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HomeMy WebLinkAbout118-80 RESOLUTION• RESOLUTION NO. //,440 • ,.• : -WHEREAS, the Board has submitted such matteisfog approval by the Board of Directors of the City; NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the City of Fayetteville, Arkansas: Section 1. (a) In accordance with the recommendations ,of the Board, the City hereby approves issuance of the Bonds and the related details thereof and the Board's mortgage finance program (the "Program"), substantially as set forth in the Preliminary Official Statement of of the Board, a. copy of which is attached hereto, Exhibit A, and incorporated herein by reference. (b) The City hereby approves the sale of the Bonds to Powell & Satterfield, Inc. and Rauscher Pierce Refsnes, Inc. as Underwriters to the Board and approves Lomas & Nettleton Company as Administrator to the Program. .(c) The City approves the Participant mortgage lending institutions listed on Exhibit B attached hereto, which is incorporated herein by reference. (d) Mercantile National Bank at Dallas, Dallas, Texas, is hereby approved as Trustee and Paying Agent for the Bonds, it having been found that the appointment of that institution as Trustee and Paying Agent is necessary if the Bonds are to be rated and marketed on acceptable terms under present economic conditions. (e) It is recognized and understood that, due to recent action by the Congress of the United States, the Bonds must be issued prior to January 1, 1981, that, due to current economic conditions, the marketing of the Bonds will be difficult and, indeed, cannot be assured and that the cie .details of the Bonds may have to be altered in order to ' R T.. conform to demands of the market. Therefore, only substantial compliance with the terms of the Bonds and their security set forth in the Preliminary Official Statement may be possible or in the interest of the City, and the Board is authorized to issue its Bonds under the Act on terms the details of which may vary from those set forth in the Preliminary Official Statement, subject, however, to the following conditions: 1. The rate of interest borne by any of the Bonds shall not exceed 10% per annum. 2. The discount received by or fees paid to the Underwriters may not exceed 2.5% of the principal amount of the Bonds issued. 3. The principal amount of the Bonds issued may not exceed $20,000,000. 4. A minimum of 75% of the proceeds of the Bonds (exclusive of amounts required to establish appropriate reserves and to pay costs of issuance of the Bonds) shall be used to acquire mortgage loans on existing or newly constructed single family residences located within the corporate limits of the City and a maximum of 25% of such funds shall be used to acquire mortgage loans on existing single family residences located in the territorial planning jurisdiction of the City (and not within the territorial planning jurisdiction of any other municipality) and in the City's projected growth area. (f) The approval of the Bonds, as set forth in this Section, is given in satisfaction of all requirements of Ordinance No. 2485, including the conditions set forth in Sections 4 and 5 thereof and the requirement set forth in Section 7 thereof. • Section 2. As implemented and interpreted hereby, Ordinance No. 2485 is hereby confirmed. Section 3. Any resolution in conflict herewith is hereby repealed to the extent of such conflict. Section 4. It has been found and determined that there is an urgent need for residential housing facilities in the City, that under current economic conditions the issue of Bonds by the Board affords the only means whereby a significant portion of this need can be met, and that, due to recent action by the Congress of the United States, those Bonds must be issued, if at all, prior to January 1, 1981. Therefore, an emergency is declared to exist and this Resolution, being necessary for the preservation of the public peace, health and safety, shall be in effect upon its passage and approval. CERTIFICATE OF RECORD State of Arkansas i SS City of Fayetteville I, Bonnie Goering, City Clerk and E;; Offich recorder for the City of Fayetteville, do here- by certify that the annexed or fcre'011s of record in my officeand the sarnb k ap• pears in Ordinance Ca Witness my nCS3 of hand and seal the 19 51/ City Clerk and Ex -Officio Recorder CERTIFICATE The undersigned, City Clerk of the City of Fayetteville, Arkansas, hereby certifies that the foregoing is a true and correct copy of Resolution No.//,y-SO, adopted at a /b )2*.TJ meeting of the City Council of the City, held at the regular meeting place in said City at ':3n o'clock p.m., on the /Sd day of ), , 1980, and that the Resolution is a part of the public records of the City, now in my possession. GIVEN under my hand and seal on this ci22,p(day of AQm nn., lauu , 1980. 4 t'Sr" csEArle d*u-ti, City C� k d • • PRELI511NARY OFFICIAL STATEMENT DATED EXHIBIT A .i , 1980 ' - . c t7 In the opinion of Bond Counsel, under existing statutes. regulations, published rulings and judicial decisions, interest on the Bonds is exempt from all present federal income taxes. However, legislation is pending before Congress (including the "Ullman Bili") which, if enacted in its present form, would retroactively subject interest on the Bonds to federal income tax. Under other pronosni.s (including the "Long Amendment") lox exemption of the interest on the Bonds would not be affected. Prospective purchasers of the Bonds should read carefully the section entitled "Pending Federal Legislation on Tax Exemption" herein. NEN ISSUE • RATING: Standard & Poor's $18,000,000 City of Fayetteville, Arkansas Residential housing Facilities Board Single Family Mortgage Revenue Bonds, Series 1980 Multiple Originators and Servicers The Lomas & Nettleton Compnny - Administrator Dated: December 15, 1980 Due: December 15, as shown below Interest on the Bonds is payable June 15 and December 15 of each year, commencing June 15, 1981. The Bonds are issued as coupon bonds, registrable as to principal only, or as to both principal and interest, in the denomination of $5,000 each. Principal, redemption premiums, if any, and interest on the coupon Bonds payable to bearer are payable at the principal office of Mercantile National Bank at Dallas,Dallas, Texas, Trustee and Paying Agent. • The Bonds are subject to special mandatory redemption and optional redemption, including redemption in whole or in part from prepayments of principal of mortgage loans, moneys in the Acquisition Fund which are not used to purchase mortgage loans, and moneys received from certain other sources, as more fully described herein under "The Bonds — Redemption Provisions". It is expected that a substantial portion of the Bonds will be redeemed prior to their respective stated maturities. The net proceeds of the Bonds will be used to purchase newly originated mortgage loans, secured by mortgages on single family residences in and near the City of Fayetteville, Arkansas, to be occupied by persons or families with incomes not exceeding $33,000, and to deposit amounts to certain reserve and other funds and accounts, as more fully described herein. The mortgage loans are to be originated by a number of financial institutions (the "Participants") as more fully described herein under The Participants", and sold to the City of Fayetteville, Arkansas Residential Housing Facilities Board (the "Issuer"). The Bonds are limited obligations of the Issuer, and are secured by, and payable solely from (i) certain proceeds from the sate of the Bonds, (ii) revenues and receipts of the Program, and (iii) the amounts on deposit in the various reserve and other funds and accounts and the investment income thereon. Sources of Program Revenues include payments and prepayments on the