SUPPLEMENT TO
PROSPECTUS SUPPLEMENT DATED AUGUST 18, 1999
(TO PROSPECTUS DATED MAY 20, 1999)
$10,121,000
VANDERBILT MORTGAGE AND FINANCE, INC.
SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT
SENIOR/SUBORDINATE PASS-THROUGH CERTIFICATES, SERIES 1999C
CLASS II B-3 CERTIFICATES
-----------------------------
| CAREFULLY CONSIDER THE |
| RISK FACTORS IN THE |
| PROSPECTUS SUPPLEMENT AND | THE CERTIFICATES:
| THE PROSPECTUS. |
| | o This Supplement relates to the
| The offered certificates | offering of the Class II B-3
| represent obligations of | Certificates of the Series referenced
| the trust only and do not | above. This Supplement does not
| represent an interest in | contain complete information about the
| or obligation of | offering of the Class II B-3
| Vanderbilt Mortgage and | Certificates. Additional information
| Finance, Inc., The Chase | is contained in the accompanying
| Manhattan Bank or any of | Prospectus Supplement dated August 18,
| their affiliates (except | 1999 prepared in connection with the
| to the extent of the | offering of Series 1999C Certificates
| limited guarantee of the | and in the related Prospectus dated
| Class I B-2 and Class II | May 20, 1999. You are urged to read
| B-3 Certificates by | this Supplement, the Prospectus
| Clayton Homes, Inc.) | Supplement and the Prospectus in full.
| |
| This Supplement to the | o On the issuance date the Original
| Prospectus Supplement may | Class Principal Balance of the Class
| be used to offer and sell | II B-3 Certificates was $10,121,000.
| the certificates only if | As of December 7, 1999 the Class
| accompanied by the | Principal Balance of the Class II B-3
| Prospectus Supplement and | Certificates was $10,121,000.
| the Prospectus. |
-----------------------------
- ---------------- -------------- -------------- ----------------- ---------------
CLASS PRICE TO UNDERWRITING PROCEEDS
PRINCIPAL PUBLIC DISCOUNT TO
BALANCE COMPANY
- ---------------- -------------- -------------- ----------------- ---------------
Class II B-3 $10,121,000 96.25% 0.25% $9,716,160
Certificates(1)
- ---------------- -------------- -------------- ----------------- ---------------
(1) Plus accrued interest, if any, at the applicable rate from December 28,
1999
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRUDENTIAL SECURITIES
December 16, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THE
PROSPECTUS, THE ACCOMPANYING PROSPECTUS SUPPLEMENT
AND THIS SUPPLEMENT THERETO
We tell you about the certificates in separate documents that
progressively provide more detail: (a) the prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; (b) the prospectus supplement related to
the particular terms of your series of certificates and (c) this supplement to
the prospectus supplement providing additional information with respect to
your certificates.
If the terms of your series of certificates described in the
prospectus supplement and this supplement vary from the prospectus, you should
rely on the information in the prospectus supplement and this supplement. If
the terms of your certificates described in this supplement vary from the
prospectus supplement and prospectus, you should rely on the information in
this supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities. The information in this document
may only be accurate on the date of this document.
REPORTS TO HOLDERS OF THE CERTIFICATES
We will provide to the holders of certificates of each series certain
monthly and annual reports concerning the certificates and the related trust
fund. For a more complete description of the reports you will receive, please
read the section entitled "Description of the Certificates -- Reports to
Certificateholders" in the prospectus supplement relating to your series.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information
with the Securities and Exchange Commission, including annual, quarterly and
special reports, proxy statements and other information. Vanderbilt Mortgage
and Finance, Inc. and Clayton Homes, Inc. have filed a registration statement
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended. You can read and copy the registration statement, as well as other
filed documents, at the Securities and Exchange Commission's public reference
facilities located at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the public
reference facilities by calling the Securities and Exchange Commission at
1-800-SEC-0330. You may also visit the Securities and Exchange Commission's
web site at http://www.sec.gov to access available filings.
Clayton Homes, Inc. has securities other than the certificates listed
on the New York Stock Exchange. You may inspect reports and other information
concerning those securities at the New York Stock Exchange.
The Securities and Exchange Commission allows us to "incorporate by
reference" some of the information we file with it, which means that we can
disclose important information to you by referring you to those documents. The
information that we incorporate by reference is considered to be part of the
prospectus, and later information that we file with the Securities and
Exchange Commission will automatically update and supersede this information.
With respect to any class of certificates that is supported by a guarantee of
Clayton Homes, Inc., we are incorporating by reference the following documents
into the prospectus, the related prospectus supplement and this supplement
thereto:
o Clayton Homes, Inc.'s Annual Report on Form 10-K for the year
ended June 30, 1999; and
o Clayton Homes Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1999.
We are also incorporating by reference into the prospectus, the
related prospectus supplement and this supplement thereto:
o any document filed by Vanderbilt Mortgage and Finance, Inc.
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
and Exchange Act of 1934, as amended, after the date of the
prospectus and prior to the termination of the offering of the
certificates issued by the trust; and
o any document: (i) that relates to a class of certificates
supported by a guarantee of Clayton Homes, Inc. and (ii) that
is filed by Clayton Homes, Inc. pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities and Exchange Act of 1934,
as amended, after the date of the prospectus and prior to the
termination of the offering of the certificates issued by the
trust.
We will provide to you, upon your written or oral request, without
charge, a copy of any or all of the documents incorporated by reference in the
prospectus (other than certain exhibits to such documents). Please direct your
requests for copies of documents filed by Vanderbilt Mortgage and Finance,
Inc. to its principal executive office at 500 Alcoa Trail, Maryville,
Tennessee 37804, Attention: David Jordan, Secretary, telephone number: (423)
380-3515. Please direct your requests for copies of documents filed by Clayton
Homes, Inc. to its principal executive office at 5000 Clayton Road, Maryville,
Tennessee 37804, Attention: Kevin T. Clayton, President and Chief Executive
Officer, telephone number: (423) 380-3000.
<PAGE>
THIS SUPPLEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING IN THE ACCOMPANYING PROSPECTUS SUPPLEMENT AND
PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS SUPPLEMENT ARE DEFINED IN
THE PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
THE CONTRACT POOL
As of November 25, 1999 (the "Reference Date"), the Contract Pool
included approximately 9,462 Contracts having an aggregate outstanding
principal balance of approximately $365,457,125.34. The Group II Contracts
included approximately 3,603 Contracts having an aggregate outstanding
principal balance of approximately $137,170,568.80.
The following table summarizes the delinquency and foreclosure
experience of the Contracts as of the Reference Date.
<TABLE>
<CAPTION>
As of
November 25, 1999
-----------------
<S> <C>
Total Number of Contracts Outstanding................................................. 9,462
Total Delinquencies as a Percent of Contracts Outstanding at Period End (1)...........
31-59 days................................................................... 1.86%
60-89 days................................................................... 0.61%
90 days or more (excluding pending foreclosures)............................. 0.34%
--------
Total Delinquencies................................................................... 2.81%
========
- --------------
(1) As a percentage of the total number of Contracts as of the Reference Date.
</TABLE>
THE FOLLOWING SECTION REPLACES IN ITS ENTIRETY THE SECTION IN THE
PROSPECTUS SUPPLEMENT ENTITLED "VANDERBILT MORTGAGE AND FINANCE, INC.":
VANDERBILT MORTGAGE AND FINANCE, INC.
The following information supplements the information in the
Prospectus under the heading "Vanderbilt Mortgage and Finance, Inc." and
"Underwriting Policies" in the Prospectus.
The volume of manufactured housing contracts originated by the
Company for the periods indicated below and certain other information at the
end of such periods are as follows:
<TABLE>
<CAPTION>
CONTRACT ORIGINATION
QUARTER
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------------------------------------- -------------
1994 1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Balance of Contracts
Originated (in thousands).... $292,435 $345,260 $476,467 $646,624 $801,865 $1,085,484 $251,640
Number of Contracts
Originated ................... 12,401 13,857 16,910 21,691 24,304 30,165 6,308
Average Contract Size(1)........ $ 23,582 $ 24,916 $ 28,177 $ 29,811 $ 32,993 $35,985 $39,892
Average Interest Rate(1)........ 10.84% 12.24% 10.72% 11.10% 10.51% 10.40% 10.31%
- ------------------------
(1) As of period end.
</TABLE>
<PAGE>
The following table shows the size of the portfolio of manufactured
housing contracts serviced by the Company on the dates indicated:
<TABLE>
<CAPTION>
CONTRACT SERVICING PORTFOLIO
AT
SEPTEMBER
AT JUNE 30, 30,
-------------------------------------------------------------------- ---------
1994 1995 1996 1997 1998(2) 1999(2) 1999(2)
---- ---- ---- ---- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Being Serviced(l)............ 60,165 66,960 74,154 85,912 108,045 119,396 122,652
Originated by the Company....... 47,944 55,923 64,298 75,455 86,245 98,963 102,768
Acquired from other institutions 12,221 11,037 9,856 10,457 21,800 20,433 19,884
- -------------------------
(1) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
(2) Includes Access Financial Contracts. On May 28, 1998, the Company
purchased approximately $245 million of manufactured housing installment
sales contracts (the "Access Financial Contracts") from Access Financial
Lending Corp.
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE(1)
AT
SEPTEMBER
AT JUNE 30, 30,
-------------------------------------------------------------------------- ---------
1994 1995 1996 1997 1998(8) 1998(9) 1999(8) 1999(9) 1999(9)
---- ---- ---- ---- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Outstanding(2)(3)............ 60,165 66,960 74,154 85,912 99,819 108,045 112,399 119,396 122,652
Company Originations......... 47,944 55,923 64,298 75,455 86,245 86,245 98,963 98,963 102,768
Acquisitions from other
institutions............... 12,221 11,037 9,856 10,457 13,574 21,800 13,436 20,433 19,884
Number of Contracts
Delinquent(4):
Total 30 to 59 days past due. 772 819 953 1,159 1,287 2,045 1,140 1,274 1,864
Company Originations......... 353 565 761 982 1,048 1,048 1,016 1,016 1,295
Acquisitions from other
institutions............... 419 254 192 177 239 997 124 258 569
Total 60 to 89 days past due.... 209 227 285 284 326 568 379 453 511
Company Originations......... 109 167 238 236 268 268 332 332 367
Acquisitions from other
institutions............... 100 60 47 48 58 300 47 121 144
Total 90 days or more past due.. 498 625 516 590 787 1,486 811 1,222 1,301
Company Originations......... 203 315 341 440 547 547 610 610 734
Acquisitions from other
institutions.............. 295 310 175 150 240 939 201 612 567
Total Contracts Delinquent(5)... 1,479 1,671 1,754 2,033 2,400 4,099 2,330 2,949 3,676
Company Originations......... 665 1,047 1,340 1,658 1,863 1,863 1,958 1,958 2,396
Acquisitions from other
institutions............... 814 624 414 375 537 2,236 372 991 1,280
Total Contracts Delinquent(6)... 1,184 1,208 1,511 1,789 2,153 3,603 2,105 2,467 3,105
Company Originations......... 556 873 1,211 1,503 1,711 1,711 1,825 1,825 2,189
Acquisitions from other
institutions.............. 628 335 300 286 442 1,892 280 642 916
Total Delinquencies as a
Percent(7) of Contracts
Outstanding(5)............... 2.46% 2.50% 2.37% 2.37% 2.40% 3.79% 2.07% 2.47% 3.00%
Company Originations......... 1.39% 1.87% 2.08% 2.20% 2.16% 2.16% 1.98% 1.98% 2.33%
Acquisitions from other
institutions............... 6.66% 5.65% 4.20% 3.59% 3.96% 10.26% 2.77% 4.85% 6.44%
Total Delinquencies as a
Percent(7) of Contracts
Outstanding(6)............... 1.97% 1.80% 2.04% 2.08% 2.16% 3.34% 1.87% 2.07% 2.53%
Company Originations......... 1.16% 1.56% 1.88% 1.99% 1.98% 1.98% 1.84% 1.84% 2.13%
Acquisitions from other
institutions.............. 5.14% 3.04% 3.04% 2.74% 3.26% 8.68% 2.08% 3.14% 4.61%
</TABLE>
- -------------------------
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as described
under "Vanderbilt Mortgage and Finance, Inc." in the Prospectus.
(2) Excludes contracts serviced by others for which the Company is
contingently liable.
(3) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
(4) Including contracts that were repossessed during the prior 30-day period,
and based on 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.
(5) Including contracts that were repossessed during the prior 30-day period;
figures for Acquisitions from other institutions at June 30, 1995 also
include all such repossessed contracts on hand.
(6) Excluding contracts that were repossessed during the prior 30-day period.
(7) By number of contracts.
(8) Excludes Access Financial Contracts.
(9) Includes Access Financial Contracts.
The following table sets forth the loan loss/repossession experience
of the Company and its affiliates for the manufactured housing contracts
serviced by the Company.
<TABLE>
<CAPTION>
LOAN LOSS/REPOSSESSION EXPERIENCE(1)
AT OR FOR
THE QUARTER
ENDED
AT OR FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------------------------- -------------
1994 1995 1996 1997 1998(9) 1999(9) 1999(10) 1999(10)
---- ---- ---- ---- ------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number of
Contracts
Serviced(2)(3) ..... 60,165 66,960 74,154 85,912 99,819 112,399 119,396 122,652
Company Originations 47,944 55,923 64,298 75,455 86,245 98,963 98,963 102,768
Acquisitions from 12,221 11,037 9,856 10,457 13,574 13,436 20,433 19,884
other institutions
Aggregate Principal $1,006,794 $1,200,893 $1,456,103 $1,910,438 $2,340,583 $2,988,981 $3,204,787 $3,304,005
Balance of Contracts
Serviced(4).........
Company Originations. $ 852,536 $1,074,302 $1,351,324 $1,749,645 $2,190,183 $2,787,204 $2,787,204 $2,902,445
Acquisitions from $154,258 $126,591 $104,779 $160,793 $150,400 $201,777 $417,583 $401,560
other institutions.
Net Losses from Contract
Liquidations(5)
Total Dollars(6)..... $2,758 $2,262 $2,052 $715 $ 17,861 $ 31,266 $39,764 $11,580
Company $528 $362 $(442) $(1,622) $15,099 $24,671 $24,671 $8,285
Originations(6)....
Acquisitions from $2,230 $1,900 $2,494 $2,337 $2,762 $6,595 $15,093 $3,295
other institutions
Percentage of Average 0.30% 0.20% 0.15% 0.04% 0.84% 1.17% 1.37% 1.42%
Principal Balance(7)
Company Originations 0.07% 0.04% (0.04)% (0.10)% 0.77% 0.99% 0.99% 1.16%
Acquisitions from 1.62% 1.35% 2.16% 1.76% 1.70% 3.75% 3.68% 3.22%
other institutions.
Total Number of 565 540 709 937 1,682(10) 1,514 1,857 1,977
Contracts in
Repossession(3).....
Company 388 422 635 885 1,229 1,374 1,374 1,567
Originations(8)....
Acquisitions from 177 118 74 52 453 140 483 410
other institutions.
</TABLE>
- -----------------------------
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as described
under "Vanderbilt Mortgage and Finance, Inc." in the Prospectus.
(2) As of period end. Excludes contracts serviced by others for which the
Company is contingently liable.
(3) Excludes contracts serviced by the Company on behalf of Access, the
Resolution Trust Corporation and trusts previously serviced by First
Manufactured Housing Credit Corporation.
(4) As of period end. Includes principal balances of contracts serviced by
others for which the Company is contingently liable.
(5) Includes net losses on contracts serviced by others for which the Company
is contingently liable.
(6) For all periods through June 30, 1997, the calculation of net losses has
been determined after all accrued and unpaid interest was written off and
does not include repossession and other liquidation expenses. For these
periods, data with respect to repossession and other liquidation expenses
generally was not maintained by dealers on a separately identifiable
basis, and, therefore, this information was not available to the Company.
The Company believes that it would not be unusual for such expenses to
have been equal to 15% of the Scheduled Principal Balance of a defaulted
Contract. However, actual expenses may have been higher or lower. For the
periods ended June 30, 1998, June 30, 1999 and September 30, 1999, data
with respect to repossession and other liquidation expenses has been
maintained by dealers and made available to the Company. The Company has,
therefore, included dealer repossession and liquidation expense data in
the numbers calculated for such periods. Because of the different
computational method used, amounts shown for the periods ended June 30,
1998, June 30, 1999 and September 30, 1999 are not comparable to prior
periods.
(7) As a percentage of the average principal balance of all contracts being
serviced during the period. Percentages have been annualized.
(8) Includes repossessions from contracts serviced by others for which the
Company is contingently liable.
(9) Excludes Access Financial Contracts.
(10) Includes Access Financial Contracts.
The Company believes that its historical loss experience has been
favorably affected by its capacity to resell repossessed units through dealers
owned by CHI and to make needed repairs on repossessed units through the
facilities of such dealers, rather than paying the rates charged by
unaffiliated parties. If the Company is replaced as Servicer of the Contracts,
the successor Servicer may not have access to the CHI dealer network and, as a
consequence, the loss experience on the Contracts may be adversely affected.
The data presented in the preceding tables are for illustrative
purposes only, and there is no assurance that the delinquency, loan loss and
repossession experience of Contracts in the Contract Pool 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 a
downturn in regional or local economic conditions. For instance, such a
downturn and higher levels of delinquency, loan loss and repossession were
experienced in areas dependent on the oil and gas industry. These regional or
local economic conditions are often volatile, and no predictions can be made
regarding future economic loss upon repossession. In addition, an increased
supply of used units in one region may in turn affect the supply in other
regions, thus affecting economic loss upon liquidation in such other regions.
Information regarding the geographic location, at origination, of the
Manufactured Homes securing the Contracts in the Contract Pool is set forth
under "The Contract Pool" herein.
ADDITIONAL INFORMATION WITH RESPECT TO
VANDERBILT MORTGAGE AND FINANCE, INC.
As of June 30, 1999, Vanderbilt had total assets of approximately
$805 million and stockholder's equity of approximately $317 million.
Vanderbilt's originations of variable rate Contracts has increased
from relatively few prior to 1994 to a high of 11,594 originations with an
aggregate dollar amount of approximately $430,240,983 in fiscal 1999.
At June 30, 1999, Vanderbilt was servicing approximately 135,000
contracts and an aggregate dollar amount of approximately $3.5 billion, of
which Vanderbilt either originated, purchased from dealers or acquired from
other lenders approximately 120,000 contracts with an aggregate dollar amount
of approximately $3.2 billion.
THE FOLLOWING SECTION REPLACES IN ITS ENTIRETY THE SECTION IN THE
PROSPECTUS SUPPLEMENT ENTITLED "RATIO OF EARNINGS TO FIXED CHARGES FOR CHI":
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES FOR CHI
Set forth below are CHI's ratios of earnings to fixed charges for the
past five years and the three months ended September 30, 1999. For the
purposes of compiling these ratios, earnings consist of earnings before income
taxes plus fixed charges. Fixed charges consist of interest expense and the
interest portion of rent expense.
<TABLE>
<CAPTION>
FOR THREE MONTH
PERIOD ENDED
FOR YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------------------------- ---------------
1995 1996 1997 1998 1999 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges 21.64 36.00 39.99 41.24 12.48* 28.10
- -------------------------------------
</TABLE>
- ------------------
* The reduction in the earnings to fixed charges ratio for the year
ended June 30, 1999 compared to prior years was due primarily to an
increase in interest expense as a result of increased borrowings by
CHI and its consolidated companies. The requisite financing for
recent acquisitions of contracts, the funding of a CHI stock
repurchase program and general working capital needs attributed to
such rise in CHI's outstanding debt obligations. For additional
financial information we refer you to CHI's annual 10-K report for
fiscal year ended June 30, 1999 and quarterly 10-Q report for the
quarterly period ended September 30, 1999, which were previously
filed with the SEC.
DESCRIPTION OF THE CLASS II B-3 CERTIFICATES
The Class II B-3 Certificates are Subordinate Certificates. See
"Description of the Certificates--Group II Certificates and the
Senior/Subordinate Structure" in the Prospectus Supplement. To the extent
funds are available therefor, the Class II B-3 Certificates will be entitled
to receive interest and principal in the amount of the Group II Available
Distribution Amount for such Class as described in the Prospectus Supplement
under "Description of the Certificates--Distributions". It is unlikely that
the holders of the Class II B-3 Certificates will receive distributions of
principal on any Remittance Date prior to the Remittance Date on which the
Class II B Principal Distribution Test is met. Additional information relating
to distributions of certain payments in respect of principal with respect to
the Class II B-3 Certificates are set forth in the Prospectus Supplement under
"Description of the Certificates--Distributions".
Losses on Liquidated Contracts in Group II will be allocated to the
Class II B-3 Certificates as described in the Prospectus Supplement under
"Description of the Certificates--Losses on Liquidated Contracts". However,
the Class II B-3 Certificates will have the benefit of the Limited Guarantee
from Clayton Homes, Inc. ("CHI") or the Alternate Credit Enhancement. See
"Description of the Certificates--Limited Guarantee of CHI" in the Prospectus
Supplement.
As of December 7, 1999 (the "Certificate Date"), the Class Principal
Balance of the Class II B-3 Certificates was approximately $10,121,000,
evidencing an undivided interest of approximately 7.38% in the then current
principal balance of the Group II Contracts. As of the Certificate Date, the
Group II Senior Certificates had an aggregate principal balance of
approximately $98,945,452.75 and evidenced in the aggregate a beneficial
ownership interest of approximately 74.2% in the then current principal
balance of the Group II Contracts.
REPORTS TO CERTIFICATEHOLDERS
The most recent monthly statement that has been furnished to
Certificateholders of record on the most recent Remittance Date is included
herein as Exhibit 1.
YIELD AND PREPAYMENT CONSIDERATIONS
See "Yield and Prepayment Considerations" in the Prospectus
Supplement for information related to the Class II B-3 Certificates. The
information set forth in the table in the Prospectus Supplement entitled
"Percent of the Original Principal Balance of the Class II B-3 Certificates at
the Respective Percentages of the Prepayment Model Set Forth Below" is subject
to the assumptions set forth in "Yield and Prepayment Considerations--Group II
Assumptions" in the Prospectus Supplement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Class II B-3 Certificates will be treated for federal income tax
purposes as having been issued with original issue discount ("OID") in an
amount equal to the difference between the principal balance of such
certificates and their issue price. See "Certain Federal Income Tax
Consequences" in the Prospectus and Prospectus Supplement. For purposes of
determining the amount and the rate of accrual of OID, the Company intends to
assume that there will be prepayments on the Contracts at a rate equal to 250%
of the Prepayment Model.
If the method for computing OID described in the Prospectus results
in a negative amount of OID for any period with respect to a holder of a Class
II B-3 Certificate, the amount of OID allocable to such period would be zero
and such holder will be permitted to offset such negative amount only against
future OID (if any) attributable to such certificates.
Prospective purchasers of the Class II B-3 Certificates should
consider carefully the income tax consequences of an investment in the Class
II B-3 Certificates discussed under "Certain Federal Income Tax Consequences"
in the Prospectus Supplement and in the Prospectus. Such purchasers should
also consult their own tax advisors with respect to those consequences.
ERISA CONSIDERATIONS
Prospective purchasers of the Class II B-3 Certificates should
consider carefully the ERISA consequences of an investment in the Class II B-3
Certificates discussed under "ERISA Considerations" in the Prospectus, the
Prospectus Supplement and herein, and should consult their own advisors with
respect to those consequences. As described in the Prospectus Supplement, the
Class II B-3 Certificates originally did not qualify for any exemption under
ERISA.
RATINGS
The Class II B-3 Certificates are currently rated "Baa2" by Moody's
Investors Service, Inc. and "BBB" by Fitch IBCA, Inc. See "Certificate Rating"
in the Prospectus Supplement.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Class II B-3 Certificates will be added to the general funds of the
Company.
LEGAL INVESTMENT CONSIDERATIONS
The Class II B-3 Certificates will not constitute "mortgage related
securities" under the Secondary Mortgage Market Enhancement Act of 1984. "See
Legal Investment Considerations" in the Prospectus Supplement.
UNDERWRITING
Subject to the terms and conditions set forth in an agreement (the
"Underwriting Agreement") between the Company and the Prudential Securities
Incorporated (the "Underwriter"), the Company has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase from the Company the
Class II B-3 Certificates. In the Underwriting Agreement, the Underwriter has
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Class II B-3 Certificates offered hereby, if any, Class II B-3
Certificates are purchased.
The Company has been advised by the Underwriter that they propose
initially to offer the Class II B-3 Certificates to the public at the offering
price set forth on the cover page hereof and to certain dealers at such price
less concessions not to exceed 0.15% of the Class Principal Balance of the
Class II B-3 Certificates.
With respect to the Class II B-3 Certificates, the Underwriter may
allow, and such dealers may reallow, a concession not to exceed 0.10% of such
Class Principal Balance.
The Underwriter intends to make a secondary market in the Class II
B-3 Certificates, but has no obligation to do so. There can be no assurance
that a secondary market for the Class II B-3 Certificates will develop or, if
it does develop, that it will continue.
Pursuant to the Underwriting Agreement, the Company has agreed to
indemnify the Underwriter against certain liabilities including civil
liabilities under the Securities Act of 1933, as amended, or contribute to
payments which the Underwriter may be required to make in respect thereof.
EXPERTS
The consolidated financial statements of CHI as of June 30, 1998 and
1999 and for each of the three years in the period ended June 30, 1999,
incorporated by reference herein, have been incorporated herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
<PAGE>
EXHIBIT 1
<TABLE>
<CAPTION>
Chase Bank, Trustee Determination Date: 02-Dec-99
Manufactured Housing Contracts Remittance Date: 07-Dec-99
Senior/Subordinated Pass-Through Certificates Series 1999C For the Period Ended: 25-Nov-99
Lock-Out Date: Sep-03
Information for Clauses (a) through (s) Section 7.01 - GROUP I
Class I A-1 Class I A-2
<S> <C> <C>
(a) Class I A and Class I B Distribution Amounts 2,191,318.27 271,783.33
(b) Formula Principal Distribution Amount
(a) Scheduled Principal Due 561,012.68
(b) Partial Prepayments Received 51,103.89
(c) Principal Payments in Full (Scheduled Balance) 1,306,533.51
(d) Liquidated Contract Scheduled Balance 0.00
(e) Section 3.05 Purchase Scheduled Balance 0.00
(f) Previously Undistributed Shortfalls in (a) through (e) 0.00
------------- -------------
Total Principal Distribution 1,918,650.08 0.00
(c) Interest Distribution 272,668.19 271,783.33
Unpaid Interest Shortfall 0.00 0.00
------------- -------------
Total Interest Distribution 272,668.19 271,783.33
(d) Beginning Class I A and Class I B Principal Balance 60,175,049.32 46,000,000.00
Less: Principal Distribution 1,918,650.08 0.00
------------- -------------
Remaining Class A and Class B Principal Balance 58,256,399.24 46,000,000.00
Class I A-3 Class I A-4
<S> <C> <C>
(a) Class I A and Class I B Distribution Amounts 264,629.17 202,916.70
(b) Formula Principal Distribution Amount
(a) Scheduled Principal Due
(b) Partial Prepayments Received
(c) Principal Payments in Full (Scheduled Balance)
(d) Liquidated Contract Scheduled Balance
(e) Section 3.05 Purchase Scheduled Balance
(f) Previously Undistributed Shortfalls in (a) through (e)
------------- -------------
Total Principal Distribution 0.00 0.00
(c) Interest Distribution 264,629.17 202,916.70
Unpaid Interest Shortfall 0.00 0.00
------------- -------------
Total Interest Distribution 264,629.17 202,916.70
(d) Beginning Class I A and Class I B Principal Balance 43,000,000.00 32,209,000.00
Less: Principal Distribution 0.00 0.00
------------- -------------
Remaining Class A and Class B Principal Balance 43,000,000.00 32,209,000.00
Class I A-5 Class I M-1
<S> <C> <C>
(a) Class I A and Class I B Distribution Amounts 87,321.21 65,212.00
(b) Formula Principal Distribution Amount
(a) Scheduled Principal Due
(b) Partial Prepayments Received
(c) Principal Payments in Full (Scheduled Balance)
(d) Liquidated Contract Scheduled Balance
(e) Section 3.05 Purchase Scheduled Balance
(f) Previously Undistributed Shortfalls in (a) through (e)
-------------- -------------
Total Principal Distribution 0.00 0.00
(c) Interest Distribution 87,321.21 65,212.00
Unpaid Interest Shortfall 0.00 0.00
-------------- -------------
Total Interest Distribution 87,321.21 65,212.00
(d) Beginning Class I A and Class I B Principal Balance 13,090,000.00 9,520,000.00
Less: Principal Distribution 0.00 0.00
-------------- -------------
Remaining Class A and Class B Principal Balance 13,090,000.00 9,520,000.00
Class I B-1 Class I B-2
<S> <C> <C>
(a) Class I A and Class I B Distribution Amounts 66,640.00 116,620.00
(b) Formula Principal Distribution Amount
(a) Scheduled Principal Due
(b) Partial Prepayments Received
(c) Principal Payments in Full (Scheduled Balance)
(d) Liquidated Contract Scheduled Balance
(e) Section 3.05 Purchase Scheduled Balance
(f) Previously Undistributed Shortfalls in (a) through (e)
------------ --------------
Total Principal Distribution 0.00 0.00
(c) Interest Distribution 66,640.00 116,620.00
Unpaid Interest Shortfall 0.00 0.00
------------ --------------
Total Interest Distribution 66,640.00 116,620.00
(d) Beginning Class I A and Class I B Principal Balance 9,520,000.00 16,660,000.00
Less: Principal Distribution 0.00 0.00
------------ --------------
Remaining Class A and Class B Principal Balance 9,520,000.00 16,660,000.00
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
(e) Fees Due Servicer
Monthly Servicing Fee 0.00
Section 8.06 Reimbursement Amount 0.00
Section 6.02 Reimbursement Amount 35,731.79
Reimburseable Fees 0.00
-------------
Total Fees Due Servicer 35,731.79
No. of Unpaid Principal
(f) Delinquency Contracts Balance
31-59 Days Delinquent 79 2,744,338
60-89 Days Delinquent 24 877,618
90+ Days Delinquent 25 1,003,262
3-Month Avg Thirty-Day D2.75%uency Ratio
3-Month Avg Sixty-Day De0.68%ency Ratio
(g) Section 3.05 Repurchases 0.00
(h) Pool Factor Original Balance Rate
Class I A-1 0.85671175 68,000,000.00 5.6250% 5.4050% Libor
Class I A-2 1.00000000 46,000,000.00 7.0900% 0.22% Spread
Class I A-3 1.00000000 43,000,000.00 7.3850%
Class I A-4 1.00000000 32,209,000.00 7.5600%
Class I A-5 1.00000000 13,090,000.00 8.0050%
Class I M-1 1.00000000 9,520,000.00 8.2200%
Class I B-1 1.00000000 9,520,000.00 8.4000%
Class I B-2 1.00000000 16,660,000.00 8.4000%
(i) Class R Distribution Amount 0.00
Reposession Profits 0.00
(j) Principal Balance of Contracts in Repossession 553,797.69
(k) Aggregate Net Liquidation Losses 0.00
(l) (x) Class B-2 Formula Distribution Amount 116,620.00
(y) Remaining Amount Available 224,512.29
----------
Amount of (x) over (y) 0.00
(m) Class B-2 Liquidation Loss Amount 0.00
(n) Guarantee Payment 0.00
(o) Unadvanced Shortfalls 0.00
No. $
(p) Units repossessed 9 295,164.14
(q) Principal Prepayments paid 1,357,637.40
(r) Scheduled Principal Payments 561,012.68
(s) Weighted Average Interest Rate 9.67%
Computation of Available Distribution Amount
(i) Certificate Account Balance at Monthly Cutoff-Vanderbilt 3,319,783.67
Certificate Account Balance at Monthly Cutoff-SubServicer-21st 246,135.51
Certificate Account Balance at Monthly Cutoff-SubServicer-CC 278,521.96
(ii) Monthly Advance made 0.00
(iii)Section 5.05 Certificate Fund Income-Vanderbilt 10,169.35
(iii)Section 5.05 Certificate Fund Income-SubServicer-21st 814.67
(iii)Section 5.05 Certificate Fund Income-SubServicer-CC 862.33
(v) Principal due Holders 0.00
Less:
(i) Scheduled Payments of principal and interest
due subsequent to the Due Period-Vanderbilt 154,313.27
(i) Scheduled Payments of principal and interest
due subsequent to the Due Period-SubServicer-21st 12,525.17
(i) Scheduled Payments of principal and interest
due subsequent to the Due Period-SubServicer-CC 16,272.10
(ii) Due to the Servicer Pursuant to Section 6.02:
(i) Section 3.05 Purchases (Due Seller) 0.00
(ii) Reimbursement for taxes from Liquidation Proceeds 0.00
(iii) Monthly Servicing Fee 0.00
(iv) Reimburseable Liquidation Expenses 35,731.79
(v) Section 6.04 (c) reimbursement 0.00
(vi) Section 8.06 reimbursement 0.00
(vii) Amounts not required to be deposited-SubServicer-21st 0.00
Total Due Servicer 35,731.79
Available Distrubution Amount-Vanderbilt 3,139,907.96
Available Distrubution Amount-SubServicer-21st 234,425.01
Available Distrubution Amount-SubServicer-CC 263,112.19
To Class A and B 3,266,440.68
Monthly Excess Cashflow 371,004.48
Weighted Average Remaining Term (months) 242.00
Scheduled Balance Computation
Prior Month Balance 230,174,049.32
Current Balance 228,286,556.54
Adv Principal 38,776.95
Del Principal 69,934.25
Pool Scheduled Balance 228,255,399.24
Principal Payments in Full 1,306,533.51
Partial Prepayments 51,103.89
Scheduled Principal 561,012.68
Collateral Balance 228,286,556.54
</TABLE>
<TABLE>
<CAPTION>
Chase Bank, Trustee Determination Date: 02-Dec-99
Manufactured Housing Contracts Remittance Date: 07-Dec-99
Senior/Subordinated Pass-Through Certificates Series 1999C For the Period Ended: 25-Nov-99
Lock-Out Date: Sep-03
Information for Clauses (v) throug (ap),Section 7.01 - GROUP II
Class II A-1 Class II B-1
<S> <C> <C>
(v) Class II A and Class II B Distribution Amounts 3,124,104.07 74,936.69
(w) Formula Principal Distribution Amount
(a) Scheduled Principal Due 247,819.31
(b) Partial Prepayments Received 59,883.01
(c) Principal Payments in Full (Scheduled Balance) 1,576,139.65
(d) Liquidated Contract Scheduled Balance 0.00
(e) Section 3.05 Purchase Scheduled Balance 0.00
(f) Previously Undistributed Shortfalls in (a) through (e) 0.00
(g) Accelerated Principal Payment 765,995.53
-------------- -------------
Total Principal Distribution 2,649,837.50 0.00
(x) Interest Distribution 474,266.57 74,936.69
Unpaid Interest Shortfall 0.00 0.00
-------------- -------------
Total Interest Distribution 474,266.57 74,936.69
(y) Beginning Class I A and Class I B Principal Balance 101,595,290.25 15,543,000.00
Less: Principal Distribution 2,649,837.50 0.00
-------------- -------------
Remaining Class A and Class B Principal Balance 98,945,452.75 15,543,000.00
Class II B-1 Class II B-1
<S> C> <C>
(v) Class II A and Class II B Distribution Amounts 58,735.77 68,526.20
(w) Formula Principal Distribution Amount
(a) Scheduled Principal Due
(b) Partial Prepayments Received
(c) Principal Payments in Full (Scheduled Balance)
(d) Liquidated Contract Scheduled Balance
(e) Section 3.05 Purchase Scheduled Balance
(f) Previously Undistributed Shortfalls in (a) through (e)
(g) Accelerated Principal Payment
------------ -------------
Total Principal Distribution 0.00 0.00
(x) Interest Distribution 58,735.77 68,526.20
Unpaid Interest Shortfall 0.00 0.00
------------ -------------
Total Interest Distribution 58,735.77 68,526.20
(y) Beginning Class I A and Class I B Principal Balance 8,675,000.00 10,121,000.00
Less: Principal Distribution 0.00 0.00
------------ -------------
Remaining Class A and Class B Principal Balance 8,675,000.00 10,121,000.00
</TABLE>
<TABLE>
<S> <C>
(z) Fees Due Servicer
Monthly Servicing Fee 0.00
Section 8.06 Reimbursement Amount 0.00
Section 6.02 Reimbursement Amount 50,000.00
Reimburseable Fees 0.00
Total Fees Due Servicer 50,000.00
</TABLE>
<TABLE>
<CAPTION>
No. of Unpaid Principal
(aa) Delinquency Contracts Balance
<S> <C> <C> <C>
31-59 Days Delinquent 97 3,622,861
60-89 Days Delinquent 34 1,249,785
90+ Days Delinquent 7 286,362
3-Month Avg Thirty-D2.46%linquency Ratio 2.46%
3-Month Avg Sixty-Da0.65%inquency Ratio 0.65%
(ab) Section 3.05 Repurchases 0.00
(ac) Pool Factor Original Balance Rate
<S> <C> <C> <C> <C>
Class II A-1 0.89754583 110,240,000.00 5.7950%
Class II B-1 1.00000000 15,543,000.00 5.9850%
Class II B-2 1.00000000 8,675,000.00 8.4050%
Class II B-3 1.00000000 10,121,000.00 8.4050%
(ad) Class R Distribution Amount 0.00
Reposession Profits 0.00
(ae) Principal Balance of Contracts in Repossession 300,524.32
(af) Aggregate Net Liquidation Losses 0.00
(ag) (x) Class B-3 Formula Distribution Amount 68,526.20
(y) Remaining Amount Available 394,991.05
_
Amount of (x) over (y) 0.00
(ah) Class B-2 Liquidation Loss Amount 0.00
(ai) Guarantee Payment 0.00
(aj) Unadvanced Shortfalls 0.00
No. $
(ak) Units repossessed 10 322,816.33
(al) Principal Prepayments paid 1,636,022.66
(am) Scheduled Principal Payments 247,819.31
(an) Weighted Average Interest Rate 10.36%
Computation of Available Distribution Amount
(i) Certificate Account Balance at Monthly Cutoff-Vanderbilt 3,062,365.20
(ii) Monthly Advance made 0.00
(iii)Section 5.05 Certificate Fund Income-Vanderbilt 8,933.58
(v) Principal due Holders 0.00
Less:
(i) Scheduled Payments of principal and interest
due subsequent to the Due Period-Vanderbilt 66,000.53
(ii) Due to the Servicer Pursuant to Section 6.02:
(i) Section 3.05 Purchases (Due Seller) 0.00
(ii) Reimbursement for taxes from Liquidation Proceeds 0.00
(iii) Monthly Servicing Fee 0.00
(iv) Reimburseable Liquidation Expenses 50,000.00
(v) Section 6.04 (c) reimbursement 0.00
(vi) Section 8.06 reimbursement 0.00
(vii) Amounts not required to be deposited-SubServicer 0.00
Total Due Servicer 50,000.00
Available Distrubution Amount 2,955,298.25
To Class A and B - Scheduled Principal and Interest 2,560,307.20
Monthly Excess Cashflow Class II 394,991.05
Monthly Excess Cashflow Class I 371,004.48
Accelerated Principal Payment 765,995.53
Weighted Average Remaining Term (months) 225.00
Scheduled Balance Computation
Prior Month Balance 139,007,367.17
Current Balance 137,170,568.80
Adv Principal 15,260.83
Del Principal 62,304.43
Pool Scheduled Balance 137,123,525.20
Principal Payments in Full 1,576,139.65
Partial Prepayments 59,883.01
Scheduled Principal 247,819.31
Collateral Balance 137,170,568.80
Overcollateralization Amount 3,839,072
Required Overcollateralization Amount 5,060,284
</TABLE>
Prospectus Supplement
(To Prospectus dated May 20, 1999)
$355,797,000
(Approximate)
Vanderbilt Mortgage and Finance, Inc.
Seller and Servicer
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1999C
You should consider the risk factors starting on page S-11 of this prospectus
supplement and page 4 of the prospectus.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of Vanderbilt Mortgage and Finance, Inc., The
Chase Manhattan Bank or any of their affiliates (except to the extent of the
limited guarantee of the Class I B-2 and Class II B-3 Certificates by Clayton
Homes, Inc.).
This prospectus supplement may be used to offer and sell the certificates only
if accompanied by the prospectus.
The Trust Fund will:
o Issue ten Classes of offered certificates described in the table below.
o Consist primarily of manufactured housing installment sales contracts and
installment loan agreements.
o Make an election to be treated as a REMIC for federal income tax purposes.
The Certificates:
o Represent ownership interests in a trust fund.
o Include the Group I Certificates which generally relate to the fixed rate
contracts and the Group II Certificates which generally relate to the
adjustable rate contracts.
o Currently have no trading market.
o Receive distributions on the 7th day of each month (or if such day is not a
business day, the next business day) beginning on September 7, 1999.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------
Original
Certificate Price to Underwriting Proceeds to
Balance Public Discount Company(2)
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I A-1 Certificates ... $ 68,000,000 100.000000% 0.205% 99.795000%
Class I A-2 Certificates(1) $ 46,000,000 100.000000% 0.280% 99.720000%
Class I A-3 Certificates(1) $ 43,000,000 100.000000% 0.355% 99.645000%
Class I A-4 Certificates(1) $ 32,209,000 100.000000% 0.415% 99.585000%
Class I A-5 Certificates(1) $ 13,090,000 100.000000% 0.450% 99.550000%
Class I M-1 Certificates(1) $ 9,520,000 100.000000% 0.550% 99.450000%
Class I B-1 Certificates(1) $ 9,520,000 96.09375% 0.600% 95.493750%
Class II A-1 Certificates .. $ 110,240,000 100.000000% 0.275% 99.725000%
Class II B-1 Certificates .. $ 15,543,000 100.000000% 0.500% 99.500000%
Class II B-2 Certificates .. $ 8,675,000 100.000000% 0.600% 99.400000%
- - ------------------------------------------------------------------------------------------------------
Total ...................... $355,797,000.00 $355,425,125.00 $1,155,827.35 $354,269,297.65
- - ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, at the applicable rate from August 1, 1999.
(2) Before deducting expenses, estimated to be $250,000.
The underwriters named below will offer these securities to the public at the
price to public set forth above and they will receive the discount listed
above.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Prudential Securities Morgan Stanley Dean Witter
August 18, 1999
<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 about the certificates to you through this
document which consists of two parts: (a) the accompanying prospectus, which
provides general information, some of which may not apply to your certificates
and (b) this prospectus supplement, which describes the specific terms of your
certificates. This prospectus supplement may be used to offer and sell the
certificates only if accompanied by the prospectus.
If there is a conflict between the terms of 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 Securities and Exchange Commission. The information
contained in this document supersedes all of that preliminary information,
which was prepared by the underwriters for prospective investors.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Summary Information .............................................. S-3
Risk Factors ..................................................... S-11
The Contract Pool ................................................ S-15
Vanderbilt Mortgage and Finance, Inc. ............................ S-26
Ratio of Earnings to Fixed Charges for CHI ....................... S-29
Yield and Prepayment Considerations .............................. S-29
Description of the Certificates .................................. S-49
Use of Proceeds .................................................. S-74
Certain Federal Income Tax Consequences .......................... S-74
State Tax Considerations ......................................... S-76
ERISA Considerations ............................................. S-76
Legal Investment Considerations .................................. S-77
Certificate Rating ............................................... S-78
Underwriting ..................................................... S-78
Legal Matters .................................................... S-79
Index of Defined Terms ........................................... S-80
Annex I .......................................................... I-1
Page
----
PROSPECTUS
Important Notice About Information in this
Prospectus and the Accompanying
Prospectus Supplement ................................................... 2
Reports to Holders of the Certificates .................................... 2
Where You Can Find More Information ....................................... 2
Risk Factors .............................................................. 4
The Trust Fund ............................................................ 7
Use of Proceeds ........................................................... 8
Vanderbilt Mortgage and Finance, Inc. ..................................... 8
Underwriting Policies ..................................................... 9
Yield Considerations ...................................................... 10
Maturity and Prepayment Considerations .................................... 11
Description of the Certificates ........................................... 11
Description of FHA Insurance and
VA Guarantees ........................................................... 25
Certain Legal Aspects of the Contracts .................................... 26
ERISA Considerations ...................................................... 31
Certain Federal Income Tax Consequences ................................... 34
State and Local Tax Considerations ........................................ 53
Legal Investment Considerations ........................................... 54
Ratings ................................................................... 54
Underwriting .............................................................. 55
Legal Matters ............................................................. 55
Experts ................................................................... 55
Glossary .................................................................. 56
S-2
<PAGE>
SUMMARY INFORMATION
This summary highlights selected information from this document and does
not contain all of the information to make your investment decision. Please
read this entire prospectus supplement and the accompanying prospectus
carefully for additional information about the Offered Certificates.
<TABLE>
<CAPTION>
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates,
Series 1999C
Initial Rating of
Certificates(5)
Original Remittance ________________________
Class Principal Rate Moody's Fitch
Class Balance(1) (per annum) Rating Rating
- - ----- --------------- ----------- ------- ------
<S> <C> <C> <C> <C>
Offered Certificates
Class I A-1 $ 68,000,000 LIBOR + 0.22%(2)(3) Aaa AAA
Class I A-2 $ 46,000,000 7.090%(2) Aaa AAA
Class I A-3 $ 43,000,000 7.385%(2) Aaa AAA
Class I A-4 $ 32,209,000 7.560%(2) Aaa AAA
Class I A-5 $ 13,090,000 8.005%(2) Aa3 AA-
Class I M-1 $ 9,520,000 8.220%(2) A2 A
Class I B-1 $ 9,520,000 8.400%(2) Baa2 BBB
Class II A-1 $110,240,000 LIBOR + 0.39%(3)(4) Aaa AAA
Class II B-1 $ 15,543,000 LIBOR + 0.58%(3)(4) Aa3 AA-
Class II B-2 $ 8,675,000 LIBOR + 3.00%(3)(4) Baa2 BBB
Non-Offered Certificates
Class I B-2 $ 16,660,000 8.400%(2) Baa2 BBB
Class II B-3 $ 10,121,000 LIBOR + 3.00%(3)(4) Baa2 BBB
Class R N/A N/A N/A N/A
</TABLE>
- - ----------
(1) This amount is subject to a variance of plus or minus 5%.
(2) Subject to a maximum rate equal to (a) the weighted average contract rate
of the Group I Contracts less (b) the applicable servicing fee (if
Vanderbilt Mortgage and Finance, Inc. is no longer the servicer).
(3) Interest will accrue at a variable rate based on one-month LIBOR plus the
applicable spread subject to certain caps described in "Description of the
Certificates--Distributions--Interest Distributions".
(4) The spread will increase if the option to repurchase the Contracts is not
exercised. See "Description of the Certificates--Distributions--Interest
Distributions--Remittance Rates of the Certificates" herein.
(5) A description of the ratings of the Certificates is set forth under the
heading "Certificate Rating" in this prospectus supplement.
S-3
<PAGE>
The Trust Fund
A trust fund will be established pursuant to a pooling and servicing
agreement, dated as of July 26, 1999, among Vanderbilt Mortgage and Finance,
Inc., ("Vanderbilt") as seller and servicer, Clayton Homes, Inc., ("CHI") as
provider of the limited guarantee, and The Chase Manhattan Bank, as trustee
(the "Trustee").
Seller
o Vanderbilt Mortgage and Finance, Inc. maintains its principal office at 500
Alcoa Trail, Maryville, Tennessee 37804. Its telephone number is (423) 380-3000.
Servicer
o Vanderbilt Mortgage and Finance, Inc.
o The Servicer will service all of the Contracts either directly or through
one or more sub-servicers.
Trustee
o The Chase Manhattan Bank.
Cut-off Date
o July 26, 1999.
Closing Date
o August 27, 1999.
Remittance Date
o The 7th day of each month or if such day is not a business day, the next
business day. The first Remittance Date will be September 7, 1999.
Designations
o Offered Certificates--Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5, Class I M-1, Class I B-1, Class II A-1, Class II B-1 and Class II
B-2.
o Group I Certificates--Class I A-1, Class I A-2, Class I A-3, Class I A-4,
Class I A-5, Class I M-1, Class I B-1 and Class I B-2.
o Group II Certificates--Class II A-1, Class II B-1, Class II B-2 and Class
II B-3.
o Group I Senior Certificates--Class I A-1, Class I A-2, Class I A-3 and
Class I A-4.
o Group II Senior Certificates--Class II A-1.
o Senior Certificates--Class I A-1, Class I A-2, Class I A-3, Class I A-4
and Class II A-1.
o Group I Subordinate Certificates--Class I A-5, Class I M-1, Class I B-1
and Class I B-2.
o Group II Subordinate Certificates--Class II B-1, Class II B-2 and Class
II B-3.
o Subordinate Certificates--Class I A-5, Class I M-1, Class I B-1, Class I
B-2, Class II B-1, Class II B-2 and Class II B-3.
o Fixed Rate Certificates--Class I A-2, Class I A-3, Class I A-4, Class I
A-5, Class I M-1, Class I B-1 and Class I B-2.
o Floating Rate Certificates--Class I A-1 and the Group II Certificates.
The Contracts
The trust fund will consist of two separate pools of manufactured
housing installment sales contracts and installment loan agreements (the
"Contracts"). Generally, the Group I Certificates relate to the fixed rate
contracts (the "Group I Contracts") and the Group II Certificates relate to
the adjustable rate contracts (the "Group II Contracts").
8,063 Contracts, with an aggregate unpaid principal balance of
approximately $291,258,374.34 as of the Cut-off Date, are manufactured housing
installment sales contracts or installment loan agreements originated by
manufactured housing dealers and purchased by Vanderbilt from such dealers or
originated directly by Vanderbilt. Certain of these dealers are affiliates of
CHI.
Vanderbilt purchased the remaining Contracts from different financing
companies and financial institutions. A portion of such Contracts were
originated or acquired by United Companies Funding, Inc. and 21st Century
Mortgage Corporation.
For additional information with respect to the Contracts, we refer you to the
table below and "The Contract Pool" in this prospectus supplement for more
detail.
S-4
<PAGE>
<TABLE>
<CAPTION>
Summary of Contract
Characteristics as of the Cut-off Date
(Approximate)
All Contracts
<S> <C>
Pool Balance $382,579,405.13
Number of Contracts 9,789
Average Contract Balance $39,082.58
Location of homes 44 states
Percentage by outstanding principal balance with Monthly Payments 77.11%
Percentage by outstanding principal balance with Bi-Weekly Payments 22.79%
Percentage by outstanding principal balance with Semi-Monthly Payments 0.10%
Group I Contracts
Pool Balance $237,999,859.76
Number of Contracts 6,027
Average Contract Balance $39,488.94
Weighted Average Annual Percentage Rate of Interest ("APR") 9.800%
Range of APRs 5.990% to 25.000%
Weighted Average Original Term to Scheduled Maturity (at origination) 267 months
Weighted Average Remaining Term to Scheduled Maturity (at Cut-off Date) 262 months
Latest maturity date of any Group I Contract September 1, 2029
Group II Contracts*
Pool Balance $144,579,545.37
Number of Contracts 3,762
Average Contract Balance $38,431.56
Percentage by outstanding principal balance with no Periodic Cap 0.02%
Percentage by outstanding principal balance with Periodic Caps of 1% 40.46%
Percentage by outstanding principal balance with Periodic Caps of 2% 59.52%
Percentage by outstanding principal balance with no Lifetime Cap 0.02%
Percentage by outstanding principal balance with a Lifetime Cap of
5% over the initial APR 19.69%
Percentage by outstanding principal balance with a Lifetime Cap of
6% over the initial APR 80.29%
Weighted Average APR as of the Cut-off Date 10.380%
Range of APR as of the Cut-off Date 7.990% to 24.990%
Weighted Average Maximum APR+ 16.184%
Range of Maximum APR+ 12.990% to 30.990%
Weighted Average Minimum APR++ 5.260%
Range of Minimum APR++ 1.580% to 19.550%
Weighted Average Gross Margin 5.260%
Range of Gross Margins 1.580% to 19.550%
Weighted Average Original Term to Scheduled Maturity (at origination) 230 months
Weighted Average Remaining Term to Scheduled Maturity (at Cut-off Date) 229 months
Latest maturity date of any Group II Contract September 15, 2029
</TABLE>
* The Group II Contracts are variable rate contracts that adjust annually
(initially at the date set forth in the related Contract and at regular
intervals thereafter). Except with respect to 1 Contract, the Group II
Contracts bear interest at a rate equal to the sum of (i) the monthly
average yield on U.S. Treasury securities adjusted to a constant maturity
of five years and (ii) the Gross Margin set forth in the Contract, subject
to rounding and the effects of the applicable Periodic Cap, Lifetime Cap
and Lifetime Floor.
+ Excludes loans with no Maximum APR.
++ Assumes Minimum APR to be equal to the Gross Margin.
We refer you to "The Contract Pool" in this prospectus supplement for more
detail.
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Final Scheduled Remittance Dates
The Final Scheduled Remittance Date of each Class of Certificates is as follows:
Final Scheduled
Class Remittance Date
- - ----- ---------------
Class I A-1(1) November 7, 2008
Class I A-2(1) November 7, 2013
Class I A-3(1) January 7, 2020
Class I A-4(1) June 7, 2026
Class I A-5(2) October 7, 2029
Class I M-1(2) October 7, 2029
Class I B-1(1) April 7, 2017
Class I B-2(2) October 7, 2029
Class II A-1(2) October 7, 2029
Class II B-1(1) May 7, 2016
Class II B-2(1) July 7, 2017
Class II B-3(2) October 7, 2029
(1) Such determination of the Final Scheduled Remittance Dates is based on
the following assumptions: (i) there are no defaults, prepayments or
delinquencies with respect to payments due based on the Assumed Contract
Characteristics (set forth in "Yield and Prepayment Considerations"
herein), (ii) the Seller or Servicer does not exercise its right to
purchase the Contracts and the related trust property when the current
balance of the Contracts declines below 10% of the balance of the
Contracts as of the Cut-off Date and (iii) excess spread from the
Contracts is not used to make accelerated payments of principal to
increase the level of overcollateralization with respect to the Group II
Certificates.
(2) The Final Scheduled Remittance Date for these Classes is the Remittance
Date in the month following the date on which the Contracts with the
latest scheduled maturity date in the relevant group amortizes according
to their terms.
It is anticipated that the actual final Remittance Date for each Class may
occur earlier than the Final Scheduled Remittance Date. In the event of large
losses and delinquencies on the Contracts, however, the actual payment on
certain of the subordinated classes of Certificates may occur later than the
Final Scheduled Remittance Date and in certain scenarios, holders of such
classes may incur a loss on their investment.
We refer you to "Yield and Prepayment Considerations" in this prospectus
supplement for more detail.
Priority of Distributions
Group I Certificates: Funds available from payments and other amounts received
on the Group I Contracts on any Remittance Date (less certain expenses and
reimbursements) will be distributed in the following order:
(i) to pay interest on the Group I Senior Certificates, at their
respective Remittance Rates together with any previously undistributed
shortfalls in interest due, on a pro rata basis;
(ii) to pay principal on the Group I Senior Certificates in an amount
equal to the applicable class percentage of a formula amount dictated by
principal payable on the Group I Contracts for the Remittance Date, in the
following order of priority:
o Class I A-1
o Class I A-2
o Class I A-3
o Class I A-4;
(iii) first, to pay interest and then to pay principal on the Classes
listed below, in an amount equal to the applicable class percentage of a
formula amount dictated by amount of principal payable on the Group I
Contracts for that Remittance Date, in the following order of priority:
o Class I A-5
o Class I M-1
o Class I B-1
o Class I B-2 (subject, in certain instances, to a floor set forth
herein);
(iv) to pay shortfalls, if any, with respect to the Group II Certificates;
and
(v) to increase overcollateralization to the required
overcollateralization level with respect to the Group II Certificates.
After payment of the above, the remaining amounts received on the Group
I Contracts will be distributed to pay Vanderbilt (if Vanderbilt is the
servicer) the servicing fee and to reimburse CHI with respect to any guarantee
or enhancement payments, in the order of priority set forth herein. Remaining
amounts will be paid to the holder of the Class R Certificate.
Group II Certificates:Funds available from payments and other amounts received
on the Group II Contracts on any Remittance Date (less certain
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expenses and reimbursements) will be distributed in the following order:
(i) first to pay interest, and then to pay principal on the Classes
listed below in an amount equal to the applicable class percentage of a
formula amount dictated by principal payable on the Group II Contracts for
that Remittance Date, in the following order of priority:
o Class II A-1
o Class II B-1
o Class II B-2
o Class II B-3 (subject, in certain instances, to a floor set forth
herein)
(ii) to increase overcollateralization to the required
overcollateralization level with respect to the Group II Certificates;
(iii) to pay shortfalls, if any, with respect to the Group I Certificates;
and
(iv) to any net funds cap carryover amounts (as further described herein),
on a pro rata basis.
After payment of the above, the remaining amounts received on the Group
II Contracts will be distributed to pay Vanderbilt (if Vanderbilt is the
servicer) the servicing fee and to reimburse CHI with respect to any guarantee
or enhancement payments, in the order of priority set forth herein. Remaining
amounts will be paid to the holder of the Class R Certificate.
We refer you to "Description of the Certificates --Distributions" in this
prospectus supplement for more detail.
Interest Distributions
Interest accrues on the Fixed Rate Certificates during the calendar
month prior to the related Remittance Date on the basis of a 360-day year
consisting of twelve 30-day months.
Interest accrues on the Floating Rate Certificates (other than the first
Remittance Date) based on the actual number of days during the period from the
Remittance Date in the prior month to the day preceding the related Remittance
Date and a 360 day year.
On each Remittance Date, you will be entitled to the following:
o Interest at the related Remittance Rate that accrued during the accrual
period.
o Interest due on any prior Remittance Date that was not paid.
Your interest entitlement may be reduced as a result of prepayments or
losses on the Contracts.
We refer you to "Description of the Certificates -- Distributions -- Interest
Distributions" in this prospectus supplement for more information.
Principal Distributions
Group I Certificates:
o On each Remittance Date, you will be entitled to receive principal
distributions in an amount equal to the applicable class percentage of a
formula amount dictated by principal payable on the Group I Contracts
for that Remittance Date.
o Prior to the Remittance Date in September 2004, the applicable class
percentage for the Class I A Certificates is expected to be 100% and the
class percentage for the Class I M-1 and Class I B Certificates is
expected to be 0%. The Class I A Certificates will receive all principal
distributions in the order of priority set forth herein.
o Thereafter, assuming delinquencies, defaults and losses on the Group I
Contracts remain below certain thresholds, principal is expected to be
distributed to the Class I A Certificates, Class I M-1 Certificates and
Class I B Certificates in proportion to their outstanding principal
balances as further set forth herein.
o Payments to the Class I B-2 Certificates are subject to a floor set
forth herein. If principal payments to the Class I B-2 Certificates
would reduce the Class I B-2 Certificates below the floor such principal
payments will be reallocated to the more senior classes as set forth
herein.
We refer you to "Description of the Certificates --Distributions" in this
prospectus supplement for more detail.
Group II Certificates:
o On each Remittance Date, you will be entitled to receive principal
distributions in an amount equal to the applicable class percentage of a
formula amount dictated by principal payable on the Group II Contracts
for that Remittance Date.
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<PAGE>
o Prior to the Remittance Date in September 2004, the applicable class
percentage for the Class II A-1 Certificates is expected to be 100% and
the class percentage for the Class II B Certificates is expected to be
0%.
o Thereafter, principal is expected to be distributed to the Class II A-1
Certificates and Class II B Certificates in proportion to their
outstanding principal balances as further set forth herein.
o Payments to the Class II B-3 Certificates are subject to a floor set
forth herein. If principal payments to the Class II B-3 Certificates
would reduce the Class II B-3 Certificate below the floor, such
principal payments will be reallocated to the more senior classes as set
forth herein.
