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272537 WHITE - CITV CLERK COl1I1C1I ���/�7� PINK ► FINANCE � CA�ARV - DEPARTMENT G I TY OF SA I NT PAIT L VV BLUE -�",�jAVOR � Flle NO. � � ouncil Resolution Presented By � Referred To Committee: Date Out of Committee By Date PRELIMINARY RESOLUTION AUTHORIZING A BELOW MARKET INTEREST RATE MORTGAGE LOAN FINANCING PROGRAM UNDER CHAPTER 260, LAWS OF MINNESOTA FOR 1975 AND MINNESOTA STATUTES, CHAPTER 462A AND CITY OF SAINT PAUL ORDINANCES 15975 AND 16504 AND AUTHORIZING THE ISSUANCE OF REVENUE BONDS WHEREAS, the City desires to make available below , market interest rate mortgage loans primarily to persons of low and moderate income to make possible the purchase and rehabilitation of homes within the geographic limits ofthe City upon terms and conditions not otherwise generally affordable to such persons in the private mortgage market; and ' WHEREAS, the City desires to encourage and facilitate the successful redevelopment of various blighted residential areas within the City; and WHEi2�A5, Piper, Jaffray & Hopwooc�`, InC. ar�d Dain, � , Kalman & Quail, Inc. (collectively, the "Underwriters") , in consultation with the staff of the Department of Planning and Economic Development of the City, have proposed that the City issue revenue bonds pursuant to Chapter 260, Laws of Minnesota for 1975, (the "Act") , and Minnesota Statutes, Chapter 462A ("Chapter 462A") , and City of Saint Paul Ordinances Nos. 15975 and 16504 (the "Ordinances") , to finance a below market interest rate mortgage loan��program; NOW THEREFORE, BE IT RESOLVED by the City Council of the City of Saint Paul, as. follows: COU[VCILMEN � Requested by Department of: Yeas Nays Butler Hozza In Favor Hunt B -�:%���! ,����.. Levine __ Against Y Maddox Showalter Tedesco Form Approved ity Attorney 4 Adopted by Council: Date ;f'� Certified Passed by Council Secretary BY By Approved by 1�lavor: Date _ App v by Mayor for Su i ion to Council BY - – — B , �NHlTE - CITV CLERK � COi1flC11 . ��2�� PINK - FINANCE J � CA(NARV - DEPARTMENT G I TY OF SA I NT PAU L BLUE -+1AVOR � Flle NO. Council Resolution Presented By Referred To Committee: Date Out of Committee By Date a. That the Department of Planning and Economic Development, in consultation with the Underwriters, the City' s bond counsel Briggs and Morgan, and the City's fiscal consultant Springsted, Inc. is . authorized to formulate a specific program to provide below market interest rate mortgage loans primarily to persons of low and moderate income (the "Program") as part of the housing program authorized under the Act. b. The Program may be financed by the issuance of revenue bonds authorized by the Act, Chapter 462A and the Ordinance. The aggregate par value of such revenue bonds shall be $50,000,000. c. Loans made pursuant to the Program shall be made only if a determination is made by the City, or on the City' s behalf, that financing is not otherwise available on terms and conditions which are affordable to the mortgage loan applicant. d. The Proaram shall provide that such revenue bonds shall be payable solely from the revenues of the Program, and shall not be a charge against the credit or taxing powers of the City, within the meaning of any constitutional or statutory provision. e. The Program shall comply in all respects with the aforesaid Act, Chapter 462A and Ordinances, as they may from time to time exist, and with the regulations promulgated thereunder. The Mayor is hereby authorized to formulate such criteria for the Program as are con- sistent with the Act, Chapter 462A, the Ordinances and the aforesaid regulations. COUNCILMEN Requested by Department of: Yeas Nays Butler Hozza In Favor Hunt � Levine _ __ Against BY Maddox Showalter Tedesco Form A pproved by City Attorney Adopted by Council: Date Certified Yassed by Council Secretary BY By t�pproved by lVlavor. Date _ Approved by Mayor for Submission to Council By - — BY �MHITE - CiTV CLERK . . �y;'�f;��`� PINK - FINANCE COUnC1I ���1 � ¢AMARV - DEPARTMENT GITY OF SAINT PAUL File NO. �BLUE ' -�AYOR � � Council Resolution Presented By Referred To Committee: Date Out of Committee By Date Said criteria may be contained in the various agreements and other documents relating to the Program. f. The indentures, agreements and other documents in connection with the Program and such revenue bonds shall be submitted to the Council for approval prior to the issuance of such revenue bonds.. g. The interest payable on such revenue bonds sh�ll not exceed 8 1/4 per cent per annum, nor shal]. t�ie underwriter's discount in connection with such revenue bonds exceed two per cent (2�) of the par value thereof. h. The City may contract with such private parties as may be necessary to effectuate the Program, and to make use of existing lending institutions and staff. i. The Preliminary Official Statement dated February 20, 1979 and presented this date to the City Council i5 hereby approved, and the distribution therecf by ._tl�e Underwriters is hereby authorized. COUNCILMEN Requested by Department of: Yeas Nays H zlza � In Favor , Hunt Levine _ � __ A gai n s t BY c ���/"'!�_ Maddox Showalter Tedesco Form Approved b City Attorney Adopted b uncil: Date � 2 �1474 Cert ed Pass Council Secret�ry BY � 5' . A r, d by ;Vlavor: D te�l — F� t 6 �� Appr v Mayor for Su io o Councii BY ' BY ; - PUBLI'SHED �IIAR 3 19� � � �� s31 PRELIMINAftY OFFICIAL STATEMENT DATED FEBRUARY 20, 197� � NEW ISSUE RA1'INGS: Standard and Poor's: Moody's: � j Interest exempt, in the opirzion o(Bond Counsel, under existing statules and court decisions(rom/ederal income taxes and(rom taxation as income by the State o(Minnesota and tts subdivisiorts and municipalities(except(or the Minnesota corporate franchise tax an.d the bank excise tax measured 6y irzcome). See the in�ormation herein under the caption "Tax Exemption". � .= `_ � � � � C (� a� '� C 3 e�e�o�017�����* � � � �� THE CITY OF SAINT PAUL, T�IINNESOTA �• y .� � ; �� � Home Ownership Mortgage Revenue Bonds �f •� � � Dated: April 1, 1979 Due: April 1, as shown below � _ � � Interest on the Bonds is payable April i and October 1 of each year,commencing October 1, 1979.The Bonds are issuable as coupon a� .� o C bonds,registrable as to principal only, in the denomination of$5,000 each,and as fully registered bonds in denominations of$5,000,or � � y � any integral multiple of$5,W0. Coupon and fu11y registered Bonds are interchangeable. Principa(,redemption premi�ms,if any,and �.., o interest on the coupon Bonds are payable, at the option of the holder, at the principal corporate trust offices of � � � � , Saint Paul, Minnesota,or , New Yo�k, New York, Paying Agents,or their succesaors. a> � y� �=. 'I'he principel ol'regist.ered t�>nds is payable at the principal corporate trust office of ,Saint Yaul,Minnesola, C � v 7 as 1'rustee, and interest on fully registered Bonds will be mailed by such Trustee to the registered holder. y �,^, u a' � � ,... The Bonds are subject to mandatory and optiottal redemption, including redemption at par in whole or in part on any interest c�v " — � payment date from prepayments of principal made on mortgage loans, undisbursed Bond proceeds reserved for the purpose of p � N ,O purchasing mortgage loans, and money received from certain other sources, as more fully described herein under the caption "The c > � ca Bonds—Redemption".Because no such prepayments were assumed in establishing the maturities of the Bonds,it is anticipated that a � � a� c v, substantial portion of the Bonds will be redeemed prior to their respective stated maturities. .y '� >, on °'•= � °-' `I'he net prcueeds af the Bonds wili be used to purchase newly originated mortgaqe loans,secured by one-to-four family residential o � o � dwellings in the City of tiaint Paul, Minnesota, to be occupied primarily by persong And families of low and moderate income,and to o � `' o deposit amounts to certain reserve and other funds and accaunts,as more fully described herein.The mortgage loans are required to be u � � �Q originaled by 21 financial institutions in the City ol Saint Yaul,sold to the City wi�hout recourse,recorded in the name of the Trustee � and serviced 6 1'l financial institutiona.Certain functions relatin to the Pro ram will be undertaken b Banco Mort, a e Com an as �v� c � Y,�,�, R B Y B B P Y� � � �;° `' Progrum Administrator, as described more fully herein. `n U Q cjC °�' � ❑ c The Bonds are special, limited obliKations of the City. Debt service on the Bonds is secured by, and payable solely from, the :� � ,o � � y pr�yments and prepeyments of princip:31 and interest on Che mortgage loans (including insurance proceeds relating thereto) and the �� .�n'c .� � amounts an deposit in the vr�rious reserve and other funds and accounts and the investment income therefrom. The Bonds do not � a� "' � constitute a general or moral obligation of the City within the meaning of any constitutional or statutory provision,nor a charge against O � .� � 3 its general credit or taxing power. Neither the Yro�ram Administrator nor any of the Originators or Servicers are liable for the payment e a� .� � of the Bonds or the interest or premiums, if'any, thereon. �� � � c� c o � `� $17,900,000' SERIAL BONDS .. o � � o o 'Qy o o llue Principal Interest Price or Due Principal Interest Price or �ro � � rq April t Amount' Rate Yield April 1 Amount' Rate Yield � � � '� 0 0 = 1981 $530,000 °ib 100°io 1991 $ 830,000 % 100% � � � ° 1982 395,OOQ 100 1992 900,000 100 � � � � 1983 430,000 100 1993 975,000 100 -- 0 1984 465,000 100 1994 1,060,000 100 � � � .� 1985 505,000 100 1995 1,150,000 100 M o g y 1986 550,000 100 1996 1,250,000 100 � ` � s 1987 595,000 100 1997 1,355,000 100 � � � � 19f38 645,000 100 1998 1,470,000 l0U � o „ 3 1989 700,000 100 1999 1,6(?0,Q00 100 � � � ,� 1990 760,(x)0 100 2000 1,735,000 � �� � " E '� '� C $32,100,000* %TERM BONDS DUE AFRIL l, 2Q11, PftICE: 100% Oo � ." ° c O .� '� (Accrued Interest to be Added) ro� �.� `o � N C c6 T•�" �� � •� � ,?, 'Estimated,amounts to be determined upon the sale of the Bonds �a' p a� �� � The Bonds are o/jered when, as and i(issued and received by the Underwriters,and subject to the approuing o(Briggs and Morgare, T� •� y P.A., Saint Paul, Minnesnta, bond counsel, as to ualidity and tax exemption. Certain legal mallers will be passed uporz for the — ciI .� �.» T F' � � � `� that theLBonds wil!`6e auaila6M���r�QUueryyin Sa nCoP u�n nrabou�Apri( q,&9 9lladay, Mireneapolis, Minnesota. It is expected Piper, ,affray & �-lopwood Llain, Kalman & Quait Incorporaled Inco�porated March , 1979 american financial printing—612/378-0711 — Proof of 2/17/79 r No dealer, broker, salesman or other person has been authorized by the City , the Program Administrator or the Underwriters to give any information or to make any representations, other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by either of the foregoing. This O�cial Statement does not constitute an offer to sell or the solicitation of an offer to buy, nar shall there be any sale of, the Bonds by any person in any jurisdiction in which it is unlawful for such person to mafce such offer, solicitation or sale. The information contained in this Off'icial Statement has been obtained from the City, the Program Administrator, the Originators and the Servicers and other sources which are believed to be reliable, but is not guaranteed as to accuracy or completeness,and nothing contained in this Official Statement is, or shall be construed or relied upon as, a promise or 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 circumstances, create any implication that there has been no change in the affairs of the City, the Program Administrator, the Originators or the Servicers since the date hereof. TABLE OF CONTENTS Page Page SLJMMARY STA'I'EMF.NT .. .. ........... General Redemption Provisions ....... ... IN'I'RODUC'1'lON . ..... ..... ..... ...... .. Required Debt Service Payments .. ....... THE PROGRAM ... . ...... .... .... ....... SOURCES AND APPLICATION General ... ... . ... . . .. .. . .... . .... . .... OF FUNDS .. .. . ..... ..... ............. Commitments to Originate INSURANCE ................... ......... Mortgage Loans ... . ...... ............ Federal Housing Administration Single Delivery of Mortgage Loans ... ... .... .... Family Mortgage Insurance Programs ... THE PROGRAM ADMINISTRATOR .. .... Veterans Administration Guaranty General ..:.... . .... ... .. . ...... . .. .... Program ............. ....... .. ....... Personnel ........ ...... .. . ....... . ..... Private MortgageInsurance Programs ..... 7'HE C['1'Y .... .. . . ... ... . .. . . .. ..... . ... Mortgage Pool Insurance Policy .......... '!'HF MORTGAGE LOANS ....... .... .... Standard Hazard Insurance . .. . .......... General:Structure of Portfolio ... . . .... .. Special Hazard Insurance Policy. .... .. . .. Security Ebr the h4ortgage Loans ... . . .... . The Insurers . ... ......... . .......... ... 'I'he Mortgagors . . .. . . ... .. ....... . . ... . Errors and Omissions Insurance .. ........ Special Provisions for THE ORIGINATORS AND SERVICERS ... Redevetopment Areas ...... ...... .. ... 7'he Originators . . ....... ....... ...... .. F.li�ible and laualified The Servicers .. . .... .. . ....... ......... Mort.gage Loans ....... .. .. . .. . . .... . . THF I'ROURAM ADMINISTRATION Demand for Mortgage Lo�ns .. . .. . ... .... AGRFF.MEN'I'... . ..... ........ .. .. .. . . I�ureclosure Laws . .. .. .. . .. .... ..... .... SUMMARY OF'1'HF INDENTURE .. ...... Yrepayments Generally. ... ....... . .... .. DF.FINITIONS ....... ... . .. .. ........... Delinyuency and Foreclosure Experience .. Revenues, Security and Pledge . .. . ....... SECl1RITY�FOR'I'HE BONDS .. .... . . ... . Eligible Mortgage Loans . . . . ... .. ........ � LimiLed Obligatiuns . .... . . . ..... .. . ... . InvesLment of Funds and Accounts........ Mortgage Reserve Fund .... .... ... .. . . .. Discharge of Lien of Indenture... . ...... .. Debt Service Reserve Fund ... ... .. .... .. Def'aults and Remedies ... ..... . . ...... .. Accumulation Reserve Fund .. . ... . . .... . Waivers of Events of Default ..... ..... . .. Yrogram Administrative Fund..... . . . ... . Rights and Remedies of Bondholders .... . . El�w of'F�inds ... . .. . ... . . . . ..... . .. .... Supplemental Indentures ....... ... .... . . Def'iciencies in the Bond Fund . ... .... . ... Amendment of Agreements and Waiver . .. Prohram Assumntions . . .... . . ... .... . ... LITIGA'I'ION .. . .. . . .... . . ..... . .. . ...... '1'HE BONDS .. . . ... .... . . .... ......... . . LEGAL OPINIONS . .... .... ....... ...... Special,Limited Obligations of the City ... TAX EXEMPTION . . ... .... .. ..... .... .. Interest;Maturity;Place of Payment...... CERTAIN VERIFICATIONS ... .... . .. .... Form of'Bonds; Registration; Replacement. UNDERWRITING ... ......... . ......... . No Additional Bonds ... . ..... ... .. .... .. RATINGS . ........... ..... ......... . .... ftedeinpt.ion.. .. ... .. . . .. .. .. ... . .. ... . . MISCELLANEOUS ...... . .... ...... ..... MandaLory Sinking P'und Kedemption .. APYF,NDIX A—YROPOSED Optiunal Redemption .... . .. .... . ..... FORM OF OPINION OF ........... .. ... Special Redemption ... .. . . . . ... . . . . . . BOND COUNSEL... .. .......... . . . .. .. A-1 2 a � SUMMARY STATEMENT This Summary Statement is su6ject in all respects to more complete injornzation contained in this Ofjicial Statement. The offering of the Bonds to potential inuestors is made only by means o/ this entire Official 5'tatement. No person is authorized to detach this Summary Statement from this Of/icial Statement or to otherwise use it cuithout this entire Official Statement. Issuer.... .. ..... ... ..... .. The City of Saint Paul, Minnesota, a municipal corporation under the laws of Minnesota. The Bonds ..... ........... $50,000,000" aggregate principal amount of Home Ownership Mortgage Revenue Bonds, maturing in the amounts and at the times and bearing interest at the rates set forth on the cover of this Official Statement. No additional Bonds or other parity obligations are permitted to be issued. Redemption . .............. The Bonds are subject to redemption as more fully set forth herein under the caption "The Bonds — Redemption", including redemption at par in whole or in part on any interest payment date from the prepayments of principal of the Mortgage Loans, undisbursed Bond proceeds reserved for the purchase of Mortgage Loans, and certain other sources. Because 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. Use of Net Yroceeds . .. .... . Approximately $41,710,000* will be reserved for the purchase oF newly originated Mortgage Loans, $6,000,000* will be deposited in the Debt Service Reserve Fund, $417,100* in the Mortgage Neserve Fund, $'187,900* will be held for capitalized interest and $585,000* will be used to pay costs of issuance of the Bonds. ` Security .... . .. ........ .. . The Bonds are secured by a pledge of all of the revenues and receipts derived from the Program, including payments and prepayments to be made on the Mortgage Loans and any insurance applicable thereto and amounts on deposit in the various Funds and Accounts established by the Indenture and the investment income thereon. In addition, the Trustee will be granted a security interest in all such Mortgage Loans, insurance policies and the Purchase Agreements and Servicing Agreements referred to below (see the information herein under the caption "The Bonds" and "Security for the Bonds"). The Bonds nre speciat, limited obligations of the City payable solely from the revenues and receipts described aboue, are not a general or moral obligation of the City and do not constitute a charge against the general credit or taxing pou�er o(the City, the County o/'Ramsey or the State of Mi�uaesota. Neither the City, the County nor the State or any political subdiuision thereof will be liable on the 9onds, and the Bonds are not a debt of the City, the County or the State or any pnlitical su6diuision thereof. Neither the Program Admirtistrator nor any of the Originators or Seruicers are liable for the payment o� the Bonds or the interest or premiums, if any, thereon. Program Assumptions ..... As more fully described herein under the caption "Security for the Bonds—Program Assumptions", based upon the assumptions set forth therein, revenues of the Program are expected to exceed debt ' service on the Bonds in each year if the average life of the Mortgage Loans is not less than six years (i.e., if prepayments, including terminations, of Mortgage Loans in the portfolio do not exceed 320°�o and 338°'0 of the FHA Minnesota and FHA national prepayment exper�ience, respectively). R.epayment of the bonds *Estimated; amounts to be determined upon the sale of the Bonds 3 � • SUMMARY STATEMENT (Continued) and interest thereon will be jeopardized if, among other things, (i) the assumptions set forth therein are not realized, (ii) the average life of the Mortgage Loans is less than six years, or (iii) a substantial portion of&��nd proceeds reserve for such purchase is not used to purchase the Mortgage Loans. Mortgage Loans .. .. . . ..... I.oans primarily to low and moderate income persons (who have an adjusted gross annual income not exceeding$22,000 in the case of existing homes, or $27,50Q in the case of' newly constructed or substantially r�ehabilitated homes) to enable them to purchase existing, newly constructed or substantially rehabilitated single family or two-to-four family homes that they will occupy. The principal amount of the Martgage Loan may not exceed$50,000 in the case of' existing single-family homes or $60,0(10 in the case of newly constructed or substantially rehabilitated single-family homes. With respect to Mortgage Loans used to finance homes in � designated Redevelopment Areas, the principal amount of the Mort�a�e Loan is limited to $85,(�0 and there is no limitation on tlte mortgagor's income. 'I'here are no limitations on the purchase price of a horr.e. Each Mortgage Loan will have a term not exceeding 30 years and will be secured by a f'irst mortgage lien (subject to certain permitted encumbrances) on the home. Each Mort�;age I.oan rnust be insured by FHA, guaranteed by VA, insured by a qualif'ied YMl or have a principal amount which does not exceed 75'�� of the lesser of the �urchase price or the appraised value of the home (see the information herein under the caption "Insurance"). Each mortgagor must maintain standard hazard insurance providing f'ire and extended coverage. tnsurancc . . . . . . .. .. .. . . .. . In adcliLi�in to the ah�rve, there will be (i) a morL�;age p��ol insurance policy issued by Verex Assurance, Inc. providing secondary coverage against mortgagor defaults on the portfolio of' non-FHA-insured Mortgage Loans (subject to a limitation on agKregate claims of 10�'�� of the original principal amount of all M��rtgage Loans), and (ii) a special hazard insurance policy issued by Yuritan Insurance Company providing secondary coverage against physical damage to any of the homes securing the Mortgage Loans (subject to a limitation on aggregate claims of 1�0 of the original principal amount of all Mortgage Loans), all as ►nore fully set forCh herein under the caption "Insurance". Originators, Servicers and Program Administrator .. .. . ...... Mortgage Loans in the principal amount of�,$41,710,000* are required to be originated and sold to the City without recourse (and recorded in the name of the Trustee) by 21 financial institutions. The Mortgage Loans are required to be serviced by�12 financial institutions for an annual fee (paid monthly) of 3/8 of'1°io of the principal amount of such Mortgage Loans. See the information herein under the captions"The Mortgage Loans"and "The Originators and Servicers". Certain duties relating to the supervision of compliance with the Purchase Agreements and the Servicing Agreements, including the examination of the Mortgage Loans prior to purchase, will be undertaken by Banco Mortgage Company, as Program Administrator, for an initial and continuing fee as described herein. *Estimated; amounts t.o be determined upon the sale of the Bonds. 4 i Of�cial Statement R,elating to $5U,000,000* THE �IT� OF SAINT PAUL, MINNESOTA Home Ownership Mortgage Revenue Bonds INTRODUCTION This Official Statement is furnished for the purpose of providing information concerning the $50,000,000 aggregate principal amount of Home Ownership Mortgage Revenue Bonds (the `Bonds") of the City of Saint Paul, Minnesota (the "City"). The Bonds are to be issued under an Indenture of Trust (the "Indenture") between the City and , Saint Paul, Minnesota, as Trustee (the "'I'rustee") for the primary purpose of providing the City with funds to purchase newly originated mortgage loans (as further described below, herein called the "Mortgage Loans"), to be made primarily to persons of low and moderate income (meaning households having an adjusted annual gross incoine not exceeding $22,000 in the case of existing housing or $27,500 in the case of newly constructed or substantially rehabilitated housing) and secured by first mortgage liens (subject to certain permitted encumbrances) on single family (including townhouse and condominium unit.