As filed with the Securities and Exchange Commission on February 19, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-3+
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
OAKWOOD MORTGAGE INVESTORS, INC.
(Registrant)
(Exact name of registrant as specified in its charter)
North Carolina 56-886793
(State of Incorporation) (I.R.S. Employee I.D. No.)
7800 McCloud Road
Greensboro, North Carolina 27409-9634
(336) 664-2400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------------
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Douglas R. Muir, Treasurer Copy to:
7800 McCloud Road Jack A. Molenkamp
Greensboro, North Carolina 27409 Hunton & Williams
(336) 664-2400 Riverfront Plaza, East Tower
(336) 664-3224 (telecopy) 951 East Byrd Street
(Name, address, including zip code and telephone Richmond, Virginia 23219-4074
number, including area code, of agent for service) (804) 788-8200
_______________________(804) 788-8218 (telecopy)
</TABLE>
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
------------------------
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CALCULATION OF REGISTRATION FEE
- ---------------------------------- --------------- ------------- --------------- --------------
Proposed Proposed
Maximum Maximum
Title of Securities Offering Aggregate Amount of
Being Registered Amount to be Price Offering Registration
Registered* Per Unit* Price* Fee
- ---------------------------------- --------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Pass-Through Certificates $1,000,000 100% $1,000,000 $278
================================== =============== ============= =============== ==============
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* Estimated solely for calculating the registration fee.
The within Prospectus and related Prospectus Supplements cover the
$1,000,000 in principal amount of Pass-Through Certificates being registered
hereunder, plus the $3,500,000,000 in principal amount of Pass-Through
Certificates registered by the Registrant under Registration Statements No.
333-58497 on Form S-3, $255,998,141 of which is being carried forward. The
registration fees in respect to the latter Pass-Through Certificates were paid
at the time of the original filing of Registration No. 333-58497 relating to
those Pass-Through Certificates in the aggregate of $970,444.10.
----------------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
+In addition, pursuant to Rule 429, this Registration Statement on Form S-3
constitutes Post-Effective Amendment No. 1 to Registration Statement 333-58497
on Form S-3 (filed by Registrant on July 2, 1998).
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<PAGE>
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED FEBRUARY ___, 1999
$------------
Oakwood Mortgage Investors, Inc.
Depositor
Senior/Subordinated Pass-Through Certificates
Series 1999-___
Oakwood Acceptance Corporation
Seller and Servicer
-------------------------
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The trust initially will consist of contracts and mortgage loans with an
aggregate principal balance of approximately $___________. An election will be
made to treat certain assets of the trust as REMICs under the Internal Revenue
Code. The class A-1, A-2, A-3, A-4, A-5, M-1, M-2, B-1, B-2 and X certificates
will be "regular interests" in one of the REMICs. The class R certificates will
represent beneficial ownership of the "residual interest" in each of the REMICs.
See "Federal Income Tax Consequences -- REMIC Certificates" in the prospectus.
The certificates will represent obligations of the trust only and will not
represent interests in or obligations of Oakwood Mortgage Investors, Inc. or any
of its affiliates. Except as noted in this document, the underlying accounts,
contracts, and mortgage loans are not insured or guaranteed by any governmental
agency.
INVESTING IN THE CERTIFICATES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON PAGE S-4
OF THIS PROSPECTUS SUPPLEMENT AND PAGE 1 OF THE PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION 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.
</TABLE>
<TABLE>
<CAPTION>
UNDERWRITING
PRINCIPAL CLASS MONTHLY PRICE TO DISCOUNTS AND PROCEEDS TO
AMOUNT INTEREST RATE (1) PUBLIC (7) COMMISSIONS ISSUER
- --------------------------------------------------------------------------------------------------
(8)
<S> <C> <C> <C> <C>
A-1 Certificates..... $__________ (2) __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
A-2 Certificates..... $__________ ______% __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
A-3 Certificates..... $__________ ______% __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
A-4 Certificates..... $__________ ______% __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
A-5 Certificates..... $__________ ______% __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
M-1 Certificates..... $__________ (3) __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
M-2 Certificates..... $__________ (4) __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
B-1 Certificates..... $__________ (5) __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
B-2 Certificates..... $__________ (6) __________% ______%
- --------------------------------------------------------------------------------------------
- ----------%
Total................ $__________ $___________ $_________
- ------------------------------------------------------------------------------------------
$------------
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(1) The first monthly distribution date will be __________ 15, 199__. The record
date for each distribution date will be the last business day of the month
preceding a distribution date.
(2) The lesser of one-month LIBOR plus ______% and the weighted average net
asset rate.
(3) The lesser of ______% per annum and the weighted average net asset rate.
(4) The lesser of ______% per annum and the weighted average net asset rate.
(5) The lesser of ______% per annum and the weighted average net asset rate.
(6) The lesser of ______% per annum and the weighted average net asset rate.
(7) Per certificate, plus accrued interest from _____ 1, 199___ in the case of
the class A-2, A-3, A-4, A-5, M-1, M-2, B-1 and B-2 certificates and from
the date the certificates are issued, in the case of the class A-1
certificates.
(8) Before deducting expenses payable by Oakwood Mortgage, estimated to be
$__________.
Delivery of the certificates will be made through The Depository Trust
Company on or about _________ 21, 199___, against payment in immediately
available funds.
[Underwriters]
Prospectus Supplement dated _______________.
<PAGE>
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.
If there is a conflict between this prospectus supplement and the
accompanying prospectus, you should rely on the information in this prospectus
supplement.
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.
[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 all dealers that effect transactions in 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.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
SUMMARY OF TERMS S-1
RISK FACTORS S-4
THE ASSET POOL S-5
General S-5
Fixed Rate Assets S-6
Adjustable Rate Assets S-7
Selected Data S-8
Underwriting Guidelines S-15
Conveyance of Assets S-15
[Conveyance of Subsequent Assets and Pre-Funding Account] S-17
MATURITY AND PREPAYMENT CONSIDERATIONS S-17
Weighted Average Lives of the Offered Certificates S-18
Modeling Assumptions and MHP Tables S-18
[Pre-Funding S-23
Factors Affecting Prepayments S-23
YIELD ON THE OFFERED CERTIFICATES S-24
DESCRIPTION OF THE OFFERED CERTIFICATES S-26
General S-26
[Book-Entry Certificates S-27
Collection of Payments on Assets S-27
Distributions S-28
Realized Losses on Liquidated Loans S-35
Allocation of Writedown Amounts S-35
Subordination of the Subordinated Certificates S-35
[The Limited Guarantee S-35
THE TRUST S-36
General S-36
The Trustee S-36
Optional Termination S-37
Auction Sale S-38
Termination of the Agreement S-38
Voting Rights S-38
Reports to Certificateholders S-38
SERVICING OF THE ASSETS S-39
The Servicer S-39
Servicing Portfolio S-40
Delinquency and Loan Loss/Repossession Experience S-40
Collection and Other Servicing Procedures S-42
Servicing Compensation and Payment of Expenses S-42
Advances S-43
Successors to Servicer, Delegation of Duties S-43
USE OF PROCEEDS S-44
UNDERWRITING S-44
LEGAL MATTERS S-45
ERISA CONSIDERATIONS S-45
RATINGS S-47
LEGAL INVESTMENT CONSIDERATIONS
PROSPECTUS
Page
----
RISK FACTORS 1
DESCRIPTION OF THE CERTIFICATES 5
General 5
Book-Entry Procedures 6
Allocation of Collections from the Assets 8
Optional Redemption or Termination 9
MATURITY AND PREPAYMENT CONSIDERATIONS 10
Maturity 10
Prepayment Considerations 10
YIELD CONSIDERATIONS 11
THE TRUSTS 12
General 12
The Assets 13
Substitution of Contracts or Mortgage Loans 18
Pre-Funding 19
Distribution Account 20
Reserve Funds or Liquidity Accounts 20
Insurance 20
Delivery of Additional Assets 29
Investment of Funds 29
Certificate Guarantee Insurance 30
Oakwood Homes Guarantee 30
Alternate Credit Enhancement 30
UNDERWRITING POLICIES 30
Oakwood's Contract Underwriting Guidelines 30
General Underwriting Standards for Mortgage Loans 32
SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS 32
Assignment of Contracts and Mortgage Loans 32
Representation and Warranties 34
Servicing 35
Compensating Interest 40
Maintenance of Insurance Policies and Other
Servicing Procedures 40
THE POOLING AND SERVICING AGREEMENTS 42
The Servicer 42
The Trustee 43
Reports to Certificateholders 43
Events of Default 44
Certificateholder Rights 45
Amendment 45
Termination 46
CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS 46
The Contracts 47
The Mortgage Loans 51
Environmental Considerations 55
Enforceability of Considerations 56
USE OF PROCEEDS 56
THE COMPANY 56
THE SERVICER 57
FEDERAL INCOME TAX CONSEQUENCES 57
General 58
REMIC Certificates 58
Tax Treatment of Residual Certificates 69
Taxation of Certain Foreign Holders of REMIC Certificates 80
Reporting and Tax Administration 82
Non-REMIC Certificates 83
STATE TAX CONSIDERATIONS 88
ERISA CONSIDERATIONS 88
AVAILABLE INFORMATION 90
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 90
PLAN OF DISTRIBUTION 91
LEGAL INVESTMENT CONSIDERATIONS 91
EXPERTS 92
LEGAL MATTERS 92
GLOSSARY 93
<PAGE>
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 all of the terms of an offering of the
certificates, read carefully this entire document and the accompanying
prospectus.
o This summary provides an overview of certain calculations, cash flows and
other information to aid your understanding and is qualified by the full
description of these calculations, cash flows and other information in this
prospectus supplement and the accompanying prospectus.
o You can find a definition of capitalized terms used in this summary and not
otherwise defined herein under the caption "Glossary of Principal
Definitions" beginning on page 78 of the accompanying prospectus.
THE TRUST
The certificates are being offered by OMI Trust 1999- , which will be
established by Oakwood Mortgage Investors, Inc. Oakwood Mortgage maintains its
principal office at 7800 McCloud Road, Greensboro, North Carolina 27409-9634.
Its telephone number is (336) 664-2400. The trust will acquire contracts and
mortgage loans from Oakwood Mortgage. The contracts and mortgage loans will
secure payment of the certificates.
Only the class A-1, class A-2, class A-3, class A-4, class A-5, class M-1, class
M-2, class B-1 and class B-2 certificates are being offered by this prospectus
supplement. The trust will also issue the class X and class R certificates,
which are not offered hereby.
Oakwood Acceptance Corporation will be responsible for servicing the contracts
and mortgage loans.
The trustee is .
The trustee's corporate trust office's address is .
Its telephone number is . See "The Trust-The Trustee" in
this prospectus supplement.
THE CERTIFICATES
The certificates will be issued pursuant to a pooling and servicing agreement
among Oakwood Mortgage, Oakwood Acceptance and the trustee. See "The Pooling and
Servicing Agreements" in the prospectus. The proceeds from the issuance of
certificates will be used to purchase the contracts and mortgage loans and to
pay the costs of issuing the certificates and pooling the contracts and mortgage
loans.
The certificates will not be listed on any exchange. Although the underwriter
intends to make a secondary market in the certificates, it is not required to do
so. A secondary market for the certificates may not develop. If one does
develop, it may not continue or provide sufficient liquidity.
The certificates will not be guaranteed or insured by any government agency.
Neither the contracts nor the mortgage loans comprising any related asset pool
will be guaranteed or insured by any government agency or any other insurer.
Issuance of the certificates is scheduled for .
CREDIT ENHANCEMENT
The subordination of the class M-1, M-2, B-1, B-2, X and R certificates provides
credit support for the class A-1, A-2, A-3, A-4 and A-5 certificates. The
subordination of the class M-2, B-1, B-2, X and R certificates provides credit
support for the class M-1 certificates. The subordination of the class B-1, B-2,
X and R certificates provides credit support for the class M-2 certificates. The
subordination of the class B-2, X and R certificates provides credit support for
the class B-1 certificates. The subordination of the class X and R certificates
and the limited guarantee of Oakwood Homes provide credit support for the class
B-2 certificates. See "Description of the Offered Certificates-The Limited
Guarantee" in this prospectus supplement and "The Trusts" in the prospectus.
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 (i.e., first A, then M-1, then M-2, then B-1 and
finally B-2), and thereafter to principal. Until the occurrence of certain
events, principal distributions will be applied first to the class A
certificates, and only thereafter to the other classes of certificates. If
certain performance criteria are met, a portion of principal may be distributed
to subordinated classes simultaneously with principal distributions on the class
A certificates. If monies collected
S-1
<PAGE>
in any month are insufficient to pay all amounts due on the class A certificates
then these shortfalls will have priority in subsequent months. See "Description
of the Offered Certificates-Distributions" in this prospectus supplement.
Distributions on the certificates within a particular class will be made in
relation to the proportion of the class represented by such certificates. See
"Description of the Offered Certificates-Distributions" in this prospectus
supplement.
SERVICING
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 and certain taxes and insurance premiums not paid by an obligor on a
timely basis, to the extent it considers such advances to be recoverable out of
liquidation proceeds. See "Servicing of the Assets."
Oakwood Acceptance will be entitled to a monthly fee with respect to the assets
equal to 1.00% per annum on the scheduled principal balance of the assets. See
"Servicing of the Assets-Servicing Compensation and Payment of Expenses" herein
and "Sale and Servicing of the Contracts and Mortgage Loans" in the prospectus.
TRUST ASSETS
The primary assets of the trust consist of (1) manufactured housing installment
sales contracts secured by security interests in the manufactured homes and, in
certain cases, by liens on the real estate on which the manufactured homes are
located, and (2) mortgage loans secured by first liens on the real estate on
which the manufactured homes are permanently affixed. The total number of assets
is . Their total principal balance is approximately $ .
Of the total number of assets, are fixed-rate assets and are
variable-rate assets. See "The Asset Pool" in this prospectus supplement.
In general, the contracts and mortgage loans may be prepaid at any time without
penalty. The yield on the certificates may not match your expectations if these
prepayments are faster or slower than expected. See "Description of the Offered
Certificates-Distributions-Priority of Distributions" in this prospectus
supplement.
[PRE-FUNDING ACCOUNT
A portion of the trust's initial assets will consist of cash in a pre-funding
account. The pre-funded amount initially will equal the difference between the
principal balance of the certificates and the principal balance of the initial
assets. Funds in the pre-funding account may be used to purchase additional
manufactured housing installment sales contracts and mortgage loans during the
[first 3 months] following the closing date. These additional assets will have
characteristics very similar to the existing assets. If all of the pre-funded
amount is not used to acquire pre-funded assets, then amounts left in the pre-
funding account after the [3 month] period will be distributed to you as a
principal prepayment. Interest income earned on the pre-funded amount during
the pre-funding period will not be allocated to you, but will belong to
Oakwood Mortgage. See "The Asset Pool-Conveyance of Assets" and " - Conveyance
of Subsequent Assets and Pre-Funding" in this prospectus supplement and "The
Trust-Pre-Funding" in the prospectus.]
FINAL SCHEDULED DISTRIBUTION DATE
The final scheduled distribution date for each class of offered certificates is
the distribution date occurring in . This 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 offered
certificates will depend upon the rate of principal payments, including
prepayments, on the assets, the actual final distribution on the classes of
offered certificates could occur significantly earlier than this date. We can
provide no assurance as to the actual payment experience of the assets.
[LIMITED GUARANTEE
[Oakwood Homes will provide a limited guarantee of collections on the contracts
and mortgage loans for the benefit of the class B-2 certificates. This limited
guarantee will not be available to support any other class of certificates.
See "Description of the Offered Certificates-The Limited Guarantee" in this
Prospectus Supplement.]
OPTIONAL TERMINATION
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
% of their original amount. 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 "Federal Income Tax
Consequences" in this summary and "The Trust-Optional Termination" in this
prospectus supplement.
AUCTION SALE
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 trustee will only accept a bid if it is at least as
great as the remaining principal balance on all certificates plus any unpaid
interest
S-2
<PAGE>
and expenses. See "The Trust--Auction Sale" in this prospectus supplement.
FEDERAL INCOME TAX CONSEQUENCES
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. Class A-1,
A-2, A-3, A-4, A-5, M-1, M-2, B-1, B-2 and X certificates will be "regular
interests" in the issuing REMIC. Therefore, the certificates will evidence debt
obligations under the Internal Revenue Code of 1986, as amended, and interest
paid or accrued thereon will be taxable to certificateholders. By acceptance of
this certificate, 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 in whole or in part by income. The class A-2, A-3,
A-4 and A-5 certificates earn interest at a fixed rate and will be issued with
original issue discount only if their stated principal amount exceeds their
issue prices. See "Federal Income Tax Consequences--REMIC Certificates--Original
Issue Discount" in the prospectus. The class A-1, M-1, M-2, B-1 and B-2
certificates are non-VRDI certificates and will be treated as issued with
original issue discount as described in "Federal Income Tax Consequences--REMIC
Certificates--Interest Weighted Certificates and Non-VRDI Certificates" in the
prospectus. We will use % MHP as the prepayment assumption to calculate
the accrual rate of original issue discount, if any. However, there is no
assurance as to what the rate of prepayment will be. See "Federal Income Tax
Consequences" in the prospectus for additional information concerning the
application of federal income tax laws with respect to the certificates and the
trust.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement plans that
are subject to ERISA or corresponding provisions of the Internal Revenue Code
who 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, A-2,
A-3, A-4 and A-5 certificates.
Because the Class M-1, M-2, B-1 and B-2 Certificates are subordinated to other
classes of 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, M-2, B-1 and B-2 certificates are not offered to or
transferable to plan investors unless the plan investor meets certain
requirements.
S-3
<PAGE>
See "ERISA" Considerations" in this prospectus supplement and in the
prospectus.--
LEGAL INVESTMENT
The class A-1, A-2, A-3, A-4, A-5 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.
[If pre-funding account is used, classes become "mortgage related securities"
for SMMEA after pre-funded amount is reduced to zero.]
The Class M-2, B-1 and B-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.
RATINGS
It is a condition to the issuance of the certificates that the classes of
certificates obtain the following ratings by and :
[Rating Agencies]
Class A-1
Class A-2
Class A-3
Class A-4
Class A-5
Class M-1
Class M-2
Class B-1
Class B-2
S-4
<PAGE>
RISK FACTORS
In addition to the risk factors in the prospectus, you should note the
following:
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You May Have Losses On Your Manufactured housing generally depreciates in value.
Certificates If the Losses And If it does, the market values of the manufactured
Delinquencies On Assets Exceed homes could be less than the assets that they secure.
Certain Levels This may cause more defaults and may increase the
amount of loss following default. In such event, the
trust may not be able to recover the full amount owed,
which may result in a loss on your certificates.
Certain statistical information related to the loss
experience of Oakwood Acceptance as servicer is
available under "Servicing of the Assets --
Delinquency and Loan Loss/repossession Experience" In
This Prospectus Supplement. There is 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. These conditions are often
volatile. Generally, the statistical information
provided reflects higher delinquencies and loan losses
since 1994.
You May Collect Payments Of You will be paid only from amounts collected by the
Principal and Interest Only trust with respect to the contracts and mortgage
From the Trust loans. The certificates are not insured or guaranteed
by any government agency or instrumentality, by any
underwriter, or by Oakwood Mortgage. The certificates
do not represent any interest in or obligation of
Oakwood Mortgage or the servicer.
[The limited guarantee is an unsecured
obligation of Oakwood Homes, and will not
be supported by any credit arrangement.
The limited guarantee will not benefit any
class other than the class B-2
certificates.]
There Will be a Limited Market The certificates will not be listed on any exchange.
For Your Certificates It is possible that no secondary market for the
certificates will develop or, if one does develop,
that it will continue to exist or provide you with
liquidity.
The Average Life of Your Prepayment of the contracts and mortgage loans will
Certificates is Uncertain affect the average life of your certificates. The
timing of prepayments is difficult to predict because
it is based on a variety of economic, geographic, and
other factors, including repossessions, interest
rates, changes in housing needs, job transfers and
unemployment. See "Maturity and Prepayment
Considerations" and "Yield on the Offered
Certificates" in this Prospectus Supplement and
"Maturity and Prepayment Considerations" in the
Prospectus.
Risk of Loss On the The class M-1, class M-2, class b-1 and class B-2
Certificates certificates are subordinated to the class A-1, A-2,
A-3, A-4 and A-5 certificates. Losses in excess of the
credit support provided by the class x and r
certificates will be experienced first by the class
B-2 certificates, next by the class B-1 certificates,
next by the class M-2 certificates, and next by the
class M-1 certificates. Thereafter, excessive losses
on the assets exceeding the amount of the subordinated
certificates could result in a loss being realized by
the class A-1, A-2, A-3, A-4 and A-5 certificates. See
"Description of the Offered Certificates --
Distributions" in this Prospectus Supplement.
S-5
<PAGE>
State Law May Limit the State law may limit the servicer's ability to
Ability of The Servicer To repossess, foreclose or liquidate the assets. State
Sell Off Assets law may also limit the amount the servicer may
collect in a liquidation to less than the amount due
on any particular asset. See "RISK FACTORS -- "State
Law May Cause Certificateholders to Have Losses" and
"Certain Legal Aspects of Contracts and Mortgage
Loans" in the Prospectus.
There Could be Delays Or The acquisition of the contracts and mortgage loans
Accelerations of Distributions by the trust from Oakwood Mortgage is intended to be
On Your Certificates If the a sale. However, in the event that Oakwood Mortgage
Transfer of Assets to the or one of its affiliates becomes insolvent, a court
Trust Is Not Considered a Sale may decide that this acquisition was a loan and not a
In The Event Of Bankruptcy sale. This could delay or reduce distributions to
you. Likewise, if an affiliate of Oakwood Mortgage
becomes insolvent, a court might decide to join the
assets and liabilities of Oakwood Mortgage and its
affiliates. This could also delay or reduce
distributions to you.
[Class A-1 Certificates Have Class A-1 Certificates have a yield based on
An Uncertain Yield one-month LIBOR, which is variable and which changes
differently than do other indices. In addition,
regardless of the level of one-month LIBOR, the
pass-through rate of the class A-1 certificates may
not exceed the weighted average net asset rate.]
[Year 2000 Information Systems The servicer has analyzed the potential effects of
Procedures 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
certain 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.]
</TABLE>
THE ASSET POOL
GENERAL
The Certificates will represent in the aggregate the entire beneficial
ownership interest in Omi Trust 1999-___ (the "Trust"). The Trust will be
established pursuant to a pooling and servicing agreement dated as of
__________ (together with the Standard Terms thereto (JULY 1998 Edition), the
"Agreement"), among the Oakwood Mortgage Investors, Inc. (the "Company"),
Oakwood Acceptance Corporation (the "Servicer" or "Oakwood") and
__________________________________, as trustee (the "Trustee"). The Company will
acquire the assets from Oakwood pursuant to the Sales Agreement on
_____________ (the "Closing Date"). Oakwood will have funded the origination of
each Asset, either in its own name or in the name of Oakwood Mobile Homes,
Inc. ("OMH") or another manufactured housing dealer. Each asset not originated
directly in Oakwood's name will have been assigned to Oakwood immediately after
its origination. Each asset will be either an installment sales contract
secured by a unit of manufactured housing (manufactured housing installment
sales contracts are referred to herein as "manufactured housing contracts" or
"contracts"), or a residential mortgage loan secured by a lien on the real
estate on which the
S-6
<PAGE>
related manufactured home is deemed permanently affixed (a "Mortgaged
Property"). A description of Oakwood's general practice with respect to the
origination or purchase of manufactured housing contracts and mortgage loans is
set forth in the Prospectus under "Underwriting Policies."
Under the Agreement, the manufactured homes securing the assets (the
"Manufactured Homes") are required to comply with the requirements of certain
federal statutes. These statutes generally require the Manufactured Homes to
have a minimum of 400 square feet of living space and a minimum width of 102
inches and to be of a kind customarily used at a fixed location. Such statutes
also require the Manufactured Homes to be transportable in one or more sections,
and to be built on a permanent chassis and designed to be used as dwellings,
with or without permanent foundations, when connected to the required utilities.
The Manufactured Homes include the plumbing, heating, air conditioning and
electrical systems contained therein. Oakwood's management estimates that in
excess of 90% of the Manufactured Homes are used as primary residences by the
related Obligors.
The Agreement requires the Servicer to maintain or cause to be maintained
Standard Hazard Insurance Policies with respect to each Manufactured Home and
Mortgaged Property in the amounts and manner set forth in the Prospectus under
"The Trusts -- Insurance -- Hazard Insurance -- Standard Hazard Insurance
Policies." Generally, no other insurance will be maintained with respect to the
Manufactured Homes, the Mortgaged Properties or the Assets.
The Company will convey to the Trustee the Assets and all rights to
receive payments due on the Assets after _________ 1, 19___ (the "Cut-off
Date"), including scheduled payments due after the Cut-off Date but received
prior to such date, and prepayments and other unscheduled collections in
respect of the Assets received on or after the Cut-off Date. The right to
payments that were due on or prior to the Cut-off Date but which are received
after such date will not be conveyed to the Company by Oakwood, and such
payments will be the property of Oakwood when collected. The Servicer will
retain physical possession of the Contract Documents. Except to the extent
required to service a Mortgage Loan, the Trustee will maintain physical
possession of the Mortgage Loan Documents. See " -- Conveyance of Assets" below.
Fixed Rate Assets
The Assets will consist of ________ Fixed Rate Assets having Scheduled
Principal Balance as of the cut-off date of approximately $______________. A
total of _______ Fixed Rate Assets, representing approximately ____% of the
Fixed Rate Assets, are Step-up Rate Loans. The remainder of the Fixed Rate
Assets are level payment loans. See "The Trust -- The Assets" in the Prospectus.
Step-up Rate Loans are Assets that provide for periodic increases of 0.50%,
0.75%, 1.00%, 1.25% Or 1.50% in the applicable Asset Rates at the end of
intervals of twelve months during the first five years following origination
(the applicable "Step-up Periods"), after which the Asset Rates are fixed. The
total amount and the principal portion of each Monthly Payment on any Step-up
Rate Loan during any period is determined on a basis that would cause the Asset
to be fully amortized over its term if the Asset were to bear interest during
its entire term at the Asset Rate applicable during such period and as if the
Asset were to provide for level payments over its entire term based on such
asset rate. The total amount and principal portion of each Monthly Payment that
is due on a Step-up Rate Loan at the time of each adjustment of its Asset Rate
will be determined on a basis that would cause the Asset (which would be bearing
interest at an increased asset rate after such adjustment) to be fully amortized
over its remaining term on a level-payment basis. In addition to being subject
to interest rate adjustments during their Step-up Periods, certain Step-up Rate
Loans will be subject to a one-time increase in their Asset Rates with respect
to their final Monthly Payments. The statistical information concerning the
Fixed Rate Assets set forth below, to the extent it relates to the asset rates
of the Step-up Rate Loans, takes into account only the Asset Rates borne by such
Assets as of the cut-off date.
Except in the case of the Step-up Rate Loans during their Step-up Periods,
each Fixed Rate Asset bears interest at a fixed annual percentage rate (its
"APR" or "Asset Rate") and provides for level payments over the term of such
Asset that fully amortize the principal balance of the Asset. All of the Fixed
Rate Assets are actuarial obligations. The portion of each Monthly Payment for
any Fixed Rate Asset allocable to principal is equal to the total amount of such
Monthly Payment less the portion thereof allocable to interest. The portion of
each Monthly Payment due in a particular month that is allocable to interest is
a precomputed amount equal to one month's interest on the principal balance of
the Fixed Rate Asset, which principal balance is determined by reducing the
initial principal balance by the principal portion of all Monthly Payments that
were due in prior months (regardless of whether such Monthly Payments were made
in a timely fashion) and all prior partial principal prepayments. Thus, each
scheduled Monthly Payment on an Asset will be applied to interest and to
principal in accordance with such precomputed allocation regardless of whether
such monthly payment was received in advance of or subsequent to its due date.
See "Servicing of the Assets -- Collection and Other Servicing Procedures"
herein.
S-7
<PAGE>
As of the Cut-off Date, approximately _____% of the Fixed Rate Assets were
Land Secured Mortgage Loans or 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 _____% of the
Fixed Rate Assets were Mortgage Loans.
As of the Cut-off Date, each Fixed-Rate Asset had an asset rate of at
least ________% per annum and not more than _____% per annum. The weighted
average Asset Rate of the Fixed-rate Assets was approximately ____% per annum
(without giving effect to any subsequent increase in the Asset Rates of the
Step-up Rate Loans). The Fixed Rate Assets had remaining terms to stated
maturity as of the Cut-off Date of at least ___ months but not more than 360
months and original terms to stated maturity of at least ___ months but not more
than 360 months. Each Fixed Rate Asset was originated on or after ___________.
As of the Cut-off Date, the Fixed Rate Assets had a weighted average original
term to stated maturity of approximately ____ months, and a weighted average
remaining term to stated maturity of approximately ____ months. The remaining
term to stated maturity of an Asset is calculated as the number of Monthly
Payments scheduled to be made on the asset over its term less the number of
monthly payments made or scheduled to have been made on or before the Cut-off
Date. The average Scheduled Principal Balance of the Fixed Rate Assets as of the
Cut-off Date was approximately $_________ and the Scheduled Principal Balance of
the Fixed Rate Assets as of the Cut-off Date ranged from $______ to
$_______.
Approximately ________% of the Fixed Rate Assets have Loan-to-Value
Ratios greater than 95%. Oakwood computes each Contract Loan-to-Value Ratio with
respect to which a lien on land has been granted in lieu of a cash down payment
by determining the ratio (expressed as a percentage) of the principal amount of
the related Contract to the sum of the purchase price of the home (including
taxes, insurance and any land improvements), the tax value or the appraised
value of the land and the amount of any prepaid finance charges or closing
costs that are financed. Oakwood computes each Contract Loan-to-Value Ratio for
all other Contracts by determining the ratio (expressed as a percentage) of the
principal amount of such Contract to the purchase price of the home (including
taxes, insurance and any land improvements) and the amount of any prepaid
finance charges or closing costs that are financed. Oakwood computes each
Mortgage Loan-to-Value Ratio by determining the ratio (expressed as a
percentage) of the principal amount of such Mortgage Loan to either (i) the sum
of the appraised value of the land and improvements, and the amount of any
prepaid finance charges or closing costs that are financed or (ii) the sum of
the purchase price of the home (including taxes, insurance and any land
improvements), the appraised value of the land and the amount of any prepaid
finance charges or closing costs that are financed. Manufactured homes, unlike
site-built homes, generally depreciate in value. Consequently, at any time
after origination it is possible, especially in the case of assets with high
Loan-to-Value Ratios at origination, that the market value of a Manufactured
Home may be lower than the principal amount outstanding under the related
Asset.
The Fixed Rate Assets are secured by Manufactured Homes or Mortgaged
Properties (or real properties, in the case of Land Secured Contracts) located
(based on the mailing addresses of the related Obligors as of the Cut-off Date)
in ___ states. Approximately [>10]% and [>10]% of the Fixed Rate Assets were
secured as of the Cut-off Date by Mortgaged Properties or Manufactured Homes (or
Real Properties, in the case of Land Secured Contracts) located (based on the
mailing addresses of the related Obligors as of the Cut-off Date) in ______ and
_______, respectively. As of the Cut-off Date, no fewer than approximately
_____% of the Fixed Rate Assets were secured by Manufactured Homes which were
new at the time the related Assets were originated. As of the Cut-off Date, no
more than approximately ____%, ____% and ____% of the Fixed Rate Assets were
secured by Manufactured Homes which were used, repossessed or transferred to an
assignee of the original Obligor, respectively, at the time the related Assets
were originated.
ADJUSTABLE RATE ASSETS
The Asset Pool will consist of ___ Adjustable Rate Assets having an
aggregate Scheduled Principal Balance as of the Cut-off Date of approximately
$________.
Each Adjustable Rate Asset has an Asset Rate that adjusts annually based
on __________, and provides for [level] payments over the term of such Asset
that fully amortize the principal balance of the Asset. All of the Adjustable
Rate Assets are actuarial obligations.
Each Adjustable Rate Asset has an annual cap of ___% per annum. The
weighted average lifetime cap of the Adjustable Rate Assets as of the Cut-off
Date was approximately ___% per annum. The Adjustable Rate Assets had Gross
S-8
<PAGE>
Margins as of the Cut-off Date of at least ___% per annum but not more than ___%
per annum, with a weighted average Gross Margin of approximately ___% per annum.
The portion of each Monthly Payment for any Adjustable Rate Asset allocable to
principal is equal to the total amount of such Monthly Payment less the portion
thereof allocable to interest. The portion of each Monthly Payment due in a
particular month that is allocable to interest is a precomputed amount equal to
one month's interest on the principal balance of the Adjustable Rate Asset,
which principal balance is determined by reducing the initial principal balance
by the principal portion of all Monthly Payments that were due in prior months
(regardless of whether such Monthly Payments were made in a timely fashion) and
all prior partial principal prepayments. Thus, each scheduled Monthly Payment on
an Asset will be applied to interest and to principal in accordance with such
precomputed allocation regardless of whether such Monthly Payment was received
in advance of or subsequent to its Due Date. See "Servicing of the Assets --
Collection and Other Servicing Procedures" herein. As of the Cut-off Date all of
the Adjustable Rate Assets were Mortgage Loans.
As of the Cut-off Date, each Adjustable Rate Asset had an Asset Rate of at
least ____% per annum and not more than ____% per annum. The weighted average
Asset Rate of the Adjustable Rate Assets was approximately ____% per annum
(without giving effect to any subsequent adjustment in the asset rates of the
Adjustable Rate Loans). The Adjustable Rate Assets had remaining terms to stated
maturity as of the Cut-off Date of at least ____ months but not more than ____
months and original terms to stated maturity of ____ months. Each Adjustable
Rate Asset was originated on or after ____________. As of the Cut-off Date, the
Adjustable Rate Assets had a weighted average original term to stated maturity
of approximately ______ months, and a weighted average remaining term to stated
maturity of approximately ____ months. The remaining term to stated maturity of
an Asset is calculated as the number of Monthly Payments scheduled to be made on
the Asset over its term less the number of Monthly Payments made or scheduled to
have been made on or before the Cut-off Date. The average Scheduled Principal
Balance of the Adjustable Rate Assets as of the Cut-off Date was approximately
$________ and the Scheduled Principal Balance of the Adjustable Rate Assets as
of the Cut-off Date ranged from $________ to $________. Approximately ____% of
the Adjustable Rate Assets have Loan-to-Value Ratios greater than 95%.
The Adjustable Rate Assets are secured by Mortgaged Properties located
(based on the mailing addresses of the related Obligors as of the Cut-off Date)
in ____ states. Approximately [ >10 ]%, [ >10 ]%, [ >10 ]%, [ >10 ]% and [ >10
]% of the Adjustable Rate Assets were secured as of the Cut-off Date by
Mortgaged Properties located (based on the mailing addresses of the related
Obligors as of the Cut-off Date) in __________, __________, __________,
__________ and __________, respectively.
SELECTED DATA
Certain data with respect to the Assets to be transferred by the Company
to the Trust as of the Cut-off Date are set forth below. The Company believes
that the information set forth herein will be representative of the
characteristics of the actual Assets, although prior to the issuance of the
Certificates, Assets may be prepaid in full or in part or otherwise removed
from the pool of Assets to be transferred to the Trust.
Whenever reference is made herein to a percentage of the Assets (or to a
percentage of the Scheduled Principal Balance of the Assets), the percentage
is calculated based on the Scheduled Principal Balances ("SPB") of the Assets
as of the Cut-off Date. In addition, numbers in any columns in the tables
below may not sum exactly to the total number at the bottom of the column due to
rounding.
S-9
<PAGE>
<TABLE>
<CAPTION>
Fixed Rate Assets
Geographic Distribution of Manufactured Homes ^ -- Fixed Rate Assets (1)
Percentage of
Number of Aggregate Fixed Rate
Fixed Rate Scheduled Asset Pool
Geographic Location Assets Principal Balance By SPB
<S> <C> <C> <C>
Alabama............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Arizona............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Arkansas............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
California.......................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Colorado............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Delaware............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Florida............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Georgia............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Idaho............................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Illinois............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Indiana............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Kansas.............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Kentucky............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Louisiana........................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Maine............................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Maryland............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Michigan............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Minnesota........................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Mississippi......................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Missouri............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Montana............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Nevada.............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
New Jersey.......................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
New Mexico.......................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
New York............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
North Carolina...................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Ohio................................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Oklahoma............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Oregon.............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Pennsylvania........................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
South Carolina...................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Tennessee........................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Texas............................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Utah................................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Virginia............................ _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Washington.......................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
West Virginia....................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Wisconsin........................... _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Wyoming............................. _____ _________ ____
- ---------------------------------------------------------------------------------------------------
Total.......................... $ %
- ---------------------------------------------------------------------------------------------------
- ------------
</TABLE>
(1) Based on the mailing address of the Obligor on the related Fixed Rate Asset
as of the Cut-off Date.
S-10
<PAGE>
<TABLE>
<CAPTION>
Distribution of Original Fixed Rate Asset Amounts (1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Fixed Rate Asset Amount Assets Principal Balance Pool By SPB
<S> <C> <C> <C> <C>
$4,999 or less..................... _____ ______ ____
- ------------------------------------------------------------------------------------------
$5,000 - $9,999................... _____ ______ ____
- ------------------------------------------------------------------------------------------
$10,000 - $14,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$15,000 - $19,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$20,000 - $24,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$25,000 - $29,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$30,000 - $34,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$35,000 - $39,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$40,000 - $44,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$45,000 - $49,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$50,000 - $54,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$55,000 - $59,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$60,000 - $64,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$65,000 - $69,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$70,000 - $74,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$75,000 - $79,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$80,000 - $84,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$85,000 - $89,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$90,000 - $94,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$95,000 - $99,999.................. _____ _________
- ------------------------------------------------------------------------------------------
$100,000 or more.................. _____ _____ _________
- ------------------------------------------------------------------------------------------
Total ..................... $ %
- ------------------------------------------------------------------------------------------
</TABLE>
(1)The highest original Fixed Rate Asset amount was $_________, which
represents approximately _____% of the aggregate principal balance of the
Fixed Rate Assets at origination. The average original principal amount of
the Fixed Rate Assets was approximately $______ as of the Cut-off Date.
<TABLE>
<CAPTION>
Distribution of Original Loan-to-Value Ratios of Fixed Rate Assets(1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Loan-to-Value Ratio Assets Principal Balance Pool By SPB
<S> <C> <C> <C> <C>
50% or less...................... _____ _________ ____
- ------------------------------------------------------------------------------------------
51% - 55%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
56% - 60%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
61% - 65%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
66% - 70%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
71% - 75%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
76% - 80%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
81% - 85%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
86% - 90%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
91% - 95%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
96% - 100%....................... _____ _________ ____
- ------------------------------------------------------------------------------------------
101%-110%........................ _____ _________ ____
- ------------------------------------------------------------------------------------------
Total.................... $ %
- ------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average original Loan-to-Value Ratio of the Fixed Rate
Assets was approximately ____% as of the Cut-off Date.
(2) Rounded to nearest 1%.
S-11
<PAGE>
<TABLE>
<CAPTION>
Fixed Rate Asset Rates (1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Asset Rate Assets Principal Balance Pool By SPB
<S> <C> <C> <C> <C>
6.000 -6.999% ................. _____ ____
- ------------------------------------------------------------------------------------
7.000 -7.999% ................. _____ ____
- ------------------------------------------------------------------------------------
8.000 -8.999% ................. _____ ____
- ------------------------------------------------------------------------------------
9.000 -9.999% ................. _____ ____
- ------------------------------------------------------------------------------------
10.000 10.999%-................ _____ ____
- ------------------------------------------------------------------------------------
11.000 11.999%-................ _____ ____
- ------------------------------------------------------------------------------------
12.000 12.999%-................ _____ ____
- ------------------------------------------------------------------------------------
13.000 13.999%-................ _____ ____
- ------------------------------------------------------------------------------------
14.000 14.999%-................ _____ ____
- ------------------------------------------------------------------------------------
Total.......................... $ %
- ------------------------------------------------------------------------------------
</TABLE>
(1)The weighted average Fixed Rate Asset Rate was approximately _____1% per
annum as of the Cut-off Date. This table reflects the Fixed Rate 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.
<TABLE>
<CAPTION>
Year of Origination of Fixed Rate Assets (1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Year of Origination Assets Principal Balance Pool By SPB
<S> <C> <C> <C>
1996........................... _____ _________ ____
- -------------------------------------------------------------------------------------------
1997........................... _____ _________ ____
- -------------------------------------------------------------------------------------------
1998........................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Total.......................... $ %
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average seasoning of the ^ Fixed Rate Assets was approximately
___ months as of the Cut-off Date.
Remaining Terms to Maturity (in months) of Fixed Rate Assets(1)
<TABLE>
<CAPTION>
Number of Aggregate ^ Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Remaining Term to Maturity Assets Principal Balance Pool By SPB
<S> <C> <C> <C>
1 - 60 months...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
61 - 96 months...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
97 - 120 months..................... _____ _________ ____
- -------------------------------------------------------------------------------------------
121 -156 months..................... _____
- ----------------------------------------------------------------------------------------------
157 -180 months..................... _____
- ----------------------------------------------------------------------------------------------
181 -216 months..................... _____
- ----------------------------------------------------------------------------------------------
217 -240 months..................... _____
- ----------------------------------------------------------------------------------------------
241 -300 months..................... _____
- ----------------------------------------------------------------------------------------------
301 -360 months..................... _____
- ----------------------------------------------------------------------------------------------
Total......................... $ %
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average ^ remaining term to maturity of the Fixed Rate
Assets was approximately ^____ months as of the Cut-off Date.
S-12
<PAGE>
Original Terms to Maturity (in months) of Fixed Rate Assets(1)
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Term to Maturity Assets Principal Balance Pool By SPB
<S> <C> <C> <C>
1 - 60 months..................... _____ _________ ____
- ------------------------------------------------------------------------------------------
61 - 96 months..................... _____ _________ ____
- ------------------------------------------------------------------------------------------
97 - 120 months.................... _____ _________ ____
- ------------------------------------------------------------------------------------------
121 -156 months.................... _____
- ----------------------------------------------------------------------------------------------
157 -180 months.................... _____
- ----------------------------------------------------------------------------------------------
181 -216 months.................... _____
- ----------------------------------------------------------------------------------------------
217 -240 months.................... _____
- ----------------------------------------------------------------------------------------------
241 -300 months.................... _____
- ----------------------------------------------------------------------------------------------
301 -360 months.................... _____
- ----------------------------------------------------------------------------------------------
Total............................ $ %
- ----------------------------------------------------------------------------------------------
(1) The weighted average original term to maturity of the ^ Fixed Rate Assets
was approximately ___ months as of the Cut-off Date.
Adjustable Rate Assets
Geographic Distribution of Manufactured Homes - Adjusted Rate Assets (1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Geographic Location Assets Principal Balance Pool By SPB
Arizona...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
California................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Colorado..................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Florida...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Georgia...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Idaho........................ _____ _________ ____
- -------------------------------------------------------------------------------------------
Kentucky..................... _____ _________ ____
- -------------------------------------------------------------------------------------------
New Mexico................... _____ _________ ____
- -------------------------------------------------------------------------------------------
North Carolina............... _____ _________ ____
- -------------------------------------------------------------------------------------------
Oregon....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
South Carolina............... _____ _________ ____
- -------------------------------------------------------------------------------------------
Tennessee.................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Virginia..................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Washington................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Total........................ $ %
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Based on the mailing address of the Obligor on the related Adjustable Rate
Asset as of the Cut-off Date.
S-13
<PAGE>
<TABLE>
<CAPTION>
Distribution of Original Adjustable Rate Asset Amounts(1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Adjustable Rate Asset Amount Assets Principal Balance Pool By SPB
<S> <C> <C> <C>
$45,000 -$49,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$55,000 -$59,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$60,000 -$64,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$65,000 -$69,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$70,000 -$74,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$75,000 -$79,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$80,000 -$84,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$85,000 -$89,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$90,000 -$94,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$95,000 -$99,999................ _____ ____
- -----------------------------------------------------------------------------------------------
$100,000 or more................ _____ _________ ____
- ------------------------------------------------------------------------------------------------
Total ...................... $ %
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) The highest original Adjustable Rate Asset amount was $__________, which
represents approximately _____% of the aggregate principal balance of the
Adjustable Rate Assets at origination. The average original principal amount
of the Adjustable Rate Assets was approximately $_______ as of the Cut-off
Date.
<TABLE>
<CAPTION>
Distribution of Original Loan-to-Value Ratios of Adjustable Rate Assets(1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Loan-to-Value Ratio Assets Principal Balance Pool By SPB
<S> <C> <C> <C>
51% -- 55%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
66% -- 70%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
71% -- 75%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
76% -- 80%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
81% -- 85%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
86% -- 90%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
91% -- 95%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
96% --100%....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
101% --105%...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Total ......................... $ %
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The weighted average original Loan-to-Value Ratio of the Adjustable Assets
was approximately _____% as of the Cut-off Date. (2) Rounded to nearest 1%.
<TABLE>
<CAPTION>
Current Asset Rates of Adjustable Rate Assets(1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Asset Rate Assets Principal Balance Pool By SPB
<S> <C> <C> <C>
7.000% - 7.999%.................. _____ _________ ____
- --------------------------------------------------------------------------------------------
8.000% - 8.999%.................. _____ _________ ____
- --------------------------------------------------------------------------------------------
9.000% - 9.999%.................. _____ _________ ____
- --------------------------------------------------------------------------------------------
Total........................ $ %
- --------------------------------------------------------------------------------------------
</TABLE>
S-14
<PAGE>
(1)The weighted average Adjustable Rate Asset Rate was approximately _____% per
annum as of the Cut-off Date. This table reflects the Asset Rates of the
Adjustable Rate Assets as of the Cut-off Date and does not reflect any
subsequent adjustments in the Asset Rates of the Adjustable Rate Assets.
Distribution of Gross Margins of Adjustable Rate Assets(1)
<TABLE>
<CAPTION>
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Gross Margin Assets Principal Balance Pool By SPB
<S> <C> <C> <C> <C>
3.250% - 3.500%................... _____ _________ ____
- --------------------------------------------------------------------------------------------
4.500% - 4.750%................... _____ _________ ____
- --------------------------------------------------------------------------------------------
Total.......................... $ %
- --------------------------------------------------------------------------------------------
(1) The weighted average Gross Margin of the Adjustable Rate Assets was
approximately ____% per annum as of the Cut-off Date.
Maximum Asset Rates of Adjustable Rate Assets(1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Maximum Asset Rates Assets Principal Balance Pool By SPB
13.000% to 13.625%.................. _____ _________ ____
- --------------------------------------------------------------------------------------------
14.000% to 14.625%.................. _____ _________ ____
- --------------------------------------------------------------------------------------------
Total............................ $ %
- --------------------------------------------------------------------------------------------
(1)The weighted average maximum Asset Rate of the Adjustable Rate Assets was
approximately ______% per annum as of the Cut-Off Date.
Year of Origination of Adjustable Rate Assets(1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Year of Origination Assets Principal Balance Pool By SPB
1997.......................... _____ _________ ____
- -------------------------------------------------------------------------------------------
1998.......................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Total...................... $ %
- -------------------------------------------------------------------------------------------
(1) The weighted average seasoning of the Adjustable Rate Assets was
approximately ___ months as of the Cut-off Date.
Remaining Terms to Maturity (in months) of Adjustable Rate Assets (1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Remaining Term to Maturity Assets Principal Balance Pool By SPB
348 - 360 months.................... _____ _________ ____
- ------------------------------------------------------------------------------------------
Total............................ $ %
- ------------------------------------------------------------------------------------------
</TABLE>
(1)The weighted average remaining term to maturity of the Adjustable Rate
Assets was approximately ____ months as of the Cut-off Date.
S-15
<PAGE>
<TABLE>
<CAPTION>
Original Terms to Maturity (in months) of Adjustable Rate Assets(1)
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Original Terms to Maturity Assets Principal Balance Pool By SPB
<S> <C> <C> <C>
360 months..................... _____ _________ ____
- ------------------------------------------------------------------------------------------
Total....................... $ %
- ---------------------------------------------------------------------------------------------
(1) The weighted average original term to maturity of the Adjustable Rate Assets
was approximately ___ months as of the Cut-off Date.
Date of Next Asset Rate Adjustment of Adjustable Rate Assets
Number of Aggregate Percentage of
Fixed Rate Scheduled Fixed Rate Asset
Date of Next Asset Rate Adjustment Assets Principal Balance Pool By SPB
- ------------------------------------------------------------------------------------------------
April 1, 1999........................ _____ _________ ____
- -------------------------------------------------------------------------------------------
April 15, 1999....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
May 1, 1999.......................... _____ _________ ____
- -------------------------------------------------------------------------------------------
June 1, 1999......................... _____ _________ ____
- -------------------------------------------------------------------------------------------
August 1, 1999....................... _____ _________ ____
- -------------------------------------------------------------------------------------------
August 15, 1999...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
October 1, 1999...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
November 1, 1999..................... _____ _________ ____
- -------------------------------------------------------------------------------------------
December 1, 1999..................... _____ _________ ____
- -------------------------------------------------------------------------------------------
January 1, 2000...................... _____ _________ ____
- -------------------------------------------------------------------------------------------
Total............................. $ %
- -------------------------------------------------------------------------------------------
</TABLE>
UNDERWRITING GUIDELINES
The Assets were underwritten by Oakwood and were underwritten and
originated substantially in accordance with the guidelines described in the
Prospectus under "Underwriting Policies."
CONVEYANCE OF ASSETS
On the date of issuance of the Certificates [or on each Subsequent
Transfer Date (as defined below)], the Company will transfer to the Trustee,
without recourse, all of its right, title and interest in and to the Assets,
including all principal and interest received on or with respect to such
Assets (not including principal and interest due on the Assets on or before
the Cut-off Date and any other amounts collected on the Assets before the
Cut-off Date other than early collections of Monthly Payments that were due
after the Cut-off Date), and all rights under the Standard Hazard Insurance
Policies maintained with respect to the related Manufactured Homes, Real
Properties and Mortgaged Properties. [The Agreement permits the Trust to
purchase Subsequent Assets On one or more dates through the close of business on
________ (each, a "Subsequent Transfer Date"). On the date of issuance of the
Certificates the Assets will be listed on a schedule attached to the Agreement
(the "ASSET Schedule"). The Asset Schedule will identify the Scheduled
Principal Balance of each Asset, the amount of each Monthly Payment due on
each Asset, and the Asset Rate on each Asset, in each case as of the
Cut-off Date. Prior to the conveyance of the Assets to the Trustee, Oakwood's
operations department will complete a review of all of the Contract Files,
including the certificates of title to (or other evidence of a perfected
security interest in) the Manufactured Homes and the Mortgages relating to the
Land Secured Contracts to check the accuracy of the Contract Schedule delivered
to the Trustee. The Trustee will complete a review of the Mortgage Loan Files
to check the accuracy of the Mortgage Loan Schedule. If any Asset is discovered
not to agree with the Asset Schedule in a manner that materially and
adversely affects the interests of the Certificateholders, Oakwood will be
required to repurchase such Asset or replace it with a Qualified Substitute
Asset, except that if the discovered discrepancy relates
S-16
<PAGE>
to the Scheduled Principal Balance of an Asset, Oakwood may in certain
circumstances deposit cash into the Certificate Account in the amount of any
deficiency.
The Company 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 such information was furnished;
o the Company is the owner of, or holder of a first-priority security
interest in, each Asset;
o the Company 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, the Company has not
assigned any interest or participation in any Asset that has not been
released; and
o the Company has the full right to sell the Trust Estate to the
Trustee.
The Servicer, on behalf of the Certificateholders, will hold the original
Contracts and copies of documents and instruments relating to each Contract and
the security interest in the Manufactured Home and any Real Property relating to
each Contract. In order to provide notice of the assignment of the Assets to
the Trustee, UCC-1 financing statements identifying the Trustee as the secured
party or purchaser and identifying all the Assets as collateral will be filed
in the appropriate offices in the State of North Carolina. Despite these
filings, if a subsequent purchaser were able to take physical possession of the
Contracts without notice of the assignment of the Contracts to the Trustee, the
Trustee's interest in the Contracts could be defeated. To provide some
protection against this possibility, in addition to filing UCC-1 financing
statements, within one week after the initial delivery of the Certificates or
after each Subsequent Transfer Date, as applicable, the Contracts will be
stamped or otherwise marked to reflect their assignment to the Trustee. See
"Certain Legal Aspects of Contracts and Mortgage Loans" in the Prospectus. The
Trustee, on behalf of the Certificateholders, will hold the original Mortgage
Notes and copies of documents and instruments relating to each Mortgage Loan and
the lien on the Mortgaged Property securing each Mortgage Loan.
Oakwood will make certain representations and warranties in the Sales
Agreement in respect of each Asset, including the following:
o as of the Cut-off Date, no Monthly Payment is more than 30 days past
due;
o each Asset is a legal, valid and binding obligation of the Obligor and
is enforceable in accordance with its terms (except as such
enforceability may be limited by laws affecting creditors' rights
generally or by general equity principles);
o no Asset is subject to any right of rescission, set-off, counterclaim
or defense;
o each Asset is covered by hazard insurance substantially as described
under "The Trusts -- Insurance -- Hazard Insurance -- Standard Hazard
Insurance Policies" in the Prospectus;
o each ASSET complied with all requirements of applicable law at the
time of its origination; and
o immediately following the sale of the Assets to the Company, the
Company will own such Assets, free and clear of any prior lien,
mortgage, security interest, pledge, charge or other encumbrance
(assuming assignments of mortgage from Oakwood to the Company were
properly recorded to reflect the transfer of any Mortgage relating to
a Land Secured Contract or Mortgage Loan), except any lien created by
the Agreement.
Under the terms of the Agreement and the Sales Agreement, and subject to
Oakwood's option to effect a substitution as described in the next paragraph,
Oakwood will be obligated to repurchase any Asset for its Repurchase Price (as
defined below) within 90 days after Oakwood's discovery, or receipt of written
notice from the Trustee or the Servicer, of a breach of any representation or
warranty made by Oakwood in the Sales Agreement that materially and adversely
affects the Trustee's interest in any Asset if such breach has not been cured
by such 90th day. The "Repurchase Price" for any Asset will be the unpaid
principal balance of such Asset at the close of business on the date of such
repurchase, plus accrued and unpaid interest thereon to the next due date for
such Asset following such repurchase. Prior to being distributed to
Certificateholders, this Repurchase Price will be used to reimburse the Servicer
for any previously unreimbursed Advances made by the Servicer in respect of the
repurchased Asset and, if the repurchaser is the Servicer, the Repurchase
Price may be remitted net of such reimbursement amounts.
In lieu of repurchasing an Asset as specified in the preceding
paragraph, during the two-year period following the date of the initial issuance
of the Certificates, Oakwood may, at its option, substitute a Qualified
Substitute Asset for the Asset that it would otherwise be obligated to
repurchase (referred to herein as the "Replaced Asset"). Oakwood will deposit
CASH into the Certificate Account in the amount, if any, by which the
aggregate of the Unpaid Principal Balances of any Replaced Assets exceeds the
S-17
<PAGE>
aggregate of the Unpaid Principal Balances of the ASSETS being substituted
for the Replaced Assets. Such deposit will be treated as a partial Principal
Prepayment. Also, if it is discovered that the actual Scheduled Principal
Balance of an Asset is less than the Scheduled Principal Balance identified for
such asset on the Asset Schedule, Oakwood may, at its option, deposit the amount
of the discrepancy into the Certificate Account instead of repurchasing the
Asset. Such deposit will be treated as a partial principal prepayment.
In addition, Oakwood is required to indemnify the Company and its
assignees (including the Trust) against losses and damages they incur as a
result of breaches of Oakwood's representations and warranties. Oakwood's
obligation to repurchase or substitute for an Asset affected by a breach of a
representation or warranty and to indemnify the Company and its assignees for
losses and damages caused by such a breach constitute the sole remedies
available to the Trustee and the Certificateholders for a breach of a
representation or warranty under the Agreement or the Sales Agreement with
respect to the Assets.
[Conveyance of Subsequent Assets and Pre-funding Account
An account (the "Pre-Funding Account") will be established by the Trustee
and funded by the Company on the Closing Date to provide the Trust with funds to
purchase Subsequent Assets. The Subsequent Assets will be purchased by the Trust
between ________ and ___________ (the "Pre-Funding Period"). The amount
deposited in the Pre-Funding Account (as reduced from time-to-time, the
"Pre-Funded Amount") will initially equal the difference between the aggregate
Certificate Principal Balance of the Offered Certificates on the Closing Date
and the aggregate Scheduled Principal Balance of the initial Assets as of the
Cut-off Date. In the event that the trust is unable to acquire sufficient
qualifying assets by _______, any amounts remaining in the Pre-Funding Account
will be applied as a partial Principal Prepayment to Certificateholders entitled
to such payment on the first Distribution Date. The Pre-Funding Account will be
part of the trust but not part of the Pooling REMIC or the Issuing REMIC. Any
investment income earned on amounts on deposit in the Pre-Funding Account will
be paid to the Company and will not be available for distribution to
Certificateholders.
Under the Agreement, the Trust will be obligated to purchase Subsequent
Assets from the Company during the Pre-Funding Period, subject to the
availability thereof. Each Subsequent Asset will have been underwritten in
accordance with the Company's standard underwriting criteria. Subsequent Assets
will be transferred to the Trust pursuant to Subsequent Transfer instruments
between the Company and the Trust. In connection with the purchase of Subsequent
Assets on each Subsequent Transfer Date, the Trust will be required to pay to
the Company from amounts on deposit in the Pre-Funding Account a cash purchase
price of 100% of the Scheduled Principal Balance thereof as of the related
Cut-off Date. Any conveyance of Subsequent Assets on a Subsequent Transfer Date
is subject to certain conditions including, but not limited to: (a) each
Subsequent Assets must satisfy the representations and warranties specified in
the related subsequent transfer instrument and the Agreement; (b) the company
will not select Subsequent Assets in a manner that it believes is adverse to the
interests of the Certificateholders; (c) as of its respective Cut-off Date, each
Subsequent Asset may not be more than 30 days contractually delinquent; (d) as a
result of the purchase of the Subsequent Assets, the Class A Certificates will
not receive from _______ or ________ a lower credit rating than the rating
assigned at the initial issuance of such Class of Class A Certificates; and (e)
an independent accountant will provide a letter stating whether or not the
characteristics of the Subsequent Assets conform to the characteristics
described herein. Following the end of the Pre-funding Period, the Asset Pool
must satisfy the following criteria: (i) the weighted average Asset Rate must
not be less than ____% or more than ____%; (ii) the weighted average remaining
term to stated maturity must not be less than ____ months or more than ____
months; (iii) the weighted average Loan-to-Value Ratio must not be greater than
____%; (iv) not less than ____% of the Asset Pool, by Scheduled Principal
Balance, must be attributable to loans to purchase new Manufactured Homes; (v)
not more than ____%, ____% and ____% of the Assets located in _______________,
______________, or any other individual state, respectively, and (vi) not less
than ____% of the Assets will be either Land Secured Contracts or Mortgage
Loans.]
MATURITY AND PREPAYMENT CONSIDERATIONS
The Assets had terms to maturity at origination ranging from ___ months
to 360 months, but may be prepaid in full or in part at any time. The
prepayment experience of the Assets (including prepayments due to liquidations
of defaulted Assets) will affect the weighted average life of each Class of
the Certificates. Based on Oakwood's experience with the portfolio of
conventional manufactured housing contracts it services, the Company anticipates
that a number of ASSETS will be Liquidated OR prepaid in full prior to their
respective maturities. A number of factors, including homeowner mobility,
general and regional economic conditions and prevailing interest rates may
influence prepayments. In addition, any repurchases of Assets on account of
certain breaches of representations and warranties as described above under "THE
ASSET POOL -- CONVEYANCE OF ASSETS" will have the same effect as prepayments
of such ASSETS and therefore will affect the life of the Certificates. Natural
disasters may also influence
S-18
<PAGE>
prepayments. Most of the Contracts and Mortgage Loans contain provisions that
prohibit the related Obligors from selling an underlying Manufactured Home or
Mortgaged Property without the prior consent of the holder of the related
Asset. Such provisions may not be enforceable in certain states. See "The
Contracts -- Transfers of Manufactured Homes; Enforceability of Due-on-Sale'
Clauses" and " -- The Mortgage Loans -- Due-on-Sale' Clauses" under "Certain
Legal Aspects of Contracts and Mortgage Loans" in the Prospectus. Oakwood's
policy (as Servicer) is to permit most sales of Manufactured Homes and Mortgaged
Properties without accelerating the related Contracts OR MORTGAGE LOANS where
the proposed buyer meets Oakwood's then-current underwriting standards and
either enters into an assumption agreement or executes a new contract for the
unpaid balance of the existing Contract or Mortgage Loan. The execution of a new
contract or mortgage note and mortgage would have the same effect as a
prepayment of the existing Contract or Mortgage Loan in full.
Weighted Average Lives of the Offered Certificates
The following information is given solely to illustrate the effect of
prepayments of the Assets on the weighted average life of each Class of the
Offered Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced with respect to the Assets.
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average lives of the
Offered Certificates will be affected by the rate at which principal on the
Assets is paid. Principal payments on Assets may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
any voluntary prepayment by an Obligor, the receipt of Liquidation Proceeds upon
disposition of the property securing any defaulted Contract or Mortgage Loan and
the receipt of the Repurchase Price for any Asset upon the repurchase thereof by
Oakwood As a result of any breaches of its representations and warranties).
Prepayments on contracts and mortgage loans may be measured relative to a
prepayment standard or model. The Prepayment Model used in this Prospectus
Supplement (the "MHP") is based on an assumed rate of prepayment each month of
the then unpaid principal balance of a pool of new manufactured housing
installment sales contracts and mortgage loans. A prepayment assumption of 100%
MHP assumes constant prepayment rates of 3.7% per annum of the then unpaid
principal balance of such contracts and mortgage loans in the first month of the
life of the contracts and mortgage loans and an additional 0.1% per annum in
each month thereafter until the 24th month. Beginning in the 24th month and
in each month thereafter during the life of all of the contracts and mortgage
loans, 100% MHP assumes a constant prepayment rate of 6.0% per annum each
month.
As used in the following tables "0% MHP" assumes no prepayments on the
Assets; "100% MHP" assumes the Assets will prepay at rates equal to 100% of
the MHP assumed prepayment rates; "200% MHP" assumes the Assets will prepay
at rates equal to 200% of the MHP assumed prepayment rates; and so on.
There is no assurance, however, that the rate of prepayments of the
Assets will conform to any level of the MHP model, and no representation is
made that the Assets will prepay at the prepayment rates shown or any other
prepayment rate. The Company makes no representations as to the appropriateness
of the MHP model.
Modeling Assumptions and MHP Tables
The mobile home prepayment tables set forth below (the "MHP Tables") were
prepared based upon the assumptions that there are no delinquencies on the
Assets and that, on each Distribution Date, there will be a sufficient
Available Distribution Amount to distribute all accrued interest and the
Principal Distribution Amount due to the Certificateholders (collectively, the
"Modeling Assumptions").
The percentages and weighted average lives in the following tables were
determined assuming that (1) scheduled interest and principal payments on the
Assets will be received each month on the applicable Due Dates and full
prepayments on the Assets will be received on the last day of each month,
commencing in January 1999, and will include 30 days of interest thereon; (2)
the Servicer exercises the right of optional termination described herein at
the earliest possible date; (3) the Assets will, as of the Cut-off Date, be
grouped into pools having the characteristics set forth in the two tables
provided below; (4) the initial Certificate Principal Balance and Pass-Through
Rate of each Class of the Offered Certificates are as described herein; (5) no
Due Date Interest Shortfalls will arise in connection with prepayments in full
or liquidations of the Assets; (6) no losses will be experienced on any
Assets included in the Asset Pool; (7) the Closing Date for the issuance of the
Certificates will be _________________; (8) cash distributions will be received
by the holders of the Certificates on ____________ and on the 15th day of each
month thereafter until retirement of the Certificates; (9) 1 year CMT is assumed
to be ____% per annum, and One-Month Libor is
S-19
<PAGE>
assumed to be ____% per annum; and (10) 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 above or at any other rates.
S-20
<PAGE>
Assumed Fixed Rate Asset Characteristics
Scheduled Remaining
Principal Balance Term to
As of The Maturity Seasoning
Cut-off-Date Asset Rate (Months) (Months)
Level Pay Assets
1.................. ____________ _________ ____ _____
- ------------------------------------------------------------------------------
2.................. ____________ _________ ____ _____
- ------------------------------------------------------------------------------
3.................. ____________ _________ ____ _____
- ------------------------------------------------------------------------------
4.................. ____________ _________ ____ _____
- ------------------------------------------------------------------------------
5.................. ____________ _________ ____ _____
- ------------------------------------------------------------------------------
Step-Up Rate Assets
<TABLE>
<CAPTION>
Scheduled Remaining
Principal Balance Term to Months to Months to Months to First Step Second Step Third Step
As of the Asset Maturity Seasoning First Second Third Rate Rate Rate
Cut-off Date Rate (Months) (Months) Step Step Step Step Step Step
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1... __________ ______ ____ ___ ___ ___ ___ _____ ____ ____
- ---------------------------------------------------------------------------------------------------------------------------
2... __________ ______ ____ ___ ___ ___ ___ _____ ____ ____
- ---------------------------------------------------------------------------------------------------------------------------
3... __________ ______ ____ ___ ___ ___ ___ _____ ____ ____
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------
* Not applicable.
Assumed Adjustable Rate Asset Characteristics
<TABLE>
<CAPTION>
Scheduled Remaining
Principal Balance Term to Months to Lifetime Periodic Reser
As of the Asset Maturity Seasoning Gross Next Rate Rate Rate Frequency
Cut-off Date Rate (Months) (Months) Margin Change Cap Cap Index Months
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1... $____________ ___% ___ ___ __ % ___ ____% ____% 1 Year CMT
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
There will be discrepancies between the Assets actually included in the
Trust and the assumptions made as to the characteristics of such Assets in
preparing the MHP Tables. It is unlikely that the Assets will prepay at a
constant rate or that all of the Assets will prepay at the same rate. To the
extent that the Assets actually included in the Trust have characteristics
that differ from those assumed in preparing the MHP Tables, the Offered
Certificates are likely to have weighted average lives that are shorter or
longer than those indicated. There is no assurance that prepayment of the Assets
will conform to any of the constant percentages of MHP described in the MHP
tables or any other constant rate. Among other things, the MHP Tables assume
that the Assets prepay at the indicated constant percentages of MHP,
notwithstanding the fact that such Assets may vary substantially as to Asset
Rates and original terms to maturity. Variations in actual prepayment experience
for the Assets will increase or decrease the percentages of initial principal
balances (and weighted average lives) shown in the MHP Tables. Assuming no
prepayments, the Step-up Rate Loans and the Adjustable Rate Loans will cause the
Weighted Average Net Asset Rate for the Assets to rise from approximately _____%
per annum at the Cut-off Date to a maximum of approximately _____% per annum, as
the Asset Rates on the Step-up Rate Loans and the Adjustable Rate Loans
increase.
The MHP Tables indicate the weighted average life of each Class of the
Offered Certificates and set forth the percentage of the initial Certificate
Principal Balance of each Class of the Offered Certificates that would be
outstanding after each of the dates shown assuming prepayments of the Assets
occur at various percentages of MHP. See "Maturity and Prepayment
Considerations" in the Prospectus. The weighted average life of each Class
set forth in the MHP Tables has been determined by multiplying the amount
of each principal payment on such Class by the number of years from the date of
delivery of the Certificates of such Class to the related Distribution Date,
summing the results and dividing the sum by the total principal to be paid on
the Certificates of such Class.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates based on their
own assumptions as to the matters discussed herein.
S-21
<PAGE>
Percentage of Initial Certificate Principal Balances Outstanding
<TABLE>
<CAPTION>
Class A-1 Certificates at the following Class A-2 Certificates At the Following
Percentages of MHP Percentages of MHP
0% 100% 150% 200% 250% 300% 0% 100% 150% 200% 250% 300%
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percent ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2000 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2001 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2002 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2003 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2004 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2005 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2006 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2007 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2008 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2009 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2010 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2011 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2012 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2013 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2014 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2015 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2016 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2017 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2018 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2019 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2020 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2021 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2022 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2023 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2024 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2025 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2026 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2027 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2028 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
_____ 15, 2029 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
Avg Life In Years: ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ____
- ------------------------------------------------------------------------------------------------
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Assets, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-22
<PAGE>
Percentage of Initial Certificate Principal Balances Outstanding
<TABLE>
<CAPTION>
Class A-3 Certificates Class A-4 Certificates Class A-5 Certificates
at the following at the following at the following
Percentages of MHP Percentages of MHP Percentages of MHP
0% 100% 150% 200% 250% 300% 0% 100% 150% 200% 250% 300% 0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Distribution Date
Initial Percent
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2000 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2001 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2002 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2003 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2004 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2005 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2006 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2007 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2008 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2009 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2010 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2011 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2012 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2013 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2014 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2015 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2016 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2017 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2018 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2019 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2020 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2021 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2022 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2023 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2024 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2025 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2026 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2027 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2028 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
_____ 15, 2029 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
Avg Life In Years:___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------------------------
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Assets, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-23
<PAGE>
<TABLE>
<CAPTION>
Percentage of Initial Certificate Principal Balances Outstanding
Class M-1 Certificates at the following Class M-2 Certificates at the following
Percentages of MHP Percentages of MHP
0% 100% 150% 200% 250% 300% 0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Initial Percent ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2000 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2001 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2002 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2003 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2004 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2005 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2006 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2007 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2008 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2009 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2010 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2011 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2012 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2013 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2014 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2015 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2016 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2017 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2018 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2019 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2020 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2021 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2022 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2023 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2024 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2025 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2026 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2027 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2028 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2029 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
Avg Life In Years: ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Assets, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
S-24
<PAGE>
<TABLE>
<CAPTION>
Percentage of Initial Certificate Principal Balances Outstanding
Class B-1 Certificates at the following Class B-2 Certificates at the following
Percentages of MHP Percentages of MHP
0% 100% 150% 200% 250% 300% 0% 100% 150% 200% 250% 300%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------
Initial Percent ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2000 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2001 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2002 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2003 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2004 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2005 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2006 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2007 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2008 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2009 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2010 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2011 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2012 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2013 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2014 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2015 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2016 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2017 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2018 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2019 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2020 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2021 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2022 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2023 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2024 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2025 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2026 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2027 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2028 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
_____ 15, 2029 ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
Avg Life In Years: ___ ___ ___ ___ ___ ___ ___ ___ ___ ___
- ------------------------------------------------------------------------------------------
</TABLE>
The MHP Tables above have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Assets, which will differ from the actual characteristics and performance
thereof) and should be read in conjunction therewith.
[Pre-Funding
The Certificates will be prepaid in part on the first Distribution Date
after the Pre-Funding Period in the event that any Pre-Funding Amount remains in
the Pre-Funding Account on such Distribution Date. Any amounts remaining will be
treated as a partial Principal Prepayment. It is expected that substantially all
of the Pre-Funded Amount will be used to acquire Subsequent Assets. It is
unlikely, however, that the aggregate Scheduled Principal Balance of the
Subsequent Assets purchased by the Trust will be identical to the Pre-Funded
Amount, and consequently, the Certificateholders will likely receive some
prepayment of principal.]