We refer you to "Description of the Certificates -- Distributions" in this
prospectus supplement for more detail.
Credit Enhancement
Credit enhancement in the form of subordination should reduce delays in
distributions and losses on certain classes of certificates. The subordination
feature will support the classes of certificates in varying degrees.
Group I Certificates
A. Subordination
There are two types of subordination with respect to the Group I
Certificates:
1. The Group I Senior Certificates will receive distributions of interest
prior to distributions of interest made to the other Group I Certificates.
Until certain distribution tests are met, the Group I Senior Certificates
will receive distributions of principal prior to distributions of
principal made to the Group I Subordinate Certificates. Also, on each
Remittance Date, each class of Group I Subordinate Certificates will
generally receive its interest and principal distribution in the following
order: Class I A-5, Class I M-1, Class I B-1 and Class I B-2; and
2. Losses resulting from the liquidation of defaulted Group I Contracts
will be absorbed by the Group I Subordinate Certificates in the
following order: Class I B-2, Class I B-1, Class I M-1 and Class I A-5.
We refer you to "Description of the Certificates -- Group I Certificates
and the Senior/Subordinate Structure" and "--Losses on Liquidated
Contracts" in this prospectus supplement for more detail.
B. Cross Collateralization Provisions
Excess amounts generated by the Group II Contracts will fund shortfalls
in the Group I available funds, subject to certain prior requirements
relating to the Group II Certificates.
We refer you to "Description of the Certificates-- Cross Collateralization
Provisions" in this prospectus supplement for more detail.
Group II Certificates
A. Subordination
There are two types of subordination with respect to the Group II
Certificates:
1. The Class II A-1 Certificates will receive distributions of interest prior
to distributions of interest made to the Class II B Certificates. Until
certain distribution tests are met, the Class II A-1 Certificates will
receive distributions of principal prior to distributions of principal
made to the Class II B Subordinate Certificates. Also, on each Remittance
Date each class of Class II B Certificates will receive its interest and
principal distribution before any other class of Class II B Certificates
with a higher numerical class designation; and
2. Losses resulting from the liquidation of defaulted Group II Contracts
will be absorbed by the Class II B Certificates in reverse order of
numerical class designation.
We refer you to "Description of the Certificates-- Group II Certificates and
the Senior Subordinate Structure" and "--Losses on Liquidated Contracts" in
this prospectus supplement for more detail.
B. Overcollateralization;
Excess Interest Collections
to Increase Overcollateralization
Overcollateralization refers to the actual amount by which the aggregate
principal balance of the Group II Contracts exceeds the aggregate
principal balance of the Group II Certificates. This excess is intended
to protect against any shortfalls in required payments on the Group II
Certificates.
In certain instances, excess interest collections shall be applied to make
accelerated payments
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of principal to the Class of Group II Certificates then entitled to
receive principal. This will cause the outstanding principal balance of
the Group II Certificates to decrease faster than the principal balance
of the Group II Contracts, thereby increasing the overcollateralization.
If the overcollateralization is greater than the required
overcollateralization (which will vary throughout the life of the
Certificates), certain amounts will not be applied to reduce the
principal balance of the Group II Certificates and will be distributed
as set forth herein.
We refer you to "Description of the Certificates-- Group II Certificates;
Overcollateralization Provisions" in this prospectus supplement for more
detail.
C. Cross Collaterization Provisions
Excess amounts generated by the Group I Contracts may fund shortfalls
and accelerate principal payments for the Group II Certificates, subject
to certain prior requirements relating to the Group I Certificates.
We refer you to "Description of the Certificates-- Cross Collateralization
Provisions" in this prospectus supplement for more detail.
Optional Repurchase
If the aggregate pool scheduled principal balance of the Contracts declines
below 10% of the aggregate pool principal balance as of the Cut-off Date, then
the Servicer and the Seller (if the Seller is no longer Servicer) each have
the option to purchase all of the Contracts and the other property in the
Trust. If the Servicer or Seller purchases all of the Contracts, you will
receive a final distribution and then the Trust will be terminated.
We refer you to "Description of the Certificates-- Optional Termination" in
this prospectus supplement for more detail.
Limited Guarantee of CHI
CHI will guarantee the payment of interest and principal on the Class I B-2
and Class II B-3 Certificates. No other Certificates have the benefit of this
guarantee.
The limited guarantee, if applicable, will be an unsecured general obligation
of CHI and will not be supported by any letter of credit or other enhancement
arrangement. See "Incorporation of Certain Documents of CHI by Reference" in
the Prospectus.
At CHI's option and subject to certain conditions, such limited guarantee may
be replaced by an alternate credit enhancement. Such credit enhancement may
consist of cash or securities deposited by CHI or any other person in a
segregated escrow, trust or collateral account or a letter of credit,
certificate insurance policy or surety bond provided by a third party.
We refer you to "Description of the Certificates-- Limited Guarantee of CHI"
and "-- Alternate Credit Enhancement" in this prospectus supplement for more
detail.
Advances
If the Servicer reasonably believes that cash advances can be recovered from a
delinquent obligor then the Servicer will make cash advances to the Trust Fund
to cover delinquent scheduled payments on the Contracts. The Servicer will
make advances to maintain a regular flow of scheduled interest and principal
payments on the Certificates, not to guarantee or insure against losses. The
Trust Fund will reimburse the Servicer for such advances.
We refer you to "Description of the Certificates-- Advances" in this
prospectus supplement for more detail.
Federal Income Tax Consequences
For federal income tax purposes:
o An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit," or REMIC.
o Each class of Certificates other than the Class R Certificate will be
"regular interests" in the REMIC and will be treated as debt instruments
of the REMIC.
o The Class R Certificate will represent the beneficial ownership of the
sole class of "residual interest" in the REMIC. Certain types of
investors may not purchase the Class R Certificate.
We refer you to "Certain Federal Income Tax Consequences" in this prospectus
supplement and in the prospectus for more detail.
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ERISA Considerations
The fiduciary responsibility provisions of the Employee Retirement Income
Security Act of 1974 (ERISA) and Section 4975 of the Internal Revenue Code of
1986 (the Code) can limit investments by certain pension and other employee
benefit plans. For example, the acquisition of Certificates by certain plans
may be considered a "prohibited transaction" under ERISA; however, certain
exemptions from the prohibited transactions rules could apply. If you are a
fiduciary of a pension or other employee benefit plan which is subject to
ERISA or section 4975 of the Code, you should consult with your counsel
regarding the applicability of the provisions of ERISA and the Code before
purchasing a Certificate.
Subject to the considerations and conditions described under "ERISA
Considerations" in this prospectus supplement and prospectus, it is expected
that pension or employee benefit plans subject to ERISA or Section 4975 of the
Code may purchase the Class I A-1, Class I A-2, Class I A-3, Class I A-4 and
Class II A-1 Certificates.
We refer you to "ERISA Considerations" in this prospectus supplement and in
the prospectus.
Legal Investment
The Class II A-1 and Class II B-1 Certificates will be "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"), as long as they are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization.
The other Certificates will not be "mortgage related securities" for purposes
of SMMEA.
We refer you to "Legal Investment Considerations" in this prospectus
supplement and in the prospectus for more detail.
Certificate Rating
The Trust Fund will not issue the Offered Certificates unless they have been
assigned the ratings designated on page S-3.
A rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by either rating agency.
We refer you to "Certificate Rating" in this prospectus supplement for more
detail.
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RISK FACTORS
You should carefully consider the following risk factors prior to any
purchase of certificates. You should also carefully consider the information
set forth under "Risk Factors" in the prospectus.
Prepayments on Contracts May Adversely Affect Yield of Offered Certificates
The rate of principal distributions and the average life of your
Certificates will be directly related to the rate of principal payments on the
Contracts. Obligors may prepay a Contract in full or in part at any time. The
Contracts do not impose any prepayment penalties. For example, the rate of
principal payments on the Contracts will be affected by the following:
o the amortization schedules of the Contracts;
o partial prepayments and prepayments resulting from refinancing by
obligors;
o liquidations of defaulted Contracts by the Servicer;
o repurchases of Contracts by the Seller due to defective
documentation or breaches of representations and warranties in the
pooling and servicing agreement; and
o the optional purchase by the Seller or Servicer of all of the
Contracts in connection with the termination of the Trust.
Prepayments on the Contracts are influenced by a variety of economic,
geographic, social and other factors. For example, if interest rates for
similar contracts fall below the interest rates on the Contracts, the rate of
prepayment would generally be expected to increase. Conversely, if interest
rates on similar contracts rise above the interest rates on the Contracts, the
rate of prepayment would generally be expected to decrease.
We cannot predict the rate at which obligors will repay their contracts.
Please consider the following:
o If you are purchasing a Certificate at a discount, your yield may
be lower than expected if principal payments on the Contracts
occur at a slower rate than you expected.
o If you are purchasing a Certificate at a premium, your yield may
be lower than expected if principal payments on the Contracts
occur at a faster rate than you expected.
o The earlier a payment of principal occurs, the greater the impact
on your yield. For example, if you purchase a Certificate at a
premium, although the average rate of principal payments is
consistent with your expectations, if the rate of principal
payments occurs initially at a rate higher than expected, which
would adversely impact your yield, a subsequent reduction in the
rate of principal payments will not offset any adverse yield
effect.
o In addition, in the event a Contract is prepaid in full, interest
on such Contract will cease to accrue on the date of prepayment.
If such prepayments and related interest shortfalls are
sufficiently high in a month, with respect to a group of
Certificates, the amount available for the next Remittance Date
could be less than the amount of principal and interest that would
be distributable to the applicable Certificateholders, in the
absence of such shortfalls.
We refer you to "Yield and Prepayment Considerations" in this prospectus
supplement for more detail.
Risks of Holding Subordinate Certificates
The protections afforded the Senior Certificates in this transaction
create risks for the Subordinate Certificates. Before purchasing Subordinate
Certificates, you should consider the following factors that may negatively
impact your yield:
o Because the Subordinate Certificates receive distributions after
the Senior Certificates, there is a greater likelihood that one or
more classes of Subordinate Certificates will not receive the
distributions to which they are entitled on any Remittance Date.
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o If the Servicer determines not to advance a delinquent payment
because such amount is not recoverable from an obligor, there will
be a shortfall in distributions on the Certificates which will
initially impact the Subordinate Certificates.
o The Subordinate Certificates are not entitled to a proportionate
share of principal payments on the Contracts until (a) the
beginning of the fifth year after the Closing Date and (b) the
satisfaction of certain delinquency and performance tests.
o With respect to each Group of Certificates, losses resulting from
the liquidation of defaulted Contracts will initially be absorbed by
the related Subordinate Certificates. The liquidation losses on the
Group I Contracts and resulting deficiencies in the amount available
to pay the Group I Certificates will, in effect, be absorbed by the
Group I Subordinate Certificates in the following order: Class I
B-2, Class I B-1, Class I M-1 and Class I A-5. The liquidation
losses on the Group II Contracts and resulting deficiencies in the
amount available to pay the Group II Certificates will, in effect,
be absorbed by the Group II Subordinate Certificates in the
following order: Class II B-3, Class II B-2 and Class II B-1.
o The earlier a loss on a Contract occurs, the greater the impact on
yield.
o The risks presented in this section are more severe for the more
subordinate classes of Certificates (i.e. Class I B-1, Class I B-2,
Class II B-2 and Class II B-3 Certificates). No class of Subordinate
Certificates will receive a distribution on any Remittance Date
prior to the class or classes of Subordinate Certificates of a
higher priority. With limited exceptions, losses on the Contracts
are allocated to the most junior classes of Certificates
outstanding. In addition, if losses on the Contracts exceed certain
levels, the amounts that these classes would otherwise receive will
be distributed to the classes of Subordinate Certificates with a
higher priority.
Please review "Description of the Certificates" and "Yield and
Prepayment Considerations" in this prospectus supplement for more detail.
Limited Source of Payments - No Recourse to Seller, Servicer or Trustee
The Contracts are the sole source of distributions for the Certificates
(except to the extent of the limited guarantee or alternate credit enhancement
in respect to the Class I B-2 and Class II B-3 Certificates). The Certificates
do not represent an interest in or obligation of the Seller, the Servicer, the
Trustee or any of their affiliates, except for (i) the limited obligations of
the Seller with respect to certain breaches of its representations and
warranties, (ii) the Servicer with respect to its servicing obligations and
(iii) CHI, as the provider of the Limited Guarantee with respect to the Class
I B-2 and Class II B-3 Certificates. Neither the Certificates nor the
Contracts will be guaranteed by or insured by any governmental agency or
instrumentality, the Seller, the Servicer, the Trustee or any of their
affiliates (except to the extent of the limited guarantee in respect to the
Class I B-2 and Class II B-3 Certificates). Consequently, if payments on the
Contracts are insufficient to make all payments required on the Certificates
you may incur a loss on your investment.
Limited Guarantee of CHI is an Unsecured General Obligation of CHI
The Limited Guarantee, if applicable, will be an unsecured general
obligation of CHI and will not be supported by any letter of credit or other
enhancement arrangement.
See "Where You Can Find More Information" in the prospectus.
Alternate Credit Enhancement may be Exhausted and Result in Losses
If CHI has replaced the Limited Guarantee with an Alternate Credit
Enhancement and such Alternate Credit Enhancement is exhausted, CHI has no
obligation to replace such enhancement. Consequently, the Class I B-2 and
Class II B-3 Certificates may bear a greater risk relating to losses on the
Contracts than if the Limited Guarantee was in place and CHI was able to make
payments pursuant to the Limited Guarantee.
Lack of Secondary Market for the Offered Certificates
The Underwriters intend to make a market for the purchase and sale of
the Offered Certificates after their initial issuance but have no obligation
to do so. There is currently no secondary market for the Offered
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Certificates. We cannot give you any assurance that such a secondary market
will develop or, if it develops, that it will continue. Consequently, you may
not be able to sell your Certificates readily or at prices that will enable
you to realize your desired yield. Your limited ability to resell your
certificates could adversely affect the market value of your certificates and
result in losses to you.
The secondary markets for asset backed securities have experienced
periods of illiquidity and can be expected to do so in the future. Illiquidity
can have a severely adverse effect on the prices of securities that are
especially sensitive to prepayment, credit or interest rate risk, or that have
been structured to meet the investment requirements of limited categories of
investors.
In addition, the Group I Certificates and the Class II B-2 and Class II
B-3 Certificates will not constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Accordingly, many institutions with legal authority to invest in SMMEA
securities will not be able to invest in such Certificates, limiting the
market for such securities.
Geographic Concentration and Depreciation in Value of Manufactured Homes
An investment in the Certificates evidencing interests in the Contracts
may be affected by, among other things, a downturn in regional or local
economic conditions. These regional or local economic conditions are often
volatile and historically have affected the delinquency, loan loss and
repossession experience of manufactured housing installment sales contracts.
The geographic location of the Manufactured Homes is set forth in "The
Contract Pool" herein.
Moreover, regardless of its location, manufactured housing generally
depreciates in value. Consequently, the market value of the Manufactured Homes
could be or become lower than the principal balances of the related Contracts.
See "The Contract Pool" herein.
Certain Matters Relating to Insolvency
If Vanderbilt becomes involved in bankruptcy proceedings, distributions
to you could be delayed or reduced.
Please review "Risk Factors--If Vanderbilt Mortgage and Finance, Inc.
becomes insolvent, there may be delays or reductions in distributions on your
certificates" in the prospectus for more detail.
Security Interests and Certain Other Aspects of the Contracts
A variety of factors may limit the ability of the Servicer, on behalf of
the Certificateholders, to realize upon the Manufactured Homes or other
property securing the contracts or may limit the amount realized to less than
the amount due.
See "Risk Factors--Risks relating to enforceability of the contracts" in
the prospectus.
Consequences of Owning Book-Entry Certificates
Limit on Liquidity of Certificates. Issuance of the Offered Certificates
in book-entry form (the "Book-Entry Certificates") may reduce the liquidity of
such certificates in the secondary trading market since investors may be
unwilling to purchase certificates for which they cannot obtain physical
certificates.
Limit on Ability to Transfer or Pledge. Since transactions in the
Book-Entry Certificates can be effected only though DTC, Cedel, Euroclear,
participating organizations, indirect participants and certain banks, your
ability to transfer or pledge a Book-Entry Certificate to persons or entities
that do not participate in the DTC, Cedel or Euroclear system or otherwise to
take actions in respect of such certificates, may be limited due to lack of a
physical certificate representing the Book-Entry Certificates.
Delays in Distributions. You may experience some delay in the receipt of
distributions on the Book-Entry Certificates since the distributions will be
forwarded by the Trustee to DTC for DTC to credit the accounts of its
participants which will thereafter credit them to your account either directly
or indirectly through indirect participants, as applicable.
Please review "Description of the Certificates--Registration of the
Offered Certificates" in this prospectus supplement for more detail.
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Basis Risk with Respect to the Class I A-1 Certificates and Group II
Certificates
With respect to the Group I Contracts, interest will accrue at a fixed
rate which may differ from the LIBOR based rate generally payable to the
holders of the Class I A-1 Certificates. Moreover, interest rates on the Group
I Contracts do not adjust while the rate on the Class I A-1 Certificates does
adjust. Accordingly, the amount of collections with respect to interest on the
Group I Contracts available to pay interest on the Class I A-1 Certificates
(which may have increased) and other amounts due on the Class I A-1
Certificates during such period may be less than would be the case if the
interest rates on the Group I Contracts matched the index and adjustment
frequency of the Class I A-1 Certificates.
With respect to the Group II Contracts, interest will accrue on indices
which may differ from the LIBOR based rates generally payable to the holders
of the Group IICertificates. Moreover, interest rates on the Group II
Contracts generally adjust less frequently than the rates on the Group II
Certificates. Accordingly, the amount of collections with respect to interest
on the Group II Contracts available to pay interest on the Group II
Certificates (which may have increased) and other amounts due on the Group II
Certificates during such period may be less than would be the case if the
interest rates on the Group II Contracts matched the index and adjustment
frequency of the Group II Certificates.
Risks Associated With Year 2000 Compliance
The Servicer is faced with the task of completing its goals for
compliance in connection with the year 2000 issue. The year 2000 issue is the
result of prior computer programs being written using two digits to define the
applicable year. Any computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. Any
such occurrence could result in a major computer system failure or
miscalculations. Although the Servicer believes its computer systems are year
2000 compliant, it is presently engaged in various procedures to determine if
the computer systems and software of its suppliers, customers, brokers and
agents will be year 2000 compliant.
In the event that the Servicer, any sub-servicer or any of their
suppliers, customers, brokers or agents do not successfully and timely achieve
year 2000 compliance, the Servicer's performance of its obligations under the
pooling and servicing agreement could be adversely affected. This could result
in delays in processing payments on the Contracts and could cause a delay in
distributions to you.
S-14
<PAGE>
THE CONTRACT POOL
The "Contracts" consist of fixed rate and variable rate manufactured
housing installment sales contracts and installment loan agreements (the
"Manufactured Housing Contracts") and mortgage loans (the "Mortgage Loans").
The Manufactured Housing Contracts are secured by security interests in
manufactured homes, as defined herein (the "Manufactured Homes"), purchased
with the proceeds of the Contracts and, with respect to certain of the
Contracts (the "Land-and-Home Contracts"), secured by liens on the real estate
on which the related Manufactured Homes are located. The Mortgage Loans are
secured by one-to four-family residential properties (the "Mortgaged
Properties"). All of the Contracts in the Trust Fund (the "Contract Pool")
have been purchased or originated by Vanderbilt Mortgage and Finance, Inc.
(the "Company" or "Vanderbilt"). The Contracts, as of origination, were
secured by Manufactured Homes or Mortgaged Properties located in 44 states.
The statistical information presented in this Prospectus Supplement concerning
the Contract Pool is based on the Contract Pool of Contracts as of the Cut-off
Date.
A description of the Company's general practice with respect to the
origination or purchase, on an individual basis, of manufactured housing
contracts is set forth under "Underwriting Policies" in the Prospectus.
Under the pooling and servicing agreement dated as of July 26, 1999
among the Seller, CHI and the Trustee (the "Agreement"), the Manufactured
Homes are required to comply with the requirements of certain federal statutes
which generally would 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 would also require
the Manufactured Homes to be transportable in one or more sections, 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 are also required to include the plumbing, heating, air
conditioning, and electrical systems therein. Management of the Company
estimates that in excess of 95% of the Manufactured Homes are used as primary
residences by the Obligors under the Contracts secured by such Manufactured
Homes.
The Agreement requires the Servicer to maintain hazard insurance
policies with respect to each Manufactured Home (other than a Manufactured
Home in repossession) in the amounts and manner set forth herein under
"Description of the Certificates--Servicing" in the Prospectus. Generally, no
other insurance will be maintained with respect to the Manufactured Homes, the
Contracts or the Contract Pool.
The Company will cause to be conveyed to the Trustee the Contracts and
all rights to receive payments on the Contracts that have not been received
prior to July 26, 1999 (the "Cut-off Date"), including any such payments that
were due prior to such date but were not received prior to such date. Payments
due on or after July 26, 1999, that have been received by the Company prior to
July 26, 1999 will be the property of the Company and will not be part of the
Trust Fund. The Servicer will retain physical possession of the Contract
documents (other than certain documents related to the Land-and-Home Contracts
and the Mortgage Loans which will be held by a custodian on behalf of the
Trustee). See "Description of the Certificates--Conveyance of Contracts"
herein.
The Contract Pool will have an aggregate outstanding principal balance
as of the Cut-off Date of $382,579,405.13 (subject to a permitted variance of
plus or minus 5%) (the "Cut-off Date Pool Principal Balance") consisting of
9,789 Contracts. Each Contract was originated on or after November 20, 1989.
8,063 of the Contracts, having an aggregate outstanding principal balance as
of the Cut-off Date of approximately $291,258,374.34, are manufactured housing
installment sale contracts originated by manufactured housing dealers and
purchased by the Company from such dealers or originated by the Company.
Certain of these dealers are affiliates of CHI the parent of the Company. The
Company purchased the remaining 1,726 Contracts, having an aggregate
outstanding principal balance as of the Cut-off Date of approximately
$91,321,030.79 from different financing companies and financial institutions.
Approximately 10.48% of the Contracts having an aggregate outstanding
principal balance as of the Cut-off Date of approximately $40,100,151.83 were
originated by United Companies Funding, Inc., a Louisiana corporation (the
"United Contracts"). The United Contracts were purchased by the Company on
February 16, 1999.
Approximately 5.59% of the Contracts (the "21st Century Contracts")
having an aggregate outstanding principal balance as of the Cut-off Date of
approximately $21,398,244.70 were originated or acquired by 21st Century
Mortgage Corporation, a Delaware corporation ("21st Century"). 21st Century
was founded in 1995 for the origination, acquisition and servicing of
manufactured housing contracts like the Contracts. Certain of the officers of
21st Century were previously officers of the Company and the President of the
Company is on the Board of Directors of 21st Century. CHI is a minority
stockholder of 21st Century. 21st Century will act as subservicer for the 21st
Century Contracts. The Servicer, however, will remain primarily liable for the
servicing of the 21st Century Contracts. The underwriting standards employed
by 21st Century are similar to the standards used by the Company.
S-15
<PAGE>
While the United Contracts and the 21stCentury Contracts were originated
using underwriting guidelines similar to those of the Company, there can be no
assurance that the losses and delinquencies on the United Contracts and the
21st Century Contracts will not be higher than the other Contracts.
Approximately 12.43% of the Contracts having an aggregate outstanding
principal balance as of the Cut-off Date of approximately $47,569,075.44 are
re-financed contracts originated by the Company. Of such Contracts,
approximately $19,228,536.87 by aggregate outstanding principal balance as of
the Cut-off Date are cash-out refinancings.
Approximately 20.93% of the Contracts having an aggregate outstanding
principal balance as of the Cut-off Date of approximately $80,068,997.30 are
Land-and-Home Contracts.
Approximately 2.78% of the Contracts having an aggregate outstanding
principal balance of $10,657,619 are Mortgage Loans.
Each Group I Contract will bear a fixed contract rate of interest (the
"APR"). Most of the Contracts, other than "step-up rate" Contracts and the
Escalating Principal Payment Contracts described below, provide for level
payments over the entire term of the Contract. The APR of a step-up rate
Contract steps up on a particular date from its initial APR. As of the Cut-off
Date approximately 6.33% of the Contracts by aggregate outstanding principal
balance, are step-up rate Contracts which are still bearing interest at less
than their maximum APR. With respect to such step-up rate Contracts, the total
amount and the principal portion of each scheduled payment is determined on a
basis that would cause the Contract to be fully amortized over its term if the
Contract were to bear interest during its entire term at its initial APR and
were to have level payments over its entire term. The total amount and
principal portion of each scheduled payment due once the Contracts are bearing
their respective fully stepped-up rates is determined on a basis that would
cause the Contract (which would then be bearing interest at a stepped-up rate)
to be fully amortized over its remaining term on a level-payment basis.
Approximately 5.80% of the Contracts by aggregate outstanding principal
balance as of the Cut-off Date provide for one remaining rate increase and
will increase by approximately 2.00% within the next 12 months. Approximately
0.05% of the Contracts by aggregate outstanding principal balance as of the
Cut-off Date provide for one remaining rate increase and will increase by
approximately 1.21% within the next six months. Approximately 0.48% of the
Contracts by aggregate outstanding principal balance as of the Cut-off Date
provide for two remaining rate increases. Of such Contracts with two remaining
rate increases, approximately 0.48% of the Contracts in the Contract Pool will
have the APR increase by 1.00% within the next six months and by an additional
1.00% six months thereafter. All of the Contracts will be at their fully
stepped-up rate by August 15, 2000.
Approximately 22.79% of the Contracts (the "Bi-weekly Contracts") by
aggregate outstanding principal balance as of the Cut-off Date have bi-weekly
scheduled payments of principal and interest. 0.10% of the Contracts have
semi-monthly scheduled payments of principal and interest ("Semi-Monthly
Contracts"). The remainder of the Contracts have monthly scheduled payments of
principal and interest. Under a Bi-weekly Contract the obligor authorizes the
Company to automatically debit the obligor's account for the payment of each
scheduled payment. If the obligor terminates such account or the authorization
of the Company to debit such account, then such Bi-weekly Contract is
converted to a Contract with scheduled monthly payments.
Approximately 0.15% of the Contracts by aggregate outstanding principal
balance as of the Cut-off Date provide for an annual increase in monthly
payments over the first five years of the term of the Contract with an
original Contract term of 36 years, and none of the Contracts by outstanding
principal balance as of the Cut-off Date provide for an annual increase in
monthly payments over the first five years of the term of the Contract with an
original Contract term of 21 years, in each case providing initially for lower
monthly payments than if the contract were of a shorter term (collectively,
the "Escalating Principal Payment Contracts"). The Escalating Principal
Payment Contracts automatically convert to a shorter term, and the monthly
payment increases accordingly. At year six, the monthly payment increases to a
level monthly payment which fully amortizes the remaining principal over a
twelve year term with respect to the 36-year original term or seven years with
respect to the 21-year term. There is no period in which the Escalating
Principal Payment Contracts have negative amortization.
Each Contract in Group I has a fixed annual percentage rate of interest
and, except for the Escalating Principal Payment Contracts, generally provides
for level payments over the term of such Contract. Each Contract in Group II
has an adjustable APR, as further described herein. Each Contract fully
amortizes the principal balance of the Contract over the term of the Contract.
All of the Contracts are actuarial obligations. The portion of each scheduled
payment for any Contract allocable to principal is equal to the total amount
thereof less the portion allocable to interest. The portion of each scheduled
S-16
<PAGE>
payment due in a particular month that is allocable to interest is a
precomputed amount equal to one month's interest (or 14 days' interest in the
case of a Bi-weekly Contract and one-half of one month's interest in the case
of any Semi-Monthly Contract) on the principal balance of the Contract, which
principal balance is determined by reducing the initial principal balance by
the principal portion of all scheduled payments that were due in prior months
(whether or not such scheduled payments were timely made) and all prior
partial principal prepayments. Thus, each payment allocated to a scheduled
monthly, bi-weekly or semi-monthly payment of a Contract will be applied to
interest and to principal in accordance with such precomputed allocation
whether such scheduled payments are received in advance of or subsequent to
the day of the month (or in the case of a Bi-weekly Contract or any
Semi-Monthly Contract, each day in the month) on which each scheduled payment
of principal and interest is due on a Contract, exclusive of any days of grace
(the "Due Date"). All payments received on the Contracts (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 Contracts) will be applied when received to current and any previously
unpaid scheduled monthly payments in the order of the Due Dates of such
payments and any payments that exceed the amount necessary to bring the
Contract current are applied to the partial prepayment of principal of the
Contract.
In certain instances, the Company finances the purchase of the
Manufactured Home and takes as additional security a mortgage on the real
property on which the Manufactured Home is located or, in certain cases, a
mortgage on other property pledged on behalf of the obligor. The Company may
also take a mortgage on the real property on which the Manufactured Home is
located in lieu of a down payment in the form of cash or the value of a
trade-in unit, or as additional security. Approximately 17.71% of the
Contracts by outstanding principal balance as of the Cut-off Date are secured
by a mortgage on the real property on which the Manufactured Home is located
in lieu of a down payment in the form of cash or the value of a trade-in unit.
See "Certain Legal Aspects of the Contracts" in the Prospectus.
Group I Contracts
As of the Cut-off Date, the aggregate outstanding principal balance of
the Group I Contracts will equal $237,999,859.76 (subject to a permitted
variance of plus or minus 5%) (the "Group I Cut-off Date Principal Balance").
72.31% of the Group I Contracts by aggregate outstanding principal balance as
of the Cut-off Date are secured by Manufactured Homes which were new at the
time the related Group I Contracts were originated and 27.69% of the Group I
Contracts by aggregate outstanding principal balance as of the Cut-off Date
are secured by Manufactured Homes which were used at the time the related
Group I Contracts were originated. Each Group I Contract has an APR of at
least 5.990% and not more than 25.000%. The weighted average APR of the Group
I Contracts as of the Cut-off Date is approximately 9.800%. The Group I
Contracts have remaining maturities as of the Cut-off Date of at least 13
months but not more than 360 months and original maturities of at least 18
months but not more than 360 months. As of the Cut-off Date, the Group I
Contracts had a weighted average original term to scheduled maturity of
approximately 267 months, and a weighted average remaining term to scheduled
maturity of approximately 262 months. The remaining term to stated maturity of
a Group I Contract is as of the Cut-off Date. The average outstanding
principal balance of the Group I Contracts as of the Cut-off Date was
$39,488.94. The weighted average loan-to-value ratio at the time of
origination of the Group I Contracts was approximately 85.28%. Generally,
"value" in such calculation is equal to the sum of the down payment (which
includes the value allocated to any trade-in unit or land pledged as
additional security or in lieu of a down payment), the original amount
financed on the related Contract, which may include sales and other taxes,
and, in the case of a Land-and-Home Contract, the value of the land securing
the Contract as estimated by the dealer. Manufactured Homes, unlike site-built
homes, generally depreciate in value, and it has been the Company's experience
that, upon repossession, the market value of a Manufactured Home securing a
manufactured housing contract is generally lower than the principal balance of
the related manufactured housing contract. The Group I Contracts are secured
by Manufactured Homes and/or real estate located in 44 states. Approximately
16.12%, 12.40%, 8.66%, 7.23%, 5.77% and 5.17% of the Group I Contracts by
aggregate outstanding principal balance as of the Cut-off Date were secured by
Manufactured Homes or real estate located in Texas, North Carolina, Tennessee,
South Carolina, Wisconsin and Virginia, respectively. No other state
represented more than 4.38% of the Group I Contracts by aggregate outstanding
principal balance as of the Cut-off Date.
S-17
<PAGE>
GROUP I STATISTICS
Set forth below is a description of certain additional characteristics
of the Group I Contracts as of the Cut-off Date. Percentages may not add to
100.00% due to rounding. Totals may not add to aggregate balances due to
rounding.
<TABLE>
<CAPTION>
Geographical Distribution of Manufactured Homes as of Origination - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
State As of Cut-off Date As of Cut-off Date As of Cut-off Date
------------------ ------------------- ------------------
<S> <C> <C> <C>
Alabama .......................................... 79 $ 2,363,067 0.99%
Arizona .......................................... 171 7,959,521 3.34
Arkansas ......................................... 72 2,970,811 1.25
California ....................................... 26 1,652,823 0.69
Colorado ......................................... 126 5,145,761 2.16
Connecticut ...................................... 1 43,503 0.02
Delaware ......................................... 28 1,150,640 0.48
Florida .......................................... 259 10,421,376 4.38
Georgia .......................................... 120 4,863,272 2.04
Idaho ............................................ 11 301,175 0.13
Illinois ......................................... 69 2,700,200 1.13
Indiana .......................................... 117 3,197,963 1.34
Iowa ............................................. 83 3,237,581 1.36
Kansas ........................................... 29 1,174,293 0.49
Kentucky ......................................... 139 4,748,523 2.00
Louisiana ........................................ 182 6,706,361 2.82
Maine ............................................ 6 525,611 0.22
Maryland ......................................... 26 1,226,343 0.52
Massachusetts .................................... 4 198,848 0.08
Michigan ......................................... 220 7,361,448 3.09
Minnesota ........................................ 69 2,435,838 1.02
Mississippi ...................................... 37 1,203,761 0.51
Missouri ......................................... 195 7,644,281 3.21
Montana .......................................... 7 503,568 0.21
Nevada ........................................... 7 685,200 0.29
New Jersey ....................................... 10 715,930 0.30
New Mexico ....................................... 100 5,469,393 2.30
New York ......................................... 65 3,947,507 1.66
North Carolina ................................... 667 29,514,217 12.40
North Dakota ..................................... 3 212,587 0.09
Ohio ............................................. 161 6,651,361 2.79
Oklahoma ......................................... 35 1,248,914 0.52
Oregon ........................................... 37 2,384,070 1.00
Pennsylvania ..................................... 55 2,258,974 0.95
South Carolina ................................... 422 17,206,063 7.23
SouthDakota ...................................... 6 628,404 0.26
Tennessee ........................................ 572 20,621,360 8.66
Texas ............................................ 1,035 38,367,440 16.12
Utah ............................................. 5 454,606 0.19
Virginia ......................................... 302 12,314,974 5.17
Washington ....................................... 4 291,340 0.12
West Virginia .................................... 23 1,426,039 0.60
Wisconsin ........................................ 440 13,735,519 5.77
Wyoming .......................................... 2 129,396 0.05
------ ------------ ------
Total ........................................ 6,027 $237,999,860 100.00%
====== ============ ======
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
Years of Origination of Contracts - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Year of Origination As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
1989 ............................................. 1 $ 10,255 *%
1990 ............................................. 2 32,446 0.01
1991 ............................................. 5 80,606 0.03
1992 ............................................. 10 155,742 0.07
1993 ............................................. 17 292,375 0.12
1994 ............................................. 3 87,348 0.04
1995 ............................................. 8 230,252 0.10
1996 ............................................. 47 1,435,861 0.60
1997 ............................................. 46 1,550,517 0.65
1998 ............................................. 1,517 86,848,450 36.49
1999 ............................................. 4,371 147,276,008 61.88
----- ----------- ------
Total .......................................... 6,027 $237,999,860 100.00%
===== =========== ======
</TABLE>
* Indicates an amount greater than zero but less than 0.005% of the
aggregate principal balance of the Contracts as of the Cut-off Date.
<TABLE>
<CAPTION>
Distribution of Original Contract Amounts - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Original Contract Amount As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ------------------------- ------------------ -------------------- ------------------
<S> <C> <C> <C> <C>
$ 0.01 - $ 5,000.00 ................... 7 $ 24,043 0.01%
5,000.01 - 10,000.00 ................... 137 1,081,386 0.45
10,000.01 - 15,000.00 ................... 382 4,750,587 2.00
15,000.01 - 20,000.00 ................... 549 9,472,179 3.98
20,000.01 - 25,000.00 ................... 700 15,585,022 6.55
25,000.01 - 30,000.00 ................... 747 20,327,372 8.54
30,000.01 - 35,000.00 ................... 710 22,889,029 9.62
35,000.01 - 40,000.00 ................... 548 20,304,358 8.53
40,000.01 - 45,000.00 ................... 439 18,599,157 7.81
45,000.01 - 50,000.00 ................... 378 17,798,974 7.48
50,000.01 - 55,000.00 ................... 278 14,486,841 6.09
55,000.01 - 60,000.00 ................... 213 12,142,255 5.10
60,000.01 - 65,000.00 ................... 160 9,927,632 4.17
65,000.01 - 70,000.00 ................... 121 8,099,824 3.40
70,000.01 - 75,000.00 ................... 121 8,696,309 3.65
75,000.01 - 80,000.00 ................... 90 6,917,468 2.91
80,000.01 - 85,000.00 ................... 72 5,874,767 2.47
85,000.01 - 90,000.00 ................... 71 6,156,854 2.59
90,000.01 - 95,000.00 ................... 46 4,228,862 1.78
95,000.01 - 100,000.00 ................... 55 5,324,374 2.24
100,000.01 - 105,000.00 ................... 35 3,548,437 1.49
105,000.01 - 110,000.00 ................... 35 3,739,309 1.57
110,000.01 - 115,000.00 ................... 26 2,909,100 1.22
115,000.01 - 120,000.00 ................... 32 3,735,341 1.57
120,000.01 - 125,000.00 ................... 12 1,463,223 0.61
125,000.01 - 130,000.00 ................... 15 1,889,558 0.79
130,000.01 - 135,000.00 ................... 4 526,113 0.22
135,000.01 - 140,000.00 ................... 6 820,019 0.34
140,000.01 - 145,000.00 ................... 4 565,486 0.24
145,000.01 - 150,000.00 ................... 2 294,482 0.12
150,000.01 - 155,000.00 ................... 6 907,750 0.38
155,000.01 - 160,000.00 ................... 4 630,145 0.26
160,000.01 - 165,000.00 ................... 1 161,218 0.07
165,000.01 - 170,000.00 ................... 2 332,602 0.14
170,000.01 or greater ......................... 19 3,789,785 1.59
----- ------------ ------
Total ............................. 6,027 $237,999,860 100.00%
===== ============ ======
</TABLE>
S-19
<PAGE>
Distribution of Original Loan-to-Value Ratios(1) - Group I Contracts
<TABLE>
<CAPTION>
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Original Contracts Balance Outstanding Principal Balance
Loan-to-Value Ratio As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - --------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Less than 61.000% ................................ 322 $ 8,034,159 3.38%
61.000% - 65.999% ............................... 194 6,327,308 2.66
66.000 - 70.999 ................................ 272 10,488,780 4.41
71.000 - 75.999 ................................ 368 14,428,707 6.06
76.000 - 80.999 ................................ 609 27,312,673 11.48
81.000 - 85.999 ................................ 878 37,571,619 15.79
86.000 - 90.999 ................................ 1,695 63,181,201 26.55
91.000 -100.000 ................................ 1,689 70,655,414 29.69
----------- ------------ ------
Total .......................................... 6,027 $237,999,860 100.00%
=========== ============ ======
</TABLE>
- - ----------
(1) The definition of "Value" is set forth above. Manufactured Homes, unlike
site-built homes, generally depreciate in value, and it should generally
be expected, especially with Contracts with high loan-to-value ratios at
origination, that any time after the origination of a Contract, the
market value of the Manufactured Home securing such Contract may be lower
than the outstanding principal balance of such Contract.
Cut-off Date Contract Rates - Group I Contracts
<TABLE>
<CAPTION>
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Contract Rate As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - -------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Less than 6.001% ................................. 1 $ 115,191 0.05%
6.001% - 7.000% ........................... 449 39,684,090 16.67
7.001 - 8.000 ........................... 52 3,121,006 1.31
8.001 - 9.000 ........................... 317 16,069,016 6.75
9.001 - 10.000 ........................... 1,823 78,390,437 32.94
10.001 - 11.000 ........................... 1,633 56,159,704 23.60
11.001 - 12.000 ........................... 700 20,303,729 8.53
12.001 - 13.000 ........................... 617 15,293,201 6.43
13.001 - 14.000 ........................... 242 5,269,133 2.21
14.001 - 15.000 ........................... 110 2,280,145 0.96
15.001 - 16.000 ........................... 45 730,252 0.31
16.001 - 17.000 ........................... 12 227,686 0.10
17.001 - 18.000 ........................... 22 332,007 0.14
18.001 - 19.000 ........................... 2 18,410 0.01
20.001 - 21.000 ........................... 1 4,050 *
24.001 - 25.000 ........................... 1 1,802 *
------- ------------ ------
Total .......................................... 6,027 $237,999,860 100.00%
======= ============ =======
</TABLE>
- - ----------
* Indicates an amount greater than zero but less than 0.005% of the aggregate
principal balance of the Contracts as of the Cut-off Date.
<TABLE>
<CAPTION>
Remaining Months to Maturity - Group I Contracts
Percentage of
Group I Contracts
Number of Aggregate Principal by Outstanding
Months Remaining Contracts Balance Outstanding Principal Balance
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ---------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
13 - 72 .................................... 265 $ 3,252,943 1.37%
73 - 84 .................................... 167 2,518,666 1.06
85 - 120 .................................... 645 12,844,427 5.40
121 - 156 .................................... 529 13,423,545 5.64
157 - 180 .................................... 903 25,946,084 10.90
181 - 240 .................................... 1,526 56,331,019 23.67
241 - 300 .................................... 655 30,685,544 12.89
301 - 360 .................................... 1,337 92,997,633 39.07
----------- ---------------------- -----------
Total ........................................... 6,027 $237,999,860 100.00%
=========== ====================== ===========
</TABLE>
S-20
<PAGE>
Group II Contracts
As of the Cut-off Date, the aggregate outstanding principal balance of
the Group II Contracts will equal approximately $144,579,545.37 (subject to a
permitted variance of plus or minus 5%) (the "Group IICut-off Date Principal
Balance"). 77.17% of the Group II Contracts by aggregate outstanding principal
balance as of the Cut-off Date are secured by Manufactured Homes which were
new at the time the related Group II Contracts were originated and 22.83% of
the Group II Contracts by aggregate outstanding principal balance as of the
Cut-off Date are secured by Manufactured Homes which were used at the time the
related Group II Contracts were originated. All of the Group II Contracts are
variable rate Contracts that adjust annually initially at the date set forth
in the related Contract and at regular intervals thereafter (each such date, a
"Change Date") to equal the sum of (i) the monthly average yield on U.S.
Treasury securities adjusted to a constant maturity of five years as made
available by the Federal Reserve Board (the "Index") on a "lookback date" (a
date specified in each Contract which occurs up to a specified number of days
before the applicable Change Date) and (ii) the number of basis points set
forth in such Contract (the "Gross Margin"), subject to rounding and to the
effects of the Periodic Cap, the applicable Lifetime Cap and the applicable
Lifetime Floor. The "Periodic Cap" limits changes in the APR for each Group II
Contract on each Change Date. The "Lifetime Cap" is the maximum APR that may
be borne by a Group II Contract over its life. The "Lifetime Floor" is the
minimum APR that may be borne by a Group II Contract over its life and is
equal to the Gross Margin for such Group II Contract. Each Group II Contract
has an APR of at least 7.990% and not more than 24.990%. The weighted average
APR of the Group II Contracts as of the Cut-off Date is approximately 10.380%.
The Group II Contracts have remaining maturities as of the Cut-off Date of at
least 48 months but not more than 360 months and original maturities of at
least 48 months but not more than 360 months. As of the Cut-off Date, the
Group II Contracts had a weighted average original term to scheduled maturity
of approximately 230 months, and a weighted average remaining term to
scheduled maturity of approximately 229 months. The remaining term to stated
maturity of a Group II Contract is as of the Cut-off Date. The average
outstanding principal balance of the Group II Contracts as of the Cut-off Date
was $38,431.56. The weighted average loan-to-value ratio at the time of
origination of the Group II Contracts was approximately 85.59%. The
calculation of the loan-to-value for the Group II Contracts is as set forth
under the "The Contract Pool--Group I Contracts". Manufactured Homes, unlike
site-built homes, generally depreciate in value, and it has been the Company's
experience that, upon repossession, the market value of a Manufactured Home
securing a manufactured housing contract is generally lower than the principal
balance of the related manufactured housing contract. The Group II Contracts
are secured by Manufactured Homes and/or real estate located in 32 states.
Approximately 20.61%, 17.33%, 15.28%, 11.66%, 8.00% and 7.85% of the Group II
Contracts by aggregate outstanding principal balance as of the Cut-off Date
were secured by Manufactured Homes or real estate located in North Carolina,
Tennessee, Texas, South Carolina, Kentucky and Virginia, respectively. No
other state represented more than 4.22% of the Group II Contracts by aggregate
outstanding principal balance as of the Cut-off Date.
The Periodic Cap for the Group II Contracts other than 1 Contract with
no Periodic Caps ranged from 1% to 2% with a weighted average of approximately
1.595%. The Months to Interest Roll (with respect to each Group II Contract,
the number of months from the Cut-off Date to the next adjustment of the APR
of such Contract) for the Group II Contracts as of the Cut-off Date ranged
from 0 to 13 months with a weighted average of approximately 10.357 months.
The weighted average Payment Roll Frequency (with respect to each Contract,
the number of months between adjustments of the APR) for all Group II
Contracts was approximately 12 months.
S-21
<PAGE>
GROUP II STATISTICS
Set forth below is a description of certain additional characteristics
of the Group II Contracts as of the Cut-off Date. Percentages may not add to
100.00% due to rounding. Totals may not add to aggregate balances due to
rounding.
Geographical Distribution of Manufactured Homes as of Origination
- Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
State As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ----- ------------------ ------------------- ------------------
<S> <C> <C> <C>
Alabama .......................................... 48 $ 1,650,990 1.14%
Arizona .......................................... 15 626,834 0.43
Arkansas ......................................... 29 1,046,708 0.72
California ....................................... 1 62,621 0.04
Colorado ......................................... 15 692,707 0.48
Connecticut ...................................... 2 70,601 0.05
Delaware ......................................... 6 331,144 0.23
Florida .......................................... 173 6,100,506 4.22
Georgia .......................................... 72 2,768,812 1.92
Illinois ......................................... 1 30,156 0.02
Indiana .......................................... 30 1,138,075 0.79
Iowa ............................................. 2 42,312 0.03
Kansas ........................................... 4 141,606 0.10
Kentucky ......................................... 326 11,565,084 8.00
Louisiana ........................................ 148 5,431,435 3.76
Maryland ......................................... 12 428,605 0.30
Michigan ......................................... 6 237,911 0.16
Mississippi ...................................... 50 1,636,151 1.13
Missouri ......................................... 28 1,062,002 0.73
New Jersey ....................................... 1 60,188 0.04
New Mexico ....................................... 21 821,332 0.57
New York ......................................... 5 229,284 0.16
North Carolina ................................... 672 29,793,633 20.61
Ohio ............................................. 27 1,063,770 0.74
Oklahoma ......................................... 27 909,672 0.63
Pennsylvania ..................................... 7 256,804 0.18
South Carolina ................................... 402 16,863,501 11.66
Tennessee ........................................ 685 25,049,301 17.33
Texas ............................................ 644 22,088,173 15.28
Virginia ......................................... 273 11,350,244 7.85
West Virginia .................................... 28 984,399 0.68
Wisconsin ........................................ 2 44,983 0.03
------ ------------ ------
Total .......................................... 3,762 $144,579,545 100.00%
====== ============ ======
</TABLE>
<TABLE>
<CAPTION>
Years of Origination of Contracts - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Year of Origination As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
1996 ............................................. 4 $ 104,860 0.07%
1997 ............................................. 22 637,240 0.44
1998 ............................................. 17 717,058 0.50
1999 ............................................. 3,719 143,120,387 98.99
----- ------------ ------
Total .......................................... 3,762 $144,579,545 100.00%
===== ============ ======
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
Distribution of Original Contract Amounts - Group II Contracts
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Original Contract Amount As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ------------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
$ 5,000.01 - $ 10,000.00 ................... 48 $ 388,402 0.27%
10,000.01 - 15,000.00 ................... 122 1,580,081 1.09
15,000.01 - 20,000.00 ................... 201 3,540,460 2.45
20,000.01 - 25,000.00 ................... 350 7,909,868 5.47
25,000.01 - 30,000.00 ................... 540 14,854,096 10.27
30,000.01 - 35,000.00 ................... 617 19,977,705 13.82
35,000.01 - 40,000.00 ................... 484 17,983,692 12.44
40,000.01 - 45,000.00 ................... 266 11,232,444 7.77
45,000.01 - 50,000.00 ................... 295 14,001,107 9.68
50,000.01 - 55,000.00 ................... 210 10,973,762 7.59
55,000.01 - 60,000.00 ................... 192 10,962,161 7.58
60,000.01 - 65,000.00 ................... 156 9,714,884 6.72
65,000.01 - 70,000.00 ................... 95 6,378,448 4.41
70,000.01 - 75,000.00 ................... 75 5,429,988 3.76
75,000.01 - 80,000.00 ................... 32 2,485,000 1.72
80,000.01 - 85,000.00 ................... 30 2,474,226 1.71
85,000.01 - 90,000.00 ................... 13 1,138,673 0.79
90,000.01 - 95,000.00 ................... 13 1,196,975 0.83
95,000.01 - 100,000.00 ................... 12 1,170,280 0.81
100,000.01 - 105,000.00 ................... 5 511,759 0.35
105,000.01 - 110,000.00 ................... 3 318,703 0.22
110,000.01 - 115,000.00 ................... 1 114,112 0.08
115,000.01 - 120,000.00 ................... 1 118,397 0.08
120,000.01 - 125,000.00 ................... 1 124,323 0.09
------ ------------ ------
Total .......................................... 3,762 $144,579,545 100.00%
====== ============ =======
</TABLE>
Distribution of Original Loan-to-Value Ratios(1) - Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Original Contracts Balance Outstanding Principal Balance
Loan-to-Value Ratio As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ----------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Less than 61.000% 104 $ 2,994,961 2.07%
61.000% - 65.999% 89 3,216,179 2.22
66.000 - 70.999 147 5,798,437 4.01
71.000 - 75.999 252 10,320,780 7.14
76.000 - 80.999 326 14,325,241 9.91
81.000 - 85.999 531 20,602,435 14.25
86.000 - 90.999 1,299 49,925,090 34.53
91.000 - 100.000 1,014 37,396,423 25.87
----- ------------` ------
Total 3,762 $144,579,545 100.00%
==== ============ ======
</TABLE>
- - ----------
(1) The definition of "Value" is set forth above. Manufactured Homes, unlike
site-built homes, generally depreciate in value, and it should generally
be expected, especially with Contracts with high loan-to-value ratios at
origination, that any time after the origination of a Contract, the
market value of the Manufactured Home securing such Contract may be lower
than the outstanding principal balance of such Contract.
S-23
<PAGE>
Cut-off Date Contract Rates - Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contract Rate Contracts Balance Outstanding Principal Balance
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C>
7.001% - 8.000% 276 $ 13,596,141 9.40%
8.001 - 9.000 205 10,556,346 7.30
9.001 - 10.000 1,153 47,478,990 32.84
10.001 - 11.000 575 22,411,724 15.50
11.001 - 12.000 1,154 38,429,061 26.58
12.001 - 13.000 274 8,634,727 5.97
13.001 - 14.000 120 3,384,041 2.34
14.001 - 15.000 4 80,742 0.06
24.001 - 25.000 1 7,774 0.01
----- ------------ ------
Total 3,762 $144,579,545 100.00%
===== ============ ======
</TABLE>
Remaining Months to Maturity - Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Months Remaining Contracts Balance Outstanding Principal Balance
As of Cut-off Date As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C>
13 - 72 ................ 65 $ 740,787 0.51%
73 - 84 ................ 82 1,318,062 0.91
85 - 120 ............... 206 4,472,732 3.09
121 - 156 ............... 462 12,455,680 8.62
157 - 180 ............... 612 19,259,632 13.32
181 - 240 ............... 1,500 58,781,957 40.66
241 - 300 ............... 601 33,029,584 22.85
301 - 360 ............... 234 14,521,112 10.04
------ ------------ ------
Total ................. 3,762 $144,579,545 100.00%
====== ============ ======
</TABLE>
S-24
<PAGE>
Distribution of Lifetime Cap - Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Lifetime Cap As of Cut-off Date As of Cut-off Date As of Cut-off Date
------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
No Cap 1 $ 34,607 0.02%
12.501% - 13.000% 63 2,712,744 1.88
13.001 - 13.500 2 68,253 0.05
13.501 - 14.000 221 11,215,265 7.76
14.001 - 14.500 81 4,078,110 2.82
14.501 - 15.000 258 11,374,830 7.87
15.001 - 15.500 396 17,043,408 11.79
15.501 - 16.000 765 30,420,791 21.04
16.001 - 16.500 477 18,640,512 12.89
16.501 - 17.000 253 8,750,328 6.05
17.001 - 17.500 487 16,725,250 11.57
17.501 - 18.000 467 14,689,367 10.16
18.001 - 18.500 153 5,005,187 3.46
18.501 - 19.000 46 1,376,573 0.95
19.001 - 19.500 70 1,937,279 1.34
19.501 - 20.000 18 448,445 0.31
20.001 - 20.500 1 12,224 0.01
20.501 - 21.000 2 38,599 0.03
30.501 - 31.000 1 7,774 0.01
----- ------------ ------
Total 3,762 $144,579,545 100.00%
===== ============ ======
</TABLE>
Distribution of Gross Margins - Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Gross Margin As of Cut-off Date As of Cut-off Date As of Cut-off Date
------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
1.501% - 2.000% ....... 1 $ 46,611 0.03%
2.501 - 3.000 ........ 275 13,415,708 9.28
3.001 - 3.500 ........ 56 3,144,911 2.18
3.501 - 4.000 ........ 145 6,864,272 4.75
4.001 - 4.500 ........ 293 13,704,825 9.48
4.501 - 5.000 ........ 785 31,323,660 21.67
5.001 - 5.500 ........ 499 19,741,237 13.65
5.501 - 6.000 ........ 198 7,177,495 4.96
6.001 - 6.500 ........ 497 17,349,154 12.00
6.501 - 7.000 ........ 574 18,555,258 12.83
7.001 - 7.500 ........ 248 7,835,972 5.42
7.501 - 8.000 ........ 74 2,192,885 1.52
8.001 - 8.500 ........ 74 2,065,059 1.43
8.501 - 9.000 ........ 37 1,034,022 0.72
9.001 - 9.500 ........ 3 79,642 0.06
9.501 - 10.000 ........ 2 41,059 0.03
19.501 - 20.000 ........ 1 7,774 0.01
----- ------------ ------
Total ................. 3,762 $144,579,545 100.00%
===== ============ ======
</TABLE>
S-25
<PAGE>
Distribution of Next Contract Rate Change - Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Date of Next Contracts Balance Outstanding Principal Balance
Contract Rate Change As of Cut-off Date As of Cut-off Date As of Cut-off Date
-------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
August 1, 1999 ................. 1 $ 28,612 0.02%
September 1, 1999 .............. 10 321,033 0.22
October 1, 1999 ................ 1 28,583 0.02
November 1, 1999 ............... 8 312,290 0.22
December 1, 1999 ............... 6 175,592 0.12
February 1, 2000 ............... 2 86,532 0.06
March 1, 2000 .................. 10 392,317 0.27
April 1, 2000 .................. 84 3,467,629 2.40
May 1, 2000 .................... 724 26,521,210 18.34
June 1, 2000 ................... 1,150 43,568,724 30.13
July 1, 2000 ................... 1,270 49,245,396 34.06
August 1, 2000 ................. 427 17,334,950 11.99
September 1, 2000 .............. 69 3,096,679 2.14
----- ------------ ------
Total ........................ 3,762 $144,579,545 100.00%
===== ============ ======
</TABLE>
Distribution of Periodic Cap - Group II Contracts
<TABLE>
<CAPTION>
Percentage of
Group II Contracts
Number of Aggregate Principal by Outstanding
Contracts Balance Outstanding Principal Balance
Periodic Cap As of Cut-off Date As of Cut-off Date As of Cut-off Date
- - ------------ ------------------ ------------------ ------------------
<S> <C> <C> <C>
No Cap ................... 1 $ 34,607 0.02%
1.000% ................... 1,505 58,491,282 40.46
2.000 .................... 2,256 86,053,656 59.52
----- ------------ ------
Total .................. 3,762 $144,579,545 100.00%
===== ============ ======
</TABLE>
VANDERBILT MORTGAGE AND FINANCE, INC.
The following information supplements the information in the Prospectus
under the heading "Vanderbilt Mortgage and Finance, Inc." and "Underwriting
Policies" in the Prospectus.
The volume of manufactured housing contracts originated by the Company
for the periods indicated below and certain other information at the end of
such periods are as follows:
Contract Origination
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Principal Balance of Contracts
Originated (in thousands) ....... $292,435 $345,260 $476,467 $646,624 $801,865 $1,085,484
Number of Contracts Originated .... 12,401 13,857 16,910 21,691 24,304 30,165
Average Contract Size(1) .......... $ 23,582 $ 24,916 $ 28,177 $ 29,811 $ 32,993 $ 35,985
Average Interest Rate(1) .......... 10.84% 12.24% 10.72% 11.10% 10.51% 10.40%
</TABLE>
- - ----------
(1) As of period end.
The following table shows the size of the portfolio of manufactured
housing contracts serviced by the Company on the dates indicated:
S-26
<PAGE>
Contract Servicing Portfolio
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------
1994 1995 1996 1997 1998(2) 1999(2)
------ ------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Being Serviced(1) .......................... 60,165 66,960 74,154 85,912 108,045 119,396
Originated by the Company .................... 47,944 55,923 64,298 75,455 86,245 98,963
Acquired from other institutions ............. 12,221 11,037 9,856 10,457 21,800 20,433
</TABLE>
- - ----------
(1) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
(2) Includes Access Financial Contracts.
On May 28, 1998, the Company purchased approximately $245 million of
manufactured housing installment sales contracts (the "Access Financial
Contracts") from Access Financial Lending Corp. Approximately 0.47% of the
Contracts in the Contract Pool by aggregate outstanding principal balance as
of the Cut-off Date are Access Financial Contracts.
Delinquency Experience(1)
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998(8) 1998(9) 1999(8) 1999(9)
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Outstanding(2)(3) .................. 60,165 66,960 74,154 85,912 99,819 108,045 112,399 119,396
Company Originations ............... 47,944 55,923 64,298 75,455 86,245 86,245 98,963 98,963
Acquisitions from other institutions 12,221 11,037 9,856 10,457 13,574 21,800 13,436 20,433
Number of Contracts Delinquent(4):
Total 30 to 59 days past due ....... 772 819 953 1,159 1,287 2,045 1,140 1,274
Company Originations ............... 353 565 761 982 1,048 1,048 1,016 1,016
Acquisitions from other institutions 419 254 192 177 239 997 124 258
Total 60 to 89 days past due ......... 209 227 285 284 326 568 379 453
Company Originations ............... 109 167 238 236 268 268 332 332
Acquisitions from other institutions 100 60 47 48 58 300 47 121
Total 90 days or more past due ....... 498 625 516 590 787 1,486 811 1,222
Company Originations ............... 203 315 341 440 547 547 610 610
Acquisitions from other institutions 295 310 175 150 240 939 201 612
Total Contracts Delinquent(5) ........ 1,479 1,671 1,754 2,033 2,400 4,099 2,330 2,949
Company Originations ............... 665 1,047 1,340 1,658 1,863 1,863 1,958 1,958
Acquisitions from other institutions 814 624 414 375 537 2,236 372 991
Total Contracts Delinquent(6) ........ 1,184 1,208 1,511 1,789 2,153 3,603 2,105 2,467
Company Originations ............... 556 873 1,211 1,503 1,711 1,711 1,825 1,825
Acquisitions from other institutions 628 335 300 286 442 1,892 280 642
Total Delinquencies as a Percent(7) of
Contracts Outstanding(5) ........... 2.46% 2.50% 2.37% 2.37% 2.40% 3.79% 2.07% 2.47%
Company Originations ............... 1.39% 1.87% 2.08% 2.20% 2.16% 2.16% 1.98% 1.98%
Acquisitions from other institutions 6.66% 5.65% 4.20% 3.59% 3.96% 10.26% 2.77% 4.85%
Total Delinquencies as a Percent(7)
of Contracts Outstanding(6) ........ 1.97% 1.80% 2.04% 2.08% 2.16% 3.34% 1.87% 2.07%
Company Originations ............... 1.16% 1.56% 1.88% 1.99% 1.98% 1.98% 1.84% 1.84%
Acquisitions from other institutions 5.14% 3.04% 3.04% 2.74% 3.26% 8.68% 2.08% 3.14%
</TABLE>
- - ----------
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as described
under "Vanderbilt Mortgage and Finance, Inc." in the Prospectus.
