However,
each asset seller will be required to represent and warrant that each contract
it sells to Oakwood Mortgage complied, at the time of its origination, with all
requirements of law and will be required to make 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
representation or warranty that materially and adversely affects a Trust's
interest in any contract would create an obligation on the part of such asset
seller to use its best efforts to cure the breach to the satisfaction of the
trustee or to repurchase the 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 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
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 this
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. A delinquent borrower
may transfer his manufactured home in order to avoid a repossession proceeding
with respect to the manufactured home.
APPLICABILITY OF USURY LAWS. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"),
generally provides 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 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 this type of 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 are distinct from Land Secured Contracts, which
are discussed under " -- THE CONTRACTS -- FORECLOSURE UNDER REAL PROPERTY LAWS"
in this prospectus. 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, 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
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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.
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. 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 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" IN THIS PROSPECTUS.
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 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" IN THIS PROSPECTUS.
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
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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 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 the foreclosed junior lienors are given a
statutory period in which to redeem the related property from the foreclosure
sale. In 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. Some states
have imposed statutory restrictions that limit the remedies of a beneficiary
under a deed of trust or a mortgagee under a mortgage. In some states, statutes
limit the right of the beneficiary or mortgagee to obtain a deficiency judgment
against a borrower following foreclosure on the related 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 other states, the lender has the option of bringing a personal
action against the obligor on the debt without first exhausting the security;
however, in some of these states, the lender, following judgment on a personal
action, may be deemed to have elected a remedy and may be precluded from
exercising other remedies. 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 the 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
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
Soldiers' and Sailors' Civil 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 some proceedings under the
federal
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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
the mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Court decisions have applied this 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 these amounts, and
any loss in respect thereof may reduce amounts available for distribution on
the related certificates.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act, an
obligor who enters military service after the origination of the 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 his active duty status, unless a court
orders otherwise. It is possible that this action could have an effect, for an
indeterminate period of time, on the ability of the servicer to collect full
amounts of interest on the mortgage loans. Any shortfall in interest
collections resulting from the application of the Soldiers' and Sailors' Civil
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 Soldiers' and Sailors' Civil 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
this type of 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 Estate Settlement Procedures
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 underlying property. In recent years, court decisions and
legislative actions placed substantial restrictions on the right of lenders to
enforce these clauses in many states. However, effective October 15, 1982,
Congress enacted the Garn-St Germain Act, which purports to preempt state laws
that prohibit the enforcement of due-on-sale clauses and provides, among other
things, that due-on-sale clauses in loans, which loans include the conventional
mortgage loans, made after the effective date of the Garn-St Germain Act are
enforceable, within 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 some transfers, including
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o the granting of a leasehold interest which has a term of three years or
less and which does not contain an option to purchase;
o 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;
o 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;
o 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 the lien or encumbrance is not
created pursuant to a contract for deed;
o a transfer by devise, descent or operation of law on the death of a joint
tenant or tenant by the entirety; and
o 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" IN THIS PROSPECTUS.
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 this 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 this type of mortgage note, but there will be restrictions on its
ability to foreclose on the related mortgaged property and contractual defenses
available to the related obligor.
ENVIRONMENTAL CONSIDERATIONS
Real property pledged as security to a lender may face 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, this lien has priority over the lien of an existing mortgage
against the 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 the 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 the lender's
obligor or by a prior owner. A lender also risks liability arising out of
foreclosure of a mortgaged property securing a mortgage loan owned by the
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.
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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 possible that these 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.
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 any
asset 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 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 the 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 the 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 MATERIAL PROVISIONS OF THE OBLIGORS' AGREEMENTS
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. States also limit the amounts that a lender
may collect from a borrower as an additional charge if the loan is prepaid.
Under each pooling and servicing 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.
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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 that series or to reimburse the amounts previously used to
effect the 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.
THE COMPANY
Oakwood Mortgage Investors, Inc. was incorporated in the State of Nevada
on June 11, 1998 as a wholly-owned, limited purpose finance subsidiary of
Oakwood Acceptance Corporation. Oakwood Mortgage Investors, Inc., a North
Carolina corporation, was merged with and into Oakwood Mortgage on May 28,
1999. Oakwood Acceptance is a wholly-owned subsidiary of Oakwood Homes
Corporation. Oakwood Mortgage maintains its principal office at 101 Convention
Center Drive, Suite 850, Las Vegas, Nevada 89109. Its telephone number is (702)
949-0056.
