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 un-
derlying mortgage loans will affect the
rate of principal payments on your securi-
ties.
The rate at which you will receive
principal payments will depend largely on
the rate of principal payments, including pre-
payments, on the mortgage loans underlying
the related trust assets. We expect the rate of
principal payments on the underlying mort-
gage loans will vary. Following any lockout
period, and upon payment of any applicable
prepayment penalty, borrowers may prepay
their mortgage loans at any time. Borrowers
may also prepay their mortgage loans during
a lockout period or without paying any appli-
cable prepayment penalty with the approval
of the FHA.
Rates of principal payments can reduce
your yield.
The yield on your securities
probably will be lower than you expect if:
you purchased your securities at a pre-
mium (interest only securities, for exam-
ple) and principal payments are faster than
you expected, or
you purchased 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 investment if prepayments occur at a
rapid rate.
An investment in the securities is subject to
significant reinvestment and extension
risk.
The rate of principal payments on
your securities is uncertain. You may be una-
ble to reinvest the payments on your securi-
ties at the same returns provided by the
securities. Lower prevailing interest rates
may result in an unexpected return of princi-
pal. In that interest rate climate, higher yield-
ing reinvestment opportunities may be
limited. Conversely, higher prevailing inter-
est rates may result in slower returns of prin-
cipal and you may not be able to take
advantage of higher yielding investment op-
portunities. The final payment on your secur-
ity may occur much earlier than the final
distribution date.
Defaults will increase the rate of prepay-
ment.
Lending on multifamily properties
and nursing 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 Rural
Development for Section 538 guaranty bene-
fits or otherwise liquidated, the effect would
be comparable to a prepayment of the mort-
gage loan; however, no prepayment penalty
would be received. Similarly, mortgage loans
as to which there is a material breach of a
representation may be purchased out of the
trust without the payment of a prepayment
penalty.
Under certain circumstances, a Ginnie
Mae issuer has the right to repurchase a
defaulted mortgage loan from the related
pool of mortgage loans underlying a par-
ticular Ginnie Mae MBS Certificate, the
effect of which would be comparable to a
prepayment of such mortgage loan.
At its
option and without Ginnie Mae's prior con-
sent, a Ginnie Mae issuer may repurchase any
mortgage loan at an amount equal to par less
any amounts previously 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 under-
lying a Ginnie Mae MBS Certificate issued on
or before December 1, 2002, such mortgage
loan has been delinquent for four consecu-
tive months, and at least one delinquent pay-
ment remains uncured or (ii) in the case of a
mortgage loan included in a pool of mort-
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