(2) Excludes contracts serviced by others for which the Company is
contingently liable.
(3) Excludes contracts serviced by the Company on behalf of the Resolution
Trust Corporation trust and other trusts previously serviced by First
Manufactured Housing Credit Corporation.
(4) Including contracts that were repossessed during the prior 30-day
period, and based on 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.
(5) Including contracts that were repossessed during the prior 30-day
period; figures for Acquisitions from other institutions at June 30,
1995 also include all such repossessed contracts on hand.
(6) Excluding contracts that were repossessed during the prior 30-day period.
(7) By number of contracts.
(8) Excludes Access Financial Contracts.
(9) Includes Access Financial Contracts.
S-27
<PAGE>
The following table sets forth the loan loss/repossession experience of
the Company and its affiliates for the manufactured housing contracts serviced
by the Company.
Loan Loss/Repossession Experience(1)
<TABLE>
<CAPTION>
At or for the Year Ended June 30,
--------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998(9) 1999(9) 1999(10)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Number of Contracts
Serviced(2)(3) .............. 60,165 66,960 74,154 85,912 99,819 112,399 119,396
Company Originations ........ 47,944 55,923 64,298 75,455 86,245 98,963 98,963
Acquisitions from other
institutions .............. 12,221 11,037 9,856 10,457 13,574 13,436 20,433
Aggregate Principal Balance of
Contracts Serviced(4) ....... $1,006,794 $1,200,893 $1,456,103 $1,910,438 $2,340,583 $2,988,981 $3,204,787
Company Originations ........ $ 852,536 $1,074,302 $1,351,324 $1,749,645 $2,190,183 $2,787,204 $2,787,204
Acquisitions from other
institutions .............. $ 154,258 $ 126,591 $ 104,779 $ 160,793 $ 150,400
$ 201,777 $ 417,583
Net Losses from Contract
Liquidations(5):
Total Dollars(6) ............ $ 2,758 $ 2,262 $ 2,052 $ 715 $ 17,861 $2,664,782
$2,898,780
Company Originations(6) ..... $ 528 $ 362 $ (442) $ (1,622) $ 15,099 $2,488,694 $2,488,694
Acquisitions from other
institutions .............. $ 2,230 $ 1,900 $ 2,494 $ 2,337 $ 2,762 $ 176,089 $ 410,087
Percentage of Average Principal
Balance(7) .................. 0.30% 0.20% 0.15% 0.04% 0.84% 1.17% 1.37%
Company Originations ........ 0.07% 0.04% (0.04)% (0.10)% 0.77% 0.99% 0.99%
Acquisitions from other
institutions .............. 1.62% 1.35% 2.16% 1.76% 1.70% 3.75% 3.68%
Total Number of Contracts in
Repossession(3) ............. 565 540 709 937 1,682(10) 1,514 1,857
Company Originations(8) ..... 388 422 635 885 1,229 1,374 1,374
Acquisitions from Other
Institutions .............. 177 118 74 52 453 140 483
</TABLE>
- - ----------
(1) Includes data on contracts originated by the Company and portfolios
acquired by the Company from other financial institutions, as described
under "Vanderbilt Mortgage and Finance, Inc." in the Prospectus.
(2) As of period end. Excludes contracts serviced by others for which the
Company is contingently liable.
(3) Excludes contracts serviced by the Company on behalf of Access, the
Resolution Trust Corporation and trusts previously serviced by First
Manufactured Housing Credit Corporation.
(4) As of period end. Includes principal balances of contracts serviced by
others for which the Company is contingently liable.
(5) Includes net losses on contracts serviced by others for which the
Company is contingently liable.
(6) For all periods through June 30, 1997, the calculation of net losses has
been determined after all accrued and unpaid interest was written off
and does not include repossession and other liquidation expenses. For
these periods, data with respect to repossession and other liquidation
expenses generally was not maintained by dealers on a separately
identifiable basis, and, therefore, this information was not available
to the Company. The Company believes that it would not be unusual for
such expenses to have been equal to 15% of the Scheduled Principal
Balance of a defaulted Contract. However, actual expenses may have been
higher or lower. For the periods ended June 30, 1998 and June 30, 1999,
data with respect to repossession and other liquidation expenses has
been maintained by dealers and made available to the Company. The
Company has, therefore, included dealer repossession and liquidation
expense data in the numbers calculated for such periods. Because of the
different computational method used, amounts shown for the periods ended
June 30, 1998 and June 30, 1999 are not comparable to prior periods.
(7) As a percentage of the average principal balance of all contracts being
serviced during the period. Percentages have been annualized.
(8) Includes repossessions from contracts serviced by others for which the
Company is contingently liable.
(9) Excludes Access Financial Contracts.
(10) Includes Access Financial Contracts.
The Company believes that its historical loss experience has been
favorably affected by its capacity to resell repossessed units through dealers
owned by CHI and to make needed repairs on repossessed units through the
facilities of such dealers, rather than paying the rates charged by
unaffiliated parties. If the Company is replaced as Servicer of the Contracts,
the successor Servicer may not have access to the CHI dealer network and, as a
consequence, the loss experience on the Contracts may be adversely affected.
The data presented in the preceding tables are for illustrative purposes
only, and there is no assurance that the delinquency, loan loss and
repossession experience of Contracts in the Contract Pool 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 a
downturn in regional or local economic conditions. For instance, such a
downturn and higher levels of delinquency, loan loss and repossession were
experienced in areas dependent on the oil and gas industry. These regional or
local economic conditions are often volatile, and no predictions can be made
regarding future economic loss upon repossession. In addition, an increased
supply of used units in one region may in turn affect the supply in other
regions, thus affecting economic loss upon liquidation in such other regions.
Information regarding the geographic location, at origination, of the
Manufactured Homes securing the Contracts in the Contract Pool is set forth
under "The Contract Pool" herein.
S-28
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES FOR CHI
Set forth below are CHI's ratios of earnings to fixed charges for the
past five years. For the purposes of compiling these ratios, earnings consist
of earnings before income taxes plus fixed charges. Fixed charges consist of
interest expense and the interest portion of rent expense.
For Year Ended June 30,
---------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges ..... 21.64 36.00 39.99 41.24 12.48*
- - ----------
* The reduction in the earnings to fixed charges ratio for the year ended
June 30, 1999 compared to prior years was due primarily to an increase in
interest expense as a result of increased borrowings by CHI and its
consolidated companies. The requisite financing for recent acquisitions of
contracts, the funding of a CHI stock repurchase program and general
working capital needs have all attributed to the recent rise in CHI's
outstanding debt obligations. For additional financial information we refer
you to CHI's annual 10-K report for fiscal year ended June 30, 1998 and
quarterly 10-Q reports for the quarterly periods ended September 30, 1998,
December 31, 1998 and March 31, 1999, which reports were previously filed
with the SEC.
YIELD AND PREPAYMENT CONSIDERATIONS
The Contracts have maturities at origination ranging from 18 to 360
months, but may be prepaid in full or in part at any time. The prepayment
experience of the Contracts (including prepayments due to liquidations of
defaulted contracts) will affect the average life of the Certificates. The
weighted average life of, and, if purchased at other than par, the yield to
maturity on, the Offered Certificates will relate to the rate of payment of
principal in the Contracts in the related Contract Group, including, for this
purpose, prepayments, liquidations due to defaults, casualties and
condemnations. Based on the Company's experience with the portfolio of
conventional manufactured housing contracts serviced by it, the Company
anticipates that a number of Contracts will be prepaid in full prior to their
maturity. A number of factors, including homeowner mobility, general and
regional economic conditions and prevailing interest rates may influence
prepayments. In addition, repurchases of Contracts on account of certain
breaches of representations and warranties as described below under
"Descriptions of the Certificates--Conveyance of Contracts" will have the
effect of prepayment of such Contracts and therefore will affect the life of
the Certificates. Most of the Contracts contain provisions that prohibit the
owner from selling the Manufactured Home without the prior consent of the
holder of the related Contract. Such provisions are similar to the
"due-on-sale" clauses and may not be enforceable in some states. See "Certain
Legal Aspects of the Contracts--Transfers of Manufactured Homes;
Enforceability of `Due-on-Sale' Clauses" in the Prospectus. The initial
Servicer's policy is to permit most sales of Manufactured Homes where the
proposed buyer meets the initial Servicer's then current underwriting
standards and enters into an assumption agreement. See "--Weighted Average
Life of the Offered Certificates" below and "Maturity and Prepayment
Considerations" in the Prospectus.
As with fixed rate obligations generally, the rate of prepayment on a
pool of Contracts with fixed rates (such as the Group I Contracts) is affected
by prevailing market rates for Contracts of a comparable term and risk level.
When the market interest rate is below the contract APR, Obligors may have an
increased incentive to refinance their contracts. Depending on prevailing
market rates, the future outlook for market rates and economic conditions
generally, some Obligors may sell or refinance their contracts in order to
realize their equity in the manufactured house, to meet cash flow needs or to
make other investments.
As is the case with conventional fixed rate obligations, adjustable rate
obligations (such as the Group II Contracts) may also be subject to a greater
rate of principal prepayments in a declining interest rate environment. For
example, if prevailing interest rates fall significantly, adjustable rate
contracts could be subject to higher prepayment rates than if prevailing
interest rates remain constant because the availability of fixed-rate
contracts at competitive interest rates may encourage Obligors to refinance
their adjustable rate contract to "lock in" a lower fixed interest rate.
However, no assurance can be given as to the level of prepayments that the
Group II Contracts will experience.
The allocation of distributions to the Certificateholders in accordance
with the Agreement will have the effect of accelerating the amortization of
the Senior Certificates in the sequence indicated under "Description of the
Certificates--Distributions" from the amortization that would be applicable if
distributions in respect of the applicable Formula Principal Distribution
Amount were made pro rata according to the respective Principal Balances of
each Class of Certificates. As described under "Description of the
Certificates--Group I Certificates and the
S-29
<PAGE>
Senior/Subordinate Structure" and "--Group II Certificates and the
Senior/Subordinate Structure" herein, to the extent that, on any Remittance
Date, the Group I or Group II Available Distribution Amount, as applicable, is
not sufficient to permit a full distribution of the applicable Formula
Principal Distribution Amount or the portion thereof due on such Remittance
Date to the Class of the Offered Certificates entitled to such distribution,
the effect will be to delay the amortization of such Class of the Offered
Certificates. If a purchaser of a Class of Offered Certificates purchases them
at a discount and calculates its anticipated yield to maturity based on an
assumed rate of payment of principal on such Offered Certificates that is
faster than the rate actually realized, such purchaser's actual yield to
maturity will be lower than the yield so calculated by such purchaser.
In addition to the foregoing factors affecting the weighted average life
of the Senior Certificates, the overcollateralization provisions of the Trust
result in a limited acceleration of the Group II Certificates relative to the
amortization of the Group II Contracts in early months of the transaction. The
accelerated amortization is achieved by the application of certain excess
interest to the payment of the Group II Certificate Principal Balance. This
acceleration feature creates overcollateralization which results from the
excess of the Group II Contract Balance over the Group II Certificate
Principal Balance. Once the required level of overcollateralization is
reached, the acceleration feature will cease, unless necessary to maintain the
required level of overcollateralization.
The effective yield to each holder of a Group I Certificate (other than
a Class I A-1 Certificate) will be below that otherwise produced by the
applicable Remittance Rate and the purchase price of such holder's Certificate
because, while interest will accrue in respect of each calendar month, the
distribution of such interest to such holders will be made on the 7th day (or,
if such day is not a business day, the next succeeding business day) of the
month following the Due Period in which it accrues.
The rate of distributions of principal of the Offered Certificates and
the yield to maturity of the Offered Certificates also will be directly
related to the rate of payment of principal (including prepayments) of the
Contracts. The rate of principal distributions on the Offered Certificates
will be affected by the amortization schedules of the Contracts and the rate
of principal payments on the Contracts (including prepayments due to
liquidations upon default). In general, the Contracts may be prepaid by the
Obligors at any time without payment of any prepayment fee or penalty.
The Class I M-1 Certificateholders will not receive any distributions of
principal until the Class I M-1 and Class I B Principal Distribution Test is
met or the Class I A Principal Balance is reduced to zero. The rate of
principal payments on the Class I M-1 Certificates, the aggregate amount of
distributions on the Class I M-1 Certificates and the yield to maturity of the
Class I M-1 Certificates will be affected by the rate of Obligor defaults
resulting in losses on Liquidated Contracts, by the severity of those losses
and by the timing of those losses. If a purchaser of Class I M-1 Certificates
calculates its anticipated yield based on an assumed rate of default and an
assumed amount of losses that are lower than the default rate and amount of
losses actually incurred and such amount of losses actually incurred is not
entirely covered by the subordination of the Class I B Certificates, its
actual yield to maturity will be lower than that so calculated. The timing of
losses on Liquidated Contracts 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. If the protection afforded to the Class I M-1
Certificateholders by the subordination of the Class I B Certificates is
exhausted, the Class I M-1 Certificateholders will bear all losses and
delinquencies on the Contracts and will incur a loss on their investment.
The Class I B-1 Certificateholders will not receive any distributions of
principal until the Class I M-1 and Class I B Principal Distribution Test is
met or the Class I A Principal Balance and the Class I M-1 Principal Balance
is reduced to zero. The rate of principal payments on the Class I B-1
Certificates, the aggregate amount of distributions on the Class I B-1
Certificates and the yield to maturity of the Class I B-1 Certificates will be
affected by the rate of Obligor defaults resulting in losses on Liquidated
Contracts, by the severity of those losses and by the timing of those losses.
If a purchaser of Class I B-1 Certificates calculates its anticipated yield
based on an assumed rate of default and an assumed amount of losses that are
lower than the default rate and amount of losses actually incurred and such
amount of losses actually incurred is not entirely covered by the
subordination of the Class I B-2 Certificates, its actual yield to maturity
will be lower than that so calculated. The timing of losses on Liquidated
Contracts 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. If the protection afforded to the Class I B-1 Certificateholders
by the subordination of the Class I B-2 Certificates is exhausted, the Class I
B-1 Certificateholders will bear all losses and delinquencies on the Contracts
and will incur a loss on their investment.
S-30
<PAGE>
The Class II B Certificateholders will not receive any distributions of
principal until the Class II B Principal Distribution Test is met or the Class
II A-1 Principal Balance is reduced to zero. Once the Class II B Principal
Distribution Test is met, however, there is a likelihood that the Class II A-1
Certificates will not receive distributions of principal for a period of time.
The rate of principal payments on the Class II B-1 Certificates, the aggregate
amount of distributions on the Class II B-1 Certificates and the yield to
maturity of the Class II B-1 Certificates will be affected by the rate of
Obligor defaults resulting in losses on Liquidated Contracts, by the severity
of those losses and by the timing of those losses. If a purchaser of Class II
B-1 Certificates calculates its anticipated yield based on an assumed rate of
default and an assumed amount of losses that are lower than the default rate
and amount of losses actually incurred and such amount of losses actually
incurred is not entirely covered by the subordination of the Class II B-2
Certificates and the Class II B-3 Certificates, its actual yield to maturity
will be lower than that so calculated. The timing of losses on Liquidated
Contracts 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. If the protection afforded to the Class II B-1
Certificateholders by the subordination of the Class II B-2 Certificates and
the Class II B-3 Certificates is exhausted, the Class II B-1
Certificateholders will bear all losses and delinquencies on the Contracts and
will incur a loss on their investment. The rate of principal payments on the
Class II B-2 Certificates, the aggregate amount of distributions on the Class
II B-2 Certificates and the yield to maturity of the Class II B-2 Certificates
will be affected by the rate of Obligor defaults resulting in losses on
Liquidated Contracts, by the severity of those losses and by the timing of
those losses. If a purchaser of Class II B-2 Certificates calculates its
anticipated yield based on an assumed rate of default and an assumed amount of
losses that are lower than the default rate and amount of losses actually
incurred and such amount of losses actually incurred is not entirely covered
by the subordination of the Class II B-3 Certificates, its actual yield to
maturity will be lower than that so calculated. The timing of losses on
Liquidated Contracts 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. If the protection afforded to the Class II B-2
Certificateholders by the subordination of the Class II B-3 Certificates is
exhausted, the Class II B-2 Certificateholders will bear all losses and
delinquencies on the Contracts and will incur a loss on their investment.
There can be no assurance that the delinquency or repossession experience set
forth herein under "Vanderbilt Mortgage and Finance, Inc." will be
representative of the results that may be experienced with respect to the
Contracts. There can be no assurance as to the delinquency, repossession or
loss experience with respect to the Contracts.
As described herein under the "Description of the Certificates--Group I
Certificates and the Senior/Subordinate Structure" and "--Losses on Liquidated
Contracts" on any Remittance Date on or after the Remittance Date, if any, on
which the Class I A Principal Balance is greater than the related Pool
Scheduled Principal Balance, if the Available Distribution Amount is not
sufficient to permit a full distribution of the Formula Principal Distribution
Amount to the Class of Class I A Certificateholders then entitled to such
amount, the Class I A-5 Certificateholders will absorb (i) all losses on each
Liquidated Contract in the amount by which its Liquidation Proceeds (net of
Liquidation Expenses and applicable Advances) are less than its unpaid
principal balance plus accrued and unpaid interest thereon at the weighted
average Remittance Rate and the percentage rate used to calculate the monthly
servicing fee and (ii) other shortfalls in the Available Distribution Amount
and will incur a loss on their investments. See "Description of the
Certificates--Distributions" herein.
On any Remittance Date on or after the Remittance Date, if any, on which
the Principal Balance of the Senior Certificates of a particular Group is
greater than the Pool Scheduled Principal Balance for such Group, if the
related Available Distribution Amount is not sufficient to permit a full
distribution of the related Formula Principal Distribution Amount to such
Senior Certificateholders, such Senior Certificateholders will absorb (i) all
losses on each Liquidated Contract in such Group in the amount by which its
Liquidation Proceeds (net of Liquidation Expenses and applicable Advances) are
less than its unpaid principal balance plus accrued and unpaid interest
thereon at the weighted average Remittance Rate and the percentage rate used
to calculate the monthly servicing fee and (ii) other shortfalls in the
related Available Distribution Amount and will incur a loss on their
investments. See "Description of the Certificates--Distributions" herein.
The Company (if it is no longer the Servicer) and the Servicer (whether
or not the Company remains the Servicer) each has the option to repurchase the
Contracts then outstanding and any other property constituting the Trust Fund
if on any Remittance Date the Pool Scheduled Principal Balance is less than
10% of the Cut-off Date Pool Principal Balance. See "Description of the
Certificates--Optional Termination" herein. The exercise of such option would
effect the early retirement of the then outstanding Certificates.
S-31
<PAGE>
In the event that there were a sufficiently large number of
delinquencies on the Contracts in any Due Period that were not covered by
Monthly Advances as described herein, the amounts paid to Certificateholders
could be less than the amount of principal and interest that would otherwise
be payable on the Offered Certificates with respect to such Due Period. In
such event, even if delinquent payments on the Contracts were eventually
recovered upon liquidation, since the amounts received would not include
interest on delinquent interest payments, the effective yield on the Contracts
would be reduced, and under certain circumstances it is possible that
sufficient amounts might not be available for the ultimate payment of all
principal of the Offered Certificates plus accrued interest thereon at the
related Remittance Rate, thus also reducing the effective yield on the Offered
Certificates.
While partial prepayments of the principal on the Contracts are applied
on Due Dates, Obligors are not required to pay interest on the Contracts after
the date of a full prepayment of principal. As a result, full prepayments in
advance of the related Due Dates for such Contracts in any Due Period will
reduce the amount of interest received from Obligors during such Due Period to
less than one month's interest. On the other hand, when a Contract (other than
a Bi-weekly Contract or any Semi-Monthly Contract) is prepaid in full during
any period, but after the Due Date for such Contract in such Due Period, the
effect will be to increase the amount of interest received from the related
Obligor during such Due Period to more than one month's interest. If a
sufficient number of Contracts are prepaid in full in a given Due Period in
advance of their respective Due Dates, interest payable on all of the
Contracts during that Due Period may be less than the interest payable on the
related Classes of Certificates with respect to such Due Period. In addition,
because the principal balance of the Bi-weekly Contracts are reduced on a
bi-weekly basis and the principal balance of any Semi-Monthly Contracts on a
semi-monthly basis, the amount of interest due from Obligors on such Contracts
is less than that which would have accrued if such Contracts were amortized on
a monthly basis. As a result, the Trust Fund may not receive sufficient monies
to pay the interest on such Certificates in the amounts set forth herein under
"Description of the Certificates--Distributions" and to make a full
distribution to the related Certificateholders of the related Formula
Principal Distribution Amounts respectively allocable to them. Although no
assurance can be given in this matter, the Company does not anticipate that
the net shortfall of interest received because of prepayments in full or the
amortization of the Bi-weekly Contracts or any Semi-Monthly Contracts in any
Due Period would be great enough, in the absence of delinquencies and
Liquidation Losses, to reduce the related Available Distribution Amount for a
Remittance Date below the amount required to be distributed to the related
Certificateholders on that Remittance Date in the absence of such prepayment
interest shortfalls.
Each scheduled payment on a Bi-weekly Contract in any Due Period will
contain only two weeks of interest, and each scheduled payment on any
Semi-Monthly Contract in any Due Period will contain only one-half of one
month's interest rather than one month's interest. In addition, the second,
and in some Due Periods the third (in the case of a Bi-weekly Contract)
scheduled payment in each Due Period will be calculated on a principal balance
that is lower than the principal balance at the beginning of that Due Period.
These characteristics may result in the interest due on a Bi-weekly Contract
or any Semi-Monthly Contract in a particular Due Period being less than thirty
days' interest on the principal balance thereof at the beginning of the Due
Period.
Weighted Average Life of the Offered Certificates
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of the Offered
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security will
be repaid to the investor. The weighted average life of the Offered
Certificates will be affected by the rate at which principal on the Contracts
is paid. Principal payments on Contracts may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
repayments and liquidations due to default or other dispositions of
Contracts). Prepayments on contracts may be measured by a prepayment standard
or model. The model used in this Prospectus Supplement ("Prepayment Model") is
based on an assumed rate of prepayment each month of the then unpaid principal
balance of a pool of new Contracts. 100% of the Prepayment Model assumes
prepayment rates of 3.7% per annum of the then unpaid principal balance of
such Contracts in the first month of the life of the Contracts 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
the Contracts, 100% of the Prepayment Model assumes a constant prepayment rate
of 6.0% per annum.
S-32
<PAGE>
As used in the following tables "0% of the Prepayment Model" assumes no
prepayments on the Contracts; "100% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 100% of the Prepayment Model assumed
prepayment rates; and "225% of the Prepayment Model" assumes the Contracts
will prepay at rates equal to 225% of the Prepayment Model assumed prepayment
rates.
There is no assurance, however, that prepayments of the Contracts will
conform to any level of the Prepayment Model, and no representation is made
that the Contracts will prepay at the prepayment rates shown or any other
prepayment rate. The rate of principal payments on pools of manufactured
housing contracts is influenced by a variety of economic, geographic, social
and other factors, including the level of interest rates and the rate at which
manufactured homeowners sell their manufactured homes or default on their
contracts. Other factors affecting prepayment of contracts include changes in
obligors' housing needs, job transfers, unemployment and obligors' net equity
in the manufactured homes. In the case of mortgage loans secured by site-built
homes, in general, if prevailing 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 interest rates remain at
or above the rates borne by such mortgage loans. Conversely, if prevailing
interest rates rise above the interest on such mortgage loans, the rate of
prepayment would be expected to decrease. In the case of manufactured housing
contracts, however, because the outstanding principal balances are, in
general, much smaller than mortgage loan balances and the original term to
maturity of each such contract is generally shorter, the reduction or increase
in the size of the monthly payments on contracts of the same maturity and
principal balance arising from a change in the interest rate thereon is
generally much smaller. Consequently, changes in prevailing interest rates may
not have a similar effect, or may have a similar effect, but to a smaller
degree, on the prepayment rates on manufactured housing contracts.
Group I Assumptions
The tables set forth below assume that there are no delinquencies on the
Group I Contracts and that there will be a sufficient Group I Available
Distribution Amount to distribute interest on the Group I Certificates and the
Group I Formula Principal Distribution Amount to the Certificateholders then
entitled thereto.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Group I Contracts are received in a timely manner and prepayments are made at
the indicated percentages of the Prepayment Model set forth in the tables;
(ii) the Servicer or the Company exercises its right of optional termination
described above; (iii) the Group I Contracts will, as of the Cut-off Date, be
grouped into nine pools having the additional characteristics set forth below
under "Assumed Contract Characteristics for Group I"; (iv) one-month LIBOR is
5.2925%; (v) the Original Class Principal Balance and the Remittance Rate of
each Class of Group I Certificates is as set forth under "Summary
Information"; (vi) no interest shortfalls will arise in connection with
prepayment in full of the Contracts; (vii) there will be no losses on the
Group I Contracts; (viii) the Group I Performance Tests are satisfied; (ix)
the Group II Contracts prepay at 250% of the Prepayment Model except in the
case of the 0% of the Prepayment Model scenario in which the Group II
Contracts prepay at 0% of the Prepayment Model; and (x) the Group I
Certificates are purchased on August 27, 1999. No representation is made that
the Contracts will experience delinquencies or losses at the respective rates
assumed above or at any other rates.
S-33
<PAGE>
Assumed Contract Characteristics for Group I
Remaining Original
Term to Term to
Current Maturity Maturity
Pool Principal Balance APR (Months) (Months)
------------------ ----------------- --------- ---------- ----------
1 ................. $ 5,499,340.72 11.5000% 69 71
2 ................. 12,324,991.93 11.1040 113 115
3 ................. 15,075,729.07 10.8060 143 146
4 ................. 24,935,383.93 11.1630 176 179
5 ................. 16,313,429.99 10.2960 204 206
6 ................. 40,127,374.43 10.9180 236 240
7 ................. 14,219,846.97 9.7050 261 262
8 ................. 16,385,454.06 10.1350 294 300
9 ................. 93,118,308.66 8.3860 351 359
---------------
Total .......... $237,999,859.76
===============
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there may be discrepancies between the characteristics of
the actual Group I Contracts and the characteristics of the Group I Contracts
assumed in preparing the tables. Any such discrepancy may have an effect upon
the percentages of the Original Class I A-1 Principal Balance, Original Class
I A-2 Principal Balance, Original Class I A-3 Principal Balance, Original
Class I A-4 Principal Balance, Original Class IA-5 Principal Balance, Original
Class I M-1 Principal Balance, Original Class I B-1 Principal Balance and
Original Class I B-2 Principal Balance outstanding and weighted average lives
of the Class I A-1 Certificates, Class I A-2 Certificates, Class I A-3
Certificates, Class I A-4 Certificates, Class I A-5 Certificates, Class I M-1
Certificates, Class I B-1 Certificates and Class I B-2 Certificates set forth
in the tables. In addition, since the actual Contracts and the Trust Fund have
characteristics which differ from those assumed in preparing the tables set
forth below, the distributions of principal on each Class of Group I
Certificates may be made earlier or later than as indicated in the tables.
It is not likely that Contracts will prepay at any constant percentage
of the Prepayment Model to maturity or that all Contracts will prepay at the
same rate. In addition, the diverse remaining terms to maturity of the
Contracts (which include recently originated Contracts) could produce slower
distributions of principal than as indicated in the tables at the various
percentages of the Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Certificates and set forth the
percentage of the Original Class Principal Balance of each Group I Certificate
that would be outstanding after each of the dates shown at the indicated
percentages of the Prepayment Model.
S-34
<PAGE>
Percent of the Original Principal Balance of the Class I A-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage 100 100 100 100 100 100
August 7, 2000 ..................... 93 64 60 56 48 44
August 7, 2001 ..................... 84 25 17 10 0 0
August 7, 2002 ..................... 75 0 0 0 0 0
August 7, 2003 ..................... 65 0 0 0 0 0
August 7, 2004 ..................... 54 0 0 0 0 0
August 7, 2005 ..................... 42 0 0 0 0 0
August 7, 2006 ..................... 30 0 0 0 0 0
August 7, 2007 ..................... 17 0 0 0 0 0
August 7, 2008 ..................... 3 0 0 0 0 0
August 7, 2009 ..................... 0 0 0 0 0 0
August 7, 2010 ..................... 0 0 0 0 0 0
August 7, 2011 ..................... 0 0 0 0 0 0
August 7, 2012 ..................... 0 0 0 0 0 0
August 7, 2013 ..................... 0 0 0 0 0 0
August 7, 2014 ..................... 0 0 0 0 0 0
August 7, 2015 ..................... 0 0 0 0 0 0
August 7, 2016 ..................... 0 0 0 0 0 0
August 7, 2017 ..................... 0 0 0 0 0 0
August 7, 2018 ..................... 0 0 0 0 0 0
August 7, 2019 ..................... 0 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 5.1 1.3 1.2 1.1 0.9 0.9
</TABLE>
- - ----------
(1) The weighted average life of the Class I A-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-1
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class I A-1 Principal Balance.
S-35
<PAGE>
Percent of the Original Principal Balance of the Class I A-2
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 92 80
August 7, 2002 ..................... 100 85 69 53 24 10
August 7, 2003 ..................... 100 38 19 1 0 0
August 7, 2004 ..................... 100 0 0 0 0 0
August 7, 2005 ..................... 100 0 0 0 0 0
August 7, 2006 ..................... 100 0 0 0 0 0
August 7, 2007 ..................... 100 0 0 0 0 0
August 7, 2008 ..................... 100 0 0 0 0 0
August 7, 2009 ..................... 84 0 0 0 0 0
August 7, 2010 ..................... 62 0 0 0 0 0
August 7, 2011 ..................... 39 0 0 0 0 0
August 7, 2012 ..................... 21 0 0 0 0 0
August 7, 2013 ..................... 4 0 0 0 0 0
August 7, 2014 ..................... 0 0 0 0 0 0
August 7, 2015 ..................... 0 0 0 0 0 0
August 7, 2016 ..................... 0 0 0 0 0 0
August 7, 2017 ..................... 0 0 0 0 0 0
August 7, 2018 ..................... 0 0 0 0 0 0
August 7, 2019 ..................... 0 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 11.6 3.7 3.4 3.1 2.6 2.4
</TABLE>
- - ----------
(1) The weighted average life of the Class I A-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-2
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class I A-2 Principal Balance.
S-36
<PAGE>
Percent of the Original Principal Balance of the Class I A-3
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 65 49
August 7, 2004 ..................... 100 95 74 53 16 0
August 7, 2005 ..................... 100 67 46 26 0 0
August 7, 2006 ..................... 100 43 22 4 0 0
August 7, 2007 ..................... 100 21 2 0 0 0
August 7, 2008 ..................... 100 2 0 0 0 0
August 7, 2009 ..................... 100 0 0 0 0 0
August 7, 2010 ..................... 100 0 0 0 0 0
August 7, 2011 ..................... 100 0 0 0 0 0
August 7, 2012 ..................... 100 0 0 0 0 0
August 7, 2013 ..................... 100 0 0 0 0 0
August 7, 2014 ..................... 86 0 0 0 0 0
August 7, 2015 ..................... 70 0 0 0 0 0
August 7, 2016 ..................... 53 0 0 0 0 0
August 7, 2017 ..................... 37 0 0 0 0 0
August 7, 2018 ..................... 20 0 0 0 0 0
August 7, 2019 ..................... 4 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 17.2 6.8 6.0 5.3 4.3 4.0
</TABLE>
- - ----------
(1) The weighted average life of the Class I A-3 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-3
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-3 Principal
Balance.
S-37
<PAGE>
Percent of the Original Principal Balance of the Class I A-4
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 99
August 7, 2005 ..................... 100 100 100 100 89 69
August 7, 2006 ..................... 100 100 100 100 63 46
August 7, 2007 ..................... 100 100 100 80 42 27
August 7, 2008 ..................... 100 100 78 58 25 12
August 7, 2009 ..................... 100 80 58 40 11 0
August 7, 2010 ..................... 100 61 41 25 0 0
August 7, 2011 ..................... 100 44 26 12 0 0
August 7, 2012 ..................... 100 30 0 0 0 0
August 7, 2013 ..................... 100 0 0 0 0 0
August 7, 2014 ..................... 100 0 0 0 0 0
August 7, 2015 ..................... 100 0 0 0 0 0
August 7, 2016 ..................... 100 0 0 0 0 0
August 7, 2017 ..................... 100 0 0 0 0 0
August 7, 2018 ..................... 100 0 0 0 0 0
August 7, 2019 ..................... 100 0 0 0 0 0
August 7, 2020 ..................... 90 0 0 0 0 0
August 7, 2021 ..................... 75 0 0 0 0 0
August 7, 2022 ..................... 60 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 22.9 11.6 10.6 9.6 7.8 7.0
</TABLE>
- - ----------
(1) The weighted average life of the Class I A-4 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-4
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-4 Principal
Balance.
S-38
<PAGE>
Percent of the Original Principal Balance of the Class I A-5
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 100
August 7, 2005 ..................... 100 100 100 100 100 100
August 7, 2006 ..................... 100 100 100 100 100 100
August 7, 2007 ..................... 100 100 100 100 100 100
August 7, 2008 ..................... 100 100 100 100 100 100
August 7, 2009 ..................... 100 100 100 100 100 100
August 7, 2010 ..................... 100 100 100 100 99 0
August 7, 2011 ..................... 100 100 100 100 0 0
August 7, 2012 ..................... 100 100 0 0 0 0
August 7, 2013 ..................... 100 0 0 0 0 0
August 7, 2014 ..................... 100 0 0 0 0 0
August 7, 2015 ..................... 100 0 0 0 0 0
August 7, 2016 ..................... 100 0 0 0 0 0
August 7, 2017 ..................... 100 0 0 0 0 0
August 7, 2018 ..................... 100 0 0 0 0 0
August 7, 2019 ..................... 100 0 0 0 0 0
August 7, 2020 ..................... 100 0 0 0 0 0
August 7, 2021 ..................... 100 0 0 0 0 0
August 7, 2022 ..................... 100 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 23.9 13.4 12.8 12.1 11.1 10.6
</TABLE>
- - ----------
(1) The weighted average life of the Class I A-5 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I A-5
Certificates to the related Remittance Date, (ii) summing the results
and (iii) dividing the sum by the Original Class I A-5 Principal
Balance.
S-39
<PAGE>
Percent of the Original Principal Balance of the Class I M-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 100
August 7, 2005 ..................... 100 86 85 83 80 79
August 7, 2006 ..................... 100 74 71 69 64 62
August 7, 2007 ..................... 100 63 60 57 51 48
August 7, 2008 ..................... 100 53 50 47 40 38
August 7, 2009 ..................... 100 45 41 38 32 29
August 7, 2010 ..................... 100 38 34 31 25 0
August 7, 2011 ..................... 100 32 28 25 0 0
August 7, 2012 ..................... 98 26 0 0 0 0
August 7, 2013 ..................... 90 0 0 0 0 0
August 7, 2014 ..................... 82 0 0 0 0 0
August 7, 2015 ..................... 75 0 0 0 0 0
August 7, 2016 ..................... 68 0 0 0 0 0
August 7, 2017 ..................... 61 0 0 0 0 0
August 7, 2018 ..................... 54 0 0 0 0 0
August 7, 2019 ..................... 47 0 0 0 0 0
August 7, 2020 ..................... 42 0 0 0 0 0
August 7, 2021 ..................... 37 0 0 0 0 0
August 7, 2022 ..................... 32 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 19.5 9.6 9.2 8.9 8.3 8.1
</TABLE>
- - ----------
(1) The weighted average life of the Class I M-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I M-1
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class I M-1 Principal Balance.
S-40
<PAGE>
Percent of the Original Principal Balance of the Class I B-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 100
August 7, 2005 ..................... 100 61 57 53 46 42
August 7, 2006 ..................... 100 28 21 15 2 0
August 7, 2007 ..................... 100 0 0 0 0 0
August 7, 2008 ..................... 100 0 0 0 0 0
August 7, 2009 ..................... 100 0 0 0 0 0
August 7, 2010 ..................... 100 0 0 0 0 0
August 7, 2011 ..................... 100 0 0 0 0 0
August 7, 2012 ..................... 93 0 0 0 0 0
August 7, 2013 ..................... 72 0 0 0 0 0
August 7, 2014 ..................... 51 0 0 0 0 0
August 7, 2015 ..................... 32 0 0 0 0 0
August 7, 2016 ..................... 12 0 0 0 0 0
August 7, 2017 ..................... 0 0 0 0 0 0
August 7, 2018 ..................... 0 0 0 0 0 0
August 7, 2019 ..................... 0 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 15.1 6.4 6.2 6.1 5.9 5.9
</TABLE>
- - ----------
(1) The weighted average life of the Class I B-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I B-1
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class I B-1 Principal Balance.
S-41
<PAGE>
Percent of the Original Principal Balance of the Class I B-2
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
---------------------------------------------------------------
0% 175% 200% 225% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 100
August 7, 2005 ..................... 100 100 100 100 100 100
August 7, 2006 ..................... 100 100 100 100 100 97
August 7, 2007 ..................... 100 99 94 89 80 76
August 7, 2008 ..................... 100 84 78 73 63 59
August 7, 2009 ..................... 100 71 65 60 50 46
August 7, 2010 ..................... 100 60 54 49 39 0
August 7, 2011 ..................... 100 50 44 39 0 0
August 7, 2012 ..................... 100 41 0 0 0 0
August 7, 2013 ..................... 100 0 0 0 0 0
August 7, 2014 ..................... 100 0 0 0 0 0
August 7, 2015 ..................... 100 0 0 0 0 0
August 7, 2016 ..................... 100 0 0 0 0 0
August 7, 2017 ..................... 96 0 0 0 0 0
August 7, 2018 ..................... 85 0 0 0 0 0
August 7, 2019 ..................... 74 0 0 0 0 0
August 7, 2020 ..................... 66 0 0 0 0 0
August 7, 2021 ..................... 58 0 0 0 0 0
August 7, 2022 ..................... 51 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 22.0 11.5 11.0 10.4 9.7 9.3
</TABLE>
- - ----------
(1) The weighted average life of the Class I B-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class I B-2
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class I B-2 Principal Balance.
S-42
<PAGE>
Group II Assumptions
The tables set forth below assume that there are no delinquencies on the
Group II Contracts and that there will be a sufficient Group II Available
Distribution Amount to distribute interest on the Group II Certificates and
the Group II Formula Principal Distribution Amount to the Certificateholders
then entitled thereto.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Group II Contracts are received in a timely manner and prepayments are made at
the indicated percentages of the Prepayment Model set forth in the tables;
(ii) the Servicer or the Company exercises its right of optional termination
described above; (iii) the Group II Contracts will, as of the Cut-off Date, be
grouped into six pools having the additional characteristics set forth below
under "Assumed Contract Characteristics for Group II"; (iv) one-month LIBOR is
5.2925% and five year CMT is 5.8600%; (v) the Original Class Principal Balance
and the Remittance Rate of each Class of Group II Certificates is as set forth
under "Summary Information"; (vi) no interest shortfalls will arise in
connection with prepayment in full of the Group II Contracts; (vii) there will
be no losses on the Group II Contracts; (viii) the Group II Performance Tests
are satisfied; (ix) the Group I Contracts prepay at 225% of the Prepayment
Model except in the case of the 0% of the Prepayment Model scenario in which
the Group I Contracts prepay at 0% of the Prepayment Model; and (x) the Group
II Certificates are purchased on August 27, 1999. No representation is made
that the Contracts will experience delinquencies or losses at the respective
rates assumed above or at any other rates.
Assumed Contract Characteristics for Group II
Remaining Original
Current Term to Term to
Principal Current Maturity Maturity
Pool Balance APR (Months) (Months)
---------- -------------- ----------- ----------- -----------
1 ........ $ 4,812,587.03 10.2980% 220 224
2 ........ 26,521,210.09 10.5780 220 222
3 ........ 43,568,723.87 10.2800 229 230
4 ........ 49,245,395.87 10.3080 232 232
5 ........ 17,334,949.93 10.5220 236 236
6 ........ 3,096,678.58 10.5510 243 243
---------------
Total $144,579,545.37
===============
<TABLE>
<CAPTION>
First
Lifetime Lifetime Periodic Adjustment Adjustment
Gross Rate Rate Rate Date Frequency
Pool Margin Cap Floor Cap (Months) (Months) Index
------------ ------- ------------- -------- ------------------ ----------------- -------
Interest Payment Interest Payment
-------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 ........... 5.4200% 16.1650% 5.4200% 1.7060% 7 8 12 12 CMT - 5 year
2 ........... 5.5580 16.4230 5.5580 1.6750 9 10 12 12 CMT - 5 year
3 ........... 5.1760 16.0900 5.1760 1.6600 10 11 12 12 CMT - 5 year
4 ........... 5.1660 16.0810 5.1660 1.5590 11 12 12 12 CMT - 5 year
5 ........... 5.3150 16.2930 5.3150 1.4200 12 13 12 12 CMT - 5 year
6 ........... 5.2280 16.3230 5.2280 1.3700 13 14 12 12 CMT - 5 year
</TABLE>
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of
the actual Contracts and the characteristics of the Contracts assumed in
preparing the tables. Any such discrepancy may have an effect upon the
percentages of the Original Class II A-1 Principal Balance, Original Class II
B-1 Principal Balance, Original Class II B-2 Principal Balance and Original
Class II B-3 Principal Balance outstanding and weighted average lives of the
Class II A-1 Certificates, Class II B-1 Certificates, Class II B-2
Certificates and Class II B-3 Certificates set forth in the tables. In
addition, since the actual Contracts and the Trust Fund have characteristics
which differ from those assumed in preparing the tables set forth below, the
distributions of principal on the each Class of Group II Certificates may be
made earlier or later than as indicated in the tables.
S-43
<PAGE>
It is not likely that Contracts will prepay at any constant percentage
of the Prepayment Model to maturity or that all Contracts will prepay at the
same rate. In addition, the diverse remaining terms to maturity of the
Contracts (which include recently originated Contracts) could produce slower
distributions of principal than as indicated in the tables at the various
percentages of the Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is the same as the weighted
average remaining term to maturity of the Assumed Contract Characteristics.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a
variety of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
resulting weighted average lives of the Certificates and set forth the
percentage of the Original Class Principal Balance of each Group II
Certificate that would be outstanding after each of the dates shown at the
indicated percentages of the Prepayment Model.
S-44
<PAGE>
Percent of the Original Principal Balance of the Class II A-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
--------------------------------------------------------------
0% 175% 200% 250% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 93 83 82 79 78 76
August 7, 2001 ..................... 91 70 67 62 59 56
August 7, 2002 ..................... 88 57 53 45 42 38
August 7, 2003 ..................... 85 45 40 31 27 23
August 7, 2004 ..................... 82 35 29 20 15 11
August 7, 2005 ..................... 78 31 28 20 15 11
August 7, 2006 ..................... 74 26 24 19 15 11
August 7, 2007 ..................... 70 23 20 15 13 11
August 7, 2008 ..................... 64 19 17 12 11 9
August 7, 2009 ..................... 59 16 14 10 8 7
August 7, 2010 ..................... 52 14 11 8 6 5
August 7, 2011 ..................... 45 11 9 6 0 0
August 7, 2012 ..................... 37 9 0 0 0 0
August 7, 2013 ..................... 32 0 0 0 0 0
August 7, 2014 ..................... 27 0 0 0 0 0
August 7, 2015 ..................... 22 0 0 0 0 0
August 7, 2016 ..................... 15 0 0 0 0 0
August 7, 2017 ..................... 8 0 0 0 0 0
August 7, 2018 ..................... 1 0 0 0 0 0
August 7, 2019 ..................... 0 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 10.7 4.8 4.4 3.7 3.4 3.1
</TABLE>
- - ----------
(1) The weighted average life of the Class II A-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II A-1
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class II A-1 Principal Balance.
S-45
<PAGE>
Percent of the Original Principal Balance of the Class II B-1
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
--------------------------------------------------------------
0% 175% 200% 250% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 100
August 7, 2005 ..................... 100 65 48 40 43 45
August 7, 2006 ..................... 100 40 23 0 0 0
August 7, 2007 ..................... 100 17 0 0 0 0
August 7, 2008 ..................... 100 0 0 0 0 0
August 7, 2009 ..................... 100 0 0 0 0 0
August 7, 2010 ..................... 100 0 0 0 0 0
August 7, 2011 ..................... 100 0 0 0 0 0
August 7, 2112 ..................... 100 0 0 0 0 0
August 7, 2013 ..................... 75 0 0 0 0 0
August 7, 2014 ..................... 44 0 0 0 0 0
August 7, 2015 ..................... 11 0 0 0 0 0
August 7, 2016 ..................... 0 0 0 0 0 0
August 7, 2017 ..................... 0 0 0 0 0 0
August 7, 2018 ..................... 0 0 0 0 0 0
August 7, 2019 ..................... 0 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 14.8 6.7 6.2 5.8 5.9 5.9
</TABLE>
- - ----------
(1) The weighted average life of the Class II B-1 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II B-1
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class II B-1 Principal Balance.
S-46
<PAGE>
Percent of the Original Principal Balance of the Class II B-2
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
--------------------------------------------------------------
0% 175% 200% 250% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 100
August 7, 2005 ..................... 100 100 100 100 100 100
August 7, 2006 ..................... 100 100 100 88 81 89
August 7, 2007 ..................... 100 100 100 50 29 14
August 7, 2008 ..................... 100 94 65 18 0 0
August 7, 2009 ..................... 100 61 34 0 0 0
August 7, 2010 ..................... 100 32 7 0 0 0
August 7, 2011 ..................... 100 5 0 0 0 0
August 7, 2012 ..................... 100 0 0 0 0 0
August 7, 2013 ..................... 100 0 0 0 0 0
August 7, 2014 ..................... 100 0 0 0 0 0
August 7, 2015 ..................... 100 0 0 0 0 0
August 7, 2016 ..................... 51 0 0 0 0 0
August 7, 2017 ..................... 0 0 0 0 0 0
August 7, 2018 ..................... 0 0 0 0 0 0
August 7, 2019 ..................... 0 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 17.0 10.4 9.5 8.1 7.6 7.5
</TABLE>
- - ----------
(1) The weighted average life of the Class II B-2 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II B-2
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class II B-2 Principal Balance.
S-47
<PAGE>
Percent of the Original Principal Balance of the Class II B-3
Certificates at the Respective Percentages of the
Prepayment Model Set Forth Below:
<TABLE>
<CAPTION>
Prepayments (% of Prepayment Model)
----------------------------------------------------------------
0% 175% 200% 250% 275% 300%
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Initial Percentage ................. 100 100 100 100 100 100
August 7, 2000 ..................... 100 100 100 100 100 100
August 7, 2001 ..................... 100 100 100 100 100 100
August 7, 2002 ..................... 100 100 100 100 100 100
August 7, 2003 ..................... 100 100 100 100 100 100
August 7, 2004 ..................... 100 100 100 100 100 100
August 7, 2005 ..................... 100 100 100 100 100 100
August 7, 2006 ..................... 100 100 100 100 100 100
August 7, 2007 ..................... 100 100 100 100 100 100
August 7, 2008 ..................... 100 100 100 100 99 85
August 7, 2009 ..................... 100 100 100 93 78 66
August 7, 2010 ..................... 100 100 100 73 60 48
August 7, 2011 ..................... 100 100 86 56 0 0
August 7, 2012 ..................... 100 84 0 0 0 0
August 7, 2013 ..................... 100 0 0 0 0 0
August 7, 2014 ..................... 100 0 0 0 0 0
August 7, 2015 ..................... 100 0 0 0 0 0
August 7, 2016 ..................... 100 0 0 0 0 0
August 7, 2017 ..................... 79 0 0 0 0 0
August 7, 2018 ..................... 18 0 0 0 0 0
August 7, 2019 ..................... 0 0 0 0 0 0
August 7, 2020 ..................... 0 0 0 0 0 0
August 7, 2021 ..................... 0 0 0 0 0 0
August 7, 2022 ..................... 0 0 0 0 0 0
August 7, 2023 ..................... 0 0 0 0 0 0
August 7, 2024 ..................... 0 0 0 0 0 0
August 7, 2025 ..................... 0 0 0 0 0 0
August 7, 2026 ..................... 0 0 0 0 0 0
August 7, 2027 ..................... 0 0 0 0 0 0
August 7, 2028 ..................... 0 0 0 0 0 0
August 7, 2029 ..................... 0 0 0 0 0 0
Weighted Average Life (years)(1) ... 18.4 13.2 12.6 11.5 11.0 10.5
</TABLE>
- - ----------
(1) The weighted average life of the Class II B-3 Certificates is determined
by (i) multiplying the amount of each principal distribution by the
number of years from the initial date of issuance of the Class II B-3
Certificates to the related Remittance Date, (ii) summing the results and
(iii) dividing the sum by the Original Class II B-3 Principal Balance.
S-48
<PAGE>
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement. A copy of a
general form of a Pooling and Servicing Agreement has been filed with the
Securities and Exchange Commission (the "Commission"). A copy of the execution
form of the Agreement (without certain exhibits) will be filed with the
Securities and Exchange Commission after the initial issuance of the
Certificates. The following description supplements the description of the
Agreement and the Certificates under the caption "Description of the
Certificates" in the Prospectus and must be read together therewith. The
following summaries describe certain terms of the Agreement, do not purport to
be complete and are subject to, and are qualified in their entirety by
reference to, the provisions of the Agreement. When particular provisions or
terms used in the Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference.
General
The Trust will issue thirteen classes (each a "Class") of certificates.
Each Class (other than the Class R Certificate) will be issued in fully
registered form only, in denominations of $50,000 and integral multiples of
$1,000 in excess thereof, except for a denomination representing the remainder
of a Class of Certificates. The undivided percentage interest (the "Percentage
Interest") of each Class of Certificates in the distributions on such
Certificates will be equal to the percentage obtained from dividing the
denomination of such Certificate by the Original Class Principal Balance of
such Class of Certificates. Definitive Certificates, if issued, will be
transferable and exchangeable at the corporate trust office of the Trustee. 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.
The Certificates evidence undivided interests in the Contract Pool and
certain other property held in trust for the benefit of the Certificateholders
(the "Trust Fund"). The Certificates will consist of (a) two groups of
certificates (each, a "Group") including the "Group I Certificates" consisting
of four classes of senior certificates (the "Class I A-1 Certificates," the
"Class I A-2 Certificates," the "Class I A-3 Certificates" and the "Class I
A-4 Certificates") and four classes of subordinated certificates (the "Class I
A-5 Certificates," the "Class I M-1 Certificates," the "Class I B-1
Certificates" and the "Class I B-2 Certificates") and the "Group II
Certificates" consisting of one class of senior certificates (the "Class II
A-1 Certificates") and three classes of subordinated certificates (the "Class
II B-1 Certificates," the "Class II B-2 Certificates" and the "Class II B-3
Certificates") and (b) one class of residual certificates (the "Class R
Certificate"). The Class I A-1 Certificates, Class I A-2 Certificates, Class I
A-3 Certificates and Class I A-4 Certificates will evidence in the aggregate
approximate initial 28.57%, 19.33%, 18.07% and 13.53% undivided interests,
respectively, in the "Group I Contracts". The Class I A-5 Certificates, Class
I M-1 Certificates, Class I B-1 Certificates and Class I B-2 Certificates will
evidence in the aggregate approximate initial 5.50%, 4.00%, 4.00% and 7.00%
undivided interests, respectively, in the Group I Contracts. The Class II A-1
Certificates, the Class II B-1 Certificates, the Class II B-2 Certificates and
the Class II B-3 Certificates will evidence in the aggregate approximate
initial 76.25%, 10.75%, 6.00% and 7.00% undivided interests, respectively, in
the "Group II Contracts".
The Trust Fund includes (i) the Contract Pool, including all rights to
receive payments on the Contracts received on or after the Cut-off Date, (ii)
the amounts held from time to time in trust accounts (with respect to the
Group I Certificates, the "Group I Certificate Account" and with respect to
the Group II Certificates, the "Group II Certificate Account") maintained by
the Trustee pursuant to the Agreement, (iii) any property which initially
secured a Contract and which is acquired in the process of realizing thereon
and (iv) the proceeds of all insurance policies described herein.
The Company will cause the Contracts to be assigned to the Trustee or a
co-trustee. The Company, as Servicer, will service the Contracts pursuant to
the Agreement. The Servicer may perform any of its servicing obligations under
the Agreement through one or more subservicers. Notwithstanding any such
subservicing arrangement, the Servicer will remain liable for its servicing
duties and obligations under the Agreement as if the Servicer alone were
servicing the Contracts. The Contract documents will be held for the benefit
of the Trustee by the Servicer (other than certain documents related to the
Land-and-Home Contracts and the Mortgage Loans which will be held by a
custodian on behalf of the Trustee).
Distributions of principal and interest on the Certificates will be made
on the 7th day of each month, or, if such day is not a business day, the next
succeeding business day (each, a "Remittance Date") beginning in September
1999, to the persons in whose names the Certificates are registered at the
close of business on the related Record
S-49
<PAGE>
Date. The "Record Date" means (a) with respect to the initial Remittance Date,
the Closing Date, (b) with respect to any Remittance Date thereafter and the
Fixed Rate Certificates, the last business day of the month preceding the
month of the related Remittance Date, (c) with respect to any Remittance Date
thereafter and the Floating Rate Certificates, the business day preceding the
related Remittance Date; provided, however, in the event that Definitive
Certificates are issued with respect to a Class of Certificates, the Record
Date with respect to such Class will be the close of business on the last
business Day of the month preceding the month of the related Remittance Date.
If definitive Offered Certificates are issued, distributions will be made by
check mailed to the address of the person entitled thereto as it appears on
the Certificate Register, except that a holder of Offered Certificates with
original denominations aggregating at least $5 million may request payment by
wire transfer of funds pursuant to written instructions delivered to the
Trustee at least five business days prior to the Record Date. The final
distribution in retirement of the Certificates will be made only upon
presentation and surrender of the Certificates at the office or agency of the
Trustee in New York, New York specified in the final distribution notice to
Certificateholders.
Conveyance of Contracts
In addition to the representations and warranties described in the
Prospectus under "Description of Certificates--Conveyance of Contracts," the
Company has also made certain warranties with respect to the Contracts in the
aggregate, including that (i) the aggregate principal amount payable by the
Obligors as of the Cut-off Date equals the Cut-off Date Pool Principal
Balance; (ii) (a) approximately 72.31% of the Group I Cut-off Date Principal
Balance is attributable to loans to purchase new Manufactured Homes and
approximately 27.69% of the Group I Cut-off Date Principal Balance is
attributable to loans to purchase used Manufactured Homes and (b)
approximately 77.17% of the Group II Cut-off Date Principal Balance is
attributable to loans to purchase new Manufactured Homes and approximately
22.83% of the Group II Cut-off Date Principal Balance is attributable to loans
to purchase used Manufactured Homes; (iii) no Contract has a remaining
maturity of more than 360 months; (iv) the date of origination of each
Contract is on or after November 20, 1989; and (v) no adverse selection
procedures were employed in selecting the Contracts.
Payments on Contracts
The Trustee will establish and maintain the Certificate Accounts (i) 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 unsecured short-term debt has a rating of P-1 by Moody's and F1+ by
Fitch, and which is subject to examination by federal or state authorities or
a depository institution otherwise acceptable to Moody's and Fitch, (ii) in
the corporate trust department of the Trustee or (iii) at an institution
otherwise acceptable to Moody's and Fitch (an "Eligible Institution"). Funds
in each 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.
Eligible Investments include, among other investments, obligations of the
United States or of any agency thereof backed by the full faith and credit of
the United States; federal funds, certificates of deposit, time deposits and
bankers' acceptances sold by eligible financial institutions; commercial paper
rated P-1 by Moody's and F1+ by Fitch; money market funds acceptable to the
Rating Agencies; and other obligations acceptable to the Rating Agencies.
All payments in respect of principal and interest on the Contracts
received by the Servicer, including Principal Prepayments and Liquidation
Proceeds (net of Liquidation Expenses), will be paid into the applicable
Certificate Account no later than the second business day following receipt
thereof. Amounts received as late payment fees, extension fees, assumption
fees or similar fees will be retained by the Servicer as part of its servicing
fees. See "Description of the Certificates--Servicing--Servicing Compensation
and Payment of Expenses" in the Prospectus. In addition, amounts paid by the
Company for Contracts repurchased as a result of breach of a representation or
warranty under the Agreement and amounts required to be deposited upon
substitution of an Eligible Substitute Contract because of breach of a
representation or warranty, as described under "Conveyance of Contracts"
above, will be paid into the applicable Certificate Account. The Servicer will
deposit the Monthly Advance (described under "Advances" below), if any, in the
applicable Certificate Account on or before each Determination Date.
On the fifth business day prior to each Remittance Date (the
"Determination Date"), the Servicer will determine the Available Distribution
Amount and the amounts to be distributed on the Certificates for the following
Remittance Date.
The Available Distribution Amount for a Group (the "Group I Available
Distribution Amount" or the "Group II Available Distribution Amount," as
applicable) is the sum of (a) the Monthly Advance relating to the Contracts in
S-50
<PAGE>
such Group for such Remittance Date and (b) the amount in the related
Certificate Account on the close of business on the last day of the
immediately preceding Due Period less the sum of (i) scheduled payments for
Contracts in such Group that are due in a Due Period subsequent to such Due
Period; (ii) payments on Contracts in such Group that have been repurchased as
a result of a breach of a representation or warranty and any other payments
not required to be deposited in the related Certificate Account; (iii)
reimbursements to the Servicer in the amount of Liquidation Expenses incurred
and taxes and insurance premiums advanced by the Servicer in respect of
Contracts in such Group; (iv) if the Company is no longer the Servicer, the
related Monthly Servicing Fee equal to 1/12th of the product of 1.25% and the
Pool Scheduled Principal Balance for such Group for the immediately preceding
Remittance Date; (v) reimbursements to the Servicer for Nonrecoverable
Advances and Monthly Advances relating to the Contracts in such Group in
respect of Liquidated Contracts, to the extent permitted by the Agreement; and
(vi) certain expenses reimbursable to the Company as provided in the
Agreement.
The "Due Period" with respect to any Remittance Date is the period
beginning on the 26th day of the second month preceding the month of such
Remittance Date and ending on the 25th day of the month preceding the month of
such Remittance Date.
The Trustee or its Paying Agent will withdraw funds from the applicable
Certificate Account (but only to the extent of the related Available
Distribution Amount) to make payments to Certificateholders as specified under
"Distributions" below. From time to time, as provided in the Agreement, the
Servicer will also withdraw funds from the Certificate Account to make
payments to it as permitted by the Agreement and described in clauses (ii),
(iii), (iv), (v) and (vi) in the previous paragraph.