Factors Affecting Prepayments
The rate of principal payments on pools of manufactured housing contracts
and mortgage loans is influenced by a variety of economic, geographic, social
and other factors, including the prevailing level of interest rates from time to
time and the rate at which owners of manufactured homes sell their manufactured
homes or default on their contracts or mortgage loans. Other factors affecting
prepayment of manufactured housing contracts and mortgage loans include changes
in obligors' housing needs, job transfers, unemployment and obligors' net equity
in the manufactured homes and mortgaged properties. In the case of mortgage
loans secured by site-built homes, in general, if prevailing mortgage interest
rates fall significantly below the interest rates on such mortgage loans, the
mortgage loans are likely to be subject to higher prepayment rates than if
prevailing mortgage interest rates remained at or above
S-25
<PAGE>
the rates borne by such mortgage loans, because the mortgagors in many cases
could refinance and obtain alternative mortgage loans with lower interest rates
and lower monthly payments. Conversely, if prevailing mortgage interest rates
rise above the interest rates on such mortgage loans, the rate of prepayment
would be expected to decrease because alternative mortgage loans would bear
higher interest rates and require higher monthly payments. The outstanding
principal balances of manufactured housing contracts are, in general, much
smaller than mortgage loan balances and the original terms to maturity of such
contracts are generally shorter than those of mortgage loans. As a result,
changes in interest rates will not affect the monthly payments on available
alternative manufactured housing contracts to the same degree that changes in
mortgage interest rates will affect the monthly payments on available
alternative mortgage loans. Consequently, the effect of changes in prevailing
interest rates on the prepayment rates on manufactured housing contracts may not
be similar to the effects of such changes on mortgage loan prepayment rates, or
such effects may be similar to the effects of such changes on mortgage loan
prepayment rates, but to a smaller degree.
Generally, the Assets may be prepaid by the Obligors at any time without
imposition of any prepayment fee or penalty. In addition, defaults on Assets
leading to repossession (and foreclosure in the case of Land Secured Contracts
and Mortgage Loans) and the ultimate liquidation of the related Manufactured
Homes and Mortgaged Properties (and Real Properties, in the case of Land Secured
Contracts) may occur with greater frequency during their early years.
Prepayments, liquidations and repurchases of the Assets will result in
distributions of principal to Certificateholders of amounts that would otherwise
have been distributed over the remaining terms of the Assets. See "Yield on
the Offered Certificates" herein and "Yield Considerations" and "Maturity and
Prepayment Considerations" in the Prospectus.
Oakwood, as seller under the Sales Agreement, may be required to
repurchase certain Assets if it breaches its representations and warranties
contained in the Sales Agreement, including those relating to the qualification
of the Assets for REMIC purposes. See "The Asset Pool -- Conveyance of
Contracts" Herein. Any repurchase of an Asset will have the same effect as a
prepayment in full of such Asset and will affect an investor's yield to
maturity.
The Servicer (regardless of whether Oakwood remains the Servicer) has
the option to terminate the Trust, thereby causing the retirement of all
outstanding Certificates, on any Distribution Date on or after the Distribution
Date on which the sum of the Certificate Principal Balance of the Certificates
is less than ___% of the sum of the original Certificate Principal Balance of
the Certificates. See "The Trust -- Optional Termination" herein. If the
Servicer does not exercise its optional termination rights within 90 days after
becoming eligible to do so, the Trustee shall solicit bids for the purchase of
all Assets, REO Properties and Repo Properties remaining in the Trust. Such a
purchase, if consummated, would likewise cause the retirement of all outstanding
Certificates. See "The Trust -- Auction Sale" herein.
YIELD ON THE OFFERED CERTIFICATES
Distributions of interest on the Offered Certificates (other than the
Class A-1 Certificates) on any Distribution Date will include interest accrued
thereon through the last day of the month preceding the month in which such
Distribution Date occurs. Because interest will not be distributed on such
Certificates until the 15th day (or, if such day is not a business day, then on
the next succeeding business day) of the month following the month in which such
interest accrues on such Certificates, the effective yield to the holders of
such Classes of Offered Certificates will be lower than the yield otherwise
produced by the Pass-Through Rate and purchase price.
The yield to maturity of, and the aggregate amount of distributions on,
each Class of the Offered Certificates will be related to the rate and timing of
principal payments on the Assets. The rate of principal payments on the
Assets will be affected by the amortization schedules of the Assets and by the
rate of principal prepayments thereon (including for this purpose payments
resulting from refinancings, liquidations of the Assets due to defaults,
casualties, condemnations and repurchases by or on behalf of the Company or
Oakwood, as the case may be). No assurance can be given as to the rate of
principal payments or 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 Contract or Mortgage Loan plus interest accrued thereon
and the expenses of sale. Such a shortfall upon repossession and disposition of
a Manufactured Home or foreclosure on a Real Property or Mortgaged Property
would result in a Realized Loss on such Contract or Mortgage Loan. The rate of
principal payments on, the aggregate amount of distributions on, and the yield
to maturity
S-26
<PAGE>
of, any Class of the Offered Certificates will be affected by the
rate of Obligor defaults resulting in liquidations of Contracts and Mortgage
Loans.
The timing of changes in the rate of prepayments and defaults on the
Assets may affect an investor's actual yield to maturity significantly, even if
the average rate of principal payments and defaults experienced over time is
consistent with an investor's expectations. In general, the earlier a prepayment
of principal of or a default on an Asset, the greater will be 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.
Generally, prior to the time that the Certificate Principal Balance of
each Class of Class A Certificates with a lower numerical designation is reduced
to zero, the holders of the Class A-2, Class A-3, Class A-4 and Class A-5
Certificates will not receive any distributions of principal. The allocation of
distributions to the Certificateholders in accordance with the Agreement will
have the effect of amortizing the Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates (collectively, the "Class A Certificates") (particularly
the Class A-1 Certificates) at a faster rate than the rate at which such
Certificates would have been amortized if the Principal Distribution Amount were
required to be allocated among the Classes of the Certificates pro rata prior to
the Cross-over Date. To the extent that, on a Distribution Date prior to the
Cross-over Date, the Available Distribution Amount is not sufficient to permit a
full distribution of the Principal Distribution Amount on the Class A
Certificates, the effect will be to delay the amortization of such Class of
Class A Certificates.
The holders of the Offered Subordinated Certificates will not be entitled
to receive any distributions of principal on any Distribution Date unless either
the Cross-over Date has occurred and the Principal Distribution Tests are
satisfied for such Distribution Date or the Certificate Principal Balance of the
Class A Certificates has been reduced to zero. Further, payments of principal
will be made on the Class B-2 Certificates only if certain tests with respect
to the Class B-2 Floor Amount are met. It is not possible to predict with
certainty the timing of the date, if any, on which the Cross-over Date will
occur, or whether the Principal Distribution Tests will be met as to any
Distribution Date. A high level of Realized Losses or delinquencies could result
in the Principal Distribution Tests not being met for one or more Distribution
Dates. This would delay the amortization of the Offered Subordinated
Certificates, particularly the Class B-2 Certificates, beyond what would
otherwise be the case.
While partial prepayments of principal on the Assets are applied on Due
Dates for such Assets, Obligors are not required to pay interest on the Assets
after the date of a full prepayment of principal. As a result, full prepayments
of Assets in advance of their Due Dates in a particular Collection Period will
reduce the amount of interest received from Obligors during that Collection
Period to less than one month's interest on all the Assets (such shortfalls in
interest collected being referred to herein as "Due Date Interest Shortfalls").
If a sufficient number of Assets are prepaid in full during a given Prepayment
Period in advance of their respective Due Dates, then interest payable on all of
the Assets during the related Collection Period may be less than the interest
payable on all of the Certificates with respect to such Collection Period. If
the level of Due Date Interest Shortfalls was large enough, such shortfalls
could result in a Writedown Amount being allocated to the Subordinated
Certificates. See "Description of the Offered Certificates -- Distributions" and
" -- Allocation of Writedown Amounts" herein.
If a purchaser of Certificates of a Class calculates its anticipated yield
based on an assumed rate of default and an assumed amount of Realized Losses
that are lower than the default rate and amount of Realized Losses actually
incurred and such amount of Realized Losses actually incurred is not entirely
covered by Excess Interest or by the subordination of the Certificates of
Classes subordinated to such purchaser's Class, the purchaser's actual yield
to maturity will be lower than that so calculated. The timing of Realized
Losses on Liquidated Loans will also affect an investor's actual yield to
maturity, even if the rate of defaults and severity of losses are consistent
with an investor's expectations. There can be no assurance that the delinquency
or repossession experience set forth herein under "Servicing of the Assets --
Delinquency and Loan Loss/Repossession Experience" will be representative of the
results that may be experienced with respect to the Assets. There can be no
assurance as to the delinquency, repossession, foreclosure or loss experience
with respect to the Assets.
If the purchaser of a Certificate offered at a discount from its Parity
Price (as defined below) calculates its anticipated yield to maturity based on
an assumed rate of payment of principal that is faster than that actually
experienced on the Assets, the actual yield to maturity will be lower than
that so calculated. Similarly, if the purchaser of a Certificate offered at a
premium above its Parity Price calculates its anticipated yield to maturity
based on an assumed rate of payment of principal that is slower than that
actually
S-27
<PAGE>
experienced on the Assets, the actual pre-tax yield to maturity will be lower
than that so calculated. "Parity Price" is the price at which a security will
yield its coupon.
[Investors in the Class A-1 Certificates should understand that the
Pass-Through Rate of the Class A-1 Certificates will not exceed the Weighted
Average Net Asset Rate. Investors in such Class should also consider the risk
that lower than anticipated levels of One-Month LIBOR could result in actual
yields to such investors that are lower than anticipated yields.]
[Investors in the Class A-1 Certificates should understand that the timing
of changes in the level of One-Month LIBOR may affect the actual yields to such
investors even if the average level is consistent with such investor's
expectations. Each investor must make an independent decision as to the
appropriate One-Month LIBOR assumption to be used in deciding whether to
purchase a Class A-1 Certificate. ]
Because the Pass-Through Rate on the Offered Subordinated Certificates may
vary on the basis of the Weighted Average Net Asset Rate, such Pass-Through Rate
and the yield on such Certificates could be affected by disproportionate
collections of principal in respect of Assets with different Asset Rates
(including Obligor prepayments and such collections resulting from liquidations
and repurchases of Assets). Accordingly, 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 _____% per annum
prepaid prior to those with Net Rates lower than _____% per annum, 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 _____% per annum prepaid prior to those with Net Rates lower than
_____% per annum, the yield to maturity of the Class B-1 Certificates will be
lower than that which would otherwise result if all or a substantial portion of
the Assets with Net Rates higher than _____% per annum prepaid prior to those
with Net Rates lower than _____% per annum and the yield to maturity of the
Class B-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 _____% per
annum prepaid prior to those with Net Rates lower than _____% per annum.
The aggregate amount of distributions and the yield to maturity of the
Offered Certificates will also be affected by early payments of principal on the
Assets resulting from any purchases of Assets not conforming to certain
representations and warranties of Oakwood and by the exercise by the Servicer of
its option to purchase the Assets and other assets of the Trust, thereby
effecting early retirement of any outstanding Classes of Offered Certificates as
described under "THE TRUST -- OPTIONAL TERMINATION" HEREIN. If the Servicer does
not exercise its optional termination right within 90 days after it first
becomes eligible to do so, the Trustee shall solicit bids for the purchase of
all Assets, REO Properties and Repo Properties remaining in the Trust. SEE "THE
TRUST -- AUCTION SALE" HEREIN. The Trustee shall sell such Assets, REO
Properties and Repo Properties only if the net proceeds to the Trust from such
sale would at least equal the Termination Price, and the net proceeds from such
sale will be distributed first to the Servicer to reimburse it for all
previously unreimbursed Liquidation Expenses paid and Advances made by, and not
previously reimbursed to, it with respect to the Assets and second to the
Holders of the Certificates and the Servicer in accordance with the distribution
priorities set forth in "DESCRIPTION OF THE OFFERED CERTIFICATES --
DISTRIBUTIONs ON THE CERTIFICATES -- PRIORITY OF DISTRIBUTIONS" HEREIN. If the
net proceeds from such sale would not at least equal the Termination Price, the
Trustee shall decline to sell the Assets, REO Properties and Repo Properties and
shall not be under any obligation to solicit any further bids or otherwise
negotiate any further sale of the Assets, REO Properties and Repo Properties.
DESCRIPTION OF THE OFFERED CERTIFICATES
General
The Senior/Subordinated Pass-Through Certificates, Series 1999-___,
will consist of the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class
M-1, Class M-2, Class B-1, Class B-2, Class X and Class R Certificates. Only the
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class M-1, Class M-2,
Class B-1 and Class B-2 Certificates (the "Offered Certificates") are offered
hereby. The Class M-1, Class M-2, Class B-1, Class B-2 (the "Offered
Subordinated Certificates"), Class X and Class R Certificates (together with the
Offered Subordinated Certificates, the "Subordinated Certificates") will be
subordinated to the Class A 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 thereof. Definitive Certificates, if issued, will be transferable and
exchangeable at the corporate trust office of the Trustee at its Corporate Trust
Department. No service charge will be made for any registration of exchange
or transfer, but the Trustee may require payment of a sum sufficient to cover
any tax or other governmental charge incurred in connection with such exchange
or transfer.
S-28
<PAGE>
Distributions of principal and interest on the Offered Certificates will
be made on the 15th day of each month, or, if such day is not a business day, on
the next succeeding business day (each, a "Distribution Date"), beginning in
____________, 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 such distribution to the accounts of
its Participants in accordance with its normal procedures. Each Participant will
be responsible for disbursing such distribution to the Beneficial Owners that it
represents and to each indirect participating brokerage firm (a "brokerage firm"
or "indirect participating firm") for which it acts as agent. Each brokerage
firm will be responsible for disbursing funds to the Beneficial Owners that it
represents. All such credits and disbursements with respect to Book-Entry
Certificates are to be made by the Depository and the Participants in accordance
with the Depository's rules.
The Class X Certificates are interest-only securities that have no
stated Certificate Principal Balance, but are entitled to receive a distribution
on each Distribution Date of certain interest amounts, as more fully set forth
in the Agreement (the "Class X Strip Amount"). The Class R Certificates will
have no stated Certificate Principal Balance or Pass-Through Rate, and will
represent the beneficial ownership of the "residual interest" in each of the
REMICs.
[Book-entry Certificates
The Offered Certificates will be Book-Entry Certificates as described in
the Prospectus under "DESCRIPTION OF THE CERTIFICATES -- BOOK-ENTRY PROCEDURES."
As such, the Offered Certificates will initially be registered in the name of
Cede & Co., the nominee of the Depository Trust Corporation ("DTC").
Unless and until the Offered Certificates are issued in certificated,
fully-registered form (which will only happen under the limited circumstances
described in the Prospectus under "DESCRIPTION OF THE CERTIFICATES -- BOOK-ENTRy
PROCEDURES"), it is anticipated that the only "Certificateholder" of the
Offered Certificates will be Cede & Co., as nominee of DTC. Beneficial Owners
will not be Certificateholders as that term is used in the Agreement. Beneficial
Owners are only permitted to exercise the rights of Certificateholders
indirectly through Depository Participants and DTC.
DTC management is aware that some computer applications, systems, and
the like for processing data ("Systems") 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 (the "Industry") 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 securityholders, 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: (i) impress upon them the importance of such services
being Year 2000 compliant; and (ii) 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 such contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry 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
The Servicer will establish and maintain the Certificate Account for the
benefit of the Trustee. The Certificate Account must be an Eligible Account. The
Certificate Account is to be held in trust for the benefit of the Trustee on
behalf of the Certificateholders, and shall be either in the Trustee's name or
designated in a manner that reflects the custodial nature of the account and
that all funds in such account are held for the benefit of the Trustee. A single
Certificate Account may be maintained for more than one Series of Certificates
provided that in any such event, the Servicer shall cause separate accounting
and records to be maintained within the Certificate Account with respect to each
separate Series. Funds in the Certificate Account will be invested in
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Eligible Investments (as defined in the Agreement) that will mature or be
subject to redemption not later than the business day preceding the applicable
monthly Distribution Date. Earnings on amounts deposited into the Certificate
Account shall be credited to the account of the Servicer as servicing
compensation in addition to the Servicing Fee and may be used to offset P&I
Advances due from the Servicer in respect of the Distribution Date next
succeeding the date on which such earnings were made or, at the Servicer's
option, may be released to the Servicer on such Distribution Date. The amount of
any losses incurred in respect of any such investments shall be deposited into
the Certificate Account by the Servicer out of its own funds promptly after any
such losses are incurred.
All payments in respect of principal and interest on the Assets received
by the Servicer on or after the Cut-off Date (exclusive of collections relating
to scheduled payments due on or prior to the Cut-off Date), including Principal
Prepayments and Net Liquidation Proceeds, will be deposited into the Certificate
Account no later than the second business day following the Servicer's receipt
thereof. Amounts collected as late payment fees, extension fees, assumption fees
or similar fees will be retained by the Servicer as part of its servicing
compensation. In addition, amounts paid by Oakwood for Assets repurchased as a
result of breach of a representation or warranty under the Agreement and amounts
required to be deposited upon substitution of a Qualified Substitute Asset
because of a breach of a representation or warranty, as described under "THE
ASSET POOL -- CONVEYANCE OF ASSETS" ABOVE, will be paid into the Certificate
Account.
Subject to the following sentence, on or prior to the business day
before each Distribution Date (the related "Remittance Date"), the Servicer will
remit the Remittance Amount and the amount of all required P&I Advances to the
Trustee for deposit into the Distribution Account. If, however, the Certificate
Account is maintained by the Trustee, the Trustee may withdraw the Remittance
Amount (and any portion of the P&I Advance to be covered by investment earnings
on the Certificate Account) from the Certificate Account on the applicable
Distribution Date and deposit it into the Distribution Account. In such event,
the Servicer will remit the portion, if any, of the required P&I Advance that
is not to be covered by investment earnings on the Certificate Account to the
Trustee on the related Remittance Date for deposit into the Distribution
Account. The Distribution Account shall be an Eligible Account established and
maintained by the Trustee.
The Trustee or its Paying Agent will withdraw funds from the Distribution
Account (but only to the extent of the related Available Distribution Amount)
to make distributions to Certificateholders as specified under"
- --DISTRIBUTIONS -- PRIORITY OF DISTRIBUTIONS" BELOW.
From time to time, as provided in the Agreement, the Servicer will also
withdraw funds from the Certificate Account for other purposes as permitted by
the Agreement.
Distributions
AVAILABLE DISTRIBUTION AMOUNT
The "Available Distribution Amount" for a Distribution Date will include
(1)(a) Monthly Payments of principal and interest due on the Assets during
the related Collection Period, regardless of whether such payments were
actually collected from the Obligors or advanced by the Servicer and (b)
unscheduled payments received with respect to the Assets during the related
Prepayment Period, including Principal Prepayments, proceeds of repurchases, Net
Liquidation Proceeds and net Insurance Proceeds, less (2)(a) if Oakwood is
not the Servicer, Servicing Fees for the related Collection Period, (b)
amounts required to reimburse the Servicer for previously unreimbursed Advances
in accordance with the Agreement, (c) amounts required to reimburse the Company
or the Servicer for certain reimbursable expenses in accordance with the
Agreement and (d) amounts required to reimburse any party for an overpayment of
a Repurchase Price for an Asset.
DISTRIBUTIONS
Distributions will be made on each Distribution Date to holders of record
on the preceding Record Date, except that the final distribution in respect of
the Certificates will only be made upon presentation and surrender of the
Certificates at the office or agency appointed by the Trustee for that purpose.
Distributions on a Class of Certificates will be allocated among the
Certificates of such Class in proportion to their respective Percentage
Interests.
INTEREST
On each Distribution Date, holders of the Class A Certificates will be entitled
to receive, to the extent of the Available Distribution Amount as described
above (1) interest accrued on such Class during the related Interest Accrual
Period at the then-applicable Pass-Through Rate on the Certificate Principal
Balance of such Class immediately prior to that Distribution Date (the "Interest
Distribution Amount" for such Class), plus (2) any amounts distributable under
clause (1) above or this clause
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<PAGE>
(2) on such class on the previous Distribution Date but not previously
distributed, plus interest accrued on any such amount during the related
interest Accrual PerIod At the Then Applicable Pass-through Rate (The "Carryover
Interest Distribution Amount" for such Class and Distribution Date). On each
Distribution Date, holders of the Subordinated Certificates will be entitled to
receive, to the extent of the Available Distribution Amount and on a
subordinated basis as described below under " -- PRIORITY OF DISTRIBUTIONS"
[(and, in the case of the Class B-2 Certificates, the extent of any Limited
Guarantee Payment Amounts)] (1) interest accrued on such Class during the
related Interest Accrual Period at the then-applicable Pass-through Rate on the
Adjusted Certificate Principal Balance of such Class immediately prior to that
Distribution Date (The "Interest Distribution Amount" for such Class), plus (2)
any amounts distributable under clause (1) above or this clause (2) on such
Class on the previous Distribution Date but not previously distributed, plus
interest accrued on any such amount during the related interest Accrual Period
at the then applicable Pass-Through Rate (the "Carryover Interest Distribution
Amount" for such Class and Distribution Date).
"Interest Accrual Period" shall mean, with respect to each Distribution
Date (i) for the Class A-1 Certificates, the period commencing on the 15th day
of the preceding month through the 14th day of the month in which such
Distribution Date is deemed to occur (except that the First Interest Accrual
Period for the Class A-1 Certificates will be the period from the Closing Date
through ______________), and (ii) for the other Classes of Offered Certificates,
the calendar month preceding the month in which the Distribution Date occurs.
Interest on the Class A-1 Certificates will be calculated on the basis of a
360-day year and the actual number of days elapsed in the applicable Interest
Accrual Period. Interest on the other Classes of Offered Certificates will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
The Pass-through Rate for the Class A-1 Certificates on any Distribution
Date will be the per annum rate equal to the lesser of One-Month LIBOR, as
determined on the second London Banking Day prior to the commencement of the
related Interest Accrual Period (each, a "Floating Rate Determination Date")
plus _____% and the Weighted Average Net Asset Rate. For any Distribution Date,
the Pass-Through Rates for the other Classes of Class a Certificates will be
_____% per annum, in the case of the Class A-2 Certificates, _____% per annum,
in the case of the Class A-3 Certificates, _____% per annum, in the case of the
Class A-4 Certificates, and _____% per annum, in the case of the Class A-5
Certificates. The Pass-through Rate for the Class M-1 Certificates will equal
the lesser of _____% per annum and the Weighted Average Net Asset Rate, the
Pass-through Rate for the Class M-2 Certificates will equal the lesser of _____%
per annum and the Weighted Average Net Asset Rate, the Pass-through Rate for the
Class B-1 Certificates will equal the lesser of _____% per annum and the
Weighted Average Net Asset Rate, and the Pass-through Rate for the Class B-2
Certificates will equal the lesser of _____% per annum and the Weighted Average
Net Asset Rate.
In addition, on each Distribution Date, to the extent of the Available
Distribution Amount and on a subordinated basis as described below under " --
PRIORITY OF DISTRIBUTIONS" [(and, in the case of the Class B-2 Certificates, the
extent of any Limited Guarantee Payment Amounts)] the holders of the
Subordinated Certificates will be entitled to receive (1) interest accrued
during the related Interest Accrual Period at the applicable Pass-through Rate
on any related Writedown Amount (the "Writedown Interest Distribution Amount"
for such Class and Distribution Date), plus (2) any amounts distributable under
clause (1) above or this clause (2) on such Class on the previous Distribution
Date but not previously distributed, plus interest accrued on any such amount
during the related Interest Accrual Period at the then applicable Pass-through
Rate (the "Carryover Writedown Interest Distribution Amount" for such Class and
Distribution Date). SEE " -- REALIZED LOSSES ON LIQUIDATED LOANS."
[FLOATING RATE DETERMINATION
[On each Floating Rate Determination Date, the Servicer will determine the
arithmetic mean of the LIBOR quotations for one-month Eurodollar deposits
("One-Month LIBOR") for the succeeding Interest Accrual Period on the basis of
the Reference Banks' offered LIBOR quotations provided to the Servicer as of
11:00 a.M. (London time) on such Floating Rate Determination Date. As used
herein with respect to a Floating Rate Determination Date, "Reference Banks"
means leading banks engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) whose quotations appear on the Bloomberg Screen US0001M Index page
on the Floating Rate Determination Date in question and (iii) which have been
designated as such by the Servicer and are able and willing to provide such
quotations to the Servicer on each Floating Rate Determination Date; and
"Bloomberg Screen US0001M Index Page" means the display designated as page
"US0001M" on the Bloomberg Financial Markets Commodities News (or such other
pages as may replace such page on that service for the purpose of displaying
LIBOR quotations of major banks). If any Reference Bank should be removed from
the Bloomberg Screen US0001M Index Page or in any other way fails to meet the
qualifications of a Reference Bank, the servicer may, in its sole discretion,
designate an alternative Reference Bank.
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<PAGE>
On each Floating Rate Determination Date, One-Month LIBOR for the next
succeeding interest Accrual Period will be established by the Servicer as
follows:
(i) If, on any Floating Rate Determination Date, two or more of the
Reference Banks provide such offered One-Month LIBOR quotations on the
Bloomberg Screen US0001M Index Page, one-month LIBOR for the next
applicable Interest Accrual Period will be the arithmetic mean of such
offered quotations (rounding such arithmetic mean, if necessary, to the
nearest five decimal places).
(ii) If, on any Floating Rate Determination Date, only one or
none of the Reference Banks provides such offered quotations, One-Month
LIBOR for the next Applicable Interest Accrual Period will be the higher
of (x) One-Month LIBOR as determined on the previous Floating Rate
Determination date and (y) the Reserve Interest Rate. The "Reserve
Interest Rate" will be the rate per annum that the Servicer determines to
be either (a) the arithmetic mean (rounding such arithmetic mean upwards
if necessary to the nearest five decimal places) of the one-month
Eurodollar lending rate that New York City banks selected by the Servicer
are quoting, on the relevant Floating Rate Determination Date, to the
principal London offices of at least two leading banks in the London
interbank market or (b) in the event that the Servicer can determine no
such arithmetic mean, the lowest one-month Eurodollar lending rate that
the New York City banks selected by the Servicer are quoting on such
Floating Rate Determination Date to leading European banks.
(iii) If, on any Floating Rate Determination Date, the
Servicer is required but is unable to determine the Reserve Interest Rate
in the manner provided in paragraph (ii) above, One-Month LIBOR for the
next applicable Interest Accrual Period will be One-Month LIBOR as
determined on the previous Floating Rate Determination Date.
Notwithstanding the foregoing, One-Month LIBOR for an Interest Accrual
Period shall not be based on One-Month libor for the previous Interest Accrual
Period for two consecutive Floating Rate Determination Dates. If, under the
priorities described above, One-Month LIBOR for an Interest Accrual Period would
be based on One-Month LIBOR for the previous Floating Rate Determination Date
for the second consecutive Floating Rate Determination Date, the Servicer shall
select an alternative index (over which the Servicer has no control) used for
determining one-month Eurodollar lending rates that is calculated and published
(or otherwise made available) by an independent third party.
The establishment of One-Month LIBOR (or an alternative index) by the
Servicer and the Servicer's subsequent calculation of the Pass-Through Rate on
the Class A-1 Certificates for the relevant Interest Accrual Period, in the
absence of manifest error, will be final and binding.
Listed below are monthly One-Month LIBOR rates on the last day of the
related calendar month beginning in 1993, as published by Bloomberg. The
following does not purport to be a prediction of the performance of One-Month
LIBOR in the future.
MONTH 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------
JANUARY............. 5.60% 5.44% 5.44% 6.09% 3.13%
- -------------------------------------------------------------------------
FEBRUARY............ 5.69 5.44 5.31 6.13 3.56
- ------------------------------------------------------------------------
MARCH............... 5.69 5.69 5.44 6.13 3.69
- ------------------------------------------------------------------------
APRIL............... 5.66 5.69 5.44 6.06 4.00
- ------------------------------------------------------------------------
MAY................. 5.66 5.69 5.43 6.06 4.38
- ------------------------------------------------------------------------
JUNE................ 5.66 5.69 5.47 6.13 4.56
- ------------------------------------------------------------------------
JULY................ 5.66 5.63 5.46 5.88 4.50
- ------------------------------------------------------------------------
AUGUST.............. 5.63 5.66 5.44 5.88 4.88
- ------------------------------------------------------------------------
SEPTEMBER........... 5.38 5.66 5.43 5.88 5.06
- ------------------------------------------------------------------------
OCTOBER............. 5.25 5.65 5.38 5.83 5.06
- ------------------------------------------------------------------------
NOVEMBER............ 5.62 5.97 5.56 5.98 6.06
- ------------------------------------------------------------------------
DECEMBER............ 5.06 5.72 5.50 5.69 6.00]
- -------------------------------------------------------------------------
PRINCIPAL
The "Principal Distribution Amount" for any Distribution Date will equal
the sum of the following amounts:
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<PAGE>
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 such Due Date (regardless of whether such Monthly Payments were
received by the Servicer from the related Obligors), not including any
Monthly Payments due on Liquidated Loans or repurchased assets;
o the sum of the amounts of all Principal Prepayments received by the
Servicer on the Assets during the related Prepayment Period;
o with respect to any Asset that became a Liquidated Loan during the
related Prepayment Period, the Scheduled Principal Balance thereof on
the date of liquidation thereof (determined without giving effect to
such liquidation); and
o with respect to any Asset that was purchased or repurchased by the
Servicer, Oakwood or the Company pursuant to the Agreement during the
related Prepayment Period, the Scheduled Principal Balance thereof on
the date of purchase or repurchase thereof (determined without giving
effect to such purchase or repurchase).
The "Principal Distribution Shortfall Carryover Amount" for any Distribution
Date will be, with respect to each Class of Certificates, an amount equal to all
Principal Distribution Amounts distributable on such class from previous
Distribution Dates that have not yet been distributed on such Class of
Certificates.
The "Class A Principal Distribution Amount" for any Distribution Date will
equal (i) prior to the Cross-over Date, the Principal Distribution Amount, (II)
on any Distribution Date ad to which the Principal Distribution Tests are not
met, the Principal Distribution Amount or (iii) on any other Distribution Date,
the Class A percentage of the Principal Distribution Amount. The "Class M-1
Principal Distribution Amount" for any Distribution Date will equal (i) as long
as the Class A-1 Certificate Principal Balance, the Class A-2 Certificate
Principal Balance, the Class A-3 Certificate Principal Balance, the Class A-4
Certificate Principal Balance and the Class A-5 Certificate Principal Balance
have not been reduced to zero and prior to the Cross-over Date, zero, (ii) on
any Distribution Date as to which the Principal Distribution Tests are not met
and the Class A-1 Certificate Principal Balance, the Class A-2 Certificate
Principal Balance, the Class A-3 Certificate Principal Balance, the Class A-4
Certificate Principal Balance and the Class A-5 Certificate Principal Balance
have not been reduced to zero, zero, (iii) on any Distribution Date as to which
the Principal Distribution Tests are not met and the Class A-1 Certificate
Principal Balance, the Class A-2 Certificate Principal Balance, the Class A-3
Certificate Principal Balance, the Class A-4 Certificate Principal Balance and
the Class A-5 Certificate Principal Balance have been reduced to zero, the
Principal Distribution Amount or (iv) 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 (i) as long as the Class
A-1 Certificate Principal Balance, the Class A-2 Certificate Principal Balance,
the Class A-3 Certificate Principal Balance, the Class A-4 Certificate Principal
Balance, the Class A-5 Certificate Principal Balance, and the Class M-1
Certificate Principal Balance have not been reduced to zero and prior to the
crosS-over Date, zero; (ii) on any Distribution Date as to which the Principal
Distribution Tests are not met and the Class A-1 Certificate Principal Balance,
the Class A-2 Certificate Principal Balance, the Class A-3 Certificate Principal
Balance, the Class A-4 Certificate Principal Balance, the Class A-5 Certificate
Principal Balance, and the Class M-1 Certificate Principal Balance have not been
reduced to zero, zero, (iii) on any Distribution Date as to which the Principal
Distribution Tests are not met and the Class A-1 Certificate Principal Balance,
the Class A-2 Certificate Principal Balance, the Class A-3 Certificate Principal
Balance, the Class A-4 Certificate Principal Balance, the Class A-5 Certificate
Principal Balance, and the Class M-1 Certificate Principal Balance have been
reduced to zero, the Principal Distribution Amount or (iv) 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 (i) as long as the Class A-1 Certificate Principal Balance, the Class
A-2 Certificate Principal Balance, the Class A-3 Certificate Principal Balance,
the Class A-4 Certificate Principal Balance, the Class A-5 Certificate Principal
Balance, the Class M-1 Certificate Principal Balance and the Class M-2
Certificate Principal Balance have not been reduced to zero and prior to the
Cross-over Date, zero, (ii) on any Distribution Date as to which the Principal
Distribution Tests are not met and the Class A-1 Certificate Principal Balance,
the Class A-2 Certificate Principal Balance, the Class A-3 Certificate Principal
Balance, the Class A-4 Certificate Principal Balance, the Class A-5 Certificate
Principal Balance, the Class M-1 Certificate Principal Balance and the Class M-2
Certificate Principal Balance have not been reduced to zero, zero, (iii) on any
Distribution Date as to which the Principal Distribution Tests are not met and
the Class A-1 Certificate Principal Balance, the Class A-2 Certificate Principal
Balance, the Class A-3 Certificate Principal Balance, the Class A-4 Certificate
Principal Balance, the Class A-5 Certificate Principal Balance, the Class M-1
Certificate Principal Balance and the Class M-2 Certificate Principal Balance
each have been reduced to zero, the Principal Distribution Amount or (iv) 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 (i) as long as the Class A-1 Certificate Principal Balance, the Class
A-2 Certificate Principal Balance, the Class A-3 Certificate Principal Balance,
the Class A-4 Certificate Principal Balance, the Class A-5 Certificate Principal
Balance, the Class M-1 Certificate
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<PAGE>
Principal Balance, the Class M-2 Certificate Principal Balance and the Class B-1
Certificate Principal Balance have not been reduced to zero and prior to the
Cross-over Date, zero, (ii) on any Distribution Date as to which the Principal
Distribution Tests are not met and the Class A-1 Certificate Principal Balance,
the Class A-2 Certificate Principal Balance, the Class A-3 Certificate Principal
Balance, the Class A-4 Certificate Principal Balance, the Class A-5 Certificate
Principal Balance, the Class M-1 Certificate Principal Balance, the Class M-2
Certificate Principal Balance and the Class B-1 Certificate Principal Balance
have not been reduced to zero, zero, (iii) on any Distribution Date as to which
the Principal Distribution Tests are not met and the Class A-1 Certificate
Principal Balance, the Class A-2 Certificate Principal Balance, the Class A-3
Certificate Principal Balance, the Class A-4 Certificate Principal Balance, the
Class A-5 Certificate Principal Balance, the Class M-1 Certificate Principal
Balance, the Class M-2 Certificate Principal Balance and the Class B-1
Certificate Principal Balance each have been reduced to zero, the Principal
Distribution amount or (iv) on any other Distribution Date, the Class B-2
percentage of the Principal Distribution Amount.
For any Distribution Date, if the "Class a Principal Distribution Amount,"
the "Class M-1 Principal Distribution Amount," the "Class M-2 Principal
Distribution Amount," the "Class B-1 Principal Distribution Amount" or the
"Class B-2 Principal Distribution Amount" exceeds the Certificate Principal
Balance with respect to the related Class of Certificates, less the Principal
Distribution shortfall carryover Amount with respect to such Class and
Distribution Date, then such Amounts shall be allocated to the Principal
Distribution Amount of the relatively next junior Class of Certificates. If the
Class A-1 Certificate Principal Balance, the Class A-2 Certificate Principal
Balance, the Class A-3 Certificate Principal Balance, the Class A-4 Certificate
Principal Balance, the Class A-5 Certificate Principal Balance, the Class M-1
Certificate Principal Balance, the Class M-2 Certificate Principal Balance and
the Class B-1 Certificate Principal Balance have not been reduced to zero on or
before a Distribution Date, then Amounts then allocable to the Class B-2
Principal Distribution Amount shall be allocated first to the Class B-1
Principal Distribution Amount, next to the Class M-2 Principal Distribution
Amount, next to the Class M-1 Principal Distribution Amount, next to the Class a
Principal Distribution Amount, and finally to the Class B-2 Principal
Distribution Amount, to the extent that allocation of such Amounts to the Class
B-2 Principal Distribution Amount would reduce the Class B-2 Certificate
Principal Balance below the Class B-2 Floor Amount.
The "Certificate Principal Balance" of each Class of Certificates is its
original aggregate Principal Amount reduced by all distributions on such Class
in reduction of its Certificate Principal Balance. The "Class A Percentage" for
a Distribution Date will generally be the Percentage derived from the fraction
(which shall not be greater than 1), the numerator of which is the aggregate
Certificate Principal Balance of the Class a Certificates immediately prior to
such Distribution Date and the denominator of which is the sum of the Class A-1
Certificate Principal Balance, the Class A-2 Certificate Principal Balance, the
Class A-3 Certificate Principal Balance, the Class A-4 Certificate Principal
Balance, the Class A-5 Certificate Principal Balance, the Class M-1 adjusted
Certificate Principal Balance, the Class M-2 adjusted Certificate Principal
Balance, the Class B-1 adjusted Certificate Principal Balance and the Class B-2
adjusted Certificate Principal Balance, each immediately prior to such
Distribution Date. The "Class M-1 Percentage" for a Distribution Date will
generally be the Percentage derived from the fraction (which shall not be
greater than 1), the numerator of which is the Class M-1 adjusted Certificate
Principal Balance immediately prior to such Distribution Date and the
denominator of which is the sum of the Class A-1 Certificate Principal Balance,
the Class A-2 Certificate Principal Balance, the Class A-3 Certificate Principal
Balance, the Class A-4 Certificate Principal Balance, the Class A-5 Certificate
Principal Balance, the Class M-1 adjusted Certificate Principal Balance, the
Class M-2 adjusted Certificate Principal Balance, the Class B-1 adjusted
Certificate Principal Balance and the Class B-2 adjusted Certificate Principal
Balance, each immediately prior to such Distribution Date. The "Class M-2
Percentage" for a Distribution Date will generally be the Percentage derived
from the fraction (which shall not be greater than 1), the numerator of which is
the Class M-2 adjusted Certificate Balance immediately prior to such
Distribution Date and the denominator of which is the sum of the Class A-1
Principal Balance, the Class A-2 Certificate Principal Balance, the Class A-3
Certificate Principal Balance, the Class A-4 Certificate Principal Balance, the
Class A-5 Certificate Principal Balance, the Class M-1 adjusted Certificate
Principal Balance, the Class M-2 adjusted Certificate Principal Balance, the
Class B-1 adjusted Certificate Principal Balance and the Class B-2 adjusted
Certificate Principal Balance, each immediately prior to such Distribution Date.
the "Class B-1 Percentage" for a Distribution Date will generally be the
Percentage derived from the fraction (which shall not be greater than 1), the
numerator of which is the Class B-1 adjusted Certificate Principal Balance
immediately prior to such Distribution Date and the denominator of which is the
sum of the Class A-1 Certificate Principal Balance, the Class A-2 Certificate
Principal Balance, the Class A-3 Certificate Principal Balance, the Class A-4
Certificate Principal Balance, the Class A-5 Certificate Principal Balance, the
Class M-1 adjusted Certificate Principal Balance, the Class M-2 adjusted
Certificate Principal Balance, the Class B-1 adjusted Certificate Principal
Balance and the Class B-2 adjusted Certificate Principal Balance, each
immediately prior to such Distribution Date. The "Class B-2 Percentage" for a
Distribution Date will generally be the Percentage derived from the fraction
(which shall not be greater than 1), the numerator of which is the Class B-2
adjusted Certificate Principal Balance immediately prior to such distribution
date and the denominator of which is the sum of the Class A-1 Certificate
Principal Balance, the Class A-2 Certificate Principal Balance,
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<PAGE>
the Class A-3 Certificate Principal Balance, the Class A-4 Certificate Principal
Balance, the Class A-5 Certificate Principal Balance, the Class M-1 Adjusted
Certificate Principal Balance, the Class M-2 Adjusted Certificate Principal
Balance, the Class b-1 Adjusted Certificate Principal Balance and the Class b-2
Adjusted Certificate Principal Balance, each immediately prior to such
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, concurrently, to each Class of the Class A Certificates (a)
first, the related Interest Distribution Amount for such Distribution Date with
the available Distribution Amount being allocated among such Classes pro rata
based on their respective Interest Distribution Amounts and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Distribution
Date, in each case with the available Distribution Amount being allocated
among the Classes of Class A Certificates pro rata based on their respective
Carryover Interest Distribution Amounts;
(2) second, to the Class M-1 Certificates, (a) first, the related
Interest Distribution Amount for such Distribution Date and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Distribution
Date;
(3) third, to the Class M-2 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(4) fourth, to the Class B-1 Certificates, (a) first, the related
Interest Distribution Amount for such Distribution Date and (b) second, the
related Carryover Interest Distribution Amount, if any, for such Distribution
Date;
(5) fifth, to the Class B-2 Certificates, (a) first, the related Interest
Distribution Amount for such Distribution Date and (b) second, the related
Carryover Interest Distribution Amount, if any, for such Distribution Date;
(6) sixth, concurrently, to each Class of the Class A Certificates, the
related Principal Distribution Shortfall Carryover Amount for each such Class,
if any, for such Distribution Date; allocated among the Class A Certificates pro
rata based on their respective Principal Distribution Shortfall Carryover
Amounts;
(7) seventh, to the Class A-1 Certificates, the Class A-2 Certificates,
the Class A-3 Certificates, the Class A-4 Certificates and the Class A-5
Certificates of the Class A Principal Distribution Amount, allocated in the
following sequential order:
(i) first, to the Class A-1 Certificates in reduction of the
Certificate Principal Balance of such Class, until it has been reduced
to zero;
(ii) second, to the Class A-2 Certificates in reduction of the
Certificate Principal Balance of such Class, until it has been reduced
to zero;
(iii) third, to the Class A-3 Certificates in reduction of the
Certificate Principal Balance of such Class, until it has been reduced
to zero;
(iv) fourth, to the Class A-4 Certificates in reduction of the
Certificate Principal Balance of such Class, until it has been reduced
to zero; and
(v) fifth, to the Class A-5 Certificates in reduction of the
Certificate Principal Balance of such Class, until it has been reduced to
zero;
PROVIDED, HOWEVER, that on any Distribution Date on which the Pool Scheduled
Principal Balance is less than the aggregate Certificate Principal Balance of
the Class A Certificates immediately prior to such Distribution Date, the Class
a Principal Distribution Amount will be allocated among the Class A Certificates
pro rata based upon their respective Certificate Principal Balances.
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<PAGE>
(8) eighth, to the Class M-1 Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Distribution Date, (b) second,
any related Carryover Writedown Interest Distribution Amount for such
Distribution Date, (c) third, any related Principal Distribution Shortfall
Carryover Amount, and (d) fourth, any related Principal Distribution Amount
until the Class M-1 Certificate Principal Balance is reduced to zero;
(9) ninth, to the Class M-2 Certificates, (a) first, any related Writedown
Interest Distribution Amount for such Distribution Date, (b) second, any related
Carryover Writedown Distribution Amount for such Distribution Date, (c) third,
any related Principal Distribution Shortfall Carryover Amount, and (d) fourth,
any related Principal Distribution Amount until the Class M-2 Certificate
Principal Balance is reduced to zero;
(10) tenth, to the Class B-1 Certificates, (a) first, any related
Writedown Interest Distribution Amount for such Distribution Date, (b) second,
any related Carryover Writedown Interest Distribution Amount for such
Distribution Date, (c) third, any related Principal Distribution Shortfall
Carryover Amount, and (d) fourth, any related Principal Distribution Amount
until the Class B-1 Certificate Principal Balance is reduced to zero;
(11) eleventh, to the Class B-2 Certificates, (a) first any related
Writedown Interest Distribution Amount for such Distribution Date, (b) second,
any related Carryover Writedown Interest Distribution Amount for such
Distribution Date, (c) third, any related Principal Distribution Shortfall
Carryover Amount, and (d) fourth, any related Principal Distribution amount
until the Class B-2 Certificate Principal Balance is reduced to zero;
(12) twelfth, if Oakwood is the servicer, to the servicer in the following
sequential order:
(i) the servicing fee with respect to such Distribution Date; and
(ii) any servicing fees from previous Distribution Dates remaining
unpaid;
(13) thirteenth, 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
(14) finally, any remainder to the Class R Certificates.
The "Cross-over Date" will be the later to occur of (1) the Distribution
Date occurring in _________ or (2) the first Distribution Date on which the
percentage equivalent of a fraction (which shall not be greater than 1) the
numerator of which is the Aggregate Adjusted Certificate Principal Balance of
the Subordinated Certificates for such Distribution Date and the denominator of
which is the Pool Scheduled Principal Balance on such Distribution Date, equals
or exceeds ____ times the percentage equivalent of a fraction (which shall not
be greater than 1) the numerator of which is the initial Aggregate Adjusted
Certificate Principal Balance of the Subordinated Certificates and the
denominator of which is the Pool Scheduled Principal Balance as of the Cut-off
Date.
The "Principal Distribution Tests" are met in respect of a Distribution
Date if the following conditions are satisfied: (1) the Average Sixty Day
Delinquency Ratio (as defined in the Agreement) as of such Distribution Date
does not exceed ___%; (2) the Average Thirty-Day Delinquency Ratio (as defined
in the Agreement) as of such Distribution Date does not exceed ___%; (3) the
Cumulative Realized Losses (as defined in the Agreement) as of such Distribution
Date do not exceed a certain specified percentage of the original Pool Scheduled
Principal Balance, depending on the year in which such Distribution Date occurs;
and (4) the Current Realized Loss Ratio (as defined in the Agreement) as of such
Distribution Date does not exceed ___%. The Average Sixty-Day Delinquency Ratio
and the Average Thirty-Day Delinquency Ratio are, in general, the ratios of the
Average of the Aggregate Principal Balances of assets delinquent 60 days or more
and 30 days or more, respectively, for the preceding three Collection periods to
the Average Pool Scheduled Principal Balance for such periods. Cumulative
realized losses are, in general, the Aggregate Realized Losses incurred in
respect of Liquidated Loans since the Cut-off Date. The Current Realized Loss
Ratio is, in general, the ratio of the Aggregate Realized Losses incurred on
Liquidated Loans for the periods specified in the Agreement to an Average Pool
Scheduled Principal Balance specified in the Agreement.
S-36
<PAGE>
With Respect to any Distribution Date the "Class B-2 floor amount" will
mean (a) ____% of the Pool Scheduled Principal Balance as of the Cut-off Date,
if the Class A-1 Certificate Principal Balance, the Class A-2 Certificate
Principal Balance, the Class A-3 Certificate Principal Balance, the Class A-4
Certificate Principal Balance, the Class A-5 Certificate Principal Balance, the
Class M-1 Certificate Principal Balance, the Class M-2 Certificate Principal
Balance and the Class B-1 Certificate Principal Balance have not been Reduced to
zero immediately prior to such Distribution date, and (b) zero, if the Class A-1
Certificate Principal Balance, the Class A-2 Certificate Principal Balance, the
Class A-3 Certificate Principal Balance, the Class A-4 Certificate Principal
Balance, the Class A-5 Certificate Principal Balance, the Class M-1 Certificate
Principal Balance, the Class M-2 Certificate Principal Balance and the Class B-1
Certificate Principal Balance have been reduced to zero immediately prior to
such Distribution Date.
Realized Losses On Liquidated Loans
The Principal Distribution amount for any Distribution date is intended to
include the Scheduled Principal Balance of each Asset that became a Liquidated
Loan during the Related prepayment period. A Realized Loss will be incurred on a
Liquidated Loan in the amount, if any, by which the Net Liquidation Proceeds
from such Liquidated Loan are less than the unpaid Principal Balance of such
Liquidated Loan, plus accrued and unpaid interest thereon, plus amounts
reimbursable to the Servicer for previously unreimbursed Servicing advances. To
the extent that the amount of the Realized Loss is in excess of interest
collected on the nondefaulted Assets in excess of certain interest payments due
to be distributed on the Class A-1, Class A-2, Class A-3, Class A-4, Class A-5,
Class M-1, Class M-2, Class B-1, and Class B-2 Certificates and any portion of
such interest Required to be paid to a Servicer other than Oakwood as Servicing
compensation ("excess interest"), then the amount of such shortfall will be
allocated to the subordinated Certificates. SEE " -- ALLOCATION OF WRITEDOWN
AMOUNTS" HEREIN AND "FEDERAL INCOME TAX CONSEQUENCES -- CONSEQUENCES OF REALIZED
LOSSES" IN THE PROSPECTUS.
Allocation of Writedown Amounts
The Writedown Amount will be allocated among the Classes of Subordinated
Certificates in the following order of priority:
(1) first, to the Class B-2 Certificates, to be applied in reduction of
the Adjusted Certificate Principal Balance of such Class until it has been
reduced to zero;
(2) second, to the Class B-1 Certificates, to be applied in Reduction
of the adjusted Certificate Principal Balance of such Class until is has been
reduced to zero;
(3)third, to the Class M-2 Certificates, to be applied in Reduction of
the adjusted Certificate Principal Balance of such Class until it has been
reduced to zero; and
(4) fourth, to the Class M-1 Certificates, to be applied in Reduction of
the adjusted Certificate Principal Balance of such Class until it has been
reduced to zero.
Subordination of the Subordinated Certificates
The primary credit support for the Class a Certificates is the
subordination of the subordinated Certificates, effected by the allocation of
Writedown Amounts as described herein and by the preferential application of the
Available Distribution Amount to the Class a Certificates Relative to the
Subordinated Certificates to the extent described herein. SEE " --
DISTRIBUTIONS -- PRIORITY OF DISTRIBUTIONS" ABOVE.
The Limited Guarantee
The Class B-2 Certificateholders will have the benefit of a limited
guarantee (the "Limited Guarantee") provided by Oakwood Homes of certain
Collections on the Assets. The Limited Guarantee will not be available to
support the other Classes of Certificates. Pursuant to the limited guarantee,
the Trustee shall be entitled to Receive on each Distribution date for
application on the Class B-2 Certificates the "Limited Guarantee Payment
Amount," if any, for such Distribution Date. The "limited guarantee payment
Amount" for any Distribution Date after giving effect to the allocation of the
Available Distribution Amount for such date will equal the amount of shortfalls
in Collections on the Assets otherwise distributable on such Distribution date,
but will not exceed the sum of (i) any unpaid Interest Distribution Amount and
Carryover Interest
S-37
<PAGE>
Distribution Amount payable pursuant to clause (5) under " -- PRIORITY OF
DISTRIBUTIONS" ABOVE, and (ii) any unpaid Writedown Interest Distribution
Amount, Carryover Writedown Interest Distribution Amount, Principal Distribution
Shortfall Carryover Amount, and Principal Distribution Amount payable on such
Distribution Date pursuant to clause (11) under " -- PRIORITY OF DISTRIBUTIONS"
ABOVE.
The Limited Guarantee will be an unsecured general obligation of Oakwood
Homes and will not be supported by any letter of credit or other credit
enhancement arrangement. Payments under the Limited Guarantee will be allocated
only to the Class B-2 Certificates and such payments will not benefit in any
way, or result in any payment to, the other Classes of Certificates ^.
The consolidated financial statements of Oakwood Homes and its
subsidiaries as of September 30, ____ and ____ and for each of the three years
in the period ended September 30, ____, included in the Annual Report on Form
10-K of Oakwood Homes for the year ended September 30, ____, are incorporated by
reference into the Prospectus and this Prospectus Supplement and shall be deemed
to be a part of the Prospectus and this Prospectus Supplement. Any statement
contained in a document incorporated by reference in the Prospectus and this
Prospectus Supplement shall be modified or superseded for purposes of the
Prospectus and this Prospectus Supplement to the extent that a statement
contained in the Prospectus or this Prospectus Supplement, or in any other
subsequently filed document which also is incorporated by reference in the
Prospectus or this Prospectus Supplement, modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Prospectus or this
Prospectus Supplement.
All financial statements of Oakwood Homes and its subsidiaries included
in the documents filed by Oakwood Homes pursuant to Section 13(a), 13(d), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Prospectus Supplement and prior to the termination of the offering of
the Offered Certificates shall be deemed to be incorporated by reference into
this Prospectus Supplement and to be a part hereof from the respective dates of
filing such documents.
The table below presents selected financial information of Oakwood Homes
and its subsidiaries:
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
(in thousands, except per share data)
<S> <C> <C> <C>
Net sales................................ $_______ $________ $________
- ----------------------------------------------------------------------------------------------------
Total revenues........................... $_______ $________ $________
- ----------------------------------------------------------------------------------------------------
Net income............................... $_______ $________ $________
- ----------------------------------------------------------------------------------------------------
Earnings per common share
Basic................................. $_______ $________ $________
- ----------------------------------------------------------------------------------------------------
Diluted............................... $_______ $________ $________
- ----------------------------------------------------------------------------------------------------
Total assets............................. $_______ $________ $________
- ----------------------------------------------------------------------------------------------------
Notes and bonds payable.................. $_______ $________ $________]
- ----------------------------------------------------------------------------------------------------
</TABLE>
THE TRUST
General
The Certificates will be issued pursuant to the Agreement. The summary
of the provisions of the Agreement contained herein does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Agreement. Reference is made to the Prospectus for important
information in addition to that set forth herein regarding the terms and
conditions of the Offered Certificates. SEE "THE POOLING AND SERVICING
AGREEMENTS" IN THE PROSPECTUS. A copy of the Standard Terms to Pooling and
Servicing Agreement (July 1998 Edition) has been filed with the Securities and
Exchange Commission (the "SEC") as an exhibit to the Company's Registration
Statement on Form S-3 of which the Prospectus is a part. A copy of the Pooling
and Servicing Agreement relating to the Certificates, in the form in which it
was executed by the Company, the Servicer and the Trustee (without exhibits),
will be filed with the SEC in a Current Report on Form 8-K within 15 days after
the Closing Date.
The Trust created pursuant to the Agreement will consist of the
Assets, including all rights to receive payments due on the Assets after the
Cut-off Date; such assets as from time to time are identified as deposited in
any account held for the benefit of Certificateholders (including the
Certificate Account and the Distribution Account); any Manufactured Home,
Real Property or
S-38
<PAGE>
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 Agreement and of any FHA insurance maintained with respect to the Assets;
and certain rights of the Company relating to the enforcement of representations
and warranties made by Oakwood relating to the Assets.
The Trustee
The Trustee is _______________________________________. Any notices to
the Trustee relating to the Certificates or the Agreement should be sent to
_______________________________________________________________________________.
Investors may contact the Trustee's corporate trust office by telephone
to ascertain the Certificate Principal Balance of each Class of Offered
Certificates and the then current Pass-Through Rate applicable to each Class of
the Offered Certificates. As of the date of this Prospectus Supplement, the
telephone number maintained by the Trustee for the purpose of reporting this
information is (___) ___________. The Company will file a Current Report on Form
8-K with the Securities and Exchange Commission within 15 days following the
Closing Date. This Current Report on Form 8-K will specify the initial principal
amount of each Class of the Certificates.
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. In such circumstances, the
Company will also be obligated to appoint a successor Trustee. Any resignation
or removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
The Agreement requires the Trustee to maintain, at its own expense, an
office or agency ^ where Certificates may be surrendered for registration of
transfer or exchange and where notices and demands to or upon the Trustee and
the Certificate Registrar in respect of the Certificates pursuant to the
Agreement may be served.
Optional Termination
The Servicer, subject to the limitations imposed by the Agreement, may
terminate the Trust by purchasing all Assets, REO Properties and Repo
Properties remaining in the Trust on any Distribution Date (the "Call Option
Date") occurring on or after the Distribution Date on which the sum of the
Certificate Balance of the Certificates is less than ____% of the sum of the
original Certificate Principal Balance of the Certificates . The Trust also may
be terminated (and the Certificates retired) on any Distribution Date upon the
Servicer's determination, based on an opinion of counsel, that the REMIC status
of either the Pooling REMIC or the Issuing REMIC described herein under
"SUMMARY OF TERMS -- FEDERAL INCOME TAX CONSEQUENCES" has been lost or that a
substantial risk exists that such status will be lost for the then current
taxable year. See "DESCRIPTION OF THE CERTIFICATES -- OPTIONAL REDEMPTION OR
TERMINATION" IN THE PROSPECTUS.
The "Termination Price" will equal the greater of (a) the sum of (1) any
Liquidation Expenses incurred by the Servicer in respect of any Asset that has
not yet been liquidated; (2) all amounts required to be reimbursed or paid to
the Servicer in respect of previously unreimbursed Advances; and (3) the sum of
(i) the aggregate Unpaid Principal Balance of the Assets, plus accrued and
unpaid interest thereon at the Asset Rates borne by such Assets through the end
of the month preceding the month of the terminating purchase, plus (ii) the
lesser of (A) the aggregate Unpaid Principal Balance of each Asset that had been
secured by any REO Property or Repo Property remaining in the Trust, plus
accrued interest thereon at the Asset Rates borne by such Assets through the end
of the month preceding the month of the terminating purchase, and (B) the
current appraised value of any such REO Property or Repo Property (net of
Liquidation Expenses to be incurred in connection with the disposition of such
property estimated in good faith by the Servicer), such appraisal to be
conducted by an appraiser mutually agreed upon by the Servicer and the Trustee,
plus all previously unreimbursed P&I Advances made in respect of such REO
Property or Repo Property, and (b) the aggregate fair market value of the assets
of the Trust (as determined by the Servicer as described in the Agreement) plus
all previously unreimbursed P&I Advances made with respect to the Assets. The
fair market value of the assets of the Trust as determined for purposes of a
terminating purchase shall be deemed to include accrued interest at the
applicable Asset Rate on the Unpaid Principal Balance of each Asset (including
any Asset that has become a REO Property or a Repo Property, which REO Property
or Repo Property has not yet been disposed of by the Servicer) through the end
of the month preceding the month of the terminating purchase. The basis for any
such
S-39
<PAGE>
valuation shall be furnished by the Servicer to the Certificateholders upon
request. SEE "DESCRIPTION OF THE CERTIFICATES -- OPTIONAL REDEMPTION OR
TERMINATION" IN THE PROSPECTUS.
On the date of any termination of the Trust, the Termination Price shall
be distributed (1) first to the Servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by and not previously
reimbursed to the Servicer with respect to the Assets and (2) second to the
Certificateholders in accordance with the distribution priorities set forth
under " -- DISTRIBUTIONS -- PRIORITY OF DISTRIBUTIONS" ABOVE. The Termination
Price shall be deemed to be a Principal Prepayment in full, together with
related interest, received during the related Prepayment Period for purposes of
determining the allocation of such distributions. Upon the termination of the
Trust and payment of all amounts due on the Certificates and all administrative
expenses associated with the Trust, any remaining assets of the ^ REMICs shall
be sold and the proceeds distributed pro rata to the holders of the Class R
Certificates. SEE "DESCRIPTION OF THE CERTIFICATES -- OPTIONAL REDEMPTION OR
TERMINATION" IN THE PROSPECTUS.
Auction Sale
If the Servicer does not exercise its optional termination right within
90 days after it first becomes eligible to do so, the Trustee shall solicit bids
for the purchase of all Assets, REO Properties and Repo Properties remaining in
the Trust. The Trustee shall sell such Assets, REO Properties and Repo
Properties only if the net proceeds to the Trust from such sale would at least
equal the Termination Price, and the net proceeds from such sale will be
distributed first to the Servicer to reimburse it for all previously
unreimbursed Liquidation Expenses paid and Advances made by, and not previously
reimbursed to, it with respect to the Assets and second to the
Certificateholders and the Servicer in accordance with the distribution
priorities set forth under "DESCRIPTION OF THE OFFERED CERTIFICATEHOLDERS --
DISTRIBUTIONS -- PRIORITY OF DISTRIBUTIONS" herein. If the net proceeds from
such sale would not at least equal the Termination Price, the Trustee shall
decline to sell the Assets, REO Properties and Repo Properties and shall not be
under any obligation to solicit any further bids or otherwise negotiate any
further sale of the Assets, REO Properties and Repo Properties.
Termination of the Agreement
The Agreement will terminate upon the last action required to be taken
by the Trustee on the final Distribution Date following the later of (1) the
purchase by the Servicer of all Assets and all property acquired in respect
of any Asset remaining in the Trust Estate, as described under " --
OPTIONAL TERMINATION" and "Auction Sale" above or (2) the final payment or
other liquidation (or any advance with respect thereto) of the last Asset
remaining in the Trust Estate or the disposition of all property acquired upon
repossession of any Manufactured Home or foreclosure on any Mortgaged Property.
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed, to the extent of available funds, to the
Certificateholders on the final Distribution Date the amounts due them in
accordance with the Agreement. The amount remaining on deposit in the
Certificate Account (other than amounts retained to meet claims), after all
required distributions have been made to the Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5, Class M-1, Class M-2, Class B-1, Class B-2 and Class X
Certificateholders, or to the Termination Account, will be paid to the Class R
Certificateholders pro rata (based upon such holders' respective Percentage
Interests) in accordance with the provisions of the Agreement.
Voting Rights
The voting rights of the Trust will be allocated ^ 0.5% to the Class R
Certificates, 0.5% to the Class X Certificates and 99% to the other Certificates
in proportion to their respective Certificate Principal Balances. For a
description of the limited matters on which the Certificateholders may vote, see
"The Pooling and Servicing Agreements" in the Prospectus.
Reports to Certificateholders
The Trustee will furnish the Certificateholders with monthly
statements prepared by the Servicer (each, a "Remittance Report") containing
information with respect to principal and interest distributions on the
Certificates and Realized Losses on the Assets. Any financial information
contained in such reports will not have been examined or reported upon by an
independent public accountant. Copies of such monthly statements and any annual
reports prepared by the Servicer evidencing the status of its compliance with
the provisions of an Agreement will be furnished to related Certificateholders
upon request addressed to the Trustee.
S-40
<PAGE>
A Remittance Report for a Distribution Date will identify the following
items:
o the Available Distribution Amount for such Distribution Date;
o the Interest Distribution Amount and the Carryover Interest Distribution
Amount, as well as any Writedown Interest Distribution Amount and any
Carryover Writedown Interest Distribution Amount, for each Class of the
Certificates for such Distribution Date, and the amount of interest of
each such category to be distributed on each such Class based upon the
Available Distribution Amount for such Distribution Date;
o the amount to be distributed on such Distribution Date on each Class of
the Certificates to be applied to reduce the Certificate Principal
Balance of such Class, separately identifying any portion of such amount
attributable to prepayments, and the aggregate Principal Distribution
Shortfall Carryover Amount for each Class of the Certificates for such
Distribution Date, and the amount to be distributed to reduce the
Principal Distribution Shortfall Carryover Amount on each such Class
based upon the Available Distribution Amount for such Distribution Date;
o the aggregate amount of P&I Advances required to be made by the Servicer
with respect to such 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 amount of the Limited Guarantee Payment Amount, if any, for such
Distribution Date and the aggregate amount of any unpaid Limited
Guarantee Payment Amounts for any previous Distribution Date; ]
o theCertificate Principal Balance of each Class of the Certificates and
the Adjusted Certificate Principal Balance of each Class of the
Subordinated Certificates after giving effect to the distributions to be
made (and any Writedown Amounts to be allocated) on such Distribution
Date;
o theaggregate Interest Distribution Amount remaining unpaid, if any, and
the aggregate Carryover Interest Distribution Amount remaining unpaid,
if any, for each Class of Certificates, after giving effect to the
distributions to be made on such Distribution Date;
o theaggregate Writedown Interest Distribution Amount remaining unpaid, if
any, and the aggregate Carryover Writedown Interest Distribution Amount
remaining unpaid, if any, for each Class of Certificates, after giving
effect to the distributions to be made on such Distribution Date;
o theaggregate Principal Distribution Shortfall Carryover Amount remaining
unpaid, if any, for each Class of Certificates, after giving effect to
the distributions to be made on such Distribution Date;
o the amount of the aggregate Servicing Fee in respect of such
Distribution Date;
o theaggregate number and the aggregate of the Unpaid Principal Balances
of outstanding Assets that are (a) delinquent one month (i.e., 30 to 59
days) as of the end of the related Prepayment Period, (b) delinquent two
months (i.e., 60 to 89 days) as of the end of the related Prepayment
Period, (c) delinquent three months (i.e., 90 days or longer) as of the
end of the related Prepayment Period and (d) as to which repossession,
foreclosure or other comparable proceedings have been commenced as of
the end of the related Prepayment Period;
o (a)the aggregate number and the aggregate Unpaid Principal Balance of
outstanding Contracts and outstanding Mortgage Loans, stated
separately, for which the Obligor is also a debtor, whether voluntary
or involuntary, in a proceeding under the Bankruptcy Code; and (b)
the aggregate number and the aggregate Unpaid Principle Balance of
outstanding Contracts and outstanding Mortgage Loans for which the
Obligor is also a debtor, whether voluntary or involuntary, in a
proceeding under the Bankruptcy Code, stated separately, that are (i)
delinquent one month (i.e., 30 to 59 days) as of the end of the
related Prepayment Period, (ii) delinquent two months (i.e., 60 to 89
days) as of the end of the related Prepayment Period, and (iii)
delinquent three months (i.e., 90 days or longer) as of the end of
the related Prepayment Period;
S-41
<PAGE>
o the Pre-Funded Amount, if any, in the Pre-Funding Account on such
Distribution Date, the amount of funds, if any, used to purchase
Subsequent Assets during the Pre-Funding Period and the amount of
funds, if any allocated as a prepayment of principal at the end of
the Pre-Funding 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
clauses above, the amounts shall be expressed, with respect to any Certificate,
as a dollar amount per $1,000 denomination.
SERVICING OF THE ASSETS
The Servicer
Oakwood Acceptance Corporation ("Oakwood") was incorporated in 1984 in
the state of North Carolina as a wholly-owned subsidiary of Oakwood Homes
Corporation ("Oakwood Homes"). Oakwood is primarily engaged in the business of
underwriting, originating, pooling, selling and servicing installment sales
contracts for sales of manufactured housing units. Oakwood's principal offices
are located at 7800 McCloud Road, Greensboro, North Carolina 27409-9634
(telephone (336) 664-2500).
Oakwood Homes is a vertically-integrated manufacturer and retailer of
manufactured homes. Homes manufactured by Oakwood Homes are sold primarily at
retail through its approximately ____ (as of _________________) sales centers
located in ___ states. Oakwood Homes also sells manufactured homes purchased
from other manufacturers at certain of its sales centers.
Oakwood underwrites and funds the origination of manufactured housing
contracts and residential mortgage loans on an individual basis from its
principal office and from additional loan origination offices in Austin,
Texas, Mesa, Arizona and Tallahassee, Florida. Contracts for the financing of
sales of manufactured homes at Oakwood's sales centers as well as mortgage loans
are typically originated in the name of Oakwood Mobile Homes, Inc., a
wholly-owned retailing subsidiary of Oakwood Homes ("OMH"), or in the name of a
third party manufactured housing dealer, in either case using funds provided by
Oakwood, and are assigned to Oakwood following origination, although some
assets are originated directly in Oakwood's name. Oakwood underwrites all such
assets. From time to time, Oakwood purchases seasoned portfolios of manufactured
housing contracts from third parties.
Servicing Portfolio
Oakwood services all of the manufactured housing contracts it originates
or purchases (except for certain contract portfolios which it sells on a
servicing-released basis), collecting loan payments, insurance premiums and
other payments from borrowers and remitting principal and interest payments to
the holders of the contracts. The following table shows the composition of
Oakwood's servicing portfolio of manufactured housing contracts and residential
mortgage loans on the dates indicated.
<TABLE>
<CAPTION>
Asset Servicing Portfolio
At September 30,
1994 1995 1996 1997 1998
------------------------------------------------
(Dollars in Thousands)
Total Number of Serviced Assets
<S> <C> <C> <C> <C> <C>
Oakwood Originated............................... 39,273 51,566 67,120 89,411 111,351
------------------------------------------------------------------------------------------------------
Acquired Portfolios................................ 5,773 4,872 4,177 3,602 2,818
- ------------------------------------------------------------------------------------------------------------
Aggregate Outstanding Principal Balance of Serviced
Assets
Oakwood Originated................................. $757,640 $1,130,378 $1,687,406 $2,499,794 $3,536,657
Acquired Portfolios................................ $85,227 $70,853 $57,837 $47,027 $35,882
Average Outstanding Principal Balance per Serviced Asset
Oakwood Originated................................. $19.3 $21.9 $25.1 $28.0 $31.8
------------------------------------------------------------------------------------------------------
Acquired Portfolios................................ $14.8 $14.5 $13.8 $13.1 $12.7
- ------------------------------------------------------------------------------------------------------------
Weighted Average Interest Rate of Serviced Assets
Oakwood Originated............................... 12.2% 12.0% 11.5% 11.0% 10.8%
------------------------------------------------------------------------------------------------------
</TABLE>
S-42
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Acquired Portfolios................................ 11.0% 11.3% 11.2% 11.1% 11.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Delinquency and Loan Loss/Repossession Experience
The following tables set forth certain information concerning (1) the
delinquency experience and (2) the loan loss and repossession experience of the
portfolio of manufactured housing installment sales contracts and residential
mortgage loans serviced by Oakwood, in each case for each of Oakwood's fiscal
years from 1994 through 1998. Because delinquencies, losses and repossessions
are affected by a variety of economic, geographic and other factors, there can
be no assurance that the delinquency and loss experience of the Assets will be
comparable to that set forth below.
<TABLE>
<CAPTION>
Delinquency Experience (1)
At September 30,
1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------
Total Number of Serviced Assets
<S> <C> <C> <C> <C> <C>
Oakwood Originated................................. 39,273 51,566 67,120 89,411 111,351
- ------------------------------------------------------------------------------------------------------------
Acquired Portfolios................................ 5,773 4,872 4,177 3,602 2,818
- ------------------------------------------------------------------------------------------------------------
Number of Delinquent Assets (2)
Oakwood Originated:
30 to 59 days past due............................. 350 601 835 1,171 2,345
-----------------------------------------------
60 to 89 days past due............................. 97 185 308 476 906
----------------------------------------------
90 days or more past due........................... 198 267 492 716 1,222
-----------------------------------------------
Total Number of Assets Delinquent................ 645 1,053 1,635 2,363 4,473
------------------------------------------------------------------------------------------------------
Acquired Portfolios:
30-59 days past due................................ 127 63 66 90 75
- ------------------------------------------------------------------------------------------------------------
60-89 days past due................................ 49 17 23 23 31
- ------------------------------------------------------------------------------------------------------------
90 days or more past due........................... 98 76 62 75 57
- ------------------------------------------------------------------------------------------------------------
Total Number of Assets Delinquent.................. 274 156 151 188 163
- ------------------------------------------------------------------------------------------------------------
Total Delinquencies as a Percentage of Serviced
Assets (3)
Oakwood Originated............................... 1.6% 2.0% 2.4% 2.6% 4.0%
------------------------------------------------------------------------------------------------------
Acquired Portfolios.............................. 4.7% 3.2% 3.6% 5.2% 5.8%
------------------------------------------------------------------------------------------------------
- --------------
</TABLE>
(1) Assets that are already the subject of repossession or foreclosure
procedures are not included in "delinquent assets" for purposes of this
table.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a payment due
on the first day of a month is not 30 days delinquent until the first day of
the following month.
(3) By number of assets.
Loan Loss/Repossession Experience
<TABLE>
<CAPTION>
At September 30,
1994 1995 1996 1997 1998
------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Number of Serviced Assets (1).................. 45,046 56,438 71,297 93,013 114,169
----------------------------------------------------------------------------------------------------------
Average Number of Serviced Assets During Period...... 37,788 50,742 63,868 82,155 103,591
----------------------------------------------------------------------------------------------------------
Number of Serviced Assets Repossessed................ 1,241 1,718 2,746 3,885 5,411
----------------------------------------------------------------------------------------------------------
Serviced Assets Repossessed as a Percentage of Total
Serviced Assets (2).............................. 2.75% 3.04% 3.85% 4.18% 4.74%
------------------------------------------------------------------------------------------------------
Serviced Assets Repossessed as a Percentage of Average
Number of
Serviced Assets.................................. 3.28% 3.39% 4.30% 4.73% 5.22%
------------------------------------------------------------------------------------------------------
Average Outstanding Principal Balance of Assets (3) ..