$) and two-to-four family residential dwellings (the "Homes") to be occupied by the owners in the City. Certain special provisions will apply to Mortgage Loans used to finance Homes in designated Redevelopment Areas, as more fully described herein under the caption "'I'he Mortgage Loans — Special Provisions for Redevelopment Areas". Mortgage Loans in an aggregate principal amount of$41,710,000* are required to be originated by �financia', institutions (the "Originat.ors"), sold to the City without recourse and recorded in the name of the Trustee under Seller's Agreements (the "Purchase Agreements") between and among the City, Banco Mortgage Company, as Program Administrator,and each of the Originators, and accepted by the Trustee. The Originators have no obligation with respect to the Bonds. The Mortgage Loans are reyuired ta be serviced by�l'L financial institutions pursuant to Servicing Agreements (the "Servicing Agreements") between and among the Trustee, Banco Mortgage Company, as Program Administrator, and each of the Servicers, and accepted by the City.The Services have no obligation with respect to the Bonds. Each Originator has deposited with the City an amount (the"Commitment Fees") equal to 1°z; c�f the principal amount of the Mortgage Loans to be made by such Originator and sold to the City uncler the provisions of the Purchase Agreement. Each Mortgage Loan must be insured by the Federal Housing Administration ("FHA"), guaranteed by the Veterans Administration ("VA"), insured by a yualified private mortgage insurer ("YMI") or have a principal amount (at the time it is made) which does not exceed 75�;�of the lesser of the purchase price or the appraised value of the Home. Of the entire portfolio to be purchased by the City, at least 90°io of the aggregate principal amount of the Mortgage L,oans must be secured by single-family dwellings, while the remaining 10°c"� may be secured by two-, t.hree-or four-['amily dwellings. In addition, all Mortgage Loans not insured by FHA will be covered by a mortgage pool insurance policy issued by Verex Assurance, Inc., as more fuliy described herein under the caption "Insurance — Mortgage Pool Insurance Policy". From the proceeds of the Bonds and the Commitment Fees, the City will purchase the Mortgage Loans at a price equal to their principal amount at the time of purchase (plus or minus accrued interest), together with an amount equal to 1"�� of' their original principal amount. Certain duties relating to the supervision of compliance by the Purchasers and Servicers with the Purchase Agreements and the Servicing Agreements, including a review of the Mortgage I.oans prior to purchase, will be performed by Banco Mortgage Company, as Program Ad►ninistrator (the "Program Administrator") under a Program Administration Agreement *F.stimated; amounts to be determined upon the sale of' the Bonds 5 � . with the City, and accepted by the'I'rustee (the"Program Administration Agreement"), as more f'ully described herein under the caption "The Verex Assurance, Inc. Program Administration Agreement". The Bonds will be special, limited obligations of the City, secured by, and payable solely from, the revenues derived from the Program, constituting primarily the payments and prepayrnents of principal and interest on the Mortgage Loans (as more fully set forth herein under the captions "Security for the Bonds — Limited Obligations" and "Summary of the Indenture — R.evenues, Security and Pledge"). In addition, the Bonds will be secured by amounts from time to time on deposit in the Funds and Accounts established by the Indenture (and the investment income therefrom), including the Mortgage Reserve FUnd, the Accumulation Reserve Fund and the Debt Service Reserve Fund, the I�tt.er <>i' which is to be funded from Bond proceeds in the amount of $6,000,000*. '1'he Bonds do not constitute a general or moral obligation o�the City within the meaning of any cai�titutional or statutory prouision, nor a charge against its general credit or taxing power. f3rief descriptions of the Bonds, the City, the Originators, the Servicers, the Yrogram Administrator, the Program, the Mortgage Loans, the Purchase Agreements, the Servicing Agreements and the Indenture are included in this Official Statement. All summaries ot' documents and agreements are qualified in their entirety by reference to such documents and agreements, and all summaries of the Bonds are qualif'ied in their entirety by reference to the form thereof included in the Indenture, copies of which are available for inspection at the office of the Trustee. During the period of this offering of the Bonds, such documents and agreements will also be available for inspection at the off'ices of the City, 12th Ftoor, City Hall Annex, Saint Paul, Minnesota 551U2. Terms not otherwise defined in the text of this Off'icial Statement are defined herein under the caption "Summary of the Indenture — Definitions." THE PROGRAM General LJnder 1975 Laws of Minnesota, Chapter 260 (the "Act"), the City is authorized to develop and —' administer a program to provide financing for housing within the City for occupancy primarily by persons and f'amilies of low and moderate income. By Ordinance (the "Ordinance"), the City Council of the City has established �uidelines with respect to the making or purchase of mortgages and mort.gage loans on one-to-four family owner-occupied housing units (including townhouse and condominium units). The Bonds are being issued under the Indenture in order to implement the City's Home Ownership Program (the "Program"). The City has not previously issued any obligations under the authority granted by the Act. Commitments to Ori�inate Mortgage Loans On,December 31, 1978, the City requested from each bank, savings and loan association and mortgage banking company having an office in the City (or doing a substantial and continuous mortgage lending business in the City) an expression of interest in participating in the Program. Based upon responses to this inquiry, on February 7, 1979, the City delivered to,�42,,financial institutions a copy of the Purchase Agreement. The Purchase Agreement, the enforceability of which is not being passed upon by any counsel, constitutes an offer by the Originator to the City to originate and sell yualified Mortgage Loans to the City in the aggregate principal amount stated therein and within the time period described below.The various Purchase Agreements have been executed by the Originators and will be accepted by the City upon the sale of the Bonds.The acceptance by the City can be for the total principal amount of Mortgage Loans requested by the Originator or for such lesser amount as the City (with the advice and counsel of the Program Administrator) may determine. With the executed Purchase Agreement, each Originator has submitted to the City a commitment fee(the"Commitment Fee") equal to 1°%of the principal amount of the Mortgage Loans requested in the Purchase Agreement to be sold to the City by such Originator. To the extent that the City reduces the principal amount of such Mortgage Loans prior to acceptance of any Purchase Agreement, a proportionate amount of the *Estimated; amounts to be determined upon the sale of the Bonds. 6 r Y Commitment Fee is refunded to the Originator. On the date of issuance of the Bonds, the Commitment Fees will be deposited in t,he Mort�age I.oan Fund established under the Indenture.� Each Originator is required to apply separately for Mortgage Loans that will be used to finance the purchase of newly constructed or substantially rehabilitated Homes in designated Redevelopment Areas (the "Redevelopment Mortgage Loans"). The City has received executed copies of the Yurchase Agreements from 23 financial institutions, under which such institutions have requested to originate and sell Mortgage Loans in the total aggregate principal amount o�f$76,3�60,000�, of which $9,91U,000 was for R,edevelopment Mortgage Loans.To the extent that Redevelopment Mortgage Loans can�not e committed, or closed and delivered within the time periods described under the caption "Special Provisions for Redevelopment Areas", such Originator will be required to originate "standard" Mortgage Loans in the same principal amount. The City expects to accept Purchase Agreements for the principal amount of Mortgage Loans set forth below, which is not in excess of$3,405,000 for any one Originator, subject only to the delivery of A the Bonds. Principal Amount of Mortgage Loans(Other than Redevelopment Principal Amount of Mortgage Loans)to Redevetopment Mortgage be Originated under Loans to be Originated Purchase Agreements under I'urchase Agreements Expeeced to be Accepted Expected to be Accept,ed Originalor by the City' by lhe City' To�ai American ational k3ank and'I'rusl Company . �6 765,1Rx) $ — $ 7G5,(x10 Banco Mortgage Company .................. 3,40Fi,0(Xl 470,000 3,875,(x� Cuntiervfltive MurtKage Company ............ S�iO,(N)0 1,4(H),000 '1,Z60,(N10 1�irsl Federal Savings& Loan Association ........................ t,Fi35,000 — 1,535,(xA) First Crand Avenue State Bank oCSainl Paui ............................ 1,705,(Hl0 1,360,0(H) 3,065,IX� H irsl Merchants State k3ank................. 1,105,000 400,0(A) 1,505,000 '1'he First National Bank of Saint Paul........ 2,13Q0(� 87'1,000 3,002,(H)0 b'irst State Bank of Saint Naul ............... 1,190,000 300,000 1,490,0(� Heriluge Stale Bank of Norih Saint Yaul ..... 155,000 — 155,0(Hl Knutson Mortgage&Financial Corporation... 3,405,(x� 1,000,0(� 4,405,000 Midwest Federal Savings and Loan Association of Minnea��lis................ 3,405,(H� 1,(i00,000 4,645,0(H) . Northern Federal SavinKs and Loan Associati�m .................... 3,065,000 -- 3,065,0(N) Northland Mortgage Company .............. 3,065,000 — 3,065,000 NorLhweslern Nationi�l Bank of Saint Paul.... 3,OG5,000 — 3,(Hi5,000 Northwestern State Bank ................... 385,000 — 385,000 Saint Anthony Park State Bank ............. 385,000 — 385,000 The Spring Company ...................... 765,000 — 765,000 Summit Stale Bank of Phalen Yark .......... 98,000 — 98,0(� 1'win City Federal Savings and Loan Assc�ciation .................... 1,'275,0(H) 470,(�0 1,74;i,IXM) United MortKaKe .......................... 765,(NH) — 76Fi,(H� N'eatern Slnte k3t�nk of S<�int I'a�ul............ 8:'i0,(KlO 470,000 1,3`10,0(X) TOTAL .............................. $33,368,000' $8,342,000" $41,710,000' 1'he lndenture requires that there be in existence, on the date of issuance and delivery of the Bonds, Purchase Agreements under which Originators shall be obligated to originate and sell to the City Mortgage Loans at an aggregate price at least equal to the amount of Bond proceeds and C;ommitment Fees reserved for that purpose and to be deposited in the Mortgage Loan Fund. As more fully described herein under the caption"The Originators and Servicers",the Originators have furnished the City with information showing that during the 12 month period from approximately January 1, 1978 to December 31, 1978, they originated approximately$129,828,900 aggregate principal 'Estimated; amounts to be determined upon the sale of the Bonds. 7 amoune of single-family residential mortgage loans within the City.The total amount of Bond proceeds reserved for the purchase of Mortgage Loans and subject to comm�ments with the Originators under the Yurchase Agreements is $41,71Q,000'. '1'o t.he extent not expended for the purchase of Mortgage I,oans, amounts so reserved may be used to redeem Bonds at par (see the information herein under the caption "The Bonds — Redemption — Special Redemption — From Undisbursed Proceeds"). The eff�ect of such redemption on the Program is discussed under the caption "Security for the Bonds — Program Assumptions". Until 1976, Minnesota law restricted the maximum yield on mortgage loans to 8`i��per annum.The statute was subsequently superceded by a law which limited the interest and yield on mortgage loans (other than those insured or guaranteed by an agency of the federal government) to a rate which floats each month at approximately two percentage points above the then applicable long-term U.S. Government bond rate. Presently, the maximum interest rate on such mortage loans is 10-1/4°�, per annum. The superceding statute expires on July 31, 1979, and, unless new legislation is enacted, loans committed to mortgagors thereafter must not exceed 8�io per annum. Under the Program, Mortgage Loans are required to bear interest at a rate in excess of 8`,i� per annum, and will be r�quired to be committed by the Originators to prospective mortgagors subsequent to the time such superceding statute is scheduled to expire. If the statute is not reenacted or extended by July 31, 1979, the Originators will by necessity be required to make only Mortgage Loans thereafter which are FHA insured or VA guaranteed, or otherwise not subject to the 8`� limitation. Detivery of Mortgage Loans 1'he Purchase Agreements provide different time requirements for the making and tender for purchase of the Mortgage Loans, depending upon whether the Mortgage Loans is made for the purpose of financing existin�, newly constructed or substantially rehabilitated Homes. Each Purchase Agreement, provides that �he Originator will commit to make all Mortgage Loans used to 1'inance the purchase of an existing Home within six months from the date specified in a notice to be given by the City or the Program Administrator to each Originator(currently estimated to be April 5, 1979), to close all such Mortgage Loans within nine inonths from the date of such notification, and to deliver all such --_- Mortgage Loans to the Program Administrator for examination prior to purchase within 45 days of the date of closing of each Mortgage Loan. With respect to Mortgage Loans used to finance the purchase of newly constructed or substantially rehabilitated Homes, the Purchase Agreements require the Originator to commit to make such Mortgage Loans within six months of the above-referred-to notification date, to close all such Mortgage Loans within 12 months from of the date of such notification and to deliver all such Mortgage Loans to the Program Administrator for examination prior to purchase within 45 days of the date of closing of each such Mortgae Loan. A newly constructed Home is one,for which construction has been compteted after the above-referred-to notification date and in which the mortgagor will be the first owner-occupant; and a substantially rehabilitated Home means one in whic� the amount expended for such rehabilitation, per living unit of the Home, is at least equal to the lesser of 50°0 of the sale price of the Home or$15,000, for first time occupancy by the mortgagor in after-rehabilitated condition. Different provisions as to time periods apply to Mortgage Loans made to finance the purchase of Homes in Redevelopment Areas, as more fully set forth is herein under the caption "Special Yrovisions for Redevelopment Areas." In order to be eligible for purchase by the City, each Mortgage Loan must satisfy the requirements set forth below under the caption"The Mortgage Loans." The Originator is permitted (to the extent permitted by law) to charge each mortgagor or the seller of the Home an origination fee not in excess of 1°� (or, in the case of newly constructed Homes, 2°r'o) of the principal amount of the Mortgage Loan. All Mortgage Loans are to be purchased by the City at �heir then outstanding principal amount, plus or minus accrued interest, plus an amount equal to 1°�0 of the original principal amount.The 1%Commitment Fee originally paid to the City by the Originator at the time of execution of the Purchase Agreement is to be retained by the City (regardless of performance by the Originator under the Purchase Agreement) and deposited with the Trustee in the Mortgage Loan Fund, estabtished under the Indenture, at the time of delivery of the Bonds, and will be used, together with Bond proceeds deposited therein, to purchase Mortgage Loans. w Estimated; amounts to be determined upon the sale of the Bonds. 8 , Pursuant to the Purchase Agreement, the Originator must represent and warrant, amon� other thin�;s, that upon defivery of, and with respect to, each Mort�a�;e Loan: (1) the Mortgage is a valid First lien on the property constituting the Home; (2) there is in effect a mortgagee's policy of title insurance on the Home; (3) the mortgagor is not then in default under the terms of the Mortgage Loan; (4) the property has not been damaged, destroyed or condemned; (5) 'I'he Home meets minimum health and safety code regulations established by the City or suf'f'icient amounts have been deposited in escrow to assure the same; (G) the Originator has no knowledge of any circumstances or conditions with respect to the MorlgaKe, or the Home, or the mortKagor or his credit standing that could be reasonably expected lo cause prudent private investors in Che secondary market to regard the Mortgage Loan as an unacceptable investment, cause lhe Mortgage Lvan to become delinyuent, or adversely aff'ect the valtie or marketability of the Mortgage Loan; and (7) the Mortgage Loan meets all of the eligibility reyuirements set forth below Under the caption "�I'he Mortgage Le>ans". '1'he Yurchase Agreement states thaf, in the event Lhe Originator def'aults thereunder, or in the event that any representation or warranty made by the Originator with respect to any Mortgage Loan is found to be untrue in any material respect, the 'I'rustee is permitted to, among other things, tender such Mortgage Loan to the Originator f'or repurchase or seek consequential damages. In addition, if the nri�in�t��r has not committed Lo make, within fuur months f'r���m the date of'detivery of ti�e Bonds, at, least 50'���ol'the principal am��unt of the Mortgage Loans required to be originated and delivered under the Yurchase Agreement, the Program Administrator (with the consent of the City) may, at its discrekion, reduce the remaininK principal amount of Mortga�e Loans to be delivered thereunder and ui�y reallocate such remaining ob(igation to another Originator or Originators upon substantially similar terms and conditions. Among other remedies retained by the City, the Trustee and the 1'roKram Administrator in case of a default under the provisions of' the Purchase Agreement, the commitment by the original Originator may be assigned to another Originator in which case the time periods relating to the commit,ment, closing and delivery of Mortgage Loans, as described above, for the new Originator will be extended accordingly in most cases, and the commitment period (beginning with the dale specified in the notice) will commence on the date of the assignment to such other OriKinator. 'I'he Mortgage Loans wi11 be serviced by�12_financial institutions,�l l of'which are also Originators, for a monthly fee of 1./12th of'3/S of 1`:0 of the then outstanding principal amount of the Mortgage Loans so serviced. Further inf'ormation concerning servicing, including the principal amount of Mortgage Loans expect.ed to be serviced by each Servicer, is included herein under the caption "The Originators and Servicers" — "'I'he Servicers." In consideration of its responsibility to review each Mortgage Loan to assure its eligibility For purchase, the Program Administrator will be paid an amount equal to 3/8ths of 1';� oF the original principal amount of each such Mortgage Loan (from the Cost of Issuance Fund estttblished under the Indenture); and for performing its ongoing duty of supervising compliance with the Servicing Agreemments, the Program Administrator will be paid monthly an amount equal to 1/12th of 1/8th of the then outstanding principal amount of s�ch Mortgage Loans (� from the Revenne Fund established under the Indenture). PROGRAM ADMINISTRATOR General Banco Mort�;age Company was f'ormed in 1905 and is a wholly-owned subsidiary of Northwest Bancoeporation. As of December 31, 1977, the Program Administrator and its subsidiaries had total assets of approximately $127 million. 9 . � 'I'he Program Administrator is in the business of making, selling, purchasing and servicing mortgaKe loans c�f' all types. Substantially all of' its income is derived f'rom servicing fees, loan f'ees, mortgage sales and other fees charged in connection with the making or servicing of mortgage loans. The majority of its expenses are for the compensation of' officers and employees. '1'he Program Administrator conducts its operations through its principal office at 1060 Northwestern Bank Building, 7th and Marquette Avenues, Minneapolis, Minnesota, and maintains 31 offices in 15 states. Its principal Servicing Office is in Waterloo, Iowa, but all Minnesota loans are serviced from its principal of!'ice in Minneapolis, Minnesota. As oi'December 31, 1978, 13anco Mortgage Company was servicing 62,793 residential martgage loans in 30 states, with an aggregate principal balance of $2,185,516,185; and is the 12th largest mortgage banking firm in the United States in �ervicin� volume. Personnel The responsibility oE' carrying out the obligations of the Yrogram Administrator pursuant'to the Program Administration A�reement will be under the direction oP Rose W. Carlson, vice president. Ms. Carlson has been empl��yed by }3anco Murtg�ge Company for f'ifteen years. She has been involved in many phases of' the mort�age bankin�; business, and f'or the past f'ive years has worked in the Yroduct.ion and Marketing I)epartment where she has been involved in establishing procedures for, <�nd supervisinK the rnarketinK of', residential mort�age loans. Ms. Carlson will be assisted by Fay D. Wegner, Assistant Secretary, who has been employed by Banco Mortgage Company for three and one-half'years in the areas of loan origination and processing. Ms. Wegner h��d tllree years bankin� experience prior to her association with Banco Mortgage C��mpany. 'I'he Program Administrat��r is required to appoint, retain and employ competent personnel or a�ents For the purpose of carryinK out its duties under the Program Administration Agreement. In addition, the Pro�r��z►n Ad�i�inistrator and two banks which are aff'iliated to the Program Administrator have also committed to deliver as Originat.ors $7,;�25,000 principal amount of Mortgage Loans under Purchase Ahreements and to service $10,218,0(0 origina principal amount of Mortgage Loans under Servicin� AKreements. 'I'he Yro�ram� m�in�strator has agreed in the Program Administration Agreement that the persons assigned responsibility for performing the duties of the Program Administrator will clot perform any of the responsibilities of I3anco Mortga�e Company as an Originator or Servicer. THE CITY The City is a political subdivision of the State of Minnesota organized and existing under and pursuant to the Constitution and laws of the State of Minnesota. Pursuant to Chapter 260, Laws of Minnesota for 1975, and the Ordinance, the City is authorized to finance housing, acquire residential mortgage loans and issue revenue bonds for such purposes. The City is governed by Mayor Ueorge Latimer and a seven member City Council elected at large each for Cerms of two years. �l'he City had a population of 310,U00, according to the 1970 census, and presently has a population of approximately 278,000, according to the 1978 estimate by the Metropolitan Couneil. In 1976, the City of St. Yaul created a new city department entitled the Department of Planning and Economic Development which includes the Divisions of Planning, Economic Development, Community Development, and Renewal. The City has designated th�Renewal Division, to assist in th�formulation, implementation, monitoring and/or review of the Program. The Renewal Division has a staE'f o a�ppr z mately 83 persons, and is the administrative and policy formulating staff for all of the City's housing programs. '1'he llepartment of Planning and Economic Development will have the primary responsibility to recomcnend to the Mayor and City Council the initial allocation of mortgage commitment(s) to the 10 Originators, and will recommend the 13uilder-Developer Commitments I'or the Redevelopment Areas. Further, the Department wi monitor the mortgage lending activities of the Originators under the Program as well providing ongoing general review of the Program. The Rehabilitation Section of the Renewal Division (which presently has a staff'of 35 persons) will assist, upon request, individual buyers or sellers of Homes that will be, or are planned to be, substantially rehabilitated (and the purchase of which will be f'inanced under the Yrogram.) The Department of Finance and Management Services, among its other functions, will submit Officer Certificates, when appropriate, as required by the Indenture and will assist the Department of Planning and Economic Development in monitoring and reviewing the Programs. 'I'he City has no experience in the origination and servicing of residential mortgage loans, except in areas of grant and residential mortgage loan programs relating to the rehabilitation of existing housing and in the redevelopment of economically depressed residential areas. Pursuant to the Program Administration Agreement, the Yrogram Administrator is required to aid and assist the City in implementing the Program. It is anticipated that the City will have no direct respousibility with respect to the origination or servicing of the Mortgage Loans(except with respect to the a(location or reallocation of MortgaKe Loan commit,ments to Originators and the ap�roval of' Huilder-Developer Commitments in Redevelopment Areas) nor with respect Lo the collection, transi'er of payment of' any monies in connection therewith. Under the terms of the Purchase and Servicing Agreements the Trustee has a direct right of enforcement as a party thereto and the City is not liable to the Trustee or the Bondholders for any action or inaction on the part of' the other parties to such Agreements. The Ordinance provides that the Mayor of the City shall coordinate the Program with other publicaily aided f'inancing programs administered by federal, state, regional or local agencies to the end that the City may achieve the optimum benefit f'rom all such housing f'inance programs. THE MORTGAGE LOANS Gcneral: Sturcture of Portfolio Each Mort.