<PAGE>
As filed with the Securities and Exchange Commission on July __, 2000
Registration No. 333-36760
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GREENWICH CAPITAL COMMERCIAL FUNDING CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
06-1565524
(I.R.S. employer identification number)
600 Steamboat Road
Greenwich, Connecticut 068830
(203) 625-2756
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Paul D. Stevelman, Esq.
Greenwich Capital Commercial Funding Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
George J. Petrow, Esq.
Sidley & Austin
875 Third Avenue
New York, New York 10022
(212) 906-2258
<PAGE>
Approximate date of commencement of proposed sale to the
public: From time to time on or after the effective date of this Registration
Statement.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest plans, please check the following box. [x]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Offering Amount Maximum Price Amount of Registration
Title of Securities Being Registered to be Registered Per Unit(1) Offering Price (1) Fee (2)
------------------------------------ ---------------- ----------- ------------------ -------
<S> <C> <C> <C> <C>
Mortgage Pass-Through Certificates $1,000,000,000 100% $1,000,000,000 $264,000
============== ======== ============== ==========
</TABLE>
-------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
(2) The filing fee of $264,000 was previously paid in connection with the
Registration Statement filed on May 11, 2000 relating to the
registration of mortgage-backed securities in the aggregate amount of
$1,000,000,000.
2
<PAGE>
PROSPECTUS SUPPLEMENT
(to Prospectus dated ____________)
Greenwich Capital Commercial Mortgage Trust ___________
Commercial Mortgage Pass-Through Certificates, Series ______
Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class B-1,
Class B-2 and Class S
Approximate Total Principal Balance at Initial Issuance: $________
We, Greenwich Capital Commercial Funding Corp., have prepared this
prospectus supplement in order to offer the classes of commercial mortgage
pass-through certificates identified above. These certificates are the only
securities offered by this prospectus supplement. This prospectus supplement
specifically relates to, and is accompanied by, our prospectus dated
____________. We will not list the offered certificates on any national
securities exchange or any automated quotation system of any registered
securities associations, such as NASDAQ.
The offered certificates will represent interests only in the trust
identified above. They will not represent interests in or obligations of any
other party. The assets of the trust will include a pool of multifamily and
commercial mortgage loans. The initial mortgage pool balance that we expect to
transfer to the trust will be approximately $____________. No governmental
agency or instrumentality or private insurer has insured or guaranteed the
offered certificates or any of the mortgage loans that back them.
Each class of offered certificates will receive monthly distributions
of interest, principal or both, commencing in __________. The table on page S-_
of this prospectus supplement contains a list of the classes of offered
certificates and states the principal balance, interest rate, and other select
characteristics of each class. Credit enhancement is being provided through the
subordination of ___ non-offered classes of series ___ certificates. That same
table on page S-_ of this prospectus supplement also contains a list of the
non-offered classes of the series ___ certificates.
-------------------------
You should fully consider the risk factors beginning on page S-____ in
this prospectus supplement and on page _____ in the accompanying prospectus
prior to investing in the offered certificates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the accompanying
prospectus. Any representation to the contrary is a criminal offense.
--------------------------
____________________, is the underwriter for this offering. It will
purchase the offered certificates from us. Our proceeds from the sale of the
offered certificates will equal approximately ____% of the total initial
principal balance of the offered certificates, plus accrued interest, before
deducting expenses payable by us. The underwriter's commission will be the
difference between the price it pays to us for the offered certificates and the
amount it receives from the sale of the offered certificates to the public. The
underwriter currently intends to sell the offered certificates at varying prices
to be determined at the time of sale. See "Method of Distribution" in this
prospectus supplement.
GREENWICH CAPITAL
The date of this prospectus supplement is _________________.
<PAGE>
---------------------
Important Notice About the Information Contained in this Prospectus Supplement,
the Accompanying Prospectus and the Related Registration Statement
Information about the offered certificates is contained in two separate
documents:--
o this prospectus supplement, which describes the specific terms
of the offered certificates; and
o the accompanying prospectus, which provides general
information, some of which may not apply to the offered
certificates.
You should read both this prospectus supplement and the accompanying
prospectus in full to obtain material information concerning the offered
certificates.
In addition, we have filed with the Securities and Exchange Commission
a registration statement under the Securities Act of 1933, as amended, with
respect to the offered certificates. This prospectus supplement and the
accompanying prospectus form a part of that registration statement. However,
this prospectus supplement and the accompanying prospectus do not contain all of
the information contained in our registration statement. For further information
regarding the documents referred to in this prospectus supplement and the
accompanying prospectus, you should refer to our registration statement and the
exhibits to it. Our registration statement and the exhibits to it can be
inspected and copied at prescribed rates at the public reference facilities
maintained by the SEC at its public reference section, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its regional offices located at: Chicago regional
office, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661; and
New York regional office, Seven World Trade Center, New York, New York 10048.
Copies of these materials can also be obtained electronically through the SEC's
internet web site (http:\\www.sec.gov).
You should only rely on the information contained in this prospectus
supplement, the accompanying prospectus and our registration statement. We have
not authorized any person to give any other information or to make any
representation that is different from the information contained in this
prospectus supplement, the accompanying prospectus or our registration
statement.
S-2
<PAGE>
Table Of Contents
Prospectus Supplement
Page
Important Notice About the Information Contained in this Prospectus
Supplement, the Accompanying Prospectus and the Related
Registration Statement..................................................S-2
Summary of Prospectus Supplement.............................................S-4
Risk Factors................................................................S-25
Capitalized Terms Used in this Prospectus Supplement........................S-35
Forward-Looking Statements..................................................S-36
Description of the Mortgage Pool............................................S-36
Servicing of the Underlying Mortgage Loans..................................S-57
Description of the Offered Certificates.....................................S-85
Yield and Maturity Considerations..........................................S-106
Use of Proceeds............................................................S-113
Federal Income Tax Consequences............................................S-113
ERISA Considerations.......................................................S-117
Legal Investment...........................................................S-122
Method of Distribution.....................................................S-123
Legal Matters..............................................................S-124
Ratings....................................................................S-124
Glossary...................................................................S-127
ANNEX A-1--Certain Characteristics of the Underlying Mortgage Loans........A-1-1
ANNEX A-2--Mortgage Pool Information.......................................A-2-1
ANNEX B--Form of Trustee Report..............................................B-1
ANNEX C--Decrement Tables....................................................C-1
ANNEX D--Price/Yield Tables..................................................D-1
ANNEX E--Summary Term Sheet..................................................E-1
Prospectus
Important Notice About the Information Presented in this Prospectus............3
Available Information; Incorporation by Reference..............................3
Summary of Prospectus..........................................................4
Risk Factors..................................................................13
Capitalized Terms Used in this Prospectus.....................................33
Description of the Trust Assets...............................................33
Yield and Maturity Considerations.............................................57
Greenwich Capital Commercial Funding Corp.....................................63
Description of the Certificates...............................................64
Description of the Governing Documents........................................74
Description of Credit Support.................................................84
Legal Aspects of Mortgage Loans...............................................87
Federal Income Tax Consequences..............................................100
State and Other Tax Consequences.............................................149
ERISA Considerations.........................................................149
Legal Investment.............................................................154
Use of Proceeds..............................................................156
Method of Distribution.......................................................156
Legal Matters................................................................158
Financial Information........................................................158
Rating.......................................................................158
Glossary.....................................................................160
S-3
<PAGE>
Summary of Prospectus Supplement
This summary contains selected information regarding the offering being
made by this prospectus supplement. It does not contain all of the information
you need to consider in making your investment decision. To understand all of
the terms of the offering of the offered certificates, you should read carefully
this prospectus supplement and the accompanying prospectus in full.
Introduction to the Transaction
The offered certificates will be part of a series of commercial
mortgage pass-through certificates designated as the Series _____ Commercial
Mortgage Pass-Through Certificates and consisting of multiple classes. The table
below identifies the respective classes of that series, specifies various
characteristics of each of those classes and indicates which of those classes
are offered by this prospectus supplement and which are not.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
Series _____ Commercial Mortgage Pass-Through Certificates
--------------------------------------------------------------------------------------------------------------------------------
Approx. % Approx.
Approx. Total of Initial Total Credit Pass- Initial Weighted
Principal Mortgage Support at Through Pass- Average
Balance at Pool Initial Rate Through Life Principal ____/____
Class Initial Issuance Balance Issuance Description Rate (years) Window Ratings
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Offered Certificates
--------------------------------------------------------------------------------------------------------------------------------
A-1 $ % % %
--------------------------------------------------------------------------------------------------------------------------------
A-2 $ % % %
--------------------------------------------------------------------------------------------------------------------------------
A-3 $ % % %
--------------------------------------------------------------------------------------------------------------------------------
A-4 $ % % %
--------------------------------------------------------------------------------------------------------------------------------
A-5 $ % % %
--------------------------------------------------------------------------------------------------------------------------------
B-1 $ % % %
--------------------------------------------------------------------------------------------------------------------------------
B-2 $ % % %
--------------------------------------------------------------------------------------------------------------------------------
S N/A N/A N/A %
--------------------------------------------------------------------------------------------------------------------------------
Non-Offered Certificates
--------------------------------------------------------------------------------------------------------------------------------
B-3 $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
B-4 $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
B-5 $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
B-6 $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
B-7 $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
B-8 $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
C $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
D $ % N/A % N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
R-I N/A N/A N/A N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
R-II N/A N/A N/A N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
R-III N/A N/A N/A N/A N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-4
<PAGE>
The offered certificates will evidence beneficial ownership interests
in a common law trust designated as the Greenwich Capital Commercial Funding
___________. We will form the trust at or prior to the time of initial issuance
of the offered certificates. The assets of the trust will include a pool of
multifamily and commercial mortgage loans having the characteristics described
in this prospectus supplement.
The governing document for purposes of issuing the offered certificates
and forming the trust will be a pooling and servicing agreement to be dated as
of ______________. The pooling and servicing agreement will also govern the
servicing and administration of the mortgage loans and the other assets that
back the offered certificates. The parties to the pooling and servicing
agreement will include us, a trustee, a master servicer and a special servicer.
A copy of the pooling and servicing agreement will be filed with the SEC as an
exhibit to a current report on Form 8-K, within 15 days after the initial
issuance of the offered certificates. The SEC will make that current report on
Form 8-K and its exhibits available to the public for inspection.
----------------------
Key Certificate Features Shown in the Table Above
<TABLE>
<S> <C>
A. Total Principal Balance
or Notional Amount at
Initial Issuance................. The table above identifies for each class of the series _____
certificates the approximate total principal balance, if any, of that class at
initial issuance. The actual total principal balance of any class of series _____
certificates at initial issuance may be larger or smaller than the amount shown
above, depending on the actual size of the initial mortgage pool balance. The
actual size of the initial mortgage pool balance may be as much as 5% larger or
smaller than the amount presented in this prospectus supplement.
As shown in the table above, the class A-1, A-2, A-3, A-4, A-5, B-1, B-2, B-3,
B-4, B-5, B-6, B-7, B-8, C and D certificates are the only series _____
certificates with principal balances. The principal balance of any of those
certificates at any time represents the maximum amount that the holder may receive
as principal out of cashflow received on or with respect to the underlying
mortgage loans.
The class S certificates do not have principal balances. They are interest-only
certificates. For purposes of calculating the amount of accrued interest with
respect to the class S certificates, however, they will have a total notional
amount equal to the total principal balance of the class A-1, A-2, A-3, A-4, A-5,
B-1, B-2, B-3, B-4, B-5, B-6, B-7, B-8, C and D certificates outstanding from time
to time. The total initial notional amount of the class
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
S certificates will be approximately $________________, although it may be as much
as 5% larger or smaller.
The class R-I, R-II and R-III certificates do not have principal balances or
notional amounts. They are residual interest certificates. The holders of the
class R-I, R-II and R-III certificates are not expected to receive any material
payments.
B. Total Credit Support at
Initial Issuance................ The respective classes of the series _____ certificates entitle their
holders to varying degrees of seniority for purposes of--
o receiving payments of interest and, if and when applicable, payments
of principal, and
o bearing the effects of losses on the underlying mortgage loans, as
well as default-related and other unanticipated expenses of the
trust.
The class A-1, A-2 and S certificates are the most senior. The class R-I, R-II and
R-III certificates are the most subordinate, but they do not provide any credit
support to the other series _____ certificates. The remaining classes of series
_____ certificates are listed from top to bottom in descending order of seniority.
The table above shows the approximate total credit support provided to each class
of the offered certificates, other than the class S certificates, through the
subordination of other classes of the series _____ certificates. In the case of
each of those classes of offered certificates, the credit support shown in the
table above represents the total initial principal balance, expressed as a
percentage of the initial mortgage pool balance, of all classes of the series
_____ certificates that are subordinate to the indicated class.
C. Pass-Through Rate................... Each class of the series _____ certificates, other than the class R-I, R-II
and R-III certificates, will bear interest. The table above provides the indicated
information regarding the pass-through rate at which each of those classes of the
series _____ certificates will accrue interest. [Add summary descriptions of the
pass-through rates for the various interest-bearing classes of the series _____
certificates.]
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
D. Weighted Average Life
and Principal Window............. The weighted average life of any class of offered certificates, other than
the class S certificates, refers to the average amount of time that will elapse
from the date of their issuance until each dollar to be applied in reduction of
the total principal balance of those certificates is paid to the investor. The
principal window for any class of offered certificates, other than the class S
certificates, is the period during which the holders of that class of offered
certificates will receive payments of principal. The weighted average life and
principal window shown in the table above for each class of offered certificates,
other than the class S certificates, were calculated based on the following
assumptions with respect to each underlying mortgage loan--
o the related borrower timely makes all payments on the mortgage loan,
o if the mortgage loan has an anticipated repayment date, as described
under "--The Underlying Mortgage Loans and the Mortgaged Real
Properties" below, the mortgage loan will be paid in full on that
date, and
o that mortgage loan will not otherwise be prepaid prior to stated
maturity.
The weighted average life and principal window shown in the table above for each
class of offered certificates, other than the class S certificates, were further
calculated based on the other maturity assumptions described under "Yield and
Maturity Considerations" in this prospectus supplement.
E. Ratings............................. The ratings shown in the table above for the offered certificates are those
of ______________ and _____________, respectively. It is a condition to their
issuance that the respective classes of the offered certificates receive credit
ratings no lower than those shown in the table above.
The ratings of the offered certificates address the timely payment of interest
and, except in the case of the class S certificates, the ultimate payment of
principal on or before ______________, which is the rated final payment date. A
security rating is not a recommendation to buy, sell or hold securities and the
assigning rating agency may revise or withdraw its rating at any time.
For a description of the limitations of the ratings of the offered certificates,
see "Ratings" in this prospectus supplement.
</TABLE>
S-7
<PAGE>
Relevant Parties
<TABLE>
<S> <C>
We and Us............................... Our name is Greenwich Capital Commercial Funding Corp. We are a special
purpose Delaware corporation. Our address is 600 Steamboat Road, Greenwich,
Connecticut 06830 and our telephone number is (203) 625-2700. See "Greenwich
Capital Commercial Funding Corp." in the accompanying prospectus.
Initial Trustee......................... ________________________, will act as the initial trustee on behalf of all
the series _____ certificateholders. See "Description of the Offered
Certificates--The Trustee" in this prospectus supplement. The trustee will also
have, or be responsible for appointing an agent to perform, additional duties with
respect to tax administration.
Initial Master Servicer................. ________________________, a ________ corporation, will act as the initial
master servicer with respect to the pooled mortgage loans. See "Servicing of the
Underlying Mortgage Loans--The Initial Master Servicer and the Initial Special
Servicer" in this prospectus supplement.
Initial Special Servicer................. ________________________, a __________ corporation, will act as the initial
special servicer with respect to the pooled mortgage loans. See "Servicing of the
Underlying Mortgage Loans--The Initial Master Servicer and the Initial Special
Servicer" in this prospectus supplement.
Controlling Class
of Certificateholders................. The holders of certificates representing a majority interest in a designated
controlling class of the series _____ certificates will have the right, subject to
the conditions described under "Servicing of the Underlying Mortgage Loans--The
Controlling Class Representative" and "--Replacement of the Special Servicer" in
this prospectus supplement, to--
o replace the special servicer, and
o select a representative that may direct and advise the special
servicer on various servicing matters.
Unless there are significant losses on the underlying mortgage loans, the
controlling class of series _____ certificateholders will be the holders of a
non-offered class of series _____ certificates.
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
Mortgage Loan Sellers................... We will acquire the mortgage loans that are to back the offered certificates, from--
o ________________________, a _________________, and
o ________________________, a ___________________.
See "Description of the Mortgage Pool--The Mortgage Loan Sellers" in this
prospectus supplement.
Underwriter............................. ______________________, a _______________ corporation, is the underwriter
of this offering. See "Method of Distribution" in this prospectus supplement.
<CAPTION>
Relevant Dates and Periods
<S> <C>
Cut-off Date............................ The pooled mortgage loans will be considered part of the trust as of a
cut-off date of ___________. All payments and collections received on the
underlying mortgage loans after that date, excluding any payments or collections
that represent amounts due on or before that date, will belong to the trust.
Accordingly, __________ is the date as of which we present much of the information
relating to the underlying mortgage loans and the mortgaged real properties for
those loans in this prospectus supplement.
Issue Date.............................. The date of initial issuance for the offered certificates will be on or
about ____________.
Payment Date............................ Payments on the offered certificates are scheduled to occur monthly,
commencing in ____________. During any given month, the payment date will be the
_____ calendar day of that month, or, if the _____ calendar day of that month is
not a business day, then the next succeeding business day.
Record Date............................. The record date for each monthly payment on an offered certificate will be
the last business day of the prior calendar month. The registered holders of the
offered certificates at the close of business on each record date, will be
entitled to receive any payments on those certificates on the following payment
date.
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
Collection Period....................... Amounts available for payment on the offered certificates on any payment
date will depend on the payments and other collections received, and any advances
of payments due, on the underlying mortgage loans during the related collection
period. Each collection period--
o will relate to a particular payment date,
o will be approximately one month long,
o will begin when the prior collection period ends or, in the case of
the first collection period, will begin on ______________, and
o will end during the month of, but prior to, the related payment
date.
Interest Accrual Period................. The amount of interest payable with respect to the offered certificates on
any payment date will be a function of the interest accrued during the related
interest accrual period. The interest accrual period for any payment date will be
[the calendar month immediately preceding the month in which that payment date
occurs].
<CAPTION>
Description of the Offered Certificates
<S> <C>
Registration and
Denominations...................... We intend to deliver the offered certificates in book-entry form in
original denominations of:
o in the case of the class S certificates, $_______ initial notional
amount and in any whole dollar denomination in excess of $_______;
and
o in the case of the other offered certificates, $_______ initial
principal balance and in any whole dollar denomination in excess of
$_______.
You will initially hold your offered certificates through The Depository Trust
Company. As a result, you will not receive a fully registered physical certificate
representing your interest in any offered certificate, except under the limited
circumstances described under "Description of the Offered
Certificates--Registration and Denominations" in this prospectus supplement and
under "Description of the Certificates--Book-Entry Registration" in the
accompanying prospectus. We may elect to terminate the book-entry system through
DTC with respect to all or any portion of any class of offered certificates.
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
Payments
A. General............................. The trustee will make payments of interest and principal to the respective
classes of series _____ certificateholders entitled to those payments,
sequentially as follows:
Payment Order Class
------------- -----
1 A-1, A-2 and S
2 A-3
3 A-4
4 A-5
5 B-1
6 B-2
7 B-3
8 B-4
9 B-5
10 B-6
11 B-7
12 B-8
13 C
14 D
Allocation of interest payments among the class A-1, A-2 and S certificates is pro
rata based on entitlement. Allocation of principal payments between the class A-1
and A-2 certificates is described under "--Payments--Payments of Principal" below.
The class S certificates do not have principal balances and do not entitle their
holders to payments of principal.
See "Description of the Offered Certificates--Payments--Priority of Payments" in
this prospectus supplement.
B. Payments of Interest................ Each class of offered certificates will bear interest. In each case, that
interest will accrue during each interest accrual period based upon--
o the pass-through rate applicable for the particular class for that
interest accrual period,
o the total principal balance or notional amount, as the case may be,
of the particular class outstanding immediately prior to the related
payment date, and
o the assumption that each year consists of twelve 30-day months.
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
A whole or partial prepayment on an underlying mortgage loan may not be
accompanied by the amount of one full month's interest on the prepayment. As and
to the extent described under "Description of the Offered
Certificates--Payments--Payments of Interest" in this prospectus supplement, these
shortfalls may be allocated to reduce the amount of accrued interest otherwise
payable to the holders of all of the interest-bearing classes of the series _____
certificates, including the offered certificates, on a pro rata basis in
accordance with the respective amounts of interest otherwise payable on those
classes for the corresponding interest accrual period.
On each payment date, subject to available funds and the payment priorities
described under "--Payments--General" above, you will be entitled to receive your
proportionate share of all unpaid distributable interest accrued with respect to
your class of offered certificates through the end of the related interest accrual
period.
See "Description of the Offered Certificates--Payments--Payments of Interest" and
"--Payments--Priority of Payments" in this prospectus supplement.
C. Payments of Principal............... The class S certificates do not have principal balances and do not entitle
their holders to payments of principal. Subject to available funds and the payment
priorities described under "--Payments--General" above, however, the holders of
each other class of offered certificates will be entitled to receive a total
amount of principal over time equal to the total principal balance of their
particular class. The trustee must make payments of principal in a specified
sequential order to ensure that--
o no payments of principal will be made to the holders of any
non-offered class of series _____ certificates until the total
principal balance of the offered certificates is reduced to zero,
o no payments of principal will be made to the holders of the class
A-3, A-4, A-5, B-1 or B-2 certificates until, in the case of each of
those classes, the total principal balance of all more senior
classes of offered certificates is reduced to zero, and
o except as described in the following paragraph, no payments of
principal will be made to the holders of the class A-2 certificates
until the total principal balance of the class A-1 certificates is
reduced to zero.
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
Because of losses on the underlying mortgage loans and/or default-related or other
unanticipated expenses of the trust, the total principal balance of the class A-3,
A-4, A-5, B-1, B-2, B-3, B-4, B-5, B-6, B-7, B-8, C and D certificates could be
reduced to zero at a time when the class A-1 and A-2 certificates remain
outstanding. Under those circumstances, any payments of principal on the class A-1
and A-2 certificates will be made on a pro rata basis in accordance with their
respective principal balances.
The total payments of principal to be made on the series _____ certificates on any
payment date will be a function of--
o the amount of scheduled payments of principal due or, in some cases,
deemed due on the underlying mortgage loans during the related
collection period, which payments are either received as of the end
of that collection period or advanced by the master servicer, and
o the amount of any prepayments and other unscheduled collections of
previously unadvanced principal with respect to the underlying
mortgage loans that are received during the related collection
period.
See "Description of the Offered Certificates--Payments--Payments of Principal" and
"--Payments--Priority of Payments" in this prospectus supplement.
D. Payments of Prepayment
Premiums and Yield
Maintenance Charges.............. If any prepayment premium or yield maintenance charge is collected on any
of the pooled mortgage loans, then the trustee will pay that amount in the
proportions described under "Description of the Offered Certificates--Payments
"Payments of Prepayment Premiums and Yield Maintenance Charges" in this prospectus
supplement, to--
o the holders of the class S certificates, and/or
o the holders of any other class or classes of certificates senior to
the class _____certificates, that are then entitled to receive
payments of principal.
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
Reductions of Certificate Principal
Balances in Connection With Losses
on the Underlying Mortgage Loans
and Default-Related and Other
Unanticipated Expenses............... Because of losses on the underlying mortgage loans and/or default-related
and other unanticipated expenses of the trust, the total principal balance of the
mortgage pool, net of advances of principal, may fall below the total principal
balance of the series _____ certificates. If and to the extent that those losses
and expenses cause a deficit to exist following the payments made on the series
_____ certificates on any payment date, the total principal balances of the
following classes of series _____ certificates will be successively reduced in the
following order, until that deficit is eliminated:
Reduction Order Class
--------------- -----
1 D
2 C
3 B-8
4 B-7
5 B-6
6 B-5
7 B-4
8 B-3
9 B-2
10 B-1
11 A-5
12 A-4
13 A-3
14 A-1 and A-2
Any reduction to the total principal balances of the class A-1 and class A-2
certificates will be made on a pro rata basis in accordance with the relative
sizes of those principal balances.
See "Description of the Offered Certificates--Reductions of Certificate Principal
Balances in Connection With Realized Losses and Additional Trust Fund Expenses" in
this prospectus supplement.
Advances of Delinquent Monthly
Debt Service Payments............... Except as described in the next two paragraphs, the master servicer will be
required to make advances with respect to any delinquent monthly payments, other
than balloon payments, of principal and/or interest due on the pooled mortgage
loans. In addition, the trustee must make any of those advances that the master
servicer fails to make. As described under "Description
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of the Offered Certificates--Advances of Delinquent Monthly Debt Service Payments"
in this prospectus supplement, any party that makes an advance will be entitled to
be reimbursed for the advance, together with interest at the prime rate described
in that section of this prospectus supplement.
Notwithstanding the foregoing, neither of the master servicer nor the trustee will
be required to make any advance that it determines, in its good faith and
reasonable judgment, will not be recoverable from proceeds of the related mortgage
loan.
In addition, if any of the adverse events or circumstances that we describe under
"Servicing of the Underlying Mortgage Loans--Required Appraisals" in this
prospectus supplement, occur or exist with respect to any pooled mortgage loan or
the mortgaged real property for that loan, the special servicer will be obligated
to obtain a new appraisal or, in cases involving relatively small principal
balances, conduct a valuation of that property. If, based on that appraisal or
other valuation, it is determined that--
o the principal balance of, and other delinquent amounts due under,
the mortgage loan, exceed
o 90% of the new estimated value of that real property,
then the amount otherwise required to be advanced with respect to interest on that
mortgage loan will be reduced. The reduction will be in the same proportion that
the excess bears to the principal balance of the mortgage loan, net of related
advances of principal. Due to the payment priorities, any reduction in advances
will reduce the funds available to pay interest on the most subordinate
interest-bearing class of series _____ certificates then outstanding.
See "Description of the Offered Certificates--Advances of Delinquent Monthly Debt
Service Payments" and "Servicing of the Underlying Mortgage Loans--Required
Appraisals" in this prospectus supplement. See also "Description of the
Certificates--Advances" in the accompanying prospectus.
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Reports to Certificateholders........... On each payment date, trustee will provide to the registered holders of the
offered certificates a monthly report substantially in the form of Annex B to this
prospectus supplement. The trustee's report will detail the payments made to the
certificateholders on that payment date and the performance of the mortgage loans
and the mortgaged real properties.
Upon reasonable prior notice, you may also review at the trustee's offices during
normal business hours a variety of information and documents that pertain to the
pooled mortgage loans and the mortgaged real properties for those loans. We expect
that the available information and documents will include loan documents, borrower
operating statements, rent rolls and property inspection reports, to the extent
received by the trustee.
See "Description of the Offered Certificates--Reports to Certificateholders;
Available Information" in this prospectus supplement.
Optional and Other Termination.......... Specified parties to the transaction may terminate the trust when the total
principal balance of the related mortgage pool, net of advances of principal, is
less than approximately ____% of the initial mortgage pool balance. See
"Description of the Offered Certificates--Termination" in this prospectus
supplement.
<CAPTION>
The Underlying Mortgage Loans and the Mortgaged Real Properties
<S> <C>
General................................. In this section, "--The Underlying Mortgage Loans and the Mortgaged Real
Properties", we provide summary information with respect to the mortgage loans
that we intend to include in the trust. For more detailed information regarding
those mortgage loans, you should review the following sections in this prospectus
supplement:
o "Description of the Mortgage Pool"
o "Risk Factors--Risks Related to the Underlying Mortgage Loans"
o Annex A-1-Certain Characteristics of the Underlying Mortgage Loans
o Annex A-2-Mortgage Pool Information
When reviewing the information that we have included in this prospectus supplement
with respect to the mortgage loans that are to back the offered certificates,
please note that--
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S-16
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<S> <C>
o All numerical information provided with respect to the mortgage
loans is provided on an approximate basis.
o All weighted average information provided with respect to the
mortgage loans reflects a weighting based on their respective
cut-off date principal balances. We will transfer the cut-off date
principal balance for each of the mortgage loans to the trust. We
show the cut-off date principal balance for each of the mortgage
loans on Annex A-1 to this prospectus supplement.
o When information with respect to mortgaged real properties is
expressed as a percentage of the initial mortgage pool balance, the
percentages are based upon the cut-off date principal balances of
the related mortgage loans.
o If any of the mortgage loans is secured by multiple real properties
located in more than one state, a portion of that mortgage loan has
been allocated to each of those properties.
o Statistical information regarding the mortgage loans may change
prior to the date of initial issuance of the offered certificates
due to changes in the composition of the mortgage pool prior to that
date.
Source of the
Underlying Mortgage Loans........... We are not the originator of the mortgage loans that we intend to include
in the trust. We will acquire those mortgage loans from _____ separate parties.
Each of those mortgage loans was originated by--
o the related mortgage loan seller from whom we acquired the mortgage
loan,
o an affiliate of the related mortgage loan seller, or
o a correspondent in the related mortgage loan seller's conduit
lending program.
Payment and Other Terms................. Each of the mortgage loans that we intend to include in the trust is the
obligation of a borrower to repay a specified sum with interest.
Repayment of each of the mortgage loans is secured by a mortgage lien on the
ownership and/or leasehold interest of the related borrower or another party in
one or more commercial or
</TABLE>
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<S> <C>
multifamily real properties. Except for limited permitted encumbrances, which we
describe in the "Glossary" to this prospectus supplement, that mortgage lien will
be a first priority lien.
All of the mortgage loans are or should be considered nonrecourse. None of the
mortgage loans are insured or guaranteed by any governmental agency or
instrumentality or by any private mortgage insurer.
Each of the mortgage loans currently accrues interest at the annual rate specified
with respect to that loan on Annex A-1 to this prospectus supplement. Except as
otherwise described below with respect to mortgage loans that have anticipated
repayment dates, the mortgage interest rate for each mortgage loan is, in the
absence of default, fixed for the entire term of the loan. [If any of the mortgage
loans have floating or adjustable mortgage interest rates, provide summary
description of how to calculate those rates.]
Each of the mortgage loans provides for scheduled payments of principal and/or
interest to be due on the ________ day of each month. [Provide summary description
regarding any adjustments to the monthly debt service payments and any potential
negative amortization of interest.]
________ of the mortgage loans, representing ____% of the initial mortgage pool
balance, provide for:
o an amortization schedule that is significantly longer than its
remaining term to stated maturity; and
o a substantial payment of principal on its maturity date.
________ of the mortgage loans, representing ____% of the initial mortgage pool
balance, provide material incentives to the related borrower to pay the mortgage
loan in full by a specified date. We consider that date to be the anticipated
repayment date for the mortgage loan. There can be no assurance, however, that
these incentives will result in any of these mortgage loans being paid in full on
or before its anticipated repayment date. The incentives, which in each case will
become effective as of the related anticipated repayment date, include:
o The calculation of interest in excess of the initial mortgage
interest rate. The additional interest will be deferred and will be
payable only after the outstanding principal balance of the mortgage
loan is paid in full.
</TABLE>
S-18
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<S> <C>
o The application of excess cash flow from the mortgaged real property
to pay the principal amount of the mortgage loan. The payment of
principal will be in addition to the principal portion of the normal
monthly debt service payment.
The remaining _______ mortgage loans, representing ____% of the initial mortgage
pool balance, have payment schedules that provide for the payment of these
mortgage loans in full or substantially in full by their respective maturity
dates.
Delinquency Status...................... None of the mortgage loans that we intend to include in the trust was _____
days or more delinquent with respect to any monthly debt service payment as of the
cut-off date or at any time during the _____-month period preceding that date.
Prepayment Lock-Out Periods............. A prepayment lock-out period is currently in effect for ________ of the
mortgage loans to be included in the trust. Set forth below is information
regarding the remaining terms of those lock-out periods:
Maximum remaining lock-out period: _____ months
Minimum remaining lock-out period: _____ months
Weighted average remaining lock-out period: _____ months
Defeasance.............................. ________ of the mortgage loans to be included in the trust, representing
____% of the initial mortgage pool balance, permit the related borrower to obtain
a full or partial release of the mortgaged real property from the related mortgage
lien by delivering U.S. Treasury obligations as substitute collateral. None of
these mortgage loans permits defeasance prior to the ________ anniversary of the
date of initial issuance of the certificates.
Additional Statistical Information
A. General Characteristics............. The mortgage pool will have the following general characteristics as of the
cut-off date:
Initial mortgage pool balance............................. $
Number of mortgage loans..................................
Number of mortgaged real properties.......................
Maximum cut-off date principal balance.................... $
Minimum cut-off date principal balance.................... $
Average cut-off date principal balance.................... $
</TABLE>
S-19
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<S> <C>
Maximum mortgage interest rate............................ %
Minimum mortgage interest rate............................ %
Weighted average mortgage interest rate................... %
Maximum original term to maturity
or anticipated repayment date......................... months
Minimum original term to maturity
or anticipated repayment date......................... months
Weighted average original term to maturity
or anticipated repayment date......................... months
Maximum remaining term to maturity
or anticipated repayment date......................... months
Minimum remaining term to maturity
or anticipated repayment date......................... months
Weighted average remaining term to
maturity or anticipated repayment date................ months
Maximum underwritten debt
service coverage ratio................................ x
Minimum underwritten debt
service coverage ratio................................ x
Weighted average underwritten debt
service coverage ratio................................ x
Maximum cut-off date loan-to-appraised
value ratio.......................................... %
Minimum cut-off date loan-to-appraised
value ratio.......................................... %
Weighted average cut-off date loan-to-
appraised value ratio................................. %
B. State Concentration................ The table below shows the number of, and percentage of the initial mortgage
pool balance secured by, mortgaged real properties located in the indicated
states:
% of
Number of Initial Mortgage
State Properties Pool Balance
----- ---------- ------------
%
%
%
The remaining mortgaged real properties with respect to the mortgage pool, are
located throughout ________ other states and ________________. No more than ____%
of the initial
</TABLE>
S-20
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<S> <C>
mortgage pool balance is secured by mortgaged real properties located in any of
these other jurisdictions.
C. Property Types..................... The table below shows the number of, and percentage of the initial mortgage
pool balance secured by, mortgaged real properties operated for each indicated
purpose:
% of
Number of Initial Mortgage
Property Type Properties Pool Balance
------------- ---------- ------------
%
%
%
%
%
%
%
%
D. Encumbered Interests............... The table below shows the number of, and percentage of the initial mortgage
pool balance secured by, mortgaged real properties for which the encumbered
interest is as indicated:
% of
Encumbered Interest in the Number of Initial Mortgage
Mortgaged Real Property Properties Pool Balance
----------------------- ---------- ------------
Ownership %
Ownership in part,
Leasehold in part %
Leasehold %
Other %
<CAPTION>
Legal and Investment Considerations
<S> <C>
Federal Income
Tax Consequences..................... The trustee or its agent will make elections to treat designated portions
of the assets of the trust as three separate real estate mortgage investment
conduits under Sections 860A through 860G of the Internal Revenue Code of 1986.
The designations for each of those three REMICs are as follows:
o REMIC I, the lowest tier REMIC, which will consist of, among other
things--
1. the pooled mortgage loans, and
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S-21
<PAGE>
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<S> <C>
2. any mortgaged real properties that may be acquired by the
trust following a borrower default,
but will exclude collections of additional interest accrued and
deferred as to payment with respect to each mortgage loan with an
anticipated repayment date that remains outstanding past that date;
o REMIC II, which will hold the regular interests in REMIC I; and
o REMIC III, which will hold the regular interests in REMIC II.
[Any assets not included in a REMIC will constitute a grantor trust for federal
income tax purposes.]
The offered certificates will be treated as regular interests in REMIC III. This
means that they will be treated as newly issued debt instruments for federal
income tax purposes. You will have to report income on your offered certificates
in accordance with the accrual method of accounting even if you are otherwise a
cash method taxpayer. The offered certificates will not represent any interest in
the grantor trust referred to above.
The class _____ and _____ certificates will be issued with more than a de minimis
amount of original issue discount. The class _____ certificates will be issued
with a de minimis amount of original issue discount. The other offered
certificates will not be issued with any original issue discount. If you own an
offered certificate issued with original issue discount, you may have to report
original issue discount income and be subject to a tax on this income before you
receive a corresponding cash payment.
For a more detailed discussion of the federal income tax aspects of investing in
the offered certificates, see "Federal Income Tax Consequences" in this prospectus
supplement and "Federal Income Tax Consequences" in the accompanying prospectus.
ERISA................................... We anticipate that, subject to satisfaction of the conditions referred to
under "ERISA Considerations" in this prospectus supplement, retirement plans and
other employee benefit plans and arrangements subject to--
o Title I of the Employee Retirement Income Security Act of 1974, as
amended, or
</TABLE>
S-22
<PAGE>
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<S> <C>
o Section 4975 of the Internal Revenue Code of 1986,
will be able to invest in the class A-1, A-2 and S certificates without giving
rise to a prohibited transaction. This is based upon an individual prohibited
transaction exemption granted to the underwriter by the U.S. Department of Labor.
However, investments in the other offered certificates by, on behalf of or with
assets of these entities, will be restricted as described under "ERISA
Considerations" in this prospectus supplement.
If you are a fiduciary of any retirement plan or other employee benefit plan or
arrangement subject to Title I of ERISA or section 4975 of the Internal Revenue
Code of 1986, you should review carefully with your legal advisors whether the
purchase or holding of the offered certificates could give rise to a transaction
that is prohibited under ERISA or Section 4975 of the Internal Revenue Code of
1986. See "ERISA Considerations" in this prospectus supplement and in the
accompanying prospectus.
Legal Investment........................ [Upon initial issuance, the following classes of offered certificates will
constitute mortgage related securities for purposes of the Secondary Mortgage
Market Enhancement Act of 1984:
o class A-1,
o class A-2, and
o class S.
The other offered certificates will not be mortgage related securities within the
meaning of SMMEA.]
You should consult your own legal advisors to determine whether and to what extent
the offered certificates will be legal investments for you. See "Legal Investment"
in this prospectus supplement and in the accompanying prospectus.
Investment Considerations............... The rate and timing of payments and other collections of principal on or
with respect to the underlying mortgage loans will affect the yield to maturity on
each offered certificate. In the case of offered certificates purchased at a
discount, a slower than anticipated rate of payments and other collections of
principal on the underlying mortgage loans could result in a lower than
anticipated yield. In the case of class S certificates or any other offered
certificates purchased at a premium, a faster than anticipated rate of payments
and other collections of principal on the underlying mortgage loans could result
in a
</TABLE>
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<S> <C>
lower than anticipated yield. If you are contemplating the purchase of class S
certificates, you should be aware that--
o the yield to maturity on those certificates will be highly sensitive
to the rate and timing of principal prepayments and other
liquidations on or with respect to the underlying mortgage loans,
and
o that an extremely rapid rate of prepayments and/or other
liquidations on or with respect to the underlying mortgage loans
could result in a substantial loss of your initial investment.
See "Yield and Maturity Considerations" in this prospectus supplement and in the
accompanying prospectus.
</TABLE>
S-24
<PAGE>
Risk Factors
The offered certificates are not suitable investments for all
investors. In particular, you should not purchase any class of offered
certificates unless you understand and are able to bear the risks associated
with that class.
The offered certificates are complex securities and it is important
that you possess, either alone or together with an investment advisor, the
expertise necessary to evaluate the information contained in this prospectus
supplement and the accompanying prospectus in the context of your financial
situation.
You should consider the following factors, as well as those set forth
under "Risk Factors" in the accompanying prospectus, in deciding whether to
purchase any offered certificates. The "Risk Factors" section in the
accompanying prospectus includes a number of general risks associated with
making an investment in the offered certificates.
Risks Related to the Offered Certificates
The Class A-3, A-4, A-5, B-1 and B-2 Certificates are Subordinate to,
and are Therefore Riskier Than, the Class A-1, A-2 and S Certificates. If you
purchase class A-3, A-4, A-5, B-1 and B-2 certificates, then your offered
certificates will provide credit support to other classes of offered
certificates. As a result, you will receive payments after, and must bear the
effects of losses on the underlying mortgage loans before, the holders of those
other classes of offered certificates.
When making an investment decision, you should consider, among other
things--
o the payment priorities of the respective classes of the
certificates,
o the order in which the principal balances of the respective
classes of the certificates with balances will be reduced in
connection with losses and default-related shortfalls, and
o the characteristics and quality of the mortgage loans in the
trust.
See "Description of the Mortgage Pool" and "Description of the Offered
Certificates--Payments" and "--Reductions of Certificate Principal Balances in
Connection With Realized Losses and Additional Trust Fund Expenses" in this
prospectus supplement. See also "Risk Factors--The Investment Performance of
Your Offered Certificates Will Depend Upon Payments, Defaults and Losses on the
Underlying Mortgage Loans; and Those Payments, Defaults and Losses may be Highly
Unpredictable", "--Any Credit Support for Your Offered Certificates may be
Insufficient to Protect you Against all Potential Losses" and "--Payments on the
Offered Certificates Will be Made Solely from the Limited Assets of the Related
Trust, and Those Assets may be Insufficient to Make all Required Payments on
Those Certificates" in the accompanying prospectus.
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<PAGE>
The Offered Certificates Have Uncertain Yields to Maturity. The yield
on your offered certificates will depend on--
o the price you paid for your offered certificates, and
o the rate, timing and amount of payments on your offered
certificates.
The rate, timing and amount of payments on your offered certificates
will depend on:
o the pass-through rate for your offered certificates;
o the rate and timing of payments and other collections of
principal on the underlying mortgage loans;
o the rate and timing of defaults, and the severity of losses,
if any, on the underlying mortgage loans;
o the rate, timing, severity and allocation of other shortfalls
and expenses that reduce amounts available for payment on your
offered certificates;
o the collection and payment of prepayment premiums and yield
maintenance charges with respect to the underlying mortgage
loans; and
o servicing decisions with respect to the underlying mortgage
loans.
These factors cannot be predicted with any certainty. Accordingly, you
may find it difficult to analyze the effect that these factors might have on the
yield to maturity of your offered certificates.
See "Description of the Mortgage Pool", "Servicing of the Underlying
Mortgage Loans", "Description of the Offered Certificates--Payments" and
"--Reductions of Certificate Principal Balances in Connection With Realized
Losses and Additional Trust Fund Expenses" and "Yield and Maturity
Considerations" in this prospectus supplement. See also "Risk Factors--The
Investment Performance of Your Offered Certificates Will Depend Upon Payments,
Defaults and Losses on the Underlying Mortgage Loans; and Those Payments,
Defaults and Losses may be Highly Unpredicatable" and "Yield and Maturity
Considerations" in the accompanying prospectus.
The Investment Performance of Your Offered Certificates may Vary
Materially and Adversely From Your Expectations Because the Rate of Prepayments
and Other Unscheduled Collections of Principal on the Underlying Mortgage Loans
is Faster or Slower Than You Anticipated. If you purchase your offered
certificates at a premium, and if payments and other collections of principal on
the mortgage loans in the trust occur at a rate faster than you anticipated at
the time of your purchase, then your actual yield to maturity may be lower than
you had assumed at the time of your purchase. Conversely, if you purchase your
offered certificates at a discount, and if payments and other collections of
principal on the mortgage loans in the trust occur at a rate slower than you
anticipated at the time of your purchase, then your actual yield to maturity may
be lower than you had assumed at the time of your purchase. You should consider
that prepayment premiums and yield maintenance charges may not be collected in
all circumstances. Furthermore, even if a prepayment premium or yield
maintenance charge
S-26
<PAGE>
is collected and payable on your offered certificates, it may not be sufficient
to offset fully any loss in yield on your offered certificates.
If you purchase class S certificates, your yield to maturity will be
particularly sensitive to the rate and timing of principal payments and losses
on the mortgage loans. Prior to investing in those certificates, you should
fully consider the associated risks, including the risk that an extremely rapid
rate of amortization, prepayment or other liquidation of the mortgage loans
could result in your failure to recover fully your initial investment. The
ratings on the class S certificates do not address whether a purchaser of those
certificates would be able to recover its initial investment in them.
The yield on the offered certificates with variable pass-through rates
could also be adversely affected if the mortgage loans with higher mortgage
interest rates pay principal faster than the mortgage loans with lower mortgage
interest rates. This is because those classes bear interest at pass-through
rates equal to, based upon or limited by, as applicable, a weighted average of
net interest rates derived from the mortgage loans.
ERISA Considerations. The regulations that govern pension and other
employee benefit plans subject to ERISA and plans and other retirement
arrangements subject to Section 4975(c) of the Internal Revenue Code of 1986 are
complex. Accordingly, if you are using the assets of a plan or arrangement to
acquire offered certificates, you are urged to consult legal counsel regarding
consequences under ERISA and the Internal Revenue Code of 1986 of the
acquisition, ownership and disposition of those certificates. In particular, the
purchase or holding of class A-3, A-4, A-5, B-1 and B-2 certificates by any plan
or arrangement may result in a prohibited transaction or the imposition of
excise taxes or civil penalties. As a result, these offered certificates should
not be acquired by, on behalf of, or with assets of any plan or arrangement,
unless the purchase and continued holding of the certificate or an interest in
the certificate is exempt from the prohibited transaction provisions of Section
406 of ERISA and Section 4975 of the Internal Revenue Code of 1986 under
Sections I and III of Prohibited Transaction Class Exemption 95-60. Sections I
and III of Prohibited Transaction Class Exemption 95-60 provide an exemption
from the prohibited transaction rules for some transactions involving an
insurance company general account.
See "ERISA Considerations" in this prospectus supplement and in the
accompanying prospectus.
Risks Related to the Underlying Mortgage Loans
Repayment of the Underlying Mortgage Loans Depends on the Operation of
the Mortgaged Real Properties. The underlying mortgage loans are secured by
mortgage liens on ownership and/or leasehold interests in the following types of
real property:
[Specify property types.]
The risks associated with lending on these types of real properties are
inherently different from those associated with lending on the security of
single-family residential properties. This is because, among other reasons,
repayment of each of the underlying mortgage loans is dependent on--
o the successful operation and value of the mortgaged real
property, and
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<PAGE>
o the related borrower's ability to sell or refinance the
mortgaged real property.
See "Risk Factors--Repayment of a Commercial or Multifamily Mortgage
Loan Depends Upon the Performance and Value of the Underlying Real Property,
Which may Decline Over Time, and the Related Borrower's Ability to Refinance the
Property, of Which There is no Assurance" and "Description of the Trust
Assets--Mortgage Loans--A Discussion of Various Types of Multifamily and
Commercial Properties That May Secure Mortgage Loans Underlying a Series of
Offered Certificates" in the accompanying prospectus.
The Underlying Mortgage Loans Have a Variety of Characteristics Which
May Expose Investors to Greater Risk of Default and Loss. When making an
investment decision, you should consider, among other things, the following
characteristics of the underlying mortgage loans and/or the mortgaged real
properties for those loans. Any or all of these characteristics can affect,
perhaps materially and adversely, the investment performance of your offered
certificates. Each of the respective items below includes a cross-reference to
where the associated risks are further discussed in this prospectus supplement
or in the accompanying prospectus. In addition, each of those items may include
a cross reference to where further information about the particular
characteristic may be found in this prospectus supplement.
o The Mortgaged Real Property Will Be the Sole Asset Available
to Satisfy the Amounts Owing Under an Underlying Mortgage Loan
in the Event of Default. All of the mortgage loans that we
intend to include in the trust are or should be considered
nonrecourse loans. If the related borrower defaults on any of
the underlying mortgage loans, only the mortgaged real
property, and none of the other assets of the borrower, is
available to satisfy the debt. Even if the related loan
documents permit recourse to the borrower or a guarantor, the
trust may not be able to ultimately collect the amount due
under a defaulted mortgage loan. None of the mortgage loans
are insured or guaranteed by any governmental agency or
instrumentality or by any private mortgage insurer. See "Risk
Factors--Repayment of a Commercial or Multifamily Mortgage
Loan Depends Upon the Performance and Value of the Underlying
Real Property, Which may Decline Over Time, and the Related
Borrower's Ability to Refinance the Property, of Which There
is no Assurance--Most of the Mortgage Loans Underlying Your
Offered Certificates Will be Nonrecourse" in the accompanying
prospectus.
o In Some Cases, a Mortgaged Real Property is Dependent on a
Single Tenant or on One or a Few Major Tenants. In the case of
________ mortgaged real properties, securing ____% of the
initial mortgage pool balance, the related borrower has leased
the property to at least one tenant that occupies ____% or
more of the particular property. In the case of _____ of those
properties, securing ____% of the initial mortgage pool
balance, the related borrower has leased the particular
property to a single tenant that occupies all or substantially
all of it. Accordingly, the full and timely payment of each of
the related mortgage loans is highly dependent on the
continued operation of the major tenant or tenants, which, in
some cases, is the sole tenant, at the mortgaged real
property. See "Risk Factors--Repayment of a Commercial or
Multifamily Mortgage Loan Depends Upon the Performance and
Value of the Underlying Real Property, Which may Decline Over
Time and the Related Borrower's Ability to Refinance the
Property, of Which
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<PAGE>
There is no Assurance--The Successful Operation of a
Multifamily or Commercial Property Depends on Tenants",
"--Repayment of a Commercial or Multifamily Mortgage Loan
Depends Upon the Performance and Value of the Underlying Real
Property, Which may Decline Over Time and the Related
Borrower's Ability to Refinance the Property, of Which There
is no Assurance--Dependence on a Single Tenant or a Small
Number of Tenants Makes a Property Riskier Collateral" and
"Repayment of a Commercial or Multifamily Mortgage Loan
Depends Upon the Performance and Value of the Underlying Real
Property, Which may Decline Over Time and the Related
Borrower's Ability to Refinance the Property, of Which There
is no Assurance--Tenant Bankruptcy Adversely Affects Property
Performance" in the accompanying prospectus.
o _____% or More of the Initial Mortgage Pool Balance Will Be
Secured by Mortgage Liens on Each of the Following Property
Types--[Specify property types.]
[Add disclosure relating to each property type as to which
there exists a material concentration based on cut-off date
principal balances of the underlying mortgage loans.]
The inclusion in the trust of a significant concentration of
mortgage loans that are secured by mortgage liens on a
particular type of income-producing property makes the overall
performance of the mortgage pool materially more dependent on
the factors that affect the operations at and value of that
property type. See "Description of the Trust Assets--Mortgage
Loans--A Discussion of Various Types of Multifamily and
Commercial Properties That May Secure Mortgage Loans
Underlying a Series of Offered Certificates" in the
accompanying prospectus.
o ____% or More of the Initial Mortgage Pool Balance Will be
Secured by Mortgage Liens on Real Property Located in Each of
the Following States--[Specify States]. The mortgaged real
properties located in each of the following states secure
mortgage loans or allocated portions of mortgage loans that
represent ____% or more of the initial mortgage pool balance:
% of
Number of Initial Mortgage
State Properties Pool Balance
----- ---------- ----------------
The inclusion of a significant concentration of mortgage loans
that are secured by mortgage liens on real properties located
in a particular state makes the overall performance of the
mortgage pool materially more depending on economic and other
conditions or events in that state. See "Risk Factors--
Geographic Concentration Within
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<PAGE>
a Trust Exposes Investors to Greater Risk of Default and Loss"
in the accompanying prospectus.
o The Mortgage Pool Will Include Adjustable Rate Mortgage Loans.
________ mortgage loans, representing ____% of the initial
mortgage pool balance, provide for adjustments to their
respective interest rates and corresponding adjustments to
their respective monthly debt service payments. See "Risk
Factors--Adjustable Rate Mortgage Loans Entail Greater Risks
of Default to Lenders than Fixed Rate Mortgage Loans" in the
accompanying prospectus.
o The Mortgage Pool Will Include Material Concentrations of
Balloon Loans and Loans With Anticipated Repayment Dates.
________ mortgage loans, representing ____% of the initial
mortgage pool balance, are balloon loans. In addition,
________ mortgage loans, representing ____% of the initial
mortgage pool balance, provide material incentives for the
related borrower to repay the loan by an anticipated repayment
date prior to maturity. The ability of a borrower to make the
required balloon payment on a balloon loan at maturity, and
the ability of a borrower to repay a mortgage loan on or
before any related anticipated repayment date, in each case
depends upon its ability either to refinance the loan or to
sell the mortgaged real property. Although a mortgage loan may
provide the related borrower with incentives to repay the loan
by an anticipated repayment date prior to maturity, the
failure of that borrower to do so will not be a default under
that loan. See "Description of the Mortgage Pool--Terms and
Conditions of --- the Underlying Mortgage Loans" in this
prospectus supplement and "Risk Factors--The Investment
Performance of Your Offered Certificates Will Depend Upon
Payments, Defaults and Losses on the Underlying Mortgage
Loans; and Those Payments, Defaults and Losses may be Highly
Unpredictable--There is an Increased Risk of Default
Associated with Balloon Payments" in the accompanying
prospectus.
o The Mortgage Pool Will Include Some Disproportionately Large
Mortgage Loans and Groups of Cross-Collateralized Mortgage
Loans. The inclusion in the mortgage pool of one or more loans
that have outstanding principal balances that are
substantially larger than the other mortgage loans can result
in losses that are more severe, relative to the size of the
mortgage pool, than would be the case if the total balance of
the mortgage pool were distributed more evenly. The
______largest mortgage loans and groups of
cross-collateralized mortgage loans to be included in the
trust represent ____% of the initial mortgage pool balance.
See "Description of the Mortgage Pool--General",
"--Cross-Collateralized Mortgage Loans, Multi-Property
Mortgage Loans and Mortgage Loans With Affiliated Borrowers"
and "--Significant Underlying Mortgage Loans" in this
prospectus supplement and "Risk Factors--Loan Concentration
Within a Trust Exposes Investors to Greater Risk of Default
and Loss" in the accompanying prospectus.
o The Mortgage Pool Will Include Leasehold Mortgage Loans.
________ mortgage loans, representing ____% of the initial
mortgage pool balance, are secured by mortgage liens on the
related borrower's leasehold interest in all or a portion of
the mortgaged real property, but not by the corresponding
ownership interest in the property that is subject to the
ground lease. Because of possible termination of the related
ground lease, lending on
S-30
<PAGE>
a leasehold interest in a real property is riskier than
lending on an actual ownership interest in that property. See
"Description of the Mortgage Pool--Additional Loan and
Property Information--Leaseholds" in this prospectus
supplement. See also "Risk Factors--Ground Leases Create Risks
for Lenders that are not Present When Lending on an Actual
Ownership Interest in a Real Property" and "Legal Aspects of
Mortgage Loans--Foreclosure--Leasehold Considerations" in the
accompanying prospectus.
o Some of the Mortgaged Real Properties Are Legal Nonconforming
Uses or Legal Nonconforming Structures. ________ mortgage
loans, representing ____% of the initial mortgage pool
balance, are secured by a mortgage lien on a real property
that is a legal nonconforming use or a legal nonconforming
structure. This may impair the ability of the borrower to
restore the improvements on an mortgaged real property to its
current form or use following a major casualty. See
"Description of the Mortgage Pool--Underwriting
Matters--Zoning and Building Code Compliance" in this
prospectus supplement and "Risk Factors--Changes in Zoning may
Adversely Affect the Use or Value of a Real Property" in the
accompanying prospectus.
o Some of the Mortgaged Real Properties Are Encumbered by
Subordinate Debt. ________ mortgage loans, representing ____%
of the initial mortgage pool balance, are secured by mortgaged
real properties that are known to us to be encumbered by
secured subordinate debt that is not part of the mortgage
pool. The existence of secured subordinate indebtedness may
adversely affect the borrower's financial viability and/or the
trust's security interest in the mortgaged real property. Any
or all of the following may result from the existence of
secured subordinate indebtedness on a mortgaged real property.