-------------
Oakwood Originated............................... $701,875 $976,905 $1,409,467 $2,065,033 $2,978,235
------------------------------------------------------------------------------------------------------
Acquired Portfolios................................ $30,432 $30,235 $27,351 $22,943 $19,179
- ------------------------------------------------------------------------------------------------------------
</TABLE>
S-43
<PAGE>
<TABLE>
<CAPTION>
Net Losses from Asset Liquidations (4):
Total Dollars (3)
<S> <C> <C> <C> <C> <C>
Oakwood Originated............................... $4,630 $7,303 $14,248 $26,872 $45,189
------------------------------------------------------------------------------------------------------
Acquired Portfolios................................ $203 $473 $592 $528 $220
- ------------------------------------------------------------------------------------------------------------
As a Percentage of Average Outstanding Principal
Balance of Assets (3)(5)
Oakwood Originated............................... 0.66% 0.75% 1.01% 1.30% 1.52%
------------------------------------------------------------------------------------------------------
Acquired Portfolios................................ 0.67% 1.56% 2.16% 2.30% 1.15%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) As of period end.
(2) Total number of serviced assets repossessed during the applicable period
expressed as a percentage of the total number of serviced assets at the
end of the applicable period.
(3) Includes assets originated by Oakwood and serviced by Oakwood or others.
(4) Net losses represent all losses incurred on Oakwood-serviced portfolios.
Such amounts
include estimates of net losses with respect to certain defaulted assets.
The length of the accrual period for the amount of accrued and unpaid
interest included in the calculation of the net loss varies depending upon
the period in which the loss was charged and whether the asset was owned
by an entity other than Oakwood.
(5) Total net losses incurred on assets liquidated during the applicable
period expressed as a percentage of the average outstanding principal
balance of all assets.
[NOTE THAT DATA PRESENTED IN THE FOREGOING TABLES IN ANY PROSPECTUS SUPPLEMENT
WILL BE AS OF A DATE NO MORE THAN 135 DAYS PRIOR TO THE DATE OF SUCH PROSPECTUS
SUPPLEMENT.]
Oakwood has informed the Company that Oakwood believes that its
historical loss experience has been favorably affected by its ability to resell
repossessed units through OMH and dealers supervised by OMH, and its engagement
of OMH to make needed repairs on repossessed units through the facilities of
such dealers, rather than having to hire unaffiliated parties to perform such
services at higher rates. If Oakwood is replaced as Servicer of the Assets,
the successor Servicer will not have access to OMH or its network of dealers
and, as a consequence, the loss experience on the Assets (particularly the
Contracts) may be adversely affected. See "Risk Factors -- You May Have Losses
on Your Certificates if the Losses and Delinquencies on Assets Exceed Certain
Levels" herein. The September 30, 1998 delinquency information provided herein
notes a material increase over year-end 1997 results. The Servicer does not yet
know whether this trend will continue. However, any continuation likely would
cause losses higher than historical credit losses.
The data in the foregoing tables are presented for illustrative
purposes only, and there is no assurance that the delinquency, loan loss and
repossession experience of the Assets will be similar to that set forth above.
The delinquency, loan loss and repossession experience of manufactured housing
contracts historically has been sharply affected by downturns in regional or
local economic conditions. For instance, such a downturn was experienced in
areas dependent on the oil and gas industry in the 1980s, causing increased
levels of delinquencies, repossessions and loan losses on manufactured housing
installment sales contracts in the affected areas. The Asset Pool consists
primarily of Contracts. Regional and local economic conditions are often
volatile, and no predictions can be made regarding their effects on future
economic losses upon repossessions or as to the levels of losses that will be
incurred as a result of any repossessions of or foreclosures on Assets. See
"Risk Factors -- You May Have Losses on Your Certificates if the Losses and
Delinquencies on Assets Exceed Certain Levels" herein. Information regarding the
geographic location, at origination, of the Manufactured Homes and Mortgaged
Properties securing the ^ Initial Assets in the Asset Pool is set forth under
"The Asset Pool" herein.
Collection and Other Servicing Procedures
The Servicer will administer, service and make collections on the
Assets, exercising the degree of care that the Servicer exercises with respect
to similar contracts serviced by the Servicer.
Except for the Step-up Rate Loans during their Step-up Periods, each
Fixed Rate Asset bears interest at a fixed annual percentage rate (its "APR" or
"Asset Rate") and provides for level payments over the term of such Asset
that fully amortize the principal balance of the Asset. All payments received
on the Assets (other than payments allocated to items other than principal and
interest or payments sufficient to pay the outstanding principal balance of and
all accrued and unpaid interest on such Assets) will be applied when received
first to any previously unpaid scheduled Monthly Payments, and then to the
currently due Monthly Payment, in the chronological order of occurrence of the
Due Dates for such Monthly Payments. Any payments on an Asset that
S-44
<PAGE>
exceed the amount necessary to bring the Asset current are applied to the
partial prepayment of principal of the Asset if the Servicer determines (based
on specific directions from the Obligor as to such payment or on a course of
dealing with such Obligor) that the Obligor intended such payment as a partial
principal prepayment. If the Servicer cannot determine the Obligor's intent with
respect to any such excess payment, the Servicer will apply such excess payment
as an early payment of scheduled Monthly Payments for subsequent Due Dates to
the extent such excess payment is an integral multiple of such Obligor's
scheduled Monthly Payment, and will apply the remainder of such excess payment
as a partial principal prepayment.
Servicing Compensation and Payment of Expenses
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 is the Servicer, the Servicing Fee in respect of a Distribution Date
will be paid pursuant to clause (12) under "Description of the Offered
Certificates -- Distributions" above and only to the extent of funds available
pursuant to such clause, except that it may retain its Servicing Fee out of
collections on the Assets to the extent that the amount already on deposit in
the Certificate Account for the related Distribution Date will allow the full
distribution of all amounts required to be distributed pursuant to clauses (1)
through (11) under "Description of the Offered Certificates -- Distributions --
Priority of Distributions" above on the related Distribution Date. If Oakwood is
not the Servicer, the Servicing Fee in respect of each Asset may be retained by
the Servicer at the time of the related collection on such Asset (or may be
withdrawn from the Certificate Account at a later time), in which case such
amount will not be part of the Available Distribution Amount.
The Servicing Fee provides compensation for customary manufactured
housing contract third-party servicing activities to be performed by the
Servicer for the Trust and for additional administrative services performed by
the Servicer on behalf of the Trust. Customary servicing activities include
collecting and recording payments, communicating with Obligors, investigating
payment delinquencies, providing billing and tax records to Obligors and
maintaining internal records with respect to each Asset. Administrative
services performed by the Servicer on behalf of the Trust include calculating
distributions to Certificateholders and providing related data processing and
reporting services for Certificateholders and on behalf of the Trustee. Expenses
incurred in connection with servicing of the Assets and paid by the Servicer
from its monthly Servicing Fee include, without limitation, payment of fees and
expenses of accountants, payment of all fees and expenses incurred in connection
with the enforcement of Contracts or Mortgage Loans (except Liquidation Expenses
as described below) and payment of expenses incurred in connection with
distributions and reports to Certificateholders. The Servicer will be reimbursed
out of the Liquidation Proceeds of a defaulted Asset for all reasonable,
out-of-pocket Liquidation Expenses incurred by it in repossessing, foreclosing
on (if applicable) and liquidating the related Manufactured Home or Mortgaged
Property.
As part of its servicing fees, the Servicer will also be entitled to
retain, as compensation for the additional services provided in connection with
the Agreement, any late payment fees made by Obligors, extension fees paid by
Obligors for the extension of scheduled payments and assumption fees paid in
connection with permitted assumptions of Assets by purchasers of the related
Manufactured Homes and Mortgaged Properties, as well as investment earnings on
funds in the Certificate Account.
Advances
On or prior to the Remittance Date for each Distribution Date, the
Servicer will either (1) deposit from its own funds the related aggregate P&I
Advance into the Certificate Account; (2) cause appropriate entries to be made
in the records of the Certificate Account that funds in the Certificate Account
that are not part of the Available Distribution Amount for the related
Distribution Date have been used to make the aggregate P&I Advance; (3) if the
Certificate Account is maintained by the Trustee, instruct the Trustee to use
investment earnings on the Certificate Account to defray the Servicer's P&I
Advance obligation; or (4) make (or cause to be made) the aggregate P&I Advance
through any combination of the methods described in clauses (1), (2) and (3)
above. Any funds held for future distribution and used in accordance with clause
(2) above must be restored by the Servicer from its own funds or from early
payments collected on the Assets when they become part of a future Available
Distribution Amount. The aggregate required P&I Advance for a Distribution Date
is the 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.
S-45
<PAGE>
The Servicer will also be obligated to make advances ("Servicing
Advances"), to the extent the Servicer deems such Advances recoverable out of
Liquidation Proceeds of, or from collections on, the related Contract or
Mortgage Loan, in respect of Liquidation Expenses and certain taxes and
insurance premiums not paid by an Obligor on a timely basis.
The Servicer may reimburse itself for Servicing Advances out of
collections of the late payments in respect of which such Advances were made
and, upon the determination that a Non-recoverable Advance has been made in
respect of an Asset or upon an Asset becoming a Liquidated Loan, out of
Funds in the Certificate Account for unreimbursed amounts advanced by it in
respect of such Asset. In addition, the Servicer may reimburse itself out of
funds in the Certificate Account for unreimbursed amounts advanced by it in
respect of P&I Advances.
Successors to Servicer, Delegation of Duties
Any entity with which the Servicer is merged or consolidated, or any
entity resulting from any merger, conversion or consolidation to which the
Servicer is a party, or any entity succeeding to the business of the Servicer,
will be the successor to the Servicer under the Agreement so long as each Rating
Agency has delivered to the Trustee a letter to the effect that such
successorship will not result in a downgrading of the rating then assigned by
such Rating Agency to any Class of the Certificates. The Servicer may delegate
certain computational, data processing, collection and foreclosure (including
repossession) duties under the Agreement without any notice to or consent from
the Company or the Trustee, provided that the Servicer will remain fully
responsible for the performance of such duties.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Certificates will be used to purchase the Assets and to pay other expenses
connected with pooling the Assets and issuing the Certificates.
UNDERWRITING
------------
The Company and Oakwood have entered into an underwriting agreement
dated ______________________ (the "Underwriting Agreement") with
_________________________________ and _______________________________________
(the "Underwriters"), for whom __________________________________ is acting as
representative (the "Representative"). Subject to the terms and conditions set
forth in the Underwriting Agreement, the Company has agreed to sell to the
Underwriters, and the Underwriters have agreed to purchase, the principal amount
of the Offered Certificates set forth below opposite each of their names:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class A-5
<S> <C> <C> <C> <C> <C>
_____________________________....... $_________ $_________ $_________ $__________ $_________
- ------------------------------------------------------------------------------------------------------
_____________________________....... $_________ $_________ $_________ $__________ $_________
- ------------------------------------------------------------------------------------------------------
Total.......................... $_________ $_________ $_________ $__________ $_________
- ------------------------------------------------------------------------------------------------------
Class M-1 Class M-2 Class M-3 Class
M-4
_____________________________................. $_________ $_________ $__________ $_________
- ------------------------------------------------------------------------------------------------------
_____________________________................. $_________ $_________ $__________ $_________
- ------------------------------------------------------------------------------------------------------
Total.................................... $_________ $_________ $__________ $_________
- ------------------------------------------------------------------------------------------------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Offered Certificates if
any of the Offered Certificates are purchased. In the event of default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the nondefaulting Underwriter may be increased or
the Underwriting Agreement may be terminated.
The Company has been advised by the Representative that the several
Underwriters propose to offer the Offered Certificates to the public initially
at the respective public offering prices set forth on the cover page of this
Prospectus
S-46
<PAGE>
Supplement, and to certain dealers at such prices less a concession not in
excess of the amount set forth below for each Class. The Underwriters and such
dealers may allow a discount not in excess of the amount set forth below for
each Class to certain other dealers. After the initial public offering of the
Offered Certificates, the public offering prices and concessions and discounts
to dealers may be changed by the Representative.
CONCESSION DISCOUNT
- --------------------------------------------------------------------------------
(PERCENT OF (PERCENT OF
- --------------------------------------------------------------------------------
PRINCIPAL PRINCIPAL
- --------------------------------------------------------------------------------
AMOUNT) AMOUNT)
- --------------------------------------------------------------------------------
CLASS A-1.......................... _____% _____%
--------------------------------------------------------------------
CLASS A-2.......................... _____% _____
------------------------------------------------------------------
CLASS A-3.......................... _____% _____
------------------------------------------------------------------
CLASS A-4.......................... _____% _____
------------------------------------------------------------------
CLASS A-5.......................... _____% _____
------------------------------------------------------------------
CLASS M-1.......................... _____% _____
------------------------------------------------------------------
CLASS M-2.......................... _____% _____
------------------------------------------------------------------
CLASS B-1.......................... _____% _____
------------------------------------------------------------------
CLASS B-2.......................... _____% _____
------------------------------------------------------------------
The Underwriters and any dealers that participate with the Underwriters
in the distribution of the Offered Certificates may be deemed to be
underwriters, and any discounts, concessions or commissions received by them,
and any profit on the resale of the Offered Certificates purchased by them, may
be deemed to be underwriting discounts and commissions under the Securities Act
of 1933, as amended (the "Act").
The Company and Oakwood have agreed to indemnify the Underwriters
against certain liabilities, including civil liabilities under the Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
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 (The "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Offered
Certificates in the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit the Underwriters
to reclaim a selling concession from a syndicate member when the Offered
Certificates originally sold by such syndicate member are purchased in a
syndicate covering transaction to cover syndicate short positions. Such
stabilizing transactions, syndicate covering transactions and penalty bids may
cause the price of the Offered Certificates to be higher than it would otherwise
be in the absence of such transactions. These transactions, if commenced, may be
discontinued at any time.
The Company estimates that its expenses in connection with the issuance
and offering of the Certificates will be approximately $________. This sum
includes Commission registration fees of approximately $_______, printing and
engraving fees of approximately $__________, legal fees and expenses of
approximately $___________, fees and expenses of other professional service
providers (including, but not limited to, the Rating Agencies, the Trustee, and
independent auditors) of approximately $__________, and miscellaneous fees and
expenses of approximately $____________. this information concerning the
company's fees and expenses is an approximation and is subject to future
contingencies.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Hunton &
Williams, Richmond, Virginia, and for the Underwriter by
______________________________________________________. The material federal
income tax consequences of the Offered Certificates will be passed upon for the
Company by Hunton & Williams.
S-47
<PAGE>
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans and certain other retirement plans
and arrangements, including individual retirement accounts and annuities, Keogh
plans, and collective investment funds in which such plans, accounts, annuities
or arrangements are invested, that are subject to ERISA or corresponding
provisions of the Code (collectively, "Plans"), persons acting on behalf of a
Plan, or persons using the assets of a Plan ("Plan Investors") should carefully
review with their legal advisors whether the purchase or holding of any
Certificates could result in unfavorable consequences for the Plan or its
fiduciaries under the Plan Asset Regulations (as defined in the Prospectus) or
the prohibited transaction rules of ERISA or the Code. Prospective investors
should be aware that, although certain exceptions from the application of the
Plan Asset Regulations and the prohibited transaction rules exist, there can be
no assurance that any such exception will apply with respect to the acquisition
of a Certificate. SEE "ERISA CONSIDERATIONS" IN THE PROSPECTUS.
Sections 406 and 407 of ERISA and Section 4975 of the Code prohibit
certain transactions that involve (1) a Plan that is subject to ERISA and any
party in interest or disqualified person with respect to the Plan and (2) plan
assets. The Plan Asset Regulations define "plan assets" to include not only
securities (such as the Certificates) held by a Plan but also the underlying
assets of the issuer of any equity securities (the "Look-Through Rule"), unless
one or more exceptions specified in the regulations are satisfied. The Offered
Certificates will be treated as equity securities for purposes of the Plan
Asset Regulations. The Look-Through Rule would not apply to the Offered
Certificates if one or more of the exceptions specified in the Plan Asset
Regulations are satisfied. However, based on the information available to the
Underwriters at the time of the printing of the Prospectus, there can be no
assurance that either the Publicly Offered Exception or the Insignificant
Participation Exception will apply to the initial or any subsequent purchases
of the Offered Certificates. SEE "ERISA CONSIDERATIONS" IN THE PROSPECTUS.
The U.S. Department of Labor has granted an administrative exemption to
_____________________________ (Prohibited Transaction Exemption ____;
Exemption Application No. ____, ____Fed. Reg. ____ (____), referred to herein
as the "Exemption") from certain of the prohibited transaction rules of ERISA
and the related excise tax provisions of Section 4975 of the Code with respect
to the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of certain receivables, loans,
and other obligations and that meet the conditions and requirements of the
Exemption. The receivables covered by the Exemption include manufactured housing
installment sales contracts such as the Contracts and mortgage loans such as the
Mortgage Loans.
Among the general conditions that must be satisfied for the Exemption to
apply are the following:
(1) the acquisition of the certificates by a Plan is on terms (including
the price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party;
(2) the rights and interests evidenced by the certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the related trust;
(3) the certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest generic rating
categories from either Moody's Investors Service, Inc. ("Moody's"), Standard
& Poor's Rating Services, a division of The McGraw-Hill Companies, Inc. ("S&P"),
Fitch IBCA, Inc. ("Fitch") or Duff & Phelps Credit Rating Co. ("D&P")
(collectively, the "Exemption Rating Agencies");
(4) the trustee of the related trust must not be an affiliate of any other
member of the Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the Underwriters in
connection with the distribution of the certificates represents not more than
reasonable compensation for underwriting the certificates;
(6) the sum of all payments made to and retained by the Company pursuant
to the assignment of the loans to the trust represents not more than the fair
market value of such loans; and
(7) the sum of all payments made to and retained by the Servicer
represents not more than reasonable compensation for such person's services
under any servicing agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith.
The Exemption defines the term "reasonable compensation" by reference to
DOL Regulation ss.2550.408c-2, 29 C.F.R. ss.2550.480c-2, which states that
whether compensation is reasonable depends upon the particular facts and
circumstances of each
S-48
<PAGE>
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, the Company and the Servicer represent
reasonable compensation for purposes of the Exemption. In addition, it is a
condition to application of the Exemption that the Plan investing in the
certificates is an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the Securities and Exchange Commission under the Act.
Furthermore, in order for its certificates to qualify under the Exemption, a
trust must meet the following requirements: (a) the corpus of the trust must
consist solely of assets of the type that have been included in other investment
pools; (b) certificates in such other investment pools must have been rated in
one of the three highest rating categories of S&P, Moody's, D&P or Fitch for at
least one year prior to the Plan's acquisition of certificates; and (c)
certificates evidencing interests in such other investment pools must have been
purchased by investors other than Plans for at least one year prior to any
Plan's acquisition of certificates.
The Exemption does not apply to Plans sponsored by the Company, the
Underwriters, Oakwood, the Trustee, the Servicer and any Obligor with respect
to Assets included in the Trust constituting more than five percent of the
aggregate unamortized principal balance of the Assets in the Trust, or any
affiliate of such parties (the "Restricted Group"). Moreover, the Exemption
provides certain Plan fiduciaries relief from certain self-dealing/conflict of
interest prohibited transactions only if, among other requirements, (a) in the
case of an acquisition in connection with the initial issuance of certificates,
at least 50% of each class of certificates in which Plans have invested is
acquired by persons independent of the Restricted Group and at least 50% of the
aggregate interest in the trust is acquired by persons independent of the
Restricted Group; (b) such fiduciary (or its affiliate) is an obligor with
respect to five percent or less of the fair market value of the obligations
contained in the trust; (c) the Plan's investment in certificates of any class
does not exceed 25% of all of the certificates of that class outstanding at the
time of the acquisition; and (d) immediately after the acquisition, no more than
25% of the assets of the Plan with respect to which such person is a fiduciary
is invested in certificates representing an interest in one or more trusts
containing assets sold or serviced by the same entity.
The Exemption may apply to the acquisition and holding of the Class A
Certificates by Plans provided that all conditions to application of the
Exemption are met. Based upon information provided to the Company by members of
the Restricted Group, it is expected that the conditions set forth above in
paragraphs (2), (3) and (4) will be satisfied. 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, (a) PTCE 95-60,
regarding investments by insurance company general accounts; (b) PTCE 91-38,
regarding investments by bank collective investment funds;(c) PTCE 90-1,
regarding investments by insurance company pooled separate accounts; or(d)
PTCE 83-1, regarding acquisitions by Plans of interests in mortgage pools.
Before purchasing Class A Certificates, a Plan subject to the fiduciary
responsibility provisions of ERISA or described in Section 4975(e)(1) of the
Code should consult with its counsel to determine whether the conditions to
application of the Exemption or any other exemptions would be met. In
addition, any Plan Investor contemplating an investment in the Class A
Certificates should note that the duties and obligations of the Trustee and the
Servicer are limited to those expressly set forth in the Agreement, and such
specified duties and obligations may not comport with or satisfy the provisions
of ERISA setting forth the fiduciary duties of Plan fiduciaries.
BECAUSE THE OFFERED SUBORDINATED CERTIFICATES ARE SUBORDINATED
SECURITIES, AND THE CLASS B CERTIFICATES ARE NOT EXPECTED TO BE RATED IN ONE OF
THE THREE HIGHEST RATING CATEGORIES BY THE RATING AGENCIES, THE EXEMPTION AND
CERTAIN OF THE ALTERNATIVE EXEMPTIONS NOTED ABOVE WILL NOT APPLY TO THE
PURCHASE, SALE OR HOLDING OF THE OFFERED SUBORDINATE CERTIFICATES. ACCORDINGLY,
THE OFFERED SUBORDINATED CERTIFICATES WILL NOT BE OFFERED FOR SALE, AND ARE NOT
TRANSFERRABLE, TO PLAN INVESTORS UNLESS SUCH PLAN INVESTOR PROVIDES THE SELLER
AND THE TRUSTEE WITH A BENEFIT PLAN OPINION, OR THE CIRCUMSTANCES DESCRIBED IN
CLAUSE (II) BELOW ARE SATISFIED. A BENEFIT PLAN OPINION IS AN OPINION OF COUNSEL
TO THE EFFECT THAT THE PURCHASE OF AN OFFERED SUBORDINATED CERTIFICATE WILL NOT
(A) CAUSE THE ASSETS OF THE TRUST TO BE REGARDED AS PLAN ASSETS FOR PURPOSES OF
THE PLAN ASSET REGULATIONS, (B) GIVE RISE TO A FIDUCIARY DUTY UNDER ERISA ON THE
PART OF THE SELLER, THE SERVICER OR THE TRUSTEE OR (C) BE TREATED AS, OR RESULT
IN, A PROHIBITED TRANSACTION UNDER SECTIONS 406 OR 407 OF ERISA OR SECTION 4975
OF THE CODE. UNLESS SUCH OPINION IS DELIVERED, EACH PERSON ACQUIRING AN OFFERED
SUBORDINATED CERTIFICATE WILL BE DEEMED TO REPRESENT TO THE TRUSTEE, THE SELLER
AND THE SERVICER THAT EITHER (I) SUCH PERSON IS NOT A PLAN INVESTOR SUBJECT TO
ERISA OR SECTION 4975 OF THE CODE OR (II) SUCH PERSON IS AN INSURANCE COMPANY
THAT IS PURCHASING AN OFFERED SUBORDINATED CERTIFICATE WITH FUNDS FROM ITS
"GENERAL ACCOUNT" AND THE PROVISIONS OF
S-49
<PAGE>
PROHIBITED TRANSACTION CLASS EXEMPTION 95-60 WILL APPLY TO EXEMPT THE
ACQUISITION AND HOLDING OF THE OFFERED SUBORDINATED CERTIFICATES 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 _____ and ______:
[Rating Agencies]
Class A-1 _____ _____
- --------------------------------------------------------------------------
Class A-2 _____ _____
- --------------------------------------------------------------------------
Class A-3 _____ _____
- --------------------------------------------------------------------------
Class A-4 _____ _____
- --------------------------------------------------------------------------
Class A-5 _____ _____
- --------------------------------------------------------------------------
Class M-1 _____ _____
- --------------------------------------------------------------------------
Class M-2 _____ _____
- --------------------------------------------------------------------------
Class B-1 _____ _____
- --------------------------------------------------------------------------
Class B-2 _____ _____
- --------------------------------------------------------------------------
The ratings on asset-backed pass-through certificates address the
likelihood of the receipt by certificateholders of all distributions on the
underlying assets to which they are entitled. Rating opinions address the
structural, legal and issuer-related aspects associated with the securities,
including the nature of the underlying assets. Ratings on pass-through
certificates do not represent any assessment of the likelihood that principal
prepayments will be made by borrowers with respect to the underlying assets or
of the degree to which the rate of such prepayments might differ from that
originally anticipated. As a result, the ratings do not address the possibility
that holders of the Offered Certificates purchased at a premium might suffer a
lower than anticipated yield in the event of rapid prepayments of the Assets
or in the event that the Trust is terminated prior to the Final Scheduled
Distribution Date for the Certificates.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating.
The Company will request _______ and _______ to rate the Offered
Certificates. There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue a rating and,
if so, what such rating would be. A rating assigned to the Offered Certificates
by a rating agency that has not been requested by the Company to do so may be
lower than the rating assigned by a Rating Agency pursuant to the Company's
request.
LEGAL INVESTMENT CONSIDERATIONS
[If pre-funding account is used, classes become "mortgage related
securities" for SMMEA after pre-funded amount is reduced to zero.] The Class A
Certificates and the Class M-1 Certificates will constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA") for so long as they are rated in one of the two highest rating
categories by one or more nationally recognized statistical rating
organizations. As "mortgage related securities," the Class A Certificates and
the Class M-1 Certificates will be legal investments for certain entities to
the extent provided in SMMEA, subject to state laws overriding SMMEA. A number
of states have enacted legislation overriding the legal investment provisions of
SMMEA. SEE "LEGAL INVESTMENT CONSIDERATIONS" IN THE PROSPECTUS.
THE CLASS M-2 AND CLASS B CERTIFICATES WILL NOT CONSTITUTE "MORTGAGE
RELATED SECURITIES" FOR PURPOSES OF SMMEA BECAUSE THEY ARE NOT RATED IN ONE OF
THE TWO HIGHEST RATING CATEGORIES BY A NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATION. The appropriate characterization of the Class M-2 and Class B
Certificates under various legal investment restrictions, and thus the ability
of investors subject to legal restrictions to purchase the Class M-2 and Class B
Certificates, is subject to significant interpretive uncertainties. Any
financial institution that is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision,
S-50
<PAGE>
the National Credit Union Administration, any state insurance commission or any
other federal or state agency with similar authority should review any
applicable rules, guidelines and regulations prior to purchasing any
Certificates. Financial institutions should review and consider the
applicability of the Federal Financial Institutions Examination Counsel
Supervisory Policy Statement on the Selection of Securities Dealers and
Unsuitable Investment Practices (to the extent adopted by their respective
federal regulators), which, among other things, sets forth guidelines for
investing in certain types of mortgage related securities and prohibits
investment in certain "high-risk" mortgage securities.
The Company makes no representations as to the proper characterization of
any Class of the Offered Certificates for legal investment or other purposes, or
as to the legality of investment by particular investors in any Class of the
Offered Certificates under applicable legal investment restrictions.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute legal
investments under SMMEA or are subject to investment, capital or other
restrictions. SEE "LEGAL INVESTMENT CONSIDERATIONS" IN THE PROSPECTUS.
S-51
<PAGE>
PROSPECTUS
OAKWOOD MORTGAGE INVESTORS, INC.
DEPOSITOR
PASS-THROUGH CERTIFICATES, ISSUABLE IN SERIES
- ------------------------- EACH TRUST:
CONSIDER CAREFULLY THE
RISK FACTORS BEGINNING may issue certificates backed by
ON PAGE 1 IN THIS contracts and/or mortgage loans in
PROSPECTUS.The one or more series with one or more
certificates will classes; and
represent obligations
of your trust only and will own contracts and/or mortgage
will not represent loans and other property described
interests in or on the cover page of the
obligations of Oakwood accompanying prospectus supplement.
Mortgage or any of its
affiliates except as THE CERTIFICATES:
may be provided in the
prospectus supplement. will be secured by the property of
the certificates are the trust and will be paid only from
not insured or the trust's assets;
guaranteed by any
person. except as will be rated in one of the four
noted in this highest rating categories by at
prospectus and the least one nationally recognized
accompanying prospectus rating organization;
supplement, the
underlying accounts, may have one or more forms of credit
contracts, and mortgage enhancement; and
loans are not insured
or guaranteed by the will be issued as part of a
FDIC or any other designated series that may include
governmental one or more classes of certificates
agency. and credit enhancement.
This prospectus may be THE CERTIFICATEHOLDERS:
used and to offer and
sell any series of will receive interest and principal
certificates only if payments from collections on the
accompanied by the contracts and/or mortgage loans and
prospectus supplement the trust's other assets, if any;
for that series. and
- -------------------------
are entitled to receive payments
from collections on contracts and/or
mortgage loans and other assets
securing their series of
certificates, but have no
entitlement to payments from
contracts, mortgage loans, or other
assets only securing other series of
certificates.
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.
February 19, 1999
<PAGE>
Important Notice About Information Presented In This
Prospectus And The Accompanying Prospectus Supplement
We provide information to you about the certificates in two separate
documents that progressively provide more detail: this prospectus, which
provides general information, some of which may not apply to a particular series
of certificates, including your series, 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/or mortgage
loans;
o information about credit enhancement for each class;
o the ratings for each class; and
o the method for selling the certificates.
If the terms of a particular series of certificates vary between this prospectus
and the prospectus supplement, you should reply on the information in the
prospectus supplement.
You should rely only on the information provided in this prospectus and
the accompanying prospectus supplement, including the information incorporated
by reference. The issuer has not authorized anyone to provide you with different
information. The 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 following table of contents and the table
of contents included in the accompanying prospectus supplement provide the pages
on which these captions are located.
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<PAGE>
TABLE OF CONTENTS
RISK FACTORS................................................... 1
DESCRIPTION OF THE CERTIFICATES ............................... 5
General ................................................. 5
Book-Entry Procedures ................................... 6
Allocation of Collections from the
Assets ................................................. 8
Optional Redemption or Termination ...................... 9
MATURITY AND PREPAYMENT CONSIDERATIONS ........................ 10
Maturity ................................................ 10
Prepayment Considerations ............................... 10
YIELD CONSIDERATIONS .......................................... 11
THE TRUSTS .................................................... 12
General ................................................. 12
The Assets .............................................. 13
Substitution of Contracts or
Mortgage Loans .................................... 18
Pre-Funding ............................................. 19
Distribution Account .................................... 20
Reserve Funds or Liquidity Accounts ..................... 20
Insurance ............................................... 20
Delivery of Additional Assets ........................... 29
Investment of Funds ..................................... 29
Certificate Guarantee Insurance ......................... 30
Oakwood Homes Guarantee ................................. 30
Alternate Credit Enhancement ............................ 30
UNDERWRITING POLICIES ......................................... 30
Oakwood's Contract Underwriting
Guidelines ........................................ 30
General Underwriting Standards for
Mortgage Loans .................................... 32
SALE AND SERVICING OF CONTRACTS AND
MORTGAGE LOANS .......................................... 32
Assignment of Contracts and Mortgage
Loans ............................................. 32
Representations and Warranties .......................... 34
Servicing ............................................... 35
Compensating Interest ................................... 40
Maintenance of Insurance Policies and
Other Servicing Procedures......................... 40
THE POOLING AND SERVICING
AGREEMENTS .............................................. 42
The Servicer ............................................ 42
The Trustee ............................................. 43
Reports to Certificateholders ........................... 43
Events of Default ....................................... 44
Certificateholder Rights ................................ 45
Amendment ............................................... 45
Termination ............................................. 46
CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS ......... 46
The Contracts ........................................... 47
The Mortgage Loans ...................................... 51
Environmental Considerations 55
Enforceability of CONSIDERATIONS ....................... 56
USE OF PROCEEDS ............................................... 56
THE COMPANY ................................................... 56
THE SERVICER .................................................. 57
FEDERAL INCOME TAX CONSEQUENCES. 57
General ................................................. 58
REMIC Certificates ...................................... 58
TAX TREATMENT OF RESIDUAL CERTIFICATES .................. 69
Taxation of Certain Foreign Holders of REMIC Certificates 80
Reporting and Tax Administration ........................ 82
Non-REMIC Certificates .................................. 83
STATE TAX CONSIDERATIONS ...................................... 88
ERISA CONSIDERATIONS .......................................... 88
AVAILABLE INFORMATION.......................................... 90
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 90
PLAN OF DISTRIBUTION .......................................... 91
LEGAL INVESTMENT CONSIDERATIONS................................ 91
EXPERTS ....................................................... 92
LEGAL MATTERS ................................................. 92
GLOSSARY ...................................................... 93
iii
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to purchase
the certificates.
Prepayment and Yield Risks to PREPAYMENT. Prepayment levels are affected
Certificateholders by a variety of economic, geographic, tax,
legal, and other factors, including defaults
on the assets, required repurchases of the
assets and current interest rates. When
interest rates are going down, home buyers are
more likely to prepay so that they may obtain
lower alternative financing on their homes.
The assets may be prepaid at any time without
penalty
You will be subject to reinvestment risk
associated with your certificates. When
prevailing interest rate are lower than at the
time of your investment, prepayments can be
expected to increase, and it becomes likely
that you will only be able to reinvest the
proceeds of prepayments in investments of
similar risk bearing a lower rate of interest
than that borne by your certificate. When
prevailing interest rates are higher than at
the time of your investment, prepayments can
be expected to decline, so it becomes likely
that you will be unable reinvest your funds in
higher yielding instruments of similar risk.
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
anticipated and will become more valuable if
prepayments are lower than anticipated.
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 anticipated and
will become less valuable if prepayments are
lower than anticipated. Your certificates'
sensitivity to prepayments will be magnified
by any disproportionate allocation of
principal or interest. In certain situations
you could fail to recover your initial
investments. Yield is also negatively affected
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.
Inability of the Company to The value of manufactured homes typically
Control the Value of the declines over time. In addition, downturns
Contracts or the Mortgage in regional or local economic conditions
Loans will affect the delinquency and losses on
manufactured housing installment sales
contracts. 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. SEE
"THE TRUSTS -- THE ASSETS --THE CONTRACTS,"
AND "THE TRUSTS -- THe ASSETS -- THE MORTGAGE
LOANS" IN THIS PROSPECTUS. An investment in
1
<PAGE>
certificates also will be affected by declines
in real estate values or downturns in regional
or local economic conditions. If the
residential real estate market experience a
decline and the outstanding balances of the
mortgage loans exceed the value of the
mortgaged properties, the rates of
delinquencies, foreclosures and losses on the
mortgage loans could be higher than those now
experienced. You will have to look primarily
to the value of the related mortgaged
properties for recovery of the outstanding
principal of and unpaid interest on the
defaulted mortgage loans not covered by credit
enhancement. SEE "THE TRUSTS -- THE ASSETS --
THE MORTGAge LOANS" IN THIS PROSPECTUS.
If the assets were sold, there can be no
assurance that the proceeds of the sale would
be sufficient to distribute the outstanding
principal amount and all accrued interest on
your certificates to you. The market value of
the assets included in your trust will
fluctuate with changes in rates of interest.
If any shortfall occurs when the trust is
liquidated, the shortfalls would be borne
first by credit enhancement and after that by
the certificateholders. Contracts may
experience a higher level of delinquencies
than conventional mortgage loans and losses
incurred upon repossession of homes securing
contracts tend to be higher than on
corresponding mortgage loans. SEE
"UNDERWRITING POLICIES --OAKWOOD'S CONTRACT
UNDERWRITING GUIDELINES," "SALE AND SERVICING
OF CONTRACTS AND MORTGAGE LOANS -- SERVICING,"
AND "CERTAIN LEGAL ASPECTS OF CONTRACTS AND
MORTGAGE LOANS" IN THIS PROSPECTUS.
State Law May Cause State laws, such as the uniform commercial
Certificateholders to Have code and motor vehicle titling statutes,
Losses may limit the servicer's ability to
repossess, 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. The steps
necessary to create a security interest in the
manufactured homes differ from state to state.
Because of the 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. Even if unsuccessful,
such an action could reduce or delay
distributions to you.
Limited Ability to Resell A secondary market for any series of
Your Certificates certificate may not 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.
Federal and State Lender A Failure by OAKWOOD Acceptance to comply
Regulations May Create Credit with federal or state consumer protection
and Prepayment Risks for laws could create liabilities on behalf of
Certificateholders the Trust for amounts due under the
assets.
2
<PAGE>
Oakwood Acceptance will warrant that the
origination of each Asset 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
asset and that each asset is enforceable
against the related obligor in accordance with
its terms, subject to limited exceptions. A
breach of any such 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 such asset unless such breach
is cured. Application of these consumer
protection laws could limit your ability to
realize upon manufactured homes or mortgaged
properties securing defaulted assets, or could
limit the amount collected on such defaulted
assets. SEE "CERTAIN LEGAL ASPECTS OF THE
CONTRACTS AND MORTGAGE LOANS -- THE CONTRACTS
-- ENFORCEMENT OF SECURITY INTERESTS IN
MANUFACTURED HOMES" AND " -- CONSUMER
PROTECTION LAWS" IN THIs PROSPECTUS AND
"CERTAIN LEGAL ASPECTS OF THE CONTRACTS AND
MORTGAGE LOANS -- THe MORTGAGE LOANS --
ANTI-DEFICIENCy LEGISLATION AND OTHER
LIMITATIONS ON LENDERS" IN THIS PROSPECTUS.
Certificateholders May You will only be paid from amounts
Collect Payments of Principal collected by the trust with respect to the
and Interest Only from the contracts and/or mortgage loans. The
Trust certificates are not insured or guaranteed
by any government agency or instrumentality or
by any underwriter. The certificates do not
represent any interest in or obligation of
Oakwood Mortgage, the servicer, any
underwriter, or any of their affiliates except
as may be provided in the prospectus
supplement. SEE "THE TRUSTS -- CERTIFICATe
GUARANTEE INSURANCE," " -- OAKWOOD HOMEs
GUARANTEE," AND " -- ALTERNATE CREDIt
ENHANCEMENT" IN THIS PROSPECTUS.
Credit Enhancement Does not Insurance policies and other forms of credit
Eliminate the Possibility of enhancement only cover certain contingencies
Losses on the Certificates and will not provide protection against all
contingencies. SEE "THE TRUSTS -- INSURANCE"
IN THIS PROSPECTUS.
Certificateholders May Have The fact that certain classes are paid
Losses if the Losses and after the classes of certificates which you
Delinquencies on Assets hold does not protect you from all risks.
Exceed Certain Levels if losses cannot be absorbed by the
subordinated certificates or other items of
credit support, such as 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 certain classes of certificates purchased
Receipt 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.
There Could be Delays or The acquisition of the contracts and/or
Reductions of Distributions mortgage loans by the trust from Oakwood
On the Certificates if the Mortgage is intended to be a sale. However, in
Transfer of Assets to the the event that Oakwood Mortgage or one of its
Trust is Not Considered a affiliates becomes insolvent, a court may
Sale in the Event of decide that this
3
<PAGE>
Bankruptcy 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 and its affiliate. This
could also delay or reduce distributions to
you. The trust assets are subject to various
payment provisions. Some may have changing
monthly payments; some may begin with lower
pay ments followed by higher payments; some
may have unusually large payments due at
maturity. There is a higher risk of default on
such assets than on level payment assets. The
likelihood that you will have a loss is
greater with respect to such assets than with
respect to level payment assets.
The Assets May Contain a The interest rates on adjustable rate assets
Variety of Payment will adjust periodically. They will equal the
Provisions, Which Could Affect sum of an index, such as one-month LIBOR, and
the Payment a margin. When an index adjusts, the amount of
of Certificateholders obligor's monthly payments will change,
subject to certain limitations. 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 be subject to
a higher rate of prepayment than would
otherwise be the case if the related trust
includes convertible loans and if the related
seller has this repurchase obligation.
Ratings Do Not Address All Your certificates will be rated in at least
Risks of An Investment in The the fourth highest rating cat egory by a
Offered Certificates rating agency. This rating is not 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 from 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.
4
<PAGE>
DESCRIPTION OF THE CERTIFICATES
GENERAL
Each Series of Certificates will be issued pursuant to a Pooling and
Servicing Agreement (the "Series Agreement") among the Company, as seller of the
Certificates, Oakwood, as the Servicer (or another Servicer if one is named in
the related Prospectus Supplement) and the Trustee named in the related
Prospectus Supplement. A copy of the form of the Series Agreement, together with
standard terms thereto (the "Standard Terms," and, together with the applicable
Series Agreement, the "Agreement") is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Prospectus Supplement for each
Series will describe any provisions of the Series Agreement relating to such
Series which differ materially from the form of the Agreement filed as an
exhibit to the Registration Statement.
The Company may sell to investors one or more Classes of a Series of
Certificates in transactions not requiring registration under the Securities Act
of 1933, as amended.
The Offered Certificates of each Series of Certificates will be rated upon
issuance as specified in the related Prospectus Supplement by the Rating Agency
or Agencies identified therein. The following summaries describe certain
provisions common to each Series of Certificates. The summaries do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, the provisions of the particular Agreement relating to the Series
of Certificates. When particular provisions or terms used in the Agreement are
referred to, the actual provisions thereof (including definitions of terms
therein) are incorporated by reference.
The Certificates of each Series will represent interests in a separate
Trust created pursuant to the related Agreement, as specified in the related
Prospectus Supplement. The Trust Estate for a Series will be held by the related
Trustee for the benefit of the related Certificateholders. Each Trust Estate, to
the extent specified in the related Prospectus Supplement, will include:
o the Assets which are subject to the related Agreement from time to
time;
o such assets as from time to time are identified as deposited in any
account held for the benefit of the Certificateholders (including the
Certificate Account and the Distribution Account maintained pursuant
to the related Agreement);
o with respect to a Series of Certificates evidencing interests in
Contracts, underlying Manufactured Homes and Real Properties acquired
by the Trust through repossession, foreclosure or otherwise;
o with respect to a Series of Certificates evidencing interests in
Mortgage Loans, property which secured a Mortgage Loan and which was
acquired by foreclosure or deed in lieu of foreclosure;
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 and
o the Buy-Down Fund and GPM Fund, if any;
o the Reserve Fund, if any;
5
<PAGE>
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 if specified in the related Prospectus Supplement, any related
Pre-Funding Account;
o such other property as may be specified in the related Prospectus
Supplement; and
o proceeds of any of the foregoing.
The Agreement for a Series will generally provide that Certificates may be
issued thereunder up to the aggregate principal amount authorized by the
Company. Each Series will consist of one or more Classes of Certificates and may
include:
o one or more Classes of Senior Certificates entitled to certain
preferential rights to distributions of principal and interest;
o one or more Classes of Subordinated Certificates;
o one or more Classes of Certificates representing an interest only in a
specified portion of interest payments on the Assets in the related
Trust and that may have no principal balance, a nominal principal
balance or a Notional Principal Amount ("Strip Classes");
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 certain other Classes of
Certificates of the same Series have received their final
distributions ("Compound Interest Classes" and "Capital Appreciation
Classes" and, collectively, "Accretion Classes"); and
o one or more Classes of Certificates entitled to fixed principal
payments under certain conditions ("PAC Classes") and companion
classes thereto ("Companion Classes"). Each Series as to which a REMIC
election has been or is to be made will consist of one or more Classes
of REMIC Regular Certificates (which may consist of Certificates of
the types specified in the preceding sentence) and one Class of
Residual Certificates for each related REMIC.
The Certificates of each Series will be issued in fully-registered
certificated or book-entry form in authorized denominations for each related
Class as specified in the related Prospectus Supplement. The Certificates of
each Series issued in certificated form may be transferred or exchanged at the
corporate trust office of the Trustee without the payment of any service charge,
other than any tax or other governmental charge payable in connection with a
transfer. The Trustee will make distributions of principal and interest on each
certificated Certificate by check or wire transfer to each person in whose name
such Certificate is registered as of the close of business on the Record Date
for such distribution (as specified in the related Prospectus Supplement) at the
address appearing in the Certificate Register, except that the final
distributions in retirement of each certificated Certificate will be made only
upon presentation and surrender of such Certificate at the corporate trust
office of the Trustee. The Trustee will make distributions with respect to
Book-Entry Certificates as set forth below.
BOOK-ENTRY PROCEDURES
The Prospectus Supplement for a Series may specify that certain Classes of
Certificates initially will be issued as Book-Entry Certificates in the
authorized denominations specified in such Prospectus Supplement. Each such
Class will be represented by a single certificate registered in the Certificate
Register in the name of a nominee of the depository, which is expected to be The
Depository Trust Company ("DTC" and, together with any successor or other
depository (which must be a Clearing Agency) selected by the Company, the
"Depository"). No person
6
<PAGE>
acquiring a Book-Entry Certificate (a "Beneficial Owner") will be entitled to
receive a definitive certificate representing its Certificate.
DTC performs services for its Participants, some of whom (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book- Entry Certificates will be
subject to the rules, regulations and procedures governing the Depository and
Depository Participants as in effect from time to time.
A Beneficial Owner's ownership of a Book-Entry Certificate will be
reflected in the records of the brokerage firm, bank, thrift institution or
other financial intermediary (any of the foregoing, a "Financial Intermediary")
that maintains such Beneficial Owner's account for such purpose. In turn, the
Financial Intermediary's ownership of such Book-Entry Certificate will be
reflected in the records of the Depository (or of a participating firm that acts
as agent for the Financial Intermediary whose interest in turn will be reflected
in the records of the Depository, if the Beneficial Owner's Financial
Intermediary is not a direct Depository Participant). Therefore, the Beneficial
Owner must rely on the procedures of its Financial Intermediary or
Intermediaries and of the Depository in order to evidence its beneficial
ownership of a Book-Entry Certificate, and beneficial ownership of a Book-Entry
Certificate may only be transferred by compliance with the procedures of such
Financial Intermediaries and Depository participants.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended. DTC accepts securities for deposit
from its participating organizations ("Depository Participants") and facilitates
the clearance and settlement of securities transactions between Depository
Participants in such securities through electronic book-entry changes in
accounts of Depository Participants, thereby eliminating the need for physical
movement of certificates. Depository Participants include securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is also available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Depository Participant, either
directly or indirectly ("indirect participants").
Distributions of principal and interest on the Book-Entry Certificates
will be made on each Distribution Date to the Depository. The Depository will be
responsible for crediting the amount of such distributions to the accounts of
the applicable Depository Participants in accordance with the Depository's
normal procedures. Each Depository Participant will be responsible for
disbursing such payments to the Beneficial Owners of the Book-Entry Certificates
that it represents and to each Financial Intermediary for which it acts as
agent. Each such Financial Intermediary will be responsible for disbursing funds
to the Beneficial Owners of the Book-Entry Certificates that it represents. As a
result of the foregoing procedures, Beneficial Owners of the Book Entry
Certificates may experience some delay in their receipt of payments.
While the Offered Certificates are outstanding (except if the Offered
Certificates are subsequently issued in certificated, fully-registered form,
which can only occur under the limited circumstances described below), under the
rules, regulations and procedures creating and affecting DTC and its operations
(the "Rules"), DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Offered Certificates and is required
to receive and transmit distributions of principal of, and interest on, the
Offered Certificates. Unless and until the Offered Certificates are issued in
certificated form, Beneficial Owners who are not Participants may transfer
ownership of the Offered Certificates only through Participants by instructing
such Participants to transfer the Offered Certificates, by book-entry transfer,
through DTC for the account of the purchasers of such Certificates, which
account is maintained with such purchasers' respective Participants. Under the
Rules and in accordance with DTC's normal procedures, transfers of ownership of
the Offered Certificates will be executed through DTC and the accounts of the
respective Participants at DTC will be debited and credited. Because
transactions in Book-Entry Certificates can be effected only through the
Depository, participating organizations, indirect participants and certain
banks, the ability of a Beneficial Owner of a Book-Entry Certificate to pledge
such Certificate to persons or entities that are not Depository Participants, or
otherwise to take actions in respect of such Certificate, may be limited due to
the lack of a physical certificate representing such Certificate. Issuance of
the Book-Entry Certificates in book-entry
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form may reduce the liquidity of such Certificates in the secondary trading
market because investors may be unwilling to purchase Book-Entry Certificates
for which they cannot obtain physical certificates.
The Book-Entry Certificates will be issued in fully-registered,
certificated form to Beneficial Owners of such Book- Entry Certificates or their
nominees, rather than to the Depository or its nominee, only if
o the Company advises the Trustee in writing that the Depository is no
longer willing or able to discharge properly its responsibilities as
depository with respect to the Book-Entry Certificates and the Company
is unable to locate a qualified successor within 30 days or
o the Company, at its option, elects to terminate the book-entry system
maintained through the Depository.
Upon the occurrence of either event described in the preceding sentence, the
Trustee is required to notify the Depository, which in turn will notify all
Beneficial Owners of Book-Entry Certificates through Depository participants, of
the availability of certificated Certificates. Upon surrender of the Depository
of the certificates representing the Book-Entry Certificates and receipt of
instructions for re-registration, the Trustee will reissue the Book-Entry
Certificates as certificated Certificates to the Beneficial Owners of the
Book-Entry Certificates. Upon issuance of certificated Certificates to
Beneficial Owners, such Certificates will be transferable directly (and not
exclusively on a book-entry basis) and registered holders will deal directly
with the Trustee with respect to transfers, notices and distributions.
DTC has advised the Company and the Trustee that, unless and until the
Offered Certificates are issued in certificated, fully-registered form under the
circumstances described above, DTC will take any action permitted to be taken by
a Certificateholder under the Agreement only at the direction of one or more
Participants to whose DTC accounts the Certificates are credited. DTC has
advised the Company that DTC will take such action with respect to any
Percentage Interests of the Offered Certificates only at the direction of and on
behalf of such Participants with respect to such Percentage Interests of the
Offered Certificates. DTC may take action, at the direction of the related
Participants, with respect to some Offered Certificates which conflict with
actions taken with respect to other Offered Certificates.
Neither the Company, Oakwood, the Servicer nor the Trustee will have any
liability for any aspect of the records relating to or payment made on account
of beneficial ownership interests of the Book-Entry Certificates held by the
Depository, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
ALLOCATION OF COLLECTIONS FROM THE ASSETS
The Prospectus Supplement for a Series will specify the Available
Distribution Amount for such Series, which in general will be equal to the
amount of principal and interest actually collected, advanced or otherwise
received with respect to the related Asset Pool during the applicable Collection
Period or Prepayment Period, net of applicable servicing, administrative,
guarantee and other fees, insurance premiums, the costs of any other credit
enhancement and amounts required to reimburse any unreimbursed advances. The
Available Distribution Amount will be allocated among the Classes of
Certificates of the related Series in the proportion and order of application
set forth in the related Agreement and described in the related Prospectus
Supplement. The Available Distribution Amount may be allocated so that amounts
paid as interest on the Assets may be distributed as principal on the
Certificates and amounts paid as principal on the Assets may be distributed as
interest on the Certificates.
A Class of Certificates entitled to distributions of interest may receive
such interest at a specified rate (a "Pass-Through Rate"), which may be fixed or
adjustable. The Classes of Certificates within a Series may have the same or
different Pass-Through Rates. The related Prospectus Supplement will specify the
Pass-Through Rate, or the method for determining the Pass-Through Rate, for each
applicable Class, and the method of determining the amount to be distributed on
any Strip Classes on each Distribution Date. Residual Certificates offered
hereby may or may not have a Pass-Through Rate. In addition to representing
entitlement to regular distributions of principal and interest, if any, that are
allocated to the Residual Certificates, Residual Certificates also generally
will represent
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entitlement to receive amounts remaining in the Distribution Account on any
Distribution Date after allocation of scheduled distributions to all other
outstanding Classes of Certificates of that Series and after all required
deposits have been made into any related Reserve Funds. Certain Classes of
Certificates may have a Notional Principal Amount. A "Notional Principal Amount"
of a Certificate is used solely for purposes of determining the amount of
interest distributions and certain other rights and obligations of the holder of
such Certificate and does not represent any beneficial interest in principal
payments on the Assets in the related Trust. Interest distributions on the
Certificates generally will include interest accrued through the Accounting Date
preceding the applicable Distribution Date or through another date specified in
the related Prospectus Supplement. Interest will be computed on the basis of a
360-day year consisting of twelve 30-day months, or on the basis of actual
elapsed days, as specified in the related Prospectus Supplement.
With respect to a Series that includes one or more Classes of Subordinated
Certificates, the Senior Certificates will generally not bear any Realized
Losses on the related Contracts or Mortgage Loans, until the Subordinated
Certificates of that Series have borne Realized Losses up to a specified
Subordination Amount or loss limit or until the principal amount of the
Subordinated Certificates has been reduced to zero, either through the
allocation of Realized Losses, distributions of principal, or both.
Distributions of interest may be reduced to the extent of Shortfalls on
Contracts or Mortgage Loans comprising the Assets of the related Trust. With
respect to a Series that includes a Class of Subordinated Certificates, any
Shortfall may result in a reallocation of amounts otherwise distributable to
less senior Certificates for distribution to more senior Certificates.
Principal and interest distributable on a Class of Certificates may be
distributed among the Certificates of such Class pro rata in the proportion that
the outstanding principal or notional amount of each Certificate of such Class
(or each Certificate's designated "percentage interest," in the case of
Certificates with no Certificate Principal Balance or notional principal amount)
bears to the aggregate outstanding principal or notional amount of all
Certificates of such Class (or to a "percentage interest" of 100%, in the case
of Certificates with no Certificate Principal Balance or notional principal
amount), or in such other manner as may be detailed in the related Prospectus
Supplement. Interest distributable on a Class of Certificates will be allocated
among the Certificates of such Class pro rata in the proportion that the
outstanding principal or notional amount of each Certificate of such Class (or
each Certificate's designated "percentage interest," in the case of Certificates
with no Certificate Principal Balance or notional principal amount) bears to the
aggregate outstanding principal or notional amount of all Certificates of such
Class (or to a "percentage interest" of 100%, in the case of Certificates with
no Certificate Principal Balance or notional principal amount), or in such other
manner as may be detailed in the related Prospectus Supplement.
The Final Scheduled Distribution Date for each Class of Certificates will
be the date on which the last distribution of the principal thereof is scheduled
to occur, assuming no prepayments of principal with respect to the Assets
included in the Trust for that Series.
OPTIONAL REDEMPTION OR TERMINATION
To the extent and under the circumstances specified in the related
Prospectus Supplement, the Certificates of a Series may be redeemed prior to
their Final Scheduled Distribution Date at the option of the Company, the
Servicer or such other party as may be specified in the related Prospectus
Supplement by purchase of the outstanding Certificates of such Series. Unless
otherwise specified in the related Prospectus Supplement, the right so to redeem
the Certificates of a Series will be conditioned upon (1) the passage of a
certain date specified in the Prospectus Supplement and/or (2) (a) the decline
of the aggregate Scheduled Principal Balance of the Assets in the Trust to less
than a percentage (specified in the related Prospectus Supplement) of the
aggregate Scheduled Principal Balance of the Assets in the Trust at the related
Cut-off Date or (b) the decline of the aggregate Certificate Principal Balance
of a specified Class or Classes of Certificates to less than a percentage
(specified in the related Prospectus Supplement) of the aggregate Certificate
Principal Balance of the applicable Class or Classes of Certificates at the
Closing Date for the Series. The percentage balances of the aggregate Scheduled
Principal Balance of the Assets and the aggregate Certificate Principal Balance
of a Class referred to in (2)(a) and (2)(b), respectively, above, may range from
5% to 25%. In the event the option to redeem the Certificates is exercised, the
purchase price distributed with respect to each Certificate offered hereby and
by the related Prospectus Supplement will equal 100% of its then outstanding
principal amount, plus accrued and unpaid interest thereon at the applicable
Pass-Through Rate, less any
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unreimbursed Advances and unrealized losses allocable to such Certificate.
Notice of the redemption of the Certificates will be given to Certificateholders
as provided in the related Agreement.
In addition, unless otherwise specified in the related Prospectus
Supplement, the Company or the Servicer or the holders of a majority in interest
of any Class of Residual Certificates of the related Series may at their
respective options repurchase all related Contracts and Mortgage Loans remaining
outstanding at a time specified in the related Prospectus Supplement, which will
be when the aggregate Scheduled Principal Balance of such Contracts or Mortgage
Loans is less than a percentage (specified in the related Prospectus Supplement,
but may range from 5% to 25%) of the aggregate Scheduled Principal Balance of
the Contracts or Mortgage Loans on the Cut-off Date, or when the aggregate
Certificate Principal Balance of a specified Class or Classes of Certificates is
less than a percentage (specified in the related Prospectus Supplement, but may
range from 5% to 25%) of the aggregate Certificate Principal Balance of such
Class or Classes at the Closing Date. The termination price for a Trust will be
specified in the related Agreement, and will generally equal the sum of (1) any
Liquidation Expenses incurred by the Servicer in respect of any Contract or
Mortgage Loan that has not yet been liquidated; (2) all amounts required to be
reimbursed or paid to the Servicer in respect of previously unreimbursed
Servicing Advances; and (3) the greater of (a) the sum of (i) the aggregate
Unpaid Principal Balance of the related Contracts and Mortgage Loans, plus
accrued and unpaid interest thereon through the preceding Accounting Date for
the date of repurchase at the Asset Rates borne by such Contracts and Mortgage
Loans, plus (ii) the lesser of (A) the aggregate Unpaid Principal Balance of
each Contract and Mortgage Loan that had been secured by any Repo Property or
REO Property remaining in the Trust, plus accrued interest thereon at the Asset
Rates borne by such Contracts and Mortgage Loans through the Accounting Date
preceding such purchase, and (B) the current appraised value of any such Repo
Property or REO Property (net of Liquidation Expenses to be incurred in
connection with the disposition of such property estimated in good faith by the
Servicer), such appraisal to be conducted by an appraiser mutually agreed upon
by the Servicer and the Trustee, plus all previously unreimbursed P&I Advances
made in respect of such Repo Property or REO Property, and (b) the aggregate
fair market value of the assets of the related Trust (as reasonably determined
by the Servicer as described in the related Agreement) plus all previously
unreimbursed P&I Advances made with respect to the related Assets. The fair
market value of the assets of a Trust as determined for purposes of a
terminating purchase shall be deemed to include accrued interest through the
Accounting Date preceding the date of such purchase at the applicable Asset Rate
on the Unpaid Principal Balance of each Contract and Mortgage Loan (including
any Contract that has become a Repo Property and any Mortgage Loan that has
become a REO Property, which Repo Property or REO Property has not yet been
disposed of by the Servicer). The basis for any such valuation shall be
furnished by the Servicer to the Certificateholders upon request.
On the date set for termination of a Trust, the termination price shall be
distributed 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. This will result in the
distribution with respect to each Certificate offered hereby and by the related
Prospectus Supplement of an amount equal to 100% of its then outstanding
principal amount, plus accrued and unpaid interest thereon at the applicable
Pass-Through Rate, less any unreimbursed Advances and unrealized losses
allocable to such Certificate.
MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
No more than 1% of the Contracts and Mortgage Loans securing a Series will
have maturities at origination of more than 30 years.
PREPAYMENT CONSIDERATIONS
The prepayment experience on an Asset Pool will affect
o the average life of the related Certificates and each Class thereof
issued by the related Trust;
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o the timing of the final distribution for each Class (and whether
such final distribution occurs prior to its Final Scheduled
Distribution Date); and
o the effective yield on each Class of such Certificates.
Because prepayments will be passed through to the holders of Certificates of
each Series as distributions of principal, it is likely that in the event of
such prepayments, the final distribution on each Class of Certificates of a
Series will occur prior to its Final Scheduled Distribution Date.
Contracts and Mortgage Loans generally may be prepaid in full or in part
without penalty. FHA Contracts and Mortgage Loans and VA Contracts and Mortgage
Loans may be prepaid at any time without penalty. The Company anticipates that a
significant number of the Contracts and Mortgage Loans will be paid in full
prior to their maturity. A number of factors, including homeowner mobility,
national and local economic conditions, age of the Contracts and Mortgage Loans,
interest rates and the availability of alternative financing may affect the
prepayment experience of a particular Asset Pool.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. In general, if prevailing market
interest rates fall significantly below the interest rates borne by particular
Contracts or Mortgage Loans, the Contracts and Mortgage Loans are likely to be
subject to higher prepayment rates than if prevailing interest rates remain at
or above the interest rates borne by such Contracts and Mortgage Loans. However,
the rate of principal prepayments on Contracts and Mortgage Loans is influenced
by a variety of economic, geographic, social, tax, legal and other factors.
Accordingly, there can be no assurance that any Contracts or Mortgage Loans
included in an Asset Pool will conform to past prepayment experience or any
assumed rate of prepayment.
It is customary in the mortgage industry in quoting yields 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 15-year
fixed-rate, level payment mortgages, to compute the yield as if the pool were a
single loan that is amortized according to a 15-year schedule and then is
prepaid in full at the end of the seventh year.
Information regarding the prepayment model utilized in preparing any
Prospectus Supplement will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
SEE "DESCRIPTION OF THE CERTIFICATES -- OPTIONAL REDEMPTION OR
TERMINATION" for a description of the Company's or other party's option to
repurchase the Contracts or Mortgage Loans comprising part of a Trust Estate
when certain triggering events occur. SEE ALSO "THE TRUSTS -- THE CONTRACTS" AND
" -- ThE MORTGAGE LOANS" AND "SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS
- -- REPRESENTATIONS AND WARRANTIES" HEREIN for a description of the obligations
of the Company, the Servicer or another party, as specified in the related
Prospectus Supplement, to repurchase a Contract or Mortgage Loan in case of a
breach of a representation or warranty relative to such Contract or Mortgage
Loan. Any such repurchase will have the effect of a full prepayment of the
outstanding principal balance of the related Contract or Mortgage Loan. SEE ALSO
"YIELD CONSIDERATIONS" HEREIN.
YIELD CONSIDERATIONS
Distributions of interest on the Certificates generally will include
interest accrued through the Accounting Date for the applicable Distribution
Date. Because distributions to the Certificateholders generally will not be made
until the Distribution Date following the preceding Accounting Date, the
effective yield to the holder of a Certificate will be lower than the yield
otherwise produced by the applicable Pass-Through Rate and purchase price for
the Certificate.
The yield to maturity of any Certificate will be affected by the rate and
timing of payment of principal of the underlying Contracts and Mortgage Loans.
If the purchaser of a Certificate offered at a discount from its Parity Price
(as defined below) calculates the anticipated yield to maturity of such
Certificate based on an assumed rate of
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payment of principal that is faster than that actually received on the
underlying Contracts and Mortgage Loans, the actual yield to maturity will be
lower than that so calculated. Similarly, if the purchaser of a Certificate
offered at a premium over its Parity Price calculates the anticipated yield to
maturity of such Certificate based on an assumed rate of payment of principal
that is slower than that actually received on the underlying Contracts and
Mortgage Loans, the actual yield to maturity will be lower than that so
calculated. "Parity Price" is the price at which a Certificate will yield its
coupon, after giving effect to any payment delay.
The timing of changes in the rate of prepayments on the Contracts and
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal payments experienced over time is
consistent with an investor's expectation. In general, the earlier a prepayment
of principal on an Asset, the greater will be the effect on a related investor's
yield to maturity. As a result, the effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during the period immediately following the issuance of the
Certificates would not be fully offset by a subsequent like reduction (or
increase) in the rate of principal payments. Because the rate of principal
payments on the underlying Assets affects the weighted average life and other
characteristics of any Class of Certificates, prospective investors are urged to
consider their own estimates as to the anticipated rate of future prepayments on
the underlying Contracts and Mortgage Loans and the suitability of the
applicable Certificates to their investment objectives. For a discussion of
factors affecting principal prepayments on the Contracts and Mortgage Loans
underlying a Series of Certificates, SEE "MATURITY AND PREPAYMENT
CONSIDERATIONS" ABOVE.
The yield on each Class of Certificates also will be affected by Realized
Losses or Shortfalls allocated to such Class.
THE TRUSTS
GENERAL
A Trust Estate may include Contracts and/or Mortgage Loans. Each Trust
Estate also may include
o such assets as from time to time are identified as deposited in any
account held for the benefit of the Certificateholders (including the
Certificate Account and the Distribution Account) maintained pursuant
to the related Agreement;
o any Manufactured Home or Real Property 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 if so specified in the related Prospectus Supplement, any related
Reserve Fund;
o if specified in the related Prospectus Supplement, 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 such Trust
Estate that is required to be maintained pursuant to the related
Agreement; and
o such other property as is specified in the related Prospectus
Supplement.
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THE ASSETS
GENERAL
Each Certificate will evidence an interest in one Trust Estate, containing
one or more Asset Pools comprised of Contracts and/or Mortgage Loans having the
aggregate principal balance as of the Cut-off Date specified in the related
Prospectus Supplement. Holders of Certificates of a Series will have interests
only in the related Asset Pool(s) and will have no interest in any Asset Pools
created with respect to any other Series of Certificates.
The Company will acquire the underlying Contracts and Mortgage Loans from
Oakwood, which may have originated the Contracts and Mortgage Loans or may have
acquired them in the open market or in privately negotiated transactions. A
brief description of the Contracts and Mortgage Loans expected to be included in
the Trust Estates is set forth under " -- THE CONTRACTS" AND " -- THE MORTGAge
LOANS" BELOW. Specific information respecting the Contracts and Mortgage Loans
included in a particular Trust Estate will be provided in the related Prospectus
Supplement and, to the extent such information is not fully provided in the
related Prospectus Supplement, in a Current Report on Form 8-K to be filed with
the Securities and Exchange Commission within fifteen days after the initial
issuance of such Certificates. A copy of the Pooling and Servicing Agreement
with respect to each Series of Certificates will be attached to the related
Current Report on Form 8-K and will be available for inspection at the corporate
trust office of the Trustee (the location of which will be specified in the
related Prospectus Supplement).
Whenever in this Prospectus terms such as "Asset Pool," "Trust Estate,"
"Agreement" or "Pass-Through Rate" are used, those terms apply, unless the
context otherwise indicates, to one specific Asset Pool, Trust Estate, Agreement
and the Pass-Through Rates applicable to the related Series of Certificates.
For each Series of Certificates, the Company will cause the Contracts and
Mortgage Loans included in the related Asset Pool to be assigned to the trustee
named in the related Prospectus Supplement (the "Trustee"). Oakwood Acceptance
Corporation, as servicer (the "Servicer"), the parent of the Company, will
service the Contracts and Mortgage Loans and administer the Certificates, either
exclusively or through other servicing institutions ("Sub-servicers"). SEE "SALE
AND SERVICING OF THE CONTRACTS AND MORTGAGE LOANS -- SERVICING" HEREIN. With
respect to those Contracts and Mortgage Loans serviced by the Servicer through a
Sub-servicer, the Servicer will remain liable for its servicing obligations
under the Agreement as if the Servicer alone were servicing such Contracts and
Mortgage Loans. The Servicer may delegate certain computational, data
processing, collection and foreclosure (including repossession) duties under any
Agreement without appointing a Sub-servicer and without any notice to or consent
from the Company or the Trustee, provided that the Servicer remains fully
responsible for the performance of such duties.
TYPES OF ASSETS
The Assets included in the Trust for a Series may be subject to various
types of payment provisions. Such Assets may consist of
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 the early period after origination of such
Assets;
o "Level Payment Buy-Down Loans," as described below;
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o "Increasing Payment Loans," as described below;
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 such Monthly Payments in subsequent years at a
predetermined rate resulting in full repayment over a shorter
term than the initial amortization terms of such Assets;
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 the Unpaid
Principal Balances thereof, and which unpaid interest will be added to
the principal balances of such Assets and will be paid, together with
interest thereon, in later years;
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 a certain 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 subject to
provisions pursuant to which, subject to certain limitations, the
related Obligors may exercise an option to convert the adjustable
Asset Rate to a fixed Asset Rate; and
o "Bi-Weekly Loans," which provide for Obligor payments to be made on a
bi-weekly basis. The Assets included in a Trust also may include Level
Payment Buy-Down Loans and Increasing Payment Loans, which are
described below.
A Level Payment Buy-Down Loan is an Asset that provides for a reduction in
the Obligor's Monthly Payments thereunder for a period of up to the first four
years after origination of such Asset and as to which funds have been provided
by someone other than the Obligor to cover such reductions during those years.
Accordingly, payments due on Level Payment Buy-Down Loans will be the same as
payments due on Level Payment Loans without buy-down provisions, except that the
former will include amounts to be collected from the related Servicers pursuant
to either buy-down or subsidy agreements in addition to amounts to be collected
from the related Obligors.
An Increasing Payment Loan is an Asset that provides for Obligor Monthly
Payments that are fixed for an initial period of six, 12 or 24 months, and which
increase thereafter (at a predetermined rate expressed as a percentage of the
Obligor's Monthly Payment during the preceding payment period, subject to any
caps on the amount of any single Monthly Payment increase) for a period not to
exceed nine years from the date of origination, after which the Obligor's
Monthly Payment is fixed at a level-payment amount so as to fully amortize the
Asset over its remaining term to maturity. The scheduled Monthly Payment with
respect to an Increasing Payment Loan is the total amount required to be paid
each month in accordance with its terms and equals the sum of the Obligor's
Monthly Payments referred to in the preceding sentence and in the case of
certain Increasing Payment Loans, payments made by the respective Servicers
pursuant to buy-down or subsidy agreements. The Obligor's initial Monthly
Payments for each Increasing Payment Loan are set at the level-payment amount
that would apply to an otherwise identical Level Payment Loan having an Asset
Rate a certain number of percentage points below the Asset Rate of such
Increasing Payment Loan. The Obligor's Monthly Payments on each Increasing
Payment Loan, together with any payments made thereon by the related Servicers
pursuant to buy-down or subsidy agreements, will in all cases be sufficient to
allow payment of accrued interest on such Increasing Payment Loan at the related
Asset
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Rate, without negative amortization. An Obligor's Monthly Payments on such an
Asset may, however, not be sufficient to result in any reduction of the
principal balance of such Asset until after the period when such payments may be
increased.
"DUE-ON-SALE" CLAUSES
A Contract or the Mortgage Note or Mortgage used in originating a
conventional Mortgage Loan may contain a "due-on-sale" provision permitting the
holder of the Contract or Mortgage Loan to accelerate the maturity of the
Contract or Mortgage Loan upon the Obligor's conveyance of the underlying
Manufactured Home or Mortgaged Property. SEE " -- THE CONTRACTS -- TRANSFERS of
MANUFACTURED HOMES; ENFORCEABILITY OF DUE-ON-SALE' CLAUSES" AND " -- THE
MORTGAGE LOANS -- DUE-ON-SALE' CLAUSES," IN EACH CASE UNDER THE HEADING
"CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS" HEREIN. The Prospectus
Supplement for a Series will specify the approximate percentages of the
underlying Contracts and Mortgage Loans, respectively, that contain
"due-on-sale" provisions. Enforcement of a "due-on-sale" clause applicable to a
Contract or Mortgage Loan will have the same effect on Certificates backed by
such Contract or Mortgage Loan as a prepayment in full of such Contract or
Mortgage Loan. The weighted average lives of Certificates of a Series will be
decreased to the extent that sales of Manufactured Homes and Mortgaged
Properties result in prepayments of the Assets underlying such Certificates. SEE
"MATURITY AND PREPAYMENT CONSIDERATIONS" AND "YIELD CONSIDERATIONS" HEREIN for a
discussion of the effect of Asset prepayments on the weighted average lives of
and yields to maturity on the related Certificates.