�;a�e (,,c�t�n will consist of' a note secured by a first lien (subject to cerLain permitted encumbrances) on the real estate and fixtures const.ituting the Home located within the geographical boundaries of the City. The maximum principal amount of each Mortgage Loan is limited as set forth below under the caption "'Phe Mortgagors". The purchase price of a Home is not limited under the Program. 'I'he adjusted annual income of the mortgagors is limited (except with respect to Redevelopment Mortgage Loans) to $22,000 f'or existing single-family Homes and $27,500 for newly constructed or substantially rehabilitated single-family Homes, as more f�ully described herein under the caption "The Mortgagors". '1'he Purchase Agreements and the Indenture provide that of the portfolio of Mortgage Loans to be acyuired from the proceeds of the Bonds, at least 90��o must be made to finance single family Homes (including townhouse or condominium units) and not more than 10�s� may be made for duplexes and three and f'our-family dwellings. Each Mortgage Loan will be payable in substantially equal monthly payments of principal and interest on the first day of each month, although the Mortgage Loan is not considered delinquent if payment is made prior to the 15th day of the month. Each Mortgage Loan is reyuired to be amortized over a period of 30 years unless FHA, VA, the PMI or the Originator requires a (esser period due to the projected economic life of the Home. Each Mortgage Loan is required to bear interest at a rate of %o, which is °io higher than the net interest cost on the Bonds (which interest cost reflects underwritersidiscount but not other costs of issuance of the Bonds). This rate was established considering debt service requirements with respect to the Bonds, annual servicing fees of 3/8 of l�io of the outstanding principal balance on each Mortgage Loan, the payment of premiums on the mortgage pool insurance policy and the special hazard insurance policy, paying an annual administrative fee to the Program Administrator and the City, each in an amount equal to 1/8th of 1°r'o of the then outstanding principal amount of Mortgage I.oans, and the funding of the Accumulation Reserve Fund established under the Indenture over a number of 11 � years (see the information herein under the captions "lnsurance — Mortgage Yool lnsurance Yolicy", "Insurance — Special Hazard Insurance Policy" and "Security for the Bonds — Yrogram Assumptio.ns"). Security for the Mortgage Loans Each Mortgage I,oan will be an unconditional obligation of'the mortgagor, secured by a first lien on the real est.at.e and fixtures constituting the Home (subject to certain permitted encumbrances). '1'he mortgage interest c>f Che 'l'rustee in the Home is required to be insured by title insurance evidencing that the Trustee's senior lien on the Home has been perfected. Under the Mortgage Loan, each mortgagor will be obligated to escrow with the Servicer each month one-twelfth of' the yearly mortgage and hazard insurance premiums and real estate taxes. The Mortgagors Except in the case of Redevelopment Mortgage Loans(which are described below), the mortgagors will be persons of low and moderate income. This means, under present regulations adopted by the City (and present reyuirements under the Purchase Agreements) that the maximum adjusted annual income of the mortgagor's household, at the time application for the Mortgage Loan is made, cannot exceed $22,000 for existing Homes and $27,500 for newly constructed or substantially rehabilitated Homes. Adjusted annual income means gross annual income from all sources (and before taxes or withholding) of afl members of the family living in the Home, but excluding certain allowable amounts, including, but not limited to, $750 each for the f'irst and second adult resident of the Home and $500 for each additional resident; $750 of income received by any adult resident other than the primary wage earner; $750 for child care expenses; income from any resident (other than the primary income recipient) who is under 18 years of age or a f'ull-time student; non-recurring income; and, any amount paid for extraordinary medical expenses. Utider the Yrogram, at the time the application f'or a Mortgage Loan is made, the applicant- mortgagor must either (i) have been turned down, for reasons of aff'ordability, by a lending institution for a mortgage loan in the same amount, or (ii) the monthly payment c�f'principal, interest, taxes and __ insurance (and condominium association f'ees, if'applicable) on the loan applied for at the then-current convenlional interest rat,es (as determined by the Program Administrator from time to time) must exceed 1/5th of� the applicant-mortgagor's adjusted monthly gross income. Because this is the first residential home mortgage program of the City, it is not possible to predict the average adjusted gross income of the mortgagors, the average purchase price of' a Home or the percentage of Homes which will be two, three or four-family structures. 'I'he maximum principal amount of'a Mortgage Loan (except in cases of'Redevelopment Mortgage l,oans, as described below) is (i) $50,000 in the case of an existing single-family Home (or$60,000 if the Home is newly constructed or substantially rehabilit.ated), (ii) $72,000 in the case of a two-family Hotne, (iii) $90,0O0 for a three-family Home, and (iv) $108,000 for a four-family home. 'I'here are no restxictions on the purchase price of a Home. The mortgagor-owner must occupy at least one unit in a rnult.i-unit Home as his or her primary residence and is permitted to rent or lease the other one, two or ttuee units. Special Provisions for Redevelopment Areas Redevelopment Areas are those areas of the City where it has been determined that, given a number of interrelatec�p�ysical, social and economic conditions, intervention by the City is considered desireable to reverse such conditions. The City, through its Housing and Redevelopment Authority, has been involved in extensive urban renewal and neighborhood development activities. The City has , attempted to alleviate the ecanomically depressed conditions of certain areas through rehabilitation of housing, and the installation of public improvements in, such areas. For the past fifteen years the City has undertaken a f'inancial commitment to such activities. Such efforts appear to have achieved a reversal of the depressed conditions in a number of neighborhoods. The City, pursuant to state legislative authority, is currently involved in the marketing of development opportunities within such Redevelopment Areas, rather than actively undertaking such redevelopment itself. This joint public and private effort provides�a means ofAeffecting neighborhood redevelopment and rehabilitation. 12 � Under the Program, certain Originators have requested, and the City expects to allocate, certain sums (a "R,edevelopment Mortgage Loan Commitment") to be committed by the Originator to a private builder-developer (a "Builder-Developer Commitment") to finance the purchase of newly const.ruct.ed or substfintially rehabilitated�H� o� mes in such Ftedevelopment Areas. 'I'he Indenture provides, however, that such Kedevelopment Mortgage Loan Commitments, in the aggregate, may not exceed 20�'� of the Bond proceeds deposited in the Mortgage Loan Fund. Upon completion of such construction or substantial rehabilitation by the builder-developer, the Originator will make Redevelopment Mortgage Loans to mortgagors enabling such mortgagors to purchase such Homes. Because the delivery and sale of Redevelopment Mortgage Loans furthers the eff'orts of the City to redevelop and rehabilitate such Redevelopment Areas, the Program imposes no income limitations upon mort�agors applying tbr Redevelopment Mortgage Loar�s, although the maximum mortgage amount for a single-family dwelling unit purchased with a Redevelopment Mortgage Loan is $85,000, and f'or two, three and f'our-unit dwellings is $102,000, $127,5(�, and $153,000, respectively. In the event that an Originator has not secured a Builder-Developer Commitment within two months from the commencement of the commitment period, the Originato�unless notified to the contrary by the City, shall become obligated to deliver and sell to the City an amount equal to its Redevelopment Mortgage Loan Commitment (less any amounts actually committed to builder- developers) in additional "standard" Mortgage Loans; provided, however, that the City, at its option, and wit.h the consent of the Originator, may reallocate such Buiider-Developer Commitment to another Redevelopment Area, or may assign such Commitrnent to another Originator for use in the same or another Redevelopment Area. To the extent that a builder-developer f'ails to complete the construction or substantial rehabilitation and sale of Homes within the applicable time limits (as set forth in the Purchase Agreement), the Originator is required to deliver and sell to the City additional "standard" Mortgage Loans in an amount eyual to the amount of' such Builder-Developer Commit�.men�but the time limits relating to�the commitment, closing and detivery of such"standard" Mortgage I,oans (as described under the caption "�I'he Pro�ram"="Delivery of Mortgage Loans") will co►nmence on the date of' def'auit by the�builder-developer. Accordingly, the purchase of Mortgage Loans by the Cit.y may be delayed up to�months from the date of delivery of the Bonds. � F:tigib(e and Qualified Mortgage Loans Each Purchase Agreement sets f'orth the requirements f'or the Mortgage Loans, in order to make such Mortgflge I,oans"yualified" thereunder, and each Originator and each Mortgage Loan is required to comply with the provisions thereof'. 'I'he Indenture sets forth the criteria under which a Mortgage Loan is "eligible" for purchase under the Program, which criteria includes some, but not all, of the requirements for a "qualified" Mortgage Loan under the Purchase Agreements (see the information herein under the caption "Summary of the Indenture — Eligible Mortgage Loans"). Under the Program's delivery procedure, each Mortgage Loan must be delivered to the Program Administrator for review prior to purchase by the City, together with documentation supporting the conclusion that such Mortgage Loan conforms t.o the requirements of the Purchase Agreement. However, if the Originator discloses, or the Program Administrator discovers, that the Mortgage Loan does not, in any particular respect conf'orm to such requirements, such Mortgage Loan may nevertheless be purchased, provided that the Program Administrator certifies to the Trustee that, to the best of its knowledge and belief(i) the defect does not materially impair the underlying security for the Mortgage Loan, and (ii) such Mortgage Loan remains "eligible" because it conforms to the requirements of the Indenture, as set fbrth herein under the caption "Summary of the Indenture — Eligible Mortgage Loans". Demand for Mortgage Loans 'I'h� Ramsey County Department of Property Taxation compiles statistics on the sales of residential housing within the City of Saint Paul. These statistics are based upon certificates of value reyuired by Minnesota law to be f'iled with the county auditor, and are used f'or the purpose of determining the fair market value of the residence for property tax purposes. Prior to January l, 1978, such certi�cates were required to be filed within 30 days from the date of sale of the property. This statute was amended recently to eliminate the 30-day requirement, although the penalty for non-filing 13 � _ � reinai�is the same — loss of the homestead credit applicable to property taxes for the following year. Acc<>rdinK t.o these statistics, the number of residential units sold within the City, the average sale price and the aggregate sale price f'or all such units for the year 1978 are as follows: Aqgreqate 'I'olal Number Average Sale Sale Price of 5ales Yrice for all Units 1977. . . . . . . . . . . . . . . 3014 $37,431 $112,816,956 1978. . . . . . . . . . . . . . . 2030 43,418 90,925,806 '1'he reason for the apparent decrease in the number of sales in 1978 is unknown, and`based upon the MLS statistics set forth below, would appear to simply reflect a decrease in the num er o certi ►cates i e or a e ay ►n i �ng suc cert� icates, as a result of the amendment to the statute referred to above. Accordin� to these same statistics, the number of units sold, and the aggregate sa�es price of such Homes in the sales price ranges listed, are as follows: iy�7 is7x Number of Aqgregate Number of Aggregate Price Kange Units Sales Yrice Units Sales Price $0-19,999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 $ 2,786,308 9`l $ 4,25`1,688 20,(X�-19.999. . . . . . . . . .. . . . . . . . . . . . . . . . G74 17,789,740 2fi0 6,798,773 30,000-39,999.. . . . . . . . . . . . . . . .. . . . . . . . . 1`l18 43,168,235 571 20,580,471 40,O00-49,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 617 27,533,170 647 29,158,286 50,(NN)-59,999 . . . . . . . . . . . . . . . . . . . . . . . . . . 183 9,940,624 252 13,772,695 6O,(?l�-G9,999. . . . . . . . . . . . . . . . . . . . . . . . . . 65 4,193,600 97 6,264,243 70,000 and above . . . . . . . . . . . . . . . . . . . . . . 84 7,405,279 lll 10,098,650 3014 $ll 2,816,956 2030 $90,925,806 �e principa amount o a Mortgage oan use to f'inance an existing single-f'ami y ome ot er thnn in a IZedevelopment Area) is limited under the Program to $50,000. A $50,0(� Home sellinK in 197J (assuming a 10''�� inf7aLion factor) would have sold for approximately �45,000 in 1978. If the demand for Mortgage Loans 1979 were consistent with the County's historical statistics for 1977 or 1978, as shown abcwe, and were limited to loans of$45,0(� or less, such demand f'or Mortgage Loans, would be aE�proximately �77,510,8�8 and $46,211,075, respectively. Because of various factors, all mortKagors of low and moderate income purchasing Homes for$50,000 or less in 1979 and 1980 will not request Nlortgage Loans and, accordingly, the "demand" for such Mortgage Loans will probably not equa( these respective amounts. Under the Yrogram, $41,710,000 is being reserved for the purchase of the Mortgage Loans. The inf7ation percentage for Homes from 1977 to 1978 was approximately 16`� according to the County's figures and 205�� according to the MLS figures set forth below. '1'he Multiple Listing Service of the Greater Saint Paul Area Board of Realtors ("MLS") also has co►npiled data on such sales. MLS is an association,the members of which are many (but not all) of the real estate agents in the Saint Paul area. Because many individuals sell their homes themselves or through agents which are not members of MLS, the MLS statistics do not ref7ect the total number of sales within the City. 'I'he MI,S data shows the following: Aggregate 'Cotal Number Average Sale Sale Price of Sales Price for all Units 1977. . . . . . . . . . . . . . . �2612 ti$36,580 �$ 95,547,542 1978. . . . . . . . . . . . . . . 2627 44,096 115,840,557 '1'he total sales price f'or all houses, as shown in the three tables above, includes the purchaser's eyuity and thus is higher than the total principal amount of mortgage loans made to finance the purchase af such dwelling units. As discussed above, the 21 Originators originated approximately $129,828,900 principal amount of single-f'amily residEntial mort�age loans in the City during the year 1978, according to statistics 14 � supptied by such Originators. A portion of such mortgage loans would not qualify under the Program as described above (see the information herein under the caption "The Originators and Servicers"). The total amount of Bond proceeds reserved for the purchase of Mortgage Loans and subject to commitments with the Originators under the Purchase Agreements is $41,710,000. To the extent not expended for the purchase of Mortgage Loans, amounts so reserved may be used on April 1, 1980, October 1, 1980 or April 1, 1981, and must be used on October 1, 1981, to redeem Bonds at par (see the information herein under the caption "The Bonds — Redemption — Special Redemption — From Undisbursed Proceeds"). For more information relating to the overall effect on the Program if substantial amounts of Bond proceeds deposited in the Mortgage Loan Fund are not used to purchase Mortgage Loans, see the information herein under the caption "Security for the Bonds — Program Assumptions". The current lawful maximum conventional mortgage loan interest rate in Minnesota is 10-1/4�;� for the month of February (see the information regarding usury considerations under the caption "The Program — Commitments to Originate Mortgage Loans") and the current maximum FHA and VA mortgage loan interest rate is 9-1/2��0. Mortgage loans in Minnesota are presently being made at or close to these rates (plus discount points).The Indenture requires that the Mortgage Loans bear interest at a rate of `;�. To the extent that the interest rate on market rate mortgage loans decreases or below-market interest rate mortgage loans are made available by other public bodies, it could have an adverse effect on the demand for the Mortgage Loans. Foreclosure Laws Mortgage foreclosures in Minnesota are governed by statute and permit two alternative methods, "by action" or "by advertisement". The latter is normally utilized since it is slightly faster, less expensive and does not have the same tende:icy to invite contest as does foreclosure by action. The process is normally initiated by the publication, recordation and service of'a notice of foreclosure. This notice must. include all relevant inf'ormat.ion on the mortgage loan and the secured premises as well as a statement of the time and place of sale and the time allowed by law for redemption by the mortgagor. 'I'his notice must then be published in a legal newspaper each week for six consecutive weeks. Service of' the notice on the mortgagor and any other aff'ected party must be completed at least four weeks prior to — the designated date of the foreclosure sale. Compliance with the above publication and service of notice requirements within the prescribed time limitations is essential to the validity of the mortgage foreclosure sale. Prior to the f'oreclosure sale, the mortgagor has the right to reinstate the mortgage and prevent f'oreclosure by curing all defaults on a current basis and by paying attorney's fees and out-of-pocket disbursements to the extent permitted by statue. If the mortgage is not reinstated, the foreclosure sale is held in the sherriff"s office in the county in which the real estate being foreclosed is located. Although anyone can bid at a foreclosure sale, the normal result of the foreclosure sale is that the lender bids in the debt without competing bidders (and under the Servicing Agreements, the Servicer is required to do so), and purchases the mortgaged property from the defaulting borrower through the sheriff, subject to the rights of the borrower and subsequent creditors to redeem. The holding of such foreclosure sale starts the period of redemption running. The period of redemption will normally be six months but can be as long as twelve months. During the period of redemption, the mortgagor normally retains the right to remain in possession of the mortgaged property without making mortgage payments or paying real estate taxes. During the period of redemption, the mortgagor has the right to pay off the entire indebtedness, including full principal, accrued interest, any amounts reasonably paid by the mortgagee to preserve the security, and attorney's fees and disbursements to the extent allowed by statue. After the period of redemption expires, the mortgagee is entitled to possession of the premises,but may have to bring an unlawful detainer proceeding to enforce its possessory rights, and a proceeding subsequent in the case of Torrens property to perfect its title to the mortgaged property. It is not unusual, therefore, for a mortgagee to be delayed for up to 10 months from the date of initiation of the mortgage foreclosure proceeding until it realizes its possessory rights. 15 -� Prepayments Generally The serial maturities and mandatory sinking fund installments for the Bonds have been established generally on the basis of scheduled receipts of normal principal payments on the Mortgage Loans and certain other revenues, and do not assume any prepayments on such Mortgage Loans (see the information herein under the caption "Security for the Bonds — Program Assumptions"). The Bonds are redeemable, in whole or in part, on any interest payment date at par plus accrued interest f'rom, among other sources, prepayments of Mortgage Loans (see the information herein under the caption "The Bonds — Redemption — Special Redemption — From Prepayments") and it is anticipated that a substantial portion of the Bonds will be redeemed prior to their respective maturities as a result of the prepayment of Mortgage Loans. Prepayments of Mortgage Loans may not Ue used to make or purchase new Mortgage Loans and such prepayments are required to be deposited directly into the Special Redemption Account and applied to the redemption of Bonds. The Program provides that (i) each Mortgage Loan is assumable in case the Home is sold prior to final maturity whether or not the purchaser of the Home is a person of low or moderate income, other than two, three and four-family Homes which require that the person assuming the Mortgage Loan be of low or moderate income, and(ii)each Mortgage Loan is prepayable at any time without premium or penalty. Assuming no prepayments, one-half of the original principal amount of an 8-1/2°o thirty-year, level payment mortgage loan will be paid in approximately 22-1/2 years from the date of origination of the mortgage loan. However, a number of factcrs, including general economic conditions, mortgage market interest rates and homeowner mobility, will affect the level of actual prepayments to be ex��erienced with respect to the Mortgage Loans and, therefore, the average life of the Bonds.The rate at which mortgage loans are prepaid fluctuates as a result of a number of factors, including interest rates. Rising interest rates tend to discourage origination of new loans and prepayment of existing loans and, in particular, existing loans at lower interest rates. 'I'his is, however, somewhat offset by a high rate of inflation, which increases the purchase price of the dwelling and therefore increases the down payment (or other means of financing) required of the purchaser if the mortgage loan is to be assumed. The difficulty in predicting prepayments of the Mortgage Loans is increased because they may f'rom time to time be at interest rates below then existing market rates and will be fully _ assumable. The FHA has published projections based on its nationwide experience during the period from 1957 through 1976 relating to single-f'amily mortgage loans insured under Section 203(b) of the National Housing Act at various interest rates with original maturities of 30 years. Such mortgage loans are not limited to mortgagors of low and moderate income, nor is the purchase price of the residential units limited as provided in the Program. Such projections indicate that, while some of such mortgage loans remain outstanding until scheduled maturity, a pool of such 30-year single-family mortgages is likely to have an average life of approximately 14-1/2 years. The FHA has compiled similar statistics for Minnesota(but not solely for the City of Saint Paul) for the same period.The FHA projections based on this Minnesota experience indicate that the average life of such a pool of Section 203(b) insured loans in Minnesota is likely to be approximately 13.9 years. Assuming that all of the Mortgage Loans would have been originated concurrently, the aggregate remaining principal balances of the Mortgage Loans at the end of the 12th year following origination would be: (i) approximately 86`'0 of the original aggregate principal balances if no prepayments are made, (ii) approximately 58°�o if the actual prepayment experience parallels the FHA national prepayment projections, and (iii) approximately 55°� if the actual prepayment experience parallels the FHA Minnesota prepayment projections. However, because of, among other factors, the increased mobility of homeowners, the prepayment experience has tended to be more rapid in recent years than the FHA experience would indicate. For instance, the Minnesota Housing Finance Agency has, since 1974, operated a single-family mortgage purchase program similar to the Program, but having a somewhat lower maximum income eligibility and not limited to the City. In the first three years of its program, the Minnesota Housing Finance Agency has�experienced prepayments of mortgage loans at a rate approximately 225°io times more rapid than the rate projected by FHA on the basis of figures from 1957 to 2973. 