Distributions
Distributions of principal and interest to holders of a Class of
Certificates will be made on each Remittance Date in an amount equal to the
respective Percentage Interests multiplied by the aggregate amount distributed
on such Class of Certificates on such Remittance Date.
Each distribution with respect to a Book-Entry Certificate will be paid
to DTC, 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 Certificate 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
Certificate Owners that it represents. All such credits and disbursements with
respect to Book-Entry Certificates are to be made by DTC and the Participants
in accordance with DTC's rules.
Interest Distributions:
With respect to each Remittance Date, the Fixed Rate Certificates will
accrue interest in respect of each calendar month preceding such Remittance
Date. With respect to each Remittance Date (other than the first Remittance
Date), the Floating Rate Certificates will accrue interest from the Remittance
Date in the preceding calendar month through the day preceding the Remittance
Date in the current calendar month. With respect to the first Remittance Date,
the Floating Rate Certificates will accrue interest from Closing Date.
Distributions to a Class of Certificateholders will be applied first to the
payment of interest and, if any payment is then due, then to the payment of
principal. Interest on the Fixed Rate Certificates will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Interest on the
Floating Rate Certificates will be calculated on the basis of the number of
actual days elapsed during the related Interest Period and a 360-day year.
With respect to the Floating Rate Certificates and any Remittance Date,
the "Interest Period" shall be the period from the Remittance Date preceding
such Remittance Date (or in the case of the first Remittance Date, from the
Closing Date) through the day preceding such Remittance Date. With respect to
each Class of Fixed Rate Certificates and any Remittance Date, the "Interest
Period" shall be the period from the first day of the calendar month preceding
the month of such Remittance Date through the last day of such calendar month.
On each Remittance Date, holders of each Class of Certificates will be
entitled to receive, to the extent of the Group I Available Distribution
Amount or Group II Available Distribution Amount, as applicable, (i) interest
accrued on such Class during the related Interest Period at the then
applicable Remittance Rate on the Principal Balance of
S-51
<PAGE>
such Class immediately prior to that Remittance Date (the "Interest
Distribution Amount" for such Class and Remittance Date), plus (ii) any
amounts distributable under clause (i) above or this clause (ii) on such Class
on the previous Remittance Date but not previously distributed, plus, to the
extent legally permissible, interest accrued on any such amount during the
related Interest Period at the then applicable Remittance Rate (the "Carryover
Interest Distribution Amount" for such Class and Remittance Date).
Remittance Rates of the Certificates
Fixed Rate Certificates: The Remittance Rates on the Fixed Rate
Certificates listed below are subject to a maximum rate equal to the Group I
Weighted Average Net Contract Rate for the applicable Remittance Date:
The "Class I A-2 Remittance Rate" shall equal 7.090%.
The "Class I A-3 Remittance Rate" shall equal 7.385%.
The "Class I A-4 Remittance Rate" shall equal 7.560%.
The "Class I A-5 Remittance Rate" shall equal 8.005%.
The "Class I M-1 Remittance Rate" shall equal 8.220%.
The "Class I B-1 Remittance Rate" shall equal 8.400%.
The "Class I B-2 Remittance Rate" shall equal 8.400%.
Floating Rate Certificates: The Remittance Rates on the Floating Rate
Certificates are as follows:
The "Class I A-1 Remittance Rate" shall equal the lesser of (a) the
sum of (i) the London interbank offered rate for one-month United
States dollar deposits ("LIBOR") appearing on the Telerate Screen
Page 3750 as of the second LIBOR Business Day prior to the first
day of the related Interest Period (or as of two LIBOR Business
Days of the Closing Date in the case of the first Interest Period)
and (ii) 0.22% and (b) the Group I Weighted Average Net Contract
Rate (as defined herein) for such Remittance Date.
The "Class II A-1 Remittance Rate" shall be the lesser of (a) the
Class II A-1 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
The "Class II B-1 Remittance Rate" shall be the lesser of (a) the
Class II B-1 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
The "Class II B-2 Remittance Rate" shall be the lesser of (a) the
Class II B-2 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
The "Class II B-3 Remittance Rate" shall be the lesser of (a) the
Class II B-3 Formula Rate and (b) the Net Funds Cap for such
Remittance Date.
If on any Remittance Date, the Remittance Rate for any of the Group II
Certificates is based on the Net Funds Cap, Certificateholders of such Class
will be entitled to receive on subsequent Remittance Dates the applicable Net
Funds Cap Carryover Amount (as defined herein) to the extent of funds
available therefore as described herein; provided, however, additional funds
resulting from the cross-collateralization provisions described herein shall
not be available to Group II Certificateholders to pay the Net Funds Cap
Carryover Amount.
With respect to the Floating Rate Certificates, the Remittance Rates for
the first Remittance Date (the "Initial Remittance Rates") will not be
determined until two days prior to the Closing Date. Therefore, the Initial
Remittance Rates have not been determined as of the date of this Prospectus
Supplement.
The "Call Option Date" shall be the Remittance Date on which the sum of
the Group I Pool Scheduled Principal Balance and the Group II Pool Scheduled
Principal Balance has declined to 10% or less of the Cut-off Date Pool
Principal Balance.
The "Class II A-1 Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date (as
defined herein), 0.39% or (ii) with respect to any Remittance Date which
occurs after the Call Option Date, 0.78%.
S-52
<PAGE>
The "Class II B-I Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date, 0.58% or
(ii) with respect to any Remittance Date which occurs after the Call Option
Date, 1.08%.
The "Class II B-2 Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date, 3.00% or
(ii) with respect to any Remittance Date which occurs after the Call Option
Date, 3.50%.
The "Class II B-3 Formula Rate" shall be a per annum rate equal to the
sum of (a) LIBOR (calculated as described above) plus (b) (i) with respect to
any Remittance Date which occurs on or prior to the Call Option Date, 3.00% or
(ii) with respect to any Remittance Date which occurs after the Call Option
Date, 3.50%.
The "Group I Weighted Average Net Contract Rate" shall be equal to (a)
the weighted average of the Group I Contract Rates applicable to the scheduled
payments due on the outstanding Group I Contracts in the Due Period preceding
such Remittance Date minus (b) (i) if the Company is the Servicer, 0.00% or
(ii) if the Company is no longer the Servicer, 1.25% of the Group I Pool
Scheduled Principal Balance on the first day of the related Due Period.
"LIBOR Business Day" means a day on which banks are open for dealing in
foreign currency and exchange in London and New York City; "Telerate Screen
Page 3750" means the display page currently so designated on the Dow Jones
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
The "Net Funds Cap" for any Remittance Date shall equal the per annum
rate equal to a fraction, expressed as a percentage, the numerator of which
equals the sum of (a) the aggregate amount of interest due on the Group II
Contracts on the related Due Date and (b) the Overcollateralization Reduction
Amount, if any, for such Distribution Date less (c) one-twelfth of (i) if the
Company is the Servicer, 0.00% or (ii) if the Company is no longer the
Servicer, 1.25% of the Group II Pool Scheduled Principal Balance on the first
day of the Due Period less (d) one-twelfth of (i) if the actual
Overcollateralization Amount is equal to or greater than the Required
Overcollateralization Amount for such Remittance Date, 0.00% or (ii) if the
actual Overcollateralization Amount is less than the Required
Overcollateralization Amount for such Remittance Date, 0.75% of the Group II
Pool Scheduled Principal Balance on the first day of the Due Period and the
denominator of which is equal to the Certificate Principal Balance of the
Group II Certificates (adjusted to reflect the actual number of days elapsed
in the Interest Period divided by 360).
Priority of Distributions:
A. On each Remittance Date on which the Class I M-1 and Class I B
Principal Distribution Test is not met, the Group I Available Distribution
Amount will be distributed in the following amounts in the following order of
priority:
(i) interest accrued during the related Interest Period on the
Class I A-1, Class I A-2, Class I A-3 and Class I A-4 Certificates, at
their respective Remittance Rates on the outstanding Class I A-1, Class
I A-2, Class I A-3 and Class I A-4 Principal Balances, respectively,
together with any previously undistributed shortfalls in interest due on
the Class I A-1, Class I A-2, Class I A-3 and Class I A-4 Certificates,
respectively, in respect of prior Remittance Dates; if the Group I
Available Distribution Amount is not sufficient to distribute the full
amount of interest due on Class I A-1, Class I A-2, Class I A-3 and
Class I A-4 Certificates, the Group I Available Distribution Amount will
be distributed on such Classes of Certificates pro rata on the basis of
the interest due thereon;
(ii) the Group I Formula Principal Distribution Amount in the
following order of priority:
(a) to the Class I A-1 Certificates until the Class I A-1
Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class I A-2
Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class I A-3
Principal Balance is reduced to zero; and
(d) to the Class I A-4 Certificates until the Class I A-4
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class I A-5 Principal Balance to the Class I A-5 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I A-5 Certificates in respect of
prior Remittance Dates;
S-53
<PAGE>
(iv) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I A-5 Certificates until the Class I A-5
Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period on the
Class I M-1 Principal Balance to the Class I M-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I M-1 Certificates in respect of
prior Remittance Dates;
(vi) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I M-1 Certificates until the Class I M-1
Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on the
Class I B-1 Principal Balance to the Class I B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-1 Certificates in respect of
prior Remittance Dates;
(viii) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I B-1 Certificates until the Class I B-1
Principal Balance is reduced to zero;
(ix) interest accrued during the related Interest Period on the
Class I B-2 Principal Balance to the Class I B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2 Certificates in respect of
prior Remittance Dates;
(x) the remainder of the Group I Formula Principal Distribution
Amount, if any, to the Class I B-2 Certificates until the Class I B-2
Principal Balance is reduced to zero;
(xi) any Group I Monthly Excess Spread (as defined below) to fund
any Group II Available Funds Shortfall;
(xii) any remaining Group I Monthly Excess Spread to fund any
unfunded Accelerated Principal Payment (as defined below) on the Group
II Certificates after giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xiii) so long as the Company is the Servicer, any remaining
available funds up to the amount equal to 1/12th of the product of 1.25%
and the Group I Pool Scheduled Principal Balance for such Remittance
Date (the "Group I Monthly Servicing Fee"), to the Servicer;
(xiv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement;
(xv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group II Monthly Servicing Fee
(as defined herein), if any, remaining unpaid after giving effect to the
distribution described in clause C(xii) or D(xii), as applicable, below,
to the Servicer;
(xvi) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii), as applicable,
below; and
(xvii) any remaining available funds to the holder of the Class R
Certificate, which will initially be a special purpose subsidiary of the
Company.
B. On each Remittance Date on which the Class I M-1 and Class I B
Principal Distribution Test is met, the Group I Available Distribution Amount
will be distributed in the following amounts in the following order of
priority:
(i) interest accrued during the related Interest Period on the
Class I A-1, Class I A-2, Class I A-3 and Class I A-4 Certificates, at
their respective Remittance Rates on the outstanding Class I A-1, Class
I A-2, Class I A-3 and Class I A-4Certificates Principal Balances,
respectively, together with any previously undistributed shortfalls in
interest due on the Class I A-1, Class I A-2, Class I A-3 and Class I
A-4 Certificates, respectively, in respect of prior Remittance Dates; if
the Group I Available Distribution Amount is not sufficient to
distribute the full amount of interest due on the Class I A-1, Class I
A-2, Class I A-3 and Class I A-4 Certificates, the Group I Available
Distribution Amount will be distributed on such Classes of Certificates
pro rata on the basis of the interest due thereon;
(ii) the Class I A Percentage of the Group I Formula Principal
Distribution Amount in the following order of priority:
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(a) to the Class I A-1 Certificates until the Class I A-1
Principal Balance is reduced to zero;
(b) to the Class I A-2 Certificates until the Class I A-2
Principal Balance is reduced to zero;
(c) to the Class I A-3 Certificates until the Class I A-3
Principal Balance is reduced to zero; and
(d) to the Class I A-4 Certificates until the Class I A-4
Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class I A-5 Principal Balance to the Class I A-5 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I A-5 Certificates in respect of
prior Remittance Dates;
(iv) the remainder of the Class I A Percentage of the Group I
Formula Principal Distribution Amount, if any, to the Class I A-5
Certificates until the Class I A-5 Principal Balance is reduced to zero;
(v) interest accrued during the related Interest Period on the
Class I M-1 Principal Balance to the Class I M-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I M-1 Certificates in respect of
prior Remittance Dates;
(vi) the Class I M-1 Percentage of the Group I Formula Principal
Distribution Amount to the Class I M-1 Certificates until the Class I
M-1 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on the
Class I B-1 Principal Balance to the Class I B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-1 Certificates in respect of
prior Remittance Dates;
(viii) the Class I B Percentage of the Group I Formula Principal
Distribution Amount to the Class I B-1 Certificates until the Class I
B-1 Principal Balance is reduced to zero;
(ix) interest accrued during the related Interest Period on the
Class I B-2 Principal Balance to the Class I B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class I B-2 Certificates in respect of
prior Remittance Dates;
(x) the remainder of the Group I Formula Principal Distribution
Amount to the Class I B-2 Certificates until the Class I B-2 Principal
Balance is reduced to zero; provided, however, if the Class I A and
Class I M-1 Principal Balances have not been reduced to zero on or
before a Remittance Date, to the extent that allocations in respect of
principal to the Class I B-2 Certificates would reduce the Class I B-2
Principal Balance below the Class I B-2 Floor Amount, then the amount of
such excess principal will instead be distributed, pro rata, to the
Class I A Certificates and the Class I M-1 Certificates based on the
Class I A Principal Balance and the Class I M-1 Principal Balance prior
to distributions pursuant to clauses B(ii), (iv) and (vi) above with
respect to such Remittance Date. The allocations in respect of such
excess principal to the Class I A Certificates will be in the order of
priority set forth in clauses B(ii) and (iv) above. With respect to any
Remittance Date, the "Class I B-2 Floor Amount" will equal $4,759,137.44
(which represents approximately 2% of the Group I Cut-off Date Pool
Principal Balance);
(xi) any Group I Monthly Excess Spread to fund any Group II
Available Funds Shortfall;
(xii) any remaining Group I Monthly Excess Spread to fund any
unfunded Accelerated Principal Payment (as defined below) on the Group
II Certificates after giving effect to the distribution described in
clause C(ix) or D(ix), as applicable, below;
(xiii) so long as the Company is the Servicer, any remaining
available funds up to the Group I Monthly Servicing Fee, to the Servicer;
(xiv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement;
(xv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group II Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause C(xii) or D(xii), as applicable, below, to the
Servicer;
(xvi) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement, which remains unpaid after giving effect to the
distribution described in clause C(xiii) or D(xiii), as applicable,
below; and
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(xvii) any remaining available funds to the holder of the Class R
Certificate.
C. On each Remittance Date on which the Class II B Principal
Distribution Test is not met, the Group II Available Distribution Amount will
be distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the
Class II A-1 Principal Balance to the Class II A-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II A-1 Certificates in respect
of prior Remittance Dates;
(ii) the Group II Formula Principal Distribution Amount, net of
any portion of the Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, to the Class II A-1 Certificates until
the Class II A-1 Principal Balance is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class II B-1 Principal Balance to the Class II B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-1 Certificates in respect
of prior Remittance Dates;
(iv) the remaining Group II Formula Principal Distribution Amount,
if any, to the Class II B-1 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then applicable to such
Certificates, until the Class II B-1 Principal Balance is reduced to
zero;
(v) interest accrued during the related Interest Period on the
Class II B-2 Principal Balance to the Class II B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2 Certificates in respect
of prior Remittance Dates;
(vi) the remaining Group II Formula Principal Distribution Amount,
if any, to the Class II B-2 Certificates, net of any portion of the
Overcollateralization Reduction Amount, if any, then applicable to such
Certificates, until the Class II B-2 Principal Balance is reduced to
zero;
(vii) interest accrued during the related Interest Period on the
Class II B-3 Principal Balance to the Class II B-3 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-3 Certificates in respect
of prior Remittance Dates;
(viii) the remainder of the Group II Formula Principal
Distribution Amount, if any, to the Class II B-3 Certificates, net of
any portion of the Overcollateralization Reduction Amount, if any, then
applicable to such Certificates, until the Class II B-3 Principal
Balance is reduced to zero;
(ix) any remaining Group II Available Distribution Amount to fund
any Accelerated Principal Payment on the Group II Certificates;
(x) any Group II Monthly Excess Spread, together with any
Overcollateralization Reduction Amount, to fund any Group I Available
Funds Shortfall;
(xi) any remaining available funds up to the Class II A-1 Net
Funds Cap Carryover Amount, Class II B-1 Net Funds Cap Carryover Amount,
Class II B-2 Net Funds Cap Carryover Amount and Class II B-3 Net Funds
Cap Carryover Amount to the applicable Certificateholder; if such
available funds are not sufficient to distribute the total Net Funds Cap
Carryover Amount to the applicable Classes of Certificates, such
remaining available funds will be distributed on such Classes of
Certificates pro rata based on the amount of the Net Funds Cap Carryover
Amount owing to each such Class of Certificates;
(xii) so long as the Company is the Servicer, any remaining
available funds up to the amount equal to 1/12th of the product of 1.25%
and the Group II Pool Scheduled Principal Balance for such Remittance
Date (the "Group II Monthly Servicing Fee") to the Servicer;
(xiii) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement;
(xiv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group I Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause A(xiii) or B(xiii), as applicable, above, to the
Servicer;
(xv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement, which remains unpaid after giving effect to the distribution
described in clause A(xiv) or B(xiv), as applicable, above; and
(xvi) any remaining available funds to the holder of the Class R
Certificate.
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D. On each Remittance Date on which the Class II B Principal
Distribution Test is met, the Available Distribution Amount will be
distributed in the following amounts in the following order of priority:
(i) interest accrued during the related Interest Period on the
Class II A-1 Principal Balance to the Class II A-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II A-1 Certificates, in respect
of prior Remittance Dates;
(ii) the Class II A Percentage of the Group II Formula Principal
Distribution Amount, net of any portion of the Overcollateralization
Reduction Amount, if any, then applicable to such Certificates, to the
Class II A-1 Certificateholders until the Class II A-1 Principal Balance
is reduced to zero;
(iii) interest accrued during the related Interest Period on the
Class II B-1 Principal Balance to the Class II B-1 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-1 Certificates in respect
of prior Remittance Dates;
(iv) the Class II B Percentage of the Group II Formula Principal
Distribution Amount to the Class II B-1 Certificates, net of any portion
of the Overcollateralization Reduction Amount, if any, then applicable
to such Certificates, until the Class II B-1 Principal Balance is
reduced to zero;
(v) interest accrued during the related Interest Period on the
Class II B-2 Principal Balance to the Class II B-2 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-2 Certificates in respect
of prior Remittance Dates;
(vi) the remainder of the Class II B Percentage, if any, of the
Group II Formula Principal Distribution Amount to the Class II B-2
Certificates, net of any portion of the Overcollateralization Reduction
Amount, if any, then applicable to such Certificates, until the Class II
B-2 Principal Balance is reduced to zero;
(vii) interest accrued during the related Interest Period on the
Class II B-3 Principal Balance to the Class II B-3 Certificates at the
related Remittance Rate, together with any previously undistributed
shortfalls in interest due on the Class II B-3 Certificates in respect
of prior Remittance Dates;
(viii) the remainder of the Group II Formula Principal
Distribution Amount to the Class II B-3 Certificates, net of any portion
of the Overcollateralization Reduction Amount, if any, then applicable
to such Certificates, until the Class II B-3 Principal Balance is
reduced to zero; provided, however, if the Class II A-1 Principal
Balance has not been reduced to zero on or before a Remittance Date, to
the extent that allocations in respect of principal to the Class II B-3
Certificates would reduce the sum of the Class II B-3 Principal Balance
and the Overcollateralization Amount below the Group II Certificate
Floor Amount, then the amount of such excess principal will instead be
distributed to the Class II A-1 Certificates. With respect to any
Remittance Date, the "Group II Certificate Floor Amount" will equal
$2,891,590.91 (which represents approximately 2% of the Group II Cut-off
Date Principal Balance);
(ix) any remaining Group II Available Distribution Amount to fund
any Accelerated Principal Payment on the Group II Certificates;
(x) any Group II Monthly Excess Spread, together with any
Overcollateralization Reduction Amount, to fund any Group I Available
Funds Shortfall;
(xi) any remaining available funds up to the Class II A-1 Net
Funds Cap Carryover Amount, Class II B-1 Net Funds Cap Carryover Amount,
Class II B-2 Net Funds Cap Carryover Amount and Class II B-3 Net Funds
Cap Carryover Amount to the applicable Certificateholder; if such
available funds are not sufficient to distribute the total Net Funds Cap
Carryover Amount to the applicable Classes of Certificates, such
remaining available funds will be distributed on such Classes of
Certificates pro rata based on the amount of the Net Funds Cap Carryover
Amount owing to each such Class of Certificates;
(xii) so long as the Company is the Servicer, any remaining
available funds up to the Group II Monthly Servicing Fee, to the Servicer;
(xiii) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class II B-3 Certificates as provided in
the Agreement;
(xiv) so long as the Company is the Servicer, any remaining
available funds up to the amount of the Group I Monthly Servicing Fee,
if any, remaining unpaid after giving effect to the distribution
described in clause A(xiii) or B(xiii), as applicable, above, to the
Servicer;
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(xv) the amount of any reimbursement to CHI for Enhancement
Payments with respect to the Class I B-2 Certificates as provided in the
Agreement, which remains unpaid after giving effect to the distribution
described in clause A(xiv) or B(xiv), as applicable, above; and
(xvi) any remaining available funds to the holder of the Class R
Certificate.
In no event will the aggregate distributions of principal to any Class
of Certificates (including, in the case of the Class IB-2 and Class IIB-3
Certificates, any principal amounts included in any Enhancement Payments)
exceed the Original Principal Balance of such Class of Certificates.
Notwithstanding the prioritization of the distribution of the Group I
Formula Principal Distribution Amount among the Group I Senior Certificates
pursuant to clauses A(ii) and B(ii) above, on each Remittance Date on and
after the Remittance Date, if any, on which the Deficiency Event occurs, the
Group I Available Distribution Amount remaining after making the distributions
of interest to the Group I Senior Certificates required by clauses A(i) and
B(i) above will be applied to distribute the Group IFormula Principal
Distribution Amount on each Class of Group I Senior Certificates pro rata in
accordance with the outstanding Principal Balance of such Class. The
"Deficiency Event" will occur if the sum of the Principal Balances of the
Group I Senior Certificates becomes equal to or greater than the Pool
Scheduled Principal Balance for Group I.
Definitions:
The "Class I M-1 and Class I B Principal Distribution Test" is met in
respect of a Remittance Date on which each of the following requirements is
satisfied:
(i) such Remittance Date is on or after the September 2004
Remittance Date;
(ii) the Class I M-1 Percentage plus the Class I B Percentage for
such Remittance Date is equal to at least 26.25% (which is 1.75 times
the sum of the original Class I M-1 Percentage and the original Class I
B Percentage);
(iii) the Group I Performance Tests are satisfied; and
(iv) the Class I B-2 Principal Balance is not less than the Class
I B-2 Floor Amount.
The "Class II B Principal Distribution Test" is met in respect of a
Remittance Date on which each of the following requirements is satisfied:
(i) such Remittance Date is on or after the September 2004
Remittance Date;
(ii) the Class II B Percentage for such Remittance Date is equal to
at least 50%;
(iii) the Group II Performance Tests are satisfied; and
(iv) the sum of the Class II B-3 Principal Balance and the
Overcollateralization Amount is not less than the Group II Certificate
Floor Amount.
The "Group I Performance Tests" are satisfied in respect of a Remittance
Date if all of the following conditions with respect to Group I are met:
(i) the Average Sixty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 5% for the Group I
Contracts;
(ii) the Average Thirty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 7% for the Group I
Contracts;
(iii) the Cumulative Realized Losses (as defined in the Agreement)
for the Group I Contracts as of such Remittance Date do not exceed a
certain specified percentage of the Group I Cut-off Date Principal
Balance, depending on the year in which such Remittance Date occurs; and
(iv) the Current Realized Loss Ratio (as defined in the Agreement)
as of such Remittance Date does not exceed 2.75% for Group I Contracts.
The "Group II Performance Tests" are satisfied in respect of a
Remittance Date if all of the following conditions with respect to the Group
II Contracts are met:
(i) the Average Sixty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 5% for the Group
II Contracts;
(ii) the Average Thirty-Day Delinquency Ratio (as defined in the
Agreement) as of such Remittance Date does not exceed 7% for the Group
II Contracts;
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(iii) the Cumulative Realized Losses (as defined in the Agreement)
for the Group II Contracts as of such Remittance Date do not exceed a
certain specified percentage of the Group II Cut-off Date, depending on
the year in which such Remittance Date occurs; and
(iv) the Current Realized Loss Ratio (as defined in the Agreement)
as of such Remittance Date does not exceed 2.75% for the Group II
Contracts.
The "Group I Monthly Excess Spread" with respect to any Remittance Date
will generally be equal to the excess interest collections on the Group I
Contracts for the related Due Period which remain available after payment of
all required distributions on the Group I Certificates and certain other
required payments for such Remittance Date as specified in the Agreement.
The "Group II Monthly Excess Spread" with respect to any Remittance Date
will generally be equal to the excess interest collections on the Group II
Contracts for the related Due Period (together with interest on the
Overcollateralization Amount to the extent provided in the Agreement) which
remain available after payment of all required distributions on the Group II
Certificates (including any Accelerated Principal Payment for such Remittance
Date) and certain other required payment for such Remittance Date as specified
in the Agreement.
The "Group I Available Funds Shortfall", if any, with respect to any
Remittance Date, will be equal to the amount, if any, by which the Group I
Available Distribution Amount is less than the amount required to be
distributed to the Group I Certificates on such Remittance Date pursuant to
clauses A(i) through (x) or clauses B(i) through (x), as the case may be, of
the distribution priorities set forth above.
The "Group II Available Funds Shortfall", if any, with respect to any
Remittance Date, will be equal to the amount, if any, by which the Group II
Available Distribution Amount is less than the amount required to be
distributed to the Group II Certificates on such Remittance Date Pursuant to
clauses C(i) through (viii) or clauses D(i) through (viii), as the case may
be, of the distribution priorities set forth above.
The "Principal Balance" of each Class of Certificates is its original
Principal Balance reduced by all distributions on such Class in respect of
principal. The "Class I A Principal Balance" is the sum of the Class I A-1,
Class I A-2, Class I A-3, Class I A-4 and Class I A-5 Principal Balances. The
"Class I B Principal Balance" is the sum of the Class I B-1 Principal Balance
and the Class I B-2 Principal Balance. The "Class II B Principal Balance" is
the sum of the Class II B-1 Principal Balance, the Class II B-2 Principal
Balance and the Class II B-3 Principal Balance.
The "Class I A Percentage" for a Remittance Date is the percentage
derived from the fraction (which shall not be greater than 1), the numerator
of which is the aggregate Principal Balance of the Class I A Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for Group I Contracts.
The "Class I M-1 Percentage" for a Remittance Date is the percentage
derived from the fraction (which shall not be greater than 1), the numerator
of which is the aggregate Principal Balance of the Class I M-1 Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for the Group IContracts.
The "Class I B Percentage" is 100% less the Class I A Percentage and
Class I M-1 Percentage.
The "Class II A Percentage" for a Remittance Date is the percentage
derived from the fraction (which shall not be greater than 1), the numerator
of which is the aggregate Principal Balance of the Class II A-1 Certificates
immediately prior to such Remittance Date and the denominator of which is the
Pool Scheduled Principal Balance for Group II Contracts.
The "Class II B Percentage" is 100% less the Class II A Percentage;
provided, however, that on any Remittance Date on which (i) the Class II B
Principal Distribution Test is met and (ii) the Class II B Percentage is
greater than 50%, the Class II A Percentage shall equal 0% until distribution
of principal to the Class II B Certificateholders on such Remittance Date
shall reduce the Class II B Percentage to a percentage equal to 50%; provided,
further, on the Remittance Date on which there is a Group II Formula Principal
Distribution Amount in excess of the amount (the "Required Class II B
Payment") required to be distributed to the Class II B Certificates so as to
reduce the Class II B Percentage to 50%, the Required Class II B Payment shall
be distributed to the Class II B Certificates and the remaining Group II
Formula Principal Distribution Amount shall be distributed pro rata to the
Class II A Certificates and the Class II B Certificates.
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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 Contracts in the applicable Group delinquent 60 days or
more and 30 days or more, respectively, for the preceding three Due Periods
(determined as of the last day of each such Due Period) to the average Pool
Scheduled Principal Balance for such periods. "Cumulative Realized Losses"
are, in general, the aggregate net liquidation losses (calculated as specified
in the Agreement) in respect of Liquidated Contracts since the Cut-off Date.
The "Current Realized Loss Ratio" is, in general, the ratio of the aggregate
net liquidation losses in respect of Liquidated Contracts for the periods
specified in the Agreement to an average Pool Scheduled Principal Balance
specified in the Agreement.
The "Formula Principal Distribution Amount" in respect of a Remittance
Date and a Group equals the sum of (i) all scheduled payments of principal due
on each outstanding Contract in such Group during the Due Period preceding the
month in which the Remittance Date occurs, (ii) the Scheduled Principal
Balance (as defined below) of each Contract in such Group which, during the
Due Period preceding the month of such Remittance Date, was purchased by the
Company pursuant to the Agreement on account of certain breaches of its
representations and warranties, (iii) all Partial Prepayments (as defined in
the Agreement) of Contracts in such Group received during such preceding Due
Period, (iv) the Scheduled Principal Balance of each Contract in such Group
that was prepaid in full during such preceding Due Period, (v) the Scheduled
Principal Balance of each Contract in such Group that became a Liquidated
Contract during such preceding Due Period and (vi) any previously
undistributed shortfalls in the amounts in clauses (i) through (v) in respect
of the prior Remittance Dates (other than any such shortfall with respect to
which an Enhancement Payment has been made to the related Certificateholders).
The "Class II A-1 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II A-1 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap (as defined herein) and (ii) the Class II A-1 Certificate
Principal Balance and (b) the amount of interest the Class II A-1 Certificates
would otherwise be entitled to receive on such Remittance Date had such rate
been calculated at the Class II A-1 Formula Rate for such Remittance Date over
(ii) the amount of interest payable on the Class II A-1 Certificates at the
Net Funds Cap for such Remittance Date and (B) the Class II A-1 Net Funds Cap
Carryover Amount, together with accrued interest thereon, for all previous
Remittance Dates not previously paid pursuant to clause C(xi) or D(xi) above.
The "Weighted Average Lifetime Cap" with respect to any Remittance Date shall
equal, on such Remittance Date, the weighted average of the Lifetime Caps of
the Group II Contracts multiplied by a fraction the numerator of which is the
actual number of days elapsed in the related Interest Period and the
denominator of which is 360.
The "Class II B-1 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II B-1 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap and (ii) the Class II B-1 Certificate Principal Balance and (b)
the amount of interest the Class II B-1 Certificates would otherwise be
entitled to receive on such Remittance Date had such rate been calculated at
the Class II B-1 Formula Rate for such Remittance Date over (ii) the amount of
interest payable on the Class II B-1 Certificates at the Net Funds Cap for
such Remittance Date and (B) the Class II B-1 Net Funds Cap Carryover Amount,
together with accrued interest thereon, for all previous Remittance Dates not
previously paid pursuant to clause C(xi) or D(xi) above.
The "Class II B-2 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II B-2 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap and (ii) the Class II B-2 Certificate Principal Balance and (b)
the amount of interest the Class II B-2 Certificates would otherwise be
entitled to receive on such Remittance Date had such rate been calculated at
the Class II B-2 Formula Rate for such Remittance Date over (ii) the amount of
interest payable on the Class II B-2 Certificates at the Net Funds Cap for
such Remittance Date and (B) the Class II B-2 Net Funds Cap Carryover Amount,
together with accrued interest thereon, for all previous Remittance Dates not
previously paid pursuant to clause C(xi) or D(xi) above.
The "Class II B-3 Net Funds Cap Carryover Amount" means, on any
Remittance Date, the sum of (A) if on such Remittance Date, the Remittance
Rate for the Class II B-3 Certificates is based upon the Net Funds Cap, the
excess of (i) the lesser of (a) the product of (i) the Weighted Average
Lifetime Cap and (ii) the Class II B-3 Certificate Principal Balance and (b)
the amount of interest the Class II B-3 Certificates would otherwise be
entitled to receive on such Remittance Date had such rate been calculated at
the Class II B-3 Formula Rate for such Remittance Date over (ii) the amount of
interest payable on the Class II B-3 Certificates at the Net Funds Cap for
such Remittance Date and (B) the Class II B-3 Net Funds Cap Carryover Amount,
together with accrued interest thereon, for all previous Remittance Dates not
previously paid pursuant to clause C(xi) or D(xi) above.
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The "Net Funds Cap Carryover Amount" with respect to each Class of Group
II Certificates shall equal each of the Class II A-1 Net Funds Cap Carryover
Amount, Class II B-1 Net Funds Cap Carryover Amount, Class II B-2 Net Funds
Cap Carryover Amount and Class II B-3 Net Funds Cap Carryover Amount, as
applicable. The "Net Funds Cap Carryover Amount" with respect to all Classes
of Group II Certificates shall equal the sum of the Class II A-1 Net Funds Cap
Carryover Amount, the Class II B-1 Net Funds Cap Carryover Amount, the Class
II B-2 Net Funds Cap Carryover Amount and the Class II B-3 Net Funds Cap
Carryover Amount. The Class II B-3 Net Funds Cap Carryover Amount shall not
have the benefit of the Limited Guarantee or the Alternate Credit Enhancement.
The "Scheduled Principal Balance" of a Contract as of any Remittance
Date is its principal balance (before any adjustment by reason of bankruptcy,
moratorium or similar waiver or grace period) as of the Due Date (or latest
occurring Due Date, in the case of a Bi-weekly Contract or any Semi-Monthly
Contract) in the Due Period next preceding such Remittance Date, after giving
effect to any previous Partial Prepayments and after giving effect to all
previous scheduled principal payments and to the scheduled payment of
principal due on such Due Date (whether or not paid and before any adjustment
by reason of bankruptcy, moratorium or similar waiver or grace period).
The "Pool Scheduled Principal Balance" for a Group (the "Group I Pool
Scheduled Principal Balance" or the "Group IIPool Scheduled Principal Balance"
as applicable) for any Remittance Date is equal to (i) the Cut-off Date Pool
Principal Balance for such Group less (ii) the aggregate of the Formula
Principal Distribution Amounts for such Group (exclusive of the amounts in
clause (vi) of the definition thereof) for all prior Remittance Dates.
A "Liquidated Contract" is a defaulted Contract as to which all amounts
that the Servicer expects to recover through the date of disposition of the
Manufactured Home and/or any real property securing such Contract have been
received.
Group II Certificates; Overcollateralization Provisions
The Group II Weighted Average Contract Rate for the Group II Contracts
is expected generally to be higher than the weighted average of the Remittance
Rates applicable to the Group II Certificates, thus generating certain excess
interest collections which in the absence of losses and delinquencies, will
not be needed to fund distributions on the Group II Certificates. The
Agreement provides that this excess interest is to be applied, to the extent
available, to make accelerated payments of principal to the Class or Classes
of Group II Certificates then entitled to receive distributions of principal.
Such accelerated payments are expected to cause the aggregate Principal
Balance of the Group II Certificates to amortize more rapidly than the
principal balance of the Group II Contracts, resulting in
"overcollateralization" (i.e., the excess of the Group II Pool Scheduled
Principal Balance over the aggregate Principal Balance of the Group II
Certificates). This interest for a Due Period, together with interest on the
Overcollateralization Amount itself, remaining after distributions in clauses
C(i) to C(ix) or D(i) to D(ix) above is the "Group II Monthly Excess Spread"
for the Remittance Date immediately following the applicable Due Period. On
any Remittance Date, the "Overcollateralization Amount" will be an amount
equal to the excess, if any, of (x) the Group II Pool Scheduled Principal
Balance as of the end of the immediately preceding Due Period over (y) the
aggregate Certificate Principal Balance of the Group II Certificates on such
Remittance Date (after taking into account all other distributions to be made
on such Remittance Date). On the Closing Date, the Overcollateralization
Amount will be $545.37.
The Group II Monthly Excess Spread will be applied to make accelerated
payments of principal on each Remittance Date until the Overcollateralization
Amount is equal to the "Initial Required Overcollateralization Amount," which
is expected to equal $5,060,284.09, which represents approximately 3.50% of
the initial Group II Contract Pool Balance. Thereafter, the Group II Monthly
Excess Spread will not be applied to further increase the
Overcollateralization Amount unless, due to losses, the Overcollateralization
Amount is decreased, in which event such applications will commence to the
extent necessary to increase the actual Overcollateralization Amount to the
Required Overcollateralization Amount. The level of the Required
Overcollateralization Amount is equal to, for any Remittance Date, (x) prior
to the date on which the Class II B Principal Distribution Test is satisfied,
the Initial Required Overcollateralization Amount and (y) on and after the
date on which the Class II B Principal Distribution Test is satisfied, the
lesser of (i) the Initial Required Overcollateralization Amount and (ii) the
greater of (a) 7.00% of the then current Group II Pool Scheduled Principal
Balance and (b) 0.75% of the Group II Cut-off Date Pool Principal Balance.
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If, on any Remittance Date, the level of Required Overcollateralization
Amount is permitted to be reduced, the "Excess Overcollateralization Amount"
(the excess of (x) the actual Overcollateralization Amount on such Remittance
Date (after taking into account all other distributions on such Remittance
Date) over (y) the Required Overcollateralization Amount for such Remittance
Date) will be deducted from the Group II Formula Principal Distribution Amount
(but only to the extent of such Group II Formula Principal Distribution
Amount) otherwise distributable to the holders of the Group II Certificates on
such Remittance Date (any such amount so deducted, an "Overcollateralization
Reduction Amount") and will be applied as provided herein under "Description
of the Certificates--Distributions". The Overcollateralization Reduction
Amount, if any, on any Remittance Date shall be funded, first, from that
portion of the Group II Formula Principal Distribution Amount otherwise
distributable to the holders of the most junior class of Group II Certificates
on such Remittance Date, and, if such amount is insufficient to fund in full
the Overcollateralization Reduction Amount on such Remittance Date, then,
second, from that portion of the Group II Formula Principal Distribution
Amount otherwise distributable to the holders of each succeeding class of
Group II Certificates in ascending order of seniority, until such
Overcollateralization Reduction Amount is completely funded. The Agreement
provides that in no event shall an Overcollateralization Reduction Amount be
deducted from the Group II Formula Principal Distribution Amount if, after
deducting such amount, the sum of the aggregate Principal Balance of the Class
II B-3 Certificates and the Overcollateralization Amount, taken together,
would be less than 2.0% of the Group II Cut-off Date Principal Balance.
The amount, if any, actually applied as an accelerated payment of
principal on any Remittance Date is referred to herein as the "Accelerated
Principal Payment" for such Remittance Date. The Accelerated Principal
Payment, if any, on any Remittance Date will be an amount equal to the lesser
of (x) the excess of (i) the Required Overcollateralization Amount over (ii)
the actual Overcollateralization Amount on such Remittance Date and (y) the
sum of the Group II Monthly Excess Spread, if any, and the Group I Monthly
Excess Spread, if any, remaining after payment of all then applicable prior
requirements for such Remittance Date. The Accelerated Principal Payment will
be distributed to the holders of the Class of Group II Certificates then
entitled to receive distributions in respect of principal on such date.
Cross Collateralization Provisions
The Agreement provides for cross collateralization through the
application of excess amounts generated by one Contract Group to fund
shortfalls in available funds in the other Contract Group, subject to certain
prior requirements of such Contract Group. Therefore, as to any Remittance
Date, the amount, if any, of Group I Monthly Excess Spread remaining after
payment of all then applicable prior requirements relating to the Group I
Certificates will be used to fund, first, any Group II Available Funds
Shortfall and, second, to the extent of any remaining Group I Monthly Excess
Spread, any unfunded Accelerated Principal Payment on the Group II
Certificates for such Remittance Date. Likewise, as to any Remittance Date,
the amount, if any, of Group II Monthly Excess Spread (together with any
Overcollateralization Reduction Amount) remaining after payment of all then
applicable prior requirements relating to the Group II Certificates (including
any Accelerated Principal Payment for such Remittance Date) will be used to
fund any Group I Available Funds Shortfall for such Remittance Date. The
payment of any amounts in respect of cross collateralization will be applied
in the order specified above under "--Distributions" and "--Group II
Certificates; Overcollateralization Provisions".
Additional funds resulting from the cross-collateralization provisions
described herein shall not be available to Group II Certificateholders to pay
the Net Funds Cap Carryover Amount.
Group I Certificates and the Senior/Subordinate Structure
Subordination of the Class I A-5 Certificates
The rights of the holders of the Class I A-5 Certificates to receive
distributions of amounts collected on the Group I Contracts will be
subordinated, to the extent described herein, to such rights of the Group I
Senior Certificates. This subordination is intended to enhance the likelihood
of receipt by the holders of the Group I Senior Certificates of the full
amount of their scheduled monthly payments of interest and the ultimate
receipt by such holders of principal equal to the applicable Original Class
Principal Balance of the Group I Senior Certificates.
The protection afforded to the Group I Senior Certificates by means of
the subordination of the Class I A-5 Certificates will be accomplished by the
application of the Group I Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the Group I Available
Distribution Amount on any
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Remittance Date is not sufficient to permit the distribution of the entire
specified portion of the Group I Formula Principal Distribution Amount to the
Group I Senior Certificateholders, the subordination feature will protect the
Group I Senior Certificateholders, by the right of such Certificateholders to
receive, until, if ever, any such shortfall is distributed, a portion of the
future distributions of Group I Available Distribution Amounts that would
otherwise have been distributable to the holders of the Class I A-5
Certificates.
Subordination of the Class I M-1 Certificates
The rights of holders of the Class I M-1 Certificates to receive
distributions of amounts collected on the Group I Contracts will be
subordinated, to the extent described herein, to such rights of the holders of
the Group I Senior Certificates and Class I A-5 Certificates. This
subordination is intended to enhance the likelihood of receipt by the holders
of the Group I Senior Certificates and Class I A-5 Certificates of the full
amount of their scheduled monthly payments of interest and the ultimate
receipt by such holders of principal equal to the applicable Original Class
Principal Balance of the Group I Senior Certificates and Class I A-5
Certificates.
The protection afforded to the holders of the Group I Senior
Certificates and Class I A-5 Certificates by means of the subordination, to
the extent provided herein, of the Class I M-1 Certificates will be
accomplished (i) by the application of the Group I Available Distribution
Amount in the order specified under "--Distributions" above and (ii) if the
Group I Available Distribution Amount on such Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
Group I Formula Principal Distribution Amount, as applicable, to the Class of
Group I Senior Certificateholders and Class I A-5 Certificateholders, by the
right of such Group I Senior and Class I A-5 Certificateholders to receive,
until, if ever, any such shortfall is distributed, a portion of future
Available Distribution Amounts that would otherwise have been payable to the
holders of the Class I M-1 Certificates. On each Remittance Date before the
Class I A Principal Balance is reduced to zero, the holders of the Class I M-1
Certificates will receive the amounts specified under "--Distributions" above.
Subordination of the Class I B-1 and Class I B-2 Certificates and Class R
Certificate
The rights of holders of the Class I B-1 and Class I B-2 Certificates
and Class R Certificate to receive distributions of amounts collected on the
Group I Contracts will be subordinated, to the extent described herein, to
such rights of the holders of the Class I M-1 Certificates. This subordination
is intended to enhance the likelihood of receipt by the holders of the Class I
A and Class I M-1 Certificates of the full amount of their scheduled monthly
payments of interest and the ultimate receipt by such holders of principal
equal to the applicable Original Class Principal Balance.
The protection afforded to the holders of the Class I M-1 Certificates
by means of the subordination, to the extent provided herein, of the Class I
B-1 and Class I B-2 Certificates and Class R Certificate will be accomplished
(i) by the application of the Group I Available Distribution Amount in the
order specified under "--Distributions" above and (ii) if the Group I
Available Distribution Amount on such Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the Group I Formula
Principal Distribution Amount, as applicable, to the Class I M-1
Certificateholder then entitled to such distribution, by the right of such
Class I M-1 Certificateholders to receive, until, if ever, any such shortfall
is distributed, a portion of future Available Distribution Amounts that would
otherwise have been payable to the holders of the Class I B-1 and Class I B-2
Certificates or the Class R Certificate. On each Remittance Date before the
Class I A Principal Balance is reduced to zero, the holders of the Class I B
Certificates will receive the amounts specified under "--Distributions" above.
Subordination of the Class I B-2 Certificates
The rights of the holders of the Class I B-2 Certificates to receive
distributions of amounts collected on the Contracts in the Trust Fund will be
subordinated, to the extent described herein, to such rights of the Class I
B-1 Certificates. This subordination is intended to enhance the likelihood of
receipt by the holders of the Class I A, Class I M-1 and Class I B-1
Certificates of the full amount of their scheduled monthly payments of
interest and the ultimate receipt by such holders of principal equal to the
applicable Original Class Principal Balance.
The protection afforded to the Class I B-1 Certificates by means of the
subordination of the Class I B-2 Certificates will be accomplished by the
application of the applicable Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the applicable
Available Distribution Amount on any Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the related Formula
Principal Distribution Amount, as applicable, to the Class I B-1
Certificateholders and the subordination provided by the Class I B-2
Certificates has not been exhausted, the subordination feature will protect
the Class I B-1 Certificateholders by the
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right of the Class I B-1 Certificateholders to receive, until, if ever, any
such shortfall is distributed, a portion of the future distributions of
Available Distribution Amounts that would otherwise have been distributable to
the holders of the Class I B-2 Certificates or the Class R Certificate.
However, the Class I B-2 Certificates will have the benefit of the
Limited Guarantee from CHI or the Alternate Credit Enhancement. Neither the
Limited Guarantee nor the Alternate Credit Enhancement will benefit or result
in any payments on any other Offered Certificates (other than the Class II B-3
Certificates to the limited extent described below).
Group II Certificates and the Senior/Subordinate Structure
Subordination of the Class II B-1 Certificates
The rights of the holders of the Class II B-1 Certificates to receive
distributions of amounts collected on the Contracts in the Trust Fund will be
subordinated, to the extent described herein, to such rights of the Class II
A-1 Certificates. This subordination is intended to enhance the likelihood of
receipt by the holders of the Class II A-1 Certificates of the full amount of
their scheduled monthly payments of interest and the ultimate receipt by such
holders of principal equal to the Original Class II A-1 Class Principal
Balance.
The protection afforded to the Class II A-1 Certificates by means of the
subordination of the Class II B-1 Certificates will be accomplished by the
application of the applicable Available Distribution Amount in the order
specified under "--Distributions" above. In addition, if the applicable
Available Distribution Amount on any Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the Group II
Formula Principal Distribution Amount, as applicable, to the Class II A-1
Certificateholders, the subordination feature will protect the Class II A-1
Certificateholders, by the right of such Certificateholders to receive, until,
if ever, any such shortfall is distributed, a portion of the future
distributions of Available Distribution Amounts that would otherwise have been
distributable to the Class II B-1 Certificates.
Subordination of the Class II B-2, Class II B-3 and Class R Certificate
The rights of holders of the Class II B-2, Class II B-3 and Class R
Certificate to receive distributions of amounts collected on the Contracts
will be subordinated, to the extent described herein, to such rights of the
holders of the Class II A-1 and Class II B-1 Certificates. This subordination
is intended to enhance the likelihood of receipt by the holders of Class II
A-1 and Class II B-1 Certificates of the full amount of their scheduled
monthly payments of interest and the ultimate receipt by such holders of
principal equal to the applicable Original Class Principal Balance.
The protection afforded to the holders of the Class II A-1 and Class II
B-1 Certificates by means of the subordination, to the extent provided herein,
of the Class II B-2, Class II B-3 and Class R Certificate will be accomplished
(i) by the application of the applicable Available Distribution Amount in the
order specified under "--Distributions" above and (ii) if the applicable
Available Distribution Amount on such Remittance Date is not sufficient to
permit the distribution of the entire specified portion of the Formula
Principal Distribution Amount, as applicable, to the Class of Class II A-1
Certificateholders then entitled to such distribution, by the right of such
Class II A-1 Certificateholders to receive, until, if ever, any such shortfall
is distributed, a portion of future Available Distribution Amounts that would
otherwise have been payable to the holders of the Class II B Certificates or
the Class R Certificate. On each Remittance Date before the Class II A
Principal Balance is reduced to zero, the holders of the Class II B
Certificates will receive the amounts specified under "--Distributions" above.
Subordination of the Class II B-2 and Class II B-3 Certificates
The rights of the holders of the Class II B-2 and the Class II B-3
Certificates to receive distributions of amounts collected on the Contracts in
the Trust Fund will be subordinated, to the extent described herein, to such
rights of the Class II B-1 Certificates. This subordination is intended to
enhance the likelihood of receipt by the holders of the Class II B-1
Certificates of the full amount of their scheduled monthly payments of
interest and the ultimate receipt by such holders of principal equal to the
applicable Original Class Principal Balance.
The protection afforded to the Class II B-1 Certificates by means of the
subordination of the Class II B-2 and the Class II B-3 Certificates will be
accomplished by the application of the applicable Available Distribution
Amount in the order specified under "--Distributions" above. In addition, if
the applicable Available Distribution Amount on
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any Remittance Date is not sufficient to permit the distribution of the entire
specified portion of the applicable Formula Principal Distribution Amount, as
applicable, to the Class II B-1 Certificateholders and the subordination
provided by the Class II B-2 and the Class II B-3 Certificates has not been
exhausted, the subordination feature will protect the Class II B-1
Certificateholders by the right of the Class II B-1 Certificateholders to
receive, until, if ever, any such shortfall is distributed, a portion of the
future distributions of Available Distribution Amounts that would otherwise
have been distributable to the holders of the Class II B-2, the Class II B-3
Certificates or the Class R Certificate.
In addition, the protection afforded to the Class II B-2 Certificates by
means of the subordination of the Class II B-3 Certificates will be
accomplished by the application of the applicable Available Distribution
Amount in the order specified under "--Distributions" above. In addition, if
the applicable Available Distribution Amount on any Remittance Date is not
sufficient to permit the distribution of the entire specified portion of the
applicable Formula Principal Distribution Amount, as applicable, to the Class
II B-2 Certificateholders and the subordination provided by the Class II B-3
Certificates has not been exhausted, the subordination feature will protect
the Class II B-2 Certificateholders by the right of the Class II B-2
Certificateholders to receive, until, if ever, any such shortfall is
distributed, a portion of the future distributions of Available Distribution
Amounts that would otherwise have been distributable to the holders of the
Class II B-3 or the Class R Certificate.
However, the Class II B-3 Certificates will have the benefit of the
Limited Guarantee from CHI or the Alternate Credit Enhancement. Neither the
Limited Guarantee nor the Alternate Credit Enhancement will benefit or result
in any payments on any other Offered Certificates (other than the Class I B-2
Certificates to the limited extent described above).
Losses on Liquidated Contracts
In general, a "Liquidated Contract" is a defaulted Contract as to which
all amounts that the Servicer expects to recover through the date of
disposition of the Manufactured Home and/or any real property securing such
Contract has been received.
As described above, the distribution of principal to the holders of the
Senior Certificates in each Group is intended to include the Scheduled
Principal Balance of each Contract in the related Group that became a
Liquidated Contract during the Due Period immediately preceding the month of
such distribution. If the Liquidation Proceeds, net of related Liquidation
Expenses, from such Liquidated Contract are less than the Scheduled Principal
Balance of such Liquidated Contract, and accrued and unpaid interest thereon,
then to the extent such deficiency is not covered by any excess interest
collections on non-defaulted Contracts, the deficiency may, in effect, be
absorbed by the Subordinate Certificates since a portion of future Available
Distribution Amounts funded by future principal collections on the Contracts,
up to the aggregate amount of such deficiencies, that would otherwise have
been distributable to them may be paid to the holders of the Senior
Certificates. If the protection afforded to the holders of a Class of
Subordinate Certificates by the subordination of one or more Classes of more
junior Subordinate Certificates is exhausted, the holders of such Class of
Subordinate Certificates will incur a loss on their investment.
If the Group I or Group II Available Distribution Amount, as applicable,
for any Remittance Date is not sufficient to cover, in addition to interest
distributable to the related Senior Certificateholders, the entire specified
portion of the applicable Formula Principal Distribution Amount distributable
to the related Senior Certificateholders then entitled to such payment on such
Remittance Date, then the amount of the Pool Scheduled Principal Balance
available to the Class B Certificates (i.e., such Pool Scheduled Principal
Balance less the Class I A Principal Balance or the Class II A Principal
Balance, as applicable) on future Remittance Dates will be reduced. With
respect to each Group of Certificates, if, because of liquidation losses, the
Pool Scheduled Principal Balance for such Group were to decrease
proportionately faster than distributions to the related Senior
Certificateholders and Senior Subordinate Certificateholders reduce the
Principal Balance of such Certificates, the level of protection afforded by
the subordination of the Subordinate Certificates (i.e., the percentage of the
Pool Scheduled Principal Balance for the applicable Group available to the
Certificates) would be reduced. On each Remittance Date, if any, on or after
the date on which the Senior Certificate Principal Balance equals or becomes
greater than the Pool Scheduled Principal Balance for such Group and so long
as the Class I A-5 and Class II B-1 Certificates are outstanding, the Class I
A-5 and Class II B-1 Certificates will bear all losses on Liquidated Contracts
(with no ability to recover the amount of any liquidation loss from future
principal collections on the Contracts) and incur a loss on their investment
in the Class I A-5 and Class II B-1 Certificates. On each Remittance Date, if
any, on or after the date on which the Deficiency Event occurs, the Group I or
Group II Senior Certificateholders, as applicable, will receive only their
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respective percentage interest of Liquidation Proceeds (net of Liquidation
Expenses) realized in respect of Liquidated Contracts, rather than the
Scheduled Principal Balances thereof, and will therefore bear all losses on
Liquidated Contracts (with no ability to recover the amount of any liquidation
loss from future principal collections on the Contracts) and incur a loss on
their investment in the Group I or Group II Senior Certificates, as
applicable. See "Description of the Certificates--Group I Certificates and the
Senior/Subordinate Structure, and "-- Group II Certificates and the
Senior/Subordinate Structure" and "Yield and Prepayment Considerations."
On each Remittance Date, if any, on or after the date on which the sum
of the Principal Balances of the Senior Certificates in either Group equals or
becomes greater than the Pool Scheduled Principal Balance for such Group, the
related Senior Certificateholders will receive only their respective
percentage interests of Liquidation Proceeds (net of Liquidation Expenses)
realized in respect of Liquidated Contracts in such Group, rather than the
Scheduled Principal Balances thereof, and will therefore bear all losses on
Liquidated Contracts (with no ability to recover the amount of any liquidation
loss from future principal collections on the Contracts) and incur a loss on
their investment in such Certificates.
But for the subordination of the Class I B-2 Certificates, the Class I
B-1 Certificateholders would absorb (i) all losses on each Liquidated Contract
in Group I (to the extent such loss is not covered by excess interest
collections) and (ii) other shortfalls in the applicable Available
Distribution Amount. If, on any Remittance Date, the sum of the Class I A
Principal Balance and the Class I B-1 Principal Balance becomes equal to or
greater than the Pool Scheduled Principal Balance for Group I, then the Class
I B-1 Certificateholders will bear all losses on Liquidated Contracts in Group
I (with no ability to recover the amount of any Liquidation Loss from future
principal collections on the Contracts) and incur a loss on their investment
in the Class I B-1 Certificates.
But for the subordination of the Class II B-3 Certificates, the Class II
B-2 Certificateholders would absorb (i) all losses on each Liquidated Contract
in Group II (to the extent such loss is not covered by excess interest
collections or the Overcollateralization Amount) and (ii) other shortfalls in
the applicable Available Distribution Amount. If, on any Remittance Date, the
sum of the Class II A Principal Balance, the Class II B-1 Principal Balance
and the Class II B-2 Principal Balance becomes equal to or greater than the
Pool Scheduled Principal Balance for Group II, then the Class II B-2
Certificateholders will bear all losses on Liquidated Contracts in Group II
(with no ability to recover the amount of any Liquidation Loss from future
principal collections on the Contracts) and incur a loss on their investment
in the Class II B-2 Certificates.
Limited Guarantee of CHI
In order to mitigate the effect of the subordination of the Class I B-2
Certificates or the Class II B-3 Certificates, as applicable, and liquidation
losses and delinquencies on the Contracts in the related Group borne by the
Class I B-2 Certificates or the Class II B-3 Certificates, as applicable, CHI
will initially provide a limited guarantee (the "Limited Guarantee") against
losses that would otherwise be absorbed by the Class I B-2 Certificates or the
Class II B-3 Certificates, as applicable. Such Limited Guarantee may be
replaced by an Alternate Credit Enhancement. See "--Alternate Credit
Enhancement" below.
Each payment required to be made under the Limited Guarantee is referred
to as an "Enhancement Payment." Prior to the Remittance Date with respect to
the Class I B-2 Certificates (the "Initial Class I B-2 Principal Remittance
Date") on which the Class I B-1 Principal Balance is reduced to zero, the
Enhancement Payment will equal the amount, if any, by which (a) the sum of (i)
the Class I B-2 Formula Distribution Amount (which will be equal to interest
accrued during the related Interest Period on the Class I B-2 Principal
Balance and an amount of principal described in the Agreement) for such
Remittance Date and (ii) the Class I B-2 Principal Liquidation Loss Amount, if
any, exceeds (b) the amount (other than the Enhancement Payment) that will
otherwise be distributed on the Class I B-2 Certificates on such Remittance
Date (the "Class I B-2 Distribution Amount"). On each Remittance Date on or
after the Initial Class I B-2 Principal Remittance Date, the Enhancement
Payment will equal the amount, if any, by which the Class I B-2 Formula
Distribution Amount (which will include both interest and principal) exceeds
the Class I B-2 Distribution Amount for such Remittance Date. Prior to the
Remittance Date with respect to the Class II B-3 Certificates (the "Initial
Class II B-3 Principal Remittance Date") on which the Class II B-2 Principal
Balance is reduced to zero, the Enhancement Payment will equal the amount, if
any, by which (a) the sum of (i) the Class II B-3 Formula Distribution Amount
(which will be equal to interest accrued during the related Interest Period on
the Class II B-3 Principal Balance and an amount of principal described in the
Agreement) for such Remittance Date and (ii) the Class II B-3 Principal
Liquidation Loss Amount, if any, exceeds (b) the amount (other than the
Enhancement Payment) that will otherwise be distributed on the Class II B-3
Certificates on such Remittance Date
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(the "Class II B-3 Distribution Amount"). On each Remittance Date on or after
the Initial Class II B-3 Principal Remittance Date, the Enhancement Payment
will equal the amount, if any, by which the Class II B-3 Formula Distribution
Amount (which will include both interest and principal) exceeds the Class II
B-3 Distribution Amount for such Remittance Date; provided, however, that the
Enhancement Payment with respect to the Class II B-3 Certificates will not
include amounts in respect of the Class II B-3 Net Funds Cap Carryover Amount.
The "Class I B-2 Principal Liquidation Loss Amount" for any Remittance
Date will equal the amount, if any, by which (a) the Group I Formula Principal
Distribution Amount (exclusive of the portion thereof specified in clause (vi)
of the definition of Formula Principal Distribution Amount) for such
Remittance Date exceeds (b) the amount (exclusive of the Enhancement Payment)
distributed on the Group I Certificates on account of principal on such
Remittance Date. The Class I B-2 Principal Liquidation Loss Amount represents
future principal payments on the Contracts that, because of the subordination
of the Class I B-2 Certificates and liquidation losses on the Contracts, will
not be paid to the Class I B-2 Certificateholders from the assets of the Trust
Fund but may be paid in the form of an Enhancement Payment.