To the extent the Assets underlying a Series do not contain "due-on-sale"
clauses, or to the extent the Servicer does not enforce "due-on-sale" clauses,
the weighted average lives of the Certificates of such Series may be expected to
be longer than would have been the case had such Assets been subject to
"due-on-sale" clauses and had the Servicer enforced such clauses, because the
assumption of a Contract or Mortgage Loan by the buyer of the underlying
Manufactured Home or Mortgaged Property would have the effect of avoiding a
prepayment of the assumed Contract or Mortgage Loan. While it is expected that
most Contracts will contain "due-on-sale" provisions, the Servicer will be
permitted to allow proposed assumptions of Contracts in accordance with the
guidelines described below. To the extent the Servicer has knowledge of any
conveyance or prospective conveyance by any Mortgagor of any property securing a
Mortgage Loan, the Servicer will be required to exercise the right to accelerate
the maturity of such Mortgage Loan under any applicable "due-on-sale" clause to
the extent, under the circumstances, and in the manner in which the Servicer
enforces such clauses with respect to other Mortgage Loans held in its own
portfolio. The Servicer will not be permitted to allow assumptions of Assets if
prohibited by law from doing so or if the exercise of such rights would affect
adversely or jeopardize any coverage under any applicable insurance policy, and
the Servicer will only be permitted to allow the assumption of an Asset if the
Servicer has reasonably determined that the assumption will not increase
materially the risk of nonpayment of amounts due under the Asset.
If the Servicer determines not to enforce such "due-on-sale" clause, the
Servicer will be required to enter into an assumption and/or modification
agreement with the person to whom such property has been conveyed or is proposed
to be conveyed, pursuant to which such person becomes liable under the Asset and
pursuant to which, to the extent permitted by applicable law and deemed
appropriate in the Servicer's reasonable judgment, the original obligor remains
liable thereon. FHA Contracts, FHA Mortgage Loans, VA Contracts and VA Mortgage
Loans are not permitted to contain "due-on-sale" clauses, and so are freely
assumable. The rate of prepayments of FHA Contracts, FHA Mortgage Loans, VA
Contracts and VA Mortgage Loans therefore may be lower than the rate of
prepayments of Conventional Mortgage Loans bearing interest at comparable rates.
Prepayments on manufactured housing installment sales contracts and
mortgage loans are commonly measured relative to a prepayment standard or model
(a "Prepayment Model"), which represents an assumed rate of prepayment of Assets
in an Asset Pool relative to the aggregate outstanding principal balance of such
Asset Pool from time to time. The Prospectus Supplement for a Series of
Certificates may contain a table setting forth percentages of the original
Certificate Principal Balances of certain Classes of Certificates of such Series
anticipated to be outstanding on certain dates specified in the table assuming
that prepayments of the underlying Assets occur in accordance with the
applicable Prepayment Model and at different rates determined by applying
different percentages to the rates of prepayment assumed under the Prepayment
Model. It is unlikely that the prepayment of
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the Assets of any Trust will conform to any of the percentages of the rates
assumed under the applicable Prepayment Model set forth in any such table.
The FHA has compiled prepayment statistics relating to one- to
four-family, level payment mortgage loans insured by the FHA under the National
Housing Act of 1934, as amended, at various interest rates, all of which permit
assumption by a new buyer of the mortgaged property. Such statistics indicate
that while some of such mortgage loans remain outstanding until their scheduled
maturities, a substantial number are paid prior to their respective stated
maturities. The Actuarial Division of HUD has prepared tables which, assuming
full mortgage loan prepayments at the rates experienced by FHA on FHA mortgage
loans, set forth the percentages of the original number of FHA mortgage loans
included in pools of Level Payment Mortgage Loans with varying maturities that
will remain outstanding on each anniversary of the origination date of such
mortgage loans (assuming they all have the same origination date) (such tables
being referred to as the "FHA Prepayment Experience").
REPRESENTATIONS AND WARRANTIES
The Seller will make certain representations and warranties concerning the
Contracts and Mortgage Loans included in an Asset Pool, in order to ensure the
accuracy in all material respects of certain information furnished to the
Trustee in respect of each Contract and Mortgage Loan included in such Asset
Pool. Upon a breach of any representation that materially and adversely affects
the interests of the Certificateholders in a Contract or Mortgage Loan, the
Seller will be obligated to cure the breach in all material respects within 90
days after the Seller's discovery of or receipt of written notice of such breach
or, in the alternative, either to repurchase the Contract or Mortgage Loan from
the Trust, or to substitute another Contract or Mortgage Loan as described
below. In addition, each Seller will be required to indemnify the Company and
its assignees (including the Trust) against losses and damages they incur as a
result of breaches of the Seller's representations and warranties. The Seller's
obligations to repurchase or substitute for an Asset affected by a breach of a
representation or warranty and to indemnify the Company and its assignees for
losses and damages caused by such a breach constitute the sole remedies
available to the Certificateholders or the Trustee for a breach of
representation by the Seller. SEE "SALE AND SERVICING OF THE CONTRACTS AND
MORTGAGE LOANS -- REPRESENTATIONS AND WARRANTIES" HEREIN.
THE CONTRACTS
The Contracts supporting a Series of Certificates will consist of
manufactured housing installment sales contracts originated by Oakwood (which
may have been originated in the name of OMH or another manufactured housing
dealer with funds provided by Oakwood) or originated by other originators not
affiliated with Oakwood, in any case in the ordinary course of the originator's
business. The Contracts may be conventional manufactured housing contracts or
contracts insured by the FHA or partially guaranteed by the VA. Each Contract is
secured by a Manufactured Home. The Contracts will be fully amortizing and will
bear interest at a fixed or adjustable annual percentage rate ("Contract Rate")
or at a Contract Rate which steps up on a particular date (a "Step-up Rate").
The Seller will represent that the Manufactured Homes securing the
Contracts consist of manufactured homes within the meaning of 42 United States
Code, Section 5402(6), which defines a "manufactured home" as "a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is built
on a permanent chassis and designed to be used as a dwelling with or without a
permanent foundation when connected to the required utilities, and includes the
plumbing, heating, air-conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of [this] paragraph except the size requirements and with respect
to which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under [Chapter 70 under Title 42 of the United States Code]."
Each Contract will bear interest at a fixed or adjustable Contract Rate or
at a Step-up Rate, as specified in the related Prospectus Supplement. Unless
otherwise specified in the related Prospectus Supplement, the Monthly Payments
for Contracts bearing interest at an interest rate that increases over time
(sometimes referred to herein as "Step-up Rate Contracts") will increase on the
dates on which the Contract Rates are stepped up.
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With respect to the Contracts expected to be contained in an Asset Pool,
the related Prospectus Supplement will specify, to the extent known,
o the range of dates of origination of the Contracts;
o the range of Contract Rates on the Contracts and the weighted average
Contract Rate as of the Cut-off Date;
o the range of Contract Loan-to-Value Ratios;
o the minimum and maximum outstanding principal balances of the
Contracts as of the Cut-off Date and the weighted average outstanding
principal balance of the Contracts as of the Cut-off Date;
o the range of original terms to maturity of the Contracts, the range of
remaining terms to maturity of the Contracts and the last maturity
date of any of the Contracts;
o the geographic distribution of the underlying Manufactured Homes; and
o the range of original principal balances of the Contracts.
THE MORTGAGE LOANS
The Mortgage Loans supporting a Series of Certificates will consist of
conventional mortgage loans, FHA-insured mortgage loans or VA-guaranteed
mortgage loans evidenced by promissory notes (the "Mortgage Notes") secured by
mortgages or deeds of trust or other similar security instruments ("Mortgages")
creating first liens on one-to four-family residential properties (the
"Mortgaged Properties"). To the extent specified in the related Prospectus
Supplement, the Mortgaged Properties may include investment properties, vacation
and second homes, or land upon which a residence is to be built. The Company
expects that the Mortgage Loans will have been originated by FHA-approved
mortgagees or FNMA/FHLMC-approved seller/servicers in the ordinary course of
their real estate lending activities.
Each Mortgage Loan will bear interest at a fixed or adjustable annual rate
of interest ("Mortgage Rate") or at a Mortgage Rate which steps up on a
particular date (a "Step-up Rate"), as specified in the Prospectus Supplement.
Each registered holder of a Certificate will be entitled to receive periodic
distributions of all or a portion of the payments of principal and/or interest
collected on the underlying Mortgage Loans.
With respect to the Mortgage Loans expected to be contained in an Asset
Pool, the related Prospectus Supplement will specify, to the extent known,
o the range of dates of origination of the Mortgage Loans;
o the range of Mortgage Rates, and in the case of Adjustable Rate
Assets, the range of initial adjustable mortgage rates, the Index, if
any, used to determine the adjustable mortgage rate and the range of
maximum permitted adjustable mortgage rates, if any, and the range of
then-current adjustable mortgage rates;
o the range of Mortgage Loan-to-Value Ratios;
o the minimum and maximum outstanding principal balances of the Mortgage
Loans as of the Cut-off Date and the average outstanding principal
balance of the Mortgage Loans as of the Cut-off Date;
o the range of outstanding principal balances of the Conventional
Mortgage Loans, FHA Mortgage Loans and VA Mortgage Loans (in each case
to the extent such Mortgage Loans are included in such Asset Pool)
included in the Asset Pool;
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o the range of original maturities of the Mortgage Loans and the last
maturity date of any of the Mortgage Loans;
o the geographic distribution of the underlying Mortgaged Properties;
and
o the range of original principal balances of the Mortgage Loans.
SUBSTITUTION OF CONTRACTS OR MORTGAGE LOANS
The Company or the Seller may, within three months after the Closing Date,
deliver to the Trustee other Assets in substitution for any one or more Assets
initially included in the Trust Estate for such Series. In addition, if there is
a breach of any representation or warranty made as to an Asset by the Company or
the Seller (or in certain cases where an incomplete or defective Contract File
or Trustee Mortgage Loan File is delivered by the Seller), which breach, defect
or incompleteness is not cured within 90 days after the breaching party's
receipt of notice of such breach, defect or incompleteness, the breaching party
generally must repurchase the affected Asset for its Repurchase Price, but
generally may, as an alternative to such a repurchase, substitute one or more
new Assets for the affected Asset (but only if the substitution is to take place
no later than two years after the related Closing Date). In general, any
substitute Asset must, on the date of such substitution
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;
o 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 and, if the Seller is effecting the substitution, comply with
each representation and warranty set forth in the Sales Agreement
pursuant to which the Seller conveyed the replaced Asset(s) to the
Company.
If Contracts or Mortgage Loans are being substituted, the substitute Contract or
Mortgage Loan must have a Loan-to-Value Ratio as of the first day of the month
in which the substitution occurs equal to or less than the Loan-to-Value Ratio
of the replaced Contract or Mortgage Loan as of such date (in each case, using
the value of the underlying Manufactured Home or Mortgaged Property at
origination, and after taking into account the payments due on the substituted
Asset and the replaced Asset on such date). Further, no Adjustable Rate Asset
may be substituted for any Asset in a Trust Estate unless the deleted Asset is
also an Adjustable Rate Asset. A substituted Adjustable Rate Asset must
o have a minimum lifetime Mortgage Rate that is not less than the
minimum lifetime Mortgage Rate on the replaced Adjustable Rate Asset;
o have a maximum lifetime Mortgage Rate that is not less than the
maximum lifetime Mortgage Rate on the replaced Adjustable Rate Asset;
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;
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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.
PRE-FUNDING
If so specified in the related Prospectus Supplement, a portion of the
issuance proceeds of the Certificates of a particular Series (such amount, the
"Pre-Funded Amount") will be deposited in an account (the "Pre-Funding Account")
to be established with the Trustee, which will be used to acquire additional
Contracts or Mortgage Loans from time to time during the time period specified
in the related Prospectus Supplement (the "Pre-Funding Period"). Prior to the
investment of the Pre-Funded Amount in additional Contracts or Mortgage Loans,
such Pre-Funded Amount may be invested in one or more Eligible Investments. Any
Eligible Investment must mature no later than the Business Day prior to the next
Distribution Date.
During any Pre-Funding Period, the Company will be obligated (subject only
to the availability thereof) to transfer to the related Trust additional
Contracts or Mortgage Loans from time to time during such Pre-Funding Period.
Such additional Contracts or Mortgage Loans will be required to satisfy certain
eligibility criteria more fully set forth in the related Prospectus Supplement,
which eligibility criteria will be consistent with the eligibility criteria of
the Contracts or Mortgage Loans included in the Trust as of the Closing Date,
subject to such exceptions as are expressly stated in such Prospectus
Supplement.
Use of a Pre-Funding Account with respect to any issuance of Certificates
will be subject to the following general conditions:
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 be subject to the same underwriting standards, representations
and warranties as the Contracts or Mortgage Loans included in the
related Trust on the Closing Date (although additional criteria may
also be required to be satisfied, as described in the related
Prospectus Supplement),
o the Pre-Funded Amount will be not exceed 25% of the principal amount
of the Certificates issued pursuant to a particular offering,
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 such prepayment of principal would have
an adverse effect on the yield to maturity of Certificates purchased at a
premium, and would expose Certificateholder to the risk that alternative
investments of equivalent value may not be available at such later time.
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A maximum of 5% of the Assets (including Assets acquired after Closing
with Pre-Funded Amounts) included in the Trust Estate will deviate from the
characteristics of the Assets described in the related Prospectus Supplement.
Further, information regarding additional Assets acquired by a Trust Estate
during the Pre-Funding Period comparable to the disclosure regarding the Assets
in the related Prospectus Supplement will be filed on a Current Report in Form
8-K (in addition to any other reporting requirements of the Trust under the
Exchange Act) within fifteen days following the end of the Pre-Funding Period.
DISTRIBUTION ACCOUNT
Payments on the Contracts and Mortgage Loans included in the Trust for a
Series will be remitted to the Certificate Account and then to the Distribution
Account for such Series. Such deposits may be made net of amounts required to
pay servicing fees and any amounts which are to be included in any Reserve Fund
as set forth in the related Prospectus Supplement. All or a portion of the
amounts in such Distribution Account, together with reinvestment income thereon
if payable to the Certificateholders, will be available, to the extent specified
in the related Prospectus Supplement, for the payment of previously unpaid
servicing and administrative fees and distributions of principal and interest on
each Class of the Certificates of such Series in the manner described in the
related Prospectus Supplement.
RESERVE FUNDS OR LIQUIDITY ACCOUNTS
If so stated in the Prospectus Supplement for a Series, the Company will
establish one or more Reserve Funds or Liquidity Accounts, which may be used by
the Trustee to make any required distributions of principal or interest on the
Certificates of the Series to the extent funds are not otherwise available. The
Company may fund a Reserve Fund by depositing cash, certificates of deposit
and/or letters of credit therein at the Closing Date, or a Reserve Fund may be
funded by the Trustee's deposit therein of Available Distribution Amounts not
required to pay servicing or administrative fees or to make distributions on the
Certificates on each Distribution Date until amounts on deposit in the Reserve
Fund equal an initial required amount. The method of funding any Reserve Fund
will be described in the related Prospectus Supplement. Any Reserve Fund will be
maintained in trust but may or may not constitute a part of the Trust Estate for
the related Series. The Company may have certain rights on any Distribution Date
to cause the Trustee to make withdrawals from the Reserve Fund for a Series and
to pay such amounts in accordance with the instructions of the Company to the
extent that such funds are no longer required to be maintained for the
Certificateholders.
INSURANCE
To the extent specified in the related Prospectus Supplement, the
Certificates of a Series or all or any part of the related Trust Estate may be
supported by insurance policies or alternate forms of credit enhancement
described below.
The insurers under Standard Hazard Insurance Policies are selected by the
related Obligors and are generally not required to meet any credit rating
criteria. Any other type of insurance supporting a Series of Certificates will
not in and of itself be subject to any specific credit rating requirements.
However, any such insurance obtained with respect to a Series will be considered
a part of the aggregate credit enhancement provided for such Series, and the
total credit enhancement obtained to support any Series must be in sufficient
quantity and of sufficient quality for the Classes of the Certificates of such
Series to merit the ratings assigned to such Classes by each applicable Rating
Agency, as described in the related Prospectus Supplement. The acceptability of
the insurers to the applicable Rating Agencies is the only criterion used in the
selection of any insurers other than insurers under Standard Hazard Insurance
Policies.
HAZARD INSURANCE
The following descriptions are general and do not purport to be complete.
Such descriptions are qualified in their entirety by reference to the
description of any material variances from such description contained in the
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related Prospectus Supplement. In general, coverage under Standard Hazard
Insurance Policies and Special Hazard Insurance Policies varies among insurers.
STANDARD HAZARD INSURANCE POLICIES. The terms of an Agreement may require
the Servicer to cause to be maintained with respect to each Contract and
Mortgage Loan one or more Standard Hazard Insurance Policies. With respect to
Contracts, each such policy will provide, at a minimum, the same coverage as
that provided by a standard fire and extended coverage insurance policy that is
customary for manufactured housing and issued by a company authorized to issue
such policies in the state in which the related Manufactured Home is located.
The Standard Hazard Insurance Policies maintained for Mortgage Loans will
provide coverage at least equal to the applicable state standard form of fire
insurance policy with extended coverage. In general, the standard form of fire
and extended coverage policy will cover physical damage to, or destruction of,
the improvements on the related Manufactured Home or Mortgaged Property caused
by fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil
commotion, subject to the conditions and exclusions specific to each policy.
Because the Standard Hazard Insurance Policies relating to the Contracts and
Mortgage Loans will be underwritten by different insurers and will cover
Manufactured Homes and Mortgaged Properties located in various states, such
policies will not contain identical terms and conditions. The basic terms,
however, generally will be determined by state law and generally will be
similar. Most such policies typically will not cover any physical damage
resulting from war, revolution, governmental actions, floods and other
water-related causes, earth movement (including earthquakes, landslides, and
mudflows), nuclear reaction, wet or dry rot, vermin, rodents, insects or
domestic animals, theft and, in certain cases, vandalism. The foregoing list is
merely indicative of certain kinds of uninsured risks and is not intended to be
all-inclusive. When a Manufactured Home or Mortgaged Property is located (at the
time of origination of the related Contract or Mortgage Loan) in a flood area
identified by HUD pursuant to the National Flood Insurance Act of 1968, as
amended, the Servicer will cause to be maintained flood insurance providing
coverage in the same amount as that provided by the related Standard Hazard
Insurance Policy with respect to such Manufactured Home or Mortgaged Property,
to the extent such coverage is available.
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.(1)
Each Standard Hazard Insurance Policy caused to be maintained by the
Servicer shall contain a standard loss payee clause in favor of the Servicer and
its successors and assigns. If any Obligor is in default in the payment of
premiums on its Standard Hazard Insurance Policy or Policies, the Servicer shall
pay such premiums out of its own funds, and may add such premium to the
Obligor's obligation as provided by the Contract or Mortgage Loan, but may not
add such premium to the remaining principal balance of the Contract or Mortgage
Loan. All amounts collected by the Servicer under any Standard Hazard Insurance
Policy maintained with respect to a Mortgage Loan (less amounts to be applied to
the restoration or repair of the Mortgaged Property and other amounts necessary
to reimburse the Servicer for previously incurred advances or approved expenses,
which may be retained by the Servicer) will be deposited to the applicable
Certificate Account.
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(1) Each Standard Hazard Insurance Policy may contain a "coinsurance" clause
which, in effect, will require the insured at all times to carry insurance of a
specified percentage (generally 80% to 90%) of the full replacement value of the
dwellings, structures and other improvements on the related Manufactured Home or
Mortgaged Property in order to recover the full amount of any partial loss. If
the insured's coverage falls below this specified percentage,such clause will
provide that the insurer's liability in the event of partial loss will not
exceed the lesser of the actual cash value (the replacement costs less physical
depreciation) of the dwellings, structures and other improvements damaged or
destroyed or such proportion of the loss, without deduction for depreciation, as
the amount of insurance carried bears to the specified percentage of the full
replacement cost of such dwellings, structures and other improvements.
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To the extent a Standard Hazard Insurance Policy is not maintained with
respect to a Manufactured Home or Mortgaged Property, the related Contract or
Mortgage Loan will be covered by one or more blanket insurance policies
maintained by the Servicer to insure against losses on the Contracts and
Mortgage Loans resulting from the absence or insufficiency of individual
Standard Hazard Insurance Policies. The Servicer shall pay the premium for such
blanket policy and shall pay any deductible amount with respect to claims under
such blanket policy.
If the Servicer repossesses a Manufactured Home or forecloses on a
Mortgaged Property on behalf of the Trustee, the Servicer shall either
maintain at its expense hazard insurance with respect to such Manufactured Home
or Mortgaged Property, or indemnify the Trustee against any damage to such
Manufactured Home or Mortgaged Property prior to resale, foreclosure sale, or
other disposition thereof.
Any losses incurred with respect to Contracts or Mortgage Loans due to
uninsured risks (including earthquakes, mudflows and floods) or insufficient
hazard insurance proceeds may, to the extent such losses are not covered by the
Special Hazard Insurance Policy for a Series, affect payments to holders of
Certificates of such Series.
SPECIAL HAZARD INSURANCE POLICY. To the extent provided in the related
Prospectus Supplement, a special hazard insurance policy ("Special Hazard
Insurance Policy") will be obtained from the insurer or insurers (the "Special
Hazard Insurer") specified in the related Prospectus Supplement. Subject to the
limitations described below, a Special Hazard Insurance Policy will insure
against loss by reason of damage to Manufactured Homes or Mortgaged Properties
underlying defaulted Contracts or Mortgage Loans caused by certain hazards
(including vandalism and earthquakes and, except where the related Obligor is
required to obtain flood insurance, floods and mudflows) not covered by the
Standard Hazard Insurance Policies covering such Contracts or Mortgage Loans and
loss from partial damage to the Manufactured Homes or Mortgaged Properties
securing such defaulted Contracts or Mortgage Loans caused by reason of the
application of the coinsurance clause contained in the applicable Standard
Hazard Insurance Policies. The Special Hazard Insurance Policy for a Series,
however, will not cover losses occasioned by war, certain governmental actions,
nuclear reaction and certain other perils. The amount of coverage, if any, under
the Special Hazard Insurance Policy with respect to a Series will be specified
in the related Prospectus Supplement.
Subject to the foregoing limitations, the Special Hazard Insurance Policy
with respect to a Series will provide that, when there has been damage to the
Manufactured Home or Mortgaged Property securing a defaulted Contract or
Mortgage Loan and such damage is not covered by the Standard Hazard Insurance
Policy maintained by the related Obligor or the Servicer, the Special Hazard
Insurer will pay the lesser of the cost of repair of such property or upon
transfer of such property to the Special Hazard Insurer, the unpaid principal
amount of such Contract or Mortgage Loan at the time of the acquisition of such
property, plus accrued interest to the date of claim settlement (excluding late
charges and penalty interest) and certain expenses incurred in respect of such
property. No claim may be validly presented under a Special Hazard Insurance
Policy unless the Standard Hazard Insurance Policy covering the Manufactured
Home or Mortgaged Property securing the Contract or Mortgage Loan has been kept
in force and other reimbursable protection, preservation and foreclosure
expenses have been paid (all of which must be approved in advance as necessary
by the Special Hazard Insurer) and the insured has acquired title to the
Manufactured Home or Mortgaged Property as a result of default by the related
Obligor. If the sum of the unpaid principal amount plus accrued interest on a
Contract or Mortgage Loan, plus certain related expenses, is paid by the Special
Hazard Insurer, the amount of further coverage under the Special Hazard
Insurance Policy will be reduced by the amount of such payment less any net
proceeds from the sale of the Manufactured Home or Mortgaged Property. Any
amount paid as the cost of repair of the Manufactured Home or Mortgaged Property
will reduce coverage by such amount.
The Agreement with respect to a Series will require the Servicer to
maintain any Special Hazard Insurance Policy for such Series in full force and
effect, subject to certain conditions. SEE "SALE AND SERVICING OF THE MORTGAGE
LOANS -- MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES"
HEREIN. The Servicer also must present claims, on behalf of the
Certificateholders and the Trustee, for all losses not otherwise covered by the
applicable Standard Hazard Insurance Policies and take all reasonable steps
necessary to permit recoveries on such claims. SEE "SALE AND SERVICING OF THE
MORTGAGE LOANS -- MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING
PROCEDURES -- PRESENTATION OF CLAIMS" HEREIN.
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To the extent provided in the related Prospectus Supplement, in lieu
(partially or wholly) of maintaining a Special Hazard Insurance Policy with
respect to a Series, a deposit of cash, a certificate of deposit, a letter of
credit or any other instrument acceptable to each Rating Agency rating the
Series as described in the related Prospectus Supplement may be provided in an
amount and for a term acceptable to each such Rating Agency. Such a deposit will
be credited to a Special Hazard or similar fund and the Trustee or Servicer will
be permitted to draw on the fund to recover losses that would otherwise be
covered by a Special Hazard Insurance Policy ("Special Hazard Losses"). Special
Hazard Losses may also be allocated to the Certificates of a Series on the terms
and subject to the conditions and limitations set forth in the related
Prospectus Supplement. The Company may also elect to insure against Special
Hazard Losses by the delivery of Additional Assets to the Trust rather than
through a Special Hazard Insurance Policy or special hazard fund.
A Special Hazard Insurance Policy, if any, securing a Series may insure
against losses on Contracts or Mortgage Loans assigned to Trusts for other
Series of Certificates or that secure other pass-through securities or
collateralized mortgage or manufactured housing contract obligations issued by
the Company or one of its affiliates; PROVIDED, HOWEVER, that the extension of
coverage (and corresponding assignment of the Special Hazard Insurance Policy)
to secure any other Series or such other securities or obligations will not be
permitted if it would result in the downgrading of the credit rating of any
outstanding Certificates of any Series offered hereby assigned by any Rating
Agency identified in the related Prospectus Supplement.
CREDIT INSURANCE
Any credit insurance relating to the Contracts or Mortgage Loans
underlying a Series of Certificates will be described in the Prospectus
Supplement.
Mortgage Loans underlying a Series of Certificates will, to the extent
described in the related Prospectus Supplement, be covered by primary mortgage
insurance policies ("Primary Mortgage Insurance Policies"). Contracts and
Mortgage Loans underlying a Series may, to the extent described in the related
Prospectus Supplement, be supported by FHA insurance, VA guarantees or one or
more pool insurance policies (each a "Pool Insurance Policy") or any combination
thereof (collectively, and together with any related Primary Mortgage Insurance
Policies, FHA insurance or VA guarantees, the "Credit Insurance" for such
Series).
No Mortgage Loan will be covered by a Primary Mortgage Insurance Policy.
To the extent so specified in the related Prospectus Supplement, the Servicer
will maintain a Primary Mortgage Insurance Policy on any Conventional Mortgage
Loan with an initial Mortgage Loan-to-Value Ratio of greater than 80%. Any
Primary Mortgage Insurance Policy that is so maintained will provide coverage on
at least the principal amount of the covered Mortgage Loan in excess of 75% of
the original appraised value of the related Mortgaged Property, which coverage
will remain in force until the principal balance of such Mortgage Loan is
reduced to 80% of such original appraised value. A Primary Mortgage Insurance
Policy also may be canceled, with the consent of the Servicer and any applicable
Pool Insurer, after the policy has been in effect for more than two years if the
Mortgage Loan-to-Value Ratio of such Mortgage Loan has declined to 80% or less
based upon the current fair market value of the related Mortgaged Property.
Certain other Mortgage Loans may also be covered by Primary Mortgage
Insurance Policies. Certain Primary Mortgage Insurance Policies may, to the
extent required by the related Prospectus Supplement, and subject to their
provisions and to certain conditions and exclusions described below, provide
full coverage against any loss sustained by reason of nonpayments by the related
Mortgagor (a "Full Coverage Insurance Policy").
The Pool Insurance Policy or Policies for a Series, if any, will be
designed to provide coverage for all Conventional Mortgage Loans which are not
covered by Full Coverage Insurance Policies. However, neither the Primary
Mortgage Insurance Policies nor the Pool Insurance Policies will insure against
certain losses sustained in the event of a personal bankruptcy of the Mortgagor
under a Mortgage Loan. SEE "CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE
LOANS -- THE MORTGAGE LOANS -- ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS
ON LENDERS" HEREIN. Such losses may be covered to the extent provided by the
Obligor Bankruptcy Insurance, if any, described below for such Series.
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The Credit Insurance policies will not provide coverage against hazard
losses. Certain hazard risks will be covered by Standard Hazard Insurance
Policies or Special Hazard Insurance Policies, but other hazard risks will not
be insured and thus may affect payments to holders of related Certificates. SEE
" -- HAZARD INSURANCE" ABOVE.
To the extent that Primary Mortgage Insurance Policies, FHA insurance or
VA guarantees do not cover all losses on a defaulted or foreclosed Contract or
Mortgage Loan, and to the extent such losses are not covered by the Pool
Insurance Policy for the related Series of Certificates, if any, such losses
would affect payments to holders of related Certificates.
The following descriptions of Credit Insurance policies and the coverage
thereunder are provided for general informational purposes only, and do not
purport to be complete. There can be no assurance that the actual policies and
coverage with respect to a specific Series will comply with these descriptions.
PRIMARY MORTGAGE INSURANCE. Any Primary Mortgage Insurance Policy covering
Mortgage Loans will be issued by the related Mortgage Insurer pursuant to the
Mortgage Insurer's applicable master policy. The Company and the Trustee as
assignee of the Mortgage Loans will be the insureds or assignees of record (the
"Insured"), as their interests may appear, under each such Primary Mortgage
Insurance Policy. The Agreement with respect to such Series will require the
Servicer to cause a Primary Mortgage Insurance Policy to be maintained in full
force and effect with respect to each Mortgage Loan covered by the Agreement (to
the extent such insurance is required by such Agreement) and to act on behalf of
the Insured with respect to all actions required to be taken by the Insured
under each such Primary Mortgage Insurance Policy.
The amount of a claim for benefits (the "Loss") under a Primary Mortgage
Insurance Policy covering a Mortgage Loan will generally consist of the insured
portion of the unpaid principal balance of the covered Mortgage Loan (as
described herein) and accrued and unpaid interest thereon and reimbursement of
certain expenses, less
o all rents or other payments collected or received by the Insured
(other than the proceeds of hazard insurance) that are derived from or
in any way related to the related Mortgaged Property;
o hazard insurance proceeds in excess of the amount required to restore
the related Mortgaged Property and which have not been applied to the
payment of the Mortgage Loan;
o amounts expended but not approved by the Mortgage Insurer;
o claim payments previously made by the Mortgage Insurer; and
o unpaid premiums.
As conditions precedent to the filing of or payment of a claim under a
Primary Mortgage Insurance Policy covering a Mortgage Loan, the Insured will
generally be required to (1) pay (a) all hazard insurance premiums and (b) as
necessary and approved in advance by the Mortgage Insurer, (i) real estate
property taxes, (ii) all expenses required to maintain the related Mortgaged
Property in at least as good a condition as existed at the effective date of
such Primary Mortgage Insurance Policy, ordinary wear and tear excepted, (iii)
property sales expenses, (iv) any outstanding liens (as defined in such Primary
Mortgage Insurance Policy) on the Mortgaged Property and (v) foreclosure costs,
including court costs and reasonable attorneys' fees; (2) in the event of any
physical loss or damage to the related Mortgaged Property, restore and repair
the Mortgaged Property to at least as good a condition as existed at the
effective date of such Primary Mortgage Insurance Policy, ordinary wear and tear
excepted; and (3) tender to the Mortgage Insurer good and merchantable title to
and possession of the related Mortgaged Property. A Primary Mortgage Insurance
Policy may not reimburse the Insured for attorneys' fees in respect of a
foreclosed Mortgage Loan in excess of 3% of the unpaid principal balance plus
accrued and unpaid interest on such Mortgage Loan. As a result, legal expenses
in excess of such reimbursement limitation may be charged as a loss on the
related Certificates.
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Other provisions and conditions of each Primary Mortgage Insurance Policy
covering a Mortgage Loan generally will provide that: (1) no change may be made
in the terms of such Mortgage Loan without the consent of the Mortgage Insurer;
(2) written notice must be given to the Mortgage Insurer within 10 days after
the Insured becomes aware that a Mortgagor is delinquent in the payment of a sum
equal to the aggregate of two Monthly Payments due under such Mortgage Loan or
that any proceedings affecting the mortgagor's interest in the Mortgaged
Property securing such Mortgage Loan have been commenced, and thereafter the
Insured must report monthly to the Mortgage Insurer the status of any such
Mortgage Loan until such Mortgage Loan is brought current, such proceedings are
terminated or a claim is filed; (3) the Mortgage Insurer will have the right to
purchase such Mortgage Loan, at any time after the 10 days' notice described in
clause (2) above and prior to the commencement of foreclosure proceedings, at a
price equal to the unpaid principal amount of the Mortgage Loan plus (a) accrued
and unpaid interest thereon and (b) reimbursable amounts expended by the Insured
for the real estate taxes and fire and extended coverage insurance on the
related Mortgaged Property for a period not exceeding 12 months, less the sum of
any claim previously paid under the policy with respect to such Mortgage Loan
and any due and unpaid premium with respect to such policy; (4) the Insured must
commence proceedings at certain times specified in the policy and diligently
proceed to obtain good and merchantable title to and possession of the related
Mortgaged Property; (5) the Insured must (a) notify the Mortgage Insurer of any
proceedings described in clause (4) above and provide the Mortgage Insurer with
copies of documents relating thereto, (b) notify the Mortgage Insurer of the
price amounts specified in clause (3) above at least 15 days prior to the sale
of the related Mortgaged Property by foreclosure, and (c) bid such amount unless
the Mortgage Insurer specifies a lower or higher amount; (6) the Insured may
accept a conveyance of the related Mortgaged Property in lieu of foreclosure
with written approval of the Mortgage Insurer provided the ability of the
Insured to assign specified rights to the Mortgage Insurer are not thereby
impaired or the specified rights of the Mortgage Insurer are not thereby
adversely affected by such conveyance; (7) the Insured agrees that the Mortgage
Insurer has issued the policy in reliance upon the correctness and completeness
of the statements contained in the application for the policy and in the
appraisal, plans and specifications and other exhibits and documentation
submitted therewith or at any time thereafter; (8) under certain policies, the
Mortgage Insurer will not pay claims involving or arising out of
misrepresentation or dishonest, fraudulent, criminal or knowingly wrongful acts
(including errors or omissions) by certain persons, or claims involving or
arising out of the negligence of certain persons if such negligence is material
either to the acceptance of the risk or to the hazard assumed by the Mortgage
Insurer; and (9) the Insured must comply with other notice provisions in the
policy.
The Mortgage Insurer will generally be required to pay to the Insured
either: the insured percentage of the Loss; or at its option under certain of
the Primary Mortgage Insurance Policies, the sum of the delinquent monthly
payments plus any advances made by the Insured, each to the date of the claim
payment, and thereafter, monthly payments in the amount that would have become
due under the Mortgage Loan if it had not been discharged plus any advances made
by the Insured until the earlier of the date the Mortgage Loan would have been
discharged in full if the default had not occurred, or an Approved Sale (AS
DEFINED BELOW UNDER " -- POOL INSURANCE"). Any rents or other payments collected
or received by the Insured which are derived from or are in any way related to
the related Mortgaged Property will be deducted from any claim payment.
FHA INSURANCE AND VA GUARANTEES ON CONTRACTS. Certain of the Contracts may
be FHA-insured or VA-guaranteed. The nature of any such FHA insurance or VA
guarantees is described generally below.
The regulations governing FHA manufactured home contract insurance provide
that insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to HUD. With respect to a defaulted
FHA contract, the servicer must follow applicable regulations before initiating
repossession procedures as a prerequisite to payment. These regulations include
requirements that the lender arrange a face-to-face meeting with the borrower,
initiate a modification or repayment plan, if feasible, and give the borrower 30
days' notice of default prior to any repossession. The insurance claim is paid
in cash by HUD. For manufactured housing contracts, the amount of insurance
benefits generally paid by the FHA currently is equal to 90% of the sum of
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
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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, 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 subject to applicable caps as set by
regulations governing the FHA from time to time.
The insurance available to a lender under FHA Title I insurance is subject
to the limit of a reserve amount equal to 10% of the original principal balance
of all Title I insured loans originated by the lender, which amount is reduced
by all claims paid to the lender and by an annual reduction in the reserve
amount of 10% of the reserve amount, and which is increased by an amount equal
to 10% of the original principal balance of insured loans subsequently
originated by the lender. The obligation to pay insurance premiums to the FHA is
the obligation of Oakwood, as the servicer of the FHA-insured Contracts.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under any VA guarantee will be a percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the original
guaranteed amount.
POOL INSURANCE. The Company may obtain a Pool Insurance Policy to cover
any loss (subject to the limitations described below) incurred by reason of
default by the Obligors on the Contracts and/or Mortgage Loans (in the case of
Mortgage Loans, to the extent such loss is not covered by any Primary Mortgage
Insurance Policy). The amount of the Pool Insurance Policy (or Policies) for a
Series, if any, will be specified in the related Prospectus Supplement. A Pool
Insurance Policy for a Series, however, will not be a blanket policy against
loss, because claims thereunder may only be made for particular defaulted
Contracts or Mortgage Loans and only upon satisfaction of certain conditions
precedent described below.
The Servicer will be required to maintain any Pool Insurance Policies for
each Series and to present or cause the Sub-servicers, if any, to present claims
to the Pool Insurer on behalf of the Trustee and the Certificateholders. As set
forth in the related Prospectus Supplement, any Pool Insurance Policy for a
Series will provide that as a condition precedent to the payment of any claim
the insured will be required (1) to advance hazard premiums on the Manufactured
Home or Mortgaged Property securing the defaulted Contract or Mortgage Loan; (2)
to advance, as necessary and approved in advance by the related insurer, (a)
real estate or personal property taxes, (b) all expenses required to preserve
and repair the Manufactured Home or Mortgaged Property, to protect the
Manufactured Home or Mortgaged Property from waste, so that the Manufactured
Home or Mortgaged Property is in
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at least as good a condition as it was in on the date upon which coverage under
the Pool Insurance Policy with respect to such Manufactured Home or Mortgaged
Property first became effective, ordinary wear and tear excepted, (c) property
sales expenses, (d) any outstanding liens on the Manufactured Home or Mortgaged
Property, and (e) foreclosure costs, including court costs and reasonable
attorneys' fees; and (3) if there has been physical loss or damage to the
Manufactured Home or Mortgaged Property, to restore the Manufactured Home or
Mortgaged Property to its condition (ordinary wear and tear excepted) as of the
issue date of the Pool Insurance Policy. It also will be a condition precedent
to the payment of any claim relating to a Mortgage Loan under a Pool Insurance
Policy that the Insured maintain a Primary Mortgage Insurance Policy that is
acceptable to the Pool Insurer on all Mortgage Loans covered by the Pool
Insurance Policy that have Mortgage Loan-to-Value Ratios at the time of
origination in excess of 80%. Assuming satisfaction of these conditions, the
Pool Insurer will pay to the Insured the amount of the "loss" which will
generally be
o the amount of the unpaid principal balance of the Contract or Mortgage
Loan immediately prior to an Approved Sale of the related Manufactured
Home or Mortgaged Property, plus
o the amount of the accumulated unpaid interest on such Contract or
Mortgage Loan to the date of claim settlement at the contractual rate
of interest, plus
o advances made by the Insured as described above, less certain payments
(including the proceeds of any prior Approved Sale and any Primary
Mortgage Insurance Policies).
An "Approved Sale" is
o a sale of the related Manufactured Home or Mortgaged Property acquired
by the Insured because of a default by the Obligor if the Pool Insurer
has given prior approval to such sale;
o a foreclosure or trustee's sale of the related Manufactured Home or
Mortgaged Property at a price exceeding the minimum amount specified
by the Pool Insurer;
o the acquisition of the Mortgaged Property under the Primary Mortgage
Insurance Policy by the Mortgage Insurer; or
o the acquisition of the related Manufactured Home or Mortgaged Property
by the Pool Insurer.
As a condition precedent to the payment of any "loss" on any covered Contract or
Mortgage Loan, the Insured must provide the Pool Insurer with good and
merchantable title to the related Manufactured Home or Mortgaged Property if the
Pool Insurer elects to take title to such Manufactured Home or Mortgaged
Property. If any property securing a defaulted Contract or Mortgage Loan covered
by a Pool Insurance Policy is damaged and the proceeds, if any, from the related
Standard Hazard Insurance Policy or the applicable Special Hazard Insurance
Policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the Pool Insurance Policy, the Servicer will
not be required to expend its own funds to restore the damaged Manufactured Home
or Mortgaged Property unless it determines that such restoration will increase
the proceeds on liquidation of the Contract or Mortgage Loan after reimbursement
of the Servicer for its expenses and that such expenses will be recoverable by
it through Liquidation Proceeds or Insurance Proceeds.
The Pool Insurance Policies will generally not insure (and many Primary
Mortgage Insurance Policies may not insure) against losses sustained by reason
of defaults arising from, among other things, fraud or negligence in the
origination or servicing of a Contract or Mortgage Loan, including
misrepresentation by the Obligor or the originator; failure to construct
Manufactured Homes or Mortgaged Properties in accordance with plans and
specifications; and a claim in respect of a defaulted Mortgage Loan occurring
when the Servicer, at the time of default or thereafter, was not approved by the
Mortgage Insurer.
The original amount of coverage under any Pool Insurance Policy securing a
Series will be reduced over the life of the Certificates of such Series by the
aggregate dollar amount of claims paid under such policy, less the
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aggregate of net amounts realized by the Pool Insurer upon disposition of all
repossessed or foreclosed Manufactured Home or Mortgaged Properties covered
thereby. The amount of claims paid includes certain expenses incurred by the
Servicer as well as accrued interest on delinquent Contracts or Mortgage Loans
to the date of payment of the claim. The net amounts realized by a Pool Insurer
in respect of a Contract or Mortgage Loan will depend primarily on the market
value of the Manufactured Home or Mortgaged Property securing the defaulted
Contract or Mortgage Loan. The market value of a Manufactured Home or Mortgaged
Property will be determined by a variety of economic, geographic, social,
environmental and other factors and may be affected by matters that were unknown
and could not reasonably be anticipated at the time the original loan was made.
If aggregate net claims paid under a Pool Insurance Policy securing a
Series reach the original policy limit, coverage under the Pool Insurance Policy
will lapse and any further losses will be borne by the related Trust, and thus
may affect adversely payments to the Certificateholders of such Series. In
addition, unless the Servicer can determine that a P&I Advance in respect of a
delinquent Contract or Mortgage Loan would be recoverable from the proceeds of
the liquidation of such Contract or Mortgage Loan or any other source, the
Servicer will not be obligated to make a P&I Advance with respect to such
delinquency. SEE "SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS --
ADVANCES" HEREIN. The original amount of coverage under any Pool Insurance
Policy assigned to the Trust for a Series may also be reduced or canceled to the
extent each Rating Agency rating the Series confirms that such reduction will
not result in the lowering of the rating of the Certificates of such Series.
A Pool Insurance Policy for a Series may insure against losses on the
Contracts or Mortgage Loans assigned to Trusts for other Series of Certificates
or that secure other pass-through securities or collateralized mortgage or
manufactured housing contract obligations issued by the Company or one of its
affiliates; PROVIDED, HOWEVER, that the extension of coverage (and corresponding
assignment of the Pool Insurance Policy) to secure any other Series or such
other securities or obligations will not be permitted if it would result in the
downgrading of the credit rating of any outstanding Certificates of any Series
offered hereby assigned by any Rating Agency identified in the related
Prospectus Supplement.
OBLIGOR BANKRUPTCY INSURANCE
In the event of a personal bankruptcy of an Obligor, the bankruptcy court
may establish the value of the related Manufactured Home or Mortgaged Property
at an amount less than the then Unpaid Principal Balance of the Contract or
Mortgage Loan secured by such Manufactured Home or Mortgaged Property. The
amount of the secured debt could be reduced to the value of the collateral
property, and the holder of the Contract or Mortgage Loan thus would become an
unsecured creditor to the extent the outstanding principal balance of such
Contract or Mortgage Loan exceeds the value assigned to the underlying
Manufactured Home or Mortgaged Property by the bankruptcy court. In addition,
certain other modifications of the terms of a Contract or Mortgage Loan can
result from a bankruptcy proceeding. SEE " -- THE CONTRACTS -- ENFORCEMENT oF
SECURITY INTERESTS IN MANUFACTURED HOMES" AND " -- THE MORTGAGE LOANS --
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS," EACH UNDER THE
HEADING "CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS" HEREIN. Losses
resulting from a bankruptcy proceeding affecting Contracts or Mortgage Loans
will, to the extent specified in the related Prospectus Supplement, be covered
by obligor bankruptcy insurance for the related Series (the "Obligor Bankruptcy
Insurance"). The amount and term of any Obligor Bankruptcy Insurance for a
Series must be acceptable to each Rating Agency rating the Series. Subject to
the terms of any Obligor Bankruptcy Insurance, the insurer may have the right to
purchase any Contract or Mortgage Loan with respect to which a payment has been
made or may be made, for an amount equal to the Unpaid Principal Balance of such
Contract or Mortgage Loan plus accrued and unpaid interest thereon. To the
extent Obligor Bankruptcy Insurance is required by a Prospectus Supplement, the
Company may, partially or entirely in lieu of Obligor Bankruptcy Insurance,
deposit or cause to be deposited cash, a certificate of deposit, a letter of
credit or any other instrument acceptable to each Rating Agency rating the
related Series as described in the related Prospectus Supplement. Such a deposit
will be credited to an obligor bankruptcy fund or similar fund and the Trustee
or Servicer will be able to draw on the fund to recover losses that otherwise
would be insured against by Obligor Bankruptcy Insurance. The amount of any
Obligor Bankruptcy Insurance for a Series or any deposit in lieu thereof may be
reduced as long as any such reduction will not result in a reduction of the then
applicable rating of the Series by any Rating Agency rating the Series as
described in the related Prospectus Supplement. Any Obligor Bankruptcy Insurance
or any obligor bankruptcy fund maintained with respect to a Series may insure
against losses on Contracts or Mortgage Loans assigned to Trusts for other
Series of Certificates or that
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secure other pass-through securities or collateralized mortgage or manufactured
contract obligations issued by the Company or one of its affiliates; PROVIDED,
HOWEVER, that the extension of coverage (and corresponding assignment of an
Obligor Bankruptcy Insurance policy or obligor bankruptcy fund) to secure any
other Series or such other securities or obligations will not be permitted if it
would result in the downgrading of the credit rating of any outstanding
Certificates of any Series offered hereby assigned by a Rating Agency identified
in the related Prospectus Supplement. The Company may elect to deposit
Additional Assets to the Trust in lieu of obtaining any required Obligor
Bankruptcy Insurance or establishing an obligor bankruptcy fund.
The foregoing description does not purport to be complete and is qualified
in its entirety by reference to any description of Obligator Bankruptcy
Insurance contained in the related Prospectus Supplement.
DELIVERY OF ADDITIONAL ASSETS
To the extent provided in the related Prospectus Supplement, in lieu of or
in addition to providing Pool Insurance, Special Hazard Insurance, Obligor
Bankruptcy Insurance or other insurance, the Company may assign to the Trust for
a Series of Certificates non-recourse guaranties of the timely payment of
principal and interest on Contracts and Mortgage Loans included in the Trust
secured by other assets satisfactory to each Rating Agency rating the Series.
The Company may also assign or undertake to deliver such other assets to any
Trust by such other means as may be specified in the related Prospectus
Supplement. Such other assets may consist of additional Contracts or Mortgage
Loans, letters of credit or other Eligible Investments ("Additional Assets").
INVESTMENT OF FUNDS
Funds deposited in or remitted to the Certificate Account, the
Distribution Account, any Reserve Fund and any other funds and accounts for a
Series are to be invested by the Trustee, as directed by the Servicer, in
certain eligible investments ("Eligible Investments"), which include
o obligations of the United States or any agency thereof provided such
obligations are backed by the full faith and credit of the United
States;
o within certain limitations, securities bearing interest or sold at a
discount issued by any corporation, which securities are rated in the
rating category required to support the then applicable ratings
assigned to that Series;
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 such depository institution or trust company (or
provided that either the senior debt obligations or commercial paper
of the parent company of such depository institution or trust company)
are then rated in the security rating category required to support the
then applicable ratings assigned to that Series;
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 Federal Deposit Insurance Corporation (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 certain repurchase agreements relating to United States government
securities; and
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o certain money market mutual funds investing primarily in the
obligations of the United States; PROVIDED such mutual funds are
rated in a rating category sufficient to support the initial ratings
assigned to that Series.
Eligible Investments with respect to a Series will include only
obligations or securities that mature on or before the date on which the
invested funds are required or may be anticipated to be required to be applied
for the benefit of the holders of such Series. Any income, gain or loss from
such investments for a Series will be credited or charged to the appropriate
fund or account for such Series. Reinvestment Income from Eligible Investments
may be payable to the Servicer as additional servicing compensation and, in that
event, will not accrue for the benefit of the Certificateholders of that Series.
If a reinvestment agreement is obtained with respect to a Series, the
related Agreement will require the Trustee to invest funds deposited in the
Certificate Account, the Distribution Account and the Reserve Fund, if any, for
that Series pursuant to the terms of the reinvestment agreement.
CERTIFICATE GUARANTEE INSURANCE
If so specified in the related Prospectus Supplement, Certificate
Guarantee Insurance, if any, with respect to a Series of Certificates may be
provided by one or more insurers. Such Certificate Guarantee Insurance may
guarantee, with respect to one or more Classes of Certificates of the related
Series, timely distributions of interest and full distributions of principal on
the basis of a schedule of principal distributions set forth in or determined in
the manner specified in the related Prospectus Supplement. A copy of the
Certificate Guarantee Insurance documentation for a Series, if any, will be
filed with the Commission as an exhibit to a Current Report on Form 8-K within
15 days of issuance of the Certificates of the related Series.
OAKWOOD HOMES GUARANTEE
If so specified in the related Prospectus Supplement, some or all of the
collections of principal of and interest on the Asset Pool of a Series may be
guaranteed by Oakwood Homes or one of its affiliates. The terms of and
limitations on any such guarantee will be described in the related Prospectus
Supplement. The Prospectus Supplement for any Series containing a guarantee of
Oakwood Homes will contain summary financial information for Oakwood Homes. In
addition, Oakwood Homes' reports under the Exchange Act will be incorporated
therein by reference. A copy of the guaranty agreement under which Oakwood Homes
provides a guarantee for the Asset Pool of a Series will be filed with the
Commission as an exhibit to a Current Report on Form 8-K within 15 days of
issuance of such Certificates.
ALTERNATE CREDIT ENHANCEMENT
From time to time with respect to a Series of Certificates, the Company or
the Servicer may obtain or cause to be obtained further or other liquidity
enhancement, insurance policies, guarantees, letters of credit, or surety bonds
(or make deposits in lieu thereof or in addition thereto) to provide for the
enhancement of the credit rating of such Certificates. To the extent any such
other enhancements are obtained or provided for with respect to a Series of
Certificates, or deposits are made in lieu thereof or in addition thereto, a
description thereof will be set forth in the related Prospectus Supplement.
UNDERWRITING POLICIES
OAKWOOD'S CONTRACT UNDERWRITING GUIDELINES
Contracts included in an Asset Pool will have been underwritten by
Oakwood. These Contracts may have been originated in the name of Oakwood Mobile
Homes, Inc. ("OMH"), a wholly-owned retailing subsidiary of Oakwood Homes, or by
a third party manufactured housing broker or dealer, in either case with funds
provided by Oakwood, or may have been originated directly in Oakwood's name. The
following is a description of the
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underwriting practices generally followed by Oakwood in connection with the
origination of Contracts funded by Oakwood.
A customer desiring to obtain financing for the purchase of a manufactured
home through Oakwood must complete a loan application form at a participating
sales center. Loan applications are forwarded electronically or by facsimile by
sales centers to Oakwood's credit department for consideration.
Upon receipt of a loan application, Oakwood evaluates the ability of the
loan applicant to make the prospective required monthly payments and to pay
related charges. Oakwood utilizes a credit scoring system to evaluate credit
applicants. Oakwood's underwriting guidelines require that each applicant's
credit history, residence history, employment history and debt-to-income ratios
be examined. Oakwood's credit officers review the information relating to these
factors provided by the applicant on his or her loan application and obtain
credit reports and contact employers and other references to verify credit,
residence and employment-related information. Oakwood's automated loan
origination system computes debt-to-income ratios and assigns each applicant an
overall credit score based upon information contained in the application and in
the credit bureau report obtained with respect to such applicant. An applicant's
overall credit score is the sum of his or her credit scores in various areas of
the credit review. Each credit officer is authorized to approve certain
applicants within his lending authority 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 or her total monthly fixed debt obligations (including the
monthly payment on the contract applied for, rental fees charged for land
generally, monthly installment payments to acquire the land on which the home is
located and hazard insurance premiums relating to the home (collectively, the
"Home Payments")) should not exceed 50% of his or her gross monthly income and
(2) the proposed Home Payments should not exceed 35% of his or her gross
monthly income, however, more stringent standards generally apply to prospective
borrowers with relatively lower monthly incomes and/or relatively higher loan to
value ratios. The Company believes that these debt-to-income ratios are
generally consistent with those employed by other lenders under manufactured
housing installment sales contracts. These ratios are generally higher than the
comparable debt-to-income ratios employed by lenders under many types of
residential first-lien mortgage loans. To the extent the credit underwriting
criteria applied to borrowers under Contracts are less stringent than those
applied to borrowers under conventional types of residential first-lien mortgage
loans, the level of delinquencies experienced with respect to a pool of
Contracts may be expected to be higher than the level of delinquencies that
would be experienced with respect to a pool of conventional, residential
first-lien mortgage loans. Such a higher level of delinquencies could result in
a higher level of losses incurred on a pool of Contracts as compared to a pool
of conventional, residential first-lien mortgage loans.
Loan applicants who do not meet the objective criteria above may be
approved, on a case-by-case basis, by higher-level management in Oakwood's
credit department. Generally, applicants whose credit scores are less than the
minimums established for credit officer approval are approved only if other
favorable objective underwriting factors are present which are outside the scope
of the scoring systems. In addition, even if an applicant obtains an acceptable
credit score and has acceptable debt-to-income ratios, a credit officer or
manager retains the discretion to reject a credit application if the credit
officer or manager discerns objective factors outside the scope of the scoring
systems that indicate a lack of creditworthiness.
With respect to those customers deemed to be creditworthy, Oakwood
requires a down payment in the form of cash, the trade-in equity in a previously
owned manufactured home, and/or the borrower's equity in any real property
pledged as additional collateral for the loan. The value of any real property
pledged as additional collateral is estimated by a duly licensed independent
appraiser, and the borrower's equity in real property for down payment purposes
is limited to the lesser of 80% of such estimated value and its appraised tax
value. Generally, Oakwood requires a minimum down payment of 5% of the purchase
price of the home for purchases of new homes, 10% of the purchase price of the
home for purchases of used homes (other than repossessed homes), $499 for
purchases of repossessed single-section homes, $999 for purchases of
repossessed multi-sectional homes, and the lesser of $1,000 or 5% of the
transfer price for homes transferred by a borrower to a new borrower. In
addition, if a borrower uses equity in real property as all or part of his or
her down payment, the total down payment must be at least equal to 5% of the
purchase price of the purchased home. The level of down payment offered by a
prospective
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purchaser of a new home will affect his or her overall credit score,
so that higher down payments are required from applicants with relatively lower
credit scores in areas other than down payment levels. The purchase price of a
manufactured home for purposes of determining a down payment amount generally
includes the stated cash sale price of the manufactured home (including the
stated cash sale price of any accessories sold with the home, which may include
appliances, furniture, skirting, steps, porches and related items), sales and
any other state and local taxes.
The balance of the purchase price is financed by an installment sale
contract providing for a purchase money security interest in the manufactured
home and a mortgage on any real property pledged as additional collateral. All
of these contracts funded at origination by Oakwood are written on forms
provided by Oakwood. Normally, each contract provides for level monthly payments
over the stated term of the contract, which is generally 15 to 20 years (or 20
to 30 years in the case of sales of multi-sectional homes and larger
single-section homes), at a fixed rate of interest (which may include a step-up
rate). Oakwood believes the typical manufactured home purchaser is primarily
sensitive to the amount of the monthly payment required by his or her contract,
and not to the interest rate charged thereunder.
GENERAL UNDERWRITING STANDARDS FOR MORTGAGE LOANS
Mortgage Loans underwritten by Oakwood will be underwritten substantially
according to the underwriting guidelines Oakwood uses to underwrite Contracts.
SEE " -- OAKWOOD'S CONTRACT UNDERWRITING GUIDELINES" ABOVE. Any different
underwriting standards that applied to the Mortgage Loans included in any
particular Asset Pool will be described in the related Prospectus Supplement.
With respect to any Mortgage Loans underwritten by an entity other than
Oakwood, the Company expects that the originator will have underwritten and
originated such Mortgage Loans in compliance with underwriting standards which
are intended to evaluate the Obligor's credit standing and repayment ability and
the value and adequacy of the related Mortgaged Properties as collateral in
accordance with standard procedures complying with the applicable federal and
state laws and regulations. FHA Mortgage Loans and VA Mortgage Loans will comply
with the underwriting policies of FHA and VA, respectively. Conventional
Mortgage Loans will comply with the underwriting policies of the originator,
which will be described in the related Prospectus Supplement. Each Mortgage Loan
included in the Trust for a Series will have been originated by a savings and
loan association, savings bank, commercial bank, credit union, insurance
company, or similar institution which is supervised and examined by a federal or
state authority, or by a mortgagee approved by HUD.
The adequacy of a Mortgaged Property as security for a Mortgage Loan will
be determined by a land-only appraisal performed by an appraiser who, at the
time the appraisal was made, was duly licensed and the retail sales value of the
home. The appraiser must personally inspect the property and will prepare a
report which customarily includes a market data analysis based on recent sales
of comparable properties.
The Company will obtain representations and warranties from the Seller
that each related Mortgage Loan was originated in accordance with the
underwriting guidelines described above and in the applicable Prospectus
Supplement. Any Mortgage Loan that does not comply with such standards after
inclusion in an Asset Pool must be repurchased or substituted for by its Seller,
unless such Mortgage Loan is otherwise demonstrated to be includible in the
Asset Pool, to the satisfaction of the Company. SEE "DESCRIPTION OF THE
CERTIFICATES -- REPRESENTATIONS AND WARRANTIES" HEREIN.
SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS
ASSIGNMENT OF CONTRACTS AND MORTGAGE LOANS
Pursuant to the applicable Pooling and Servicing Agreement, the Company
will cause the Contracts and Mortgage Loans and all other assets comprising the
related Trust Estate to be sold, assigned and transferred to the related
Trustee, together with all principal and interest payments due on such Contracts
and Mortgage Loans after the date specified in the related Prospectus Supplement
(the "Cut-off Date") and all prepayments of principal collected
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on or after such Cut-off Date. In exchange for the Contracts and Mortgage Loans
assigned to the Trustee, the Trustee will deliver Certificates of the related
Series in authorized denominations, registered in such names as the Company may
request, representing the beneficial ownership interest in the related Trust
Estate, to the Company or its designee. Each Contract and Mortgage Loan included
in a Trust Estate will be identified in a schedule appearing as an exhibit to
the related Pooling and Servicing Agreement. Such schedule will contain
information as to the Cut-off Date Principal Balance of each Contract or
Mortgage Loan and the Asset Rate, original principal balance and certain other
information concerning each such Contract and Mortgage Loan. Such schedule is
referred to herein as the "Contract Schedule" to the extent it identifies
Contracts, the "Mortgage Loan Schedule" to the extent it identifies Mortgage
Loans, and is referred to in its entirety as the "Asset Schedule."
CONVEYANCE OF CONTRACTS. Prior to the conveyance of the Contracts to the
Trustee, the Servicer's operations department will complete a review of all of
the Contract Files, including the certificates of title to, or other evidence of
a perfected security interest in, the related Manufactured Homes, confirming the
accuracy of the related Contract Schedule delivered to the Trustee. With respect
to any Land Secured Contract, the Servicer will also review the Mortgage and any
necessary assignments thereof evidencing the Seller's interest in the related
Real Property. Any Contract discovered not to agree with such Contract Schedule,
or any Contract for which any required Contract Document is discovered to be
missing or defective, in either case in a manner that is materially adverse to
the interests of the Certificateholders, will be required to be repurchased by
the Seller at the related Repurchase Price or replaced with another Contract as
described herein if such discrepancy, incompleteness or defect is not cured
within 90 days after notice of such discrepancy, incompleteness or defect is
delivered to the Seller, except that in the case of a discrepancy between the
terms of a Contract and the Contract Schedule relating to the Unpaid Principal
Balance of a Contract, the Seller may deposit cash in the Certificate Account in
an amount sufficient to offset such discrepancy.
The Servicer will hold the original Contracts and copies of all material
documents and instruments relating to each Contract and evidencing the security
interest created by each Contract in the related Manufactured Home or real
estate as custodian on behalf of the Certificateholders in accordance with the
related Pooling and Servicing Agreement. In order to give notice of the
Trustee's right, title and interest in and to the Contracts, UCC-1 financing
statements identifying the Trustee or a co-trustee as the secured party or
purchaser and identifying all the Contracts as collateral will be filed in the
appropriate offices in the appropriate state. If a subsequent purchaser were
able to take physical possession of the Contracts without notice of the
assignment of the Contracts to the Trustee, the Trustee's interest in the
Contracts could be defeated. To provide some protection against this
possibility, in addition to filing UCC-1 financing statements, within one week
after the initial delivery of the Certificates, the Contracts will be stamped or
otherwise marked by the Servicer to reflect their assignment to the Trustee. SEE
"CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS -- THE CONTRACTS" HEREIN.
CONVEYANCE OF MORTGAGE LOANS. On or prior to the date of conveyance of the
Mortgage Loans to the Trustee, the Company will, as to each Mortgage Loan,
deliver or cause to be delivered to the Trustee or a custodian acting on behalf
of the Trustee (a "Custodian") the related mortgage note (a "Mortgage Note")
endorsed in blank or to the order of the Trustee, an original or a certified
copy of the related Mortgage, and certain other original documents evidencing
or relating to the Mortgage Loan. Following the Closing Date the company 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, the Company will cause assignments of each
related Mortgage to be recorded in the appropriate public recording offices for
real property records wherever necessary to protect the Trustee's interest in
the related Mortgage Loans. In lieu of recording assignments of Mortgages in a
particular jurisdiction, the Company may deliver or cause to be delivered to the
Trustee an opinion of local counsel to the effect that such recording is not
necessary to protect the right, title and interest of the Trustee in the related
Mortgage Loans. In addition, the Seller of a Mortgage Loan is required to submit
to the Trustee with each Trustee Mortgage Loan File a mortgagee title insurance
policy, title insurance binder, preliminary title report, or satisfactory
evidence of title insurance for the jurisdiction in which the related Mortgaged
Property is located. If a preliminary title report is delivered initially, the
Seller is required to deliver a final title insurance policy or other
satisfactory evidence of the existence of adequate title insurance. The Trustee
or a Custodian will hold the Trustee Mortgage Loan Files for the related
Mortgage Loans, except to the extent that any
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of the documents contained in such files are released to the Servicer or a
Sub-servicer for servicing purposes in accordance with the terms of the related
Agreement.
The Trustee or the Custodian (the latter if so specified in the related
Prospectus Supplement) will review any Trustee Mortgage Loan Files relating to a
Series. Unless otherwise provided in the Prospectus Supplement, if any Mortgage
Loan Document required to be included in a Trustee Mortgage Loan File is missing
or is found to be defective in any material respect, and the Seller does not
cure such defect within 90 days after its receipt of notice of such missing
document or document defect, the Seller will be required to repurchase the
Mortgage Loan at the related Repurchase Price or replace such Mortgage Loan with
a substitute Mortgage Loan as described under "THE TRUSTS -- SUBSTITUTION Of
CONTRACTS OR MORTGAGE LOANS" HEREIN. Unless otherwise described in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy available to the Certificateholder or the Trustee for a missing
or defective Mortgage Loan Document.
REPRESENTATIONS AND WARRANTIES
The Company will make certain representations and warranties for each
Series in the related Agreement with respect to the related Contracts and
Mortgage Loans, including representations that it either is the owner of such
Contracts and Mortgage Loans or has a perfected first priority security interest
in the Contracts and Mortgage Loans. In addition, the Seller will make
representations and warranties with respect to the Contracts and Mortgage Loans
in the sales agreement pursuant to which the Contracts and Mortgage Loans were
transferred to the Company, including representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Company and the Trustee in respect of each Contract and Mortgage Loan.
In addition, the Seller will have represented, among other things, that
o immediately prior to the transfer and assignment of the Contracts and
Mortgage Loans to the Company, the Seller had good title to, and was
the sole owner of, each Contract and Mortgage Loan and there had been
no other sale or assignment thereof from the Seller;
o as of the date of such transfer, the Contracts and Mortgage Loans are
subject to 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 such transfer, each Contract creates a valid first
lien on the related Manufactured Home and such Manufactured Home is
free of material damage and is in good repair;
o as of the date of such transfer, no Contract or Mortgage Loan is more
than the number of days delinquent in payment set forth in the
Prospectus Supplement and there are no delinquent tax or assessment
liens against the related Manufactured Home or Mortgaged Property;
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 Agreement and
that all premiums now due on such insurance have been paid in full;
o a lender's policy of title insurance was issued on the date of the
origination of each Mortgage Loan and each such policy is valid and
remains in full force and effect;
o as of the date of such transfer, each Mortgage subject to the
Agreement evidences a valid first lien on the related Mortgaged
Property (subject only to
o the lien of current real property taxes and assessments,
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o covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of the
recording of such Mortgage, such exceptions appearing of record
and either being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in
connection with the origination of the related Mortgage Loan and
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 such property is
free of material damage and is in good repair;
o with respect to each Contract and Mortgage Loan, if the related
Manufactured Home or Mortgaged Property is located in an area
identified by the Federal Emergency Management Agency as having
special flood hazards and subject in certain circumstances to the
availability of flood insurance under the National Flood Insurance Act
of 1968, as amended, such Manufactured Home or Mortgaged Property is
covered by flood insurance, if applicable regulations at the time such
Contract or Mortgage Loan was originated required that such flood
insurance coverage be obtained;
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 such Asset
is in full force and effect.
The Company's right to enforce a Seller's representations and warranties
with respect to an Asset Pool will be assigned to the Trustee under the related
Agreement. To the extent that a Seller makes representations and warranties
regarding the characteristics of certain Contracts and Mortgage Loans, the
Company generally will not make such representations and warranties as to such
Contracts and Mortgage Loans. In the event that the representations and
warranties of the Seller are breached, and such breach or breaches materially
and adversely affect the interests of the Certificateholders in the related
Contracts and Mortgage Loans, the Seller will be required to cure such breach
or, if such cure is not effected within 90 days after the Seller is notified in
writing of such breach, to repurchase the affected Contracts or Mortgage Loans,
in general at a price equal to the Unpaid Principal Balance of such Contracts or
Mortgage Loans, together with unpaid interest thereon at the applicable Asset
Rates through the end of the month in which such repurchase is made, or to
substitute Contracts or Mortgage Loans in accordance with the criteria set forth
herein under "THE TRUSTS -- SUBSTITUTION OF CONTRACTS OR MORTGAGE LOANS."
The Servicer will be required under each Agreement to enforce the Seller's
obligations to cure breaches or to repurchase or substitute for Assets for the
benefit of the Trustee and the Certificateholders and to indemnify the Company
and its assignees (including the Trust) against losses or damages caused by such
breaches. The Seller's obligations to repurchase or substitute for Assets
affected by its breaches and to indemnify the Company and its assignees against
losses and damages caused by such breaches will constitute the sole remedies
available to Certificateholders or the Trustee for a breach of representation by
a Seller.
Neither the Company nor the Servicer will be obligated to repurchase or
substitute for a Contract or Mortgage Loan if a Seller defaults on its
obligation to repurchase or substitute for such Asset (except to the extent that
Oakwood is both Servicer and Seller), and no assurance can be given that a
Seller will carry out its repurchase or substitution obligations with respect to
Contracts and Mortgage Loans.
SERVICING
GENERAL. The Servicer will service and administer each Asset Pool assigned
to the Trustee either exclusively or through other servicing institutions
("Sub-servicers"), as more fully set forth below.
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The Servicer and any Sub-servicer (the latter subject to general
supervision by the Servicer) for any Asset Pool will perform diligently all
services and duties specified in the related Agreement, consistently with the
servicing standards and practices of prudent lending institutions with respect
to manufactured housing installment sales contracts of the same type as the
Contracts and mortgage loans of the same type as the Mortgage Loans in those
jurisdictions where the related Manufactured Homes and Mortgaged Properties are
located or as otherwise specified in the Agreement. The Servicer will monitor
the performance of each Sub-servicer, if any, and will have the right to remove
a Sub-servicer at any time if it considers such removal to be in the best
interest of the related Certificateholders. The duties to be performed by the
Servicer, directly or through a Sub-servicer, with respect to a Series will
include
o collection and remittance of principal and interest payments on the
related Assets;
o administration of any related mortgage escrow accounts;
o collection of related insurance claims;
o if necessary, repossession of related Manufactured Homes and/or
foreclosure on related Mortgaged Properties; and
o if necessary, the obligation to advance funds to the extent certain
payments are not made by the Obligors and are considered recoverable
from late Obligor payments, from proceeds of any applicable insurance
policies or from Liquidation Proceeds of the related Contract or
Mortgage Loan.
The Servicer shall also provide information on a periodic basis to the Company
and the Trustee concerning the Contracts and Mortgage Loans, and shall file
required reports with the Commission concerning the Trusts as required by the
Agreements. If a Sub-servicer shall be terminated by the Servicer, the servicing
function of the Sub-servicer either shall be transferred to a substitute
Sub-servicer or performed by the Servicer.
The Servicer shall keep in force throughout the term of each Agreement a
policy or policies of insurance covering errors and omissions with respect to
its duties under such Agreement, and a fidelity bond. Such policy or policies
and such fidelity bond shall be in such form and amount as is generally
customary among entities which service a portfolio of manufactured housing
installment sales contracts having an aggregate principal amount of $100 million
or more and which are generally regarded as servicers acceptable to
institutional investors.
The Servicer, to the extent practicable, shall cause the Obligors to pay
all taxes and similar governmental charges when and as due. To the extent that
nonpayment of any taxes or charges would result in the creation of a lien upon
any Manufactured Home or Mortgaged Property having a priority equal or senior to
the lien of the related Contract or Mortgage Loan, the Servicer shall advance
any such delinquent tax or charge to the extent it determines that it will be
able to recover such advance from the related Obligor or from Liquidation
Proceeds of the related Contract or Mortgage Loan.
COLLECTION PROCEDURES. The Servicer, directly or through Sub-servicers,
will make reasonable efforts to collect all payments called for under the
Contracts or Mortgage Loans and, consistently with the Agreement and any Pool
Insurance Policy, any Primary Mortgage Insurance Policy, FHA insurance, VA
guaranty and Obligor Bankruptcy Insurance, will follow such collection
procedures as it follows with respect to contracts or mortgage loans serviced by
it that are comparable to the Contracts or Mortgage Loans.
Under the Agreement, the Servicer will repossess, foreclose upon or
otherwise convert the ownership of properties that secure a defaulted Contract
or Mortgage Loan if no satisfactory arrangements can be made for collection of
delinquent payments. In connection with such repossession, foreclosure or other
conversion, the Servicer will follow such practices and procedures as it shall
deem necessary or advisable and as shall be normal and usual in its general
Contract and Mortgage Loan servicing activities. The Servicer, however, will not
be required to expend its own funds in connection with any repossession or the
restoration of any property unless it determines
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that such restoration or repossession will increase the proceeds of liquidation
of the related Contract or Mortgage Loan to the Certificateholders after
reimbursement to itself for such expenses and that such expenses will be
recoverable to it either through Liquidation Proceeds or through Insurance
Proceeds.
