RISK FACTORS You should purchase securities only if you understand and are able to bear the associated risks. The risks applicable to your investment depend on the principal and interest type of your securities. This section highlights certain of these risks. The rate of principal payments on the underlying mortgage loans will affect the rate of principal payments on your securities. you will receive principal payments will depend largely on the rate of principal payments, includ- ing prepayments, on the mortgage loans underly- ing the related trust assets. We expect the rate of
principal payments on the underlying mortgage loans will vary. Following any lockout period, and upon payment of any applicable prepayment pen- alty, borrowers may prepay their mortgage loans at  any  time.  Borrowers  may  also  prepay  their mortgage loans during a lockout period or without paying  any  applicable  prepayment  penalty  with the approval of the FHA. Rates  of  principal  payments  can  reduce  your yield. be lower than you expect if: •  you bought your securities at a premium (in- terest only securities, for example) and princi- pal payments are faster than you expected, or •  you bought your securities at a discount and principal   payments   are   slower   than   you expected. In  addition,  if  your  securities  are  interest  only securities or securities purchased at a significant premium, you could lose money on your invest- ment if prepayments occur at a rapid rate. An investment in the securities is subject to sig- nificant  reinvestment  and  extension  risk. rate of principal payments on your securities is uncertain.  You  may  be  unable  to  reinvest  the payments on your securities at the same returns provided by the securities. Lower prevailing inter- est rates may result in an unexpected return of principal.  In  that  interest  rate  climate,  higher yielding reinvestment opportunities may be lim- ited. Conversely, higher prevailing interest rates may result in slower returns of principal and you may  not  be  able  to  take  advantage  of  higher yielding   investment   opportunities.   The   final payment on your security may occur much earlier than the final distribution date. Defaults  will  increase  the  rate  of  prepayment. Lending  on  multifamily  properties  and  nursing The rate at which facilities  is  generally  viewed  as  exposing  the lender to a greater risk of loss than single-family lending. If a mortgagor defaults on a mortgage loan and the loan is subsequently foreclosed upon or assigned to FHA for FHA insurance benefits or otherwise liquidated, the effect would be com- parable to a prepayment of the mortgage loan; however,  no  prepayment  penalty  would  be  re- ceived.  Similarly,  mortgage  loans  as  to  which there is a material breach of a representation may be purchased out of the trust without the pay- ment of a prepayment penalty. Under certain circumstances, a Ginnie Mae issuer has the right to repurchase a defaulted mortgage The yield on your securities probably will loan  from  the  related  pool  of  mortgage  loans underlying a particular Ginnie Mae MBS Certif- icate, the effect of which would be comparable to a prepayment of such mortgage loan. At its option and without Ginnie Mae's prior consent, a Ginnie Mae issuer may repurchase any mortgage loan at an amount equal to par less any amounts previ- ously advanced by such issuer in connection with its responsibilities as servicer of such mortgage loan  to  the  extent  that  (i)  in  the  case  of  a mortgage  loan  included  in  a  pool  of  mortgage loans underlying a Ginnie Mae MBS Certificate issued  on  or  before  December  1,  2002,  such mortgage loan has been delinquent for four con- secutive  months,  and  at  least  one  delinquent The payment remains uncured or (ii) in the case of a mortgage  loan  included  in  a  pool  of  mortgage loans underlying a Ginnie Mae MBS Certificate issued on or after January 1, 2003, no payment has been made on such mortgage loan for three consecutive  months.  Any  such  repurchase  will result in prepayment of the principal balance or reduction in the notional balance of the securities ultimately backed by such mortgage loan.  No assurances  can  be  given  as  to  the  timing  or frequency of any such repurchases. Extensions of the term to maturity of the Ginnie Mae    construction    loan    certificates    delay S-7