1. refinancing the related underlying mortgage loan at
maturity for the purpose of making any balloon
payments may be more difficult;
2. reduced cash flow could result in deferred
maintenance at the particular real property;
3. if the holder of the subordinated debt files for
bankruptcy or is placed in involuntary receivership,
foreclosing on the particular real property could be
delayed; and
4. if the mortgaged real property depreciates for
whatever reason, the related borrower's equity is
more likely to be wiped out, thereby eliminating the
related borrower's incentive to continue making
payments on its mortgage loan.
[The lender of any material subordinate debt on the mortgaged
real properties known to us, has agreed not to foreclose or
take other legal action against the particular real property
or the related borrower, for so long as the related mortgage
loan is outstanding and the trust has not done so.]
See "Description of the Mortgage Pool--Additional Loan and
Property Information--Additional and Other Financing" in this
prospectus supplement and "Risk Factors--
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<PAGE>
Subordinate Debt Increases the Likelihood That a Borrower Will
Default on a Mortgage Loan Underlying Your Offered
Certificates" in the accompanying prospectus.
o Some of the Mortgaged Real Properties Do Not Comply with the
Americans with Disabilities Act of 1990. Not all of the
mortgaged real properties securing mortgage loans that we
intend to include in the trust, comply with the Americans with
Disabilities Act of 1990. Compliance can be expensive. See
"Risk Factors--Compliance with the Americans with Disabilities
Act of 1990 May be Expensive" in the accompanying prospectus.
o Multiple Mortgaged Real Properties Are Owned by the Same
Borrower or Affiliated Borrowers or Are Occupied, in Whole or
in Part, by the Same Tenant or Affiliated Tenants. ________
separate groups of mortgage loans that we intend to include in
the trust, have borrowers that, in the case of each of those
groups, are the same or under common control. See "Description
of the Mortgage Pool--Cross-Collateralized Mortgage Loans,
Multi-Property Mortgage Loans and Mortgage Loans With
Affiliated Borrowers" in this prospectus supplement.
In addition, there may be tenants which lease space at more
than one mortgaged real property securing mortgage loans that
we intend to include in the trust. Furthermore, there may be
tenants that are related to or affiliated with a borrower. See
Annex A-1 to this prospectus supplement for a list of the
________ most significant tenants at each of the mortgaged
real properties used for [specify use of properties].
The bankruptcy or insolvency of, or other financial problems
with respect to, any borrower or tenant that is, directly or
through affiliation, associated with two or more of the
mortgaged real properties could have an adverse effect on all
of those properties and on the ability of those properties to
produce sufficient cash flow to make required payments on the
related mortgage loans in the trust. See "Risk
Factors--Repayment of a Commercial or Multifamily Mortgage
Loan Depends upon the Performance and Value of the Underlying
Real Property, Which may Decline Over Time and the Related
Borrower's Ability to Refinance the Property, of Which There
is no Assurance--Tenant Bankruptcy Adversely Affects Property
Performance", "--Borrower Concentration Within a Trust Exposes
Investors to Greater Risk of Default and Loss" and "--Borrower
Bankruptcy Proceedings Can Delay and Impair Recovery on a
Mortgage Loan Underlying Your Offered Certificates" in the
accompanying prospectus.
o Some Borrowers Under the Underlying Mortgage Loans Will not be
Special Purpose Entities. The business activities of the
borrowers under pooled mortgage loans with cut-off date
principal balances below $______________, may not be limited
to owning their respective mortgaged real properties.
Accordingly, the financial success of each of those borrowers
may be affected by the performance of its other business
activities, including other real estate interests. Those other
business activities increase the possibility that the borrower
may become bankrupt or insolvent.
Changes in Mortgage Pool Composition can Change the Nature of Your
Investment. If you purchase any of class A-3, A-4, A-5, B-1, B-2 or S
certificates other than the class _____certificates,
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you will be more exposed to risks associated with changes in concentrations of
borrower, loan or property characteristics than are persons who own class A-1
and class A-2 certificates. See "Risk Factors--Changes in Pool Composition Will
Change the Nature of Your Investment" in the accompanying prospectus.
Lending on Income-Producing Real Properties Entails Environmental
Risks. The trust could become liable for a material adverse environmental
condition at one of the mortgaged real properties securing the mortgage loans in
the trust. Any potential environmental liability could reduce or delay payments
on the offered certificates.
A third-party consultant conducted an environmental site assessment, or
updated a previously conducted assessment, with respect to ________ of the
mortgaged real properties for the underlying mortgage loans, during the
_____-month period ending on ______________. Each of those environmental site
assessments or updates, as the case may be, complied with industry-wide
standards. Not all of those environmental site assessments, however, satisfied
all the requirements necessary to be considered a Phase I environmental site
assessment. In ________ cases, a third-party consultant also conducted a Phase
II environmental site assessment of a mortgaged real property. If any assessment
or update revealed a material adverse environmental condition or circumstance at
any mortgaged real property and the consultant recommended action, then,
depending on the nature of the condition or circumstance, the borrower has--
o implemented or agreed to implement an operations and
maintenance plan, in the manner and within the time frames
specified in the related loan documents;
o agreed to monitor periodically nearby properties, in the
manner and within the time frames specified in the related
loan documents; or
o established a reserve account with the lender to cover the
estimated cost of addressing the condition or circumstances.
In many cases, the identified condition related to the presence of
asbestos-containing materials, lead-based paint and/or radon. Where these
substances were present, the environmental consultant generally recommended, and
the related loan documents required, the establishment of an operation and
maintenance plan to address the issue or, in the case of asbestos-containing
materials and lead-based paint, an abatement or removal program. In ________
cases, the particular asbestos-containing materials or lead-based paint was in
poor condition. This could result in a claim for damages by any party injured by
that condition.
In ________ cases, the cost to remediate, prevent or otherwise deal
with an adverse environmental condition at a mortgaged real property securing a
mortgage loan that we intend to include in the trust, was estimated to be more
than [$50,000].
[In ________ cases, the environmental consultant did not recommend that
any action be taken with respect to a potential adverse environmental condition
at a mortgaged real property securing a mortgage loan that we intend to include
in the trust, because a responsible party with respect to that condition had
already been identified.]
S-33
<PAGE>
[In the case of ________ mortgaged real properties, securing ____% of
the initial mortgage pool balance, either--
o no environmental site assessment was conducted in connection
with the origination of the related underlying mortgage loan,
or
o a Phase II environmental site assessment was recommended but
not performed.]
[In general, the related originator's election not to take the
foregoing actions with respect to any of those underlying real properties was
based upon the delivery of a secured creditor impaired property policy covering
certain environmental matters with respect to the property. Some of those ______
underlying real properties are, in each case, are covered by individual secured
creditor impaired property policies. In addition, we will obtain a separate
secured creditor impaired property policy covering certain environmental matters
with respect to all of the underlying real properties that are not covered by
individual policies. All of the policies referred to in the prior two sentences
provide for certain coverage limits. In addition, those policies do not provide
coverage for adverse environmental conditions at levels below legal limits or
for conditions involving asbestos and lead-based paint. In some cases, the
originator of the related mortgage loan agreed to release a principal of the
related borrower from its obligations under an environmental or hazardous
substances indemnity with respect to the particular underlying real property in
connection with the delivery of a secured creditor impaired property policy
covering that property. See "Description of the Mortgage Pool--Certain
Underwriting Matters--Environmental Insurance" in this prospectus supplement.]
See "Risk Factors--Environmental Liabilities Will Adversely Affect the
Value and Operation of the Contaminated Property and May Deter a Lender from
Foreclosing" and "Legal Aspects of Mortgage Loans--Environmental Considerations"
in the accompanying prospectus.
Lending on Income-Producing Properties Entails Risks Related to
Property Condition. Licensed engineers inspected ________ of the mortgaged real
properties of the mortgage loans that we intend to include in the trust, during
the _____-month period preceding the cut-off date, to assess--
o the structure, exterior walls, roofing, interior construction,
mechanical and electrical systems, and
o the general condition of the site, buildings and other
improvements located at each property.
At ________ of those properties, the inspections identified conditions requiring
escrows to be established for repairs or replacements estimated to cost in
excess of [$100,000]. In ________ of these cases, the originator required the
related borrower to fund reserves, or deliver letters of credit or other
instruments, to cover these costs.
Limitations on Enforceability of Cross-Collateralization. The mortgage
pool will include ________ mortgage loans that are secured, including through
cross-collateralization with other mortgage loans, by multiple mortgaged real
properties. These mortgage loans are identified in the tables contained in Annex
A-1. The purpose of securing any particular mortgage loan or group of
cross-collateralized mortgage loans with multiple real properties is to reduce
the risk of default or ultimate loss
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<PAGE>
as a result of an inability of any particular property to generate sufficient
net operating income to pay debt service. [However, ________ of these mortgage
loans permit--
o the release of one or more of the mortgaged real properties
from the related mortgage lien, and/or
o a full or partial termination of the applicable
cross-collateralization, in each case, upon the satisfaction
of the conditions described under "Description of the Mortgage
Pool--Terms and Conditions of the Mortgage Loans" in this
prospectus supplement.]
In addition, when multiple real properties secure a mortgage loan or
group of cross-collateralized mortgage loans, the amount of the mortgage
encumbering any particular one of those properties may be less than the full
amount of the related mortgage loan or group of cross-collateralized mortgage
loans, generally to avoid recording tax. This mortgage amount may equal the
appraised value or allocated loan amount for the mortgaged real property and
will limit the extent to which proceeds from the property will be available to
offset declines in value of the other properties securing the same mortgage loan
or group of cross-collateralized mortgage loans.
________ mortgage loans that we intend to include in the trust are, in
each case, secured by real properties located in two or more states. These
mortgage loans represent ____% of the initial mortgage pool balance. Foreclosure
actions are brought in state court and the courts of one state cannot exercise
jurisdiction over property in another state. Upon a default under any of these
mortgage loans, it may not be possible to foreclose on the related mortgaged
real properties simultaneously.
Limited Information Causes Uncertainty. ________ of the mortgage loans
that we intend to include in the trust, are acquisition financing. Accordingly,
limited or no operating information is available with respect to the mortgaged
real properties for those mortgage loans. As a result, you may find it difficult
to analyze the performance of those properties.
[Prior Bankruptcies. We are aware that, in the case of ________
mortgage loans that we intend to include in the trust--
o the related borrower or a principal in the related borrower
has been a party to, or
o the related mortgaged real property has been the subject of,
prior bankruptcy proceedings.]
Capitalized Terms Used in this Prospectus Supplement
From time to time we use capitalized terms in this prospectus
supplement. Each of those capitalized terms will have the meaning assigned to it
in the "Glossary" attached to this prospectus supplement.
S-35
<PAGE>
Forward-Looking Statements
This prospectus supplement and the accompanying prospectus includes the
words "expects", "intends", "anticipates", "estimates" and similar words and
expressions. These words and expressions are intended to identify forward-
looking statements. Any forward-looking statements are made subject to risks and
uncertainties which could cause actual results to differ materially from those
stated. These risks and uncertainties include, among other things, declines in
general economic and business conditions, increased competition, changes in
demographics, changes in political and social conditions, regulatory initiatives
and changes in customer preferences, many of which are beyond our control and
the control of any other person or entity related to this offering. The
forward-looking statements made in this prospectus supplement are accurate as of
the date stated on the cover of this prospectus supplement. We have no
obligation to update or revise any forward-looking statement.
Description of the Mortgage Pool
General
We intend to include the ________ mortgage loans identified on Annex
A-1 to this prospectus supplement in the trust. The mortgage pool consisting of
those loans will have an initial mortgage pool balance of $___________. However,
the actual initial mortgage pool balance may be as much as ____% smaller or
larger than that amount if any of those mortgage loans are removed from the
mortgage pool or any other mortgage loans are added to the mortgage pool. See
"--Changes in Mortgage Pool Characteristics" below.
The initial mortgage pool balance will equal the total cut-off date
principal balance of the mortgage loans included in the trust. The cut-off date
principal balance of any mortgage loan is equal to its unpaid principal balance
as of the cut-off date, after application of all monthly debt service payments
due with respect to the mortgage loan on or before that date, whether or not
those payments were received. The cut-off date principal balance of each
mortgage loan that we intend to include in the trust is shown on Annex A-1 to
this prospectus supplement. Those cut-off date principal balances range from
$_________ to $__________, and the average of those cut-off date principal
balances is $_________.
Each of the mortgage loans that we intend to include in the trust is an
obligation of the related borrower to repay a specified sum with interest. Each
of those mortgage loans is evidenced by a promissory note and secured by a
mortgage, deed of trust or other similar security instrument that creates a
mortgage lien on the ownership and/or leasehold interest of the related borrower
or another party in one or more commercial or multifamily real properties. That
mortgage lien will, in all cases, be a first priority lien, subject only to
Permitted Encumbrances.
You should consider each of the pooled mortgage loans to be a
nonrecourse obligation of the related borrower. In the event of a payment
default by the related borrower, recourse will be limited to the corresponding
mortgaged real property or properties for satisfaction of that borrower's
obligations. In those cases where recourse to a borrower or guarantor is
permitted under the related loan documents, we have not undertaken an evaluation
of the financial condition of any of these persons. None of the pooled mortgage
loans will be insured or guaranteed by any governmental entity or by any other
person.
S-36
<PAGE>
We provide in this prospectus supplement a variety of information
regarding the mortgage loans that we intend to include in the trust. When
reviewing this information, please note that--
o All numerical information provided with respect to the
mortgage loans is provided on an approximate basis.
o All weighted average information provided with respect to the
mortgage loans reflects a weighting by their respective
cut-off date principal balances.
o When information with respect to mortgaged real properties is
expressed as a percentage of the initial mortgage pool
balance, the percentages are based upon the cut-off date
principal balances of the related mortgage loans.
o If a mortgage loan is secured by multiple mortgaged real
properties located in more than one state, a portion of that
mortgage loan has been allocated to each of those properties.
o Statistical information regarding the mortgage loans may
change prior to the date of initial issuance of the offered
certificates due to changes in the composition of the mortgage
pool prior to that date.
Cross-Collateralized Mortgage Loans, Multi-Property Mortgage Loans and Mortgage
Loans With Affiliated Borrowers
The mortgage pool will include ________ mortgage loans that are, in
each case, individually or through cross-collateralization with other mortgage
loans, secured by two or more real properties. [However, the amount of the
mortgage lien encumbering any particular one of those properties may be less
than the full amount of the related mortgage loan or group of
cross-collateralized mortgage loans, generally to avoid recording tax. The
mortgage amount may equal the appraised value or allocated loan amount for the
particular real property. This would limit the extent to which proceeds from
that property would be available to offset declines in value of the other
mortgaged real properties securing the same mortgage loan or group of
cross-collateralized mortgage loans.]
________ of the mortgage loans referred to in the prior paragraph
entitle the related borrower(s) to obtain a release of one or more of the
corresponding mortgaged real properties and/or a termination of any applicable
cross-collateralization, subject, in each case, to the fulfillment of one or
more of the following conditions--
o the pay down of the mortgage loan(s) in an amount equal to a
specified percentage, which is usually ____%, of the portion
of the total loan amount allocated to the property or
properties to be released;
o the satisfaction of debt service coverage and loan-to-value
tests for the property or properties that will remain as
collateral; and/or
o receipt by the lender of confirmation from each applicable
rating agency that the action will not result in a
qualification, downgrade or withdrawal of any of the
then-current ratings of the offered certificates.
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<PAGE>
In addition, ________ of the mortgage loans referred to in the prior paragraph
also entitle the related borrower to a release of one or more of the
corresponding mortgaged real properties through defeasance. See "--Terms and
Conditions of the Mortgage Loans--Defeasance Loans" below.
The table below identifies each group of mortgaged real properties that
secure an individual multi-property mortgage loan or a group of
cross-collateralized mortgage loans that represent at least ____% of the initial
mortgage pool balance.
Number of States % of
Where the Initial
Properties are Mortgage
Property Names Located Pool Balance
-------------- ---------------- ------------
The table below shows each group of mortgaged real properties that:
o are owned by the same or affiliated borrowers; and
o secure two or more non-cross-collateralized mortgage loans
that represent at least ____% of the initial mortgage pool
balance.
Number of States % of
Where the Initial
Properties are Mortgage
Property Names Located Pool Balance
-------------- ---------------- ------------
Terms and Conditions of the Underlying Mortgage Loans
Due Dates. All of the mortgage loans that we intend to include in the
trust provide for monthly debt service payments to be due on the _____ day of
each month.
Mortgage Rates; Calculations of Interest. In general, each of the
mortgage loans that we intend to include in the trust bears interest at a
mortgage interest rate that, in the absence of default, is fixed until maturity.
However, as described below under "--ARD Loans, each of those mortgage loans
that has an anticipated repayment date will accrue interest after that date at a
rate that is in excess of its mortgage interest rate prior to that date. [If any
of the mortgage loans have floating or adjustable mortgage interest rates,
discuss calculation of those rates, including indices, gross margins, adjustment
dates, floors and caps.]
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<PAGE>
The mortgage interest rate for each of the mortgage loans that we
intend to include in the trust is shown on Annex A-1 to this prospectus
supplement. As of the cut-off date, those mortgage interest rates ranged from
____% per annum to ____% per annum, and the weighted average of those mortgage
interest rates was ____% per annum.
Except in the case of mortgage loans with anticipated repayment dates,
none of the mortgage loans that we intend to include in the trust provides for
negative amortization or for the deferral of interest. [Describe any potential
negative amortization.]
Each of the pooled mortgage loans will accrue interest on the basis of
one of the following conventions:
o the actual number of days elapsed during each one-month
accrual period in a year of 360 days; or
o a 360-day year consisting of twelve 30-day months; or
o [Specify any other basis].
The table below shows the number of, and percentage of initial mortgage
pool balance represented by, mortgage loans that accrue interest based on each
of the foregoing conventions.
% of
Number of Initial Mortgage
Interest Accrual Basis Mortgage Loans Pool Balance
Actual/360 Basis %
30/360 Basis %
[Other] %
Balloon Loans. ________ of the mortgage loans that we intend to include
in the trust, representing ____% of the initial mortgage pool balance, are
characterized by--
o an amortization schedule that is significantly longer than the
actual term of the mortgage loan, and
o a substantial payment being due with respect to the mortgage
loan on its stated maturity date.
ARD Loans. ________ of the mortgage loans that we intend to include in
the trust, representing ____% of the initial mortgage pool balance, are
characterized by the following features:
o A maturity date that is more than _____ years following
origination.
o The designation of an anticipated repayment date that is
generally _____ years following origination. The anticipated
repayment date for each of the ARD Loans is listed on Annex
A-1 to this prospectus supplement.
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<PAGE>
o The ability of the related borrower to prepay the mortgage
loan, without restriction, including without any obligation to
pay a prepayment premium or a yield maintenance charge, at any
time on or after a date that is generally _____ to _____
months] prior to the related anticipated repayment date.
o Until its anticipated repayment date, the calculation of
interest at its initial mortgage interest rate.
o From and after its anticipated repayment date, the accrual of
interest at a revised annual rate that is, in most cases,
equal to the sum of--
1. its initial mortgage interest rate, plus
2. a specified margin that is, in ________ cases, not
more than _____ percentage points.
o The deferral of any additional interest accrued with respect
to the mortgage loan from and after the related anticipated
repayment date at the difference between its revised mortgage
interest rate and its initial mortgage interest rate. This
post-anticipated repayment date additional interest may, in
some cases, compound at the new revised mortgage interest
rate. Any post-anticipated repayment date additional interest
accrued with respect to the mortgage loan following its
anticipated repayment date will not be payable until the
entire principal balance of the mortgage loan has been paid in
full.
o From and after its anticipated repayment date, the accelerated
amortization of the mortgage loan out of any and all monthly
cash flow from the corresponding mortgaged real property which
remains after payment of the applicable monthly debt service
payments and permitted operating expenses and capital
expenditures. These accelerated amortization payments and the
post-anticipated repayment date additional interest are
considered separate from the monthly debt service payments due
with respect to the mortgage loan.
In the case of each of the ARD Loans that we intend to include in the
trust, the related borrower has agreed to enter into a cash management agreement
not less than _____ months prior to the related anticipated repayment date if it
has not already done so. The related borrower or the manager of the
corresponding mortgaged real property will be required under the terms of that
cash management agreement to deposit or cause the deposit of all revenue from
that property received after the related anticipated repayment date into a
designated account controlled by the lender under the ARD Loan.
Fully Amortizing Loans. ________ of the mortgage loans that we intend
to include in the trust, representing ____% of the initial mortgage pool
balance, are characterized by--
o constant monthly debt service payments throughout the
substantial term of the mortgage loan, and
o an amortization schedule that is approximately equal to the
actual term of the mortgage loan.
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However, none of these fully amortizing loans has either--
o an anticipated repayment date, or
o the associated repayment incentives.
Amortization of Principal. The table below shows, in months, the
original and, as of the cut-off date, the remaining amortization schedules and
terms to maturity for the mortgage loans that we expect to back the offered
certificates or the specified sub-groups of those mortgage loans. For purposes
of the following table, the ARD Loans are assumed to mature on their respective
anticipated repayment dates.
<TABLE>
<CAPTION>
Fully Amortizing All
Balloon Loans ARD Loans Loans Mortgage Loans
------------- --------- ---------------- --------------
<S> <C> <C> <C> <C>
Original Term to Maturity (mos.)
Maximum
Minimum
Weighted Average
Remaining Term to Maturity (mos.)
Maximum
Minimum
Weighted Average
Original Amortization Term (mos.)
Maximum
Minimum
Weighted Average
Remaining Amortization Term (mos.)
Maximum
Minimum
Weighted Average
</TABLE>
Some of the pooled mortgage loans will, in each case, provide for a
recast of the amortization schedule and an adjustment of the monthly debt
service payments on the mortgage loan upon application of specified amounts of
condemnation proceeds or insurance proceeds to pay the related unpaid principal
balance.
[Discuss any adjustments to the monthly debt service payments for the mortgage
loans.]
Voluntary Prepayment Provisions. In general, at origination, the
mortgage loans that we intend to include in the trust, provided for:
o a prepayment lock-out period, during which voluntary principal
prepayments are prohibited, followed by
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o a prepayment consideration period, during which voluntary
prepayments are permitted, subject to the payment of an
additional consideration for the prepayment, followed by
o an open prepayment period, during which voluntary principal
prepayments may be made without any prepayment consideration.
Notwithstanding otherwise applicable lock-out periods, partial
prepayments of some of the pooled mortgage loans will be required under the
circumstances described under "--Terms and Conditions of the Underlying Mortgage
Loans--Other Prepayment Provisions" below.
The prepayment terms of each of the mortgage loans that we intend to
include in the trust are more particularly described in Annex A-1 to this
prospectus supplement.
As described below under "--Defeasance Loans", [substantially all] of
the pooled mortgage loans will permit the related borrower to obtain a full or
partial release of the corresponding mortgaged real property from the related
mortgage lien by delivering U.S. government securities as substitute collateral.
None of these mortgage loans will permit defeasance prior to the _____
anniversary of the date of initial issuance of the offered certificates.
Prepayment Lock-out Periods. ________ of the mortgage loans that we
intend to include in the trust, representing ____% of the initial mortgage pool
balance, provide for prepayment lock-out periods as of the cut-off date, and--
o the maximum remaining prepayment lock-out period of those
mortgage loans as of that date is _____ months,
o the minimum remaining prepayment lock-out period of those
mortgage loans as of that date is _____ months, and
o the weighted average remaining prepayment lock-out period of
those mortgage loans as of that date is _____ months.
Notwithstanding otherwise applicable lock-out periods, partial
prepayments of some of the pooled mortgage loans will be required under the
circumstances described under "--Terms and Conditions of the Underlying Mortgage
Loans--Other Prepayment Provisions" below.
Prepayment Consideration. Following an initial prepayment lock-out
period, ________ of the mortgage loans that we intend to include in the trust,
representing ____% of the initial mortgage pool balance, provide for the payment
of prepayment consideration in connection with a voluntary prepayment during
part of the loan term. That prepayment consideration will equal [specify
calculation of prepayment consideration].
Prepayment premiums and yield maintenance charges received on the
pooled mortgage loans, whether in connection with voluntary or involuntary
prepayments, will be allocated and paid to the persons, in the amounts and in
accordance with the priorities described under "Description of the Offered
Certificates--Payments--Payments of Prepayment Premiums and Yield Maintenance
Charges" in this prospectus supplement. Limitations may exist under applicable
state law on the enforceability of
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the provisions of the pooled mortgage loans that require payment of prepayment
premiums or yield maintenance charges. Neither we nor the underwriter makes any
representation or warranty as to the collectability of any prepayment premium or
yield maintenance charge with respect to any of the mortgage loans included in
the trust. See "Risk Factors--Some Provisions in the Mortgage Loans Underlying
Your Offered Certificates may be Challenged as Being Unenforceable--Prepayment
Premiums, Fees and Charges" and "Legal Aspects of Mortgage Loans--Default
Interest and Limitations on Prepayments" in the accompanying prospectus.
Open Prepayment Periods. ________ of the mortgage loans that we intend
to include in the trust, representing ____% of the initial mortgage pool
balance, provide for an open prepayment period. That open prepayment period
generally begins _____ to _____ months prior to stated maturity [or, in the case
of an ARD Loan, prior to the related anticipated repayment date].
Other Prepayment Provisions. ________ of the mortgage loans that we
intend to include in the trust provide for mandatory partial prepayments,
notwithstanding any lock-out period that may otherwise be in effect. In ________
of these cases, the related borrower has established reserves or delivered a
letter of credit that will be applied to a partial prepayment of the mortgage
loan if one or more property performance conditions do not occur.
Investors should not expect any prepayment consideration to be paid in
connection with any mandatory partial prepayment described in the prior
paragraph.
Due-on-Sale and Due-on-Encumbrance Provisions. ________ of the mortgage
loans that we intend to include in the trust, representing ____% of the initial
mortgage pool balance, contain both a due-on-sale clause and a
due-on-encumbrance clause. In general, except for the permitted transfers
discussed in the next paragraph, these clauses either--
o permit the holder of the related mortgage to accelerate the
maturity of the mortgage loan if the borrower sells or
otherwise transfers or encumbers the corresponding mortgaged
real property, or
o prohibit the borrower from doing so without the consent of the
holder of the mortgage.
See, however, "Risk Factors--The Investment Performance of Your Offered
Certificates Will Depend upon Payments, Defaults and Losses on the Underlying
Mortgage Loans; and Those Payments, Defaults and Losses may be Highly
Unpredictable--Delinquencies, Defaults and Losses on the Underlying Mortgage
Loans may Affect the Amount and Timing of Payments on Your Offered Certificates;
and the Rate and Timing of Those Delinquencies and Defaults, and the Severity of
Those Losses, are Highly Unpredictable" and "--Some Provisions in the Mortgage
Loans Underlying Your Offered Certificates may be Challenged as Being
Unenforceable--Due-on-Sale and Debt Acceleration Clauses" and "Legal Aspects of
Mortgage Loans--Due on Sale and Due-on-Encumbrance Provisions" in the
accompanying prospectus.
________ of the mortgage loans that we intend to include in the trust
permit one or more of the following types of transfers:
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o transfers of the corresponding mortgaged real property if
specified conditions are satisfied, which conditions normally
include--
1. confirmation by each applicable rating agency that
the transfer will not result in a qualification,
downgrade or withdrawal of any of its then current
ratings of the certificates, or
2. the reasonable acceptability of the transferee to the
lender;
o a transfer of the corresponding mortgaged real property to a
person that is affiliated with or otherwise related to the
borrower;
o transfers by the borrower of the corresponding mortgaged real
property to specified entities or types of entities; or
o a transfer of non-controlling ownership interests in the
related borrower.
Defeasance Loans. ________ of the mortgage loans that we intend to
include in the trust, representing ____% of the initial mortgage pool balance,
permit the borrower to deliver U.S. government securities as substitute
collateral.
Each of these mortgage loans permits the related borrower, during
specified periods and subject to specified conditions, to pledge to the holder
of the mortgage loan the requisite amount of direct, non-callable U.S.
government securities and obtain a full or partial release of the mortgaged real
property. In general, the U.S. government securities that are to be delivered in
connection with the defeasance of any mortgage loan, must provide for a series
of payments that--
o will be made prior, but as closely as possible, to all
successive due dates through and including the maturity date,
and
o will, in the case of each due date, be in a total amount equal
to or greater than the monthly debt service payment, including
any applicable balloon payment, scheduled to be due on that
date, with any excess to be returned to the related borrower.
[For purposes of determining the defeasance collateral for an ARD Loan,
however, that mortgage loan will be treated as if a balloon payment is due on
its anticipated repayment date.]
If fewer than all of the real properties securing any particular
mortgage loan or group of cross-collateralized mortgage loans are to be released
in connection with any defeasance, the requisite defeasance collateral will be
calculated based on the allocated loan amount for the properties to be released
and the portion of the monthly debt service payments attributable to that
allocated loan amount.
In connection with any delivery of defeasance collateral, the related
borrower will be required to deliver a security agreement granting the trust a
first priority security interest in the collateral, together with an opinion of
counsel confirming the first priority status of the security interest.
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None of the mortgage loans that we intend to include in the trust may
be defeased prior to the _____ anniversary of the date of initial issuance of
the certificates.
Mortgage Pool Characteristics
General. A detailed presentation of various characteristics of the
mortgage loans that we intend to include in the trust, and of the corresponding
mortgaged real properties, on an individual basis and in tabular format, is
shown on Annex A-1 and Annex A-2 to this prospectus supplement. Some of the
terms that appear in those exhibits, as well as elsewhere in this prospectus
supplement, are defined or otherwise discussed in the "Glossary" to this
prospectus supplement. The statistics in the tables and schedules on Annex A-1
and Annex A-2 to this prospectus supplement were derived, in many cases, from
information and operating statements furnished by or on behalf of the respective
borrowers. The information and the operating statements were generally unaudited
and have not been independently verified by us or the underwriter.
Significant Mortgage Loans
[Insert Description of Significant Mortgage Loans.]
Additional Loan and Property Information
Delinquencies. None of the mortgage loans that we intend to include in
the trust was as of the cut-off date, or has been at any time during the
______-month period preceding that date, _____ days or more delinquent with
respect to any monthly debt service payment.
Tenant Matters. Described and listed below are special considerations
regarding tenants at the mortgaged real properties for the mortgage loans that
we intend to include in the trust--
o [________ of the mortgaged real properties, securing ____% of
the initial mortgage pool balance, are, in each case, a
[specify property types] that is leased to one or more major
tenants that each occupy at least ____% of the net rentable
area of the particular property.
o A number of companies are major tenants at more than one of
the mortgaged real properties.
o There are ________ cases in which a particular entity is a
tenant at more than one of the mortgaged real properties, and
although it may not be a major tenant at any of those
properties, it is significant to the success of the
properties.
o ________ of the mortgaged real properties, securing ____% of
the initial mortgage pool balance, are multifamily rental
properties that have material concentrations of student
tenants.]
[Ground Leases. ________ of the mortgage loans that we intend to
include in the trust, representing ____% of the initial mortgage pool balance,
are secured, in whole or in material part, by a mortgage lien on the borrower's
leasehold interest in the corresponding mortgaged real property. In
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each case, the related ground lease, giving effect to all extension options,
expires more than ten years after the stated maturity of the related mortgage
loan and either:
o the ground lessor has subordinated its interest in the
mortgaged real property to the interest of the holder of that
mortgage loan; or
o the ground lessor has agreed to give the holder of that
mortgage loan notice of, and the right to cure, any default or
breach by the lessee.]
[Specify exceptions.]
See "Risk Factors--Ground Leases Create Risks for Lenders That Are Not
Present When Lending on an Actual Ownership Interest in a Real Property" and
"Legal Aspects of Mortgage Loans--Foreclosure--Leasehold Considerations" in the
accompanying prospectus.
[Additional and Other Financing. We are aware of ________ mortgaged
real properties, securing ____% of the initial mortgage pool balance, that are
encumbered by secured subordinate debt that is not part of the mortgage pool.
The following table identifies those properties, indicates the initial principal
amount of the secured subordinate debt and sets forth the cut-off date principal
balances of the related mortgage loans. [In the case of each of those
properties, the subordinate lender has entered into a subordination and
standstill agreement with the holder of the related mortgage loan whereby that
subordinate lender--
o expressly subordinated its right to receive collections and
proceeds from, and otherwise deal with, that property, and
o agrees not to take any enforcement or other legal action
against that property or the related borrower as long as the
corresponding pooled mortgage loan is outstanding and the
mortgagee under that mortgage loan has not taken any similar
enforcement or other legal action.]
<TABLE>
<CAPTION>
% of Initial
Cut-off Date Mortgage Pool
Principal Balance Balance Represented Initial Principal
of Related by Related Amount of Secured
Names Mortgage Loans Mortgage Loans Subordinate Debt
----- ----------------- ------------------- -----------------
<S> <C> <C> <C>
</TABLE>
[In addition, we are aware that the borrowers under ________ of the
mortgage loans that we intend to include in the trust, representing ____% of the
initial mortgage pool balance, have unsecured debt. In ________ of those cases,
the lender on the debt is an affiliate of the borrower. In ________ of those
cases, the lender on the unsecured debt has executed and delivered a
subordination and standstill agreement in favor of the mortgagee under the
corresponding pooled mortgage loan. In addition, some
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of the pooled mortgage loans will permit the related borrower to incur unsecured
subordinated debt in the future, subject to conditions such as--
o limiting the use of proceeds to refurbishing or renovating the
mortgaged real property, and/or
o acquiring furniture, fixtures and equipment for the mortgaged
real property.
Borrowers that do not meet special purpose entity, bankruptcy-remote criteria,
generally do not have any restriction on the incurrence of unsecured debt.
Additional debt, in any form, may cause a diversion of funds from property
maintenance and increase the likelihood that the borrower will become the
subject of a bankruptcy proceeding.] See "Risk Factors--Subordinate Debt
Increases the Likelihood That a Borrower Will Default on a Mortgage Loan
Underlying Your Offered Certificates" and "Legal Aspects of Mortgage
Loans--Subordinate Financing" in the accompanying prospectus.
Except as disclosed under this "--Additional and Other Financing"
subsection, we have not been able to confirm whether the respective borrowers
under the mortgage loans that we intend to include in the trust, have any other
debt outstanding.
Underwriting Matters
General. In connection with the origination of each of the mortgage
loans, the related originator of the mortgage loan evaluated the underlying real
property or properties in a manner generally consistent with the standards
described below. See also "Description of the Trust Assets--Mortgage
Loans--Default and Loss Considerations with Respect to the Mortgage Loans" in
the accompanying prospectus.
Environmental Assessments. A third-party environmental consultant
conducted an environmental site assessment, or updated a previously conducted
assessment, with respect to ________ of the underlying real properties, during
the ____-month period ending on _____________. Each of those environmental site
assessments or updates, as the case may be, complied with industry-wide
standards. Not all of those environmental site assessments, however, satisfied
all the requirements necessary to be considered a "Phase I" environmental site
assessment. The environmental testing at any particular underlying real property
did not necessarily cover all potential environmental issues. [Discuss results
and corresponding actions].
[The information contained in this prospectus supplement regarding
environmental conditions at the respective underlying real properties is based
on the environmental site assessments referred to above and has not been
independently verified by us or the mortgage loan seller, the underwriter, the
master servicer, the special servicer, the trustee or the affiliates of any of
these parties. There can be no assurance that the environmental assessments or
studies, as applicable, identified all environmental conditions and risks at, or
that any environmental conditions will not have a material adverse effect on the
value of or cash flow from, one or more of the underlying real properties.]
[The pooling and servicing agreement requires that the special servicer
obtain an environmental site assessment of an underlying real property prior to
acquiring title to the property or assuming its operation. This requirement
precludes enforcement of the security for the related mortgage loan until a
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satisfactory environmental site assessment is obtained or until any required
remedial action is taken. In addition, there can be no assurance that the
requirements of the pooling and servicing agreement will effectively insulate
the trust from potential liability for a materially adverse environmental
condition at any underlying real property.] See "Servicing of the Mortgage
Loans" in this prospectus supplement and "Risk Factors--Environmental
Liabilities Will Adversely Affect the Value and Operation of the Contaminated
Property and May Deter a Lender from Foreclosing" and "Certain Legal Aspects of
Mortgage Loans--Environmental Considerations" in the accompanying prospectus.
Environmental Insurance. [In connection with the issuance of the
certificates, we will obtain a secured creditor impaired property policy
covering environmental matters with respect to the _______ underlying real
properties that are not covered by individual policies. In general, that group
policy provides coverage for the following losses, subject to the applicable
deductibles and, further, to the coverage limits discussed below:]
Property Condition Assessments. [Third-party engineering firms
inspected _________ of the underlying real properties or updated previously
conducted inspections during the __-month period ending on ____________, to
assess exterior walls, roofing, interior construction, mechanical and electrical
systems and general condition of the site, buildings and other improvements
located at each of the underlying real properties.] [Discuss results and
corresponding actions.]
Appraisals and Market Studies. [An independent appraiser that is
state-certified and/or a member of the Appraisal Institute conducted an
appraisal of ________ of the underlying real properties during the _____ month
period ending on _______________, in order to establish the approximate value of
the underlying real property. Those appraisals are the basis for the appraised
values for the respective underlying real properties set forth on Annex A-1 to
this prospectus supplement.]
[Each of the appraisals referred to above represents the analysis and
opinions of the appraiser at or before the origination of the related mortgage
loan. The appraisals are not guarantees of, and may not be indicative of, the
present or future value of the subject underlying real property. There can be no
assurance that another appraiser would not have arrived at a different valuation
of any particular underlying real property, even if the appraiser used the same
general approach to, and the same method of, appraising that property. Neither
we nor the underwriter has confirmed the values of the respective underlying
real properties in the appraisals referred to above.]
[In general, appraisals seek to establish the amount a typically
motivated buyer would pay a typically motivated seller. However, this amount
could be significantly higher than the amount obtained from the sale of a
property under a distress or liquidation sale. Implied in the most recent
appraised values for the respective underlying real properties shown on Annex
A-1 to this prospectus supplement, is the contemplation of a sale at a specific
date and the passing of ownership from seller to buyer under conditions whereby:
o buyer and seller are motivated;
o both parties are well informed or well advised, and each is
acting in what he considers his own best interests;
o a reasonable time is allowed to show the property in the open
market;
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o payment is made in terms of cash in U.S. dollars or in
comparable financial arrangements; and
o the price paid for the property is not adjusted by special or
creative financing or sales concessions granted by anyone
associated with the sale.]
[Either the appraisal upon which is based the most recent appraised
value for each underlying real property shown on Annex A-1 to this prospectus
supplement, or a separate letter, contains a statement by the respective
appraiser to the effect that the appraisal guidelines set forth in Title XI of
the Financial Institutions Reform, Recovery and Enforcement Act of 1989 were
followed in preparing that appraisal. However, neither we nor any of the
underwriter, the related mortgage loan seller or the related originator has
independently verified the accuracy of this statement.]
Zoning and Building Code Compliance. In connection with the origination
of each mortgage loan that we intend to include in the trust, the related
originator examined whether the use and operation of the mortgaged real property
were in material compliance with zoning, land-use, building, fire and health
ordinances, rules, regulations and orders then-applicable to that property.
Evidence of this compliance may have been in the form of legal opinions,
certifications from government officials, title insurance endorsements,
engineering or consulting reports and/or representations by the related
borrower. In ________ cases, a certificate of occupancy was not available. Where
the property as currently operated is a permitted nonconforming use and/or
structure, an analysis was generally conducted as to--
o the likelihood that a material casualty would occur that would
prevent the property from being rebuilt in its current form,
and
o whether existing replacement cost hazard insurance or, if
necessary, supplemental law or ordinance coverage would, in
the event of a material casualty, be sufficient--
1. to satisfy the entire mortgage loan, or
2. taking into account the cost of repair, to pay down
the mortgage loan to a level that the remaining
collateral would be adequate security for the
remaining loan amount.
Hazard, Liability and Other Insurance. [Although exceptions exist, the
loan documents for each of the mortgage loans that we intend to include in the
trust generally require the related borrower to maintain with respect to the
corresponding mortgaged real property the following insurance coverage--
o hazard insurance in an amount that is, subject to a customary
deductible, at least equal to the lesser of--
1. the outstanding principal balance of the mortgage
loan, and
2. the full insurable replacement cost of the
improvements located on the insured property;
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o if any portion of the property was in an area identified in
the federal register by the Flood Emergency Management Agency
as having special flood hazards, flood insurance meeting the
requirements of the Federal Insurance Administration
guidelines, in an amount that is equal to the least of--
1. the outstanding principal balance of the related
mortgage loan,
2. the full insurable value of the insured property, and
3. the maximum amount of insurance available under the
National Flood Insurance Act of 1968;
o comprehensive general liability insurance against claims for
personal and bodily injury, death or property damage occurring
on, in or about the insured property, in an amount at least
equal to $________ per occurrence; and
o business interruption or rent loss insurance either in an
amount not less than 100% of the projected rental income or
revenue from the insured property for at least six months or,
alternatively, in a specified dollar amount.]
[In general, the mortgaged real properties for the mortgage loans that
we intend to include in the trust, including those properties located in
California, are not insured against earthquake risks. In the case of those
properties located in California, other than those that are manufactured housing
communities or self storage facilities, a third party consultant conducted
seismic studies to assess the probable maximum loss for the property. In
general, when the resulting reports concluded that a mortgaged real property was
likely to experience a probable maximum loss in excess of 20% of the estimated
replacement cost of the improvements, the related originator required the
borrower to--
o obtain earthquake insurance, or
o establish reserves to cover the estimated costs of completing
seismic retrofitting recommended by the consultant,
unless, in any case, the original loan-to-value ratio was relatively low.]
[With respect to each of the mortgaged real properties for the pooled
mortgage loans, the master servicer is required to cause the maintenance of all
insurance coverage as is required under the related mortgage, to the extent--
o the trust has an insurable interest, and
o the master servicer can require maintenance of the insurance
under applicable law.]
[Where insurance coverage at the mortgaged real property for any pooled
mortgage loan is left to the lender's discretion, the master servicer will be
required to use reasonable efforts to cause the related borrower to maintain
insurance generally in the amounts, type and scopes of coverage required under
the other pooled mortgage loans.]
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[Various forms of insurance maintained with respect to any of the
mortgaged real properties for the pooled mortgage loans, including casualty
insurance, environmental insurance and earthquake insurance, may be provided
under a blanket insurance policy. That blanket insurance policy will also cover
other real properties, some of which may not secure loans in the trust. As a
result of total limits under any of those blanket policies, losses at other
properties covered by the blanket insurance policy may reduce the amount of
insurance coverage with respect to a property securing one of the loans in the
trust. See "Risk Factors--Lack of Insurance Coverage Exposes a Trust to Risk for
Particular Special Hazard Losses" in the accompanying prospectus.]
[With limited exception, the mortgage loans that we intend to include
in the trust generally provide that insurance and condemnation proceeds are to
be applied either--
o to restore the mortgaged real property; or
o towards payment of the mortgage loan.]
[If any mortgaged real property is acquired by the trust through
foreclosure, deed in lieu of foreclosure or otherwise following a default on the
related mortgage loan, the special servicer will be required to maintain for
that property generally the same types of insurance policies providing coverage
in the same amounts as were previously required under the mortgage that had
covered the property.]
[The master servicer and the special servicer may each satisfy its
obligations regarding maintenance of the hazard insurance policies referred to
in this prospectus supplement by maintaining a blanket insurance policy insuring
against hazard losses on all of the pooled mortgage loans for which it is
responsible. If any blanket insurance policy maintained by the master servicer
or special servicer contains a deductible clause, however, the master servicer
or the special servicer, as the case may be, will be required, in the event of a
casualty covered by that policy, to pay out of its own funds all sums that--
o are not paid because of the deductible clause, and
o would have been paid if an individual hazard insurance policy
referred to above had been in place.]
[The applicable originator and its successors and assigns are the
beneficiaries under separate title insurance policies with respect to each
mortgage loan that we intend to include in the trust. Each title insurer will
enter into co-insurance and reinsurance arrangements with respect to the title
insurance policy as are customary in the title insurance industry. Subject to
standard exceptions, including those regarding claims made in the context of
insolvency proceedings, each title insurance policy will provide coverage to the
trustee for the benefit of the series _____ certificateholders for claims made
against the trustee regarding the priority and validity of the borrowers' title
to the subject mortgaged real property.]
Cash Management and Certain Escrows and Reserves
Cash Management and Central Accounts. [In the case of ________ of the
mortgage loans, representing approximately ____% of the initial mortgage pool
balance, a cash management system has been implemented for the deposit of
property revenues into a separate account.]
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[In the case of __________ of the mortgage loans, tenants are required
to remit rental payments to an account that is under the sole control of the
lender and the borrower is not authorized to make withdrawals from the account.
In the other cases, the related borrower or the manager of the underlying real
property is required to deposit property revenues into an account that is under
the joint control of the related borrower and the master servicer. In these
other cases, the borrower is authorized to make withdrawals from the account
from time to time until the occurrence of an event of default under the related
mortgage loan, in which case the lender would be entitled, under preexisting
instructions furnished to the depository institution at which the account is
maintained, to direct the depository institution to no longer honor payment
requests made by the borrower. In general, no later than the related anticipated
repayment date, the borrower under each ARD Loan in the trust will be required,
if it has not previously done so, to establish an account which is under the
sole control of the master servicer and into which all revenue from the
underlying real property will be directly deposited.]
[In the case of ________ of the mortgage loans, including ______ of
those mortgage loans as to which a cash management system has been implemented,
central accounts have been established for the purpose of holding amounts
required to be on deposit as reserves for taxes and insurance, capital
improvements, furniture, fixtures and equipment and certain other purposes. As
of the date of initial issuance of the certificates, these accounts will be
under the sole control of the master servicer. In the case of most of the
mortgage loans as to which there is this type of account, the account will be
funded out of monthly escrow and/or reserve payments by the related borrower or
from funds transferred from another account.]
Tax and Insurance Escrows. [In the case of ________ of the mortgage
loans, representing ____% of the initial mortgage pool balance, tax and
insurance escrows were established, either as separate accounts or, if
applicable, as sub-accounts of another account. In those cases, the related
borrower is generally required to deposit on a monthly basis an amount equal to
one-twelfth of the annual real estate taxes and assessments and one-twelfth of
the annual premiums payable on insurance policies that the borrower is required
to maintain. If an escrow was established, the funds will be applied by the
master servicer to pay for items such as taxes, assessments and insurance
premiums at the underlying real property.]
[In case of ________________ of the mortgage loans, the insurance
carried by the related borrower is in the form of a blanket policy. In these
cases, the amount of the escrow is an estimate of the proportional share of the
premium allocable to the underlying real property, or the related borrower pays
the premium directly.]
[In the case of _________ of the mortgage loans, either--
o the related borrower delivered letters of credit from third
parties in lieu of establishing and funding a deposit account
for tax and insurance escrows, or
o no escrow was required because a tenant at the underlying real
property is responsible for paying all or a portion of the
real estate taxes and assessments and/or insurance premiums
directly.]
Recurring Replacement Reserves. [The table titled _____________________
on Annex A-1 to this prospectus supplement shows the reserve deposits that the
borrowers have been or
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are, in each case, required to make into a separate account or, if applicable, a
sub-account of another account for capital replacements, repairs and furniture,
fixtures and equipment and/or for leasing commissions and tenant improvements on
the underlying real properties under the terms of the respective mortgage
loans.]
[The contractual recurring replacement reserves and the contractual
recurring leasing commissions and tenant improvements reserves shown in the
table are, in each case, expressed as dollars per unit for multifamily rental
properties and manufactured housing communities, a percentage of total
departmental revenues for hospitality properties and dollars per leasable square
foot for other commercial properties. The contractual recurring replacement
reserves and the contractual recurring leasing commissions and tenant
improvements reserves for _________ of the underlying real properties are
initial amounts and may vary over time. In these cases, the related mortgage
and/or other related loan documents may provide for applicable reserve deposits
to cease upon achieving predetermined maximum amounts in the related reserve
account. In addition, in some cases, reserves for leasing commissions and tenant
improvements were determined for specific tenant spaces, in which cases, the
execution of a lease covering the space could result in the termination and/or
release of the corresponding reserve. Under _________ of the mortgage loans, the
related borrowers are permitted to deliver letters of credit from third parties
in lieu of establishing and funding a deposit account for replacement reserves
or reserves for leasing commissions and tenant improvements.]
Engineering Reserves. [The table titled ______________________________
on Annex A-1 to this prospectus supplement shows the engineering reserves
established, either as a separate account or a sub-account or, in some cases in
the form of a letter of credit pledged to the lender, as a result of the
inspections of certain of the underlying real properties described above under
"--Underwriting Matters--Property Condition Assessments". The repair/replacement
items for which these reserves were established are generally items identified
by the property inspection firm as in need of repair or replacement in order to
restore the subject property to a condition generally consistent with
competitive properties of similar age and quality or to comply with regulatory
requirements. In some cases, the engineering reserve for certain of the
underlying real properties is less than the cost estimate in the related
inspection report because--
o the related originator may have considered certain items
identified in the related inspection report significant enough
to require a reserve, and/or
o certain items identified in the related inspection report have
been corrected.]
[No engineering reserve is required to be replenished. The amounts set
forth in this table represent the amounts of the engineering reserves required
at the respective dates of origination of the corresponding mortgage loans, and
there can be no assurance that the work for which reserves were required will be
completed in a timely manner or that the reserved amount will be enough.]
The Mortgage Loan Sellers
We did not originate any of the mortgage loans that we intend to
include in the trust. We will acquire those mortgage loans from the following
entities:
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o ______________________ -- _________ mortgage loans,
representing ____% of the initial mortgage pool balance; and
o ______________________ -- _________ mortgage loans,
representing ____% of the initial mortgage pool balance.
[Insert Description of Mortgage Loan Sellers.]
The information set forth in this prospectus supplement concerning each
of the mortgage loan sellers has been provided by the respective mortgage loan
sellers, and neither we nor the underwriter makes any representation or warranty
as to the accuracy or completeness of this information.
Assignment of the Underlying Mortgage Loans
On or before the date of initial issuance of the offered certificates,
the following transfers of the underlying mortgage loans will occur. In each
case, the transferor will assign the subject mortgage loans, without recourse,
to the transferee.
----------------------------- --------------------------
[mortgage loan seller] [mortgage loan seller]
----------------------------- --------------------------
_____ mortgage loans $_______ _____ mortgage loans $_____
`
-------------------------
Greenwich Capital
Commercial
Funding Corp
-------------------------
All mortgage loans
$_____________
-------------------------
Greenwich Capital
Commercial
Mortgage Trust
__________
-------------------------
In connection with the foregoing transfers, we will be required to
deliver the following documents, among others, to the trustee with respect to
each of the pooled mortgage loans--
[specify select documents.]
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The trustee, either directly or through a custodian, is required to
hold all of the documents delivered to it with respect to the pooled mortgage
loans, in trust for the benefit of the series _____ certificateholders. Within a
specified period of time following that delivery, the trustee, directly or
through a custodian, will be further required to conduct a review of those
documents. The scope of the trustee's review of those documents will, in
general, be limited solely to confirming that they have been received. None of
the trustee, the master servicer, the special servicer or any custodian is under
any duty or obligation to inspect, review or examine any of the documents
relating to the pooled mortgage loans to determine whether the document is
valid, effective, enforceable, in recordable form or otherwise appropriate for
the represented purpose.
If--
o any of the above-described documents required to be delivered
by us to the trustee is not delivered or is otherwise
defective, and
o that omission or defect materially and adversely affects the
value of, or the interests of the series _____
certificateholders in, the subject loan,
then the omission or defect will constitute a material document defect as to
which the series _____ certificateholders will have the rights against us
described under "--Cures and Repurchases" below.
Within a specified period following the later of--
o the date on which the offered certificates are initially
issued, and
o the date on which all recording information necessary to
complete the subject document is received by the trustee,
the trustee must submit for recording in the real property records of the
applicable jurisdiction each of the assignments of recorded loan documents in
its favor described above. Because most of the mortgage loans that we intend to
include in the trust are newly originated, many of those assignments cannot be
completed and recorded until the related mortgage and/or assignment of leases
and rents, reflecting the necessary recording information, is returned from the
applicable recording office.
Representations and Warranties
As of the date of initial issuance of the offered certificates, we will
make, with respect to each mortgage loan that we include in the trust,
representations and warranties generally to the effect listed below, together
with any other representations and warranties as may be required by the rating
agencies.
The representations and warranties to be made by us with respect to
each pooled mortgage loan will include:
[Specify select representations and warranties.]
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If--
o there exists a breach of any of the above-described
representations and warranties made by us, and
o that breach materially and adversely affects the value of, or
the interests of the series _____ certificateholders in, the
subject mortgage loan,
then that breach will be a material breach as to which the series _____
certificateholders have the rights against us described under "--Cures and
Repurchases" below.
Cures and Repurchases
If there exists a material breach of any of the representations and
warranties made by us with respect to any of the pooled mortgage loans, as
discussed under "--Representations and Warranties" above, or a material document
defect with respect to any pooled mortgage loan, as discussed under
"--Assignment of the Underlying Mortgage Loans" above, then we will be required
either:
o to remedy the material breach or the material document defect
in all material respects, or
o repurchase the affected mortgage loan at a price generally
equal to the sum of--
1. the unpaid principal balance of that mortgage loan at
the time of purchase, plus
2. all unpaid interest, other than Post-ARD Additional
Interest and Default Interest, due with respect to
that mortgage loan through the due date in the
collection period of purchase, plus
3. all unreimbursed advances to cover reimbursable costs
and expenses relating to the servicing and
administration of that mortgage loan.
The time period within which we must complete that remedy or repurchase
will generally be limited to 90 days following the earlier of our discovery or
receipt of notice of the subject material breach or material document defect, as
the case may be. However, if we are diligently attempting to correct the problem
we will be entitled to an additional 90 days to complete that remedy or
repurchase. Furthermore, if any material document defect arises solely out of
the failure of the applicable recording office to return a recorded mortgage
loan document, and if we are diligently attempting to retrieve that document,
then the time period may be extended for up to two years following the date of
initial issuance of the offered certificates.