mortgage loans (including insurance proceeds relating thereto), the commitment fees paid by the Participants and the proceeds from any sale of the mortgage loans, including sales to Worthen Bank & Trust Company, N. A., Little Rock, Arkansas pursuant to the Mortgage Loan Purchase Agreement in order to pay the Term Bonds when due. The performance of Worthen Bank & Trust Company under the Mortgage Loan Purchase Agreement will be secured by an irrevocable letter of credit issued by the Trustee. The Bonds do not constitute a general obligation of the Issuer, and do not constitute a charge against the general credit or taxing power of the City of Fayetteville, the State of Arkansas, or any municipality or political subdivision thereof. Neither the City, the State nor any municipality or political subdivision thereof. Neither the City, the State nor any municipality or political subdivision thereof shall be liable on the Bonds, and the Bonds are not 'a debt of the City, the State er any municipality or political subdivision thereof, within the meaning of any constitutional or statutory provision. Due Principal* December 15 Amount 1982 1983 1984 1985 1986 Interest Rate $18,000,000 SERIAL BONDS* Price or Yield Duc Principal* Interest Price December 15 Amount Rate or Yield 1987 1988 1989 1990 1991 $00,000,000 ....% TE}tM A BONDS DUE 1982 at ...% $00,000,000 ....%, TERM B BONDS DUE 1992 at ...%* (Accrued interest to be added) The Bonds are offerer] when, as and if issued and received by the Underwriters, and sr rbject to the approving opinion of Messrs. Friday, Eldredge & Clark, Liltte Rock, Aricnn.sas, Bond Counsel, as to validity and tax exemption. Certain Icget matters will be passed upon for the Underwriters by their counsel, Messrs. Chapman and Cutler, Chicago, Illinois, and for the Issuer by James N. McCord, City Attorney of Fayetteville. Arkansas. It is expected that the Bonds will be available for delivery in on or about December 1980. POWWELL & SATTERFEILD, INC. RAUSCHER PIERCE REFSNES INC. *Preliminary, subject to change. { No dealer, broker, salesman or other person has been authorized by the Issuer, or the Underwriters, to give any information or to make nny representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon ns having been authorized by nnv of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be nny sale of the Bonds by any person 'in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from the Issuer and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the Underwriters. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstnnces, create any implication that there has been no change in the affairs of the issuer or any other parties described herein since the date hereof. IN CONNECTION WITH THIS OFFERING, TIIE UNDERWRITERS MAY OVER -ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN TIIE MARKET PRICE OF THE BONDS OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. • TABLE OF CONTENTS Page Summary Statement Introduction The Issuer The Administrator The Bonds Debt Service on the Bonds Program Assumptions Sources and Applications of Funds The Mortgage Loans Insurance The Participants The Purchaser and the Trustee The Agreement The Mortgage Loan Purchase Agreement The Letter of Credit The Indenture Pending Federal Legislation on Tax Exemption General Information Regarding the City of Fayetteville Ratings Certain Verifications Underwriting Tax Exemption Approval of Legal Proceedings Miscellaneous • This Summary Statement The offerin0 of the Bonds authorized to detach this Official Statement. SUMMARY STATEMENT is subject in all respects to more complete information contained in this Official Statement. to potential investors is made only by means of this entire Official Statement. No person is Summary Statement from this Official Statement or to'atherwise use it without this entire Lssucr The Bonds Tax Exemption and Pending Legislation Redemption. Initial Fund Deposits Sccuri ty City of Fayetteville, Arkansas Board (the "Issuer"), a public body laws of the Stale of Arkansas. Residential housing Facilities corpornte mad politic under the $18,000,000* aggregate principal amount of Single Family Mortgage Revenue Bonds, Series 1980, maturing in such amounts and at such times and bearing interest at such rates as are set forth on the cover of this Official Statement. No additional parity obligations are permitted to be issued under the Indenture. The Issuer has covenanted not to issue any other bonds of a type or character similar to the Bonds until at least 95% of the moneys initially deposited in the Acquisition Fund have been applied to acquire Mortgoge Loans or otherwise transferred, committed or expended as provided in the Indenture. In the opinion of Bond Counsel, under existing statutes, regulations, published rulings and judicial decisions, interest on the Bonds is exempt from all present federal income taxes. However, the U. S. House of Representatives on March 26, 1980, passed and sent to the Senate a bill (11.R. 5741), known as the Ullman 13111, which provides that interest on obligations such as the Bonds, issued after April 24, 1979, would not be exempt from federal income taxation. On June 27, 1980, on the motion of Chairman Russell Long of the Senate Finance Committee, the Senate approved an amendment to n supplemental appropriation bill (Amendment No. 344 to 11.R. 7542), known as the Long Amendment, which provides that any change in federal income tax treatment of mortgage revenue bonds shrill not apply to bonds issued before January 1, 1981. As part of the budget reconciliation process the House Budget Committee will include the provisions of H.R. 5741 in its recommendations; however, no provisions affecting mortgage 'revenue bands are included in the recommendation of the Senate Finance Committee. Sec "Pending Federal Legislation on Tax Exemption" herein. The Bonds are subject to redemption as more fully set forth under "The Bonds — Redemption Provisions", including special mandatory redemption in whole or impart from prepayments of principal of the Mortgage Loans, moneys in the Acquisition Fund which are not used to purchase Mortgage Loans, and moneys received from certain other sources. Although no such prepayments were assumed in establishing the maturities of the Bonds, it is anticipated that a substantial portion of the Bonds will be redeemed prior to their respective stated maturities. Approximately 515,000,000* will be deposited to the Acquisition Fund for the purchase of newly originated Mortgage Loans, $00,000,000* will be deposited to the Debt Service Reserve Fund, $000,000* will be deposited to the Contingency Reserve Fund, $0,000,000* will be deposited to the Mortgage Reserve Fund and $000,000* will be.deposited to the Cost of Issuance Fund. The Bonds are secured by, and payable solely from (i) certain proceeds derived from the sale of the Bonds, (ii) a pledge of the revenues and receipts of the Program, and (iii) the amounts on deposit in the various Funds and Accounts established by the Indenture and the investment income thereon. - Sources of Program Revenues include payments and prepayments on the Mortgage Loans (including insurance proceeds relating thereto), the Commitment Fees (as defined in the Agreement) of the Participants and the proceeds from any sole of the Mortgage Loans, including silts to Worthen Bank & Trust Company, N.A. i Mortgage Loans Insurance Participants Purchaser Trust cc Administrator * Preliminary, subject to change. (the "Purchaser"), in order to pay the Bonds maturing December 15, 1992 (tile "Term }fonds"). when due pursuant to the Mortgage Loan Purchase. :Agreement (the "Purchase Agreement") between the Issuer, . the -Purchaser and the Trustee. The performance of the Purchaser under the Purchase Agreement will be secured by an irrevocable letter