16 ._ �. ' � In addition, a recent manual published by the GNMA Mortgage Backed Securities Dealers Association states that, although the oldest GNMA mortgage pools have existed for only 7 years and are not limited as to sales price or income restrictions,some of them are prepaying at a rate in excess of 300�'� of FHA experience. Another recent study indicates that prepayment experience under participation certificates issued by the Federal Home Loan Mortgage Corporation ("FHLMC") secpred by pools of conventional mortgage loans outstanding 4 years or more has been approximately 200�'� of the FHA prepayment rate. In the offering of its Guaranteed Mortgage Certificates, FHMLC guarantees to the holders that a certain percentage of the principal of'such Certificates will be paid in each year, regardless of whether the pool of 30-year conventional mortgages which forms the security for such Certif'icates pays and prepays as rapidly as that assumed in establishing the principal repayments on the Certificates. The principal repayment schedule for a recent f'inancing guarantees that the maximum average weighted life of the Certificates will be not more than 8.6 years. As more fully explained herein under the caption "Security f'or the Bonds — Program Assumptions", based upon the assumptions outlined therein, the Revenues of the Program are expected to exceed debt service on the Bonds, together with other required deposits, if the average life of the Mortgage Loans is not less than six years, which is the case if'prepayments do not exceed 3�20`%��of t he FHA Minnesota experience and �133g°� of the FHA national experience described above. llelinquency and Foreclosure Experience ' According to the innesota Housing Finance Agency, as of December 31, 1978, approximately 3.3`'� of' the mortgage loans purchased by the Minnesota Housing Finance Agency and then outstanding under their single family program which commenced in 1974 were over 60 days delinyuent, 1.8�'� of the mortgage loans purchased under the singte family program which commenced in 1977 were over 60 days deliquent and 0.3�'� of the mortgage loans purchased under the single family program which commenced in 1978 were over 60 days delinquent. In addition as of December 31, 1978, 171oans representin� approximately 0.42`'� of' the principal amount of the mortgage loans initially purchased under the former program had been f'oreclosed or were then in the rocess of'f'oreclosure. As stated ear ier, t e mortgage loans purchased y t e Minnesota Housing Finance Agency are secured by residential housing units throughout the State of Minnesota and are not limited to the City. In addition, under the current Minnesota Housing Finance Agency programs, the adjusted gross annual income of the mortgagor may not exceed �16,000 and the purchase price f'or a single-family dwelling w�it ►nay not exceed $37,500 (while the limitations for the City's Program exceed those �gures). The same FHA tables ref'erred to above under the caption"Prepayments Generally"project that, on the basis of the national experience from 1957 through 1977, the percentage of mortgage loans in such a pool likely to give rise to mortgage insurance claims over the thirty-year life of the mortgage loans is approximately 7.14`:�:; on the basis of the FHA Minnesota experience during the same period, the projected ultimate mortgage insurance claim rate is approximately 3.0%. SECURITY FOR THE BONDS Limited Obligations The Bonc�s are special obligations of the City paya6le solely frorra the Reuenues described below, are not a general or rrcoral o6ligation of the City and do not constitute a charge against the general credit or taxing power o�the City, the Courety of Ramsey or the State of Minnesota. Neither the City, the County nor the State o/'Minnesota or any political subdiuision thereof shall 6e liable on the Borcds, and the Borcds are not a de6t o�the City, the County or the State or any political subdivision thereof. Mortgage Reserve Fund The Indenture establishes a Mortgage Reserve Fund and a Requirement therefor which is to be funded from Bond proceeds. The Mortgage Reserve R.equirement, as of any particular date of computation, is an amount equal to one percent (1°�0) of the principal amount of the Mortgage Loans then outstarrding. Revenues (other than the payments and prepayments of Mortgage Loans), to the extent available and needed to restore it to its Requirement, are deposited to the credit of the Mortgage 17 � Reserve Fund after payment of the Program Administrator's and Trustee's fees, current debt service on the Bonds and restoring the Debt Service Reserve Fund to its Requirement, if necessary. Accordingly, to the extent that the Mortgage Reserve Fund does not maintain its Requirement, it is not a default under the Indenture. Amounts on deposit in the Mortgage Reserve Fund will be used, if necessary, to (i) pay debt service on the Bonds to the extent amounts are not available in the Bond Fund, and not otherwise available in the Accumulation Reserve Fund (see the information herein under the caption "Security f'or the Bonds — Flow of Funds"), (ii) transfer to the Bond Fund the cumulative amount not otherwise paid on Mortgage Loans in default to the extent amounts on deposit in the Accumulation Reserve Fund are not suff'icient to do so, and (iii) pay maintenance, preservation and foreclosure expenses attributable to a Home subject to a Mortgage Loan in default (and not otherwise available in the Accumulation Reserve Fund). Debt Service Reserve Fund The Indenture establishes a Debt Service Reserve Fund and a Requirement therefor which will be f'unded from Bond proceeds at the time of issuance of the Bonds. The Debt Service R.eserve Fund Requirement is $6,000,000*. The Debt Service Reserve Requirement therefore remains constant Chrough the life of the Bonds; the Bonds assumed to have been issued for the purpose of funding the Debt Service Reserve Fund are scheduled to mature in the year 2011, and are assumed to be paid from amounts then on deposit in the Debt Service Reserve Fund; and it is anticipated that amounts on deposit in the Debt Service R.eserve Fund will be invested at rates at least equal to the net interest rate on the Bonds (see the information herein under the caption "Security for the Bonds — Program Assumptions"). Amounts on deposit in the Debt Service Reserve Fund may only be used to pay principal and interest on the Bonds to the extent a de�ciency exists in the Bond Fund on any principal or interest payment date (and only if such def'iciency cannot be restored f'rom other Funds and Accounts, including the Mortgage Reserve Fund, as set forth below under the caption "Security for the Bonds — Def'iciencies in the Bond Fund"). To the extent that the Debt Service Reserve Fund is ever below its – Reyuirement, the def'iciency is to be restored from the next available Revenues of'the Program (after payment of then current debt service on the Bonds and payment of Program Administrator's and Trustee's fees). Accumulation Reserve Fund The Indenture establishes an Accumulation Reserve Fund and a Requirement therefor. The Reyuirement is$300,000*, and is to be funded from Revenues of the Program (after paying current debt service on the Bonds and payment of the Program Administrator's and Trustee's fees, restoring the Uebt Service Reserve and Mortgage R,eserve Funds to their respective Requirements, if necessary, and paying to the City an annual administrative fee equal to��1/8th of l�o of the then outstanding principal amount of Mortgage Loans). Accordingly, during the period of accumulation and thereafter, to the extent the Accumulation Reserve Fund does not maintain its Requirement, it is not a default under the Indenture. In addition all excess Revenues of the Program (following {i) the deposit to all other Funds and Accounts/�a�nd,(ii) the redemption of Bonds until the Asset�T�est (as hereinafter defined) is me�t are tc� be deposited to the Accumulation Reserve Fund, even to the extent that said Fund exceeds its Reyuirement, subject to the right of the City to withdraw such amounts(in excess of$300,000*) for the purpose of' paying any out-of'-pocket expenses incident to the Program (which excludes internal administrative costs) or redeeming any Bonds (then subject to optional redemption), and the further riKht of the City to withdraw any amounts for any purpose authorized by the Act once the total amount on deposit in the Debt Service Reserve, Mortgage Reserve and Accumulation Reserve Funds are at . least eyual to�5.T0T�'b of all then Outstanding Bonds. Amounts on deposit in the Accumulation Reserve Fund are available to pay debt service on the Bonds and to pay maintenance, foreclosure and preservation expenses attributable to a Home subject to a Mortgage Loan in default. *Estimated; �mounts to be determined upon the sale of the Bonds. ' 18 . � Flow of Funds 1'he Indenture provides for an essentially "closed-end" Program; that is, the Revenues of the Program are generally trapped in the flow-of-funds circuit held by the Trustee to the extent necessary and available to pay current debt service, to accumulate or restore the various Funds and Accounts to their respective Requirements, to pay the premiums on the mortgage pool insurance policy and the special hazard insurance policy, to pay the Program Administrator and the City each an annual administrative fee eyUal to 1/8 of 1�'� of the principal amount of the Mortgage Loans then outstanding and redeeming Bonds until the Asset Requirement (as def'ined below) is met. Only after this is accomplished and certain other conditions are met will monies flow out of the circuit (as described above under the sub-caption"Accumulation Reserve Fund"). Amounts drawn out of the circuit by the City are not pledged to, nor form any security for, the payments of principal of or interest on the Bonds. Prepayments of Mortgage Loans (including amounts attributable to the principal of a defaulted Mortgage I,oan or the disposition of'a Home subject to a defaulted Mortgage Loan, af'ter payment of relaled costs) are deposited directly into the Special Redmption Account and used to redeem bonds (see the information herein under the caption "The Bonds — Redemption — Special Redemption — From Prepayments"). Payments of scheduled principal of the Mortgage Loans are deposited directly into the Principal Account and, together with amounts deposited therein as described in clause (ii) below, are to be used to pay the scheduled principal of the Bonds, through serial maturities and mandatory sinking fund installments. All other Revenues (including interest payments on Mortgage Loans and investment income on amounts on deposit in various Funds and Accounts) are required to be deposited in the Revenue Fund. Amounts on deposit in the Revenue Fund will be used monthly to pay the 1/8 of l��o annual fee of the Program Administrator, the f'ees of the Trustee and the monthly premiums on the mortgage pool insurance policy and special hazard insurance policy. Semiannually, on or prior to each interest. payment date, amounts on deposit in the Revenue Fund are to be withdrawn and applied, to the extent available, as follows: (i) to the Interest Account, an amount equal to the interest to be paid on the Bonds on their _ next interest payment date (April 1 or October 1); (ii) to the Yrincipal Account or Sinking Fund Account, whichever is applicable, an amount equal to one-half of the principal and sinking fund installments to be paid on the Bonds on their next. principal installment date (April 1), less any amount already on deposit in the Principal Account, as described above; (iii) to the Debt Service Reserve Fund, any amount required to restore such Fund to its Requirement ($6,000,000*), (iv) to the Mortgage Reserve Fund, any amount required to restore such Fund to its Requirement (1`�0 of the principal amount of Mortgage Loans then outstanding); (v) except to the extent set forth below, to the City, an amount equal annually to�1/8�th of 1<<� c�f' the principal amount of Mortgage Loans outstanding three months prior to such� date; (vi) to the Accumulation Reserve Fund, unless and until the amount on deposit therein is at least equal to its Requirement ($300,000*); (vii) to the Special Redemption Account (to be used to redeem Bonds) until and unless the unpaid principal amount of' all Mortgage Loans, together with amounts on deposit in all Funds and Accounts (other than the Revenue Fund, the Interest Account, the Capitalized Interest Fund and the Accumulation Reserve Fund) is at least equal to the then outstanding principal amount of �Bonds�and thereafter, (v� i� to the Accumulation Reserve Fund. *Estimated; amounts to be determined upon the sale of the Bonds. 19 � � The Indentur�provides that the�1_/�8_t�h of 140 of the principal amount of Mortgage Loans to be paid �o the City pursua►3t to clause (v) a� will e re uce i an to t e extent necessary to pay any subsequent Program Administrator (should Banco Mortgage Company default under the Program Administration Agreement) an annual fee (other than f'or the origination of Mortgage Loans) in excess of 1/8th of 1°io of the then unpaid principal amount of Mortgage Loans, after taking into account available monies in the Accumulation Reserve Fund in excess of its Requirement. Deficiencies in the Bond Fund In case amounts on deposit in the Bond Fund are insuf'f'icient to pay debt service on the Bonds on any interest or principal payment date, the Trustee is required to withdraw amounts then on deposit in the Accumulation Reserve Fund, the Mortga�e Reserve Fund, the Optional Redemption Account, the Special Itedemption Account or the Debt Service Reserve Fund (in the order listed and to the extent not available f'rom the previously mentioned Fund or Account) and deposit such amounts in the Bond Fund. Program Assumptions The serial maturities and mandatory sinking fund installments of the Bonds have been esiablished on the basis of the following facts and assumptions: (i) the purchase by the Authority of$41,710,000* aggregate principal amount of'30-year sell'- amortizing Mortgage Loans, with equal monthly payments of' principal and interest over their term, such purchases assumed to be made in various principal amounts during the 13 month period from June 1, 1979, through July 1, 1980; (ii) the Mortgage Loans will bear interest at a rate approximately 1`,'��� above the net interest rate on the Bonds; will be purchased at a price eyual to 101�;� of their original principal amount; and the 1�'� Commitment Fees paid by the Originators will be deposited in the Mortgage Loan Fund and applied, together with Bond proceeds deposited therein to purchase the Mortgage Loans; (iii) the maturit,ies and sinking fund installments of the �3onds assumed to have been issued for the purpose of purchasing Mortgage Loans have been established on the basis of scheduled payments of principal on the Mortgage Loans (assuming no prepayments), resulting in substantially "level debt service" payments on such Bonds; (iv) the Bonds assumed to have been issued f'or the purpose of providing f'unds to pay costs of' issuance, underwriters' discount and capitalized interest and to fund the Mortgage Reserve Fund (totaling $2,290,000*) are scheduled to mature on the same"level debt service" basis as the Bonds referred to in clause (iii) above, and it has been assumed that the debt service on such Bonds will be paid from the interest rate differential between the Bonds and the Mortgage Loans and from the investment income on the various Funds and Accounts established under the Indenture, except that the principal of the Bonds assumed to have been issued to f'und the Mortgage Reserve Fund are assumed to be paid from the amounts by which the Mortgage Reserve Fund Requirement is reduced as a result of' the payment and prepayment of principal on the Mortgage Loans; (v) the Bonds assumed to have been issued for the purpose of f'unding the Debt Service Reserve Fund ($6,000,000*) have been scheduled to mature on April l, 2011, and that amounts on deposit in the Debt Service Reserve Fund at that time will be sufficient to pay such Bonds; (vi) the YroKram Administrator and the City each will be paid an annual administrative f'ee equal to 1/8 of 1`��� of' the principal amount of Mortgage Loans outstanding from time to time; (vii) revenues of the Program will fund the Accumulation Reserve Fund to its Requirement (eyual to $300,000*), which are assumed to be used during the period of accumulation and t hereaft-er to E�ay mortga�e fvreclosure costs and si►nilar expenses in an annual amount assurtied lo be 1/lOth of 1','<<of the original principal amount of Mortgage Loans terminating in each year, and, *Estimated; amounts to be determined upon the sale of the Bonds. 20 , E accordingly, amounts eyual to the declining Mortgage Keserve H,equirement are assumed to remain on deposit in the Mortgage Reserve Fund; (viii) losses of principal and interest resulting from any def'ault on the Mortgage Loans, exceedin� the amount of insurance and resale recoveries, are assumed not to exceed the amount referred to in clause (vii); (ix) the Trustee will pay aggregate annual premiums equal to .153<< of'the principal amount of'Mortgage Loans outstanding from time to time for mortgage pool insurance and special hazard insurance (see the information herein under the captions "Insurance — Mortgage Yool Insurance Yolicy" and "Insurance — 5pecial Hazard Insurance Policy"); (x) amounts on deposit in the Mortgage Loan Fund are assumed to be invested at a rate of 10�'� until disbursed to purchase Mortgage Loans as set forth in clause (i) above; amounts constituting capitalized interest are assumed to be invested, at a rate of 10"�, until such time as they are assumed to be used or transferred; amounts on deposit in the Debt Service Reserve Fund ($6,000,000*) are assumed to be invested at a rate of 8-1/2`'��until April 1, 2011;amounts on deposit in the Mort�age Reserve Fund are assumed to be invested at a rate of 6-1/2�%� to the various dates on which its Requirement will be reduced; amounts on deposit in the Accumulation H,eserve Fund are assumed to be invested at a rat;e of'6-1/2`'�� unless and until disbursed as assumed in clause(vii) above; amounts colistituting the payment and prepayment ot' principal and interest on the Mortgage Loans are assumed to be invested on the 15th day of' each month f'ollowing assumed receipl, at a rate o(':"i`��� w�til applied semi-annut�lly to t.he princi��al ��r reclemption ��I', and interest un, Che 13onds; and it. is assumed that all amounts in the Accumulation I�eserve �'und in excess oE' $300,000 are to be withdrawn by the City and not available f'or the Program; and (xi) excesses of assumed Nevenues over assumed debt service on the Bonds in each year (constitutin� primarily the interest diff'erential between the Mortgage I.oans and investments and � lhe 13onds as described above) will be used in such year I'irst to pay the Program Administrator, the City and the '1'rustee their respective fees and to make the contemplated t.ransfer to the Accumulation Reserve Fund, as described in clause (vii) above, and then to redeem Bonds until such �i►ne as the unpaid principal amount of Mortgage Loans then outstanding, plus all amounts then on deposit in the Principal Account, Sinking Fund Account, Debt Service Reserve Fund, Mortgage Reserve Futtd, Mort�age Loan Fund and Redemption Fund, is at least equal to the pri�lcipal amounts of k3onds then outsl,anding (the "Asset '['est"). On the basis of the above assumptions, even if, due to rapid prepayment of Mortgage Loans, the average life of the portfolio of Mortgage Loans is as short as six years (equal to,��320�i� of the Minnesota FHA prepayment experience and 338�'� of the FHA national prepayment experience — see the inf'ormation herein under the eapt�on "The Mortgage Loans — Prepayments Generally"), the anticipated Revenues available for debt service will exceed anticipated debt service on the Bonds in each year; the Accumulation Reserve Fund will be funded to its full R,equirement by of ; and the Asset Test (as described above) will be satisfied by of . The purpose of the Asset Test is to determine at what time all of the "assets" of the Program (being the unpaid principal amount of Mortgage Loans then outstanding plus amounts on deposit in the Principal Account, Sinking Fund Account, Debt Service Reserve Fund, Mortgage Reserve Fund, Mortgage Loan Fund and Redemption Fund) will be eyual to the principal amount of all Bonds then outstanding.The Asset Test, theref'ore, is not indicative of the price at which the "assets" of the Yrogram may be sold on the open market. he time at which the Asset Test is met is a function of the various projections assumed in the Program�ut varies particularly dependin� upon the assumed prepayment rate and, therefore, the assumed average tif'e of the Mortgage Loans. The more rapid the prepayment assumption, the longer it takes to meet the Asset 'I'est. Until the Asset 'I'est has been met, the Bondholders assume the risk that if the Mortgage Loans prepay in excess ofi320"i�� of the Minnesota FHA prepayment experience and_338°io of the national FHA prepayment experience, resulting in an average life of less than six years, there may be insufficient I'unds available to pay all of the Bonds and interest thereon. *EsCimaLed; amounts to be determined upon the sale of the Bonds. 21 To the extent that the Bond proceeds deposited in the Mortgage Loan Fund are not used to purchase Mortgage Loans (as described herein under the caption"The Mortgage Loans"), the effect on the Asset Test is the same as if the same amount of Mortgage Loans were purchased and then immediately prepaid, which would reduce the average life of the Mortgage Loan portfolio and increase the risk to the Bondholders.The importance of the average life of the Mortgage Loans is that, to a great extent, the approximately 1°�o interest rate differential between the Mortgage Loans and the Bonds is assumed to be used to pay debt service on that amount of Bonds the proceeds of which are to be used to �ay costs of issuance, underwriters' discount and capitalized interest ($1,872,900*). To the extent not so invested in Mortgage Loans or invested in Mortgage Loans prepaid at an early date (and used to redeem Bonds), the percentage difference between the "assets" of the Program and the principal amount of outstanding Bonds becomes greater and the interest rate differential between the unanticipated smaller portfolio of Mortgage Loans and the Bonds may be insufficient to pay debt service on the Bonds. Among other reasons for the non-delivery of Mortgage Loans may be (i) the decrease in the total arnount of housing units sold in the City in 1979 and 1980,or in the number of housing units sold within the restrictions outlined earlier (see the information herein under the caption "The Mortgage Loans— Demand f'or Mortgage Loans"); (ii) the inability of a particular Originator to fulfill its obligation to originate Mortgage Loans under the Purchase Agreement (see the information herein under the captions "The Program — Commitments to Originate Mortgage Loans" and "The Originators and Servicers"); (iii) a decline in the interest rates for conventional mortgages to such an extent that they are substantially the same as, or lower than, the interest rate required for the Mortgage Loans; or (iv) the availability of below-market interest rate mortgages from other public bodies, including the Minnesota Housinh Finance Agency. Accordingly, the payment of debt service on the Bonds will be jeopardized if, among other things, (1) the assumptions set forth in clauses (i) through (xi) above are not realized, or (2) the prepayments (including foreclosures) of the Mortgage Loans are such that the average life of the portfolio of such Mortgage Loans is reduced to less than six years (see the information herein under the caption "The Mortgage Loans — Prepayments Generally"}, or (3) a substantial portion of the amount deposited in — t.he Mortgage Loan Fund ($41,710,000*) is not used to purchase Mortgage Loans (see the information herein under the caption "The Mortgage Loans — Demand for Mortgage Loans"). THE BONDS Interest; Maturity; Place of Payment The Bonds will be dated April 1, 1979 and will bear interest from that date, payable on April 1 and October 1 of each year, commencing on October 1, 1979,until maturity or prior redemption.The Bonds will mature on April 1 in the years and amounts, and bear interest at the rates per annum, set forth on the cover page of this Of'ficial Statement, and will be subject to prior redemption as hereinafter stated (see the inf'ormation herein under the caption "The Bonds — Redemption"). 