Our cure/repurchase obligations described above will constitute the
sole remedy available to the series _____ certificateholders in connection with
a material breach of any of our representations or warranties or a material
document defect, with respect to any mortgage loan in the trust. No other person
will be obligated to repurchase any affected mortgage loan in connection with a
material breach of any of the representations and warranties or a material
document defect, if we default on our obligation to do so.
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Changes in Mortgage Pool Characteristics
The description in this prospectus supplement of the mortgage pool is
based upon the mortgage pool as it is expected to be constituted at the time the
offered certificates are issued, with adjustments for the monthly debt service
payments due on the mortgage loans on or before the cut-off date. Prior to the
issuance of the offered certificates, one or more mortgage loans may be removed
from the mortgage pool if we consider the removal necessary or appropriate. A
limited number of other mortgage loans may be included in the mortgage pool
prior to the issuance of the offered certificates, unless including those
mortgage loans would materially alter the characteristics of the mortgage pool
as described in this prospectus supplement. We believe that the information in
this prospectus supplement will be generally representative of the
characteristics of the mortgage pool as it will be constituted at the time the
offered certificates are issued; however, the range of mortgage rates and
maturities, as well as the other characteristics of the pooled mortgage loans
described in this prospectus supplement, may vary, and the actual initial
mortgage pool balance may be as much as 5% larger or smaller than the initial
mortgage pool balance specified in this prospectus supplement.
A current report on Form 8-K will be available to purchasers of the
offered certificates on or shortly after the date of initial issuance of the
offered certificates. That current report on Form 8-K will be filed, together
with the pooling and servicing agreement, with the SEC within 15 days after the
initial issuance of the offered certificates. If mortgage loans are removed from
or added to the mortgage pool, that removal or addition will be noted in that
current report on Form 8-K.
Servicing of the Underlying Mortgage Loans
General
The servicing of the mortgage loans in the trust will be governed by
the pooling and servicing agreement. The following summaries describe some of
the provisions of the pooling and servicing agreement relating to the servicing
and administration of the pooled mortgage loans and any real estate owned by the
trust. You should also refer to the accompanying prospectus, in particular the
section captioned "Description of the Governing Documents" for additional
important information regarding provisions of the pooling and servicing
agreement that relate to the rights and obligations of the master servicer and
the special servicer. See "Description of the Governing Documents--Collection
and Other Servicing Procedures with Respect to Mortgage Loans" in the
accompanying prospectus.
The pooling and servicing agreement provides that the master servicer
and the special servicer must each service and administer the pooled mortgage
loans and any real estate owned by the trust for which it is responsible,
directly or through sub-servicers, in accordance with--
o any and all applicable laws, and
o the express terms of the pooling and servicing agreement and
the respective mortgage loans.
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Furthermore, to the extent consistent with the foregoing, the master servicer
and the special servicer must each service and administer the pooled mortgage
loans and any real estate owned by the trust for which it is responsible in
accordance with the Servicing Standard.
In general, the master servicer will be responsible for the servicing
and administration of--
o all mortgage loans in the trust as to which no Servicing
Transfer Event has occurred, and
o all worked-out mortgage loans in the trust as to which no new
Servicing Transfer Event has occurred.
The special servicer, on the other hand, will be responsible for the
servicing and administration of each mortgage loan in the trust as to which a
Servicing Transfer Event has occurred and which has not yet become a worked-out
mortgage loan with respect to that Servicing Transfer Event. The special
servicer will also be responsible for the administration of each mortgaged real
property that has been acquired by the trust with respect to a defaulted
mortgage loan through foreclosure, deed-in-lieu of foreclosure or otherwise.
Despite the foregoing, the pooling and servicing agreement will require
the master servicer to continue to collect information and prepare all reports
to the trustee required to be collected or prepared with respect to any
specially serviced assets and, otherwise, to render other incidental services
with respect to any specially serviced assets. Neither the master servicer nor
the special servicer will have responsibility for the performance by the other
of its respective obligations and duties under the pooling and servicing
agreement.
The master servicer will transfer servicing of a pooled mortgage loan
to the special servicer, if it has not already done so, upon the occurrence of a
Servicing Transfer Event with respect to that mortgage loan. The special
servicer will return the servicing of that mortgage loan to the master servicer,
and that mortgage loan will be considered to have been worked-out, if and when
all Servicing Transfer Events with respect to that mortgage loan cease to exist.
The Initial Master Servicer and the Initial Special Servicer
The Master Servicer.
[Insert information re Master Servicer.]
The information set forth in this prospectus supplement concerning
___________ has been provided by it. Neither we nor the underwriter makes any
representation or warranty as to the accuracy or completeness of this
information.
The Special Servicer.
[Insert information re Special Servicer.]
The information set forth in this prospectus supplement concerning
___________ has been provided by it. Neither we nor the underwriter makes any
representation or warranty as to the accuracy of this information.
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Servicing and Other Compensation and Payment of Expenses
The Master Servicing Fee. The principal compensation to be paid to the
master servicer with respect to its master servicing activities will be the
master servicing fee.
The master servicing fee:
o will be earned with respect to each and every mortgage loan,
including--
1. each specially serviced mortgage loan, if any, and
2. each mortgage loan, if any, as to which the
corresponding mortgaged real property has been
acquired by the trust through foreclosure or
otherwise following a default; and
o in the case of each mortgage loan, will--
1. be calculated on a 30/360 basis,
2. accrue at the related master servicing fee rate,
3. accrue on the same principal amount as interest
accrues or is deemed to accrue from time to time with
respect to that mortgage loan, and
4. be payable monthly from amounts received with respect
to interest on that mortgage loan.
The master servicing fee rate will be ____% per annum.
Additional Master Servicing Compensation. As additional master
servicing compensation, the master servicer will be entitled to receive:
o any Prepayment Interest Excesses collected with respect to the
entire mortgage pool;
o any late payment charges and Default Interest, if any, that
were collected with respect to mortgage loans in the trust,
but only to the extent that those late payment charges and
Default Interest--
1. accrued with respect to the related mortgage loan
while no related Servicing Transfer Event existed,
and
2. have not otherwise been applied to pay the master
servicer, the special servicer or the trustee, as
applicable, interest on advances made thereby with
respect to the related mortgage loan.
In addition, all modification fees, assumption fees, assumption
application fees, consent/waiver fees and other comparable transaction fees and
charges, if any, collected with respect to the pooled mortgage loans will be
allocated between the master servicer and the special servicer, as additional
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compensation, or otherwise applied to cover related expenses, as provided in the
pooling and servicing agreement.
The master servicer will be authorized to invest or direct the
investment of funds held in its collection account, or in any and all accounts
maintained by it that are escrow and/or reserve accounts, in Permitted
Investments. See "--Collection Account" below. The master servicer will be
entitled to retain any interest or other income earned on those funds and will
be required to cover any losses of principal from its own funds. The master
servicer will not be obligated, however, to cover any losses resulting from the
bankruptcy or insolvency of any depository institution or trust company holding
any of those accounts.
Prepayment Interest Shortfalls. The pooling and servicing agreement
provides that, if any Prepayment Interest Shortfalls are incurred with respect
to the mortgage pool during any collection period, the master servicer must make
a non-reimbursable payment with respect to the related payment date in an amount
equal to the lesser of:
o the total amount of those Prepayment Interest Shortfalls, and
o the sum of the following components of the master servicer's
total servicing compensation for that same collection period--
[to be specified].
No other master servicing compensation will be available to cover Prepayment
Interest Shortfalls.
Any payments made by the master servicer with respect to any payment
date to cover Prepayment Interest Shortfalls will be included among the amounts
payable as principal and interest on the series _____ certificates on that
payment date as described under "Description of the Offered
Certificates--Payments" in this prospectus supplement. If the amount of the
payments made by the master servicer with respect to any payment date to cover
Prepayment Interest Shortfalls is less than the total of all the Prepayment
Interest Shortfalls incurred with respect to the mortgage pool during the
related collection period, then the resulting Net Aggregate Prepayment Interest
Shortfall will be allocated among the respective interest-bearing classes of the
series _____ certificates, in reduction of the interest payable on those
certificates, as and to the extent described under "Description of the Offered
Certificates--Payments--Payments of Interest" in this prospectus supplement.
Principal Special Servicing Compensation. The principal compensation to
be paid to the special servicer with respect to its special servicing activities
will be--
o the special servicing fee,
o the workout fee, and
o the liquidation fee.
The special servicing fee:
o will be earned with respect to--
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1. each specially serviced mortgage loan, if any, and
2. each mortgage loan, if any, as to which the
corresponding mortgaged real property has been
acquired by the trust through foreclosure or
otherwise following a default;
o with respect to each mortgage loan, will--
1. be calculated on a 30/360 basis,
2. accrue at a special servicing fee rate of _____% per
annum, and
3. accrue on the same principal amount as interest
accrues or is deemed to accrue from time to time on
that mortgage loan, and
o will be payable monthly from general collections on all the
mortgage loans and any REO Properties in the trust, that are
on deposit in the master servicer's collection account from
time to time.
The Workout Fee. The special servicer will, in general, be entitled to
receive a workout fee with respect to each worked-out mortgage loan in the
trust. The workout fee will be payable out of, and will be calculated by
application of a workout fee rate of ____% to, each collection of interest and
principal received on the mortgage loan for so long as it remains a worked-out
mortgage loan, exclusive of any portion of that collection that represents a
recovery of Default Interest or Post-ARD Additional Interest. The workout fee
with respect to any worked-out mortgage loan will cease to be payable if a new
Servicing Transfer Event occurs with respect to the loan. However, a new workout
fee would become payable if the mortgage loan again became a worked-out mortgage
loan with respect to that new Servicing Transfer Event. If the special servicer
is terminated other than for cause or resigns, it will retain the right to
receive any and all workout fees payable with respect to mortgage loans that
became worked-out mortgage loans during the period that it acted as special
servicer and remained worked-out mortgage loans at the time of its termination
or resignation. The successor special servicer will not be entitled to any
portion of those workout fees. Although workout fees are intended to provide the
special servicer with an incentive to better perform its duties, the payment of
any workout fee will reduce amounts payable to the series _____
certificateholders.
The Liquidation Fee. The special servicer will be entitled to receive a
liquidation fee with respect to each specially serviced mortgage loan in the
trust for which it obtains a full or discounted payoff from the related
borrower. The special servicer will also be entitled to receive a liquidation
fee with respect to any specially serviced mortgage loan or REO Property in the
trust as to which it receives any liquidation proceeds, condemnation proceeds or
insurance proceeds, except as described in the next paragraph. As to each
specially serviced mortgage loan and REO Property in the trust, the liquidation
fee will be payable from, and will be calculated by application of a liquidation
fee rate of ____% to, the related payment or proceeds, exclusive of any portion
of that payment or proceeds that represents a recovery of Default Interest or
Post-ARD Additional Interest.
Despite anything to the contrary described in the prior paragraph, no
liquidation fee will be payable based on, or out of, proceeds received in
connection with:
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o the repurchase or replacement of any mortgage loan in the
trust by us for a breach of representation or warranty or for
defective or deficient mortgage loan documentation, as
described under "Description of the Mortgage Pool--Cures and
Repurchases" in this prospectus supplement;
o the purchase of any defaulted mortgage loan or REO Property in
the trust by the master servicer, the special servicer or any
holder or holders of certificates evidencing a majority
interest in the controlling class of the series _____
certificates, as described under "--Sale of Defaulted Mortgage
Loans" below; or
o the purchase of all of the mortgage loans and REO Properties
in the trust by the master servicer, the special servicer or
any holder or holders of certificates evidencing a majority
interest in the controlling class of the series _____
certificates in connection with the termination of the trust,
as described under "Description of the Offered
Certificates--Termination" in this prospectus supplement.
Although liquidation fees are intended to provide the special servicer
with an incentive to better perform its duties, the payment of any liquidation
fee will reduce amounts payable to the series _____ certificateholders.
Additional Special Servicing Compensation. As additional special
servicing compensation, the special servicer will be entitled to receive any
late payment charges and Default Interest collected with respect to mortgage
loans in the trust, but only to the extent that those late payment charges and
Default Interest--
o that accrued while the related mortgage loan was a specially
serviced mortgage loan, and
o have not otherwise been applied to pay the master servicer,
the special servicer or the trustee, as applicable, interest
on advances made the master servicer, the special servicer or
the trustee, as the case may be, with respect to the related
mortgage loan.
All modification fees, assumption fees, assumption application fees and
other comparable transaction fees and charges, if any, collected with respect to
the specially serviced mortgage loans in the trust, will be allocated between
the master servicer and the special servicer, as additional compensation, or
otherwise applied to cover related expenses, as provided in the pooling and
servicing agreement.
In addition, the special servicer will be authorized to invest or
direct the investment of funds held in its REO account in Permitted Investments.
See "--REO Account" below. The special servicer will be entitled to retain any
interest or other income earned on those funds and will be required to cover any
losses of principal from its own funds without any right to reimbursement. The
special servicer will not be obligated, however, to cover any losses resulting
from the bankruptcy or insolvency of any depository institution or trust company
holding the special servicer's REO account.
Payment of Expenses; Servicing Advances. Each of the master servicer
and the special servicer will be required to pay its overhead and any general
and administrative expenses incurred by it in connection with its servicing
activities under the pooling and servicing agreement. The master servicer
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and the special servicer will not be entitled to reimbursement for these
expenses except as expressly provided in the pooling and servicing agreement.
Any and all customary, reasonable and necessary out of pocket costs and
expenses incurred by the master servicer or the special servicer in connection
with the servicing of a pooled mortgage loan after a default, delinquency or
other unanticipated event, or in connection with the administration of any REO
Property, will be servicing advances. Servicing advances will be reimbursable
from future payments and other collections, including insurance proceeds,
condemnation proceeds and liquidation proceeds, in connection with the related
mortgage loan or REO Property. In addition, the special servicer may
periodically require the master servicer to reimburse the special servicer for
any servicing advances made by it. Upon reimbursing the special servicer for any
servicing advance, the master servicer will be deemed to have made the advance.
The special servicer may request the master servicer to make servicing
advances with respect to a specially serviced mortgage loan or REO Property, in
lieu of the special servicer's making that advance itself. The special servicer
must make the request in writing, in a timely manner that does not adversely
affect the interests of any series _____ certificateholder. The master servicer
must make the requested servicing advance within a specified number of days
following the master servicer's receipt of the request. If the request is timely
and properly made, the special servicer will be relieved of any obligations with
respect to a servicing advance that it requests the master servicer to make,
regardless of whether or not the master servicer actually makes that advance.
If the master servicer or the special servicer is required under the
pooling and servicing agreement to make a servicing advance, but neither does so
within _____ days after the servicing advance is required to be made, then the
trustee will be required:
o if it has actual knowledge of the failure, to give the
defaulting party notice of its failure; and
o if the failure continues for _____ more business days, to make
the servicing advance.
Despite the foregoing discussion or anything else to the contrary in
this prospectus supplement, none of the master servicer, the special servicer or
the trustee will be obligated to make servicing advances that, in the reasonable
and good faith judgment of any party making a servicing advance, would not be
ultimately recoverable from expected collections on the related mortgage loan or
REO Property. If the master servicer, the special servicer or the trustee makes
any servicing advance that it subsequently determines, in its judgment, is not
recoverable from expected collections on the related mortgage loan or REO
Property, it may obtain reimbursement for that advance, together with interest
on that advance, out of general collections on the mortgage loans and any REO
Properties on deposit in the master servicer's collection account from time to
time.
The master servicer will be permitted to pay, and the special servicer
may direct the payment of, some servicing expenses directly out of the master
servicer's collection account and at times without regard to the relationship
between the expense and the funds from which it is being paid. The most
significant of those servicing expenses relate to the remediation of any adverse
environmental circumstance or condition at any of the mortgaged real properties.
In addition, the pooling and servicing agreement will require the master
servicer, at the direction of the special servicer if a specially serviced
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asset is involved, to pay directly out of the master servicer's collection
account any servicing expense that, if advanced by the master servicer or the
special servicer, would not be recoverable from expected collections on the
related mortgage loan or REO Property. This is only to be done, however, when
the master servicer, or the special servicer if a specially serviced asset is
involved, has determined in accordance with the Servicing Standard that making
the payment is in the best interests of the certificateholders, as a collective
whole.
The master servicer, the special servicer and the trustee will be
entitled to receive interest on servicing advances made by them. The interest
will accrue on the amount of each servicing advance, and compound monthly, for
so long as the servicing advance is outstanding, at a rate per annum equal to
the prime rate as published in the "Money Rates" section of The Wall Street
Journal, as that prime rate may change from time to time. Interest accrued with
respect to any servicing advance will be payable in the collection period in
which that advance is reimbursed--
o first, out of Default Interest and late payment charges
collected on the related mortgage loan during that collection
period, and
o then, if and to the extent that the Default Interest and late
charges referred to in clause first above are insufficient to
cover the advance interest, out of any amounts then on deposit
in the master servicer's collection account.
Sub-Servicers
The master servicer and the special servicer may each delegate any of
its servicing obligations under the pooling and servicing agreement to any one
or more third-party servicers. The master servicer or the special servicer, as
the case may be, will remain obligated under the pooling and servicing agreement
for any duties delegated to a sub-servicer. Each sub-servicing agreement between
the master servicer or special servicer, as the case may be, and a sub-servicer
must provide that, if for any reason the master servicer or special servicer, as
the case may be, is no longer acting in that capacity, the trustee or any other
successor to the master servicer or special servicer, as applicable, may:
o assume the party's rights and obligations under the
sub-servicing agreement;
o enter into a new sub-servicing agreement with the sub-servicer
on terms which are acceptable to the trustee or successor
master servicer or special servicer, as the case may be, and
that sub-servicer; or
o terminate the sub-servicing agreement without cause.
Some of the mortgage loans that we intend to include in the trust, are
currently being serviced by third-party servicers that are entitled to and will
become sub-servicers of these loans on behalf of the master servicer. Neither
the trustee nor any other successor master servicer may terminate the
sub-servicing agreement for any of those sub-servicers without cause, unless it
pays the particular sub-servicer a termination fee.
The master servicer and special servicer will each be required to
monitor the performance of sub-servicers retained by it. The master servicer and
special servicer will each be solely liable for all fees
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owed by it to any sub-servicer retained by it, irrespective of whether its
compensation under the pooling and servicing agreement is sufficient to pay
those fees. Each sub-servicer will be reimbursed by the master servicer or
special servicer, as the case may be, for various expenditures which it makes,
generally to the same extent the master servicer or special servicer, as the
case may be, would be reimbursed under the pooling and servicing agreement.
The Controlling Class Representative
Controlling Class. As of any date of determination, the controlling
class of series _____ certificateholders will be the holders of the most
subordinate class of series _____ certificates then outstanding, other than the
class S, R-I, R-II and R-III certificates, that has a total principal balance
that is not less than ____% of that class's original total principal balance.
However, if no class of series _____ certificates, other than the class S, R-I,
R-II and R-III certificates, has a total principal balance that satisfies this
requirement, then the controlling class of series _____ certificateholders will
be the holders of the most subordinate class of series _____ certificates then
outstanding, other than the class S, R-I, R-II and R-III certificates.
Election of the Controlling Class Representative. The controlling class
of series _____ certificateholders will be entitled to--
o select a representative having the rights and powers described
under "--The Controlling Class Representative--Rights and
Powers of the Controlling Class Representative" below, or
o replace an existing controlling class representative.
The trustee will be required to notify promptly all the
certificateholders of the series _____ controlling class that they may select a
controlling class representative upon:
o the receipt by the trustee of written requests for the
selection of a controlling class representative from series
_____ certificateholders entitled to a majority of the voting
rights allocated to the controlling class of series _____
certificateholders;
o the resignation or removal of the person acting as controlling
class representative; or
o a determination by the trustee that the controlling class of
series _____ certificateholders has changed.
The notice will explain the process for selecting a controlling class
representative. The appointment of any person as a controlling class
representative will not be effective until:
o the trustee has received notice, in any form acceptable to the
trustee, that the appointment of that person as controlling
class representative is acceptable to series _____
certificateholders entitled to a majority of the voting rights
allocated to the controlling class of series _____
certificateholders; and
o that person provides the trustee with--
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1. written confirmation of its acceptance of its
appointment,
2. an address and telecopy number for the delivery of
notices and other correspondence, and
3. a list of officers or employees of the person with
whom the parties to the pooling and servicing
agreement may deal, including their names, titles,
work addresses and telecopy numbers.
Resignation and Removal of the Controlling Class Representative. The
controlling class representative may at any time resign by giving written notice
to the trustee and each certificateholder of the series _____ controlling class.
The series _____ certificateholders entitled to a majority of the voting rights
allocated to the controlling class of series _____ certificateholders, will be
entitled to remove any existing controlling class representative by giving
written notice to the trustee and to the existing controlling class
representative.
Rights and Powers of the Controlling Class Representative. The
controlling class representative will be entitled to advise the special servicer
with respect to the following actions. In addition, the special servicer will
not be permitted to take any of the following actions as to which the
controlling class representative has objected in writing within _____ business
days of having been notified in writing of the particular action and having been
provided with all reasonably requested information with respect to the
particular action--
o any foreclosure upon or comparable conversion, which may
include acquisitions of an REO Property, of the ownership of
properties securing those specially serviced mortgage loans in
the trust as come into and continue in default;
o any modification, amendment or waiver of a monetary term,
including the timing of payments, or any material non-monetary
term of a pooled mortgage loan;
o any proposed sale of a defaulted mortgage loan or any related
REO Property in the trust, other than in connection with the
termination of the trust as described under "Description of
the Offered Certificates--Termination" in this prospectus
supplement, for less than par;
o any acceptance of a discounted payoff with respect to a pooled
mortgage loan;
o any determination to bring an REO Property held by the trust
into compliance with applicable environmental laws or to
otherwise address hazardous material located at the REO
Property;
o any release of collateral for a pooled mortgage loan, other
than in accordance with the terms of, or upon satisfaction of,
that mortgage loan;
o any acceptance of substitute or additional collateral for a
pooled mortgage loan, other than in accordance with the terms
of that mortgage loan;
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o any waiver of a due-on-sale or due-on-encumbrance clause with
respect to a pooled mortgage loan; and
o any acceptance of an assumption agreement releasing a borrower
from liability under a pooled mortgage loan.
In addition, the controlling class representative may direct the
special servicer to take, or to refrain from taking, any actions as the
controlling class representative may consider advisable or as to which provision
is otherwise made in the pooling and servicing agreement.
Notwithstanding the foregoing, no advice, direction or objection given
or made by the controlling class representative, as contemplated by either of
the two preceding paragraphs, may--
o require or cause the special servicer to violate applicable
law, the terms of any pooled mortgage loan or any other
provision of the pooling and servicing agreement described in
this prospectus supplement or the accompanying prospectus,
including the special servicer's obligation to act in
accordance with the Servicing Standard;
o result in an adverse tax consequence for the trust;
o expose the trust, us, the master servicer, the special
servicer, the trustee or any of our or their respective
affiliates, directors, officers, employees or agents, to any
material claim, suit or liability; or
o materially expand the scope of the master servicer's or
special servicer's responsibilities under the pooling and
servicing agreement.
The special servicer is to disregard any advice, direction or objection on the
part of the controlling class representative that would have any of the effects
described in the immediately preceding four bullet points. Furthermore, the
special servicer will not be obligated to seek approval from the controlling
class representative for any actions to be taken by the special servicer with
respect to any particular specially serviced mortgage loan if--
o the special servicer has, as described in the first paragraph
under this "--Rights and Powers of the Controlling Class
Representative" subsection, notified the controlling class
representative in writing of various actions that the special
servicer proposes to take with respect to the work-out or
liquidation of that mortgage loan, and
o for 60 days following the first of those notices, the
controlling class representative has objected to all of those
proposed actions and has failed to suggest any alternative
actions that the special servicer considers to be consistent
with the Servicing Standard.
When reviewing the rest of this "Servicing of the Underlying Mortgage
Loans" section, it is important that you consider the effects that the rights
and powers of the controlling class representative discussed above could have on
the actions of the special servicer.
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Liability to Borrowers. In general, any and all expenses of the
controlling class representative are to be borne by the holders of the
controlling class, in proportion to their respective percentage interests in
that class, and not by the trust. However, if a claim is made against the
controlling class representative by a borrower with respect to the pooling and
servicing agreement or any particular mortgage loan, the controlling class
representative is to immediately notify the trustee, the master servicer and the
special servicer. The special servicer on behalf of the trust will, subject to
the discussion under "Description of the Governing Documents--Matters Regarding
the Master Servicer, the Special Servicer, the Manager and Us" in the
accompanying prospectus, assume the defense of the claim against the controlling
class representative, but only if--
o the special servicer or the trust are also named parties to
the same action, and
o in the sole judgment of the special servicer,
1. the controlling class representative acted in good
faith, without negligence or willful misfeasance,
with regard to the particular matter at issue, and
2. there is no potential for the special servicer or the
trust to be an adverse party in the action as regards
the controlling class representative.
Liability to the Trust and Certificateholders. The controlling class
representative may have special relationships and interests that conflict with
those of the holders of one or more classes of the offered certificates. In
addition, the controlling class representative does not have any duties to the
holders of any class of series _____ certificates other than the controlling
class. It may act solely in the interests of the certificateholders of the
series _____ controlling class and will have no liability to any other series
_____ certificateholders for having done so. No series _____ certificateholder
may take any action against the controlling class representative for its having
acted solely in the interests of the certificateholders of the series _____
controlling class.
Replacement of the Special Servicer
Series _____ certificateholders entitled to a majority of the voting
rights allocated to the controlling class of series _____ certificateholders may
terminate an existing special servicer and appoint a successor. In addition, if
the special servicer is terminated in connection with an event of default,
series _____ certificateholders entitled to a majority of the voting rights
allocated to the controlling class of series _____ certificateholders, may
appoint a successor. See "--Events of Default" and "--Rights Upon Event of
Default" below. In either case, any appointment of a successor special servicer
will be subject to, among other things, receipt by the trustee of--
1. written confirmation from each of __________ and
__________ that the appointment will not result in a
qualification, downgrade or withdrawal of any of the
ratings then assigned thereby to the series _____
certificates, and
2. the written agreement of the proposed special
servicer to be bound by the terms and conditions of
the pooling and servicing agreement, together with an
opinion of counsel regarding, among other things, the
enforceability of the pooling and servicing agreement
against the proposed special servicer.
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Subject to the foregoing, any certificateholder or any affiliate of a
certificateholder may be appointed as special servicer.
If the controlling class of series _____ certificateholders terminate
an existing special servicer without cause, then the reasonable out-of-pocket
costs and expenses of any related transfer of servicing duties are to be paid by
the successor special servicer or the certificateholders that voted to remove
the terminated special servicer, as the parties may agree. The terminated
special servicer will be entitled to:
o payment out of the master servicer's collection account for
all accrued and unpaid special servicing fees; and
o reimbursement by the successor special servicer for any
outstanding servicing advances made by the terminated special
servicer, together with interest.
Upon reimbursement, any advance will be treated as if it were made by the
successor special servicer.
Beneficial Owners of the Controlling Class
If the controlling class of series _____ certificates is held in
book-entry form, then any beneficial owner of those certificates whose identity
and beneficial ownership interest has been proven to the satisfaction of the
trustee, will be entitled--
o to receive all notices described under "--The Controlling
Class Representative" and "Replacement of the Special
Servicer" above, and
o to exercise directly all rights described under "--The
Controlling Class Representative" and "Replacement of the
Special Servicer" above,
that it otherwise would if it were the registered holder of certificates of the
series _____ controlling class.
Enforcement of Due-on-Sale and Due-on-Encumbrance Provisions
Subject to the discussion under "--The Controlling Class
Representative" above, the master servicer or the special servicer, as
applicable, will be required to determine, in a manner consistent with the
Servicing Standard, whether to exercise any right the lender under any pooled
mortgage loan may have under either a due-on-sale or due-on-encumbrance clause
to accelerate payment of that mortgage loan. However, under the circumstances
described below in this paragraph, neither the master servicer nor the special
servicer may waive its rights or grant its consent under any due-on-sale or
due-on-encumbrance clause unless it has received written confirmation from each
applicable rating agency that this action would not result in the qualification,
downgrade or withdrawal of any of the then-current ratings then assigned by the
rating agency to the series _____ certificates. With respect to due-on-sale
clauses, this requirement will apply only if the outstanding principal balance
of the subject mortgage loan, together with the total outstanding principal
balance of all other pooled mortgage loans that are cross-collateralized with
the subject mortgage loan or have been made to the same borrower or affiliated
borrowers, is equal to or greater than a specified percentage of the then total
principal balance of the mortgage pool. In the case of due-on-encumbrance
provisions, this requirement will always apply. In
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addition, the master servicer may not waive its rights or grant its consent
under any due-on-sale or due-on-encumbrance clause without the consent of the
special servicer.
Modifications, Waivers, Amendments and Consents
Subject to the discussion under "--The Controlling Class
Representative" above, the special servicer, with respect to the specially
serviced mortgage loans in the trust, and the master servicer, with respect to
the other pooled mortgage loans, each may, consistent with the Servicing
Standard, agree to:
o modify, waive or amend any term of any mortgage loan;
o extend the maturity of any mortgage loan;
o defer or forgive the payment of interest on and principal of
any mortgage loan;
o defer or forgive the payment of prepayment premiums, yield
maintenance charges and late payment charges on any mortgage
loan;
o permit the release, addition or substitution of collateral
securing any mortgage loan; or
o permit the release, addition or substitution of the borrower
or any guarantor of any mortgage loan.
The ability of the special servicer or the master servicer to agree to any of
the foregoing, however, is subject to each of the following limitations,
conditions and restrictions:
o With limited exception, including with respect to some routine
matters, the master servicer may not agree to modify, waive or
amend any term of, or take any of the other above-referenced
actions with respect to, any of the pooled mortgage loans
without the consent of the special servicer.
o With limited exception, including with respect to Post-ARD
Additional Interest, the special servicer may not agree to or
consent to the master servicer's agreeing to modify, waive or
amend any term of, or take or consent to the master servicer's
taking any of the other above-referenced actions with respect
to, any mortgage loan in the trust, if doing so would--
1. affect the amount or timing of any related payment of
principal, interest or other amount payable under the
mortgage loan, or
2. in the special servicer's judgment, materially impair
the security for the mortgage loan or reduce the
likelihood of timely payment of amounts due on the
mortgage loan,
unless a material default on the mortgage loan has occurred
or, in the special servicer's judgment, a default with respect
to payment on the mortgage loan is reasonably foreseeable, and
the modification, waiver, amendment or other action is
reasonably likely
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to produce a greater recovery to the certificateholders, as a
collective whole, on a present value basis, than would
liquidation.
o The special servicer may not extend or consent to the master
servicer's extending the date on which any balloon payment is
scheduled to be due on any mortgage loan in the trust to a
date beyond the earliest of--
1. the ________ anniversary of the mortgage loan's
original stated maturity date,
2. ________ years prior to the rated final payment date,
and
3. if the mortgage loan is secured by a mortgage solely
or primarily on the related borrower's leasehold
interest in the corresponding mortgaged real
property, ten years prior to the end of the then
current term of the related ground lease, plus any
unilateral options to extend.
o Neither the master servicer nor the special servicer may make
or permit any modification, waiver or amendment of any term
of, or take any of the other above-referenced actions with
respect to, any mortgage loan in the trust that would--
1. cause any of REMIC I, REMIC II or REMIC III to fail
to qualify as a REMIC under the Internal Revenue Code
of 1986,
2. result in the imposition of any tax on prohibited
transactions or contributions after the startup date
of any of REMIC I, REMIC II or REMIC III under the
Internal Revenue Code of 1986, or
3. adversely affect the status of any portion of the
trust that is intended to be a grantor trust under
the Internal Revenue Code of 1986;
o The special servicer may not permit or consent to the master
servicer's permitting any borrower to add or substitute any
real estate collateral for any mortgage loan in the trust,
unless the special servicer has first--
1. determined, based upon an environmental assessment
prepared by an independent person who regularly
conducts environmental assessments, at the expense of
the borrower, that:
o the additional or substitute collateral is
in compliance with applicable environmental
laws and regulations, and
o that there are no circumstances or
conditions present with respect to the new
collateral relating to the use, management
or disposal of any hazardous materials for
which investigation, testing, monitoring,
containment, clean-up or remediation would
be required under any then applicable
environmental laws or regulations, and
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2. received confirmation from each of __________ and
__________ that the addition or substitution of
collateral will not result in a qualification,
downgrade or withdrawal of any rating then assigned
by the rating agency to a class of series _____
certificates.
o Subject to limited exceptions, the special servicer may not
release or consent to the master servicer's releasing any
material collateral securing an outstanding mortgage loan in
the trust other than in accordance with the terms of, or upon
satisfaction of, the mortgage loan.
The foregoing limitations, conditions and restrictions will not apply
to any of the acts referenced in this "--Modifications, Waivers, Amendments and
Consents" section that is required under the terms of the subject mortgage loan
in effect on the date of initial issuance of the offered certificates or that is
solely within the control of the related borrower. Also, neither the master
servicer nor the special servicer will be required to oppose the confirmation of
a plan in any bankruptcy or similar proceeding involving a borrower if, in its
judgment, opposition would not ultimately prevent the confirmation of the plan
or one substantially similar, despite the discussion above.
Notwithstanding the foregoing, the master servicer will be permitted,
in the case of an ARD Loan, in its discretion, after the related anticipated
repayment date, to waive any or all of the Post-ARD Additional Interest accrued
on that mortgage loan, if the related borrower is ready and willing to pay all
other amounts due under the mortgage loan in full, including the entire
principal balance. However, the master servicer's determination to waive the
trust's right to receive that Post-ARD Additional Interest--
o must be in accordance with the Servicing Standard, and
o will be subject to approval by the special servicer.
The master servicer will not have any liability to the trust, the series _____
certificateholders or any other person for any determination that is made in
accordance with the Servicing Standard. The pooling and servicing agreement will
also limit the master servicer's and the special servicer's ability to institute
an enforcement action solely for the collection of Post-ARD Additional Interest.
All modifications, waivers and amendments entered into with respect to
the pooled mortgage loans are to be in writing. Each of the master servicer and
the special servicer must deliver to the trustee for deposit in the related
mortgage file, an original counterpart of the agreement relating to each
modification, waiver or amendment agreed to by it, promptly following its
execution.
Required Appraisals
Promptly following the occurrence of any Appraisal Trigger Event with
respect to any of the pooled mortgage loans, the special servicer must obtain,
and deliver to the trustee and master servicer a copy of, an appraisal of the
related mortgaged real property from an independent appraiser meeting the
qualifications imposed in the pooling and servicing agreement, unless an
appraisal had previously been obtained within the prior _____ months.
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Notwithstanding the foregoing, if the unpaid principal balance of the
subject mortgage loan, net of related unreimbursed advances of principal, is
less than $___________, the special servicer may perform an internal valuation
of the mortgaged real property.
As a result of any appraisal or other valuation, it may be determined
that an Appraisal Reduction Amount exists with respect to the subject mortgage
loan. An Appraisal Reduction Amount is relevant to the determination of the
amount of any advances of delinquent interest required to be made with respect
to the affected mortgage loan. See "Description of the Offered
Certificates--Advances of Delinquent Monthly Debt Service Payments" in this
prospectus supplement.
If an Appraisal Trigger Event occurs with respect to any mortgage loan
in the trust, then the special servicer will have an ongoing obligation to
obtain or perform, as the case may be, within _____ days of each anniversary of
the occurrence of that Appraisal Trigger Event, an update of the prior required
appraisal or other valuation. Based upon that update, the special servicer is to
redetermine and report to the trustee and the master servicer the new Appraisal
Reduction Amount, if any, with respect to the mortgage loan. This ongoing
obligation will cease if and when--
o the subject mortgage loan has become a worked-out mortgage
loan as contemplated under "--General" above,
o the subject mortgage loan has remained current for at least
_____ consecutive monthly debt service payments, and
o no other Servicing Transfer Event has occurred with respect to
the subject mortgage loan during the preceding _____ months.
The cost of each required appraisal, and any update of that appraisal,
will be advanced by the master servicer and will be reimbursable to the master
servicer as a servicing advance.
At any time that an Appraisal Reduction Amount exists with respect to
any mortgage loan in the trust, the controlling class representative will be
entitled, at its own expense, to obtain and deliver to the master servicer, the
special servicer and the trustee an appraisal that satisfies the criteria for a
required appraisal. Upon request of the controlling class representative, the
special servicer will be required to recalculate the Appraisal Reduction Amount
with respect to the subject mortgage loan based on that appraisal.
Collection Account
General. The master servicer will be required to establish and maintain
a collection account for purposes of holding payments and other collections that
it receives with respect to the pooled mortgage loans. That collection account
must be maintained in a manner and with a depository institution that satisfies
rating agency standards for securitizations similar to the one involving the
offered certificates.
The funds held in the master servicer's collection account may be held
as cash or invested in Permitted Investments. Any interest or other income
earned on funds in the master servicer's collection account will be paid to the
master servicer as additional compensation subject to the limitations set forth
in the pooling and servicing agreement.
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Deposits. Under the pooling and servicing agreement, the master
servicer must deposit or cause to be deposited in its collection account within
one business day following receipt, in the case of payments and other
collections on the pooled mortgage loans, or as otherwise required under the
pooling and servicing agreement, the following payments and collections received
or made by or on behalf of the master servicer with respect to the mortgage pool
subsequent to the date of initial issuance of the offered certificates, other
than monthly debt service payments due on or before the cut-off date, which
monthly debt service payments belong to the related mortgage loan seller:
o all payments on account of principal on the mortgage loans,
including principal prepayments;
o all payments on account of interest on the mortgage loans,
including Default Interest and Post-ARD Additional Interest;
o all prepayment premiums, yield maintenance charges and late
payment charges collected with respect to the mortgage loans;
o all proceeds received under any hazard, flood, title or other
insurance policy that provides coverage with respect to a
mortgaged real property or the related mortgage loan, and all
proceeds received in connection with the condemnation or the
taking by right of eminent domain of a mortgaged real
property, in each case to the extent not otherwise required to
be applied to the restoration of the real property or released
to the related borrower;
o all amounts received and retained in connection with the
liquidation of defaulted mortgage loans by foreclosure or as
otherwise contemplated under "--Realization Upon Defaulted
Mortgage Loans" below;
o any amounts paid by us in connection with the repurchase or
replacement of a mortgage loan as described under "Description
of the Mortgage Pool--Cures and Repurchases" in this
prospectus supplement;
o any amounts paid to purchase all the mortgage loans and any
REO Properties in connection with the termination of the trust
as contemplated under "Description of the Offered
Certificates--Termination" in this prospectus supplement;
o any amounts required to be deposited by the master servicer in
connection with losses incurred with respect to Permitted
Investments of funds held in the collection account;
o all payments required to be paid by the master servicer or the
special servicer with respect to any deductible clause in any
blanket insurance policy as described under "Description of
the Mortgage Pool--Underwriting Matters--Hazard, Liability and
Other Insurance" in this prospectus supplement;
o any amount required to be transferred from the special
servicer's REO account; and
o any amounts required to be transferred from any debt service
reserve accounts with respect to the mortgage loans.
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Upon receipt of any of the amounts described in the first five bullet
points of the prior paragraph with respect to any specially serviced mortgage
loan in the trust, the special servicer is required to promptly remit these
amounts to the master servicer for deposit in the master servicer's collection
account.
Withdrawals. The master servicer may make withdrawals from its
collection account for any of the following purposes, which are not listed in
any order of priority:
1. to remit to the trustee for deposit in the trustee's payment
account described under "Description of the Offered
Certificates--Payment Account" in this prospectus supplement,
on the business day preceding each payment date, all payments
and other collections on the mortgage loans and any REO
Properties in the trust that are then on deposit in the
collection account, exclusive of any portion of those payments
and other collections that represents one or more of the
following--
o monthly debt service payments due on a due date
subsequent to the end of the related collection
period,
o payments and other collections received after the end
of the related collection period, and
o amounts that are payable or reimbursable from the
collection account to any person other than the
series _____ certificateholders in accordance with
any of clauses 2. through 17. below;
2. to reimburse itself, the special servicer or the trustee, as
applicable, for any unreimbursed advances made by that party
under the pooling and servicing agreement, and the
reimbursement is to be made out of collections on the mortgage
loan or REO Property as to which the advance was made;
3. to pay itself earned and unpaid master servicing fees with
respect to each mortgage loan in the trust, and the payment of
those fees is to be made out of collections on that mortgage
loan that are allocable as interest;
4. to pay the special servicer, out of general collections on the
mortgage loans and any REO Properties in the trust, earned and
unpaid special servicing fees with respect to each mortgage
loan in the trust that is either--
o a specially serviced mortgage loan, or
o a mortgage loan as to which the related mortgaged
real property has become an REO Property;
5. to pay the special servicer earned and unpaid workout fees and
liquidation fees to which it is entitled, and the payment of
those fees is to be made from the sources described under
"--Servicing and Other Compensation and Payment of Expenses"
above;
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6. to reimburse itself, the special servicer or the trustee, as
applicable, out of general collections on the mortgage loans
and any REO Properties in the trust, for any unreimbursed
advance made by that party under the pooling and servicing
agreement that has been determined not to be ultimately
recoverable under clause 2. above;
7. to pay itself, the special servicer or the trustee, as
applicable, unpaid interest on any advance made by that party
under the pooling and servicing agreement, and the payment of
that unpaid interest is to be made out of Default Interest and
late payment charges received--
o with respect to the mortgage loan as to which the
advance was made, and
o during the collection period in which that advance is
reimbursed;
8. in connection with the reimbursement of advances as described
in clause 2. or 6. above, to pay itself, the special servicer
or the trustee, as the case may be, out of general collections
on the mortgage loans and any REO Properties in the trust, any
interest accrued and payable on that advance and not otherwise
payable under clause 7. above;
9. to pay itself any items of additional master servicing
compensation on deposit in the collection account as discussed
under "--Servicing and Other Compensation and Payment of
Expenses--Additional Master Servicing Compensation" above;
10. to pay the special servicer any items of additional special
servicing compensation on deposit in the collection account as
discussed under "--Servicing and Other Compensation and
Payment of Expenses--Additional Special Servicing
Compensation" above;
11. to pay any unpaid liquidation expenses incurred with respect
to any liquidated mortgage loan or REO Property in the trust,
and payment of those expenses is to be made out of collections
on that mortgage loan or REO Property, as the case may be;
12. to pay, out of general collections on the mortgage loans and
any REO Properties in the trust, any servicing expenses that
would, if advanced, be nonrecoverable under clause 2. above;
13. to pay, out of general collections on the mortgage loans and
any REO Properties in the trust, for costs and expenses
incurred by the trust in connection with the remediation of
adverse environmental conditions at any mortgaged real
property that secures a defaulted mortgage loan in the trust;
14. to pay itself, the special servicer, the trustee, us or any of
their or our respective directors, officers, employees and
agents, as the case may be, out of general collections on the
mortgage loans and any REO Properties in the trust, any of the
reimbursements or indemnities to which we or any of those
other persons or entities are entitled as described under
"Description of the Governing Documents--Matters Regarding the
Master
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Servicer, the Special Servicer, the Manager and Us" and
"--Matters Regarding the Trustee" in the accompanying
prospectus;
15. to pay, out of general collections on the mortgage loans and
any REO Properties in the trust, for the costs of various
opinions of counsel, the cost of recording the pooling and
servicing agreement and expenses properly incurred by the tax
administrator in connection with providing advice to the
special servicer;
16. to pay any other items described in this prospectus supplement
as being payable from the collection account;
17. to withdraw amounts deposited in the collection account in
error, including amounts received on any mortgage loan or REO
Property that has been purchased or otherwise removed from the
trust; and
18. to clear and terminate the collection account upon the
termination of the pooling and servicing agreement.
Realization Upon Defaulted Mortgage Loans
The pooling and servicing agreement grants to the master servicer, the
special servicer and any single certificateholder or group of certificateholders
of the controlling class, a right to purchase from the trust defaulted mortgage
loans in the priority described in the next paragraph.
If the special servicer has determined, in its judgment, that the sale
of any defaulted mortgage loan by the trust under the circumstances described
below in this paragraph, is in accordance with the Servicing Standard, the
special servicer must give prompt written notice of its determination to the
trustee and the master servicer. The trustee will then be required, within five
days after receipt of that notice, to provide a similar notice to all
certificateholders of the series _____ controlling class. Any single
certificateholder or group of certificateholders of the series _____ controlling
class may, at its or their option, within ten days after receiving the notice
from the trustee, purchase that defaulted mortgage loan from the trust, at a
cash price generally equal to--
o the outstanding principal balance of the mortgage loan,
o all accrued and unpaid interest on the mortgage loan, and
o all unreimbursed servicing advances with respect to, the
subject mortgage loan.
If two or more separate certificateholders or groups of certificateholders of
the series _____ controlling class want to purchase the defaulted mortgage loan,
preference will be given to the certificateholder or group of certificateholders
with the largest interest in the series _____ controlling class. If
certificateholders of the series _____ controlling class have not purchased that
defaulted mortgage loan within _____ days of their having received the relevant
notice, then for a limited period, either the special servicer or the master
servicer, in that order of priority, may at its option purchase the defaulted
mortgage loan from the trust at the same cash price as was applicable for the
certificateholders of the
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series _____ controlling class. Each of the master servicer and the special
servicer may designate an affiliate to complete the purchase.
The special servicer may offer to sell, on behalf of the trust, any
defaulted mortgage loan not otherwise purchased as described in the preceding
paragraph, if and when the special servicer determines, consistent with the
Servicing Standard, that a sale would be in the best economic interests of the
series _____ certificateholders, as a collective whole. Any offer must be made
in a commercially reasonable manner for a period of not less than ten days.
Subject to the discussion in the next paragraph and under "--The Controlling
Class Representative" above, the special servicer will be required to accept the
highest cash bid received from any person that is a fair price, determined in
accordance with the pooling and servicing agreement, for the mortgage loan.
The special servicer will not be obligated to accept the highest cash
bid if the special servicer determines, in accordance with the Servicing
Standard, that rejection of the highest cash bid would be in the best interests
of the series _____ certificateholders, as a collective whole. Furthermore,
subject to the discussion under "--The Controlling Class Representative" above,
the special servicer may accept a lower cash bid from any person or entity other
than itself or an affiliate if it determines, in accordance with the Servicing
Standard, that acceptance of the bid would be in the best interests of the
series _____ certificateholders, as a collective whole. For example, the
prospective buyer making the lower bid may be more likely to perform its
obligations or the terms, other than the price, offered by the prospective buyer
making the lower bid may be more favorable.
Neither the trustee, in its individual capacity, nor any of its
affiliates may bid for or purchase from the trust any defaulted mortgage loan or
any REO Property.
In connection with the sale of any defaulted mortgage loan on behalf of
the trust, the special servicer may charge prospective bidders, and retain, fees
that approximate the special servicer's actual costs in the preparation and
delivery of information pertaining to the sales or evaluating bids without
obligation to deposit the amounts into its collection account.
If a default on a pooled mortgage loan has occurred or, in the special
servicer's judgment, a payment default is imminent, then, subject to the
discussion under "--The Controlling Class Representative" above, the special
servicer may, on behalf of the trust, take any of the following actions:
o institute foreclosure proceedings;
o exercise any power of sale contained in the related mortgage;
o obtain a deed in lieu of foreclosure; or
o otherwise acquire title to the corresponding mortgaged real
property, by operation of law or otherwise.
The special servicer may not, however, acquire title to any mortgaged
real property, have a receiver of rents appointed with respect to any mortgaged
real property or take any other action with respect to any mortgaged real
property that would cause the trustee, for the benefit of the
certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-
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possession" of, or to be an "owner" or an "operator" of the particular real
property within the meaning of the federal environmental laws, unless--
o the special servicer has previously received a report prepared
by a person who regularly conducts environmental audits, which
report will be an expense of the trust, and
o either:
1. the report indicates that--
o the particular real property is in
compliance with applicable environmental
laws and regulations, and
o there are no circumstances or conditions
present at the real property that have
resulted in any contamination for which
investigation, testing, monitoring,
containment, clean-up or remediation could
be required under any applicable
environmental laws and regulations; or
2. the special servicer, based solely as to
environmental matters and related costs on the
information set forth in the report, determines that
taking the actions necessary to bring the particular
real property into compliance with applicable
environmental laws and regulations and/or taking any
of the other actions contemplated by clause 1. above,
is reasonably likely to produce a greater recovery,
taking into account the time value of money, than not
taking those actions.
If the trust acquires title to any mortgaged real property, the special
servicer, on behalf of the trust, has to sell the particular real property prior
to the close of the third taxable year following the taxable year in which that
acquisition occurred, subject to limited exceptions as described under "--REO
Properties" below.
If liquidation proceeds collected with respect to a defaulted mortgage
loan in the trust are less than the outstanding principal balance of the
defaulted mortgage loan, together with accrued interest on and reimbursable
expenses incurred by the special servicer and/or the master servicer in
connection with the defaulted mortgage loan, then the trust will realize a loss
in the amount of the shortfall. The special servicer and/or the master servicer
will be entitled to reimbursement out of the liquidation proceeds recovered on
any defaulted mortgage loan, prior to the payment of the liquidation proceeds to
the series _____ certificateholders, for--
o any and all amounts that represent unpaid servicing
compensation with respect to the mortgage loan,
o unreimbursed servicing expenses incurred with respect to the
mortgage loan, and
o any unreimbursed advances of delinquent payments made with
respect to the mortgage loan.
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In addition, amounts otherwise payable on the series _____ certificates may be
further reduced by interest payable to the master servicer and/or special
servicer on the servicing expenses and advances.
REO Properties
If title to any mortgaged real property is acquired by the special
servicer on behalf of the trust, the special servicer will be required to sell
that property not later than the end of the third calendar year following the
year of acquisition, unless--
o the IRS grants an extension of time to sell the property, or
o the special servicer obtains an opinion of independent counsel
generally to the effect that the holding of the property
subsequent to the end of the third calendar year following the
year in which the acquisition occurred will not result in the
imposition of a tax on the trust assets or cause any of REMIC
I, REMIC II or REMIC III to fail to qualify as a REMIC under
the Internal Revenue Code of 1986.
Subject to the foregoing, the special servicer will generally be
required to solicit cash offers for any REO Property held by the trust in a
manner that will be reasonably likely to realize a fair price for the property.
The special servicer may retain an independent contractor to operate and manage
the REO Property. The retention of an independent contractor will not relieve
the special servicer of its obligations with respect to the REO Property.
Regardless of whether the special servicer applies for or is granted an
extension of time to sell the property, the special servicer must act in
accordance with the Servicing Standard to liquidate the property on a timely
basis. If an extension is granted or opinion given, the special servicer must
sell the REO Property within the period specified in the extension or opinion.
In general, the special servicer or an independent contractor employed
by the special servicer at the expense of the trust will be obligated to operate
and manage any REO Property held by the trust in a manner that:
1. maintains its status as foreclosure property under the REMIC
provisions of the Internal Revenue Code of 1986, and
2. is in accordance with the Servicing Standard.
The special servicer must review the operation of each REO Property
held by the trust and consult with the trustee, or any person appointed by the
trustee to act as tax administrator, to determine the trust's federal income tax
reporting position with respect to the income it is anticipated that the trust
would derive from the property. The special servicer could determine that it
would not be consistent with the Servicing Standard to manage and operate the
property in a manner that would avoid the imposition of--
o a tax on net income from foreclosure property, within the
meaning of Section 857(b)(4)(B) of the Internal Revenue Code
of 1986, or
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o a tax on prohibited transactions under Section 860F of the
Internal Revenue Code of 1986.
This determination is most likely to occur in the case of an REO Property that
is a hotel or residential health care facility. To the extent that income the
trust receives from an REO Property is subject to--
o a tax on net income from foreclosure property, that income
would be subject to federal tax at the highest marginal
corporate tax rate, which is currently 35%, or
o a tax on prohibited transactions, that income would be subject
to federal tax at a 100% rate.
The determination as to whether income from an REO Property held by the
trust would be subject to a tax will depend on the specific facts and
circumstances relating to the management and operation of each REO Property.
Generally, income from an REO Property that is directly operated by the special
servicer would be apportioned and classified as service or non-service income.
The service portion of the income could be subject to federal tax either at the
highest marginal corporate tax rate or at the 100% rate. The non-service portion
of the income could be subject to federal tax at the highest marginal corporate
tax rate or, although it appears unlikely, at the 100% rate. Any tax imposed on
the trust's income from an REO Property would reduce the amount available for
payment to the series _____ certificateholders. See "Federal Income Tax
Consequences" in this prospectus supplement and in the accompanying prospectus.
The reasonable out-of-pocket costs and expenses of obtaining professional tax
advice in connection with the foregoing will be payable out of the master
servicer's collection account.
The special servicer will be required to segregate and hold all funds
collected and received in connection with any REO Property held by the trust
separate and apart from its own funds and general assets. If an REO Property is
acquired by the trust, the special servicer will be required to establish and
maintain an account for the retention of revenues and other proceeds derived
from the REO Property. That REO account must be maintained in a manner and with
a depository institution that satisfies rating agency standards for
securitizations similar to the one involving the offered certificates. The
special servicer will be required to deposit, or cause to be deposited, in its
REO account, upon receipt, all net income, insurance proceeds, condemnation
proceeds and liquidation proceeds received with respect to each REO Property
held by the trust. The funds held in this REO account may be held as cash or
invested in Permitted Investments. Any interest or other income earned on funds
in the special servicer's REO account will be payable to the special servicer,
subject to the limitations described in the pooling and servicing agreement.
The special servicer will be required to withdraw from its REO account
funds necessary for the proper operation, management, leasing, maintenance and
disposition of any REO Property held by the trust, but only to the extent of
amounts on deposit in the account relating to that particular REO Property.
Promptly following the end of each collection period, the special servicer will
be required to withdraw from the REO account and deposit, or deliver to the
master servicer for deposit, into the master servicer's collection account the
total of all amounts received with respect to each REO Property held by the
trust during that collection period, net of--
o any withdrawals made out of those amounts as described in the
preceding sentence, and
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o any portion of those amounts that may be retained as reserves
as described in the next sentence.
The special servicer may, subject to the limitations described in the pooling
and servicing agreement, retain in its REO account the portion of the proceeds
and collections as may be necessary to maintain a reserve of sufficient funds
for the proper operation, management, leasing, maintenance and disposition of
the related REO Property, including the creation of a reasonable reserve for
repairs, replacements, necessary capital improvements and other related
expenses.
The special servicer shall keep and maintain separate records, on a
property-by-property basis, for the purpose of accounting for all deposits to,
and withdrawals from, its REO account.
Inspections; Collection of Operating Information
The special servicer will be required, at the expense of the trust, to
inspect or cause an inspection of the corresponding mortgaged real property as
soon as practicable after any pooled mortgage loan becomes a specially serviced
mortgage loan. The master servicer also will be required, at its own expense, to
inspect or cause an inspection of each mortgaged real property at least once
every _______________, if the special servicer has not already undertaken an
inspection in that period as described in the preceding sentence. The master
servicer and the special servicer will each be required to prepare or cause the
preparation of a written report of each inspection performed by it that
generally describes the condition of the particular real property and that
specifies--
o any sale, transfer or abandonment of the property of which the
master servicer or the special servicer, as applicable, is
aware, or
o any change in the property's condition, occupancy or value
that the master servicer or the special servicer, as
applicable, in accordance with the Servicing Standard,
considers to be material.