The only obligations, if any, of Oakwood Mortgage with respect to a series
of certificates may be pursuant to limited representations and warranties and
limited undertakings to repurchase or substitute contracts or mortgage loans
under certain circumstances. Oakwood Mortgage will have no ongoing servicing
obligations or responsibilities with respect to any asset pool. Oakwood
Mortgage does not have, nor is it expected in the future to have, any
significant assets.
Neither Oakwood Mortgage nor any underwriter nor any of their affiliates
will insure or guarantee the certificates of any series.
THE SERVICER
Oakwood Acceptance Corporation was incorporated in 1984 in the State of
North Carolina as a wholly-owned subsidiary of Oakwood Homes. Oakwood
Acceptance is primarily engaged in the business of underwriting, originating,
pooling, selling and servicing installment sales contracts for the sale of
manufactured housing. Oakwood Acceptance's principal offices are located at
7800 McCloud Road, Greensboro, North Carolina 27409-9634 (telephone
336/664-2500).
Oakwood Acceptance 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 Acceptance are typically originated
in the name of Oakwood Mobile, a wholly-owned retailing subsidiary of Oakwood
Homes, or by a third party manufactured housing dealer, and are assigned to
Oakwood Acceptance following origination, although some contracts are
originated directly in Oakwood Acceptance's name. Oakwood Acceptance
underwrites all of these contracts. From time to time, Oakwood Acceptance
purchases seasoned portfolios of manufactured housing contracts from third
parties.
FEDERAL INCOME TAX CONSEQUENCES
The following is the opinion of Hunton & Williams regarding the material
federal income tax consequences of the purchase, ownership and disposition of
the offered certificates. This opinion is based upon laws, regulations,
rulings, and decisions now in effect, all of which may change. Because REMIC
status may be elected with respect to any series of certificates, this opinion
includes a summary of the federal income tax consequences to holders of REMIC
certificates.
This opinion does not purport to deal with the federal income tax
consequences that may affect particular investors in light of their individual
circumstances, nor with certain categories of investors that are given special
treatment under the federal income tax laws, such as banks, insurance
companies, thrift institutions, tax-exempt organizations, foreign investors,
certain regulated entities, real
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estate investment trusts, investment companies and certain other organizations
that face special rules. This opinion 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 of the Code 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, which are certificates evidencing regular interests in a REMIC,
and certain other types of certificates. Furthermore, the REMIC provisions of
the Code 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 opinion 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, this opinion does not purport to address the anticipated
state income tax consequences to investors of owning and disposing of the
certificates. Consequently, we suggest that investors 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
Oakwood Mortgage, 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 in
the trust, 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
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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. 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. A RIC is a regulated investment company as defined in the Code.
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 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. The Tax
Administrator is the party responsible for computing the amount of original
issue discount to be reported to the holders of Regular Certificates each
taxable year, which will be Oakwood Acceptance or an Affiliate.
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
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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 ($126,600,
or $63,300 in the case of a separate return by a married individual within the
meaning of Code section 7703 for taxable year 1999 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. The Pricing Prepayment Assumptions are the assumptions concerning
the rate and timing of principal prepayments on the assets and concerning the
reinvestment rate on amounts held pending distribution that were assumed in
pricing. 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, base its computations on Code
section 1272(a)(6), the OID Regulations, and certain other guidance, all as
described below. OID Regulations are the final regulations governing original
issue discount that were issued by the Treasury. 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
Oakwood Mortgage, 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 Interest
(I.E., the sum of its
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Deemed Principal Payments). Qualified Stated Interest means stated interest
that is unconditionally payable in cash or property, other than debt
instruments of the issuer, at least annually at a single fixed rate or a
variable rate that meets certain requirements set out in the OID Regulations.
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. Deemed Principal Payments means all payments of principal and interest
provided for on a debt instrument other than Qualified Stated Interest.