'I'he principal of, premium, if any, and interest on coupon Bonds not registered as to principal will be payable at the principal corporate trust off'ice of , Saint Paul, Minnesota, or its successor, or, at the option of the holder, at the principal corporate trust office of , New York, New York, or its successor, as Paying Agents. The principal of f'ully registered Bonds or Bonds registered as to principal only will be payable at the principal corporate trust office of , Saint Paul, Minnesota, or its successor as �I'rustee, and the interest on fully registered Bonds will be payable by check or draft mailed to the order of the owner of such Bond by the Trustee at his last address as shown on the registration books rnaintained by the Trustee. *Estimated; amounts to be determined upon the sale of the Bonds. 22 Form of Bonds; Registration; Replacement The Bonds may be issued as Bonds in coupon f'orm, registrable as to principal only, in the denomination of$5,000 or as fully registered Bonds without coupons in denominations of$5,000, or an integral multiple of $5,000. The Bonds may be registered, transferred or exchanged, upon presentation or surrender, as the case may be, at the principal corporate trust office of the Trustee upon payment of a charge sufficient to reimburse the City or the Trustee for any tax, fee or other governmental charges imposed in connection therewith as provided by the Indenture. No Additional Bonds Additional bonds are not permitted to be issued under the Indenture. The City covenants in the Indenture that it will not create or permit the creation of or issue any obligations or create any additional indebtedness which will be secured by a charge or lien on the Revenues or will be payable from any of the Funds or Accounts established by or pursuant to the Indenture. The City may, however, issue other obligations under other programs (some of which may be substantially similar to the Program), but such obligations will not be secured by the Mortgage Loans or Revenues of the Program and will not be security for or on a parity with the Bonds. Redemption The Bonds are subject to redemption prior to maturity as follows: Mandatory Sirzking Fund Redemptiorc. The Bonds maturing on April 1, 2011 (the"Term Bonds") are subject to mandatory redemption in part by lot on April 1, 2001, and on each April 1 thereafter from amounts on deposit in the Sinking Fund Account in the principal amounts set forth below at a redemption price equal to their principal amount plus accrued interest to the date fixed for redemption and without premium: April 1 April 1 of the Year Amount' of the Year Amount"' - 2001 $1,885,000 2007 $3,085,000 2002 2,045,000 2008 3,350,000 2003 2,220,000 2009 3,635,000 2004 2,410,000 2010 2,015,000 2005 2,615,000 2011 (final maturity) 6,000,000 2006 2,840,000 Amounts of annual installments shown on the table above (other than the final installment to be paid on April 1, 2011) are subject to reduction as a result of Term Bonds redeemed through the Special Redemption Account as provided below under the sub-caption "Special Redemption". 'Po the extent that Term Bonds have been previously called for redemption in part from the Special Redemption Account, each such installment (other than the final installment to be paid an April l, 2011) shall be reduced by the amount obtained by multiplying the principal amount of such Bonds so called for redemption by the ratio which each such Sinking Fund Installment bears to the total aggregate installments remaining unpaid (less an amount equal to the final installment to be paid on April 1, 2011) and by rounding each such reduction to the nearest $5,000 multiple. Uptional Redemption. The Bonds maturing on and after April 1, 1990, are subject to redemption prior to maturity from the Optional Redemption Account, at the option of the City, in whole or in part on any interest payment date on or after April 1, 1989, in inverse order of maturity and by lot within a maturity, at the redemption prices (expressed as a percentage of the principal amount) indicated *Estimated; amounts to be determined upon the sale of the Bonds. 23 below for the periods during which they may be redeemed, plus accrued interest to the date fixed for redeinption: Redemption Redemption Dates(both dates incivaive) Price April 1, 1989 to March 31, 1990 . . . . . . . . . . . . . . . 103 °io April 1, 1990 to March 31, 1991 ' . . . . . . . . . . . . . . . 1 /2 April 1, 1991 to March 31, 1992 . . . . . . . . . . . . . . . 102 April 1, 1992 to March 31, 1993 . . . . . . . . . . . . . . . 101'/z April 1, 1993 to March 31, 1994 . . . . . . . . . . . . . . . 101 April 1, 1994 to March 31, 1995 . . . . . . . . . . . . . . . 100'/z April 1, 1995 and thereafter . . . . . . . . . . . . . . . . . . 100 Pursuant to the Indenture, upon determination by the Trustee that available sums on hand with the Trustee in all Funds and Accounts established by the Indenture are sufficient to redeem all of the outstanding Bonds(and such Bonds are then subject to redemption), the Trustee is required to transfer such available sums to the Optional R.edemption Account and shall redeem all outstanding Bonds on the next interest payment date at the applicable redemption price set forth above. Special Redemption.: (A) From Un.disbursed 1'roceed.s. The Bonds are subject to redemption at the option of the City on April 1, 1980, October 1, 1980, and April 1, 1981, and are subject to mandatory redemption on October 1, 1981, at the principal amount thereof, plus accrued interest to the date fixed for redemption and without premium, in amounts not exceeding the amount of Bond proceeds and Commitment Fees on deposit in the Mortgage Loan Fund which have not been committed to purchase Mortgage Loans 45 days prior to each such redemption date and transferred to the Special Redemption Account. (B) From Prepayments. The Bonds are also subject to mandatory redemption from the Special Redemption Account on any interest payment date at the principal amount thereof, plus accrued — interest to the date fixed for redemption and without premium, in amounts not exceeding the amounts received from time to time by the Trustee and deposited in the Special Redemption Account constituting prepayments of principal of Mortgage Loans, the proceeds of sale of Mortgage Loans or Revenues relating to a Defaulted Mortgage Loan, af'ter payment of related costs. (C) From Other Sources. The Bonds are also subject to mandatory redemption from the Special Redemption Account on any interest payment date at the principal amount thereof, plus accrued interest to the date fixed for redemption and without premium, in an amount not exceeding the total amount of Revenues deposited in the Special Redemption Account, until the total amount of unpaid principal on the Mortgage Loans, together with amounts on deposit in all Funds and Accounts established by the Indenture (other than the R,evenue Fund, the Interest Account, the Capitalized Interest Fund and the Accumulation Reserve Fund), is equal to the principal amount of Bonds then outstanding, as more fully described herein under clause (vii) of the caption"Security for the Bonds— Flow• of Funds". The`redemption of Bonds from the Special Redemption Account as set forth in clauses(B) and(C) above is qualified to the extent that if all or part of such amounts (constituting prepayments of Mortgage Loans or other Revenues until the Asset Test is met) which would otherwise be applied to the redemption of Bonds on such interest payment date may be invested in permitted Investments at a yield exceeding the yield on the Bonds and maturing before the next interest payment date, such amounts shall be so invested until such next interest payment date, but for no longer period, and then vsed to redeem Bonds. If less than all the Bonds are to be redeemed pursuant to the Special R,edemption Account, such Bonds shall be selected and redeemed on a reasonably proportionate basis from among all the then existing maturities of the Bonds (excluding, however, the principal installment due on Term Bonds in the year 2011), and by lot within such maturity, such basis to be determined and effectuated as nearly 24 ti as practicable by the Trustee by multiplying the total amount of moneys available to redeem Bonds on the dnte�xed for redemption by the ratio which the principal amount of all Bonds outstanding in each maturity (except, with respect to the final maturity, an amount equal to the Debt Service R,eserve Reyuirement is to be subtracted) bears to the principal amount of all Bonds then outstanding (less an amount equal to the Debt Service Reserve Requirement), provided that Bonds shall be redeemed only in integral multiples oF $5,0(�. The purpose of establishing the redemption of the Bonds from the Special Redemption Account in the manner set forth above (together with the credits to the required Sinking Fund Installments as set forth above) is to assure that the remaining maturities and Sinking Fund Installments on the Bonds (issued for the purpose of financing the purchase of the Mortgage Loans and remaining outstanding after such redemption) corresponds to the scheduled payment of principal of the Mortgage Loans remaining outstanding. Notice and Manner oj Redemption. After selection of the Bonds to be redeemed, the Trustee is required to give notice, of the redemption of the Bonds, which notice is to specify the redemption date and the place or places where amounts due upon such redemption will be payable and, if less than all of the Bonds are to be redeemed, the letters and numbers or other distinguishing marks of such Bonds so to be redeemed, and, in the case of a fully registered bond to be redeemed in part only,such notice shall also specify the portion of the principal amount thereof to be redeemed. Notice of the redemption of Bonds is required to be published at least once not less than 25 days prior to the scheduled redemption date in financial newspapers printed in the English language, one of which is circulated in the Minneapolis-Saint Paul metropolitan area and the other in the Borough of Manhattan, City and State of New York. The Trustee is also required to mail a copy of such notice, postage prepaid, not less than 20 days before such redemption date, to the registered owner of any Bond all or a portion of which is to be redeemed, at such owner's last address, if any, appearing upon the registry books, but failure so to mail any such notice will not be a condition precedent to or affect the validity of any proceedings for the redemption of Bonds. 25 � Required Debt Service Payments '1'he following table sets forth the amounts required to pay scheduled annual debt service on the Bonds in each year: Year Ending Serial Sinking Fund Total April 1 Maturitiea' Inetallments• Interest Amount Debt Service 1981 $ 530,000 $ � 1982 395,000 1983 430,000 1984 465,000 1985 505,000 1986 550,000 1987 595,000 --- 1988 645,000 1989 700,000 1990 760,000 1991 830,000 1992 900,000 1993 975,000 1994 1,060,000 1995 1,150,000 1996 1,250,000 1997 i,355,000 1998 1,470,000 1999 1,600,000 2000 1,735,000 2001 $ 1,885,000 2002 2,045,000_ 2003 2,220,000 2004 2,410,000 2005 � 2,615,000 2006 2,840,000 2007 3,085,000 2008 3,350,000 2009 3,635,000 2010 `l,015,000 2011 6,000,000 $17,9U0,000 $32,100,000 $ $ *Estimated; amounts to be determined upon the sale of the Bonds. 26 SOURCES AND APPLICATION OF FUNDS '1'he f'ollowing table sets forth the sources and anticipated application of funds with respect to the Bon ds:* Sources:* Commitment Fees from Originators (1`;�of Mortgage Loans): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 417,100 Principal Amount of Bonds: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000,000 Less: Underwriters'Discount(2`;�,) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 49,000,000 'I'otal Funds Available: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . �49,41i,100 Uses:` Deposit to;VIortgage Loan Fund (to purchase $41,710,000 aggregate principal amount of Mortgage Loans at 101''�): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,127,0(x) Deposit to Uebt Service Reserve Fund: . . . . . . . . . . . . . . . . . . . . . . . : . . . 6,000,000 Deposit Co Mortgage Reserve Fund: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 417,1(x) Deposit to Capitalized ]nterest Fund (1): . . . . . . . . . . . . . . . . . . . . . . . . . 287,900 Ueposil to Cost of Issuance Fund (Z): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 585,000 Total Funds Applied: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . �49,417,100 (1) Equal to inLerest�for a one month period on the Mortgage Loans. ('L) Includes $156,000 to be applied to the payment of the Yrogram Administrator's fee in connection with the review of the Mortgage Loans prior to purchase and $180,000 to be paid to the City for expenses incurred in issuing the Bonds. 1NSUKANCE Mortgage Loans acquired f'rom I3ond proceeds may be insured by FHA, guaranteed by VA, insured by PMI or uninsured under certain circumstances. Uninsured conventional Mortgage Loans are required to have an ori�inal principal balance not in excess of 75`�0 of(i) the purchase price paid by the Mortgagor, �r (ii) the appraised value of the Home, whichever is less. '1'he fo(lowing description of certain mortgage insurance programs is only a brief'outline and does not purport to summarize or describe all of the provisions of these programs. For a more complete description of the terms of these programs, reference is made to the provisions of the insurance and guaranty contract.s embodied in the regulations of FHA and VA, respectively, and of the regulations, master insurance contracts and other such information of the various Private Mortgage Insurers. Morfgage Loans purchased under the Program are not limited by the Indenture to the f'ollowing programs, and it. is possible that insurance benef'its under other Federal or private programs relating to the Mortga�e I.oans could have diff'erent terms. Federal Housing Administration Single Family Mortgage Insurance Programs The National HousinK Act of 1934, as amended, authorizes a wide variety of FHA mortgage insurance programs, which differ in some respects depending primarily upon whether the mortgaged premises contain five or more dwelling units or less than five such units and whether the premises are designed for occupancy by low and moderate income families. The FHA imposes loan-to-value ratio limitations and other requirements on all single family mortgage loans it insures. Under the Section 'l03(b) program, which is the most widely used FHA insurance program, FHA insures mortgage loans of up tu 35 years duration fbr the purchase of one-to-four family dwelling units. Loans insured under the Section 203(b) program must bear interest at a rate not exceeding the maximum rate established by �the Department of Housin� and Urban Development ("HUD") which is in effect at the time a �, *Estimat.ed; amounts to be determined upon the sale of the Bonds. . 27 � SOURCES AND APPLICATION OF FUNDS The following table sets forth the sources and anticipated application of'funds with respect to the Bonds:* Sources:* Commitment Fees from Originators (1°�of Mortgage I.oans): . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . Principal Amount of Bonds: . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . $ 417,100 $50,000,000 Less: Underwriters'Discount(2°�0) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000 49,000,000 Total Funds Available: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,417,100 Uses:* Deposit to Mortgage Loan Fund (to purchase $41,710,000 aggregate principal amount of Mortgage Loansat101�%): . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $42,127,000 Deposit to Debt Service Reserve Fund: . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000 Deposit to Mortgage Reserve Fund: . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 417,100 Deposit to Capitalized Interest Fund (1): . . . . . . . . . . . . . . . . . . . . . . . . . 287,gpp Deposit to Cost of Issuance Fund (2): . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 585,000 `I'otal Funds Applied: . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . $49,417,100 (1) Equal to interest for a one month period on the Mortgage Loans. (2) Includes $156,000 to be applied to the payment of the Program Administrator's fee in connection with the review of the Mortgage Loans prior to purchase and $180,000 to be paid to the City for expenses incurred in issuing the Bonds. INSURANCE Mortgage Loans acquired from Bond proceeds may be insured by FHA,guaranteed by VA, insured by PMI or uninsured under certain circumstances. Uninsured conventional Mortgage Loans are required to have an original principal balance not in excess of 75%of(i) the purchase price paid by the Mortgagor, or (ii) the appraised value of the Home, whichever is less. The following description of'certain mortgage insurance programs is only a brief outline and does not purport to summarize or describe all of the provisions of these programs. For a more complete description of the terms of these programs, reference is made to the provisions of the insurance and guaranty contracts embodied in the regulations of FHA and VA, respectively, and of'the regulations, master insurance contracts and other such information of the various Private Mortgage Insurers. Mortgage Loans purchased under the Program are not limited by the Indenture to the following programs, and it is possible that insurance bene�ts under other Federal or private programs relating to the Mortgage Loans could have different terms. Federal Housing Administration Single Family Mortgage Inaurance Programs The National Housing Act of 1934, as amended, authorizes a wide variety of FHA mortgage insurance programs, which differ in some respects depending primarily upon whether the mortgaged premises contain �ve or more dwelling units or less than five such units and whether the premises are designed for occupancy by low and moderate income families. The FHA imposes loan-to-value ratio limitations and other requirements on all single family mortgage loans it insures. Under the Section 203(b) program,which is the most widely used FHA insurance program, FHA insures mortgage loans of up to 35 years duration for the purchase of one-to-four family dwelling units. Loans insured under the Section 203(b) program must bear interest at a rate not exceeding the maximum rate established by the Department of Housing and Urban Development ("HUD") which is in effect at the time a *Estimated; amounts to be determined upon the sale of the Bonds. 27 mortgage loan is made (currently 9'/z°lo).The mortgage loans may not exceed 97%of the first$25,000 of the property's appraised value plus 95°l0 of the balance thereafter, up to a $6Q,000 maximum,for a one- family residence. The regulations governing all of the FNA programs under which the Mortgage Loans may be insured provide that insurance benefits are payable either upon foreclosure (or other acquisition of pc�ssession) and conveyance of the mortgaged premises to HUD or upon assignment of the defaulted mortgage loan to HUD. Assignment is allowed only with HUD approval. With respect to the assignment of mortgaged premises containing less than �ve dwelling units to HUD, mortgagees must first make a determination as to whether or not the default is caused by a circumstance or set of circumstAnces beyond the mortgagor's control, which ternporarily renders the family �nancially unable to cure the delinyuency within a reasonable time or make full mortgage payments. If a determination is made that the default is caused by such circumstances, HUD must be requested to accept assignment and must have rejected the request for the mortgagee to initiate foreclosure proceedings. 1'he FHA insurance that may be provided under these programs upon conveyance of the mortgaged premises to HLJD is equat to 99�1�of the outstanding principal balance of the mortgage loan, plus interest, as explained below, and certain additional costs and expenses. Under some of the FHA insurance programs,insurance claims are paid by HUD in cash, unless the mortgage holder specifically requests payment in debentures issued by HUD. Under others, HUD has the option, at its discretion, to pay insurance claims in cash or in such debentures. The current HUD policy, subject to change at any time, is to make insurance payments on single family mortgage loans in cash, with respect to all programs covering such units as to which it has discretion to determine the form of insurance payment. Should HUD debentures be issued in satisfaction of FHA insurance claims, they will bear interest from the date of issue, payable semiannually on January 1 and July 1 of each year at the rate in effect as of the day the commitment was issued, or as of the date the mortgage was endorsed for insurance, whichever rate is higher. The HUD debenture interest rate is lower than the required interest rate on the Mortgage Loans. When entitlement to insurance beneFts results from foreclosure (or other acquisition of possession) and conveyance, the insurance payment is computed as of the date of default by the mortgagor, which, under HUU regulations, will occur no less than 60 days after due date of a mortgage payment, and the mortgage holder generally is not compensated for mortgage interest accrued and unpaid prior to that date. Under such circumstances, the amount of insurance benefits generally paid by FHA is equal to the unpaid principal amount of the mortgage loan, adjusted to reimburse the mortgagee for certain tax, insurance and similar payments made by it and to deduct certain amounts received or retained by the mortgagee after default, plus reimbursement not to exceed 2/3 of the mortgagee's f'oreclosure costs. When entitlement to insurance bene�ts results from assignment of the mortgage loan to HUD, the insurance payment is computed as of the date of the assignment and includes full compensation for mortgage interest accrued and unpaid to the assignment date. The regulations under all insurance programs de��ribed above provide that the insurance payment itself shall bear interest from the date of default, or, where applicable, the date of assignment, to the date of payment of the claim at the same interest rate as the applicable HUD debenture interest rate determined in the manner set forth above. When any property to be conveyed to HUD or subject to a mortgage to be assigned to HUD has been damaged by �re, earthquake, flood or tornado, it is required, as a condition to payment of an insurance claim, that such property be repaired by the mortgage holder prior to such conveyance or assignment. 