The special servicer, in the case of each specially serviced mortgage
loan in the trust, and the master servicer, in the case of each other mortgage
loan in the trust, will each be required to use reasonable efforts to collect
from the related borrower and review the following items, to the extent that
those items are required to be delivered under the related loan documents:
o the quarterly and annual operating statements, budgets and
rent rolls of the corresponding mortgaged real property; and
o the quarterly and annual financial statements of the borrower.
The special servicer will also be required to cause quarterly and
annual operating statements, budgets and rent rolls to be prepared for each REO
Property in the trust. However, there can be no assurance that any operating
statements required to be delivered by a borrower will in fact be delivered, nor
is the master servicer or the special servicer likely to have any practical
means of compelling delivery.
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Evidence as to Compliance
On or before _____________ of each year, beginning _______________,
each of the master servicer and the special servicer must--
o at its expense, cause a firm of independent public
accountants, that is a member of the American Institute of
Certified Public Accountants to furnish a statement to the
trustee, among others, to the effect that--
1. the firm has examined the servicing operations of the
master servicer or the special servicer, as the case
may be, for the previous year, and
2. on the basis of that examination, conducted
substantially in compliance with USAP, the firm
confirms that the master servicer or the special
servicer, as applicable, has complied with the
minimum servicing standards identified in USAP, in
all material respects, except for the significant
exceptions or errors in records that, in the opinion
of the firm, USAP requires it to report.
In rendering its report the firm may rely, as to matters
relating to the direct servicing of commercial and multifamily
mortgage loans by sub-servicers, upon comparable reports of
firms of independent certified public accountants rendered on
the basis of examinations conducted in accordance with the
same standards, within one year of the report, with respect to
those sub-servicers.
o deliver to the trustee, among others, a statement signed by an
officer of the master servicer or the special servicer, as the
case may be, to the effect that, to the best knowledge of that
officer, the master servicer or special servicer, as the case
may be, has fulfilled its obligations under the pooling and
servicing agreement in all material respects throughout the
preceding calendar year or portion of that year during which
the series _____ certificates were outstanding.
Events of Default
Each of the following events, circumstances and conditions will be
considered events of default under the pooling and servicing agreement:
o the master servicer or the special servicer fails to deposit,
or to remit to the appropriate party for deposit, into the
master servicer's collection account or the special servicer's
REO account, as applicable, any amount required to be so
deposited, and that failure continues unremedied for _____
business days following the date on which the deposit or
remittance was required to be made;
o the master servicer fails to remit to the trustee for deposit
in the trustee's collection account any amount required to be
so remitted, and that failure continues unremedied for _____
business days following the date on which the remittance was
required to be made;
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o the master servicer or the special servicer fails to timely
make any servicing advance required to be made by it under the
pooling and servicing agreement, and that failure continues
unremedied for _____ business days following the date on which
notice has been given to the master servicer or the special
servicer, as the case may be, by the trustee;
o the master servicer or the special servicer fails to observe
or perform in any material respect any of its other covenants
or agreements under the pooling and servicing agreement, and
that failure continues unremedied for _____ days after written
notice of it has been given to the master servicer or the
special servicer, as the case may be, by any other party to
the pooling and servicing agreement or by series _____
certificateholders entitled to not less than ____% of the
voting rights for the series;
o it is determined that there is a breach by the master servicer
or the special servicer of any of its representations or
warranties contained in the pooling and servicing agreement
that materially and adversely affects the interests of any
class of series _____ certificateholders, and that breach
continues unremedied for _____ days after written notice of it
has been given to the master servicer or the special servicer,
as the case may be, by any other party to the pooling and
servicing agreement or by the series _____ certificateholders
entitled to not less than ____% of the voting rights for the
series;
o a decree or order of a court having jurisdiction in an
involuntary case for the appointment of a receiver,
liquidator, trustee or similar official in any bankruptcy,
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings is entered against the
master servicer or the special servicer and the decree or
order remains in force for a period of _____ days;
o the master servicer or special servicer consents to the
appointment of a receiver, liquidator, trustee or similar
official relating to it or of or relating to all or
substantially all of its property;
o the master servicer or special servicer admits in writing its
inability to pay its debts or takes other actions indicating
its insolvency or inability to pay its obligations;
o one or more ratings assigned by either ____________ or
____________ to the series _____ certificates are qualified,
downgraded or withdrawn as a result of the master servicer or
special servicer acting in that capacity; and
o the trustee receives written notice from either ____________
or ____________ that the continuation of the master servicer
or the special servicer, as the case may be, in that capacity
would result in a qualification, downgrade or withdrawal of
any rating then assigned by that rating agency to any class of
the series _____ certificates.
When a single entity acts as master servicer and special servicer, an
event of default in one capacity will be an event of default in the other
capacity.
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Rights Upon Event of Default
If an event of default described above under "--Events of Default"
occurs with respect to the master servicer or the special servicer and remains
unremedied, the trustee will be authorized, and at the direction of the series
_____ certificateholders entitled to not less than ____% of the voting rights
for the series, the trustee will be required, to terminate all of the rights and
obligations of the defaulting party under the pooling and servicing agreement
and in and to the trust assets other than any rights the defaulting party may
have as a series _____ certificateholder. Upon any termination, the trustee must
either:
o succeed to all of the responsibilities, duties and liabilities
of the master servicer or special servicer, as the case may
be, under the pooling and servicing agreement; or
o appoint an established mortgage loan servicing institution to
act as successor master servicer or special servicer, as the
case may be.
The holders of series _____ certificates entitled to a majority of the voting
rights for the series may require the trustee to appoint an established mortgage
loan servicing institution to act as successor master servicer or special
servicer, as the case may be, rather than have the trustee act as that
successor. The appointment of a successor special servicer by the trustee is
subject to the rights of the controlling class of series _____
certificateholders to designate a successor special servicer as described under
"--Replacement of the Special Servicer" above.
In general, the series _____ certificateholders entitled to at least
_____% of the voting rights allocated to each class of series _____ certificates
affected by any event of default may waive the event of default. However, the
events of default described in the _____ bullet points under "--Events of
Default" above may only be waived by all of the holders of the affected classes
of the series _____ certificates. Furthermore, if the trustee is required to
spend any monies in connection with any event of default, then that event of
default may not be waived unless and until the trustee has been reimbursed, with
interest, by the defaulting party. Upon any waiver of an event of default, the
event of default will cease to exist and will be deemed to have been remedied
for every purpose under the pooling and servicing agreement.
Description of the Offered Certificates
General
The series _____ certificates will be issued, on or about
____________________, under the pooling and servicing agreement. They will
represent the entire beneficial ownership interest of the trust. The assets of
the trust will include:
o the pooled mortgage loans;
o any and all payments under and proceeds of the pooled mortgage
loans received after the cut-off date, exclusive of payments
of principal, interest and other amounts due on or before that
date;
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o the loan documents for the pooled mortgage loans;
o any REO Properties acquired by the trust with respect to
defaulted mortgage loans; and
o those funds or assets as from time to time are deposited in
the master servicer's collection account, the special
servicer's REO account, the trustee's collection account
described under "--Collection Account" below or the trustee's
interest reserve account described under "--Payments--Interest
Reserve Account" below.
The series _____ certificates will include the following classes:
o the A-1, A-2, A-3, A-4, A-5, B-1, B-2 and S, which are the
classes of series _____ certificates that are offered by this
prospectus supplement, and
o the B-3, B-4, B-5, B-6, B-7, B-8, C, D, R-I, R-II and R-III
classes, which are the classes of series _____ certificates
that--
1. will be retained or privately placed by us, and
2. are not offered by this prospectus supplement.
The class A-1, A-2, A-3, A-4, A-5, B-1, B-2, B-3, B-4, B-5, B-6, B-7,
B-8, C and D certificates are the only certificates that will have principal
balances. The principal balance of any of these certificates will represent the
total payments of principal to which the holder of the certificate is entitled
over time out of payments, or advances in lieu of payments, and other
collections on the assets of the trust. Accordingly, on each payment date, the
principal balance of each of these certificates will be permanently reduced by
any payments of principal actually made with respect to the certificate on that
payment date. See "--Payments" below. On any particular payment date, the
principal balance of each of these certificates may also be permanently reduced,
without any corresponding payment, in connection with losses on the underlying
mortgage loans and default-related and otherwise unanticipated expenses of the
trust. See "--Reductions in Certificate Principal Balances in Connection with
Realized Losses and Additional Trust Fund Expenses" below.
The class S certificates will not have principal balances, and the
holders of the class S certificates will not be entitled to receive payments of
principal. However, each class S certificate will have a notional amount for
purposes of calculating the accrual of interest with respect to that
certificate. The total notional amount of all the class S certificates will
equal the total principal balance of all the class A-1, A-2, A-3, A-4, A-5, B-1,
B-2, B-3, B-4, B-5, B-6, B-7, B-8, C and D certificates outstanding from time to
time.
In general, principal balances and notional amounts will be reported on
a class-by-class basis. In order to determine the principal balance or notional
amount of any of your offered certificates from time to time, you may multiply
the original principal balance or notional amount of that certificate as of the
date of initial issuance of the offered certificates, as specified on the face
of that certificate, by the then-applicable certificate factor for the relevant
class. The certificate factor for any class of offered certificates, as of any
date of determination, will equal a fraction, expressed as a percentage, the
numerator of which will be the then outstanding total principal balance or
notional amount, as
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applicable, of that class, and the denominator of which will be the original
total principal balance or notional amount, as applicable, of that class.
Certificate factors will be reported monthly in the trustee's payment date
statement.
Registration and Denominations
General. The offered certificates will be issued in book-entry form in
original denominations of:
o in the case of the class S certificates, $________ initial
notional amount and in any whole dollar denomination in excess
of $________; and
o in the case of the other offered certificates, $________
initial principal balance and in any whole dollar denomination
in excess of $________.
Each class of offered certificates will initially be represented by one
or more certificates registered in the name of Cede & Co., as nominee of The
Depository Trust Company. You will not be entitled to receive an offered
certificate issued in fully registered, certificated form, except under the
limited circumstances described in the accompanying prospectus under
"Description of the Certificates--Book-Entry Registration". For so long as any
class of offered certificates is held in book-entry form--
o all references to actions by holders of those certificates
will refer to actions taken by DTC upon instructions received
from beneficial owners of those certificates through its
participating organizations, and
o all references in this prospectus supplement to payments,
notices, reports, statements and other information to holders
of those certificates will refer to payments, notices, reports
and statements to DTC or Cede & Co., as the registered holder
of those certificates, for payment to beneficial owners of
offered certificates through its participating organizations
in accordance with DTC's procedures.
The trustee will initially serve as registrar for purposes of providing
for the registration of the offered certificates and, if and to the extent
physical certificates are issued to the actual beneficial owners of any of the
offered certificates, the registration of transfers and exchanges of those
certificates.
For a discussion of DTC, see "Description of the
Certificates--Book-Entry Registration" in the accompanying prospectus.
Payment Account
General. The trustee must establish and maintain an account in which it
will hold funds pending their payment on the series _____ certificates and from
which it will make those payments. That payment account must be maintained in a
manner and with a depository institution that satisfies rating agency standards
for securitizations similar to the one involving the offered certificates. Funds
held in the trustee's payment account will remain uninvested.
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Deposits. On the business day prior to each payment date, the master
servicer will be required to remit to the trustee for deposit in the payment
account the following funds:
o All payments and other collections on the mortgage loans and
any REO Properties in the trust that are then on deposit in
the master servicer's collection account, exclusive of any
portion of those payments and other collections that
represents one or more of the following:
1. monthly debt service payments due on a due date
subsequent to the end of the related collection
period;
2. payments and other collections received after the end
of the related collection period;
3. amounts that are payable or reimbursable from the
master servicer's collection account to any person
other than the series _____ certificateholders,
including--
o amounts payable to the master servicer or the special servicer
as compensation, including master servicing fees, special
servicing fees, workout fees, liquidation fees, assumption
fees, modification fees and, to the extent not otherwise
applied to cover interest on advances, Default Interest and
late payment charges,
o amounts payable in reimbursement of outstanding advances,
together with interest on those advances, and
o amounts payable with respect to other expenses of the trust;
and
4. amounts deposited in the master servicer's collection
account in error.
o Any advances of delinquent monthly debt service payments made
with respect to that payment date.
o Any payments made by the master servicer to cover Prepayment
Interest Shortfalls incurred during the related collection
period.
See "--Advances of Delinquent Monthly Debt Service Payments" below and
"Servicing of the Underlying Mortgage Loans--Collection Account" and "Servicing
and Other Compensation and Payment of Expenses" in this prospectus supplement.
With respect to each payment date that occurs during March, commencing
in March ______, the trustee will be required to transfer from its interest
reserve account, which we describe under "--Interest Reserve Account" below, to
its collection account the interest reserve amounts that are then being held in
that interest reserve account with respect to those pooled mortgage loans that
accrue interest on an actual/360 basis.
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Withdrawals. The trustee may from time to time make withdrawals from
its payment account for any of the following purposes:
o to pay itself a monthly fee which is described under "--The
Trustee" below;
o to indemnify itself and various related persons as described
under "Description of the Governing Documents--Matters
Regarding the Trustee" in the accompanying prospectus;
o to pay for any opinions of counsel required to be obtained in
connection with any amendments to the pooling and servicing
agreement;
o to pay any federal, state and local taxes imposed on the
trust, its assets and/or transactions, together with all
incidental costs and expenses, that are required to be borne
by the trust as described under "Federal Income Tax
Consequences--REMICs--Prohibited Transactions Tax and Other
Taxes" in the accompanying prospectus and "Servicing of the
Underlying Mortgage Loans--REO Properties" in this prospectus
supplement;
o with respect to each payment date during February of any year
or during January of any year that is not a leap year,
commencing in ______, to transfer to the trustee's interest
reserve account the interest reserve amounts required to be so
transferred in that month with respect to those pooled
mortgage loans that accrue interest on an actual/360 basis;
and
o to pay to the person entitled thereto any amounts deposited in
the payment account in error.
On each payment date, all amounts on deposit in the trustee's payment
account, exclusive of any portion of those amounts that are to be withdrawn for
the purposes contemplated in the foregoing paragraph, will be withdrawn and
applied to make payments on the series _____ certificates. For any payment date,
those funds will consist of three separate components--
o the portion of those funds that represent prepayment
consideration collected on the pooled mortgage loans as a
result of voluntary or involuntary prepayments that occurred
during the related collection period, which will be paid to
the holders of the offered certificates as described under
"--Payments--Payments of Prepayment Premiums and Yield
Maintenance Charges" below,
o the portion of those funds that represent Post-ARD Additional
Interest collected on the ARD Loans in the trust during the
related collection period, which will be paid to the holders
of the class _____ certificates as described under
"--Payments--Payments of Post-ARD Additional Interest" below,
and
o the remaining portion of those funds, which--
(i) we refer to as the Available P&I Funds, and
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(ii) will be paid to the holders of all the series
_____ certificates, [other than the class____
certificates], as described under
"--Payments--Priority of Payments" below.
Interest Reserve Account
The trustee must maintain an account in which it will hold the interest
reserve amounts described in the next paragraph with respect to those underlying
mortgage loans that accrue interest on an actual/360 basis. That interest
reserve account must be maintained in a manner and with a depository that
satisfies rating agency standards for similar securitizations as the one
involving the offered certificates. Funds held in the trustee's interest reserve
account will remain uninvested.
During January, except in a leap year, and February of each calendar
year, beginning in ______, the trustee will, on or before the payment date in
that month, withdraw from its collection account and deposit in its interest
reserve account the interest reserve amounts with respect to those underlying
mortgage loans that accrue interest on an actual/360 basis and for which the
monthly debt service payment due in that month was either received or advanced.
That interest reserve amount for each of those mortgage loans will equal one
day's interest accrued at the related mortgage interest rate on the Stated
Principal Balance of that loan as of the end of the related collection period.
During March of each calendar year, beginning in ______, the trustee
will, on or before the payment date in that month, withdraw from its interest
reserve account and deposit in its collection account any and all interest
reserve amounts then on deposit in the interest reserve account with respect to
those underlying mortgage loans that accrue interest on an actual/360 basis. All
interest reserve amounts that are so transferred from the interest reserve
account to the collection account will be included in the Available P&I Funds
for the payment date during the month of transfer.
Payments
General. On each payment date, the trustee will, subject to the
available funds, make all payments required to be made on the series _____
certificates on that date to the holders of record as of the close of business
on the last business day of the calendar month preceding the month in which
those payments are to occur. The final payment of principal and/or interest on
any offered certificate, however, will be made only upon presentation and
surrender of that certificate at the location to be specified in a notice of the
pendency of that final payment.
In order for a series _____ certificateholder to receive payments by
wire transfer on and after any particular payment date, that certificateholder
must provide the trustee with written wiring instructions no later than the last
day of the calendar month preceding the month in which that payment date occurs.
Otherwise, that certificateholder will receive its payments by check mailed to
it.
Cede & Co. will be the registered holder of your offered certificates,
and you will receive payments on your offered certificates through DTC and its
participating organizations, until physical certificates are issued to the
actual beneficial owners. See "--Registration and Denominations" above.
Payments of Interest. All of the classes of the series _____
certificates will bear interest, except for the R-I, R-II and R-III classes.
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With respect to each interest-bearing class of the series _____
certificates, that interest will accrue during each interest accrual period
based upon--
o the pass-through rate for that class and the related payment
date,
o the total principal balance or notional amount, as the case
may be, of that class outstanding immediately prior to the
related payment date, and
o the assumption that each year consists of twelve 30-day
months.
On each payment date, subject to the Available P&I Funds for that date
and the priorities of payment described under "--Payments--Priority of Payments"
below, the holders of each interest-bearing class of the series _____
certificates will be entitled to receive--
o the total amount of interest accrued during the related
interest accrual period with respect to that class of
certificates, reduced by
o the portion of any Net Aggregate Prepayment Interest Shortfall
for that payment date that is allocable to that class of
certificates.
If the holders of any interest-bearing class of the series _____
certificates do not receive all of the interest to which they are entitled on
any payment date, then they will continue to be entitled to receive the unpaid
portion of that interest on future payment dates, subject to the Available P&I
Funds for those future payment dates and the priorities of payment described
under "--Payments--Priority of Payments" below.
The portion of any Net Aggregate Prepayment Interest Shortfall for any
payment date that is allocable to any particular interest-bearing class of the
series _____ certificates will equal the product of--
o the total amount of interest accrued during the related
interest accrual period with respect to that class of
certificates, multiplied by
o a fraction, the numerator of which is the total amount of
interest accrued during the related interest accrual period
with respect to that class of certificates, and the
denominator of which is the total amount of interest accrued
during the related interest accrual period with respect to all
of the interest-bearing classes of the series _____
certificates.
Calculation of Pass-Through Rates.
General. The pass-through rate for each class of the series _____
certificates, other than the class S certificates, will be [fixed] at the rate
per annum set forth with respect to each of those classes in the table on page
S-____.
The pass-through rate applicable to the class S certificates for each
payment date will equal the excess, if any, of--
S-91
<PAGE>
o the Weighted Average Pool Pass-Through Rate for that payment
date, over
o the weighted average of the pass-through rates for each of the
other interest-bearing classes of the series _____
certificates for that payment date, weighted on the basis of
the relative total principal balances of those other classes
of series _____ certificates outstanding immediately prior to
that payment date.
The calculation of the Weighted Average Pool Pass-Through Rate will be
unaffected by any change in the mortgage interest rate for any mortgage loan,
including in connection with any bankruptcy or insolvency of the related
borrower or any modification of that mortgage loan agreed to by the master
servicer or the special servicer.
The class R-I, R-II and R-III certificates will not be interest-bearing
and, therefore, will not have pass-through rates.
Payments of Principal. Subject to the Available P&I Funds and the
priority of payments described under "--Payments--Priority of Payments" below,
the total amount of principal payable with respect to each class of the series
_____ certificates, other than the class S, R-I, R-II and R-III certificates, on
each payment date will equal that class's allocable share of the Total Principal
Payment Amount for that payment date.
In general, the portion of the Total Principal Payment Amount that will
be allocated to the class A-1 and A-2 certificates on each payment date will
equal:
o in the case of the class A-1 certificates, the lesser of--
1. the entire Total Principal Payment Amount for that
payment date and
2. the total principal balance of the class A-1
certificates immediately prior to that payment date;
and
o in the case of the class A-2 certificates, the lesser of--
1. the entire Total Principal Payment Amount for that
payment date, reduced by any portion of that amount
allocable to the class A-1 certificates as described
in the preceding bullet point, and
2. the total principal balance of the class A-2
certificates immediately prior to that payment date.
However, if both of those classes are outstanding at a time when the
total principal balance of the class A-3, A-4, A-5, B-1, B-2, B-3, B-4, B-5,
B-6, B-7, B-8, C and D certificates has been reduced to zero as described under
"--Reductions to Certificate Principal Balances in Connection With Realized
Losses and Additional Trust Fund Expenses" below, then the Total Principal
Payment Amount for each payment date thereafter will be allocable between those
two classes on a pro rata basis in accordance with their respective total
principal balances immediately prior to that payment date, in each case up to
that total principal balance.
S-92
<PAGE>
While the class A-1 and A-2 certificates are outstanding, no portion of
the Total Principal Payment Amount for any payment date will be allocated to any
other class of series _____ certificates.
Following the retirement of the class A-1 and A-2 certificates, the
Total Principal Payment Amount for each payment date will be allocated to the
respective classes of series _____ certificates identified in the table below
and in the order of priority set forth in that table, in each case up to the
lesser of--
o the portion of that Total Principal Payment Amount that
remains unallocated, and
o the total principal balance of the particular class
immediately prior to that payment date.
Order of Allocation Class
------------------- -----
1 A-3
2 A-4
3 A-5
4 B-1
5 B-2
6 B-3
7 B-4
8 B-5
9 B-6
10 B-7
11 B-8
12 C
13 D
In no event will the holders of any class of series _____ certificates
listed in the foregoing table be entitled to receive any payments of principal
until the total principal balance of the class A-1 and A-2 certificates is
reduced to zero. Furthermore, in no event will the holders of any class of
series _____ certificates listed in the foregoing table be entitled to receive
any payments of principal until the total principal balance of all other classes
of series _____ certificates, if any, listed above it in the foregoing table is
reduced to zero.
Reimbursement Amounts. As discussed under "--Reductions of Certificate
Principal Balances in Connection with Realized Losses and Additional Trust Fund
Expenses" below, the total principal balance of any class of series _____
certificates, other than the class S, R-I, R-II and R-III certificates, may be
reduced without a corresponding payment of principal. If that occurs with
respect to any class of series _____ certificates, other than the class S, R-I,
R-II and R-III certificates, then, subject to Available P&I Funds and the
priority of payment described under "--Payments--Priority of Payments" below,
the holders of that class will be entitled to be reimbursed for the amount of
that reduction, without interest. References to the "loss reimbursement amount"
under "--Payments--Priority of Payments" below mean, in the case of any class of
series _____ certificates, other than the class S, R-I, R-II and R-III
certificates, for any payment date, the total amount to which the holders of
that class are entitled as reimbursement for all previously unreimbursed
reductions, if any, made in the total principal
S-93
<PAGE>
balance of that class on all prior payment dates as discussed under
"--Reductions of Certificate Principal Balances in Connection with Realized
Losses and Additional Trust Fund Expenses" below.
Priority of Payments. On each payment date, the trustee will apply the
Available P&I Funds for that date to make the following payments in the
following order of priority, in each case to the extent of the remaining
Available P&I Funds:
<TABLE>
<CAPTION>
Order of Recipient
Payment Class or Classes Type and Amount of Payment
-------- ---------------- --------------------------
<S> <C> <C>
1 A-1, A-2 and S Interest up to the total interest payable on those classes, pro rata based on
entitlement
2 A-1 and A-2 Principal up to the total principal payable on those classes, allocable as between
those classes as described immediately following this table
3 A-1 and A-2 Reimbursement up to the reimbursement amounts for those classes, pro rata based on
entitlement as described immediately following this table
4 A-3 Interest up to the total interest payable on that class
5 A-3 Principal up to the total principal payable on that class
6 A-3 Reimbursement up to the loss reimbursement amount for that class
7 A-4 Interest up to the total interest payable on that class
8 A-4 Principal up to the total principal payable on that class
9 A-4 Reimbursement up to the loss reimbursement amount for that class
10 A-5 Interest up to the total interest payable on that class
11 A-5 Principal up to the total principal payable on that class
12 A-5 Reimbursement up to the loss reimbursement amount for that class
13 B-1 Interest up to the total interest payable on that class
14 B-1 Principal up to the total principal payable on that class
15 B-1 Reimbursement up to the loss reimbursement amount for that class
16 B-2 Interest up to the total interest payable on that class
17 B-2 Principal up to the total principal payable on that class
18 B-2 Reimbursement up to the loss reimbursement amount for that class
</TABLE>
S-94
<PAGE>
<TABLE>
<CAPTION>
Order of Recipient
Payment Class or Classes Type and Amount of Payment
-------- ---------------- --------------------------
<S> <C> <C>
19 B-3 Interest up to the total interest payable on that class
20 B-3 Principal up to the total principal payable on that class
21 B-3 Reimbursement up to the loss reimbursement amount for that class
22 B-4 Interest up to the total interest payable on that class
23 B-4 Principal up to the total principal payable on that class
24 B-4 Reimbursement up to the loss reimbursement amount for that class
25 B-5 Interest up to the total interest payable on that class
26 B-5 Principal up to the total principal payable on that class
27 B-5 Reimbursement up to the loss reimbursement amount for that class
28 B-6 Interest up to the total interest payable on that class
29 B-6 Principal up to the total principal payable on that class
30 B-6 Reimbursement up to the loss reimbursement amount for that class
31 B-7 Interest up to the total interest payable on that class
32 B-7 Principal up to the total principal payable on that class
33 B-7 Reimbursement up to the loss reimbursement amount for that class
34 B-8 Interest up to the total interest payable on that class
35 B-8 Principal up to the total principal payable on that class
36 B-8 Reimbursement up to the loss reimbursement amount for that class
</TABLE>
S-95
<PAGE>
<TABLE>
<CAPTION>
Order of Recipient
Payment Class or Classes Type and Amount of Payment
-------- ---------------- --------------------------
<S> <C> <C>
37 C Interest up to the total interest payable on that class
38 C Principal up to the total principal payable on that class
39 C Reimbursement up to the loss reimbursement amount for that class
40 D
41 D
42 D
43 R-I, R-II and R-III Any remaining Available P&I Funds
</TABLE>
In general, no payments of principal will be made with respect to the
class A-2 certificates until the total principal balance of the class A-1
certificates is reduced to zero. However, if both of those classes are
outstanding at a time when the total principal balance of the class A-3, A-4,
A-5, B-1, B-2, B-3, B-4, B-5, B-6, B-7, B-8, C and D certificates has been
reduced to zero as described under "--Reductions to Certificate Principal
Balances in Connection With Realized Losses and Additional Trust Fund Expenses"
below, payments of principal on the class A-1 certificates and the class A-2
certificates will be made on a pro rata basis in accordance with the respective
total principal balances of those classes then outstanding.
Payments of Prepayment Premiums and Yield Maintenance Charges. If any
prepayment consideration is collected during any particular collection period
with respect to any mortgage loan in the trust, regardless of whether that
prepayment consideration is calculated as a percentage of the amount prepaid or
in accordance with a yield maintenance formula, then on the payment date
corresponding to that collection period, the trustee will pay a portion of that
prepayment consideration to the holders of each class of series ___
certificates, if any, that--
o is senior to the class _____ certificates, and
o is entitled to payments of principal on that payment date,
up to an amount equal to the product of--
o the full amount of that prepayment consideration, net of
workout fees and liquidation fees payable from it, multiplied
by
o a fraction, which in no event may be greater than 1.0, the
numerator of which is equal to the excess, if any, of the
pass-through rate for that class of certificates over the
relevant discount rate, and the denominator of which is equal
to the excess, if any, of the mortgage interest rate of the
prepaid mortgage loan over the relevant discount rate, and
further multiplied by
S-96
<PAGE>
o a fraction, the numerator of which is equal to the amount of
principal payable to that class of certificates on that
payment date, and the denominator of which is the Total
Principal Payment Amount for that payment date.
The discount rate applicable to any class of series ___ certificates
with respect to any prepaid mortgage loan will equal the yield, when compounded
monthly, on the U.S. Treasury issue, primary issue, with a maturity date closest
to the maturity date or anticipated repayment date, as applicable, for the
prepaid mortgage loan. In the event that there are two U.S. Treasury issues--
o with the same coupon, the issue with the lower yield will be
utilized, or
o with maturity dates equally close to the maturity date for the
prepaid mortgage loan, the issue with the earliest maturity
date will be utilized.
The trustee will thereafter pay any remaining portion of the prepayment
consideration, net of workout fees and workout fees payable from it, to the
holders of the class S certificates. After the payment date on which the total
principal balance of all classes of series ___ certificates, other than the
class S certificates, senior to the class _____ certificates has been reduced to
zero, the trustee will pay any prepayment consideration, net of workout fees and
liquidation fees payable from it, collected on the pooled mortgage loans,
entirely to the holders of the class S certificates.
Neither we nor the underwriter makes any representation as to--
o the enforceability of the provision of any promissory note
evidencing one of the mortgage loans requiring the payment of
a prepayment premium or yield maintenance charge, or
o the collectability of any prepayment premium or yield
maintenance charge.
See "Description of the Mortgage Pool--Terms and Conditions of the Mortgage
Loans--Prepayment Provisions" in this prospectus supplement.
Payments of Additional Interest. The class _____ certificates will
entitle the holders to all amounts, if any, applied as Post-ARD Additional
Interest collected on the ARD Loans in the trust.
Treatment of REO Properties. Notwithstanding that any mortgaged real
property may be acquired as part of the trust assets through foreclosure, deed
in lieu of foreclosure or otherwise, the related mortgage loan will be treated
as having remained outstanding, until the REO Property is liquidated, for
purposes of determining--
o payments on the series _____ certificates,
o allocations of Realized Losses and Additional Trust Fund
Expenses to the series _____ certificates, and
o the amount of all fees payable to the master servicer, the
special servicer and the trustee under the pooling and
servicing agreement.
S-97
<PAGE>
In connection with the foregoing, that mortgage loan will be taken into account
when determining the Weighted Average Pool Pass-Through Rate and the Total
Principal Payment Amount for each payment date.
Operating revenues and other proceeds derived from an REO Property will
be applied--
o first, to pay, or to reimburse the master servicer, the
special servicer and/or the trustee for the payment of, some
of the costs and expenses incurred in connection with the
operation and disposition of the REO Property, and
o thereafter, as collections of principal, interest and other
amounts due on the related mortgage loan.
To the extent described under "--Advances of Delinquent Monthly Debt
Service Payments" below, the master servicer and the trustee will be required to
advance delinquent monthly debt service payments with respect to each pooled
mortgage loan as to which the corresponding mortgaged real property has become
an REO Property, in all cases as if the mortgage loan had remained outstanding.
Reductions to Certificate Principal Balances in Connection With Realized Losses
and Additional Trust Fund Expenses
As a result of Realized Losses and Additional Trust Fund Expenses, the
total Stated Principal Balance of the mortgage pool may decline below the total
principal balance of the series ___ certificates. If this occurs following the
payments made to the certificateholders on any payment date, then the respective
total principal balances of the following classes of the series ___ certificates
are to be successively reduced in the following order, until the total principal
balance of those classes of certificates equals the total Stated Principal
Balance of the mortgage pool that will be outstanding immediately following that
payment date.
Order of Allocation Class
------------------- -----
1 D
2 C
3 B-8
4 B-7
5 B-6
6 B-5
7 B-4
8 B-3
9 B-2
10 B-1
11 A-5
12 A-4
13 A-3
14 A-1 and A-2, pro rata based
on total principal balances.
----------------
S-98
<PAGE>
The reductions in the total principal balances of the respective
classes of series ___ certificates with principal balances, as described in the
previous paragraph, will represent an allocation of the Realized Losses and/or
Additional Trust Fund Expenses that caused the particular mismatch in balances
between the pooled mortgage loans and those classes of certificates. A reduction
of this type in the total principal balance of any of the foregoing classes of
series ____certificates will result in a corresponding reduction in the total
notional amount of the class S certificates.
The Realized Loss with respect to a liquidated mortgage loan, or
related REO Property, is an amount generally equal to the excess, if any, of:
o the outstanding principal balance of the mortgage loan as of
the date of liquidation, together with--
1. all accrued and unpaid interest on the mortgage loan
to but not including the due date in the collection
period in which the liquidation occurred, exclusive,
however, of any portion of that interest that
represents Default Interest or Post-ARD Additional
Interest, and
2. all related unreimbursed servicing advances and
unpaid liquidation expenses, over
o the total amount of liquidation proceeds, if any, recovered in
connection with the liquidation.
If any portion of the debt due under a mortgage loan is forgiven, whether in
connection with a modification, waiver or amendment granted or agreed to by the
master servicer or the special servicer or in connection with the bankruptcy,
insolvency or similar proceeding involving the related borrower, the amount
forgiven, other than Default Interest and Post-ARD Additional Interest, also
will be treated as a Realized Loss.
Some examples of Additional Trust Fund Expenses are:
o any special servicing fees, workout fees and liquidation fees
paid to the special servicer;
o any interest paid to the master servicer, the special servicer
and/or the trustee with respect to unreimbursed advances,
which interest payment is not covered out of late payment
charges and Default Interest actually collected on the related
mortgage loan in the trust;
o the cost of various opinions of counsel required or permitted
to be obtained in connection with the servicing of the pooled
mortgage loans and the administration of the other trust
assets;
o any unanticipated, non-mortgage loan specific expenses of the
trust, including--
1. any reimbursements and indemnifications to the
trustee described under "Description of the Governing
Documents--Matters Regarding the Trustee" in the
accompanying prospectus,
S-99
<PAGE>
2. any reimbursements and indemnification to the master
servicer, the special servicer and us described under
"Description of the Governing Documents--Matters
Regarding the Master Servicer, the Special Servicer,
the Manager and Us" in the accompanying prospectus,
and
3. any federal, state and local taxes, and tax-related
expenses, payable out of the trust assets, as
described under "Federal Income Tax
Consequences--REMICs--Prohibited Transactions Tax and
Other Taxes" in the accompanying prospectus;
o rating agency fees, other than on-going surveillance fees,
that cannot be recovered from the borrower; and
o any amounts expended on behalf of the trust to remediate an
adverse environmental condition at any mortgaged real property
securing a defaulted mortgage loan as described under
"Servicing of the Underlying Mortgage Loans--Realization Upon
Defaulted Mortgage Loans" in this prospectus supplement.
Advances of Delinquent Monthly Debt Service Payments
The master servicer will be required to make, for each payment date, a
total amount of advances of principal and/or interest generally equal to all
monthly debt service payments other than balloon payments, and assumed monthly
debt service payments, in each case net of related master servicing fees, that-
o were due or deemed due, as the case may be, with respect to
the mortgage pooled loans during the related collection
period, and
o were not paid by or on behalf of the respective borrowers or
otherwise collected as of the close of business on the last
day of the related collection period.
Notwithstanding the foregoing, if it is determined that an Appraisal
Reduction Amount exists with respect to any mortgage loan in the trust, then the
master servicer will reduce the interest portion, but not the principal portion,
of each P&I advance that it must make with respect to that mortgage loan during
the period that the Appraisal Reduction Amount exists. The interest portion of
any P&I advance required to be made with respect to any mortgage loan as to
which there exists an Appraisal Reduction Amount, will equal the product of:
o the amount of the interest portion of that P&I advance that
would otherwise be required to be made for the subject payment
date without regard to this sentence and the prior sentence,
multiplied by
o a fraction, the numerator of which is equal to the Stated
Principal Balance of the mortgage loan, net of the Appraisal
Reduction Amount, and the denominator of which is equal to the
Stated Principal Balance of the mortgage loan.
With respect to any payment date, the master servicer will be required
to make P&I advances either out of its own funds or, subject to the replacement
as and to the extent provided in the pooling and
S-100
<PAGE>
servicing agreement, funds held in the master servicer's collection account that
are not required to be paid on the series ___ certificates on that payment date.
The trustee will be required to make any P&I advance that the master
servicer fails to make. See "--The Trustee" below.
The master servicer and the trustee will each be entitled to recover
any P&I advance made by it, out of its own funds, from collections on the
mortgage loan as to which the advance was made. Neither the master servicer nor
the trustee will be obligated to make any P&I advance that, in its judgment,
would not ultimately be recoverable out of collections on the related mortgage
loan. If the master servicer or the trustee makes any P&I advance that it
subsequently determines, in its judgment, will not be recoverable out of
collections on the related mortgage loan, it may obtain reimbursement for that
advance, together with interest accrued on the advance as described in the next
paragraph, out of general collections on the mortgage loans and any REO
Properties in the trust on deposit in the master servicer's collection account
from time to time. See "Description of the Certificates--Advances" in the
accompanying prospectus and "Servicing of the Underlying Mortgage
Loans--Collection Account" in this prospectus supplement.
The master servicer and the trustee will each be entitled to receive
interest on P&I advances made thereby out of its own funds. That interest will
accrue on the amount of each P&I advance, and compound monthly, for so long as
that advance is outstanding at an annual rate equal to the prime rate as
published in the "Money Rates" section of The Wall Street Journal, as that prime
rate may change from time to time. Interest accrued with respect to any P&I
advance will be payable in the collection period in which that advance is
reimbursed--
o first, out of Default Interest and late payment charges
collected on the related mortgage loan during that collection
period, and
o then, if and to the extent that the Default Interest and late
charges referred to in clause first are insufficient to cover
the advance interest, out of any amounts then on deposit in
the master servicer's collection account.
Any delay between a sub-servicer's receipt of a late collection of a
monthly debt service payment as to which a P&I advance was made and the
forwarding of that late collection to the master servicer, will increase the
amount of interest accrued and payable to the master servicer or the trustee, as
the case may be, on that P&I advance. To the extent not offset by Default
Interest and/or late payment charges accrued and actually collected, interest
accrued on outstanding P&I advances will result in a reduction in amounts
payable on the certificates.
A monthly debt service payment will be assumed to be due with respect
to:
o each pooled mortgage loan that is delinquent with respect to
its balloon payment beyond the end of the collection period in
which its maturity date occurs and as to which no arrangements
have been agreed to for the collection of the delinquent
amounts, including an extension of maturity; and
S-101
<PAGE>
o each pooled mortgage loan as to which the corresponding
mortgaged real property has become an REO Property.
The assumed monthly debt service payment deemed due on any mortgage loan
described in the prior sentence that is delinquent as to its balloon payment,
will equal, for its stated maturity date and for each successive due date that
it remains outstanding and part of the trust, the monthly debt service payment
that would have been due on the mortgage loan on the relevant date if the
related balloon payment had not come due and the mortgage loan had, instead,
continued to amortize and accrue interest according to its terms in effect prior
to that stated maturity date. The assumed monthly debt service payment deemed
due on any mortgage loan described in the second preceding sentence as to which
the related mortgaged real property has become an REO Property, will equal, for
each due date that the REO Property remains part of the trust, the monthly debt
service payment or, in the case of a mortgage loan delinquent with respect to
its balloon payment, the assumed monthly debt service payment due or deemed due
on the last due date prior to the acquisition of that REO Property. [Assumed
monthly debt service payments for ARD Loans do not include Post-ARD Additional
Interest or accelerated amortization payments.]
Reports to Certificateholders; Available Information
Certificateholder Reports. Based solely on information provided in
monthly reports prepared by the master servicer and the special servicer and
delivered to the trustee, the trustee will be required to deliver or otherwise
make available as described under "--Information Available Electronically"
below, on each payment date, to each registered holder of an offered certificate
and to each beneficial owner of an offered certificate held in book-entry form
that is identified to the reasonable satisfaction of the trustee to each
certificateholder a reporting statement substantially in the form of, and
containing the information set forth in [Annex B] to this prospectus supplement,
detailing the payments on that payment date and the performance, both in total
and individually to the extent available, of the mortgage loans and the
underlying real properties.
Book-Entry Certificates. If you hold your offered certificates in
book-entry from through DTC, you may obtain direct access to the monthly reports
of the trustee as if you were a certificateholder, provided that you deliver a
written certification to the trustee confirming your beneficial ownership in the
offered certificates. Otherwise, until definitive certificates are issued with
respect to your offered certificates, the information contained in those monthly
reports will be available to you only to the extent that it is made available
through DTC and the DTC participants or is available on the trustee's internet
website. Conveyance of notices and other communications by DTC to the DTC
participants, and by the DTC participants to beneficial owners of the offered
certificates, will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time. We,
the master servicer, the special servicer, the trustee and the series ____
certificate registrar are required to recognize as certificateholders only those
persons in whose names the series ____ certificates are registered on the books
and records of the certificate registrar.
Information Available Electronically. The trustee will make available
each month, to any interested party, the trustee's report via the trustee's
internet website, electronic bulletin board and fax-on-demand service. The
trustee's internet website will initially be located at ____________________.
S-102
<PAGE>
The trustee's electronic bulletin board may be accessed by calling
___-___-____, and its fax-on- demand service may be accessed by calling
___-___-____. For assistance with regard to the services described above,
investors may call ___-___-____.
The trustee will make no representations or warranties as to the
accuracy or completeness of, and may disclaim responsibility for, any
information made available by the trustee for which it is not the original
source.
The trustee may require registration and the acceptance of a disclaimer
in connection with providing access to its electronic bulletin board and
internet website. The trustee shall not be liable for the dissemination of
information made in accordance with the pooling and servicing agreement.
Other Information. The pooling and servicing agreement will obligate
the trustee to make available at its offices, during normal business hours, upon
reasonable advance written notice, for review by any holder or beneficial owner
of an offered certificate or any person identified to the trustee as a
prospective transferee of an offered certificate or any interest in that offered
certificate, originals or copies of, among other things, the following items:
o the pooling and servicing agreement, including exhibits, and
any amendments to the pooling and servicing agreement;
o all monthly reports of the trustee delivered, or otherwise
electronically made available, to series ___
certificateholders since the date of initial issuance of the
offered certificates;
o all officer's certificates delivered to the trustee by the
master servicer and/or the special servicer since the date of
initial issuance of the certificates, as described under
"Servicing of the Underlying Mortgage Loans--Evidence as to
Compliance" in this prospectus supplement;
o all accountant's reports delivered to the trustee with respect
to the master servicer and/or the special servicer since the
date of initial issuance of the offered certificates, as
described under "Servicing of the Underlying Mortgage
Loans--Evidence as to Compliance" in this prospectus
supplement;
o the most recent inspection report with respect to each
mortgaged real property for a pooled mortgage loan prepared by
the master servicer or the special servicer and delivered to
the trustee as described under "Servicing of the Underlying
Mortgage Loans--Inspections; Collection of Operating
Information" in this prospectus supplement;
o the most recent appraisal, if any, with respect to each
mortgaged real property for a pooled mortgage loan obtained by
the master servicer or the special servicer and delivered to
the trustee;
o the most recent quarterly and annual operating statement and
rent roll for each mortgaged real property for a pooled
mortgage loan and financial statements of the related borrower
collected by the master servicer or the special servicer and
delivered to the trustee as
S-103
<PAGE>
described under "Servicing of the Underlying Mortgage
Loans--Inspections; Collection of Operating Information" in
this prospectus supplement; and
o the mortgage files, including all documents, such as
modifications, waivers and amendments of the pooled mortgage
loans, that are to be added to the mortgage files from time to
time.
Copies of any and all of the foregoing items will be available from the
trustee upon request. However, the trustee will be permitted to require payment
of a sum sufficient to cover the reasonable costs and expenses of providing the
copies.
In connection with providing access to or copies of the items described
above, the trustee may require:
o in the case of a beneficial owner of an offered certificate
held in book-entry form, a written confirmation executed by
the requesting person or entity, in a form reasonably
acceptable to the trustee, generally to the effect that the
person or entity is a beneficial owner of offered certificates
and will keep the information confidential; and
o in the case of a prospective purchaser of an offered
certificate or any interest in that offered certificate,
confirmation executed by the requesting person or entity, in a
form reasonably acceptable to the trustee, generally to the
effect that the person or entity is a prospective purchaser of
offered certificates or an interest in offered certificates,
is requesting the information for use in evaluating a possible
investment in the offered certificates and will otherwise keep
the information confidential.
Registered holders of the offered certificates will be deemed to have agreed to
keep the information described above confidential by the acceptance of their
certificates.
Voting Rights
The voting rights for the series ___ certificates will be allocated as
follows: [specify allocation]. Voting rights allocated to a class of series ___
certificateholders will be allocated among those certificateholders in
proportion to their respective percentage interests in that class.
Termination
The obligations created by the pooling and servicing agreement will
terminate following the earliest of--
1. the final payment or advance on, other liquidation of, the
last mortgage loan or related REO Property remaining in the
trust, and
2. the purchase of all of the mortgage loans and REO Properties
remaining in the trust by us, the master servicer, the special
servicer or any single certificateholder or group of
certificateholders in the series ___ controlling class, in
that order of preference.
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Written notice of termination of the pooling and servicing agreement
will be given to each series _____ certificateholder. The final payment with
respect to each series ___ certificate will be made only upon surrender and
cancellation of that certificate at the office of the series ___ certificate
registrar or at any other location specified in the notice of termination.
Any purchase by us, the master servicer, the special servicer or any
single holder or group of holders of the controlling class of all the mortgage
loans and REO Properties remaining in the trust is required to be made at a
price equal to:
o the sum of--
1. the total principal balance of all the mortgage loans
then included in the trust, other than any mortgage
loans as to which the mortgaged real properties have
become REO Properties, together with interest, other
than Default Interest and Post-ARD Additional
Interest, on and unreimbursed servicing advances for
those mortgage loans, and
2. the appraised value of all REO Properties then
included in the trust, as determined by an appraiser
mutually agreed upon by the master servicer, the
special servicer and the trustee, minus
o solely in the case of a purchase by the master servicer or the
special servicer, the total of all amounts payable or
reimbursable to the purchaser under the pooling and servicing
agreement.
The purchase will result in early retirement of the outstanding series ___
certificates. However, but the right of us, the master servicer, the special
servicer or any single holder or group of holders of the series ___ controlling
class to make the purchase is subject to the requirement that the total Stated
Principal Balance of the mortgage pool be less than ____% of the initial
mortgage pool balance. The termination price, exclusive of any portion of the
termination price payable or reimbursable to any person other than the series
___ certificateholders, will constitute part of the Available P&I Funds for the
final payment date. Any person or entity making the purchase will be responsible
for reimbursing the parties to the pooling and servicing agreement for all
reasonable out-of-pocket costs and expenses incurred by the parties in
connection with the purchase.
The Trustee
[Insert description of trustee.]
The trustee is at all times required to be a corporation, bank, trust
company or association organized and doing business under the laws of the U.S.
or any State of the U.S. or the District of Columbia. In addition, the trustee
must at all times--
o be authorized under those laws to exercise trust powers,
o have a combined capital and surplus of at least $50,000,000,
and
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o be subject to supervision or examination by federal or state
authority.
If the corporation, bank, trust company or association publishes reports of
condition at least annually, in accordance with law or to the requirements of
the supervising or examining authority, then the combined capital and surplus of
the corporation, bank, trust company or association will be deemed to be its
combined capital and surplus as described in its most recent published report of
condition.
We, the master servicer, the special servicer and our and their
respective affiliates, may from time to time enter into normal banking and
trustee relationships with the trustee and its affiliates. The trustee and any
of its respective affiliates may hold series ___ certificates in their own
names. In addition, for purposes of meeting the legal requirements of some local
jurisdictions, the master servicer and the trustee acting jointly will have the
power to appoint a co-trustee or separate trustee of all or any part of the
trust assets. All rights, powers, duties and obligations conferred or imposed
upon the trustee will be conferred or imposed upon the trustee and the separate
trustee or co-trustee jointly, or in any jurisdiction in which the trustee shall
be incompetent or unqualified to perform some acts, singly upon the separate
trustee or co-trustee who shall exercise and perform its rights, powers, duties
and obligations solely at the direction of the trustee.
The trustee will be entitled to a monthly fee for its services, which
fee will accrue on a 30/360 basis at ____% per annum on the Stated Principal
Balance outstanding from time to time of each pooled mortgage loan. The trustee
fee is payable out of general collections on the mortgage loans and any REO
Properties in the trust.
See also "Description of the Governing Documents--The Trustee",
"--Duties of the Trustee", "--Matters Regarding the Trustee" and "--Resignation
and Removal of the Trustee" in the accompanying prospectus.
Yield and Maturity Considerations
Yield Considerations
General. The yield on any offered certificate will depend on:
o the price at which the certificate is purchased by an
investor, and
o the rate, timing and amount of payments on the certificate.
The rate, timing and amount of payments on any offered certificate will
in turn depend on, among other things,
o the pass-through rate for the certificate,
o the rate and timing of principal payments, including principal
prepayments, and other principal collections on the underlying
mortgage loans and the extent to which those amounts are to be
applied or otherwise result in reduction of the principal
balance or notional amount of the certificate,
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o the rate, timing and severity of Realized Losses and
Additional Trust Fund Expenses and the extent to which those
losses and expenses result in the reduction of the principal
balance or notional amount of the certificate, and
o the timing and severity of any Net Aggregate Prepayment
Interest Shortfalls and the extent to which those shortfalls
result in the reduction of the interest payments on the
certificate.
Pass-Through Rates. The pass-through rate for each class of offered
certificates other than the class S certificates, is [fixed]. However, the
pass-through rate applicable to the class S certificates will be variable and
will be calculated based in part on the weighted average mortgage pass-through
rate from time to time. Accordingly, the yield on the class S certificates will
be sensitive to changes in the relative composition of the mortgage pool as a
result of scheduled amortization, voluntary prepayments and liquidations of
underlying mortgage loans following default. In addition, the pass-through rate
for the class S certificates will vary with changes in the relative sizes of the
total principal balances of the other interest-bearing classes of the series ___
certificates. The weighted average mortgage pass-through rate and the
pass-through rate for the class S certificates will not be affected by
modifications, waivers and amendments with respect to the underlying mortgage
loans.
See "Description of the Offered Certificates--Payments--Calculation of
Pass-Through Rates" and "Description of the Mortgage Pool" in this prospectus
supplement and "--Rate and Timing of Principal Payments" below.
Rate and Timing of Principal Payments. The yield to maturity on the
class S certificates will be extremely sensitive to, and the yield to maturity
on any other offered certificates purchased at a discount or a premium will be
affected by, the rate and timing of principal payments made in reduction of the
total principal balances or notional amounts of the series ___ certificates. In
turn, the rate and timing of principal payments that are paid or otherwise
result in reduction of the total principal balance or notional amount, as the
case may be, of any offered certificate will be directly related to the rate and
timing of principal payments on or with respect to the underlying mortgage
loans. Finally, the rate and timing of principal payments on or with respect to
the underlying mortgage loans will be affected by their amortization schedules,
the dates on which balloon payments are due and the rate and timing of principal
prepayments and other unscheduled collections on them, including for this
purpose, collections made in connection with liquidations of mortgage loans due
to defaults, casualties or condemnations affecting the mortgaged real
properties, or purchases or other removals of underlying mortgage loans from the
trust.
Prepayments and other early liquidations of the underlying mortgage
loans will result in payments on the series ___ certificates of amounts that
would otherwise be paid over the remaining terms of the mortgage loans. This
will tend to shorten the weighted average lives of those series ___ certificates
with principal balances. Defaults on the underlying mortgage loans, particularly
at or near their maturity dates, may result in significant delays in payments of
principal on the mortgage loans and, accordingly, on the series ___
certificates, while work-outs are negotiated or foreclosures are completed.
These delays will tend to lengthen the weighted average lives of those
certificates. See "Servicing of the Underlying Mortgage Loans--Modifications,
Waivers, Amendment and Consent" in this prospectus supplement. In addition, the
ability of a borrower under an ARD Loan, to repay that loan on the related
anticipated repayment date will generally depend on its ability to either
refinance the mortgage loan or
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sell the corresponding mortgaged real property. Also, a borrower may have little
incentive to repay its mortgage loan on the related anticipated repayment date
if then prevailing interest rates are relatively high. Accordingly, there can be
no assurance that any ARD Loan in the trust will be paid in full on its
anticipated repayment date.
The extent to which the yield to maturity on any offered certificate
may vary from the anticipated yield will depend upon the degree to which the
certificate is purchased at a discount or premium and when, and to what degree,
payments of principal on the underlying mortgage loans are in turn paid or
otherwise result in a reduction of the principal balance or notional amount of
the certificate. If you purchase your offered certificates at a discount, you
should consider the risk that a slower than anticipated rate of principal
payments on the underlying mortgage loans could result in an actual yield to you
that is lower than your anticipated yield. If you purchase class S certificates,
or if you purchase any other offered certificates at a premium, you should
consider the risk that a faster than anticipated rate of principal payments on
the underlying mortgage loans could result in an actual yield to you that is
lower than your anticipated yield.
If you are contemplating an investment in the class S certificates, you
should fully consider the risk that an extremely rapid rate of principal
payments on the underlying mortgage loans could result in your failure to recoup
fully your initial investment.
Because the rate of principal payments on or with respect to the
underlying mortgage loans will depend on future events and a variety of factors,
no assurance can be given as to the rate or the rate of principal prepayments in
particular. We are not aware of any relevant publicly available or authoritative
statistics with respect to the historical prepayment experience of a large group
of real estate loans comparable to those in the mortgage pool.
Even if they are available and payable on your offered certificates,
prepayment premiums and yield maintenance charges may not be sufficient to
offset fully any loss in yield on your offered certificates attributable to the
related prepayments of the underlying mortgage loans.
Delinquencies and Defaults on the Mortgage Loans. The rate and timing
of delinquencies and defaults on the underlying mortgage loans will affect the
amount of payments on your offered certificates, the yield to maturity of your
offered certificates, the rate of principal payments on your offered
certificates and the weighted average life of your offered certificates.
Delinquencies on the underlying mortgage loans, unless covered by P&I advances,
may result in shortfalls in payments of interest and/or principal on your
offered certificates for the current month. Although any shortfalls in payments
of interest may be made up on future payment dates, no interest would accrue on
those shortfalls. Thus, any shortfalls in payments of interest would adversely
affect the yield to maturity of your offered certificates.
If--
o you calculate the anticipated yield to maturity for your
offered certificates based on an assumed rate of default and
amount of losses on the underlying mortgage loans that is
lower than the default rate and amount of losses actually
experienced, and
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o the additional losses result in a reduction of the total
payments on or the total principal balance or notional amount
of your offered certificates,
then your actual yield to maturity will be lower than you calculated and could,
under some scenarios, be negative.