Although the OID Regulations contain an aggregation rule (the "Aggregation
Rule" 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. WAM means the sum of the amounts
obtained by multiplying the amount of each Deemed Principal Payment on a
Regular Certificate by a fraction, the numerator of which is the number of
complete years 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. Although no Treasury regulations have been issued under the relevant
provisions of the Tax Reform Act of 1986 (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. An All OID Election means, with respect to a Regular Certificate, an
election to include in gross income all stated interest, acquisition discount,
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 accruing on such certificate, under
the constant yield method used to account for original issue discount.
Regular Certificates of certain series may bear interest under terms that
provide for a teaser rate period, interest holiday, or other period during
which the rate of interest payable on the certificate is lower than the rate
payable during the remainder of its life ("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
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certificate that is measured against the DE MINIMIS amount of original issue
discount allowable on the certificate is the greater of the excess of the
stated principal amount of the certificate over its issue price and 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 the
Pricing Prepayment Assumptions and 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 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
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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,
acquisition discount, 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 accruing
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" IN THIS PROSPECTUS.
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. Interest Weighted Certificates 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. Non-VDRI Certificates 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 VRDI certificate. NOWA
Certificate means a Weighted Average Certificate relating to a trust, or a
designated asset pool, whose assets do not bear interest at qualified floating
rates. Variable Rate Certificate means a Regular Certificate that bears
interest at a variable rate. 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 REMIC. SEE "FEDERAL
INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAX TREATMENT OF REGULAR
CERTIFICATES -- INTEREST WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES" IN
THIS PROSPECTUS.
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" IN THIS PROSPECTUS. 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
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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.
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. A Distribution Period is the interval between one distribution date and
the next distribution date. The First Distribution Period is the interval
between the closing date and its first distribution date.
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. 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 the certificate would be treated as
a return of Pre-Issuance Accrued Interest rather than as a payment on the
certificate, provided that a portion of the initial purchase price of the
certificate is allocable to Pre-Issuance Accrued Interest and 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. Pre-Issuance Accrued Interest means interest that has accrued
under the terms of a certificate prior to its issue date. 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 intends to 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
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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. A Rate
Bubble Certificate is a Regular Certificate with an effective interest rate
higher during the certificate's First Distribution Period than during the
remainder of its term. 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" IN THIS PROSPECTUS. Some Interest Weighted Certificates
may be certificates that provide 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 principal ("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.
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 variable rate debt
instruments as defined in section 1.1275-5 of the OID Regulations ("VRDIs").
VRDIs in the OID Regulations that are described below. Excess Premium means,
with respect to a Regular Certificate, a premium over the
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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.
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.
A Cap is a restriction or restrictions on the maximum stated interest rate
on a certificate. A Floor is a restriction or restrictions on the minimum
stated interest rate on a certificate. A Governor is a restriction or
restrictions on the amount of increase or decrease in the stated interest rate
on a certificate on any interest adjustment date.
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. 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. 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
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applying the rules applicable to fixed rate certificates described under
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- ORIGINAL ISSUE
DISCOUNT" in this prospectus 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.
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 is a VRDI certificate that does not qualify as a Single 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 in the trust,
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" IN THIS PROSPECTUS.
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,
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although not qualified floating rates themselves, are based on one or more
qualified floating rates. An Inverse Floater Certificate is 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.
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 in the trust, 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" IN THIS PROSPECTUS.
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 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 own tax advisor to determine the
appropriate amount and method of income inclusion on such certificates for
federal income tax purposes.
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ANTI-ABUSE RULE
Because of concerns 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 OID
Regulations contain an anti-abuse rule. The anti-abuse rule provides 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" IN THIS
PROSPECTUS. 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, 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. A Current Recognition Election is the election under section 1278(b) of
the Code to recognize market discount on a debt instrument 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" IN THIS PROSPECTUS.
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 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.
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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" IN THIS PROSPECTUS. 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 Oakwood Mortgage 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
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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" IN
THIS PROSPECTUS. The holder of such a certificate would be required, however,
to allocate the difference between its basis 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
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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 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%. 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 in the
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trust, 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" IN THIS PROSPECTUS. 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" IN THIS PROSPECTUS, 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 unrelated business
taxable income as defined in the Code ("UBTI"). 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 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
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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" IN THIS
PROSPECTUS. 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" IN THIS PROSPECTUS.
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" IN THIS PROSPECTUS, 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
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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.