'I'o obtain title to and possession of the property upon foreclosuree,the trustee and the servicer will pursue its rights under the power of sale contained in the Mortgage subject to the constraints imposed by applicable State law(discussed above) and by HUD.The HUD Management Mortgagee Letter 76-9 reyuires that, absent the consent of the mortgagor, at least three full monthly installments be due and unpaid under the mortgage before the mortgagee may initiate any action lending to foreclosure of the 28 � mortgage. This Letter also requires that, absent the consent of the mortgagor, at least three full monthly installments be due and unpaid under the mortgage before the mortgagee may initiate any action leading to foreclosure of the mortgage. This Letter also required to face-to-face conference between the mortgagee and the mortgagor in an effort to cure the delinquency without foreclosure. In any case, where the mortgagor has voluntarily abandoned the mortgaged property, the mortgagee may initiate foreclosure without adhering to the procedures for assignment set forth in the Letter. Veterans Administration Guaranty Program The Serviceman's Readjustment Act of 1944, as amended, permits a veteran (or, in certain instances, his or her spouse) to obtain a mortgage loan guaranty by the VA covering mortgage financing of the purchase of a one-to-four family dwelling unit at interest rates permitted by the VA. The program has no mortgage loan limits, requires no down payment from the purchaser and permits the guaranty of mortgage loans with terms of up to 30 years. The maximum guaranty that may be issued by the VA under this program is the lesser of 60°�of the original principal amount of the mortgage loan or$25,000. The liability on the guaranty is reduced or increased pro rata with any reduction or increase in the amount of the indebtedness, but in no event will the amount payable on the guaranty exceed the amount of the original guaranty. Notwithstanding the dollar and percentage limitations of the guaranty, a mortgage holder will ordinarily suffer a monetary loss only where the difference between the unsatisfied indebtedness and the proceeds of a foreclosure sale of a mortgaged premises is greater than the original guaranty as adjusted. The VA may, at its option and without regard to the guaranty, make full payment to a mortgage holder of unsatis�ed indebtedness on a mortgage upon its assignment to the VA. Private Mortgage Insurance Programs Under the Indenture, all qualified Mortgage Loans insured by a qualified Private Mortgage Insurer must have insurance coverage on that portion of the Mortgage Loan in excess of 75°�0 of the appraised value at which time the coverage may be cancelled. A qualified Private Mortgagee Insurer is either (1) Mortgage Guaranty Insurance Corporation, (2) Verex Assurance, Inc., (3) Ticor Mortgage Insurance Company, (4) PMI Mortgagee Insurance Corporation or (5) United Guaranty Corporation, (6) Tiger I.M.I. Inc., (7) American Mortgage Company or (8) any other insurer approved which is qualified or approved to provide insurance on mortgages eligible for purchase by either the Federal National Mortgage Association (FNMA) or the Federal Home Loan Mortgage Corporation (FHLMC), the participation of which in the Program will not result in a lowering of the ratings on the Bonds. Both the FNMA and the FHLMC require approval of private mortgage insurance companies before mortgages insured by those companies are eligible for puchase by them. The FNMA eligibility requirements currently specify a$5,000,000 minimum capitalization, a 25:1 risk ratio, and a number of other less forinal conditions designed to insure the competence and stability of the Private Mortgage Insurer. The FHLMC eligibility requirements (currently under revision) provide that (a) an insurer must limit its business activities to the underwriting of residential mortgagee guaranty insurance, which insurance shall be written to insure only a fully amortized note, bond or other evidence of indebtedness; (b) not more than 10�% of en insurer's mortgage insurance risk may be represented by mortgage insurance covering property, other than real property improved by a building or buildings designed for occupancy by one to four families; (c) an insurer shall not insure mortgages secured by properties in a single housing tract of contiguous tracts where the insurance risk applicable thereto is in excess of 10°0 of its policyholders' surplus; (d) no insurer shall have more than 20��'0 of its total insurance in force in any one Standard Metropolitan Statistical Area, nor may any combination of insurance in force in any one state exceed 60°l0 of its total insurance in force; and (e) an insurer shall limit its insurance risk with respect to each insured loan to a maximum of 25°io of the entire indebtedness of the insured. 29 , Prior to insuring a loan for any mortgage lender, such mortgage lender must be investigated and evaluated by the insurer in the areas of(a) quality of underwriting ability, (c) net worth and quality of assets and (d) ability and past performance of servicing staff and adequacy of servicing procedures. A report with respect to each lender, demonstrating that the investigation and evaluation have been made, must be retained by the insurer. The FHLMC also requires the private mortgage insurer to meet the following financial requirements: (a) polic�•holder's surplus must be maintained at not less than $5 million, of which et least S3 million shall be represented by capital stock and capital surplus, �f which no less than S1,?�0,000 shall be represented by fully paid and nonassessable stock; (b) an insurer shall maintain an unearned premium reserve computed on a monthly pro rata basis; if a greater unearned premium reserve is required by the state where the insurer is licensed, then such greater requirement shall be met; (c) an insurer shall establish and maintain a contingency reserve in an amount equal to 50�7o of earned premiums; (d) an insurer shall maintain a loss reserve for claims incurred, but not reported, including estimated losses on insured mortgages which have resulted in the conveyance of property which remains unsold, mortgages in the process of foreclosure or mortgages in default for four or more months; (e) an insurer shall maintain no less than 85°r'o of its total assets in the form of marketable securities or other highly liquid investments which qualify as insurance company investments under the laws and regulations of the state of its domicile; and (f) an insurer shall not at any time have total insurance risk outstanding in excess of twenty-five times its policyholders' surplus; and (g) losses in excess of the following limitations may be grounds for disqualification or suspension: (1) aggregate losses in any two consecutive years in excess of 35%c of the aggregate earned premium for those two years or (2) an average of the ratio of incurred losses to earned premium computed on any annual basis exceeding 35°r'o for any two consecutive years. Approved private mortgage insurers must file quarterly and annual reports with the FHLMC. Private mortgage insurance policies with respect to Qualified Mortgage Loans presently contain provisions substantially as follows: (a) the Private Mortgage Insurer must pay a claim, including unpaid principal, accrued interest and certain expenses, within sixty days of presentation of the claim by the Mortgage Lender; (b) for a Mortgage Lender to present a claim,the Mortgage Lender must have � acquired, and tendered to the Private Mortgage Insurer, title to the property, free and clear of all liens and encumbrances, including any right of redemption by the Mortgagor; and (c) when a claim is presented, the Private Mortgage Insurer will have the option of paying the claim in full, taking title to the property and arranging for its sale, or of paying the insured percentage of the claim and allowing the insured Mortgage Lender to retain title to the property. Mortgage Pool Insurance Policy At or prior to the delivery of the Bonds, a Mortgage Pool Insurance Policy will be issued by Verex Assurance, Inc. of Madison, Wisconsin ("Verex"). 'I'he policy will provide insurance coverage on the full amount of any loss realized as a result of default in payments by a mortgagor on every Mortgage Loan foreclosed (af�ter payment by VA or the PMI, if any), subject to a limitation on aggregate claims of lOSo of the original principal amount of all of the Mortgage Loans.The Policy will cover all Mortgage Loans purchased under the Program other than those to be insured by FHA.The Trustee has agreed in the Indenture to use its best ef'forts to maintain the mortgage pool insurance policy with Verex or another Qualified Insur�r which affords comparable protection to the Verex Policy, provided that the premiums therefor will be affordable in light of the projected cash flow of the Program. Under the Verex Mortgage Pool Insurance Policy, it is a condition to payment of a claim on any Mortgage I.oan that the insured on the Policy advance hazard insurance premiums and, as necessary, real estate taxes, property sales expenses and foreclosure costs (including court costs and reasonable attorneys fees). In the event of default by the mortgagor, if there is any physical loss or damage to the property from any cause, whether by accidental means or otherwise, it is a condition to payment of a claim on the Mortgage Loan that the insured on the Policy restore the property to its condition at the time of the issuance of'the Policy (reasonable wear and tear excepted). Therefore, the Policy does not provide coverage against hazard loss. 30 The Policy de6nes an "approved sale" as (i) a sale of the Home acquired because of a default by the mortgagor and to which Verex has given prior approval, or (ii) a foreclosure or trustee's sale of't� property to a third party at a price exceeding the maximum amount specified by Verex to be bid by the Servicer on behalf of the Trustee. A loss payable under the Policy with respect to each individual claim is computed to be the sum of (a) the amount of unpaid principal balance at the time of an approved sale of the Home, plus (b) the amount of the accumulated delinquent interest computed to the date of cl�im settlement (but excluding applicable late charges and penalty interest), plus (c) the amount of advances made by the insured and referred to in the preceding paragraph, less the net proceeds upon an approved sale of the Home. In lieu of the foregoing, Verex, at its option, may pay the insured the amounts referred to in (a) (b) t�nd (c) above and receive from the insured good and merchantable title to the Home. Claims for losses must be�led with Verex within 60 days after the insured has conveyed title to the Home pursuant to an approved sale, and Verex then has 30 days from the date of �ling to pay the claim. Premiums on the Policy will be paid from amounts on deposit in tihe Revenue Fund. Such premiums are payable on or before the 25th day of each month and failure to pay any such premium within 10 business days after receipt of notice from Verex that the same is due and payable will terminate the Policy. The premiums for the Policy are fixed as a percentage of the total principal amount of Mortgage Loans insured, at a rate of .118°l0. Mortgage Pool insurance coverage will not be obtained for Mortgage Loans insured by FHA; to the extent, therefore, that the portfolio of Mortgage Loans actually acquired includes FHA insured Mortgage Loans, the cost of the pool insurance prorated over the entire portfolio will be less than .118°io. If the aggregate recoveries under the Policy reach the Policy Limits (10°�0 of the aggregate original principal amount of Mortgage Loans), coverage under the Policy will be exhausted and further losses due to foreclosure will be borne by the Program and result in a drain on Revenues. � Standard Hazard Insurance on Homes Each Mortgage Loan must contain covenants relating to insurance of the Home. The coverage J must include all fire and extended coverage risks customarily insured against in the geographical area in which the Home is located. The insurance policy must provide, as a minimum, fire and extended coverage insurance on a repiacement cost basis in an amount at least equal to the lesser of (a) the maximum insurable value of'the Home, or (b) the unpaid principal balance of the Mortgage Loan, but in any case at least equal to that required to comply with co-insurance provisions. Such insurance must be in effect on the date of delivery of the Mortgage Loan;the coverage provided thereby must meet the requirements, if applicable, of FHA, VA or the PMI; and the deductible clause must not exceed$250. Each Hazard insurance policy must be written by an insurance carrier licensed or authorized by law to transact business within the State of Minnesota, and the policy must contain a standard mortgage clause naming the Trustee as mortgagee and providing notice to the Servicer or the Trustee at least 10 days in advance of the effective date of any reduction in coverage or cancellation of the policy. Hazard insurance coverage varying from that described above will be considered on a case by case basis by the Yrogram Administrator upon request from the Originator.The mortgagor will be required to escrow hazard insurance premiums on a monthly basis with the Servicer, and the Servicer will be responsible for assuring that such insurance is in force and effect. In general, a standard form of fire and extended coverage policy covers physical damage to or destruction of the improveinents on the property by fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion, subject to the conditions and exclusions particularized in each policy. Although policies relating to different Mortgage Loans may be issued by different insurance companies and, therefore, may have minor differences in coverage, the basic terms typically exclude physical damage resulting from the following: enemy attack by armed forces, invasion, insurrection, rebellion revolution, civil war, usurped power, floods, animals, earth movement, nuclear reaction, dry rot, rodents, and in some cases, vandalism. In addition, such policies typically exclude losses while the hazard is increased by any means within the control or knowledge of the insured, while the hazard is 31 l increased by any means within the cntrol or knowledge of the insured, while the premises are vacant or unoccupied beyond a period of 60 consecutive days, or as a result of explosion. Where property is located in a designated flood area, flood insurance will be required. In addition to requiring the rnortgagor to carry the insurance described above, the Homes securing the Mortgages will be covered by a special hazard insurance policy, as more fully described herein under the caption "Insurance — Special Hazard Insurance Policy". Special Hazard Insurance Policy At or prior to the delivery of the bonds, a Special Hazard Insurance Policy will be issued by I�uritan Insurance Company of Stanford, Connecticut ("Puritan"). The Policy will provide insurance coverage against all risks of direct physical loss which constitute "actual loss sustained" (as defined below) in the event that the security of the insured under the Policy has become impaired by peril (other than those perils excluded from the Policy as outlined below) and default by the mortgagor has occurred and the insured has obtained good and merchantable title to the property,or in the event that losa has occurred as a result of physical damage to a Home acquired by the insured through foreclosure by a peril not excluded as described below. In the Indenture, the Trustee has agreed to use its best ef'forts to maintain a special hazard pool insurance policy with Puritan or another Quali�ed Insurer which affords comparable protection to the Puritan Policy, provided that the premiums therefor will be affordable in light of the projected cash flow of the Program. The liability of Puritan under the Policy is limited to loss, in the aggregate, of l��o of the initial total principal balance of Mortgage Loans. In addition, Policy coverage does not include the following: (i) infidelity, conversion or other dishonest act on the part of the insured, or its agents or employees; (ii) hostile or warlike action, insurrection, rebellion, revolution, civil war, usurped power and other similar perils; and (iii) nuclear reaction, nuclear radiation or radioactive contamination; _ In addition, under the Policy, there is required to be maintained on each Home fire insurance and extended coverage in an amount at least equal to the less of (a) the maximum insurable value of the Home or (b) the unpaid principal balance of the Mortgage Loan. If such coverage is not maintained and a loss occurs which would have been covered by fire and extended coverage insurance, then the claim will be reduced by the amount such fire and extended policy would have covered. However, if loss to the insured occurs due to operation of the coinsurance provisions of the fire and extended coverage policy, these coinsurance clause losses shall be recoverable under the Policy. The term "actual loss sustained" means the lesser of (i) the cost of repair, or (ii) the unpaid principal balance on a Mortgage Loan at the time of acquisition of a Home by foreclosure, plus accrued interest to the settlement date (excluding late charges and penalty interest), plus advances, lesa any net proceeds, if any, from the approved sale of the Home. If'the insured and Puritan fail to agree as to the amount of the claim, upon demand of either, the amount of the claim is to be determined by an independent appraiser. Claims are to be paid by Puritan within 30 days following submiseion of proof of loss. When loss occurs to a Home, the insured is required to use reasonable means to protect the Home from further loss, and any further covered loss due to t.he insured's failure to so protect the Home shall not be recoverable under the Policy. Premiums on the Policy are to be paid from the Revenue Fund. The preinium is to be paid in installments calculated at the fixed yearly rate of .035��, applied to the total principal balances of Mortgage Loans outstanding at the beginning of each year. Failure to pay the premium within 10 business days after receipt by the insured of notice of such failure, will result in termination of coverage of the Policy. 32 w The Insurers The Mortgage Pool Insurance Policy will be issued by Verex Assurance, Inc. ("Verex"). Verex is a Wisconsin corporation, and a wholly-owned subsidiary of Greyhound Corporation and has its principal off'ices in Madison, Wisconsin. Verex is principally engaged in the business of insuring mortgage loans on residential properties against default in payment by the mortgagor. Such mortgage insurance is offered to approved lending institutions in all 50 states. As of December 31, 1978, Verex reported insurance in force covering approximately $8.2 billion of residential mortgages. Also as of such date, Verex reported total assets of approximately $119 million, capital and surplus aggregating $27 million and statutory contingency reserves of $56 million, resulting in total policyholders' reserves of' approximately $8�million. 'I'he Speci�l Hazard [nsurance Policy will be issued by Yuritnn Insurance Company ("Puritan"). Puritan is a Connecticut corporation, has its principal offices in Stamford, Connecticut, and is a wholly-owned subsidiary of General Electric Credit Company, which in turn is wholly-owned by General Electric Company. I'uritan is a multi-line property and casualty insurance company, which writes insurance on both a direct and a reinsurance basis. As of December 31, 1977, Puritan reported total assets of approximately $49.3 million and policyholders' surplus of approximately $19.7 million. The Special Haaard Insurance Policy will be reinsured through a major reinsurance company (the "Reinsurer"),(The Reinsurer will reinsure 90°io of the risk to Puritan, and will also issue a 1005� "cut through" enc�orsement to the insured; this means that the Reinsurer will pay 100°,�0 of all benefits payable under the policy to the insured, if Puritan is unable to do so. As of December 31, 1977, the Reinsurer reported total assets of approximately $1.6 biltion and policyholders' surplus of approximately $302.7 million. Errors and Omissions Insurance Under tihe Servicing A�reement, each Servicer is required to use its best efforts to maintain, or to require the mortgagor to maintain, the standard hazard insurance reyuired under the Indenture in effect on all Homes as long as the Bonds are outstanding. In addition, each Servicer is obligated to perform its servicing duties in a manner which will preserve all claims against insurers. If a Servicer - fails to perform these or certain other obligations due to an error or ommission of its officers or employees, coverage will be provided by an errors and omissions insurance policy reyuired to be maintained by each Servicer. THE ORIGINATOftS AND SERVICERS The Originators Of the�21 Originators which have executed Purchase Agreements,�ele�ven are banks,Lf�ou�r are savings andToan association and ix are pr�va e mortgage companies.-'I'—wo o-P the Origina��ors are affiliates of Northwest Bancorporat4sion. The Program Administrator is also an affiliate of Northwest Bancorporation. Banco Mortgage Company is required to originate,�,�$3,875,0�00 principal amount of Mortgage Loans, and to service�$7�,`L13,.0,�00,principal amount of Mortgage Loans, as well as acting as Program Administrator. Under the Yurchase Agreements, the Originators have committed to originate the Qualified Mortgage Loans within six months from the date specified in a notice to be given by the City to each Originator {currently estimated to be April 5, 1979), in the case of loans used to purchase existing homes, to close the Qualif'ied Mortgage Loans within three months thereafter and in the case of loans used to finance newly constructed or substantially Rehabilitated Homes,�to close the Qualified Mortgage Loans within six months thereafter, and to deliver the Qualified Mortgage Loans to the City for purchase within 45 days of date of closing. In connection with the application procedure, each Originator was requested to supply certain information to the City with respect to its prior mortgage lending activities in the City. Some Originators indicated that certain information was not available and also indicated that some � 33 1 information consisted, at least in part, of estimates. 'I'he following table sets forth such information as wF�s provided by the Originators: Principal Principal Total Principal Amount of Amount of Principal Amount o[ Standard Redevelopment Amount of Mortgage Mortgage Mortgage Single-Family Loana Loana [,oans Mortgage Originated Committed to Committed to Loans in the City Be Sold Be Sold Originated in within under the under the the City in Program Program Program 1978 Requirement,s mencan atione an f�nd'Crust Company.......... g 765,000 $ — $ 1,042,350 � '102,4(� Banco Mortgage Company ...... 3,40�i,000 470,0(H) 10,200,0(� 5,300,0(xl Conservative Mortgage Company 850,000 1,4(X),(x)0 10,212,6fi0 8,203,8(xl H'irst Federal Savings and Loan Association of Minneapolis.... 1,:'i35,0(N) — 4,379,7(H) 4,204,950 First Grand Avenue State k3ankofSaintl'aul ........... 1,705,OW 1,;i60,W0 '1,893,100 1,144,500 First Merchant�s State Bank..... 1,105,000 400,000 1,364,750 1,171,000 '3'he First National Bank ��f Stii�tt Pt�ul ................ 'l,1,50,0(x) 872,1AH) 3,'lBJ,FiOO 'L,049,9(N) First S�a�e Bank of Saint Paul .................. 1,190,(H� 300,000 1,972,900 1.897,3(Hl hieritage Slate Bank N��>rlh Saint Paul ............ I`i5,0(N) — 199,fiW 90,400 Knutson Mortgage& Financial Corporation ........ 3,405,000 1,fH)0,000 12,873,0(N) 9,300,(H� Midwest Federal Savings and Loan Associationof'Minneapolis.... 3,405,000 1,ti00,000 '13,874,175 94,8(�,000 � Northern Federal tiavings and L��un A,s�x•iation ........ ;1,06.5,000 — 9,98A,975 8,589,0(N) NorthJand Mortgage Company .. 3,065,000 — 11,000,000 8,500,000 Northwestern National Bank of 5aint Yaul ................ ;I,OfFi,(Nx) — 3,964,12Fi 1,870,ri75 NurthwesCern Stale F3ank of Saint Yaul ................ 385,000 — 4,300,0(x) N/A' Sainl Anthuny Park State Bank ................. 385,000 — 1,266,298 467,8`25 7`he Spring Company .......... 765,000 — 3,500,IX� 3,200,000 Summit State Bank of Phalen Yark................. 98,b(� — 113,(x� 43,000 'Pwin City Federal SavinKs nnd L.oan Association ,....... l,`L75,000 470,0(x) 19,099,340 16,494,050 United Mortgage .............. i65,(K� — 1,(HN),OOQ 760,0(xl Western State k3ank of Saint Paul .................. 