The timing of any loss on a liquidated mortgage loan that results in a
reduction of the total payments on or the total principal balance or notional
amount of your offered certificates will also affect your actual yield to
maturity, even if the rate of defaults and severity of losses are consistent
with your expectations. In general, the earlier your loss occurs, the greater
the effect on your yield to maturity.
Even if losses on the underlying mortgage loans do not result in a
reduction of the total payments on or the total principal balance or notional
amount of your offered certificates, the losses may still affect the timing of
payments on, and the weighted average life and yield to maturity of, your
offered certificates.
Relevant Factors. The following factors, among others, will affect the
rate and timing of principal payments and defaults and the severity of losses on
or with respect to the underlying mortgage loans in the trust:
o prevailing interest rates;
o the terms of the mortgage loans, including provisions that
require the payment of prepayment premiums and yield
maintenance charges, provisions that impose prepayment
lock-out periods and amortization terms that require balloon
payments;
o the demographics and relative economic vitality of the areas
in which the mortgaged real properties are located;
o the general supply and demand for commercial and multifamily
rental space of the type available at the mortgaged real
properties in the areas in which the mortgaged real properties
are located;
o the quality of management of the mortgaged real properties;
o the servicing of the mortgage loans;
o possible changes in tax laws; and
o other opportunities for investment.
See "Risk Factors--Risks Related to the Mortgage Loans", "Description
of the Mortgage Pool" and "Servicing of the Underlying Mortgage Loans" in this
prospectus supplement and "Description of the Governing Documents" and "Yield
and Maturity Considerations--Yield and Prepayment Considerations" in the
accompanying prospectus.
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The rate of prepayment on the mortgage loans in the trust is likely to
be affected by prevailing market interest rates for mortgage loans of a
comparable type, term and risk level. When the prevailing market interest rate
is below the annual rate at which a mortgage loan accrues interest, the related
borrower may have an increased incentive to refinance the mortgage loan.
Conversely, to the extent prevailing market interest rates exceed the annual
rate at which a mortgage loan accrues interest, the related borrower may be less
likely to voluntarily prepay the mortgage loan. Assuming prevailing market
interest rates exceed the revised mortgage interest rate at which an ARD Loan
accrues interest following its anticipated repayment date, the primary incentive
for the related borrower to prepay the mortgage loan on or before its
anticipated repayment date is to give the borrower access to excess cash flow,
all of which, net of the minimum required debt service, approved property
expenses and any required reserves, must be applied to pay down principal of the
mortgage loan. Accordingly, there can be no assurance that any ARD Loan in the
trust will be prepaid on or before its anticipated repayment date or on any
other date prior to maturity.
Depending on prevailing market interest rates, the outlook for market
interest rates and economic conditions generally, some underlying borrowers may
sell their mortgaged real properties in order to realize their equity in those
properties, to meet cash flow needs or to make other investments. In addition,
some underlying borrowers may be motivated by federal and state tax laws, which
are subject to change, to sell their mortgaged real properties prior to the
exhaustion of tax depreciation benefits.
A number of the underlying borrowers are limited or general
partnerships. The bankruptcy of the general partner in a partnership may result
in the dissolution of the partnership. The dissolution of a borrower
partnership, the winding-up of its affairs and the distribution of its assets
could result in an acceleration of its payment obligations under the related
mortgage loan.
We make no representation or warranty regarding:
o the particular factors that will affect the rate and timing of
prepayments and defaults on the underlying mortgage loans;
o the relative importance of those factors;
o the percentage of the total principal balance of the
underlying mortgage loans that will be prepaid or as to which
a default will have occurred as of any particular date; or
o the overall rate of prepayment or default on the underlying
mortgage loans.
Unpaid Interest. If the portion of the Available P&I Funds payable with
respect to interest on any class of offered certificates on any payment date is
less than the total amount of interest then payable for the class, the shortfall
will be payable to the holders of those certificates on subsequent payment
dates, subject to the Available P&I Funds on those subsequent payment dates and
the priority of payments described under "Description of the Offered
Certificates--Payments--Priority of Payments" in this prospectus supplement.
That shortfall will not bear interest, however, and will therefore negatively
affect the yield to maturity of that class of offered certificates for so long
as it is outstanding.
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Delay in Payments. Because monthly payments will not be made on the
certificates until several days after the due dates for the mortgage loans
during the related collection period, your effective yield will be lower than
the yield that would otherwise be produced by your pass-through rate and
purchase price, assuming that purchase price did not account for a delay.
Yield Sensitivity
The tables on Annex C hereto show the pre-tax corporate bond equivalent
or CBE yield to maturity with respect to each class of offered certificates, and
the modified duration, weighted average life, first payment date on which
principal is to be paid and final payment date on which principal is to be paid
with respect to each class of offered certificates, other than the class S
certificates. We prepared those tables using the Modeling Assumptions. Where
applicable, they also show the specified assumed purchase prices, which prices
do not include accrued interest. Assumed purchase prices are expressed in 32nds
as a percentage of the initial total principal balance or notional amount of
each class of offered certificates. For example, ___ means __%.
We calculated the yields set forth in the tables on Annex C by--
o determining the monthly discount rates which, when applied to
the assumed stream of cash flows to be paid on each class of
offered certificates, would cause the discounted present value
of that assumed stream of cash flows to equal the assumed
purchase prices, plus accrued interest from and including the
cut-off date to but excluding the assumed settlement date
specified as part of the offered certificates, and
o converting those monthly rates to semi-annual corporate bond
equivalent rates.
That calculation does not take into account variations that may occur in the
interest rates at which investors may be able to reinvest funds received by them
as payments on the offered certificates and, consequently, does not purport to
reflect the return on any investment in the offered certificates when those
reinvestment rates are considered.
For purposes of the tables on Annex C, modified duration has been
calculated using the modified Macaulay Duration as specified in the "PSA
Standard Formulas". The Macaulay Duration is calculated as the present value
weighted average time to receive future payments of principal and interest, and
the PSA Standard Formula modified duration is calculated by dividing the
Macaulay Duration by the appropriate semi-annual compounding factor. The
duration of a security may be calculated according to various methodologies.
Accordingly, no representation is made by us or any other person that the
modified duration approach used in this prospectus supplement is appropriate.
Duration, like yield, will be affected by the prepayment rate of the underlying
mortgage loans and extensions with respect to balloon payments that actually
occur during the life of the class A-1, class A-2, class A-3, class A-4, class
A-5, class B-1 and Class B-2 certificates and by the actual performance of the
underlying mortgage loans, all of which may differ, and may differ
significantly, from the assumptions used in preparing the yield tables.
Prepayments on mortgage loans may be measured by a prepayment standard
or model. The model used in this prospectus supplement is the Constant
Prepayment Rate or CPR model. The CPR
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model represents an assumed constant annual rate of prepayment each month,
expressed as a per annum percentage of the then outstanding principal balance of
the subject mortgage loan(s).
The characteristics of the mortgage loans in the trust will differ in
some respects from those assumed in preparing the tables on Annex C. Those
tables are presented for illustrative purposes only. Thus, neither the mortgage
pool nor any pooled mortgage loan will prepay at any constant rate, and it is
unlikely that the pooled mortgage loans will prepay in a manner consistent with
any designated scenario for the tables on Annex C. In addition, there can be no
assurance that--
o the pooled mortgage loans will prepay at any particular rate,
o the pooled mortgage loans will not prepay, involuntarily or
otherwise, during lockout periods, yield maintenance periods
and/or declining premium periods,
o the ARD Loans in the trust will be paid in full on their
respective anticipated repayment dates,
o the actual pre-tax yields on, or any other payment
characteristics of, any class of offered certificates will
correspond to any of the information shown in the tables on
Annex C, or
o the total purchase prices of the offered certificates will be
as assumed.
You must make your own decision as to the appropriate assumptions,
including prepayment assumptions, to be used in deciding whether to purchase the
offered certificates.
Weighted Average Lives of the Offered Certificates
The weighted average life of any offered certificate, other than a
class S certificate, refers to the average amount of time that will elapse from
the date of its issuance until each dollar to be applied in reduction of the
principal balance of that certificate is distributed to the investor. For
purposes of this prospectus supplement, the weighted average life of any offered
certificate, other than a class S certificate, is determined as follows:
o multiply the amount of each principal payment on the
certificate by the number of years from the assumed settlement
date to the related payment date;
o sum the results; and
o divide the sum by the total amount of the reductions in the
principal balance of the certificate.
Accordingly, the weighted average life of any offered certificate, other than a
class S certificate, will be influenced by, among other things, the rate at
which principal of the underlying mortgage loans is paid or otherwise collected
or advanced and the extent to which those payments, collections and/or advances
of principal are in turn applied in reduction of the principal balance of the
class of principal to which the certificate belongs.
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As described in this prospectus supplement, the principal payment
amount for each payment date will be payable first with respect to the class A-1
and/or class A-2 certificates until the total principal balances of those
classes are reduced to zero, and will thereafter be distributable entirely with
respect to the other classes of certificates with principal balances,
sequentially based upon their relative seniority, in each case until the related
principal balance is reduced to zero. As a consequence of the foregoing, the
weighted average lives of the class A-1 and class A-2 certificates may be
shorter, and the weighted average lives of the other classes of certificates
with principal balances may be longer, than would otherwise be the case if the
principal payment amount for each payment date was being paid on a pro rata
basis among the respective classes of certificates with principal balances.
The tables set forth in Annex C show with respect to each class of
offered certificates, other than the class S certificates--
o the weighted average life of that class, and
o the percentage of the initial total principal balance of that
class that would be outstanding after each of the specified
dates,
based upon each of the indicated levels of CPR and the Modeling Assumptions.
We make no representation that--
o the mortgage loans in the trust will prepay in accordance with
the assumptions set forth in this prospectus supplement at any
of the CPRs shown or at any other particular prepayment rate,
o all the mortgage loans in the trust will prepay in accordance
with the assumptions set forth in this prospectus supplement
at the same rate, or
o mortgage loans in the trust that are in a lockout period, a
yield maintenance period or declining premium period will not
prepay as a result of involuntary liquidations upon default or
otherwise.
Use of Proceeds
Substantially all of the proceeds from the sale of the offered
certificates will be used by us to purchase the mortgage loans that we will
include in the trust and to pay those expenses incurred in connection with the
issuance of the series ____ certificates.
Federal Income Tax Consequences
General
Upon the issuance of the offered certificates, ___________________, our
counsel, will deliver its opinion generally to the effect that, assuming
compliance with the pooling and servicing agreement,
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and subject to any other assumptions set forth in the opinion, REMIC I, REMIC II
and REMIC III, respectively, will each qualify as a REMIC under the Internal
Revenue Code of 1986.
The assets of REMIC I will generally include--
o the pooled mortgage loans,
o any REO Properties acquired on behalf of the series ___
certificateholders,
o the master servicer's collection account,
o the special servicer's REO account, and
o the trustee's collection account and interest reserve account,
but will exclude any collections of Post-ARD Additional Interest on the ARD
Loans.
For federal income tax purposes,
o the separate non-certificated regular interests in REMIC I
will be the regular interests in REMIC I and will be the
assets of REMIC II,
o the class R-I certificates will evidence the sole class of
residual interests in REMIC I,
o the separate non-certificated regular interests in REMIC II
will be the regular interests in REMIC II and will be the
assets of REMIC III,
o the class R-II certificates will evidence the sole class of
residual interests in REMIC II,
o the class A-1, A-2, S, A-4, A-5, B-1, B-2, B-3, B-4, B-5, B-6,
B-7, B-8, C and D certificates will evidence the regular
interests in, and will generally be treated as debt
obligations of, REMIC III, and
o the class R-III certificates will evidence the sole class of
residual interests in REMIC III.
Discount and Premium; Prepayment Consideration
For federal income tax reporting purposes, it is anticipated that the
class _____ and class _____ certificates will be issued with more than a de
minimis amount of original issue discount. The class _____ certificates will be
issued with a de minimis amount of original issue discount. The other classes of
offered certificates will not be issued with original issue discount. When
determining the rate of accrual of market discount and premium, if any, for
federal income tax purposes the prepayment assumption used will be that
subsequent to the date of any determination:
o [the ARD Loans in the trust will be paid in full on their
respective anticipated repayment dates,]
o no mortgage loan in the trust will otherwise be prepaid prior
to maturity, and
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o there will be no extension of maturity for any mortgage loan
in the trust.
However, no representation is made as to the actual rate at which the pooled
mortgage loans will prepay, if at all. See "Federal Income Tax
Consequences--REMICs--Taxation of Owners of REMIC Regular Certificates" in the
accompanying prospectus.
The IRS has issued regulations under Sections 1271 to 1275 of the
Internal Revenue Code of 1986 generally addressing the treatment of debt
instruments issued with original issue discount. You should be aware, however,
that those regulations and Section 1272(a)(6) of the Internal Revenue Code of
1986 do not adequately address all issues relevant to, or are not applicable to,
prepayable securities such as the offered certificates. We recommend that you
consult with your own tax advisor concerning the tax treatment of your offered
certificates.
If the method for computing original issue discount described in the
accompanying prospectus results in a negative amount for any period with respect
to any holder of offered certificates, the amount of original issue discount
allocable to that period would be zero. This is a possibility of particular
relevance to a holder of a class S certificate. The holder would be permitted to
offset the negative amount only against future original issue discount, if any,
attributable to his or her certificates. Although the matter is not free from
doubt, a holder of a class S certificate may be permitted to deduct a loss to
the extent that his or her respective remaining basis in the certificate exceeds
the maximum amount of future payments to which the holder is entitled, assuming
no further prepayments of the underlying mortgage loans. Any loss might be
treated as a capital loss.
Some classes of the offered certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
these classes of offered certificates will be treated as holding a certificate
with amortizable bond premium will depend on the certificateholder's purchase
price and the payments remaining to be made on the certificate at the time of
its acquisition by the certificateholder. If you acquire an interest in any
class of offered certificates issued at a premium, you should consider
consulting your own tax advisor regarding the possibility of making an election
to amortize the premium. See "Federal Income Tax Consequences--REMICs--Taxation
of Owners of REMIC Regular Certificates--Premium" in the accompanying
prospectus.
Prepayment premiums and yield maintenance charges actually collected on
the underlying mortgage loans will be paid on the offered certificates as and to
the extent described in this prospectus supplement. It is not entirely clear
under the Code when the amount of a prepayment premium or yield maintenance
charge should be taxed to the holder of a class of offered certificates entitled
to that amount. For federal income tax reporting purposes, the tax administrator
will report prepayment premiums or yield maintenance charges as income to the
holders of a class of offered certificates entitled thereto only after the
master servicer's actual receipt of those amounts. The IRS may nevertheless seek
to require that an assumed amount of prepayment premiums and yield maintenance
charges be included in payments projected to be made on the offered certificates
and that taxable income be reported based on the projected constant yield to
maturity of the offered certificates. Therefore, the projected prepayment
premiums and yield maintenance charges would be included prior to their actual
receipt by holders of the offered certificates. If the projected prepayment
premiums and yield maintenance charges were not actually received, presumably
the holder of an offered certificate would be allowed to claim a deduction or
reduction in gross income at the time the unpaid prepayment premiums and yield
maintenance charges had been projected to be received. Moreover, it appears that
prepayment
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premiums and yield maintenance charges are to be treated as ordinary income
rather than capital gain. The correct characterization of the income is not
entirely clear. We recommend you consult your own tax advisors concerning the
treatment of prepayment premiums and yield maintenance charges.
Constructive Sales of Class S Certificates
The Taxpayer Relief Act of 1997 added a provision to the Internal
Revenue Code of 1986 that requires the recognition of gain upon the constructive
sale of an appreciated financial position. A constructive sale of a financial
position may occur if a taxpayer enters into a transaction or series of
transactions that have the effect of substantially eliminating the taxpayer's
risk of loss and opportunity for gain with respect to the financial instrument.
Debt instruments that:
o entitle the holder to a specified principal amount,
o pay interest at a fixed or variable rate, and
o are not convertible into the stock of the issuer or a related
party,
cannot be the subject of a constructive sale for this purpose. Accordingly, only
class S certificates, which do not have principal balances, could be subject to
this provision and only if a holder of those certificates engages in a
constructive sale transaction.
Characterization of Investments in Offered Certificates
Except to the extent noted below, the offered certificates will be
"real estate assets" within the meaning of Section 856(c)(5)(B) of the Internal
Revenue Code of 1986 in the same proportion that the assets of the trust would
be so treated. In addition, interest, including original issue discount, if any,
on the offered certificates will be interest described in Section 856(c)(3)(B)
of the Internal Revenue Code of 1986 to the extent that those certificates are
treated as "real estate assets" within the meaning of Section 856(c)(5)(B) of
the Internal Revenue Code of 1986.
Most of the mortgage loans to be included in the trust are not secured
by real estate used for residential or other purposes prescribed in Section
7701(a)(19)(C) of the Internal Revenue Code of 1986. Consequently, the offered
certificates will be treated as assets qualifying under that section to only a
limited extent. Accordingly, investment in the offered certificates may not be
suitable for a thrift institution seeking to be treated as a "domestic building
and loan association" under Section 7701(a)(19)(C) of the Internal Revenue Code
of 1986. The offered certificates will be treated as "qualified mortgages" for
another REMIC under Section 860G(a)(3)(C) of the Internal Revenue Code of 1986
and "permitted assets" for a "financial asset securitization investment trust"
under Section 860L(c) of the Internal Revenue Code of 1986.
To the extent an offered certificate represents ownership of an
interest in a mortgage loan that is secured in part by the related borrower's
interest in a bank account, that mortgage loan is not secured solely by real
estate. Therefore:
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o a portion of that certificate may not represent ownership of
"loans secured by an interest in real property" or other
assets described in Section 7701(a)(19)(C) of the Internal
Revenue Code of 1986;
o a portion of that certificate may not represent ownership of
"real estate assets" under Section 856(c)(5)(B) of the
Internal Revenue Code of 1986; and
o the interest on that certificate may not constitute "interest
on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Internal Revenue
Code of 1986.
See "Description of the Mortgage Pool" in this prospectus supplement and
"Federal Income Tax Consequences--REMICs--Characterization of Investments in
REMIC Certificates" in the accompanying prospectus.
For further information regarding the federal income tax consequences
of investing in the offered certificates, see "Federal Income Tax
Consequences--REMICs" in the accompanying prospectus.
ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended and the
Internal Revenue Code of 1986 impose various requirements on--
o ERISA Plans, and
o persons that are fiduciaries with respect to ERISA Plans,
in connection with the investment of the assets of an ERISA Plan. For purposes
of this discussion, ERISA Plans may include individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts,
including as applicable, insurance company general accounts, in which other
ERISA Plans are invested.
A fiduciary of any ERISA Plan should carefully review with its legal
advisors whether the purchase or holding of offered certificates could be or
give rise to a transaction that is prohibited or is not otherwise permitted
either under ERISA or Section 4975 of the Internal Revenue Code of 1986 or
whether there exists any statutory or administrative exemption applicable
thereto. Some fiduciary and prohibited transaction issues arise only if the
assets of the trust are "plan assets" for purposes of Part 4 of Title I of ERISA
and Section 4975 of the Internal Revenue Code of 1986. Whether the assets of the
trust will be plan assets at any time will depend on a number of factors,
including the portion of any class of certificates that is held by benefit plan
investors within the meaning of U.S. Department of Labor Regulation Section
2510.3-101.
[The U.S. Department of Labor has issued an individual prohibited
transaction exemption to the underwriter, identified as Prohibited Transaction
Exemption _______. Subject to the satisfaction of conditions set forth in PTE
______, PTE _______ generally exempts from the application of the prohibited
transaction provisions of Sections 406(a) and (b) and 407(a) of ERISA, and the
excise taxes
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imposed on these prohibited transactions under Sections 4975(a) and (b) of the
Internal Revenue Code of 1986, specified transactions relating to, among other
things, the servicing and operation of pools of real estate loans, such as the
mortgage pool, and the purchase, sale and holding of mortgage pass-through
certificates, such as the class A-1, A-2 and S certificates, that are
underwritten by an Exemption-Favored Party.]
[PTE _______ sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of a class A-1, A-2
or S certificate to be eligible for exemptive relief under that exemption. The
conditions are as follows:
o first, the acquisition of the certificate by a plan must be on
terms that are at least as favorable to the ERISA Plan as they
would be in an arm's-length transaction with an unrelated
party;
o second, the rights and interests evidenced by that certificate
must not be subordinated to the rights and interests evidenced
by the other certificates;
o third, at the time of its acquisition by the plan, that
certificate must be rated in one of the three highest generic
rating categories by Moody's, Fitch or Standard & Poor's;
o fourth, the trustee cannot be an affiliate of any other member
of the restricted group, which consists of--
1. the trustee,
2. the Exemption-Favored Parties,
3. us,
4. the master servicer,
5. the special servicer,
6. any sub-servicers,
7. the mortgage loan sellers,
8. each borrower, if any, with respect to mortgage loans
constituting more than 5.0% of the total unamortized
principal balance of the mortgage pool as of the date
of initial issuance of the offered certificates, and
9. any and all affiliates of any of the aforementioned
persons;
o fifth, the following must be true--
1. the sum of all payments made to and retained by
Exemption-Favored Parties must represent not more
than reasonable compensation for underwriting the
relevant class of certificates,
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2. the sum of all payments made to and retained by us in
connection with the assignment of mortgage loans to
the trust must represent not more than the fair
market value of the obligations, and
3. the sum of all payments made to and retained by the
master servicer, the special servicer and any
sub-servicer must represent not more than reasonable
compensation for that person's services under the
pooling and servicing agreement and reimbursement of
that person's reasonable expenses in connection
therewith; and
o sixth, the investing ERISA Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D under the
Securities Act of 1933, as amended.]
[Because the class A-1, A-2 and S certificates are not subordinated to
any other class of certificates, the second general condition set forth above is
satisfied with respect to the class A-1, A-2 and S certificates. It is a
condition of their issuance that the class A-1, A-2 and S certificates be rated
not lower than "_____" by _____________ and "_____" by ______________. In
addition, the initial trustee is not an affiliate of any other member of the
restricted group. Accordingly, as of the date of initial issuance of the
certificates, the third and fourth general conditions set forth above will be
satisfied with respect to the class A-1, A-2 and S certificates. A fiduciary of
an ERISA Plan contemplating the purchase of a class A-1, A-2 or S certificate in
the secondary market must make its own determination that, at the time of the
purchase, the certificate continues to satisfy the third and fourth general
conditions set forth above. A fiduciary of an ERISA Plan contemplating the
purchase of a class A-1, A-2 or S certificate, whether in the initial issuance
of the certificate or in the secondary market, must make its own determination
that the first and fifth general conditions set forth above will be satisfied
with respect to the certificate as of the date of the purchase. An ERISA Plan's
authorizing fiduciary will be deemed to make a representation regarding
satisfaction of the sixth general condition set forth above in connection with
the purchase of a class A-1, A-2 or S certificate.]
[PTE _____ also requires that the trust meet the following
requirements:
o the trust assets must consist solely of assets of the type
that have been included in other investment pools;
o certificates evidencing interests in those other investment
pools must have been rated in one of the three highest generic
categories of Moody's, Fitch or Standard & Poor's for at least
one year prior to the ERISA Plan's acquisition of a class A-1,
A-2 or S certificate; and
o certificates evidencing interests in those other investment
pools must have been purchased by investors other than ERISA
Plans for at least one year prior to any ERISA Plan's
acquisition of a class A-1, A-2 or S certificate.]
We believe that these requirements have been satisfied as of the date
of this prospectus supplement.
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[If the general conditions of PTE _____ are satisfied, PTE ______ may
provide an exemption from the restrictions imposed by Sections 406(a) and 407(a)
of ERISA, as well as the excise taxes imposed by Sections 4975(a) and (b) of the
Internal Revenue Code of 1986 by reason of Sections 4975(c)(1)(A) through (D) of
the Internal Revenue Code of 1986, in connection with--
o the direct or indirect sale, exchange or transfer of class
A-1, A-2 or S certificates acquired by an ERISA Plan upon
initial issuance from us or an Exemption-Favored Party when we
are, or either mortgage loan seller, the trustee, the master
servicer, the special servicer or any sub-servicer, provider
of credit support, Exemption-Favored Party or mortgagor is, a
Party in Interest with respect to the investing ERISA Plan,
o the direct or indirect acquisition or disposition in the
secondary market of class A-1, A-2 or S certificates by an
ERISA Plan, and
o the continued holding of class A-1, A-2 or S certificates by
an ERISA Plan.]
However, no exemption is provided from the restrictions of Sections
406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
class A-1, A-2 or S certificate that is--
1. on behalf of an ERISA Plan sponsored by any member of the
restricted group, and
2. by any person who has discretionary authority or renders
investment advice with respect to the assets of that ERISA
Plan.
[Moreover, if the general conditions of PTE ____, as well as other
conditions set forth in PTE ____, are satisfied, PTE ______ may also provide an
exemption from the restrictions imposed by Sections 406(b)(1) and (b)(2) of
ERISA and the taxes imposed by Section 4975(c)(1)(E) of the Internal Revenue
Code of 1986 in connection with:
o the direct or indirect sale, exchange or transfer of class
A-1, A-2 or S certificates in the initial issuance of those
certificates between us or an Exemption-Favored Party and an
ERISA Plan when the person who has discretionary authority or
renders investment advice with respect to the investment of
the assets of the ERISA Plan in those certificates is--
1. a borrower with respect to 5.0% or less of the fair
market value of the underlying mortgage loans, or
2. an affiliate of this person;
o the direct or indirect acquisition or disposition in the
secondary market of class A-1, A-2 or S certificates by an
ERISA Plan; and
o the continued holding of class A-1, A-2 or S certificates by
an ERISA Plan.]
[Further, if the general conditions of PTE _____, as well as other
conditions set forth in PTE _____, are satisfied, PTE _____ may provide an
exemption from the restrictions imposed by Sections
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406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Internal Revenue Code of 1986 by reason of Section 4975(c) of the
Internal Revenue Code of 1986, for transactions in connection with the
servicing, management and operation of the trust assets.]
[Lastly, if the general conditions of PTE _____ are satisfied, PTE
_____ also may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA, and the taxes imposed by Section 4975(a) and (b) of
the Internal Revenue Code of 1986, by reason of Sections 4975(c)(1)(A) through
(D) of the Internal Revenue Code of 1986, if the restrictions are deemed to
otherwise apply merely because a person is deemed to be a Party in Interest with
respect to an investing plan by virtue of--
o providing services to the ERISA Plan, or
o having a specified relationship to this person,
solely as a result of the ERISA Plan's ownership of class A-1, A-2 or S
certificates.]
[Before purchasing a class A-1, A-2 or S certificate, a fiduciary of an
ERISA Plan should itself confirm that:
o the class A-1, A-2 and S certificates are "certificates" for
purposes of PTE _____, and
o the general and other conditions set forth in PTE ____ and the
other requirements set forth in PTE _____ would be satisfied
at the time of the purchase.]
[In addition to determining the availability of the exemptive relief
provided in PTE _____, a fiduciary of an ERISA Plan considering an investment in
class A-1, A-2 or S certificates should consider the availability of any other
prohibited transaction class exemptions. See "ERISA Considerations" in the
accompanying prospectus. There can be no assurance that any exemption described
in the accompanying prospectus will apply with respect to any particular
investment by an ERISA Plan in class A-1, A-2 or S certificates or, even if it
were deemed to apply, that it would apply to all prohibited transactions that
may occur in connection with the investment. A purchaser of class A-1, A-2 or S
certificates should be aware, however, that even if the conditions specified in
one or more class exemptions are satisfied, the scope of relief provided by a
class exemption may not cover all acts which might be construed as prohibited
transactions.]
[The characteristics of the class A-3, A-4, A-5, B-1 and B-2
certificates do not meet the requirements of PTE ____. Accordingly, those
offered certificates may not be acquired by, on behalf of or with the assets of
an ERISA Plan, except in the case of an insurance company using funds in its
general account, which may be able to rely on Section III of Prohibited
Transaction Class Exemption 95-60, which we discuss below.]
[So long as the applicable conditions are satisfied, Section III of
PTCE 95-60 exempts from the application of the prohibited transaction provisions
of Sections 406(a), 406(b) and 407(a) of ERISA and Section 4975 of the Internal
Revenue Code of 1986 transactions in connection with the servicing, management
and operation of the trust under circumstances where an insurance company
general account has an interest in the trust as a result of its acquisition of
series ___ certificates. If these
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conditions are met, insurance company general accounts would be allowed to
purchase the classes of offered certificates, such as the class A-3, A-4, A-5,
B-1 and B-2 certificates, that do not meet requirements of PTE _____ solely
because they--
o are subordinated to other classes of the certificates or
o have not received a rating at the time of the purchase in one
of the three highest rating categories from [Moody's, Fitch or
Standard & Poor's.]
[All other conditions of PTE _____ would have to be satisfied in order for PTCE
95-60 to be available. Before purchasing any class A-3, A-4, A-5, B-1 and B-2
certificates, an insurance company general account seeking to rely on Section
III of PTCE 95-60 should itself confirm that all applicable conditions and other
requirements have been satisfied.]
A governmental plan as defined in Section 3(32) of ERISA is not subject
to Title I of ERISA or Section 4975 of the Internal Revenue Code of 1986.
However, a governmental plan may be subject to a federal, state or local law
which is, to a material extent, similar to the foregoing provisions of ERISA or
the Internal Revenue Code of 1986. A fiduciary of a governmental plan should
make its own determination as to the need for and the availability of any
exemptive relief under any similar law.
Any fiduciary of an ERISA Plan considering whether to purchase an
offered certificate on behalf of that ERISA Plan should consult with its counsel
regarding the applicability of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Internal Revenue Code of 1986 to the
investment.
The sale of offered certificates to an ERISA Plan is in no way a
representation or warranty by us or the underwriter that the investment meets
all relevant legal requirements with respect to investments by ERISA Plans
generally or by any particular ERISA Plan, or that the investment is appropriate
for ERISA Plans generally or for any particular ERISA Plan.
Legal Investment
[Upon issuance, the class A-1, A-2 and S certificates will constitute
mortgage related securities for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended. However, in order to remain mortgage
related securities, the class A-1, A-2 and S certificates must, among other
things, continue to be rated in one of the two highest rating categories by at
least one nationally recognized statistical rating organization. In addition,
the class A-1, A-2 and S certificates will constitute mortgage related
securities in part because they evidence interest in notes secured by first
mortgage liens on one or more real properties upon which is located a
residential, commercial or mixed residential and commercial structure.
The remaining offered certificates will not be mortgage related
securities for purposes of SMMEA. As a result, the appropriate characterization
of these remaining certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase those
certificates, is subject to significant interpretive uncertainties.]
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Neither we nor the underwriter makes any representation as to the
ability of particular investors to purchase the offered certificates under
applicable legal investment or other restrictions. All institutions whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their own legal advisors in determining whether and to what extent
the offered certificates--
o are legal investments for them, or
o are subject to investment, capital or other restrictions.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, prudent investor provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not interest
bearing or income paying.
There may be other restrictions on the ability of investors, including
depository institutions, either to purchase offered certificates or to purchase
offered certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the offered certificates are legal
investments for the investors.
See "Legal Investment" in the accompanying prospectus.
Method of Distribution
Subject to the terms and conditions of an underwriting agreement dated
_____________ between us and the underwriter, the underwriter has agreed to
purchase from us and we have agreed to sell to the underwriter _____% of each
class of the offered certificates. It is expected that delivery of the offered
certificates will be made to the underwriter in book-entry form through the same
day funds settlement system of DTC on or about ______________ against payment
therefor in immediately available funds.
The underwriting agreement provides that the obligation of the
underwriter to pay for and accept delivery of the offered certificates is
subject to, among other things:
o the receipt of various legal opinions; and
o the satisfaction of various conditions, including that--
1. no stop order suspending the effectiveness of our
registration statement shall be in effect, and
2. no proceedings for the purpose of obtaining a stop
order shall be pending before or threatened by the
SEC.
The distribution of the offered certificates by the underwriter may be
accomplished from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined at the time of sale. Proceeds to
us from the sale of the offered certificates, before deducting expenses payable
by
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us, will be approximately ____% of the total principal balance of the offered
certificates, plus accrued interest on all the offered certificates from
_______________. The underwriter may accomplish the transactions by selling the
offered certificates to or through dealers, and the dealers may receive
compensation in the form of underwriting discounts, concessions or commissions
from the underwriter. The underwriter may be deemed to have received
compensation from us, in connection with the sale of the offered certificates,
in the form of underwriting compensation. The underwriter and any dealers that
participate with the underwriter in the distribution of the offered certificates
may be deemed to be statutory underwriters and any profit on the resale of the
offered certificates positioned by them may be deemed to be underwriting
discounts and commissions under the Securities Act of 1933, as amended.
The underwriting agreement provides that we will indemnify the
underwriter, and that under limited circumstances the underwriter will indemnify
us, against various civil liabilities under the Securities Act of 1933, as
amended, relating to the disclosure in this prospectus supplement, the
accompanying prospectus or our registration statement.
We have also been advised by the underwriter that it presently intends
to make a market in the offered certificates. The underwriter has no obligation
to do so, however, and any market making may be discontinued at any time. There
can be no assurance that an active public market for the offered certificates
will develop. See "Risk Factors--Risks Related to the Offered Certificates--Many
Factors, Including Lack of Liquidity, Can Adversely Affect the Market Value of
Your Offered Certificates" in this prospectus supplement and "Risk Factors--Lack
of Liquidity Will Impair Your Ability to Sell Your Offered Certificates and May
Have an Adverse Effect on the Market Value of Your Offered Certificates" in the
accompanying prospectus.
Legal Matters
Particular legal matters relating to the certificates will be passed
upon for us and the underwriter by ___________________, New York, New York.
Ratings
It is a condition to their issuance that the respective classes of
offered certificates be rated as follows:
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Class [rating agency] [rating agency]
----- --------------- ---------------
Class A-1
Class A-2
Class A-3
Class A-4
Class A-5
Class B-1
Class B-2
S
The ratings on the offered certificates address the likelihood of the
timely receipt by their holders of all payments of interest to which they are
entitled on each payment date and, except in the case of the class S
certificates, the ultimate receipt by their holders of all payments of principal
to which they are entitled on or before the rated final payment date. The
ratings take into consideration the credit quality of the mortgage pool,
structural and legal aspects associated with the offered certificates, and the
extent to which the payment stream from the mortgage pool is adequate to make
payments of interest and/or principal required under the offered certificates.
The ratings on the respective classes of offered certificates do not
represent any assessment of--
o the tax attributes of the offered certificates or of the
trust,
o whether or to what extent prepayments of principal may be
received on the underlying mortgage loans,
o the likelihood or frequency of prepayments of principal on the
underlying mortgage loans,
o the degree to which the amount or frequency of prepayments of
principal on the underlying mortgage loans might differ from
those originally anticipated,
o whether or to what extent the interest payable on any class of
offered certificates may be reduced in connection with Net
Aggregate Prepayment Interest Shortfalls, and
o whether and to what extent prepayment premiums, yield
maintenance charges, Default Interest or Post-ARD Additional
Interest will be received.
Also, a security rating does not represent any assessment of the yield
to maturity that investors may experience or the possibility that the class S
certificateholders might not fully recover their investment in the event of
rapid prepayments and/or other liquidations of the mortgage loans.
In general, the ratings address credit risk and not prepayment risk. As
described in this prospectus supplement, the amounts payable with respect to the
class S certificates consist primarily of interest. Even if the entire mortgage
pool were to prepay in the initial month, with the result that the class S
certificateholders receive only a single month's interest payment and,
accordingly, suffer a nearly complete loss of their investment, all amounts due
to those certificateholders will nevertheless
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have been paid. This result would be consistent with the respective ratings
received on the class S certificates. The total notional amount of the class S
certificates is subject to reduction in connection with each reduction in the
total principal balance of any other interest-bearing class of series ___
certificates, whether as a result of payments of principal or in connection with
Realized Losses and Additional Trust Fund Expenses. The ratings of the class S
certificates do not address the timing or magnitude of reduction of the total
notional amount of those certificates, but only the obligation to pay interest
timely on that total notional amount as so reduced from time to time.
There can be no assurance as to whether any rating agency not requested
to rate the offered certificates will nonetheless issue a rating to any class of
offered certificates and, if so, what the rating would be. A rating assigned to
any class of offered certificates by a rating agency that has not been requested
by us to do so may be lower than the rating assigned thereto by ___________ or
____________.
The ratings on the offered certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. See "Rating" in the accompanying prospectus.
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Glossary
The following capitalized terms will have the respective meanings
assigned to them in this "Glossary" section whenever they are used in this
prospectus supplement, including in any of the annexes to this prospectus
supplement.
"Additional Trust Fund Expense" means an expense of the trust that
o arises out of a default on a mortgage loan or an otherwise
unanticipated event, and
o is not covered by a servicing advance or a corresponding
collection from the related borrower.
"ARD Loan" means any mortgage loan in the trust having the
characteristics described in the first paragraph under "Description of the
Mortgage Pool--Terms and Conditions of the Underlying Mortgage Loans--ARD Loan"
in this prospectus supplement.
"Appraisal Reduction Amount" means, for any mortgage loan in the trust
as to which an Appraisal Trigger Event has occurred, an amount that:
o will be determined shortly following the later of the date on
which the relevant appraisal or other valuation is obtained or
performed and the date on which the relevant Appraisal Trigger
Event occurred, and
o will equal the excess, if any, of "x" over "y" where--
1. "x" is equal to the sum of:
o the unpaid principal balance of the mortgage
loan, net of any related unreimbursed
advances of principal;
o to the extent not previously advanced by or
on behalf of the master servicer or the
trustee, all unpaid interest, other than any
Default Interest and Post-ARD Additional
Interest, accrued on the mortgage loan
through the most recent due date prior to
the date of determination;
o all accrued but unpaid special servicing
fees with respect to the mortgage loan;
o all related unreimbursed advances made by or
on behalf of the master servicer, the
special servicer or the trustee with respect
to the required appraisal loan, together
with interest on those advances; and
o all currently due and unpaid real estate
taxes and assessments, insurance premiums
and, if applicable, ground rents with
respect to the related mortgaged real
property, net of any escrow reserves held by
the master
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servicer or the special servicer which
covers the particular item and other related
reserves; and
2. "y" is equal to 90% of the resulting appraised or
estimated value of the related mortgaged real
property or REO Property, as the appraised or
estimated value may be reduced, to not less than
zero, by the amount of any obligations secured by
liens on the property that are prior to the lien of
the mortgage loan.
If, however, the appraisal or other valuation referred to in the first
bullet point of this definition is not obtained or performed within __ days of
the Appraisal Trigger Event referred to in the first bullet point of this
definition, and no comparable appraisal or other valuation had been obtained or
performed during the ______-month period prior to that Appraisal Trigger Event,
then until the required appraisal or other valuation is obtained or performed,
the Appraisal Reduction Amount for the subject mortgage loan will equal
approximately ____% of the unpaid principal balance of that mortgage loan, net
of any related unreimbursed advances of principal. After receipt of the required
appraisal or other valuation, the special servicer will determine the Appraisal
Reduction Amount, if any, for the subject mortgage loan as described in the
first sentence of this definition.
"Appraisal Trigger Event" means, with respect to any mortgage loan in
the trust, any of the following events:
o the mortgage loan has been modified by the special servicer in
a manner that--
1. affects the amount or timing of any monthly debt
service payment due on it, other than, or in addition
to, bringing current monthly debt service payments
with respect to the mortgage loan,
2. except as expressly contemplated by the related loan
documents, results in a release of the lien of the
mortgage on any material portion of the related
mortgaged real property without a corresponding
principal prepayment in an amount not less than the
fair market value, as is, of the property to be
released, or
3. in the judgment of the special servicer, otherwise
materially impairs the security for the mortgage loan
or reduces the likelihood of timely payment of
amounts due on the mortgage loan;
o the related borrower fails to make any monthly debt service
payment with respect to the mortgage loan and the failure
continues for _____ days;
o a receiver is appointed and continues in that capacity with
respect to the mortgaged real property securing the mortgage
loan;
o the related borrower becomes the subject of bankruptcy,
insolvency or similar proceedings; or
o the mortgaged real property securing the mortgage loan becomes
an REO Property.
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"Available P&I Funds" means, with respect to any payment date, all
funds available in the trustee's collection account to pay principal and
interest on the series ______ certificates on that payment date.
"CPR" means an assumed constant rate of prepayment each month, which is
expressed on a per annum basis, relative to the then outstanding principal
balance of a pool of mortgage loans for the life of those loans.
"Default Interest" means any interest that--
o accrues on a defaulted mortgage loan solely by reason of the
subject default, and
o is in excess of all interest at the related mortgage interest
rate and any Post-ARD Additional Interest accrued on the
mortgage loan.
"ERISA Plan" means any employee benefit plan, or other retirement plan,
arrangement or account, that is subject to the fiduciary responsibility
provisions of ERISA and Section 4975 of the Internal Revenue Code of 1986.
"Exemption-Favored Party" means any of--
o the underwriter,
o any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common
control with the underwriter, and
o any member of the underwriting syndicate or selling group of
which a person described in the prior two bullet points is a
manager or co-manager with respect to those mortgage
pass-through certificates.
"IRS" means the Internal Revenue Service.
"Modeling Assumptions" means, collectively, the following assumptions
regarding the series ___ certificates and the mortgage loans in the trust:
o the mortgage loans have the characteristics set forth on Annex
A-1 and the initial mortgage pool balance is approximately
$______________;
o the initial total principal balance or notional amount, as the
case may be, of each class of series ___ certificates is as
described in this prospectus supplement;
o the pass-through rate for each class of series ___
certificates is as described in this prospectus supplement.
o there are no delinquencies or losses with respect to the
mortgage loans;
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o there are no modifications, extensions, waivers or amendments
affecting the monthly debt service payments by borrowers on
the mortgage loans;
o there are no Appraisal Reduction Amounts with respect to the
mortgage loans;
o there are no casualties or condemnations affecting the
corresponding mortgaged real properties;
o each of the mortgage loans provides monthly debt service
payments to be due on the __ day of each month and accrues
interest on the respective basis described in this prospectus
supplement, which is either a 30/360 basis or an actual/360
basis;
o all prepayments on the mortgage loans are assumed to be
accompanied by a full month's interest;
o there are no breaches of our representations and warranties
regarding the mortgage loans;
o monthly debt service payments on the mortgage loans are timely
received on the ___ day of each month;
o no voluntary or involuntary prepayments are received as to any
mortgage loan during that mortgage loan's lockout period,
yield maintenance period or declining premium period, in each
case if any;
o each ARD Loan is paid in full on its anticipated repayment
date;
o except as otherwise assumed in the immediately preceding two
bullet points, prepayments are made on each of the mortgage
loans at the indicated CPRs set forth in the subject tables,
without regard to any limitations in those mortgage loans on
partial voluntary principal prepayments;
o no person or entity entitled thereto exercises its right of
optional termination described in this prospectus supplement
under "Description of the Offered Certificates--Termination";
o no mortgage loan is required to be repurchased by us;
o no prepayment premiums or yield maintenance charges are
collected;
o there are no Additional Trust Fund Expenses;
o payments on the offered certificates are made on the _____ day
of each month, commencing in _____________; and
o the offered certificates are settled on ________________ .
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"Net Aggregate Prepayment Interest Shortfall" means, with respect to
any payment date, the excess, if any, of--
o the Prepayment Interest Shortfalls incurred with respect to
the mortgage pool during the related collection period, over
o the total payments made by the master servicer to cover those
Prepayment Interest Shortfalls.
"Party in Interest" means any person that is a "party in interest"
within the meaning of ERISA or a "disqualified person" within the meaning of the
Internal Revenue Code of 1986.
"Permitted Encumbrances" means, with respect to any mortgaged real
property securing a mortgage loan in the trust, any and all of the following:
o the lien of current real property taxes, ground rents, water
charges, sewer rents and assessments not yet due and payable,
o covenants, conditions and restrictions, rights of way,
easements and other matters that are of public record and/or
are referred to in the related lender's title insurance policy
or, if that policy has not yet been issued, referred to in a
pro forma title policy or a marked-up commitment, none of
which materially interferes with the security intended to be
provided by the related mortgage, deed of trust or other
similar security instrument, the current use of the property
or the current ability of the property to generate income
sufficient to service the related mortgage loan,
o exceptions and exclusions specifically referred to in the
related lender's title insurance policy or, if that policy has
not yet been issued, referred to in a pro forma title policy
or marked-up commitment, none of which materially interferes
with the security intended to be provided by the related
mortgage, deed of trust or similar security instrument, the
current use of the property or the current ability of the
property to generate income sufficient to service the related
mortgage loan,
o other matters to which like properties are commonly subject,
none of which materially interferes with the security intended
to be provided by the related mortgage, deed of trust or
similar security instrument, the current use of the property
or the current ability of the property to generate income
sufficient to service the related mortgage loan,
o the rights of tenants to remain, whether under ground leases
or space leases, at the property following a foreclosure or
similar proceeding, provided that those tenants are performing
under their leases, and
o if the related mortgage loan is cross-collateralized with any
other mortgage loan, the lien of the mortgage, deed of trust
or other security instrument for that other mortgage loan.
"Permitted Investments" means of U.S. government securities and other
investment grade obligations specified in the pooling and servicing agreement.
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"Post-ARD Additional Interest" means, with respect to any ARD Loan, the
additional interest accrued with respect to that mortgage loan as a result of
the marginal increase in the related mortgage interest rate upon passage of the
related anticipated repayment date, as that additional interest may compound in
accordance with the terms of that mortgage loan.
"Prepayment Interest Excess" means, with respect to any full or partial
prepayment of a pooled mortgage loan made by the related borrower during any
collection period after the due date for that loan, the amount of any interest
collected on that prepayment for the period following that due date, less the
amount of related master servicing fees payable from that interest collection,
and exclusive of any Default Interest and Post-ARD Additional Interest included
in that interest collection.
"Prepayment Interest Shortfall" means, with respect to any full or
partial prepayment of a pooled mortgage loan made by the related borrower during
any collection period prior to the due date for that loan, the amount of any
uncollected interest that would have accrued on that prepayment through that due
date, less the amount of related master servicing fees that would have been
payable from that uncollected interest, and exclusive of any portion of that
uncollected interest that represents Default Interest or Post-ARD Additional
Interest.
"Realized Losses" mean losses on or with respect of the pooled mortgage
loans arising from the inability of the master servicer and/or the special
servicer to collect all amounts due and owing under the mortgage loans,
including by reason of the fraud or bankruptcy of a borrower or, to the extent
not covered by insurance, a casualty of any nature at a mortgaged real property.
"REMIC" means a real estate mortgage investment conduit, within the
meaning of, and formed in accordance with, the Tax Reform Act of 1986 and
Sections 860A through 860G of the Internal Revenue Code of 1986.
"REO Property" means any mortgaged real property that is acquired by
the trust through foreclosure, deed-in-lieu of foreclosure or otherwise
following a default on the corresponding pooled mortgage loan.
"SEC" means the Securities and Exchange Commission.
"Servicing Standard" means, with respect to either the master servicer
or the special servicer, to service and administer the pooled mortgage loans and
any real estate owned by the trust for which that party is responsible:
o with the same care, skill and diligence as is normal and usual
in its general mortgage servicing and asset management
activities with respect to comparable loans and real
properties that either are part of other third party
portfolios, giving due consideration to customary and usual
standards of practice of prudent institutional commercial
lenders, or are held as part of its own portfolio, whichever
servicing procedures are of a higher standard;
o with a view to--
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1. the timely collection of all monthly debt service
payments under those mortgage loans,
2. the full collection of all prepayment premiums and
yield maintenance charges that may become payable
under those mortgage loans, and
3. in the case of the special servicer, if a mortgage
loan comes into and continues in default and, in the
judgment of the special servicer, no satisfactory
arrangements can be made for the collection of the
delinquent payments, including payments of prepayment
premiums and yield maintenance charges, the
maximization of the recovery on that defaulted
mortgage loan to the series _____ certificateholders,
as a collective whole, on a present value basis; and
o without regard to--
1. any known relationship that the master servicer or
the special servicer, as the case may be, or any of
its affiliates may have with any of the underlying
borrowers or any other party to the pooling and
servicing agreement,
2. the ownership of any series _____ certificate by the
master servicer or the special servicer, as the case
may be, or by any of its affiliates,
3. the obligation of the master servicer or the special
servicer, as the case may be, to make advances,
4. the right of the master servicer or the special
servicer, as the case may be, or any of its
affiliates to receive reimbursement of costs, or the
sufficiency of any compensation payable to it under
the pooling and servicing agreement or with respect
to any particular transaction, and
5. the ownership, servicing or management by the master
servicer or the special servicer, as the case may be,
or any of its affiliates of any other loans or real
properties not included in or securing, as the case
may be, the mortgage pool, or the right to service or
manage for others any other loans or real properties.
"Servicing Transfer Event" means, with respect to any mortgage loan in
the trust, any of the following events:
1. the related borrower fails to make when due any monthly debt
service payment, including a balloon payment, or any other
payment required under the related promissory note or the
related mortgage, and either the failure actually continues,
or the master servicer believes it will continue, unremedied
for _____ days;
2. the master servicer determines that a default in the making of
a monthly debt service payment, including a balloon payment,
or any other material payment required to be made under the
related promissory note or the related mortgage, is likely to
occur within _____ days and either--
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o the default is likely to remain unremedied for at
least _____ days, or
o the related borrower has requested a material
modification of the related mortgage loan;
3. the master servicer determines that a non-payment default has
occurred under the mortgage loan that may materially impair
the value of the corresponding mortgaged real property as
security for the mortgage loan and the default continues
unremedied for the applicable cure period under the terms of
the mortgage loan or, if no cure period is specified, for
_____ days;
4. various events of bankruptcy, insolvency, readjustment of
debt, marshalling of assets and liabilities, or similar
proceedings occur with respect to the related borrower or the
corresponding mortgaged real property, or the related borrower
takes various actions indicating its bankruptcy, insolvency or
inability to pay its obligations; or
5. the master servicer receives notice of the commencement of
foreclosure or similar proceedings with respect to the
corresponding mortgaged real property.
A Servicing Transfer Event will cease to exist, if and when:
o with respect to the circumstances described in clause 1. of
this definition, the related borrower makes three consecutive
full and timely monthly debt service payments under the terms
of the mortgage loan, as those terms may be changed or
modified in connection with a bankruptcy or similar proceeding
involving the related borrower or by reason of a modification,
waiver or amendment granted or agreed to by the master
servicer or the special servicer;
o with respect to the circumstances described in clauses 2. and
4. of this definition, those circumstances cease to exist in
the good faith, reasonable judgment of the special servicer,
but, with respect to any bankruptcy or insolvency proceedings
contemplated by clause 4., no later than the entry of an order
or decree dismissing the proceeding;
o with respect to the circumstances described in clause 3. of
this definition, the default is cured in the judgment of the
special servicer; and
o with respect to the circumstances described in clause 5. of
this definition, the proceedings are terminated.
"Stated Principal Balance" means, for each mortgage loan in the trust,
an amount that:
o will initially equal its cut-off date principal balance; and
o will be permanently reduced on each subsequent payment date,
to not less than zero, by--
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1. that portion, if any, of the Total Principal Payment
Amount for that payment date that is attributable to
that mortgage loan, and
2. the principal portion of any Realized Loss incurred
with respect to that mortgage loan during the related
collection period.
However, the "Stated Principal Balance" of a mortgage loan will, in all
cases, be zero as of the payment date following the collection period in which
it is determined that all amounts ultimately collectible with respect to the
mortgage loan or any related REO Property have been received.
"Total Principal Payment Amount" means, for any payment date, an amount
equal to the total, without duplication, of the following:
o all payments of principal, including voluntary principal
prepayments, received on the pooled mortgage loans during the
related collection period, exclusive of any of those payments
that represents a late collection of principal for which an
advance was previously made for a prior payment date or that
represents a monthly payment of principal due on or before the
cut-off date or on a due date subsequent to the end of the
related collection period;
o all monthly payments of principal received on the pooled
mortgage loans prior to, but that are due during, the related
collection period;
o all other collections, including liquidation proceeds,
condemnation proceeds, insurance proceeds and repurchase
proceeds, that were received on or with respect to any of the
pooled mortgage loans or any related REO Properties during the
related collection period and that were identified and applied
by the master servicer as recoveries of principal of the
subject mortgage loan or, in the case of an REO Property, of
the related mortgage loan, in each case net of any portion of
the particular collection that represents a late collection of
principal due on or before the cut-off date or for which an
advance of principal was previously made for a prior payment
date; and
o all advances of principal made with respect to the mortgage
loans for that payment date.
"Weighted Average Pool Pass-Through Rate" means, for each payment date,
the weighted average of the following annual rates with respect to all of the
mortgage loans in the trust, weighted on the basis of the mortgage loans'
respective Stated Principal Balances immediately prior to that payment date:
o in the case of each mortgage loan that accrues interest on a
30/360 basis, an annual rate equal to--
1. the mortgage interest rate in effect for that
mortgage loan as of the cut-off date, minus
2. the sum of the related master servicing fee rate,
plus ____% per annum; and
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o in the case of each mortgage loan that accrues interest on an
actual/360 basis, an annual rate generally equal to--
1. a fraction, expressed as a percentage, the numerator
of which is, subject to adjustment as described below
in this bullet point, the product 12 times the amount
of interest that accrued or would have accrued with
respect to that mortgage loan on an actual/360 basis
during the related interest accrual period, based on
its Stated Principal Balance immediately preceding
that payment date and its mortgage interest rate in
effect as of the cut-off date, and the denominator of
which is the Stated Principal Balance of the mortgage
loan immediately prior to that payment date, minus
2. the sum of the related master servicing fee rate,
plus ____% per annum.
Notwithstanding the foregoing, if the subject payment date occurs
during January, except during a leap year, or February, then, in the case of any
particular mortgage loan that accrues interest on an actual/360 basis, the
amount of interest referred to in the numerator of the fraction described in
clause 1. of the second bullet point above will be decreased to reflect any
interest reserve amount with respect to that mortgage loan that is transferred
from the trustee's collection account to the trustee's interest reserve account
during that month. Furthermore, if the subject payment date occurs during March,
then, in the case of any particular mortgage loan that accrues interest on an
actual/360 basis, the amount of interest referred to in the numerator of the
fraction described in clause 1. of the second bullet point above will be
increased to reflect any interest reserve amounts with respect to that mortgage
loan that are transferred from the trustee's interest reserve account to the
trustee's collection account during that month.
"USAP" means the Uniform Single Attestation Program for Mortgage
Bankers established by the Mortgage Bankers of America.
[Include other terms that are to be used in the annexes to this
prospectus supplement.]
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Prospectus
Greenwich Capital Commercial Funding Corp., the Depositor
Mortgage Pass-Through Certificates, Issuable in Series
Our name is Greenwich Capital Commercial Funding Corp. We intend to
offer from time to time mortgage pass-through certificates. These offers may be
made through one or more different methods, including offerings through
underwriters. We do not currently intend to list the offered certificates of any
series on any national securities exchange or the NASDAQ stock market. See
"Method of Distribution."