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 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" IN THIS
PROSPECTUS.
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" IN THIS PROSPECTUS.
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NON-RECOGNITION OF CERTAIN TRANSFERS FOR FEDERAL INCOME TAX PURPOSES
In addition to the limitations specified above, the REMIC provisions of
the Code 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 of the Code, 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 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" IN THIS PROSPECTUS.
OWNERSHIP OF RESIDUAL CERTIFICATES 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 Freddie Mac, 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) 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.
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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 of the Code, 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
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.
For taxable years beginning on or after January 1, 1998, if an "electing
large partnership" holds a Residual Certificate, all interests in the electing
large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by section 860E(c) of
the Code. The exception to this tax, otherwise available to a pass-through
entity that is furnished certain affidavits as described above, is not
available to an electing large partnership. The pooling and servicing agreement
will provide that no record or beneficial ownership interest in a Residual
Certificate
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may be purchased, transferred or sold, directly or indirectly, without the
express written consent of the servicer. The servicer will grant such consent
to a proposed transfer only if it receives the following: (i) an affidavit from
the proposed transferee to the effect that it is not a disqualified
organization and is not acquiring the Residual Certificate as a nominee or
agent for a disqualified organization and (ii) a covenant by the proposed
transferee to the effect that the proposed transferee agrees to be bound by and
to abide by the transfer restrictions applicable to the Residual Certificate.
The REMIC provisions of the Code 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. 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. 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" IN THIS PROSPECTUS.
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
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amount ($126,600, or $63,300 in the case of a separate return by a married
individual within the meaning of Code section 7703 for taxable year 1999 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" AND "ERISA CONSIDERATIONS" IN THIS PROSPECTUS.
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" IN THIS PROSPECTUS. Moreover, because Residual
Certificateholders may recognize phantom income (SEE "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF RESIDUAL CERTIFICATEHOLDERS"
IN THIS PROSPECTUS), 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. Qualifying REIT Interest means interest
that is treated as interest on obligations secured by mortgages on real
property for REIT qualification purposes. The REMIC provisions of the Code
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
will not be considered a government security for purposes of section
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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.
PARTNERSHIPS. Partners in a partnership (other than an "electing large
partnership") must take into account their allocable share of any income,
including excess inclusion income, that is produced by the Residual
Certificate. The partnership itself is not subject to tax on income from the
Residual Certificate other than excess inclusion income that is allocable to
partnership interests owned by Disqualified Organizations. For the treatment of
"electing large partnerships," SEE "FEDERAL INCOME TAX CONSEQUENCES -- TAX
TREATMENT OF RESIDUAL CERTIFICATES -- OWNERSHIP OF RESIDUAL CERTIFICATES BY
DISQUALIFIED ORGANIZATIONS" IN THIS PROSPECTUS.
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" IN THIS
PROSPECTUS.
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 of the
Code 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" IN THIS PROSPECTUS.
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" IN THIS PROSPECTUS.
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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 a certificate 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 of the Code, 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" IN THIS PROSPECTUS, 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
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assets are expected to be individuals, section 171 of the Code will not be
available for the 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 such 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 of the Code
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
of the Code 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" IN
THIS PROSPECTUS); (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.
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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 in
the trust, 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 in the trust,
to be eligible for REMIC status, substantially all of its assets must consist
of qualified mortgages and permitted investments 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 of the Code, 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, Oakwood Acceptance will represent and warrant 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
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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 beyond the end of the third taxable year
beginning after foreclosure occurs 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 end of the sixth taxable year beginning
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 of the Code, is payable at a
variable rate with respect to such principal amount. Pursuant to the REMIC
provisions of the Code, the following rates are permissible variable rates for
REMIC regular interests: (i) a qualified floating rate set at a current value
as described in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- VARIABLE RATE CERTIFICATES" IN THIS PROSPECTUS, 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 of the Code, 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 of the Code 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.