of credit issued by the Trustee. In addition, the Trustee will be granted a security interest in all such Mortgage Loans, insurance policies, the Agreement and the Purchase Agreement. The Brings- ere /united obligations of the issuer payable solely from the revenue and receipts described above. See "The Bonds — Security for the Bonds". Loans will be made to Eligible Borrowers to finance qualified single family residences to be occupied by the Eligible Borrower. In addition to detached single family residences (up to 15%), duplexes, but not Condominiums, may be financed. The principal amount of any Mortgage Loan may not exceed 577,000. Each Mortgage Loan will have a term of 30 years and will be secured by a first mortgage lien (subject to certain permitted encumbrances) on the Residence. Interest will be payable at the rate of % until May 31, 1992, and at 15% thereafter. Each Mortgage Loan which exceeds 80% of the lesser of .the sales price or the appraised value of the Residence must be insured by a qualified private mortgage insurer (as more fully described herein under "Insurance"). Each Mortgagor must maintain standard hazard insurance providing fire and extended coverage. In addition to the above, there will be 0) a mortgage pool insurance policy issued by Mortgage Guaranty Insurance Corporation providing secondary coverage against Mortgagor defaults on the portfolio of Mortgage Loans to be acquired by the Issuer (subject to a limitation on aggregate claims of 15% of the total initial principal amount of all Mortgage Loans originated, or whichever is greater) and (ii) a special hazard insurance policy issued by MGIC Indemnity Corporation providing certain secondary coverage against physical damage to any of the Residences (subject to a limitation on aggregate claims of the greater of 1% of the total initial principal amount of all Mortgage Loans or twice the initial principal amount of the largest Mortgage Loan purchased), all as more fully set forth under "Insurance". Mortgage Loans in the approximate original principal amount of $15,000,000* are expected to -be originated and sold to the issuer by certain savings and loan associations, mortgage banking institutions and commercial banking institutions and will be serviced, unless otherwise provided, by such financial institutions for a monthly fee of 1/12 of 3/8 of 1% of the unpaid principal amount of such Mortgage Loans on which principal payments are made, See "The Mortgage Loans" and "The Participants". The Purchaser has entered into the Purchase Agreement pursuant to which it is obligated, prior to the maturity of the Term Bonds, to purchase all oustanding Mortgage Loans offered for sale to it by the Issuer. As compensation for such obligation the Purchaser will receive monthly a fee equal to 1/12 of 1/2 of 1% of the principal amount of Mortgage Loans outstanding. See "The Mortgage Loan Purchase Agreement". The Trustee will issue its irrevocable letter of credit pursuant to which it will he obligated to pay, for deposit in the Bond Fund, amounts due from the Purchaser under the Purchase Agreement to the extent such amounts are not paid by the Purchaser. as compensation for such obligation, the Trustee will receive monthly a fee equal to 1/12 of 1/4 of 1% of Mortgage Loans outstanding. See "The Mortgage Purchase Agreement" and "The Letter of Credit". The Lomas ec Nettleton Company will serve ns Administrator of the Program pursuant to the terms of the Agreement. Among the duties and responsibli t ies of the Administrator are 0) the review ii of Mbrtgage Loan documents prior to purchase by the Issuer, (ii) the submission of reports pertaining to moneys remitted to the Trustee by the Participants, (iii) the reviev) of the performance of each Participant, (iv) the review of and recommendations as to delinquency and foreclosure procedures and (v) the assumption of the responsibility of servicing ,Mortgage Loans of any Participant that is terminated for failure properly to service Mortgage Loans under the terms and. conditions of the Agreement or that voluntarily transfers its servicing obligotionsfto the Administrator with the consent of the Administrator and the Issuer. iii OFFICIAL STATEMENT relating to $18,000,000• • Single Family Mortgage Revenue Bonds, Series 1980 City of Fayetteville, Arkansas Residential (lousing Facilities Board INTRODUCTION The purpose of this Official Statement is to set forth information regarding the sale by the City of Fayetteville, Arkansas Residential Housing Facilities Board (the "Issuer") of $18,000,000* aggregate principal amount of its Single Family Mortgage Revenue Bonds, Series 1980 (the "Bonds"), which are being issued in connection with the Issuer's Single Family Mortgage Purchase Program (the "Progrnm"). The Bonds are being issued pursuant to a Trust Indenture, dated as of December 15, 1980 (the "Indenture"), between the Issuer and Mercantile National Bank at Dallas, Dallas, Texas. as trustee (the "Trustee"), to provide funds to purchase mortgage loans (the "Mortgage Loans") secured by first mortgage liens (subject to certain permitted encumbrances) on owner -occupied single family residences (the "Residences"), within or near the City of Fayetteville, Arkansas (the "City"), to make deposits to certain reserve funds and to pay bond issuance expenses and certain other costs. Pursuant to a Sale, Servicing and Administration Agreement, dated as of December 15, 1980, (the "Agreement"), among the Issuer, the Trustee, the Lomas & Nettleton Company (the "Administrator"), Lomas & Nettleton Financial Corporation ("LNFC"), and certain financial institutions (the "Participants"), the Participants are severally obligated • to use their best efforts to originate and sell to the Issuer, or to enter into firm comm'tment letters with bona fide homebuyers on or before December 15, 1981, for the origination and eventual sale to the issuer of, Mortgage Loans in the allocated amounts described under "The Participants" herein. The aggregate amount of such allocations will be approximately S15,000,000*. Hach Mortgage Loan must be (i) for the acquisition of a Residence which is to be occupied by nn Eligible Borrower, as defined raider "The Agreement - Definitions", and located within or near the limits of the City, (ii) covered by the insurance policies described under "Insurance", (iii) for a thirty year term and (iv) in compliance with certain other requirements. Pursuant to the Agreement. each Participant is appointed as the servicer of the Mortgage Loans which it originates, subject to the right to assign its servicing rights and obligations e.s more fully described under "The Agreement — Servicing of Mortgage Loans". The Bonds are limited obligations of the Issuer, secured by, and payable solely from (0 certain proceeds derived from the sale of the Bonds, (ii) a pledge of the revenues and receipts of the Program, and (iii) amounts on deposit in the various Funds and Accounts established by the indenture, including the Mortgnge Reserve Fund,. the Debt Service Reserve Fund and the Contingency Reserve Fund, and the investment income thereon. Sources of Program revenues include payments and prepayments on the Mortgnge 1,onns (including any insurance proceeds relating thereto), the Commitment Fees (as defined in the Agreement) of the Participants and the proceeds from any sale of the Mortgage Loans, including sales to Worthen Bank & Trust Company, N.A., Little Rock, Arknnsas (the "Purchaser') in order to pay the Bonds maturing December 15, 1992 (the "Term Bonds") when due pursuant to the Mortgage Loan Purchase Agreement (the "Purchase Agreement") among the Issuer, the Purchaser and the Trustee, as more fully set forth herein under "The Bonds — Security for the Bonds" and "The Mortgage Loan Purchase Agreement". The performance of the Purchaser