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The Offered Certificates: The Trust Assets:
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The offered certificates will be issuable in series. Each The assets of each of our trusts will include--
series of offered certificates will--
o mortgage loans secured by first and junior liens on,
o have its own series designation, or security interests in, various interests in
commercial and multifamily real properties,
o consist of one or more classes with various payment
characteristics, o mortgage-backed securities that directly or
indirectly evidence interests in, or are directly or
o evidence beneficial ownership interests in a trust indirectly secured by, those types of mortgage
established by us, and loans, or
o be payable solely out of the related trust assets. o some combination of those types of mortgage loans
and mortgage-backed securities.
No governmental agency or instrumentality will insure or
guarantee payment on the offered certificates. Neither we nor Trust assets may also include letters of credit,
any of our affiliates are responsible for making payments on the surety bonds, insurance policies, guarantees,
offered certificates if collections on the related trust assets reserve funds, guaranteed investment contracts,
are insufficient. interest rate exchange agreements, interest rate
cap or floor agreements, or other similar
instruments and agreements.
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In connection with each offering, we will prepare a supplement to this
prospectus in order to describe in more detail the particular certificates being
offered and the related trust assets. In that document, we will also state the
price to public for each class of offered certificates or explain the method for
determining that price. In that document, we will also identify the applicable
lead or managing underwriter(s), if any, and provide information regarding the
relevant underwriting arrangements and the underwriters' compensation. You may
not purchase the offered certificates of any series unless you have also
received the prospectus supplement for that series. You should carefully
consider the risk factors beginning on page 15 in this prospectus, as well as
those set forth in the related prospectus supplement, prior to investing.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the offered certificates or passed
upon the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
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The date of this prospectus is _____________________, 2000.
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Table of Contents
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Page
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Important Notice About the Information Presented in This Prospectus.......................................................3
Available Information; Incorporation by Reference.........................................................................3
Summary of Prospectus.....................................................................................................4
Risk Factors.............................................................................................................13
Capitalized Terms Used in this Prospectus................................................................................33
Description of the Trust Assets..........................................................................................33
Yield and Maturity Considerations........................................................................................57
Greenwich Capital Commercial Funding Corp................................................................................63
Description of the Certificates..........................................................................................64
Description Of The Governing Documents...................................................................................74
Description of Credit Support............................................................................................84
Legal Aspects of Mortgage Loans..........................................................................................87
Federal Income Tax Consequences.........................................................................................100
State and Other Tax Consequences........................................................................................149
ERISA Considerations....................................................................................................149
Legal Investment........................................................................................................154
Use of Proceeds.........................................................................................................156
Method of Distribution..................................................................................................156
Legal Matters...........................................................................................................158
Financial Information...................................................................................................158
Rating..................................................................................................................158
Glossary................................................................................................................160
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Important Notice About the Information Presented in This Prospectus
When deciding whether to invest in any of the offered certificates, you
should only rely on the information contained in this prospectus and the related
prospectus supplement. We have not authorized any dealer, salesman or other
person to give any information or to make any representation that is different.
In addition, information in this prospectus or any related prospectus supplement
is current only as of the date on its cover. By delivery of this prospectus and
any related prospectus supplement, we are not offering to sell any securities,
and are not soliciting an offer to buy any securities, in any state where the
offer and sale is not permitted.
Available Information; Incorporation by Reference
We have filed with the SEC a registration statement under the
Securities Act of 1933, as amended, with respect to the certificates offered by
this prospectus. This prospectus forms a part of the registration statement.
This prospectus and the related prospectus supplement do not contain all of the
information with respect to an offering that is contained in the registration
statement. For further information regarding the documents referred to in this
prospectus and the related prospectus supplement, you should refer to the
registration statement and its exhibits. You can inspect the registration
statement and its exhibits, and make copies of these documents at prescribed
rates, at the public reference facilities maintained by the SEC at its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
Regional Offices located as follows: Chicago Regional Office, 500 West Madison,
14th Floor, Chicago, Illinois 60661; and New York Regional Office, Seven World
Trade Center, New York, New York 10048. You can also obtain copies of these
materials electronically through the SEC's Web site (http://www.sec.gov).
In connection with each series of offered certificates, we will file or
arrange to have filed with the SEC with respect to the related trust any
periodic reports that are required under the Securities Exchange Act of 1934, as
amended. All documents and reports that are so filed for the related trust prior
to the termination of an offering of certificates are incorporated by reference
into, and should be considered a part of, this prospectus. Upon request, we will
provide without charge to each person receiving this prospectus in connection
with an offering, a copy of any or all documents or reports that are so
incorporated by reference. All requests should be directed to us in writing at
600 Steamboat Road, Greenwich, Connecticut 06830, attention: Paul D. Stevelman,
Esq., or by telephone at (203) 625-2700.
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Summary of Prospectus
This summary contains selected information from this prospectus. It
does not contain all of the information you need to consider in making your
investment decision. To understand all of the terms of a particular offering of
certificates, you should read carefully this prospectus and the related
prospectus supplement in full.
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Who We Are..................................... Greenwich Capital Commercial Funding Corp. is a Delaware corporation. Our
principal offices are located at 600 Steamboat Road, Greenwich, Connecticut
06830. Our main telephone number is (203) 625-2700. See "Greenwich Capital
Commercial Funding Corp."
The Securities Being Offered................... The securities that will be offered by this prospectus and the related prospectus
supplements consist of mortgage pass-through certificates. These certificates
will be issued in series, and each series will, in turn, consist of one or more
classes. Each class of offered certificates must, at the time of issuance, be
assigned an investment grade rating by at least one nationally recognized
statistical rating organization. Typically, the four highest rating categories,
within which there may be sub-categories or gradations to indicate relative
standing, signify investment grade. See "Rating."
Each series of offered certificates will evidence beneficial ownership interests in
a trust established by us and containing the assets described in this prospectus
and the related prospectus supplement.
The Offered Certificates may be
Issued with Other Certificates............ We may not publicly offer all the mortgage pass-through certificates evidencing
interests in one of our trusts. We may elect to retain some of those
certificates, to place some privately with institutional investors or to deliver
some to the applicable seller as partial consideration for the related mortgage
assets. In addition, some of those certificates may not satisfy the rating
requirement for offered certificates described under "--The Securities Being
Offered" above.
The Governing Documents........................ In general, a pooling and servicing agreement or other similar agreement or
collection of agreements will govern, among other things--
o the issuance of each series of offered certificates,
o the creation of and transfer of assets to the related trust, and
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o the servicing and administration of those assets.
The parties to the governing document(s) for a series of offered certificates will
always include us and a trustee. We will be responsible for establishing the trust
relating to each series of offered certificates. In addition, we will transfer or
arrange for the transfer of the initial trust assets to that trust. In general, the
trustee for a series of offered certificates will be responsible for, among other
things, making payments and preparing and disseminating various reports to the
holders of those offered certificates.
If the trust assets for a series of offered certificates include mortgage loans,
the parties to the governing document(s) will also include--
o a master servicer that will generally be responsible for performing customary
servicing duties with respect to those mortgage loans that are not defaulted,
nonperforming or otherwise problematic in any material respect, and
o a special servicer that will generally be responsible for servicing and
administering those mortgage loans that are defaulted, nonperforming or
otherwise problematic in any material respect and real estate assets acquired
as part of the related trust with respect to defaulted mortgage loans.
The same person or entity, or affiliated entities, may act as both master servicer
and special servicer for any trust.
If the trust assets for a series of offered certificates include mortgage-backed
securities, the parties to the governing document(s) may also include a manager
that will be responsible for performing various administrative duties with respect
to those mortgage-backed securities. If the related trustee assumes those duties,
however, there will be no manager.
In the related prospectus supplement, we will identify the trustee and any master
servicer, special servicer or manager for each series of offered certificates and
will describe their respective duties in further detail. See "Description of the
Governing Documents."
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Characteristics of the
Mortgage Assets........................... The trust assets with respect to any series of offered certificates will, in
general, include mortgage loans. Each of those mortgage loans will constitute the
obligation of one or more persons to repay a debt. The performance of that
obligation will be secured by a first or junior lien on, or security interest in,
the ownership, leasehold or other interest(s) of the related borrower or another
person in or with respect to one or more commercial or multifamily real
properties. In particular, those properties may include:
o rental or cooperatively-owned buildings with multiple dwelling units;
o retail properties related to the sale of consumer goods and other
products, or related to providing entertainment, recreational or
personal services, to the general public;
o office buildings;
o hospitality properties;
o casino properties;
o health care-related facilities;
o industrial facilities;
o warehouse facilities, mini-warehouse facilities and self-storage
facilities;
o restaurants, taverns and other establishments involved in the food and
beverage industry;
o manufactured housing communities, mobile home parks and recreational
vehicle parks;
o recreational and resort properties;
o arenas and stadiums;
o churches and other religious facilities;
o parking lots and garages;
o mixed use properties;
o other income-producing properties; and
o unimproved land.
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The mortgage loans underlying a series of offered certificates may have a variety
of payment terms. For example, any of those mortgage loans--
o may provide for the accrual of interest at a mortgage interest rate that
is fixed over its term, that resets on one or more specified dates or that
otherwise adjusts from time to time;
o may provide for the accrual of interest at a mortgage interest rate that
may be converted at the borrower's election from an adjustable to a fixed
interest rate or from a fixed to an adjustable interest rate;
o may provide for no accrual of interest;
o may provide for level payments to stated maturity, for payments that reset
in amount on one or more specified dates or for payments that otherwise
adjust from time to time to accommodate changes in the mortgage interest
rate or to reflect the occurrence of specified events;
o may be fully amortizing or, alternatively, may be partially amortizing
or nonamortizing, with a substantial payment of principal due on its
stated maturity date;
o may permit the negative amortization or deferral of accrued interest;
o may prohibit some or all voluntary prepayments or require payment of a
premium, fee or charge in connection with those prepayments;
o may permit defeasance and the release of real property collateral in
connection with that defeasance;
o may provide for payments of principal, interest or both, on due dates that
occur monthly, bi-monthly, quarterly, semi-annually, annually or at some
other interval; and/or
o may have two or more component parts, each having characteristics that are
otherwise described in this prospectus as being attributable to separate
and distinct mortgage loans.
Most, if not all, of the mortgage loans underlying a series of offered certificates
will be secured by liens on real properties
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located in the United States, its territories and possessions. However, some of
those mortgage loans may be secured by liens on real properties located outside the
United States, its territories and possessions, provided that foreign mortgage
loans do not represent more than 10% of the related mortgage asset pool, by
balance.
We do not originate mortgage loans. However, some or all of the mortgage loans
included in one of our trusts may be originated by our affiliates.
Neither we nor any of our affiliates will guarantee or insure repayment of any of
the mortgage loans underlying a series of offered certificates. Unless we expressly
state otherwise in the related prospectus supplement, no governmental agency or
instrumentality will guarantee or insure repayment of any of the mortgage loans
underlying a series of offered certificates. See "Description of the Trust
Assets--Mortgage Loans."
The trust assets with respect to any series of offered certificates may also
include mortgage participations, mortgage pass-through certificates, collateralized
mortgage obligations and other mortgage-backed securities, that evidence an
interest in, or are secured by a pledge of, one or more mortgage loans of the type
described above. We will not include a mortgage-backed security among the trust
assets with respect to any series of offered certificates unless--
o the security has been registered under the Securities Act of 1933, as
amended, or
o we would be free to publicly resell the security without registration.
See "Description of the Trust Assets--Mortgage-Backed Securities."
We will describe the specific characteristics of the mortgage assets underlying a
series of offered certificates in the related prospectus supplement.
In general, the total outstanding principal balance of the mortgage assets
transferred by us to any particular trust will equal or exceed the initial total
outstanding principal balance of the related series of certificates. In the event
that the total outstanding principal balance of the related mortgage assets
initially delivered by us to the related trustee is less than the initial total
outstanding principal balance of any series of certificates, we may deposit or
arrange for the deposit of cash
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or liquid investments on an interim basis with the related trustee to cover the
shortfall. For 90 days following the date of initial issuance of that series of
certificates, we will be entitled to obtain a release of the deposited cash or
investments if we deliver or arrange for delivery of a corresponding amount of
mortgage assets. If we fail, however, to deliver mortgage assets sufficient to make
up the entire shortfall, any of the cash or, following liquidation, investments
remaining on deposit with the related trustee will be used by the related trustee
to pay down the total principal balance of the related series of certificates, as
described in the related prospectus supplement.
Characteristics of the Offered Certificates.... An offered certificate may entitle the holder to receive:
o a stated principal amount;
o interest on a principal balance or notional amount, at a fixed, variable
or adjustable pass-through rate;
o specified, fixed or variable portions of the interest, principal or other
amounts received on the related mortgage assets;
o payments of principal, with disproportionate, nominal or no payments of
interest;
o payments of interest, with disproportionate, nominal or no payments of
principal;
o payments of interest or principal that commence only as of a specified
date or only after the occurrence of specified events, such as the payment
in full of the interest and principal outstanding on one or more other
classes of certificates of the same series;
o payments of principal to be made, from time to time or for designated
periods, at a rate that is--
1. faster and, in some cases, substantially faster, or
2. slower and, in some cases, substantially slower,
than the rate at which payments or other collections of principal are received
on the related mortgage assets;
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o payments of principal to be made, subject to available funds, based on
a specified principal payment schedule or other methodology; or
o payments of all or part of the prepayment or repayment premiums, fees and
charges, equity participations payments or other similar items received on
the related mortgage assets.
Any class of offered certificates may be senior or subordinate to one or more other
classes of certificates of the same series, including a non-offered class of
certificates of that series, for purposes of some or all payments and/or
allocations of losses.
A class of offered certificates may have two or more component parts, each having
characteristics that are otherwise described in this prospectus as being
attributable to separate and distinct classes.
We will describe the specific characteristics of each class of offered certificates
in the related prospectus supplement. See "Description of the Certificates."
Credit Support and Interest Rate
Protection for the Offered
Certificates.............................. Some classes of offered certificates may be protected in full or in part against
defaults and losses, or select types of defaults and losses, on the related
mortgage assets through the subordination of one or more other classes of
certificates of the same series or by other types of credit support. The other
types of credit support may include a letter of credit, a surety bond, an
insurance policy, a guarantee, a credit derivative or a reserve fund. We will
describe the credit support, if any, for each class of offered certificates in the
related prospectus supplement. The trust assets with respect to any series of
offered certificates may also include any of the following agreements:
o guaranteed investment contracts in accordance with which moneys held in
the funds and accounts established with respect to those offered
certificates will be invested at a specified rate; or
o interest rate exchange agreements, interest rate cap or floor agreements,
or other agreements and arrangements designed to reduce the effects of
interest rate fluctuations on the related mortgage assets or on one or
more classes of those offered certificates; or
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We will describe the types of reinvestment and interest rate protection, if any,
for each class of offered certificates in the related prospectus supplement.
See "Risk Factors," "Description of the Trust Assets" and "Description of Credit
Support."
Advances with Respect to the
Mortgage Assets.............................. If the trust assets for a series of offered certificates include mortgage loans,
then, as and to the extent described in the related prospectus supplement, the
related master servicer, the related special servicer, the related trustee, any
related provider of credit support and/or any other specified person may be
obligated to make, or may have the option of making, advances with respect to
those mortgage loans to cover--
o delinquent scheduled payments of principal and/or interest, other than
balloon payments,
o property protection expenses,
o other servicing expenses, or
o any other items specified in the related prospectus supplement.
Any party making advances will be entitled to reimbursement from subsequent
recoveries on the related mortgage loan and as otherwise described in this
prospectus or the related prospectus supplement. That party may also be entitled to
receive interest on its advances for a specified period. See "Description of the
Certificates--Advances."
If the trust assets for a series of offered certificates include mortgage-backed
securities, we will describe in the related prospectus supplement any comparable
advancing obligations with respect to those mortgage-backed securities or the
underlying mortgage loans.
Optional Termination........................... We will describe in the related prospectus supplement any circumstances in which a
specified party is permitted or obligated to purchase or sell any of the mortgage
assets underlying a series of offered certificates. In particular, a master
servicer, special servicer or other designated party may be permitted or obligated
to purchase or sell--
o all the mortgage assets in any particular trust, thereby resulting in a
termination of the trust, or
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o that portion of the mortgage assets in any particular trust as is
necessary or sufficient to retire one or more classes of offered
certificates of the related series.
See "Description of the Certificates--Termination."
Federal Income
Tax Consequences............................ Any class of offered certificates will constitute or evidence ownership of:
o regular interests or residual interests in a real estate mortgage
investment conduit under Sections 860A through 860G of the Internal
Revenue Code of 1986; or
o regular interests in a financial asset securitization investment
trust within the meaning of Section 860L(a) of the Internal Revenue Code
of 1986; or
o interests in a grantor trust under Subpart E of Part I of Subchapter J of the
Internal Revenue Code of 1986.
See "Federal Income Tax Consequences."
ERISA Considerations........................... If you are a fiduciary of an employee benefit plan or other retirement plan or
arrangement, you should review with your legal advisor whether the purchase or
holding of offered certificates could give rise to a transaction that is
prohibited or is not otherwise permissible under applicable law. See "ERISA
Considerations."
Legal Investment............................... If your investment authority is subject to legal restrictions, you should consult
your legal advisor to determine whether and to what extent the offered
certificates constitute a legal investment for you. We will specify in the
related prospectus supplement which classes of the offered certificates will
constitute mortgage related securities for purposes of the Secondary Mortgage
Market Enhancement Act of 1984, as amended. See "Legal Investment."
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Risk Factors
You should consider the following factors, as well as the factors set
forth under "Risk Factors" in the related prospectus supplement, in deciding
whether to purchase offered certificates.
Lack of Liquidity Will Impair Your Ability to Sell Your Offered Certificates
and may Have an Adverse Effect on the Market Value of Your Offered Certificates
The offered certificates may have limited or no liquidity. We cannot
assure you that a secondary market for your offered certificates will develop.
There will be no obligation on the part of anyone to establish a secondary
market. Even if a secondary market does develop for your offered certificates,
it may provide you with less liquidity than you anticipated and it may not
continue for the life of your offered certificates.
We will describe in the related prospectus supplement the information
that will be available to you with respect to your offered certificates. The
limited nature of the information may adversely affect the liquidity of your
offered certificates.
We do not currently intend to list the offered certificates on any
national securities exchange or the NASDAQ stock market.
Lack of liquidity will impair your ability to sell your offered
certificates and may prevent you from doing so at a time when you may want or
need to. Lack of liquidity could adversely affect the market value of your
offered certificates. We do not expect that you will have any redemption rights
with respect to your offered certificates.
If you decide to sell your offered certificates, you may have to sell
them at a discount from the price you paid for reasons unrelated to the
performance of your offered certificates or the related mortgage assets. Pricing
information regarding your offered certificates may not be generally available
on an ongoing basis.
The Market Value of Your Offered Certificates may be Adversely Affected by to
Factors Unrelated to the Performance of Your Offered Certificates and the
Underlying Mortgage Assets, Such as Fluctuations in Interest Rates and the
Supply and Demand of CMBS Generally
The market value of your offered certificates can decline even if those
certificates and the underlying mortgage assets are performing at or above your
expectations.
The market value of your offered certificates will be sensitive to
fluctuations in current interest rates. However, a change in the market value of
your offered certificates as a result of an upward or downward movement in
current interest rates may not equal the change in the market value of your
offered certificates as a result of an equal but opposite movement in interest
rates.
The market value of your offered certificates will also be influenced
by the supply of and demand for commercial mortgage-backed securities generally.
The supply of commercial mortgage-backed securities will depend on, among other
things, the amount of commercial and multifamily mortgage loans, whether newly
originated or held in portfolio, that are available for securitization. A number
of factors will affect investors' demand for commercial mortgage-backed
securities, including--
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o the availability of alternative investments that offer higher
yields or are perceived as being a better credit risk, having
a less volatile market value or being more liquid,
o legal and other restrictions that prohibit a particular entity
from investing in commercial mortgage-backed securities or
limit the amount or types of commercial mortgage-backed
securities that it may acquire,
o investors' perceptions regarding the commercial and
multifamily real estate markets, which may be adversely
affected by, among other things, a decline in real estate
values or an increase in defaults and foreclosures on mortgage
loans secured by income-producing properties, and
o investors' perceptions regarding the capital markets in
general, which may be adversely affected by political, social
and economic events completely unrelated to the commercial and
multifamily real estate markets.
If you decide to sell your offered certificates, you may have to sell
at discount from the price you paid for reasons unrelated to the performance of
your offered certificates or the related mortgage assets. Pricing information
regarding your offered certificates may not be generally available on an ongoing
basis.
Payments on the Offered Certificates Will be Made Solely From the Limited
Assets of the Related Trust, and Those Assets may be Insufficient to Make all
Required Payments on Those Certificates
The offered certificates do not represent obligations of any person or
entity and do not represent a claim against any assets other than those of the
related trust. No governmental agency or instrumentality will guarantee or
insure payment on the offered certificates. In addition, neither we nor our
affiliates are responsible for making payments on the offered certificates if
collections on the related trust assets are insufficient. If the related trust
assets are insufficient to make payments on your offered certificates, no other
assets will be available to you for payment of the deficiency, and you will bear
the resulting loss. Any advances made by a master servicer or other party with
respect to the mortgage assets underlying your offered certificates are intended
solely to provide liquidity and not credit support. The party making those
advances will have a right to reimbursement, probably with interest, which is
senior to your right to receive payment on your offered certificates.
Any Credit Support for Your Offered Certificates may be Insufficient to Protect
you Against all Potential Losses
The Amount of Credit Support Will Be Limited. The rating agencies that
assign ratings to your offered certificates will establish the amount of credit
support, if any, for your offered certificates based on, among other things, an
assumed level of defaults, delinquencies and losses with respect to the related
mortgage assets. Actual losses may, however, exceed the assumed levels. See
"Description of the Certificates--Allocation of Losses and Shortfalls" and
"Description of Credit Support." If actual losses on the related mortgage assets
exceed the assumed levels, you may be required to bear the additional losses.
Credit Support May Not Cover All Types of Losses. The credit support,
if any, for your offered certificates may not cover all of your potential
losses. For example, some forms of credit support may not cover or may provide
limited protection against losses that you may suffer by reason of fraud or
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negligence or as a result of uninsured casualties at the real properties
securing the underlying mortgage loans. You may be required to bear any losses
which are not covered by the credit support.
Disproportionate Benefits may be Given to Some Classes and Series to
the Detriment of Others. If a form of credit support covers multiple classes or
series and losses exceed the amount of that credit support, it is possible that
the holders of offered certificates of another series or class will be
disproportionately benefited by that credit support to your detriment.
The Investment Performance of Your Offered Certificates Will Depend Upon
Payments, Defaults and Losses on the Underlying Mortgage Loans; and Those
Payments, Defaults and Losses may be Highly Unpredictable
The Terms of the Underlying Mortgage Loans Will Affect Payments on Your
Offered Certificates. Each of the mortgage loans underlying the offered
certificates will specify the terms on which the related borrower must repay the
outstanding principal amount of the loan. The rate, timing and amount of
scheduled payments of principal may vary, and may vary significantly, from
mortgage loan to mortgage loan. The rate at which the underlying mortgage loans
amortize will directly affect the rate at which the principal balance or
notional amount of your offered certificates is paid down or otherwise reduced.
In addition, any mortgage loan underlying the offered certificates may
permit the related borrower during some or all of the loan term to prepay the
loan. In general, a borrower will be more likely to prepay its mortgage loan
when it has an economic incentive to do so, such as obtaining a larger loan on
the same underlying real property or a lower or otherwise more advantageous
interest rate through refinancing. If a mortgage loan includes some form of
prepayment restriction, the likelihood of prepayment should decline. These
restrictions may include--
o an absolute or partial prohibition against voluntary
prepayments during some or all of the loan term, or
o a requirement that voluntary prepayments be accompanied by
some form of prepayment premium, fee or charge during some or
all of the loan term.
In many cases, however, there will be no restriction associated with the
application of insurance proceeds or condemnation proceeds as a prepayment of
principal.
The Terms of the Underlying Mortgage Loans do not Provide Absolute
Certainty as Regards the Rate, Timing and Amount of Payments on Your Offered
Certificates. Notwithstanding the terms of the mortgage loans backing your
offered certificates, the amount, rate and timing of payments and other
collections on those mortgage loans will, to some degree, be unpredictable
because of borrower defaults and because of casualties and condemnations with
respect to the underlying real properties.
The investment performance of your offered certificates may vary
materially and adversely from your expectations due to--
o the rate of prepayments and other unscheduled collections of
principal on the underlying mortgage loans being faster or
slower than you anticipated, or
o the rate of defaults on the underlying mortgage loans being
faster, or the severity of losses on the underlying mortgage
loans being greater, than you anticipated.
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The actual yield to you, as a holder of an offered certificate, may not
equal the yield you anticipated at the time of your purchase, and the total
return on investment that you expected may not be realized. In deciding whether
to purchase any offered certificates, you should make an independent decision as
to the appropriate prepayment, default and loss assumptions to be used. If the
trust assets underlying your offered certificates include mortgage-backed
securities, the terms of those securities may soften or enhance the effects to
you that may result from prepayments, defaults and losses on the mortgage loans
that ultimately back those securities.
Prepayments on the Underlying Mortgage Loans Will Affect the Average
Life of Your Offered Certificates; and the Rate and Timing of Those Prepayments
may be Highly Unpredictable. Payments of principal and/or interest on your
offered certificates will depend upon, among other things, the rate and timing
of payments on the related mortgage assets. Prepayments on the underlying
mortgage loans may result in a faster rate of principal payments on your offered
certificates, thereby resulting in a shorter average life for your offered
certificates than if those prepayments had not occurred. The rate and timing of
principal prepayments on pools of mortgage loans varies among pools and is
influenced by a variety of economic, demographic, geographic, social, tax and
legal factors. Accordingly, neither you nor we can predict the rate and timing
of principal prepayments on the mortgage loans underlying your offered
certificates. As a result, repayment of your offered certificates could occur
significantly earlier or later, and the average life of your offered
certificates could be significantly shorter or longer, than you expected.
The extent to which prepayments on the underlying mortgage loans
ultimately affect the average life of your offered certificates depends on the
terms and provisions of your offered certificates. A class of offered
certificates may entitle the holders to a pro rata share of any prepayments on
the underlying mortgage loans, to all or a disproportionately large share of
those prepayments, or to none or a disproportionately small share of those
prepayments. If you are entitled to a disproportionately large share of any
prepayments on the underlying mortgage loans, your offered certificates may be
retired at an earlier date. If, however, you are only entitled to a small share
of the prepayments on the underlying mortgage loans, the average life of your
offered certificates may be extended. Your entitlement to receive payments,
including prepayments, of principal of the underlying mortgage loans may--
o vary based on the occurrence of specified events, such as the
retirement of one or more other classes of certificates of the
same series, or
o be subject to various contingencies, such as prepayment and
default rates with respect to the underlying mortgage loans.
We will describe the terms and provisions of your offered certificates
more fully in the related prospectus supplement.
Prepayments on the Underlying Mortgage Loans Will Affect the Yield on
Your Offered Certificates; and the Rate and Timing of Those Prepayments may be
Highly Unpredictable. If you purchase your offered certificates at a discount or
premium, the yield on your offered certificates will be sensitive to prepayments
on the underlying mortgage loans. If you purchase your offered certificates at a
discount, you should consider the risk that a slower than anticipated rate of
principal payments on the underlying mortgage loans could result in your actual
yield being lower than your anticipated yield. Alternatively, if you purchase
your offered certificates at a premium, you should consider the risk that a
faster than anticipated rate of principal payments on the underlying mortgage
loans could result in your actual yield being lower than your anticipated yield.
The potential effect that prepayments may have on
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the yield of your offered certificates will increase as the discount deepens or
the premium increases. If the amount of interest payable on your offered
certificates is disproportionately large, as compared to the amount of principal
payable on your offered certificates, you may fail to recover your original
investment under some prepayment scenarios. The rate and timing of principal
prepayments on pools of mortgage loans varies among pools and is influenced by a
variety of economic, demographic, geographic, social, tax and legal factors.
Accordingly, neither you nor we can predict the rate and timing of principal
prepayments on the mortgage loans underlying your offered certificates.
Delinquencies, Defaults and Losses on the Underlying Mortgage Loans may
Affect the Amount and Timing of Payments on Your Offered Certificates; and the
Rate and Timing of Those Delinquencies and Defaults, and the Severity of Those
Losses, are Highly Unpredictable. The rate and timing of delinquencies and
defaults, and the severity of losses, on the underlying mortgage loans will
impact the amount and timing of payments on a series of offered certificates to
the extent that their effects are not offset by delinquency advances or some
form of credit support.
Unless otherwise covered by delinquency advances or some form of credit
support, defaults on the underlying mortgage loans may delay payments on a
series of offered certificates while the defaulted mortgage loans are worked-out
or liquidated. However, liquidations of defaulted mortgage loans prior to
maturity could affect the yield and average life of an offered certificate in a
manner similar to a voluntary prepayment.
If you calculate your anticipated yield to maturity based on an assumed
rate of default and amount of losses on the underlying mortgage loans that is
lower than the default rate and amount of losses actually experienced, then, to
the extent that you are required to bear the additional losses, your actual
yield to maturity will be lower than you calculated and could, under some
scenarios, be negative. Furthermore, the timing of losses on the underlying
mortgage loans can affect your yield. In general, the earlier you bear any loss
on an underlying mortgage loan, the greater the negative effect on your yield.
See "--Repayment of a Commercial or Multifamily Mortgage Loan Depends
Upon the Performance and Value of the Underlying Real Property, Which May
Decline Over Time, and the Related Borrower's Ability to Refinance the Property,
of Which There is no Assurance" below.
There is an Increased Risk of Default Associated With Balloon Payments.
Any of the mortgage loans underlying your offered certificates may be
nonamortizing or only partially amortizing. The borrower under a mortgage loan
of that type is required to make substantial payments of principal and interest,
which are commonly called balloon payments, on the maturity date of the loan.
The ability of the borrower to make a balloon payment depends upon the
borrower's ability to refinance or sell the real property securing the loan. The
ability of the borrower to refinance or sell the property will be affected by a
number of factors, including:
o the fair market value and condition of the underlying real
property;
o the level of interest rates;
o the borrower's equity in the underlying real property;
o the borrower's financial condition;
o the operating history of the underlying real property;
o changes in zoning and tax laws;
o changes in competition in the relevant area;
o changes in rental rates in the relevant area;
o changes in governmental regulation and fiscal policy;
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o prevailing general and regional economic conditions;
o the state of the fixed income and mortgage markets; and
o the availability of credit for multifamily rental or
commercial properties.
See "--Repayment of a Commercial or Multifamily Mortgage Loan Depends
Upon the Performance and Value of the Underlying Real Property, Which May
Decline Over Time, and the Related Borrower's Ability to Refinance the Property,
of Which There is no Assurance" below.
Neither we nor any of our affiliates will be obligated to refinance any
mortgage loan underlying your offered certificates.
The related master servicer or special servicer may, within prescribed
limits, extend and modify mortgage loans underlying your offered certificates
that are in default or as to which a payment default is imminent in order to
maximize recoveries on the defaulted loans. The related master servicer or
special servicer is only required to determine that any extension or
modification is reasonably likely to produce a greater recovery than a
liquidation of the real property securing the defaulted loan. There is a risk
that the decision of the master servicer or special servicer to extend or modify
a mortgage loan may not in fact produce a greater recovery.
Repayment of a Commercial or Multifamily Mortgage Loan Depends upon the
Performance and Value of the Underlying Real Property, Which may Decline Over
Time, and the Related Borrower's Ability to Refinance the Property, of Which
There is no Assurance
Most of the Mortgage Loans Underlying Your Offered Certificates Will be
Nonrecourse. You should consider all of the mortgage loans underlying your
offered certificates to be nonrecourse loans. This means that, in the event of a
default, recourse will be limited to the related real property or properties
securing the defaulted mortgage loan. In those cases where recourse to a
borrower or guarantor is permitted by the loan documents, we generally will not
undertake any evaluation of the financial condition of that borrower or
guarantor. Consequently, full and timely payment on each mortgage loan
underlying your offered certificates will depend on one or more of the
following:
o the sufficiency of the net operating income of the applicable
real property;
o the market value of the applicable real property at or prior
to maturity; and
o the ability of the related borrower to refinance or sell the
applicable real property.
In general, the value of a multifamily or commercial property will
depend on its ability to generate net operating income. The ability of an owner
to finance a multifamily or commercial property will depend, in large part, on
the property's value and ability to generate net operating income.
Unless we state otherwise in the related prospectus supplement, none of
the mortgage loans underlying your offered certificates will be insured or
guaranteed by any governmental entity or private mortgage insurer.
The risks associated with lending on multifamily and commercial
properties are inherently different from those associated with lending on the
security of single-family residential properties. This is because multifamily
rental and commercial real estate lending involves larger loans and, as
described above, repayment is dependent upon the successful operation and value
of the related real estate project.
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Many Risk Factors are Common to Most or all Multifamily and Commercial
Properties. The following factors, among others, will affect the ability of a
multifamily or commercial property to generate net operating income and,
accordingly, its value:
o the age, design and construction quality of the property;
o perceptions regarding the safety, convenience and
attractiveness of the property;
o the characteristics of the neighborhood where the property is
located;
o the proximity and attractiveness of competing properties;
o the existence and construction of competing properties;
o the adequacy of the property's management and maintenance;
o national, regional or local economic conditions, including
plant closings, industry slowdowns and unemployment rates;
o local real estate conditions, including an increase in or
oversupply of comparable commercial or residential space;
o demographic factors;
o customer tastes and preferences;
o retroactive changes in building codes; and
o changes in governmental rules, regulations and fiscal
policies, including environmental legislation.
Particular factors that may adversely affect the ability of a
multifamily or commercial property to generate net operating income include:
o an increase in interest rates, real estate taxes and other
operating expenses;
o an increase in the capital expenditures needed to maintain the
property or make improvements;
o a decline in the financial condition of a major tenant and, in
particular, a sole tenant or anchor tenant;
o an increase in vacancy rates;
o a decline in rental rates as leases are renewed or replaced;
and
o natural disasters and civil disturbances such as earthquakes,
hurricanes, floods, eruptions or riots.
The volatility of net operating income generated by a multifamily or
commercial property over time will be influenced by many of the foregoing
factors, as well as by:
o the length of tenant leases;
o the creditworthiness of tenants;
o the rental rates at which leases are renewed or replaced;
o the percentage of total property expenses in relation to
revenue;
o the ratio of fixed operating expenses to those that vary with
revenues; and
o the level of capital expenditures required to maintain the
property and to maintain or replace tenants.
Therefore, commercial and multifamily properties with short-term or less
creditworthy sources of revenue and/or relatively high operating costs, such as
those operated as hospitality and self-storage properties, can be expected to
have more volatile cash flows than commercial and multifamily properties with
medium- to long-term leases from creditworthy tenants and/or relatively low
operating costs. A
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decline in the real estate market will tend to have a more immediate effect on
the net operating income of commercial and multifamily properties with
short-term revenue sources and may lead to higher rates of delinquency or
defaults on the mortgage loans secured by those properties.
The Successful Operation of a Multifamily or Commercial Property
Depends on Tenants. Generally, multifamily and commercial properties are subject
to leases. The owner of a multifamily or commercial property typically uses
lease or rental payments for the following purposes:
o to pay for maintenance and other operating expenses associated
with the property;
o to fund repairs, replacements and capital improvements at the
property; and
o to service mortgage loans secured by, and any other debt
obligations associated with operating, the property.
Factors that may adversely affect the ability of a multifamily or
commercial property to generate net operating income from lease and rental
payments include:
o an increase in vacancy rates, which may result from tenants
deciding not to renew an existing lease or discontinuing
operations;
o an increase in tenant payment defaults;
o a decline in rental rates as leases are entered into, renewed
or extended at lower rates;
o an increase in the capital expenditures needed to maintain the
property or to make improvements; and
o a decline in the financial condition of a major or sole
tenant.
Various factors that will affect the operation and value of a
commercial property include:
o the business operated by the tenants;
o the creditworthiness of the tenants; and
o the number of tenants.
Dependence on a Single Tenant or a Small Number of Tenants Makes a
Property Riskier Collateral. In those cases where an income-producing property
is leased to a single tenant or is primarily leased to one or a small number of
major tenants, a deterioration in the financial condition or a change in the
plan of operations of any of those tenants can have particularly significant
effects on the net operating income generated by the property. If any of those
tenants defaults under or fails to renew its lease, the resulting adverse
financial effect on the operation of the property will be substantially more
severe than would be the case with respect to a property occupied by a large
number of less significant tenants.
An income-producing property operated for retail, office or industrial
purposes also may be adversely affected by a decline in a particular business or
industry if a concentration of tenants at the property is engaged in that
business or industry.
Tenant Bankruptcy Adversely Affects Property Performance. The
bankruptcy or insolvency of a major tenant, or a number of smaller tenants, at a
commercial property may adversely affect the income produced by the property.
Under the U.S. Bankruptcy Code, a tenant has the option of assuming or rejecting
any unexpired lease. If the tenant rejects the lease, the landlord's claim for
breach of the lease would be a general unsecured claim against the tenant unless
there is collateral securing the claim. The claim would be limited to:
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o the unpaid rent reserved under the lease for the periods prior
to the bankruptcy petition or any earlier surrender of the
leased premises, plus
o an amount, not to exceed three years' rent, equal to the
greater of one year's rent and 15% of the remaining reserved
rent.
The Success of an Income-Producing Property Depends on Reletting Vacant
Spaces. The operations at an income-producing property will be adversely
affected if the owner or property manager is unable to renew leases or relet
space on comparable terms when existing leases expire and/or become defaulted.
Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements and leasing commissions in the case of
income-producing properties operated for retail, office or industrial purposes,
can be substantial and could reduce cash flow from the income-producing
properties. Moreover, if a tenant at a income-producing property defaults in its
lease obligations, the landlord may incur substantial costs and experience
significant delays associated with enforcing its rights and protecting its
investment, including costs incurred in renovating and reletting the property.
If an income-producing property has multiple tenants, re-leasing
expenditures may be more frequent than in the case of a property with fewer
tenants, thereby reducing the cash flow generated by the multi-tenanted
property. Multi-tenanted properties may also experience higher continuing
vacancy rates and greater volatility in rental income and expenses.
Property Value may be Adversely Affected Even When Current Operating
Income is not. Various factors may affect the value of multifamily and
commercial properties without affecting their current net operating income,
including:
o changes in interest rates;
o the availability of refinancing sources;
o changes in governmental regulations, licensing or fiscal
policy;
o changes in zoning or tax laws; and
o potential environmental or other legal liabilities.
Property Management may Affect Property Operations and Value. The
operation of an income-producing property will depend upon the property
manager's performance and viability. The property manager generally is
responsible for:
o responding to changes in the local market;
o planning and implementing the rental structure, including
staggering durations of leases and establishing levels of rent
payments;
o operating the property and providing building services;
o managing operating expenses; and
o ensuring that maintenance and capital improvements are carried
out in a timely fashion.
Income-producing properties that derive revenues primarily from
short-term rental commitments, such as hospitality or self-storage properties,
generally require more intensive management than properties leased to tenants
under long-term leases.
By controlling costs, providing appropriate and efficient services to
tenants and maintaining improvements in good condition, a property manager can--
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o maintain or improve occupancy rates, business and cash flow,
o reduce operating and repair costs, and
o preserve building value.
On the other hand, management errors can, in some cases, impair the long term
viability of an income-producing property.
Maintaining a Property in Good Condition is Expensive. The owner may be
required to expend a substantial amount to maintain, renovate or refurbish a
commercial or multifamily property. Failure to do so may materially impair the
property's ability to generate cash flow. The effects of poor construction
quality will increase over time in the form of increased maintenance and capital
improvements. Even superior construction will deteriorate over time if
management does not schedule and perform adequate maintenance in a timely
fashion. There can be no assurance that an income-producing property will
generate sufficient cash flow to cover the increased costs of maintenance and
capital improvements in addition to paying debt service on the mortgage loan(s)
that may encumber that property.
Competition Will Adversely Affect the Profitability and Value of an
Income-Producing Property. Some income-producing properties are located in
highly competitive areas. Comparable income-producing properties located in the
same area compete on the basis of a number of factors including:
o rental rates;
o location;
o type of business or services and amenities offered; and
o nature and condition of the particular property.
The profitability and value of an income-producing property may be
adversely affected by a comparable property that:
o offers lower rents;
o has lower operating costs;
o offers a more favorable location; or
o offers better facilities.
Costs of renovating, refurbishing or expanding an income-producing
property in order to remain competitive can be substantial.
Various Types of Income-Producing Properties may Present Special Risks.
The relative importance of any factor affecting the value or operation of an
income-producing property will depend on the type and use of the property. In
addition, the type and use of a particular income-producing property may present
special risks. For example--
o Health care-related facilities and casinos are subject to
significant governmental regulation of the ownership,
operation, maintenance and/or financing of those properties.
o Multifamily rental properties, manufactured housing
communities and mobile home parks may be subject to rent
control or rent stabilization laws and laws governing
landlord/tenant relationships.
o Hospitality and restaurant properties are often operated under
franchise, management or operating agreements, which may be
terminable by the franchisor or operator. Moreover,
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the transferability of a hotel's or restaurant's operating,
liquor and other licenses upon a transfer of the hotel or
restaurant is subject to local law requirements.
o Depending on their location, recreational and resort
properties, properties that provide entertainment services,
hospitality properties, restaurants and taverns,
mini-warehouses and self-storage facilities tend to be
adversely affected more quickly by a general economic downturn
than other types of commercial properties.
o Marinas will be affected by various statutes and government
regulations that govern the use of, and construction on,
rivers, lakes and other waterways.
o Some recreational and hospitality properties may have seasonal
fluctuations and/or may be adversely affected by prolonged
unfavorable weather conditions.
o Churches and other religious facilities may be highly
dependent on donations which are likely to decline as economic
conditions decline.
o Properties used as gas stations, automotive sales and service
centers, dry cleaners, warehouses and industrial facilities
may be more likely to have environmental issues.
Additionally, many types of commercial properties are not readily
convertible to alternative uses if the original use is not successful or may
require significant capital expenditures to effect any conversion to an
alternative use. As a result, the liquidation value of any of those types of
property would be substantially less than would otherwise be the case. See
"Description of the Trust Assets--Mortgage Loans--A Discussion of the Various
Types of Multifamily and Commercial Properties that may Secure Mortgage Loans
Underlying a Series of Offered Certificates."
Borrower Concentration Within a Trust Exposes Investors to Greater Risk of
Default and Loss
A particular borrower or group of related borrowers may be associated
with multiple real properties securing the mortgage loans underlying a series of
offered certificates. The bankruptcy or insolvency of, or other financial
problems with respect to, that borrower or group of borrowers could have an
adverse effect on--
o the operation of all of the related real properties, and
o the ability of those properties to produce sufficient cash
flow to make required payments on the related mortgage loans.
For example, if a borrower or group of related borrowers that owns or controls
several real properties experiences financial difficulty at one of those
properties, it could defer maintenance at another of those properties in order
to satisfy current expenses with respect to the first property. That borrower or
group of related borrowers could also attempt to avert foreclosure by filing a
bankruptcy petition that might have the effect of interrupting debt service
payments on all the related mortgage loans for an indefinite period. In
addition, multiple real properties owned by the same borrower or related
borrowers are likely to have common management. This would increase the risk
that financial or other difficulties experienced by the property manager could
have a greater impact on the owner of the related loans.
Loan Concentration Within a Trust Exposes Investors to Greater Risk of Default
and Loss
Any of the mortgage assets in one of our trusts may be substantially
larger than the other assets in that trust. In general, the inclusion in a trust
of one or more mortgage assets that have outstanding principal balances that are
substantially larger than the other mortgage assets in the trust can result in
losses that are more severe, relative to the size of the related mortgage asset
pool, than would be the case if the total principal balance of that pool were
distributed more evenly.
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Geographic Concentration Within a Trust Exposes Investors to Greater Risk of
Default and Loss
If a material concentration of mortgage loans underlying a series of
offered certificates is secured by real properties in a particular locale, state
or region, then the holders of those certificates will have a greater exposure
to:
o any adverse economic developments that occur in the locale,
state or region where the properties are located;
o changes in the real estate market where the properties are
located;
o changes in governmental rules and fiscal policies in the
governmental jurisdiction where the properties are located;
and
o acts of nature, including floods, tornadoes and earthquakes,
in the areas where properties are located.
Changes in Pool Composition Will Change the Nature of Your Investment
The mortgage loans underlying any series of offered certificates will
amortize at different rates and mature on different dates. In addition, some of
those mortgage loans may be prepaid or liquidated. As a result, the relative
composition of the related mortgage asset pool will change over time.
If you purchase certificates with a pass-through rate that is equal to
or calculated based upon a weighted average of interest rates on the underlying
mortgage loans, your pass-through rate will be affected, and may decline, as the
relative composition of the mortgage pool changes.
In addition, as payments and other collections of principal are
received with respect to the underlying mortgage loans, the remaining mortgage
pool backing your offered certificates may exhibit an increased concentration
with respect to property type, number and affiliation of borrowers and
geographic location.
Adjustable Rate Mortgage Loans may Entail Greater Risks of Default to Lenders
than Fixed Rate Mortgage Loans
Some or all of the mortgage loans underlying a series of offered
certificates may provide for adjustments to their respective mortgage interest
rates and corresponding adjustments to their respective periodic debt service
payments. As the periodic debt service payment for any of those mortgage loans
increases, the likelihood that cash flow from the underlying real property will
be insufficient to make that periodic debt service payment and pay operating
expenses also increases.
Subordinate Debt Increases the Likelihood That a Borrower Will Default on a
Mortgage Loan Underlying Your Offered Certificates
Some or all of the mortgage loans included in one of our trusts may
permit the related borrower to encumber the related real property with
additional secured debt.
Even if a mortgage loan prohibits further encumbrance of the related
real property, a violation of this prohibition may not become evident until the
affected mortgage loan otherwise defaults. Accordingly, a lender, such as one of
our trusts, may not realistically be able to prevent a borrower from incurring
subordinate debt.
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The existence of any secured subordinated indebtedness increases the
difficulty of refinancing a mortgage loan at the loan's maturity. In addition,
the related borrower may have difficulty repaying multiple loans. Moreover, the
filing of a petition in bankruptcy by, or on behalf of, a junior lienholder may
stay the senior lienholder from taking action to foreclose out the junior lien.
See "Legal Aspects of Mortgage Loans--Subordinate Financing."
Borrower Bankruptcy Proceedings can Delay and Impair Recovery on a Mortgage Loan
Underlying Your Offered Certificates
Under the U.S. Bankruptcy Code, the filing of a petition in bankruptcy
by or against a borrower will stay the sale of a real property owned by that
borrower, as well as the commencement or continuation of a foreclosure action.
In addition, if a court determines that the value of a real property is
less than the principal balance of the mortgage loan it secures, the court may
reduce the amount of secured indebtedness to the then-value of the property.
This would make the lender a general unsecured creditor for the difference
between the then-value of the property and the amount of its outstanding
mortgage indebtedness.
A bankruptcy court also may:
o grant a debtor a reasonable time to cure a payment default on
a mortgage loan;
o reduce monthly payments due under a mortgage loan;
o change the rate of interest due on a mortgage loan; or
o otherwise alter a mortgage loan's repayment schedule.
Furthermore, the borrower, as debtor-in-possession, or its bankruptcy
trustee has special powers to avoid, subordinate or disallow debts. In some
circumstances, the claims of a secured lender, such as one of our trusts, may be
subordinated to financing obtained by a debtor-in-possession subsequent to its
bankruptcy.
Under the U.S. Bankruptcy Code, a lender will be stayed from enforcing
a borrower's assignment of rents and leases. The U.S. Bankruptcy Code also may
interfere with a lender's ability to enforce lockbox requirements. The legal
proceedings necessary to resolve these issues can be time consuming and may
significantly delay the receipt of rents. Rents also may escape an assignment to
the extent they are used by borrower to maintain its property or for other court
authorized expenses.
As a result of the foregoing, the related trust's recovery with respect
to borrowers in bankruptcy proceedings may be significantly delayed, and the
total amount ultimately collected may be substantially less than the amount
owed.
Taxes on Foreclosure Property Will Reduce Amounts Available to Make Payments on
the Offered Certificates
One of our trusts may be designated, in whole or in part, as a real
estate mortgage investment conduit for federal income tax purposes. If that
trust acquires a real property through a foreclosure or deed in lieu of
foreclosure, then the related special servicer may be required to retain an
independent contractor to operate and manage the property. Receipt of the
following types of income on that
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property will subject the trust to federal, and possibly state or local, tax on
that income at the highest marginal corporate tax rate:
o any net income from that operation and management that does
not consist of qualifying rents from real property within the
meaning of Section 856(d) of the Internal Revenue Code of
1986, and
o any rental income based on the net profits of a tenant or
sub-tenant or allocable to a service that is non-customary in
the area and for the type of building involved.
These taxes would reduce the net proceeds available for payment with respect to
the related offered certificates.
Environmental Liabilities Will Adversely Affect the Value and Operation of the
Contaminated Property and May Deter a Lender from Foreclosing
There can be no assurance--
o as to the degree of environmental testing conducted at any of
the real properties securing the mortgage loans that back your
offered certificates;
o that the environmental testing conducted by or on behalf of
the applicable originators or any other parties in connection
with the origination of those mortgage loans or otherwise
identified all adverse environmental conditions and risks at
the related real properties;
o that the results of the environmental testing were accurately
evaluated in all cases;
o that the related borrowers have implemented or will implement
all operations and maintenance plans and other remedial
actions recommended by any environmental consultant that may
have conducted testing at the related real properties; or
o that the recommended action will fully remediate or otherwise
address all the identified adverse environmental conditions
and risks.
Environmental site assessments vary considerably in their content,
quality and cost. Even when adhering to good professional practices,
environmental consultants will sometimes not detect significant environmental
problems because to do an exhaustive environmental assessment would be far too
costly and time-consuming to be practical.
In addition, the current environmental condition of a real property
securing a mortgage loan underlying your offered certificates could be adversely
affected by--
o tenants at the property, such as gasoline stations or dry
cleaners, or
o conditions or operations in the vicinity of the property, such
as leaking underground storage tanks at another property
nearby.
Various environmental laws may make a current or previous owner or
operator of real property liable for the costs of removal or remediation of
hazardous or toxic substances on, under or adjacent to the property. Those laws
often impose liability whether or not the owner or operator knew of, or was
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responsible for, the presence of the hazardous or toxic substances. For example,
there are laws that impose liability for release of asbestos containing
materials into the air or require the removal or containment of the materials.
The owner's liability for any required remediation generally is unlimited and
could exceed the value of the property and/or the total assets of the owner. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate the adverse environmental condition, may adversely affect the owner's
or operator's ability to use the affected property. In some states,
contamination of a property may give rise to a lien on the property to ensure
the costs of cleanup. Depending on the state, this lien may have priority over
the lien of an existing mortgage, deed of trust or other security instrument. In
addition, third parties may seek recovery from owners or operators of real
property for personal injury associated with exposure to hazardous substances,
including asbestos and lead-based paint. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may be liable for the costs of
removal or remediation of the substances at the disposal or treatment facility.
The federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, as well as other federal and state laws,
provide that a secured lender, such as one of our trusts, may be liable as an
"owner" or "operator" of the real property, regardless of whether the borrower
or a previous owner caused the environmental damage, if--
o agents or employees of the lender are deemed to have
participated in the management of the borrower, or
o the lender actually takes possession of a borrower's property
or control of its day-to-day operations, including through the
appointment of a receiver or foreclosure.
Although recently enacted legislation clarifies the activities in which
a lender may engage without becoming subject to liability under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, and similar federal laws, that legislation has no applicability to
state environmental laws. Moreover, future laws, ordinances or regulations could
impose material environmental liability.
Federal law requires owners of residential housing constructed prior to
1978 to disclose to potential residents or purchasers--
o any condition on the property that causes exposure to
lead-based paint, and
o the potential hazards to pregnant women and young children,
including that the ingestion of lead-based paint chips and/or
the inhalation of dust particles from lead-based paint by
children can cause permanent injury, even at low levels of
exposure.
Property owners may be liable for injuries to their tenants resulting
from exposure under various laws that impose affirmative obligations on property
owners of residential housing containing lead-based paint.
Some Provisions in the Mortgage Loans Underlying Your Offered Certificates may
be Challenged as Being Unenforceable
Cross-Collateralization Arrangements. It may be possible to challenge
cross-collateralization arrangements involving more than one borrower as a
fraudulent conveyance, even if the borrowers are
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related. If one of those borrowers were to become a debtor in a bankruptcy case,
creditors of the bankrupt party or the representative of the bankruptcy estate
of the bankrupt party could seek to have the bankruptcy court avoid any lien
granted by the bankrupt party to secure repayment of another borrower's loan. In
order to do so, the court would have to determine that--
o the bankrupt party--
1. was insolvent at the time of granting the lien,
2. was rendered insolvent by the granting of the lien,
3. was left with inadequate capital, or
4. was not able to pay its debts as they matured; and
o the bankrupt party did not, when it allowed its property to be
encumbered by a lien securing the other borrower's loan,
receive fair consideration or reasonably equivalent value for
pledging its property for the equal benefit of the other
borrower.
If the court were to conclude that the granting of the lien was an avoidable
fraudulent conveyance, it could nullify the lien or security instrument
effecting the cross-collateralization. The court could also allow the bankrupt
party to recover payments it made under the avoided cross-collateralization.
Prepayment Premiums, Fees and Charges. Under the laws of a number of
states, the enforceability of any mortgage loan provisions that require payment
of a prepayment premium, fee or charge upon an involuntary prepayment, is
unclear. If those provisions were unenforceable, borrowers would have an
incentive to default in order to prepay their loans.
Due-on-Sale and Debt Acceleration Clauses. Some or all of the mortgage
loans included in one of our trusts may contain a due-on-sale clause, which
permits the lender, with some exceptions, to accelerate the maturity of the
mortgage loan upon the sale, transfer or conveyance of--
o the related real property, or
o a majority ownership interest in the related borrower.
We anticipate that all of the mortgage loans included in one of our
trusts will contain some form of debt-acceleration clause, which permits the
lender to accelerate the debt upon specified monetary or non-monetary defaults
by the related borrower.
The courts of all states will enforce acceleration clauses in the event
of a material payment default. The equity courts of any state, however, may
refuse to allow the foreclosure of a mortgage, deed of trust or other security
instrument or to permit the acceleration of the indebtedness if:
o the default is deemed to be immaterial,
o the exercise of those remedies would be inequitable or unjust,
or
o the circumstances would render the acceleration
unconscionable.