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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 of the
Code, 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 of the Code, 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" IN THIS PROSPECTUS. 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" IN THIS
PROSPECTUS. 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, a REIT or a financial asset
securitization investment trust (a "FASIT") 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
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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 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. Oakwood Mortgage 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, (ii) the Foreign Person is not a
10% shareholder within the meaning of Section 871(h)(3)(B) of the Code or a
controlled foreign corporation as described in Section 881(c)(3)(C) of the
Code, (iii) the Foreign Person is not a bank receiving interest on a loan made
in the ordinary course of business, and (iv) the trustee, or other person who
would otherwise be required to withhold tax, is provided with a Foreign Person
Certification. 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 the person is, inter alia, a Foreign Person. 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" IN THIS
PROSPECTUS.
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 and (iii) the
certificateholder meets the requirements listed under "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF CERTAIN FOREIGN HOLDERS OF
REMIC CERTIFICATES -- REMIC REGULAR CERTIFICATES" IN THIS PROSPECTUS. 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 of the Code, 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
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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" IN THIS PROSPECTUS. 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 for payments made after December 31, 2000, any foreign investor that
invokes the protection of an income tax treaty with respect to 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.
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" IN THIS PROSPECTUS. 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.
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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
pooling and servicing agreement. The REMIC provisions of the Code 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 (the
"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 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.
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NEW WITHHOLDING REGULATIONS
The Treasury Department has issued new regulations which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The new withholding regulations attempt to unify
certification requirements and modify reliance standards. The new withholding
regulations generally will be effective for payments made after December 31,
2000, subject to certain transition rules. Prospective investors are urged to
consult their tax advisors regarding the new withholding regulations.
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. Participation Certificates
means a non-REMIC certificate evidencing ownership of equal percentages of the
principal and interest payments on the assets assigned to the trust. PO
Certificates means a non-REMIC certificate evidencing ownership of a percentage
of the principal payments on some or all of the assets assigned to the trust.
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" in this prospectus 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
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Realized Losses. Employee benefit plans subject to ERISA should consult their
own tax advisors before purchasing any subordinated certificates. SEE "ERISA
CONSIDERATIONS" IN THIS PROSPECTUS 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 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
($126,600, or $63,300 in the case of a separate return by a married individual
within the meaning of Code section 7703 for taxable year 1999, 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" IN THIS PROSPECTUS.
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. As in the case
of Regular Certificates, Code section 1272(a)(6) applies to non-REMIC
certificates, but no regulations have been issued describing the application of
that Section to such securities. 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
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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 their adjusted issue prices. 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" IN THIS PROSPECTUS.
TREATMENT OF STRIP CERTIFICATES
Many aspects of the federal income tax treatment of Strip Certificates are
uncertain. The discussion describes the treatment that Oakwood Mortgage
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 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
regulations issued by the Treasury under section 1286 of the Code (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" IN THIS PROSPECTUS) 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" IN
THIS PROSPECTUS.
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
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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" in this prospectus. 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 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
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include market discount in income in the manner described in "FEDERAL INCOME
TAX CONSEQUENCES -- REMIC CERTIFICATES -- MARKET DISCOUNT" in this prospectus.
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" in this prospectus, 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" in this prospectus.
IO Certificates means a non-REMIC certificate evidencing ownership of a
percentage of the interest payments, net of certain fees, on the assets
assigned to a related trust. 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" IN THIS PROSPECTUS.
PURCHASES 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.
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. 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.
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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" IN THIS PROSPECTUS.
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" IN THIS PROSPECTUS. 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 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" IN THIS PROSPECTUS.
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, (ii) the Foreign Person is not a 10%
shareholder within the meaning of Code Section 871(h)(3)(B) or a controlled
foreign corporation as described under Code Section 881(c)(3)(C), (iii) the
Foreign Person is not a bank receiving interest on a loan made during the
ordinary course of business, and (iv) 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 meet the
foregoing conditions, 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. 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. SEE "FEDERAL INCOME TAX CONSEQUENCES -- NON-REMIC CERTIFICATES --
TREATMENT OF STRIP CERTIFICATES -- POSSIBLE ALTERNATIVE CHARACTERIZATIONS" IN
THIS PROSPECTUS. Although Code Sections 871(h)(4) and 881(c)(4) deny portfolio
interest treatment to certain types of contingent interest, those provisions
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generally apply only to interest based on the income, profits, or property
values of the debtor. Accordingly, it is not anticipated that those provisions
will apply to deny portfolio interest treatment to certificateholders who are
Foreign Persons. However, because the scope of those provisions is not entirely
clear, investors who are Foreign Persons should consult their tax advisors
regarding the potential application of those provisions 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" IN THIS PROSPECTUS.