The "Class II B-3 Principal Liquidation Loss Amount" for any Remittance
Date will equal the amount, if any, by which (a) the Group II Formula
Principal Distribution Amount (exclusive of the portion thereof specified in
clause (vi) of the definition of Formula Principal Distribution Amount) for
such Remittance Date exceeds (b) the amount (exclusive of the Enhancement
Payment) distributed on the Group II Certificates on account of principal on
such Remittance Date. The Class II B-3 Principal Liquidation Loss Amount
represents future principal payments on the Contracts that, because of the
subordination of the Class II B-3 Certificates and liquidation losses on the
Contracts, will not be paid to the Class II B-3 Certificateholders from the
assets of the Trust Fund but may be paid to the Class II B-3
Certificateholders in the form of an Enhancement Payment.
In the event that, on a particular Remittance Date, the Class I B-2
Distribution Amount or the Class II B-3 Distribution Amount, as applicable, in
the applicable Certificate Account plus any amounts actually paid under the
Limited Guarantee are not sufficient to make a full distribution of interest
to the Class I B-2 Certificateholder or the Class II B-3 Certificateholders,
as applicable, the amount of the deficiency will be carried forward as an
amount that the Class I B-2 Certificateholders or the Class II B-3
Certificateholder, as applicable, are entitled to receive on the next
Remittance Date.
The Limited Guarantee will be an unsecured general obligation of CHI and
will not be supported by any letter of credit or other enhancement
arrangement.
The Limited Guarantee is for the benefit of the Class I B-2 Certificates
and Class II B-3 Certificates only and will not result in any payments on the
other Offered Certificates.
As reimbursement to CHI for Enhancement Payments made by CHI pursuant to
the Limited Guarantee, CHI will be entitled to receive on each Remittance Date
an amount equal to the lesser of (a) the Available Distribution Amount, less
the portion of the Available Distribution Amount distributed on the
Certificates (other than the Class R Certificate), and (b) the aggregate
amount of Enhancement Payments outstanding which remain unreimbursed as of
such Remittance Date.
Alternate Credit Enhancement
In the event that, at CHI's option, Alternate Credit Enhancement (as
defined herein) is provided and, upon prior written notice to the Rating
Agencies, the Rating Agencies shall have notified CHI, the Company, the
Servicer and the Trustee in writing that substitution of such Alternate Credit
Enhancement for the Limited Guarantee will not result in the downgrade or
withdrawal of the then current rating of any class of the Certificates, and
upon the delivery by CHI to the Trustee of an opinion of counsel, acceptable
to the Trustee, that such action would not cause the Trust to fail to qualify
as a REMIC, the Limited Guarantee shall be released and shall terminate. The
Alternate Credit Enhancement may consist of cash or securities deposited by
CHI or any other person in a segregated escrow, trust or collateral account or
a letter of credit, certificate insurance policy or surety bond provided by a
third party (an "Alternate Credit Enhancement"). On each Remittance Date after
delivery of the Alternate Credit Enhancement, an amount, equal to the lesser
of the amount which would have been payable under the Limited Guarantee and
the amount available under such Alternate Credit Enhancement, shall be
transferred from such account to the applicable Certificate Account to make
payments to the Class I B-2 and Class II B-3 Certificateholders, as applicable
(the "Enhancement Payment"). CHI shall have no obligation to replace such
enhancement once it has been exhausted.
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Advances
For each Remittance Date, the Servicer will be obligated to make
advances ("Monthly Advances") in respect of delinquent scheduled payments on
the Contracts that were due in the preceding Due Period and would, in the
Servicer's judgment, be recoverable from related late payments, Liquidation
Proceeds or otherwise.
On or prior to each Determination Date, the Servicer will either (i)
deposit from its own funds the Monthly Advance into the applicable Certificate
Account, (ii) cause appropriate entries to be made in the records of the
applicable Certificate Account that funds in the applicable Certificate
Account that are not part of the applicable Available Distribution Amount for
the related Remittance Date have been used to make the Monthly Advance or
(iii) make the Monthly Advance through any combination of clauses (i) and
(ii). Any funds held for future distribution and used in accordance with
clause (ii) must be restored by the Servicer from its own funds or advance
payments on the Contracts when they become part of a future Available
Distribution Amount. The Monthly Advance is the sum of delinquent scheduled
payments due in the related Due Period, exclusive of all Nonrecoverable
Advances, except that the Monthly Advance will not exceed the amount necessary
to bring the Available Distribution Amount up to the sum of the amounts
specified in clauses A(i)-(x), B(i)-(x), C(i)-(viii) or D(i)-(viii), as the
case may be, under "--Distributions--Priority of Distributions" above. A
Nonrecoverable Advance is any advance made or proposed to be made that the
Servicer believes is not, or if made would not be, ultimately recoverable from
related Liquidation Proceeds or otherwise.
Monthly Advances are intended to maintain a regular flow of scheduled
interest and principal payments to Certificateholders rather than to guarantee
or insure against losses. The Servicer will reimburse itself for Monthly
Advances out of collections of the late scheduled payments. In addition, upon
the determination that a Nonrecoverable Advance has been made in respect of a
Contract or upon a Contract becoming a Liquidated Contract, the Servicer will
reimburse itself out of funds in the applicable Certificate Account for the
delinquent scheduled payments on such Contract (exclusive of any scheduled
payment (i) for which no advance was made because the Servicer determined that
such an advance would be a Nonrecoverable Advance if an advance were made or
(ii) that was recovered out of Net Liquidation Proceeds for the related
Contract).
The Servicer will also be obligated to make advances, to the extent
recoverable out of Liquidation Proceeds or otherwise, in respect of certain
taxes and insurance premiums not paid by an Obligor on a timely basis. Funds
so advanced are reimbursable to the Servicer as provided in the Agreement.
Reports to Certificateholders
The Trustee will include with each distribution to each
Certificateholder a statement as of such Remittance Date setting forth, among
other things:
(a) the aggregate amount distributed on the Class I A-1 Certificates on
such Remittance Date;
(b) the amount of such distribution which constitutes principal; (c) the
amount of such distribution which constitutes interest;
(d) the remaining Class I A-1 Principal Balance;
(e) the aggregate amount distributed on the Class I A-2 Certificates on
such Remittance Date;
(f) the amount of such distribution which constitutes principal;
(g) the amount of such distribution which constitutes interest;
(h) the remaining Class I A-2 Principal Balance;
(i) the aggregate amount distributed on the Class I A-3 Certificates on
such Remittance Date;
(j) the amount of such distribution which constitutes principal;
(k) the amount of such distribution which constitutes interest;
(l) the remaining Class I A-3 Principal Balance;
(m) the aggregate amount distributed on the Class I A-4 Certificates on
such Remittance Date;
(n) the amount of such distribution which constitutes principal;
(o) the amount of such distribution which constitutes interest;
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(p) the remaining Class I A-4 Principal Balance;
(q) the aggregate amount distributed on the Class I A-5 Certificates on
such Remittance Date;
(r) the amount of such distribution which constitutes principal;
(s) the amount of such distribution which constitutes interest;
(t) the remaining Class I A-5 Principal Balance;
(u) the aggregate amount distributed on the Class I M-1 Certificates on
such Remittance Date;
(v) the amount of such distribution which constitutes principal;
(w) the amount of such distribution which constitutes interest;
(x) the remaining Class I M-1 Principal Balance;
(y) the aggregate amount distributed on the Class I B-1 Certificates on
such Remittance Date;
(z) the amount of such distribution which constitutes principal;
(aa) the amount of such distribution which constitutes interest;
(bb) the remaining Class I B-1 Principal Balance;
(cc) the aggregate amount distributed on the Class I B-2 Certificates on
such Remittance Date;
(dd) the amount of such distribution which constitutes principal;
(ee) the amount of such distribution which constitutes interest;
(ff) the amount, if any, by which the Class I B-2 Formula Distribution
Amount exceeds the Class I B-2 Remaining Amount Available for such
Remittance Date;
(gg) the Class I B-2 Liquidation Loss Amount, if any, for such Remittance
Date;
(hh) the Enhancement Payment, if any, for such Remittance Date;
(ii) the remaining Class I B-2 Principal Balance;
(jj) the aggregate amount distributed on the Class II A-1 Certificates on
such Remittance Date;
(kk) the amount of such distribution which constitutes principal;
(ll) the amount of such distribution which constitutes interest;
(mm) the remaining Class II A-1 Principal Balance;
(nn) the aggregate amount distributed on the Class II B-1 Certificates on
such Remittance Date;
(oo) the amount of such distribution which constitutes principal;
(pp) the amount of such distribution which constitutes interest;
(qq) the remaining Class II B-1 Principal Balance;
(rr) the aggregate amount distributed on the Class II B-2 Certificates on
such Remittance Date;
(ss) the amount of such distribution which constitutes principal;
(tt) the amount of such distribution which constitutes interest;
(uu) the remaining Class II B-2 Principal Balance;
(vv) the aggregate amount distributed on the Class II B-3 Certificates on
such Remittance Date;
(ww) the amount of such distribution which constitutes principal;
(xx) the amount of such distribution which constitutes interest;
(yy) the amount, if any, by which the Class II B-3 Formula Distribution
Amount exceeds the Class II B-3 Remaining Amount Available for
such Remittance Date;
(zz) the Class II B-3 Liquidation Loss Amount, if any, for such
Remittance Date;
(aaa) the Enhancement Payment, if any, for such Remittance Date;
(bbb) the remaining Class II B-3 Principal Balance;
(ccc) the number of and aggregate unpaid principal balance of Group I
and Group II Contracts with payments delinquent 31 to 59, 60 to 89
and 90 or more days, respectively; and
(ddd) the amount of fees payable out of the Trust Fund.
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In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will furnish a report to each Certificateholder of
record at any time during such calendar year as to certain aggregate of
amounts for such calendar year.
Optional Termination
The Agreement provides that on any Remittance Date after the first
Remittance Date on which the sum of the Group I Pool Scheduled Principal
Balance and the Group II Pool Scheduled Principal Balance is less than 10% of
the Cut-off Date Pool Principal Balance, the Company (if it is no longer the
Servicer) and the Servicer will each have the option to repurchase, upon the
Company or the Servicer giving notice mailed no later than the first day of
the month next preceding the month of the exercise of such option, all
outstanding Contracts at a price equal to the greater of (a) the sum of (x)
100% of the outstanding principal balance of each Contract (other than any
Contract as to which the related Manufactured Home has been acquired in
realizing thereon and whose fair market value is included pursuant to clause
(y) below) as of the final Remittance Date, and (y) the fair market value of
such acquired property (as determined by the Company or the Servicer, as the
case may be) and (b) the aggregate fair market value (as determined by the
Company or the Servicer, as the case may be) of all of the assets of the Trust
Fund, plus, in each case, any unpaid interest on the Certificates due on prior
Remittance Dates as well as one month's interest at the rate specified in the
Agreement on the Scheduled Principal Balance of each Contract (including any
Contract as to which the related Manufactured Homes has been repossessed and
not yet disposed of). Notwithstanding the foregoing, the option referred to in
this paragraph shall not be exercisable unless there will be distributed to
the Certificateholders an amount equal to 100% of the outstanding principal
balance of each Certificate plus one month's interest thereon at the related
Remittance Rate, and any previously undistributed shortfalls in interest due
thereon.
The Trustee
The Chase Manhattan Bank, a New York banking corporation, has its
corporate trust offices at 450 West 33rd Street, 15th Floor, New York, New
York 10001. The Company and its affiliates may have commercial transactions
with the Trustee from time to time.
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.
Registration of the Offered Certificates
The Offered Certificates will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests
in the Offered Certificates ("Certificate Owners") will hold their Offered
Certificates through The Depository Trust Company ("DTC") in the United
States, or Cedelbank ("Cedel") or Euroclear (in Europe) if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. The Book-Entry Certificates will be issued in
one or more certificates which equal the aggregate principal balance of the
Offered Certificates and will initially be registered in the name of Cede &
Co., the nominee of DTC. Cedel and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in Cedel's
and Euroclear's names on the books of their respective depositaries which in
turn will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank will act as depositary for
Cedel and The Chase Manhattan Bank will act as depositary for Euroclear (in
such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Investors may hold such beneficial interests in the
Book-Entry Certificates in minimum denominations of $50,000. Except as
described below, no person acquiring a Book-Entry Certificate (each, a
"beneficial owner") will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Offered Certificates will be Cede & Co., as nominee
of DTC. Certificate Owners will not be Certificateholders as that term is used
in the Agreement. Certificate Owners are only permitted to exercise their
rights indirectly through Participants and DTC.
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The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that maintains
the beneficial owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on
the records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the records
of DTC, if the beneficial owner's Financial Intermediary is not a DTC
participant and on the records of Cedel or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Offered Certificates from the Trustee through DTC and DTC
participants. While the Offered Certificates are outstanding (except under the
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.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Offered Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Offered Certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Offered
Certificates, except under the limited circumstances described below. Unless
and until Definitive Certificates are issued, Certificateholders who are not
Participants may transfer ownership of Offered Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer Offered Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Offered
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Offered Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Certificateholders.
Because of time zone differences, credits of securities received in
Cedel or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Such credits or any transactions in
such securities settled during such processing will be reported to the
relevant Euroclear or Cedel Participants on such business day. Cash received
in Cedel or Euroclear as a result of sales of securities by or through a Cedel
Participant (as defined below) or Euroclear Participant (as defined below) to
a DTC Participant will be received with value on the DTC settlement date but
will be available in the relevant Cedel or Euroclear cash account only as of
the business day following settlement in DTC. For information with respect to
tax documentation procedures relating to the Certificates, see "Certain
Federal Income Tax Consequences--REMIC Series--Taxation of Certain Foreign
Investors" and "--Backup Withholding" in the Prospectus and "Global Clearance,
Settlement and Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC is a New York-chartered limited purpose trust company that performs
services for its participants, some of which (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
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or as a nominee for another person. In general, beneficial ownership of
Book-Entry Certificates will be subject to the Rules, as in effect from time
to time.
Cedelbank, 67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg, was
incorporated in 1970 as a limited company under Luxembourg law. Cedel is owned
by banks, securities dealers and financial institutions, and currently has
about 100 shareholders, including U.S. financial institutions or their
subsidiaries. No single entity may own more than five percent of Cedel's
stock.
Cedel is registered as a bank in Luxembourg, and as such is subject to
regulation by the Institute Monetaire Luxembourgeois, "IML", the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Cedel holds securities for its customers ("Cedel Participants") and
facilitates the clearance and settlement of securities transactions by
electronic book-entry transfers between their accounts. Cedel provides various
services, including safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and borrowing. Cedel
also deals with domestic securities markets in several countries through
established depository and custodial relationships. Cedel has established an
electronic bridge with Morgan Guaranty Trust as the Euroclear Operator in
Brussels to facilitate settlement of trades between systems. Cedel currently
accepts over 70,000 securities issues on its books.
Cedel's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Cedel's United States customers are limited to
securities brokers and dealers and banks. Currently, Cedel has approximately
3,000 customers located in over 60 countries, including all major European
countries, Canada, and the United States. Indirect access to Cedel is
available to other institutions which clear through or maintain a custodial
relationship with an account holder of Cedel.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may be settled in any of 29 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities in Euroclear. All securities in Euroclear are held
on a fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear Operator acts under the Terms and
Conditions only on behalf of Euroclear Participants, and has no record of or
relationship with persons holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Remittance Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable DTC participants
in accordance with DTC's normal procedures. Each DTC 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.
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Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede & Co. Distributions
with respect to Certificates held through Cedel or Euroclear will be credited
to the cash accounts of Cedel Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Certain Federal Income Tax Consequences--REMIC Series--Taxation of
Certain Foreign Investors" and "--Backup Withholding" in the Prospectus.
Because DTC can only act on behalf of Financial Intermediaries, the ability of
a beneficial owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the Depository system, or otherwise take actions in
respect of such Book-Entry Certificates, may be limited due to the lack of
physical certificates for such Book-Entry Certificates. In addition, issuance
of the Book-Entry Certificates in book-entry form may reduce the liquidity of
such Certificates in the secondary market since certain potential investors
may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust will be provided to Cede & Co.,
as nominee of DTC, and may be made available by Cede to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating and
affecting the Depository, and to the Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates of such beneficial owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are
taken on behalf of Financial Intermediaries whose holdings include such
Book-Entry Certificates. Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Certificateholder under
the Agreement on behalf of a Cedel Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf
through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Offered Certificates which conflict with
actions taken with respect to other Offered Certificates.
Definitive Certificates will be issued to beneficial owners of the
Book-Entry Certificates, or their nominees, rather than to DTC, only if (a)
DTC or the Company advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as
nominee and depository with respect to the Book-Entry Certificates and the
Company or the Trustee is unable to locate a qualified successor, (b) the
Company, at its sole option, with the consent of the Trustee, elects to
terminate a book-entry system through DTC or (c) after the occurrence of an
Event of Default, beneficial owners having Percentage Interests aggregating
not less than 51% of the Book-Entry Certificates advise the Trustee and DTC
through the Financial Intermediaries and the DTC participants in writing that
the continuation of a book-entry system through DTC (or a successor thereto)
is no longer in the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Offered Certificates among
participants of DTC, Cedel and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
Neither the Company, the Servicer nor the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held
by Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
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,
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and settlement of trades within DTC ("DTC Services"), 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 the 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 of 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 complaint; (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.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
the Offered Certificates will be added to the general funds of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust Fund as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes. The
Senior and Subordinate Certificates will constitute "regular interests" in the
REMIC, and the Class R Certificate will constitute the sole class of "residual
interest" in the REMIC.
Original Issue Discount
The Class I B-1 Certificates will and all other classes of Offered
Certificates may be treated as having been issued with original issue discount
for federal income tax purposes. For purposes of determining the amount and
the rate of accrual of original issue discount and market discount, the
Company intends to assume that there will be prepayments on the Contracts at a
rate equal to 225% of the Prepayment Model (as defined herein) for the Group I
Contracts and 250% of the Prepayment Model for the Group II Contracts. No
representation is made as to whether the Contracts will prepay at that rate or
any other rate. See "Yield and Prepayment Considerations" herein and "Certain
Federal Income Tax Consequences" in the Prospectus.
A reasonable application of the principles of the OID Regulations to the
Floating Rate Certificates generally would be to report all income with
respect to such Certificates as original issue discount for each period,
computing such original issue discount (i) by assuming that the value of the
applicable index with respect to such Certificates will remain constant for
purposes of determining the original yield to maturity of each such Class of
Certificates and projecting future distributions on such Certificates, thereby
treating such Certificates as fixed rate instruments to which the original
issue discount computation rules described in the Prospectus can be applied,
and (ii) by accounting for any positive or negative variation in the actual
value of the applicable index in any period from its assumed value as a
current adjustment to original issue discount with respect to such period. See
"Certain Federal Income Tax Consequences" in the Prospectus.
The Offered Certificates will be treated as regular interests in a REMIC
under section 860G of the Code. Accordingly, the Offered Certificates will be
treated as (i) assets described in section 7701(a)(19)(C) of the Code, and
(ii) "real estate assets" within the meaning of section 856(c)(5)(B) of the
Code, in each case to the extent described in the Prospectus. Interest on the
Offered Certificates will be treated as interest on obligations secured by
mortgages on real property within the meaning of section 856(c)(3)(B) of the
Code to the same extent that the Offered Certificates are treated as real
estate assets. See "Certain Federal Income Tax Consequences" in the
Prospectus.
Effect of Losses and Delinquencies
As described above under "Description of the Certificates," with respect
to each Group of Certificates, the Subordinate Certificates are subordinated
to the Senior Certificates. In the event there are losses or delinquencies on
S-74
<PAGE>
the Contracts in a certain Group, amounts that otherwise would be distributed
on the Subordinate Certificates of such Group may instead be distributed on
the Senior Certificates of such Group. Holders of the Subordinate Certificates
nevertheless will be required to report interest with respect to such
Subordinate Certificates under an accrual method without giving effect to
delays and reductions in distributions on such Certificates attributable to
losses and delinquencies on the Contracts in such Contract Group, except to
the extent it can be established, for tax purposes, that such amounts are
uncollectible. As a result, the amount of income reported by holders of the
Subordinate Certificates in any period could significantly exceed the amount
of cash distributed to such holders in that period. The holders of the
Subordinate Certificates will eventually be allowed a loss (or will be allowed
to report a lesser amount of income) to the extent that the aggregate amount
of distributions on such Certificates is reduced as a result of losses and
delinquencies on the Contracts in the Contract Pool. However, the timing and
character of such losses or reductions in income are uncertain. Although not
entirely clear, it appears that holders of the Subordinate Certificates that
are corporations should in general be allowed to deduct as an ordinary loss
any loss sustained during the taxable year on account of any such Certificates
becoming wholly or partially worthless, and that, in general, holders of
Certificates that are not corporations should be allowed to deduct as
short-term capital loss any loss sustained during the taxable year on account
of any such Certificates becoming wholly worthless. Although the matter is
unclear, non-corporate holders of Certificates may be allowed a bad debt
deduction at such time that the principal balance of any such Certificate is
reduced to reflect realized losses resulting from any liquidated Contracts.
The Internal Revenue Service, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect realized
losses only after all Contracts remaining in the related Trust Fund have been
liquidated or the Certificates have been otherwise retired. Potential
investors and Holders of the Certificates are urged to consult their own tax
advisors regarding the appropriate timing, amount and character of any loss
sustained with respect to such Certificates, including any loss resulting from
the failure to recover previously accrued interest or discount income. Special
loss rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Certificates.
Backup Withholding
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the Trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the IRS, and to each
Offered Certificateholder of record, the amount of interest paid (and OID
accrued, if any) on the Offered Certificates (and the amount of interest
withheld for federal income taxes, if any) for each calendar year, except as
to exempt holders (generally, holders that are corporations, certain
tax-exempt organizations or nonresident aliens who provide certification as to
their status as nonresidents). As long as the only "Class A Certificateholder"
of record is Cede, as nominee for DTC, Certificate Owners and the IRS will
receive tax and other information including the amount of interest paid on
such Certificates owned from Participants and indirect Participants rather
than from the Trustee. (The Trustee, however, will respond to requests for
necessary information to enable Participants, indirect Participants and
certain other persons to complete their reports.) Each non-exempt Certificate
Owner will be required to provide, under penalty of perjury, a certificate on
IRS Form W-9 containing his or her name, address, correct federal taxpayer
identification number and a statement that he or she is not subject to backup
withholding. Should a nonexempt Certificate Owner fail to provide the required
certification, the Participants or indirect Participants (or the Paying Agent)
will be required to withhold 31% of the interest (and principal) otherwise
payable to the holder, and remit the withheld amount to the IRS as a credit
against the holder's federal income tax liability.
Any amounts withheld under the backup withholding rules from a payment
to a Certificate Owner will be deemed distributed to the affected Certificate
Owner for all purposes of the Certificates and the Agreement. In addition, any
such amount would be allowed as a refund or credit against such owner's United
States federal income tax provided that the required information is furnished
to the IRS.
S-75
<PAGE>
Federal Income Tax Consequences to Foreign Investors
The following information describes the United States federal income tax
treatment of holders that are not United States persons ("Foreign Investors").
The term "Foreign Investors" means any person other than (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
treated as a corporation or partnership for United States federal income tax
purposes organized in or under the laws of the United States or any state
thereof or the District of Columbia (other than a partnership that is not
treated as a United States person under any applicable Treasury regulations),
(iii) an estate, the income of which is includible in gross income for United
States federal income tax purposes, regardless of its source or (iv) a trust,
if a court within the United States is able to exercise primary supervision
over the administration of the trust and one or more United States persons
have authority to control all substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in Treasury
regulations, certain trusts in existence on August 20, 1996 which were treated
as United States persons prior to such date that elect to continue to be
treated as United States persons will not be considered a Foreign Investor.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate is
reduced by an applicable treaty). The withholding tax, however, is eliminated
with respect to certain "portfolio debt investments" issued to Foreign
Investors. Portfolio debt investments include debt instruments issued in
registered form for which the United States payor receives a statement that
the beneficial owner of the instrument is a Foreign Investor. The Offered
Certificates will be issued in registered form, therefore if the information
required by the Code is furnished (as described below) and no other exceptions
to the withholding tax exemption are applicable, there will be no withholding
tax on interest paid to a Foreign Investor.
For the Offered Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 signed under
penalty of perjury by the Certificate Owner stating that the Certificate Owner
is a Foreign Investor and providing such Certificate Owner's name and address.
The statement must be received by the withholding agent in the calendar year
in which the interest payment is made, or in either of the two preceding
calendar years.
A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on
the sale, exchange, or redemption of such Offered Certificate, provided that
(i) such gain is not effectively connected with a trade or business carried on
by the Certificate Owner in the United States and (ii) in the case of a
Certificate Owner that is an individual, such Certificate Owner is not present
in the United States for 183 days or more during the taxable year in which
such sale, exchange or redemption occurs and certain other requirements are
met.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New
Regulations attempt to unify certification requirements and modify reliance
standards. The New Regulations will generally be effective for payments made
after December 31, 2000, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
For further information regarding the federal income tax consequences of
investing in the Certificates, see "Certain Federal Income Tax Consequences"
in the Prospectus.
STATE TAX CONSIDERATIONS
The Company makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans that are
subject to ERISA ("Plans") and on persons who are fiduciaries with respect to
such Plans. See "ERISA Considerations" in the Prospectus.
S-76
<PAGE>
Senior Certificates
As discussed in the Prospectus under "ERISA Considerations" and subject
to the limitations discussed thereunder, the Company believes that the
Exemption (as defined in the Prospectus) granted to Prudential Securities
Incorporated and Morgan Stanley &Co. Incorporated (the "Underwriters"), will
apply to the acquisition and holding by Plans of Senior Certificates sold by
the Underwriters and that all conditions of the Exemption other than those
within the control of the investors have been met. See "ERISA Considerations"
in the Prospectus. In addition, as of the date hereof, no obligor with respect
to Contracts included in the Trust Fund constitutes more than five percent of
the aggregate unamortized principal balance of the assets of the Trust Fund.
Employee benefit plans that are governmental plans (as defined in
section 3(32) of ERISA) and church plans (as defined in section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, assets of such
plans may be invested in the Senior Certificates without regard to the ERISA
restrictions described above, subject to applicable provisions of other
federal and state laws.
Any Plan fiduciary who proposes to cause a Plan to purchase Senior
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Internal Revenue Code of 1986, as amended
(the "Code"), of the Plan's acquisition and ownership of Senior Certificates.
Assets of a Plan or individual retirement account should not be invested in
the Senior Certificates unless it is clear that the assets of the Trust Fund
will not be plan assets or unless it is clear that the Exemption or a
prohibited transaction class exemption will apply and exempt all potential
prohibited transactions.
Subordinate Certificates
As discussed in the Prospectus, because the Subordinate Certificates are
subordinated to the Senior Certificates, the Exemption will not apply to the
Subordinate Certificates. See "ERISA Considerations--Subordinated
Certificates" in the Prospectus.
Consequently, no transfer of a Subordinate Certificate shall be
registered unless the prospective transferee provides the Trustee and the
Company with (a) a certification to the effect that (1) such transferee is not
an employee benefit or other plan or arrangement subject to section 406 or
section 407 of ERISA or to section 4975 of the Code; the trustee of any such
plan; a person acting on behalf of any such plan; nor a person using the
assets of any such plan; or (2) if such transferee is an insurance company, it
is purchasing such certificates with funds contained in an "insurance company
general account" (as such term is defined in section V(e) of the Prohibited
Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the purchase and
holding of such certificates are covered under Sections I and III of PTCE
95-60; or (b) an opinion of counsel (a "benefit plan opinion") satisfactory to
the Trustee and the Company, and upon which the Trustee and the Company shall
be entitled to rely, to the effect that the purchase and holding of such
Subordinate Certificate by the prospective transferee will not result in the
assets of the Trust Fund being deemed to be plan assets and subject to the
prohibited transaction provisions of ERISA or the Code and will not subject
the Trustee or the Company to any obligation in addition to those undertaken
by such entities in the Agreement, which benefit plan opinion shall not be an
expense of the Trustee or the Company. Unless such certification or benefit
plan opinion is delivered, Certificate Owners of the Subordinate Certificates
will be deemed to make the representations in clause (a)(1). See "ERISA
Considerations" in the Prospectus.
LEGAL INVESTMENT CONSIDERATIONS
The Class II A-1 and Class II B-1 Certificates will constitute "mortgage
related securities" under the Secondary Mortgage Market Enhancement Act of
1984 and, as such, will be "legal investments" for certain types of
institutional investors to the extent provided in the Act.
The Group I Certificates and the Class II B-2 and Class II B-3
Certificates (the "Non-SMMEA Certificates") will not constitute "mortgage
related securities" under the Secondary Mortgage Market Enhancement Act of
1984. The appropriate characterization of the Non-SMMEA Certificates under
various legal investment restrictions, and thus the ability of investors
subject to these restrictions to purchase Non-SMMEA 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 Non-SMMEA
Certificates will constitute legal investments for them.
S-77
<PAGE>
The Company makes no representations as to the proper characterization
of the Non-SMMEA Certificates for legal investment or financial institution
regulatory purposes, or as to the ability of particular investors to purchase
Non-SMMEA Certificates under applicable legal investment restrictions. The
uncertainties described above (and any unfavorable future determinations
concerning legal investment or financial institution regulatory
characteristics of the Non-SMMEA Certificates) may adversely affect the
liquidity of the Non-SMMEA Certificates. See "Legal Investment Considerations"
in the Prospectus.
CERTIFICATE RATING
It is a condition to the issuance of each Class of Certificates that
they be rated by both Moody's Investors Service ("Moody's") and Fitch IBCA,
Inc. ("Fitch" and, together with Moody's, the "Rating Agencies") the ratings
specified in "Summary Information." The Company has not requested a rating on
the Certificates by any rating agency other than Moody's or Fitch. However,
there can be no assurance as to whether any other rating agency will rate the
Certificates, or if it does, what rating would be assigned by any such other
rating agency. A rating on any or all of the Certificates by certain other
rating agencies, if assigned at all, may be lower than the ratings assigned to
such Certificates by the the Rating Agencies. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time. The rating of the Class I B-2 and Class II B-3
Certificates is based in part on an assessment of CHI's ability to make
payments under the Limited Guarantee. Any change in Moody's or Fitch's
assessment of CHI's ability to make payments under the Limited Guarantee may
result in a reduction of the rating of the Class I B-2 and Class II B-3
Certificates.
UNDERWRITING
Each of the Underwriters has severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
respective principal amounts of the Offered Certificates set forth opposite
its name below.
<TABLE>
<CAPTION>
Principal Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Amount of
Class I A-1 Class I A-2 Class I A-3 Class I A-4 Class I A-5
Underwriter Certificates Certificates Certificates Certificates Certificates
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prudential Securities Incorporated ........ $44,200,000 $29,900,000 $ 27,950,000 $20,935,850 $ 8,508,500
Morgan Stanley &Co. Incorporated .......... 23,800,000 16,100,00 15,050,000 11,273,150 4,581,500
----------- ----------- ------------ ----------- -----------
Total ................................. $68,000,000 $46,000,000 $ 43,000,000 $32,209,000 $13,090,000
<CAPTION>
Principal Principal Principal Principal Principal
Amount of Amount of Amount of Amount of Amount of
Class I M-1 Class I B-1 Class II A-1 Class II B- 1 Class II B-2
Underwriter Certificates Certificates Certificates Certificates Certificates
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prudential Securities Incorporated ........ $ 6,188,000 $ 6,188,000 $ 71,656,000 $10,103,000 $ 5,638,750
Morgan Stanley &Co. Incorporated .......... 3,332,000 3,332,000 38,584,000 5,440,000 3,036,250
----------- ----------- ------------ ----------- -----------
Total ................................... $ 9,520,000 $ 9,520,000 $110,240,000 $15,543,000 $ 8,675,000
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any Offered Certificates are purchased. In the
event of default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the Underwriting Agreement may be terminated.
The Company has been advised that the Underwriters propose initially to
offer the Offered Certificates to
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<PAGE>
certain dealers at the respective offering prices set forth on the cover page
less a selling concession not to exceed the percentage of the Certificate
denomination set forth below, and that the Underwriters may allow and such
dealers may reallow a reallowance discount not to exceed the percentage of the
Certificate denomination set forth below:
Selling Reallowance
Class of Certificate Concession Concession
-------------------- ---------- ---------
Class I A-1 Certificates ................ 0.110% 0.0550%
Class I A-2 Certificates ................ 0.165% 0.0825%
Class I A-3 Certificates ................ 0.200% 0.1000%
Class I A-4 Certificates ................ 0.250% 0.1250%
Class I A-5 Certificates ................ 0.275% 0.1375%
Class I M-1 Certificates ................ 0.330% 0.1650%
Class I B-1 Certificates ................ 0.360% 0.1800%
Class II A-1 Certificates ............... 0.150% 0.0750%
Class II B-1 Certificates ............... 0.300% 0.1500%
Class II B-2 Certificates ............... 0.360% 0.1800%
Until the distribution of the Offered Certificates is completed, rules
of the Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Offered Certificates. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Offered Certificates. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Offered Certificates.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Company nor any of the Underwriters
makes any representation that the Underwriters will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
After the initial public offering of the Offered Certificates, the
public offering price and such concessions may be changed.
Pursuant to the Underwriting Agreement, the Company has agreed to
indemnify the Underwriters against certain liabilities, including civil
liabilities under the Securities Act, or contribute to payments which the
Underwriters may require to make in respect thereof.
The Company has agreed that for a period of 30 days from the date of
this Prospectus Supplement it will not offer or sell publicly any other
manufactured housing contract pass-through certificates without the
Underwriters' consent.
LEGAL MATTERS
The validity of the Offered Certificates will be passed upon for the
Company by Boult, Cummings, Conners & Berry, PLC, Nashville, Tennessee.
Certain legal matters will be passed upon for the Underwriters by Brown & Wood
LLP, New York, New York. The material federal income tax consequences of the
Offered Certificates will be passed upon for the Company by Brown & Wood LLP.
S-79
<PAGE>
Index of Defined Terms
Page
----
21st Century....................................................... S-15
21st Century Contracts............................................. S-15
Accelerated Principal Payment...................................... S-62
Access Financial Contracts......................................... S-27
Agreement.......................................................... S-15
Alternate Credit Enhancement....................................... S-67
APR................................................................ S-5, S-16
Average Sixty-Day Delinquency Ratio................................ S-60
Average Thirty-Day Delinquency Ratio............................... S-60
beneficial owner................................................... S-70
benefit plan opinion............................................... S-77
Bi-weekly Contracts................................................ S-16
Book-Entry Certificates............................................ S-13, S-70
brokerage firm..................................................... S-51
Call Option Date................................................... S-52
Carryover Interest Distribution Amount............................. S-52
Cedel ............................................................. S-70
Cedel Participants................................................. S-72
Certificate Owners................................................. S-70
Certificateholder.................................................. S-70
Change Date........................................................ S-21
CHI................................................................ S-4
Class ............................................................. S-49
Class A Certificateholder.......................................... S-75
Class I A Percentage............................................... S-59
Class I A Principal Balance........................................ S-59
Class I A-1 Certificates........................................... S-49
Class I A-1 Remittance Rate........................................ S-52
Class I A-2 Certificates........................................... S-49
Class I A-2 Remittance Rate........................................ S-52
Class I A-3 Certificates........................................... S-49
Class I A-3 Remittance Rate........................................ S-52
Class I A-4 Certificates........................................... S-49
Class I A-4 Remittance Rate........................................ S-52
Class I A-5 Certificates........................................... S-49
Class I A-5 Remittance Rate........................................ S-52
Class I B Percentage............................................... S-59
Class I B Principal Balance........................................ S-59
Class I B-1 Certificates........................................... S-49
Class I B-1 Remittance Rate........................................ S-52
Class I B-2 Certificates........................................... S-49
Class I B-2 Distribution Amount.................................... S-66
Class I B-2 Floor Amount........................................... S-55
Class I B-2 Principal Liquidation Loss Amount...................... S-67
Class I B-2 Remittance Rate........................................ S-52
Class I M-1 and Class I B Principal Distribution Test.............. S-58
Class I M-1 Certificates........................................... S-49
Class I M-1 Percentage............................................. S-59
Class I M-1 Remittance Rate........................................ S-52
Class II A Percentage.............................................. S-59
Class II A-1 Certificates.......................................... S-49
Class II A-1 Formula Rate.......................................... S-52
Class II A-1 Net Funds Cap Carryover Amount........................ S-60
Class II A-1 Remittance Rate....................................... S-52
Class II B Percentage ............................................. S-59
Class II B Principal Balance....................................... S-59
Class II B Principal Distribution Test............................. S-58
Class II B-1 Certificates.......................................... S-49
Class II B-1 Formula Rate.......................................... S-53
Class II B-1 Net Funds Cap Carryover Amount........................ S-60
Class II B-1 Remittance Rate....................................... S-52
Class II B-2 Certificates.......................................... S-49
S-80
<PAGE>
Page
----
Class II B-2 Formula Rate.......................................... S-53
Class II B-2 Net Funds Cap Carryover Amount........................ S-60
Class II B-2 Remittance Rate....................................... S-52
Class II B-3 Certificates.......................................... S-49
Class II B-3 Distribution Amount................................... S-67
Class II B-3 Formula Rate.......................................... S-53
Class II B-3 Net Funds Cap Carryover Amount........................ S-60
Class II B-3 Principal Liquidation Loss Amount..................... S-67
Class II B-3 Remittance Rate....................................... S-52
Class R Certificate................................................ S-49
Closing Date....................................................... S-4
Code............................................................... S-77
Commission......................................................... S-49
Company............................................................ S-15
Contract Pool...................................................... S-15
Contracts.......................................................... S-4, S-15
Cooperative........................................................ S-72
Cumulative Realized Losses......................................... S-60
Current Realized Loss Ratio........................................ S-60
Cut-off Date....................................................... S-4, S-15
Cut-off Date Pool Principal Balance................................ S-15
Deficiency Event................................................... S-58
Definitive Certificate............................................. S-70
Designations....................................................... S-4
Determination Date................................................. S-50
DTC................................................................ S-70, I-1
DTC Services....................................................... S-74
Due Date........................................................... S-17
Due Period......................................................... S-51
Eligible Institution............................................... S-50
Enhancement Payment................................................ S-66, S-67
ERISA.............................................................. S-76
Escalating Principal Payment Contracts............................. S-16
Euroclear Operator................................................. S-72
Euroclear Participants............................................. S-72
European Depositaries.............................................. S-70
Excess Overcollateralization Amount................................ S-62
FDIC............................................................... S-50
Financial Intermediary............................................. S-71
Fitch.............................................................. S-78
Fixed Rate Certificates............................................ S-4
Floating Rate Certificates......................................... S-4
Foreign Investors.................................................. S-75
Formula Principal Distribution Amount.............................. S-60
Global Securities.................................................. I-1
Gross Margin....................................................... S-21
Group.............................................................. S-49
Group I Available Distribution Amount.............................. S-50
Group I Available Funds Shortfall.................................. S-59
Group I Certificate Account........................................ S-49
Group I Certificates............................................... S-4, S-49
Group I Contracts.................................................. S-4, S-49
Group I Cut-off Date Principal Balance............................. S-17
Group I Monthly Excess Spread...................................... S-59
Group I Monthly Servicing Fee...................................... S-54
Group I Performance Tests.......................................... S-58
Group I Pool Scheduled Principal Balance........................... S-61
Group I Senior Certificates........................................ S-4
Group I Subordinate Certificatees.................................. S-4
Group I Weighted Average Net Contract Rate......................... S-53
Group II Available Distribution Amount............................. S-50
Group II Available Funds Shortfall................................. S-59
Group II Certificate Account....................................... S-49
Group II Certificate Floor Amount.................................. S-57
S-81
<PAGE>
Page
----
Group II Certificates.............................................. S-4, S-49
Group II Contracts................................................. S-4, S-49
Group II Cut-off Date Principal Balance............................ S-21
Group II Monthly Excess Spread..................................... S-59, S-61
Group II Monthly Servicing Fee..................................... S-56
Group II Performance Tests......................................... S-58
Group II Pool Scheduled Principal Balance.......................... S-61
Group II Senior Certificates....................................... S-4
Group II Subordinate Certificates.................................. S-4
IML................................................................ S-72
Index.............................................................. S-21
indirect participating firm........................................ S-51
Industry........................................................... S-73
Initial Class I B-2 Principal Remittance Date...................... S-66
Initial Class II B-3 Principal Remittance Date..................... S-66
Initial Remittance Rates........................................... S-52
Initial Required Overcollateralization Amount...................... S-61
Interest Distribution Amount....................................... S-52
Interest Period.................................................... S-51
Land-and-Home Contracts............................................ S-15
LIBOR.............................................................. S-52
LIBOR Business Day................................................. S-53
Lifetime Cap....................................................... S-21
Lifetime Floor..................................................... S-21
Limited Guarantee.................................................. S-66
Liquidated Contract................................................ S-61, S-65
lookback date...................................................... S-21
Manufactured Homes................................................. S-15
Manufactured Housing Contracts..................................... S-15
Monthly Advances................................................... S-68
Moody's............................................................ S-78
Mortgage Loans..................................................... S-15
Mortgaged Properties............................................... S-15
Net Funds Cap ..................................................... S-53
Net Funds Cap Carryover Amount..................................... S-61
New Regulations.................................................... S-76
Non-SMMEA Certificates............................................. S-77
Offered Certificates............................................... S-4
Overcollateralization.............................................. S-61
Overcollateralization Amount....................................... S-61
Overcollateralization Reduction Amount............................. S-62
Percentage Interest................................................ S-49
Periodic Cap....................................................... S-21
Plans.............................................................. S-76
Pool Scheduled Principal Balance................................... S-61
portfolio debt investments......................................... S-76
prepayment......................................................... S-32
Prepayment Model................................................... S-32
Principal Balance.................................................. S-59
PTCE 95-60......................................................... S-77
Rating Agencies.................................................... S-78
Record Date........................................................ S-50
Relevant Depositary................................................ S-70
REMIC.............................................................. S-74
Remittance Date.................................................... S-4, S-49
Required Class II B Payment........................................ S-59
Rules.............................................................. S-71
Scheduled Principal Balance........................................ S-61
Seller............................................................. S-4
Semi-Monthly Contracts............................................. S-16
Senior Certificates................................................ S-4
Servicer........................................................... S-4
SMMEA.............................................................. S-10, S-13
Subordinate Certificates........................................... S-4
S-82
<PAGE>
Page
----
Systems............................................................ S-73
Telerate Screen Page 3750.......................................... S-53
Terms and Conditions............................................... S-72
Trustee............................................................ S-4
Trust Fund......................................................... S-4, S-49
Underwriters....................................................... S-76
United Contracts................................................... S-15
U.S. Person........................................................ I-3
Value.............................................................. S-17
Vanderbilt......................................................... S-4, S-15
Weighted Average Lifetime Cap...................................... S-60
Year 2000 problems................................................. S-73
S-83
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
Manufactured Housing Contract Senior/ Subordinate Pass-Through Certificates,
Series 1999C (the "Global Securities") will be available only in book-entry
form. Investors in the Global Securities may hold such Global Securities
through any of The Depository Trust Company ("DTC"), Cedel or Euroclear. The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary
trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Certificates will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel
and Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. Investor securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payment in
same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired
value date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
manufactured housing contract pass-through certificates issues in same-day
funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear will instruct the respective Depositary, as the case may be, to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and
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<PAGE>
including the last coupon payment date to and excluding the settlement date,
on the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. Payment will then be made by the respective Depositary of
the DTC Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be system and by the
clearing system, in accordance with its usual procedures, to the Cedel
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back-valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade
fails), the Cedel or Euroclear cash debt will be valued instead as of the
actual settlement date.
Cedel Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit
to them, Cedel Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited
to their accounts. However, interest on the Global Securities would accrue
from the value date. Therefore, in many cases the investment income on the
Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will
depend on each Cedel Participant's or Euroclear Participant's particular cost
of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Cedel Participants or
Euroclear Participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC Participants a cross-market
transaction will settle no differently than a trade between two DTC
Participants.
Trading between Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through
the respective Depositary, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases
Cedel or Euroclear will instruct the respective Depositary, as appropriate, to
deliver the Global Securities to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from
and including the last coupon payment to and excluding the settlement date on
the basis of the actual number of days in such accrual period and a year
assumed to consist of 360 days. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. The payment will then be reflected in the account of the
Cedel Participant or Euroclear Participant the following day, and receipt of
the cash proceeds in the Cedel Participant's or Euroclear Participant's
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Cedel Participant or
Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would instead be valued as of
the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
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<PAGE>
(b) borrowing the Global Securities in the U.S. from a DTC
Participant no later than one day prior to settlement, which would give
the Global Securities sufficient time to be reflected in their Cedel or
Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase from the DTC Participant
is at least one day prior to the value date for the sale to the Cedel
Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of Global
Securities that are non-U.S. Persons can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign Status).
If the information shown on Form W-8 changes, a new Form W-8 must be filed
within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its
conduct of a trade or business in the United States, can obtain an exemption
from the withholding tax by filing Form 4224 (Exemption from Withholding of
Tax on Income Effectively Connected with the Conduct of a Trade or Business in
the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
1001 (Ownership, Exemption or Reduced Rate Certificate). If the treaty
provides only for a reduced rate, withholding tax will be imposed at that rate
unless the filer alternatively files Form W-8. Form 1001 may be filed by the
Certificate Owners or his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Form W-8 and Form 1001 are effective for three
calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a
corporation or partnership for United States federal income tax purposes
organized in or under the laws of the United States or any state thereof or
the District of Columbia or (iii) an estate the income of which is includible
in gross income for United States tax purposes, regardless of its source, or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have authority to control all substantial decisions of the trust. This
summary does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors
are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Global Securities.
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<PAGE>
PROSPECTUS
Vanderbilt Mortgage and Finance, Inc.
Seller and Servicer
Manufactured Housing Contract Pass-Through Certificates
(Issuable in Series)
You should consider the risk factors starting on page 4 of this
prospectus.
The certificates will represent obligations of the related trust and
will not represent any interest in or obligation of Vanderbilt Mortgage and
Finance, Inc. or, unless specified in the prospectus supplement relating to a
series, any of its affiliates. The Certificates will not be insured or
guaranteed by any governmental agency or instrumentality.
This prospectus may not be used to offer or sell any certificates unless
accompanied by a prospectus supplement relating to that series.
We are offering certificates representing primarily an interest in
manufactured housing contracts as further specified in this prospectus and a
prospectus supplement. Vanderbilt Mortgage and Finance, Inc. or a limited
purpose finance subsidiary of Vanderbilt Mortgage and Finance, Inc. will form
a trust for each separate series of certificates, and the trust will issue the
certificates of that series. The certificates of any series may consist of
several different classes. A trust may also issue one or more other interests
in the trust that will not be offered under this prospectus and the related
prospectus supplement.
The right of each class of certificates within a series to receive
payments may be senior or subordinate to the rights of one or more of the
other classes of certificates. In addition, a series of certificates may
include one or more classes which on the one hand are subordinated to one or
more classes of certificates, while on the other hand are senior to one or
more classes of certificates. The rate of principal and interest payments on
the certificates of any class will depend on the priority of payment of that
class and the rate and timing of payments of the related contracts.
The prospectus supplement will list the remittance rate that holders of
certificates will receive for each class in that series. The prospectus
supplement will specify whether the remittance rate will be fixed, variable or
adjustable.
Before the offering of the certificates under this prospectus, there was
no public market for the certificates. The underwriters named in the
prospectus supplement relating to a series may from time to time buy and sell
certificates of that series.
----------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
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May 20, 1999
<PAGE>
IMPORTANT NOTICE ABOUT INFORMATION IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
We tell you about the certificates in two separate documents that
progressively provide more detail: (a) this prospectus, which provides general
information, some of which may not apply to a particular series of
certificates, including your series; and (b) the prospectus supplement related
to the particular terms of your series of certificates.
If the terms of your series of certificates described in the prospectus
supplement varies from this prospectus, you should rely on the information in
your prospectus supplement.
You should rely only on the information contained in this document or
information to which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these securities. The information in this document
may only be accurate on the date of this document.
REPORTS TO HOLDERS OF THE CERTIFICATES
We will provide to the holders of certificates of each series certain
monthly and annual reports concerning the certificates and the related trust
fund. For a more complete description of the reports you will receive, please
read the section entitled "Description of the Certificates -- Reports to
Certificateholders" in the prospectus supplement relating to your series.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with
the Securities and Exchange Commission, including annual, quarterly and
special reports, proxy statements and other information. Vanderbilt Mortgage
and Finance, Inc. and Clayton Homes, Inc. have filed a registration statement
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended. You can read and copy the registration statement, as well as other
filed documents, at the Securities and Exchange Commission's public reference
facilities located at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the public
reference facilities by calling the Securities and Exchange Commission at
1-800-SEC-0330. You may also visit the Securities and Exchange Commission's
web site at http://www.sec.gov to access available filings.
Clayton Homes, Inc. has securities other than the certificates listed on
the New York Stock Exchange. You may inspect reports and other information
concerning those securities at the New York Stock Exchange.
The Securities and Exchange Commission allows us to "incorporate by
reference" some of the information we file with it, which means that we can
disclose important information to you by referring you to those documents. The
information that we incorporate by reference is considered to be part of this
prospectus, and later information that we file with the Securities and
Exchange Commission will automatically update and supersede this information.
With respect to any class of certificates that is supported by a guarantee of
Clayton Homes, Inc., we are incorporating by reference the following documents
into this prospectus and the related prospectus supplement:
o Clayton Homes, Inc.'s Annual Report on Form 10-K for the year ended
June 30, 1998; and
o Clayton Homes, Inc.'s Quarterly Reports on Form 10-Q for the
quarterly periods ending September 30, 1998, December 31, 1998 and
March 31, 1999.
We are also incorporating by reference into this prospectus and the
related prospectus supplement:
o any document filed by Vanderbilt Mortgage and Finance, Inc.
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
and Exchange Act of 1934, as amended, after the date of this
prospectus and prior to the termination of the offering of the
certificates issued by that trust; and
o any document: (i) that relates to a class of certificates supported
by a guarantee of Clayton Homes, Inc. and (ii) that is filed by
Clayton Homes, Inc. pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities and Exchange Act of 1934, as amended, after the date
of this prospectus and prior to the termination of the offering of
the certificates issued by that trust.
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<PAGE>
We will provide to you, upon your written or oral request, without
charge, a copy of any or all of the documents incorporated by reference in
this prospectus (other than certain exhibits to such documents). Please direct
your requests for copies of documents filed by Vanderbilt Mortgage and
Finance, Inc. to its principal executive office at 500 Alcoa Trail, Maryville,
Tennessee 37804, Attention: David Jordan, Secretary, telephone number: (423)
380-3515. Please direct your requests for copies of documents filed by Clayton
Homes, Inc. to its principal executive office at 5000 Clayton Road, Maryville,
Tennessee 37804, Attention: Kevin T. Clayton, President, telephone number:
(423) 380-3000.
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<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase the certificates. You should also consider the risk factors described
in your prospectus supplement.
The contracts may have higher than expected delinquencies, defaults or losses.
Your investment in the certificates may be affected by various factors,
including:
General Economic Conditions. Downturns in regional or local economic
conditions historically have caused increased delinquency, defaults and losses
on manufactured housing contracts. An economic downturn in any region where a
number of the obligors on the contracts are located might cause higher
delinquencies, defaults and losses on the contracts. If delinquencies,
defaults or losses on the contracts are higher than expected, you could suffer
a loss on your investment.
Depreciation in Value of Manufactured Homes. A manufactured home
generally depreciates over time. As a result, the market value of a
manufactured home may decline faster than the outstanding principal balance of
the loan for that home. If the value of the manufactured homes securing the
contracts declines faster than expected, then defaults and losses on the
contracts may rise. If the losses on the contracts are not covered by the
subordination of other classes of certificates, or by another form of credit
enhancement, you will bear all the risk of loss of default by obligors and
will need to look primarily to the value of the manufactured home. The
proceeds from the liquidation of any contract and sale of the related
manufactured home may not be sufficient to cover the outstanding principal and
unpaid interest on the defaulted contract.
Please review "The Trust Fund -- The Contract Pools" in this prospectus
for more detail.
The contracts may be prepaid before their scheduled maturity.
There is a risk that the contracts may be prepaid in full or in part at
any time before their scheduled maturity due to various factors, such as:
o homeowner mobility;
o general and regional economic conditions;
o competition among manufactured housing lenders; and
o prevailing interest rates.
The prepayment experience on manufactured housing contracts varies
greatly and may affect the average life of the certificates. If a contract is
prepaid in full, the interest on the contract will accrue only to the date of
prepayment. If you purchase a certificate at a discount, then slower than
expected prepayments on the contracts will reduce the yield on your
certificate. If you purchase a certificate at a premium, then faster than
expected prepayments on the contracts will reduce the yield on your
certificate. You should not assume that the contracts will prepay at any
particular rate or at a constant rate.
You will also be subject to reinvestment risk in connection with the
average life of your certificates. When prevailing interest rates are lower
than at the time of your investment, prepayments are likely to increase and
the average life of your certificates is likely to decrease. You may only be
able to reinvest the proceeds from your certificates in investments of similar
risk bearing a lower rate of interest than your certificates.
The certificates are not an obligation of Vanderbilt Mortgage and Finance, Inc.
and they are not insured.
The certificates will not represent an interest in, or obligation of,
Vanderbilt Mortgage and Finance, Inc. The certificates are not insured or
guaranteed by the government, any underwriter, Vanderbilt Mortgage and
Finance, Inc. or, unless specified in the related Prospectus Supplement, any
of its affiliates, and will be payable only from amounts collected on the
contracts.
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<PAGE>
The certificates may have limited liquidity.
There is a risk that a secondary market will not develop for the
certificates of any series. There is also a risk that if a secondary market
does develop:
o it may not be sufficiently liquid to allow you to sell your
certificates; and/or
o it may not continue for the term of any series of certificates.
Risks relating to enforceability of the contracts.
The security interest in the manufactured homes may not be perfected. Every
manufactured home contract will be secured by a security interest in either:
o the manufactured home; or
o if it is a land-and-home contract, the mortgage or deed of trust
on the real estate where the manufactured home is permanently
affixed.
State laws, such as the uniform commercial code and motor vehicle
titling statutes, govern the perfection of security interests in manufactured
homes and the enforcement of rights to realize upon the value of manufactured
homes as collateral for the contracts. The steps required to create and
perfect a security interest in a manufactured home vary from state to state.
Certain laws may also limit the servicer's ability to repossess, foreclose or
liquidate the contracts.
Vanderbilt Mortgage and Finance, Inc. will represent and warrant that
each contract is secured by a perfected security interest in a manufactured
home. If we materially breach this representation and warranty with respect to
any contract, we must repurchase the contract, subject to the conditions of
the Pooling and Servicing Agreement. Nevertheless, a failure by Vanderbilt
Mortgage and Finance, Inc. to perfect its security interest in the
manufactured homes securing a number of contracts could cause an increase in
losses on the contracts, and you could suffer a loss on your investment as a
result.
The security interest in the manufactured homes may not have been assigned to
the trustee.
Vanderbilt Mortgage and Finance, Inc. will not:
o amend a certificate of title to a manufactured home to name the
trustee as the lienholder;
o note the trustee's interest on the certificate of title;
o deliver the certificate of title to the trustee; or
o record the assignment to the trustee of the mortgage or deed of
trust securing land-and-home contracts.
As a result, in some states the assignment of the security interest in
the manufactured home, or of the mortgage or deed of trust, to the trustee may
not be effective against our creditors or a trustee in the event we enter
bankruptcy, or the security interest may not be perfected. If Vanderbilt
Mortgage and Finance, Inc. is no longer the servicer and the trustee or a
successor servicer is unable to enforce the security interest in the
manufactured home following a default on a contract, losses on the contracts
would increase, and you could suffer a loss on your investment as a result.
Federal and state consumer protection laws apply to the contracts.
If Vanderbilt Mortgage and Finance, Inc. or the seller of a manufactured
home did not comply with federal or state consumer protection laws with
respect to a contract relating to a manufactured home, the trust fund may be
liable for amounts due under the contracts.
Vanderbilt Mortgage and Finance, Inc. will represent and warrant that
each contract complies with applicable federal and state consumer protection
laws. If we materially breach this representation and warranty with respect to
any contract, we must repurchase the contract, subject to the conditions of
the Pooling and Servicing Agreement. Nevertheless, a failure by Vanderbilt
Mortgage and Finance, Inc. to comply with these laws could cause an increase
in losses on the contracts, and you could suffer a loss on your investment as
a result.
Please review "Certain Legal Aspects of the Contracts" in this
prospectus for more detail.
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<PAGE>
If Vanderbilt Mortgage and Finance, Inc. becomes insolvent, there may be delays
or reductions in distributions on your certificates.
Vanderbilt Mortgage and Finance, Inc. intends that each transfer of
contracts to a trust fund will constitute a sale, rather than a pledge of the
contracts to secure indebtedness. However, if we become a debtor under the
federal bankruptcy code, it is possible that our creditors or a bankruptcy
trustee may argue that the transfer of the contracts was a pledge rather than
a sale. If this position is presented to or accepted by a court, it could
result in a delay in, or reduction of, distributions on your certificates.
The case of Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir.
1993) contains language to the effect that accounts sold by an entity which
subsequently became bankrupt remained property of the debtor's bankruptcy
estate. Although most of the contracts constitute chattel paper rather than
accounts under the Uniform Commercial Code, sales of chattel paper, like sales
of accounts, are governed by the same Article 9 of the Uniform Commercial
Code. If Vanderbilt Mortgage and Finance, Inc. becomes a debtor under the
federal bankruptcy code and a court applies the reasoning of the Octagon court
to chattel paper, you could experience a delay in, or reduction of,
distributions on your certificates.
Subordination may not protect holders of senior certificates from losses.
If the rights of your class of certificates are senior to the rights of
one or more other classes of certificates:
o the protection given to you by subordination may be depleted due to
certain losses on the contracts; and
o any reserve fund established for your series of certificates could
be depleted in certain circumstances.
In either case, shortfalls could affect you as well as the holders of
certificates subordinate to your class of certificates. You should carefully
review the credit risks to be absorbed by your class of certificates on
account of subordination or the timing of the distributions intended to be
made on your class of certificates.
Tennessee Tax Lien May Have Priority Over the Trust Fund
Under Tennessee law, a tax is due in connection with the public
recordation of instruments evidencing indebtedness. Vanderbilt Mortgage and
Finance, Inc. will treat the transfer of the Contracts to each trust fund as a
sale rather than a loan, and therefore we will not pay any tax in respect of
the recordation of instruments evidencing such transfers. Nonpayment or
underpayment of the Tennessee indebtedness tax does not affect or impair the
effectiveness, validity, priority or enforceability of the security interest
created or evidenced by the instrument, but (a) subjects the holder of the
indebtedness to a penalty, in addition to the tax, in the amount of the
greater of $250 or double the unpaid tax due, (b) results in the imposition of
a tax lien in favor of the Tennessee Department of Revenue, in the amount of
any tax and penalties unpaid and owing that attaches to the collateral until
the lien or security interest is released and thereafter attaches to the
proceeds, and (c) precludes the holder of the indebtedness from maintaining an
action on the indebtedness (other than an action limited to the enforcement of
the security interests or lien) against the debtor until the nonpayment is
cured. In such event, and in addition to the statutory disability described
above, collections on the contracts could be applied to pay such tax and
penalty prior to being applied to make distributions on your certificates and
the Tennessee Department of Revenue would have a lien on the contracts prior
to the security interests and liens of the trust fund.