850,(X� 470,000 3,112,577 'l,d'34,000 $33,368,OIX)' $8,342,0(�* $129,639,540 $76,212,700 In April, 1978, the Minnesota Housing Finance A�ency sold a series of obligations, approximately �,131,000,000 of which was to be used throughout the State of Minnesota to purchase 6-3/4�io mortgage loans guaranteed by VA, insured by FHA or PM1, or uninsured and secured by one, two, three or four f'ami(y residential dwellings. Under this prc�gram, eligible mortgagors include persons whose adjusted grass annual income does not exceed $16,000 and the purchase price of an existing single family unit cannot exceed $37,500. A substantial portion of these f'unds were made available to mortgage lending institutions which make loans in the Saint Paul metropolitan area. Some of the Originators are also participating in the Minnesota Housing Finance Agency program. Based on figures supplied by such Originators, approximately $ has been reserved by the Minnesota Housing Finance Agency for the purchase of mortgage loans to be originated by these Originators, approximately $ in mortgage loans has been delivered, an additional $ had been committed or closed but not yet delivered, and approximately $ has not yet been committed. 34 � ( The Servicers The City intends to contract with private financial institutions to act as Servicers f'or all of the Qualified Mortgage Loans. The Originators may execute a Servicing Agreement relating to the servicing of each Qualified Mortgage Loan which they originate and sell to the City.��1��2 �nancial insLitutions�(11_of which are Originators) have entered into such Servicing Agreem�en�s. Banco Mortgage Company, one of the Servicers, is also acting as Program Administrator of the Program. In addition, Banco Mortgage Company is an affiliate of Northwest Bancorporation. ne other�Servicer, Northwest.ern National Bank of St. Pau�s also an atI'iliate of' Narthwest Bancorporation. Each of the financial institutions requesting to service Qualified Mortgage Loans was asked to supply certain information to the City concerning the total principal amount of mortgage loans it was servicing for its own account and for others as of January 31, 1979. Such inf'ormation is summarized below, together with the amount of Qualified Mortgage Loans to be originated under the Program which the City expects to allocate to each Servicer: 'I'ota! Amount of Percentage Mortgage Total of Such Percentage Loans Total Amountof Serviced oCSuch Expected Amount of Mortgage Mortgage Serviced to be Mortgage Loans Loans Mortgage Serviced Loans Serviced 31-60 days Loans Under the Serviced fer Own or more in Defaulta Servicer Program For Others Account Delinquent During l978 mencnn aUona an and 7'rust Company.... $ 765,(X� $ 462.144 $ 13,286,245 (�°� 6,'i '; F3anca MortKage Gampt�ny ............. 7.59R.(N)0 1,637,74:�,R40 1(Hl,(Hx),fNNI 0.8(i7� L(i0� Conservtiti�•e nlortgfaKe Company ............. '1,250,W0 — — — -- The First National Bt�nk ofSaintPaui .......... :1,1.57,(xx) 35,fi1'?,�i99 A0,132,668 'l.7 :3.(i Fk3S Homes,Inc. ........ (i3O(i0,000 19L,ll3,Fi0'L 19,743,048 Knutson Murtgage�� � Financial Corporat�ion .. 4,41)5,00O 5J1,'Z4U,8'l�i 0 0.�59 0.(�4 Northern Federal Sa��ings and Loan Association .. 3,065,(H� 6,685,303 J4,1fl4,094 0.1 0.7 Northland M�>rtgage Company ............. 3,O1i.5,000 76,59fl,603 23,718,994 O.G9 1.t39 Northwestern National Bank of Suint Paul ..... 3,065,(Hxl 9,296,699 30,82A,573 0.11 0.07 "I'he Spring Company .... 76b,000 101,147,39'l 4,608,300 3.63 4.7 i `I'win City Federal Savings and Loan Association � of Minneapolis ........ 1,745,0(H) 130,800,621 1,341,543,i78 1.18 120 United Mortgage ........ 5,i70,000 Ii5,(x10,0(� 1,260,000 3.1 2.90 The Mortgage Servicing Agreement requires the Servicer, among other things, to (a) collect and deposit with the Trustee all principal and interest payments and prepayments of the Qualified Mortgage Loans less the Servicer' Fee, (b) collect and deposit in specified escrow accounts, the amounts paid monthly by mortgagors for taxes and hazard and mortgage insurance premiums, (c) pay when due all taxes, special assessments and hazard and mortgage insurance premiums, and (d) assure that the Home is insured against fire and other hazards. Each Servicer represents that it is approved to service FHA insured or VA guaranteed and privately insured or uninsured mortgages for the Federal National Mortgage Association and/or the Federal Home Loan Mortgage Corporation. As compensation for servicing, the Servicer will receive a monthly f'ee equal to 1/12th of 3/8ths of 1�%,of the principal amount of the Quali�ed Mortgage Loans so serviced. This f'ee is to be deducted monthly by the Servicer from the portion of the Quali�ed Mortgage Loan payment representing interest. All amounts constituting principal and interest payments on the l�lualif'ied Mortgage Loans (less the servicing fee) must be segregated in an account and remitted at least semi-monthly to the Trustee, and is required to furnish annually to the Program Administrator 35 for an accountant's report relating to its �nancial statements and mortgage loan operations. In addition, the Servicer is permitted to retain all late charges payable and collected under the terms of any Quali�ed Mortgage Loan. Under the Mortgage Servicing Agreement, the Servicer is required to maintain (i) adequAte mortgage servicing facilities, (ii) errors and omissions insurance and fidelity insurance on those of its employees having access to any amounts paid by the mortgagors, and (iii) adequate books and records setting forth payments received and disbursements made pursuant to the Servicing Agreement. The Servicer is not permitted to waive or vary the terms of any Qualified Mortgage Loan except in the manner authorized by Servicing Agreement, and is required to notify promptly the Program Administrator if it becomes aware that any Home is deteriorated or out of repair.The Servicer must also satisfy and comply with, and use its best efforts to obtain compliance by the mortgagor with, all of the provisions and requirements of FHA, VA or the PMI, where applicable. 'I'he Servicer is to report to the Program Administrator monthly all delinquencies as of the last reporting day of the month. Before the 60th day in the case of uninsured or privately insured mortgages and before the 90th day for FHANA mortgages, following the due date of the earliest unpaid installment, the Servicer shall recommend either foreclosure or other appropriate servicing action based on the particular circumstances of each mortgage. When such action is approved by the Program Administrator, the Servicer will institute foreclosure proceedings and take title to the property and attend to the settlement with the FHA or VA or PMI. The Program Administrator may alternatively direct t.he Servicer to settle with the FHA or VA or PMI without foreclosure in accordance with applicable laws and rules. 'I'he Servicer is required to manage and protect the property prior to foreclosure. 'I'he Servicer is also required during foreclosure to make advances, if necessary, for protection of the property and payment of insurance premiums, taxes and other expenses, subject to reimbursement upon completion of foreclosure. The Mortgage Servicing Agreement may be terminated by the Program Administrator (i) upon default by the Servicer, as defined in the Agreement. The Mortgage Servicing Agreement may also be terminated by�the Servicer, but only with the prior express written consent of the Trustee and the Program Administrator. THE PR.OGftAM ADMINISTRATION AGREEMENT The Program Administrator will oversee generally the administration and operation of the Prc�ram. The Program Administrator will serve as an independent contractor retained by the City for such purposes. In general, the Program Administrator is required to perform the following: (i) facilitate the purchase of Qualified Mortgage Loans; (ii) monitor and evaluate the performance of all Sellers and Servicers to assure compliance with the terms of the Purchase Agreements and Servicing Agreements; (iii) recommend to the City or the Trustee, as appropriate, reallocation of Program funds and replacement of Servicers; (iv) collect and report on Program files, information and data; (v) direct enforcement of remedies against Mortgagors; (vi) supervise transference and application of funds; (vii) make, or file claims under the Special Hazard Insurance Policy and Mortgage Pool Insurance Policy; and (viii) consult with the City or the Trustee, as appropriate, concerning the administration and operation of the Program. In addition, if any purchased Mortgage Loan is found not to be a Qualified Mortgage Loan, the Program Administrator is required to direct the Originator to repurchase such loan, or cause the Originator to correct any defects in such Mortgage Loan. The Administrator shall furnish to the City, f'rom time to time, information regarding the administration and operation of the Program, including coinplete information with respect each purchased Mortgage Loan and information regarding the aggregate unpaid principal amount of Mortgage Loans. The Program Administrator is required to obtain and keep in force throughout the term of the Program an errors and omissions insurance policy covering all employees who perform any func'.ions of the Program Administrator under the Program Administration Agreement, provided, however, that the Program Administrator retains the right to be self-insured in this regard. 36 The Program Administrator is to raceive as compensation (i) 3/8ths of 1%of the principal amount of each Mortgage Loan, when purchased (from the Cost of Issuance Fund) and (ii) 1/12 of 1/8 of 1 percent of the principal balance of the Mortgage Loans outstanding each month (from the R,evenue Fund). The Program Administrator agrees to indemnify, and hold harmless the City, the Trustee and Bondholders from any liabilities, losses, claims or damages, including all legal and other expenses incurred in connection therewith, arising out of any failure by the Program Administrator to observe or perform any covenant, agreement, duty or representation contained in the Program Administration Agreement. The Program Administrator further indemnifies and holds harmless the Trustee and the Bondholders from any liabilities arising from any error or omission contained in any certificate or report furnished by the Program Administrator to the Trustee. In addition, the Program Administrator, to the extent permitted by law,expressly agrees to waive any and all claims or causes of action which it might have which, if asserted, might impair the validity, security, tax exemption or repayment or principal and interest on the Bonds. The Program Administrator shall not, however, be liable to the City, the�I'rustee or the Bondholders for an error in judgment or any act or omission to act taking in good faith pursuant to the Program Administration Agreement. The Program Administrator agrees not to resign from the obligations and duties imposed on it under the Program Administration Agreement, except upon determination that its duties thereunder are no longer permissible under applicable law. If an Event of Default, as defined in the Program Administration Agreement, shall occur, which events include, among others, failure to perform any of the obligations imposed under such Agreement, or an adjudication of negligence in performance of such obligations or of failure to adhere to sound mortgage lending practices, the City, with the consent of the Trustee, or the Trustee on behalf of the City, may proceed to terminate the Program Administration Agreement, upon 30 days written notice to the Program Administrator of such termination. The City shall then select a substitute Program Administrator. The Program Administrator, upon notice from the City, shall transfer to the new Program Administrator all books, records, accounts and other documents pertaining to the Program, — and shall be responsible for informing the new Program Administrator of any matters not contained in such books, records, accounts or other documents. SUMMARY OF THE INDENTURE The following is a summary of certain provisions of the Indenture. Such summary is qualif'ied in its entirety by reference to the Indenture. Definitions Agreements: the agreements pertaining to the Program as follows: (a) those Purchase Agreements by and between the Originators, the City and the Program Administrator, and accepted by the Trustee; (b) those Servicing Agreements by and between the Servicers, the Program Administrator and the Trustee and accepted by the City; and (c) the Program Administration Agreement by and between the City and Program Administrator and accepted by the Trustee; Arbitr¢ge Regulations: the regulations promulgated or proposed under Section 103(c) of the Code; Bondholder: a Holder; Escrow Payments: the amounts constituting taxes, insurance premiums and other payments required to be escrowed by a Mortgagor with a Servicer pursuant to a Mortgage Loan and a Servicing Agreements; Fair Mnrket Value: the market value of a Home as established by an appraiser qualified under the Purchase Agreement; 37 Gouernmental 06ligations: any of the following which at the time of investment are legal investments under the laws of the State of Minnesota for the moneys proposed to be invested therein: (a) direct general obligations of the United States of Arnerica; (b) obligations, the payment of the principal of and interest on which, in the opinion of the Attorney General of' the United States, is unconditionally guaranteed by the United States; (c) direct and general obligations of any state within the United States or of any political subdivisions of the State of Minnesota, provided that at the time of purchase such obligations are rated in either of the two highest rating categories by a nationally recognized bond rating agency; (d) bonds, debentures, participation certificates or notes issued by and of the following: Bank for Cooperatives, Federal Financing Bank, Federal Land Banks, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal National Mortgage Association, �xport-Import Bank of the United States, Student Loan Marketing Association, Farmer's Home Administration, Federal Home Loan Mortgage Corporation or Governmental National Mortgage Association, or any other agency or corporation which has been or may hereafter be created by or pursuant to an Act of Congress of' the United States as an agency or instrumentality thereof; (e) Public Housing Bonds, Temporary Notes or Preliminary Loan Notes fully secured by contracts with the United States; and (f) interest-bearing savings accounts and certificates of deposit fully secured by Goverr�mental Obligations of any type or repurchase agreements secured by Governmental Obligations of any type; Holder: the bearer of any Outstanding Bond or Bonds registered to bearer or not registered, or the registered owner of any Outstanding Bond or Bonds at the time registered other than to bearer, or when used with ref'erence to coupons, the bearer of such coupons; Home: the residential real property and improvements thereon securing a Mortgage Loan, including a private detached or attached owner-occupied one, two, three or four-family dwelling, a — townhouse dwelling or a dwelling unit under condominium ownership (but not including a mobile home or trailer) occupied or to be occupied by but one family alone, containing complete living facilities and facilities functionally related and subordinate thereto, and located within the geographical boundaries of the City; Outstanding: as of any particular time all Bonds theretofore delivered except (i) any Bond cancelled by the Trustee, and (ii) any Bond the payment or redemption of which either Governmental Obligations or money in the amounts, of the maturities and otherwise as described and required under the provisions of paragraph (B) or (C) of Section 7-1 of the Indenture have been deposited with the Trustee in trust (whether upon or prior to the maturity or redemption date of the Bond) and, except in the case of a Bond to be paid at maturity, of which notice of redemption has been given or provided for, all in accordance with Article VII of the Indenture, and (iii) any Bond in lieu of or in substitution for which another Bond has been delivered pursuant to Sections 2-7, 2-8, 2-10 of the Indenture; Permitted Encum6rances: those liens, encumbrances and clouds on the title to a Home purchased by a Mortgagor permitted under the Purchase Agreements; PMI.• private mortgage insurance for individual Mortgage Loans issued by either (1) Mortgage Guaranty Insurance Corporation, (2) Verex Assurance, Inc., (3) Ticor Mortgage Insurance Company, (4) PMI Mortgage Insurance Corporation, (5) United Guaranty Corporation, (6) Tiger I.M.I., or (7) American Mortgage Company, or any other insurer approved by the Program Administrator and yualified or approved to provide insurance or Mortgage Loans eligible for purchase by either the FNMA or the FHLMC, the participation of which in the Program will not result in a lowering of the ratings on the Bonds; Prograrre: the City's program under the Indenture for providing below market interest rate Mortgage Loans primarily to persons of low and moderate income; 38 Reverzue Fund: the Fund by that name created and established pursuant to Section 5-2 of the Indenture; Reuenues: all amounts received by the Trustee, including prepayments, commitment fees, builder-developer fees, late delivery fees, rents, hazard insurance proceeds, default proceeds, repurchase paid by Originators for defective Mortgage Loans, charges and other cash income derived from or related to the Program, including without limitation payments of principal of and interest on Mortgage Loans (whether �aid by or on behalf of the Mortgagor) but not including Escrow Payments, late fees, servicing fees or any sums paid to the Servicer under the Servicing Agreement prior to transfer to the Trustee as reimbursement for expenses incurred by the Servicer; Revenues, Security and Pledge Under the Indenture all R,evenues are pledged and assigned to the Trustee for the benefit of the Bondholders in the manner described under the caption "Security for the Bonds" and all rights of the City in the Mortgage Loans and the Agreements are assigned to the Trustee. Under the Act all pledges of assets and revenues under the Indenture are valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City, irrespective of whether such parties have notice thereof, and are effective upon receipt of'such revenues and assets without physical delivery or further act. Eiigible Mortgage Loans Each Mortgage Loan purchased from the proceeds of Bonds and from certain fees remitted to the Trustee shall conform to the following terms, conditions, provisions and limitations except to the extent, if any, that a variation theref'rom is required by any PMI or agency or instrumentality of the United States guaranteeing or insuring or otherwise assisting in the payment of the Mortgage Loan. Each Mortgagor must, at the time the Mortgage Loan is made, conform to the requirements of the Purchase Agreement, or otherwise be a person or a member of a family of low or moderate income as defined in the Ordinance and regulations promulgated thereunder, as then in effect or as may hereafter be amended under the Act, occupying or intending to occupy the Housing Unit subject to the Mortgage — as a principal residence, or be a person purchasing a newly constructed or substantially rehnbilitated Housing Unit located in a Redevelopment Area, and, in any case, must be a person to whom a long term mortgage loan is not otherwise available from private lenders upon equivalent terms and conditions. The proceeds of the Mortgage Loan must be expended solely for payment of the cost of acquisition, with or without rehabilitation or improvement, of an existing Housing Unit, by the Mortgagor. Such cost may include other necessary incidental costs approved by the Program Administrator. The Mortgagor shall have marketable title in fee simple to the real property and improvements constituting the Housing Unit for which the Mortgage Loan is made. The Mortgage and complementary financing statements, if required, shall be a valid first mortgage lien on such title, subject t,o Yermitted Encumbrances. '1'he '1'rustee shall be furnished a mortgagee's title insurance policy insuring that the Mortgage is a first lien on the Housing Units financed by the Mortgage Loan, subject only to Permitted Encumbrances. Under the provisions of the Mortgage or accompanying documents the Mortgagor shall: (1) warrant the title to the Housing Unit and agree to appear in and defend any action or proceeding affecting the security of the Mortgage Loan, and to execute such further assurances as may be required to protect the title; (2) covenant and represent that the Mortgagor owns the Housing Unit both legally and beneficially and has acquired it for use as a principal residence; (3) covenant that the Mortgagor will procure and maintain insurance on the Housing Unit against fire and extended coverage risks in an amount equal to the lesser of (i) the maximum insurance value of' the Housing Unit, in a replacement cost basis, or (ii) the unpaid principal 39 � amount of the Mortgage Loan, but in any case, that amount required under any co-insurance provision, with a standard mortgagee clause in favor of the Trustee. (4) covenant that the Mortgagor will pay all taxes, special assessments and water and sewer and other lawful governmental charges with respect to the Housing Unit before they become delinquent, and all claims for work done and materials furnished with respect thereto before they are f'iled as liens on the Housing Unit, except during any period for which payment of part or all thereof may be deferred, with the written consent of and upon such terms as are specified by a Servicer, for the purpose of contesting the same; that in the event of default in the payment thereof when due the Servicer or Trustee, without notice to or demand of the Mortgagor, may pay the same or any of them; and that all moneys paid by the Servicer or'I'rustee with respect to such taxes, assessments, charges or claims shall be a lien on the Housing Unit, added to the amount of the Mortgage Loan, secured by the Mortgage, and payable on demand with interest from the time of payment by the Servicer or Trustee at the rate applicable to the Mortgage Loan; and that upon request of the Program Administrator or Trustee, the Mortgagor will exhibit to the Servicer or Trustee receipts for the payment of all items specified in this paragraph prior to the date when the same shall become delinquent; (5) covenant that the Mortgagor will maintain the Housing Unit in good condition and repair, will not commit or suffer any waste, and will comply with all laws,ordinances and requirements of any governmental authority relating to the premises; and (6) agree to make monthly Escrow Payments to the Servicer, suff'icient to accumulate funds for the payment of all taxes, governmental charges and insurance premiuins when due. At the time of acquisition by the City, the unpaid principal amount of the Mortgage Loan must be (i) insured or guaranteed (which insurance or guaranty plus cash equity, if any, must be equal to at least twenty-f'ive percent (25�%) of the purchase price of the Home), as evidenced by a final commitment therefor, by the Federal Housing Administration or Veterans Administration, or any other agency or instrumentality of the United States to which the powers of either of them have been transferred, or which has similar powers to insure or guarantee Mortgage Loans, (ii) insured by a — private mortgage insurance (which insurance shall cover that portion of the Mortgage Loan, if any, in excess of seventy-�ve percent (75°ro) of the lesser of Fair Market Value or the purchase price, and shall remain in effect until the Mortgage Loan is reduced to seventy-five percent (75�io) of the value, at which time coverage may be cancelled) or (iii) have an original balance not in excess of seventy-five percent (75�io) of the lesser of the purchase price or the Fair Market Value of the Housing Unit, including the site therefor. No Mortgage Loan shall be purchased from the proceeds of the Bonds, unless the rate of interest on the Mortgage Loan is at least °�o per annum,and the purchase price is no greater than one hundred percent (100`�0) of the outstanding principal amount thereof plus or minus accrued interest to the date of purchase, plus one percent (1°�0) of the original principal amount of the Mortgage Loan. Investment of Funds and Accounts The Trustee shall invest or reinvest any moneys held by it in any fund or account created under the Indenture in Governmental Obligations. In investing such moneys, the Trustee shall f'ollow prudent investment standards reasonably expected to produce the greatest investment yields subject, however, to applicable yield restrictions imposed by the Arbitrage R,egulations. All income and profits on such investments shall be deposited as received in the Revenue Fund. Discharge of Lien of Indenture If the City shall pay or cause to be paid, or there shall be otherwise paid or provision for payment made, to or for the Holders of the Bonds and the coupons appertaining thereto the principal of, premium, if any, and interest due or to become due thereon at the times and in the manner stipulated therein, and shall pay or cause to be paid to the Trustee all sums of money due or to become due according to the provisions of the Indenture, then the estate and rights created by the Indenture will cease, determine and be void except with respect to moneys or securities held by the Trustee for the payment of the principal of and interest on the Bonds. 