under the Purchase Agreement will be secured by an irrevocable letter of credit issued by the Trustee. See "The Letter of. Credit". The Agreement requires that each Participant make its allocated funds available on a first-come, first-served basis to Eligible Borrowers (as defined in the Agreement), subject to certain limitations. Each Participant is required to use its allocation for the issuing of Commitments (as defined in the Agreement) for Mortgage Loans to finance the purchase of Residences. Residence is defined in the Agreement to mean the real property and improvements thereon, consisting of existing or newly constructed residences within the City and existing residences only within five miles of the City limits, which shall be a single family detached or duplex structure (up to 15%), which is occupied or to be 'occupied as the primary residence of the Eligible Borrower. Condominiums may not be financed. In order to qualify for a Mortgage Loan under the Program, the adjusted gross income of the Eligible Borrower and spouse must not have exceeded $33,000 for the calendar year 1979. The maximum amount of each Mortgage Loan is $77,000 or such lesser amount which conforms to the eligiblity and credit underwriting standards sperified in the Agreement and the applicable limitations- of the private mortgage insurer until May 31, 1992 and 1596 thereafter. (See "The Mortgage Loans"). The Bonds ore limited obligations of the Issuer payable sorely from the revenues, receipts and resources of .the Issuer pledged under the Indenture and not from any other revenues, funds or assets of the Issuer, and do not constitute an indebtedness or obligation (legal, general, .special, moral or otherwise) of the City (or any other county, city or other municipal or political corporation or subdivision of the State of Arkansas) or the State of Arkansas, or a loan of credit of any of them, within the meaning of any constitutional or statutory provisions. Brief descriptions of the Issuer, the Administrntor, the Bonds, the Mortgage Loans, the insurance with respect to the Mortgngc Loans, the Pnrtieipants, the Purchaser, the Purchase Agreement, the Agreement, and the Indenture nre included in this Official Statement. All summnries herein of documents and agreements nre qualified in their entirety by reference to such documents and agreements, and all summaries herein of the Bonds are qunlified in their • Preliminary, subject to change entirety by reference to the form thereof included in the Indentiirc and. the provisions with respect thereto included • in the aforesaid documents and agrecm'ents, copies of which will he avaUable for' inspection at the office of the Trustee. THE ISSUER The Issuer, the City of Fayetteville, Arkansas Residential Housing, Facilities Roard, pursuant to the Constitution and laws of the State of Arkansas, particularly Act No. 142 of the Acts of Arkansas of 1975, as amended, known as the Public Facilities Boards Act (the "Act"), is authorized to acquire mortgage loans on residential real property for low and moderate income families and issue revenue bonds for such purposes. The Issuer has duly authorized the purchase of the Mortgage Loans, the execution and delivery of the Agreement and the Indenture, and the issuance of the Bonds. The Bonds are being issued under the Indenture in order to implement the Issuer's Single Family Mortgage Purchase Program (the "Program'). The Issuer was formed by the City which has approved the Program. The Issuer has issued 518 million of bonds in connection with a prior program in 1979. All funds available for loans under that program have been expended. The Issuer has no experience in originating, servicing or administering mortgage loans of any type. However, the Administrator is experienced in both the origination and servicing of mortgage loans, as more fully described under "The Administrator". The Participants, pursuant to the Agreement, have agreed to originate and sell the Mortgage Loans without recourse to, and subject to assignment, service the Mortgage Loans each en iginates for, the Issuer. The Participants have agreed periodically to transfer Mortgage Loan payments to the Trustee. The Issuer will have no responsibility with respect to originating or servicing the Mortgage Loans or the collection, transfer or payment of any moneys derived from the Mortgage Loans. The Board of Directors of the Issuer consists of five persons appointed by the City who serve for staggered terms. Members are eligible to succeed themselves. The current members of the Board, the years in which their respective terms expire and their occupations are as follows: Name R. Dale Christy, Chairman George Faucette, Jr., Vice -Chairman James R. Pennington, Secretary -Treasurer F. H. Martin Phil Taylor General Term Expires Occupation 1982 President, Chamber of Commerce 1985 Realtor 1981 Horne Builder 1984 Attorney 1983 Professor, University of Arkansas THE ADMINISTRATOR The Administrator, The Lomas & Nettleton Company, was founded in 1899 and is a wholly owned subsidiary of LNFC. As of June 30, 1980, LNFC and its subsidiaries had total assets of approximately $634 million and a net worth of approximately $ million. The Administrator is not liable for the payment of the Bonds or the interest or redemption premiums, if any, thereon. The performance of the Administrator in its duties and obligations, its observance of the terms and conditions and its financial responsibilities under the Agreement are guaranteed by its parent, LNFC. The Administrator is in the business of making, selling, purchasing, servicing and administering mortgage loans. The company conducts its operations through its principal office in Dallas, Texas. and maintains over 155 offices in various cities, including Little Rock and Fort Smith, Arkansas. Its principal servicing office is in Houston, Texas. For the year ended June 30, 1980, the Administrator originated and placed approximately $1:09 billion of single family mortgage loans. Its mortgage servicing portfolio as of .lune 30, 1979, totaled approximately $10.9 billion in outstanding principal amount of mortgngc loans, approximately $9.9 billion of which were single family mortgage loans. Such servicing portfolio consists of approximately 491,300 loons in all 50 states and the District of Columbia. The Administrator is the largest mortgage bunker in the United States servicing investor-owned mortgage loons, based upon the size of its mortgage servicing portfolio. The Administrator is (i) an approved FILA and VA lender, (ii) a Government National Mortgage Association ("GNMA') approved seller and issuer of mortgage-backed securities guaranteed by GNMA and (iii) n Federal National Mortgage Association ("FNMA") approved seller and servicer for FIIA insured, VA guaranteed and conventional home mortgage loans. The Administrator is the largest mortgage servicer (measured in terms of the aggregate outstanding principal amount of mortgage loans serviced) for FNMA and, measured by dollar volume, is the largest issuer of mortgage-backed securities guaranteed by GNMA. As of October 15, 1980, the Administrator is serving as administrator for 24 single family mortgage revenue bond programs, having an aggregate of approximately $1.49 billion in bonds issued. Four of these programs are in Arkansas. The Administrator will also be a Participant in the Program. See "The Participants". • Duties P The principal responsibilities of the Administrator in accordance with the provisions of the Agreement are described as follows: (a) review of Mortgage Loan documents for compliance to purchase of the Mortgage Loans by the Issuer; (b) collection of information and submission of reports pertaining to the Mortgage Loans and to moneys remitted to the Trustee by the Participants; (c) periodic review of the