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" IN THIS PROSPECTUS.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO YOU
AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO MANY ASPECTS OF
THOSE RULES, WE SUGGEST THAT YOU CONSULT YOUR OWN TAX ADVISOR 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 under
"FEDERAL INCOME TAX CONSEQUENCES", 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 these plans, accounts, annuities or arrangements are invested, that
are described in or must follow the requirements of the DOL regulations set
forth in 29 C.F.R. 2510.3-101, as amended from time to time (the "Plan Asset
Regulations"), ERISA, or corresponding provisions of the Code (a "Plan"), a
fiduciary should consider, among other things,
o the purposes, requirements, and liquidity needs of the Plan;
o the impact of the plan asset provisions of ERISA and DOL regulations
concerning the definition of plan assets;
o whether the investment satisfies the diversification requirements of
section 404(a)(1)(C) of ERISA; and
o whether the investment is prudent, considering the nature of an investment
in a certificate and the fact that no market in which the 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.
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Sections 406 and 407 of ERISA and section 4975 of the Code prohibit
certain transactions that involve:
o a Plan and any party in interest or disqualified person with respect to the
Plan, and
o plan assets.
The Plan Asset Regulations issued by the DOL define plan assets to include
not only securities, like 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 the 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:
o Prohibited Transaction Class Exemption 96-23 ("PTCE 96-23"), regarding
investment decisions by in-house asset managers;
o Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60"), regarding
investments by insurance company general accounts;
o Prohibited Transaction Class Exemption 91-38 ("PTCE 91-38"), regarding
investments by bank collective investment funds;
o Prohibited Transaction Class Exemption 90-1 ("PTCE 90-1"), regarding
investments by insurance company pooled separate accounts;
o Prohibited Transaction Class Exemption 84-14 ("PTCE 84-14"), regarding
investment decisions made by a qualified plan asset manager;
o Prohibited Transaction Class Exemption 83-1 ("PTCE 83-1"), regarding
acquisitions by Plans of interests in mortgage pools; and
o various individual underwriter exemptions.
Before purchasing any certificates, a Plan that must follow 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
o 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
o 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").
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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, like the certificates, are deemed
to be plan assets of a Plan investing in the securities, the holding in trust
requirement of section 403 of ERISA will be satisfied if the 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,
o certain classes of certificates will not be offered for sale to, and are
not transferable to, any Plan Investor and
o certain classes of certificates will not be offered for sale to, and are
not transferable to, any Plan Investor unless the Plan Investor provides
Oakwood Mortgage with a Benefit Plan Opinion.
A Plan Investor is any Plan, any person acting on behalf of a Plan, or any
person using the assets of a Plan. A Benefit Plan Opinion is an opinion of
counsel satisfactory to Oakwood Mortgage and the servicer, and upon which
Oakwood Mortgage, 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 cause any of the assets in the related trust
to be regarded as plan assets for purposes of the Plan Asset Regulations; give
rise to any fiduciary duty under ERISA on the part of Oakwood Mortgage, the
trustee, the servicer, or the TMP; or be treated as, or result in, a prohibited
transaction under section 406 or section 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.
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 the series, at its option. In these cases, the servicer's
purpose for the retention of this redemption right is to enable the servicer to
terminate its administration obligations with respect to the certificates in
the event these 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," 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
Oakwood Mortgage, Oakwood Acceptance, 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
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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.
AVAILABLE INFORMATION
Oakwood Mortgage observes the informational requirements of the Exchange
Act, and files reports and other information with the SEC. Reports and other
information filed by Oakwood Mortgage with the SEC can be inspected and copied
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Regional Offices of the SEC 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 this
material can be obtained from the Public Reference Section of the SEC at its
principal office in Washington, D.C., at prescribed rates. The SEC maintains a
web site that contains reports, proxy and information statements and other
information regarding registrants, including Oakwood Mortgage, that file
electronically with the SEC at http://www.sec.gov.