A Contract or the Mortgage Note or Mortgage used in originating a
conventional Mortgage Loan may contain a "due-on-sale" clause. SEE " -- THE
CONTRACTS -- TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF DUE-ON-SALE'
CLAUSES" AND " -- THE MORTGAGE LOANS -- DUE-ON-SALE' CLAUSES," IN EACH CASE
UNDER THE HEADING "CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS"
HEREIN. The Servicer may enforce "due-on-sale" clauses with respect to any
Contract, Mortgage Note or Mortgage containing such a clause, provided that such
enforcement has no adverse effect on the coverage of any applicable Insurance
Policy. In any case in which a Manufactured Home or Mortgaged Property has been
or is about to be conveyed by the Obligor on the related Contract or Mortgage
Loan and the due-on-sale clause has not been enforced (or the related Contract
or Mortgage Note is by its terms assumable), the Servicer will be authorized, on
behalf of the Trustee, to enter into an assumption agreement with the person to
whom such Manufactured Home or Mortgaged Property has been or is about to be
conveyed, if such person meets certain loan underwriting criteria, including the
criteria necessary to maintain the coverage provided by any applicable Credit
Insurance policies. In the event that the Servicer enters into an assumption
agreement in connection with any such conveyance of a Manufactured Home or
Mortgaged Property, the Servicer, on behalf of the Trustee, may release the
original Obligor from liability upon the Contract or Mortgage Loan and
substitute the assuming party as the new obligor thereon. In no event can the
assumption agreement permit a decrease in the Asset Rate or an increase in the
term of the assumed Contract or Mortgage Loan. Fees collected for entering into
an assumption agreement will be retained by the Servicer as additional servicing
compensation.
The Servicer, either directly or through Sub-servicers, to the extent
permitted by law, may establish and maintain an escrow account (the "Escrow
Account") in which mortgagors under Mortgage Loans may be required to deposit
amounts sufficient to pay taxes, assessments, mortgage insurance premiums and
standard hazard insurance premiums and other comparable items and in which
Obligors under Contracts will be required to deposit amounts sufficient to pay
standard hazard insurance premiums and other comparable items. Withdrawals from
the Escrow Account maintained for mortgagors may be made to effect timely
payment of taxes, assessments, mortgage insurance and hazard insurance, to
refund to mortgagors amounts determined to be overages, to pay interest to
mortgagors on balances in the Escrow Account to the extent required by law, to
repair or otherwise protect the related Mortgaged Properties and to clear and
terminate the Escrow Account. The Servicer will be responsible for the
administration of the Escrow Account and will be obligated to make advances to
such account when a deficiency exists therein, so long as it determines that
such advances will be recoverable from the related Obligors or from Liquidation
Proceeds collected with respect to the related Assets. The Servicer may decline
to establish Escrow Accounts with respect to any Contracts or Mortgage Loans in
its discretion.
COLLECTION OF PAYMENTS ON CONTRACTS AND MORTGAGE LOANS. The Servicer will
establish and maintain a Certificate Account for the benefit of the Trustee. The
Certificate Account must be an "Eligible Account;" I.E., it must be maintained
at a depository institution organized under the laws of the United States or any
state, the deposits of which are insured to the full extent permitted by law by
the Federal Deposit Insurance Corporation (the "FDIC"), whose commercial paper
or long-term unsecured debt has a rating, as specified in the related Agreement,
sufficient to support the ratings requested on the Certificates of the related
Series, and which institution is subject to examination by federal or state
authorities; in the corporate trust department of the Trustee; or at an
institution otherwise acceptable to each applicable Rating Agency. The
Certificate Account is to be held in trust for the benefit of the Trustee on
behalf of the Certificateholders and shall be designated as specified in the
related Agreement. Funds in the Certificate Account will be invested in Eligible
Investments (as defined in the Agreement) that will mature or be subject to
redemption not later than the business day preceding the applicable monthly
Remittance Date. Earnings on amounts deposited into a Certificate Account shall
be credited to the account of the Servicer as servicing compensation in addition
to its monthly Servicing Fee. The Servicer may use such earnings to offset P&I
Advances due from the Servicer in respect of the Remittance Date next succeeding
the date on which such earnings were made or, at the Servicer's option, such
earnings may be released to the Servicer on such Remittance Date. The amount of
any losses incurred in respect of any such investments shall be deposited into
the Certificate Account by the Servicer out of its own funds promptly after such
losses are incurred.
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All payments in respect of principal and interest on the Contracts and
Mortgage Loans in the Asset Pool for a Series that are received by the Servicer
on or after the applicable Cut-off Date (exclusive of collections relating to
scheduled payments due on or prior to the Cut-off Date) will be deposited into
the Certificate Account no later than the second business day following the
Servicer's receipt thereof. Such payments shall include the following:
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 and retained in connection with
the liquidation or disposition of defaulted Contracts, Mortgage Loans
or property acquired in respect thereof through repossession,
foreclosure or otherwise;
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 such proceeds that are to
be applied to the restoration or repair of the related Manufactured
Home or Mortgaged Property or released to the Obligor;
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 thereof) that is repurchased by the related Seller or by a
terminating party as described above or under "THE POOLING AND
SERVICING AGREEMENTS -- TERMINATION" BELOW; and
o all amounts, if any, required to be transferred to the Certificate
Account from a Reserve Fund pursuant to the Agreement.
In those cases where a Sub-servicer is servicing a Contract or Mortgage
Loan, the Sub-servicer will establish and maintain an Eligible Account (a
"Sub-servicing Account") that will comply with the standards set forth above for
the Certificate Account and which is otherwise acceptable to the Servicer. The
Sub-servicer is required to deposit into the Sub-servicing Account on a daily
basis all amounts enumerated in the preceding paragraph in respect of the
Contracts or Mortgage Loans as received by the Sub-servicer, less its servicing
compensation. On the date specified in the related Prospectus Supplement, the
Sub-servicer shall remit to the Servicer all funds held in the Sub-servicing
Account with respect to each related Contract or Mortgage Loan. The
Sub-servicer, to the extent described in the related Prospectus Supplement, may
be required to advance any monthly installment of principal and interest that
was not received, less its servicing fee, by the date specified in the related
Prospectus Supplement.
With respect to each Buy-Down Loan, the Servicer will deposit into a
custodial Eligible Account (which may be interest-bearing) complying with the
requirements set forth above for the Certificate Account (the "Buy-Down Fund")
an amount which, together with investment earnings thereon, will provide funds
sufficient to support the payments on such Buy-Down Loan on a level debt service
basis. The Servicer will not be obligated to supplement any Buy-Down Fund should
investment earnings prove insufficient to maintain the scheduled level of
payments on the Buy-Down Loans (in which event distributions to the
Certificateholders may be affected).
With respect to each GPM Loan, the Servicer will, if and to the extent
provided in the related Prospectus Supplement, deposit in a custodial Eligible
Account (which may be interest-bearing) complying with the requirements set
forth above for the Certificate Account (the "GPM Fund") an amount which,
together with investment earnings thereon, will provide funds sufficient to
support the payments thereon on a level debt service basis. The Servicer will
not be obligated to supplement any GPM Fund should investment earnings thereon
prove
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insufficient to maintain the scheduled level of payments (in which event
distributions to the Certificateholders may be affected).
DISTRIBUTIONS ON CERTIFICATES. On each Remittance Date, the Servicer will
withdraw from the applicable Certificate Account and remit to the Trustee for
deposit into the Distribution Account all scheduled payments of principal and
interest due on the related Contracts and Mortgage Loans during the related
Collection Period and collected by the Servicer from the related Obligors or
otherwise and all unscheduled collections in respect of principal and interest
on the Contracts and Mortgage Loans received during the related Prepayment
Period, in each case to the extent such collections comprise part of the
Available Distribution Amount (as specified in the related Prospectus
Supplement) for the upcoming Distribution Date (collectively, the "Remittance
Amount"). In addition, on each Remittance Date, the Servicer shall remit to the
Trustee, for deposit into the Distribution Account, the amount of its required
P&I Advance and of any Compensating Interest required to be paid by the Servicer
for the upcoming Distribution Date. SEE " -- ADVANCES" AND " -- COMPENSATInG
INTEREST" BELOW. The Remittance Date for any Distribution Date shall be the
business day preceding such Distribution Date.
The Available Distribution Amount for any Series will be allocated among
the related Classes of Certificates in the proportion and order of application
set forth in the related Agreement and described in the related Prospectus
Supplement. Prior to each Distribution Date for a Series, the Servicer will
furnish to the Trustee a report setting forth certain information concerning the
underlying Asset Pool and amounts to be distributed on each related Class of
Certificates.
ADVANCES
The Servicer will be required to advance funds to cover 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 such Advance, if made, would not be
recoverable from late collections from the related Obligor or from Liquidation
Proceeds or other collections in respect of the related Contract or Mortgage
Loan (such an advance being referred to as a "Non-Recoverable Advance"). The
Servicer may offset the otherwise applicable P&I Advance for any Remittance Date
by the amount of Early Payments made with respect to the related Due Date. The
failure of the Servicer to make any required Advances under an Agreement
constitutes a default under such Agreement for which the Servicer may be
terminated. Upon a default by the Servicer, the Trustee (as substitute Servicer)
may, if so provided in the related Agreement, be required to make Advances,
provided that, in its reasonable discretion, it deems such Advances not to be
Non-Recoverable Advances. With respect to certain Assets, the Company may obtain
an endorsement to an applicable Pool Insurance Policy which obligates the Pool
Insurer to advance delinquent payments of principal and interest. The Pool
Insurer would only be obligated under such endorsement to the extent the Obligor
fails to make such payment and the Servicer fails to make a required Advance.
The Servicer may agree to reimburse the Pool Insurer for any sums the Pool
Insurer pays under such endorsement.
The advance obligation of a Trustee or Pool Insurer may be limited to an
amount specified by the Rating Agency or Agencies rating the Certificates. Any
P&I Advances by the Servicer, the Trustee or a Pool Insurer, as the case may be,
must be deposited into the applicable Certificate Account or into the
Distribution Account and will be due not later than the Distribution Date to
which such delinquent payment relates. Any Advance made by the Servicer or the
Trustee or a Pool Insurer, as the case may be, will be reimbursable out of
future collections in respect of the particular Contract or Mortgage Loan in
respect of which the Advance was made (including collections of or from
Insurance Proceeds, Additional Assets or Liquidation Proceeds relating to such
Contract or Mortgage Loan) ("Related Proceeds"). If an Advance made by the
Servicer or a Trustee or a Pool Insurer later proves to be unrecoverable from
Related Proceeds, the Servicer or the Trustee or Pool Insurer, as the case may
be, will be entitled to reimbursement from funds in the Certificate Account or
Distribution Account prior to the disbursement of distributions to the
Certificateholders.
Any P&I Advances with respect to Contracts or Mortgage Loans included in
the Trust for any Series are intended to enable the Trustee to make timely
payment of the scheduled distributions of principal and interest on the
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Certificates of such Series. However, neither the Servicer nor the Trustee nor
any Pool Insurer will insure or guarantee the Certificates of any Series or the
Contracts or Mortgage Loans included in the Trust for any Series.
COMPENSATING INTEREST
If a Contract or Mortgage Loan is prepaid in full or liquidated other than
on a Due Date, the Obligor generally is only required to pay interest to the
date of prepayment or liquidation. In such event, if provided in the Prospectus
Supplement, for so long as Oakwood is the Servicer of the related Asset, the
Servicer may be obligated to pay interest from the last day for which interest
is due from the Obligor to the next Due Date, so long as such amount does not
exceed the Servicer's servicing compensation for such month ("Compensating
Interest").
MAINTENANCE OF INSURANCE POLICIES AND OTHER SERVICING PROCEDURES
STANDARD HAZARD INSURANCE. The Servicer will cause to be maintained for
each Asset underlying a Series, or use its best reasonable efforts to cause each
Sub-servicer to cause to be maintained for each such Asset, a Standard Hazard
Insurance Policy providing coverage in an amount at least equal to the lesser of
100% of the replacement value of the related Manufactured Home or Mortgaged
Property or the outstanding principal balance of such Contract or Mortgage
Loan. The Servicer also shall maintain on any Manufactured Home acquired by
repossession or on any Real Property or Mortgaged Property acquired through
foreclosure or deed in lieu of foreclosure of any Mortgage Loan, an open-lot
coverage policy insuring against physical loss or damage in an amount that is at
least equal to the Unpaid Principal Balance of the defaulted Contract or
Mortgage Loan. To the extent permitted by applicable law and if so specified
in the related Prospectus Supplement, the Servicer may require Obligors on
Contracts or Mortgage Loans secured by Manufactured Homes, Real Properties or
Mortgaged Properties located in California to maintain earthquake insurance on
their Manufactured Homes, Real Properties or Mortgaged Properties. Otherwise, no
earthquake or other additional insurance is to be required of any Obligor or
maintained on property acquired in respect of a Contract or Mortgage Loan, other
than as required by applicable laws and regulations. If, at the time of
origination of a Contract or Mortgage Loan, the related Manufactured Home or
Mortgaged Property is located in a federally designated special flood hazard
area, the Servicer will cause to be maintained, or to use its best reasonable
efforts to cause the related Sub-servicer to cause to be maintained, flood
insurance, limited, under certain circumstances, to availability under the
National Flood Insurance Act of 1968, as amended. In the event that an Asset is
covered by a blanket policy providing coverage against losses incurred on Assets
as a result of the absence or insufficiency of individual Standard Hazard
Insurance Policies, the Servicer will be deemed conclusively to have satisfied
its obligations to cause to be maintained a Standard Hazard Insurance Policy for
such Asset. This blanket policy may contain a deductible clause, in which case
the Servicer will, in the event that there has been a loss that would have been
covered by such policy absent such deductible clause, deposit in the Certificate
Account the amount not otherwise payable under the blanket policy because of the
application of such deductible clause.
Any amounts collected by the Servicer under any such policies (other than
amounts to be applied to the restoration or repair of the related Manufactured
Home or Mortgaged Property or released to the Obligor in accordance with normal
servicing procedures) shall be deposited into the Certificate Account.
OTHER INSURANCE. The Servicer will not maintain a Primary Mortgage
Insurance Policy for any Mortgage Loan. To the extent specified in the related
Prospectus Supplement, the Servicer will maintain a Primary Mortgage Insurance
Policy on any Conventional Mortgage Loan with an initial Mortgage Loan-to-Value
Ratio in excess of 80% unless the conditions for waiver of such insurance by the
Servicer are met. SEE "THE TRUSTS -- INSURANCE -- CREDIT INSURANCE -- PRIMARY
MORTGAGE INSURANCE" HEREIN.
The Servicer will be required to maintain any Special Hazard Insurance
Policy, any Obligor Bankruptcy Insurance and any Pool Insurance Policy for any
Series in full force and effect throughout the term of the related Trust,
subject to payment of the applicable premiums by the Trustee. The Servicer will
be required to notify the Trustee to pay from amounts in the Trust Estate the
premiums for any such Special Hazard Insurance Policy, any such Obligor
Bankruptcy Insurance and any such Pool Insurance Policy for such Series on a
timely basis. Any such premiums may be payable on a monthly basis in advance, or
pursuant to any other payment schedule acceptable to
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the applicable insurer. In the event that the Special Hazard Insurance Policy,
Obligor Bankruptcy Insurance or Pool Insurance Policy for a Series is canceled
or terminated for any reason (other than the exhaustion of total policy
coverage), the Servicer will be obligated to obtain from another insurer a
comparable replacement policy with a total coverage which is equal to the
remaining coverage (or a lesser amount if the Servicer confirms in writing with
each Rating Agency rating any Certificates of such Series that such lesser
amount will not impair the rating on such Certificates) provided by the canceled
or terminated Special Hazard Insurance Policy, Obligor Bankruptcy Insurance or
Pool Insurance Policy. However, if the cost of any such replacement policy or
bond is greater than the cost of the policy or bond which has been terminated,
then the amount of the coverage will be reduced to a level such that the
applicable premium will not exceed the cost of the premium for the policy or
bond that was terminated.
PRESENTATION OF CLAIMS. The Servicer, on behalf of itself, the Trustee and
the Certificateholders, will present claims to the issuer of each insurance
policy described herein (including the FHA and the VA), and will take such
reasonable steps as are necessary to permit recovery under such insurance
policies respecting defaulted Contracts or Mortgage Loans that are the subject
of bankruptcy proceedings. As set forth above, all collections by the Servicer
under any insurance policy are to be deposited into the Certificate Account for
the related Series and are subject to withdrawal as described above. With
respect to a Mortgage Loan or Contract that is serviced by a Sub-servicer, the
Sub-servicer, on behalf of itself, the Trustee and the Certificateholders will
present claims to the applicable insurer, and all collections shall be deposited
into the applicable Sub-servicing Account for deposit into the Certificate
Account.
If any property securing a defaulted Contract or Mortgage Loan is damaged
and proceeds, if any, from the related Standard Hazard Insurance Policy or the
applicable Special Hazard Insurance Policy are insufficient to restore the
damaged property to a condition sufficient to permit recovery under any Pool
Insurance Policy or any Primary Mortgage Insurance Policy, any FHA insurance or
any VA guarantee, as the case may be, the Servicer is not required to expend its
own funds to restore the damaged property unless it determines that such
restoration will increase the proceeds to the Certificateholders upon
liquidation of the Contract or Mortgage Loan after reimbursement of the expenses
incurred by the Servicer and that such expenses will be recoverable by it
through proceeds of the sale of the property or proceeds of the related Pool
Insurance Policy or any related Primary Mortgage Insurance Policy, any FHA
insurance, or any VA guarantee, as the case may be.
If, in respect of any defaulted Contract or Mortgage Loan, recovery under
any related Pool Insurance Policy or any related Primary Mortgage Insurance
Policy, any FHA insurance, or any VA guarantee, as the case may be, is not
available, the Servicer nevertheless is obligated to follow such normal
practices and procedures as it deems necessary or advisable to liquidate the
collateral for the defaulted Contract or Mortgage Loan. If the proceeds of any
liquidation of the related Manufactured Home or Mortgaged Property are less than
the principal balance of the defaulted Contract or Mortgage Loan plus interest
accrued thereon at the applicable Asset Rate, the related Trust will realize a
loss in the amount of such difference plus the aggregate of expenses incurred by
the Servicer in connection with such proceedings.
ALTERNATE CREDIT ENHANCEMENT. To the extent provided in a Prospectus
Supplement, the Company, the Servicer or another party, from time to time, may
be required to obtain or cause to be obtained an insurance policy, guarantee,
letter of credit or surety bond (or make deposits in lieu thereof) to enhance
the credit rating of the related Series of Certificates.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES. As compensation for its
servicing duties in respect of any Series, the Servicer will be entitled to the
Servicing Fee specified in a particular Prospectus Supplement. In addition, the
Servicer may be entitled to servicing compensation in the form of assumption
fees, late payment charges or otherwise, which fees or charges shall be retained
by the Servicer to the extent not required to be deposited into the related
Certificate Account.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with the servicing of the Contracts and Mortgage Loans
included in a Trust Estate, including, without limitation, payment of the fees
and expenses of the Trustee, payment of related insurance policy premiums (other
than premiums for Standard Hazard Insurance Policies or Primary Mortgage
Insurance Policies) and payment of expenses incurred in
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enforcing the obligations of any Sub-servicers. Certain of these expenses may be
reimbursable from Liquidation Proceeds and proceeds of Pool Insurance and from
specific recoveries of costs.
The Servicer will be entitled to reimbursement for certain expenses
incurred by it in connection with the liquidation of defaulted Contracts or
Mortgage Loans. The related Trust will suffer no loss by reason of such expenses
to the extent claims are paid under the related Pool Insurance Policies, if any.
If no Pool Insurance Policy is in effect for the Series, or if claims are either
not made or paid under the related Pool Insurance Policies or coverage
thereunder has been terminated or canceled, the related Trust will suffer a loss
to the extent that the Liquidation Proceeds of a defaulted Asset, after
reimbursement of the Servicer's related expenses, are less than the principal
balance of the Asset plus accrued interest thereon at the related Asset Rate. In
addition, the Servicer will be entitled to reimbursement of expenditures
incurred by it in connection with the restoration of any Manufactured Home or
Mortgaged Property, such right of reimbursement being prior to the rights of the
related Certificateholders to receive any related Pool Insurance proceeds or
Liquidation Proceeds.
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 Sub-servicers
during the preceding calendar year and of the Servicer's performance under the
related Agreement has been made under the supervision of such officer, and to
the best of such officer's knowledge, the Servicer has fulfilled all its
obligations under the Agreement throughout such year, and, to the best of such
officer's knowledge, based on such review, each Sub-servicer has fulfilled its
obligations throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof. Such officer's certificate shall be
accompanied by a statement by a firm of independent public accountants to the
effect that such 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 such other statements as are contemplated
under USAP, including, if called for under USAP, a statement as to whether the
Servicer's management's written assertion to such firm (which shall be attached
to the statement of such firm) that its servicing during the applicable fiscal
year complied with USAP's minimum servicing standards in all material respects
is fairly stated in all material respects. The audit tests referred to in 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 and/or, in the sole
discretion of such firm, manufactured housing installment sale contracts and
mortgage loans serviced under pooling and servicing agreements, trust agreements
or indentures substantially similar to such Pooling and Servicing Agreement
(hereinafter referred to as "Pooling Agreements"). For purposes of such
statement, such firm may assume conclusively that all Pooling Agreements under
which the Servicer is the servicer of manufactured housing installment sale
contracts and mortgage loans for a trustee relating to certificates evidencing
an interest in manufactured housing installment sale contracts and mortgage
loans are substantially similar to one another except for any such Pooling
Agreement which by its terms specifically states otherwise.
THE POOLING AND SERVICING AGREEMENTS
The following summaries describe certain provisions of each Pooling and
Servicing Agreement, including the Standard Terms to Pooling and Servicing
Agreement to be incorporated by reference into each Series Agreement. Although
the Company believes that the following is a fair summary of the material terms
of the Pooling and Servicing Agreement, the summaries do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
the provisions of the Pooling and Servicing Agreement for each Series. When
particular provisions or terms used in an Agreement are referred to, the actual
provisions (including definitions of terms) are incorporated by reference as
part of such summaries.
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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 Agreement are no
longer permissible under applicable law. No such resignation shall become
effective until the Trustee or a successor servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with the
applicable Agreement.
Neither the Servicer nor any of its directors, officers, employees or
agents shall be under any liability to the Trust or the Certificateholders, and
all such Persons shall be held harmless, for any action taken or not taken in
good faith pursuant to each Pooling and Servicing Agreement, or for errors in
judgment; PROVIDED, HOWEVER, that no such Person shall be protected from
liability for actions or omissions resulting from willful misfeasance, bad
faith or gross negligence in the performance of such Person's duties or by
reason of reckless disregard of such Person's obligations and duties under the
Agreement or for breaches of representations or warranties made by such Person
in the Agreement. The Servicer and any of the directors, officers, employees or
agents of the Servicer may rely in good faith on any document of any kind which,
PRIMA FACIE, is properly executed and submitted by any Person respecting any
matters arising under an Agreement. The Servicer shall be under no obligation to
appear in, prosecute or defend any legal action unless such action is related to
its duties under an Agreement and such action in its opinion does not involve it
in any expense or liability, except as otherwise explicitly provided in the
Agreement; PROVIDED, HOWEVER, that the Servicer may in its discretion undertake
any such action that it deems necessary or desirable with respect to an
Agreement if the Certificateholders offer to the Servicer reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby.
THE TRUSTEE
The Prospectus Supplement for a Series of Certificates will specify the
Trustee for that Series. The Trustee for a Series may resign at any time, in
which event the Company will be obligated to attempt to appoint a successor
Trustee. The Company may remove a Trustee if the Trustee ceases to be eligible
to continue as Trustee under the applicable Agreement or upon the occurrence of
certain bankruptcy- or insolvency-related events with respect to the Trustee.
The Trustee for a Series will also be subject to being removed at any time by
the holders of Certificates of such Series evidencing at least 51% of the Voting
Rights of such of Series, as specified in the related Agreement. If the
Certificateholders remove the Trustee other than for reasonable cause based upon
the Trustee's failure to continue to meet the eligibility requirements set forth
in the related Agreement or the Trustee's failure to perform its duties as
described therein, then the Certificateholders so removing the Trustee shall
bear any and all costs and expenses arising from such removal and substitution.
Any resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance by the Company of the appointment of
the successor Trustee.
A Trustee must be a corporation or a national banking association
organized under the laws of the United States or any state and authorized under
the laws of the jurisdiction in which it is organized to have corporate trust
powers. It must also have combined capital and surplus of at least $50,000,000
(or be a Qualified Bank) and be subject to regulation and examination by state
or federal regulatory authorities. Although a Trustee may not be an affiliate of
the Company or the Servicer, either the Company or the Servicer may maintain
normal banking relations with the Trustee if the Trustee is a depository
institution.
REPORTS TO CERTIFICATEHOLDERS
The Trustee for a Series will furnish the related Certificateholders with
monthly statements prepared by the Servicer (each a "Remittance Report")
containing information with respect to principal and interest distributions and
Realized Losses for such Series and the assets of the related Trust. Any
financial information contained in such reports will not have been examined or
reported upon by an independent public accountant. Copies of such monthly
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statements and any annual reports prepared by the Servicer evidencing the status
of its compliance with the provisions of an Agreement will be furnished to
related Certificateholders upon request addressed to the Trustee.
A Remittance Report for a Distribution Date in respect of any Series of
Certificates will identify the following items:
o the related Available Distribution Amount for such Distribution Date;
o the amount of interest distributable on such Distribution Date on each
Class of the Certificates of such Series, and the amount of interest
to be distributed on each such Class based upon the Available
Distribution Amount for such Distribution Date;
o the amount to be distributed on such Distribution Date on each Class
of the Certificates of such Series to be applied to reduce the
Certificate Principal Balance of such Class, separately identifying
any portion of such amount attributable to prepayments;
o any other amounts to be distributed on the Certificates of such Series
(to the extent not covered by the second and third clauses above);
o the aggregate amount of P&I Advances required to be made by the
related Servicer with respect to such Distribution Date in connection
with the related Asset Pool;
o the amount of any Realized Losses to be allocated to reduce the
Certificate Principal Balance of any Class of the Certificates of such
Series on such Distribution Date;
o the Certificate Principal Balance of each Class of the Certificates of
such Series after giving effect to the distributions and allocations
of any Realized Losses to be made on such Distribution Date;
o the amount of Due Date Interest Shortfall, Soldiers' and Sailors'
Shortfall and Realized Interest Loss, in each case if any, incurred
during the related Collection Period on the related Assets;
o the aggregate interest remaining unpaid, if any, for each Class of the
Certificates of such Series (exclusive of Shortfall allocated to such
Class), after giving effect to the distribution made on such
Distribution Date;
o the aggregate amount of withdrawals, if any, from any Reserve Fund or
any other form of credit enhancement, and the amount, if any,
available thereunder;
o the amount of the Servicing Fee in respect of such Distribution Date;
o the aggregate number and the aggregate of the Unpaid Principal
Balances of outstanding Contracts and outstanding Mortgage Loans,
stated separately, that are delinquent one month (i.e., 30 to 59 days)
as of the end of the related Prepayment Period, delinquent two months
(i.e., 60 to 89 days) as of the end of the related Prepayment Period,
delinquent three months (i.e., 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; and
o in the case of a Trust (or designated assets thereof) for which a
REMIC election has been or will be made, any other information
required to be provided to Certificateholders by the REMIC Provisions.
In the case of information furnished pursuant to the second, third and fourth
clauses above, the amounts shall be expressed, with respect to any Certificate,
as a dollar amount per $1,000 denomination; provided, however, that if any
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Class of Certificates does not have a Certificate Principal Balance, then
the amounts shall be expressed as a dollar amount per 10% Percentage Interest.
EVENTS OF DEFAULT
Events of Default by the Servicer under any Agreement will include any
failure by the Servicer to remit funds to the Distribution Account as required
by the applicable Agreement, which failure continues unremedied for five days
(or such other period specified in the related Agreement) after the date upon
which such remittance was due; any failure or breach by the Servicer duly to
observe or perform in any material respect any other of its covenants or
agreements that materially and adversely affects the interests of
Certificateholders, which, in either case, continues unremedied for 60 days
after the giving of written notice of such failure or breach to the Servicer by
the related Trustee or by the Holders of Certificates evidencing at least 25% of
the Voting Rights for the applicable Series; and certain events involving
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings regarding the Servicer.
So long as an Event of Default remains unremedied, the Trustee may, and,
at the written direction of the Certificateholders of the applicable Series
evidencing greater than 50% of the Voting Rights for such Series, shall,
terminate all of the rights and obligations of the Servicer under the related
Agreement and in and to the related Contracts and Mortgage Loans and the
proceeds thereof, whereupon (subject to applicable law regarding the Trustee's
ability to make advances) the related Trustee or a successor Servicer will
succeed to all the responsibilities, duties and liabilities of the terminated
Servicer under the Agreement and such successor Servicer will be entitled to
similar compensation arrangements to those provided for the terminated Servicer.
In the event that the Trustee would be obligated to succeed the Servicer but is
unwilling or unable to do so, it may appoint, or petition a court of competent
jurisdiction for the appointment of, a successor Servicer meeting the criteria
set forth in the related Agreement. Pending such appointment, the Trustee is
obligated to act as successor Servicer unless prohibited by law from doing so.
The Trustee and such successor Servicer may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
paid to the terminated Servicer under the Agreement.
CERTIFICATEHOLDER RIGHTS
No Certificateholder will have any right under the related Agreement to
institute any proceeding with respect to such Agreement unless such holder
previously has provided the Trustee with written notice of a default thereunder
and unless the holders of Certificates evidencing at least 25% of the Voting
Rights for the applicable Series (a) requested the Trustee in writing to
institute such proceeding in its own name as Trustee and (b) have offered to the
Trustee reasonable indemnity and the Trustee for 15 days has neglected or
refused to institute any such proceeding. The Trustee will be under no
obligation to take any action or to institute, conduct or defend any litigation
under the related Agreement at the request, order or direction of any of the
holders of Certificates, unless such Certificateholders have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which the Trustee may incur.
AMENDMENT
An Agreement may be amended by the Company, the Servicer, and the
related Trustee without the consent of the related Certificateholders,
o to cure any ambiguity therein;
o to correct or supplement any provision therein that may be
inconsistent with any other provision therein;
o to maintain the REMIC status of the Trust and to avoid the imposition
of certain taxes on any related REMIC (if applicable); or
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o to make any other provisions with respect to matters or questions
arising under such Agreement that are not covered by such Agreement,
provided that such action will not adversely affect in any material
respect the interests any holder of Certificates of the related
Series, as evidenced by an opinion of counsel independent of the
Company, the Servicer and the Trustee or a letter from each Rating
Agency from whom the Company requested a rating of any of the
Certificates of such Series stating that the proposed amendment will
not result in a downgrading of the rating of any of the Certificates
of such Series rated by such Rating Agency.
An Agreement may also be amended by the Company, the Servicer and the related
Trustee with the consent of the related Certificateholders evidencing a majority
of the Voting Rights of each affected Class for the purpose of adding any
provisions to, or for the purpose of eliminating any provisions from, or for the
purpose of changing in any manner any of the provisions of, such Agreement, or
for the purpose of modifying in any manner the rights of the Certificateholders;
PROVIDED, HOWEVER, that no such amendment that 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; otherwise materially adversely affects the rights of any
Certificateholder; or reduces the percentage of Certificateholders required to
consent to any amendment of the related Agreement, may be effective without the
consent of the holder of each such Certificate.
TERMINATION
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon 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
Agreement. In addition, subject to the specifications in the related
Prospectus Supplement, a Trust may be subject to early termination at the option
of the Company, the Servicer or the holders of a majority in interest of any
related Residual Certificates and if so specified in the related Prospectus
Supplement, the Certificates of a Series shall be subject to redemption by the
Company, the Servicer or any other party specified in the related Prospectus
Supplement, as described more fully herein under "DESCRIPTION OF THE
CERTIFICATES -- OPTIONAL REDEMPTION OR TERMINATION."
CERTAIN LEGAL ASPECTS OF CONTRACTS AND MORTGAGE LOANS
The following discussion contains general summaries of certain legal
aspects of manufactured housing installment sales contracts and mortgage loans.
Because such legal aspects are governed by applicable state law (which laws may
differ substantially from state to state), the summaries do not purport to be
complete or to reflect the laws of any particular state, or to encompass the
laws of all states in which the security for the Contracts or Mortgage Loans is
situated. The summaries are qualified in their entirety by reference to the
applicable federal and state laws governing the Contracts and Mortgage Loans.
Contracts differ from Mortgage Loans in certain material respects. In
general, Contracts may experience a higher level of delinquencies than Mortgage
Loans, because the credit underwriting standards applied to borrowers under
manufactured housing installment sales contracts generally are not as stringent
as those applied to borrowers under many conventional residential first-lien
mortgage loans. SEE "UNDERWRITING POLICIES -- OAKWOOD'S CONTRACT UNDERWRITING
GUIDELINES" HEREIN. In addition, Manufactured Homes generally decline in value
over time, which may not necessarily be the case with respect to the Mortgaged
Properties underlying Mortgage Loans. Consequently, the losses incurred upon
repossession of or foreclosure on Manufactured Homes securing the Contracts may
be expected to be more severe in many cases than the losses that would be
incurred upon foreclosure on Mortgaged Properties securing Mortgage Loans (in
each case measured as a percentage of the outstanding principal balances of the
related Assets). The servicing of manufactured housing installment sales
contracts is generally similar to the servicing of conventional residential
mortgage loans, except that, in general, servicers of manufactured housing
installment sales contracts place greater emphasis on making prompt telephone
contact with delinquent borrowers than is generally customary in the case of the
servicing of conventional residential mortgage loans. SEE "SALE AND SERVICING OF
CONTRACTS AND MORTGAGE LOANS -- SERVICING" HEREIN. Realization on defaulted
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Contracts is generally accomplished through repossession and subsequent resale
of the underlying Manufactured Homes by or on behalf of the Servicer, as
described below under " -- THE CONTRACTS," whereas realization on defaulted
Mortgage Loans is generally accomplished through foreclosure on the underlying
Mortgaged Properties or similar proceedings, as described below under " -- THE
MORTGAGE LOANS." Realization on defaulted Land Secured Contracts may involve a
combination of repossession and foreclosure-related procedures. SEE " -- THE
CONTRACTS" BELOW. Certificates evidencing interests in Contracts may also be
subject to other risks that are not present in the case of Certificates
evidencing interests in Mortgage Loans. SEE "RISK FACTORS -- STATE LAW MAY
CAUSE CERTIFICATEHOLDERS TO HAVE LOSSES," " -- THERE COULD BE DELAYS OR
REDUCTIONS OF DISTRIBUTIONS ON THE CERTIFICATES IF THE TRANSFER OF ASSETS TO THE
TRUST IS NOT CONSIDERED A SALE IN THE EVENT OF BANKRUPTCY," AND " -- FEDERAL AND
STATE LENDER REGULATIONS MAY CREATE CREDIT AND PREPAYMENT RISKS FOR
CERTIFICATEHOLDERS" HEREIN.
THE CONTRACTS
GENERAL. As a result of the assignment of the Contracts underlying a
Series to the related Trustee, the related Trust will succeed to all of the
rights (including the right to receive payments on the Contracts), and will
assume the obligations, of the obligee under the Contracts. Each Contract
evidences both 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 such loan. Certain aspects of both features of the
Contracts are described more fully below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were located. Pursuant to the UCC, the sale of chattel paper is
treated in a manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Servicer will retain possession of the Contracts
as custodian for the Trustee. Because the Servicer is not relinquishing
possession of the Contracts, the Servicer will file a UCC-1 financing statement
in the appropriate recording offices in North Carolina as necessary to perfect
the Trustee's ownership interest in the Contracts. Notwithstanding such filings,
if, through negligence, fraud or otherwise, a subsequent purchaser from the
Company or from a predecessor owner of the Contracts were able to take physical
possession of the Contracts without notice of the assignment of the Contracts to
the Trustee, the Trustee's interest in Contracts could be subordinated to the
interest of such purchaser. To provide a measure of protection against this
possibility, within ten days after the Closing Date, the Contracts will be
stamped or marked otherwise to reflect their assignment from the Company to the
Trustee.
SECURITY INTERESTS IN THE MANUFACTURED HOMES. The Manufactured Homes
securing the Contracts may be located in any or all of the 50 states and the
District of Columbia. The manner in which liens on Manufactured Homes are
"perfected" is governed by applicable state law. In many states ("Title
States"), a lien on a manufactured home may be "perfected" under applicable
motor vehicle titling statutes by notation of the secured party's lien on the
related certificate of title or by delivery of certain required documents and
payment of a fee to the state motor vehicle authority to re-register the home,
depending upon applicable state law. In some states ("UCC States"), perfection
of a lien on a manufactured home is accomplished pursuant to the provisions of
the applicable UCC by filing UCC-3 financing statements or other appropriate
transfer instruments with all appropriate UCC filing offices. Some states are
both Title States and UCC States. The Company will cause the security interests
created by the Contracts in the related Manufactured Homes to be assigned to the
Trustee on behalf of the Certificateholders. However, because of the expense and
administrative inconvenience involved, neither Oakwood nor any other Seller are
expected to amend any certificate of title to change the lienholder specified
therein from Oakwood or such Seller to the Trustee, deliver any documents or pay
fees to re-register any Manufactured Home, or file any UCC transfer instruments,
and neither Oakwood nor such Seller will deliver any certificate of title to the
Trustee or note thereon the Trustee's interest. In some states, simple
assignment of the security interest created by a Contract in the related
Manufactured Home constitutes an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title,
re-registration of the underlying home, or filing of any statement under the
applicable UCC, and the assignee succeeds to the seller's rights as the secured
party as to such Manufactured Home. In other states, however, the law is unclear
whether a security interest in a Manufactured Home is effectively assigned in
the absence of an amendment to a certificate of title, re-registration of the
underlying home, or the filing of an appropriate UCC transfer instrument, as
appropriate under applicable state law. In such event, the assignment of the
security interest created by a Contract in the related Manufactured Home may not
be effective against creditors of the Company or the Seller or a trustee in
bankruptcy of the Company or the Seller.
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In recent years, manufactured homes have become increasingly large and
often are attached to their sites, without appearing to be readily mobile.
Perhaps in response to these trends, courts in many states have held that
manufactured homes, under certain circumstances, are subject to real estate
title and recording laws. As a result, a security interest created by an
installment sales contract in a manufactured home located in such a state could
be rendered subordinate to the interests of other parties claiming an interest
in the home under applicable state real estate law. In order to perfect a
security interest in a manufactured home under real estate laws, the holder of
the security interest must file either a "fixture filing" under the provisions
of the applicable UCC or a real estate mortgage, deed of trust, deed to secure
debt or security deed, as appropriate under the real estate laws of the state in
which the related home is located (any of the foregoing, a "Mortgage"). These
filings must be made in the real estate records office of the jurisdiction in
which the home is located. Neither Oakwood nor any other Seller will be required
to make fixture filings or to file Mortgages with respect to any of the
Manufactured Homes (except in the case of Land Secured Contracts, as described
below). Consequently, if a Manufactured Home is deemed subject to real estate
title or recording laws because the owner attaches it to its site or otherwise,
the Trustee's interest therein may be subordinated to the interests of others
that may claim an interest therein under applicable real estate laws.
The Trustee's security interest in a Manufactured Home would be
subordinate to, among others, subsequent purchasers for value of the
Manufactured Home and holders of perfected security interests therein, in either
case without notice to the Trustee's adverse interest in such home. In the
absence of fraud, forgery or affixation of the Manufactured Home to its site by
the Manufactured Home owner, or administrative error by state recording
officials, the notation of the lien of Oakwood (or another Seller) on the
related certificate of title or delivery of the required documents and fees
necessary to register the home in the name of Oakwood (or the other Seller) or
the public filing of appropriate transfer instruments reflecting the lien of
Oakwood (or another Seller), in each case as required under applicable state
law, will be sufficient to protect the Certificateholders against the rights of
subsequent purchasers of a Manufactured Home or subsequent lenders who take a
security interest in the Manufactured Home from anyone other than the entity
whose lien is perfected under state law (be it Oakwood or another Seller),
because they will be on notice of the interest in the home held by such entity.
Certain of the Contracts ("Land Secured Contracts") will be secured by
real estate as well as a Manufactured Home. The Seller will cause the liens
created by the Land Secured Contracts on the related real estate to be assigned
to the Trustee. The Contract File for each Land Secured Contract will be
required to include an original or a certified copy of the recorded Mortgage
relating to such Contract, together with originals or certified copies of a
chain of recorded assignments of such Mortgage sufficient to reflect the Seller
as the record holder of such Mortgage and the lien it evidences on the related
real estate. Assignments in recordable form for such Mortgages naming the
Trustee as assignee will not be prepared by the Servicer or any Seller. However,
the Seller will deliver to the Trustee a power of attorney entitling the Trustee
to prepare, execute and record such assignments of Mortgages, in the event that
recordation thereof becomes necessary to enable the Servicer to foreclose on the
related real property.
Under the laws of most states, in the event that a manufactured home is
moved to a state other than the state in which it initially is registered, any
perfected security interest in such home would continue automatically for four
months after such relocation, during which time the security interest must be
re-perfected in the new state in order to remain perfected after such four-month
period. Generally, a security interest in such a manufactured home may be
re-perfected after the expiration of such four-month period, but, for the period
between the end of such four-month period and the date of such re-perfection,
the security interest would be unperfected.
If a Manufactured Home is moved to a UCC State, an appropriate UCC
financing statement generally would have to be filed in such state within the
four-month period after the move in order for the Seller's security interest in
the Manufactured Home to remain perfected continuously. If a Manufactured Home
is moved to a Title State, re-perfection of a security interest in such home
generally would be accomplished by registering the Manufactured Home with the
Title State's motor vehicle authority. In the ordinary course of servicing its
portfolio of manufactured housing installment sales contracts, the Servicer
takes steps to re-perfect its security interests in the related manufactured
homes upon its receipt of notice of registration of such home in a new state
(which it should receive by virtue of the notation of its lien on the original
certificate of title, if the home is moved from a Title State to a Title State)
or of information from a related borrower as to relocation of such home. In some
Title States, the certificate of title to a Manufactured Home (which is required
to be in the Servicer's possession) must be surrendered
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before the home could be re-registered; in such states an Obligor could not
re-register a Manufactured Home to a transferee without the Servicer's
assistance. In other Title States, when an Obligor under a Contract sells the
related Manufactured Home (if it is located in a Title State both before and
after the sale), the Seller should at least receive notice of any attempted
re-registration thereof because its lien is noted on the related certificate of
title and accordingly should have the opportunity to require satisfaction of the
related Contract before releasing its lien on the home. If the motor vehicle
authority of a Title State to which a Manufactured Home is relocated or in which
a Manufactured Home is located when it is transferred registers such
Manufactured Home in the name of the owner thereof or such owner's transferee
without noting the Seller's lien on the related certificate of title, whether
because (1) such state did not require the owner to surrender the certificate of
title issued prior to the transfer or issued by the Title State from which such
home was moved or failed to notify the Seller of re-registration and failed to
note the Seller's lien on the new certificate of title issued upon
re-registration or (2) such Manufactured Home was moved from a state that is not
a Title State, such re-registration could defeat the perfection of the Seller's
lien in the Manufactured Home. In addition, re-registration of a Manufactured
Home (whether due to a transfer or relocation thereof) in a state, such as a UCC
State, which does not require a certificate of title for registration of a
Manufactured Home, could defeat perfection of the Seller's lien thereon.
If the Seller and the Servicer are not the same entity, the Seller will be
required to report to the Servicer any notice it receives of any re-registration
of a Manufactured Home. Under the Pooling and Servicing Agreement, the Servicer
is obligated to take all necessary steps, at its own expense, to maintain
perfection of the Trustee's security interests in the Manufactured Homes, to the
extent it receives notice of relocation, sale or re-registration thereof
(provided that, as long as Oakwood remains the Servicer, the Servicer will not
be required to cause notations to be made on any certificate of title or to
execute any instrument relating to any Manufactured Home (other than a notation
or a transfer instrument necessary to show Oakwood (or another Seller if
applicable)) as the lienholder or legal titleholder). However, the Servicer has
no independent obligation to monitor the status of the Seller's lien on any
Manufactured Home.
Under the laws of most states, liens for repairs performed on a
manufactured home and for property taxes on a manufactured home take priority
even over a prior perfected security interest. Such liens could arise at any
time during the term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
ENFORCEMENT OF SECURITY INTERESTS IN MANUFACTURED HOMES. The Servicer, on
behalf of the Trustee, to the extent required by the related Agreement, may take
action to enforce the Trustee's security interest with respect to Contracts in
default by repossession and resale of the Manufactured Homes securing such
defaulted Contracts. So long as the manufactured home has not become subject to
the real estate laws of a state, a creditor is entitled, in most states, to
repossess a manufactured home through the voluntary surrender thereof, by
"self-help" repossession that is "peaceful" (I.E., not including any breach of
the peace) or, if the creditor is unable to repossess through either of the
foregoing means, by judicial process. The holder of a Contract must give the
debtor a number of days' notice, which varies depending on the state (usually
ranging from 10 to 30 days depending on applicable state law), prior to
commencement of any repossession action. The UCC and consumer protection laws in
most states place restrictions on repossession sales; among other things, such
laws require prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice prior to any resale of a repossessed home so that the debtor may
redeem the home at or before such resale. In the event of such repossession and
resale of a Manufactured Home, the Trustee would be entitled to receive the net
proceeds of such resale up to the amount of the Unpaid Principal Balance of the
related Contract plus all accrued and unpaid interest thereon at the related
Contract Rate.
Under applicable laws of most states, a creditor is entitled to obtain a
judgment against a debtor for any deficiency remaining after repossession and
resale of the manufactured home securing such debtor's loan. However, obtaining
and collecting such deficiency judgments is seldom economically feasible and,
for that reason, Oakwood generally has not attempted to obtain deficiency
judgments. In addition, some states impose prohibitions or limitations on
deficiency judgments, and certain other statutory provisions, including federal
and state bankruptcy and insolvency laws and general equitable principles, the
federal Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the "Relief
Act") and state laws affording relief to debtors, may interfere with or affect
the ability of a secured lender to repossess and resell collateral or to enforce
a deficiency judgment. For example, in certain
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proceedings under the federal Bankruptcy Code, when a court determines that the
value of a home is less than the principal balance of the loan it secures, the
court may prevent a lender from repossessing or foreclosing on the home, and, as
part of the debtor's rehabilitation plan, reduce the amount of the secured
indebtedness to the value of the home as it exists at the time of the
proceeding, leaving the lender as a general unsecured creditor for the
difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a manufactured housing installment sales contract
not secured by the debtor's principal residence, also may reduce the monthly
payments due under such contract, change the rate of interest and alter the
repayment schedule. Certain court decisions have applied such relief to claims
secured by the debtor's principal residence. If a court relieves an Obligor's
obligation to repay all or any portion of the amounts otherwise due on a
Contract, the Servicer will not be required to advance such amounts, and any
loss in respect thereof may reduce amounts available for distribution on the
related Certificates.
Under the terms of the federal Relief Act, an Obligor who enters military
service after the origination of such Obligor's Contract (including an Obligor
who is a member of the National Guard or who is in reserve status at the time of
the origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6.00% during the period of such
Obligor's active duty status, unless a court orders otherwise upon application
of the lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by the subordination of a Class of Subordinated Certificates, could
result in losses to Certificateholders. In addition, the Relief Act imposes
limitations which would impair the ability of the Servicer to repossess or
foreclose on the Manufactured Home securing an affected Contract during the
Obligor's period of active duty status. Thus, in the event that such a Contract
goes into default, there may be delays and losses occasioned by the inability to
liquidate the related Manufactured Home in a timely fashion.
Because of certain requirements of the REMIC Provisions, a Trust as to
which a REMIC election has been made generally must dispose of any related
Manufactured Homes acquired pursuant to repossession, foreclosure, or similar
proceedings within two years after acquisition. Consequently, if the Servicer,
acting on behalf of the Trust, is unable to sell a Manufactured Home in the
course of its ordinary commercial practices within 22 months after its
acquisition thereof (or a longer period as permitted by the Pooling and
Servicing Agreement), the Servicer will auction such home to the highest bidder
(which bidder may be the Servicer) in an auction reasonably designed to produce
a fair price. There can be no assurance that the price for any Manufactured Home
would not be substantially lower than the Unpaid Principal Balance of the
Contract relating thereto. In fact, manufactured homes, unlike site-built homes,
generally depreciate in value, and it has been Oakwood's experience that, upon
repossession and resale, the amount recoverable on a manufactured home securing
an installment sales contract is generally lower than the principal balance of
the contract.
FORECLOSURE UNDER REAL PROPERTY LAWS. If a Manufactured Home has become
attached to real estate to a degree such that the home would be treated as real
property under the laws of the state in which it is located, it may not be
legally permissible for the Servicer to repossess the home under the provisions
of the UCC or other applicable personal property laws. If so, the Servicer could
obtain possession of the home only pursuant to real estate mortgage foreclosure
laws. SEE " -- THE MORTGAGE LOANS -- FORECLOSURE" BELOW. In addition, in order
to realize upon the Real Property securing any Land Secured Contract, the
Servicer must proceed under applicable state real estate mortgage foreclosure
laws. The requirements that the Servicer must meet in order to foreclose on the
Real Property securing a Land Secured Contract, and the restrictions on such
foreclosure, are identical to the requirements and restrictions that would apply
to foreclosure of any Mortgage Loan. For a description of such foreclosure, SEE
" -- THE MORTGAGE LOANS" BELOW. Mortgage foreclosure generally is accomplished
through judicial action, rather than by private action as permitted under
personal property laws, and real estate laws generally impose stricter notice
requirements and require public sale of the collateral. In addition, real estate
mortgage foreclosure is usually far more time-consuming and expensive than
repossession under personal property laws, and applicable real estate law
generally affords debtors many more protections than are provided under personal
property laws. Rights of redemption under real estate laws generally are more
favorable to debtors than they are under personal property laws, and in many
states antideficiency judgment legislation will be applicable in the real estate
foreclosure context even if it would not apply to repossessions under personal
property laws. If real estate laws apply to a Manufactured Home, to the extent
the Seller has not perfected its security interest in a Manufactured Home under
applicable real
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estate laws, the Seller's security interest in such Manufactured Home would be
subordinate to a lien on such home recorded pursuant to applicable real estate
laws.
CONSUMER PROTECTION LAWS. The so-called "Holder-in-Due-Course" rule of the
Federal Trade Commission is intended to prevent a seller of goods pursuant to a
consumer credit contract (and certain related lenders and assignees) from
transferring such contract free of claims by the debtor thereunder against the
seller. The effect of this rule is to subject the assignee of a consumer credit
contract to all claims and defenses that the debtor could have asserted against
the seller under the contract. Assignee liability under this rule (which would
be applicable to the Trust, as assignee of the Contracts) is limited to amounts
paid by the debtor under the assigned contract; however, a borrower also may
assert the rule to set off remaining amounts due under such a contract as a
defense against a claim brought by the assignee of such contract against such
borrower. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission Act,
the Magnuson-Moss Warranty -- Federal Trade Commission Improvement Act, the Fair
Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Debt Collection
Practices Act and the Uniform Consumer Credit Code. The failure of the
originator of a Contract to have complied with the provisions of some of these
laws may result in liability of the related Trust to the Obligor thereunder or
in a reduction of the amount payable under such Contract. However, each Seller
will be required to represent and warrant that each Contract it sells to the
Company complied, at the time of its origination, with all requirements of law
and will be required to make certain representations and warranties as to each
Contract to be included in an Asset Pool concerning the validity, existence,
perfection and priority of its security interest in each underlying Manufactured
Home as of the related Cut-off Date. A breach of any such representation or
warranty that materially and adversely affects a Trust's interest in any
Contract would create an obligation on the part of the related Seller to use its
best efforts to cure such breach to the satisfaction of the Trustee or to
repurchase such Contract. Nevertheless, this requirement may not eliminate the
Trust's liability to an Obligor.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES.
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such sale
or transfer to which consent has not been obtained. The Servicer will act in
accordance with its customary underwriting procedures and with the terms of the
related Pooling and Servicing Agreement in determining whether to permit such
transfers in respect of Contracts included in an Asset Pool. The Servicer will
require, among other things, a satisfactory credit review of any person
proposing to assume any Contract. If the Servicer permits an assumption of a
Contract, no material term of the Contract (including the interest rate or the
remaining term to maturity of the Contract) may be modified unless the Servicer
has received an opinion of independent counsel to the effect that such
modification will not be treated, for federal income tax purposes, as an
acquisition of the modified Contract by the Trust in exchange for the unmodified
Contract on the date the modification occurs. In certain cases, a delinquent
borrower may transfer his or her manufactured home in order to avoid a
repossession proceeding with respect to such manufactured home.
APPLICABILITY OF USURY LAWS. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"), provides,
subject to certain conditions described in the next sentence, that state usury
limitations shall not apply to any loan that is secured by a first lien on
certain kinds of manufactured housing. The Contracts would be covered under
Title V if they satisfy certain conditions governing, among other things, the
terms of any prepayments, late charges and deferral fees and requiring 30 days'
prior notice before the institution of any action leading to repossession of or
foreclosure with respect to the related manufactured home.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting a law or constitutional provision which expressly
rejects application of the federal law before April 1, 1983. Fifteen states
adopted such a law prior to the April 1, 1983 deadline. In addition, even where
Title V was not so rejected, any state is authorized by the law to adopt a
provision limiting discount points or other charges on loans covered by Title V.
The Servicer will represent that all of the Contracts comply with applicable
usury laws.
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THE MORTGAGE LOANS
GENERAL. Mortgage Loans as described herein are distinct from Land Secured
Contracts (which are discussed above under " -- THE CONTRACTS -- FORECLOSURE
UNDER REAL PROPERTY LAWS"). A Mortgage Loan is secured by a Mortgaged Property
on which a one- to four-family residential structure is located, whereas a Land
Secured Contract is secured primarily by a Manufactured Home and is secured only
secondarily by a parcel of Real Property.
The Mortgage Loans will be secured by either first mortgages, deeds of
trust, deeds to secure debt or security deeds (any of the foregoing, a
"Mortgage"), depending upon the prevailing practice in the state in which the
underlying Mortgaged Property is located. A mortgage creates a lien upon the
real property described in the mortgage. There are two parties to a mortgage:
the mortgagor, who is the obligor, and the mortgagee, who is the lender. Under a
first mortgage, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties; the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed of
trust or mortgage, applicable law, and, in some cases, with respect to the deed
of trust, the directions of the beneficiary.
FORECLOSURE. Foreclosure of a mortgage is generally accomplished by
judicial action. Generally, the action is initiated by the service of legal
pleadings upon all parties having an interest of record in the Mortgaged
Property. Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a receiver
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, pursuant to a power of sale provided in
the mortgage. Foreclosure of a mortgage by advertisement is essentially similar
to foreclosure of a deed of trust by non-judicial power of sale as discussed
below.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the related note or the deed of trust. In certain
states, such foreclosure also may be accomplished by judicial action in the
manner provided for foreclosure of mortgages. In some states the trustee must
record a notice of default and send a copy to the borrower-trustor and to any
person who has recorded a request for a copy of a notice of default and notice
of sale. In addition, the trustee must provide notice in some states to any
other individual having an interest of record in the underlying real property,
including any junior lienholders. If the deed of trust is not reinstated within
any applicable cure period, a notice of sale must be posted in a public place
and, in most states, must be published for a specified period of time in one or
more newspapers. In addition, some state laws require that a copy of the notice
of sale be posted on the property and sent to all parties having an interest of
record in the property. In some states, the borrower has the right to reinstate
the loan at any time following default until shortly before the trustee's sale.
SEE " -- RIGHTS OF REINSTATEMENT AND REDEMPTION" BELOW.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a public
sale. However, because of the difficulty a potential buyer at the sale would
have in determining the exact status of title and because the physical condition
of the property may have deteriorated during the foreclosure proceedings, it is
not common for a third party to purchase the property at the foreclosure sale.
Rather, the lender generally purchases the property from the trustee or receiver
for an amount which may be as great as (but is more often somewhat less than)
the unpaid principal amount of the note, accrued and unpaid interest and the
expenses of foreclosure. Thereafter, subject to the right of the obligor in some
states to remain in possession during the redemption period, the lender will
assume the burdens of ownership, including obtaining hazard insurance and making
such repairs at its own expense as are necessary to render the property suitable
for sale. The lender commonly will obtain the services of a real estate broker
and pay the broker a commission in connection with the sale of the property.
Depending upon market conditions, the ultimate proceeds of the sale of the
property may not equal the lender's investment in the property. Any loss with
respect to a Mortgage
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Loan may be reduced by the receipt of mortgage insurance proceeds. SEE "THE
TRUSTS -- INSURANCE -- CREDIT INSURANCE" AND "THE TRUSTS -- INSURANCE -- HAZARD
INSURANCE" HEREIN.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve obligors from the legal
effect of defaults under the loan documents. Examples of judicial remedies that
may be fashioned include judicial requirements that the lender undertake
affirmative actions to determine the causes for the obligor's default and the
likelihood that the obligors will be able to reinstate the loan. In some cases,
courts have required lenders to reinstate loans or recast payment schedules to
accommodate obligors who are suffering temporary financial disabilities. In some
cases, courts have limited the right of a lender to foreclose if the default
under the related mortgage instrument is not monetary, such as a default arising
from the obligor's failure to maintain the property adequately or the obligor's
executing a second mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that obligors under deeds of trust receive notices in addition to
statutorily-prescribed minimum requirements. For the most part, these cases have
upheld state statutory notice provisions as being reasonable or have found that
the sale by a trustee under a deed of trust or under a mortgage having a power
of sale does not involve sufficient state action to afford constitutional
protections to the obligor.
RIGHTS OF REINSTATEMENT AND REDEMPTION. In some states, an obligor, or any
other person having a junior encumbrance on the related real estate, may, during
a reinstatement or redemption period, cure an obligor default by paying the
entire amount in arrears plus certain of the costs and expenses incurred by or
on behalf of the lender in attempting to enforce the obligor's obligation.
Certain state laws control the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender. In some states,
an obligor under a mortgage loan has the right to reinstate the loan at any time
following default until shortly before the foreclosure sale.
In some states, after sale pursuant to a deed of trust or foreclosure of a
mortgage, the related obligor and certain foreclosed junior lienors are given a
statutory period in which to redeem the related property from the foreclosure
sale. In certain other states, this right of redemption applies only to sale
following judicial foreclosure, and not to sale pursuant to a non-judicial power
of sale. In most states where the right of redemption is available, statutory
redemption may occur upon payment of the foreclosure purchase price, accrued
interest and taxes. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property that it purchased. The
exercise of a right of redemption would defeat the title of any purchaser at a
foreclosure sale, or of any purchaser from the lender subsequent to its purchase
of the related property at a judicial foreclosure sale or sale under a deed of
trust. Consequently, the practical effect of the redemption right is to force
the lender (or other purchaser of property at a foreclosure sale) to maintain
the property and pay the expenses of ownership until the redemption period has
run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS. Certain
states have imposed statutory restrictions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against a borrower following foreclosure on the related
property or sale of the related property under a deed of trust. A deficiency
judgment is a personal judgment against the obligor equal in most cases to the
difference between the amount due to the lender and the greater of the net
amount realized upon the foreclosure sale or the market value of the related
mortgaged property.
Some state statutes may require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
obligor. In certain other states, the lender has the option of bringing a
personal action against the obligor on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising other remedies with respect to such security.
Consequently, the practical effect of the election requirement, when applicable,
is that lenders will usually proceed first against the security for a mortgage
or deed of trust rather than bringing a personal action against the obligor.
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Other statutory provisions may limit any deficiency judgment against the
former obligor under a mortgage loan following a foreclosure sale to the excess
of the outstanding debt over the fair market value of the property at the time
of such sale. The purpose of these statutes is to prevent a beneficiary or a
mortgagee from obtaining a large deficiency judgment against the former obligor
as a result of low or no bids at the foreclosure sale or sale pursuant to a deed
of trust.
In some states, exceptions to the anti-deficiency statutes are provided in
certain instances where the value of the lender's security has been impaired by
acts or omissions of the obligor, for example, in the event of waste of the
property by the obligor.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal and state
bankruptcy and insolvency laws and general equitable principles, the federal
Relief Act and state laws affording relief to debtors, may interfere with or
affect the ability of a secured mortgage lender to realize upon its security.
For example, in certain proceedings under the federal Bankruptcy Code, when a
court determines that the value of a home is less than the principal balance of
the loan it secures, the court may prevent a lender from foreclosing on the
home, and, as part of the debtor's rehabilitation plan, reduce the amount of the
secured indebtedness to the value of the home as it exists at the time of the
proceeding, leaving the lender as a general unsecured creditor for the
difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan repayment
schedule. Certain court decisions have applied such relief to claims secured by
the debtor's principal residence. If a court relieves an Obligor's obligation to
repay all or any portion of the amounts otherwise due on a Mortgage Loan, the
Servicer will not be required to advance such amounts, and any loss in respect
thereof may reduce amounts available for distribution on the related
Certificates.
Under the terms of the federal Relief Act, an obligor who enters military
service after the origination of such obligor's Mortgage Loan (including an
obligor who is a member of the National Guard or who is in reserve status at the
time of the origination of the Mortgage Loan and is later called to active duty)
may not be charged interest above an annual rate of 6.00% during the period of
such obligor's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such action could have an effect,
for an indeterminate period of time, on the ability of the Servicer to collect
full amounts of interest on certain of the Mortgage Loans. Any shortfall in
interest collections resulting from the application of the Relief Act, to the
extent not covered by the subordination of a Class of Subordinated Certificates,
could result in losses to Certificateholders. In addition, the Relief Act
imposes limitations which would impair the ability of the Servicer to foreclose
on an affected Mortgage Loan during the obligor's period of active duty status.
Thus, in the event that such a Mortgage Loan goes into default, there may be
delays and losses occasioned by the inability to liquidate the related Mortgaged
Property in a timely fashion.
The Internal Revenue Code of 1986, as amended (the "Code") and the laws of
some states provide priority to certain tax liens over the lien of a mortgage or
deed of trust. Numerous federal and some state consumer protection laws impose
substantive requirements upon mortgage lenders in connection with the
origination, servicing and the enforcement of mortgage loans. These laws include
the federal Truth in Lending Act, Real Property Settlement Procedures Act, Equal
Credit Opportunity Act, Fair Credit Billing Act, Fair Credit Reporting Act, and
related statutes and regulations. These federal laws and state laws impose
specific statutory liabilities upon lenders who originate or service mortgage
loans and who fail to comply with the provisions of the law. In some cases, this
liability may affect the lender's assignees as to the mortgage loans.
"Due on Sale" Clauses. The forms of note, mortgage and deed of trust
relating to conventional Mortgage Loans may contain a "due-on-sale" clause
permitting acceleration of the maturity of a loan if the Mortgagor transfers its
interest in the underlying property. In recent years, court decisions and
legislative actions placed substantial restrictions on the right of lenders to
enforce such clauses in many states. However, effective October 15, 1982,
Congress enacted the Garn-St Germain Act, which purports to pre-empt state laws
that prohibit the enforcement of "due-on-sale" clauses and provides, among other
things, that "due-on-sale" clauses in certain loans (which loans include the
Conventional Mortgage Loans) made after the effective date of the Garn-St
Germain
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Act are enforceable, within certain limitations as set forth in the Garn-St
Germain Act and the regulations promulgated thereunder.
By virtue of the Garn-St Germain Act, the Servicer may generally be
permitted to accelerate any conventional Mortgage Loan which contains a
"due-on-sale" clause upon transfer by the Obligor of an interest in the property
subject to the related mortgage or deed of trust. With respect to any Mortgage
Loan secured by a residence occupied or to be occupied by the mortgagor, this
ability to accelerate will not apply to certain types of transfers, including
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 such 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" HEREIN.
ADJUSTABLE RATE ASSETS. The laws of certain states may provide that
mortgage notes relating to adjustable rate loans are not negotiable instruments
under the UCC. In such event, the Trustee under a deed of trust arrangement will
not be deemed to be a "holder in due course" within the meaning of the UCC and
may take such a mortgage note subject to certain restrictions on its ability to
foreclose on the related Mortgaged Property and to certain contractual defenses
available to the related Obligor.
ENVIRONMENTAL CONSIDERATIONS
Real property pledged as security to a lender may be subject to certain
environmental risks. Under the laws of certain states, contamination of a
property may give rise to a lien on the property to secure recovery of the costs
of clean-up. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended ("CERCLA"), a lender may be liable, as an
"owner" or "operator," for costs of addressing releases or threatened releases
of hazardous substances that require remedy at a property securing a mortgage
loan owned by such lender, if agents or employees of the lender have become
sufficiently involved in the operations of the related obligor, regardless of
whether or not the environmental damage or threat was caused by such lender's
obligor or by a prior owner. A lender also risks such liability arising out of
foreclosure of a mortgaged property securing a mortgage loan owned by such
lender. Until recent legislation was adopted, it was uncertain what actions
could be taken by a secured lender in the event of a loan default without it
incurring exposure under CERCLA in the event the property was environmentally
contaminated. The Asset Conservation, Lender Liability and Deposit Insurance Act
of 1996 (the "1996 Lender Liability Act") provides for a safe harbor for secured
lenders from CERCLA liability even though the lender forecloses and sells the
real estate
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securing the loan, provided the secured lender sells "at the earliest
practicable, commercially reasonable time, at commercially reasonable terms,
taking into account market conditions and legal and regulatory requirements."
Although the 1996 Lender Liability Act provides significant protection to
secured lenders, it has not been construed by the courts, and there are
circumstances in which actions taken could expose a secured lender to CERCLA
liability. And, the transferee from the secured lender is not entitled to the
protections enjoyed by a secured lender. Thus, contamination may decrease the
amount that prospective buyers are willing to pay for a Mortgaged Property and,
thus, decrease the likelihood that the Trust will recover fully on the Mortgage
Loan through foreclosure.
Application of environmental laws other than CERCLA could also result in
the imposition of liability on lenders for costs associated with environmental
hazards. The most significant of these other laws is the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), and state regulatory programs
implemented thereunder. Subtitle I of RCRA imposes cleanup liabilities on owners
or operators of underground storage tanks. Some states also impose similar
liabilities on owners and operators of aboveground storage tanks. The definition
of "owner" under RCRA Subtitle I contains a security interest exemption nearly
identical to the CERCLA security interest exemption. However, as with CERCLA
costs, it is possible that such costs, if imposed in connection with a Mortgage
Loan or a Land Secured Contract included in a Trust Estate, could become a
liability of the related Trust in certain circumstances.
At the time the Mortgage Loans or Land Secured Contracts underlying a
Series were originated, it is possible that no environmental assessment or a
very limited environmental assessment of the related Mortgaged Properties or
Real Properties was conducted. No representations or warranties are made by the
Seller of Mortgage Loans or Contracts (including Land Secured Contracts) as to
the absence or effect of hazardous wastes or hazardous substances on any of the
related Mortgaged Properties or Real Properties. In addition, the Servicer has
not made any representations or warranties or assumed any liability with respect
to the absence or effect of hazardous wastes or hazardous substances on any
Mortgaged Property or Real Property or any casualty resulting from the presence
or effect of hazardous wastes or hazardous substances on any Mortgaged Property
or Real Property, and any loss or liability resulting from the presence or
effect of such hazardous wastes or hazardous substances will reduce the amounts
otherwise available to pay to the holders of the related Certificates.
Pursuant to the Standard Terms, the Servicer is not required to foreclose
on any Mortgaged Property or Real Property if one of its principal officers has
actual knowledge that such property is contaminated with or affected by
hazardous wastes or hazardous substances. If the Servicer does not foreclose on
the Mortgaged Property underlying a defaulted Mortgage Loan or the Real Property
securing a Land Secured Contract, the amounts otherwise available to pay to the
holders of the Certificates may be reduced. The Servicer will not be liable to
the holders of the Certificates if it fails to foreclose on a Mortgaged Property
or Real Property that it believes may be so contaminated or affected, even if
such Mortgaged Property or Real Property is, in fact, not so contaminated or
affected. Similarly, the Servicer will not be liable to the holders of any
Certificates if the Servicer forecloses on a Mortgaged Property or Real Property
and takes title to a Mortgaged Property or Real Property that is so contaminated
or affected.
ENFORCEABILITY OF CERTAIN PROVISIONS
The standard forms of Contract, Note, mortgage and deed of trust used by
the originators of Contracts and Mortgage Loans may contain provisions
obligating the Obligor to pay a late charge if payments are not timely made and
in some circumstances may provide for prepayment fees or penalties if the
obligation is paid prior to maturity. In certain states, there are or may be
specific limitations upon late charges which a lender may collect from a
borrower for delinquent payments. Certain states also limit the amounts that a
lender may collect from a borrower as an additional charge if the loan is
prepaid. Under each Agreement, late charges and prepayment fees on Assets in the
related Trust Estate (to the extent permitted by law and not waived by the
Servicer) will be retained by the Servicer as additional servicing compensation.
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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 such Series or to reimburse the amounts previously used to effect
such a purchase, the costs of carrying such Contracts and Mortgage Loans until
the sale of the related Certificates and other expenses connected with pooling
the Contracts and Mortgage Loans and issuing the Certificates.
THE COMPANY
Oakwood Mortgage Investors, Inc. (the "Company") was incorporated in the
State of North Carolina on August 26, 1994 as a wholly-owned, limited purpose
finance subsidiary of Oakwood Acceptance Corporation ("Oakwood"). Oakwood is a
wholly-owned subsidiary of Oakwood Homes Corporation ("Oakwood Homes"). The
Company maintains its principal office adjacent to those of Oakwood, at 7800
McCloud Road, Greensboro, North Carolina 27409-9634. Its telephone number is
(336) 664-2400.
As described herein under "THE TRUSTS," "UNDERWRITING POLICIES," AND "SALE
AND SERVICING OF CONTRACTS AND MORTGAGE LOANS -- REPRESENTATIONS AND
WARRANTIES," the only obligations, if any, of the Company with respect to a
Series of Certificates may be pursuant to certain limited representations and
warranties and limited undertakings to repurchase or substitute Contracts or
Mortgage Loans under certain circumstances. The Company will have no ongoing
servicing obligations or responsibilities with respect to any Asset Pool. The
Company does not have, nor is it expected in the future to have, any significant
assets.
Neither the Company nor any Underwriter nor any of their affiliates will
insure or guarantee the Certificates of any Series.
The Company Expects to be merged with and into Oakwood Mortgage Investors,
Inc., a Nevada corporation, during 1999. It is expected that the surviving
corporation will succeed to all of the Company's rights and obligations under
the registration statement of which this Prospectus is a part.
THE SERVICER
Oakwood Acceptance Corporation ("Oakwood" or, in its capacity as servicer,
the "Servicer") was incorporated in 1984 in the State of North Carolina as a
wholly-owned subsidiary of Oakwood Homes. Oakwood is primarily engaged in the
business of underwriting, originating, pooling, selling and servicing
installment sales contracts for the sale of manufactured housing. Oakwood's
principal offices are located at 7800 McCloud Road, Greensboro, North Carolina
27409-9634 (telephone 336/664-2500).
Oakwood underwrites and funds the origination of manufactured housing
contracts on an individual basis from its principal office and from one or more
additional loan origination offices. Contracts for the financing of sales of
manufactured homes through Oakwood are typically originated in the name of
Oakwood Mobile Homes, Inc., a wholly-owned retailing subsidiary of Oakwood Homes
("OMH"), or by a third party manufactured housing dealer, and are assigned to
Oakwood following origination, although some Contracts are originated directly
in Oakwood's name. Oakwood underwrites all such contracts. From time to time,
Oakwood purchases seasoned portfolios of manufactured housing contracts from
third parties.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the
Certificates offered hereunder. The summary is based upon laws, regulations,
rulings, and decisions now in effect, all of which are subject to change.