performance of each Participant to determine compliance with the terms and conditions of the Agreement; (d) review of and recommendations as to Mortgage Loan satisfactions, fire losses, easement problems and condemnation, delinquency and foreclosure procedures; (e) review of the Participants' delinquency and foreclosure reports on the Mortgage Loans; (f) assumption of the responsibility of servicing Mortgage Loans of any Participant which is removed for failure properly to service Mortgage Loans under the terms and conditions of the Agreement or which voluntarily transfers its servicing obligations to the Administrator with the consent of the Administrator and the Issuer, for the same fee as such Participant was receiving for servicing at the time of such default or transfer; (g) review of the Participants' escrow records to reconcile escrow balances; (h) supervision of claims filed under the Standard Hazard Insurance Policies, the Special Hazard Insurance Policy, and the Mortgage Pool Insurance Policy; and (i) consultation with the Issuer and the Trustee regarding any aspects of the Program. The Agreement provides for the removal of the Administrator by the Issuer, under certain conditions in the event of default by the Administrator. The Administrator may not resign except upon failure of the Trustee or the Issuer to make payment of any moneys due to the Administrator under the Agreement or such other breach of the Agreement by the Trustee or the Issuer which adversely affects the Administrator or LNFC, which failure -or breach shall continue for a period in excess of 30 days of ter receipt of written notice by the Issuer or the Trustee, but if removed, the Trustee is authorized to appoint a successor administrator. Until a successor administrator is appointed and assumes the duties of ndministrntor under the Agreement, the Trustee is required to act in the capacity of administrator of the Program. . TI113 BONDS General Description The Bonds will be issued as coupon bonds in the denomination of *5,000 each, registrable as to principal only, or as to both principal and interest. The Bonds wilt be dated December 15, 1980, and will bear interest from that date at such rates, and will mature on such dates, as set forth on the cover page of this Official Statement. interest on the Bonds will be payable semiannually on June 15 and December 15 of each year, commencing June 15, 1981. The principal of and interest on the Bonds will be payable at the principal office of Mercantile National Bank at Dallas, Dallas, Texas, the Trustee, except that interest on Bonds registered as to both principal and interest will be payable by check or draft mailed to the registered holder thereof by the Trustee. If any Blonds or Bonds with appurtenant coupons arc mutilated, lost, stolen or destroyed, the Issuer may execute and the Trustee :nay authenticate, subject to the provisions. of the Indenture, replacement Bonds of like tenor and principal amount, with coupons corresponding to the coupons appurtenant to such mutilated, lost, stolen or destroyed Bonds. In the case of lost, stolen or destroyed I3onds or 13onds with appurtenant coupons, the Issuer and the Trustee may require evidence of such loss, -theft or destruction satisfactory ld them. In connection with replacing mutilated, lost, stolen or destroyed Bonds or Bonds with appurtenant coupons, the Issuer and the Trustee may charge the holders of such Bonds reasonable fees and expenses and require indemni location satisfactory to them. Redemption Provisions Special Mnnahtory Redemption. The Bonds are subject to special mnndatory redemption in whole or in pert at any time at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date, from and to the extent there are deposits in the Redemption Account pursunnt to the provisions of the Indenture from: (n) Moneys in the Acquisition Fund not used to purchase Mortgnge Loans or committed to such use pursuant to the Agreement, on or before December 15, 1981. Such funds shell be used to redeem Bonds on any date after December 15, 198.1, which is not later than June 15, 1982; or (b) Moneys in the Mortgage Loan Fund which were committed for use pursuant to the Agreement on or before December 15, 1931(or committed thereafter as permitted by the ..Agreement), and which are not used.to purchase Mortgage Lonns on or before May 15, 1982. Such funds shall be used to redeem Bonds on any date after May 15, 1982, which is not later than .lune 15, 1982. • Provided, however, that prior to any redemption of Bonds pursuant to (a) or (b) above, the Trustee will review the investments held tinder the Indenture, including Mortgage Loans previously purchased and the moneys held in all other Funds and Accounts, to determine whether sufficient moneys will be realized from such' Mortgnge Lonns and investments, to pay, when due, the principal of. and interest on the Bonds which will remain outstanding following such redemption. If the Trustee determines, based upon such review, ❑mt the redemption of Bonds pursuant to (a) or (b) above would cause insufficient moneys to be available to pay, when due, the principal of and interest on the Bonds which would remain outstanding after such redemption, then subject to receipt of the opinion described below, the Trustee will not redeem Bonds. or such portion thereof the redemption of which would cause a deficiency, but will invest such moneys in Government Obligations, as defined in the Indenture, according to a schedule, supplied by a firm of certified public accountants, which will provide a projected cash flow, which together with the projected cash flow from the Mortgage Loans and the investments inall other Funds and Accounts held by the Trustee, will be sufficient to pay the principal of and interest on the Bonds. Notwithstanding the foregoing, such investments will only be made if, prior to such investment, an opinion of nationally recognized bond counsel, acceptable to the Trustee. has been received by the Trustee to the effect that such investment or failure to redeem bonds in accordance with (a) or (b) above would not cause the interest on the Bonds to be subject to federal income taxation. Prior to any redemption pursuant to (a) above, if the Trustee, upon request by the Issuer, hos obtained an opinion of nationally recognized bond counsel to the effect that the redemption of such Bonds is not required in order to retain . the exemption frorn federal income taxation of the interest on such Bonds under existing laws and under legislation then pending in the Congress of the United States, the Trustee is not required to redeem Bonds pursuant to (a) above, and the Issuer may make such funds available for the purchase of Mortgage Loans under the Agreement, subject, however, to the redemption provisions of (b) above. The Bonds are also subject to special mandatory redemption in whole at any time, or in part on any interest payment date, from and to the extent there are deposits in the Redemption Account, pursuant to provisions of the Indenture, from: (c) Principal Prepayments (as defined under "The Agreement — Definitions") on Mortgage Loans; or (d) Excess revenues accumulated in the Redemption Account. In•the event the Bonds are to be redeemed in port pursuant to (a), (b), (c) or (d) above, the Bonds to be redeemed shall be -selected by lot and redeemed on a reasonably proportionate basis from each of the then existing maturities of the Bonds with the result that after such redemption the annual debt service requirements on the outstanding Bonds will be approximately equal. Such redemption shall be determined and effectuated as nearly as practicable by the Trustee in accordance with the Indenture, provided that, except as otherwise required by law, Bonds shall be redeemed only in integral multiples of 55,000, and in no