This prospectus does not contain all the information set forth in the
Registration Statement and exhibits relating thereto which Oakwood Mortgage has
filed with the SEC in Washington, D.C. Copies of the information and the
exhibits are on file at the offices of the SEC and may be obtained, upon
payment of the fee prescribed by the SEC, or may be examined without charge at
the offices of the SEC. Copies of the pooling and servicing agreement for a
series will be filed by Oakwood Mortgage with the SEC, without exhibits, on a
Current Report on Form 8-K within 15 days after the applicable closing date.
Each trust will fill periodic reports with the SEC in compliance with the
requirements of the Exchange Act.
Oakwood Mortgage and the servicer are not obligated with respect to the
certificates. Accordingly, Oakwood Mortgage has determined that financial
statements of Oakwood Mortgage and the Servicer are not material to the
offering made hereby.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Oakwood Homes has filed the following documents with the SEC for each
class of certificates that is supported by a guarantee of Oakwood Homes
pursuant to the Exchange Act. These documents are incorporated in this
prospectus by reference and are made a part of this prospectus and any
prospectus supplement:
o the Oakwood Homes Quarterly Reports on Form 10-Q for the quarters ended
December 31, 1998, March 31, 1999 and June 30, 1999, and
o the Oakwood Homes Annual Report on Form 10-K for the fiscal year ended
September 30, 1998.
All documents filed by Oakwood Mortgage or Oakwood Homes pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and prior to the termination of the offering of the certificates
shall be deemed, in the case of Oakwood Mortgage, to be incorporated by
reference into this prospectus and, in the case of Oakwood Homes, to be
incorporated by reference into this prospectus and the prospectus supplement
relating to a class of certificates that is
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supported by a guarantee of Oakwood Homes, from the dates of filing of these
documents. Any statement contained in this prospectus or in a document all or
any portion of which is incorporated or deemed to be incorporated by reference
in this prospectus 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 in this prospectus or in the prospectus supplement or in
any other subsequently filed document which also is or deemed to be
incorporated by reference in this prospectus or in the prospectus supplement
modifies or supersedes that statement. Any modified or superseded statement
shall not be deemed, except as modified or superseded, to constitute a part of
this prospectus and the related prospectus supplement.
We will provide you without charge, on your request, a copy of any of the
documents incorporated in this prospectus by reference, other than the exhibits
to those documents, unless the exhibits are specifically incorporated by
reference. Requests should be directed to Oakwood Mortgage Investors, Inc., in
writing at 101 Convention Center Drive, Suite 850, Las Vegas, Nevada 89109
(Telephone (702) 949-0056), Attn: Secretary.
PLAN OF DISTRIBUTION
Oakwood Mortgage 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 the series of certificates and each class within the series,
including the name or names of the underwriter(s), the proceeds to and their
intended use by Oakwood Mortgage, 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. If certificates of a series are
offered otherwise than through underwriters, the related prospectus supplement
will contain information regarding the nature of the offering and any
agreements to be entered into between Oakwood Mortgage and purchasers of
certificates of the series.
The place and time of delivery for the certificates of a series in respect
of which this prospectus is delivered will be described in the prospectus
supplement.
LEGAL INVESTMENT CONSIDERATIONS
The prospectus supplement for each series of certificates will specify
which, if any, of the classes of certificates of the 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 for as 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 must observe 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 of its
agencies or instrumentalities constitute legal investments for these entities.
Some states have enacted legislation specifically limiting, to varying degrees,
the legal investment authority of these 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
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which this legislation is applicable, the certificates will constitute legal
investments only to the extent provided in the 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, state regulators have taken positions
that may prohibit regulated institutions from holding securities representing
residual interests, including securities previously purchased. There may be
other restrictions on the ability of some investors, including depository
institutions, either to purchase certificates or to purchase certificates
representing more than a specified percentage of the investor's assets. We
suggest that investors consult their own legal advisors in determining whether
and to what extent any particular certificates constitute legal investments for
them.
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, these
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
regulated investors to purchase these classes of certificates, contains
significant interpretive uncertainties. All investors whose investment
authority has 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,
1998 and 1997 and for each of the three years in the period ended September 30,
1998, incorporated in this prospectus by reference to Oakwood Homes
Corporation's Annual Report on Form 10-K for the year ended September 30, 1998,
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
LEGAL MATTERS
Legal matters relating to the certificates and material federal income tax
consequences concerning the certificates will be passed upon for Oakwood
Mortgage by Hunton & Williams, Richmond, Virginia.