Because REMIC status may be elected with respect to certain Series of
Certificates, the discussion includes a summary of the federal income tax
consequences to holders of REMIC Certificates.
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The discussion does not purport to deal with the federal income tax
consequences to all categories of investors (such as banks, insurance companies
and foreign investors), some of which may be subject to special rules. The
discussion focuses primarily on investors who will hold the Certificates as
"capital assets" (generally, property held for investment) within the meaning of
section 1221 of the Code, although much of the discussion is applicable to other
investors as well. Investors should note that, although final regulations under
the REMIC Provisions have been issued by the Treasury, no currently effective
regulations or other administrative guidance has been issued with respect to
certain provisions of the Code that are or may be applicable to
Certificateholders, particularly the provisions dealing with market discount and
stripped debt instruments. Although the Treasury recently issued final
regulations dealing with original issue discount and premium, those regulations
do not address directly the treatment of Regular Certificates and certain other
types of Certificates. Furthermore, the REMIC Provisions do not address all of
the issues that arise in connection with the formation and operation of a REMIC.
Hence, definitive guidance cannot be provided with respect to many aspects of
the tax treatment of Certificateholders.
Moreover, this summary and the opinion referred to below is based on
current law, and there can be no assurance that the law will not change or that
the Internal Revenue Service (the "Service") will not take positions that would
be materially adverse to investors. Finally, the summary does not purport to
address the anticipated state income tax consequences to investors of owning and
disposing of the Certificates. Consequently, investors should consult their own
tax advisors in determining the federal, state, local, and any other tax
consequences to them of the purchase, ownership, and disposition of the
Certificates.
GENERAL
Many aspects of the federal income tax treatment of the Certificates of a
particular Series will depend upon whether an election is made to treat the
Trust, or one or more segregated Asset Pools thereof, as a Series REMIC. The
Prospectus Supplement for each Series will indicate whether a REMIC election or
elections will be made with respect to the related Trust Estate and, if such an
election or elections are to be made, will identify all "regular interests" and
the "residual interest" in each Series REMIC. For each Series with respect to
which one or more REMIC elections are to be made, Hunton & Williams, counsel to
the Company, will deliver a separate opinion generally to the effect that,
assuming timely filing of the REMIC election or elections and compliance with
the related Pooling and Servicing Agreement and certain other documents
specified in the opinion, the Trust (or one or more segregated Asset Pools
thereof) will qualify as one or more Series REMICs. For each Series with respect
to which a REMIC election is not to be made, Hunton & Williams will deliver a
separate opinion generally to the effect that, assuming compliance with the
Pooling and Servicing Agreement and certain other documents, the Trust will be
treated as a grantor trust under subpart E, Part I of subchapter J of the Code
and not as an association taxable as a corporation. Those opinions will be based
on existing law and there can be no assurance that the law will not change or
that contrary positions will not be taken by the Service.
REMIC CERTIFICATES
REMIC Certificates will be classified as either Regular Certificates,
which generally are treated as debt for federal income tax purposes, or Residual
Certificates, which generally are not treated as debt for such purposes, but
rather as representing rights and responsibilities with respect to the taxable
income or loss of the related Series REMIC. The Prospectus Supplement for each
Series of Certificates will indicate whether one or more REMIC elections will be
made for that Series and which of the Certificates of such Series will be
designated as Regular Certificates, and which will be designated as Residual
Certificates.
REMIC Certificates held by a REIT generally will qualify as "real estate
assets" within the meaning of section 856(c)(4)(A) of the Code, and interest on
such Certificates generally will be considered Qualifying REIT Interest, in the
same proportion that the assets of the related Series REMIC would qualify as
real estate assets for REIT purposes. Similarly, REMIC Certificates held by a
Thrift Institution taxed as a "domestic building and loan association" generally
will qualify as a "loan secured by an interest in real property," for purposes
of the qualification requirements of domestic building and loan associations set
forth in section 7701(a)(19) of the Code, in the same proportion that the assets
of the related Series REMIC would so qualify. However, if 95% or more of the
assets of a given Series REMIC constitute real estate assets for REIT purposes,
the REMIC Certificates issued by
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such REMIC will be treated entirely as such assets and 100% of the interest
income derived from such REMIC will be treated as Qualifying REIT Interest.
Similarly, if 95% or more of the assets of a given Series REMIC constitute loans
secured by interests in real property, the REMIC Certificates will be treated
entirely as such assets for purposes of the qualification requirement of
domestic building and loan associations. REMIC Regular and Residual Certificates
held by a financial institution to which Section 585 of the Code applies will be
treated as evidences of indebtedness for purposes of Section 582(c)(1) of the
Code. The Regular Certificates generally will be "qualified mortgages" within
the meaning of Section 860G(a)(3) of the Code with respect to other REMICs.
Regular Certificates held by a financial asset securitization investment trust
(a "FASIT") generally will qualify for treatment as "permitted assets" within
the meaning of Section 860L(c)(1)(G) of the Code. In the case of a Series for
which two or more REMICs will be created, all such Series REMICs will be treated
as a single REMIC for purposes of determining the extent to which the related
Certificates and the income thereon will be treated as qualifying assets and
income for such purposes. However, REMIC Certificates will not qualify as
"Government securities" for either REIT or RIC qualification purposes.
TAX TREATMENT OF REGULAR CERTIFICATES
Payments received by holders of Regular Certificates generally should be
accorded the same tax treatment under the Code as payments received on other
taxable corporate debt instruments. Except as described below for Regular
Certificates issued with original issue discount or acquired with market
discount or premium, interest paid or accrued on a Regular Certificate will be
treated as ordinary income to the Certificateholder and a principal payment on
such Certificate will be treated as a return of capital to the extent that the
Certificateholder's basis in the Certificate is allocable to that payment.
Holders of REMIC Regular or Residual Certificates must report income from such
Certificates under an accrual method of accounting, even if they otherwise would
have used the cash receipts and disbursements method. The Tax Administrator, the
Servicer or the Trustee will report annually to the Service and to
Certificateholders of record with respect to interest paid or accrued and
original issue discount, if any, accrued on the Certificates.
Under temporary Treasury regulations, holders of Regular Certificates
issued by "single-class REMICs" who are individuals, trusts, estates, or
pass-through entities in which such investors hold interests may be required to
recognize certain amounts of income in addition to interest and discount income.
A single-class REMIC, in general, is a REMIC that (i) would be classified as an
investment trust in the absence of a REMIC election or (ii) is substantially
similar to an investment trust. Under the temporary Treasury regulations, each
holder of a regular or residual interest in a single-class REMIC is allocated
(i) a share of the REMIC's "allocable investment expenses" (I.E., expenses
normally allowable under section 212 of the Code, which may include servicing
and administrative fees and insurance premiums) and (ii) a corresponding amount
of additional income. Section 67 of the Code permits an individual, trust or
estate to deduct miscellaneous itemized expenses (including expenses allowable
under section 212 of the Code) only to the extent that such expenses, in the
aggregate, exceed 2% of its adjusted gross income. Consequently, an individual,
trust or estate that holds a regular interest in a single-class REMIC (either
directly or through a pass-through entity) will recognize additional income with
respect to such regular interest to the extent that its share of allocable
investment expenses, when combined with its other miscellaneous itemized
deductions for the taxable year, fails to exceed 2% of its adjusted gross
income. Any such additional income will be treated as interest income. In
addition, Code section 68 provides that the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted gross
income exceeds the applicable amount ($100,000, or $50,000 in the case of a
separate return by a married individual within the meaning of Code section 7703
for taxable year 1991 and adjusted for inflation each year thereafter) will be
reduced by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount, or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year. The amount of such additional taxable income
recognized by holders who are subject to the limitations of either section 67 or
section 68 of the Code may be substantial and may reduce or eliminate the
after-tax yield to such holders of an investment in the Certificates of an
affected Series. Where appropriate, the Prospectus Supplement for a particular
Series will indicate that the holders of Certificates of such Series may be
required to recognize additional income as a result of the application of the
limitations of either section 67 or section 68 of the Code. Non-corporate
holders of Regular Certificates evidencing an interest in a single-class REMIC
also should be aware that miscellaneous itemized deductions, including allocable
investment expenses attributable to such REMIC, are not deductible for purposes
of the alternative minimum tax.
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ORIGINAL ISSUE DISCOUNT
Certain Classes of Regular Certificates may be issued with "original issue
discount" within the meaning of section 1273(a) of the Code. In general, such
original issue discount will equal the difference between the "stated redemption
price at maturity" of the Regular Certificate (generally, its principal amount)
and its issue price. Holders of Regular Certificates as to which there is
original issue discount should be aware that they generally must include
original issue discount in income for federal income tax purposes on an annual
basis under a constant yield accrual method that reflects compounding. In
general, original issue discount is treated as ordinary interest income and must
be included in income in advance of the receipt of the cash to which it relates.
The amount of original issue discount required to be included in the
income of the holder of a Regular Certificate in any taxable year will be
computed in accordance with section 1272(a)(6) of the Code, which provides rules
for the accrual of original issue discount under a constant yield method for
certain debt instruments, such as the Regular Certificates, that are subject to
prepayment by reason of the prepayment of the underlying obligations. Under
section 1272(a)(6), the amount and rate of accrual of original issue discount on
a Regular Certificate generally is calculated based on (i) a single constant
yield to maturity and (ii) the Pricing Prepayment Assumptions. No regulatory
guidance currently exists under Code section 1272(a)(6). Accordingly, until the
Treasury issues guidance to the contrary, the Tax Administrator will, except as
otherwise provided herein, base its computations on Code section 1272(a)(6), the
OID Regulations, and certain other guidance, all as described below. There can
be no assurance, however, that the methodology described below represents the
correct manner of calculating original issue discount on the Regular
Certificates. The Tax Administrator will account for income on certain Regular
Certificates that provide for one or more contingent payments as described
herein under "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- INTEREST
WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES." Prospective purchasers should
be aware that neither the Company, any Servicer, nor the Trustee will make any
representation that the Assets underlying a Series will in fact prepay at a rate
conforming to the Pricing Prepayment Assumptions or at any other rate.
The amount of original issue discount on a Regular Certificate equals the
excess, if any, of the Certificate's "stated redemption price at maturity" over
its "issue price." Under the OID Regulations, a debt instrument's stated
redemption price at maturity is the sum of all payments of principal and
interest provided for on the instrument other than Qualified Stated Interest
(I.E., the sum of its Deemed Principal Payments). Thus, in the case of any
Regular Certificate, the stated redemption price at maturity will equal the
total amount of all Deemed Principal Payments due on that Certificate. Since a
Certificate that is part of an Accretion Class generally will not require
unconditional payments of interest at least annually, the stated redemption
price at maturity of such a Certificate will equal the aggregate of all payments
due, whether designated as principal, accrued interest, or current interest. The
issue price of a Regular Certificate generally will equal the initial price at
which a substantial amount of such Certificates is sold to the public.
Although the OID Regulations contain an aggregation rule (the "Aggregation
Rule"), under which two or more debt instruments issued in connection with the
same transaction (or related transactions in certain circumstances) generally
are treated as a single debt instrument for federal income tax accounting
purposes if issued by a single issuer to a single holder, that Rule does not
apply if the debt instruments are part of an issue (i) a substantial portion of
which is traded on an established market or (ii) a substantial portion of which
is issued for cash (or property traded on an established market) to parties who
are not related to the issuer or holder and who do not purchase other debt
instruments of the same issuer in connection with the same transaction or
related transactions. In most cases, the Aggregation Rule will not apply to
Regular Certificates of different Classes because one or both of the exceptions
to the Aggregation Rule will have been met. Although the Tax Administrator will
apply the Aggregation Rule to all regular interests in a Series REMIC that are
held by another REMIC created with respect to the same Series, it generally will
not apply the Aggregation Rule to Regular Certificates for purposes of reporting
to Certificateholders.
Under a DE MINIMIS rule, a Regular Certificate will be considered to have
no original issue discount if the amount of original issue discount on the
Certificate is less than 0.25% of the Certificate's stated redemption price at
maturity multiplied by the Certificate's WAM. Although no Treasury regulations
have been issued under the relevant provisions of the 1986 Act, it is expected
that the WAM of a Regular Certificate will be computed using the
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Pricing Prepayment Assumptions. The holder of a Regular Certificate will include
DE MINIMIS original issue discount in income on a pro rata basis as stated
principal payments on the Certificate are received or, if earlier, upon
disposition of the Certificate, unless the holder of such Certificate makes the
All OID Election.
Regular Certificates of certain Series may constitute Teaser Certificates.
Under certain circumstances, a Teaser Certificate may be considered to have a DE
MINIMIS amount of original issue discount even though the amount of original
issue discount on such Certificate would be more than DE MINIMIS if determined
as described above. If the stated interest on a Teaser Certificate would be
Qualified Stated Interest but for the fact that during one or more accrual
periods its interest rate is below the rate applicable for the remainder of its
term, the amount of original issue discount on such Certificate that is measured
against the DE MINIMIS amount of original issue discount allowable on the
Certificate is the greater of 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
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take into account all Classes of Certificates that are subject to the
possibility of optional redemption to the extent that they are expected to
remain outstanding as of the optional redemption date, based on the Pricing
Prepayment Assumptions. If, determined on a combined weighted average basis, the
Certificates of such Classes were issued at a premium, the Tax Administrator
will presume that a party entitled to redeem such Certificates will exercise its
option to do so. However, the OID Regulations are unclear as to how the
redemption presumption rules should apply to instruments such as the
Certificates, and there can be no assurance that the Service will agree with the
Tax Administrator's position.
Under the OID Regulations, the holder of a Regular Certificate generally
may make an All OID Election to include in gross income all stated interest,
original issue discount, DE MINIMIS original issue discount, market discount,
and DE MINIMIS market discount that accrues on such Certificate (reduced by any
amortizable premium or acquisition premium on such Certificate) under the
constant yield method used to account for original issue discount. To make an
All OID Election, the holder of the Certificate must attach a statement to its
timely filed federal income tax return for the taxable year in which the holder
acquired the Certificate. The statement must identify the instruments to which
the election applies. An All OID Election is irrevocable unless the holder
obtains the consent of the Service. If an All OID Election is made for a debt
instrument with market discount, the holder is deemed to have made an election
to include in income currently the market discount on all of the holder's other
debt instruments with market discount, as described below under "FEDERAL INCOME
TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAX TREATMENT OF REGULAR CERTIFICATES
- -- MARKET DISCOUNT." In addition, if an All OID Election is made for a debt
instrument with amortizable premium, the holder is deemed to have made an
election to amortize the premium on all of the holder's other debt instruments
with amortizable premium under the constant yield method. SEE "FEDERAL INCOME
TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAX TREATMENT OF REGULAR CERTIFICATES
- -- AMORTIZABLE PREMIUM" BELOW. Certificateholders should be aware that the law
is unclear as to whether an All OID Election is effective for Interest Weighted
Certificates or Non-VRDI Certificates. SEE "FEDERAL INCOME TAX CONSEQUENCES
- --REMIC CERTIFICATES -- TAX TREATMENT OF REGULAR CERTIFICATES -- INTEREST
WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES" BELOW.
A Regular Certificate having original issue discount may be acquired in a
transaction subsequent to its issuance for more than its adjusted issue price.
If the subsequent holder's adjusted basis in such a Regular Certificate,
immediately after its acquisition, exceeds the sum of all Deemed Principal
Payments to be received on the Certificate after the acquisition date, the
Certificate will no longer have original issue discount, and the holder may be
entitled to reduce the amount of interest income recognized on the Certificate
by the amount of amortizable premium. SEE "FEDERAL INCOME TAX CONSEQUENCES
- --REMIC CERTIFICATES -- TAX TREATMENT OF REGULAR CERTIFICATES -- AMORTIZABLE
PREMIUM" BELOW. If the subsequent holder's adjusted basis in the Certificate
immediately after the acquisition exceeds the adjusted issue price of the
Certificate, but is less than or equal to the sum of the Deemed Principal
Payments to be received under the Certificate after the acquisition date, the
amount of original issue discount on the Certificate will be reduced by a
fraction, the numerator of which is the excess of the Certificate's adjusted
basis immediately after its acquisition over the adjusted issue price of the
Certificate and the denominator of which is the excess of the sum of all Deemed
Principal Payments to be received on the Certificate after the acquisition date
over the adjusted issue price of the Certificate. For that purpose, the adjusted
basis of a Regular Certificate generally is reduced by the amount of any
Qualified Stated Interest that is accrued but unpaid as of the acquisition date.
Alternatively, the subsequent purchaser of a Regular Certificate having original
issue discount may make an All OID Election with respect to the Certificate.
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.
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Similarly, if the First Distribution Period with respect to a Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
and the holder of such Certificate receives interest on the first Distribution
Date based on a full accrual period, the effective rate of interest payable on
such Certificate during the First Distribution Period will be higher than the
stated rate of interest on such Certificate, making such Certificate a Rate
Bubble Certificate. A Rate Bubble Certificate that otherwise bears Qualified
Stated Interest would be issued with original issue discount unless the
Pre-Issuance Accrued Interest Rule applies or the amount of original issue
discount on the Certificate is DE MINIMIS. The amount of original issue discount
on a Rate Bubble Certificate attributable to the First Distribution Period would
be the amount by which the interest payment due on the first Distribution Date
exceeds the amount that would have been payable had the effective rate for that
Period been equal to the stated interest rate. However, if a portion of the
initial purchase price of a Rate Bubble Certificate is allocable to Pre-Issuance
Accrued Interest and such Certificate provides for a payment of stated interest
on the first payment date within one year of its issue date that equals or
exceeds the amount of such Pre-Issuance Accrued Interest, the Tax Administrator
will apply the Pre-Issuance Accrued Interest Rule to such Certificate. Under the
Pre-Issuance Accrued Interest Rule, the Tax Administrator will (i) subtract from
the issue price of a Rate Bubble Certificate an amount of Pre-Issuance Accrued
Interest equal to the excess of (a) the amount of stated interest paid on the
Certificate on the first Distribution Date over (b) the portion of such interest
that is economically allocable to the period after the issue date, which
generally should be an amount equal to the stated interest rate on the
Certificate expressed as a daily percentage times the number of days in the
first payment period (I.E., from the issue date to the first payment date) times
the Certificate's initial principal amount and (ii) treat a portion of the
interest received on the first Distribution Date with respect to such
Certificate as a return of the Pre-Issuance Accrued Interest excluded from the
issue price of such Certificate rather than as a payment on the Certificate.
Thus, where the Pre-Issuance Accrued Interest Rule applies, a Rate Bubble
Certificate will not have original issue discount attributable to the First
Distribution Period, provided that the increased effective interest rate for
that Period is attributable solely to Pre-Issuance Accrued Interest, as
typically will be the case. The Tax Administrator will apply the Pre-Issuance
Accrued Interest Rule as described above to each Rate Bubble Certificate for
which it is available if the Certificate's stated interest otherwise would be
Qualified Stated Interest. If, however, the First Distribution Period for a Rate
Bubble Certificate is longer than subsequent Distribution Periods, the
application of the Pre-Issuance Accrued Interest Rule typically will not prevent
disqualification of the Certificate's stated interest because its effective
interest rate during the First Distribution Period will be less than its stated
interest rate. Thus, a Regular Certificate with a long First Distribution Period
typically will be a Teaser Certificate, as discussed above. The Pre-Issuance
Accrued Interest Rule will not apply to any amount paid at issuance for such a
Teaser Certificate that is nominally allocable to interest accrued under the
terms of such Certificate before its issue date. All amounts paid for such a
Teaser Certificate at issuance, regardless of how designated, will be included
in the issue price of such Certificate for federal income tax accounting
purposes.
It is not entirely clear how income should be accrued with respect to
Interest Weighted Certificates. Unless and until the Service provides contrary
administrative guidance on the income tax treatment of an Interest Weighted
Certificate, the Tax Administrator will take the position that an Interest
Weighted Certificate does not bear Qualified Stated Interest, and will account
for the income thereon as described in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- INTEREST WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES"
HEREIN. Some Interest Weighted Certificates may be Superpremium Certificates.
Superpremium Certificates technically are issued with amortizable premium.
However, because of their close similarity to other Interest Weighted
Certificates it appears more appropriate to account for Superpremium
Certificates in the same manner as for other Interest Weighted Certificates.
Consequently, in the absence of further administrative guidance, the Tax
Administrator will account for Superpremium Certificates in the same manner as
other Interest Weighted Certificates. However, there can be no assurance that
the Service will not assert a position contrary to that taken by the Tax
Administrator, and, therefore, holders of Superpremium Certificates should
consider making a protective election to amortize premium on such Certificates.
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.
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VARIABLE RATE CERTIFICATES
Under the OID Regulations, a Variable Rate Certificate will qualify as a
VRDI Certificate only if (i) the Certificate is not issued at an Excess Premium;
(ii) stated interest on the Certificate compounds or is payable unconditionally
at least annually at (a) one or more "qualified floating rates," (b) a single
fixed rate and one or more qualified floating rates, (c) a single "objective
rate," or (d) a single fixed rate and a single objective rate that is a
"qualified inverse floating rate"; and (iii) the qualified floating rate or the
objective rate in effect during an accrual period is set at a current value of
that rate (I.E., the value of the rate on any day occurring during the interval
that begins three months prior to the first day on which that value is in effect
under the Certificate and ends one year following that day). VRDI Certificates
are subject to the rules applicable to VRDIs in the OID Regulations that are
described below.
Under the OID Regulations, a rate is a qualified floating rate if
variations in the rate reasonably can be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the debt
instrument is denominated. A qualified floating rate may measure contemporaneous
variations in borrowing costs for the issuer of the debt instrument or for
issuers in general. A multiple of a qualified floating rate is considered a
qualified floating rate only if the rate is equal to either (a) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (b) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. If a Regular Certificate provides for two or more
qualified floating rates that reasonably can be expected to have approximately
the same values throughout the term of such Certificate, the qualified floating
rates together will constitute a single qualified floating rate. Two or more
qualified floating rates conclusively will be presumed to have approximately the
same values throughout the term of a Certificate if the values of all rates on
the issue date of such Certificate are within 25 basis points of each other.
A variable rate will be considered a qualified floating rate if it is
subject to a Cap, Floor, Governor, or other similar restriction only if: (a) the
Cap, Floor, or Governor is fixed throughout the term of the related Certificate
or (b) the Cap, Floor, Governor, or similar restriction is not reasonably
expected, as of the issue date, to cause the yield on the Certificate to be
significantly less or significantly more than the expected yield on such
Certificate determined without such Cap, Floor, Governor, or similar
restriction, as the case may be. Although the OID Regulations are unclear, it
appears that a VRDI Certificate, the principal rate on which is subject to a
Cap, Floor, or Governor that itself is a qualified floating rate, bears interest
at an objective rate.
An objective rate is a rate (other than a qualified floating rate) that
(i) is determined using a single fixed formula, (ii) is based on objective
financial or economic information, and (iii) is not based on information that
either is within the control of the issuer (or a related party) or is unique to
the circumstances of the issuer (or related party), such as dividends, profits,
or the value of the issuer's (or related party's) stock. That definition would
include, in addition to a rate that is based on one or more qualified floating
rates or on the yield of actively traded personal property, a rate that is based
on changes in a general inflation index. In addition, a rate would not fail to
be an objective rate merely because it is based on the credit quality of the
issuer.
Under the OID Regulations, if interest on a Certificate is stated at a
fixed rate for an initial period of less than one year followed by a variable
rate that is either a qualified floating rate or an objective rate for a
subsequent period, and the value of the variable rate on the issue date is
intended to approximate the fixed rate, the fixed rate and the variable rate
together constitute a single qualified floating rate or objective rate. A
variable rate conclusively will be presumed to approximate an initial fixed rate
if the value of the variable rate on the issue date does not differ from the
value of the fixed rate by more than 25 basis points.
Under the OID Regulations, all interest payable on a Single Rate VRDI
Certificate is treated as Qualified Stated Interest. The amount and accrual of
OID on a Single Rate VRDI Certificate is determined, in general, by converting
such Certificate into a hypothetical fixed rate certificate and applying the
rules applicable to fixed rate certificates described under "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- ORIGINAL ISSUE DISCOUNT" ABOVE to such
hypothetical fixed rate certificate. Qualified Stated Interest or original issue
discount allocable to an accrual period with respect to a Single Rate VRDI
Certificate also must be increased (or decreased) if the interest
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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
providing for a qualified floating rate or rates or a qualified inverse floating
rate is converted to a hypothetical equivalent fixed rate certificate by
assuming that each qualified floating rate or the qualified inverse floating
rate will remain at its value as of the issue date. A Multiple Rate VRDI
Certificate providing for an objective rate or rates is converted to a
hypothetical equivalent fixed rate certificate by assuming that each objective
rate will equal a fixed rate that reflects the yield that reasonably is expected
for such Multiple Rate VRDI Certificate. Qualified Stated Interest or original
issue discount allocable to an accrual period with respect to a Multiple Rate
VRDI Certificate must be increased (or decreased) if the interest actually
accrued or paid during such accrual period exceeds (or is less than) the
interest assumed to be accrued or paid during such accrual period under the
related hypothetical equivalent fixed rate certificate.
Under the OID Regulations, the amount and accrual of OID on a Multiple
Rate VRDI Certificate that provides for stated interest at either one or more
qualified floating rates or at a qualified inverse floating rate and in addition
provides for stated interest at a single fixed rate (other than an initial fixed
rate that is intended to approximate the subsequent variable rate), is
determined using the method described in the preceding paragraph except that
prior to its conversion to a hypothetical equivalent fixed rate certificate,
such Multiple Rate VRDI Certificate is treated as if it provided for a qualified
floating rate (or a qualified inverse floating rate) rather than the fixed rate
during the period in which the fixed rate applies. The qualified floating rate
(or qualified inverse floating rate) replacing the fixed rate must be such that
the fair market value of the Multiple Rate VRDI Certificate as of its issue date
would be approximately the same as the fair market value of an otherwise
identical debt instrument that provides for the qualified floating rate (or
qualified inverse floating rate), rather than the fixed rate.
It is not entirely clear how income should be accrued with respect to
Weighted Average Certificates. Under the OID Regulations, Weighted Average
Certificates relating to a Trust (or a designated Asset Pool thereof) whose
Assets are exclusively Adjustable Rate Assets appear to bear interest at an
objective rate provided the Adjustable Rate Assets themselves bear interest at
qualified floating rates. However, Weighted Average Certificates relating to a
Trust (or a designated Asset Pool thereof) whose Assets do not bear interest at
qualified floating rates (I.E., NOWA Certificates), do not bear interest at an
objective or a qualified floating rate and, consequently, do not qualify as VRDI
Certificates described above. Accordingly, unless and until the Service provides
contrary administrative guidance on the income tax treatment of NOWA
Certificates, the Tax Administrator will treat such Certificates as debt
obligations that provide for one or more contingent payments, and will account
for the income thereon as described in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- INTEREST WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES" BELOW.
Under the OID Regulations, Inverse Floater Certificates generally bear
interest at objective rates because their rates either constitute qualified
inverse floating rates under those Regulations or, although not qualified
floating rates themselves, are based on one or more qualified floating rates.
Consequently, if such Certificates are not issued at an Excess Premium and their
interest rates otherwise meet the test for Qualified Stated Interest, the income
on such Certificates will be accounted for under the rules applicable to VRDI
Certificates described above. However, an Inverse Floater Certificate may have
an interest rate parameter equal to the weighted average of the interest rates
on some or all of the Assets of the related Trust (or designated Asset Pool
thereof) in a case where one or more of the interest rates on such Assets is a
fixed rate or otherwise may not qualify as a VRDI Certificate. Unless and until
the Service provides contrary administrative guidance on the income tax
treatment of such Inverse Floater Certificates, the Tax Administrator will treat
such Certificates as debt obligations that provide for one or more contingent
payments, and will account for the income thereon as described in "FEDERAL
INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- INTEREST WEIGHTED CERTIFICATES
AND NON-VRDI CERTIFICATES" BELOW.
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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 or her own tax advisor to determine the appropriate
amount and method of income inclusion on such Certificates for federal income
tax purposes.
ANTI-ABUSE RULE
Concerned that taxpayers might be able to structure debt instruments or
transactions, or apply the bright-line or mechanical rules of the OID
Regulations, in a way that produces unreasonable tax results, the Treasury
issued regulations containing an anti-abuse rule. These regulations provide that
if a principal purpose in structuring a debt instrument, engaging in a
transaction, or applying the OID Regulations is to achieve a result that is
unreasonable in light of the purposes of the applicable statutes, the Service
can apply or depart from the OID Regulations as necessary or appropriate to
achieve a reasonable result. A result is not considered unreasonable under the
regulations, however, in the absence of a substantial effect on the present
value of a taxpayer's tax liability.
MARKET DISCOUNT
A subsequent purchaser of a Regular Certificate at a discount from its
outstanding principal amount (or, in the case of a Regular Certificate having
original issue discount, its "adjusted issue price") will acquire such
Certificate with market discount. The purchaser generally will be required to
recognize the market discount (in addition to any original issue discount
remaining with respect to the Certificate) as ordinary income. A person who
purchases a Regular Certificate at a price lower than the remaining outstanding
Deemed Principal Payments but higher than its adjusted issue price does not
acquire the Certificate with market discount, but will be required to report
original issue discount, appropriately adjusted to reflect the excess of the
price paid over the adjusted issue price. SEE "FEDERAL INCOME TAX CONSEQUENCES
- -- REMIC CERTIFICATES -- ORIGINAL ISSUE DISCOUNT" ABOVE. A Regular CertificatE
will not be considered to have market discount if the amount of such market
discount is DE MINIMIS, I.E., less than the product of (i) 0.25% of the
remaining principal amount (or, in the case of a Regular
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Certificate having original issue discount, the adjusted issue price of such
Certificate), multiplied by (ii) the WAM of the Certificate remaining after the
date of purchase. Regardless of whether the subsequent purchaser of a Regular
Certificate with more than a DE MINIMIS amount of market discount is a
cash-basis or accrual-basis taxpayer, market discount generally will be taken
into income as principal payments (including, in the case of a Regular
Certificate having original issue discount, any Deemed Principal Payments) are
received, in an amount equal to the lesser of (i) the amount of the principal
payment received or (ii) the amount of market discount that has "accrued" (as
described below), but that has not yet been included in income. The purchaser
may make a Current Recognition Election, which generally will apply to all
market discount instruments held or acquired by the purchaser in the taxable
year of election or thereafter, to recognize market discount currently on an
uncapped accrual basis. The Service has indicated in Revenue Procedure 92-67 the
manner in which a Current Recognition Election may be made. The purchaser also
may make an All OID Election with respect to a Regular Certificate purchased
with market discount. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES
- -- ORIGINAL ISSUE DISCOUNT" ABOVE.
Until the Treasury promulgates applicable regulations, the purchaser of a
Regular Certificate with market discount generally may elect to accrue the
market discount either: (i) on the basis of a constant interest rate; (ii) in
the case of a Regular Certificate not issued with original issue discount, in
the ratio of stated interest payable in the relevant period to the total stated
interest remaining to be paid from the beginning of such period; or (iii) in the
case of a Regular Certificate issued with original issue discount, in the ratio
of original issue discount accrued for the relevant period to the total
remaining original issue discount at the beginning of such period. The Service
indicated in Revenue Procedure 92-67 the manner in which an election may be
made to accrue market discount on a Regular Certificate on the basis of a
constant interest rate. Regardless of which computation method is elected, the
Pricing Prepayment Assumptions must be used to calculate the accrual of market
discount.
A Certificateholder who has acquired any Regular Certificate with market
discount generally will be required to treat a portion of any gain on a sale or
exchange of the Certificate as ordinary income to the extent of the market
discount accrued to the date of disposition under one of the foregoing methods,
less any accrued market discount previously reported as ordinary income as
partial principal payments were received. Moreover, such Certificateholder
generally must defer interest deductions attributable to any indebtedness
incurred or continued to purchase or carry the Certificate to the extent they
exceed income on the Certificate. Any such deferred interest expense, in
general, is allowed as a deduction not later than the year in which the related
market discount income is recognized. If a holder of a Regular Certificate makes
a Current Recognition Election or an All OID Election, the interest deferral
rule will not apply. Under the Contingent Payment Regulations, a secondary
market purchaser of a Non-VRDI Certificate or an Interest Weighted Certificate
at a discount generally would continue to accrue interest and determine
adjustments on such Certificate based on the original projected payment schedule
devised by the issuer of such Certificate. SEE "FEDERAL INCOME TAX CONSEQUENCES
- -- REMIC CERTIFICATES -- ORIGINAL ISSUE DISCOUNT -- INTEREST WEIGHTED
CERTIFICATES AND NON-VRDI CERTIFICATES" HEREIN. The holder of such a Certificate
would be required, however, to allocate the difference between the adjusted
issue price of the Certificate and its basis in the Certificate as positive
adjustments to the accruals or projected payments on the Certificate over the
remaining term of the Certificate in a manner that is reasonable (E.G., based on
a constant yield to maturity).
Treasury regulations implementing the market discount rules have not yet
been issued, and uncertainty exists with respect to many aspects of those rules.
For example, the treatment of a Regular Certificate subject to optional
redemption that is acquired at a market discount is unclear. It appears likely,
however, that the market discount rules applicable in such a case would be
similar to the rules pertaining to original issue discount. Due to the
substantial lack of regulatory guidance with respect to the market discount
rules, it is unclear how those rules will affect any secondary market that
develops for a given Class of Regular Certificates. Prospective investors in
Regular Certificates should consult their own tax advisors regarding the
application of the market discount rules to those certificates.
AMORTIZABLE PREMIUM
A purchaser of a Regular Certificate who purchases the Certificate at a
premium over the total of its Deemed Principal Payments may elect to amortize
such premium under a constant yield method that reflects compounding based on
the interval between payments on the Certificates. The legislative history of
the 1986 Act
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indicates that premium is to be accrued in the same manner as market discount.
Accordingly, it appears that the accrual of premium on a Regular Certificate
will be calculated using the Pricing Prepayment Assumptions. Under Treasury
regulations, amortized premium generally would be treated as an offset to
interest income on a Regular Certificate and not as a separate deduction item.
If a holder makes an election to amortize premium on a Regular Certificate, such
election will apply to all taxable debt instruments (including all REMIC regular
interests) held by the holder at the beginning of the taxable year in which the
election is made, and to all taxable debt instruments acquired thereafter by
such holder, and will be irrevocable without the consent of the Service.
Purchasers who pay a premium for the Regular Certificates should consult their
tax advisors regarding the election to amortize premium and the method to be
employed.
Amortizable premium on a Regular Certificate that is subject to redemption
at the option of the Company generally must be amortized as if the optional
redemption price and date were the Certificate's principal amount and maturity
date if doing so would result in a smaller amount of premium amortization during
the period ending with the optional redemption date. Thus, a Certificateholder
would not be able to amortize any premium on a Regular Certificate that is
subject to optional redemption at a price equal to or greater than the
Certificateholder's acquisition price unless and until the redemption option
expires. In cases where premium must be amortized on the basis of the price and
date of an optional redemption, the Certificate will be treated as having
matured on the redemption date for the redemption price and then having been
reissued on that date for that price. Any premium remaining on the Certificate
at the time of the deemed reissuance will be amortized on the basis of (i) the
original principal amount and maturity date or (ii) the price and date of any
succeeding optional redemption, under the principles described above. Under the
Contingent Payment Regulations, a secondary market purchaser of a Non-VRDI
Certificate or an Interest Weighted Certificate at a premium generally would
continue to accrue interest and determine adjustments on such Certificate based
on the original projected payment schedule devised by the issuer of such
Certificate. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES
- --INTEREST WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES" HEREIN. The holder
of such a Certificate would be required, however, to allocate the difference
between its basis 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.
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GAIN OR LOSS ON DISPOSITION
If a Regular Certificate is sold, the Certificateholder will recognize
gain or loss equal to the difference between the amount realized on the sale and
his adjusted basis in the Certificate. The adjusted basis of a Regular
Certificate generally will equal the cost of the Certificate to the
Certificateholder, increased by any original issue discount or market discount
previously includible in the Certificateholder's gross income with respect to
the Certificate, and reduced by the portion of the basis of the Certificate
allocable to payments on the Certificate (other than Qualified Stated Interest)
previously received by the Certificateholder and by any amortized premium.
Similarly, a Certificateholder who receives a scheduled or prepaid principal
payment with respect to a Regular Certificate will recognize gain or loss equal
to the difference between the amount of the payment and the allocable portion of
his adjusted basis in the Certificate. Except to the extent that the market
discount rules apply and except as provided below, any gain or loss on the sale
or other disposition of a Regular Certificate generally will be capital gain or
loss. Such gain or loss will be long-term gain or loss if the Certificate is
held as a capital asset for the applicable long-term capital gain holding
period.
If the holder of a Regular Certificate is a bank, thrift, or similar
institution described in section 582 of the Code, any gain or loss on the sale
or exchange of such Certificate will be treated as ordinary income or loss. In
the case of other types of holders, gain from the disposition of a Regular
Certificate that otherwise would be capital gain will be treated as ordinary
income to the extent that the amount actually includible in income with respect
to the Certificate by the Certificateholder during his holding period is less
than the amount that would have been includible in income if the yield on that
Certificate during the holding period had been 110% of a specified U.S. Treasury
borrowing rate as of the date that the Certificateholder acquired the
Certificate. Although the legislative history to the 1986 Act indicates that the
portion of the gain from disposition of a Regular Certificate that will be
recharacterized as ordinary income is limited to the amount of original issue
discount (if any) on the Certificate that was not previously includible in
income, the applicable Code provision contains no such limitation.
A portion of any gain from the sale of a Regular Certificate that might
otherwise be capital gain may be treated as ordinary income to the extent that
such Certificate is held as part of a "conversion transaction" within the
meaning of section 1258 of the Code. A conversion transaction generally is one
in which the taxpayer has taken two or more positions in Certificates or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in such transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount of interest that would have accrued on the taxpayer's net investment
at 120% of the appropriate "applicable federal rate" (which rate is computed and
published monthly by the Service) at the time the taxpayer entered into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income from the transaction.
Currently, the highest marginal individual income tax bracket is 39.6%.
The alternative minimum tax rate for individuals is 26% with respect to
alternative minimum tax income up to $175,000 and 28% with respect to
alternative minimum tax income over $175,000. The highest marginal federal tax
rate applicable to individuals with respect to net capital gain on assets held
for One year or less generally is 28%. However, the highest marginal
federal tax rate on net capital gains for individuals generally has been
reduced to 20% for assets held for more than one year, and, for taxable years
beginning after December 31, 2000, will be further reduced for assets held
more than 5 years. accordingly, there can be a significant marginal tax rate
differential between net capital gains and ordinary income for individuals. The
highest marginal corporate tax rate is 35% for corporate taxable income over $10
million, and the marginal tax rate on corporate net capital gains is 35%.
TAX TREATMENT OF RESIDUAL CERTIFICATES
OVERVIEW
A Residual Certificate will represent beneficial ownership of a percentage
of the "residual interest" in the Series REMIC to which it relates, and a
Regular Certificate generally will represent beneficial ownership of a
percentage of a "regular interest" in the Series REMIC to which it relates. A
REMIC is an entity for federal income
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tax purposes consisting of a fixed pool of mortgages (including manufactured
housing installment sales contracts) or other mortgage-backed assets in which
investors hold multiple classes of interests. To be treated as a REMIC, the
Trust (or a segregated Asset Pool thereof) underlying a Series must meet certain
continuing qualification requirements, and a REMIC election must be in effect.
SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- REMIC
QUALIFICATION" BELOW. A REMIC generally is treated as a pass-through entity for
federal income tax purposes, I.E., as not subject to entity-level tax. All
interests in a REMIC other than the residual interest must be regular interests.
As described in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAX
TREATMENT OF REGULAR CERTIFICATES" ABOVE, a regular interest has terms analogous
to those of a debt instrument and generally is treated as a debt instrument for
all federal income tax purposes. The Regular Certificates will generate interest
and, depending upon the issue price of the Regular Certificates, original issue
discount deductions or income attributable to premium for the related Series
REMIC. As a residual interest, a Residual Certificate represents the right to
(i) the stated principal and interest on such Certificate, if any, and (ii) such
Certificate's pro rata share of the income generated by the related Series
REMIC's assets in excess of the amount necessary to service that REMIC's regular
interests and pay that REMIC's expenses.
In a manner similar to that employed in the taxation of partnerships,
REMIC taxable income or loss will be determined at the REMIC level, but passed
through to the Residual Certificateholders. Thus, REMIC taxable income or loss
will be allocated pro rata to the related Residual Certificateholders, and each
such Certificateholder will report his share of REMIC taxable income or loss on
his own federal income tax return. Prospective investors in Residual
Certificates should be aware that the obligation to account for the related
Series REMIC's income or loss will continue until all of that REMIC's Regular
Certificates have been retired, which may not occur until well beyond the date
on which the last payments on Residual Certificates are made. In addition,
because of the way in which REMIC taxable income is calculated, a Residual
Certificateholder may recognize "phantom income" (I.E., income recognized for
tax purposes in excess of income as determined under financial accounting or
economic principles) which will be matched in later years by a corresponding tax
loss or reduction in taxable income, but which could lower the yield to Residual
Certificateholders due to the lower present value of such loss or reduction.
A portion of the income of a Residual Certificateholder may be treated
unfavorably in three contexts: (i) it may not be offset by current or net
operating loss deductions; (ii) it will be considered UBTI to tax-exempt
entities; and (iii) it is ineligible for any statutory or treaty reduction in
the 30% withholding tax otherwise available to a foreign Residual
Certificateholder.
The concepts presented in this overview are discussed more fully below.
TAXATION OF RESIDUAL CERTIFICATEHOLDERS
A Residual Certificateholder will recognize his share of the related
Series REMIC's taxable income or loss for each day during his taxable year on
which he holds the Residual Certificate. The amount so recognized will be
characterized as ordinary income or loss and will not be taxed separately to the
Series REMIC. If a Residual Certificate is transferred during a calendar
quarter, REMIC taxable income or loss for that quarter will be prorated between
the transferor and the transferee on a daily basis.
A REMIC generally determines its taxable income or loss in a manner
similar to that of an individual using a calendar year and the accrual method of
accounting. A REMIC's taxable income or loss generally will be characterized as
ordinary income or loss, and will consist of the REMIC's gross income, including
interest, original issue discount, and market discount income, if any, on the
REMIC's assets (including temporary cash flow investments), premium amortization
on the REMIC's Regular Certificates, income from foreclosure property, and any
cancellation of indebtedness income due to the allocation of realized losses to
the REMIC's Regular Certificates, reduced by the REMIC's deductions, including
deductions for interest and original issue discount expense on the REMIC's
Regular Certificates, premium amortization and servicing fees with respect to
the REMIC's assets, the administrative expenses of the REMIC and the Regular
Certificates, any tax imposed on the REMIC's income from foreclosure property,
and any bad debt deductions with respect to the related Assets. The REMIC may
not take into account any items allocable to a "prohibited transaction." SEE
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- REMIC-LEVEL TAXES"
BELOW. The deduction of REMIC expenses by Residual Certificateholders who
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are individuals is subject to certain limitations as described below in "FEDERAL
INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- SPECIAL CONSIDERATIONS FOR
CERTAIN TYPES OF INVESTORS -- INDIVIDUALS AND PASS-THROUGH ENTITIES" BELOW.
The amount of the REMIC's net loss with respect to a calendar quarter that
may be deducted by a Residual Certificateholder is limited to such
Certificateholder's adjusted basis in the Residual Certificate as of the end of
that quarter (or time of disposition of the Residual Certificate, if earlier),
determined without taking into account the net loss for that quarter. A Residual
Certificateholder's basis in its Residual Certificate initially is equal to the
price paid for such Certificate. Such basis is increased by the amount of
taxable income of the REMIC reportable by the Residual Certificateholder with
respect to the Residual Certificate and decreased (but not below zero) by the
amount of distributions made and the amount of net losses recognized with
respect to that Certificate. The amount of the REMIC's net loss allocable to a
Residual Certificateholder that is disallowed under the basis limitation may be
carried forward indefinitely, but may be used only to offset income with respect
to the related Residual Certificate. The ability of Residual Certificateholders
to deduct net losses with respect to a Residual Certificate may be subject to
additional limitations under the Code, as to which Certificateholders should
consult their tax advisors. A distribution with respect to a Residual
Certificate is treated as a non-taxable return of capital up to the amount of
the Residual Certificateholder's adjusted basis in his Residual Certificate. If
a distribution exceeds the adjusted basis of the Residual Certificate, the
excess is treated as gain from the sale of such Residual Certificate.
Although the law is unclear in certain respects, a Residual
Certificateholder effectively should be able to recover some or all of the basis
in his Residual Certificate as the related REMIC recovers the basis of its
assets through either the amortization of premium on such assets or the
allocation of basis to principal payments received on such assets. A REMIC's
initial aggregate basis in its assets generally will equal the sum of the issue
prices of its Regular Certificates and Residual Certificates. In general, the
issue price of a Regular Certificate of a particular Class is the initial price
at which a substantial amount of the Certificates of such Class is sold to the
public. In the case of a Regular Certificate of a Class not offered to the
public in substantial amounts, the issue price is either the price paid by the
first purchaser of such Certificate or the fair market value of the property
received in exchange for such Certificate, as appropriate. The REMIC's aggregate
basis will be allocated among its assets in proportion to their respective fair
market values.
The assets of certain Series REMICs may have bases that exceed their
principal amounts. Except as indicated in "FEDERAL INCOME TAX CONSEQUENCES
- --REMIC CERTIFICATES -- TREATMENT BY THE REMIC OF ORIGINAL ISSUE DISCOUNT,
MARKET DISCOUNT, AND AMORTIZABLE PREMIUM" BELOW, the premium on such assets will
be amortizable under the constant yield method and the same prepayment
assumptions used in pricing the Certificates. The amortized premium will reduce
the REMIC's taxable income or increase its tax loss for each year, which will
offset a corresponding amount of the stated interest or other residual cash
flow, if any, allocable to the Residual Certificateholders. It should be noted,
however, that the law concerning the amortization of premium on Assets is
unclear in certain respects. If the Service were to contend successfully that
part or all of the premium on the assets underlying a REMIC is not amortizable,
the holders of the Residual Certificates in such REMIC would recover the basis
attributable to the unamortizable premium only as principal payments are
received on such assets or upon the disposition or worthlessness of their
Residual Certificates. The inability to amortize part or all of the premium
could give rise to timing differences between the REMIC's income and deductions,
creating phantom income (as described below).
In the first years after the issuance of the Regular Certificates, REMIC
taxable income may include significant amounts of phantom income. Phantom income
arises from timing differences between income on the underlying Assets and
deductions on the Regular Certificates that result from the multiple-class
structure of the Certificates. Since phantom income will 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.
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The assets of certain Series REMICs may have bases that are less than
their principal amounts. In such a case, a Residual Certificateholder will
recover the basis in his Residual Certificate as the REMIC recovers the portion
of its basis in the assets that is attributable to the residual interest. The
REMIC's basis in the assets is recovered as it is allocated to principal
payments received by the REMIC.
A portion of a Series REMIC's taxable income may be subject to special
treatment. That portion (known as "excess inclusion income") generally is any
taxable income beyond that which the Residual Certificateholder would have
recognized had the Residual Certificate been a conventional debt instrument
bearing interest at 120% of the applicable long-term federal rate (based on
quarterly compounding) as of the date on which the Residual Certificate was
issued. Excess inclusion income generally is intended to approximate phantom
income and may result in unfavorable tax consequences for certain investors. SEE
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAX TREATMENT OF
RESIDUAL CERTIFICATES -- LIMITATIONS ON OFFSET OR EXEMPTION OF REMIC INCOME" AND
" -- SPECIAL CONSIDERATIONS FOR CERTAIN TYPES OF INVESTORS" BELOW.
LIMITATIONS ON OFFSET OR EXEMPTION OF REMIC INCOME
Generally, a Residual Certificateholder's taxable income for any taxable
year may not be less than such Certificateholder's excess inclusion income for
that taxable year. Excess inclusion income is equal to the excess of REMIC
taxable income for the quarterly period for the Residual Certificates over the
product of (i) 120% of the long-term applicable federal rate that would have
applied to the Residual Certificates if they were debt instruments for federal
income tax purposes on the Closing Date and (ii) the adjusted issue price of
such Residual Certificates at the beginning of such quarterly period. For this
purpose, the adjusted issue price of a Residual Certificate at the beginning of
a quarter is the issue price of the Residual Certificate, increased by the
amount of the daily accruals of REMIC income for all prior quarters, and
decreased by any distributions made with respect to such Residual Certificate
prior to the beginning of such quarterly period. If the Residual
Certificateholder is an organization subject to the tax on UBTI imposed by Code
section 511, the Residual Certificateholder's excess inclusion income will be
treated as UBTI. In addition, under Treasury regulations yet to be issued, if a
REIT or a RIC owns a Residual Certificate that generates excess inclusion
income, a pro rata portion of the dividends paid by the REIT or the RIC
generally will constitute excess inclusion income for their shareholders.
Finally, Residual Certificateholders who are foreign persons will not be
entitled to any exemption from the 30% withholding tax or a reduced treaty rate
with respect to their excess inclusion income from the REMIC. SEE "FEDERAL
INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF CERTAIN FOREIGN
HOLDERS OF REMIC CERTIFICATES -- RESIDUAL CERTIFICATES" BELOW.
NON-RECOGNITION OF CERTAIN TRANSFERS FOR FEDERAL INCOME TAX PURPOSES
In addition to the limitations specified above, the REMIC Provisions
provide that the transfer of a "noneconomic residual interest" to a United
States person will be disregarded for tax purposes if a significant purpose of
the transfer was to impede the assessment or collection of tax. A Residual
Certificate will constitute a noneconomic residual interest unless, at the time
the interest is transferred, (i) the present value of the expected future
distributions with respect to the Residual Certificate equals or exceeds the
product of the present value of the anticipated excess inclusion income and the
highest corporate tax rate for the year in which the transfer occurs, and (ii)
the transferor reasonably expects that the transferee will receive distributions
from the REMIC in amounts sufficient to satisfy the taxes on excess inclusion
income as they accrue. If a transfer of a residual interest is disregarded, the
transferor would continue to be treated as the owner of the Residual Certificate
and thus would continue to be subject to tax on its allocable portion of the net
income of the related REMIC. A significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the transfer, either
knew or should have known that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC (I.E., the
transferor had "improper knowledge"). Under the REMIC Provisions, a transferor
is presumed not to have such improper knowledge if (i) the transferor conducted,
at the time of the transfer, a reasonable investigation of the financial
condition of the transferee and, as a result of the investigation, the
transferor found that the transferee had historically paid its debts as they
came due and found no significant evidence to indicate that the transferee would
not continue to pay its debts as they come due and (ii) the transferee
represents to the transferor that it understands that, as 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
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"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF CERTAIN
FOREIGN HOLDERS OF REMIC CERTIFICATES -- RESIDUAL CERTIFICATES" BELOW.
OWNERSHIP OF RESIDUAL INTERESTS BY DISQUALIFIED ORGANIZATIONS
The Code contains three sanctions that are designed to prevent or
discourage the direct or indirect ownership of a REMIC residual interest (such
as a Residual Certificate) by the United States, any state or political
subdivision thereof, any foreign government, any international organization, any
agency or instrumentality of any of the foregoing, any tax-exempt organization
(other than a farmers' cooperative described in section 521 of the Code) unless
such organization is subject to the tax on UBTI, or any rural electrical or
telephone cooperative (each a "Disqualified Organization"). A corporation is not
treated as an instrumentality of the United States or any state or political
subdivision thereof if all of its activities are subject to tax and, with the
exception of FHLMC, a majority of its board of directors is not selected by such
governmental unit.
First, REMIC status is dependent upon the presence of reasonable
arrangements designed to prevent a Disqualified Organization from acquiring
record ownership of any portion of the REMIC's residual interest. No residual
interest issued pursuant to a Pooling and Servicing Agreement (whether or not
such interest is represented by a Residual Certificate) will be offered for sale
to Disqualified Organizations. Furthermore, (i) the residual interest in each
Series REMIC will be registered as to both principal and any stated interest
with the Trustee (or its agent) and transfer of such residual interest (or a
percentage interest therein) may be effected only (A) by surrender of the old
residual interest instrument and reissuance by the Trustee of a new residual
interest instrument to the new holder or (B) through a book-entry system
maintained by the Trustee; (ii) the applicable Pooling and Servicing Agreement
will prohibit the ownership of residual interests by Disqualified Organizations;
and (iii) each residual interest instrument will contain a legend providing
notice of that prohibition. Consequently, each Series REMIC should be considered
to have made reasonable arrangements designed to prevent the ownership of its
residual interest by Disqualified Organizations.
Second, the Code imposes a one-time tax on the transferor of a residual
interest (including a Residual Certificate or an interest therein) to a
Disqualified Organization. The one-time tax equals the product of (i) the
present value of the total anticipated excess inclusions with respect to the
transferred residual interest for periods after the transfer and (ii) the
highest marginal federal income tax rate applicable to corporations. Under the
REMIC Provisions, the anticipated excess inclusions with respect to a
transferred residual interest must be based on (i) both actual prior prepayment
experience and the prepayment assumptions used in pricing the related REMIC's
interests and (ii) any required or permitted clean up calls, or required
qualified liquidation provided for in the REMIC's organizational documents. The
present value of anticipated excess inclusions is determined using a discount
rate equal to the applicable federal rate that would apply to a debt instrument
that was issued on the date the Disqualified Organization acquired the residual
interest and whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the residual interest. Where a
transferee is acting as an agent for a Disqualified Organization, the transferee
is subject to the one-time tax. For that purpose, the term "agent" includes a
broker, nominee, or other middleman. Upon the request of such transferee or the
transferor, the REMIC must furnish to the requesting party and to the Service
information sufficient to permit the computation of the present value of the
anticipated excess inclusions. The transferor of a residual interest (including
a Residual Certificate or interest therein) will not be liable for the one-time
tax if the transferee furnishes to the transferor an affidavit that states,
under penalties of perjury, that the transferee is not a Disqualified
Organization, and, as of the time of the transfer, the transferor does not have
actual knowledge that such affidavit is false. The one-time tax must be paid by
April 15th of the year following the calendar year in which the residual
interest is transferred to a Disqualified Organization. The one-time tax may be
waived by the Secretary of the Treasury if, upon discovery that a transfer is
subject to the one-time tax, the Disqualified Organization promptly disposes of
the residual interest and the transferor pays any amounts that the Secretary of
the Treasury may require.
Third, the Code imposes an annual tax on any pass-through entity (I.E., a
RIC, REIT, common trust fund, partnership, trust, estate or cooperative
described in Code section 1381) that owns a direct or indirect interest in a
residual interest (including a Residual Certificate), if record ownership of an
interest in the pass-through entity is held by one or more Disqualified
Organizations. The tax imposed equals the highest corporate income tax rate
multiplied by the share of any excess inclusion income of the pass-through
entity for the taxable year allocable to
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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.
The REMIC Provisions also require that reasonable arrangements be made
with respect to each REMIC to enable the REMIC to provide the Treasury and the
transferor with information necessary for the application of the one-time tax
described above. Consequently, the applicable Pooling and Servicing Agreement
will provide for the Servicer or an Affiliate thereof to perform such
information services as may be required for the application of the one-time tax.
If a Residual Certificateholder transfers an interest in a Residual Certificate
in violation of the relevant transfer restrictions and triggers the information
requirement, the Servicer or Affiliate thereof may charge such Residual
Certificateholder a reasonable fee for providing the information.
SPECIAL CONSIDERATIONS FOR CERTAIN TYPES OF INVESTORS
DEALERS IN SECURITIES. Residual Certificateholders that are dealers in
securities should be aware that, under Treasury regulations (the "Mark-to-Market
Regulations") relating to the mark-to-market accounting provisions under section
475 of the Code dealers in securities are not permitted to mark to market any
REMIC residual interests acquired on or after January 4, 1995. Prospective
purchasers of Residual Certificates should consult with their tax advisors
regarding the possible application of the Mark-to-Market Regulations to such
Certificates.
TAX-EXEMPT ENTITIES. Any excess inclusion income with respect to a
Residual Certificate held by a tax-exempt entity, including a qualified
profit-sharing, pension, or other employee benefit plan, will be treated as
UBTI. Although the legislative history and statutory provisions imply otherwise,
the Treasury conceivably could take the position that, under pre-existing Code
provisions, substantially all income on a Residual Certificate (including
non-excess inclusion income) is to be treated as UBTI. SEE "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF RESIDUAL CERTIFICATEHOLDERS"
ABOVE.
INDIVIDUALS AND PASS-THROUGH ENTITIES. A Residual Certificateholder who is
an individual, trust, or estate will be permitted to deduct its allocable share
of the fees or expenses relating to servicing the assets of and administering
the related REMIC under section 212 of the Code only to the extent that the
amount of such fees and expenses, when combined with the Residual
Certificateholder's other miscellaneous itemized deductions for the taxable
year, exceeds 2% of that holder's adjusted gross income. That same limitation
will apply to individuals, trusts, or estates that hold Residual Certificates
indirectly through a grantor trust, a partnership, an S corporation, a common
trust fund, a REMIC, or a nonpublicly offered RIC. A nonpublicly offered RIC is
a RIC other than one whose shares are (i) continuously offered pursuant to a
public offering; (ii) regularly traded on an established securities market; or
(iii) held by no fewer than 500 persons at all times during the taxable year. In
addition, that limitation will apply to individuals, trusts, or estates that
hold Residual Certificates through any other person (i) that is not generally
subject to federal income tax and (ii) the character of whose income may affect
the character of the income generated by that person for its owners or
beneficiaries. Further, Code section 68 provides that the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount ($100,000, or $50,000 in the
case of a separate return by a married individual within the meaning of Code
section 7703 for taxable year 1991 and adjusted for inflation each year
thereafter) will be reduced by the lesser of (i) 3% of the excess of adjusted
gross income over the applicable amount, or (ii) 80% of the amount of itemized
deductions otherwise allowable for such taxable year. In some cases, the amount
of additional income that would be recognized as a result of the foregoing
limitations by a Residual Certificateholder who is an individual, trust, or
estate could be substantial. Non-corporate holders of Residual Certificates also
should be aware
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that miscellaneous itemized deductions, including allocable investment expenses
attributable to the related Series REMIC, are not deductible for purposes of the
alternative minimum tax. Finally, persons holding an interest in a Residual
Certificate indirectly through an interest in a RIC, common trust fund or one of
certain corporations doing business as a cooperative generally will recognize a
share of any excess inclusion allocable to that Residual Certificate.
EMPLOYEE BENEFIT PLANS. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- SPECIAL CONSIDERATIONS FOR CERTAIN TYPES OF INVESTORS
- --TAX-EXEMPT ENTITIES" ABOVE AND "ERISA CONSIDERATIONS" BELOW.
REITS AND RICS. If a Residual Certificateholder is a REIT and the related
Series REMIC generates excess inclusion income, a portion of REIT dividends will
be treated as excess inclusion income for the REIT's shareholders, in a manner
to be provided by regulations. Thus, shareholders in a REIT that invests in
Residual Certificates could face unfavorable treatment of a portion of their
REIT dividend income for purposes of (i) using current deductions or net
operating loss carryovers or carrybacks; (ii) UBTI in the case of tax-exempt
shareholders; and (iii) withholding tax in the case of foreign shareholders (SEE
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- SPECIAL CONSIDERATIONS
FOR CERTAIN TYPES OF INVESTORS -- FOREIGN RESIDUAL CERTIFICATEHOLDERS" BELOW).
Moreover, because Residual Certificateholders may recognize phantom income (SEE
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF RESIDUAL
CERTIFICATEHOLDERS" ABOVE), a REIT contemplating an investment in Residual
Certificates should consider carefully the effect of any phantom income upon its
ability to meet its income distribution requirements under the Code. The same
rules regarding excess inclusion will apply to a Residual Certificateholder that
is a RIC, common trust fund, or one of certain corporations doing business as a
cooperative.
A Residual Certificate held by a REIT will be treated as a real estate
asset for purposes of the REIT qualification requirements in the same proportion
that the related Series REMIC's assets would be treated as real estate assets if
held directly by the REIT, and interest income derived from such Residual
Certificate will be treated as Qualifying REIT Interest to the same extent. If
95% or more of a Series REMIC's assets qualify as real estate assets for REIT
purposes, 100% of that REMIC's regular and residual interests (including
Residual Certificates) will be treated as real estate assets for REIT purposes,
and all of the income derived from such interests will be treated as Qualifying
REIT Interest. The REMIC Provisions provide that payments of principal and
interest on Assets that are reinvested pending distribution to the holders of
the REMIC Certificates constitute real estate assets for REIT purposes. Two
REMICs that are part of a tiered structure will be treated as one REMIC for
purposes of determining the percentage of assets of each REMIC that constitutes
real estate assets. It is expected that at least 95% of the assets of each
Series REMIC will be real estate assets throughout such REMIC's life. The amount
treated as a real estate asset in the case of a Residual Certificate apparently
is limited to the REIT's adjusted basis in the Certificate.
Significant uncertainty exists with respect to the treatment of a Residual
Certificate for purposes of the various asset composition requirements
applicable to RICs. A Residual Certificate should be treated as a "security,"
but probably will not be considered a "Government security" for purposes of
section 851(b)(4) of the Code. Moreover, it is unclear whether a Residual
Certificate will be treated as a "voting security" under that Code section.
Finally, because a Series REMIC will be treated as the "issuer" of the Residual
Certificate for purposes of that section, a RIC would be unable to invest more
than 25% of the value of its total assets in Residual Certificates issued by the
same Series REMIC.
FOREIGN RESIDUAL CERTIFICATEHOLDERS. Certain adverse tax consequences may
be associated with the holding of certain Residual Certificates by a foreign
person or with the transfer of such Certificates to or from a foreign person.
SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF
CERTAIN FOREIGN HOLDERS OF REMIC CERTIFICATES -- RESIDUAL CERTIFICATES" BELOW.
THRIFT INSTITUTIONS, BANKS, AND CERTAIN OTHER FINANCIAL INSTITUTIONS.
Residual Certificates will be treated as qualifying assets for Thrift
Institutions in the same proportion that the assets of the Series REMIC to which
they relate would be so treated. However, if 95% or more of the assets of a
given Series REMIC are qualifying assets for Thrift Institutions, 100% of that
REMIC's regular and residual interests (including Residual Certificates) would
be treated as qualifying assets. In addition, the REMIC Provisions provide that
payments of principal and interest on
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Assets included in a REMIC that are reinvested pending their distribution to the
holders of the related REMIC Certificates will be treated as qualifying assets
for Thrift Institutions. Moreover, two REMICs that are part of a tiered
structure will be treated as one REMIC for purposes of determining the
percentage of assets of each REMIC that constitutes qualifying assets for Thrift
Institution purposes. It is expected that at least 95% of the assets of each
Series REMIC will be qualifying assets for Thrift Institutions throughout such
REMIC's life. The amount of a Residual Certificate treated as a qualifying asset
for Thrift Institutions, however, cannot exceed the holder's adjusted basis in
that Residual Certificate.
Generally, gain or loss arising from the sale or exchange of Residual
Certificates held by certain financial institutions will give rise to ordinary
income or loss, regardless of the length of the holding period for the Residual
Certificates. Those financial institutions include banks, mutual savings banks,
cooperative banks, domestic building and loan institutions, savings and loan
institutions, and similar institutions. SEE "FEDERAL INCOME TAX CONSEQUENCES
- --REMIC CERTIFICATES -- TAX TREATMENT OF RESIDUAL CERTIFICATES -- DISPOSITION OF
RESIDUAL CERTIFICATES" BELOW.
DISPOSITION OF RESIDUAL CERTIFICATES
Upon the sale or exchange of a Residual Certificate, a Residual
Certificateholder will recognize gain or loss equal to the difference between
the amount realized and its adjusted basis in the Residual Certificate. It is
possible that a disqualification of a Series REMIC (other than an inadvertent
disqualification for which relief may be provided in Treasury regulations) may
be treated as a sale or exchange of a related Residual Certificate. If the
holder has held the Residual Certificate for the applicable long-term capital
gain holding period, gain or loss on its disposition generally will be
characterized as long-term capital gain or loss. In the case of banks, thrifts,
and certain other financial institutions described in section 582 of the Code,
however, gain or loss on the disposition of a Residual Certificate will be
treated as ordinary gain or loss, regardless of the length of the holding
period. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- SPECIAL
CONSIDERATIONS FOR CERTAIN TYPES OF INVESTORS" HEREIN.
A special version of the wash sale rules of the Code applies to
dispositions of Residual Certificates. Under that rule, losses on dispositions
of Residual Certificates generally will be disallowed where, within six months
before or after the disposition, the seller of such Certificates acquires any
residual interest in a REMIC or any interest in a Taxable Mortgage Pool that is
economically comparable to a Residual Certificate. Treasury Regulations
providing for appropriate exceptions to the application of the wash sale rules
have been authorized, but have not yet been promulgated.
LIQUIDATION OF THE REMIC
A REMIC may liquidate without the imposition of entity-level tax only in a
qualified liquidation. A liquidation is considered a "qualified liquidation" if
the REMIC (i) adopts a plan of complete liquidation; (ii) sells all of its
non-cash assets within 90 days of the date on which it adopts the plan; and
(iii) credits or distributes in liquidation all of the sale proceeds plus its
cash (other than amounts retained to meet claims against it) to its
Certificateholders within that 90-day period. An early termination of a REMIC
caused by the redemption of all outstanding classes of Certificates issued by
such REMIC, and the distribution to the Residual Certificateholders of the
excess, if any, of the fair market value of the REMIC's assets at the time of
such redemption over the unpaid principal balance and accrued and unpaid
interest of such REMIC Certificates (and any administrative costs associated
with such REMIC), will constitute a complete liquidation as described in the
preceding sentence. Under the REMIC Provisions, a plan of liquidation need not
be in any special form. Furthermore, if a REMIC specifies the first day in the
90-day liquidation period in a statement attached to its final tax return, the
REMIC will be considered to have adopted a plan of liquidation on that date.
TREATMENT BY THE REMIC OF ORIGINAL ISSUE DISCOUNT, MARKET DISCOUNT,
AND AMORTIZABLE PREMIUM
ORIGINAL ISSUE DISCOUNT. Generally, a REMIC's deductions for original
issue discount expense on its REMIC Certificates will be determined in the same
manner as for determining the original issue discount income on
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such Certificates as described in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- TAX TREATMENT OF REGULAR CERTIFICATES -- ORIGINAL ISSUE
DISCOUNT" ABOVE, without regard to the DE MINIMIS rule described therein.
MARKET DISCOUNT. In general, a REMIC will have market discount income with
respect to its Qualified Mortgages if the basis of the REMIC in such assets is
exceeded by their adjusted issue prices. A REMIC's aggregate initial basis in
its Qualified Mortgages (and any other assets transferred to the REMIC on the
startup day) equals the aggregate of the issue prices of the regular and
residual interests in the REMIC. That basis is allocated among the REMIC's
Qualified Mortgages based on their relative fair market values. Any market
discount that accrues on a REMIC's Qualified Mortgages will be recognized
currently as an item of REMIC ordinary income. The amount of market discount
income to be recognized in any period is determined in a manner generally
similar to that used in the determination of original issue discount, as if the
Qualified Mortgages had been issued (i) on the date they were acquired by the
REMIC and (ii) for a price equal to the REMIC's initial basis in the Qualified
Mortgages. The same prepayment assumptions used in pricing the Certificates are
used to compute the yield to maturity of a REMIC's Qualified Mortgages.
PREMIUM. Generally, if the basis of a REMIC in its Qualified Mortgages
exceeds the unpaid principal balances of those assets the REMIC will be
considered to have acquired such assets at a premium equal to the amount of such
excess. A REMIC that holds a Qualified Mortgage as a capital asset may elect
under Code section 171 to amortize premium on such asset under a constant
interest method, to the extent such asset was originated, or treated as
originated, after September 27, 1985. The legislative history to the 1986 Act
indicates that, while the deduction for amortization of premium will not be
subject to the limitations on miscellaneous itemized deductions of individuals,
it will be treated as interest expense for purposes of other provisions in the
1986 Act limiting the deductibility of interest for non-corporate taxpayers.
Because substantially all of the obligors on the Assets are expected to be
individuals, section 171 of the Code will not be available for the amortization
of premium on such Assets to the extent they were originated on or prior to
September 27, 1985. Such premium may be amortizable under more general
provisions and principles of federal income tax law in accordance with a
reasonable method regularly employed by the holder of such Assets. The
allocation of such premium pro rata among principal payments should be
considered a reasonable method; however, the Service may argue that such premium
should be allocated in a different manner, such as allocating such premium
entirely to the final payment of principal.
REMIC-LEVEL TAXES
Income from certain transactions by a REMIC, called prohibited
transactions, will not be part of the calculation of the REMIC's income or loss
that is includible in the federal income tax returns of Residual
Certificateholders, but rather will be taxed directly to the REMIC at a 100%
rate. In addition, net income from one prohibited transaction may not be offset
by losses from other prohibited transactions. Prohibited transactions generally
include: (i) the disposition of Qualified Mortgages other than pursuant to (a)
the repurchase of a defective asset, (b) the substitution for a defective asset
within two years of the closing date, (c) a substitution for any Qualified
Mortgage within three months of the closing date, (d) the foreclosure, default,
or imminent default of a Qualified Mortgage, (e) the bankruptcy or insolvency of
the REMIC, (f) the sale of an adjustable-rate asset the interest rate on which
is convertible to a fixed rate of interest upon its conversion for an amount
equal to the asset's current principal balance plus accrued but unpaid interest
(and provided that certain other requirements are met) or (g) a qualified
liquidation of the REMIC; (ii) the receipt of income from assets that are not
the type of assets or investments that a REMIC is permitted to hold; (iii) the
receipt of compensation for services by a REMIC; and (iv) the receipt of gain
from disposition of cash-flow investments other than pursuant to a qualified
liquidation of the REMIC. A disposition of a Qualified Mortgage or cash flow
investment will not give rise to a prohibited transaction, however, if the
disposition was (i) required to prevent default on a regular interest resulting
from a default on one or more of the REMIC's Qualified Mortgages or (ii) made to
facilitate a clean-up call. The REMIC Provisions define a clean-up call as the
redemption of a class of regular interests when, by reason of prior payments
with respect to those interests, the administrative costs associated with
servicing the class outweigh the benefits of maintaining the class. Under those
regulations, the redemption of a class of regular interests with an outstanding
principal balance of no more than 10% of the original principal balance
qualifies as a clean-up call. The REMIC Provisions also provide that the
modification of an asset generally will not be treated as a disposition of that
asset if it is occasioned by a default or a reasonably foreseeable default, an
assumption of the asset, the waiver of a due-on-
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sale or encumbrance clause, or the conversion of an interest rate by an obligor
pursuant to the terms of a convertible adjustable rate asset.
In addition, a REMIC generally will be taxed at a 100% rate on any
contribution to the REMIC after the closing date unless such contribution is a
cash contribution that (i) takes place within the three-month period beginning
on the closing date; (ii) is made to facilitate a clean-up call (as defined in
the preceding paragraph) or a qualified liquidation (as defined in "FEDERAL
INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- LIQUIDATION OF THE REMIC"
ABOVE); (iii) is a payment in the nature of a guarantee; (iv) constitutes a
contribution by the holder of the Residual Certificates in the REMIC to a
qualified reserve fund; or (v) is otherwise permitted by Treasury regulations
yet to be issued. The structure and operation of each Series REMIC will be
designed to avoid the imposition of the 100% tax on contributions.