event shall the Trustee call for redemption a principal amount of Bonds less than 550,000, except for certain redemptions ns described in (a) and (b) above. The Term B Bonds maturing 1992 will be redcerned only after all of the Term A Bonds maturing 1992 have been redeemed. Because the Bonds ore subject to special mandatory redemption as aforesaid from principal prepayments of Mortgnge Loans, it is expected that a portion of the Bonds will be redeemed prior to their maturities. For a description of the uncertainties inherent in predicting the average life of the Mortgage Loans (which in turn affects the average life of the Bonds), see "The Mortgage Loans — Maturity and Prepayment Experience". If at any time the sum of moneys in all Funds and Accounts held by the Trustee pursuant to the Indenture equals or exceeds the principal amount of the then outstanding Bonds plus unpaid acrued interest to the redemption date, the Bonds shall be redeemed from such moneys on any date in whole at a redemption price equal to the principal amount thereof plus accrued interest to the redemption date. Optional Redemption. The Bonds maturing on or after December 15, ...., are subject to redemption, at the option of the Issuer, in whole or in part on December 15, ...., and on any interest pnyment •date thereafter, with moneys from any sources other than revenues of the Program, proceeds of the Bonds, the Mortgage, Lonns and Mortgages, and investment income from moneys held by the Trustee, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued interest to the redemption date, with the Bonds to be redeemed on such date to be selected in such manner as the Trustee may determine, but by lot within each maturity: • Redemption Dates '. • • Redemption Price General Provisions. Notice of the call for any redemption, identifying the Bonds or portions thereof to be redeemed, shall be given by the Trustee by publication at least once in a newspaper of general circulation in the City of Little Rock, Arkansas and a financial journal or publication of general circulation in the City of New York, New York, which notice shall be published not less than 15 days prior to the redemption date, and, in the case of the redemption of Bonds at the time registered as to principal or as to both principal and interest, by mailing a copy of the redemption notice by registered or certified mail, not less than 15 days prior to the date fixed for redemption, to the registered owner of each Bond to be redeemed in whole or in part at the address shown on the registration books maintained by the Truste. Under certain circumstances, an alternate method of publication may be used. Upon the publication of such notice, failure to give such notice by mailing to any Bondholder, or any defect therein, shall not affect the validity of the redemption of Bonds. Prior to the date fixed for redemption, there is required to be deposited with the Trustee funds sufficient to pay the Bonds called, together with accrued interest and premium, if any, thereon to the redemption date. Upon the giving of notice and the deposit of funds for redemption, interest on the Bonds thus called shall no longer accrue after the date fixed for redemption. Security for the Bonds The Bonds are limited obligations of the Issuer and are payable solely from (1) certain proceeds derived from the sale of the Bonds, (ii) a pledge of the revenues and receipts of the Program, and (iii) the various Funds and Accounts established by the Indenture and the investment income thereon. Sources of Program revenues include payments and prepayments on the Mortgage Loans (including any insurance proceeds relating thereto), the Commitment Fees of the Participants and the proceeds from any sales of the Mortgage Loans including sales to the Purchaser pursuant to the Purchase Agreement in order to pay the Term Bonds when due. See "The Mortgage Loan Purchase Agreement". The Issuer will not he directly or indirectly liable for the payment of the Mortgage Loans. The principal of, premium, if any, and interest on the Bonds shall never constitute an indebtedness, liability, general or moral obligation or a pledge_ of the faith or loan of credit of the City, the State of Arkansas, nor any municipality or potttical subdivision thereof, within the meaning of any constitutional provisions or statutory limitations and shot/ never constitute a charge against the general credit or taxing powers of any such body. • Pursuant to the Indenture, the Bonds are secured by an assignment and pledge of and security interest in (i) all Mortgage Loans purchased with Bond proceeds and the income thereon (including all insurance proceeds with respect to the Mortgage Loans), (ii) all of the Issuer's rights and interests in the Agreement, (iii) all of the Issuer's rights and interests in the Purchase Agreement, and (iv) all moneys and securities held under the Indenture (including moneys in the Funds and Accounts created by the Indenture). See "The Agreement" and "The Indenture". Payment of principal and interst on the Bonds depends primarily upon payment of principal of and interest on the 'Mortgage Loans, and, to a lesser extent, upon the sale of Mortgage Loans to the Purchaser and the investment of moneys in the Funds and Accounts held pursuant to the Indenture. See "Program Assumptions". The Mortgage Reserve Fund and the Debt Service Reserve Fund have been established to provide funds to pay principal and interest on the Bonds if mortgage payments for that purpose are at any time insufficient. In addition, moneys expected to be accumulated in the Contingency Reserve Fund would be available for the payment of principal and interest on the Bonds. Additional Bonds The Indenture does not permit the issuance of additional parity bonds, except Bonds to replace mutilated, lost, stolen or destroyed Bonds and appurtenant coupons. The Issuer has covenanted not to issue mty other bonds of a type or character similar to the Bonds unless and until nt least 95% of the moncvs deposited in the Acquisition Fund has been used to acquire Mortgage Loans or otherwise transferred, committed for use or expended as provided in the Indenture. _ Creation of Purls and Accounts The Trustee will establish the following Funds and Accounts upon the delivery of the Bonds: the Acquisition Fund; the Cost of Issuance Fund; the Revenue Fund; the Bond Fund (containing the Principal Account, the Interest Account � 1 and the Redemption Account); the Mortgage Reserve Fund; the. debt Service Reserve Fund; the Program Expense Fund; the Contingency Reserve Fund; and thc,Surplus Fund. The following is. a brie( description of these Funds and Accounts and their operation. ) Acquisition Punt Moneys in the 'Acquisition Fund will he used to purchase Mortgage Loans under the terms and conditions specified in the Agreement. Any amounts remaining in the Acquisition Fund on December 15, 1981, which have not been committed to the origination of Mortgage Loans, and any amounts remaining in the Acquisition Fund niter May 15, 1982, will be used to purchase Bonds, to redeem Bonds or in certain circumstances may be invested or used to make additional Morignge Loans pursuant to the terms of the Indenture. Sec "Redemption Provisions — Special Mandatory Redemption". Cost of L tuince Fund. Moneys deposited in the Cost of Issuance Fund will be used to pay (1) the costs of issuing the Bonds, including all printing expenses, initial insurance premiums, legal fees, the Purchaser's fee pursuant to the Purchase Agreecmnt, the fee of the Trustee for issuance of its letter of credit, and accounting expenses and any other initial expenses incurred in the issuance of the Bonds and in the initial origination and servicing of the Mortgage Loans, and (ii) expenses incurred in connection with the purchase of Mortgage Loans. Any