40 Any Bond shall be deemed to be paid within the meaning of the Indenture when payment of the principal of such Bond plus interest thereon to the due date thereof(i) shall have been made or caused to have been made in accordance with the terms thereof or (ii) shall have been provided by irrevocabty depositing with the Trustee in trust and exclusively for such payment (1) moneys sufficient tn make such payment or (2) noncallable direct general obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America, maturing as to principal and interest in such ainount and at such times as will ensure the availability of suf�cient moneys to make such payment, and all necessary and proper fees, compensation and expenses of the Trustee pertaining to the Bonds with respect to which such deposit is made shall have been paid or the payment thereof provided for to the satisfaction of the Trustee. At such times as a Bond shall be deemed to be paid as aforesaid, it shall no longer be secured by or entitled to the bene�ts of the Indenture, except for the purposes of any such payment from such moneys or obligations. Defaults and Remedies Any of the following events constitute an "event of default" under the Indenture: (1) Default in the due and punctual payment of any interest on any Bond; (2) Default in the due and punctual payment of the principal of any Bond, whether at the stated maturity thereof or on any date fixed for redemption; or (3) Default in the performance or observance of any other of the covenants, agreements or conditions on the part of the City contained in the Indenture or in the Bonds and failure to remedy the same after notice thereof pursuant to the Indenture. No default under (3) above shall constitute an event of def'ault until actual notice of such default by �rst class mail shall be given to the City and the Program Administrator by the Trustee or by the Holders of not less than 25`So in aggregate principal amount of all Bonds outstanding and the City and the Program Administrator shall have had 60 days after receipt of such notice to correct said default or cause said default to be corrected, and shall not have corrected said default or caused said default to be corrected within the applicable period; provided, however, if said default be such that it c�nnot be corrected within the applicable period, it shall not constitute an event of default if corrective action is instituted by the City or the Program Administrator within the applicable period and diligently pursued until the default is corrected. Upon the occurrence of an event of default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of and interest on the Bonds then outstanding, including enforcement of any rights of the City under the Program Administrntion Agreement, or any Purchase Agreement or any Servicing Agreement. The Trustee may take such action with respect to the Mortgage Loans as the'I'rustee shall deem necessary or appropriate and in the best interest of the Bondholders, subject to the terms of the Mortgage Loans, including the sale of part or all thereof.Upon the occurrence of an event of default the Trustee may also declare the principal of all Bonds to be due and payable immediately, by notice to the City and the Servicer. However, even following such a declaration the Bonds will remain payable solely from Revenues. Consequently, there may not be sufficient funds available to pay the Bonds in full either at the time of such declaration or later. If an event of default shall have occurred, and if requested so to do by the holders of 25°o in aggregate principal amount of Bonds then outstanding and indemnified as provided in the Indenture, the 'I'rustee shall be obligated to exercise such one or more of the rights and powers conferred by the Indenture, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders. The holders of a majority in aggregate principal amount of Bonds then outstanding shall have the right, at any time during the continuance of an event of default, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Indenture, or for the appointment of a receiver or any other proceedings thereunder, provided that such direction shail not be otherwise than in accordance with the provisions of law or of the Indenture. 41 � Waivers of Events of Default The'1'rustee may at its discretion waive any event of default and its consequences and rescind any delcaration of maturity of'principal, and shall do so upon the written reyuest of the Holders of(a) more than two-thirds in aggregate principal amount of all the Bonds then outstanding in respect of which default in the payment of principal or interest, or both, exists, or (b) more than one-half in aggregate principal amount of all Bonds then outstanding in the case of any other default; provided, however, that there shall not be waived(a) any default in the payment of the principal of any outstanding Bond at the date of maturity speci�ed therein or (b) any default in the payment when due of the interest on any outstanding Bond unless, prior to such waiver, all arrears of interest or all arrears of payments of principal when due, as the case may be, with interest on overdue principal at the rate borne by such Bond, and all expenses of the Trustee in connection with such default shall have been paid or provided for, and in cases of any such waiver or rescission, or in case any proceeding taken by the Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the City, the Trustee and the Bondholders shall be restored to their former positions and rights under the Indenture, respectively, but no such waiver or rescission shall extend to , any subsequent or other default or impair any right consequent thereon. � Rights and Remedies of Bondholders � No Holder of any Bond shall have any right to institute any suit, action or proceeding at law or in equity For the enforcement of'the Indenture, unless (1) a default has occurred of which the Trustee has been notified as provided in the Indenture, or of which it is deemed to have notice, (2) such default shall have become an event of default and the Holders of not less than 254'o in aggregate principal amount of Bonds then outstanding shall have made written request to the Trustee And shall have offered it reasonable opportunity either to proceed to exercise the powers granted in the Indenture or to institute such action, suit or proceeding in their own name or names, (3) such Holders have offered to the Trustee indemnity as provided in the Indenture, and (4) the Trustee shall for 60 days after receipt of such notice, request and indemnification fail or refuse to exercise the rights and remedies granted,or to institute such action, suit or proceeding in its own name. All proceedings at law or in equity shall be instituted, had and maintained in the manner provided in the Indenture and for the equal and ratable — benefit of the owners of all Bonds then outstanding. However, nothing contained in the Indenture shall affect or impair the right of any Bondholder to enforce the payment of the principal of and interest on any Bond at and after the maturity thereof, or the obligation of the City to pay the principal of and interest on each of the Bonds to the respective holders thereof at the time, place,from the source and in the manner in the Bonds expressed. Supplemental Indentures The City and the Trustee may, without the conaent of, or notice to, any of the Bondholders enter into such indenture or indentures supplemental to the Indenture as shall not be inconsistent with the terms and provisions of the Indenture for any one or more of the following purposes: (1) 1'o cure any ambiguity or formal defect or omission in the Indenture; (2) To grant or to confer upon the Trustee for the benefit of the Bondholders any additional benefits, rights, remedies, powers or authorities that may lawfully be granted to or conferred upon the Bondholders or the Trustee, or to make any change which, in the judgment of the Trustee, is not to the prejudice of the Bondholders; (3) To subject to the Indenture additional revenues, properties or collateral; (4) To modify, amend or supplement the Indenture or any indenture supplemental thereto in such manner as to permit the qualification thereof under the Trust Indenture Act of 1939 or any similar federal statute hereafter in effect or to permit the qualification of the Bonds for sale under the Federal Securities Act of 1933 or any similar federal statute hereafter in effect or the securities laws of any of the states of the United States of America, and, if they so determine, to add to the Indenture or any indenture supplemental thereto such other terms, conditions and provisions as may be permitted by said Trust Indenture Act of 1939 or similar federal statute; or 42 (�) Tu ecidence t'tTe appointment of a separate or Co-Trustee or the succession of a new Trustee or paying agent under the Indenture. Exclusive of supplemental indentures for the purposes set forth in the preceding paragraph, the Holders of not less than two-thirds in aggregate principal amount of the Bonds then outstanding shall have the right, from time to time, to consent to and approve the execution by the City and the Trustee of any supplemental indenture of indentures deemed necessary and desirable by the Trustee for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Indenture or in any supplemental indenture; provided, however, that no supplemental indenture shall permit, without the consent of the Holders of all outstanding Bonds or all outstanding Bonds affected thereby, (i) an extension of the maturity or mandatory sinking fund redemption date of the principal of or the interest on any Bonds, or (ii) a reduction in the principal amount of any Bond or the rate of interest, or sinking fund redemption requirements thereof, or (iii) a privilege or priority of any Bond or Bonds over any other Bond or Bonds, or (iv) a reduction in the aggregate principal amount of the Bonds required for consent to such supplemental indenture, or (v) the creation of any lien other than a lien ratably securing all of the Bonds at any time outstanding, or (vi) any modification of the trusts, powers, rights, obligations, duties, remedies, immunities and privileges of the Trustee, without the written consent of the Trustee. If the Program is not in default under the Program Administration Agreement at such time, a supp(emental indenture shall not become effective unless and until the Program Administrator shall have consented to the execution and delivery of such supplemental indenture. Amendment of Agreements and Waiver The City and the Trustee may, without the consent of or notice to the Bondholders, consent to any amendment, change or modification of the Program Administration Agreement, any Purchase Agreement or any Servicing Agreement not inconsistent with any other provisions of the Indenture as may be required (a) by the provisions of the applicable Agreement or the Indenture, (b) for the purpose of curing any ambiguity or formal defect or omission, (c) so as to add additional rights acquired in accordance with the provisions of the Agreement, or (d) to conform any terms and provisions of such — Agreement to the requirements of federal or state law and regulations, or sound and prudent mortgage lending standards, which in the judgment of the Program Administrator will not materially impair the underlying security for any Mortgage Loan, or (e} in connection with any other change therein which, in the judgment of the Trustee, is not to the prejudice of the Trustee or the Holders of the Bonds. Except for the amendments, changes or modi�cations as provided in the preceding paragraph, neither the City nor the Trustee shall consent to any other amendment, change or modification of any of the Agreements without the written approval or consent of the Holders of not less than two-thirds in aggregate principal amount of the Bonds at the time outstanding given and procured as provided in the Indenture. Nothing contained in the Indenture shall permit, or be construed as permitting, a reduction of the aggregate principal amount of Bonds the Holders of which are required to consent to any amendment, change or modification of any of the Agreements, or a reduction in, or a postponement of, the payments under any Purchase Agreement or Servicing Agreement, without the consent of the Holders of all of the Bonds then outstanding. In addition to the waiver of defective Mortgage Loans permitted under the Program Administration Agreement, the Program Administrator may without consent of or notice to the Bondholders in good faith waive any default in the performance of a covenant under any Purchase Agreement or Servicing Agreement by the Originator or the Servicer, as the case may be, if the Program Administrator certifies to the Trustee that, to the best of its knowledge and belief, such waiver will not materially impair the underlying security for any Mortgage Loan nor disqualify any Mortgage Loan from being an Eligible Mortgage Loan and is consistent with the provisions of the Indenture, the Program Administration Agreement and sound and prudent mortgage lending practices. A waiver by the Program Administrator shall bind the City and the Trustee. 43 LITIGATION There are no legal or governmental proceedings pending or, to the best of the City's knowledge, threatened to restrain or enjoin the issuance, sale or delivery of the Bonds or the payment, collection or application of the proceeds thereof or of the revenues and other moneys and securities pledged or to be pledged under the Indenture or in any way contesting or affecting any authority for or the validity of the Bonds or the Indenture or the purchase of the Mortgage Loans. LEGAL OPINIONS Legal matters incident to the authorization, issuance, sale and delivery of the Bonds and the exemption of interest thereon f'rom federal and State of Minnesota income taxation are subject to the tegal opinion of Briggs and Morgan, P.A., Saint Paul, Minnesota, Bond Counsel, whose opinion will be printed on the reverse side of the Bonds and the proposed form of which is attached hereto as Appendix A. Certain legal matters will be passed upon for the Underwriters by their Counsel, Messrs. Dorsey, . Windhorst, Hannaford, Whitney & Halladay, Minneapolis, Minnesota. The validity and enforceability of the Program Administration Agreement is being passed on by Messrs. Faegre & Benson, counsel for the Program Administrator. TAX EXEMPTION In the opinion of Bond Counsel, under existing statutes and court decisions, interest on the Bonds is exempt f'rom federal income taxes, and under existing statutes, interest on the Bonds is exempt f'rom taxation as income by the State of Minnesota and its subdivisions and municipalities (except for the Minnesota corporate franchise tax and bank excise tax measured by income). In addition, in the opinion of' Bond Counsel, under existing statutes, the Bonds are exempt from taacation directly imposed thereon as property by the State of Minnesota, its subdivisions and municipalities. CERTAIN VERIFICATIONS Laventhol & Horwath, a firm of independent certified public accountants, will deliver an opinion, on the date of delivery of the Bonds, stating they have reviewed the mathematical accuracy of the computations relating to (a) the sufficiency of projected cash flow receipts and disbursements on the Mortgage Loans and funds and accounts established by the Indenture to pay the principal of and interest on the Bonds as set forth herein under the caption"The Bonds—Program Assumptions" and (b) the actuarial ,yield on the Mortgage I.oans and on the Bonds supporting the conclusion that the Bonds are not arbitrage bonds within the meaning of Section 103(c) of the Internal Revenue Code of 1954, as amended. UNDEftWRITING The Bonds are being purchased by the Underwriters, for whom Piper, Jaffray & Hopwood Incorporated and Dain, Kalman & Quail, Incorporated are acting as Representatives. The Underwriters have jointly and severally agreed to purchase the Bonds at an aggregate purchase price of' $ plus accrueci interest. 'I'he Contract of Purchase provides that the Underwriters will purchase all the Bonds if any are purchased and that their obligation is subject to the delivery of certain documents at or prior to delivery of the Bonds. The initial public offering prices set forth on the cover page may be changed by the Underwriters. 44 RATI\GS As noted on the cover page of this Of�cial Statement, Standard and Poor's Corporation and Moody's Investors Service, Inc. have given the Bonds ratings of and , respectively. Any explanation of the signif'icance of such ratings may only be obtained from the rating agency furnishing the same. There were furnished to such rating agencies certain information and materials respecting the Program. Generally, rating agencies base their ratings on such information and materials and on investiigations, studies and assumptions by the rating agencies.There is no assurance that either rating will obtain for any given period of time or that it may not be lowered or withdrawn entirely by the rating agency, if in its judgment circumstances so warrant. Any such downward change in or withdrawal of such rating may have an adverse effect on the market price of' the Bonds. MISCELLANEOUS Any statements made in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, are set forth as such and not as representations of fact, and no representations are made that any of the estimates will be realized. 'I'he references herein to the Indenture and other documents referred to herein are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and reference is made to such documents for full and complete statements of such provisions. The City has approved the form of this Official Statement and has authorized and directed its Mayor to execute and deliver copies hereof to the Underwriters for use in connection with the offer and sale of the Bonds. 'I'HE CITY OF SAINT PAUL, MINNESOTA By Mayor March , 1979 45 Appendix A Proposed Form of Opinion of Bond Counsel LAW OFFIGE I3 I2I GGS 2 � D �'�IO �� C11N PEOFESSIONAL ASSOGIATION ..L'.<>p N'IAST NATIONA.1. F1A.NK }31TZT.nIN(3 SAINT YAL�Z, MINNt:SOTA 55101 (61�:) 2f31-15',15 � HOME OWNERSHIP MOR'I'GAGE REVENUE BONDS CITY OF SAINT PAUL RAMSEY COUNTY MINNESOTA WE HEREBY CERTIFY that we have examined certi�ed copies of proceedings taken preliminary to and in issuance by the City of Saint Paul, Ramsey County, Minnesota, of its Home Ownership Mortgage R,evenue Bonds, dated April 1, 1979, in the aggregate principal amount of$ . The Bonds in coupon form are numbered from 1 to , both inclusive, and the Bonds in fully registered form are numbered from K-1 to R- , both inclusive. Coupons and registered Bonds are exchangeable upon the terms and conditions of the hereinafter referred to Indenture.The Bonds are in _ the form of coupon Bonds in the denomination of$5,000 or any integral multiple thereof. Coupon and f'ully registered Bonds are exchangeable. The Bonds mature on April 1 in the years and amounts and bear interest from the date of issue until paid or discharged at the annual rate set forth opposite such years and amounts as follows: Year Amount Rate 1981 1982 1983 � 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 `2011 , Interest is payable on October 1, 1979 and semi-annually thereafter on April 1 and October 1 in each year. Principal of, premium, if any, and interest on coupon Bonds not registered as to principal will be payable at the principal corporate trust office of , of Saint Paul, Nlinnesota, or its successor, or, at the option of the holder, at the principal corporate trust office of , New York, New York, or its successor, as paying agents. The principal of fully registered Bonds or Bonds registered as to principal only will be payable at the principal corporate trust office of ,of Saint Paul, Minnesota, or its successor, as Trustee (the"Trustee") and the interest on fully registered Bonds will be payable by check or draft mailed to the order of the owner of such Bond by the Trustee at the last address thereof as shown on the registration books maintained by the Trustee. The Bonds are subject to redempticm, and under certain circumstances are required to be called for redemption, at times and places and upon the terms and conditions described in the Indenture hereinafter referred to. For the purposes of this opinion we have examined: (1) an Indenture of Trust, dated as of April 1, 1979 (the "Indenture") between the City and , Saint Paul, Minnesota, as Trustee; (2) certified copies of Ordinances Numbers 15975, and of the City adopted by the City Council of the City on and , and Resolutions Numbers and adopted by the City Council of the City on and related to the issuance of the Bonds; and (3) a form of the Bond for this issue, and have found them all to be in due form of law. Based upon such examinations, and assuming the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certif'ied or photostatic copies and the authenticity of the originals of such letter documents, and the accuracy of the statements contained in such certificates, and based upon laws, regulations, rulings and decisions in effect on the date hereof, it is our opinion that: 1. The City is a political subdivision duly organized and existing under the Constitution and Laws of the State of Minnesota. 2. The proceedings show lawful authority for issuance of the Bonds under the Indenture and — under the provisions of the constitution and Laws of the State of Minnesota now in force, including Chapter 260, Laws of Minnesota for 1975, and the City is authorized to enter into the Indenture, and to sell and issue the Bonds. 3. The bonds have been duly and validly executed and are valid and binding special obligations of the City of' Saint Paul, in accordance with their terms, secured by the Indenture, and are not a general obligation or indebtedness of the City within the meaning of any constitutional or statutory limitation and do not constitute or give rise to a pecuniary liability of the City or charge against its general credit or taxing powers but are payable solely from certain revenues and interests pledged and assigned to the payment thereof. 4. The Indenture has been duly and validly executed, and delivered, by the City and is enforceable in accordance with its terms except to the extent that enforceability may be limited by state and federal laws, rulings and decisions and principles of equity affecting remedies and by bankruptcy, reorganization or other laws of general application relating to or affecting enforcement of creditors' rights. The Bonds are exempt from taxation as property by the State of Minnesota, its subdivisions and municipalities. Interest on the Bonds is exempt from federal income taxes and exempt from taxation as income by the State of Minnesota, its subdivisions and municipalities except franchise or excise taxes measured by net income and imposed by the State of Minnesota on corporations and banks. Dated at Saint Paul, Minnesota, this day of , 1979. Professional Association ����`� OM 01: . 12/1975 c �"�� Rev. : '9/8/76 EXPLANATION OF ADMINISTRATIVE ORDERS, RESOLUTIONS, AND ORDINANCES . ; � D$ ��bruary,20 TO'; Mayor George Latimer FRi Terry Mc Nel l i s�� � � Below Market Interest Rate Home Martgage Program AC ON REQUESTED: Approve Resolution for submission to City Council PU OSE AND �RATIONALE FOR THIS ACTION: Resolution details certain items agreed upon in meeting in the Mayor's office on Friday, February 16= . AT � HMENTS: . ` Resolution