6
<PAGE>
THE TRUST FUND
General
Each Trust Fund will include (i) a Contract Pool (which may consist of
sub-pools), (ii) the amounts held from time to time in trust accounts (each, a
"Certificate Account") maintained by the Trustee pursuant to the Agreement,
and (iii) proceeds from certain hazard insurance policies on individual
Manufactured Homes or Mortgaged Properties, if any, and Manufactured Homes
acquired by repossession, (iv) any letter of credit, limited guarantee of
Clayton Homes, Inc. ("CHI"), surety bond, pool insurance policy, cash reserve
fund or any other form of credit enhancement, or any combination thereof, and
(v) such other property as may be specified in the related Prospectus
Supplement. If so specified in the related Prospectus Supplement, a limited
guarantee of CHI may exist and may not be a part of the Trust Fund.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, containing one Contract Pool (which
may consist of sub-pools) comprised of Contracts having the aggregate
principal balance as of the specified day of the month of the creation of the
pool (the "Cut-off Date") specified in the related Prospectus Supplement.
Holders of Certificates of a Series will have interests only in such Contract
Pool and will have no interest in the Contract Pool created with respect to
any other Series of Certificates.
All of the Contracts will have been originated or purchased by
Vanderbilt Mortgage and Finance, Inc. ("Vanderbilt") or an affiliate of
Vanderbilt in the open market or in privately negotiated transactions,
including transactions with affiliates of Vanderbilt. The following is a brief
description of the Contracts expected to be included in the Trust Fund.
Specific information respecting the Contracts will be provided in the
Prospectus Supplement or in a report on Form 8-K to be filed with the
Securities and Exchange Commission after the initial issuance of such
Certificates. A copy of the Pooling and Servicing Agreement among the Company,
the Trustee and any other party specified in the related Prospectus Supplement
(the "Agreement") with respect to each Series of Certificates will be attached
to the Form 8-K and will be available for inspection at the corporate trust
office of the Trustee specified in the related Prospectus Supplement. A
schedule of the Contracts relating to such Series will be attached to the
Agreement delivered to the Trustee upon delivery of the Certificates.
Whenever in this Prospectus terms such as "Contract Pool," "Trust Fund,"
"Agreement" or "Remittance Rate" are used, those terms respectively apply,
unless the context otherwise indicates, to one specific Contract Pool, Trust
Fund, each Agreement and the Remittance Rate applicable to the related Series
of Certificates.
The Contract Pools
Each pool of Contracts with respect to a Series of Certificates (the
"Contract Pool") will consist primarily of manufactured housing installment
sales contracts and installment loan agreements and may include modular home
installment sales contracts and installment loan agreements (collectively, the
"Manufactured Housing Contracts") originated by either Vanderbilt, a
manufactured housing dealer or a lender in the ordinary course of business and
purchased by Vanderbilt. The Contracts will be conventional manufactured
housing contracts or contracts insured by the FHA or partially guaranteed by
the VA. Each Manufactured Housing Contract will be secured by a new or used
Manufactured Home or Modular Home and, in certain instances, by a mortgage or
deed of trust on real estate to which the Manufactured Home is permanently
affixed (the "Land-and-Home Contracts"). Each Contract secured by a Modular
Home and some of the Contracts secured by a Manufactured Home may be further
secured by a mortgage or deed of trust on real estate. Except as otherwise
specified in the related Prospectus Supplement, the Contracts will be fully
amortizing and will bear interest at a fixed or variable annual percentage
rate (the "Contract Rate") or at a Contract Rate which steps up on a
particular date (a "step-up rate").
If so specified in the Prospectus Supplement, the Contract Pool will
include notes or other evidences of indebtedness (the "Mortgage Loans")
secured by a mortgage or deed of trust on one-to-four family residential
properties (the "Mortgaged Properties"). The Mortgage Loans were originated or
acquired by Vanderbilt in the ordinary course of business.
Vanderbilt or, if specified in the related Prospectus Supplement, a
limited purpose finance subsidiary of Vanderbilt organized and established by
Vanderbilt (the "Company"), as seller of the Contracts, 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
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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 [this] chapter."
For each Series of Certificates, the Company will assign the Contracts
constituting the Contract Pool to the trustee named in the related Prospectus
Supplement (the "Trustee"). Vanderbilt, as Servicer (in such capacity referred
to herein as the "Servicer"), will service the Contracts pursuant to the
Agreement. See "Description of the Certificates -Servicing." Unless otherwise
specified in the related Prospectus Supplement, the contract documents
relating to Manufactured Housing Contracts will be held for the benefit of the
Trustee by the Servicer and the principal documents relating to Mortgage Loans
and Land-and-Home Contracts will be delivered to the Trustee or a custodian
for the benefit of the Trustee.
Each Contract Pool will be composed of Contracts bearing interest at the
annual fixed and/or variable Contract Rates and/or step-up rates specified in
the Prospectus Supplement. The Monthly Payments for Contracts bearing interest
at a step-up rate (sometimes referred to herein as "step-up rate Contracts")
will increase on the dates on which the Contract Rates are stepped up. Each
registered holder of a Certificate will be entitled to receive periodic
distributions, which will typically be monthly, of all or a portion of
principal on the underlying Contracts or interest on the principal balance of
such Certificate at the Remittance Rate, or both.
The related Prospectus Supplement will disclose in summary form for the
Contracts contained in the related Contract Pool, among other things, the year
of origination; the range and the weighted average of Contract Rates; the
range of Loan-to-Value Ratios; the range and average of outstanding principal
balances as of the Cut-off Date; the weighted average term to scheduled
maturity as of origination and as of the Cut-off Date; the geographic location
of the Manufactured Homes securing the Contracts; the percentage and amount of
Contracts secured by new or used Manufactured Homes; the aggregate principal
balance of the Contracts; and the last maturity date of any Contract. The
Trust Fund may include monies on deposit in a trust account (the "Pre-Funding
Account") to be established with the Trustee, which would be used to purchase
additional Contracts ("Subsequent Contracts") from the Company during the
funding period specified in the related Prospectus Supplement. The related
Prospectus Supplement will specify the conditions that must be satisfied prior
to any transfer of Subsequent Contracts, including the requisite
characteristics of the Subsequent Contracts.
The Company will make representations and warranties as to the types and
geographical distribution of the Contracts included in a Contract Pool and as
to the accuracy in all material respects of certain information furnished to
the Trustee in respect of each such Contract. Upon a breach of any
representation or warranty that materially and adversely affects the interests
of the Certificateholders in a Contract, the Company will be obligated either
to cure the breach in all material respects, to purchase the Contract or to
substitute another Contract as described below. This repurchase or
substitution obligation constitutes the sole remedy available to the
Certificateholders or the Trustee for a breach of a representation or warranty
by the Company. See "Description of the Certificates -- Conveyance of
Contracts."
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of
each Series of Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts, cost of carrying the
Contracts until sale of the related Certificates and to pay other expenses
connected with pooling the Contracts and issuing the Certificates.
VANDERBILT MORTGAGE AND FINANCE, INC.
Vanderbilt was incorporated in 1977 in the State of Tennessee. As of
June 30, 1998, Vanderbilt had total assets of approximately $936 million and
stockholder's equity of approximately $254 million. Vanderbilt, an indirect
subsidiary of Clayton Homes, Inc. ("CHI"), is engaged in the business of,
among other things, purchasing, originating, selling and servicing installment
sales contracts and installment loan agreements for manufactured
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housing and modular housing. CHI, through its affiliates, manufactures and
sells manufactured homes and modular homes, and owns, manages and markets
manufactured housing communities. Vanderbilt's principal office is located at
500 Alcoa Trail, Maryville, Tennessee 37804, telephone number (423) 380-3515.
An affiliate of CHI acts as an insurance broker for certain types of
insurance, including hazard and credit life insurance policies, some of which
may cover certain of the Contracts. Other affiliates of CHI reinsure hazard
and credit life insurance policies, including policies that may cover certain
of the Contracts. Two separate indirect subsidiaries of CHI, Vanderbilt Life
and Casualty Insurance Co., Ltd. and Vanderbilt Property and Casualty
Insurance Co., Ltd. may act as reinsurer of insurance coverage relating to the
Contracts.
Vanderbilt purchases and originates manufactured housing contracts on an
individual basis from its principal office. Vanderbilt arranges to purchase
manufactured housing installment sales contracts originated by manufactured
housing dealers located in approximately 29 states, primarily southern and
midwestern. Most of these purchases are from dealers indirectly owned by CHI.
Dealers which are not owned by CHI must make an application to Vanderbilt for
dealer approval. Upon satisfactory results of Vanderbilt's investigation of
the dealer's creditworthiness and general business reputation, Vanderbilt and
the dealer enter into a dealer agreement.
In addition to purchasing manufactured housing contracts from dealers on
an individual basis, Vanderbilt makes bulk purchases of manufactured housing
contracts and services on behalf of other owners of manufactured housing
contracts that were not originally purchased or originated by Vanderbilt.
These purchases may be from, and these servicing arrangements may be made with
respect to, the portfolios of other lenders or finance companies, the
portfolios of governmental agencies or instrumentalities or the portfolios of
other entities that purchase and hold manufactured housing contracts.
Vanderbilt is actively seeking arrangements by which it would service
and/or acquire manufactured housing contracts originated by other lenders.
Vanderbilt's management currently anticipates it will only seek servicing
responsibilities which relate to manufactured housing contracts.
UNDERWRITING POLICIES
General
Customers desiring to obtain financing from Vanderbilt complete a credit
application form. In the case of those dealers owned by CHI, the manager
initially evaluates the application and then forwards it to Vanderbilt for
consideration. In the case of dealers that are not owned by CHI, the
application is transmitted to Vanderbilt for consideration.
Credit applications are then evaluated by Vanderbilt's credit officers.
With respect to those customers determined to be creditworthy, Vanderbilt
requires a down payment in the form of cash, the trade-in value of a
previously owned manufactured home, and/or the estimated value of equity in
real property pledged as additional collateral. For previously owned homes,
the trade-in allowance accepted by the dealer must be consistent with the
value of such home determined by Vanderbilt in light of current market
conditions. The value of real property pledged as additional collateral is
estimated by personnel of the dealer, who are not appraisers but are familiar
with the area in which the property is located. The minimum amount of the down
payment is typically 5% of the purchase price. The purchase price includes the
stated cash sale price of the manufactured home, sales or other taxes and
certain fees and set-up costs. The balance of the purchase price and certain
insurance premiums (including up to five years of premiums on required hazard
insurance) are financed by an installment sales contract providing for a
purchase money security interest in the manufactured home and a mortgage on
real property, if any, pledged as additional collateral. Normally, the
contracts originated by Vanderbilt provide for equal monthly payments,
generally over a period of five to thirty years at fixed rates of interest.
Vanderbilt's underwriting guidelines generally require that each
applicant's credit history, residence history, employment history and income
to debt payment ratios be examined. There are no requirements on the basis of
which, if met, credit is routinely approved; or if they are not met, credit is
routinely denied. If in the judgment of Vanderbilt's credit manager an
applicant does not meet minimum underwriting criteria, there generally must be
compensating higher ratings with respect to other criteria in order for an
applicant to be approved. Credit managers must confirm that the credit
investigation gave a complete and up-to-date accounting of the applicant's
creditworthiness. Credit managers are encouraged to obtain second opinions on
loans for relatively larger dollar amounts or those which, in their judgment,
tend to rank lower in terms of underwriting criteria. Generally, the sum of
the monthly obligation for installment obligations, including the manufactured
home loan payment and monthly
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site costs, should not exceed 50% of the applicant's gross monthly income.
Since January 1989 Vanderbilt has, in addition to the above considerations,
used a credit scoring system to evaluate credit applicants. The credit score
of an applicant is used as a further guide in determining whether to extend
credit to the applicant. All of the Mortgage Loans originated or acquired by
Vanderbilt are underwritten or reunderwritten by Vanderbilt in a manner
generally consistent with the foregoing guidelines.
In the case of a Contract Pool containing Contracts originated by other
originators and acquired by Vanderbilt ("Acquired Contracts"), the related
Prospectus Supplement will describe such Contracts.
Various Financing Terms
In addition to level payment, fixed rate contracts, Vanderbilt offers
various other financing arrangements. Vanderbilt has developed financing
options such as contracts with a 7 year term (compared to the industry norm of
15 to 30 years), which provides financing to its customers at a relatively low
cost. In January 1990, Vanderbilt introduced a bi-weekly payment contract
which provides for 26 payments a year, which are made by electronically
debiting the purchaser's checking account. In 1989, Vanderbilt began
originating variable rate Contracts which provide for periodic Contract Rate
adjustments, In general, the Contract Rate equals the sum of a fixed margin
and an index rate. Vanderbilt's originations of variable rate Contracts has
increased from relatively few prior to 1994 to a high of 8,493 originations
with an aggregate dollar amount of approximately $282 million in fiscal 1998.
In 1996, Vanderbilt introduced contracts with financing terms which
provide for an annual increase in monthly payments over the first five years
of the term of the Contracts (the "Escalating Principal Payment Contracts").
An Escalating Principal Payment Contract provides initially for lower monthly
payments than if the contract were of a shorter term. Each year for a period
of five years, the term of the Escalating Principal Payment Contract
automatically converts to a shorter term, and the monthly payment increases
accordingly. At year six, the monthly payment increases to a level monthly
payment which fully amortizes the remaining principal over a specified term
which is shorter than the original term of the Escalating Principal Payment
Contract. There are no periods in which the Escalating Principal Payment
Contracts have negative amortization.
In 1998, Vanderbilt introduced contracts which provide for Contract
Rates that periodically increase over a certain period of time (the "Step-up
Rate Contracts"). Step-up Rate Contracts provide for periodic increases in the
applicable interest rate at the end of certain intervals during the term of
the Contracts, including at the end of each twelve month interval during the
first three years following origination and at the end of each six month
interval during the first eighteen months following origination. After the
applicable interest rate increase period, the Contract Rates are fixed. The
total amount and principal portion of each monthly payment that is due on a
Step-up Rate Contract at the time of each adjustment to its Contract Rate will
be determined on a basis that would cause the Contract (which bear interest at
an increased rate after such adjustment) to be fully amortized over its
remaining term on a level payment basis. There are no periods in which the
Step-up Rate Contracts have negative amortization.
During the last six fiscal years, Vanderbilt has become the most
important source of financing for purchasers of CHI's homes. In fiscal 1988,
Vanderbilt originated 5,692 contracts, in fiscal 1993, Vanderbilt originated
10,880 contracts, in fiscal 1994, Vanderbilt originated 12,401 contracts, in
fiscal 1995, Vanderbilt originated 13,857 contracts, in fiscal 1996,
Vanderbilt originated 16,910 contracts and in fiscal 1997, Vanderbilt
originated 21,691 contracts. For fiscal year 1998, Vanderbilt originated
24,304 contracts. At June 30, 1998, Vanderbilt was servicing approximately
126,000 contracts and an aggregate dollar amount of approximately $2.9
billion, of which Vanderbilt either originated, purchased from dealers or
acquired from other lenders approximately 108,000 contracts with an aggregate
dollar amount of approximately $2.6 billion. Vanderbilt expects it will
continue to originate a significant portion of the financing for purchasers of
homes sold by CHI owned retail centers, consistent with the overall level of
CHI's retail sales.
YIELD CONSIDERATIONS
The Remittance Rates and the weighted average Contract Rate of the
Contracts relating to each Series of Certificates will be set forth in the
related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
monthly accrual of interest on a Contract is calculated at one-twelfth of the
product of the Contract Rate and the principal balance outstanding on the
scheduled payment date for such Contract in the preceding month. Unless
otherwise specified in the related Prospectus Supplement, the Remittance Rate
with respect to each Certificate will be calculated similarly.
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The Prospectus Supplement for each Series will indicate that a lower
rate of principal prepayments than anticipated would negatively affect the
total return to investors of any Class or such sub-class of Certificates that
is offered at a discount to its principal amount, and a higher rate of
principal prepayments than anticipated would negatively affect the total
return to investors of any such Class or sub-class of Certificates that is
offered at a premium to its principal amount or without any principal amount.
If a Series of Certificates contains Classes or sub-classes of
Certificates entitled to receive distributions of principal or interest or
both, in a specified order other than as a specified percentage of each
distribution of principal or interest or both, the Prospectus Supplement will
set forth information, measured relative to a prepayment standard or model
specified in such Prospectus Supplement, with respect to the projected
weighted average life of each such Class or sub-class and the percentage of
the original Stated Balance of each such Class or sub-class that would be
outstanding on specified Remittance Dates for such Series based on the
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Contracts in the related Trust Fund are made at rates
corresponding to the various percentage of such prepayment standard or model.
MATURITY AND PREPAYMENT CONSIDERATIONS
Maturity
Unless otherwise specified in the related Prospectus Supplement, the
Contracts will have maturities at origination of not more than 30 years.
Prepayment Considerations
Contracts generally may be prepaid in full or in part without penalty.
Based on Vanderbilt's experience with the portfolio of manufactured housing
contracts which it services, Vanderbilt anticipates that a number of the
contracts will be prepaid prior to their maturity. A number of factors,
including homeowner mobility, general and regional economic conditions,
competition among manufactured housing lenders and prevailing interest rates,
may influence prepayments. The refinancing of any Contract will result in a
prepayment in full of such Contract. Declining interest rates and certain
other factors may result in an increased number of refinancings which would
affect the average life of the Certificates. In addition, the repurchase of
Contracts on account of certain breaches of representations and warranties in
the Agreement have the effect of prepaying such Contracts. Most of the
Contracts contain a "due-on-sale" clause that would permit the Servicer to
accelerate the maturity of a Contract upon the sale of the related
Manufactured Home. In the case of those Contracts that do contain due-on-sale
clauses, the Servicer may permit assumptions of such Contracts if the
purchaser of the related Manufactured Home satisfies the Vanderbilt's
then-current underwriting standards.
Information regarding the prepayment model or any other rate of assumed
prepayment, as applicable, will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
See "Description of the Certificates -- Termination of the Agreement"
for a description of the Company's or the Servicer's option to repurchase the
Contracts comprising part of a Trust Fund when the aggregate outstanding
principal balance of such Contracts is less than a specified percentage of the
initial aggregate outstanding principal balance of such Contracts as of the
related Cut-off Date. See also "The Trust Fund -- The Contract Pools" for a
description of the obligations of the Company to repurchase a Contract in case
of a breach of a representation or warranty relative to such Contract.
DESCRIPTION OF THE CERTIFICATES
The Certificates of one or more series (each, a "Series") may be offered
and sold from time to time under this Prospectus and a Prospectus Supplement.
Each Series of Certificates will be issued pursuant to a separate pooling and
servicing agreement (each, an "Agreement") to be entered into among the
Company, as Seller, Vanderbilt, as Servicer, the trustee named in the related
Prospectus Supplement (the "Trustee") and such other parties, if any, as are
described in the applicable Prospectus Supplement. The following summaries
describe certain provisions expected to be common to each Agreement and the
related Certificates, but do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, the provisions of the
related Agreement and the description set forth in the related Prospectus
Supplement. Section references, if any, contained herein refer to sections of
the form of Agreement filed as an exhibit to the Registration Statement of
which this Prospectus is a part
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(the "Registration Statement"). The portions of such sections described herein
may be contained in different numbered sections in the actual Agreement
pursuant to which any Series of Certificates is issued. The provisions of the
form of Agreement filed as an exhibit to the Registration Statement that are
not described herein may differ from the provisions of any actual Agreement.
The material differences will be described in the related Prospectus
Supplement. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the form of Agreement filed as an
exhibit to the Registration Statement.
General
The Certificates may be issued in one or more Classes or sub-classes
(each referred to in this Prospectus as a "Class"). If the Certificates of a
Series are issued in more than one Class, the Certificates of all or less than
all of such Classes may be sold pursuant to this Prospectus, and there may be
separate Prospectus Supplements relating to one or more of such Classes so
sold. Any reference herein to the Prospectus Supplement relating to a Series
comprised of more than one Class should be understood as a reference to each
of the Prospectus Supplements relating to the Classes sold hereunder. Any
reference herein to the Certificates of a Class should be understood to refer
to the Certificates of a Class within a Series, the Certificates of a
sub-class within a Series or all of the Certificates of a single-Class Series,
as the context may require.
The Certificates of each Series will be issued in fully registered form
only and will represent the interest specified in the related Prospectus
Supplement in a separate trust fund (the "Trust Fund") created pursuant to the
related Agreement. The Trust Fund will be held by the Trustee for the benefit
of the Certificateholders. Each Trust Fund will generally include (i)
Contracts (the "Contract Pool") which are subject to the Agreement from time
to time, (ii) amounts held in the Certificate Account from time to time and
(iii) proceeds from certain hazard insurance on individual Manufactured Homes,
Modular Homes or Mortgaged Properties (or the related real estate, in the case
of Land-and-Home Contracts) acquired by repossession, and may include a letter
of credit, limited guarantee of CHI, surety bond, pool insurance policy, cash
reserve fund or any other form of credit enhancement, or any combination
thereof. Except as otherwise specified in the related Prospectus Supplement,
the Certificates will be freely transferable and exchangeable at the corporate
trust office of the Trustee at the address set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange or
transfer of Certificates, but the Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge.
Ownership of each Contract Pool may be evidenced by one or more classes
of Certificates, each representing the interest in the Contract Pool specified
in the related Prospectus Supplement. One or more Classes of Certificates
evidencing interests in Contracts may be Subordinated Certificates, evidencing
the right of the holders thereof to receive any or a portion of distributions
of principal or interest or both on the Contracts subordinate to the rights of
the holders of other Classes of Certificates ("Senior Certificates") as
provided in the related Prospectus Supplement. If a Series of Certificates
contains more than one Class of Subordinated Certificates, distributions and
losses will be allocated among such Classes in the manner described in the
Prospectus Supplement.
A Series of Certificates may consist of Classes of Certificates
evidencing the right to receive distributions of principal or interest or both
in the order specified in the related Prospectus Supplement. A Class of
Certificates of a Series may be divided into two or more sub-classes. The
related Prospectus Supplement will specify whether a Class has been so divided
and the terms of each sub-class. The holders of each sub-class of a Class of
Certificates will be entitled to the percentages (which may be 0%) of
principal or interest payments or both on the related Contracts as specified
in the related Prospectus Supplement. The related Prospectus Supplement will
specify the minimum denomination or initial principal amount of Contracts
evidenced by a single Certificate of each Class of Certificates of a Series (a
"Single Certificate").
Distributions of principal and interest on the Certificates will be made
on the payment dates set forth in the related Prospectus Supplement (each, a
"Remittance Date") to the persons in whose names the Certificates are
registered at the close of business on the related record date specified in
the related Prospectus Supplement (the "Record Date"). Distributions will be
made by check mailed to the address of the person entitled thereto as it
appears on the Certificate Register, or, to the extent described in the
related Agreement, by wire transfer, except that the final distribution in
retirement of Certificates will be made only upon presentation and surrender
of the Certificates at the office or agency of the Trustee specified in the
final distribution notice to Certificateholders.
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Global Certificates
The Certificates of a Class may be issued in whole or in part in the
form of one or more global certificates (each, a "Global Certificate") that
will be deposited with, or on behalf of, and registered in the name of a
nominee for, a depositary (the "Depositary") identified in the related
Prospectus Supplement. The description of the Certificates contained in this
Prospectus assumes that the Certificates will be issued in definitive form. If
the Certificates of a Class are issued in the form of one or more Global
Certificates, the term "Certificateholder" should be understood to refer to
the beneficial owners of the Global Certificates, and the rights of such
Certificateholders will be limited as described under this subheading.
Global Certificates will be issued in registered form. Unless and until
it is exchanged in whole or in part for Certificates in definitive form, a
Global Certificate may not be transferred except as a whole by the Depositary
for such Global Certificate to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary or any such nominee to a successor of such Depositary or a
nominee of such successor.
The specific terms of the depositary arrangement with respect to any
Certificates of a Class will be described in the related Prospectus
Supplement. It is anticipated that the following provisions will apply to all
depositary arrangements:
Upon the issuance of a Global Certificate, the Depositary for such
Global Certificate will credit, on its book-entry registration and transfer
system, the respective denominations of the Certificates represented by such
Global Certificate to the accounts of institutions that have accounts with
such Depositary ("participants"). Ownership of beneficial interests in a
Global Certificate will be limited to participants or persons that may hold
interests through participants. Ownership of beneficial interests in such
Global Certificate will be shown on, and the transfer of that ownership will
be effected only through, records maintained by the Depositary for such Global
Certificate or by participants or persons that hold through participants. The
laws of some states require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Certificate.
So long as the Depositary for a Global Certificate, or its nominee, is
the owner of such Global Certificate, such Depositary or such nominee, as the
case may be, will be considered the sole owner or holder of the Certificates
represented by such Global Certificate for all purposes under the Agreement
relating to such Certificates. Except as set forth below, owners of beneficial
interests in a Global Certificate will not be entitled to have Certificates of
the Series represented by such Global Certificate registered in their names,
will not receive or be entitled to receive physical delivery of Certificates
of such Series in definitive form and will not be considered the owners or
holders thereof under the Agreement governing such Certificates.
Distributions or payments on Certificates registered in the name of or
held by a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner for the holder of the
Global Certificate representing such Certificates. In addition, all reports
required under the applicable Agreement to be made to Certificateholders (as
described below under "Reports to Certificateholders") will be delivered to
the Depositary or its nominee, as the case may be. None of the Company, the
Servicer, the Trustee or any agent thereof (including any applicable
Certificate Registrar or Paying Agent) will have any responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interest in a Global Certificate or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for providing reports to the related beneficial owners.
The Company expects that the Depositary for Certificates of a Class,
upon receipt of any distribution or payment in respect of a Global
Certificate, will credit immediately participants' accounts with payments in
amounts proportionate to their respective beneficial interest in such Global
Certificate as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in
such Global Certificate held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in "street name," and
will be the responsibility of such participants.
If a Depositary for Certificates of a Class is at any time unwilling or
unable to continue as Depositary and a successor depositary is not appointed
by or on behalf of the Company within the time period specified in the
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Agreement, the Company will cause to be issued Certificates of such Class in
definitive form in exchange for the related Global Certificate or
Certificates. In addition, the Company may at any time and in its sole
discretion determine not to have any Certificates of a Class represented by
one or more Global Certificates and, in such event, will cause to be issued
Certificates of such Class in definitive form in exchange for the related
Global Certificate or Certificates. Further, if the Company so specifies with
respect to the Certificates of a Class, an owner of a beneficial interest in a
Global Certificate representing Certificates of such Class may, on terms
acceptable to the Company and the Depositary for such Global Certificate,
receive Certificates of such Class in definitive form. In any such instance,
an owner of a beneficial interest in a Global Certificate will be entitled to
physical delivery in definitive form of Certificates of the Class represented
by such Global Certificate equal in denominations to such beneficial interest
and to have such Certificates registered in its name.
Conveyance of Contracts
The Company will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Company in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies
on the related Manufactured Homes, Modular Homes or Mortgaged Properties, if
any, all documents contained in the Contract files, Land-and-Home Contract
files or Mortgage Loan files, as applicable, and all proceeds derived from any
of the foregoing. On behalf of the Trust Fund, as the issuer of the related
Series of Certificates, the Trustee, concurrently with such conveyance, will
execute and deliver the Certificates to the order of the Company. The
Contracts will be as described on a list attached to the Agreement. Such list
will include the current amount of monthly payments due on each Contract as of
the date of issuance of the Certificates and the Contract Rate on each
Contract. Such list will be available for inspection by any Certificateholder
at the principal executive office of the Servicer. Prior to the conveyance of
the Contracts to the Trustee, the Company's operations department will
complete a review of all of the Contract files, Land-and-Home Contract files
and Mortgage Loan files, as applicable, including the certificates of title
to, or other evidence of a perfected security interest in, the Manufactured
Homes, confirming the accuracy of the list of Contracts delivered to the
Trustee. Any Contract discovered not to agree with such list in a manner that
is materially adverse to the interests of the Certificateholders will be
repurchased by the Company or replaced with another Contract, or, if the
discrepancy relates to the unpaid principal balance of a Contract, the Company
may deposit cash in the separate account maintained at an Eligible Institution
in the name of the Trustee (the "Certificate Account") in an amount sufficient
to offset such discrepancy.
The Agreement will designate the Servicer as custodian to maintain
possession, as the Trustee's agent, of the Contracts and any other documents
related to the Manufactured Homes or Modular Homes (other than the principal
documents relating to Land-and-Home Contracts and Mortgage Loans). To
facilitate servicing and save administrative costs, the documents will not be
physically segregated from other similar documents that are in the Company's
possession. In order to give notice of the right, title and interest of the
Certificateholders to the Contracts, the Company will cause a UCC-1 financing
statement to be executed and filed by the Company identifying the Company as
the seller and the Trustee as the buyer of the Contracts, and the Company's
accounting records and computer systems will also reflect such sale and
assignment. In addition, within one week after the initial delivery of the
Certificates, the Contracts will be stamped to reflect their assignment to the
Trustee. However, if through fraud, negligence or otherwise, a subsequent
purchaser were able to take physical possession of the Contracts without
knowledge of the assignment, the Trustee's interest in the Contracts could be
defeated. See "Risk Factors -- Risks relating to enforceability of the
contracts." Unless otherwise specified in the Prospectus Supplement, the
Agreement will designate the Trustee or another independent custodian, as the
Trustee's agent, to maintain possession of the principal documents relating to
all Land-and-Home Contracts and Mortgage Loans.
In general, and except as otherwise specified in the related Prospectus
Supplement, the Company will make certain representations and warranties in
the Agreement with respect to each Contract as of the Closing Date, including
that:
(a) as of the Cut-off Date, or the date of origination, if later,
the most recent scheduled payment was made or was not delinquent more
than 59 days (or such other number of days specified in the related
Prospectus Supplement);
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(b) no provision of a Contract has been waived, altered or
modified in any respect, except by instruments or documents contained in
the Contract file, the Land-and-Home Contract file or the Mortgage Loan
file, as applicable;
(c) each Contract is a legal, valid and binding obligation of the
Obligor and is enforceable in accordance with its terms (except as may
be limited by laws affecting creditors' rights generally);
(d) no Contract is subject to any right of rescission, set-off,
counterclaim or defense;
(e) each Contract is covered by hazard insurance described under "--
Servicing -- Hazard Insurance";
(f) each Contract has been originated by a manufactured housing
dealer or lender or Vanderbilt in the ordinary course of such dealer's
or lender's or Vanderbilt's business and, if originated by a
manufactured housing dealer or other lender, was purchased by the
Vanderbilt in the ordinary course of business;
(g) no Contract was originated in or is subject to the laws of any
jurisdiction whose laws would make the transfer of the Contract or an
interest therein to the Trustee or a separate trustee pursuant to the
Agreement or pursuant to the Certificates unlawful;
(h) each Contract complies with all requirements of law;
(i) no Contract has been satisfied, subordinated in whole or in
part or rescinded and the Manufactured Home securing the Contract has
not been released from the lien of the Contract in whole or in part;
(j) each Manufactured Housing Contract creates a valid and
enforceable first priority security interest in favor of the Company in
the Manufactured Home covered thereby and, with respect to each
Land-and-Home Contract and each Mortgage Loan, the lien created thereby
has been recorded or will be recorded within six months, and such
security interest or lien has been assigned by the Company to the
Trustee;
(k) all parties to each Contract had capacity to execute such
Contract;
(l) no Contract has been sold, assigned or pledged to any other
person and prior to the transfer of the Contracts by the Company to the
Trustee, the Company had good and marketable title to each Contract free
and clear of any encumbrance, equity, loan, pledge, charge, claim or
security interest, and was the sole owner and had full right to transfer
such Contract to the Trustee;
(m) as of the Closing Date there was no default, breach, violation
or event permitting acceleration under any Contract (except for payment
delinquencies permitted by clause (a) above), no event which with notice
and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such
Contract, and the Company has not waived any of the foregoing;
(n) as of the Closing Date there were, to the best of the
Company's knowledge, no liens or claims which have been filed for work,
labor or materials affecting a Manufactured Home or any related
Mortgaged Property securing a Contract, which are or may be liens prior
or equal to the lien of the Contract;
(o) each Contract other than a step-up rate Contract and an
Escalating Payment Contract is:
(i) a fully-amortizing loan with a fixed Contract Rate and
provides for level payments over the term of such Contract or
(ii) a loan with a variable interest rate;
(p) each Contract contains customary and enforceable provisions
such as to render the rights and remedies of the holder thereof adequate
for realization against the collateral of the benefits of the security;
(q) the description of each Contract set forth in the list delivered
to the Trustee is true and correct;
(r) there is only one original of each Contract;
(s) none of the Contracts had a Loan-to-Value Ratio at origination
greater than 100% (or such other percentage amount specified in the
related Prospectus Supplement);
(t) at the time of origination of each Contract or for the
percentage of Contracts set forth in the Prospectus Supplement, the
Obligor was the primary resident of the related Manufactured Home;
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(u) other than the Land-and-Home Contracts or the Mortgage Loans,
if any, the related Manufactured Home is not considered or classified as
part of the real estate on which it is located under the laws of the
jurisdiction in which it is located as would render unperfected or
impair the priority of the security interest in such Manufactured Home,
and as of the Closing Date such Manufactured Home was, to the best of
the Company's knowledge, free of damage and in good repair;
(v) the related Manufactured Home is a "manufactured home" within
the meaning of 42 United States Code, Section 5402(6); and
(w) each Contract is a "qualified mortgage" under Section
860G(a)(3) of the Code and each Manufactured Home is "manufactured
housing" within the meaning of Section 25(e)(10) of the Code.
Under the terms of the Agreement, and subject to the conditions
specified in the preceding paragraph and to the Company's option to effect a
substitution as described in the next paragraph, the Company will be obligated
to repurchase for the Repurchase Price (as defined below) any Contract on the
first business day after the first Determination Date which is more than 90
days after the Company becomes aware, or should have become aware, or the
Company's receipt of written notice from the Trustee or the Servicer, of a
breach of any representation or warranty of the Company in the Agreement that
materially adversely affects the Trust Fund's interest in any Contract if such
breach has not been cured. The "Repurchase Price" for any Contract will be the
remaining principal amount outstanding on such Contract on the date of
repurchase plus accrued and unpaid interest thereon at its Contract Rate to
the date of such repurchase. This repurchase obligation constitutes the sole
remedy available to the Trust Fund and the Certificateholders for a breach of
a representation or warranty under the Agreement with respect to the Contracts
(but not with respect to any other breach by the Company of its obligations
under the Agreement). If a prohibited transaction tax under the REMIC
provisions of the Code is incurred in connection with such repurchase,
distributions otherwise payable to Residual Certificateholders will be applied
to pay such tax. The Company will be required to pay the amount of such tax
that is not funded out of such distributions.
In lieu of purchasing a Contract as specified in the preceding
paragraph, during the two-year period following the Closing Date, the Company
may, at its option, substitute an Eligible Substitute Contract (as defined
below) for the Contract that it is otherwise obligated to repurchase (referred
to herein as the "Replaced Contract"). An "Eligible Substitute Contract" is a
Contract that satisfies, as of the date of its substitution, the
representations and warranties specified in the Agreement, has a Scheduled
Principal Balance that is not greater than the Scheduled Principal Balance of
the Replaced Contract, has a Contract Rate that is at least equal to the
Contract Rate of the Replaced Contract and has a remaining term to scheduled
maturity that is not greater than the remaining term to scheduled maturity of
the Replaced Contract. In the event that more than one Contract is
substituted, the above requirements with respect to Scheduled Principal
Balance, Contract Rate and remaining term to scheduled maturity may be
satisfied on an aggregate or weighted average basis, as applicable. The
Company will be required to deposit in the Certificate Account cash in the
amount, if any, by which the Scheduled Principal Balance of the Replaced
Contract exceeds the Scheduled Principal Balance of the Contract being
substituted. Such deposit will be deemed to be a partial principal prepayment.
Payments on Contracts
Unless otherwise specified in the related Prospectus Supplement, each
Certificate Account will be a trust account established by the Servicer as to
each Series of Certificates or a Group of Certificates within a Series in the
name of the Trustee (i) with a depository institution, the long-term unsecured
debt obligations of which at the time of any deposit therein are rated within
the two highest rating categories or such other rating category as will not
adversely affect the rating assigned to the Certificates by each rating agency
rating the Certificates of such Series, (ii) with the trust department of a
depositary institution, (iii) in an account or accounts the deposits in which
are fully insured by the Federal Deposit Insurance Corporation ("FDIC"), (iv)
in an account or accounts the deposits in which are insured by the FDIC (to
the limits established by the FDIC), the uninsured deposits in which are
otherwise secured such that, as evidenced by an opinion of counsel, the
Certificateholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the depository institution with which the Certificate
Account is maintained or (v) otherwise acceptable to the rating agency without
reduction or withdrawal of the rating assigned to the relevant Certificates.
The collateral eligible to secure amounts in the
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Certificate Account is limited to United States government securities and
other high-quality investments ("Eligible Investments"). A Certificate Account
may be maintained as an interest bearing account, or the funds held therein
may be invested pending each succeeding Remittance Date in Eligible
Investments.
Unless otherwise specified in the related Prospectus Supplement, the
Servicer will deposit in the Certificate Account the following payments and
collections received or made by it subsequent to the Cut-off Date:
(i) all Obligor payments on account of principal, including
principal prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
(iii) all amounts received and retained in connection with the
liquidation of defaulted Contracts, net of liquidation expenses ("Net
Liquidation Proceeds");
(iv) all proceeds received under any hazard or other insurance
policy covering any Contract, other than proceeds to be applied to the
restoration or repair of the Manufactured Home or released to Obligor;
(v) any Advances made as described under "Advances" and certain
other amounts required under the Agreement to be deposited in the
Certificate Account;
(vi) all amounts received from any credit enhancement provided with
respect to a Series of Certificates;
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer, or the Company, or otherwise as
described above or under "Termination" below; and
(viii) all amounts, if any, required to be transferred to the
Certificate Account from a Reserve Fund pursuant to the Agreement.
Distributions on Certificates
Except as otherwise provided in the related Prospectus Supplement, on
each Remittance Date, the Trustee will withdraw from the applicable
Certificate Account and distribute to the Certificateholders of each Class
(other than a Series having a Class of Subordinated Certificates, as described
below), either the specified interest of such Class in the Contract Pool times
the aggregate of all amounts on deposit in the Certificate Account as of the
fifth Business Day preceding the Remittance Date or such other date as may be
specified in the related Prospectus Supplement (the "Determination Date"), or,
in the case of a Series of Certificates comprised of Classes which have been
assigned a Stated Balance, payments of interest and payments in reduction of
the Stated Balance from all amounts on deposit in the Certificate Account as
of the end of the Due Period immediately prior to such Remittance Date, in the
priority and calculated in the manner set forth in the related Prospectus
Supplement, except, in each case: (i) all payments or collections due after
the Due Period preceding the month in which the Remittance Date occurs; (ii)
all scheduled payments of principal and interest due on a date or dates
subsequent to the Due Period preceding the Determination Date; (iii) amounts
representing reimbursement for Advances, such reimbursement being limited, as
described in the related Prospectus Supplement, to amounts received on
particular Contracts as late collections of principal or interest as to which
the Servicer has made an unreimbursed Advance; and (iv) amounts representing
reimbursement for any unpaid Servicing Fee and expenses from Liquidation
Proceeds, condemnation proceeds and proceeds of insurance policies with
respect to the related Contracts. The amount of principal and interest
specified in the related Prospectus Supplement to be distributed to
Certificateholders is referred to herein as the "Certificate Distribution
Amount." The amounts on deposit in the Certificate Account on a Determination
Date, less the amounts specified in (i) through (iv) above, with respect to a
Series of Certificates having a Class of Subordinated Certificates, are
referred to herein as the "Available Distribution Amount."
On each Remittance Date, the Trustee will withdraw the Available
Distribution Amount from the applicable Certificate Account and distribute
such amount to the Certificateholders of each Class or other specified persons
in the amounts and order of priority specified in the related Prospectus
Supplement.
Interest on the Certificates will be paid on the dates specified in the
related Prospectus Supplement (each a "Remittance Date"), commencing on the
date specified in the related Prospectus Supplement. The related Prospectus
Supplement will set forth for each Class or sub-class of Certificates the
interest rate, if any, for each such Class or sub-class or the method of
determining such interest rate. As specified in the related Prospectus
Supplement, Classes of a Series of Certificates or sub-classes within a Class
may be entitled to receive no interest
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or interest which is not proportionate to the principal allocable to such
Certificates. Principal collected on each Contract, including any principal
prepayments, will be passed through on each Remittance Date, unless such
principal has previously been passed through. With respect to a Class or
sub-class of a Series having a Stated Balance, such distributions may be made
in the reduction of the Stated Balance, or in such other amounts as are
specified in the related Prospectus Supplement.
Within the time specified in the Agreement and described in the related
Prospectus Supplement, the Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the related Remittance Date on
account of principal and interest, stated separately, and a statement setting
forth certain information with respect to the Contracts.
If there are not sufficient funds in the Certificate Account to make the
full distribution to Certificateholders described above on any Remittance
Date, the Servicer will distribute the funds available for distribution to the
Certificateholders of each Class in accordance with the respective interests
therein, except that Subordinated Certificateholders, if any, will not,
subject to the limitations described in the related Prospectus Supplement,
receive any distributions until Senior Certificateholders receive the Senior
Distribution Amount plus, to the extent not paid, the aggregate of amounts by
which the Senior Distribution Amount for any Distribution Date exceeded the
amount actually paid on such Remittance Date plus interest at the related
Remittance Rate. Unless otherwise provided in the related Prospectus
Supplement, the difference between the amount which the Certificateholders
would have received if there had been sufficient eligible funds in the
Certificate Account and the amount actually distributed, will be added to the
amount which the Certificateholders are entitled to receive on the next
Remittance Date.
A Class or sub-class of Certificates may be Compound Interest
Certificates on which interest will accrue, but not be paid for the period set
forth in the related Prospectus Supplement.
Special Distributions. To the extent specified in the Prospectus
Supplement relating to a Series of Certificates, one or more Classes or
subclasses of which have been assigned a Stated Balance and having less
frequent than monthly Remittance Dates, such Classes or sub-classes may
receive Special Distributions in reduction of Stated Balance ("Special
Distributions") in any month, other than a month in which a Remittance Date
occurs, if, as a result of principal prepayments on the Contracts in the
related Contract Pool or low reinvestment yields, the Trustee determines,
based on assumptions specified in the related Agreement, that the amount of
cash anticipated to be on deposit in the Certificate Account on the next
Remittance Date for such Series and available to be distributed to the Holders
of the Certificates of such Classes or sub-classes may be less than the sum of
(i) the interest scheduled to be distributed to holders of the Certificates of
such Classes or sub-classes and (ii) the amount to be distributed in reduction
of Stated Balance of such Certificates on such Remittance Date. Any such
Special Distributions will be made in the same priority and manner as
distributions in reduction of Stated Balance would be made on the next
Remittance Date.
Subordinated Certificates and Reserve Fund. The rights of a Class of
Certificateholders of a Series to receive any or a specified portion of
distributions of principal or interest or both with respect to the Contracts,
to the extent specified in the related Agreement and described in the related
Prospectus Supplement, may be subordinated to such rights of other
Certificateholders. The Prospectus Supplement with respect to a Series of
Certificates having a Class of Subordinated Certificates will set forth, among
other things, the extent to which such Class is subordinated (which may
include a formula for determining the subordinated amount or for determining
the allocation of the Available Distribution Amount among Senior Certificates
and Subordinated Certificates), the allocation of losses among the Classes of
Subordinated Certificates (which may include a reduction of the principal
balance of the Classes of Subordinated Certificates in the event of such
losses), the period or periods of such subordination, the minimum subordinated
amount, if any, and any distributions or payments which will not be affected
by such subordination. If specified in the related Prospectus Supplement, the
rights of the Subordinated Certificateholders, to the extent not subordinated,
may be on a parity with those Senior Certificateholders. This subordination
feature is intended to enhance the likelihood of regular receipt by Senior
Certificateholders of the full amount of scheduled monthly payments of
principal and interest due them and to protect the Senior Certificateholders
against losses.
If specified in the related Prospectus Supplement, the protection
afforded to the Senior Certificateholders from the subordination feature
described above will be effected by the preferential right of such
Certificateholders to receive current distributions from the Contract Pool
and, to the extent specified in the related Prospectus Supplement, by the
establishment of a reserve fund (the "Reserve Fund"). The Reserve Fund may be
funded, to the
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extent specified in the related Prospectus Supplement, by one or more of an
initial cash deposit, the retention of specified periodic distributions of
principal or interest or both otherwise payable to Subordinated
Certificateholders, or the provision of a letter of credit, limited guarantee
of CHI, pool insurance policy or any other form of credit enhancement, or any
combination thereof. Unless otherwise specified in the related Prospectus
Supplement, the Reserve Fund will be part of the Trust Fund.
The subordination features and the Reserve Fund described above are
intended to enhance the likelihood of timely payment of principal and interest
and to protect the Senior Certificateholders and, to the extent specified in
the related Prospectus Supplement, Subordinated Certificateholders against
loss. However, in certain circumstances the Reserve Fund could be depleted and
shortfalls could result. If, on a particular date when a distribution is due
such Certificateholders, the aggregate amount of payments received from the
obligors on the Contracts and Advances by the Servicer (as described below),
if any, and from the Reserve Fund of a Series, if any, do not provide
sufficient funds to make full distributions to such Certificateholders of a
Series, the amount of the shortfall may be added to the amount such
Certificateholders are entitled to receive on the next Remittance Date. In the
event the Reserve Fund, if any, is depleted, such Senior Certificateholders
and, to the extent specified in the related Prospectus Supplement,
Subordinated Certificateholders nevertheless will have a preferential right to
receive current distributions from the Contract Pool. Such Certificateholders
will bear their proportionate share of losses realized on Contracts to the
extent such Reserve Fund and subordination feature are exhausted.
Advances
If the amount eligible for distribution to the Certificateholders of a
Series of Certificates (or to Senior Certificateholders only if so specified
in the case of a Series of Certificates having a Class of Subordinated
Certificates) on any Remittance Date is less than the amount which is due such
Certificateholders on such Remittance Date, the related Agreement will provide
that the Servicer, under certain circumstances, will make Advances of cash
from its own funds or from excess funds in the Certificate Account not then
required to be distributed to Certificateholders, for distribution to the
Certificateholders (other than Subordinated Certificateholders) in an amount
equal to the difference between the amount due to them and the amount in the
Certificate Account, eligible for distribution to them pursuant to the
Agreement, but only to the extent such difference is due to delinquent
payments of principal and interest for the preceding Due Period and only to
the extent the Servicer determines such advances are recoverable from future
payments and collections on the Contracts or otherwise, as specified in the
Agreement. The Servicer's obligation to make Advances, if any, may, be limited
in amount and the Servicer may not be obligated to make Advances until all or
a specified portion of the Reserve Fund, if any, is depleted. Advances are
intended to maintain a regular flow of scheduled interest and principal
payments to the Senior Certificateholders, not to guarantee or insure against
losses. Accordingly, any funds so advanced are recoverable by the Servicer out
of amounts received on particular Contracts which represent late recoveries of
principal or interest with respect to which any such Advances were made or
from other funds in the Certificate Account.
Example of Distributions
The following chart sets forth an example of the flow of funds for the
Remittance Date occurring in June 1999 for a Class with a fixed Remittance
Rate in a hypothetical Series of Certificates with a Cut-off Date of April 26,
1999:
April 26, 1999 .............. (A) Cut-off Date.
April 26 to May 25 .......... (B) Due Period. Servicer receives scheduled
payments on the Contracts and any Principal
Prepayments made by Obligors and applicable
interest thereon.
May 31 ...................... (C) Record Date.
June 2 ...................... (D) Determination Date. Distribution amounts
determined.
June 7 ...................... (E) Remittance Date. (Each Remittance Date is the
7th day of each month or, if the 7th day is
not a business day, the next business day.)
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The Original Contract Pool Principal Balance will be the aggregate
Scheduled Principal Balance of the Contracts on April 26, 1999 after deducting
principal payments received before such date. Principal payments received
before April 26, and the accompanying interest payments, are not part of the
Trust Fund and will not be passed through to Certificateholders. Scheduled
payments, Principal Prepayments and Net Liquidation Proceeds may be received
at any time during this period and will be distributed to Certificateholders
on June 7. When a Contract is prepaid in full, interest on the amount prepaid
is collected from the Obligor only to the date of payment. The Available
Distribution Amount for the distribution on June 7 is described under " --
Payments on Contracts" and " - -- Distributions on the Certificates" above.
Distributions on June 7 will be made to Certificateholders of record at the
close of business on May 31. On June 2 (three business days prior to the
Remittance Date), the Servicer will determine the amounts of principal and
interest which will be passed through on June 7 to Certificateholders. On June
7, the amounts determined on June 2 will be distributed to Certificateholders.
If a payment due in the Due Period ending May 25 is received in the Due Period
ending in June, such late payment will be taken into account in determining
the Available Distribution Amount for July 7.
The flow of funds with respect to any Series of Certificates may differ
from the above example, as specified in the related Prospectus Supplement.
Indemnification
Unless otherwise specified in the related Prospectus Supplement, the
Agreement requires the Servicer to defend and indemnify the Trust Fund, the
Trustee (including any agent of the Trustee) and the Certificateholders (which
indemnification will survive any removal of the Servicer as servicer of the
Contracts) against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation (a) arising from third party claims or actions in respect of any
action taken or failed to be taken by the Servicer or a prior owner of
Acquired Contracts or servicer on behalf of such owner with respect to any
Contract or Manufactured Home, (b) any failure by the Servicer to perform its
obligations in compliance with the standard of care set forth in the
Agreement, and (c) for any taxes which may at any time be asserted with
respect to, and as of the date of, the conveyance of the Contracts to the
Trust Fund (but not including any income or franchise taxes or any federal,
state or other tax arising out of the creation of the Trust Fund and the
issuance of the Certificates or distributions with respect thereto).
Unless otherwise specified in the related Prospectus Supplement, the
Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend and indemnify the Trust Fund, the Trustee
and the Certificateholders (which indemnification will survive any removal of
the Servicer as servicer of the Contracts) against any and all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation, in respect of any action
taken by the Servicer with respect to any Contract while it was the Servicer.
Servicing
Pursuant to the Agreement, the Servicer will service and administer the
Contracts assigned to the Trustee as more fully set forth below. The Servicer
will perform diligently all services and duties specified in each Agreement,
in the same manner as prudent lending institutions of manufactured housing
installment sales contracts of the same type as the contracts in those
jurisdictions where the related Manufactured Homes are located or as otherwise
specified in the Agreement. The duties to be performed by the Servicer will
include collection and remittance of principal and interest payments,
collection of insurance claims and, if necessary, repossession. The Agreement
provides that the Servicer may delegate its duties under that agreement to one
or more entities (each a "Subservicer") that agrees to conduct such duties in
accordance with the Agreement. Notwithstanding any such delegation, the
Servicer will continue to be liable for all of its obligations under the
Agreement.
The Servicer will make reasonable efforts to collect all payments called
for under the Contracts and, consistent with the Agreement and any FHA
insurance and VA guaranty, will follow such collection procedures as it
follows with respect to mortgage loans or contracts serviced by it that are
comparable to the Contracts.
Hazard Insurance. The terms of the Agreement will generally require the
Servicer to cause to be maintained with respect to each Contract one or more
Hazard Insurance Policies which provide, at a minimum, the same coverage as a
standard form fire and extended coverage insurance policy that is customary
for manufactured housing
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or one- to-four family residential properties, as applicable, issued by a
company authorized to issue such policies in the state in which the
Manufactured Home, Modular Home or Mortgaged Property is located, and in an
amount which is not less than the maximum insurable value of such Manufactured
Home, Modular Home or Mortgaged Property or the principal balance due from the
Obligor on the related Contract, whichever is less; provided, however, that
the amount of coverage provided by each Hazard Insurance Policy shall be
sufficient to avoid the application of any coinsurance clause contained
therein. When a Manufactured Home or Modular Home's location was, at the time
of origination of the related Contract, within a federally-designated special
flood hazard area, the Servicer shall also cause such flood insurance to be
maintained, which coverage shall be at least equal to the minimum amount
specified in the preceding sentence or such lesser amount as may be available
under the federal flood insurance program. Each 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 Hazard Insurance Policy or Policies,
the Servicer shall pay such premiums out of its own funds, and may add
separately such premium to the Obligor's obligation as provided by the
Contract, but may not add such premium to the remaining principal balance of
the Contract.
The Servicer may maintain, in lieu of causing individual Hazard
Insurance Policies to be maintained with respect to each Manufactured Home,
Modular Home or Mortgaged Property, and shall maintain, to the extent that the
related Contract does not require the Obligor to maintain a Hazard Insurance
Policy with respect to the related Manufactured Home, Modular Home or
Mortgaged Property, one or more blanket insurance policies covering losses on
the Obligor's interest in the Contracts resulting from the absence or
insufficiency of individual Hazard Insurance Policies. Any such blanket policy
shall be substantially in the form and in the amount carried by the Servicer
as of the date of this Agreement. The Servicer shall pay the premium for such
policy on the basis described therein and shall pay any deductible amount with
respect to claims under such policy relating to the Contracts. If the insurer
thereunder shall cease to be acceptable to the Servicer, the Servicer shall
exercise its best reasonable efforts to obtain from another insurer a
placement policy comparable to such policy.
If the Servicer shall have repossessed a Manufactured Home on behalf of
the Trustee, the Servicer shall either (i) maintain, at its expense, hazard
insurance with respect to such Manufactured Home, or (ii) indemnify the
Trustee against any damage to such Manufactured Home prior to resale or other
disposition.
Evidence as to Compliance. Each Agreement will require the Servicer to
deliver to the Trustee a monthly report prior to each Remittance Date, setting
forth certain information regarding the Contract Pool and Certificates of such
Series as is specified in the related Prospectus Supplement. Each such report
to the Trustee will be accompanied by a statement from an appropriate officer
of the Servicer certifying the accuracy of such report and stating that the
Servicer has not defaulted in the performance of its obligations under the
Agreement. The Servicer will deliver to the Trustee an annual report of a
nationally recognized accounting firm stating that such firm has examined
certain documents and records relating to the servicing of manufactured
housing contracts serviced by the Servicer under pooling and servicing
agreements similar to the Agreement and stating that, on the basis of such
procedures, such servicing has been conducted in compliance with the
Agreement, except for any exceptions set forth in such report.
Certain Matters Regarding the Servicer. The Servicer may not resign from
its obligations and duties under an Agreement except upon a determination that
its duties thereunder are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor servicer
has assumed the Servicer's obligations and duties under such Agreement. The
Servicer can only be removed as servicer pursuant to an Event of Termination
as discussed below. Any person with which the Servicer is merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer is a party, or any person succeeding to
the business of the Servicer, will be the successor to the Servicer under the
Agreement so long as such successor services at least $100 million of
manufactured housing contracts.
Each Agreement will also generally provide that neither the Servicer,
nor any director, officer, employee or agent of the Servicer, will be under
any liability to the Trust Fund or the Certificateholders for any action taken
or for restraining from the taking of any action in good faith pursuant to the
Agreement, or for errors in judgment; provided, however, that neither the
Servicer nor any such person will be protected against any liability which
would otherwise be imposed by reason of the failure to perform its obligations
in strict compliance with the standards of care set forth in the Agreement.
The Servicer may, in its discretion, undertake any such action which it may
deem
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necessary or desirable with respect to the Agreement and the rights and duties
of the parties thereto and the interests of the Certificateholders thereunder.
In such event, the legal expenses and costs of such action and any liability
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Servicer will be entitled to be reimbursed therefor out of the
Certificate Account.
Except for certain representations and warranties relating to the
contracts and certain other exceptions, the Servicer's obligations with
respect to the Certificates are limited to its contractual servicing
obligations.
The Servicer shall keep in force throughout the term of this Agreement
(i) a policy or policies of insurance covering errors and omissions for
failure to maintain insurance as required by this Agreement, and (ii) a
fidelity bond. Such policy or policies and such fidelity bond shall be in such
form and amount as is generally customary among persons which service a
portfolio of manufactured housing 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 having a priority equal or senior to the lien of the
related Contract, the Servicer shall advance any such delinquent tax or
charge.
Servicing Compensation and Payment of Expenses. For its servicing of the
Contracts, the Servicer will receive servicing fees ("Servicing Fees") which
include a Monthly Servicing Fee (which the Servicer may assign) for each Due
Period (paid on the next succeeding Remittance Date) which, unless otherwise
stated in the related Prospectus Supplement, will be equal to 1/12th of the
product of 1.25% and the Pool Scheduled Principal Balance for such Remittance
Date.
The Monthly Servicing Fee provides compensation for customary
manufactured housing contract third-party servicing activities to be performed
by the Servicer for the Trust Fund and for additional administrative services
performed by the Servicer on behalf of the Trust Fund. 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
Contract. Administrative services performed by the Servicer on behalf of the
Trust Fund include calculating distributions of Certificateholders and
providing related data processing and reporting services for
Certificateholders and on behalf of the Trustee. Expenses incurred in
connection with the servicing of the Contracts and paid by the Servicer from
its Servicing Fees include, without limitation, payment of fees and expenses
of accountants, payments of all fees and expenses incurred in connection with
the enforcement of Contracts (except Liquidation Expenses) and payment of
expenses incurred in connection with distributions and reports to
Certificateholders. The Servicer will be reimbursed out of the Liquidation
Proceeds of a Liquidated Contract for all ordinary and necessary Liquidation
Expenses incurred by it in realization upon the related Manufactured Home.
So long as the Vanderbilt is the Servicer, the Servicer, in its sole
discretion, may, but is not obligated to, liquidate a defaulted Contract by
depositing into the Certificate Account an amount equal to (i) the outstanding
principal balance of such Contract plus accrued and unpaid interest thereon to
the Due Date in the Due Period in which such deposit is made less (ii) $2,000.
Vanderbilt will not be reimbursed for any Liquidation Expenses incurred in
connection with any such Contract and will retain any liquidation proceeds in
respect thereof. Vanderbilt has such option to liquidate defaulted Contracts
in that manner because such manner of liquidation is more compatible with its
record keeping systems.
As part of its Servicing Fees the Servicer will also be entitled to
retain, as compensation for the additional services provided in connection
therewith, any fees for late payments made by Obligors, extension fees paid by
Obligors for the extension of scheduled payments and assumption fees for
permitted assumptions of Contracts by purchasers of the related Manufactured
Homes.
Any person with which the Servicer is merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party, or any person succeeding to the business of the
Servicer, will be the successor to the Servicer under the Agreement so long as
such successor has a net worth of at least $10 million and has serviced at
least $100 million of manufactured housing contracts for at least one year.
The Servicer may assign its rights and delegate its duties under the Agreement
(with the prior written consent of the Company if the Vanderbilt is not the
Servicer), provided that any rating of the Certificates then in effect will
not be reduced
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because of such assignment and delegation. Upon any such assignment and
delegation, the assigning Servicer will not be liable for obligations of the
Servicer after such assignment.
Events of Termination. Events of Termination under each Agreement will
include (i) any failure by the Servicer to distribute to the
Certificateholders any required payment which continues unremedied for 5 days
(or such other period specified in the related Prospectus Supplement) after
the giving of written notice; (ii) any failure by the Servicer duly to observe
or perform in any material respect any other of its covenants or agreements in
the Agreement that materially and adversely affects the interests of
Certificateholders, which, in either case, continues unremedied for 30 days
after the giving of written notice of such failure or breach; and (iii)
certain events of insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the Servicer. Notice as used
herein shall mean notice to the Servicer by the Trustee or the Company, or to
the Company, the Servicer, if any, and the Trustee by the Holders of
Certificates representing interests aggregating not less than 25% of the Trust
Fund.