funds remaining after the Origination Period (as defined in the Agreement) in the Cost of Issuance Fund and after payment of the foregoing expenses will be transferred to the Contingency Reserve Fund or, if such Fund has on deposit therein the maximum amount required by the Indenture, to the Surplus Fund. Revenue Fund. All payments received by the Trustee from the Participants as well as investment earnings from all Funds and Accounts held by the Trustee, shall be initially deposited in the Revenue Fund prior to the disbursement of moneys to the various Funds and Accounts in accordance with the flow of funds as described hereinafter. Bond Fund. The Bond Fund is composed of (1) the Principal Account containing moneys to be used solely for the payment of principal of the Bonds, (ii) the Interest Account containing moneys to be used solely for the payment of interest on the Bonds, and (iii) the Redemption Account to be used for the redemption or purchase of Bonds prior to their maturity. To the extent that amounts on deposit in the Bond Fund are insufficient to pay the principal of (either at maturity or on the date of any scheduled mandatory redemption) or interest on the Bonds, the deficiency will be remedied from moneys in, first, the Surplus Fund, second, the Contingency Reserve Fund, third, the Mortgage Reserve fund, and finally, the Debt Service Fund, to the extent of the moneys on deposit therein. Debt Service Reserve Fund_ The Indenture requires that the Debt Service Reserve Fund be maintained in an amount at least equal to 5 (the "Debt Service Reserve Fund Requirement"). The moneys in the Debt Service Reserve Fund wilt be used for the payment of the principal of and interest on the Bonds, but only when end to the extent that such moneys are not available from the Surplus Fund, the Contingency Reserve Fund, and the Mortgage Reserve Fund. The Debt Service Reserve Fund initially will be funded from Bond proceeds. Any money in the Debt Service Reserve Fund in excess of the Debt Service Reserve Fund Requirement will be deposited to the Revenue Fund. Mortgage Reserve Fund. The Indenture requires that the Mortgage Reserve Fund contain, initially, the sum of S , until 198 , or such time as the Trustee determines that no further purchases of Mortgage Loans will be made from moneys in the Mortgage Loan Fund, whichever occurs first, and thereafter will contain an amount equal to 1% of the unpaid principal balance of Mortgage Loans (the "Mortgage Reserve Fund Requirement"). All moneys in the Mortgage Reserve Fund in excess of the Mortgage Reserve Fund Requirement shell be deposited in the Revenue Fund. Moneys in the Mortgage Reserve Fund will be used only (1) to pay the principal of and interest on the Bonds when moneys in certain other funds are not available therefor or (ii) to pay any deficiencies in the Program Expense Fund. Moneys in the Mortgage Reserve Fund will be used to pay debt service on the Bonds only after moneys in the Surplus Fund and the Contingency Reserve Fund have been exhausted and before moneys in the Debt Service Reserve Fund are used. Program Expense Fund. Moneys in the Program Expense Fund will be used for the following purposes: (a) To pay, when due, the Purchaser's fee pesuant to the Purchase Agreement, premiums on mortgage pool insurance and special hazard insurance policies (as described under "Insurance"), and; (b) To puy, when due, fee's and expenses of the Trustee and the Administrator including the fee for the letter of credit issued by the Trustee. • Contingency Reserve Fund. All amounts remaining in the Revenue Fund after disbursements to the Bond Fund, the Program Expense Fund, the Debt Service Reserve Fund and the Mortgage Reserve Fund shall be deposited in the Contingency Reserve Fund until it reaches an amount equal to the greater of 1% of the unpaid principal balance of the Mdrtgage Loans acquired by the Issuer or $ (the "Contingency Reserve Fund Requirement") and thereafter such Fund shall be maintained in the amount of such requirement to the extent moneys are available therefor. Amounts in the Contingency Reserve Fund are to he used to pay debt service on the Bonds if needed, and if not currently required for such purposes then, subject to the written approval of the Issuer or the Administrator, to pay the costs of maintenance, foreclosure, restoration or preservation in connection with the Mortgage Loans, to pay fees and expenses of the Lssuer incurred in connection with the Program, or to reimburse the Participants, for expenses that are properly reimbursable raider the Agreement. Surplus Fund. Moneys in the Surplus Fund are available, prior to deposit in the Redemption Account, to cure any deficiencies in any other Funds or Accounts held by the Trustee. Twenty (20)daysprior to the next interest payment date, any amounts in this Fund shall be deposited in the'Redemp[ion Account and :tipplied to the redemption of Bonds prior to maturity. _ o Initial Distribution of Bond Proceeds and Certain Fees Upon delivery of the Bonds, the Lssuer and the Trustee, under the terms of the Indenture, will deposit all moneys received as Bond proceeds and Commitment Fees asfollows: (a) First, to the Interest Account, the amounts representing accrued interest received. from the sale of the Bonds and an amount equal to one month's interest on the Bonds; (b) Second, to the Debt Service Reserve Fund, and amount equal to $ representing the Debt Service Reserve Fund Requirement; (c) Third, to the Mortgage Reserve Fund, an amount equal to $ , representing the Mortgage Reserve Fund Requirement; (d) Fourth, to the Cost of Issuance Fund, the amount of moneys determined by the Issuer as required to pay the costs of issuance of the Bonds and certain other expenses involved in the origination of Mortgage Loans; (e) Fifth, to the Contingency Reserve Fund, an amount equal to $ , and (f) Sixth, to the Acquisition Fund, all Commitment Fees and all remaining moneys received from the sale of the Bonds. Applicatiau of Revenues and Plow of Funds. On or before the 15th day of each month, payments made by the Mortgagors to the Participants in the first ten days of such month and on or before the 5th business day of each month not previously remitted, payments made by the Mortgagors to the Participants for the preceding month, excluding moneys set aside to pay taxes and certain insurance premiums and service fees, will be remitted to the Trustee to be deposited into the Revenue Fund, except that, if at any time the moneys so collected by the Participants exceed the lesser of $100,000 or the amount insured by FDIC or FSLIC; as the case may he, such moneys, rounded to the nearest $1,000 collected, will be Immediately remitted to the Trustee for deposit into the Revenue Fund. Additionally, any investment earnings used to pay accrued interest on any Mortgage Loan purchased by the Trustee, are then to be withdrawn and applied not later than. the 15th day of each month to the below mentioned Funds in the following order of priority: (a) To the Bond Fund, in the following order of priority: (i) To the Redemption Account, all amounts representing Principal Prepayments on the Mortgage Loons including Insurance Proceeds, or Liquidation Proceeds received pursuant to the Agreement;; (ii) To the Interest Account, amounts sufficient to pay the interest on the Bonds due June 15, 1981, then beginning June 15, 1981, one sixth (1/6) of the amount of interest to become due on the Bonds on the next interest payment date; and (iii) To the Principal Account, beginning December 15, 1981, one -twelfth (1/12) of the maturing principal and payments to be paid on the Bonds on their next principal payment date: (b) To the Program Expense Fund, an amount calculated to be sufficient to make the required payments from such Fund, including payment