To the extent that a REMIC derives certain types of income from
foreclosure property (generally, income relating to dealer activities of the
REMIC), it will be taxed on such income at the highest corporate income tax
rate. Although the relevant law is unclear, it is not anticipated that any
Series REMIC will receive significant amounts of such income.
The organizational documents governing the Regular and Residual
Certificates of a Series REMIC will be designed to prevent the imposition of the
foregoing taxes on such REMIC in any material amounts. If any of the foregoing
taxes is imposed on a Series REMIC, the Trustee will seek to place the burden
thereof on the person whose action or inaction gave rise to such taxes. To the
extent that the Trustee is unsuccessful in doing so, the burden of such taxes
will be borne by any outstanding subordinated Class of Certificates before it is
borne by a more senior Class of Certificates.
REMIC QUALIFICATION
The Trust underlying a Series (or one or more designated Asset Pools
thereof) will qualify under the Code as a REMIC if a REMIC election is in effect
and certain tests concerning (i) the composition of the assets of the REMIC and
(ii) the nature of the Certificateholders' interests in the REMIC are met on a
continuing basis.
ASSET COMPOSITION
In order for a Trust (or one or more designated Asset Pools thereof) to be
eligible for REMIC status, substantially all of the assets of the Trust (or the
designated Asset Pool) must consist of "qualified mortgages" and "permitted
investments" as of the close of the third month beginning after the closing date
and at all times thereafter. Substantially all of a REMIC's assets will be
deemed to consist of "Qualified Mortgages" and "permitted investments" if no
more than a DE MINIMIS amount of its assets (I.E., assets with an aggregate
adjusted basis that is less than 1% of the aggregate adjusted basis of all the
REMIC's assets) are assets other than qualified mortgages and permitted
investments.
A "Qualified Mortgage" is any obligation that is principally secured by an
interest in real property, including a regular interest in another REMIC, and
that is either transferred to the REMIC on the closing date or purchased by the
REMIC pursuant to a fixed price contract within a three-month period thereafter.
Under the REMIC Provisions, a Qualified Mortgage includes any obligation secured
by manufactured housing that qualifies as a "single family residence" within the
meaning of Code section 25(e)(10). Manufactured housing qualifies as a "single
family residence" under Code Section 25(e)(10) if it: (i) is used as a single
family residence; (ii) has a minimum of 400 square feet of living space and a
minimum width in excess of 102 inches; and (iii) is of a kind customarily used
at a fixed location. A Qualified Mortgage also includes a "qualified replacement
mortgage," which is any property that would have been treated as a Qualified
Mortgage if it were transferred to the REMIC on the closing date and that is
received either in exchange for a defective asset within a two-year period
beginning on the closing date or in exchange for any Qualified Mortgage within a
three-month period beginning on that date.
The Mortgage Loans of each Series REMIC will be treated as Qualified
Mortgages. In addition, the Seller will represent and warrant in the related
Pooling and Servicing Agreement or Sales Agreement, as the case may be,
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that each Contract will be secured by a Manufactured Home that meets the
definition of "single family residence" in section 25(e)(10) of the Code.
Accordingly the Contracts of each Series REMIC will be treated as Qualified
Mortgages.
"Permitted Investments" include cash flow investments, qualified reserve
assets, and foreclosure property. Cash flow investments are investments of
amounts received with respect to Qualified Mortgages for a temporary period (not
to exceed thirteen months) before distribution to holders of regular or residual
interests in the REMIC. Qualified reserve assets are intangible investment
assets (other than REMIC residual interests) that are part of a qualified
reserve fund maintained by the REMIC. A qualified reserve fund is any reasonably
required reserve maintained by a REMIC to provide for full payment of expenses
of the REMIC or amounts due on the regular interests or residual interest in
such REMIC in the event of (i) defaults or delinquencies on the Qualified
Mortgages held by such REMIC; (ii) interest shortfalls on such Qualified
Mortgages caused by prepayments of those assets; (iii) lower than expected
returns on cash-flow investments; or (iv) unanticipated losses or expenses
incurred by the REMIC. A qualified reserve fund will be disqualified if more
than 30% of the gross income from the assets in such fund for the year is
derived from the sale of property held for less than three months, unless such
sale was required to prevent a default on the regular interests caused by a
default on one or more Qualified Mortgages. To the extent that the amount in a
qualified reserve fund exceeds a reasonably required amount, it must be reduced
"promptly and appropriately." Foreclosure property generally is property
acquired by the REMIC in connection with the default or imminent default of a
Qualified Mortgage. Foreclosure property may not be held for more than three
taxable years after the close of the taxable year of acquisition unless it is
established to the satisfaction of the Secretary of the Treasury that an
extension of such period is necessary for the orderly liquidation of the
foreclosure property. The Secretary of the Treasury may grant one or more
extensions, but any such extension shall not extend the grace period beyond the
date which is six years after the date such foreclosure property is acquired.
INVESTORS' INTERESTS
In addition to the foregoing asset qualification requirements, the various
interests in a REMIC also must meet certain requirements. All of the interests
in a REMIC must be issued on the Closing Date (or within a specified 10-day
period) and belong to either of the following: (i) one or more classes of
regular interests; or (ii) a single class of residual interests on which
distributions are made pro rata. For each Series REMIC with respect to which
REMIC Certificates are issued, the Regular Certificates will constitute one or
more classes of "regular interests" in that REMIC and the Residual Certificates
will constitute the single class of "residual interests" in that REMIC.
A REMIC interest qualifies as a regular interest if (i) it is issued on
the startup day with fixed terms; (ii) it is designated as a regular interest;
(iii) it entitles its holder to a specified principal amount; and (iv) if it
pays interest, such interest either (a) constitutes a specified portion of the
interest payable on one or more of the REMIC's Qualified Mortgages, and that
portion does not vary during the period that the regular interest is outstanding
(a "specified nonvarying portion"), (b) is payable at a fixed rate with respect
to the principal amount of the regular interest, or (c) to the extent permitted
under the REMIC Provisions, is payable at a variable rate with respect to such
principal amount. Pursuant to the REMIC Provisions, the following rates are
permissible variable rates for REMIC regular interests: (i) a qualified floating
rate set at a current value as described in "FEDERAL INCOME TAX CONSEQUENCES
- --REMIC CERTIFICATES -- VARIABLE RATE CERTIFICATES" ABOVE, without regard to the
rules in the OID Regulations limiting the use of Caps, Floors, and Governors
with respect to such a rate; (ii) a rate equal to the highest, lowest, or
average of two or more qualified floating rates (E.G., a rate based on the
average cost of funds of one or more financial institutions); or (iii) a rate
equal to the weighted average of the interest rates on one or more of the
Qualified Mortgages held by the REMIC provided, however, that the Qualified
Mortgages taken into account in determining the weighted average rate bear
interest at a fixed rate or a rate that would be a permissible variable rate for
a REMIC regular interest as described in this sentence. Under the REMIC
Provisions, the presence of a ceiling or floor on the interest payable on a
variable rate regular interest will not prevent such an interest from qualifying
as a regular interest. In addition, a qualifying variable rate may be expressed
as a multiple of, or a constant number of basis points more or less than, one of
the permissible types of variable rates described above. Finally, a limitation
on the amount of interest to be paid on a variable rate regular interest based
on the total amount available for distribution is permissible, provided that it
is not designed to avoid the restrictions on qualifying variable rates. The
REMIC Provisions also provide that the specified principal amount of a REMIC
regular interest may be zero if the interest associated with such regular
interest constitutes a specified nonvarying portion of the interest on one or
more of the REMIC's Qualified Mortgages.
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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,
interest payments (or similar amounts) are considered disproportionately high if
the issue price of a regular interest exceeds 125% of its specified principal
amount. Under the REMIC Provisions, however, interest payable at a
disproportionately high rate will not cause a regular interest to be
recharacterized as a residual interest if the interest payable on that regular
interest consists of a specified nonvarying portion of the interest payable on
one or more of the REMIC's Qualified Mortgages. None of the Regular Certificates
will have an issue price that exceeds 125% of their respective specified
principal amounts unless the interest payable on those Certificates consists of
a specified nonvarying portion of the interest payable on one or more of the
REMIC's Qualified Mortgages.
The Code requires certain arrangements to be made with respect to all
REMICs. Those arrangements, which are intended to prevent acquisitions of REMIC
residual interests (including the Residual Certificates) by certain
organizations that are not subject to federal income tax, are described in
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAX TREATMENT OF
RESIDUAL CERTIFICATES -- OWNERSHIP OF RESIDUAL INTERESTS BY DISQUALIFIED
ORGANIZATIONS" ABOVE. Each Series REMIC will be structured to provide for such
arrangements.
CONSEQUENCES OF DISQUALIFICATION
If a Series REMIC fails to comply with one or more of the Code's ongoing
requirements for REMIC status during any taxable year, the Code provides that
its REMIC status may be lost for that year and thereafter. If REMIC status is
lost, the treatment of the former REMIC and the interests therein for federal
income tax purposes is uncertain. The former REMIC might be entitled to
treatment as a grantor trust under Subpart E, Part 1 of Subchapter J of the
Code, in which case no entity- level tax would be imposed on the former REMIC.
Alternatively, the Regular Certificates may continue to be treated as debt
instruments for federal income tax purposes, but the arrangement could be
treated as a Taxable Mortgage Pool. SEE "FEDERAL INCOME TAX CONSEQUENCES --REMIC
CERTIFICATES -- TAXABLE MORTGAGE POOLS" ABOVE. If a Series REMIC is treated as a
Taxable Mortgage Pool, any residual income of the former REMIC (i.e., interest
and discount income from the underlying Assets less interest and original issue
discount expense allocable to the Regular Certificates and any administrative
expenses of the REMIC) would be subject to corporate income tax at the Taxable
Mortgage Pool level. On the other hand, the arrangement could be treated under
Treasury regulations as a separate association taxable as a corporation and the
Regular Certificates could be treated as stock interests therein, rather than
debt instruments. In the latter two cases, Residual Certificates would be
treated as stock interests in such Taxable Mortgage Pool or association,
respectively. The Code authorizes the Treasury to issue regulations that address
situations where a failure to meet the requirements for REMIC status occurs
inadvertently and in good faith. Such regulations have not yet been issued. The
conference report accompanying the 1986 Act indicates that disqualification
relief may be accompanied by sanctions, such as the imposition of a corporate
tax on all or a portion of the REMIC's income for the period of time in which
the requirements for REMIC status are not satisfied.
TAXABLE MORTGAGE POOLS
Corporate income tax can be imposed on the net income of certain entities
issuing non-REMIC debt obligations secured by real estate mortgages ("Taxable
Mortgage Pools"). Any entity other than a REMIC or a REIT will be considered a
Taxable Mortgage Pool if (i) substantially all of the assets of the entity
consist of debt obligations and more than 50% of such obligations consist of
"real estate mortgages" (which term, for purposes of this paragraph, includes
Mortgage Loans and Contracts), (ii) such entity is the obligor under debt
obligations with two or more maturities, and (iii) under the terms of the debt
obligations on which the entity is the obligor, payments on such obligations
bear a relationship to payment on the obligations held by the entity.
Furthermore, a group of assets held by an entity can be treated as a separate
Taxable Mortgage Pool if the assets are expected to produce significant cash
flow that will support one or more of the entity's issues of debt obligations.
The Company generally will structure offerings of non-REMIC Certificates to
avoid the application of the Taxable Mortgage Pool rules.
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TAXATION OF CERTAIN FOREIGN HOLDERS OF REMIC CERTIFICATES
REGULAR CERTIFICATES
Interest, including original issue discount, paid on a Regular Certificate
to a Foreign Person generally will be treated as "portfolio interest" and,
therefore, will not be subject to any United States withholding tax, provided
that (i) such interest is not effectively connected with a trade or business in
the United States of the Certificateholder, and (ii) the Trustee (or other
person who would otherwise be required to withhold tax) is provided with a
Foreign Person Certification. If the holder of a Regular Certificate does not
provide the Trustee (or other person who would otherwise be required to withhold
tax) with a Foreign Person Certification, interest (including original issue
discount) paid on such a Certificate may be subject to either a 30% withholding
tax or 31% backup withholding. SEE "FEDERAL INCOME TAX CONSEQUENCES -- TAXATION
OF CERTAIN FOREIGN HOLDERS OF REMIC CERTIFICATES -- BACKUP WITHHOLDING" BELOW.
RESIDUAL CERTIFICATES
Amounts paid to Residual Certificateholders who are Foreign Persons are
treated as interest for purposes of the 30% (or lower treaty rate) United States
withholding tax. Under temporary Treasury Regulations, non-excess inclusion
income received by Residual Certificateholders who are Foreign Persons generally
would qualify as "portfolio interest" exempt from the 30% withholding tax (as
described in the preceding paragraph) only to the extent that (i) the Assets
held by the related Series REMIC were issued in registered form and (ii) such
Assets were originated after July 18, 1984. Because the Assets held by a Series
REMIC will not be issued in registered form, amounts received by Residual
Certificateholders who are Foreign Persons will not be exempt from the 30%
withholding tax. Such amounts generally will be subject to United States
withholding tax when paid or otherwise distributed (or when the Residual
Certificate is disposed of) under rules similar to those for withholding on debt
instruments that have original issue discount. However, the Code grants the
Treasury authority to issue regulations requiring that those amounts be taken
into account earlier than otherwise provided where necessary to prevent
avoidance of tax (I.E., where the Residual Certificates, as a Class, do not have
significant value). Further, a Residual Certificateholder will not be entitled
to any exemption from the 30% withholding tax or a reduced treaty rate on excess
inclusion income.
Under the REMIC Provisions, the transfer of a Residual Certificate that
has tax avoidance potential to a Foreign Person will be disregarded for all
federal income tax purposes. A Residual Certificate is deemed to have "tax
avoidance potential" under those regulations unless, at the time of the
transfer, the transferor reasonably expects that, for each accrual of excess
inclusion, the REMIC will distribute to the transferee an amount that will equal
at least 30% of the excess inclusion, and that each such amount will be
distributed no later than the close of the calendar year following the calendar
year of accrual. A transferor of a Residual Certificate to a Foreign Person will
be presumed to have had a reasonable expectation at the time of the transfer
that, for each accrual of excess inclusion, the REMIC will distribute to the
transferee an amount that will equal at least 30% of the excess inclusion, and
that each such amount will be distributed no later than the close of the
calendar year following the calendar year of accrual, if such distributions
would be made under all Asset prepayment rates between 50% and 200% of the
Pricing Prepayment Assumption. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- TAX TREATMENT OF REGULAR CERTIFICATES -- ORIGINAL ISSUE
DISCOUNT" ABOVE. If a Foreign Person transfers a Residual Certificate to a
United States person and the transfer, if respected, would permit avoidance of
withholding tax on accrued excess inclusion income, that transfer also will be
disregarded for federal income tax purposes and distributions with respect to
the Residual Certificate will continue to be subject to 30% withholding as
though the Foreign Person still owned the Residual Certificate. Investors who
are Foreign Persons should consult their own tax advisors regarding the specific
tax consequences to them of owning and disposing of a Residual Certificate.
Effective January 1, 2000, any foreign investor that seeks the protection of an
income tax treaty with respect to the imposition of United States withholding
tax generally will be required to obtain a taxpayer identification number from
the Service in advance and provide verification that such investor is entitled
to the protection of the relevant income tax treaty. Foreign tax-exempt
investors generally will be required to provide verification of their tax-exempt
status. Foreign investors are urged to consult with their tax advisors with
respect to those new withholding rules.
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BACKUP WITHHOLDING
Under federal income tax law, a Certificateholder may be subject to
"backup withholding" under certain circumstances. Backup withholding applies to
a Certificateholder who is a United States person if the Certificateholder,
among other things, (i) fails to furnish his social security number or other
taxpayer identification number to the Trustee; (ii) furnishes the Trustee an
incorrect taxpayer identification number; (iii) fails to report properly
interest and dividends; or (iv) under certain circumstances, fails to provide
the Trustee or the Certificateholder's securities broker with a certified
statement, signed under penalties of perjury, that the taxpayer identification
number provided to the Trustee is correct and that the Certificateholder is not
subject to backup withholding. Backup withholding applies, under certain
circumstances, to a Certificateholder who is a foreign person if the
Certificateholder fails to provide the Trustee or the Certificateholder's
securities broker with a Foreign Person Certification (as described in "FEDERAL
INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- TAXATION OF CERTAIN FOREIGN
HOLDERS OF REMIC CERTIFICATES -- REGULAR CERTIFICATES" ABOVE). Backup
withholding applies to "reportable payments," which include interest payments
and principal payments to the extent of accrued original issue discount, as well
as distributions of proceeds from the sale of Regular Certificates or REMIC
Residual Certificates. The backup withholding rate for reportable payments made
on or after January 1, 1993 is 31%. Backup withholding, however, does not apply
to payments on Certificates made to certain exempt recipients, such as
tax-exempt organizations, and to certain Foreign Persons. Certificateholders
should consult their tax advisors for additional information concerning the
potential application of backup withholding to payments received by them with
respect to a Certificate.
REPORTING AND TAX ADMINISTRATION
REGULAR CERTIFICATES
Reports will be made at least annually to holders of record of Regular
Certificates (other than those with respect to whom reporting is not required)
and to the Service as may be required by statute, regulation, or administrative
ruling with respect to (i) interest paid or accrued on the Certificates; (ii)
original issue discount, if any, accrued on the Certificates; and (iii)
information necessary to compute the accrual of any market discount or the
amortization of any premium on the Certificates.
RESIDUAL CERTIFICATES
For purposes of federal income tax reporting and administration, a Series
REMIC generally will be treated as a partnership, and the related Residual
Certificateholders as its partners. A Series REMIC will file an annual return on
Form 1066 and will be responsible for providing information to Residual
Certificateholders sufficient to enable them to report properly their shares of
the REMIC's taxable income or loss, although it is anticipated that such
information actually will be supplied by the Trustee based upon information it
receives from the Servicer in its monthly reports delivered pursuant to the
Agreement. The REMIC Provisions require reports to be made by a REMIC to its
Residual Certificateholders each calendar quarter in order to permit such
Certificateholders to compute their taxable income accurately. A person that
holds a Residual Certificate as a nominee for another person is required to
furnish those quarterly reports to the person for whom it is a nominee within 30
days of receiving such reports. A REMIC is required to file all such quarterly
reports for a taxable year with the Service as an attachment to the REMIC's
income tax return for that year. As required by the Code, a Series REMIC's
taxable year will be the calendar year.
Residual Certificateholders should be aware that their responsibilities as
holders of the residual interest in a REMIC, including the duty to account for
their shares of the REMIC's income or loss on their returns, continue for the
life of the REMIC, even after the principal and interest on their Residual
Certificates have been paid in full.
The Treasury has issued temporary and final regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMIC's tax matters person or TMP.
The TMP generally has responsibility for overseeing and providing notice to the
other Residual Certificateholders of certain administrative and judicial
proceedings regarding the REMIC's tax affairs,
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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.
NON-REMIC CERTIFICATES
TREATMENT OF THE TRUST FOR FEDERAL INCOME TAX PURPOSES
In the case of Series with respect to which a REMIC election is not made,
the Trust will be classified as a grantor trust under Subpart E, Part I of
subchapter J of the Code and not as an association taxable as a corporation.
Thus, the owner of a Non-REMIC Certificate issued by such a Trust generally will
be treated as the beneficial owner of an appropriate portion of the principal
and interest payments (according to the characteristics of the Certificate in
question) to be received on the Assets assigned to a Trust for federal income
tax purposes.
TREATMENT OF THE NON-REMIC CERTIFICATES FOR FEDERAL INCOME TAX PURPOSES
GENERALLY
The types of Non-REMIC Certificates offered in a Series may include: (i)
Strip Certificates (I.E., IO Certificates, PO Certificates, and Ratio
Certificates) and (ii) Participation Certificates. The federal income tax
treatment of Strip Certificates will be determined in part by section 1286 of
the Code. Little administrative guidance has been issued under that section and,
thus, many aspects of its operation are unclear, particularly the interaction
between that section and the rules pertaining to discount and premium. Hence,
significant uncertainty exists with respect to the federal income tax treatment
of Strip Certificates, and potential investors should consult their own tax
advisors concerning such treatment.
Several Code sections provide beneficial treatment to certain taxpayers
that invest in certain types of mortgage assets. For purposes of those Code
sections, Participation Certificates will be characterized with reference to the
Assets in the related Trust, but it is not clear whether Strip Certificates will
be so characterized. The Service could take the position that the character of
the Assets is not attributable to Strip Certificates for purposes of those Code
sections. However, because Strip Certificates represent sole ownership rights in
the principal and interest payments on the Assets, Strip Certificates, like
Participation Certificates, should be characterized with reference to the Assets
in the Trust. Accordingly, all Non-REMIC Certificates should be treated as
qualifying assets for Thrift Institutions, and as real estate assets for REITs
in the same proportion that the Assets in the Trust would be so treated.
Similarly, the interest income attributable to Non-REMIC Certificates should be
considered Qualifying REIT Interest for REIT purposes to the extent that the
Assets in the Trust qualify as real estate assets for REIT purposes.
One or more Classes of Non-REMIC Certificates may be subordinated to one
or more other Classes of Non-REMIC Certificates of the same Series. In general,
such subordination should not affect the federal income tax treatment of either
the subordinated Non-REMIC Certificates or the senior Non-REMIC Certificates.
However, to the extent indicated in "DESCRIPTION OF THE CERTIFICATES
- --ALLOCATION OF DISTRIBUTIONS FROM THE ASSETS" HEREIN and to the extent provided
in the relevant Prospectus Supplement, holders of such subordinated Certificates
will be
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allocated losses prior to their allocation to the holders of more senior Classes
of Certificates. Holders of such subordinated Certificates should be able to
recognize any such losses no later than the taxable year in which they become
Realized Losses. Employee benefit plans subject to ERISA should consult their
own tax advisors before purchasing any subordinated Certificates. SEE "ERISA
CONSIDERATIONS" HEREIN AND IN THE PROSPECTUS SUPPLEMENT.
TREATMENT OF PARTICIPATION CERTIFICATES
The holder of a Participation Certificate issued by a Trust generally will
be treated as owning a pro rata undivided interest in each of the Assets held by
such Trust. Accordingly, each holder of a Participation Certificate will be
required to include in income its pro rata share of the entire income from the
Trust's assets, including interest and discount income, if any. Such
Certificateholder generally will be able to deduct from its income its pro rata
share of the administrative fees and expenses incurred with respect to the
Trust's assets (provided that such fees and expenses represent reasonable
compensation for the services rendered). An individual, trust, or estate that
holds a Participation Certificate directly or through a pass-through entity will
be entitled to deduct such fees and expenses under section 212 of the Code only
to the extent that the amount of the fees and expenses, when combined with its
other miscellaneous itemized deductions for the taxable year in question,
exceeds 2% of its adjusted gross income. In addition, Code section 68 provides
that the amount of itemized deductions otherwise allowable for the taxable year
for an individual whose adjusted gross income exceeds the applicable amount
($100,000, or $50,000 in the case of a separate return by a married individual
within the meaning of Code section 7703 for taxable year 1991, adjusted each
year thereafter for inflation) will be reduced by the lesser of (i) 3% of the
excess of adjusted gross income over the applicable amount, or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. Each
Participation Certificateholder generally will determine its net income or loss
with respect to the Trust in accordance with its own method of accounting,
although income arising from original issue discount must be taken into account
under the accrual method even though the Certificateholder otherwise would use
the cash receipts and disbursements method.
The Code provisions concerning original issue discount, market discount,
and amortizable premium will apply to the Trust assets. The rules regarding
discount and premium that are applicable to Non-REMIC Certificates generally are
the same as those that apply to REMIC Regular Certificates. SEE THE DISCUSSIONS
UNDER "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- ORIGINAL ISSUE
DISCOUNT," " -- VARIABLE RATE CERTIFICATES," " -- MARKET DISCOUNT," AND "
- --AMORTIZABLE PREMIUM" ABOVE.
For instruments to which it applies, Code section 1272(a)(6) requires the
use of an income tax accounting methodology that utilizes (i) a single constant
yield to maturity and (ii) the Pricing Prepayment Assumptions. Unlike in the
case of Regular Certificates, Code section 1272(a)(6) technically does not apply
to Non-REMIC Certificates. Although the Treasury has authority to apply that
section to certificates such as the Non-REMIC Certificates, it has not yet done
so. Nonetheless, unless and until the release of administrative guidance to the
contrary, the Tax Administrator will account for the Non-REMIC Certificates as
though section 1272(a)(6) applied to them. Thus, the Tax Administrator will
account for a class of Non-REMIC Certificates in the same manner as it would
account for a class of Regular Certificates with the same terms. There can be no
assurance, however, that the Service ultimately will sanction the Tax
Administrator's position.
The original issue discount rules generally apply to residential mortgage
loans originated after March 2, 1984, and the market discount rules apply to any
such loans originated after July 18, 1984. The rules allowing for the
amortization of premium are available with respect to mortgage loans originated
after September 27, 1985. It is anticipated that most or all of the Assets
securing any Series will be subject to the original issue discount, market
discount, and amortizable premium rules. Although most Mortgage Loans and
Contracts nominally are issued at their original principal amounts, original
issue discount could arise from the payment of points or certain other
origination charges by the Obligors if the discount attributable to such
payments exceeds the DE MINIMIS amount. If the Trust contains Assets purchased
for prices below their outstanding principal amounts, holders of Participation
Certificates will be required to take into account original issue discount not
previously accrued to the prior holder of such Assets. Moreover, if such Assets
were purchased for less than their adjusted issue prices, Participation
Certificateholders generally will be required to take into account market
discount, unless the amount of such market discount is DE MINIMIS under the
market discount rules. Finally, Participation Certificateholders generally may
elect to amortize any premium paid for Assets over the aggregate adjusted issue
price of such Assets. For a more
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complete elaboration of the rules pertaining to original issue discount, market
discount, and acquisition premium, see the discussion under "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- TAX TREATMENT OF REGULAR CERTIFICATES"
ABOVE.
TREATMENT OF STRIP CERTIFICATES
Many aspects of the federal income tax treatment of Strip Certificates are
uncertain. The discussion below describes the treatment that the Company
believes is fair and accurate, but there can be no assurance that the Service
will not take a contrary position. Potential investors, therefore, should
consult their own tax advisors with respect to the federal income tax treatment
of Strip Certificates.
Under section 1286 of the Code, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments on such obligation
results in the creation of "stripped coupons" with respect to the separated
rights to interest payments and "stripped bonds" with respect to the principal
and any undetached interest payments associated with that principal. The
issuance of IO or PO Certificates effects a separation of the ownership of the
interest and principal payments on some or all of the Assets in the Trust. In
addition, the issuance of Ratio Certificates effectively separates and
reallocates the proportionate ownership of the interest and principal payments
on the Assets. Therefore, Strip Certificates will be subject to section 1286.
For federal income tax accounting purposes, section 1286 treats a stripped
bond or a stripped coupon as a new debt instrument issued (i) on the date that
the stripped interest is purchased and (ii) at a price equal to its purchase
price or, if more than one stripped interest is purchased, the share of the
purchase price allocable to such stripped interest. Each stripped bond or coupon
generally will have original issue discount equal to the excess of its stated
redemption price at maturity (or, in the case of a stripped coupon, the amount
payable on the due date of such coupon) over its issue price. The Stripping
Regulations, however, provide that the original issue discount on a stripped
bond or stripped coupon is zero if the amount of the original issue discount
would be DE MINIMIS under rules generally applicable to debt instruments. For
purposes of that determination, (i) the number of complete years to maturity is
measured from the date the stripped bond or stripped coupon is purchased; (ii)
an aggregation approach similar to the Aggregation Rule (as described in
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- ORIGINAL ISSUE
DISCOUNT" ABOVE) may be applied; and (iii) unstripped coupons may be treated as
stated interest with respect to the related bonds and, therefore, may be
excluded from stated redemption price at maturity in appropriate circumstances.
In addition, the Stripping Regulations provide that, in certain circumstances,
the excess of a stripped bond's stated redemption price at maturity over its
issue price is treated as market discount, rather than as original issue
discount. SEE "FEDERAL INCOME TAX CONSEQUENCES -- NON-REMIC CERTIFICATES
- --TREATMENT OF STRIP CERTIFICATES -- DETERMINATION OF INCOME WITH RESPECT TO
STRIP CERTIFICATES" BELOW.
The application of section 1286 to the Strip Certificates is not entirely
clear under current law. It could be interpreted as causing: (i) in the case of
an IO Certificate, each interest payment due on the underlying Assets to be
treated as a separate debt instrument; (ii) in the case of a Ratio Certificate
entitled to a disproportionately high share of principal, each excess principal
amount (I.E., the portion of each principal payment on such Assets that exceeds
the amount to which the Ratio Certificateholder would have been entitled if he
had held an undivided interest in the underlying Assets) to be treated as a
separate debt instrument; and (iii) in the case of a Ratio Certificate entitled
to a disproportionately high share of interest, each excess interest amount to
be treated as a separate debt instrument. In addition, section 1286 would
require the purchase price of a Strip Certificate to be allocated among each of
the rights to payment on the underlying Assets to which the Certificateholder is
entitled that are treated as separate debt instruments. Despite the foregoing,
it may be appropriate to treat stripped coupons and stripped bonds issued to the
same holder as a single debt instrument under an aggregation approach, depending
on the facts and circumstances surrounding the issuance. Facts and circumstances
considered relevant for this purpose should include the likelihood of the debt
instruments trading as a unit and the difficulty of allocating the purchase
price of the unit among the individual payments. Strip Certificates are designed
to trade as whole investment units and, to the extent that the Underwriter
develops a secondary market for the Strip Certificates, it anticipates that the
Strip Certificates would trade in such market as whole units. In addition,
because no market exists for individual payments on Assets, the proper
allocation of the Certificate's purchase price to each separate payment on the
Assets in the Trust would be difficult and burdensome to determine. Based on
those facts and circumstances, it appears that all payments of
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principal and interest to which the holder of a Strip Certificate is entitled
should be treated as a single installment obligation. Although the OID
Regulations do not refer directly to debt instruments that are governed by
section 1286 of the Code, the application of the OID Regulations to such
instruments is consistent with the overall statutory and regulatory scheme.
Therefore, the Tax Administrator will treat each Strip Certificate as a single
debt instrument for income tax accounting purposes.
DETERMINATION OF INCOME WITH RESPECT TO STRIP CERTIFICATES
For purposes of determining the amount of income on a Strip Certificate
that accrues in any period, the rules described under "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- ORIGINAL ISSUE DISCOUNT," " -- VARIABLE
RATE CERTIFICATES," " -- ANTI-ABUSE RULE," " -- INTEREST WEIGHTED CERTIFICATES
AND NON-VRDI CERTIFICATES," " -- MARKET DISCOUNT," AND " -- AMORTIZABLE PREMIUM"
wilL apply. PO Certificates and certain Classes of Ratio Certificates will be
issued at a price that is less than their stated principal amount and thus
generally will be issued with original issue discount. A Strip Certificate that
would meet the definition of an Interest Weighted Certificate or a Weighted
Average Certificate if it were a Regular Certificate is subject to the same tax
accounting considerations applicable to the Regular Certificate to which it
corresponds. Thus, as described in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- INTEREST WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES,"
certain aspects of the tax accounting treatment of such a Strip Certificate are
unclear. Unless and until the Service provides administrative guidance to the
contrary, the Tax Administrator will account for such a Strip Certificate in the
manner described for the corresponding Regular Certificate. SEE "FEDERAL INCOME
TAX CONSEQUENCES -- REMIC CERTIFICATES -- INTEREST WEIGHTED CERTIFICATES AND
NON-VRDI CERTIFICATES."
If a PO Certificate or a Ratio Certificate that is not considered a
Contingent Payment Obligation (an "Ordinary Ratio Certificate") subsequently is
sold, the purchaser apparently would be required to treat the difference between
the purchase price and the stated redemption price at maturity as original issue
discount. The holder of such a Certificate generally will be required to include
such original issue discount in income as described in "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- ORIGINAL ISSUE DISCOUNT" ABOVE. PO
Certificates and Ordinary Ratio Certificates issued at a price less than their
stated principal amount will be treated as issued with market discount rather
than with original issue discount if, after the most recent disposition of the
related Certificate, either (i) the amount of original issue discount on the
Certificate is considered to be DE MINIMIS under the Stripping Regulations or
(ii) the annual stated rate of interest payable on the Certificate is no more
than 1% lower than the annual stated rate of interest payable on the Asset from
which the Certificate was stripped. The holders of such Certificates generally
would be required to include market discount in income in the manner described
in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- MARKET DISCOUNT"
ABOVE. Some Classes of Ordinary Ratio Certificates may be issued at a price that
exceeds their stated principal amount. Subject to the discussion of Superpremium
Certificates in "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES
- --ORIGINAL ISSUE DISCOUNT" ABOVE, holders of such Ordinary Ratio Certificates
generally should be able to amortize that premium as described in "FEDERAL
INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- AMORTIZABLE PREMIUM" ABOVE.
IO Certificates do not represent a right to stated principal amounts.
Rather, IO Certificates represent rights only to payments of interest which, as
a result of prepayments on the Assets in the related Trust, may never be made.
The Tax Administrator will account for IO Certificates in the same manner as for
Interest Weighted Certificates. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC
CERTIFICATES -- ORIGINAL ISSUE DISCOUNT," " -- VARIABLE RATE CERTIFICATES," AND
" -- INTEREST WEIGHTED CERTIFICATES AND NON-VRDI CERTIFICATES" ABOVE.
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.
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
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who acquire Complementary Strip Certificates should consult their own tax
advisors as to the proper treatment of such Certificates.
POSSIBLE ALTERNATIVE CHARACTERIZATIONS
The Service could assert that the Strip Certificates should be
characterized for tax purposes in a manner different from that described above.
For example, the Service could contend that each Ratio Certificate whose
interest rate is higher than the related Series Rate is to be treated as being
composed of two certificates: (i) a Participation Certificate of the same
principal amount as the Ratio Certificate but generating interest at the Series
Rate; and (ii) an IO Certificate representing the excess of the rate on the
Ratio Certificate over the Series Rate. Similarly, a Ratio Certificate whose
interest rate is lower than the Series Rate could be treated as composed of a
Participation Certificate with an interest rate equal to the Series Rate and a
PO Certificate. Alternatively, the Service could interpret section 1286 to
require that each individual interest payment with respect to an IO Certificate
or a Ratio Certificate be treated as a separate debt instrument for original
issue discount purposes. The Service also might challenge the manner in which
original issue discount is calculated, contending that (i) the stated maturity
should be used to calculate yield on a Non-REMIC Certificate; (ii) the
Contingent Payment Regulations should not apply to IO Certificates; or (iii) the
Contingent Payment Regulations should apply to the Ordinary Ratio Certificates.
Given the variety of alternative treatments of Strip Certificates and the
different federal income tax consequences that could result from each
alternative, a potential investor is urged to consult its own tax advisor
regarding the proper treatment of such Certificates for federal income tax
purposes.
LIMITATIONS ON DEDUCTIONS WITH RESPECT TO STRIP CERTIFICATES
The holder of a Strip Certificate will be treated as owning an interest in
each of the Assets of the related Trust and will recognize an appropriate share
of the income and expenses associated with those Assets. Accordingly, an
individual, trust, or estate that holds a Strip Certificate directly or through
a pass-through entity will be subject to the same limitations on deductions with
respect to such Certificate as are applicable to holders of Participation
Certificates. SEE "FEDERAL INCOME TAX CONSEQUENCES -- NON-REMIC CERTIFICATES
- --TREATMENT OF PARTICIPATION CERTIFICATES" ABOVE.
SALE OF A NON-REMIC CERTIFICATE
A sale of a non-REMIC Certificate prior to its maturity will result in
gain or loss equal to the difference between the amount received and the
holder's adjusted basis in such Certificate. The rules for computing the
adjusted basis of a Non- REMIC Certificate are the same as in the case of a
Regular Certificate. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES
- -- TAX TREATMENT OF REGULAR CERTIFICATES -- GAIN OR LOSS ON DISPOSITION" ABOVE.
Gain or loss from the sale or other disposition of a Non-REMIC Certificate
generally will be capital gain or loss to the Certificateholder if the
Certificate is held as a "capital asset" within the meaning of section 1221 of
the Code, and will be long-term or short-term depending on whether the
Certificate has been held for the applicable long-term capital gain holding
period. Ordinary income treatment, however, will apply to the extent mandated
by the original issue discount and market discount rules or if the
Certificateholder is a financial institution described in section 582 of the
Code. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- GAIN OR LOSS
ON DISPOSITION" ABOVE.
TAXATION OF CERTAIN FOREIGN HOLDERS OF NON-REMIC CERTIFICATES
Interest, including original issue discount, paid on a Non-REMIC
Certificate to a Foreign Person generally is treated as "portfolio interest"
and, therefore, is not subject to any United States tax, provided that (i) such
interest is not effectively connected with a trade or business in the United
States of the Certificateholder, and (ii) the Trustee (or other person who would
otherwise be required to withhold tax) is provided with Foreign Person
Certification. If the holder of a Non-REMIC Certificate does not provide the
Trustee (or other person who would otherwise be required to withhold tax) with a
Foreign Person Certification, interest (including original issue discount) paid
on such a Certificate may be subject to either a 30% withholding tax or 31%
backup withholding.
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In the case of certain Series, portfolio interest treatment will not be
available for interest paid with respect to certain classes of Non-REMIC
Certificates. Interest on debt instruments issued on or before July 18, 1984
does not qualify as "portfolio interest" and, therefore, is subject to United
States withholding tax at a 30% rate (or lower treaty rate, if applicable). IO
Certificates and PO Certificates generally are treated, and Ratio Certificates
generally should be treated, as having been issued when they are sold to an
investor. In the case of Participation Certificates, however, the issuance date
of the Certificate is determined by the issuance date of the underlying Assets.
Thus, to the extent that the interest received by a holder of a Participation
Certificate is attributable to Assets issued on or before July 18, 1984, such
interest will be subject to the 30% withholding tax. Moreover, to the extent
that a Ratio Certificate is characterized as a pass-through type certificate and
the underlying Assets were issued on or before July 18, 1984, interest generated
by the Certificate may be subject to the withholding tax. SEE "FEDERAL INCOME
TAX CONSEQUENCES -- NON-REMIC CERTIFICATES -- TREATMENT OF STRIP CERTIFICATES
- --POSSIBLE ALTERNATIVE CHARACTERIZATIONS" ABOVE. Although recently enacted tax
legislation denies portfolio interest treatment to certain types of contingent
interest, that legislation generally applies only to interest based on the
income, profits, or property values of the debtor. Accordingly, it is not
anticipated that such legislation will apply to deny portfolio interest
treatment to Certificateholders who are Foreign Persons. However, because the
scope of the new legislation is not entirely clear, investors who are Foreign
Persons should consult their tax advisors regarding the potential application of
the legislation before purchasing a Certificate.
BACKUP WITHHOLDING
The application of backup withholding to Non-REMIC Certificates generally
is the same as in the case of REMIC Certificates. SEE "FEDERAL INCOME TAX
CONSEQUENCES -- REMIC CERTIFICATES -- BACKUP WITHHOLDING" ABOVE.
REPORTING AND TAX ADMINISTRATION
For purposes of reporting and tax administration, the holders of Non-REMIC
Certificates will be treated in the same fashion as the holders of Regular
Certificates. SEE "FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES
- --REPORTING AND TAX ADMINISTRATION" ABOVE.
DUE TO THE COMPLEXITY OF THE FEDERAL INCOME TAX RULES APPLICABLE TO
CERTIFICATEHOLDERS AND THE CONSIDERABLE UNCERTAINTY THAT EXISTS WITH RESPECT TO
MANY ASPECTS OF THOSE RULES, POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE TAX TREATMENT OF THE ACQUISITION, OWNERSHIP, AND
DISPOSITION OF THE CERTIFICATES.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described above under
"FEDERAL INCOME TAX CONSEQUENCES" ABOVE, potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition of
the Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various state tax
consequences of an investment in the Certificates.
ERISA CONSIDERATIONS
In considering an investment in a Certificate of the assets of any
employee benefit plan or retirement arrangement, including individual retirement
accounts and annuities, Keogh plans, and collective investment funds in which
such plans, accounts, annuities or arrangements are invested, that are described
in or subject to the Plan Asset Regulations, ERISA, or corresponding provisions
of the Code (each hereinafter referred to as a Plan), a fiduciary should
consider, among other things, (i) the purposes, requirements, and liquidity
needs of such Plan; (ii) the impact of the plan asset provisions of ERISA and
DOL regulations concerning the definition of plan assets; (iii) whether the
investment satisfies the diversification requirements of section 404(a)(1)(C) of
ERISA; and (iv) whether the
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investment is prudent, considering the nature of an investment in a Certificate
and the fact that no market in which such fiduciary can sell or otherwise
dispose of Certificates may be created or, if created, will continue to exist
for the life of the Certificates. The prudence of a particular investment must
be determined by the responsible fiduciary (usually the trustee or investment
manager) with respect to each Plan taking into account all of the facts and
circumstances of the investment.
Sections 406 and 407 of ERISA and section 4975 of the Code prohibit
certain transactions that involve (i) a Plan and any "party in interest" or
"disqualified person" with respect to such Plan, and (ii) plan assets. The Plan
Asset Regulations issued by the DOL define "plan assets" to include not only
securities (such as the Certificates) held by a Plan but also the underlying
assets of the issuer of any equity securities, unless one or more exceptions
specified in those Regulations are satisfied. Thus, under the Plan Asset
Regulations, a Plan that acquires a Certificate could be treated for ERISA
purposes as having acquired a direct interest in some or all of the assets in
the related Trust. Such treatment could cause certain transactions with respect
to such assets to be deemed "prohibited transactions" under ERISA and, in
addition, could result in a finding of an improper delegation by the plan
fiduciary of its duty to manage plan assets.
The DOL has issued several exemptions from certain of the prohibited
transaction rules of ERISA and the related excise tax provisions of section 4975
of the Code. Those exemptions include, but are not limited to: (1) Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60"), regarding investments by
insurance company general accounts; (2) Prohibited Transaction Class Exemption
91-38 ("PTCE 91-38"), regarding investments by bank collective investment funds;
(3) Prohibited Transaction Class Exemption 90-1 ("PTCE 90-1"), regarding
investments by insurance company pooled separate accounts; (4) Prohibited
Transaction Class Exemption 83-1 ("PTCE 83-1"), regarding acquisitions by Plans
of interests in mortgage pools; and (5) various underwriter exemptions. Before
purchasing any Certificates, a Plan subject to the fiduciary responsibility
provisions of ERISA or described in section 4975(e)(1) of the Code should
consult with its counsel to determine whether the conditions of any exemption
would be met. A purchaser of Certificates should be aware, however, that certain
of the exemptions do not apply to the purchase, sale, and holding of
subordinated certificates. In addition, PTCE 83-1 will not apply to Certificates
evidencing interests in a Trust Estate that contains Contracts. Moreover, even
if the conditions specified in one or more exemptions are met, the scope of the
relief provided by an exemption might not cover all acts that might be construed
as prohibited transactions.
The Plan Asset Regulations will not apply to a Certificate if (1) the
Certificate is registered under the Securities Exchange Act of 1934, is freely
transferable and is part of a class of Certificates that is held by more than
100 unrelated investors (the "Publicly Offered Exception") or (2) immediately
after the most recent acquisition of a Certificate of the same Series, benefit
plan investors do not own 25% or more of the value of any class of Certificates
in that Series (the "Insignificant Participation Exception"). A purchaser of
Certificates should be aware, however, that determining whether the
Insignificant Participation Exception applies is administratively impracticable
in many situations. Prior to purchasing a Certificate, a Plan should consult
with its counsel to determine whether the Publicly Offered Exception, the
Insignificant Participation Exception, or any other exception to the Plan Asset
Regulations would apply to the purchase of the Certificate.
Section 403 of ERISA requires that all plan assets be held in trust.
However, under regulations that became effective on June 17, 1982, even if the
underlying assets of an issuer of securities (such as the Certificates) are
deemed to be plan assets of a Plan investing in such securities, the "holding in
trust" requirement of section 403 of ERISA will be satisfied if such securities
are held in trust on behalf of the Plan.
Because the purchase or holding of Certificates may result in unfavorable
consequences for a Plan or its fiduciaries under the Plan Asset Regulations or
the prohibited transaction provisions of ERISA or the Code, (i) certain classes
of Certificates will not be offered for sale to, and are not transferable to,
any Plan Investor and (ii) certain Classes of Certificates will not be offered
for sale to, and are not transferable to, any Plan Investor unless such Plan
Investor provides the Company with a Benefit Plan Opinion (I.E., an opinion of
counsel satisfactory to the Company and the Servicer (and upon which the
Company, the Servicer, the Trustee, the TMP, and their respective counsel are
authorized to rely) generally to the effect that the ownership of a Certificate
of such class will not (1) cause any of the assets in the related Trust to be
regarded as plan assets for purposes of the Plan Asset Regulations;
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(2) give rise to any fiduciary duty under ERISA on the part of the Company, the
Trustee, a Servicer, or the TMP; or (3) be treated as, or result in, a
prohibited transaction under sections 406 and 407 of ERISA or section 4975 of
the Code.) The Prospectus Supplement for an affected Series will indicate which
classes of Certificates are restricted in their availability to benefit plan
investors.
In considering the possible application of the Plan Asset Regulations,
potential Plan Investors should be aware that, with respect to certain Series
and under certain circumstances, the Servicer and the holders of a majority in
interest of the related Residual Certificates may have a right to redeem the
Certificates of such Series, at its option. In such cases, the Servicer's
purpose for the retention of such a redemption right is to enable the Servicer
to terminate its administration obligations with respect to the Certificates in
the event such obligations become unprofitable. The Servicer undertakes no
obligation to consider the interests of Certificateholders in deciding whether
to exercise any redemption right.
As described in "FEDERAL INCOME TAX CONSEQUENCES" ABOVE, an investment in
a Certificate may produce UBTI for tax-exempt employee benefit plans. Potential
investors also should be aware that ERISA requires that the assets of a Plan be
valued at their fair market value as of the close of the plan year. Neither the
Company, Oakwood, the Servicer nor the Underwriters currently intend to provide
valuations to Certificateholders.
Prospective purchasers of Certificates that are insurance companies should
be aware that the United States Supreme Court interpreted the fiduciary
responsibility rules of ERISA in JOHN HANCOCK MUTUAL LIFE INSURANCE CO. V.
HARRIS BANK AND TRUST. In JOHN HANCOCK, the Supreme Court ruled that assets held
in an insurance company's general account may be deemed to be "plan assets" for
ERISA purposes under certain circumstances. Prospective purchasers of
Certificates that are insurance companies should consult with their counsel with
respect to the application of the JOHN HANCOCK case and PTCE 95-60 to their
purchase of Certificates, and should be aware that certain restrictions may
apply to their purchase of Certificates.
Due to the complexity of the rules applicable to Plans and Plan
fiduciaries, and the considerable uncertainty that exists with respect to many
aspects of those rules, Plan Investors contemplating the acquisition of
Certificates should consult their legal advisors with respect to the ERISA,
Code, and other consequences of an investment in the Certificates.
AVAILABLE INFORMATION
THE COMPANY IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND, IN ACCORDANCE
THEREWITH, FILES REPORTS AND OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE
COMMISSION (THE "COMMISSION"). REPORTS AND OTHER INFORMATION FILED BY THE
COMPANY WITH THE COMMISSION CAN BE INSPECTED AND COPIED AT THE PUBLIC REFERENCE
FACILITIES MAINTAINED BY THE COMMISSION AT 450 FIFTH STREET, N.W., WASHINGTON,
D.C. 20549, AND AT THE REGIONAL OFFICES OF THE COMMISSION AT 7 WORLD TRADE
CENTER, NEW YORK, NEW YORK 10048; AND NORTH-WESTERN ATRIUM CENTER, 500 WEST
MADISON STREET, SUITE 1400, CHICAGO, ILLINOIS 60661-2511. COPIES OF SUCH
MATERIAL CAN BE OBTAINED FROM THE PUBLIC REFERENCE SECTION OF THE COMMISSION AT
ITS PRINCIPAL OFFICE IN WASHINGTON, D.C., AT PRESCRIBED RATES. THE COMMISSION
MAINTAINS A WEB SITE THAT CONTAINS REPORTS, PROXY AND INFORMATION STATEMENTS AND
OTHER INFORMATION REGARDING REGISTRANTS, INCLUDING THE COMPANY, THAT FILE
ELECTRONICALLY WITH THE COMMISSION AT HTTP://WWW.SEC.GOV.
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT (OF WHICH THIS PROSPECTUS IS A PART) AND EXHIBITS
RELATING THERETO WHICH THE COMPANY HAS FILED WITH THE COMMISSION IN WASHINGTON,
D.C. COPIES OF THE INFORMATION AND THE EXHIBITS ARE ON FILE AT THE OFFICES OF
THE COMMISSION AND MAY BE OBTAINED, UPON PAYMENT OF THE FEE PRESCRIBED BY THE
COMMISSION, OR MAY BE EXAMINED WITHOUT CHARGE AT THE OFFICES OF THE COMMISSION.
COPIES OF THE POOLING AND SERVICING AGREEMENT FOR A SERIES WILL BE FILED BY THE
COMPANY WITH THE COMMISSION (WITHOUT EXHIBITS) ON A CURRENT REPORT ON FORM 8-K
WITHIN 15 DAYS AFTER THE APPLICABLE CLOSING DATE.
EACH TRUST WILL FILL PERIODIC REPORTS WITH THE COMMISSION IN COMPLIANCE
WITH THE REQUIREMENTS OF THE EXCHANGE ACT.
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THE COMPANY AND THE SERVICER ARE NOT OBLIGATED WITH RESPECT TO THE
CERTIFICATES. ACCORDINGLY, THE COMPANY HAS DETERMINED THAT FINANCIAL STATEMENTS
OF THE COMPANY AND THE SERVICER ARE NOT MATERIAL TO THE OFFERING MADE HEREBY.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
WITH RESPECT TO ANY CLASS OF CERTIFICATES THAT IS SUPPORTED BY A GUARANTEE
OF OAKWOOD HOMES OR ONE OF ITS AFFILIATES, THE FOLLOWING DOCUMENTS HAVE BEEN
FILED BY OAKWOOD HOMES WITH THE COMMISSION PURSUANT TO THE EXCHANGE ACT AND ARE
INCORPORATED HEREIN BY REFERENCE AND MADE A PART OF THIS PROSPECTUS AND ANY
PROSPECTUS SUPPLEMENT: (A) THE OAKWOOD HOMES QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTER ENDED DECEMBER 31, 1998, AND (B) THE OAKWOOD HOMES ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998.
ALL DOCUMENTS FILED BY THE COMPANY OR OAKWOOD HOMES CORPORATION PURSUANT
TO SECTIONS 13(A), 13(C), 14 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, AFTER THE DATE OF THIS PROSPECTUS AND PRIOR TO THE TERMINATION OF THE
OFFERING OF THE CERTIFICATES SHALL BE DEEMED, IN THE CASE OF THE COMPANY, TO BE
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND, IN THE CASE OF OAKWOOD HOMES
CORPORATION, TO BE INCORPORATED BY REFERENCE INTO THIS PROSPECTUS AND THE
PROSPECTUS SUPPLEMENT RELATING TO A CLASS OF CERTIFICATES THAT IS SUPPORTED BY A
GUARANTEE OF OAKWOOD HOMES CORPORATION OR ONE OF ITS AFFILIATES, IN EACH CASE TO
BE A PART THEREOF FROM THE RESPECTIVE DATES OF FILING OF SUCH DOCUMENTS. ANY
STATEMENT CONTAINED HEREIN OR IN A DOCUMENT ALL OR ANY PORTION OF WHICH IS
INCORPORATED OR DEEMED TO BE INCORPORATED BY REFERENCE HEREIN SHALL BE DEEMED TO
BE MODIFIED OR SUPERSEDED FOR PURPOSES OF THIS PROSPECTUS AND THE RELATED
PROSPECTUS SUPPLEMENT TO THE EXTENT THAT A STATEMENT CONTAINED HEREIN OR THEREIN
OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH ALSO IS OR DEEMED TO BE
INCORPORATED BY REFERENCE HEREIN OR THEREIN MODIFIES OR SUPERSEDES SUCH
STATEMENT. ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL NOT BE DEEMED, EXCEPT
AS SO MODIFIED OR SUPERSEDED, TO CONSTITUTE A PART OF THIS PROSPECTUS AND THE
RELATED PROSPECTUS SUPPLEMENT.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS
PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT ARE DELIVERED ON REQUEST OF SUCH
PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO
OAKWOOD MORTGAGE INVESTORS, INC., IN WRITING AT 7800 MCCLOUD ROAD, GREENSBORO,
NORTH CAROLINA, 27425-7081 (TELEPHONE (336) 664-2400), ATTN: SECRETARY.
PLAN OF DISTRIBUTION
The Company may sell the Certificates offered hereby either directly or
through one or more underwriters or underwriting syndicates. The Prospectus
Supplement with respect to each Series of Certificates will set forth the terms
of the offering of such Series of Certificates and each Class within such
Series, including the name or names of the Underwriter(s), the proceeds to and
their intended use by the Company, and either the initial public offering price,
the discounts and commissions to the Underwriter(s) and any discounts or
concessions allowed or reallowed to certain dealers, or the method by which the
price at which the related Underwriter(s) will sell the Certificates will be
determined.
The Certificates of a Series may be acquired by Underwriters for their own
account and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices determined at the time of sale. The obligations of any
Underwriters will be subject to certain conditions precedent, and such
Underwriters will be severally obligated to purchase all the Certificates of a
Series offered pursuant to the related Prospectus Supplement, if any are
purchased. If Certificates of a Series are offered otherwise than through
Underwriters, the related Prospectus Supplement will contain information
regarding the nature of such offering and any agreements to be entered into
between the Company and purchasers of Certificates of such Series.
The place and time of delivery for the Certificates of a Series in respect
of which this Prospectus is delivered will be set forth in the related
Prospectus Supplement.
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LEGAL INVESTMENT CONSIDERATIONS
The Prospectus Supplement for each Series of Certificates will specify
which, if any, of the Classes of Certificates of such Series will constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). If so, Certificates designated as qualifying
as "mortgage related securities" will continue to qualify as such for so long as
they are rated in one of the two highest categories by at least one nationally
recognized statistical rating agency. Classes of Certificates that qualify as
"mortgage related securities" under SMMEA will be legal investments for persons,
trusts, corporations, partnerships, associations, business trusts and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any state whose authorized investments are subject to state
regulation to the same extent as, under applicable law, obligations issued by or
guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for any such entities.
Certain states have enacted legislation specifically limiting, to varying
degrees, the legal investment authority of such entities with respect to
"mortgage related securities," in most cases requiring investors to rely solely
upon existing state law and not SMMEA. In any case in which any such legislation
is applicable, the Certificates will constitute legal investments for entities
subject to such legislation only to the extent provided in such state
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in "mortgage-related
securities" without limitation as to the percentage of their assets represented
thereby; federal credit unions may invest in "mortgage- related securities"; and
national banks may purchase "mortgage-related securities" for their own account
without regard to the limitations generally applicable to investment securities
set forth in 12 U.S.C. ss. 24 (Seventh), subject in each case to such
regulationS as the applicable federal regulatory authority may prescribe.
The Federal Financial Institutions Examination Council, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the Office of
the Comptroller of the Currency and the National Credit Union Administration
have proposed or adopted guidelines regarding investment in various types of
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their jurisdiction
from holding securities representing residual interests, including securities
previously purchased. There may be other restrictions on the ability of certain
investors, including depository institutions, either to purchase Certificates or
to purchase Certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent any particular Certificates constitute
legal investments for such investors.
Certificates that do not constitute "mortgage related securities" under
SMMEA will require registration, qualification or an exemption under applicable
state securities laws in those states that have enacted legislation overriding
SMMEA's provisions pre-empting state "blue sky" laws. In addition, such
Certificates may not be "legal investments" to the same extent as "mortgage
related securities" under SMMEA. The appropriate characterization under various
legal investment restrictions of the Classes of Certificates that do not qualify
as "mortgage related securities" under SMMEA and thus the ability of investors
subject to these restrictions to purchase such Classes of Certificates, may be
subject to significant interpretive uncertainties. All investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether, and to what extent, the Classes of
Certificates that do not qualify as "mortgage related securities" will
constitute legal investments for them.
EXPERTS
The consolidated financial statements of Oakwood Homes Corporation and its
subsidiaries (collectively, "Oakwood Homes Corporation") as of September 30,
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 Pricewaterhouse
Coopers LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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LEGAL MATTERS
Certain legal matters relating to the Certificates and material federal
income tax consequences concerning the Certificates will be passed upon for the
Company by Hunton & Williams, Richmond, Virginia.
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GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and each Prospectus Supplement, except as may be otherwise
specified in the Prospectus Supplement for a particular Series. The related
Agreement may contain a more complete definition of certain of the terms defined
herein and reference should be made to the Agreement for a more complete
definition of all such terms.
"1986 ACT" means the Tax Reform Act of 1986.
"ACCOUNTING DATE" means, unless otherwise specified in a Prospectus
Supplement, for any Distribution Date, the last day of the preceding calendar
month.
"ACCRETION CLASS" means a Compound Interest Class or a Capital
Appreciation Class.
"ADDITIONAL ASSETS" means, with respect to any Series, non-recourse
guarantees on Contracts and/or Mortgage Loans, additional Contracts and/or
Mortgage Loans beyond those included in the related Asset Pool, letters of
credit or other Eligible Investments delivered to any Trust in addition to the
related Trust Estate.
"ADJUSTABLE RATE ASSET" means a Contract or Mortgage Loan bearing interest
at an adjustable rate.
"ADVANCE" means any P&I Advance or Servicing Advance.
"ADJUSTED CERTIFICATE PRINCIPAL BALANCE" means with respect to each Class
of Subordinated Certificates on any date of determination, its Certificate
Principal Balance immediately following the most recently preceding Distribution
Date reduced by all Writedown Amounts allocated to such Class on such
Distribution Date.
"AFFILIATE" means, as to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and Policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have the meanings correlative to the foregoing.
"AGGREGATION RULE" means the rule in the OID Regulations under which two
or more debt instruments issued in connection with the same transaction (or
related transactions in certain circumstances) are treated as a single debt
instrument for federal income tax accounting purposes if issued by a single
issuer to a single holder.
"AGREEMENT" means the Pooling and Servicing Agreement for a Series,
including the Series Agreement and the Standard Terms.
"ALL OID ELECTION" means, with respect to a Regular Certificate, an
election to include in gross income all stated interest, original issue
discount, de minimis original issue discount, market discount, and de minimis
market discount that accrues on such Certificate (reduced by any amortizable
premium or acquisition premium on such Certificate) under the constant yield
method used to account for original issue discount.
"APPROVED SALE" means, as to any Asset, (1) a sale of the related
Manufactured Home or Mortgaged Property acquired by the Insured because of a
default by the borrower if the related Pool Insurer has given prior approval to
such sale, (2) a foreclosure or trustee's sale of the related Manufactured Home
or Mortgaged Property at a price exceeding the maximum amount specified by the
Pool Insurer, (3) the acquisition of the Mortgaged Property under any related
Primary Mortgage Insurance Policy by the related Mortgage Insurer or (4) the
acquisition of the related Manufactured Home or Mortgaged Property by the Pool
Insurer.
"ASSET" means a Contract or Mortgage Loan underlying a Series of
Certificates.
"ASSET FILE" means a Contract File or Mortgage Loan File, as applicable.
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"ASSET POOL" means, with respect to any Series, the pool of Contracts
and/or Mortgage Loans included in the related Trust Estate.
"ASSET RATE" means, with respect to any Asset, the related Contract Rate
or Mortgage Rate, as applicable.
"ASSET SCHEDULE" means the schedule which identifies each Asset supporting
a Series (and includes certain other information regarding each such Asset,
including its Cut-off Date Principal Balance, its Asset Rate, its original
principal balance and other information) and appears as an exhibit to the
related Agreement.
"AVAILABLE DISTRIBUTION AMOUNT" means, as to any Distribution Date and any
Series, the amount to be distributed on the Certificates of such Series on such
Distribution Date, which will be described in the related Prospectus Supplement.
"BALLOON PAYMENT LOAN" means an Asset that does not require any scheduled
amortization of principal prior to its scheduled maturity, or the principal of
which is amortized over a longer period than the Asset's scheduled term to
maturity.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, as amended, as
set forth in Title 11 of the United States Code.
"BENEFICIAL OWNER" means, as to any Book-Entry Certificate, the beneficial
owner thereof, whose interest therein is reflected in the records of a Financial
Intermediary.
"BENEFIT PLAN OPINION" means an opinion of counsel satisfactory to the
Company and the Servicer (and upon which the Company, the Servicer, the Trustee,
the TMP, and their respective counsel are authorized to rely) generally to the
effect that the proposed transfer of a Certificate will not (1) cause any of the
assets in the related Trust to be regarded as "plan assets" for purposes of the
Plan Asset Regulations; (2) give rise to any fiduciary duty under ERISA on the
part of the Company, the Trustee, the Servicer, or the TMP; or (3) be treated
as, or result in, a prohibited transaction under section 406 or section 407 of
ERISA or section 4975 of the Code.
"BI-WEEKLY LOAN" means an Asset that provides for Obligor payments to be
made on a bi-weekly basis.
"BOOK-ENTRY CERTIFICATES" means Certificates of any Class specified as
such in the Prospectus Supplement for a Series and as to which Definitive
Certificates will not be issued, beneficial interests therein being maintained
through Participants or Indirect Participants in the Depository.
"BUY-DOWN FUND" means a custodial Eligible Account established by the
Servicer for any Buy-Down Loan, which must comply with the standards applicable
to the related Certificate Account, to be funded with an amount which, together
with projected reinvestment earnings thereon at a rate specified in the related
Prospectus Supplement, will provide funds sufficient to support the payments
required on such Buy-Down Loan on a level debt service basis.
"BUY-DOWN LOAN" means an Asset the amortization of which includes payments
made by the seller of the related Mortgaged Property or Manufactured Home or by
someone else other than the related Obligor.
"CAP" means a restriction or restrictions on the maximum stated interest
rate on a Certificate.
"CAPITAL APPRECIATION CLASS" means a Class of Certificates upon which
interest will accrue but will not be distributed until certain other Classes of
Certificates of the same Series have received their final distributions.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended.
"CERTIFICATE" means any Pass-Through Certificate issued pursuant to an
Agreement.
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"CERTIFICATE ACCOUNT" means an account or accounts maintained by the
Servicer for any Series, into which the Servicer must deposit collections in
respect of the related Assets pending remittance thereof to the related
Distribution Account on the applicable Remittance Date.
"CERTIFICATE REGISTER" means, for any Series, the register maintained by
or at the direction of the Trustee containing the names and addresses of all
current Holders of Certificates of each Class of such Series, and noting the
Class and denomination of each Certificate of such Series held by each such
holder.
"CERTIFICATEHOLDER" means the registered holder of a Certificate.
"CERTIFICATE PRINCIPAL BALANCE" means the outstanding principal balance of
a Certificate or Class of Certificates.
"CLASS" means any class of the Certificates of a Series, as specified in
the related Prospectus Supplement.
"CLEARING AGENCY" means an entity registered pursuant to Section 17A of
the Securities Act of 1934, as amended.
"CLOSING DATE" means, for any Series, the date on which such Series is
issued, which will be specified in the related Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLECTION PERIOD" means, unless otherwise provided in a related
Prospectus Supplement, with respect to any Distribution Date, the period
commencing on the second day of the calendar month preceding the month in which
such Distribution Date occurs and ending on the first day of the month in which
such Distribution Date occurs.
"COMMISSION" means the Securities and Exchange Commission.
"COMPANION CLASS" means a Class of Certificates structured to receive
principal payments on the underlying Assets on any Distribution Date only to the
extent those principal payments exceed the principal distribution amounts
scheduled to be made on a related PAC Class on such Distribution Date.
"COMPANY" means Oakwood Mortgage Investors, Inc., a North Carolina
corporation that is a wholly-owned subsidiary of Oakwood.
"COMPENSATING INTEREST" means, for any Distribution Date, the amount of
all Due Date Interest Shortfalls for the preceding Prepayment Period to the
extent such Shortfalls do not exceed the Servicer's aggregate servicing
compensation in respect of such Prepayment Period.
"COMPLEMENTARY STRIP CERTIFICATES" means different Classes of Strip
Certificates of the same Series that, when held in combination, provide an
aggregate economic effect equivalent to that of a Participation Certificate.
"COMPOUND INTEREST CERTIFICATE" means a Certificate on which interest is
accrued and is compounded and added to the principal balance thereof
periodically, but which is not unconditionally entitled to distributions of
interest at least annually.
"COMPOUND INTEREST CLASS" means a Class of Certificates on which interest
may accrue but not be paid for the period described in the related Prospectus
Supplement.
"CONTINGENT PAYMENT OBLIGATION" means a debt obligation with one or more
contingent payments as defined in the Contingent Payment Regulations.
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"CONTINGENT PAYMENT REGULATIONS" means those provisions of the OID
Regulations that address the federal income tax treatment of Contingent Payment
Obligations.
"CONTRACT" means a manufactured housing installment sales contract
including any and all rights to receive payments due thereunder on and after the
Cut-off Date and any security interest in a Manufactured Home purchased with the
proceeds of such contract.
"CONTRACT DOCUMENTS" means, with respect to each Contract:
(1) the original Contract;
(2) either (a) the original title document for the related
Manufactured Home, a duplicate certified by the appropriate governmental
authority that issued the original thereof or, if such original is not yet
available, a copy of the application filed with the appropriate
governmental authority pursuant to which the original title document will
issue (which copy may be on microfilm or optical disk maintained by the
Servicer in its records separate from the other related Contract
Documents), or (b) if the laws of the jurisdiction in which the related
Manufactured Home is located do not provide for the issuance of title
documents for manufactured housing units, other evidence of ownership of
the related Manufactured Home that is customarily relied upon in such
jurisdiction as evidence of title to a manufactured housing unit;
(3) unless such Contract is a Land Secured Contract, evidence of one
or more of the following types of perfection of the Seller's or the
Trustee's security interest in the related Manufactured Home granted by
such Contract (or, if such evidence is not yet available, a copy of the
application or other filing used to obtain such security interest (which
copy may be on microfilm or optical disk maintained by the Servicer in its
records separate from the other related Contract Documents)), as
appropriate in the applicable jurisdiction: (a) notation of such security
interest on the title document, (b) a financing statement meeting the
requirements of the UCC, with evidence of recording indicated thereon, (c)
a fixture filing in accordance with the UCC, with evidence of filing
indicated thereon, or (d) such other evidence of perfection of a security
interest in a manufactured housing unit as is customarily relied upon in
the jurisdiction in which the related Manufactured Home is located;
(4) an original assignment of the Contract from the initial named
payee thereunder to the Seller (unless the Seller is the initial named
payee for such Contract);
(5) originals of any assumption agreements relating to such
Contract, together with originals of any surety or guaranty agreement
relating to such Contract or to any such assumption agreement, payable to
the order of the Trustee, or, if not so payable, endorsed to the order of,
or assigned to, the Trustee by the holder/payee thereunder without
recourse;
(6) originals of any extension, modification or waiver agreement(s)
relating to such Contract; and
(7) proof of maintenance of a Standard Hazard Insurance Policy (and
a flood insurance policy, if applicable) for the related Manufactured
Home.
In the case of any Land Secured Contract, the related Contract Documents
shall consist of the following documents in lieu of those listed in clause (3)
of the foregoing paragraph: (a) the original recorded Mortgage for the related
Real Property, with evidence of recordation noted thereon or attached thereto,
or a certified copy thereof issued by the appropriate recording office (or, if
the Mortgage is in the process of being recorded, a photocopy of the Mortgage,
which may be on microfilm or optical disk maintained by the Servicer in its
records separate from the other related Contract Documents); (b) if the Mortgage
does not name the related Seller as mortgagee therein or beneficiary thereof, an
original recorded assignment or assignments of the Mortgage from the Persons
named as mortgagee in, or beneficiary of, such Mortgage, to the related Seller,
with evidence of recordation noted thereon or attached thereto, or a certified
copy of each such assignment issued by the appropriate recording office (or, if
such an
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original assignment is in the process of being recorded, a photocopy of each
such assignment, which may be on microfilm or optical disk maintained by the
Servicer in its records separate from the other related Contract Documents); (c)
a copy of the power of attorney delivered by the Seller to the Trustee
authorizing the Trustee to execute and record assignments of Mortgages securing
Land Secured Contracts from the Seller to the Trustee in the event that
recordation of such assignments becomes necessary for foreclosure on the related
Real Property by or on behalf of the Trustee; and (d) if such Land Secured
Contract's original principal balance was $40,000 or greater, a copy of the
title search report and bring-down thereof (or evidence of title insurance) with
respect to the related Real Property.
"CONTRACT FILE" means, with respect to any Contract, all of the related
Contract Documents.
"CONTRACT LOAN-TO-VALUE RATIO" means, (i) as to each Contract with respect
to which a lien on land is required for underwriting purposes, the ratio,
expressed as a percentage, of the principal amount of such Contract to the sum
of the purchase price of the home (including taxes, insurance and any land
improvements), the tax value or appraised value of the land and the amount of
any prepaid finance charges or closing costs that are financed; and (ii) as to
each other Contract, the ratio, expressed as a percentage, of the principal
amount of such Contract to the purchase price of the home (including taxes,
insurance and any land improvements) and the amount of any prepaid finance
charges or closing costs that are financed.
"CONTRACT RATE" means the annual percentage rate or "APR" specified in a
Contract.
"CONTRACT SCHEDULE" means an Asset Schedule to the extent it identifies
Contracts.
"CONVENTIONAL MORTGAGE LOANS" means Mortgage Loans that are not insured by
the FHA or partially guaranteed by the VA.
"CONVERTIBLE LOAN" means an Adjustable Rate Asset subject to a provision
pursuant to which, subject to certain limitations, the related Obligor may
exercise an option to convert the adjustable Asset Rate to a fixed Asset Rate.
"CREDIT INSURANCE" means the Primary Mortgage Insurance Policies, FHA
insurance, VA guarantees, and Pool Insurance Policies, if any, obtained with
respect to any Asset Pool.
"CREDIT INSURER" means a Mortgage Insurer or a Pool Insurer.
"CURRENT RECOGNITION ELECTION" means the election under section 1278(b) of
the Code to recognize market discount on a debt instrument currently on an
uncapped accrual basis.
"CUSTODIAL AGREEMENT" means the agreement, if any, among the Company, a
Trustee and a Custodian, by which the Custodian is appointed to hold the
Mortgage Loan Documents for a Trust Estate for the benefit of the Trustee.
"CUSTODIAN" means the custodian, if any, appointed pursuant to a Custodial
Agreement to hold the Mortgage Loan Documents for a Trust Estate for the benefit
of the related Trustee.
"CUT-OFF DATE" means, for any Series, the date specified in the related
Prospectus Supplement as the date after which scheduled principal and interest
payments on the related Contracts and Mortgage Loans, and on and after which
unscheduled collections of principal on the related Contracts and Mortgage
Loans, are to be included in the related Trust Estate.
"CUT-OFF DATE PRINCIPAL BALANCE" means, as to any Asset, the original
principal amount of such Asset, minus the principal portion of all Monthly
Payments due on such Asset on or before the applicable Cut-off Date and minus
all other payments applied to reduce such original principal amount before the
applicable Cut-off Date.
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"DEEMED PRINCIPAL PAYMENTS" means all payments of principal and interest
provided for on a debt instrument other than Qualified Stated Interest.
"DEFINITIVE CERTIFICATE" means any Certificate that will be issued in
fully-registered, certificated form to the owners thereof, or their nominees.
"DEPOSITORY" means DTC or any successor or other Clearing Agency selected
by the Company as depository for any Book-Entry Certificates.