Assignments of Leases. Some or all of the mortgage loans included in
one of our trusts may be secured by, among other things, an assignment of leases
and rents. Under that document, the related
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borrower will assign its right, title and interest as landlord under the leases
on the related real property and the income derived from those leases to the
lender as further security for the related mortgage loan, while retaining a
license to collect rents for so long as there is no default. In the event the
borrower defaults, the license terminates and the lender is entitled to collect
rents. In some cases, those assignments may not be perfected as security
interests prior to actual possession of the cash flow. Accordingly, state law
may require that the lender take possession of the property and obtain a
judicial appointment of a receiver before becoming entitled to collect the
rents. In addition, the commencement of bankruptcy or similar proceedings by or
with respect to the borrower will adversely affect the lender's ability to
collect the rents. See "Legal Aspects of Mortgage Loans--Bankruptcy Laws."
Defeasance. A mortgage loan underlying a series of offered certificates
may permit the related borrower, during the periods specified and subject to the
conditions set forth in the loan, to pledge to the holder of the mortgage loan a
specified amount of direct, non-callable United States government securities and
thereby obtain a release of the related mortgaged property. The cash amount
which a Borrower must expend to purchase, or must deliver to a master servicer
in order for the master servicer to purchase, the required United States
government securities may be in excess of the principal balance of the mortgage
loan. A court could interpret that excess amount as a form of prepayment premium
or could take it into account for usury purposes. In some states, some forms of
prepayment premiums are unenforceable. If the payment of that excess amount were
held to be unenforceable, the remaining portion of the cash amount to be
delivered may be insufficient to purchase the requisite amount of United States
government securities.
Lack of Insurance Coverage Exposes a Trust to Risk for Particular Special Hazard
Losses
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of a property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in the
related policy. Most insurance policies typically do not cover any physical
damage resulting from, among other things:
o war,
o revolution,
o governmental actions,
o floods and other water-related causes,
o earth movement, including earthquakes, landslides and
mudflows,
o wet or dry rot,
o vermin, and
o domestic animals.
Unless the related mortgage loan documents specifically require the
borrower to insure against physical damage arising from these causes, then the
resulting losses may be borne by you as a holder of offered certificates.
Ground Leases Create Risks for Lenders That are not Present When Lending on an
Actual Ownership Interest in a Real Property
In order to secure a mortgage loan, a borrower may grant a lien on its
leasehold interest in a real property as tenant under a ground lease. If the
ground base does not provide for notice to a lender of a
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default thereunder on the part of the borrower, together with a reasonable
opportunity for the lender to cure the default, the lender may be unable to
prevent termination of the lease and may lose its collateral.
In addition, upon the bankruptcy of a landlord or a tenant under a
ground lease, the debtor entity has the right to assume or reject the ground
lease. If a debtor landlord rejects the lease, the tenant has the right to
remain in possession of its leased premises at the rent reserved in the lease
for the term, including renewals. If a debtor tenant rejects any or all of its
leases, the tenant's lender may not be able to succeed to the tenant's position
under the lease unless the landlord has specifically granted the lender that
right. If both the landlord and the tenant are involved in bankruptcy
proceedings, the trustee for your offered certificates may be unable to enforce
the bankrupt tenant's obligation to refuse to treat as terminated a ground lease
rejected by a bankrupt landlord. In those circumstances, it is possible that the
trustee could be deprived of its security interest in the leasehold estate,
notwithstanding lender protection provisions contained in the lease or mortgage
loan documents.
Changes in Zoning Laws may Adversely Affect the Use or Value of a Real Property
Due to changes in zoning requirements since construction, an
income-producing property may not comply with current zoning laws, including
density, use, parking and set back requirements. Accordingly, the property may
be a permitted non-conforming structure or the operation of the property may be
a permitted non-conforming use. This means that the owner is not required to
alter the property's structure or use to comply with the new law, but the owner
may be limited in its ability to rebuild the premises "as is" in the event of a
substantial casualty loss. This may adversely affect the cash flow available
following the casualty. If a substantial casualty were to occur, insurance
proceeds may not be sufficient to pay a mortgage loan secured by the property in
full. In addition, if the property were repaired or restored in conformity with
the current law, its value or revenue-producing potential may be less than that
which existed before the casualty.
Compliance with the Americans with Disabilities Act of 1990 May Be Expensive
Under the Americans with Disabilities Act of 1990, all public
accommodations are required to meet federal requirements related to access and
use by disabled persons. If a property does not currently comply with that Act,
the property owner may be required to incur significant costs in order to effect
that compliance. This will reduce the amount of cash flow available to cover
other required maintenance and capital improvements and to pay debt service on
the mortgage loan(s) that may encumber that property. There can be no assurance
that the owner will have sufficient funds to cover the costs necessary to comply
with that Act. In addition, noncompliance could result in the imposition of
fines by the federal government or an award or damages to private litigants.
Litigation May Adversely Affect a Borrower's Ability to Repay its Mortgage Loan
The owner of a multifamily or commercial property may be a defendant in
a litigation arising out of, among other things, the following:
o breach of contract involving a tenant, a supplier or other
party;
o negligence resulting in a personal injury, or
o responsibility for an environmental problem.
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Litigation will divert the owner's attention from operating its
property. If the litigation were decided adversely to the owner, the award to
the plaintiff may adversely affect the owner's ability to repay a mortgage loan
secured by the property.
Residual Interests in a Real Estate Mortgage Investment Conduit Have Adverse Tax
Consequences
Inclusion of Taxable Income in Excess of Cash Received. If you own a
certificate that is a residual interest in a real estate mortgage investment
conduit for federal income tax purposes, you will have to report on your income
tax return as ordinary income your pro rata share of the taxable income of that
REMIC, regardless of the amount or timing of your possible receipt of any cash
on the certificate. As a result, your offered certificate may have phantom
income early in the term of the REMIC because the taxable income from the
certificate may exceed the amount of economic income, if any, attributable to
the certificate. While you will have a corresponding amount of tax losses later
in the term of the REMIC, the present value of the phantom income may
significantly exceed the present value of the tax losses. Therefore, the
after-tax yield on any REMIC residual certificate may be significantly less than
that of a corporate bond or other instrument having similar cash flow
characteristics. In fact, some offered certificates that are residual interests,
may have a negative value.
You have to report your share of the taxable income and net loss of the
REMIC until all the certificates in the related series have a principal balance
of zero. See "Federal Income Tax Consequences--REMICs."
Some Taxable Income of a Residual Interest can not be Offset Under the
Internal Revenue Code of 1986. A portion of the taxable income from a REMIC
residual certificate may be treated as excess inclusions under the Internal
Revenue Code of 1986. You will have to pay tax on the excess inclusions
regardless of whether you have other credits, deductions or losses. In
particular, the tax on excess inclusion:
o generally will not be reduced by losses from other activities,
o for a tax-exempt holder, will be treated as unrelated business
taxable income, and
o for a foreign holder, will not qualify for any exemption from
withholding tax.
Some Entities Should not Invest in REMIC Residual Certificates. The
fees and non-interest expenses of a REMIC will be allocated pro rata to
certificates that are residual interests in the REMIC. However, individuals will
only be able to deduct these expenses as miscellaneous itemized deductions,
which are subject to numerous restrictions and limitations under the Internal
Revenue Code of 1986. Therefore, the certificates that are residual interests
generally are not appropriate investments for:
o individuals,
o estates,
o trusts beneficially owned by any individual or estate, and
o pass-through entities having any individual, estate or trust
as a shareholder, member or partner.
In addition, the REMIC residual certificates will be subject to
numerous transfer restrictions. These restrictions will reduce your ability to
liquidate a REMIC residual certificate. For example, unless we indicate
otherwise in the related prospectus supplement, you will not be able to transfer
a REMIC residual certificate to a foreign person under the Internal Revenue Code
of 1986.
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See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Residual Certificates."
Problems With Book-Entry Registration
Your offered certificates may be issued in book-entry form through the
facilities of the Depository Trust Company. As a result--
o you will be able to exercise your rights as a
certificateholder only indirectly through the Depository Trust
Company and its participating organizations;
o you may have only limited access to information regarding your
offered certificates;
o you may suffer delays in the receipt of payments on your
offered certificates; and
o your ability to pledge or otherwise take action with respect
to your offered certificates may be limited due to the lack of
a physical certificate evidencing your ownership of those
certificates.
See "Description of the Certificates--Book-Entry Registration and
Definitive Certificates."
Potential Conflicts of Interest can Affect a Person's Performance
The master servicer or special servicer for one of our trusts, or any
of their respective affiliates, may purchase certificates evidencing interests
in that trust.
In addition, the master servicer or special servicer for one of our
trusts, or any of their respective affiliates, may have interests in, or other
financial relationships with, borrowers under the related mortgage loans.
In servicing the mortgage loans in any of our trusts, the related
master servicer and special servicer will each be required to observe the terms
of the governing document(s) for the related series of offered certificates and,
in particular, to act in accordance with the servicing standard described in the
related prospectus supplement. You should consider, however, that either of
these parties, if it or an affiliate owns certificates, or has financial
interests in or other financial dealings with any of the related borrowers, may
have interests when dealing with the mortgage loans underlying your offered
certificates that are in conflict with your interests. For example, if the
related special servicer owns any certificates, it could seek to mitigate the
potential loss on its certificates from a troubled mortgage loan by delaying
enforcement in the hope of realizing greater proceeds in the future. However,
this action by a special servicer could result a lower recovery to the related
trust than would have been the case if the special servicer had not delayed in
taking enforcement action.
Furthermore, the master servicer or special servicer for any of our
trusts may service existing and new loans for third parties, including
portfolios of loans similar to the mortgage loans included in that trust. The
properties securing these other loans may be in the same markets as and compete
with the properties securing mortgage loans in our trust. Accordingly, that
master servicer or special servicer may be acting on behalf of parties with
conflicting interests.
The Transition from the Year 1999 to the Year 2000 may Disrupt the Ability of
Computerized Systems to Process Information.
The collection of payments on the mortgage assets backing your offered
certificates, the servicing and administration of those mortgage assets and the
payments on your offered certificates are
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highly dependent upon computer systems of the related master servicer, manager,
special servicer, trustee, borrowers and other third parties.
We will inquire from each of the parties to the governing document(s)
for a series of offered certificates whether and how the transition from 1999 to
2000 has affected their computer systems. We also will obtain assurances from
these parties that they are taking the necessary steps to cure any problems
their computer systems may have with the manipulation or calculation of dates
after December 1, 1999. Notwithstanding those inquiries and assurances,
unforeseen problems in this regard could still occur.
Capitalized Terms Used in this Prospectus
From time to time we use capitalized terms in this prospectus. Each of
those capitalized terms will have the meaning assigned to it in the "Glossary"
attached to this prospectus.
Description of the Trust Assets
General
We will be responsible for establishing the trust underlying each
series of offered certificates. The assets of the trust will primarily consist
of:
o various types of multifamily and/or commercial mortgage loans;
o mortgage participations, pass-through certificates,
collateralized mortgage obligations or other mortgage-backed
securities that directly or indirectly evidence interests in,
or are secured by pledges of, one or more of various types of
multifamily and/or commercial mortgage loans; or
o a combination of mortgage loans and mortgage-backed securities
of the types described above.
We do not originate mortgage loans. Accordingly, we must acquire each
of the mortgage loans to be included in one of our trusts from the originator or
a subsequent assignee. In some cases, that originator or subsequent assignee
will be one of our affiliates.
Unless we indicate otherwise in the related prospectus supplement, we
will acquire, directly or through one of our affiliates, in the secondary
market, any mortgage-backed security to be included in one of our trusts.
Neither we nor any of our affiliates will guarantee any of the mortgage
assets included in one of our trusts. Furthermore, unless we indicate otherwise
in the related prospectus supplement, no governmental agency or instrumentality
will guarantee or insure any of those mortgage assets.
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Mortgage Loans
General. Each mortgage loan underlying the offered certificates will
constitute the obligation of one or more persons to repay a debt. That
obligation will be evidenced by a promissory note or bond. In addition, that
obligation will be secured by a mortgage, deed of trust or other security
instrument that creates a first or junior lien on, or security interest in, an
interest in one or more of the following types of real property:
o rental or cooperatively-owned buildings with multiple dwelling
units;
o retail properties related to the sale of consumer goods and
other products to the general public, such as shopping
centers, malls, factory outlet centers, automotive sales
centers, department stores and other retail stores, grocery
stores, specialty shops, convenience stores and gas stations;
o retail properties related to providing entertainment,
recreational and personal services to the general public, such
as movie theaters, fitness centers, bowling alleys, salons,
dry cleaners and automotive service centers;
o office properties;
o hospitality properties, such as hotels, motels and other
lodging facilities;
o casino properties;
o health care-related properties, such as hospitals, skilled
nursing facilities, nursing homes, congregate care facilities
and, in some cases, assisted living centers and senior
housing;
o industrial properties;
o warehouse facilities, mini-warehouse facilities and
self-storage facilities;
o restaurants, taverns and other establishments involved in the
food and beverage industry;
o manufactured housing communities, mobile home parks and
recreational vehicle parks;
o recreational and resort properties, such as recreational
vehicle parks, golf courses, marinas, ski resorts and
amusement parks;
o arenas and stadiums;
o churches and other religious facilities;
o parking lots and garages;
o mixed use properties;
o other income-producing properties; and
o unimproved land.
The real property interests that may be encumbered in order to secure a
mortgage loan underlying your offered certificates, include--
o a fee interest or estate, which consists of ownership of the
property for an indefinite period,
o an estate for years, which consists of ownership of the
property for a specified period of years,
o a leasehold interest or estate, which consists of a right to
occupy and use the property for a specified period of years,
subject to the terms and conditions of a lease,
o shares in a cooperative corporation which owns the property,
or
o any other real estate interest under applicable local law.
Any of these real property interests may be subject to deed restrictions,
easements, rights of way and other matters of public record with respect to the
related property. In addition, the use of, and
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improvements that may be constructed on, any particular real property will, in
most cases, be subject to zoning laws and other legal restrictions.
Most, if not all, of the mortgage loans underlying a series of offered
certificates will be secured by liens on real properties located in the United
States, its territories and possessions. However, some of those mortgage loans
may be secured by liens on real properties located outside the United States,
its territories and possessions, provided that foreign mortgage loans do not
represent more than 10% of the related mortgage asset pool, by balance.
If we so indicate in the related prospectus supplement, one or more of
the mortgage loans underlying a series of offered certificates may be secured by
a junior lien on the related real property. However, the loan or loans secured
by the more senior liens on that property may not be included in the related
trust. The primary risk to the holder of a mortgage loan secured by a junior
lien on a real property is the possibility that the foreclosure proceeds
remaining after payment of the loans secured by more senior liens on that
property will be insufficient to pay the junior loan in full. In a foreclosure
proceeding, the sale proceeds are applied--
o first, to the payment of court costs and fees in connection
with the foreclosure,
o second, to the payment of real estate taxes, and
o third, to the payment of any and all principal, interest,
prepayment or acceleration penalties, and other amounts owing
to the holder of the senior loans.
The claims of the holders of the senior loans must be satisfied in full before
the holder of the junior loan receives any payments with respect to the junior
loan. If a lender forecloses on a junior loan, it does so subject to any related
senior loans.
If we so indicate in the related prospectus supplement, the mortgage
loans underlying a series of offered certificates may be delinquent as of the
date the certificates are initially issued. In those cases, we will describe in
the related prospectus supplement--
o the period of the delinquency,
o any forbearance arrangement then in effect,
o the condition of the related real property, and
o the ability of the related real property to generate income to
service the mortgage debt.
We will not, however, transfer any mortgage loan to a trust if we know that the
mortgage loan is, at the time of transfer, more than 90 days delinquent with
respect to any scheduled payment of principal or interest or in foreclosure.
A Discussion of the Various Types of Multifamily and Commercial
Properties That may Secure Mortgage Loans Underlying a Series of Offered
Certificates. The mortgage loans underlying a series of offered certificates may
be secured by numerous types of multifamily and commercial properties. As we
discuss below under "--Mortgage Loans--Default and Loss Considerations with
Respect to Commercial and Multifamily Mortgage Loans," the adequacy of an
income-producing property as security for a mortgage loan depends in large part
on its value and ability to generate net operating income. Set forth below is a
discussion of some of the various factors that may affect the value and
operations of the indicated types of multifamily and commercial properties.
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Multifamily Rental Properties. Factors affecting the value and
operation of a multifamily rental property include:
o the physical attributes of the property, such as its age,
appearance, amenities and construction quality;
o the types of services offered at the property;
o the location of the property;
o the characteristics of the surrounding neighborhood, which may
change over time;
o the rents charged for dwelling units at the property relative
to the rents charged for comparable units at competing
properties;
o the ability of management to provide adequate maintenance and
insurance;
o the property's reputation;
o the level of mortgage interest rates, which may encourage
tenants to purchase rather than lease housing;
o the existence or construction of competing or alternative
residential properties, including other apartment buildings
and complexes, manufactured housing communities, mobile home
parks and single-family housing;
o the ability of management to respond to competition;
o the tenant mix and whether the property is primarily occupied
by workers from a particular company or type of business,
personnel from a local military base or students;
o adverse local, regional or national economic conditions, which
may limit the amount that may be charged for rents and may
result in a reduction in timely rent payments or a reduction
in occupancy levels;
o state and local regulations, which may affect the property
owner's ability to increase rent to the market rent for an
equivalent apartment;
o the extent to which the property is subject to land use
restrictive covenants or contractual covenants that require
that units be rented to low income tenants;
o the extent to which the cost of operating the property,
including the cost of utilities and the cost of required
capital expenditures, may increase; and
o the extent to which increases in operating costs may be passed
through to tenants.
Because units in a multifamily rental property are leased to
individuals, usually for no more than a year, the property is likely to respond
relatively quickly to a downturn in the local economy or to the closing of a
major employer in the area.
Some states regulate the relationship of an owner and its tenants at a
multifamily rental property. Among other things, these states may--
o require written leases;
o require good cause for eviction;
o require disclosure of fees;
o prohibit unreasonable rules;
o prohibit retaliatory evictions;
o prohibit restrictions on a resident's choice of unit vendors;
o limit the bases on which a landlord may increase rent; or
o prohibit a landlord from terminating a tenancy solely by
reason of the sale of the owner's building.
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Apartment building owners have been the subject of suits under state
Unfair and Deceptive Practices Acts and other general consumer protection
statutes for coercive, abusive or unconscionable leasing and sales practices.
Some counties and municipalities also impose rent control regulations
on apartment buildings. These regulations may limit rent increases to--
o fixed percentages,
o percentages of increases in the consumer price index,
o increases set or approved by a governmental agency, or
o increases determined through mediation or binding arbitration.
In many cases, the rent control laws do not provide for decontrol of
rental rates upon vacancy of individual units. Any limitations on a landlord's
ability to raise rents at a multifamily rental property may impair the
landlord's ability to repay a mortgage loan secured by the property or to meet
operating costs.
Some multifamily rental properties are subject to land use restrictive
covenants or contractual covenants in favor of federal or state housing
agencies. These covenants generally require that a minimum number or percentage
of units be rented to tenants who have incomes that are substantially lower than
median incomes in the area or region. These covenants may limit the potential
rental rates that may be charged at a multifamily rental property, the potential
tenant base for the property or both. An owner may subject a multifamily rental
property to these covenants in exchange for tax credits or rent subsidies. When
the credits or subsidies cease, net operating income will decline.
Some mortgage loans underlying the offered certificates will be secured
by--
o the related borrower's interest in multiple units in a
residential condominium project, and
o the related voting rights in the owners' association for the
project.
Due to the nature of condominiums, a default on any of those mortgage loans will
not allow the related special servicer the same flexibility in realizing on the
real property collateral as is generally available with respect to multifamily
rental properties that are not condominiums. The rights of other unit owners,
the governing documents of the owners' association and the state and local laws
applicable to condominiums must be considered and respected. Consequently,
servicing and realizing upon the collateral for those mortgage loans could
subject the related trust to greater delay, expense and risk than a loan secured
by a multifamily rental property that is not a condominium.
Cooperatively-Owned Apartment Buildings. Some multifamily properties
are owned or leased by cooperative corporations. In general, each shareholder in
the corporation is entitled to occupy a particular apartment unit under a
long-term proprietary lease or occupancy agreement.
A tenant/shareholder of a cooperative corporation must make a monthly
maintenance payment to the corporation. The monthly maintenance payment
represents a tenant/shareholder's pro rata share of the corporation's--
o mortgage loan payments,
o real property taxes,
o maintenance expenses, and
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o other capital and ordinary expenses of the property.
These monthly maintenance payments are in addition to any payments of principal
and interest the tenant/shareholder must make on any loans of the
tenant/shareholder secured by its shares in the corporation.
A cooperative corporation is directly responsible for building
maintenance and payment of real estate taxes and hazard and liability insurance
premiums. A cooperative corporation's ability to meet debt service obligations
on a mortgage loan secured by, and to pay all other operating expenses of, the
cooperatively owned property depends primarily upon the receipt of--
o maintenance payments from the tenant/shareholders, and
o any rental income from units or commercial space that the
cooperative corporation might control.
A cooperative corporation may have to impose special assessments on the
tenant/shareholders in order to pay unanticipated expenditures. Accordingly, a
cooperative corporation is highly dependent on the financial well being of its
tenant/shareholders. A cooperative corporation's ability to pay the amount of
any balloon payment due at the maturity of a mortgage loan secured by the
cooperatively owned property depends primarily on its ability to refinance the
property.
In a typical cooperative conversion plan, the owner of a rental
apartment building contracts to sell the building to a newly formed cooperative
corporation. Shares are allocated to each apartment unit by the owner or
sponsor. The current tenants have a specified period to subscribe at prices
discounted from the prices to be offered to the public after that period. As
part of the consideration for the sale, the owner or sponsor receives all the
unsold shares of the cooperative corporation. In general the sponsor controls
the corporation's board of directors and management for a limited period of
time. If the sponsor holds the shares allocated to a large number of apartment
units, the lender on a mortgage loan secured by a cooperatively owned property
may be adversely affected by a decline in the creditworthiness of the sponsor.
Many cooperative conversion plans are non-eviction plans. Under a
non-eviction plan, a tenant at the time of conversion who chooses not to
purchase shares is entitled to reside in its apartment unit as a subtenant from
the owner of the shares allocated to that unit. Any applicable rent control or
rent stabilization laws would continue to be applicable to the subtenancy. In
addition, the subtenant may be entitled to renew its lease for an indefinite
number of years with continued protection from rent increases above those
permitted by any applicable rent control and rent stabilization laws. The
owner/shareholder is responsible for the maintenance payments to the cooperative
corporation without regard to whether it receives rent from the subtenant or
whether the rent payments are lower than maintenance payments on the unit.
Newly-formed cooperative corporations typically have the greatest concentration
of non-tenant/shareholders.
Retail Properties. The term "retail property" encompasses a broad range
of properties at which businesses sell consumer goods and other products and
provide various entertainment, recreational or personal services to the general
public. Some examples of retail properties include:
o shopping centers
o factory outlet centers
o malls
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o automotive sales and service centers
o consumer oriented businesses
o department stores
o grocery stores
o convenience stores
o specialty shops
o gas stations
o movie theaters
o fitness centers
o bowling alleys
o salons
o dry cleaners
Unless owner occupied, retail properties generally derive all or a
substantial percentage of their income from lease payments from commercial
tenants. Therefore, it is important for the owner of a retail property to
attract and keep tenants, particularly significant tenants, that are able to
meet their lease obligations. In order to attract tenants, the owner of a retail
property may be required--
o to lower rents;
o to grant a potential tenant a free rent or reduced rent
period;
o to improve the condition of the property generally; or
o to make at its own expense, or grant a rent abatement to
cover, tenant improvements for a potential tenant.
A prospective tenant will also be interested in the number and type of
customers that it will be able to attract at a particular retail property. The
ability of a tenant at a particular retail property to attract customers will be
affected by a number of factors related to the property and the surrounding
area, including--
o competition from other retail properties;
o perceptions regarding the safety, convenience and
attractiveness of the property;
o perceptions regarding the safety of the surrounding area;
o demographics of the surrounding area;
o the strength and stability of the local, regional and national
economies;
o traffic patterns and access to major thoroughfares;
o the visibility of the property;
o availability of parking;
o the particular mixture of the goods and services offered at
the property;
o customer tastes, preferences and spending patterns; and
o the drawing power of other tenants.
The success of a retail property is often dependent on the success of
its tenants' businesses. A significant component of the total rent paid by
tenants of retail properties is often tied to a percentage of gross sales or
revenues. Declines in sales or revenues of the tenants will likely cause a
corresponding decline in percentage rents and/or impair the tenants' ability to
pay their rent or other occupancy costs. A default by a tenant under its lease
could result in delays and costs in enforcing the landlord's rights.
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Retail properties would be directly and adversely affected by a decline in the
local economy and reduced consumer spending.
Repayment of a mortgage loan secured by a retail property will be
affected by the expiration of space leases at the property and the ability of
the borrower to renew or relet the space on comparable terms. Even if vacant
space is successfully relet, the costs associated with reletting, including
tenant improvements, leasing commissions and free rent, may be substantial and
could reduce cash flow from a retail property.
The presence or absence of an anchor tenant in a multi-tenanted retail
property can be important. Anchor tenants play a key role in generating customer
traffic and making the center desirable for other tenants. An anchor tenant is,
in general, a retail tenant whose space is substantially larger in size than
that of other tenants at the same retail property and whose operation is vital
in attracting customers to the property. At some retail properties, the anchor
tenant owns the space it occupies. In those cases where the property owner does
not control the space occupied by the anchor tenant, the property owner may not
be able to take actions with respect to the space that it otherwise typically
would, such as granting concessions to retain an anchor tenant or removing an
ineffective anchor tenant. In some cases, an anchor tenant may cease to operate
at the property, thereby leaving its space unoccupied even though it continues
to own or pay rent on the vacant space. If an anchor tenant ceases operations at
a retail property, other tenants at the property may be entitled to terminate
their leases prior to the scheduled termination date or to pay rent at a reduced
rate for the remaining term of the lease.
Various factors will adversely affect the economic performance of an
anchored retail property, including:
o an anchor tenant's failure to renew its lease;
o termination of an anchor tenant's lease;
o the bankruptcy or economic decline of an anchor tenant or a
self-owned anchor;
o the cessation of the business of a self-owned anchor or of an
anchor tenant, notwithstanding its continued ownership of the
previously occupied space or its continued payment of rent, as
the case may be; or
o a loss of an anchor tenant's ability to attract shoppers.
Retail properties may also face competition from sources outside a
given real estate market or with lower operating costs. For example, all of the
following compete with more traditional department stores and specialty shops
for consumer dollars:
o factory outlet centers;
o discount shopping centers and clubs;
o catalogue retailers;
o television shopping networks and programs;
o internet web sites; and
o telemarketing.
Similarly, home movie rentals and pay-per-view movies provide alternate
sources of entertainment to movie theaters. Continued growth of these
alternative retail outlets and entertainment sources, which are often
characterized by lower operating costs, could adversely affect the rents
collectible at retail properties.
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Gas stations, automotive sales and service centers and dry cleaners
also pose unique environmental risks because of the nature of their businesses
and the types of products used or sold in those businesses.
Office Properties. Factors affecting the value and operation of an
office property include:
o the number and quality of the tenants, particularly
significant tenants, at the property;
o the physical attributes of the building in relation to
competing buildings;
o the location of the property with respect to the central
business district or population centers;
o demographic trends within the metropolitan area to move away
from or towards the central business district;
o social trends combined with space management trends, which may
change towards options such as telecommuting or hoteling to
satisfy space needs;
o tax incentives offered to businesses or property owners by
cities or suburbs adjacent to or near where the building is
located;
o local competitive conditions, such as the supply of office
space or the existence or construction of new competitive
office buildings; o the quality and philosophy of building
management;
o access to mass transportation; and
o changes in zoning laws.
Office properties may be adversely affected by an economic decline in
the business operated by their tenants. The risk associated with that economic
decline is increased if revenue is dependent on a single tenant or if there is a
significant concentration of tenants in a particular business or industry.
Office properties are also subject to competition with other office
properties in the same market. Competitive factors affecting an office property
include:
o rental rates;
o the building's age, condition and design, including floor
sizes and layout;
o access to public transportation and availability of parking;
and
o amenities offered to its tenants, including sophisticated
building systems, such as fiber optic cables, satellite
communications or other base building technological features.
The cost of refitting office space for a new tenant is often higher
than for other property types.
The success of an office property also depends on the local economy.
Factors influencing a company's decision to locate in a given area include:
o the cost and quality of labor;
o tax incentives; and
o quality of life matters, such as schools and cultural
amenities.
The strength and stability of the local or regional economy will affect
an office property's ability to attract stable tenants on a consistent basis. A
central business district may have a substantially different economy from that
of a suburb.
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Hospitality Properties. Hospitality properties may involve different
types of hotels and motels, including:
o full service hotels;
o resort hotels with many amenities;
o limited service hotels;
o hotels and motels associated with national or regional
franchise chains;
o hotels that are not affiliated with any franchise chain but
may have their own brand identity; and
o other lodging facilities.
Factors affecting the economic performance of a hospitality property
include:
o the location of the property and its proximity to major
population centers or attractions;
o the seasonal nature of business at the property;
o the level of room rates relative to those charged by
competitors;
o quality and perception of the franchise affiliation;
o economic conditions, either local, regional or national, which
may limit the amount that can be charged for a room and may
result in a reduction in occupancy levels;
o the existence or construction of competing hospitality
properties;
o nature and quality of the services and facilities;
o financial strength and capabilities of the owner and operator;
o the need for continuing expenditures for modernizing,
refurbishing and maintaining existing facilities;
o increases in operating costs, which may not be offset by
increased room rates;
o the property's dependence on business and commercial travelers
and tourism; and
o changes in travel patterns caused by changes in access, energy
prices, labor strikes, relocation of highways, the
reconstruction of additional highways or other factors.
Because limited service hotels and motels are relatively quick and
inexpensive to construct and may quickly reflect a positive value, an
over-building of these hotels and motels could occur in any given region, which
would likely adversely affect occupancy and daily room rates. Further, because
rooms at hospitality properties are generally rented for short periods of time,
hospitality properties tend to be more sensitive to adverse economic conditions
and competition than many other types of commercial properties. Additionally,
the revenues of some hospitality properties, particularly those located in
regions whose economies depend upon tourism, may be highly seasonal in nature.
Hospitality properties may be operated under franchise agreements. The
continuation of a franchise is typically subject to specified operating
standards and other terms and conditions. The franchisor periodically inspects
its licensed properties to confirm adherence to its operating standards. The
failure of the hospitality property to maintain those standards or adhere to
those other terms and conditions could result in the loss or cancellation of the
franchise license. It is possible that the franchisor could condition the
continuation of a franchise license on the completion of capital improvements or
the making of capital expenditures that the owner of the hospitality property
determines are too expensive or are otherwise unwarranted in light of the
operating results or prospects of the property. In that event, the owner of the
hospitality property may elect to allow the franchise license to lapse. In any
case, if the franchise is terminated, the owner of the hospitality property may
seek to obtain a suitable replacement franchise or to operate property
independently of a franchise
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license. The loss of a franchise license could have a material adverse effect
upon the operations or value of the hospitality property because of the loss of
associated name recognition, marketing support and centralized reservation
systems provided by the franchisor.
The viability of any hospitality property that is a franchise of a
national or a regional hotel or motel chain is dependent upon:
o the continued existence and financial strength of the
franchisor;
o the public perception of the franchise service mark; and
o the duration of the franchise licensing agreement.
The transferability of franchise license agreements may be restricted.
The consent of the franchisor would be required for the continued use of the
franchise license by the hospitality property following a foreclosure.
Conversely, a lender may be unable to remove a franchisor that it desires to
replace following a foreclosure. Further, in the event of a foreclosure on a
hospitality property, the lender or other purchaser of the hospitality property
may not be entitled to the rights under any associated liquor license. That
party would be required to apply in its own right for a new liquor license.
There can be no assurance that a new license could be obtained or that it could
be obtained promptly.
Casino Properties. Factors affecting the economic performance of a
casino property include:
o location, including proximity to or easy access from major
population centers;
o appearance;
o economic conditions, either local, regional or national, which
may limit the amount of disposable income that potential
patrons may have for gambling;
o the existence or construction of competing casinos;
o dependence on tourism; and
o local or state governmental regulation.
Competition among major casinos may involve attracting patrons by--
o providing alternate forms of entertainment, such as performers
and sporting events, and
o offering low-priced or free food and lodging.
Casino owners may expend substantial sums to modernize, refurbish and
maintain existing facilities.
Because of their dependence on disposable income of patrons, casino
properties are likely to respond quickly to a downturn in the economy.
To avoid criminal influence, the ownership and operation of casino
properties is often subject to local or state governmental regulation. A
government agency or authority may have jurisdiction over or influence with
respect to the foreclosure of a casino property or the bankruptcy of its owner
or operator. In some jurisdictions, it may be necessary to receive governmental
approval before foreclosing, thereby resulting in substantial delays to a
lender. Gaming licenses are not transferable, including in connection with a
foreclosure. There can be no assurance that a lender or another purchaser in
foreclosure or otherwise will be able to obtain the requisite approvals to
continue operating the foreclosed property as a casino.
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Any given state or municipality that currently allows legalized
gambling could pass legislation banning it.
The loss of a gaming license for any reason would have a material
adverse effect on the value of a casino property.
Health Care-Related Properties. Health-care related properties include
o hospitals;
o skilled nursing facilities;
o nursing homes;
o congregate care facilities; and
o in some cases, assisted living centers and housing for
seniors.
Health care-related facilities, particularly nursing homes, may receive
a substantial portion of their revenues from government reimbursement programs,
primarily Medicaid and Medicare. Medicaid and Medicare are subject to
o statutory and regulatory changes;
o retroactive rate adjustments;
o administrative rulings;
o policy interpretations;
o delays by fiscal intermediaries; and
o government funding restrictions.
All of the foregoing can adversely affect revenues from the operation a health
care-related facility. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers. In
addition, there are currently under consideration various proposals for national
health care relief that could further limit these payments.
Providers of long-term nursing care and other medical services are
highly regulated by federal, state and local law. They are subject to numerous
factors which can increase the cost of operation, limit growth and, in extreme
cases, require or result in suspension or cessation of operations, including:
o federal and state licensing requirements;
o facility inspections;
o rate setting;
o reimbursement policies; and
o laws relating to the adequacy of medical care, distribution of
pharmaceuticals, use of equipment, personnel operating
policies and maintenance of and additions to facilities and
services.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements generally may not be made to any person other than the
provider who actually furnished the related material goods and services.
Accordingly, in the event of foreclosure on a health care-related facility,
neither a lender nor other subsequent lessee or operator of the property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
property prior to foreclosure. Furthermore, in the event of foreclosure, there
can be no assurance that a lender or other purchaser in a foreclosure sale would
be entitled to the rights under any
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required licenses and regulatory approvals. The lender or other purchaser may
have to apply in its own right for those licenses and approvals. There can be no
assurance that a new license could be obtained or that a new approval would be
granted.
Health care-related facilities are generally special purpose properties
that could not be readily converted to general residential, retail or office
use. This will adversely affect their liquidation value. Furthermore, transfers
of health care-related facilities are subject to regulatory approvals under
state, and in some cases federal, law not required for transfers of most other
types of commercial properties.
Industrial Properties. Industrial properties may be adversely affected
by reduced demand for industrial space occasioned by a decline in a particular
industry segment and/or by a general slowdown in the economy. In addition, an
industrial property that suited the particular needs of its original tenant may
be difficult to relet to another tenant or may become functionally obsolete
relative to newer properties.
The value and operation of an industrial property depends on:
o location of the property, the desirability of which in a
particular instance may depend on--
1. availability of labor services,
2. proximity to supply sources and customers, and
3. accessibility to various modes of transportation and
shipping, including railways, roadways, airline
terminals and ports;
o building design of the property, the desirability of which in
a particular instance may depend on--
1. ceiling heights,
2. column spacing,
3. number and depth of loading bays,
4. divisibility,
5. floor loading capacities,
6. truck turning radius,
7. overall functionality, and
8. adaptability of the property, because industrial
tenants often need space that is acceptable for
highly specialized activities; and
o the quality and creditworthiness of individual tenants,
because industrial properties frequently have higher tenant
concentrations.
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Industrial properties are generally special purpose properties that
could not be readily converted to general residential, retail or office use.
This will adversely affect their liquidation value.
Warehouse, Mini-Warehouse and Self-Storage Facilities. Warehouse,
mini-warehouse and self-storage properties are considered vulnerable to
competition because both acquisition costs and break-even occupancy are
relatively low. In addition, it would require substantial capital expenditures
to convert a warehouse, mini-warehouse or self-storage property to an
alternative use. This will materially impair the liquidation value of the
property if its operation for storage purposes becomes unprofitable due to
decreased demand, competition, age of improvements or other factors.
Successful operation of a warehouse, mini-warehouse or self-store
property depends on--
o building design;
o location and visibility;
o tenant privacy;
o efficient access to the property;
o proximity to potential users, including apartment complexes or
commercial users;
o services provided at the property, such as security;
o age and appearance of the improvements; and
o quality of management.
Restaurants and Taverns. Factors affecting the economic viability of
individual restaurants, taverns and other establishments that are part of the
food and beverage service industry include:
o competition from facilities having businesses similar to a
particular restaurant or tavern;
o perceptions by prospective customers of safety, convenience,
services and attractiveness;
o the cost, quality and availability of food and beverage
products;
o negative publicity, resulting from instances of food
contamination, food-borne illness and similar events;
o changes in demographics, consumer habits and traffic patterns;
o the ability to provide or contract for capable management; and
o retroactive changes to building codes, similar ordinances and
other legal requirements.
Adverse economic conditions, whether local, regional or national, may
limit the amount that may be charged for food and beverages and the extent to
which potential customers dine out. Because of the nature of the business,
restaurants and taverns tend to respond to adverse economic conditions more
quickly than do many other types of commercial properties. Furthermore, the
transferability of any operating, liquor and other licenses to an entity
acquiring a bar or restaurant, either through purchase or foreclosure, is
subject to local law requirements.
The food and beverage service industry is highly competitive. The
principal means of competition are--
o segment,
o product,
o price,
o value,
o quality,
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o service,
o convenience,
o location, and
o the nature and condition of the restaurant facility.
A restaurant or tavern operator competes with the operators of
comparable establishments in the area in which its restaurant or tavern is
located. Other restaurants could have--
o lower operating costs,
o more favorable locations,
o more effective marketing,
o more efficient operations, or
o better facilities.
The location and condition of a particular restaurant or tavern will
affect the number of customers and, to an extent, the prices that may be
charged. The characteristics of an area or neighborhood in which a restaurant or
tavern is located may change over time or in relation to competing facilities.
Also, the cleanliness and maintenance at a restaurant or tavern will affect its
appeal to customers. In the case of a regionally- or nationally-known chain
restaurant, there may be costly expenditures for renovation, refurbishment or
expansion, regardless of its condition.
Factors affecting the success of a regionally- or nationally-known
chain restaurant include:
o actions and omissions of any franchisor, including management
practices that--
1. adversely affect the nature of the business, or
2. require renovation, refurbishment, expansion or other
expenditures;
o the degree of support provided or arranged by the franchisor,
including its franchisee organizations and third-party
providers of products or services; and
o the bankruptcy or business discontinuation of the franchisor
or any of its franchisee organizations or third-party
providers.
Chain restaurants may be operated under franchise agreements. Those
agreements typically do not contain provisions protective of lenders. A
borrower's rights as franchisee typically may be terminated without informing
the lender, and the borrower may be precluded from competing with the franchisor
upon termination. In addition, a lender that acquires title to a restaurant site
through foreclosure or similar proceedings may be restricted in the use of the
site or may be unable to succeed to the rights of the franchisee under the
related franchise agreement. The transferability of a franchise may be subject
to other restrictions. Also, federal and state franchise regulations may impose
additional risk, including the risk that the transfer of a franchise acquired
through foreclosure or similar proceedings may require registration with
governmental authorities or disclosure to prospective transferees.
Manufactured Housing Communities, Mobile Home Parks and Recreational
Vehicle Parks. Manufactured housing communities and mobile home parks consist of
land that is divided into "spaces" or "home sites" that are primarily leased to
owners of the individual mobile homes or other housing units. The home owner
often invests in site-specific improvements such as carports, steps, fencing,
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skirts around the base of the home, and landscaping. The land owner typically
provides private roads within the park, common facilities and, in many cases,
utilities. Due to relocation costs and, in some cases, demand for homesites, the
value of a mobile home or other housing unit in place in a manufactured housing
community or mobile home park is generally higher, and can be significantly
higher, than the value of the same unit not placed in a manufactured housing
community or mobile home park. As a result, a well-operated manufactured housing
community or mobile home park that has achieved stabilized occupancy is
typically able to maintain occupancy at or near that level. For the same reason,
a lender that provided financing for the home of a tenant who defaulted in his
or her space rent generally has an incentive to keep rental payments current
until the home can be resold in place, rather than to allow the unit to be
removed from the park. In general, the individual mobile homes and other housing
units will not constitute collateral for a mortgage loan underlying a series of
offered certificates.
Recreational vehicle parks lease spaces primarily or exclusively for
motor homes, travel trailers and portable truck campers, primarily designed for
recreational, camping or travel use. In general, parks that lease recreational
vehicle spaces can be viewed as having a less stable tenant population than
parks occupied predominantly by mobile homes. However, it is not unusual for the
owner of a recreational vehicle to leave the vehicle at the park on a year-round
basis or to use the vehicle as low cost housing and reside in the park
indefinitely.
Factors affecting the successful operation of a manufactured housing
community, mobile home park or recreational vehicle park include:
o the number of comparable competing properties in the local
market;
o the age, appearance and reputation of the property;
o the quality of management; and
o the types of facilities and services it provides.
Manufactured housing communities and mobile home parks also compete
against alternative forms of residential housing, including--
o multifamily rental properties,
o cooperatively-owned apartment buildings,
o condominium complexes, and
o single-family residential developments.
Recreational vehicle parks also compete against alternative forms of
recreation and short-term lodging, such as staying at a hotel at the beach.
Manufactured housing communities, mobile home parks and recreational
vehicle parks are special purpose properties that could not be readily converted
to general residential, retail or office use. This will adversely affect the
liquidation value of the property if its operation as a manufactured housing
community, mobile home park or recreational vehicle park, as the case may be,
becomes unprofitable due to competition, age of the improvements or other
factors.
Some states regulate the relationship of an owner of a manufactured
housing community or mobile home park and its tenants in a manner similar to the
way they regulate the relationship between a landlord and tenant at a
multifamily rental property. In addition, some states also regulate changes in
the use of a manufactured housing community or mobile home park and require that
the owner give written notice to its tenants a substantial period of time prior
to the projected change.
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In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on manufactured housing
communities and mobile home parks. These ordinances may limit rent increases to:
o fixed percentages,
o percentages of increases in the consumer price index,
o increases set or approved by a governmental agency, or
o increases determined through mediation or binding arbitration
In many cases, the rent control laws either do not permit vacancy
decontrol or permit vacancy decontrol only in the relatively rare event that the
mobile home or manufactured housing unit is removed from the homesite. Local
authority to impose rent control on manufactured housing communities and mobile
home parks is pre-empted by state law in some states and rent control is not
imposed at the state level in those states. In some states, however, local rent
control ordinances are not pre-empted for tenants having short-term or
month-to-month leases, and properties there may be subject to various forms of
rent control with respect to those tenants.
Recreational and Resort Properties. Any mortgage loan underlying a
series of offered certificates may be secured by a golf course, marina, ski
resort, amusement park or other property used for recreational purposes or as a
resort. Factors affecting the economic performance of a property of this type
include:
o the location and appearance of the property;
o the appeal of the recreational activities offered;
o the existence or construction of competing properties, whether
are not they offer the same activities;
o the need to make capital expenditures to maintain, refurbish,
improve and/or expand facilities in order to attract potential
patrons;
o geographic location and dependence on tourism;
o changes in travel patterns caused by changes in energy prices,
strikes, location of highways, construction of additional
highways and similar factors;
o seasonality of the business, which may cause periodic
fluctuations in operating revenues and expenses;
o sensitivity to weather and climate changes; and
o local, regional and national economic conditions.
A marina or other recreational or resort property located next to water
will also be affected by various statutes and government regulations that govern
the use of, and construction on, rivers, lakes and other waterways.
Because of the nature of the business, recreational and resort
properties tend to respond to adverse economic conditions more quickly than do
many other types of commercial properties.
Recreational and resort properties are generally special purpose
properties that are not readily convertible to alternative uses. This will
adversely affect their liquidation value.
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Arenas and Stadiums. The success of an arena or stadium generally
depends on its ability to attract patrons to a variety of events, including:
o sporting events;
o musical events;
o theatrical events;
o animal shows; and/or
o circuses.
The ability to attract patrons is dependent on, among others, the
following factors:
o the appeal of the particular event;
o the cost of admission;
o perceptions by prospective patrons of the safety, convenience,
services and attractiveness of the arena or stadium;
o perceptions by prospective patrons of the safety of the
surrounding area; and
o the alternative forms of entertainment available in the
particular locale.
In some cases, an arena's or stadium's success will depend on its
ability to attract and keep a sporting team as a tenant. An arena or stadium may
become unprofitable, or unacceptable to a tenant of that type, due to decreased
attendance, competition and age of improvements. Often, substantial expenditures
must be made to modernize, refurbish and/or maintain existing facilities.
Arenas and stadiums are special purpose properties which cannot be
readily convertible to alternative uses. This will adversely affect their
liquidation value.
Churches and Other Religious Facilities. Churches and other religious
facilities generally depend on charitable donations to meet expenses and pay for
maintenance and capital expenditures. The extent of those donations is dependent
on the attendance at any particular religious facility and the extent to which
attendees are prepared to make donations, which is influenced by a variety of
social, political and economic factors. Donations may be adversely affected by
economic conditions, whether local, regional or national. Religious facilities
are special purpose properties that are not readily convertible to alternative
uses. This will adversely affect their liquidation value.
Parking Lots and Garages. The primary source of income for parking lots
and garages is the rental fees charged for parking spaces. Factors affecting the
success of a parking lot or garage include:
o the number of rentable parking spaces and rates charged;
o the location of the lot or garage and, in particular, its
proximity to places where large numbers of people work, shop
or live;
o the amount of alternative parking spaces in the area;
o the availability of mass transit; and
o the perceptions of the safety, convenience and services of the
lot or garage.
Unimproved Land. The value of unimproved land is largely a function of
its potential use. This may depend on--
o its location,
o its size,
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o the surrounding neighborhood, and
o local zoning laws.
Default and Loss Considerations with Respect to Commercial and
Multifamily Mortgage Loans. Mortgage loans secured by liens on income-producing
properties are substantially different from mortgage loans made on the security
of owner-occupied single-family homes. The repayment of a loan secured by a lien
on an income-producing property is typically dependent upon--
o the successful operation of the property, and
o its ability to generate income sufficient to make payments on
the loan.
This is particularly true because most or all of the mortgage loans underlying
the offered certificates will be nonrecourse loans.
The debt service coverage ratio of a multifamily or commercial mortgage
loan is an important measure of the likelihood of default on the loan. In
general, the debt service coverage ratio of a multifamily or commercial mortgage
loan at any given time is the ratio of--
o the amount of income derived or expected to be derived from
the related real property for a twelve-month period that is
available to pay debt service, to
o the annualized scheduled payments of principal and/or interest
on the mortgage loan and any other senior loans that are
secured by the related real property.
The amount described in the first bullet point of the preceding sentence is
often a highly subjective number based on a variety of assumptions regarding,
and adjustments to, revenues and expenses with respect to the related real
property. We will provide a more detailed discussion of its calculation in the
related prospectus supplement.
The cash flow generated by a multifamily or commercial property will
generally fluctuate over time and may or may not be sufficient to make--
o the loan payments on the related mortgage loan,
o cover operating expenses, and
o fund capital improvements at any given time.
Operating revenues of a nonowner occupied, income- producing property
may be affected by the condition of the applicable real estate market and/or
area economy. Properties leased, occupied or used on a short-term basis, such
as--
o some health care-related facilities,
o hotels and motels,
o recreational vehicle parks, and
o mini-warehouse and self-storage facilities,
tend to be affected more rapidly by changes in market or business conditions
than do properties typically leased for longer periods, such as--
o warehouses,
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o retail stores,
o office buildings, and
o industrial facilities.
Some commercial properties may be owner-occupied or leased to a small
number of tenants. Accordingly, the operating revenues may depend substantially
on the financial condition of the borrower or one or a few tenants. Mortgage
loans secured by liens on owner-occupied and single tenant properties may pose a
greater likelihood of default and loss than loans secured by liens on
multifamily properties or on multi-tenant commercial properties.
Increases in property operating expenses can increase the likelihood of
a borrower default on a multifamily or commercial mortgage loan secured by the
property. Increases in property operating expenses may result from:
o increases in energy costs and labor costs;
o increases in interest rates and real estate tax rates; and
o changes in governmental rules, regulations and fiscal
policies.
Some net leases of commercial properties may provide that the lessee,
rather than the borrower/landlord, is responsible for payment of operating
expenses. However, a net lease will result in stable net operating income to the
borrower/landlord only if the lessee is able to pay the increased operating
expense while also continuing to make rent payments.
Lenders also look to the loan-to-value ratio of a mortgage loan as a
factor in evaluating the likelihood of loss if a property is liquidated
following a default. In general, the loan-to-value ratio of a multifamily or
commercial mortgage loan at any given time is the ratio, expressed as a
percentage, of--
o the then outstanding principal balance of the mortgage loan
and any other senior loans that are secured by the related
real property, to
o the estimated value of the related real property based on an
appraisal, a cash flow analysis, a recent sales price or
another method or benchmark of valuation.
A low loan-to-value ratio means the borrower has a large amount of its
own equity in the multifamily or commercial property that secures its loan. In
these circumstances--
o the borrower has a greater incentive to perform under the
terms of the related mortgage loan in order to protect that
equity, and
o the lender has greater protection against loss on liquidation
following a borrower default.
Loan-to-value ratios are not necessarily an accurate measure of the
likelihood of liquidation loss in a pool of multifamily and commercial mortgage
loans. For example, the value of a multifamily or commercial property as of the
date of initial issuance of a series of offered certificates may be less than
the estimated value determined at loan origination. The value of any real
property, in particular a multifamily or commercial property, will likely
fluctuate from time to time. Moreover, even a current appraisal is not
necessarily a reliable estimate of value. Appraised values of income-producing
properties are generally based on--
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o the market comparison method, which takes into account the
recent resale value of comparable properties at the date of
the appraisal;
o the cost replacement method, which takes into account the cost
of replacing the property at the date of the appraisal;
o the income capitalization method, which takes into account the
property's projected net cash flow; or
o a selection from the values derived from the foregoing
methods.
Each of these appraisal methods presents analytical difficulties. For
example,
o it is often difficult to find truly comparable properties that
have recently been sold;
o the replacement cost of a property may have little to do with
its current market value; and
o income capitalization is inherently based on inexact
projections of income and expense and the selection of an
appropriate capitalization rate and discount rate.
If more than one appraisal method is used and significantly different
results are produced, an accurate determination of value and, correspondingly, a
reliable analysis of the likelihood of default and loss, is even more difficult.
The value of a multifamily or commercial property will be affected by
property performance. As a result, if a multifamily or commercial mortgage loan
defaults because the income generated by the related property is insufficient to
pay operating costs and expenses as well as debt service, then the value of the
property will decline and a liquidation loss may occur.
We believe that the foregoing considerations are important factors that
generally distinguish mortgage loans secured by liens on income-producing real
estate from single-family mortgage loans. However, the originators of the
mortgage loans underlying your offered certificates may not have considered all
of those factors for all or any of those loans.
See "Risk Factors--Repayment of a Commercial or Multifamily Mortgage
Loan Depends Upon the Performance and Value of the Underlying Real Property,
Which May Decline Over Time, and the Related Borrower's Ability to Refinance the
Property, of Which There is no Assurance."
Payment Provisions of the Mortgage Loans. Each of the mortgage loans
included in one of our trusts will have the following features:
o an original term to maturity of not more than approximately 40
years; and
o scheduled payments of principal, interest or both, to be made
on specified dates, that occur monthly, bi-monthly, quarterly,
semi-annually, annually or at some other interval.
A mortgage loan included in one of our trusts may also include terms
that:
o provide for the accrual of interest at a mortgage interest
rate that is fixed over its term, that resets on one or more
specified dates or that otherwise adjusts from time to time;
o provide for the accrual of interest at a mortgage interest
rate that may be converted at the borrower's election from an
adjustable to a fixed interest rate or from a fixed to an
adjustable interest rate;
o provide for no accrual of interest;
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o provide for level payments to stated maturity, for payments
that reset in amount on one or more specified dates or for
payments that otherwise adjust from time to time to
accommodate changes in the coupon rate or to reflect the
occurrence of specified events;
o be fully amortizing or, alternatively, may be partially
amortizing or nonamortizing, with a substantial payment of
principal due on its stated maturity date;
o permit the negative amortization or deferral of accrued
interest;
o permit defeasance and the release of the real property
collateral in connection with that defeasance; and/or
o prohibit some or all voluntary prepayments or require payment
of a premium, fee or charge in connection with those
prepayments.
Mortgage Loan Information in Prospectus Supplements. We will describe
in the related prospectus supplement the characteristics of the mortgage loans
that we will include in any of our trusts. In general, we will provide in the
related prospectus supplement, among other items, the following information on
the particular mortgage loans in one of our trusts:
o the total outstanding principal balance and the largest,
smallest and average outstanding principal balance of the
mortgage loans;
o the type or types of property that provide security for
repayment of the mortgage loans;
o the earliest and latest origination date and maturity date of
the mortgage loans;
o the original and remaining terms to maturity of the mortgage
loans, or the range of each of those terms to maturity, and
the weighted average original and remaining terms to maturity
of the mortgage loans;
o loan-to-value ratios of the mortgage loans either at
origination or as of a more recent date, or the range of those
loan-to-value ratios, and the weighted average of those
loan-to-value ratios;
o the mortgage interest rates of the mortgage loans, or the
range of those mortgage interest rates, and the weighted
average mortgage interest rate of the mortgage loans;
o if any mortgage loans have adjustable mortgage interest rates,
the index or indices upon which the adjustments are based, the
adjustment dates, the range of gross margins and the weighted
average gross margin, and any limits on mortgage interest rate
adjustments at the time of any adjustment and over the life of
the loan;
o information on the payment characteristics of the mortgage
loans, including applicable prepayment restrictions;
o debt service coverage ratios of the mortgage loans either at
origination or as of a more recent date, or the range of those
debt service coverage ratios, and the weighted average of
those debt service coverage ratios; and
o the geographic distribution of the properties securing the
mortgage loans on a state-by-state basis.
If we are unable to provide the specific information described above at
the time a series of offered certificates is initially offered, we will
provide--
o more general information in the related prospectus supplement,
and
o specific information in a report which will be filed with the
SEC as part of a Current Report on Form 8-K within 15 days
following the issuance of those certificates.
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If any mortgage loan, or group of related mortgage loans, included in
one of our trusts represents a material concentration of credit risk, we will
include in the related prospectus supplement financial statements or other
financial information on the related real property or properties.