of the Purchaser's fee pursuant to the Purchase Agreement, and the Trustee's fee for the issuance of its letter of credit; • (c) To the Debt Service Reserve Fund, the amount, if any, required to restore such Fund to the Debt Service Reserve Fund Requirement; (d) To the Mortgage Reserve Fund, the amount, if any, required to restore such Fund to the Mortgage Reserve Fund Requirement; (e) To the Contingency Reserve Fund, the amount, if any, required to cause the amount on deposit therein to equal the Contingency Reserve Fund Requirement; and To the Surplus Fund, all remaining moneys; all moneys in this Fund will first he used to remedy any deficiency in any other Fund and will then be used to purchase bonds or will be transferred to the Redemption Account 20 days prior to the next interest pnyment date; provided, however, that prior to May 15, 1982, the Trustee shall, prior to malting the transfers and application of funds required above, set aside from investment earnings and apply to the purchase of Mortgage Loans such amounts as may he necessary to pny the accrued interest portion of the purchase price of any Mortgage Loans purchased by the Trustee. (f) ra Investment of Moneys and Valuation of investments - 1 '). Pursuant to and as defined in the Indenture, the Trustee is required to invest and reinvest any moneys held by it in any Fund or Account in (i) Government Obligations, (ii) Certificates of Deposit of banks (including the Trustee, acting in its commercial banking capacity) which me insured by FDIC and savings and loan associations which are insured by FSLIC, provided the amount of aril; Certificate of Deposit in excess of that covered by such insurance must be secured by a first and prior pledge of Government Obl gations having a market value of not less than 100% of the excess of such Certificate of Deposit, or (iii) repurchase agreements and other money market instruments (including those issued by the Trustee acting in its commercial banking capacity) secured by the Government Obligations held by the Trustee or a bank other than the issuer .of such repurchase agreement with a market value at least equal to 100% of the face amount of such repurchase agreements; provided, however, that moneys in the Acquisition Fund may be invested in uncollateralized Certificates of Deposit of banks whose combined capital, surplus and undivided profits are at least $100 million. Earnings on any such investments in such Fund or Accounts will be credited to the Revenue Fund. • • rd DEBT SERVICE ON THE BONDS <l The following table scts forth the amounts required to pay scheduled ahnunt debt service on the Bonds. 1t is expected that a substantial portion of the Bonds will be redeemed prior to their stated maturity dates and therefore the actual debt service to be paid on the Bonds is expected to differ substantially from the debt service shown in this table. Year Ending December 31 Principal Total Debt Interest � � Service 1981 $ $ 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Total • • 1. ( • PROGRAM ASSUM PTJO NS • The maturities for the Bonds have been established on tlie basis of the scheduled payments of the Mortgage Loans as if no prepayments of or other early recoveries on the Mortgage Loans would occur. The Mortgage Loans will bear interest at a rate of % (until May 31, 1992) which is approximately • % higher than the average coupon rate on the Bonds. After such date, interest will be payable at the rate of 15%. The difference between the Mortgage Loan interest rate and the average coupon rate on the Bonds has been established by taking into consideration assumed investment income on the moneys in the Funds and Accounts held by the Trustee, Commitment Fees, recovery of the initial issuance costs of the Bonds, including underwriters' discount, and estimated annual Program costs. The estimated annual Program costs' are as follows (based on a percentage of the unpaid balance of the Mortgage Loans): Participants' servicing fees 0 % Administrator's fees O. Purchaser's fee 0. Trustee's letter of credit fee 0. Mortgage Pool Insurance premiums 0. Special Hazard Insurance premiums 0. Trustee and Paying Agent fees— 0. Estimated Total Annual Program Costs 0 % The interest rate of the Mortgage Loans has been calculated so that the principal and interest payments on and sales to the Purchaser of the Mortgage Loans, together with moneys deposited with the Trustee, including interest earnings thereon, will be sufficient to pay the principal of and interest on the Bonds (which includes recovery of all issuance expenses and underwriters' discount paid from Bond proceeds) and the annual Program expenses listed above, based on the following assumptions: (a) Mortgage Loans in the aggregate principal amount of 5000,000,000 will be originated and sold by the Participants to the Issuer on or before , and will bear interest at a rate of 0.000% per annum (until May 31, 1992 end 15% thereat ter). (b) All Mortgage Loans will have maturities of 30 years. (e) The amount of scheduled payments of principal of and interest on the Mortgage Loans not made on a timely basis will not cause cash flow deficiencies that at any time exceed 1.0% of the outstanding principal amount of all Mortgage Loans. (d). The amount of losses and related expenses on the Mortgage Loans (net of all insurance proceeds and other recoveries with respect to the Mortgage Loans, except proceeds received under the Mortgage Pool Insurance Policy) will not exceed the limit of liability of the Mortgage Pool Insurance Policy. See "Insurance — Mortgage Pool Insurance Policy". (e) Moneys in the Debt Service Reserve Fund will be invested in long-term obligations bearing interest at a rate averaging at least % per annum; moneys in the Mortgage Reserve Fund will be invested in short-term investments at a rate averaging at least % per annum; moneys in the Acquisition Fund will be invested during the Origination Period (as de inf ed in the Agreement) in short-term investments at a rate averaging at least % per annum; moneys in the Contingency Reserve Fund will be Invested in short-term investments at a rate averaging at least % per annum; moneys in the other funds and accounts will be invested in short-term investments ata rate averaging at least % per annum; and investment income will be received at least in accordance with such assumptions. See "The Bonds — Investment of Moneys". • (0 It is not possible to predict Mortgage Loan prepayments with certainty; however, for calculation purposes, the average life of ail Mortgage Loans was assumed to be approximately 5 years: Such average life represents a rate of prepayment which is substantially faster than the FHA prepayment history for. the State of Arkansas. However, the Program will not include any FHA or VA loans, and the interest payable on the klortgage Loans will increase in 1992. See "The Mortgage Loans — Maturity and Prepayment Experience." (g) All initial issuance expenses paid from Bond proceeds, including the Underwriters' discount, will be recovered in approximately _ years. (h) To the extent only one-half of the Mortgage Loans are originated and sold to the Issuer by and no further Mortgage Loans are purchased by the Issuer thereafter, all initial issuance expenses paid from Bond proceeds, including the Underwriters' discount, will be recovered in approximately _ years. As listed in the Program Assumptions above, the interest rate of the Mortgage Loans has been calculated to recover all initial issuance costs, including Underwriters' discount, within a period of approximately _ years from the tirne the Mortgage Loans are originated. This is based on the possibility that the Mortgage Loans may be prepaid at an accelerated rate above the national or State of Arkansas prepayment histories. However, there is no certainty as -10-