Rights Upon Event of Termination. So long as an Event of Termination
remains unremedied, the Trustee may, and at the written direction of the
Certificateholders of a Series evidencing interests aggregating 25% or more of
the related Trust Fund, shall terminate all of the rights and obligations of
the Servicer under the related Agreement and in and to the Contracts, and the
proceeds thereof, whereupon (subject to applicable law regarding the Trustee's
ability to make advances) the Trustee or a successor Servicer under the
Agreement will succeed to all the responsibilities, duties and liabilities of
the Servicer under the Agreement and will be entitled to similar compensation
arrangements; provided, however, that neither the Trustee nor any successor
servicer will assume any obligation of the Company to repurchase Contracts for
breaches of representations or warranties, and the Trustee will not be liable
for any acts or omissions of the Servicer occurring prior to a transfer of the
Servicer's servicing and related functions or for any breach by the Servicer
of any of its obligations contained in the Agreement. Notwithstanding such
termination, the Servicer shall be entitled to payment of certain amounts
payable to it prior to such termination, for services rendered prior to such
termination. No such termination will affect in any manner the Company's
obligation to repurchase certain Contracts for breaches of representations or
warranties under the Agreement. In the event that the Trustee would be
obligated to succeed the Servicer but is unwilling or unable so to act, it may
appoint, or petition to a court of competent jurisdiction for the appointment
of a Servicer. Pending such appointment, the Trustee is obligated to act in
such capacity. The Trustee and such successor may agree upon the servicing
compensation to be paid, which in no event may be greater than the
compensation to the Servicer under the Agreement. If the trustee in bankruptcy
or similar official is appointed for the Servicer, and no Event of Termination
other than the Servicer's insolvency has occurred, such trustee or other
official may have the power to prevent the Trustee from effecting a transfer
of servicing.
No Certificateholder will have any right under an Agreement to institute
any proceeding with respect to such Agreement unless such Holder previously
has given to the Trustee written notice of default and unless the Holders of
Certificates evidencing interests aggregating not less than 25% of the related
Trust Fund requested the Trustee in writing to institute such proceeding in
its own name as Trustee and have offered to the Trustee reasonable indemnity
and the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to take any action or
institute, conduct or defend any litigation under the 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.
Reports to Certificateholders
The Servicer or the Trustee, as applicable, will forward to each
Certificateholder on each Remittance Date, or as soon thereafter as is
practicable, as specified in the related Prospectus Supplement, a statement
setting forth, among other things:
(i) the amount of such distribution allocable to principal on the
Certificates;
(ii) the amount of such distribution allocable to interest on the
Certificates;
(iii) if the distribution to the Certificateholders is less than
the full amount that would be distributable to such Certificateholders
if there were sufficient eligible funds in the Certificate Account, the
difference between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Certificate Account and the amounts actually distributed;
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(iv) the aggregate amount of Advances, if any, by the Servicer
included in the amounts actually distributed to the Certificateholders;
(v) the outstanding principal balance of the Contracts; and
(vi) the approximate weighted average Remittance Rate of the
Contracts during the Due Period immediately preceding such Remittance
Date.
In addition, not more than 90 days after the end of each calendar year,
the Servicer will furnish a report to each Certificateholder of record at any
time during such calendar year (a) as to the aggregate of amounts reported
pursuant to (i) and (ii) above for such calendar year or, in the event such
person was a Certificateholder of record during a portion of such calendar
year, for the applicable portion of such year, and (b) such information as the
Servicer deems necessary or desirable for Certificateholders to prepare their
tax returns. Information in the monthly and annual reports provided to the
Certificateholders will not have been examined and reported upon by an
independent public accountant. However, the Servicer will provide to the
Trustee annually a report by independent public accountants with respect to
the servicing of the Contracts as described under "Evidence as to Compliance"
above.
Amendment
The Agreement may be amended by the Company and the Trustee without the
consent of the Certificateholders, (i) to cure any ambiguity, (ii) to correct
or supplement any provision therein that may be inconsistent with any other
provision therein, (iii) if an election (a "REMIC Election") has been made
with respect to a particular Series of Certificates to treat the Trust Fund as
a real estate mortgage investment conduit ("REMIC") within the meaning of
Section 860D(a) of the Code, to maintain the REMIC status of the Trust Fund
and to avoid the imposition of certain taxes on the REMIC or (iv) to make any
other provisions with respect to matters or questions arising under such
Agreement that are not inconsistent with the provisions thereof, provided that
such action will not adversely affect in any material respect the interests of
the Certificateholders of the related Series. The Agreement may also be
amended by the Company, the Servicer and the Trustee with the consent of the
Certificateholders (other than holders of Residual Certificates) evidencing
interests aggregating not less than 51% of the Trust Fund for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or 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 delay the timing of, any payment received on or
with respect to Contracts which are required to be distributed on any
Certificate may be effective without the consent of the holders of each such
Certificate.
Termination of the Agreement
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (i) the later of the
final payment or other liquidation of the last Contracts subject thereto and
the disposition of all property acquired upon foreclosure of any Land-and-Home
Contract or Mortgage Loan or repossession of any Manufactured Home and (ii)
the payment to the Certificateholders of all amounts held by the Servicer or
the Trustee and required to be paid to it pursuant to the Agreement. In
addition, the Company or the Servicer may at its option with respect to any
Series of Certificates, repurchase all Certificates or Contracts remaining
outstanding at such time as the aggregate unpaid principal balance of such
Contracts is less than the percentage of the aggregate unpaid principal
balance of the Contracts on the Cut-off Date specified with respect to such
Series in the related Prospectus Supplement. Unless otherwise provided in the
related Prospectus Supplement, the repurchase price will equal the principal
amount of such Contracts plus accrued interest from the first day of the month
of repurchase to the first day of the next succeeding month at the Contract
Rates borne by such Contracts.
The Trustee
The Prospectus Supplement for a Series of Certificates will specify the
Trustee under the related Agreement. The Trustee may have normal banking
relationships with the Company or its affiliates and the Servicer or its
affiliates.
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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. The Trustee may also be removed
at any time by the holders of Certificates evidencing interests aggregating
over 50% of the related Trust Fund as specified in the Agreement. Any
resignation or removal of the Trustee and appointment of a successor Trustee
will not become effective until acceptance of the appointment by the successor
Trustee.
The Trustee will make no representation as to the validity or
sufficiency of the Agreement, the Certificates, any Contract, Contract file,
Land-and-Home Contract file, Mortgage Loan file or related documents, and will
not be accountable for the use or application by the Company of any funds paid
to the Company, as Seller, in consideration of the conveyance of the
Contracts, or deposited into or withdrawn from the Certificate Account by the
Company, as Servicer. If no Event of Termination has occurred, the Trustee
will be required to perform only those duties specifically required of it
under the Agreement. However, upon receipt of the various certificates,
reports or other instruments required to be furnished to it, the Trustee will
be required to examine them to determine whether they conform as to form to
the requirements of the Agreement. Whether or not an Event of Termination has
occurred, the Trustee is not required to expend or risk its own funds or
otherwise incur any financial liability in the performance of its duties or
the exercise of its powers if it has reasonable grounds to believe that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
Under the Agreement, the Servicer, agrees to pay to the Trustee on each
Remittance Date (a) reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of any express trust) and (b)
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with any provision of the Agreement
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense, disbursement or advance as
may be attributable to the Trustee's negligence or bad faith. The Company has
agreed to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the Trust Fund and the Trustee's duties thereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of the Trustee's powers or duties
thereunder.
DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts, may be FHA-insured or VA-guaranteed, the
payments upon which, subject to the following discussion, are insured by the
FHA under Title I of the National Housing Act or partially guaranteed by the
VA.
The regulations governing FHA manufactured home insurance provide that
insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to the United States Department of
Housing and Urban Development ("HUD"). With respect to a defaulted FHA
contract, the servicer must follow applicable regulations before initiating
repossession procedures. 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 FHA is equal to 90% of the sum of (i) the unpaid
principal amount of the Contract at the date of default and uncollected
interest earned to the date of default computed at the Contract Rate, after
deducting the best price obtainable for the collateral (based in part on a
HUD-approved appraisal) and all amounts retained or collected by the lender
from other sources with respect to the Contract, (ii) 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% per annum, (iii) costs paid to a
dealer or other third party to repossess and preserve the Manufactured Home,
(iv) the amount of any sales commission paid to a dealer or other third party
for the resale of the property, (v) with respect to a Land-and-Home Contract,
property taxes, special assessments and other similar charges and hazard
insurance premiums, prorated to the date of disposition of the property, (vi)
uncollected court costs, (vii) legal fees, not to exceed $500, and (viii)
expenses for recording the assignment of the lien on the collateral to the
United States.
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The insurance available to a lender under FHA Title I insurance is
subject to the limit of a reserve amount equal to ten percent 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 ten percent of the reserve amount, and which is
increased by an amount equal to ten percent of the original principal balance
of insured loans subsequently originated by the lender. As of June 30, 1998,
the Vanderbilt's Title I reserve amount was approximately $19,739,736, which
amount was available to pay claims in respect of approximately $190,631,522 of
FHA-insured manufactured housing contracts serviced by Vanderbilt. If
Vanderbilt were replaced as Servicer of the Contracts under the Agreement, it
is not clear from the FHA regulations what portion of this reserve amount
would be available for claims in respect of the FHA-insured Contracts. The
obligation to pay insurance premiums to FHA is the obligation of Vanderbilt,
as 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 the 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
guarantee.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
Manufactured Housing Contracts, Land-and-Home Contracts and Mortgage Loans,
which are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Manufactured
Housing Contracts, Land-and-Home Contracts or Mortgage Loans is situated. The
summaries are qualified in their entirety by reference to the applicable
federal and state laws governing the Manufactured Housing Contracts,
Land-and-Home Contracts or Mortgage Loans.
The Manufactured Housing Contracts
General. As a result of the assignment of the Contracts to the Trustee,
the Trust Fund will succeed collectively to all of the rights (including the
right to receive payment on the Contacts) and will assume the obligations of
the obligee under the Contracts. Each Manufactured Housing Contract evidences
both (a) the obligation of the Obligor to repay the loan evidenced thereby,
and (b) the grant of a security interest in the Manufactured Home to secure
repayment of such loan. Certain aspects of both features of the Manufactured
Housing Contracts are described more fully below.
The Manufactured Housing 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 registered. 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 Manufactured Housing Contracts (other than the
Land-and-Home Contracts) as custodian for the Trustee, and will make an
appropriate filing of a UCC-1 financing statement in Tennessee to give notice
of the Trustee's ownership of the Manufactured Housing Contracts. The
Manufactured Housing Contracts will be stamped to reflect their assignment
from the Company to the Trustee. However, if through negligence, fraud, or
otherwise, a subsequent purchaser were able to take physical possession of the
Manufactured Housing Contracts without notice of such assignment, the
Trustee's interest in such Contracts could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes
securing the Manufactured Housing Contracts may be located in all 50 states
and the District of Columbia and Puerto Rico. Security interests in
manufactured homes may be perfected either by notation of the secured party's
lien on the certificate of title or by delivery of the required documents and
payment of a fee to the state motor vehicle authority, depending on state law.
In some nontitle states, perfection pursuant to the provisions of the UCC is
required. Vanderbilt effects such notation or delivery of the required
documents and fees, and obtains possession of the certificate of title, as
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appropriate under the laws of the state in which a Manufactured Home is
registered. In the event Vanderbilt fails, due to clerical errors, to effect
such notation or delivery, or files the security interest under the wrong law
(for example, under a motor vehicle title statute rather than under the UCC,
in a few states), the Certificateholders may not have a first priority
security interest in the Manufactured Home securing a Manufactured Housing
Contract. As manufactured homes have become larger and have been attached to
their sites without any apparent intention to move them, courts in many states
have held that manufactured homes, under certain circumstances, may become
subject to real estate title and recording laws. As a result, a security
interest in a manufactured home 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 provision of the UCC or a real estate mortgage
under the real estate laws of the state where the home is located. See
"Land-and-Home Contracts and Mortgage Loans" below. These filings must be made
in the real estate records office of the county where the home is located.
Substantially all of the Manufactured Housing Contracts contain provisions
prohibiting the borrower from attaching the Manufactured Home to its site. So
long as the borrower does not violate this agreement, a security interest in
the Manufactured Home will be governed by the certificate of title laws or the
UCC, and the notation of the security interest on the certificate of title or
the filing of the UCC financing statement will be effective to maintain the
priority of the security interest in the Manufactured Home. If, however, a
Manufactured Home becomes attached to its site, other parties could obtain an
interest in the Manufactured Home which is prior to the security interest
originally retained by the seller of the Manufactured Housing Contracts and
transferred to the Company. The Company will represent that at the date of the
initial issuance of the related Certificates it has obtained a perfected first
priority security interest by proper notation or delivery of the required
documents and fees with respect to substantially all of the Manufactured Homes
securing the Manufactured Housing Contracts.
The Company will assign the security interest in the Manufactured Homes
to the Trustee on behalf of the Certificateholders. Neither the Company nor
the Trustee will amend the certificates of title to identify the Trustee as
the new secured party, and neither the Company nor the Servicer will deliver
the certificates of title to the Trustee or note thereon the interest of the
Trustee. Accordingly, the Company, or such other originator of the
Manufactured Housing Contracts as provided herein, will continue to be named
as the secured party on the certificates of title relating to the Manufactured
Homes. In some states, such assignment is an effective conveyance of such
security interest without amendment of any lien noted on the related
certificate of title and the new secured party succeeds to the Company's
rights as the secured party. However, in some states in the absence of an
amendment to the certificate of title, such assignment of the security
interest in the Manufactured Home may not be held effective or such security
interests may not be perfected and in the absence of such notation or delivery
to the Trustee, the assignment of the security interest in the Manufactured
Home may not be effective against creditors of the Company or a trustee in
bankruptcy of the Company.
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 the Company on the
certificate of title or delivery of the required documents and fees 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. If there are any Manufactured Homes as to
which the Company's security interest is not perfected, such security interest
would be subordinate to, among others, subsequent purchasers for value of the
Manufactured Homes and holders of perfected security interests. There also
exists a risk in not identifying the Trustee as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state
other than the state in which such Manufactured Home initially is registered,
under the laws of certain states the perfected security interest in the
Manufactured Home would continue for four months after such relocation and
thereafter only if and after the owner re-registers the Manufactured Home in
such state. If the owner were to relocate a Manufactured Home to another state
and not re-register the Manufactured Home in such state, and if steps were not
taken to re-perfect the Trustee's security interest in such state, the
security interest in the Manufactured Home would cease to be perfected. A
majority of states generally require surrender of a certificate of title to
re-register a Manufactured Home; accordingly, the Company must surrender
possession if it holds certificate of title to such Manufactured Home or, in
the case of Manufactured Homes registered in states which provide for notation
of lien, the Company would receive notice of surrender if the security
interest in the Manufactured Home is noted on the certificate of title.
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Accordingly, the Company would have the opportunity to re-perfect its security
interest in the Manufactured Home in the state of relocation. In states which
do not require a certificate of title for registration of a Manufactured Home,
re-registration could defeat perfection. In the ordinary course of servicing
the manufactured housing conditional sales contracts, the Company takes steps
to effect such re-perfection upon receipt of notice of re-registration or
information from the obligor as to relocation. Similarly when an Obligor under
a Contract sells a Manufactured Home, the Company must surrender possession of
the certificate of title or will receive notice as a result of its lien noted
thereon and accordingly will have an opportunity to require satisfaction of
the related manufactured housing conditional sales contract before release of
the lien. Under the Agreement, the Company is obligated to take such steps, at
the Company's expense, as are necessary to maintain perfection of security
interests in the Manufactured Homes.
Under the laws of most states, liens for repairs performed on a
Manufactured Home and liens for personal property taxes take priority over
perfected security interests. The Company will represent in the Agreement that
it has no knowledge of any such liens with respect to any Manufactured Home
securing payment on any Contract. However, such liens could arise at any time
during the term of the 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 real estate laws, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days' notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring 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 of any
sale prior to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and resale of a Manufactured
Home, the Trustee would be entitled to be paid out of the sale proceeds before
such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders of subsequently perfected security interests or,
thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the manufactured home securing such a debtor's loan. However,
some states impose prohibitions or limitations on definitions or limitations
on deficiency judgments, and in many cases the defaulting borrower would have
no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Under the terms of the federal Soldier's and Sailor's Civil Relief Act
of 1940, as amended (the "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 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% 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 the holders of a Series of Certificates. In
addition, the Relief Act imposes limitations which would impair the ability of
the Servicer to foreclose on 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 realize
upon the Manufactured Home in a timely fashion.
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Land-and-Home Contracts and Mortgage Loans
General. The Land-and-Home Contracts and Mortgage Loans will be secured
by either first mortgages or deeds of trust, depending upon the applicable law
in the state in which the underlying 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 borrower, and the mortgagee, who is
the lender. In a mortgage state, the mortgagor delivers to the mortgagee a
note, bond or other instrument 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 the deed of trust, the borrower conveys title to 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 service of legal
pleadings upon all parties having an interest of record in the real property.
Delays in completion of the foreclosure occasionally may result from
difficulties in locating necessary parties. When the mortgagee's right to
foreclosure is contested, the legal proceedings necessary to resolve the issue
can be time-consuming and expensive. 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 mortgage by
advertisement is essentially similar to foreclosure of a deed of trust by
non-judicial power of sale.
Foreclosure of a deed of trust is generally accomplished by a
non-judicial trustee's sale under a specific provision in the deed of trust
that authorizes the trustee to sell the property to a third party upon any
default by the borrower under the terms of the note or deed of trust. In
certain states, such foreclosure also may be accomplished by judicial action
in the manner provided for by 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 sale. In addition, the trustee must provide notice in some states to
any other individual having an interest of record in the real property,
including any junior lienholders. 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, 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 in the property.
In some states, the borrower-trustor has the right to reinstate the loan
at any time following default until shortly before the trustee's sale. In
general, the borrower, or any other person having a junior encumbrance on the
real estate, may, during a reinstatement period cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
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. Thereafter, subject to the right of the borrower in
some states to remain in possession during the redemption period, the lender
will assume the burden 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.
Rights of Redemption. In some states, after the sale pursuant to a deed
of trust or foreclosure of a mortgage, the borrower and certain foreclosed
junior lienors are given a statutory period in which to redeem the property
from the foreclosure sale. In certain other states, this right of redemption
(i) may be waived or (ii) applies only to sale following judicial foreclosure,
and not 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. In some
states the right to redeem is an equitable right. The effect of a right of
redemption is to
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diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser at a
foreclosure sale, or of any purchaser from the lender subsequent to judicial
foreclosure or sale under a deed of trust. Consequently, the practical effect
of the redemption right is to force the lender to maintain 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 relating to
a single family residence. In some states, statutes limit or restrict the
right of the beneficiary or mortgagee to obtain a deficiency judgment against
the borrower following foreclosure or sale under a deed of trust. A deficiency
judgment is a personal judgment against the borrower equal in most cases to
the difference between the amount due to the lender and the net amount
realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust
the security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower 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 remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against a
former borrower 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 borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided
for in certain instances where the value of the lender's security has been
impaired by acts or omissions of the borrower, for example, in the event of
waste of the property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldier's and Sailor's Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, with
respect to a Land-and-Home Contract or a Mortgage Loan, in a Chapter 13
proceeding under the federal bankruptcy code, when a court determines that the
value of a home is less than the principal balance of the loan, the court may
prevent a lender from foreclosing on the home, and, as part of the
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.
The Code provides priority to certain tax liens over the lien of the
mortgage or the deed of trust. The laws of some states provide priority to
certain tax liens over the lien of the mortgage or the deed of trust. Numerous
federal and state consumer protection laws impose substantive requirements
upon mortgage lenders in connection with the origination, servicing and the
enforcement of mortgage loans. These laws include the federal Truth in Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act, Fair
Credit Billing Act, Fair Credit Reporting Act, the Fair Debt Collection
Practices 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 assignees of the Contracts.
Certain Matters Relating to Insolvency
The Company intends that each transfer of the Contracts to a Trust Fund
will constitute a sale rather than a pledge of the Contracts to secure
indebtedness of the Company. However, if the Company (or one of its
affiliates) were to become a debtor under the federal bankruptcy code, it is
possible that a creditor, receiver, conservator or trustee in bankruptcy of
the Company (or one of its affiliates) or the Company as a
debtor-in-possession may argue
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the sale of the Contracts by the Company (or one of its affiliates) was a
pledge of the Contracts rather than a sale. This position, if argued or
accepted by a court, could result in a delay or reduction of distributions to
the related Certificateholders.
Consumer Protection Laws
The so-called "Holder-in-Due-Course" rule of the Federal Trade
Commission is intended to defeat the ability of the transferor of a consumer
credit contract which is the seller of goods which gave rise to the
transaction (and certain related lenders and assignees) to transfer such
contract free of notice of claims by the debtor thereunder. The effect of this
rule is to subject the assignee of such a Contract (such as the Trust Fund) to
all claims and defenses which the Obligor could assert against the seller of
the Manufactured Home. Liability under this rule is limited to amounts paid
under a Contract; however, the Obligor also may be able to assert the rule to
set off remaining amounts due as a defense against a claim brought by the
Trust Fund against the Obligor. 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 Fair Credit Billing Act, the Fair Credit Reporting
Act, the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act
and the Uniform Consumer Credit Code. In the case of some of these laws, the
failure to comply with their provisions may affect the enforceability of the
related Contract.
Transfers of Manufactured Homes; Enforceability of "Due-on-Sale" Clauses
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes or Modular 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 that is not consented to. The Servicer expects that
it will permit most transfers and not accelerate the maturity of the related
Contracts. In certain cases, the transfer may be made by a delinquent Obligor
in order to avoid a repossession, foreclosure proceeding or trustee's sale.
In the case of a transfer of a Manufactured Home or Modular Home after
which the Servicer desires to accelerate the maturity of the related Contract,
the Servicer's ability to do so will depend on the enforceability under state
law of the "due-on-sale" clause. The Garn-St. Germain Depository Institutions
Act of 1982 preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of "due-on-sale" clauses applicable to the
Manufactured Homes or Modular Homes. Consequently, in some states the Servicer
may be prohibited from enforcing a "due-on-sale" clause in respect of certain
Manufactured Homes or Modular Homes.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing and mortgaged
properties. The Contracts would be covered if they satisfy certain conditions,
among other things, governing the terms of any prepayments, late charges and
deferral fees and requiring a 30-day notice period prior to instituting any
action leading to repossession of or foreclosure with respect to the related
unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where the Title V was not so rejected, any state is authorized by law to
adopt a provision limiting discount points or other charges on loans covered
by Title V. The Company will represent in the applicable Agreement that all of
the Contracts comply with applicable usury laws.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA") imposes certain requirements on employee benefit plans subject to
ERISA ("Plans") and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by such Plans. Among other
requirements, ERISA mandates that the assets of Plans be held in trust and
that the trustee, or other duly authorized fiduciary, have exclusive authority
and discretion to manage and control the assets of such Plans. ERISA also
imposes certain duties on persons who
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are fiduciaries of such Plans. Under ERISA (subject to certain exceptions),
any person who exercises any authority or control with respect to the
management or disposition of the assets of a Plan is considered to be a
fiduciary of such Plan, subject to the standards of fiduciary conduct under
ERISA. These standards include the requirements that the assets of Plans be
invested and managed for the exclusive benefit of Plan participants and
beneficiaries, a determination by the Plan fiduciary that any such investment
is permitted under the governing Plan instruments and is prudent and
appropriate for the Plan in view of its overall investment policy and the
composition and diversification of its portfolio. Certain employee benefit
plans, such as governmental plans (as defined in ERISA Section 3(32)) and
church plans (as defined in ERISA Section 3(33)), are not subject to ERISA.
Accordingly, assets of such plans may be invested in Certificates without
regard to the ERISA considerations described above and below, subject to the
provisions of applicable state law. Any such plan which is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), however, is subject to the prohibited
transaction rules set forth in Section 503 of the Code.
Any Plan fiduciary considering the purchase of a Certificate should
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment. Moreover, each Plan fiduciary should
determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Certificates is appropriate
for the Plan, taking into account the overall investment policy of the Plan
and composition of the Plan's investment portfolio.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification under ERISA, other provisions of
ERISA, and the corresponding provisions of the Code, prohibit a broad range of
transactions involving assets of Plans (including for these purposes
individual retirement accounts and Keough plans) and persons having certain
specified relationships to a Plan ("parties in interest" within the meaning of
ERISA and "disqualified persons" within the meaning of the Code). Such
transactions are treated as "prohibited transactions" under Sections 406 and
407 of ERISA and excise taxes are imposed upon such persons by Section 4975 of
the Code. An investment in the Certificates by a Plan might constitute a
prohibited transaction under the foregoing provisions unless an administrative
exemption applies. In addition, if any investing Plan's assets were deemed to
include an interest in the assets of the Contract Pool and not merely an
interest in the Certificates, transactions occurring in the operation of the
Contract Pool might constitute prohibited transactions unless an
administrative exemption applies. Certain such exemptions which may be
applicable to the acquisition and holding of the Certificates or to the
servicing and operation of the Contract Pool are noted below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R.
Section 2510.3-101) (the "Regulation") concerning the definition of what
constitutes the assets of a Plan. The Regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity" investment
will be deemed for purposes of ERISA to be assets of the investing plan unless
certain exceptions apply. However, the Regulation provides that, generally,
the assets of a corporation or partnership in which a Plan invests will not be
deemed for purposes of ERISA to be assets of such Plan if the equity interest
acquired by the investing Plan is a publicly-offered security. A
publicly-offered security, as defined under the Regulation, is a security that
is widely held, freely transferable, and either is (i) part of a class of
securities registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, or (ii) sold to the Plan as part of a securities offering to the
public pursuant to an effective registration statement under the Securities
Act of 1933, and the class of securities of which such security is a part is
registered under the Securities Exchange Act of 1934 within 120 days (or such
later time as may be allowed by the Securities and Exchange Commission) after
the end of the fiscal year of the issuer during which the offering of such
securities to the public occurred. The Certificates are not expected to be
publicly-offered securities under the terms of the Regulation, and it is not
anticipated that any other exemption from the Regulation will apply.
As a result, an investing Plan's assets could be considered to include
an undivided interest in the Contracts and any other assets held in the
Contract Pool. In the event that assets of a Contract Pool are considered
assets of an investing Plan, the Company, the Servicer, the Trustee, other
persons, in providing services with respect to the Contracts or certain
affiliates thereof, may be considered, or might become, parties in interest or
disqualified persons with respect to a Plan. If so, the acquisition or holding
of Certificates by or on behalf of such Plan could be considered to give rise
to a prohibited transaction within the meaning of ERISA and the Code unless a
statutory, regulatory or administrative exemption applies.
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Special caution should be exercised before the assets of a Plan
(including assets that may be held in an insurance company's separate or
general accounts where assets in such accounts may be deemed to be Plan assets
for purposes of ERISA) are used to purchase a Certificate if, with respect to
such assets, the Company, the Servicer, the Trustee, the Underwriters named in
the Prospectus Supplement or an affiliate thereof either: (a) has investment
discretion with respect to the investment of such assets of such Plan or (b)
has authority or responsibility to give, or regularly gives, investment advice
with respect to such assets for a fee and pursuant to an agreement or
understanding that such advice will serve as a primary basis for investment
decisions with respect to such assets and that such advice will be based on
the particular investment needs of the Plan.
The U.S. Department of Labor has granted to the lead Underwriter named
in the Prospectus Supplement an exemption (the "Exemption") from certain of
the prohibited transaction rules of ERISA with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates
representing interests in asset-backed pass-through trusts that consist of
certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The receivables covered by the Exemption
include manufactured housing installment sales contracts and installment loan
agreements such as the Contracts. The Exemption will apply to the acquisition,
holding and resale of the Senior Certificates by a Plan, provided that certain
conditions (certain of which are described below) are met.
Among the conditions which must be satisfied for the Exemption to apply
to the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on
terms (including the price for the Senior 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 Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust Fund;
(3) The Senior 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 Standard & Poor's, a
Division of the McGraw-Hill Companies, Moody's Investors Service, Inc.,
Duff & Phelps Inc.
or Fitch IBCA, Inc.;
(4) The Trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the Underwriter in connection
with the distribution of the Senior Certificates represents not more
than reasonable compensation for underwriting the Senior Certificates;
the sum of all payments made to and retained by the Company pursuant to
the sale of the Contracts to the Trust Fund represents not more than the
fair market value of such Contracts; and the sum of all payments made to
and retained by the Servicer represents not more than reasonable
compensation for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith; and
(6) The Plan investing in the Senior Certificates is an
"accredited investor" as defined in Rule 501 (a)(1) of Regulation D of
the Securities and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur if a
Plan fiduciary causes a Plan to acquire interests in a trust that includes
obligations on which the fiduciary (or an affiliate) is obligor only if, among
other requirements, (i) in the case of the acquisition of Senior Certificates
in connection with the initial issuance, at least fifty (50) percent of the
Senior Certificates are acquired by persons independent of the Restricted
Group (as defined below) and at least fifty (50) percent of the aggregate
interest in the Trust Fund is acquired by persons independent of the
Restricted Group, (ii) the Plan's investment in Senior Certificates does not
exceed twenty-five (25) percent of all of the Senior Certificates outstanding
at the time of the acquisition, and (iii) immediately after the acquisition,
no more than twenty-five (25) percent of the assets of any Plan with respect
to which such person is a fiduciary are invested in certificates representing
an interest in one or more trusts containing assets sold or serviced by the
same entity. The Exemption does not apply to Plans sponsored by the Company,
any Underwriter, the Trustee, the Servicer, any obligor with respect to
Contracts included in the Trust Fund constituting more than five percent of
the aggregate unamortized principal balance of the assets in the Trust Fund,
or any affiliate of such parties (the "Restricted Group").
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Employee benefit plans that are governmental plans (as defined in
section 3(32) of ERISA) and church plans (as defined in section 3(33) of
ERISA) are not subject to ERISA requirements. Accordingly, unless otherwise
specified in the Prospectus Supplement, assets of such plans may be invested
in the Senior Certificates without regard to the ERISA restrictions described
above, subject to applicable provisions of other federal and state laws.
Any Plan fiduciary who proposes to cause a Plan to purchase Senior
Certificates should consult with its own counsel with respect to the potential
consequences under ERISA and the Code of the Plan's acquisition and ownership
of Senior Certificates. Assets of a Plan or individual retirement account
should not be invested in the Senior Certificates unless it is clear that the
assets of the Trust Fund will not be plan assets or unless it is clear that
the Exemption or a prohibited transaction class exemption will apply and
exempt all potential prohibited transactions.
Subordinated Certificates
Because the Subordinated Certificates are subordinated to the Senior
Certificates, the Exemption will not apply to the acquisition, holding and
resale of the Subordinated Certificates by a Plan.
Consequently, no transfer of a Subordinate Certificate shall be
registered unless the prospective transferee provides the Trustee and the
Company with (a) a certification to the effect that (1) such transferee is
neither an employee benefit plan subject to section 406 or section 407 of
ERISA or to section 4975 of the Code; the trustee of any such plan; a person
acting on behalf of any such plan; nor a person using the assets of any such
plan; or (2) if such transferee is an insurance company, it is purchasing such
certificates with funds contained in an "insurance company general account"
(as such term is defined in section V(e) of the Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and the purchase and holding of such
certificates are covered under Sections I and III of PTCE 95-60; or (b) an
opinion of counsel (a "benefit plan opinion") satisfactory to the Trustee and
the Company, and upon which the Trustee and the Company shall be entitled to
rely, to the effect that the purchase and holding of such Subordinate
Certificate by the prospective transferee will not result in the assets of the
Trust Fund being deemed to be plan assets and subject to the prohibited
transaction provisions of ERISA or the Code and will not subject the Trustee
or the Company to any obligation in addition to those undertaken by such
entities in the agreement, which opinion of counsel shall not be an expense of
the Trustee or the Company. Unless such certification or opinion is delivered,
Certificate Owners of the Subordinate Certificates will be deemed to make the
representations in clause (a)(1).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the
Certificates and is based on advice of Brown & Wood llp, special tax counsel
to the Company. The discussion is also based upon laws, regulations, rulings,
and decisions now in effect, including Treasury Regulations issued on December
23, 1992, and generally effective for REMICs with startup days on or after
November 12, 1991 (the "REMIC Regulations"), all of which are subject to
change or possibly differing interpretations. The discussion below addresses
all material federal income tax consequences generally applicable to
investors. However, the discussion does not purport to deal with federal
income tax consequences applicable to all categories of investors, some of
which may be subject to special rules. Investors should consult their own tax
advisors to determine the federal, state, local, and any other tax
consequences of the purchase, ownership, and disposition of the Certificates.
Many aspects of the federal tax treatment of the purchase, ownership,
and disposition of the Certificates will depend upon whether an election is
made to treat the Trust Fund or a segregated portion thereof evidenced by a
particular series or sub-series of Certificates as a REMIC within the meaning
of Section 860D(a) of the Code. The Prospectus Supplement for each series will
indicate whether or not an election to be treated as a REMIC has been or will
be made with respect thereto. The following discussion deals first with Series
with respect to which a REMIC Election is made and then with Series with
respect to which a REMIC Election is not made.
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REMIC Series
With respect to each Series of Certificates for which a REMIC Election
is made, Brown & Wood LLP, special tax counsel to the Company, will have
advised the Company that in its opinion, assuming (i) the making of that
election in accordance with the requirements of the Code and (ii) ongoing
compliance with the applicable Agreement, at the initial issuance of the
Certificates in such series the Trust Fund will qualify as a REMIC and the
Certificates in such a Series ("REMIC Certificates") will be treated either as
regular interests in the REMIC within the meaning of Section 860G(a)(1) of the
Code ("Regular Certificates") or as a residual interest in the REMIC within
the meaning of Section 860G(a)(2) of the Code ("Residual Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust Fund so long as there are any
REMIC Certificates outstanding. Substantially all of the assets of the REMIC
must consist of "qualified mortgages" and "permitted investments" as of the
close of the third month beginning after the day on which the REMIC issues all
of its regular and residual interests (the "Startup Day") and at all times
thereafter. The term "qualified mortgage" means any obligation (including a
participation or certificate of beneficial ownership in such obligation) which
is principally secured by an interest in real property that is transferred to
the REMIC on the Startup Day in exchange for regular or residual interests in
the REMIC or is purchased by the REMIC within the three-month period beginning
on the Startup Day if such purchase is pursuant to a fixed price contract in
effect on the Startup Day. The REMIC Regulations provide that a Contract is
principally secured by an interest in real property if the fair market value
of the real property securing the Contract is at least equal to either (i) 80%
of the issue price (generally, the principal balance) of the Contract at the
time it was originated or (ii) 80% of the adjusted issue price (the
then-outstanding principal balance, with certain adjustments) of the Contract
at the time it is contributed to a REMIC. The fair market value of the
underlying real property is to be determined after taking into account other
liens encumbering that real property. Alternatively, a Contract is principally
secured by an interest in real property if substantially all of the proceeds
of the Contract were used to acquire or to improve or protect an interest in
real property that, at the origination date, is the only security for the
Contract (other than the personal liability of the obligor). The REMIC
Regulations provide that obligations secured by manufactured housing or mobile
homes (not including recreational vehicles, campers or similar vehicles) which
are "single family residences" under Section 25(e)(10) of the Code will
qualify as obligations secured by real property without regard to state law
classifications. See the discussion below under "REMIC Series -- Status of
Manufactured Housing Contracts." A qualified mortgage also includes a
qualified replacement mortgage that is used to replace any qualified mortgage
within three months of the Startup Day or to replace a defective mortgage
within two years of the Startup Day.
"Permitted investments" consist of (a) temporary investments of cash
received under qualified mortgages before distribution to holders of interests
in the REMIC ("cash-flow investments"), (b) amounts, such as a Reserve Fund,
if any, reasonably required to provide for full payment of expenses of the
REMIC, the principal and interest due on regular or residual interests in the
event of defaults on qualified mortgages, lower than expected returns on
cash-flow investments, prepayment interest shortfalls or certain other
contingencies ("qualified reserve assets"), and (c) certain property acquired
as a result of foreclosure of defaulted qualified mortgages ("foreclosure
property"). A reserve fund will not be qualified if more than 30% of the gross
income from the assets in the reserve fund is derived from the sale or other
disposition of property held for three months or less, unless such sale is
necessary to prevent a default in payment of principal or interest on Regular
Certificates. In accordance with Section 860G(a)(7) of the Code, a reserve
fund must be "promptly and appropriately" reduced as payments on contracts are
received. Foreclosure property will be a permitted investment only to the
extent that such property is not held for more than three years following the
close of the taxable year in which the property was acquired by the REMIC.
The Code requires that in order to qualify as a REMIC an entity must
make reasonable arrangements designed to ensure that certain specified
entities, generally including governmental entities or other entities that are
exempt from United States tax, including the tax on unrelated business income
("Disqualified Organizations"), do not hold residual interest in the REMIC.
Consequently, it is expected that in the case of any Trust Fund for which a
REMIC Election is made the transfer, sale, or other disposition of a Residual
Certificate to a Disqualified Organization will be prohibited and the ability
of a Residual Certificate to be transferred will be conditioned on the
Trustee's receipt of a certificate or other document representing that the
proposed transferee is not a Disqualified Organization. The transferor of a
Residual Certificate must not, as of the time of the transfer, have actual
knowledge that such
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representation is false. The Code further requires that reasonable
arrangements must be made to enable a REMIC to provide the Internal Revenue
Service (the "Service") and certain other parties, including transferors of
residual interests in a REMIC, with the information needed to compute the tax
imposed by Section 860E(e)(1) of the Code if, in spite of the steps taken to
prevent Disqualified Organizations from holding residual interests, such an
organization does, in fact, acquire a residual interest. See "REMIC Series --
Restrictions on Transfer of Residual Certificates" below.
If the Trust Fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the Trust Fund will not be treated
as REMIC for the year during which such failure occurs and for all years
thereafter unless the Service determines, in its discretion, that such failure
was inadvertent (in which case, the Service may require any adjustments which
it deems appropriate). If the ownership interests in the assets of the Trust
Fund consist of multiple classes, failure to treat the Trust Fund as a REMIC
may cause the Trust Fund to be treated as an association taxable as a
corporation. Such treatment could result in income of the Trust Fund being
subject to corporate tax in the hands of the Trust Fund and in a reduced
amount being available for distribution to Certificateholders as a result of
the payment of such taxes.
Status of Manufactured Housing Contracts. The REMIC Regulations as well
as a Notice issued by the Service provide that obligations secured by
interests in manufactured housing, which qualify as "single family residences"
within the meaning of Section 25(e)(10) of the Code, are to be treated as
"qualified mortgages" for a REMIC. Under Section 25(e)(10) of the Code, the
term "single family residence" includes any manufactured home which has a
minimum of 400 square feet of living space and a minimum width in excess of
102 inches and which is of a kind customarily used at a fixed location. The
Company will represent and warrant that each of the manufactured homes
securing the Contracts which are a part of a Trust Fund meets this definition
of a "single family residence." See the discussion above under "REMIC Series
- -- Qualification as a REMIC."
Tiered REMIC Structures. For certain series of Certificates, two or more
separate elections may be made to treat segregated portions of the assets of a
single Trust Fund as REMICs for federal income tax purposes (respectively, the
"Subsidiary REMIC" or "Subsidiary REMICs" and the "Master REMIC"). Upon the
issuance of any such series of Certificates, Brown & Wood LLP, special tax
counsel to the Company, will have advised the Company, as described above,
that at the initial issuance of the Certificates, the Subsidiary REMIC or
Subsidiary REMICs and the Master REMIC will each qualify as a REMIC for
federal income tax purposes, and that the Certificates in such series will be
treated either as Regular Certificates or Residual Certificates of the
appropriate REMIC. Only REMIC Certificates issued by the Master REMIC will be
offered hereunder. Solely for the purpose of determining whether such Regular
Certificates will constitute qualifying real estate or real property assets
for certain categories of financial institutions or real estate investment
trusts as described below, each REMIC in a tiered REMIC structure will be
treated as one. See the discussion below under "REMIC Series -- Taxation of
Regular Interests."
Taxation of Regular Interests. Regular Certificates will be treated as
new debt instruments issued by the REMIC on the Startup Day. If a Regular
Certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the
stated principal amount with respect to that Regular Certificate may be zero.
Such a specified portion may consist of a fixed number of basis points, a
fixed percentage of interest or a qualified variable rate on some or all of
the qualified mortgages. Stated interest on a Regular Certificate will be
taxable as ordinary income. Holders of Regular Certificates that would
otherwise report income under a cash method of accounting will be required to
report income with respect to such Regular Certificates under the accrual
method. Under Temporary Treasury Regulations, if a Trust Fund, with respect to
which a REMIC Election is made, is considered to be a "single-class REMIC," a
portion of the REMIC's servicing fees, administrative and other non-interest
expenses, including assumption fees and late payment charges retained by the
Company, will be allocated as a separate item to those Regular
Certificateholders that are "pass-through interest holders." Generally, a
single-class REMIC is defined as a REMIC that would be treated as a fixed
investment trust under applicable law but for its qualification as a REMIC, or
a REMIC that is substantially similar to an investment trust but is structured
with the principal purpose of avoiding this allocation requirement imposed by
the Temporary Treasury Regulations. Generally, a pass-through interest holder
refers to individuals, entities taxed as individuals, such as certain trusts
and estates, and regulated investment companies. An individual, an estate, or
a trust that holds a Regular Certificate in such a REMIC will be allowed to
deduct the foregoing expenses under Section 212 of the Code only to the extent
that, in the aggregate and combined with certain other itemized
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deductions, they exceed 2% of the adjusted gross income of the holder. In
addition, Section 68 of the Code provides that the amount of itemized
deductions (including those provided for in Section 212 of the Code) otherwise
allowable for the taxable year for an individual whose adjusted gross income
exceeds a threshold amount specified in the Code will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the specified threshold
amount or (ii) 80% of the amount of itemized deductions otherwise allowable,
for such taxable year. As a result of the foregoing limitations, certain
holders of Regular Certificates in "single-class REMICs" may not be entitled
to deduct all or any part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates
held by a thrift institution taxed as a "domestic building and loan
association" within the meaning of Section 7701(a)(19) of the Code will
constitute "a regular
. . . interest in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi)
of the Code; and (ii) Regular Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code and interest thereon will be considered "interest on
obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code, in each such case as long as the portion of
the assets of the Trust Fund qualifying for the corresponding status is at
least 95% of the assets of the REMIC. If less than 95% of the average adjusted
basis of the assets comprising the REMIC are assets qualifying under any of
the foregoing Sections of the Code (including assets described in Section
7701(a)(19)(C) of the Code), then the Regular Certificates will be qualifying
assets only to the extent that the assets comprising the REMIC are qualifying
assets. Treasury Regulations promulgated pursuant to Section 593 of the Code
define "qualifying real property loans" to include a loan secured by a mobile
home unit "permanently fixed to real property" except during a brief period in
which the unit is transported to its site. Section 7701(a)(19)(C)(v) of the
Code provides that "loans secured by an interest in real property" includes
loans secured by mobile homes not used on a transient basis. Treasury
Regulations promulgated pursuant to Section 856 of the Code state that local
law definitions are not controlling in determining the meaning of the term
"Real Property" for purposes of that section, and the Service has ruled that
obligations secured by permanently installed mobile home units qualify as
"real estate assets" under this provision. Entities affected by the foregoing
provisions of the Code that are considering the purchase of Certificates
should consult their own tax advisors regarding these provisions. Furthermore,
interest paid with respect to Certificates held by a real estate investment
trust will be considered "interest on obligations secured by mortgages on real
property or on interest in real property" within the meaning of Section
856(c)(3)(B) of the Code to the same extent that the Certificates themselves
are treated as real estate assets. Regular Certificates held by a regulated
investment company or a real estate investment trust will not constitute
"Government securities" within the meaning of Sections 851(b)(3)(A)(i) and
856(c)(4)(A) of the Code, respectively. In addition, the REMIC Regulations
provide that payments on Contracts qualifying for the corresponding status
that are held and reinvested pending distribution to Certificateholders will
be considered to be "real estate assets" within the meaning of Section
856(c)(5)(B) of the Code.
Original Issue Discount. Regular Certificates may be issued with
"original issue discount." Rules governing original issue discount are set
forth in Sections 1271-1273 and 1275 of the Code and the Treasury Regulations
issued thereunder in January 1994 and in June 1996 (the "OID Regulations").
The discussion herein is based in part on the OID Regulations, which generally
apply to debt instruments issued on or after April 4, 1994, but which
generally may be relied upon for debt instruments issued after December 21,
1992. The June 1996 Regulations apply to debt instruments issued after August
13, 1996. Moreover, although the rules relating to original issue discount
contained in the Code were modified by the Tax Reform Act of 1986 specifically
to address the tax treatment of securities, such as the Regular Certificates,
on which principal is required to be prepaid based on prepayments of the
underlying assets, regulations under that legislation have not yet been
finalized. Certificateholders also should be aware that the OID Regulations do
not address certain issues relevant to prepayable securities such as the
Regular Certificates.
In general, in the hands of the original holder of a Regular
Certificate, original issue discount, if any, is the difference between the
"stated redemption price at maturity" of the Regular Certificate and its
"issue price." The original issue discount with respect to a Regular
Certificate will be considered to be zero if it is less than 0.25% of the
Regular Certificate's stated redemption price at maturity multiplied by the
number of complete years from the date of issue of such Regular Certificate to
its maturity date. The OID Regulations, however, provide a special de minimis
rule to apply to obligations such as the Regular Certificates that have more
than one principal payment or that have interest payments that are not
qualified stated interest as defined in the OID Regulations, payable before
maturity ("installment obligations"). Under the special rule, original issue
discount on an installment obligation is
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generally considered to be zero if it is less than 0.25% of the principal
amount of the obligation multiplied by the weighted average maturity of the
obligation as defined in the OID Regulations. Because of the possibility of
prepayments, it is not clear whether or how the de minimis rules will apply to
the Regular Certificates. It is possible that the anticipated rate of
prepayments assumed in pricing the debt instrument (the "Prepayment
Assumption") will be required to be used in determining the weighted average
maturity of the Regular Certificates. In the absence of authority to the
contrary, the Company expects to apply the de minimis rule applicable to
installment obligations by using the Prepayment Assumption. The OID
Regulations provide a further special de minimis rule applicable to any
Regular Certificates that are "self-amortizing installment obligations," i.e.,
Regular Certificates that provide for equal payments composed of principal and
qualified stated interest payable unconditionally at least annually during its
entire term, with no significant additional payment required at maturity.
Under this special rule, original issue discount on a self-amortizing
installment obligation is generally considered to be zero if it is less than
0.167% of the principal amount of the obligation multiplied by the number of
complete years from the date of issue of such a Regular Certificate to its
maturity date.
Generally, the original holder of a Regular Certificate that includes a
de minimis amount of original issue discount includes that de minimis original
issue discount in income as principal payments are made. The amount included
in income with respect to each principal payment equals a pro rata portion of
the entire amount of de minimis original issue discount with respect to that
Regular Certificate. Any de minimis amount of original issue discount included
in income by a holder of a Regular Certificate is generally treated as a
capital gain if the Regular Certificate is a capital asset in the hands of the
holder thereof. Pursuant to the OID Regulations, a holder of a Regular
Certificate that uses the accrual method of tax accounting may elect to
include in gross income all interest that accrues on a Regular Certificate,
including any de minimis original issue discount and market discount, by using
the constant yield method described below with respect to original issue
discount.
The stated redemption price at maturity of a Regular Certificate
generally will be equal to the sum of all payments, whether denominated as
principal or interest, to be made with respect thereto other than "qualified
stated interest." Pursuant to the OID Regulations, qualified stated interest
generally means stated interest that is unconditionally payable at least
annually at a single fixed rate of interest (or, under certain circumstances,
a variable rate tied to an objective index) during the entire term of the
Regular Certificate (including short periods). It is possible that the IRS
could assert that the stated rate of interest on the Certificates is not
unconditionally payable or otherwise does not qualify as qualified stated
interest. Such position, if successful, would require all holders of
Certificates to accrue all income on the Certificates under the OID
Regulations. The Company, however, intends to treat all stated interest on the
Certificates as qualified stated interest. Under the OID Regulations, certain
variable interest rates payable on Regular Certificates, including rates based
upon the weighted average interest rate of a Pool of Contracts, may not be
treated as qualified stated interest. In such case, the OID Regulations would
treat interest under such rates as contingent interest which generally must be
included in income by the Regular Certificateholder when the interest becomes
fixed, as opposed to when it accrues. Until further guidance is issued
concerning the treatment of such interest payable on Regular Certificates, the
REMIC will treat such interest as being payable at a variable rate tied to a
single objective index of market rates. Prospective investors should consult
their tax advisors regarding the treatment of such interest under the OID
Regulations. In the absence of authority to the contrary and if otherwise
appropriate, the Company expects to determine the stated redemption price at
maturity of a Regular Certificate by assuming that the anticipated rate of
prepayment for all Contracts will occur in such a manner that the initial
Remittance Rate for a Certificate will not change. Accordingly, interest at
the initial Remittance Rate will constitute qualified stated interest payments
for purposes of applying the original issue discount provisions of the Code.
In general, the issue price of a Regular Certificate is the first price at
which a substantial amount of the Regular Certificates of such class are sold
for money to the public (excluding bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). If a portion of the initial offering price of a Regular
Certificate is allocable to interest that has accrued prior to its date of
issue, the issue price of such a Regular Certificate includes that
pre-issuance accrued interest.
If the Regular Certificates are determined to be issued with original
issue discount, a holder of a Regular Certificate must generally include the
original issue discount in ordinary gross income for federal income tax
purposes as it accrues in advance of the receipt of any cash attributable to
such income. The amount of original issue discount, if any, required to be
included in a Regular Certificateholder's ordinary gross income for federal
income tax purposes in any taxable year will be computed in accordance with
Section 1272(a) of the Code and the OID Regulations. Under such Section and
the OID Regulations, original issue discount accrues on a daily basis
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under a constant yield method that takes into account the compounding of
interest. The amount of original issue discount to be included in income by a
holder of a debt instrument, such as a Regular Certificate, under which
principal payments may be subject to acceleration because of prepayments of
other debt obligations securing such instruments, is computed by taking into
account the Prepayment Assumption. The Prospectus Supplement for each series
of Regular Certificates will specify the Prepayment Assumption to be used for
the purpose of determining the amount and rate of accrual of OID. No
representation is made that the Regular Certificates will prepay at the
Prepayment Assumption or at any other rate.
The amount of original issue discount included in income by a holder of
a Regular Certificate is the sum of the "daily portions" of the original issue
discount for each day during the taxable year on which the holder held the
Regular Certificate. The daily portions of original issue discount are
determined by allocating to each day in any "accrual period" a pro rata
portion of the excess, if any, of the same of (i) the present value of all
remaining payments to be made on the Regular Certificate as of the close of
the "accrual period" and (ii) the payments during the "accrual period" of
amounts included in the stated redemption price of the Regular Certificate
over the "adjusted issue price" of the Regular Certificate at the beginning of
the "accrual period." Generally, the "accrual period" for the Regular
Certificates corresponds to the intervals at which amounts are paid or
compounded with respect to such Regular Certificate, beginning with their date
of issuance and ending with the maturity date. The "adjusted issue price" of a
Regular Certificate at the beginning of any accrual period is the sum of the
issue price and accrued original issue discount for each prior accrual period
reduced by the amount of payments other than payments of qualified stated
interest made during each prior accrual period. The Code requires the present
value of the remaining payments to be determined on the bases of (a) the
original yield to maturity (determined on the basis of compounding at the
close of each accrual period and properly adjusted for the length of the
accrual period), (b) events, including actual prepayments, which have occurred
before the close of the accrual period, and (c) the assumption that the
remaining payments will be made in accordance with the original Prepayment
Assumption. The effect of this method is to increase the portions of original
issue discount that a Regular Certificateholder must include in income to take
into account prepayments with respect to the Contracts held by the Trust Fund
that occur at a rate that exceeds the Prepayment Assumption and to decrease
(but not below zero for any period) the portions of original issue discount
that a Regular Certificateholder must include in income to take into account
prepayments with respect to the Contracts that occur at a rate that is slower
than the Prepayment Assumption. Although original issue discount will be
reported to Regular Certificateholders based on the Prepayment Assumption, no
representation is made to Regular Certificateholders that the Contracts will
be prepaid at that rate or at any other rate.
A subsequent purchaser of a Regular Certificate will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Regular Certificate. However, if the price paid exceeds the sum of the Regular
Certificate's issue price plus the aggregate amount of original issue discount
accrued with respect to the Regular Certificate, but does not equal or exceed
the outstanding principal amount of the Regular Certificate, the amount of
original issue discount to be accrued will be reduced in accordance with a
formula set forth in Section 1272(a)(7)(B) of the Code.
The Company believes, upon the advice of Brown & Wood LLP, special tax
counsel to the Company, that the holder of a Regular Certificate determined to
be issued with non-de minimis original issue discount will be required to
include the original issue discount in ordinary gross income for federal
income tax purposes computed in the manner described above. However, the OID
Regulations either do not address or are subject to varying interpretations
with respect to several issues concerning the computation of original issue
discount for obligations such as the Regular Certificates.
Variable Rate Regular Certificates. Regular Certificates may bear
interest at a variable rate. Under the OID Regulations, if a variable rate
Regular Certificate provides for qualified stated interest payments computed
on the basis of certain qualified floating rates or objective rates, then any
original issue discount on such a Regular Certificate is computed and accrued
under the same methodology that applies to Regular Certificates paying
qualified stated interest at a fixed rate. See the discussion above under
"REMIC Series -- Original Issue Discount." Accordingly, if the issue price of
such a Regular Certificate is equal to its stated redemption price at
maturity, the Regular Certificate will not have any original issue discount.
For purposes of applying the original issue discount provisions of the
Code, all or a portion of the interest payable with respect to a variable rate
Regular Certificate may not be treated as qualified stated interest in certain
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circumstances, including the following: (i) if the variable rate of interest
is subject to one or more minimum or maximum rate floors or ceilings which are
not fixed throughout the term of the Regular Certificate and which are
reasonably expected as of the issue date to cause the rate in certain accrual
periods to be significantly higher or lower than the overall expected return
on the Regular Certificate determined without such floor or ceiling; or (ii)
if it is reasonably expected that the average value of the variable rate
during the first half of the term of the Regular Certificate will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the term of the Regular Certificate. In these
situations, as well as others, it is unclear under the OID Regulations whether
such interest payments constitute qualified stated interest payments, or must
be treated either as part of a Regular Certificate's stated redemption price
at maturity resulting in original issue discount, or represent contingent
payments. The amended OID Regulations issued on June 11, 1996 generally
require the accrual of original issue discount on contingent payment debt
instruments based on the comparable yield of fixed rate debt instruments with
similar terms and conditions, followed by adjustments to reflect the
differences between the payments so projected and the actual contingent
payments. Although the new rules technically do not adequately address certain
issues relevant to, or applicable to, prepayable securities such as REMIC
regular interests, in the absence of other authority, the Servicer intends to
be guided by certain principles of the OID Regulations applicable to variable
rate debt instruments in determining whether such Certificates should be
treated as issued with original issue discount and in adapting the provisions
of Section 1272(a)(6) of the Code to such Certificates for the purpose of
preparing reports furnished to Certificateholders and the IRS. Investors
acquiring Regular Certificates whose rates are subject to the variations
outlined above should consult their tax advisors concerning their appropriate
tax treatment.
If a variable rate Regular Certificate is deemed to have been issued
with original issue discount, as described above, the amount of original issue
discount accrues on a daily basis under a constant yield method that takes
into account the compounding of interest; provided, however, that the interest
associated with such a Regular Certificate generally is assumed to remain
constant throughout the term of the Regular Certificate at a rate that, in the
case of a qualified floating rate, equals the value of such qualified floating
rate as of the issue date of the Regular Certificate, or, in the case of an
objective rate, at a fixed rate that reflects the yield that is reasonably
expected for the Regular Certificate. A holder of such a Regular Certificate
would then recognize original issue discount during each accrual period which
is calculated based upon such Regular Certificate's assumed yield to maturity,
adjusted to reflect the difference between the assumed and actual interest
rate.
Market Discount. Regular Certificates, whether or not issued with
original issue discount, will be subject to the market discount rules of the
Code. A purchaser of a Regular Certificate who purchases the Regular
Certificate at a market discount (i.e., a discount from its original issue
price plus any accrued original issue discount, if any, as described above)
will be required to recognize accrued market discount as ordinary income as
payments of principal are received on such Regular Certificate or upon the
sale or exchange of the Regular Certificate. In general, the holder of a
Regular Certificate may elect to treat market discount as accruing either (i)
under a constant yield method that is similar to the method for the accrual of
original issue discount or (ii) in proportion to accruals of original issue
discount (or, if there is no original issue discount, in proportion to
accruals of stated interest), in each case computed taking into account the
Prepayment Assumption.
The Code provides that the market discount in respect of a Regular
Certificate will be considered to be zero if the amount allocable to the
Regular Certificate is less than 0.25% of the Regular Certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would
be allocated among a portion of each scheduled distribution representing the
stated redemption price of such Regular Certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The Code further provides that any principal payment with respect to a
Regular Certificate acquired with market discount or any gain on disposition
of such Regular Certificate shall be treated as ordinary income to the extent
it does not exceed the accrued market discount at the time of such payment.
The amount of accrued market discount for purposes of determining the amount
of ordinary income to be recognized with respect to subsequent payments on
such a Regular Certificate is to be reduced by the amount previously treated
as ordinary income.
The Code grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments such as the Regular Certificates. Until such time as regulations
are
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issued, rules described in the legislative history for these provisions of the
Code will apply. Under those rules, as described above, the holder of a
Regular Certificate with market discount may elect to accrue market discount
either on the basis of a constant interest rate or according to certain other
methods. Certificateholders who acquire a Regular Certificate at a market
discount should consult their tax advisors concerning various methods which
are available for accruing that market discount.
In general, limitations imposed by the Code that are intended to match
deductions with the taxation of income may require a holder of a Regular
Certificate having market discount to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry such Regular Certificate. Alternatively, a holder of a Regular
Certificate may elect to include market discount in gross income as it accrues
and, if he makes such an election, is exempt from this rule. The adjusted
basis of a Regular Certificate subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or taxable disposition.
Amortizable Premium. A holder of a Regular Certificate who holds the
Regular Certificate as a capital asset and who purchased the Regular
Certificate at a cost greater than its outstanding principal amount will be
considered to have purchased the Regular Certificate at a premium. In general,
the Regular Certificateholder may elect to deduct the amortizable bond premium
as it accrues under a constant yield method. A Regular Certificateholder's tax
basis in the Regular Certificate will be reduced by the amount of the
amortizable bond premium deducted. In addition, it appears that the same
methods which apply to the accrual of market discount on installment
obligations are intended to apply in computing the amortizable bond premium
deduction with respect to a Regular Certificate. It is not clear, however, (i)
whether the alternatives to the constant-yield method which may be available
for the accrual of market discount are available for amortizing premium on
Regular Certificates and (ii) whether the Prepayment Assumption should be
taken into account in determining the term of a Regular Certificate for this
purpose. Certificateholders who pay a premium for a Regular Certificate should
consult their tax advisors concerning such an election and rules for
determining the method for amortizing bond premium.
On December 30, 1997 the IRS issued final regulations ("the Amortizable
Bond Premium Regulations") dealing with amortizable bond premium. These
regulations specifically do not apply to prepayable debt instruments subject
to Code Section 1272(a)(6) such as the Regular Certificates. Absent further
guidance from the IRS, the Trustee intends to account for amortizable bond
premium in the manner described above. Prospective purchasers of the
Certificates should consult their tax advisors regarding the possible
application of the Amortizable Bond Premium Regulations.