"DISCOUNT CERTIFICATE" means a Certificate that has a purchase price less
than its principal amount.
"DISQUALIFIED ORGANIZATION" means either (1) the United States; (2) any
state or political subdivision thereof; (3) any foreign government; (4) any
international organization; (5) any agency or instrumentality of any of the
foregoing; (6) any tax-exempt organization (other than a farmers' cooperative
described in section 521 of the Code) unless such organization is subject to the
tax on UBTI; or (7) any rural electrical or telephone cooperative; provided,
however, that a corporation will not be treated as an instrumentality of the
United States or any state or political subdivision thereof if all of its
activities are subject to tax and, with the exception of FHLMC, a majority of
its board of directors is not selected by such governmental unit.
"DISTRIBUTION ACCOUNT" means the account maintained by the Trustee, as
specified in the related Prospectus Supplement, from which distributions are
made on the Certificates.
"DISTRIBUTION DATE" means, with respect to each Series, unless otherwise
provided in the related Prospectus Supplement, the 15th day of each month (or
the next business day if such 15th day is not a business day), commencing in the
month following the month in which the related Closing Date occurs.
"DISTRIBUTION PERIOD" means, for any Certificate, the interval between one
Distribution Date and the next Distribution Date.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company.
"DUE DATE" means, for any Asset, the date on which a Monthly Payment is
due on such Asset from the Obligor thereunder (without regard to any grace
period).
"DUE DATE INTEREST SHORTFALL" means, for any Asset that is prepaid in full
or liquidated on other than a Due Date for such Asset, the difference between
(1) the amount of interest that would have accrued on such Asset through the day
preceding the first Due Date after such prepayment in full or liquidation had
the Asset not been prepaid in full or liquidated (net of any other
administrative fees payable out of such interest had it accrued and been paid)
and (2) the amount of interest that actually accrued on such Asset prior to the
prepayment in full or liquidation (net of an allocable portion of any other
administrative fees payable from interest payments on such Asset during the
related Collection Period).
"EARLY PAYMENT": As to any Asset and any Due Date on which the principal
and interest payments on such Asset made with respect to such Due Date (not
including any late fees) exceed the sum of the scheduled Monthly Payment for
such Asset and Due Date plus any unpaid Monthly Payments for previous Due Dates,
if the related Obligor has not sent written notice to the Servicer with such
payment asking that the amount by which such payment exceeds the Monthly Payment
then due be treated as a Principal Prepayment and the Servicer is unable to
determine the Obligor's intended treatment of such excess payment, the Early
Payment shall be the amount by which (1) payments of principal and interest on
such Asset made with respect to such Due Date exceed (2) the scheduled Monthly
Payment for such Asset on such Due Date plus any unpaid Monthly Payments for
previous Due Dates, but only to the extent that the amount of such excess is an
integral multiple of the amount of the scheduled Monthly
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Payment for such Due Date. To the extent that the amount of such excess exceeds
an integral multiple of such scheduled Monthly Payment, the excess shall be
deemed to be a Principal Prepayment of such Asset.
"ELIGIBLE ACCOUNT" means, as to any Series, an account which is maintained
(1) at a depository institution organized under the laws of the United States or
any state, the deposits of which are insured to the full extent permitted by law
by the Federal Deposit Insurance Corporation (the "FDIC"), whose commercial
paper or long-term unsecured debt has a rating, as specified in the related
Agreement, sufficient to support the ratings requested on the Certificates of
the related Series, and which institution is subject to examination by federal
or state authorities, (2) in the corporate trust department of the Trustee or
(3) at an institution otherwise acceptable to each applicable Rating Agency.
"ELIGIBLE INVESTMENTS" means one or more of the investments specified in
an Agreement in which moneys in the related Distribution Account and certain
other accounts are permitted to be invested.
"EPA" means the United States Environmental Protection Agency.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW ACCOUNT" means an account established and maintained by the
Servicer with respect to Mortgage Loans in which Mortgagors under certain
Mortgage Loans are required to deposit amounts sufficient, as applicable, to pay
taxes, assessments, hazard insurance premiums and other comparable items.
"EVENT OF DEFAULT" means, with respect to an Agreement, the occurrence of
a default as specified in such Agreement, coupled with the passage of a period
of any cure period specified in the Agreement for a default of such type without
such default having been cured. Events of Default will be as specified in the
Agreements, but will generally include (1) any failure by the Servicer to remit
funds to the Distribution Account as required by the applicable Agreement, which
failure continues unremedied for five days (or such other period specified in
the related Agreement) after the date upon which such remittance was due; (2)
any failure or breach by the Servicer duly to observe or perform in any material
respect any other of its covenants or agreements that materially and adversely
affects the interests of Certificateholders, which, in either case, continues
unremedied for 60 days after the giving of written notice of such failure or
breach to the Servicer by the related Trustee or by the Holders of Certificates
evidencing at least 25% of the Voting Rights for the applicable Series; and (3)
certain events involving insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings regarding the Servicer.
"EXCESS PREMIUM" means, with respect to a Regular Certificate, a premium
over such Certificate's noncontingent principal amount in excess of the lesser
of (1) .015 multiplied by the product of such noncontingent principal amount and
the WAM of the Certificate or (2) 15% of such noncontingent principal amount.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"FHA CONTRACT" or "FHA MORTGAGE LOAN" means a Contract or Mortgage Loan
that is insured by the FHA.
"FHA PREPAYMENT EXPERIENCE" means certain statistical data compiled by the
Actuarial Division of HUD concerning prepayment rates on FHA mortgage loans, as
set forth in tables which, assuming full mortgage loan prepayments at the rates
experienced by FHA on FHA mortgage loans, set forth the percentages of the
original number of FHA mortgage loans included in pools of Level Payment
Mortgage Loans with varying maturities that will remain outstanding on each
anniversary of the origination date of such mortgage loans (assuming they all
have the same origination date).
"FHLMC" means the Federal Home Loan Mortgage Corporation.
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"FINAL SCHEDULED DISTRIBUTION DATE" means, for any Class, unless otherwise
provided in the related Prospectus Supplement, the date, based on the
assumptions set forth in the related Prospectus Supplement, on which the
Certificate Principal Balance of all Certificates of such Class is scheduled to
be reduced to zero, assuming no prepayments.
"FINANCIAL INTERMEDIARY" means a brokerage firm, bank, thrift institution
or any other entity that is a Depository Participant or Indirect Participant,
and that maintains a Beneficial Owner's account for the purpose of reflecting
such Beneficial Owner's interest in a Book-Entry Certificate.
"FIRST DISTRIBUTION PERIOD" means, with respect to a Certificate, the
interval between its issue date and its first Distribution Date.
"FLOOR" means a restriction or restrictions on the minimum stated interest
rate on a Certificate.
"FNMA" means the Federal National Mortgage Association.
"FOREIGN PERSON" means an alien individual that is not a United States
resident for federal income tax purposes, a foreign corporation, foreign
partnership, certain foreign estates or trusts or holders holding on behalf of
any of the foregoing.
"FOREIGN PERSON CERTIFICATION" means a written certification (signed under
penalty of perjury) provided by the beneficial owner of a Certificate that such
owner is, INTER ALIA, a Foreign Person.
"FRAUD LOSS" means a loss incurred on a Contract or Mortgage Loan with
respect to which there was fraud in connection with the origination of such
Contract or Mortgage Loan or fraud, dishonesty or misrepresentation in
connection with the application for any insurance obtained with respect to such
Contract or Mortgage Loan.
"FULL COVERAGE INSURANCE POLICY" means a Primary Mortgage Insurance Policy
which provides full coverage against any loss maintained by reason of
nonpayments by the related Mortgagor.
"GARN-ST GERMAIN ACT" means the Garn-St Germain Depository Institutions
Act of 1982, as amended.
"GEM LOAN" means a fixed-rate fully-amortizing Asset providing for (1)
Monthly Payments during the first year after origination that are at least
sufficient to pay interest due on the Asset, and (2) an increase in such Monthly
Payments in subsequent years at a predetermined rate generally not more than a
specified percentage of the Monthly Payments due on such Asset during the
preceding year.
"GOVERNOR" means a restriction or restrictions on the amount of increase
or decrease in the stated interest rate on a Certificate on any Interest
Adjustment Date.
"GPM FUND" means a custodial Eligible Account established by the Servicer
for any GPM Loan, which must comply with the standards applicable to the related
Certificate Account, to be funded with an amount which, together with projected
reinvestment earnings thereon at a rate specified in the related Prospectus
Supplement, will provide funds sufficient to support the payments required on
such GPM Loan on a level debt service basis.
"GPM LOAN" means a "graduated payment" Asset the terms of which provide
for Monthly Payments during the initial years of its term that are less than the
actual amount of principal and interest that would be payable on a level debt
service basis.
"GROSS MARGIN" means, with respect to any Adjustable Rate Asset, the fixed
percentage per annum specified in the related Contract or Mortgage Note that is
added to the applicable Index on each related Interest Adjustment Date to
determine the new Asset Rate for such Adjustable Rate Asset.
"HOUSING ACT" means Section 306(g) of Title III of the National Housing
Act of 1934, as amended.
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"HUD" means the United States Department of Housing and Urban Development.
"INCREASING PAYMENT LOAN" means an Asset that provides for Obligor Monthly
Payments that are fixed for an initial period of six, 12 or 24 months following
origination, and which increase thereafter at a predetermined rate expressed as
a percentage of the Obligor's Monthly Payment during the preceding period,
subject to any caps on the amount of any single Monthly Payment increase, for a
period not to exceed nine years after origination, after which the Monthly
Payment amount is fixed at a level-payment amount so as to amortize the Asset
fully over its remaining term.
"INDEX" means, with respect to any Adjustable Rate Asset, the index
specified in the related Contract or Mortgage Note that is added to the related
Gross Margin on each related Interest Adjustment Date to determine the new Asset
Rate for such Adjustable Rate Asset.
"INDIRECT PARTICIPANTS" means organizations which have indirect access to
a Clearing Agency, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly.
"INSURANCE PROCEEDS" means amounts paid or payable (as the context
requires) under any insurance policy maintained with respect to a Series, to the
extent such amounts are not applied to the restoration or repair of the
Manufactured Home or Mortgaged Property in respect of which such amounts were
paid.
"INSURED" means the Company and the Trustee, each as assignee of the
Seller.
"INTEREST ADJUSTMENT RATES" means, with respect to any Adjustable Rate
Asset, the dates on which the related Asset Rate changes in accordance with the
terms of the related Contract or Mortgage Note.
"INTEREST REDUCTION LOAN" means an Asset for which, subject to certain
conditions, the related Obligor has a one-time option to reduce the interest
rate payable with respect to such Asset.
"INTEREST WEIGHTED CERTIFICATE" means a Regular Certificate, the payments
on which consist entirely or primarily of a specified nonvarying portion of the
interest payable on one or more of the Assets held by the related Series REMIC.
"INVERSE FLOATER CERTIFICATE" means a Regular Certificate that provides
for the payment of interest at a rate determined as the difference between two
interest rate parameters, one of which is a variable rate and the other of which
is a fixed rate or a different variable rate.
"IO CERTIFICATE" means a Non-REMIC Certificate evidencing ownership of a
percentage of the interest payments (net of certain fees) on the Assets assigned
to the related Trust.
"LAND SECURED CONTRACT" means a Contract secured at origination by a
parcel of real estate in addition to a Manufactured Home.
"LEVEL PAYMENT LOAN" means an Asset the terms of which provide for regular
level payments of principal and interest throughout its entire term.
"LEVEL PAYMENT BUY-DOWN LOAN" means an Asset that provides for a reduction
in the amount of the related Obligor's Monthly Payments for a period of up to
the first four years following origination of such Asset and as to which funds
have been provided by someone other than the Obligor to cover the reductions in
such Monthly Payments during those years, but for which the aggregate monthly
amount due on such Asset from the Obligor and anyone else are level for the term
of such Asset.
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"LIQUIDATED LOAN" means a defaulted Contract or Mortgage Loan as to which
all amounts that the Servicer expects to recover through the date of disposition
of the related Manufactured Home or Mortgaged Property have been received.
"LIQUIDATION EXPENSES" means all reasonable, out-of-pocket costs and
expenses (exclusive of the Servicer's overhead costs) incurred by the Servicer
in connection with liquidation of any Contract or Mortgage Loan or disposition
of any related Repo Property or REO Property.
"LIQUIDATION PROCEEDS" means amounts received and retained by the Servicer
in connection with the liquidation of a Liquidated Loan, whether through
foreclosure thereon or repossession and resale of the related Manufactured Home
or otherwise (including Insurance Proceeds collected in connection with such
liquidation).
"LOAN-TO-VALUE RATIO" means the Contract Loan-to-Value Ratio or the
Mortgage Loan-to-Value Ratio of an Asset, as applicable.
"MANUFACTURED HOME" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
"MARK-TO-MARKET REGULATIONS" means Treasury regulations relating to the
provisions under section 475 of the Code relating to mark-to-market accounting
for dealers in securities.
"MONTHLY PAYMENT" means the scheduled monthly payment of principal and
interest on a Contract or Mortgage Loan.
"MORTGAGE" means the mortgage, deed of trust or other instrument creating
a first lien on a first priority ownership interest in or estate in feesimple in
real property securing a Mortgage Note.
"MORTGAGE INSURER" means the insurance company or companies which issue
any Primary Mortgage Insurance Policies with respect to any Mortgage Loans.
"MORTGAGE LOAN" means a mortgage loan secured by a first lien on a one- to
four-family residential real property which is sold and assigned by the Company
to a Trustee and included in the Trust Estate for a Series of Certificates.
"MORTGAGE LOAN DOCUMENTS" means, with respect to each Mortgage Loan, the
following documents:
(1) the original Mortgage Note bearing a complete chain of
endorsements, if necessary, from the initial payee thereunder to the
Seller, with a further endorsement without recourse from the Seller in
blank or to the Trustee or its Custodian, in a form specified in the
related Sales Agreement, together with all related riders and addenda and
any related surety or guaranty agreement, power of attorney and buydown
agreement;
(2) the original recorded Mortgage (or a copy thereof certified to
be a true and correct reproduction of the original thereof by the
appropriate public recording office) with evidence of recordation noted
thereon or attached thereto, or, if the Mortgage is in the process of
being recorded, a photocopy of the Mortgage, certified by an officer of
the Seller or the originator, the related title insurance company, the
related closing/settlement/escrow agent or the related closing attorney to
be a true and correct copy of the Mortgage submitted for recordation;
(3) the original recorded assignment of the Mortgage from the Seller
to the Trustee or its Custodian, in a form specified in the related Sales
Agreement (or a copy thereof certified to be a true and correct
reproduction of the original thereof by the appropriate public recording
office) with evidence of recordation noted thereon or attached thereto,
or, if the assignment is in the process of being recorded, a
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photocopy of the assignment, certified by an officer of the Seller to be a
true and correct copy of the assignment submitted for recordation;
(4) each original recorded intervening assignment of the Mortgage as
is necessary to show a complete chain of title from the original mortgagee
(or beneficiary, in the case of a deed of trust) to the Seller (or a copy
of each such assignment certified to be a true and correct reproduction of
the original thereof by the appropriate public recording office) with
evidence of recordation noted thereon or attached thereto, or, if an
assignment is in the process of being recorded, a photocopy of the
assignment, certified by an officer of the Seller to be a true and correct
copy of the assignment submitted for recordation;
(5) an original Title Insurance Policy or, if such policy has not
yet been issued or is otherwise not available, (a) a written commitment to
issue such policy issued by the applicable title insurance company and an
officer's certificate of the Seller certifying that all of the
requirements specified in such commitment have been satisfied, (b) a
preliminary title report if the related Mortgaged Property is located in a
state in which preliminary title reports are acceptable evidence of title
insurance or (c) a certificate of an officer of the Seller certifying that
a Title Insurance Policy is in full force and effect as to the related
Mortgage and that such Title Insurance Policy is freely assignable to and
will inure to the benefit of the Trustee (subject to recordation of the
related Assignment of Mortgage);
(6) for each Mortgage Loan identified in the related Agreement as
having in place a Primary Mortgage Insurance Policy, a Primary Mortgage
Insurance Policy or a certificate of primary mortgage insurance issued by
the related Mortgage Insurer or its agent indicating that such a policy is
in effect as to such Mortgage Loan or, if neither a policy nor a
certificate of insurance from the related Mortgage Insurer is available, a
certificate of an officer of the Seller certifying that a Primary Mortgage
Insurance Policy is in effect as to such Mortgage Loan;
(7) each related assumption agreement, modification, written
assurance or substitution agreement, if any; and
(8) proof of the maintenance of a Standard Hazard Insurance Policy
(and a flood insurance policy, if applicable) as to the related Mortgaged
Property.
"MORTGAGE LOAN FILE" means, as to any Mortgage Loan, all the related
Mortgage Loan Documents.
"MORTGAGE LOAN SCHEDULE" means an Asset Schedule to the extent it
identifies Mortgage Loans.
"MORTGAGE LOAN-TO-VALUE RATIO" means, as to a Mortgage Loan, the ratio,
expressed as a percentage, of the principal amount of such Mortgage Loan at the
time of determination, to either (i) the sum of the appraised value of the land
and improvements, and the amount of any prepaid finance charges or closing costs
that are financed or (ii) the sum of the purchase price of the home (including
taxes, insurance and any land improvements), the appraised value of the land and
the amount of any prepaid finance charges or closing costs that are financed.
"MORTGAGE NOTE" means the note or other evidence of indebtedness of a
mortgagor secured by a Mortgage.
"MORTGAGE RATE" means, with respect to each Mortgage Loan, the interest
rate specified in the related Mortgage Note.
"MORTGAGED PROPERTY" means the mortgaged property securing a Mortgage
Loan.
"MORTGAGOR" means the obligor on a Mortgage Note.
"MULTIPLE RATE VRDI CERTIFICATE" means a VRDI Certificate that does not
qualify as a Single Rate VRDI Certificate.
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"NEGATIVE ADJUSTMENT" means any reduction in the income accrual on a
Certificate for a period below zero.
"NET LIQUIDATION PROCEEDS" means the amount of Liquidation Proceeds
received with respect to any Liquidated Loan, net of the amount of any
Liquidation Expenses incurred with respect to such Liquidated Loan and not
previously reimbursed to the Servicer at the time of liquidation.
"NET RATE" means, as to any Asset, the Asset Rate thereon minus applicable
servicing, administration and guarantee fees and insurance premiums, if any
(plus reinvestment income thereon if payable to the related Certificateholders),
expressed as a percentage per annum of the principal balance of such Asset.
"NON-RECOVERABLE ADVANCE" means any Advance previously made or proposed to
be made in respect of a Contract or Mortgage Loan by the Servicer (or a Trustee
or Pool Insurer) pursuant to the related Agreement, which, in the good faith
judgment of the Servicer (or such Trustee or Pool Insurer), will not or, in the
case of a proposed Advance, would not, be ultimately recoverable by the Servicer
(or such Trustee or Pool Insurer) from Related Proceeds of such Contract or
Mortgage Loan.
"NON-REMIC CERTIFICATE" means a Certificate representing an interest in a
Trust Estate as to which no REMIC elections have been made.
"NON-REMIC STRIP CERTIFICATE" means an IO Certificate, a PO Certificate,
or a Ratio Certificate.
"NON-VRDI CERTIFICATE" means a NOWA Certificate, a Variable Rate
Certificate that is issued at an Excess Premium, or any other Variable Rate
Certificate that does not qualify as a VRDl Certificate.
"NOTIONAL PRINCIPAL AMOUNT" means a fictional principal balance that may
be assigned to a Certificate or a Class of Certificates that is to be used
solely for purposes of determining the amount of interest distributions and
certain other rights and obligations of the holder(s) of such Certificate or
Class and does not represent any beneficial interest in principal payments on
the Assets in the related Trust.
"NOWA CERTIFICATE" means a Weighted Average Certificate relating to a
Trust (or a designated Asset Pool thereof) whose Assets do not bear interest at
qualified floating rates.
"NVRI" means a residual interest that has negative value because, on the
date it is acquired, the present value of the anticipated tax liabilities
associated with holding the interest exceeds the sum of (1) the present value of
the expected future distributions on the interest and (2) the present value of
the anticipated tax savings associated with holding the interest as the related
REMIC generates losses.
"OAKWOOD" means Oakwood Acceptance Corporation, a North Carolina
corporation.
"OAKWOOD HOMES" means Oakwood Homes Corporation, a North Carolina
corporation of which Oakwood and OMH are direct wholly-owned subsidiaries and of
which the Company is an indirect (through Oakwood) wholly-owned subsidiary.
"OBLIGOR" means a person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract or a person who is the
mortgagor or borrower under a Mortgage Loan or who has acquired a Mortgaged
Property subject to a Mortgage Loan.
"OBLIGOR BANKRUPTCY INSURANCE" means an insurance policy, reserve fund or
other form of credit enhancement that provides protection against losses
resulting from the bankruptcy of an Obligor.
"OBLIGOR BANKRUPTCY LOSS" means, for any Distribution Date as to any Asset
that was the subject of a Principal Cramdown during the preceding Prepayment
Period, the related Principal Cramdown Amount.
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"OFFERED CERTIFICATES" means, as to any Series, the Certificates of
Classes of such Series that are offered pursuant to the related Prospectus
Supplement and this Prospectus.
"OID REGULATIONS" means the final regulations governing original issue
discount that were issued by the Treasury.
"OMH" means Oakwood Mobile Homes, Inc., a North Carolina corporation that
is a wholly-owned retailing subsidiary of Oakwood Homes.
"ORDINARY RATIO CERTIFICATE" means a Ratio Certificate that is not
considered a Contingent Payment Obligation.
"PAC CLASS" means a "planned amortization" Class of Certificates
structured to receive fixed principal distribution amounts on designated
Distribution Dates so long as principal payments on the underlying Assets are
received at a rate that is within a range of constant percentages of the
prepayment assumption model used (as specified in the related Prospectus
Supplement).
"PARITY PRICE" means the price at which a Certificate will yield its
coupon, after giving effect to any payment delay.
"PARTICIPANTS" means the participating organizations that utilize the
services of the Depository, including securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations.
"PARTICIPATION CERTIFICATE" means a Non-REMIC Certificate evidencing
ownership of equal percentages of the principal and interest payments on the
Assets assigned to the related Trust.
"PASS-THROUGH RATE" means, with respect to any Class of Certificates, the
per annum interest rate, if any, which will accrue on the Certificate Principal
Balance of such Class.
"PERCENTAGE INTEREST" means, with respect to a Certificate to which an
initial principal amount is assigned as of the Closing Date, the portion of the
Class of which such Certificate is a part evidenced by such Certificate,
expressed as a percentage, the numerator of which is the denomination
represented by such Certificate and the denominator of which is the initial
Certificate Principal Balance of such Class. With respect to a Certificate to
which an initial principal balance is not assigned as of the Closing Date, the
portion of the Class of which such Certificate is a part evidenced by such
Certificate, expressed as a percentage stated on the face of such Certificate.
"PERIODIC RATE CAP" means, with respect to any Adjustable Rate Asset, the
limit on the percentage increase that may be made to the related Asset Rate on
any Interest Adjustment Date.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust (including any beneficiary thereof),
unincorporated organization or government or any agency or political subdivision
thereof.
"P&I ADVANCE" means any amount advanced (or required to be advanced, as
the context requires) by the Servicer in respect of a delinquent payment of
principal and interest on a Contract or Mortgage Loan.
"PLAN" means any employee benefit plan or retirement arrangement,
including individual retirement accounts and annuities, Keogh plans, and
collective investment funds in which such plans, accounts, annuities or
arrangements are invested, that are described in or subject to the Plan Asset
Regulations, ERISA, or corresponding provisions of the Code.
"PLAN ASSET REGULATIONS" means the DOL regulations set forth in 29 C.F.R.
2510.3-101, as amended from time to time.
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"PLAN INVESTOR" means any Plan, any Person acting on behalf of a Plan, or
any Person using the assets of a Plan.
"PO CERTIFICATE" means a Non-REMIC Certificate evidencing ownership of a
percentage of the principal payments on some or all of the Assets assigned to
the related Trust.
"POOLING AND SERVICING AGREEMENT" means, with respect to any Series, the
pooling and servicing agreement pursuant to which the related Trust was
established and the related Certificates were issued, which will be among the
Company, the Servicer and the related Trustee and will consist of a Series
Agreement which incorporates by reference the Standard Terms.
"POOL INSURANCE POLICY" shall have the meaning assigned and shall be as
described herein under "THE TRUSTS -- INSURANCE -- CREDIT INSURANCE."
"POOL INSURER" means the insurer under any Pool Insurance Policy.
"POOL SCHEDULED PRINCIPAL BALANCE" means, on any Distribution Date for a
Series, the aggregate of the Scheduled Principal Balances, immediately prior to
the beginning of the related Collection Period, of the related Assets that were
outstanding at the beginning of such Collection Period, without giving effect to
any principal prepayments, Net Liquidation Proceeds or Repurchase Prices
received (or Realized Losses incurred) on such Assets on the day preceding the
beginning of such Collection Period, plus the aggregate of the principal
components of any Monthly Payments that were due at or prior to the beginning of
such Collection Period on such Assets, but which Monthly Payments were not
collected from a related Obligor or advanced by the Servicer and which were not
reflected in a corresponding reduction of the Certificate Principal Balance of
the Certificates on the related Distribution Date. The Pool Scheduled Principal
Balance as of any date of determination that is not a Distribution Date shall be
the Pool Scheduled Principal Balance for the next upcoming Distribution Date.
"PRE-FUNDED AMOUNT" means the amount initially deposited into a
Pre-Funding Account for a Series.
"PRE-FUNDED ASSET" means an Asset acquired by a Trust after the related
Closing Date using funds on deposit in the related Pre-Funding Account.
"PRE-FUNDING ACCOUNT" means an account established for the purpose of
enabling a Trust to purchase Pre-Funded Assets, with an aggregate principal
balance not to exceed 25% of the Certificate Principal Balance of Certificates
issued by such Trust during the applicable Pre-Funding Period, as described
herein under "THE TRUSTS -- PRE-FUNDING ACCOUNTS."
"PRE-FUNDING PERIOD" means any period specified as such in a Prospectus
Supplement not to exceed three months, during which the related Trust may
acquire Pre-Funded Assets using funds on deposit in a related Pre-Funding
Account.
"PRE-ISSUANCE ACCRUED INTEREST" means interest that has accrued under the
terms of a Certificate prior to the issue date of such Certificate.
"PRE-ISSUANCE ACCRUED INTEREST RULE" means the rule in the OID Regulations
under which a Certificate's issue price may be computed by subtracting from the
issue price the amount of Pre-Issuance Accrued Interest on the Certificate, and
a portion of the interest received on the first Distribution Date with respect
to such Certificate would be treated as a return of such Pre-Issuance Accrued
Interest rather than as a payment on the Certificate, provided: (i) a portion of
the initial purchase price of the Certificate is allocable to Pre-Issuance
Accrued Interest and (ii) the Certificate provides for a payment of stated
interest on the first payment date within one year of the issue date that equals
or exceeds the amount of such Pre-Issuance Accrued Interest.
"PREMIUM CERTIFICATE" means a Certificate that has a purchase price
greater than its principal amount.
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"PREPAYMENT MODEL" means a prepayment standard or model which represents
an assumed rate of prepayment of the Assets in an Asset Pool relative to the
aggregate outstanding principal balance of such Asset Pool from time to time.
"PREPAYMENT PERIOD" means, unless otherwise provided in a related
Prospectus Supplement, with respect to any Distribution Date, the calendar month
immediately preceding the calendar month in which such Distribution Date occurs.
"PRICING PREPAYMENT ASSUMPTIONS" means, with respect to a Series of
Certificates, the assumptions concerning the rate and timing of principal
prepayments on the underlying Assets and concerning the reinvestment rate on
amounts held pending distribution that were assumed in pricing such
Certificates.
"PRIMARY MORTGAGE INSURANCE" means the insurance provided under any
Primary Mortgage Insurance Policy.
"PRIMARY MORTGAGE INSURANCE POLICY" means the primary mortgage insurance
policy, if applicable, covering certain Conventional Mortgage Loans for which
the initial Mortgage Loan-to-Value Ratios exceeded 80%.
"PRINCIPAL CRAMDOWN" means, as to any Asset, either (a) a decree by a
bankruptcy court to the effect that the portion of such Asset that is secured by
the underlying Manufactured Home or Mortgaged Property is less than its Unpaid
Principal Balance due to the fact that the value of such Manufactured Home or
Mortgaged Property is less than such Unpaid Principal Balance or (b) the
permanent forgiveness by a bankruptcy court of some or all of the Unpaid
Principal Balance owed by the related Obligor.
"PRINCIPAL CRAMDOWN AMOUNT" means, with respect to any Prepayment Period
as to any Asset that has been the subject of a Principal Cramdown, the amount by
which (a) the Unpaid Principal Balance of such Asset exceeds (b) as applicable,
depending upon the type of Principal Cramdown that was applied to such Asset,
either (1) the portion of such Unpaid Principal Balance that remains secured by
the related Manufactured Home or Mortgaged Property after taking the related
Principal Cramdown into account or (2) the Unpaid Principal Balance after taking
into account the permanent forgiveness of debt ordered by the bankruptcy court
in connection with the related Principal Cramdown.
"PRINCIPAL DISTRIBUTION AMOUNT" means, for any Series, except as otherwise
defined in the related Agreement, on any Distribution Date other than the
Distribution Date on which the related Trust is to be terminated, the sum of the
following amounts: (1) the sum of the principal components of all Monthly
Payments scheduled to be made on the Due Date occurring during the related
Collection Period on the related Assets that were Outstanding at the opening of
business on such Due Date (regardless of whether such Monthly Payments were
received by the Servicer from the related Obligors), not including any Monthly
Payments due on Liquidated Loans or repurchased Assets; (2) the sum of the
amounts of all Principal Prepayments received by the Servicer on the related
Assets during the related Prepayment Period; (3) with respect to any related
Asset that became a Liquidated Loan during the related Prepayment Period, the
Scheduled Principal Balance thereof on the date of liquidation thereof
(determined without giving effect to such liquidation), plus an amount equal to
the principal components of all Monthly Payments due on or prior to such date on
such Asset but theretofore unpaid by the related Obligors and not advanced by
the Servicer; (4) with respect to any related Asset that was purchased or
repurchased by the Servicer, OAC or OMI pursuant to the related Agreement during
the related Prepayment Period, the Scheduled Principal Balance thereof on the
date of purchase or repurchase thereof (determined without giving effect to such
purchase or repurchase), plus an amount equal to the principal components of all
Monthly Payments due on or prior to such date on such Asset but theretofore
unpaid by the related Obligor and not advanced by the Servicer; and (5) an
amount equal to all Principal Distribution Amounts from previous Distribution
Dates that have not yet been distributed on the Certificates (not including any
portion of such previous Principal Distribution Amounts that is included in
either of the amounts described in clause (3) or clause (4) above) minus the
amount of any Writedown Amounts that have previously been allocated to the Class
of Certificates then entitled to receive the Principal Distribution Amount in
accordance with the related Pooling and Servicing Agreement.
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On the Distribution Date on which the Trust is terminated, the Pool
Scheduled Principal Balance for such Distribution Date.
"PRINCIPAL PREPAYMENT" means, with respect to any Asset, a payment
attributable to principal of such Asset, other than a scheduled principal
payment on such Asset, which may be received (1) from the related Obligor
together with a regular Monthly Payment, (2) from the related Obligor together
with an early Monthly Payment, or (3) in the form of net Insurance Proceeds
received by the Servicer otherwise than as a component of Liquidation Proceeds.
"PRINCIPAL-ONLY CLASS" means a Class of Certificates representing an
interest only in specified collections of principal on the underlying Assets,
which will have no Pass-Through Rate.
"QUALIFIED BANK" means any domestic bank not affiliated with Oakwood or
OMI (1) having long-term unsecured debt obligations rated in one of the two
highest rating categories (without modifiers) of at least one Rating Agency (and
of any other Rating Agency, if such bank's long-term unsecured debt obligations
are rated by such additional Rating Agency) or short-term unsecured debt
obligations rated in at least one Rating Agency's highest applicable rating
category (and of any other Rating Agency's highest applicable rating category if
such bank's short-term unsecured debt obligations are rated by such additional
Rating Agency), (2) having commercial paper or short-term unsecured debt
obligations rated in at least one Rating Agency's highest applicable rating
category (and in any other Rating Agency's highest applicable rating category if
such bank's commercial paper or short-term unsecured debt obligations are rated
by such additional Rating Agency), or (3) that is otherwise acceptable to each
applicable Rating Agency.
"QUALIFIED MORTGAGE" has the meaning assigned to such term herein under
"FEDERAL INCOME TAX CONSEQUENCES -- REMIC CERTIFICATES -- REMIC QUALIFICATION
- --ASSET COMPOSITION."
"QUALIFIED STATED INTEREST" means, in general, stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at (1) a single fixed rate or (2) a variable rate
thatmeets certain requirements set out in the OID Regulations.
"QUALIFIED SUBSTITUTE ASSET" means an Asset substituted by the Company,
the Seller or the Servicer for a Replaced Asset which must, on the date of such
substitution, (1) have an Unpaid Principal Balance not greater than (and not
more than $10,000 less than) the Unpaid Principal Balance of the Replaced Asset,
(2) have an Asset Rate not less than (and not more than one percentage point in
excess of) the Asset Rate of the Replaced Asset, (3) have a Net Rate equal to
the Net Rate of the Replaced Asset, (4) have a remaining term to maturity not
greater than (and not more than one year less than) that of the Replaced Asset,
(5) have a Loan-to-Value Ratio as of the first day of the month in which the
substitution occurs equal to or less than the Loan-to-Value Ratio of the
Replaced Asset as of such date (in each case, using the appraised value at
origination, and after taking into account the Monthly Payment due on such
date), and (6) comply with each representation and warranty set forth in Section
2.05 of the Standard Terms and in the related Sales Agreement. In the event that
more than one Asset is substituted for a Replaced Asset, the amount described in
clause (1) hereof shall be determined on the basis of aggregate Unpaid Principal
Balances, the rates described in clauses (2) and (3) hereof shall be determined
on the basis of weighted average Asset Rates and Net Rates, as the case may be,
and the term described in clause (4) hereof shall be determined on the basis of
weighted average remaining terms to maturity, provided that no Qualified
Substitute Asset may have an original term to maturity beyond the latest
original term to maturity of any Asset assigned to the Trust on the Closing
Date. In the case of a Trust for which a REMIC election has been or will be
made, a Qualified Substitute Asset also shall satisfy the following criteria as
of the date of its substitution for a Replaced Asset: (A) the Obligor shall not
be 30 or more days delinquent in payment on the Qualified Substitute Asset, (B)
the Asset File for such Asset shall not contain any material deficiencies in
documentation, and shall include an executed Contract or Mortgage Note, as
applicable, and, if it is a Land Secured Contract or a Mortgage Loan, a recorded
Mortgage; (C) the Loan-to-Value Ratio of the Asset must be 125% or less either
(i) on the date of origination of the Asset, or, if any of the terms of such
Asset were modified other than in connection with a default or imminent default
on such Asset, on the date of such modification, or (ii) on the date of the
substitution, based on an appraisal conducted within the 60 day period prior to
the date of the substitution; (D) no property securing such Asset may be subject
to foreclosure, bankruptcy, or insolvency
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proceedings; and (E) such Asset, if a Land Secured Contract or a Mortgage Loan,
must be secured by a valid first lien on the related Real Property or Mortgaged
Property. In addition to all other requirements stated in this paragraph, any
Replaced Asset that is a Mortgage Loan may only be replaced by another Mortgage
Loan.
"QUALIFYING REIT INTEREST" means interest that is treated as "interest on
obligations secured by mortgages on real property" for REIT qualification
purposes.
"RATE BUBBLE CERTIFICATE" means a Regular Certificate, the effective
interest rate on which is higher during the Certificate's First Distribution
Period than during the remainder of the life of the Certificate.
"RATING AGENCY" means a nationally-recognized statistical securities
rating organization, such as Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc., Moody's investors Service, Inc., Fitch Investors Service,
Inc., and Duff & Phelps Credit Rating Co. With respect to any Series, each
Rating Agency rating any Certificates of such Series offered hereunder will be
identified in the related Prospectus Supplement.
"RATIO CERTIFICATE" means a Non-REMIC Certificate evidencing ownership of
a percentage of the interest payments and a different percentage of the
principal payments on the Assets assigned to the related Trust.
"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"REALIZED INTEREST LOSS" means a shortfall in interest resulting from the
receipt of Net Liquidation Proceeds in respect of a Contract or Mortgage Loan in
an amount that is insufficient to pay accrued and unpaid interest thereon.
"REALIZED LOSS" means (1) the amount of any loss realized by a Trust in
respect of any related Liquidated Loan (which may be a Special Hazard Loss or a
Fraud Loss), which shall generally equal (a) the Unpaid Principal Balance of the
Liquidated Loan, plus accrued and unpaid interest on such Liquidated Loan, plus
amounts reimbursable to the Servicer for previously unreimbursed Servicing
Advances, minus (b) Net Liquidation Proceeds in respect of the Liquidated Loan
or (2) any Obligor Bankruptcy Loss.
"REAL PROPERTY" means a parcel of real estate securing a Land Secured
Contract.
"RECORD DATE" means, for any Distribution Date, the date on which the
identities of the Certificateholders entitled to distributions on the related
Certificates on such Distribution Date are fixed, which shall be the last day
ofthe preceding calendar month unless otherwise specified in the related
Prospectus Supplement.
"REGULAR CERTIFICATE" means a Certificate evidencing a "regular interest"
in a REMIC.
"REIT" means a "real estate investment trust" as defined in the Code.
"RELATED PROCEEDS" means, with respect to any Contract or Mortgage Loan in
respect of which an Advance has been or is to be made, future collections in
respect of such Contract or Mortgage Loan (including collections of or from
Insurance Proceeds, Additional Assets or Liquidation Proceeds relating to such
Contract or Mortgage Loan).
"RELIEF ACT" means the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"REMIC" means a "real estate mortgage investment conduit" as defined in
the Code.
"REMIC CERTIFICATE" means a Certificate representing an interest in a
Trust Estate as to which one or more REMIC elections have been made.
"REMIC PROVISIONS" means provisions of the Code relating to REMICs, which
appear at Sections 860A through 860G of the Code, related Code provisions,
regulations (whether in proposed, temporary or final form), announcements and
rulings thereunder, as the foregoing may be in effect from time to time.
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"REMITTANCE ACCOUNT" shall have the meaning assigned to such term herein
under "SALE AND SERVICING OF CONTRACTS AND MORTGAGE LOANS -- SERVICING --
DISTRIBUTIONS ON CERTIFICATES."
"REMITTANCE DATE" means the business day preceding any monthly
Distribution Date.
"REMITTANCE REPORT" means, with respect to any Distribution Date, the
monthly statement relating to such Distribution Date which is to be prepared by
the Servicer and furnished by the Trustee to the related Certificateholders, as
more fully described herein under "THE POOLING AND SERVICING AGREEMENTS
- --REPORTS TO CERTIFICATEHOLDERS."
"REO PROPERTY" means a Mortgaged Property acquired by the Servicer on
behalf of a Trust pursuant to a foreclosure or other similar proceeding in
respect of a related Mortgage Loan.
"REPLACED ASSET" means an Asset replaced or to be replaced by a Qualified
Substitute Asset.
"REPO PROPERTY" means a Manufactured Home (and any related Real Property)
acquired by the Servicer on behalf of a Trust pursuant to a repossession,
foreclosure or other similar proceeding in respect of a related Contract.
"REPURCHASE PRICE" shall, for any Asset, have the meaning assigned in the
related Agreement. Generally, the "Repurchase Price" of an Asset will equal the
Unpaid Principal Balance thereof, plus unpaid interest thereon at the applicable
Asset Rate through the end of the month in which such price is paid for the
Asset.
"RESERVE FUND" means a fund established and funded by the Company or such
other party specified in the related Prospectus Supplement to make payments on
certain Certificates to the extent funds are not otherwise available.
"RESIDUAL CERTIFICATE" means a Certificate evidencing a "residual
interest" in a REMIC.
"RIC" means a "regulated investment company" as defined in the Code.
"SALES AGREEMENT" means, with respect to any Asset, the agreement pursuant
to which the related Seller sold such Asset to the Company.
"SCHEDULED PRINCIPAL BALANCE" means, as of any date of determination with
respect to any Contract, Repo Property, Mortgage Loan or REO Property, (1) the
Cut-off Date Principal Balance of such Contract or Mortgage Loan (or of the
related Contract or Mortgage Loan, in the case of a Repo Property or REO
Property) minus (2) the sum of (a) the principal components of any Monthly
Payments due on such Contract or Mortgage Loan (or on the related Contract or
Mortgage Loan, in the case of a Repo Property or REO Property) after the related
Cut-off Date and on or before such date of determination (regardless of whether
such Monthly Payments were received from the related Obligor) plus (b) all
principal prepayments received by the Servicer on such Contract or Mortgage Loan
(or on the related Contract or Mortgage Loan, in the case of a Repo Property or
REO Property) (including the principal portion of Net Liquidation Proceeds and
the principal portion of all amounts paid by the Seller or another party to
repurchase such Contract or Mortgage Loan) on or after the Cut-off Date and on
or prior to such date of determination, plus (c) all Realized Losses incurred on
such Contract or Mortgage Loan (or the related Contract or Mortgage Loan, in the
case of a Repo Property or REO Property) on or after the Cut-off Date and on or
prior to such date of determination.
"SELLER" means, as to any Contract or Mortgage Loan included in the Trust
Estate for a Series, the entity that sold such Contract or Mortgage Loan to the
Company under a Sales Agreement, which will be Oakwood unless otherwise
specified in the related Prospectus Supplement.
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"SENIOR CERTIFICATES" means, with respect to each Series of Certificates,
the Class or Classes which have rights to receive distributions or with respect
to allocations of Realized Losses and/or Shortfalls that are preferential to
those of another Class or Classes in such Series.
"SERIES" means a series of Certificates offered pursuant to this
Prospectus and a Prospectus Supplement thereto.
"SERIES AGREEMENT" means the Pooling and Servicing Agreement for a
particular Series, not including the Standard Terms.
"SERIES RATE" means, with respect to a Series, the interest rate equal to
a weighted average of the interest rates on all of the Non-REMIC Certificates
issued in such Series.
"SERIES REMIC" means a REMIC created with respect to a particular Series.
"SERVICE" means the Internal Revenue Service.
"SERVICER" means Oakwood, in its capacity as servicer of the Mortgage
Loans and/or Contracts underlying a Series of Certificates, or such other entity
specified as the servicer in the related Prospectus Supplement.
"SERVICING ADVANCE" means an advance required to be made by the Servicer
in respect of Contracts or Mortgage Loans (other than P&I Advances) including,
but not limited to, advances for the payment of personal property taxes, real
property taxes and premiums for Standard Hazard Insurance Policies.
"SERVICING FEE" means the monthly fee paid to the Servicer in respect of a
Series, as specified in the related Prospectus Supplement, which is typically a
fixed percentage of the Pool Scheduled Principal Balance of the related Asset
Pool.
"SHORTFALL" means, for any month and any Contract or Mortgage Loan, the
amount by which the amount of interest due on such Contract or Mortgage Loan for
such month exceeds the amount of interest collected or advanced in respect of
such Contract, which may be due to Due Date Interest Shortfall or Soldiers' and
Sailors' Shortfall.
"SINGLE RATE VRDI CERTIFICATE" means a VRDI Certificate that provides for
stated interest unconditionally payable in cash or property at least annually at
a single qualified floating rate or a single objective rate.
"SMMEA" means the Secondary Mortgage Market Enhancement Act of 1984.
"SOLDIERS' AND SAILORS' SHORTFALL" means a Shortfall in respect of a
Contract or Mortgage Loan resulting from application of the Relief Act.
"SPECIAL HAZARD INSURANCE POLICY" shall have the meaning assigned and
shall be as described herein under "THE TRUSTS -- INSURANCE -- HAZARD INSURANCE
- -- SPECIAL HAZARD INSURANCE POLICY."
"SPECIAL HAZARD INSURER" means the insurer under any Special Hazard
Insurance Policy.
"SPECIAL HAZARD LOSS" means a loss incurred on a Contract or Mortgage Loan
attributable to physical damage to the related Manufactured Home or Mortgaged
Property of a type which is not covered by standard hazard insurance policies,
excluding losses caused by war, nuclear reaction, nuclear or atomic weapons,
insurrection or normal wear and tear.
"STANDARD HAZARD INSURANCE POLICY" shall mean a policy providing standard
hazard insurance coverage with respect to a Manufactured Home or Mortgaged
Property as described herein under "THE TRUSTS -- INSURANCE -- HAZARD INSURANCE
- -- STANDARD HAZARD INSURANCE POLICIES."
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"STANDARD TERMS" means the Standard Terms to Pooling and Servicing
Agreement, incorporated by reference by any Series Agreement.
"STEP-UP RATE" means the Asset Rate on a Step-up Rate Loan.
"STEP-UP RATE LOAN" means an Asset which bears interest at an Asset Rate
that increases over time.
"STRIP CLASS" means a Class of Certificates representing an interest only
in a specified portion of interest collections on the underlying Assets, which
may have no principal balance, a nominal principal balance or a Notional
Principal Amount.
"STRIPPING REGULATIONS" means the regulations issued by the Treasury under
section 1286 of the Code.
"SUBORDINATED CERTIFICATES" means, with respect to each Series of
Certificates, the Class or Classes with rights to receive distributions or with
respect to the allocation of Realized Losses and/or Shortfalls that are
subordinate to those of another Class or Classes of such Series.
"SUBORDINATION AMOUNT" means a specific amount of subordination provided
by Subordinated Certificates, as specified, if applicable, in the related
Prospectus Supplement.
"SUB-SERVICER" means any party, if any, with whom the Servicer has entered
into a Sub-servicing Agreement.
"SUB-SERVICING ACCOUNT" means an Eligible Account established by a
Sub-servicer that must comply with all standards applicable to the related
Certificate Account, into which the Sub-servicer must deposit collections in
respect of the related Assets pending remittance thereof to the related
Certificate Account.
"SUB-SERVICING AGREEMENT" means the written contract between the Servicer
and any Sub-servicer relating to servicing and/or administration of certain
Mortgage Loans or Contracts as provided in the Agreement.
"SUPERPREMIUM CERTIFICATE" means a Certificate that provides for a
relatively small amount of principal and for interest that can be expressed as
Qualified Stated Interest at a very high fixed rate with respect to that
principal.
"TAXABLE MORTGAGE POOL" means any entity other than a REMIC or a REIT if
(i) substantially all of the assets of the entity consist of debt obligations
and more than 50% of such obligations consist of "real estate mortgages" (which
term, for purposes of this definition, includes Mortgage Loans and Contracts),
(ii) such entity is the obligor under debt obligations with two or more
maturities, and (iii) under the terms of the debt obligations on which the
entity is the obligor, payments on such obligations bear a relationship to
payment on the obligations held by the entity.
"TAXABLE MORTGAGE POOL RULES" means the Code sections governing Taxable
Mortgage Pools, and the regulations that were issued by the Treasury thereunder.
"TAX ADMINISTRATOR" means the entity responsible for computing the amount
of original issue discount to be reported to the holders of Regular Certificates
each taxable year, which, unless otherwise provided in the related Pooling and
Servicing Agreement, will be Oakwood or an Affiliate thereof.
"TEASER CERTIFICATE" means a Regular Certificate that bears interest under
terms that provide for a teaser rate period, interest holiday, or other period
during which the rate of interest payable on such Certificate is lower than the
rate payable during the remainder of the life of the Certificate.
"THRIFT INSTITUTION" means a thrift institution taxed as a "mutual savings
bank" or a "domestic building and loan association."
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"TITLE I" means Title I of the National Housing Act, as amended.
"TITLE STATE" means a state in which a lien on a Manufactured Home is
"perfected" under applicable motor vehicle titling statues, either by notation
of the secured party's lien on the related certificate of title or by delivery
of the required documents and payment of a fee to the state motor vehicle
authority to re-register the Manufactured Home.
"TITLE V" means Title V of the Depository Institutions Deregulation and
Monetary Control Act of 1980, as amended.
"TMP" means the holder of a residual interest in a REMIC that is
designated as the tax matters person of such REMIC.
"TREASURY" means the United States Treasury Department.
"TRUST" means a trust that issues a Series of Certificates.
"TRUSTEE" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"TRUSTEE MORTGAGE LOAN FILE" means, as to any Mortgage Loan, a file which
is required to contain all of the Mortgage Loan Documents for such Mortgage
Loan.
"TRUST ESTATE" means, with respect to each Series of Certificates, the
corpus of the trust created by the related Agreement, to the extent described in
such Agreement, consisting of, among other things, Contracts and/or Mortgage
Loans, such assets as shall from time to time be identified as deposited in the
related Distribution Account, property which secured a Contract or Mortgage Loan
but which has been acquired by the related Trust through repossession or
foreclosure or otherwise, any related insurance policy, any related Reserve Fund
and any related alternate credit enhancement, if any.
"UBTI" means "unrelated business taxable income" as defined in the Code.
"UCC" means the Uniform Commercial Code.
"UCC STATE" means a state in which a lien on a Manufactured Home is
"perfected" pursuant to the provisions of the applicable UCC, by filing UCC-3
financing statements or other appropriate transfer instruments with all
appropriate UCC filing offices.
"UNDERWRITER" means any firm that underwrites the purchase of the
Certificates of a Series.
"UNPAID PRINCIPAL BALANCE" means the unpaid principal balance of a
particular Contract or Mortgage Loan.
"VA" means the United States Department of Veterans Affairs.
"VA CONTRACT" OR "VA MORTGAGE LOAN" means a Contract or Mortgage Loan that
is partially guaranteed by the VA.
"VARIABLE RATE CERTIFICATE" means a Regular Certificate that bears
interest at a variable rate.
"VOTING RIGHTS" means, with respect to a Certificate, the portion of the
voting rights of all of the Certificates of the related Series which is
allocated to any such Certificate. Unless otherwise provided in the related
Agreement, (1) if any Class of Certificates does not have a Certificate
Principal Balance or has an initial Certificate Principal Balance that is less
than or equal to 1% of the aggregate Certificate Principal Balance of all the
Certificates of its Series, then 1% of the Voting Rights for such Series shall
be allocated to each such Class, and the balance of
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the Voting Rights for such Series shall be allocated among the remaining Classes
of Certificates of such Series in proportion to their respective Certificate
Principal Balances following the most recent Distribution Date, and (b) if no
Class of Certificates of such Series has an initial Certificate Principal
Balance less than 1% of the aggregate Certificate Principal Balance of all
Certificates of such Series, then all of the Voting Rights for such Series shall
be allocated among all the Classes of Certificates of such Series in proportion
to their respective Certificate Principal Balances following the most recent
Distribution Date. Voting Rights allocated to each Class of Certificates shall
be allocated among the Certificates of such Class in proportion to the
respective Percentage Interests of the Holders thereof.
"VRDI" means a "variable rate debt instrument" as defined in section
1.1275-5 of the OID Regulations.
"VRDI CERTIFICATE" means a Variable Rate Certificate that qualifies as a
VRDI under the OID Regulations.
"WAM" means, with respect to a Regular Certificate, the sum of the amounts
obtained by multiplying the amount of each Deemed Principal Payment on the
Certificate by a fraction, the numerator of which is the number of complete
years from the Certificate's issue date until the payment is made, and the
denominator of which is the Certificate's stated redemption price at maturity.
"WEIGHTED AVERAGE CERTIFICATE" means a Regular Certificate that provides
for interest based on a weighted average of the interest rates on some or all of
the Assets held by the related REMIC.
"WEIGHTED AVERAGE NET ASSET RATE" means for any Distribution Date, a rate
equal to (i) the weighted average of the Asset Rates applicable to the scheduled
Monthly Payments that were due in the related Collection Period on outstanding
Assets less (ii) the Servicing Fee Rate.
"WRITEDOWN AMOUNT" means with respect to each Distribution Date, the
amount, if any, by which (i) the aggregate Certificate Principal Balance of all
the Certificates, after all distributions have been made on the Certificates on
such Distribution Date, exceeds (ii) the Pool Scheduled Principal Balance of the
Assets for the next Distribution Date.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with the
offering of $1,000,000 of the Mortgage Pass-Through Certificates being
registered under this Registration Statement, other than underwriting discounts
and commission:
SEC Registration................................................$278
Printing and Engraving...........................................(*)
Legal Fees and Expenses..........................................(*)
Accounting Fees and Expenses.....................................(*)
Trustee Fees and Expenses........................................(*)
Rating Agency Fees...............................................(*)
Miscellaneous ...................................................(*)
TOTAL.....................................................$(*)
(*)To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 8 of the North Carolina Business Corporation Act provides in
substance that North Carolina corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with pending or threatened actions, suits or proceedings (whether
civil, criminal, administrative, or investigative and whether formal or
informal) against liability and expenses incurred in any proceeding arising out
of such directors', officers', employees' or agents' status as such or their
activities in any one of the foregoing capacities. The North Carolina Business
Corporation Act also provides that North Carolina corporations may purchase
insurance on behalf of any such director, officer, employee or agent. Article VI
of the Registrant's Articles of Incorporation incorporates the indemnification
provisions of Article 8 of the North Carolina Business Corporation Act to the
fullest extent provided for therein.
Oakwood Homes Corporation carries an insurance policy providing directors'
and officers' liability insurance for any liability its directors or officers or
the directors or officers of any of its subsidiaries, including the Registrant,
may incur in their capacities as such.
Under certain sales agreements entered into by the Registrant (as purchaser)
with Oakwood Acceptance Corporation ("OAC") as seller of collateral, OAC is
obligated to indemnify the Registrant against certain expenses and liabilities.
Reference is made to the form of Underwriting Agreement filed as an exhibit
hereto for provisions relating to the indemnification of directors, officers and
controlling persons of the Registrant against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS.
1.1 Underwriting Agreement Standard Provisions, dated September 1994,
together with Form of Underwriting Agreement(2)
1.2 Terms Agreement, dated November 16, 1994, among the Registrant, Oakwood
Acceptance Corporation, and CS First Boston Corporation and Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Underwriters, relating
to the Registrant's Series 1994-A Pass-Through Certificates(5)
1.3 Terms Agreement, dated June 16, 1995, among the Registrant, Oakwood
Acceptance Corporation, nd CS First Boston Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation, as Underwriters, relating to
the Registrant's Series 1995-A Pass-Through Certificates(6)
1.4 Underwriting Agreement Standard Provisions (June 1995)(6)
II - 1
<PAGE>
1.5 Terms Agreement, dated October 18, 1995, among the Registrant, Oakwood
Acceptance Corporation, and CS First Boston Corporation and First Union
Capital Markets Corp., as Underwriters, relating to the Registrant's
Series 1995-B Pass-Through Certificates(7)
1.6 Terms Agreement, dated February 16, 1996, among the Registrant, Oakwood
Acceptance Corporation, and CS First Boston Corporation, First Union
Capital Markets Corp. and NationsBanc Capital Markets, Inc. as
Underwriters, relating to the Registrant's Series 1996-A Pass-Through
Certificates(10)
1.7 Terms Agreement, dated July 18, 1996, among the Registrant, Oakwood
Acceptance Corporation, and CS First Boston Corporation and Greenwich
Capital Markets, Inc. as Underwriters, relating to the Registrant's
Series 1996-B Pass-Through Certificates(11)
1.8 Terms Agreement, dated October 18, 1996, among the Registrant, Oakwood
Acceptance Corporation, and CS First Boston Corporation and Goldman,
Sachs & Co., as Underwriters, relating to the Registrant's Series
1996-C Pass-Through Certificates(12)
1.9 Terms Agreement, dated February 21, 1997 among the Registrant, Oakwood
Acceptance Corporation, and Credit Suisse First Boston Corporation and
Goldman, Sachs & Co., as Underwriters, relating to the Registrant's
Series 1997-A Pass-Through Certificates(14)
1.10 Terms Agreement, dated May 15, 1997, among the Registrant, Oakwood
Acceptance Corporation, and Credit Suisse First Boston Corporation and
Goldman, Sachs & Co., as Underwriters, relating to the Registrant's
Series 1997-B Pass-Through Certificates(15)
1.11 Terms Agreement, dated August 14, 1997, among the Registrant, Oakwood
Acceptance Corporation, Credit Suisse First Boston Corporation and
Goldman, Sachs & Co., as Underwriters, relating to the Registrant's
Series 1997-C Pass-Through Certificates(18)
1.12 Terms Agreement, dated November 14, 1997, among the Registrant, Oakwood
Acceptance Corporation, Credit Suisse First Boston Corporation, as
Underwriter, relating to the Registrant's Series 1997-D Pass Through
Certificates(19)
1.13 Terms Agreement, dated February 20, 1998, among the Registrant, Oakwood
Acceptance Corporation and Credit Suisse First Boston Corporation and
First Chicago Capital Markets, Inc., as Underwriters, relating to the
Registrant's Series 1998-A Pass-Through Certificates(20)
1.14 Terms Agreement, dated May 28, 1998, among the Registrant, Oakwood
Acceptance Corporation and Credit Suisse First Boston Corporation and
Prudential Securities Incorporated, as Underwriters, relating to
Registrant's Series 1998-B Pass-Through Certificates(21)
1.15 Terms Agreement, dated August 20, 1998, among the Registrant, Oakwood
Acceptance Corporation and Credit Suisse First Boston Corporation and
First Chicago Capital Markets, Inc., as Underwriters, relating to
Registrant's Series 1998-C Pass-Through Certificates(22)
1.16 Terms Agreement, dated November 3, 1998, among the Registrant, Oakwood
Acceptance Corporation and Credit Suisse First Boston Corporation, as
Underwriter, relating to Registrant's Series 1998-D Pass Through
Certificates(23)
1.17 Terms Agreement, dated January 14, 1999, among the Registrant, Oakwood
Acceptance Corporation and Credit Suisse First Boston Corporation and
NationsBanc Montgomery Securities LLC, as Underwriters, relating to
Registrant's Series 1999-A Pass Through Certificates(24)
3.1 Articles of Incorporation of Registrant(2)
3.2 By-Laws of Registrant(2)
3.3 Articles of Amendment to the Articles of Incorporation of Registrant,
as filed with the North Carolina Secretary of State on December 9,
1994(4)
4.1 Form of Pooling and Servicing Agreement(2)
4.2 Standard Terms to Pooling and Servicing Agreement (September 1994
Edition)(5)
4.3 Series 1994-A Pooling and Servicing Agreement, dated as of November 1,
1994, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and NationsBank of Virginia, N.A., as Trustee (including
exhibits)(5)
4.4 Series 1995-A Pooling and Servicing Agreement, dated as of June 1,
1995, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and NationsBank, N.A., as Trustee (including exhibits)(6)
4.5 Series 1995-B Pooling and Servicing Agreement, dated as of October 1,
1995, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee (including
exhibits)(7)
4.6 Standard Terms to Pooling and Servicing Agreement (November 1995
Edition)(9)
II - 2
<PAGE>
4.7 Series 1996-A Pooling and Servicing Agreement, dated as of February 1,
1996, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(10)
4.8 Series 1996-B Pooling and Servicing Agreement, dated as of July 1,
1996, by and among the Registrant Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(11)
4.9 Series 1996-C Pooling and Servicing Agreement, dated as of October 1,
1996, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(12)
4.10 Series 1997-A Pooling and Servicing Agreement, dated as of February 1,
1997, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(14)
4.11 Series 1997-B Pooling and Servicing Agreement, as amended July 22,
1997, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(15) (17)
4.12 Series 1997-C Pooling and Servicing Agreement, dated as of August 1,
1997, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(18)
4.13 Series 1997-D Pooling and Servicing Agreement, dated as of November 1,
1997, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(19)
4.14 Series 1998-A Pooling and Servicing Agreement, dated as of February 1,
1998, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(20)
4.15 Series 1998-B Pooling and Servicing Agreement, dated as of May 1, 1998,
by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(21)
4.16 Series 1998-C Pooling and Servicing Agreement, dated as of August 1,
1998, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(22)
4.17 Series 1998-D Pooling and Servicing Agreement, dated as of October 1,
1998, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and PNC Bank, National Association, as Trustee(23)
4.18 Series 1999-A Pooling and Servicing Agreement, dated as of January 1,
1999, by and among the Registrant, Oakwood Acceptance Corporation, as
Servicer, and Chase Manhattan Trust Company, National Association, as
Trustee(24)
4.19 Standard Terms to Pooling and Servicing Agreement (June 1998
Edition)(22)
4.20 Form of Guaranty Agreement(13)
4.21 Limited Guarantee, dated as of February 1, 1997, by and between Oakwood
Homes Corporation, as Guarantor, and PNC Bank, National Association, as
Trustee(14)
4.22 Limited Guarantee, dated as of May 1, 1997, by and between Oakwood
Homes Corporation, as Guarantor, and PNC Bank, National Association, as
Trustee(15)
4.23 Limited Guarantee, dated as of August 1, 1997, by and between Oakwood
Homes Corporation, as Guarantor, and PNC Bank, National Association, as
Trustee(18)
4.24 Limited Guarantee, dated as of November 1, 1997, by and between Oakwood
Homes Corporation, as Guarantor, and PNC Bank, National Association, as
Trustee(19)
4.25 Limited Guarantee, dated as of May 1, 1998, by and between Oakwood
Homes Corporation, as Guarantor, and PNC Bank, National Association, as
Trustee(21)
4.26 Limited Guarantee, dated as of January 1, 1999, by and between Oakwood
Homes Corporation, as Guarantor, and Chase Manhattan Trust Company, as
Trustee(24)
5.1 Opinion of Hunton & Williams(*)
8.1 Tax Opinion re: Adequacy of Prospectus Disclosure(*)
8.2 Tax Opinion re: REMIC Certificates(*)
8.3 Tax Opinion re: Non-REMIC Certificates(*)
23.1 Consent of Hunton & Williams is contained in their opinions filed as
Exhibits 5.1, 8.1, 8.2 and 8.3
23.2 Consent of Pricewaterhouse Coopers LLP
24.1 Power of Attorney (contained on the signature page hereof)
99.1 Form of Sales Agreement between the Registrant, as Purchaser, and
Oakwood Acceptance Corporation, as Seller(2)
- ----------
(1)Incorporated herein by reference to Exhibit to the Registrant's
Registration Statement on Form S-3 (No. 33-
II - 3
<PAGE>
83660) filed September 2, 1994.
II - 4
<PAGE>
(2)Incorporated herein by reference to Exhibit to the Registrant's
Pre-Effective Amendment No. 1 to Registration Statement on Form S-3 (No.
33-83660) filed October 21, 1994.
(3)Incorporated herein by reference to Exhibit to the Registrant's
Pre-Effective Amendment No. 2 to Registration Statement on Form S-3 (No.
33-83660) filed November 4, 1995.
(4)Incorporated herein by reference to Exhibit to the Registrant's Current
Report on Form 8-K filed December 23, 1994.
(5)Incorporated herein by reference to Exhibit to the Registrant's Current
Report on Form 8-K filed December 7, 1994.
(6)Incorporated herein by reference to Exhibit to the Registrant's Current
Report on Form 8-K filed June 27, 1995.
(7)Incorporated herein by reference to Exhibit to the Registrant's Current
Report on Form 8-K filed November 3, 1995.
(8)Incorporated herein by reference to Page II-5 of the Registrant's
Registration Statement on Form S-3 (No. 33-99320) filed November 14, 1995.
(9)Incorporated herein by reference to Exhibit to the Registrant's
Pre-Effective Amendment No. 1 to Registration Statement on Form S-3 (No.
33-99320) filed January 11, 1996.
(10)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed March 5, 1996.
(11)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed August 5, 1996.
(12)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed November 5, 1996.
(13)Incorporated herein by reference to Exhibit to the Registrant's
Post-Effective Amendment No. 2 to Registration Statement on Form S-3 (No.
333-99320) filed February 12, 1997.
(14)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed March 5, 1997.
(15)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed May 23, 1997.
(16)Incorporated herein by reference to Exhibit to the Registrant's
Registration Statement on Form S-3 (No. 333-31441) filed July 17, 1997.
(17)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed July 22, 1997.
(18)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed August 27, 1997.
(19)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed November 21, 1997.
(20)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed Februrary 27, 1998.
(21)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed June 12, 1998.
(22)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed August 31, 1998.
(23)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed November 10, 1998.
(24)Incorporated herein by reference to Exhibit to the Registrant's
Current Report on Form 8-K filed January 25, 1999.
(*)To be filed by amendment.
II - 5
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ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i)To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in the post-effective
amendment by those paragraphs is contained in periodic reports filed by
the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are included by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II - 6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Greensboro, County of Guilford, State of North
Carolina, on February 19, 1999.
OAKWOOD MORTGAGE INVESTORS,
INC. (REGISTRANT)
/s/ NICHOLAS J. ST. GEORGE
------------------------------
Nicholas J. St. George
Chairman of the Board
Each person whose signature appears below constitutes and appoints Nicholas
J. St. George, Willliam G. Edwards, Myles E. Standish and Douglas R. Muir his
true and lawful attorneys-in-fact and agents, each acting alone, with full
powers of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ NICHOLAS J. ST. GEORGE Director February 19, 1999
- --------------------------
Nicholas J. St. George
/s/ WILLIAM G. EDWARDS Director and President February 19, 1999
- ------------------------- (PRINCIPAL FINANCIAL OFFICER
William G. Edwards AND PRINCIPAL EXECUTIVE OFFICER)
/s/ DOUGLAS R. MUIR Vice President, Secretary February 19, 1999
- ------------------------- and Treasurer
Douglas R. Muir (PRINCIPAL ACCOUNTING OFFICER)
Director February __, 1999
- -------------------------
Paul Stephanz
II - 7
<PAGE>
Jack A. Molenkamp File No.: 40944.000529
E-Mail: [email protected] Direct Dial: (804)788-8655
February 19, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
OAKWOOD MORTGAGE INVESTORS, INC.
Ladies and Gentlemen:
Oakwood Mortgage Investors, Inc. ("OMI") is a North Carolina corporation
organized in 1994. On behalf of itself and various trusts to be organized by it,
it has registered with the Securities and Exchange Commission an aggregate of
$3,500,000,000 of Pass-Through Certificates. Through January 31, 1999, trusts
organized by it had issued publicly an aggregate of $3,244,001,859 of such
Certificates. The Certificates evidence an interest in a pool of retail
installment sales contracts and mortgage loans secured by manufactured homes
(the "Assets").
OMI is a wholly-owned subsidiary of Oakwood Acceptance Corporation
("Acceptance"), which is itself a wholly-owned subsidiary of Oakwood Homes
Corporation, a publicly-traded company whose stock is listed on the New York
Stock Exchange. OMI is a bankruptcy remote entity whose activities are limited
to securitization activities.
In a securitization transaction, OMI acquires the Assets on the date the
Certificates are issued and immediately transfers the Assets to a common law
trust organized by it. Certificates representing interests in the trust are then
sold to the public through an underwriter. OMI uses the cash received upon sale
of the Certificates to pay for the Assets acquired. It does not retain any of
the Assets or cash, and it makes only those representations with respect to the
Assets that it obtained from Acceptance, which continues to service the Assets.
OMI serves largely to provide additional segregation of the Assets from
Acceptance. It has no security holders other than Acceptance, the owner of all
its outstanding common stock.
For a number of business reasons, Acceptance desires to reincorporate OMI
as a bankruptcy-remote, limited purpose entity in the state of Nevada. Among
other things, this will provide additional segregation between Acceptance and
OMI. (By relocating to Nevada, OMI
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Securities and Exchange Commission
February 19, 1999
Page 2
will no longer have the same address as Acceptance, thereby rendering the
consolidation of the two entities more difficult in the event of an Acceptance
bankruptcy.)
Acceptance has already formed a Nevada corporation named Oakwood Mortgage
Investors, Inc. In due course, Acceptance intends to effect the merger of North
Carolina OMI into the Nevada OMI, with the Nevada corporation being the
surviving entity. For administrative convenience, OMI would like to amend the
existing registration statement in order to provide continuity and avail itself
of the principal amount of Certificates registered but not yet issued.
Upon consummation of the merger, the Nevada corporation will be the legal
successor to OMI organized in North Carolina. As such, it will be liable for any
obligations of the predecessor entity, including any that it may have as
registrant under the Securities Act.
Rule 414 promulgated under the Act provides that if an issuer having
securities registered under the Act has been succeeded by an issuer incorporated
under the laws of another state, the registration statement of the predecessor
issuer shall be deemed the registration statement of the successor issuer
provided: (a) immediately prior to the succession the successor issuer had no
assets or liabilities other than nominal assets or liabilities; (b) the
succession was effected by merger or similar succession pursuant to statutory
provisions under which the successor issuer acquired all of the assets and
assumed all of the liabilities and obligations of the predecessor issuer; (c)
the succession was approved by securityholders of the predecessor issuer at a
meeting for which proxies were solicited, or information was furnished to
securityholders pursuant to Section 14(c) of the Exchange Act; and (d) the
successor issuer has filed an amendment to the registration statement of the
predecessor issuer expressly adopting such statement as its own registration
statement for all purposes of the Act and the Securities Exchange Act.
OMI believes that it will meet the conditions established in Rule 414 at
the time of its merger. More importantly, it does not believe that the
conditions are or should be applicable to it, because it has no outstanding
securities other than common stock issued to its parent. The Certificates all
have been issued by separate trusts and evidence interests in those trusts. OMI
is not liable on the securities in any respect (other than in its capacity as
registrant). Under the Pooling and Servicing Agreements pursuant to which the
Certificates were issued, the Securityholders have no say in OMI's activities,
as long as it abides by its charter. The Pooling and Servicing Agreements
expressly contemplate in Section 6.04 that OMI may merge, and its charter only
requires the approval of those Rating Agencies that have rated the outstanding
Certificates. It is a condition of the merger that Rating Agency approvals be
obtained. Accordingly, there are no third parties that should have any interest
in the merger, and there is therefore no reason why the successor OMI should not
be allowed to succeed to the predecessor OMI's Registration Statement.
<PAGE>
Securities and Exchange Commission
February 19, 1999
Page 3
If Rule 414 were found to be applicable, OMI believes that it will
satisfy, or can satisfy those conditions. The successor will have only nominal
assets and liabilities prior to the merger, and the succession will be effected
pursuant to a statutory merger. Further, the successor has filed an amendment to
the predecessor's Registration Statement in which it expressly adopts such
statement as its own. Finally, the transaction was approved by OMI's
securityholder, Acceptance. Admittedly, this approval was not pursuant to a
proxy pursuant to Section 14(a) of the Exchange Act, or an information statement
pursuant to Section 14(c) of the Exchange Act, but there is absolutely no reason
to impose that requirement on a registrant whose only securityholder is the
parent corporation that owns all of its common stock. It could prepare an
information statement for its parent, but that seems an unnecessary waste of
time and effort.
This is not a typical case where a registrant has equity or debt
securities registered under the securities laws. Even in those cases, the
Commission recognizes in Rule 145(a)(2) that a merger for the sole purpose of
changing state of domicile, which this merger is, does not warrant registration.
Here, OMI merely serves as an intermediary to facilitate the issuance of
Certificates by various trusts organized by it. It is not obligated on the
Certificates. The Registrant does not believe that it falls within Rule 414, or,
if it does, it believes that it complies with all the meaningful requirements
imposed by that Rule.
As a consequence, we would appreciate your processing this amendment of
OMI's registration statement. When appropriate, an amendment to this
registration statement will be filed by the surviving Nevada entity subsequent
to the merger, which will include as exhibits the charter and bylaws of the
Nevada corporation and the related Plan of merger. We would be pleased to
discuss this matter with you at your convenience. Thank you.
Sincerely yours,
/s/ JACK A. MOLENKAMP
Jack A. Molenkamp
cc: Myles E. Standish
Randolph F. Totten
David B. Rich, III