96
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
1986 Act ....................................... 57
Accretion Class ................................ 6
Advance ........................................ 12
Affiliate ...................................... 55
Aggregation Rule ............................... 57
All OID Election ............................... 59
Balloon Payment Loan ........................... 15
Bankruptcy Code ................................ 45
Beneficial Owner ............................... 7
Benefit Plan Opinion ........................... 93
Bi-Weekly Loan ................................. 15
Buy-Down Loan .................................. 15
Cap ............................................ 62
Capital Appreciation Class ..................... 6
CERCLA ......................................... 51
Code ........................................... 45
Collection Period .............................. 10
Companion Class ................................ 6
Compensating Interest .......................... 35
Complementary Strip Certificates ............... 89
Compound Interest Class ........................ 6
Contingent Payment Obligation .................. 64
Contingent Payment Regulations ................. 64
Convertible Loan ............................... 15
Current Recognition Election ................... 65
Custodian ...................................... 29
Cut-off Date ................................... 5
Deemed Principal Payments ...................... 57
Depository Participants ........................ 7
Disqualified Organization ...................... 72
Distribution Period ............................ 60
Early Payment .................................. 35
Eligible Account ............................... 33
Escrow Account ................................. 33
Event of Default ............................... 40
Excess Premium ................................. 59
Final Scheduled Distribution Date .............. 10
Financial Intermediary ......................... 7
First Distribution Period ...................... 60
Floor .......................................... 62
Foreign Person ................................. 82
Foreign Person Certification ................... 82
Governor ....................................... 62
Gross Margin ................................... 19
Increasing Payment Loan ........................ 15
Interest Reduction Loan ........................ 15
Interest Weighted Certificate .................. 59
Inverse Floater Certificate .................... 64
IO Certificate ................................. 88
Land Secured Contract .......................... 24
Level Payment Loan ............................. 15
Multiple Rate VRDI Certificate ................. 63
Non-Recoverable Advance ........................ 35
Non-VRDI certificate ........................... 59
NOWA Certificate ............................... 59
</TABLE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
OID Regulations ................................ 56
Ordinary Ratio Certificate ..................... 88
PAC Class ...................................... 6
Parity Price ................................... 13
Participants ................................... 7
Participation Certificate ...................... 85
Periodic Rate Cap .............................. 19
Plan ........................................... 91
Plan Asset Regulations ......................... 91
Plan Investor .................................. 93
PO Certificate ................................. 85
Pre-Funded Amount .............................. 19
Pre-Issuance Accrued Interest .................. 60
Pre-Issuance Accrued Interest Rule ............. 60
Prepayment Period .............................. 10
Pricing Prepayment Assumptions ................. 56
Principal-Only Class ........................... 6
Qualified Bank ................................. 39
Qualified Mortgage ............................. 77
Qualified Stated Interest ...................... 57
Qualifying REIT Interest ....................... 75
Rate Bubble Certificate ........................ 61
Ratio Certificate .............................. 90
RCRA ........................................... 52
Realized Loss .................................. 10
REMIC .......................................... 6
Remittance Report .............................. 39
REO Property ................................... 12
Repo Property .................................. 12
Repurchase Price ............................... 18
Residual Certificate ........................... 6
RIC ............................................ 55
Scheduled Principal Balance .................... 11
Servicing Advance .............................. 34
Servicing Fee .................................. 33
Single Rate VRDI Certificate ................... 62
SMMEA .......................................... 95
Soldiers' and Sailors' Civil Relief Act ........ 10
Soldiers' and Sailors' Shortfall ............... 10
Strip Class .................................... 6
Stripping Regulations .......................... 87
Superpremium Certificate ....................... 61
Taxable Mortgage Pool .......................... 81
Tax Administrator .............................. 55
Teaser Certificate ............................. 57
Title State .................................... 42
Title V ........................................ 47
TMP ............................................ 84
UBTI ........................................... 69
UCC State ...................................... 42
Variable Rate Certificate ...................... 59
VRDI ........................................... 59
WAM ............................................ 57
Weighted Average Certificate ................... 59
</TABLE>
97
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(OAKWOOD LOGO APPEARS HERE)