Gain or Loss on Disposition. If a Regular Certificate is sold, the
seller will recognize gain or loss equal to the difference between the amount
realized from the sale and the seller's adjusted basis in such Regular
Certificate. The adjusted basis generally will equal the cost of such Regular
Certificate to the seller, increased by any original issue discount included
in the seller's ordinary gross income with respect to such Regular Certificate
and reduced (but not below zero) by any payments on the Regular Certificate
previously received or accrued by the seller (other than qualified stated
interest payment) and any amortizable premium. Similarly, a Regular
Certificateholder who receives a 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 holder's allocable portion of his or her
adjusted basis in the Regular Certificate. Except as discussed below or with
respect to market discount, any gain or loss recognized upon a sale, exchange,
retirement, or other disposition of a Regular Certificate will be capital gain
if the Regular Certificate is held as a capital asset.
Gain from the disposition of a Regular Certificate that might otherwise
be capital gain, including any gain attributable to de minimis original issue
discount, will be treated as ordinary income to the extent of the excess, if
any, of (i) the amount that would have been included in the holder's income if
the yield on such Regular Certificate had equaled 110% of the applicable
federal rate determined as of the beginning of such holder's holding period,
over (ii) the amount of ordinary income actually recognized by the holder with
respect to such Regular Certificate.
If it is determined that the Company intended on the date of issue of
the Regular Certificates to call all or any portion of the Regular
Certificates prior to their stated maturity within the meaning of Section
1271(a)(2)(A) of the Code, any gain realized upon a sale, exchange,
retirement, or other disposition of a Regular Certificate would be considered
ordinary income to the extent it does not exceed the unrecognized portion of
the original issue discount, if any, with respect to the Regular Certificate.
The OID Regulations provide that the intention to call rule will not
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be applied to mortgage-backed securities such as the Regular Certificates. In
addition, under the OID Regulations, a mandatory sinking fund or call option
is not evidence of an intention to call.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be included as ordinary income or
loss in determining the taxable income of holders of Residual Certificates
("Residual Holders"), and will not be taxed separately to the REMIC. The daily
portions are determined by allocating the REMIC's taxable income or net loss
for each calendar quarter ratably to each day in such quarter and by
allocating such daily portion among the Residual Holders in proportion to
their respective holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on the
deductibility of interest and expenses related to tax-exempt income will
apply. REMIC taxable income generally means a REMIC's gross income, including
interest, original issue discount income, and market discount income, if any,
on the Contracts, plus income on reinvestment of cash flows and reserve
assets, minus deductions, including interest and original issue discount
expense on the Regular Certificates, servicing fees on the Contracts, other
administrative expenses of a REMIC, and amortization of premium, if any, with
respect to the Contracts.
The taxable income recognized by a Residual Holder in any taxable year
will be affected by, among other factors, the relationship between the timing
of interest, original issue discount or market discount income, or
amortization of premium with respect to the Contracts, on the one hand, and
the timing of deductions for interest (including original issue discount) on
the Regular Certificates, on the other hand. In the event that an interest in
the Contracts is acquired by a REMIC at a discount, and one or more of such
Contracts is prepaid, the Residual Holder may recognize taxable income without
being entitled to receive a corresponding cash distribution because (i) the
prepayment may be used in whole or in part to make distributions on Regular
Certificates, and (ii) the discount on the Contracts which is included in a
REMIC's income may exceed its deduction with respect to the distributions on
those Regular Certificates. When there is more than one class of Regular
Certificates that receive payments sequentially (i.e., a fast-pay, slow-pay
structure), this mismatching of income and deductions is particularly likely
to occur in the early years following issuance of the Regular Certificates,
when distributions are being made in respect of earlier classes of Regular
Certificates to the extent that such classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
general, losses would be allowed in later years as distributions on the later
classes of Regular Certificates are made. Taxable income may also be greater
in earlier years than in later years as a result of the fact that interest
expense deductions, expressed as a percentage of the outstanding principal
amount of Regular Certificates, may increase over time as distributions are
made on the lower yielding classes of Regular Certificates, whereas interest
income with respect to any given Contract will remain constant over time as a
percentage of the outstanding principal amount of that loan (assuming it bears
interest at a fixed rate). Consequently, Residual Holders must have sufficient
other sources of cash to pay any federal, state, or local income taxes due as
a result of such mismatching, or such holders must have unrelated deductions
against which to offset such income, subject to the discussion of "excess
inclusions" below under "REMIC Series -- Limitations on Offset or Exemption of
REMIC Income." The mismatching of income and deductions described in this
paragraph, if present with respect to a series of Certificates, may have a
significant adverse effect upon the Residual Holder's after-tax rate of
return.
The amount of any net loss of a REMIC that may be taken into account by
the Residual Holder is limited to the adjusted basis of the Residual
Certificate as of the close of the quarter (or time of disposition of the
Residual Certificate if earlier), determined without taking into account the
net loss for the quarter. The initial adjusted basis of a purchaser of a
Residual Certificate is the amount paid for such Residual Certificate. Such
adjusted basis will be increased by the amount of taxable income of the REMIC
reportable by the Residual Holder and decreased by the amount of loss of the
REMIC reportable by the Residual Holder. A cash distribution from the REMIC
also will reduce such adjusted basis (but not below zero). Any loss that is
disallowed on account of this limitation may be carried over indefinitely by
the Residual Holder for whom such loss was disallowed and may be used by such
Residual Holder only to offset any income generated by the same REMIC.
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If a Residual Certificate has a negative value, it is not clear whether
its issue price would be considered to be zero or such negative amount for
purposes of determining the REMIC's basis in its assets. The REMIC Regulations
imply that residual interest cannot have a negative basis or a negative issue
price. However, the preamble to the REMIC Regulations indicates that, while
existing tax rules do not accommodate such concepts, the Service is
considering the tax treatment of these types of residual interests, including
the proper tax treatment of a payment made by the transferor of such residual
interest to induce the transferee to acquire that interest. Absent regulations
or administrative guidance to the contrary, the Company does not intend to
treat a class of Residual Certificates as having a value of less than zero for
purposes of determining the basis of the related REMIC in its assets.
Further, to the extent that the initial adjusted basis of a Residual
Holder(other than an original holder) in the Residual Certificate is greater
than the corresponding portion of the REMIC's basis in the Contracts, the
Residual Holder will not recover a portion of such basis until termination of
the REMIC unless Treasury Regulations yet to be issued provide for periodic
adjustments to the REMIC income otherwise reportable by such holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a
REMIC's deductions for original issue discount will be determined in the same
manner as original issue discount income on Regular Certificates as described
above under "REMIC Series -- Original Issue Discount" and "-- Variable Rate
Regular Certificates," without regard to the de minimis rule described
therein.
The REMIC will have market discount income in respect of the Contracts
if, in general, the basis of the REMIC in such Contracts is exceeded by their
unpaid principal balances. The REMIC's basis in such Contracts is generally
the fair market value of the Contracts immediately after the transfer thereof
to the REMIC (which may equal a proportionate part of the aggregate fair
market value of the REMIC Certificates). In respect of the Contracts that have
market discount to which Code Section 1276 applies, the market discount income
generally should accrue in the manner described above under "REMIC Series --
Market Discount."
Generally, if the basis of a REMIC in the Contracts exceeds the unpaid
principal balances thereof, the REMIC will be considered to have acquired such
Contracts at a premium equal to the amount of such excess. As stated above,
the REMIC's basis in the Contracts is the fair market value of the Contracts
immediately after the transfer thereof to the REMIC. Generally, a person that
holds a Contract as a capital asset may elect to amortize premium on the
Contracts under a constant interest method. See the discussion under "REMIC
Series -- Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. If the aggregate
value of the Residual Certificates relative to the aggregate value of the
Regular Certificates and Residual Certificates is considered to be
"significant," as described below, then a portion (but not all) of the REMIC
taxable income included in determining the federal income tax liability of a
Residual Holder will be subject to special treatment. That portion, referred
to as the "excess inclusion," is equal to the excess of REMIC taxable income
for the calendar quarter allocable to a Residual Certificate over the daily
accruals for such quarterly period of (i) 120% of the long-term applicable
Federal rate that would have applied to the Residual Certificate (if it were a
debt instrument) on the Startup Day under Section 1274(d) of the Code,
multiplied by (ii) the adjusted issue price of such Residual Certificate at
the beginning of such quarterly period. For this purpose, the adjusted issue
price of a Residual Certificate at the beginning of a quarter is the issue
price of the Residual Certificate, plus the amount of such daily accruals of
REMIC income described in this paragraph for all prior quarters decreased by
any distributions made with respect to such Residual Certificate prior to the
beginning of such quarterly period. The value of the Residual Certificates
would be significant in cases where the aggregate issue price of the Residual
Certificates is at least 2% of the aggregate issue price of the Regular
Certificates and Residual Certificates, and the anticipated weighted average
life of the Residual Certificates is at least 20% of the anticipated weighted
average life of the REMIC.
The portion of a Residual Holder's REMIC taxable income consisting of
the excess inclusions generally may not be offset by other deductions on such
Residual Holder's tax return, including net operating loss carry forwards.
Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Section 511 of the Code, the Residual
Holder's excess inclusions will be treated an unrelated business taxable
income of such Residual Holder for purposes of Section 511. Finally, if a real
estate investment trust or regulated investment company owns a Residual
Certificate, a portion (allocated under Treasury Regulations yet to be issued)
of dividends paid by such real estate investment trust or regulated investment
company could not be offset by net operating losses of its shareholders, would
constitute unrelated business taxable income for tax-exempt shareholders, and
would be ineligible for reduction of withholding to certain persons who are
not U.S. persons.
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The Small Business Job Protection Act of 1996 has eliminated the special
rule permitting Section 593 institutions ("thrift institutions") to use net
operating losses and other allowable deductions to offset their excess
inclusion income from REMIC residual certificates that have "significant
value" within the meaning of the REMIC Regulations, effective for taxable
years beginning after December 31, 1995, except with respect to residual
certificates continuously held by a thrift institution since November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the alternative
minimum taxable income of a residual holder. First, alternative minimum
taxable income for such residual holder is determined without regard to the
special rule that taxable income cannot be less than excess inclusions.
Second, a residual holder's alternative minimum taxable income for a tax year
cannot be less than the excess inclusions for the year. Third, the amount of
any alternative minimum tax net operating loss deductions must be computed
without regard to any excess inclusions. These rules are effective for tax
years beginning after December 31, 1986, unless a residual holder elects to
have such rules apply only to tax years beginning after August 20, 1996.
Restrictions on Transfer of Residual Certificates. As described above
under "REMIC Series -- Qualification as a REMIC," an interest in a Residual
Certificate may not be transferred to a Disqualified Organization. If any
legal or beneficial interest in a Residual Certificate is, nonetheless,
transferred to a Disqualified Organization, a tax would be imposed in an
amount equal to the product of (i) the present value of the total anticipated
excess inclusions with respect to such Residual Certificate for periods after
the transfer, and (ii) the highest marginal federal income tax rate applicable
to corporations. The anticipated excess inclusions are based on actual
prepayment experience to the date of the transfer and projected payments based
on the Prepayment Assumption. The present value rate equals the applicable
federal rate under Section 1274(d) of the Code as of the date of the transfer
for a term ending on the close of the last quarter in which excess inclusions
are expected to accrue. Such rate is applied to the anticipated excess
inclusions from the end of the remaining calendar quarters in which they arise
to the date of the transfer. Such a tax generally would be imposed on the
transferor of the Residual Certificate, except that where such transfer is
through an agent (including a broker, nominee, or other middleman) for a
Disqualified Organization, the tax would instead by imposed on such agent.
However, a transferor of a Residual Certificate would in no event be liable
for such tax with respect to a transfer if the transferee furnishes to the
transferor an affidavit, under penalties of perjury, that the transferee is
not a Disqualified Organization and, as of the time of the transfer, the
transferor does not have the actual knowledge that such affidavit is false.
The tax also may be waived by the Treasury Department if the Disqualified
Organization promptly disposes of the residual interest and the transferor
pays such amount of tax as the Treasury Department may require (presumably, a
corporate tax on the excess inclusion for the period the residual interest is
actually held by the Disqualified Organization).
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
income tax rate imposed on corporations. Such tax would be deductible from the
ordinary gross income of the Pass-Through Entity during the period such
interest is held by such Disqualified Organization, and (iii) the highest
marginal federal income tax rate imposed on corporations. Such tax would be
deductible from the ordinary gross income of the Pass-Through Entity for the
taxable year. The Pass-Through Entity would not be liable for such tax if it
has received an affidavit from such record holder that it is not a
Disqualified Organization and, during the period such person is the record
holder of the Residual Certificate, the Pass-Through Entity would not be
liable for such tax if it has received an affidavit from such record holder
that it is not a Disqualified Organization and, during the period such person
is the record holder of the Residual Certificate, the Pass-Through Entity does
not have actual knowledge that such affidavit is false.
For these purposes, a "Pass-Through Entity" means any regulated
investment company, real estate investment trust, common trust fund,
partnership, trust or estate and certain corporations operating on a
cooperative basis. Except as may be provided in Treasury Regulations, any
person holding an interest in a Pass-Through Entity as a nominee for another
will, with respect to such interest, be treated as a Pass-Through Entity.
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Noneconomic Residual Interests. The REMIC Regulations would disregard
certain transfers of Residual Certificates, in which case the transferor would
continue to be treated as the owner of the Residual Certificates and thus
would continue to be subject to tax on its allocable portion of the net income
of the REMIC. Under the REMIC Regulations, a transfer of a "noneconomic
residual interest" (as defined below) to a Residual Holder is disregarded for
all federal income tax purposes if a significant purpose of the transfer is to
enable the transferor to impede the assessment or collection of tax. A
residual interest in a REMIC (including a residual interest with a positive
value at issuance) is a "noneconomic residual interest" unless, at the time of
transfer, (i) the present value of the expected future distributions on the
residual interest at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs, and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. The
anticipated excess inclusions and the present value rate are determined in the
same manner as set forth above. The REMIC Regulations explain that a
significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A safe harbor is provided if (i) the
transferor conducted, at the time of the transfer, a reasonable investigation
of the financial condition of the transferee and found that the transferee had
historically paid its debts as they came due and found no significant evidence
to indicate that the transferee will not continue to pay its debts as they
come due in the future; and (ii) the transferee represents to the transferor
that it understands that, as the holder of a non-economic residual interest,
the transferee may incur tax liabilities in excess of any cash flows generated
by the interest and that the transferee intends to pay taxes associated with
holding the residual interest as they become due. The Pooling and Servicing
Agreement with respect to each series of REMIC Certificates will require the
transferee of a Residual Certificate to certify to the statements in clause
(ii) of the preceding sentence as part of the affidavit described above under
"Restrictions on Transfer of Residual Certificates."
Mark-to-Market Rules. On December 23, 1996, the Service finalized
regulations (the "Mark-to-Market Regulations") relating to the requirement
that a securities dealer mark-to-market securities held for sale to customers.
This mark-to-market requirement applies to all securities owned by a dealer,
except to the extent that the dealer has specifically identified a security as
held for investment. The regulations provide that a REMIC residual interest
acquired on or after January 4, 1995, will not be considered a security for
purposes of the Mark-to-Market Regulations, and thus, such interests may not
be marked to market.
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of
a Residual Certificate, the Residual Holder will recognize gain or loss equal
to the excess, if any, of the amount realized over the adjusted basis as
described above of such Residual Holder in such Residual Certificate at the
time of the sale or exchange. In addition to reporting the taxable income of
the REMIC, a Residual Holder will have taxable income to the extent that any
cash distribution to him from the REMIC exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC may be treated as a sale or exchange of a Residual Holder's Residual
Certificate, in which case, if the Residual Holder has an adjusted basis in
his Residual Certificate remaining when his interest in the REMIC terminates,
and if he holds such Residual Certificate as a capital asset, then he will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
The Conference Committee Report to the Tax Reform Act of 1986 provides
that, except as provided in Treasury Regulations, the wash sale rules of Code
Section 1091 will apply to dispositions of Residual Certificates where the
seller of the Residual Certificate, during the period beginning six months
before the sale or disposition of the Residual Certificate and ending six
months after such sale or disposition, acquires (or enters into any other
transaction that results in the application of Code Section 1091) any residual
interest in any REMIC or any interest in a "taxable mortgage pool" (such as a
non-REMIC owner trust) that is economically comparable to a Residual
Certificate.
Certain Other Taxes on the REMIC. The REMIC provisions of the Code
impose a 100% tax on any net income derived by a REMIC from certain prohibited
transactions, and prohibits deducting any loss with respect to such
transactions. Such transactions are: (i) any disposition of a qualified
mortgage, other than pursuant to the substitution of a qualified replacement
mortgage for a qualified mortgage (or the repurchase in lieu of substitution
of a defective obligation), a disposition incident to the foreclosure,
default, or imminent default of a mortgage, the
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bankruptcy or insolvency of the REMIC, or a qualified liquidation of the
REMIC; (ii) the receipt of income from assets other than qualified mortgages
and permitted investments; (iii) the receipt of compensation for services; and
(iv) the receipt of gain from the dispositions of cash flow investments. The
REMIC Regulations provide that the modification of the terms of a Contract
occasioned by default or a reasonably foreseeable default of the Contract, the
assumption of the Contract, the waiver of a due-on-sale clause or the
conversion of an interest rate by an Obligor pursuant to the terms of a
convertible adjustable-rate Contract will not be treated as a disposition of
the Contract. In the event that a REMIC holds Convertible ARM Loans which are
convertible at the option of the Obligor into fixed-rate, fully amortizing,
level payment Contracts, a sale of such Contracts by the REMIC pursuant to a
purchase agreement or other contract with the Company or other party, if and
when the Obligor elects to so convert the terms of the Contract, is not
expected to result in a prohibited transaction for the REMIC. The Code also
imposes a 100% tax on contributions to a REMIC made after the Startup Day,
unless such contributions are payments made to facilitate a cleanup call or a
qualified liquidation of the REMIC, payments in the nature of a guaranty,
contributions during the three-month period beginning on the Startup Day or
contributions to a qualified reserve fund of the REMIC by a holder of a
residual interest in the foreclosure property that the REMIC derives at the
highest corporate rate on certain net income from foreclosure property that
the REMIC derives from the management, sale, or disposition of any real
property, or any personal property incident thereto, acquired by the REMIC in
connection with the default or imminent default of a loan. Generally, it is
not anticipated that a REMIC will generate a significant amount of such
income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition
of entity-level tax only in a "qualified liquidation." A liquidation is
considered qualified if a REMIC adopts a plan of complete liquidation (which
may be accomplished by designating in the REMIC's final tax return a date on
which such adoption is deemed to occur) and sells all of its assets (other
than cash) within the ninety-day period beginning on the date of the adoption
of the plan of liquidation, provided that it distributes to holders of Regular
or Residual Certificates, on or before the last day of the ninety-day
liquidation period, all the proceeds of the liquidation (including all cash),
less amounts retained to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion,
a "Foreign Holder" is a Certificateholder who holds a Regular Certificate and
who is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity treated as a corporation or partnership for United
States federal income tax purposes, organized in or under the laws of the
United States, any state thereof or the District of Columbia (unless, in the
case of a partnership, Treasury regulations provide otherwise), (iii) an
estate, the income of which is included in gross income for United States tax
purposes regardless of its source, or (iv) a trust if a court within the
United States is able to exercise primary supervision of the administration of
the trust and one or more United States persons have the authority to control
all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996 and treated as United States persons prior to
such date that elect to continue to be treated as United States persons will
not be considered Foreign Holders. Unless the interest on a Regular
Certificate is effectively connected with the conduct by the Foreign Holder of
a trade or business within the United States, the Foreign Holder is not
subject to federal income or withholding tax on interest (or original issue
discount, if any) on a Regular Certificate (subject to possible backup
withholding of tax, discussed below), provided the Foreign Holder is not a
controlled foreign corporation related to the Company and does not own
actually or constructively 10% or more of the voting stock of the Company. To
qualify for this tax exemption, the Foreign Holder will be required to provide
periodically a statement signed under penalties of perjury certifying that the
Foreign Holder meets the requirements for treatment as a Foreign Holder and
providing the Foreign Holder's name and address. The statement, which may be
made on a Form W-8 or substantially similar substitute form, generally must be
provided in the year a payment occurs or in either of the two preceding years.
This exemption may not apply to a Foreign Holder that owns both Regular
Certificates and Residual Certificates. If the interest on a Regular
Certificate is effectively connected with the conduct by a Foreign Holder of a
trade or business within the United States, then the Foreign Holder will be
subject to tax at regular graduated rates. Foreign Holders should consult
their own advisors regarding the specific tax consequences of their owning a
Regular Certificate.
New Withholding Regulations. On October 6, 1997, the Treasury Department
issued new regulations (the "New Regulations") which make certain
modifications to the withholding, backup withholding and information reporting
rules described above. The New Regulations attempt to unify certification
requirements and modify
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reliance standards. The New Regulations will generally be effective for
payments made after December 31, 1999, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding
the New Regulations.
Any gain recognized by a Foreign Holder upon a sale, retirement or other
taxable disposition of a Regular Certificate generally will not be subject to
United States federal income tax unless either (i) the Foreign Holder is a
non-resident alien individual who holds the Regular Certificate as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition, or (ii) the gain is effectively connected
with the conduct by the Foreign Holder of a trade or business within the
United States.
A Regular Certificate will not be included in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company.
Backup Withholding. Under certain circumstances, a REMIC
Certificateholder may be subject to "backup withholding" at a 31% rate. Backup
withholding may apply to a REMIC Certificateholder who is a United States
person if the holder, among other circumstances, fails to furnish his Social
Security number or other taxpayer identification number to the Trustee. Backup
withholding may apply, under certain circumstances, to a REMIC
Certificateholder who is a Foreign Holder if the REMIC Certificateholder fails
to provide the Trustee or the REMIC Certificateholder's securities broker with
the statement necessary to establish the exemption from federal income and
withholding tax on interest on the REMIC Certificates. Backup withholding,
however, does not apply to payments on a Certificate made to certain exempt
recipients, such as corporations and tax-exempt organizations, and to certain
foreign persons. REMIC Certificateholders should consult their tax advisors
for additional information concerning the potential application of backup
withholding to payments received by them with respect to a Certificate.
Reporting Requirements and Tax Administration. The Company will report
annually to the Service, holders of record of the Regular Certificates that
are not excepted from the reporting requirements and, to the extent required
by the Code, other interested parties, information with respect to the
interest paid or accrued on the Regular Certificates, original issue discount,
if any, accruing on the Regular Certificates and information necessary to
compute the accrual of any market discount or the amortization of any premium
on the Regular Certificates.
The Treasury Department has issued temporary regulations concerning
certain aspects of REMIC tax administration. Under those regulations, a
Residual Certificateholder must be designated as the REMIC's "tax matters
person." The tax matters person, generally, has responsibility for overseeing
and providing notice to the other Residual Certificateholders of certain
administrative and judicial proceedings regarding the REMIC's tax affairs. The
Company will be designated as tax matters person for each REMIC, and in
conjunction with the Trustee will act as the agent of the Residual
Certificateholders in the preparation and filing of the REMIC's federal and
state income tax and other information returns.
Grantor Trust Series
Tax Status of the Trust Fund. In the case of a Trust Fund evidenced by a
series or sub-series of Certificates, or a segregated portion thereof, with
respect to which a REMIC Election is not made ("Non-REMIC Certificates"),
Brown & Wood LLP, special tax counsel to the Company, will have advised the
Company that, in their opinion, each Contract Pool and the arrangement to be
administered by the Company under which the Trustee will hold and the Company
will be obligated to service the Contracts and pursuant to which Non-REMIC
Certificates will be issued to Non-REMIC Certificateholders will not be
classified as an association taxable as a corporation or a "taxable mortgage
pool," within the meaning of Code Section 7701(i), but rather will be
classified as a grantor trust under Subpart E, Part I of Subchapter J of
Chapter 1 of Subtitle A of the Code. Each Non-REMIC Certificateholder will be
treated as the owner of a pro rata undivided interest in the ordinary income
and corpus portions of the trust attributable to the Contract Pool in which
its Certificate evidences an ownership interest and will be considered the
equitable owner of a pro rata undivided interest in each of the Contracts
included therein.
Tax Status of Non-REMIC Certificates. In general, (i) Certificates held
by a "domestic building and loan association" within the meaning of Section
7701(a)(19) of the Code may be considered to represent "qualifying real
property loans" within the meaning of Section 7701(a)(19)(C)(v) of the Code;
and (ii) Certificates held by a real estate investment trust may constitute
"real estate assets" within the meaning of Section 856(c)(5)(B) of the Code
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and interest thereon may be considered "interest on obligations secured by
mortgages on real property" within the meaning of Section 856(c)(3)(B) of the
Code. See the discussions of such Code provisions above under "REMIC Series
Tax Status of REMIC Certificates." Investors should review the related
Prospectus Supplement for the treatment of Non-REMIC Certificates and
Contracts, if any, under these Code sections and should, in addition, consult
with their own tax advisors with respect to these matters.
Tax Treatment of Non-REMIC Certificates. Non-REMIC Certificateholders
will be required to report on their federal income tax returns, and in a
manner consistent with their respective methods of accounting, their pro rata
share of the entire income arising from the Contracts comprising such Contract
Pool, including interest, original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by the Company, and any
gain upon disposition of such Contracts. (For purposes of this discussion, the
term "disposition," when used with respect to the Contracts, includes
scheduled or prepaid collections with respect to the Contracts, as well as the
sale or exchange of a Non-REMIC Certificate.) Non-REMIC Certificateholders
will be entitled under Section 162 or 212 of the Code to deduct their pro rata
share of related servicing fees, administrative and other non-interest
expenses, including assumption fees and late payment charges retained by the
Company. An individual, an estate, or a trust that holds a Non-REMIC
Certificate either directly or through a pass-through entity will be allowed
to deduct such expenses under Section 212 of the Code only to the extent that,
in the Aggregate and combined with certain other itemized deductions, they
exceed 2% of the adjusted gross income of the holder. In addition, Section 68
of the Code provides that the amount of itemized deductions (including those
provided for in Section 212 of the Code) otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds a threshold amount
specified in the Code will be reduced by the lesser of (i) 3% of the excess of
adjusted gross income over the specified threshold amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for such taxable year. To
the extent that a Non-REMIC Certificateholder is not permitted to deduct
servicing fees allocable to a Non-REMIC Certificate, the taxable income of the
Non-REMIC Certificateholder attributable to that Non-REMIC Certificate will
exceed the net cash distributions related to such income. Non-REMIC
Certificateholders may deduct any loss on disposition of the Contracts to the
extent permitted under the Code.
Under current Service interpretations of applicable Treasury Regulations
the Company would be able to sell or otherwise dispose of any subordinated
Non-REMIC Certificates. Accordingly, the Company expects to offer subordinated
Non-REMIC Certificates for sale to investors. In general, such subordination
should not affect the federal income tax treatment of either the subordinated
or senior Certificates. Holders of subordinated classes of Certificates should
be able to recognize any losses allocated to such class when and if losses are
realized.
To the extent that any of the Contracts comprising a Contract Pool were
originated on or after March 2, 1984 and under circumstances giving rise to
original issue discount, Certificateholders will be required to report
annually an amount of additional interest income attributable to such discount
in such Contracts prior to receipt of cash related to such discount. See the
discussion above under "REMIC Series -- Original Issue Discount." Similarly,
Code provisions concerning market discount and amortizable premium will apply
to the Contracts comprising a Contract Pool to the extent that the loans were
originated after July 18, 1984 and September 27, 1985, respectively. See the
discussions above under "REMIC Series -- Market Discount" and "REMIC Series --
Amortizable Premium."
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under Code Section 171 or
in computing the accrual of market discount for non-REMIC Certificates.
However, the use of a Prepayment Assumption is required for purposes of
calculating OID for tax years beginning after August 5, 1997, to pools of
receivables the yield on which may be affected by reason of prepayments.
Previous legislative history states that Congress intends that if a Prepayment
Assumption would be used to calculate OID then it should also be used to
accrue market discount and amortize bond premium. Because regulations have not
yet been issued, it is impossible to predict what effect those regulations
might have on the tax treatment of a Certificate purchased at a discount or
premium in the secondary market. Prospective investors are urged to consult
their own tax advisors concerning the tax treatment of a Certificate purchased
at a discount or a premium.
If premium is not subject to amortization using a reasonable Prepayment
Assumption, the holder of a Certificate acquired at a premium should recognize
a loss, if a Contract repays in full, equal to the difference between the
portion of the prepaid principal amount of such Contract that is allocable to
the Certificate and the
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portion of the adjusted basis of the Certificate that is allocable to the
Contract. If a reasonable Prepayment Assumption is used to amortize such
premium, it appears that such a loss would be available, if at all, only if
prepayments have occurred at a rate faster than the reasonable assumed
prepayment rate. It is not clear whether any other adjustments would be
required to reflect the differences between an assumed prepayment rate and the
actual rate of prepayments. In addition, under recent legislation, amounts
received on the redemption of an obligation issued by a natural person are
considered received in exchange of such obligation if the debt obligation is
purchased or issued after June 8, 1997 (i.e., treated the same as obligations
issued by corporations). This change could affect the character of any such
loss (e.g., cause the loss to be treated as capital if such assets are held as
capital assets by the taxpayer).
Stripped Non-REMIC Certificates. Certain classes of Non-REMIC
Certificates may be subject to the stripped bond rules of Section 1286 of the
Code and for purposes of this discussion will be referred to as "Stripped
Certificates." In general, a Stripped Certificate will be subject to the
stripped bond rules where there has been a separation of ownership of the
right to receive some or all of the principal payments on a Contract from
ownership of the right to receive some or all of the related interest
payments. Non-REMIC Certificates will constitute Stripped Certificates and
will be subject to these rules under various circumstances, including the
following: (i) if any servicing compensation is deemed to exceed a reasonable
amount; (ii) if the Company or any other party retains a Retained Yield with
respect to the Contracts comprising a Contract Pool; (iii) if two or more
classes of Non-REMIC Certificates are issued representing the right to non-pro
rata percentages of the interest or principal payments on the Contracts; or
(iv) if Non-REMIC Certificates are issued which represent the right to
interest only payments or principal only payments.
Although not entirely clear, each Stripped Certificate should be
considered to be a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Original issue
discount with respect to a Stripped Certificate, if any, must be included in
ordinary gross income for federal income tax purposes as it accrues in
accordance with the constant-yield method that takes into account the
compounding of interest and such accrual of income may be in advance of the
receipt of any cash attributable to such income. See "REMIC Series -- Original
Issue Discount" above. For purposes of applying the original issue discount
provisions of the Code, the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof and the stated redemption price at
maturity may include the aggregate amount of all payments to be made with
respect to the Stripped Certificate whether or not denominated as interest.
The amount of original issue discount with respect to a Stripped Certificate
may be treated as zero under the original issue discount de minimis rules
described above. A purchaser of a Stripped Certificate will be required to
account for any discount on the certificate as market discount rather than
original issue discount if either (i) the amount of original issue discount
with respect to the certificate was treated as zero under the original issue
discount de minimis rule when the certificate was stripped or (ii) no more
than 100 basis points (including any amount of servicing in excess of
reasonable servicing) is stripped off of the Contracts. See "REMIC Series --
Market Discount" above.
When an investor purchases more than one class of Stripped Certificates
it is currently unclear whether for federal income tax purposes such classes
of Stripped Certificates should be treated separately or aggregated for
purposes of applying the original issue discount rules described above.
It is possible that the Service may take a contrary position with
respect to some or all of the foregoing tax consequences. For example, a
holder of a Stripped Certificate may be treated as the owner of (i) as many
stripped bonds or stripped coupons as there are scheduled payments of
principal and/or interest on each Contract or (ii) a separate installment
obligation for each Contract representing the Stripped Certificate's pro rata
share of price; and/or interest payments to be made with respect thereto. As a
result of these possible alternative characterizations, investors should
consult their own tax advisors regarding the proper treatment of Stripped
Certificates for federal income tax purposes.
It is unclear under what circumstance, if any, the prepayment of
Contracts will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete contracts) and the effect of prepayments is taken into account in
computing yield with respect to such Certificate, it appears that no loss will
be available as a result of any particular prepayment unless prepayments occur
at a rate faster than the assumed prepayment rate. However, if such
Certificate is treated as an interest in discrete Contracts, or if no
prepayment assumption is used, then when
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a Contract is prepaid, the holder of such Certificate should be able to
recognize a loss equal to the portion of the unrecovered premium of such
Certificate that is allocable to such Contract. In addition, amounts received
in redemption for debt instruments issued by natural persons purchased or
issued after June 8, 1997 are treated as received in exchange thereof (i.e.,
treated the same as obligations issued by corporations). This change could
affect the character of any loss. Holders of Stripped Bond Certificates and
Stripped Coupon Certificates are urged to consult with their own tax advisors
regarding the proper treatment of these Certificates for federal income tax
purposes.
Gain or Loss on Disposition. Upon sale or exchange of a Non-REMIC
Certificate, a Non-REMIC Certificateholder will recognize gain or loss equal
to the difference between the amount realized in the sale and its aggregate
adjusted basis in the Contracts represented by the Non-REMIC Certificate.
Generally, the aggregate adjusted basis will equal the Non-REMIC
Certificateholder's cost for the Non-REMIC Certificate increased by the amount
of any previously reported gain with respect to the Non-REMIC Certificate and
decreased by the amount of any losses previously reported with respect to the
Non-REMIC Certificate and the amount of any distributions received thereon.
Except as provided above with respect to the original issue discount and
market discount rules, any such gain or loss would be capital gain or loss if
the Non-REMIC Certificate was held as a capital asset. See "REMIC Series --
Gain or Loss on Disposition" above.
Recharacterization of Servicing Fees. The servicing compensation to be
received by the Servicer may be questioned by the Service with respect to
certain Certificates or Contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of such servicing
compensation could be recharacterized as an ownership interest retained by the
Servicer or other party in a portion of the interest payments to be made
pursuant to the Contracts. In this event, a Certificate might be treated as a
Stripped Certificate subject to the stripped bond rules of Section 1286 of the
Code and the original issue discount provisions rather than to the market
discount and premium rules. See the discussion above under "Non-REMIC Series
- -- Stripped Non-REMIC Certificates."
Tax Treatment of Certain Foreign Investors. Generally, interest or
original issue discount paid to or accruing for the benefit of a Non-REMIC
Certificateholder who is a Foreign Holder (as defined in "REMIC Series --
Taxation of Certain Foreign Investors") will be treated as "portfolio
interest" and therefore will be exempt from the 30% withholding tax. Such
Non-REMIC Certificateholder will be entitled to receive interest payments and
original issue discount on the Non-REMIC Certificates free of United States
federal income tax, but only to the extent the Contracts were originated after
July 18, 1984 and provided that such Non-REMIC Certificateholder periodically
provides the Trustee (or other person who would otherwise be required to
withhold tax) with a statement certifying under penalty of perjury that such
Non-REMIC Certificateholder is a Foreign Holder and provides the name and
address of such Non-REMIC Certificateholder. For additional information
concerning interest or original issue discount paid by the Company to a
Foreign Holder and the treatment of a sale or exchange of a Non-REMIC
Certificate by a Foreign Holder, which will generally have the same tax
consequences as the sale of a Regular Certificate, see the discussion above
under "REMIC Series -- Taxation of Certain Foreign Investors". In addition,
payments of interest or original issue discount made to a Foreign Investor
after December 31, 1999 will generally be subject to the New Regulations. See
discussion above under "REMIC Series -- New Withholding Regulations."
Tax Administration and Reporting. The Company will furnish to each
Non-REMIC Certificateholder with each distribution a statement setting forth
the amount of such distribution allocable to principal and to interest. In
addition, the Company will furnish, within a reasonable time after the end of
each calendar year, to each Non-REMIC Certificateholder who was a
Certificateholder at any time during such year, information regarding the
amount of servicing compensation received by the Company and any sub-servicer
and such other customary factual information as the Company deems necessary or
desirable to enable Certificateholders to prepare their tax returns. Reports
will be made annually to the Service and to holders of record that are not
expected from the reporting requirements regarding information as may be
required with respect to interest and original issue discount, if any, with
respect to the Non-REMIC Certificates.
FASIT Securities
Qualification as a FASIT. In the case of a Trust Fund underlying a
Series (or one or more designated pools of assets held in the Trust Fund) for
which a REMIC election is not made, Brown & Wood LLP, special tax counsel to
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the Company may advise the Company that in their opinion, the Trust Fund will
qualify under the Code as a Financial Asset Securitization Investment Trust
("FASIT") in which the FASIT Regular Securities and the FASIT Ownership
Securities will constitute the "regular interests" and the "ownership
interests," respectively, if (i) a FASIT election is in effect, (ii) certain
tests concerning (A) the composition of the FASIT's assets and (B) the nature
of the Securityholders' interests in the FASIT are met on a continuing basis,
and (iii) the Trust Fund is not a regulated investment company as defined in
Section 851(a) of the Code.
General. The FASIT provisions of the Code were enacted by the Small
Business Job Protection Act of 1996 and create a new elective statutory
vehicle for the issuance of mortgage-backed and asset-backed securities.
Although the FASIT provisions of the Code became effective on September 1,
1997, no Treasury regulations or other administrative guidance have been
issued with respect to those provisions. Accordingly, definitive guidance
cannot be provided with respect to many aspects of the tax treatment of FASIT
Securityholders. Investors also should note that the FASIT discussion
contained herein constitutes only a summary of the federal income tax
consequences to holders of FASIT Securities. With respect to each Series of
FASIT Securities, the related Prospectus Supplement will provide a detailed
discussion regarding the federal income tax consequences associated with the
particular transaction.
FASIT Securities will be classified as either FASIT Regular Securities,
which generally will be treated as debt for federal income tax purposes, or
FASIT Ownership Securities, 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 of FASIT Securities. The
Prospectus Supplement for each Series of Securities will indicate whether one
or more FASIT elections will be made for that Series and which Securities of
such Series will be designated as Regular Securities, and which, if any, will
be designated as Ownership Securities.
Asset Composition. In order for a Trust Fund (or one or more designated
pools of assets held by a Trust Fund) to be eligible for FASIT status,
substantially all of the assets of the Trust Fund (or the designated pool)
must consist of "permitted assets" as of the close of the third month
beginning after the closing date and at all times thereafter (the "FASIT
Qualification Test"). Permitted assets include (i) cash or cash equivalents,
(ii) debt instruments with fixed terms that would qualify as REMIC regular
interests if issued by a REMIC (generally, instruments that provide for
interest at a fixed rate, a qualifying variable rate, or a qualifying
interest-only ("IO") type rate, (iii) foreclosure property, (iv) certain
hedging instruments (generally, interest and currency rate swaps and credit
enhancement contracts) that are reasonably required to guarantee or hedge
against the FASIT's risks associated with being the obligor on FASIT
interests, (v) contract rights to acquire qualifying debt instruments or
qualifying hedging instruments, (vi) FASIT regular interests, and (vii) REMIC
regular interests. Permitted assets do not include any debt instruments issued
by the holder of the FASIT's ownership interest or by any person related to
such holder.
Interests in a FASIT. In addition to the foregoing asset qualification
requirements, the interests in a FASIT also must meet certain requirements.
All of the interests in a FASIT must belong to either of the following: (i)
one or more classes of regular interests or (ii) a single class of ownership
interest that is held by a fully taxable domestic C corporation. In the case
of Series that include FASIT Ownership Securities, the ownership interest will
be represented by the FASIT Ownership Securities.
A FASIT interest generally qualifies as a regular interest if (i) it is
designated as a regular interest, (ii) it has a stated maturity not greater
than thirty years, (iii) it entitles its holder to a specified principal
amount, (iv) the issue price of the interest does not exceed 125% of its
stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the Service plus 5%, and (vi)
if it pays interest, such interest is payable at either (a) a fixed rate with
respect to the principal amount of the regular interest or (b) a permissible
variable rate with respect to such principal amount. Permissible variable
rates for FASIT regular interests are the same as those for REMIC regular
interests (i.e., certain qualified floating rates and weighted average rates).
See "Certain Federal Income Tax Consequences -- REMIC Series -- Original Issue
Discount" and "-- Variable Rate Regular Certificates" herein.
If a FASIT Security fails to meet one or more of the requirements set
out in clauses (iii), (iv), or (v), but otherwise meets the above
requirements, it may still qualify as a type of regular interest known as a
"High-Yield Interest." In addition, if a FASIT Security fails to meet the
requirement of clause (vi), but the interest payable on the Security consists
of a specified portion of the interest payments on permitted assets and that
portion does not vary over the life of the Security, the Security also will
qualify as a High-Yield Interest. A High-Yield Interest may
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be held only by domestic C corporations that are fully subject to corporate
income tax ("Eligible Corporations"), other FASITs, and dealers in securities
who acquire such interests as inventory, rather than for investment. In
addition, holders of High-Yield Interests are subject to limitations on
offseting income derived from such interest. See "Certain Federal Income Tax
Consequences -- FASIT Securities -- Tax Treatment of FASIT Regular Securities
- -- Treatment of High-Yield Interests."
Consequences of Disqualification. If a Series of FASIT Securities fails
to comply with one or more of the Code's ongoing requirements for FASIT status
during any taxable year, the Code provides that its FASIT status may be lost
for that year and thereafter. If FASIT status is lost, the treatment of the
former FASIT and the interests therein for federal income tax purposes is
uncertain. The former FASIT might be treated as a grantor trust, as a separate
association taxable as a corporation, or as a partnership. The FASIT Regular
Securities could be treated as debt instruments for federal income tax
purposes or as equity interests. Although the Code authorizes the Treasury to
issue regulations that address situations where a failure to meet the
requirements for FASIT status occurs inadvertently and in good faith, such
regulations have not yet been issued. It is possible that disqualification
relief might be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the FASIT's income for the period of time
in which the requirements for FASIT status are not satisfied.
Tax Treatment of FASIT Regular Securities. Payments received by holders
of FASIT Regular Securities generally should be accorded the same tax
treatment under the Code as payments received on other taxable corporate debt
instruments and on REMIC Regular Securities. As in the case of holders of
REMIC Regular Securities, holders of FASIT Regular Securities must report
income from such Securities under an accrual method of accounting, even if
they otherwise would have used the cash receipts and disbursements method.
Except in the case of FASIT Regular Securities issued with original issue
discount or acquired with market discount or premium, interest paid or accrued
on a FASIT Regular Security generally will be treated as ordinary income to
the Securityholder and a principal payment on such Security will be treated as
a return of capital to the extent that the Securityholder's basis is allocable
to that payment. FASIT Regular Securities issued with original issue discount
or acquired with market discount or premium generally will treat interest and
principal payments on such Securities in the same manner described for REMIC
Regular Securities. See "Certain Federal Income Tax Consequences -- REMIC
Series -- Original Issue Discount," "-- Market Discount," and "-- Amortizable
Premium" above. High-Yield Securities may be held only by fully taxable
domestic C corporations, other FASITs, and certain securities dealers. Holders
of High-Yield Securities are subject to limitations on their ability to use
current losses or net operating loss carryforwards or carrybacks to offset any
income derived from those Securities.
If a FASIT Regular Security is sold, the Securityholder generally will
recognize gain or loss upon the sale in the manner described above for REMIC
Regular Securities. See "Certain Federal Income Tax Consequences -- REMIC
Series - -- Gain or Loss on Disposition."
FASIT Regular Securities held by a REIT will qualify as "real estate
assets" within the meaning of section 856(c)(5)(B) of the Code, and interest
on such Securities will be considered Qualifying REIT Interest to the same
extent that REMIC Securities would be so considered. See "Certain Federal
Income Tax Consequences -- REMIC Series -- Tax Status of REMIC Certificates"
herein. FASIT Regular Securities held by a Thrift Institution taxed as a
"domestic building and loan association" will represent qualifying assets for
purposes of the qualification requirements set forth in Code Section
7701(a)(19) to the same extent that REMIC Securities would be so considered.
See "Certain Federal Income Tax Consequences -- REMIC -- Series Tax Status of
REMIC Certificates." In addition, FASIT Regular Securities 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. FASIT
Securities will not qualify as "Government securities" for either REIT or RIC
qualification purposes.
Treatment of High-Yield Interests. High-Yield Interests are subject to
special rules regarding the eligibility of holders of such interests, and the
ability of such holders to offset income derived from their FASIT Security
with losses. High-Yield Interests may be held only by Eligible Corporations,
other FASITs, and dealers in securities who acquire such interests as
inventory. If a securities dealer (other than an Eligible Corporation)
initially acquires a High-Yield Interest as inventory, but later begins to
hold it for investment, the dealer will be subject to an excise tax equal to
the income from the High-Yield Interest multiplied by the highest corporate
income tax rate. In addition, transfers of High-Yield Interests to
disqualified holders will be disregarded for federal income tax purposes, and
the transferor still will be treated as the holder of the High-Yield Interest.
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The holder of a High-Yield Interest may not use non-FASIT current losses
or net operating loss carryforwards or carrybacks to offset any income derived
from the High-Yield Interest, for either regular federal income tax purposes
or for alternative minimum tax purposes. In addition, the FASIT provisions
contain an anti-abuse rule that imposes corporate income tax on income derived
from a FASIT Regular Security that is held by a pass-through entity (other
than another FASIT) that issues debt or equity securities backed by the FASIT
Regular Security and that have the same features as High-Yield Interests.
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership Security
represents the residual equity interest in a FASIT. As such, the holder of a
FASIT Ownership Security determines its taxable income by taking into account
all assets, liabilities, and items of income, gain, deduction, loss, and
credit of a FASIT. In general, the character of the income to the holder of a
FASIT Ownership Interest will be the same as the character of such income to
the FASIT, except that any tax-exempt interest income taken into account by
the holder of a FASIT Ownership Interest is treated as ordinary income. In
determining taxable income, the holder of a FASIT Ownership Security must
determine the amount of interest, original issue discount, market discount,
and premium recognized with respect to the FASIT's assets and the FASIT
Regular Securities issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders of
FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "Certain Federal Income Tax Consequences
- -- FASIT Securities -- Tax Treatment of FASIT Regular Securities -- Treatment
of High-Yield Interests."
Rules similar to the wash sale rules applicable to REMIC Residual
Securities also will apply to FASIT Ownership Securities. Accordingly, losses
on dispositions of a FASIT Ownership Security generally will be disallowed
where, within six months before or after the disposition, the seller of such
Security acquires any other FASIT Ownership Security or, in the case of a
FASIT holding mortgage assets, any interest in a Taxable Mortgage Pool, that
is economically comparable to a FASIT Ownership Security. In addition, if any
security that is sold or contributed to a FASIT by the holder of the related
FASIT Ownership Security was required to be marked-to-market under Code
section 475 by such holder, then section 475 will continue to apply to such
securities, except that the amount realized under the mark-to-market rules
will be the greater of the securities' value under present law or the
securities' value after applying special valuation rules contained in the
FASIT provisions. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established securities
market be determined by calculating the present value of the reasonably
expected payments under the instrument using a discount rate of 120% of the
applicable Federal rate, compounded semiannually.
The holder of a FASIT Ownership Security will be subject to a tax equal
to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT, and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any Series for which a
FASIT election is made generally will be structured in order to avoid
application of the prohibited transaction tax.
Withholding, Backup Withholding, Reporting and Tax Administration to
Withholding and Backup Withholding. Holders of FASIT Securities will be
subject to withholding and backup withholding to the same extent holders of
REMIC Securities would be subject. See "Certain Federal Income Tax
Consequences -- REMIC Series -- Backup Withholding" and "Certain Federal
Income Tax Consequences - -- REMIC Series -- New Withholding Regulations." For
purposes of reporting and tax administration, holders of record of FASIT
Securities generally will be treated in the same manner as holders of REMIC
Securities. See "Certain Federal Income Tax Consequences -- REMIC Series --
Reporting Requirements and Tax Administration" above. Prospective investors
should be aware than on October 6, 1997, the Treasury Department issued new
regulations regarding withholding, backup withholding, and information
reporting. Such regulations are further discussed at "Certain Federal Income
Tax Consequences -- REMIC Series -- New Withholding Regulations."
STATE AND LOCAL TAX CONSIDERATIONS
No advice has been received as to local income, franchise, personal
property, or other taxation in any state or locality, or as to the tax effect
of ownership of Certificates in any state or locality. Certificateholders are
advised to consult their own tax advisors with respect to any state or local
income, franchise, personal property, or other tax consequences arising out of
their ownership of Certificates.
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LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise specified in the applicable Prospectus Supplement, any
Certificates offered hereby that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") and, as such, 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 such entities. Under SMMEA, certain
states have created legislation specifically limiting the legal investment
authority of any such entities with respect to "mortgage related securities,"
in which case such Certificates will constitute legal investments for entities
subject to such legislation only to the extent provided therein. SMMEA
provides, however, that in no event will the enactment of any such legislation
affect the validity of any contractual commitment to purchase, hold or invest
in Certificates, or require the sale or other disposition of Certificates, so
long as such contractual commitment was made or such Certificates were
acquired prior to the enactment of such 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 Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. 24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Some Classes of Certificates offered hereby may not be rated in one of
the two highest rating categories, or may not otherwise satisfy the
requirements of SMMEA, and thus would not constitute "mortgage related
securities" for purposes of SMMEA.
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 interest, including
securities previously purchased. There may be other restrictions on the
ability of certain investors, including depository institutions, either to
purchase Certificates or to purchase Certificates representing more than a
specified percentage of the investor's assets. Investors should consult their
own legal advisors in determining whether and to what extent the Certificates
constitute legal investments for such investors.
RATINGS
It is a condition precedent to the issuance of any Class of Certificates
sold under this Prospectus that they be rated by at least one nationally
recognized statistical rating organization in one of its four highest rating
categories (within which there may be sub-categories or gradations indicating
relative standing). A security rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or withdrawal at any time by
the assigning rating agency. The security rating of any Series of Certificates
should be evaluated independently of similar security ratings assigned to
other kinds of securities.
Ratings of the Certificates address the likelihood of the ultimate
receipt of all distributions on the contracts by the related
certificateholders under the agreements pursuant to which such certificates
are issued. The ratings take into consideration the credit quality of the
related contract pool, including any credit support providers, structural and
legal aspects associated with such certificates, and the extent to which
payment stream on such contract pool is adequate to make payments required by
such certificates. The ratings on such certificates do not, however,
constitute a statement regarding frequency of prepayments on the related
contracts.
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UNDERWRITING
The Company may sell Certificates of each Series to or through
underwriters (the "Underwriters") by a negotiated firm commitment underwriting
and public reoffering by the Underwriters, and also may sell and place
Certificates directly to other purchasers or through agents. The Company
intends that Certificates will be offered through such various methods from
time to time and that offerings may be made concurrently through more than one
of these methods or that an offering of a particular Series of Certificates
may be made through a combination of such methods.
The distribution of the Certificates may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of the Certificates, Underwriters may
receive compensation from the Company or from purchasers of Certificates for
whom they may act as agents in the form of discounts, concessions or
commissions. Underwriters may sell the Certificates of a Series to or through
dealers and such dealers may receive compensation in the form of discounts,
concessions or commissions from the Underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of the Certificates of a Series may be
deemed to be Underwriters, and any discounts or commissions received by them
from the Company and any profit on the resale of the Certificates by them may
be deemed to be underwriting discounts and commissions, under the Securities
Act of 1933, as amended (the "Act"). Any such Underwriters or agents will be
identified, and any such compensation received from the Company will be
described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company, Underwriters
and agents who participate in the distribution of the Certificates may be
entitled to indemnification by the Company against certain liabilities,
concluding liabilities under the Act.
The Company may authorize Underwriters or other persons acting as the
Company's agents to solicit offers by certain institutions to purchase the
Certificates from the Company pursuant to contracts providing for payment and
delivery on a future date. Institutions with which such contracts may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational charitable institutions and others, but in
all cases such institutions must be approved by the Company. The obligation of
any purchaser under any such contract will be subject to the condition that
the purchaser of the offered Certificates shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject from purchasing such Certificates. The Underwriters and such other
agents will not have responsibility in respect of the validity or performance
of such contracts.
The Underwriters may, from time to time, buy and sell Certificates, but
there can be no assurance that an active secondary market will develop and
there is no assurance that any such market, if established, will continue.
Certain of the Underwriters and their associates may engage in
transactions with and perform services for the Company in the ordinary course
of business.
LEGAL MATTERS
The validity of the Certificates will be passed upon for the Company by
Boult, Cummings, Conners & Berry, PLC. The material federal income tax
consequences of the Certificates will be passed upon for the Company by Brown
& Wood LLP, New York, New York.
EXPERTS
The consolidated financial statements of CHI as of June 30, 1997 and
1998 and for each of the three years in the period ended June 30, 1998,
incorporated by reference herein, have been incorporated herein in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of that firm as experts in accounting and auditing.
55
<PAGE>
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used
in this Prospectus and the Prospectus Supplement. The 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.
"Advances" means the advances made by a Servicer (including from
advances made by a Sub-servicer) on any Remittance Date pursuant to an
Agreement.
"Agreement" means each Pooling and Servicing Agreement by and among the
Company, the Trustee, the Servicer and any other party specified in the
related Prospectus Supplement.
"APR" means, with respect to any Contract and any time, the per annum
rate of interest then being borne by such Contract, as set forth on the face
thereof.
"Available Distribution Amount" means, with respect to each Series of
Certificates, certain amounts on deposit in the Certificate Account on a
Determination Date.
"Certificate Account" means the account maintained by the Servicer or
the Trustee, as specified in the related Prospectus Supplement.
"Certificate Distribution Amount" means with respect to a Series of
Certificates evidencing an interest in a Contract Pool the amount of interest
(calculated as specified in such Prospectus Supplement) and the amount of
Principal (calculated as specified in such Prospectus Supplement) to be
distributed to Certificateholders on each Remittance Date.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"CHI" means Clayton Homes, Inc.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Company" means Vanderbilt (as defined below) or, if specified in the
related Prospectus Supplement, a limited purpose finance subsidiary of
Vanderbilt organized and established by Vanderbilt.
"Compound Interest Certificates" means Certificates on which interest
may accrue but not be paid for the period described in the related Prospectus
Supplement.
"Contract Pool" means, with respect to each Series of Certificate, the
pool of manufactured housing conditional sales contracts and installment loan
agreements transferred by the Company to the Trustee.
"Contract Rate" means, with respect to each Contract, the interest rate
specified in the Contract.
"Contracts" means manufactured housing installment sales contracts,
installment loan agreements and (unless the context requires otherwise)
Mortgage Loans, including any and all rights to receive payments due
thereunder on and after the Cut-off Date and security interest in Manufactured
Homes and/or mortgaged properties purchased with the proceeds of such
contracts.
"Cut-off Date" means the date specified in the related Prospectus
Supplement as the date from which principal and interest payments on the
Contracts are included in the Trust Fund.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the third Business Day immediately preceding the
related Remittance Date.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
26th day of the second month preceding the month of the Remittance Date and
ending on the 25th day of the month preceding the month of the Remittance
Date.
"Eligible Investments" means one or more of the investments specified in
the Agreement in which moneys in the Certificate Account and certain other
accounts are permitted to be invested.
"FDIC" means the Federal Deposit Insurance Corporation.
56
<PAGE>
"FHA" means the Federal Housing Administration.
"Final Scheduled Remittance Date" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the Stated
Balance of the Classes of each Series, the date, based on the assumptions set
forth in the related Prospectus Supplement, on which the Stated Balance of all
Certificates of each Class shall have been reduced to zero.
"HUD" means the United States Department of Housing and Urban Development.
"Interest Rate" means, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of
the Classes of such Series, the interest payable on the Principal Balance
outstanding of each such Class.
"Liquidation Proceeds" means cash (including insurance proceeds)
received in connection with the repossession of a Manufactured Home.
"Loan-to-Value Ratio" means the loan-to-value ratio at the time of
origination of the Contract.
"Manufactured Home" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
"Modular Home" means a unit of manufactured housing that does not meet
the requirements of a "manufactured home" under 42 United States Code, Section
5402(6), and which is further defined in a related Prospectus Supplement.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Contract.
"Obligor" means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
"Record Date" means the date specified in the related Prospectus
Supplement for the list of Certificateholders entitled to distributions on the
Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in
the Code.
"Remittance Date" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"Remittance Rate" means, as to a Certificate, the rate or rates of
interest thereon specified in the related Prospectus Supplement.
"Seller" means, with respect to a Series of Certificates evidencing
interest in Contracts, the Seller specified in the Prospectus Supplement.
"Senior Certificates" means, with respect to each Series of
Certificates, the Class or Classes which have rights senior to another Class
or Classes in such Series.
"Servicer" means Vanderbilt Mortgage and Finance, Inc., or such other
entity as specified in the related Prospectus Supplement.
"Servicing Fee" means the amount of the annual fee paid to the Servicer
or the Trustee as specified in the related Prospectus Supplement.
"Single Certificate" means, for each Class of Certificates of any
Series, the initial principal amount of Contracts evidenced by a single
Certificate of such Class.
"Stated Balance" means, with respect to a Series of Certificates
providing for sequential distributions in reduction of Stated Balance of the
Classes of such Series, the maximum specified dollars amount (exclusive of
interest at the related Interest Rate) to which the Holder thereof is entitled
from the cash flow of the Trust Fund.
"Subordinated Certificates" means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
57
<PAGE>
"Trust Fund" 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, such assets
as shall from time to time be identified as deposited in the Certificate
Account, the Manufactured Home which secured a Contract, insurance, a reserve
fund and other forms of credit enhancement, if any.
"Trustee" means the Trustee for a Series of Certificates specified in
the related Prospectus Supplement.
"VA" means the Veterans' Administration.
"Vanderbilt" means Vanderbilt Mortgage and Finance, Inc.
"Variable Rate Regular Certificates" means Certificates which evidence
the right to receive distributions of income at a variable Remittance Rate.
58
<PAGE>
$355,797,000
(Approximate)
Vanderbilt Mortgage and Finance, Inc.
Seller and Servicer
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1999C
----------
PROSPECTUS SUPPLEMENT
----------
Prudential Securities
Morgan Stanley Dean Witter
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Series 1999C Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates in any state where the offer is
not permitted.
We do not claim that the information in this prospectus supplement and
prospectus is accurate as of any date other than the dates stated on the
respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting
as underwriters of the Series 1999C Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the Series 1999C
Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates
will be required to deliver a prospectus supplement and prospectus for ninety
days following the date of this prospectus supplement.
August 18, 1999
<PAGE>
$10,121,000
VANDERBILT MORTGAGE AND FINANCE, INC.
SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT
SENIOR/SUBORDINATE PASS-THROUGH CERTIFICATES, SERIES 1999C
CLASS II B-3 CERTIFICATES
---------------------
SUPPLEMENT TO PROSPECTUS SUPPLEMENT
---------------------
PRUDENTIAL SECURITIES
You should rely only on the information contained or incorporated by
reference in this supplement to the prospectus supplement, the prospectus
supplement and the accompanying prospectus. We have not authorized anyone to
provide you with different information.
We are not offering the Series 1999C Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Class II B-3 Certificates in any
state where the offer is not permitted.
We do not claim that the information in this supplement to the
prospectus supplement, the prospectus supplement and prospectus is accurate as
of any date other than the dates stated on the respective covers.
Dealers will deliver a supplement to the prospectus supplement,
prospectus supplement and prospectus when acting as underwriters of the Series
1999C Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Class II B-3 Certificates and with respect to their unsold
allotments or subscriptions. In addition, all dealers selling the Series 1999C
Manufactured Housing Contract Senior/Subordinate Pass-Through Certificates,
Class II B-3 Certificates will be required to deliver a supplement to the
prospectus supplement, prospectus supplement and prospectus for ninety days
following the date of this supplement to the prospectus supplement.
December 16, 1999