Mortgage-Backed Securities
The mortgage backed-securities underlying a series of offered
certificates may include:
o mortgage participations, mortgage pass-through certificates,
collateralized mortgage obligations or other mortgage-backed
securities that are not insured or guaranteed by any
governmental agency or instrumentality, or
o certificates issued and/or insured or guaranteed by Freddie
Mac, Fannie Mae, Ginnie Mae, Farmer Mac, or another federal
or state governmental agency or instrumentality.
In addition, each of those mortgage-backed securities will directly or
indirectly evidence an interest in, or be secured by a pledge of, multifamily
and/or commercial mortgage loans.
Each mortgage-backed security included in one of our trusts--
o will have been registered under the Securities Act of 1933, as
amended, or
o will be exempt from the registration requirements of that Act,
or
o will have been held for at least the holding period specified
in Rule 144(k) under that Act, or
o may otherwise be resold by us publicly without registration
under that Act.
We will describe in the related prospectus supplement the
characteristics of the mortgage-backed securities that we will include in any of
our trusts. In general, we will provide in the related prospectus supplement,
among other items, the following information on the particular mortgage-backed
securities included in one of our trusts:
o the initial and outstanding principal amount(s) and type of
the securities;
o the original and remaining term(s) to stated maturity of the
securities;
o the pass-through or bond rate(s) of the securities or the
formula for determining those rate(s);
o the payment characteristics of the securities;
o the identity of the issuer(s), servicer(s) and trustee(s) for
the securities;
o a description of the related credit support, if any;
o the type of mortgage loans underlying the securities;
o the circumstances under which the related underlying mortgage
loans, or the securities themselves, may be purchased prior to
maturity;
o the terms and conditions for substituting mortgage loans
backing the securities; and
o the characteristics of any agreements or instruments providing
interest rate protection to the securities.
With respect to any mortgage-backed security included in one of our
trusts, we will provide in our reports filed under the Securities Exchange Act
of 1934, as amended, the same information regarding the security as is provided
by the issuer of the security in its own reports filed under that Act, if the
security was publicly offered, or in the reports the issuer of the security
provides to the related trustee, if the security was privately issued.
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Undelivered Mortgage Assets
In general, the total outstanding principal balance of the mortgage
assets transferred by us to any particular trust will equal or exceed the
initial total outstanding principal balance of the related series of
certificates. In the event that the total outstanding principal balance of the
related mortgage assets initially delivered by us to the related trustee is less
than the initial total outstanding principal balance of any series of
certificates, we may deposit or arrange for the deposit of cash or liquid
investments on an interim basis with the related trustee to cover the shortfall.
For 90 days following the date of initial issuance of that series of
certificates, we will be entitled to obtain a release of the deposited cash or
investments if we deliver or arrange for delivery of a corresponding amount of
mortgage assets. If we fail, however, to deliver mortgage assets sufficient to
make up the entire shortfall, any of the cash or, following liquidation,
investments remaining on deposit with the related trustee will be used by the
related trustee to pay down the total principal balance of the related series of
certificates, as described in the related prospectus supplement.
Accounts
The trust assets underlying a series of offered certificates will
include one or more accounts established and maintained on behalf of the
holders. All payments and collections received or advanced on the mortgage
assets and other trust assets will be deposited and held in those accounts. We
will identify and describe those accounts, and will further describe the
deposits to and withdrawals from those accounts, in the related prospectus
supplement.
Credit Support
General. The holders of any class of offered certificates may be the
beneficiaries of credit support designed to protect them partially or fully
against all or particular defaults and losses on the related mortgage assets.
The types of credit support that may benefit the holders of a class of offered
certificates include:
o the subordination or one or more other classes of certificates
of the same series;
o a letter of credit;
o a surety bond;
o an insurance policy;
o a guarantee;
o a credit derivative; and/or
o a reserve fund.
In the related prospectus supplement, we will describe the amount and
types of any credit support benefiting the holders of a class of offered
certificates.
Arrangements Providing Interest Rate Protection
The trust assets for a series of offered certificates may include
guaranteed investment contracts in accordance with which moneys held in the
funds and accounts established for that series will be invested at a specified
rate. Those trust assets may also include:
o interest rate exchange agreements;
o interest rate cap agreements;
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o interest rate floor agreements;
o currency exchange agreements; or
o other agreements or arrangements designed to reduce the
effects of interest rate or currency exchange rate
fluctuations with respect to the related mortgage assets and
one or more classes of offered certificates.
In the related prospectus supplement, we will describe any agreements
or other arrangements designed to protect the holders of a class of offered
certificates against shortfalls resulting from movements or fluctuations in
interest rates or currency exchange rates. If applicable, we will also identify
any obligor under the agreement or other arrangement.
Yield and Maturity Considerations
General
The yield on your offered certificates will depend on--
o the price you paid for your offered certificates,
o the pass-through rate on your offered certificates,
o the amount and timing of payments on your offered
certificates.
The following discussion contemplates a trust established by us that
consists only of mortgage loans. If one of our trusts also includes a
mortgage-backed security, the payment terms of that security will soften or
enhance the effects that the characteristics and behavior of mortgage loans
backing that security can have on the yield to maturity and/or weighted average
life of a class of offered certificates. If one of our trusts includes a
mortgage-backed security, we will discuss in the related prospectus supplement
the effect, if any, that the security may have on the yield to maturity and
weighted average lives of the related offered certificates.
Pass-Through Rate
A class of interest-bearing offered certificates may have a fixed,
variable or adjustable pass-through rate. We will specify in the related
prospectus supplement the pass-through rate for each class of interest-bearing
offered certificates or, if the pass-through rate is variable or adjustable, the
method of determining the pass-through rate.
Payment Delays
There will be a delay between the date on which payments on the
underlying mortgage loans are due and the date on which those payments are
passed through to you and other investors. That delay will reduce the yield that
would otherwise be produced if those payments were passed through on your
offered certificates on the same date that they were due.
Yield and Prepayment Considerations
The yield to maturity on your offered certificates will be affected by
the rate of principal payments on the underlying mortgage loans and the
allocation of those principal payments to reduce the
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principal balance or notional amount of your offered certificates. The rate of
principal payments on those mortgage loans will be affected by the following:
o the amortization schedules of the mortgage loans, which may
change from time to time to reflect, among other things,
changes in mortgage interest rates or partial prepayments of
principal;
o the dates on which any balloon payments are due; and
o the rate of principal prepayments on the mortgage loans,
including voluntary prepayments by borrowers and involuntary
prepayments resulting from liquidations, casualties or
purchases of mortgage loans.
Because the rate of principal prepayments on the mortgage loans
underlying your offered certificates will depend on future events and a variety
of factors, we cannot give you any assurance as to that rate.
The extent to which the yield to maturity of your offered certificates
may vary from your anticipated yield will depend upon--
o whether you purchased your offered certificates at a discount
or premium and, if so, the extent of that discount or
premium, and
o when, and to what degree, payments of principal on the
underlying mortgage loans are applied or otherwise result in
the reduction of the principal balance or notional amount of
your offered certificates.
If you purchase your offered certificates at a discount, you should
consider the risk that a slower than anticipated rate of principal payments on
the underlying mortgage loans could result in an actual yield to you that is
lower than your anticipated yield. If you purchase your offered certificates at
a premium, you should consider the risk that a faster than anticipated rate of
principal payments on the underlying mortgage loans could result in an actual
yield to you that is lower than your anticipated yield.
If your offered certificates entitle you to payments of interest, with
disproportionate, nominal or no payments of principal, you should consider that
your yield will be extremely sensitive to prepayments on the underlying mortgage
loans and, under some prepayment scenarios, may be negative.
If a class of offered certificates accrues interest on a notional
amount, that notional amount will, in general, either--
o be based on the principal balances of some or all of the
mortgage assets in the related trust, or
o equal the total principal balance of one or more of the other
classes of certificates of the same series.
Accordingly, the yield on that class of certificates will be inversely related
to, as applicable, the rate at which--
o payments and other collections of principal are received on
the mortgage assets referred to in the first bullet point of
the prior sentence, or
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o payments are made in reduction of the total principal balance
of the class or classes of certificates referred to in the
second bullet point of the prior sentence.
The extent of prepayments of principal of the mortgage loans underlying
your offered certificates may be affected by a number of factors, including:
o the availability of mortgage credit;
o the relative economic vitality of the area in which the
related real properties are located;
o the quality of management of the related real properties;
o the servicing of the mortgage loans;
o possible changes in tax laws; and
o other opportunities for investment.
In general, those factors that increase--
o the attractiveness of selling or refinancing a commercial or
multifamily property, or
o the likelihood of default under a commercial or multifamily
mortgage loan,
would be expected to cause the rate of prepayment to accelerate. In contrast,
those factors having an opposite effect would be expected to cause the rate of
prepayment to slow.
The rate of principal payments on the mortgage loans underlying your
offered certificates may also be affected by the existence and enforceability of
prepayment restrictions, such as--
o prepayment lock-out periods, and
o requirements that voluntary principal prepayments be
accompanied by prepayment premiums, fees or charges.
If enforceable, those provisions could constitute either an absolute
prohibition, in the case of a prepayment lock-out period, or a disincentive, in
the case of a prepayment premium, fee or charge, to a borrower's voluntarily
prepaying its mortgage loan, thereby slowing the rate of prepayments.
The rate of prepayment on a pool of mortgage loans is likely to be
affected by prevailing market interest rates for mortgage loans of a comparable
type, term and risk level. As prevailing market interest rates decline, a
borrower may have an increased incentive to refinance its mortgage loan. Even in
the case of adjustable rate mortgage loans, as prevailing market interest rates
decline, the related borrowers may have an increased incentive to refinance for
the following purposes:
o to convert to a fixed rate loan and thereby lock in that rate,
or
o to take advantage of a different index, margin or rate cap or
floor on another adjustable rate mortgage loan.
Subject to prevailing market interest rates and economic conditions
generally, a borrower may sell a real property in order to--
o realize its equity in the property,
o meet cash flow needs or
o make other investments.
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Additionally, some borrowers may be motivated by federal and state tax
laws, which are subject to change, to sell their properties prior to the
exhaustion of tax depreciation benefits.
We make no representation as to--
o the particular factors that will affect the prepayment of the
mortgage loans underlying any series of offered certificates,
o the relative importance of those factors
o the percentage of the principal balance of those mortgage
loans that will be paid as of any date, or
o the overall rate of prepayment on those mortgage loans.
Weighted Average Life and Maturity
The rate at which principal payments are received on the mortgage loans
underlying any series of offered certificates will affect the ultimate maturity
and the weighted average life of one or more classes of those certificates. In
general, weighted average life refers to the average amount of time that will
elapse from the date of issuance of an instrument until each dollar allocable as
principal of that instrument is repaid to the investor.
The weighted average life and maturity of a class of offered
certificates will be influenced by the rate at which principal on the underlying
mortgage loans is paid to that class, whether in the form of--
o scheduled amortization or
o prepayments, including
1. voluntary prepayments by borrowers, and
2. involuntary prepayments resulting from liquidations,
casualties or condemnations and purchases of mortgage
loans out of the related trust.
Prepayment rates on loans are commonly measured relative to a
prepayment standard or model, such as the CPR prepayment model or the SPA
prepayment model. CPR represents an assumed constant rate of prepayment each
month, expressed as an annual percentage, relative to the then outstanding
principal balance of a pool of mortgage loans for the life of those loans. SPA
represents an assumed variable rate of prepayment each month, expressed as an
annual percentage, relative to the then outstanding principal balance of a pool
of mortgage loans, with different prepayment assumptions often expressed as
percentages of SPA. For example, a prepayment assumption of 100% of SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance of
those loans in the first month of the life of the loans and an additional 0.2%
per annum in each month thereafter until the 30th month. Beginning in the 30th
month, and in each month thereafter during the life of the loans, 100% of SPA
assumes a constant prepayment rate of 6% per annum each month.
Neither CPR nor SPA nor any other prepayment model or assumption is a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any particular pool of mortgage loans.
Moreover, the CPR and SPA models were developed based upon historical prepayment
experience for single-family mortgage loans. It is unlikely that the prepayment
experience of the mortgage loans underlying your offered certificates will
conform to any particular level of CPR or SPA.
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In the prospectus supplement for a series of offered certificates, we
will include tables, if applicable, setting forth--
o the projected weighted average life of each class of those
offered certificates with principal balances, and
o the percentage of the initial total principal balance of each
class of those offered certificates that would be outstanding
on specified dates,
based on the assumptions stated in that prospectus supplement, including
assumptions regarding prepayments on the underlying mortgage loans. Those tables
and assumptions illustrate the sensitivity of the weighted average lives of
those offered certificates to various assumed prepayment rates and are not
intended to predict, or to provide information that will enable you to predict,
the actual weighted average lives of your offered certificates.
Other Factors Affecting Yield, Weighted Average Life and Maturity
Balloon Payments; Extensions of Maturity. Some or all of the mortgage
loans underlying a series of offered certificates may require that balloon
payments be made at maturity. The ability of a borrower to make a balloon
payment typically will depend upon its ability either--
o to refinance the loan, or
o to sell the related real property.
If a borrower is unable to refinance or sell the related real property, there is
a possibility that the borrower may default on the mortgage loan or that the
maturity of the mortgage loan may be extended in connection with a workout. If a
borrower defaults, recovery of proceeds may be delayed by--
o the bankruptcy of the borrower, or
o adverse economic conditions in the market where the related
real property is located.
In order to minimize losses on defaulted mortgage loans, the related
master servicer or special servicer may be authorized within prescribed limits
to modify mortgage loans that are in default or as to which a payment default is
reasonably foreseeable. Any defaulted balloon payment or modification that
extends the maturity of a mortgage loan may delay payments of principal on your
offered certificates and extend the weighted average life of your offered
certificates.
Negative Amortization. The weighted average life of a class of offered
certificates can be affected by mortgage loans that permit negative amortization
to occur. Those are the mortgage loans that provide for the current payment of
interest calculated at a rate lower than the rate at which interest accrues on
the mortgage loan, with the unpaid portion of that interest being added to the
related principal balance. Negative amortization most commonly occurs with
respect to an adjustable rate mortgage loan that:
o limits the amount by which its scheduled payment may adjust in
response to a change in its mortgage interest rate;
o provides that its scheduled payment will adjust less
frequently than its mortgage interest rate; or
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o provides for constant scheduled payments regardless of
adjustments to its mortgage interest rate.
Negative amortization on one or more mortgage loans in any of our
trusts may result in negative amortization on a related class of offered
certificates. We will describe in the related prospectus supplement, if
applicable, the manner in which negative amortization with respect to the
underlying mortgage loans is allocated among the respective classes of a series
of offered certificates.
The portion of any mortgage loan negative amortization allocated to a
class of offered certificates may result in a deferral of some or all of the
interest payable on those certificates. Deferred interest may be added to the
total principal balance of a class of offered certificates. In addition, an
adjustable rate mortgage loan that permits negative amortization would be
expected during a period of increasing interest rates to amortize, if at all, at
a slower rate than if interest rates were declining or were remaining constant.
This slower rate of mortgage loan amortization would be reflected in a slower
rate of amortization for one or more classes of certificates of the related
series. Accordingly, there may be an increase in the weighted average lives of
those classes of certificates to which any mortgage loan negative amortization
would be allocated or that would bear the effects of a slower rate of
amortization of the underlying mortgage loans.
The extent to which the yield on your offered certificates may be
affected by any negative amortization on the underlying mortgage loans will
depend, in part, upon whether you purchase your offered certificates at a
premium or a discount.
During a period of declining interest rates, the scheduled payment on
an adjustable rate mortgage loan may exceed the amount necessary to amortize the
loan fully over its remaining amortization schedule and pay interest at the then
applicable mortgage interest rate. The result is the accelerated amortization of
the mortgage loan. The acceleration in amortization of a mortgage loan will
shorten the weighted average lives of those classes of certificates that entitle
their holders to a portion of the principal payments on the mortgage loan.
Foreclosures and Payment Plans. The weighted average life of and yield
on your offered certificates will be affected by--
o the number of foreclosures with respect to the underlying
mortgage loans; and
o the principal amount of the foreclosed mortgage loans in
relation to the principal amount of those mortgage loans that
are repaid in accordance with their terms.
Servicing decisions made with respect to the underlying mortgage loans,
including the use of payment plans prior to a demand for acceleration and the
restructuring of mortgage loans in bankruptcy proceedings or otherwise, may also
affect the payment patterns of particular mortgage loans and, as a result, the
weighted average life of and yield on your offered certificates.
Losses and Shortfalls on the Mortgage Assets. The yield on your offered
certificates will directly depend on the extent to which you are required to
bear the effects of any losses or shortfalls in collections on the underlying
mortgage loans and the timing of those losses and shortfalls. In general, the
earlier that you bear any loss or shortfall, the greater will be the negative
effect on the yield of your offered certificates.
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The amount of any losses or shortfalls in collections on the mortgage
assets in any of our trusts will, to the extent not covered or offset by draws
on any reserve fund or under any instrument of credit support, be allocated
among the various classes of certificates of the related series in the priority
and manner, and subject to the limitations, that we specify in the related
prospectus supplement. As described in the related prospectus supplement, those
allocations may be effected by the following:
o a reduction in the entitlements to interest and/or the total
principal balances of one or more classes of certificates;
and/or
o the establishment of a priority of payments among classes of
certificates.
If you purchase subordinated certificates, the yield to maturity on
those certificates may be extremely sensitive to losses and shortfalls in
collections on the underlying mortgage loans.
Additional Certificate Amortization. If your offered certificates have
a principal balance, then they entitle you to a specified portion of the
principal payments received on the underlying mortgage loans. They may also
entitle you to payments of principal from the following sources:
o amounts attributable to interest accrued but not currently
payable on one or more other classes of certificates of the
applicable series;
o interest received or advanced on the underlying mortgage
assets that is in excess of the interest currently accrued on
the certificates of the applicable series;
o prepayment premiums, fees and charges, payments from equity
participations or any other amounts received on the underlying
mortgage assets that do not constitute interest or principal;
or
o any other amounts described in the related prospectus
supplement.
The amortization of your offered certificates out of the sources
described in the prior paragraph would shorten their weighted average life and,
if your offered certificates were purchased at a premium, reduce their yield to
maturity.
Greenwich Capital Commercial Funding Corp.
We were incorporated in Delaware on December __, 1999. We were
organized, among other things, for the purposes of--
o acquiring mortgage loans, or interests in those loans, secured
by first or junior liens on commercial and multifamily
real properties;
o acquiring mortgage-backed securities that evidence interests
in mortgage loans that are secured by commercial and
multifamily real properties;
o forming pools of mortgage loans and mortgage-backed
securities; and
o acting as depositor of one or more trusts formed to issue
bonds, certificates of interest or other evidences of
indebtedness that are secured by or represent interests in,
pools of mortgage loans and mortgage-backed securities.
Our principal executive offices are located at 600 Steamboat Road, Greenwich,
Connecticut 06830. Our telephone number is (203) 625-2700. There can be no
assurance that at any particular time we will have any significant assets.
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Description of the Certificates
General
Each series of offered certificates, together with any non-offered
certificates of the same series, will represent the entire beneficial ownership
interest in a trust established by us. Each series of offered certificates will
consist of one or more classes. Any non-offered certificates of that series will
likewise consist of one or more classes.
A series of certificates consists of all those certificates that--
o have the same series designation;
o were issued under the same governing documents; and
o represent beneficial ownership interests in the same trust.
A class of certificates consists of all those certificates of a
particular series that--
o have the same class designation; and
o have the same payment terms.
The respective classes of offered and non-offered certificates of any
series may have a variety of payment terms. An offered certificate may entitle
the holder to receive:
o a stated principal amount, which will be represented by its
principal balance;
o interest on a principal balance or notional amount, at a
fixed, variable or adjustable pass-through rate;
o specified, fixed or variable portions of the interest,
principal or other amounts received on the related mortgage
assets;
o payments of principal, with disproportionate, nominal or no
payments of interest;
o payments of interest, with disproportionate, nominal or no
payments of principal;
o payments of interest or principal that commence only as of a
specified date or only after the occurrence of specified
events, such as the payment in full of the interest and
principal outstanding on one or more other classes of
certificates of the same series;
o payments of principal to be made, from time to time or for
designated periods, at a rate that is--
1. faster and, in some cases, substantially faster, or
2. slower and, in some cases, substantially slower,
than the rate at which payments or other collections of
principal are received on the related mortgage assets;
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o payments of principal to be made, subject to available funds,
based on a specified principal payment schedule or other
methodology; or
o payments of all or part of the prepayment or repayment
premiums, fees and charges, equity participations payments or
other similar items received on the related mortgage assets.
Any class of offered certificates may be senior or subordinate to one
or more other classes of certificates of the same series, including a
non-offered class of certificates of that series, for purposes of some or all
payments and/or allocations of losses or other shortfalls.
A class of offered certificates may have two or more component parts,
each having characteristics that are described in this prospectus as being
attributable to separate and distinct classes. For example, a class of offered
certificates may have a total principal balance on which it accrues interest at
a fixed, variable or adjustable rate. That class of offered certificates may
also accrue interest on a total notional amount at a different fixed, variable
or adjustable rate. In addition, a class of offered certificates may accrue
interest on one portion of its total principal balance or notional amount at one
fixed, variable or adjustable rate and on another portion of its total principal
balance or notional amount at a different fixed, variable or adjustable rate.
Each class of offered certificates will be issued in minimum
denominations corresponding to specified principal balances, notional amounts or
percentage interests, as described in the related prospectus supplement. A class
of offered certificates may be issued in fully registered, definitive form and
evidenced by physical certificates or may be issued in book-entry form through
the facilities of The Depository Trust Company. Offered certificates held in
fully registered, definitive form may be transferred or exchanged, subject to
any restrictions on transfer described in the related prospectus supplement, at
the location specified in the related prospectus supplement, without the payment
of any service charges, except for any tax or other governmental charge payable
in connection with the transfer or exchange. Interests in offered certificates
held in book-entry form will be transferred on the book-entry records of DTC and
its participating organizations. If we so specify in the related prospectus
supplement, we will arrange for clearance and settlement through Clearstream
Banking, societe anonyme or the Euroclear System, for so long as they are
participants in DTC.
Payments on the Certificates
General. Payments on a series of offered certificates may occur
monthly, bi-monthly, quarterly, semi-annually, annually or at any other
specified interval. In the prospectus supplement for each series of offered
certificates, we will identify:
o the periodic payment date for that series, and
o the record date as of which certificateholders entitled to
payments on any particular payment date will be established.
All payments with respect to a class of offered certificates on any
payment date will be allocated pro rata among the outstanding certificates of
that class in proportion to the respective principal balances, notional amounts
or percentage interests, as the case may be, of those certificates. Payments on
an offered certificate will be made to the holder entitled thereto either--
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o by wire transfer of immediately available funds to the account
of that holder at a bank or similar entity, provided that
the holder has furnished the party making the payments with
wiring instructions no later than the applicable record date
and has satisfied any other conditions specified in the
related prospectus supplement, or
o by check mailed to the address of that holder as it appears in
the certificate register, in all other cases.
In general, the final payment on any offered certificate will be made
only upon presentation and surrender of that certificate at the location
specified to the holder in notice of final payment.
Payments of Interest. In the case of each class of interest-bearing
offered certificates, interest will accrue from time to time, at the applicable
pass-through rate and in accordance with the applicable interest accrual method,
on the total outstanding principal balance or notional amount of that class.
The pass-through rate for a class of interest-bearing offered
certificates may be fixed, variable or adjustable. We will specify in the
related prospectus supplement the pass-through rate for each class of
interest-bearing offered certificates or, in the case of a variable or
adjustable pass-through rate, the method for determining that pass-through rate.
Interest may accrue with respect to any offered certificate on the
basis of:
o a 360-day year consisting of 12 30-day months,
o the actual number of days elapsed during each relevant period
in a year assumed to consist of 360 days,
o the actual number of days elapsed during each relevant period
in a normal calendar year, or
o any other method identified in the related prospectus
supplement.
We will identify the interest accrual method for each class of offered
certificates in the related prospectus supplement.
Subject to available funds and any adjustments to interest entitlements
described in the related prospectus supplement, accrued interest with respect to
each class of interest-bearing offered certificates will normally be payable on
each payment date. However, in the case of some classes of interest-bearing
offered certificates, payments of accrued interest will only begin on a
particular payment date or under the circumstances described in the related
prospectus supplement. Prior to that time, the amount of accrued interest
otherwise payable on that class will be added to its total principal balance on
each date or otherwise deferred as described in the related prospectus
supplement.
If a class of offered certificates accrues interest on a total notional
amount, that total notional amount, in general, will be either:
o based on the principal balances of some or all of the related
mortgage assets; or
o equal to the total principal balances of one or more other
classes of certificates of the same series.
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Reference to the notional amount of any certificate is solely for
convenience in making calculations of interest and does not represent the right
to receive any payments of principal.
We will describe in the related prospectus supplement the extent to
which the amount of accrued interest that is payable on, or that may be added to
the total principal balance of, a class of interest-bearing offered certificates
may be reduced as a result of any contingencies, including shortfalls in
interest collections due to prepayments, delinquencies, losses and deferred
interest on the related mortgage assets.
Payments of Principal. An offered certificate may or may not have a
principal balance. If it does, that principal balance outstanding from time to
time will represent the maximum amount that the holder of that certificate will
be entitled to receive as principal out of the future cash flow on the related
mortgage assets and the other related trust assets.
The total outstanding principal balance of any class of offered
certificates will be reduced by--
o payments of principal actually made to the holders of that
class, and
o if and to the extent that we so specify in the related
prospectus supplement, losses of principal on the related
mortgage assets that are allocated to or are required to be
borne by that class.
A class of interest-bearing offered certificates may provide that
payments of accrued interest will only begin on a particular payment date or
under the circumstances described in the related prospectus supplement. If so,
the total outstanding principal balance of that class may be increased by the
amount of any interest accrued, but not currently payable, on that class.
We will describe in the related prospectus supplement any other
adjustments to the total outstanding principal balance of a class of offered
certificates.
Unless we so state in the related prospectus supplement, the initial
total principal balance of all classes of a series will not be greater than the
total outstanding principal balance of the related mortgage assets transferred
by us to the related trust. We will specify the expected initial total principal
balance of each class of offered certificates in the related prospectus
supplement.
The payments of principal to be made on a series of offered
certificates from time to time will, in general, be a function of the payments,
other collections and advances received or made with respect to the related
prospectus supplement. Payments of principal on a series of offered certificates
may also be made from the following sources:
o amounts attributable to interest accrued but not currently
payable on one or more other classes of certificates of the
applicable series;
o interest received or advanced on the underlying mortgage
assets that is in excess of the interest currently accrued on
the certificates of the applicable series;
o prepayment premiums, fees and charges, payments from equity
participations or any other amounts received on the underlying
mortgage assets that do not constitute interest or principal;
or
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o any other amounts described in the related prospectus
supplement.
We will describe in the related prospectus supplement the principal
entitlement of each class of offered certificates on each payment date.
Allocation of Losses and Shortfalls
If and to the extent that any losses or shortfalls in collections on
the mortgage assets in any of our trusts are not covered or offset by
delinquency advances or draws on any reserve fund or under any instrument of
credit support, they will be allocated among the various classes of certificates
of the related series in the priority and manner, and subject to the
limitations, specified in the related prospectus supplement. As described in the
related prospectus supplement, the allocations may be effected as follows:
o by reducing the entitlements to interest and/or the total
principal balances of one or more of those classes; and/or
o by establishing a priority of payments among those classes.
See "Description of Credit Support."
Advances
If any trust established by us includes mortgage loans, then as and to
the extent described in the related prospectus supplement, the related master
servicer, the related special servicer, the related trustee, any related
provider of credit support and/or any other specified person may be obligated to
make, or may have the option of making, advances with respect to those mortgage
loans to cover--
o delinquent payments of principal and/or interest, other than
balloon payments,
o property protection expenses,
o other servicing expenses, or
o any other items specified in the related prospectus
supplement.
If there are any limitations with respect to a party's advancing
obligations, we will discuss those limitations in the related prospectus
supplement.
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to certificateholders. Advances are not a guarantee
against losses. The advancing party will be entitled to recover all of its
advances out of--
o subsequent recoveries on the related mortgage loans, including
amounts drawn under any fund or instrument constituting
credit support, and
o any other specific sources identified in the related
prospectus supplement.
If and to the extent that we so specify in the related prospectus
supplement, any entity making advances will be entitled to receive interest on
some or all of those advances for a specified period
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during which they are outstanding at the rate specified in that prospectus
supplement. That entity may be entitled to payment of interest on its
outstanding advances--
o periodically from general collections on the mortgage assets
in the related trust, prior to any payment to the related
series of certificateholders, or
o at any other times and from any other sources as we may
describe in the related prospectus supplement.
If any trust established by us includes mortgage-backed securities, we
will discuss in the related prospectus supplement any comparable advancing
obligations with respect to those securities or the mortgage loans that back
them.
Reports to Certificateholders
On or about each payment date, the related master servicer, manager or
trustee will forward to each offered certificateholder a statement substantially
in the form, or specifying the information, set forth in the related prospectus
supplement. In general, that statement will include information regarding--
o the payments made on that payment date with respect to the
applicable class of offered certificates, and
o the recent performance of the mortgage assets.
Within a reasonable period of time after the end of each calendar year,
the related master servicer, manager or trustee, as the case may be, will be
required to furnish to each person who at any time during the calendar year was
a holder of an offered certificate a statement containing information regarding
the principal, interest and other amounts paid on the applicable class of
offered certificates, aggregated for--
o that calendar year, or
o the applicable portion of that calendar year during which the
person was a certificateholder.
The obligation to provide that annual statement will be deemed to have been
satisfied by the related master servicer, manager or trustee, as the case may
be, to the extent that substantially comparable information is provided in
accordance with any requirements of the Internal Revenue Code of 1986.
If one of our trusts includes mortgage-backed securities, the ability
of the related master servicer, manager or trustee, as the case may be, to
include in any payment date statement information regarding the mortgage loans
that back those securities will depend on comparable reports being received with
respect to them.
Voting Rights
Voting rights will be allocated among the respective classes of offered
and non-offered certificates of each series in the manner described in the
related prospectus supplement. Certificateholders will generally not have a
right to vote, except--
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o with respect to those amendments to the governing documents
described under "Description of the Governing
Documents--Amendment", or
o as otherwise specified in this prospectus or in the related
prospectus supplement.
As and to the extent described in the related prospectus supplement,
the certificateholders entitled to a specified amount of the voting rights for a
particular series will have the right to act as a group to remove or replace the
related trustee, master servicer, special servicer or manager. In general, that
removal or replacement must be for cause. We will identify exceptions in the
related prospectus supplement.
Termination
The trust for each series of offered certificates will terminate and
cease to exist following:
o the final payment or other liquidation of the last mortgage
asset in that trust; and
o the payment, or provision for payment, to the
certificateholders of that series of all amounts required to
be paid to
them.
Written notice of termination of a trust will be given to each affected
certificateholder. The final payment will be made only upon presentation and
surrender of the certificates of the related series at the location to be
specified in the notice of termination.
If we so specify in the related prospectus supplement, one or more
designated parties will be entitled to purchase all of the mortgage assets
underlying a series of offered certificates, thereby effecting early retirement
of the certificates and early termination of the related trust. We will describe
in the related prospectus supplement the circumstances under which that purchase
may occur.
In addition, if we so specify in the related prospectus supplement, on
a specified date or upon the reduction of the total principal balance of a
specified class or classes of certificates by a specified percentage or amount,
a party designated in the related prospectus supplement may be authorized or
required to solicit bids for the purchase of all the mortgage assets of the
related trust or of a sufficient portion of the mortgage assets to retire that
class or those classes of certificates. The solicitation of bids must be
conducted in a commercially reasonable manner, and assets will, in general, be
sold at their fair market value. If the fair market value of the mortgage assets
being sold is less than their unpaid balance, then the certificateholders of one
or more classes of certificates may receive an amount less than the total
principal balance of, and accrued and unpaid interest on, their certificates.
Book-Entry Registration
General. Any class of offered certificates may be issued in book-entry
form through the facilities of DTC. If so, that class will be represented by one
or more global certificates registered in the name of DTC or its nominee. If we
so specify in the related prospectus supplement, we will arrange for clearance
and settlement through the Euroclear System or Clearstream Banking, societe
anonyme, for so long as they are participants in DTC.
DTC, Euroclear and Clearstream. DTC is:
o a limited-purpose trust company organized under the New York
Banking Law,
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o a "banking corporation" within the meaning of the New York
Banking Law,
o a member of the Federal Reserve System,
o a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and
o a "clearing agency" registered under the provisions of Section
17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for participants in the DTC system
and to facilitate the clearance and settlement of securities transactions
between those participants through electronic computerized book-entry changes in
their accounts, thereby eliminating the need for physical movement of securities
certificates. Organizations that maintain accounts with DTC include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include other organizations. DTC is owned by a number of its participating
organizations and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as banks, brokers, dealers
and trust companies that directly or indirectly clear through or maintain a
custodial relationship with one of the organizations that maintains an account
with DTC. The rules applicable to DTC and its participating organizations are on
file with the SEC.
It is our understanding that Clearstream was incorporated in 1970 as
"Cedel S.A.," a company with limited liability under the laws of Luxembourg.
Cedel S.A. subsequently changed its name to Cedelbank. On January 10, 2000,
Cedelbank's parent company, Cedel International, societe anonyme merged its
clearing, settlement and custody business with that of Deutsche Borse Clearing
AG. The merger involved the transfer by Cedel International of substantially all
of its assets and liabilities, including its shares in Cedelbank, to a new
Luxembourg company, New Cedel International, societe anonyme. New Cedel
International is 50% owned by Cedel International and 50% by Deutsche Borse AG,
the parent of Deutsche Borse Clearing AG. The shareholders of these two entities
are recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations. On January 18, 2000, Cedelbank was renamed Clearstream Banking,
societe anonyme. Clearstream holds securities for its member organizations and
facilitates the clearance and settlement of securities transactions between its
member organizations through electronic book-entry changes in accounts of those
organizations, thereby eliminating the need for physical movement of
certificates. Transactions may be settled in Clearstream in any of 36
currencies, including United States dollars. Clearstream provides to its member
organizations, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream interfaces with domestic securities markets
in over 30 countries through established depository and custodial relationships.
Clearstream is registered as a bank in Luxembourg. It is subject to regulation
by the Commission de Surveillance du Secteur Financier, which supervises
Luxembourg banks. Clearstream's customers are world-wide financial institutions
including underwriters, securities brokers and dealers, banks, trust companies
and clearing corporations. Clearstream's U.S. customers are limited to
securities brokers and dealers, and banks. Currently, Clearstream has
approximately 2,000 customers located in over 80 countries, including all major
European countries, Canada and the United States. Indirect access to Clearstream
is available to other institutions that clear through or maintain a custodial
relationship with an account holder of Clearstream. Clearstream and Euroclear
have established an electronic bridge between their two systems across which
their respective participants may settle trades with each other.
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It is our understanding that Euroclear was founded in December 1968 to
hold securities for its member organizations and to clear and settle
transactions between its member organizations through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Over 100,000 different securities are accepted for
settlement through Euroclear, the majority of which are domestic securities from
over 30 markets. Transactions may be settled in Euroclear in any of over 35
currencies, including United States dollars. The Euroclear system includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described below in this
"--Book-Entry Registration" section. Euroclear is operated by Morgan Guaranty
Trust Company of New York, Brussels, Belgium office, under contract with
Euroclear Clearance System, S.C., a Belgian cooperative corporation. All
operations are conducted by the Euroclear Operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
Operator, not ECS. ECS establishes policy for the Euroclear system on behalf of
the more than 120 member organizations of Euroclear. Those member organizations
include banks, including central banks, securities brokers and dealers and other
professional financial intermediaries. Indirect access to the Euroclear system
is also available to other firms that clear through or maintain a custodial
relationship with a member organization of Euroclear, either directly or
indirectly. Euroclear and Clearstream have established an electronic bridge
between their two systems across which their respective participants may settle
trades with each other.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. It is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Euroclear Terms and Conditions. The Euroclear Terms
and Conditions govern transfers of securities and cash within the Euroclear
system, withdrawal of securities and cash from the Euroclear system, and
receipts of payments with respect to securities in the Euroclear system. All
securities in the Euroclear system are held on a fungible basis without
attribution of specific securities to specific securities clearance accounts.
The Euroclear Operator acts under the Euroclear Terms and Conditions only on
behalf of member organizations of Euroclear and has no record of or relationship
with persons holding through those member organizations.
The information in this prospectus concerning DTC, Euroclear and
Clearstream, and their book-entry systems, has been obtained from sources
believed to be reliable, but we do not take any responsibility for the accuracy
or completeness of that information.
Holding and Transferring Book-Entry Certificates. Purchases of
book-entry certificates under the DTC system must be made by or through, and
will be recorded on the records of, the Financial Intermediary that maintains
the beneficial owner's account for that purpose. In turn, the Financial
Intermediary's ownership of those certificates will be recorded on the records
of DTC or, alternatively, if the Financial Intermediary does not maintain an
account with DTC, on the records of a participating firm that acts as agent for
the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC. A beneficial owner of book-entry certificates must rely on the
foregoing procedures to evidence its beneficial ownership of those certificates.
DTC has no knowledge of the actual beneficial owners of the book-entry
certificates. DTC's records reflect only the identity of the direct participants
to whose accounts those certificates are credited, which may or may not be the
actual beneficial owners.
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The participants in the DTC system will remain responsible for keeping account
of their holdings on behalf of their customers.
Transfers between participants in the DTC system will be effected in
the ordinary manner in accordance with DTC's rules and will be settled in
same-day funds. Transfers between direct account holders at Euroclear and
Clearstream, or between persons or entities participating indirectly in
Euroclear or Clearstream, will be effected in the ordinary manner in accordance
with their respective procedures and in accordance with DTC's rules.
Cross-market transfers between direct participants in DTC, on the one
hand, and member organizations at Euroclear or Clearstream, on the other, will
be effected through DTC in accordance with DTC's rules and the rules of
Euroclear or Clearstream, as applicable. These cross-market transactions will
require, among other things, delivery of instructions by the applicable member
organization to Euroclear or Clearstream, as the case may be, in accordance with
the rules and procedures and within deadlines, Brussels time, established in
Euroclear or Clearstream, as the case may be. If the transaction complies with
all relevant requirements, Euroclear or Clearstream, as the case may be, will
then deliver instructions to its depositary to take action to effect final
settlement on its behalf.
Because of time-zone differences, the securities account of a member
organization of Euroclear or Clearstream purchasing an interest in a global
certificate from a DTC participant that is not a member organization, will be
credited during the securities settlement processing day, which must be a
business day for Euroclear or Clearstream, as the case may be, immediately
following the DTC settlement date. Transactions in interests in a book-entry
certificate settled during any securities settlement processing day will be
reported to the relevant member organization of Euroclear or Clearstream on the
same day. Cash received in Euroclear or Clearstream as a result of sales of
interests in a book-entry certificate by or through a member organization of
Euroclear or Clearstream, as the case may be, to a DTC participant that is not a
member organization will be received with value on the DTC settlement date, but
will not be available in the relevant Euroclear or Clearstream cash account
until the business day following settlement in DTC. The related prospectus
supplement will contain additional information regarding clearance and
settlement procedures for the book-entry certificates and with respect to tax
documentation procedures relating to the book-entry certificates.
Conveyance of notices and other communications by DTC to DTC
participants, and by DTC participants to Financial Intermediaries and beneficial
owners, will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Payments on the book-entry certificates will be made to DTC. DTC's
practice is to credit DTC participants' accounts on the related payment date in
accordance with their respective holdings shown on DTC's records, unless DTC has
reason to believe that it will not receive payment on that date. Disbursement of
those payments by DTC participants to Financial Intermediaries and beneficial
owners will be--
o governed by standing instructions and customary practices, as
is the case with securities held for the accounts of
customers in bearer form or registered in street name, and
o the sole responsibility of each of those DTC participants,
subject to any statutory or regulatory requirements in effect
from time to time.
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Under a book-entry system, beneficial owners may receive payments after
the related payment date.
The only "certificateholder" of book-entry certificates will be DTC or
its nominee. Parties to the governing documents for any series of offered
certificates need not recognize beneficial owners of book-entry certificates as
"certificateholders." The beneficial owners of book-entry certificates will be
permitted to exercise the rights of "certificateholders" only indirectly through
the DTC participants, who in turn will exercise their rights through DTC. We
have been informed that DTC will take action permitted to be taken by a
"certificateholder" only at the direction of one or more DTC participants. DTC
may take conflicting actions with respect to the book-entry certificates to the
extent that those actions are taken on behalf of Financial Intermediaries whose
holdings include those certificates.
Because DTC can act only on behalf of DTC participants, who in turn act
on behalf of Financial Intermediaries and beneficial owners of the applicable
book-entry securities, the ability of a beneficial owner to pledge its interest
in a class of book-entry certificates to persons or entities that do not
participate in the DTC system, or otherwise to take actions with respect to its
interest in a class of book-entry certificates, may be limited due to the lack
of a physical certificate evidencing that interest.
Issuance of Definitive Certificates. Unless we specify otherwise in the
related prospectus supplement, beneficial owners of affected offered
certificates initially issued in book-entry form will not be able to obtain
physical certificates that represent those offered certificates, unless:
o we advise the related trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
depository with respect to those offered certificates and we
are unable to locate a qualified successor; or
o we elect, at our option, to terminate the book-entry system
through DTC with respect to those offered certificates.
Upon the occurrence of either of the two events described in the prior
paragraph, DTC will be required to notify all DTC participants of the
availability through DTC of physical certificates with respect to the affected
offered certificates. Upon surrender by DTC of the certificate or certificates
representing a class of book-entry offered certificates, together with
instructions for registration, the related trustee or other designated party
will be required to issue to the beneficial owners identified in those
instructions physical certificates representing those offered certificates.
Description Of The Governing Documents
General
The "Governing Document" for purposes of issuing the offered
certificates of each series will be a pooling and servicing agreement or other
similar agreement or collection of agreements. In general, the parties to the
Governing Document for a series of offered certificates will include us, a
trustee, a master servicer and a special servicer. However, if the related trust
assets include mortgage-backed securities, the Governing Document may include a
manager as a party, but may not include a master servicer, special servicer or
other servicer as a party. We will identify in the related prospectus supplement
the parties to the Governing Document for a series of offered certificates.
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If we so specify in the related prospectus supplement, a party from
whom we acquire mortgage assets or one of its affiliates may perform the
functions of master servicer, special servicer or manager for the trust to which
we transfer those assets. If we so specify in the related prospectus supplement,
the same person or entity may act as both master servicer and special servicer
for one of our trusts.
Any party to the Governing Document for a series of offered
certificates, or any of its affiliates, may own certificates issued thereunder.
However, except in limited circumstances, including with respect to required
consents to amendments to the Governing Document for a series of offered
certificates, certificates that are held by the related master servicer, special
servicer or manager will not be allocated voting rights.
A form of a pooling and servicing agreement has been filed as an
exhibit to the registration statement of which this prospectus is a part.
However, the provisions of the Governing Document for each series of offered
certificates will vary depending upon the nature of the certificates to be
issued thereunder and the nature of the related trust assets. The following
summaries describe select provisions that may appear in the Governing Document
for each series of offered certificates. The prospectus supplement for each
series of offered certificates will provide material additional information
regarding the Governing Document for that series. The summaries in this
prospectus do not purport to be complete, and you should refer to the provisions
of the Governing Document for your offered certificates and, further, to the
description of those provisions in the related prospectus supplement. We will
provide a copy of the Governing Document, exclusive of exhibits, that relates to
your offered certificates, without charge, upon written request addressed to our
principal executive offices specified under "Greenwich Capital Commercial
Funding Corp."
Assignment of Mortgage Assets
At the time of initial issuance of any series of offered certificates,
we will assign or cause to be assigned to the designated trustee the mortgage
assets and any other assets to be included in the related trust. We will specify
in the related prospectus all material documents to be delivered, and all other
material actions to be taken, by us or any prior holder of the related mortgage
assets in connection with that assignment. We will also specify in the related
prospectus supplement any remedies available to the related certificateholders,
or the related trustee on their behalf, in the event that any of those material
documents are not delivered or any of those other material actions are not taken
as required. Concurrently with that assignment, the related trustee will deliver
to us or our designee the certificates of that series in exchange for the
mortgage assets and the other assets to be included in the related trust.
Each mortgage asset included in one of our trusts will be identified in
a schedule appearing as an exhibit to the related Governing Document. That
schedule generally will include detailed information about each mortgage asset
transferred to the related trust, including:
1. in the case of a mortgage loan--
2. the address of the related real property and the type of that
property,
3. the mortgage interest rate and, if applicable, the applicable
index, gross margin, adjustment date and any rate cap
information,
4. the remaining term to maturity,
5. the remaining amortization term, and
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6. the outstanding principal balance; and
7. in the case of a mortgage-backed security, the outstanding
principal balance and the pass-through rate or coupon rate.
Representations and Warranties with respect to Mortgage Assets
Unless we state otherwise in the prospectus supplement for any series
of offered certificates, we will, with respect to each mortgage asset in the
related trust, make or assign, or cause to be made or assigned, a limited set of
representations and warranties covering, by way of example:
o the accuracy of the information set forth for each mortgage
asset on the schedule of mortgage assets appearing as an
exhibit to the Governing Document for that series;
o the warranting party's title to each mortgage asset and the
authority of the warranting party to sell that mortgage
asset; and
o in the case of a mortgage loan--
1. the enforceability of the related mortgage note and
mortgage,
2. the existence of title insurance insuring the lien
priority of the related mortgage, and
3. the payment status of the mortgage loan.
We will identify the warranting party, and give a more complete
sampling of the representations and warranties made thereby, in the related
prospectus supplement. We will also specify in the related prospectus supplement
any remedies against the warranting party available to the related
certificateholders, or the related trustee on their behalf, in the event of a
breach of any of those representations and warranties. In most cases, the
warranting party will be a prior holder of the particular mortgage assets.
Collection and Other Servicing Procedures with Respect to Mortgage Loans
The Governing Document for each series of offered certificates will
govern the servicing and administration of any mortgage loans included in the
related trust.
In general, the related master servicer and special servicer, directly
or through sub-servicers, will be obligated to service and administer for the
benefit of the related certificateholders the mortgage loans in any of our
trusts. The master servicer and the special servicer will be required to service
and administer those mortgage loans in accordance with applicable law and,
further, in accordance with the terms of the related Governing Document, the
mortgage loans themselves and any instrument of credit support included in that
trust. Subject to the foregoing, the master servicer and the special servicer
will each have full power and authority to do any and all things in connection
with that servicing and administration that it may deem necessary and desirable.
As part of its servicing duties, each of the master servicer and the
special servicer for one of our trusts will be required to make reasonable
efforts to collect all payments called for under the terms and provisions of the
related mortgage loans that it services. In general, each of the master servicer
and the
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special servicer for one of our trusts will be obligated to follow the same
collection procedures as it would follow for comparable mortgage loans held for
its own account, provided that:
o those procedures are consistent with the terms of the related
Governing Document; and
o they do not impair recovery under any instrument of credit
support included in the related trust.
Consistent with the foregoing, the master servicer and the special
servicer will each be permitted, in its discretion, to waive any default charge
in connection with collecting a late payment on any defaulted mortgage loan.
The master servicer and/or the special servicer for one or our trusts,
directly or through sub-servicers, will also be required to perform various
other customary functions of a servicer of comparable loans, including:
o maintaining escrow or impound accounts for the payment of
taxes, insurance premiums, ground rents and similar items, or
otherwise monitoring the timely payment of those items;
o ensuring that the related properties are properly insured;
o attempting to collect delinquent payments;
o supervising foreclosures;
o negotiating modifications;
o responding to borrower requests for partial releases of the
encumbered property, easements, consents to alteration or
demolition and similar matters;
o protecting the interests of certificateholders with respect to
senior lienholders;
o conducting inspections of the related real properties on a
periodic or other basis;
o collecting and evaluating financial statements for the related
real properties;
o managing or overseeing the management of real properties
acquired on behalf of the trust through foreclosure,
deed-in-lieu of foreclosure or otherwise; and
o maintaining servicing records relating to mortgage loans in
the trust.
We will specify in the related prospectus supplement when, and the
extent to which, servicing of a mortgage loan is to be transferred from a master
servicer to a special servicer. In general, a special servicer for any of our
trusts will be responsible for the servicing and administration of:
o mortgage loans that are delinquent with respect to a specified
number of scheduled payments;
o mortgage loans as to which there is a material non-monetary
default;
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o mortgage loans as to which the related borrower has--
1. entered into or consented to bankruptcy, appointment
of a receiver or conservator or similar insolvency
proceeding, or
2. become the subject of a decree or order for such a
proceeding which has remained in force undischarged
or unstayed for a specified number of days; and
o real properties acquired as part of the trust with respect to
defaulted mortgage loans.
The related Governing Document may also may provide that if a default
on a mortgage loan in the related trust has occurred or, in the judgment of the
related master servicer, a payment default is reasonably foreseeable, the
related master servicer may elect to transfer the servicing of that mortgage
loan, in whole or in part, to the related special servicer. When the
circumstances no longer warrant a special servicer's continuing to service a
particular mortgage loan, such as when the related borrower is paying in
accordance with the forbearance arrangement entered into between the special
servicer and that borrower, the master servicer will generally resume the
servicing duties with respect to the particular mortgage loan.
A borrower's failure to make required mortgage loan payments may mean
that operating income from the related real property is insufficient to service
the mortgage debt, or may reflect the diversion of that income from the
servicing of the mortgage debt. In addition, a borrower that is unable to make
mortgage loan payments may also be unable to make timely payment of taxes and
otherwise to maintain and insure the related real property. In general, with
respect to each series of offered certificates, the related special servicer
will be required to monitor any mortgage loan in the related trust that is in
default, evaluate whether the causes of the default can be corrected over a
reasonable period without significant impairment of the value of the related
real property, initiate corrective action in cooperation with the mortgagor if
cure is likely, inspect the related real property and take any other actions as
it deems necessary and appropriate. A significant period of time may elapse
before a special servicer is able to assess the success of any corrective action
or the need for additional initiatives. The time within which a special servicer
can--
o make the initial determination of appropriate action,
o evaluate the success of corrective action,
o develop additional initiatives,
o institute foreclosure proceedings and actually foreclose, or
o accept a deed to a real property in lieu of foreclosure, on
behalf of the certificateholders of the related series,
may vary considerably depending on the particular mortgage loan, the related
real property, the borrower, the presence of an acceptable party to assume the
mortgage loan and the laws of the jurisdiction in which the related real
property is located. If a borrower files a bankruptcy petition, the special
servicer may not be permitted to accelerate the maturity of the defaulted loan
or to foreclose on the related real property for a considerable period of time.
See "Legal Aspects of Mortgage Loans--Bankruptcy Laws."
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A special servicer for one of our trusts may also perform limited
duties with respect to mortgage loans in that trust for which the related master
servicer is primarily responsible, such as--
o performing property inspections and collecting, and
o evaluating financial statements.
A master servicer for one of our trusts may perform limited duties with
respect to any mortgage loan in that trust for which the related special
servicer is primarily responsible, such as--
o continuing to receive payments on the mortgage loan,
o making calculations with respect to the mortgage loan, and
o making remittances and preparing reports to the related
trustee and/or certificateholders with respect to the mortgage
loan.
The duties of the master servicer and special servicer for your series
will be more fully described in the related prospectus supplement.
Unless we state otherwise in the related prospectus supplement, the
master servicer for your series will be responsible for filing and settling
claims with respect to particular mortgage loans for your series under any
applicable instrument of credit support. See "Description of Credit Support" in
this prospectus.
Sub-Servicers
A master servicer or special servicer may delegate its servicing
obligations to one or more third-party servicers or sub-servicers. However,
unless we specify otherwise in the related prospectus supplement, the master
servicer or special servicer will remain obligated under the related Governing
Document. Each sub-servicing agreement between a master servicer or special
servicer, as applicable, and a sub-servicer must provide for servicing of the
applicable mortgage loans consistent with the related Governing Document. Any
master servicer and special servicer for one of our trusts will each be required
to monitor the performance of sub-servicers retained by it.
Unless we specify otherwise in the related prospectus supplement, any
master servicer or special servicer for one of our trusts will be solely liable
for all fees owed by it to any sub-servicer, regardless of whether the master
servicer's or special servicer's compensation under the related Governing
Document is sufficient to pay those fees. Each sub-servicer will be entitled to
reimbursement from the master servicer or special servicer, as the case may be,
that retained it, for expenditures which it makes, generally to the same extent
the master servicer or special servicer would be reimbursed under the related
Governing Document.
Collection of Payments on Mortgage-Backed Securities
Unless we specify otherwise in the related prospectus supplement, if a
mortgage-backed security is included among the trust assets underlying any
series of offered certificates, then--
o that mortgage-backed security will be registered in the name
of the related trustee or its designee;
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o the related trustee will receive payments on that
mortgage-backed security; and
o subject to any conditions described in the related prospectus
supplement, the related trustee or a designated manager will,
on behalf and at the expense of the trust, exercise all rights
and remedies with respect to that mortgaged-backed security,
including the prosecution of any legal action necessary in
connection with any payment default.
Matters Regarding the Master Servicer, the Special Servicer, the Manager and Us
Unless we specify otherwise in the related prospectus supplement, no
master servicer, special servicer or manager for any of our trusts may resign
from its obligations in that capacity, except upon--
o the appointment of, and the acceptance of that appointment by,
a successor to the resigning party and receipt by the
related trustee of written confirmation from each applicable
rating agency that the resignation and appointment will not
result in a withdrawal or downgrade of any rating assigned by
that rating agency to any class of certificates of the related
series, or
o a determination that those obligations are no longer
permissible under applicable law or are in material conflict
by reason of applicable law with any other activities carried
on by the resigning party.
In general, no resignation will become effective until the related
trustee or other successor has assumed the obligations and duties of the
resigning master servicer, special servicer or manager, as the case may be.
In no event will we, any master servicer, special servicer or manager
for one of our trusts, or any of our or their respective directors, officers,
employees or agents, be under any liability to that trust or the related
certificateholders for any action taken, or not taken, in good faith under the
related Governing Document or for errors in judgment. Neither we nor any of
those other persons or entities will be protected, however, against any
liability that would otherwise be imposed by reason of--
o willful misfeasance, bad faith or gross negligence in the
performance of obligations or duties under the Governing
Document for any series of offered certificates, or
o reckless disregard of those obligations and duties.
Furthermore, the Governing Document for each series of offered
certificates will entitle us, the master servicer, special servicer and/or
manager for the related trust, and our and their respective directors, officers,
employees and agents, to indemnification out of the related trust assets for any
loss, liability or expense incurred in connection with any legal action that
relates to that Governing Document or series of offered certificates or to the
related trust. The indemnification will not extend, however, to any loss,
liability or expense:
o specifically required to be borne by the relevant party,
without right of reimbursement, under the terms of that
Governing Document;
o incurred in connection with any legal action against the
relevant party resulting from any breach of a representation
or warranty made in that Governing Document; or
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o incurred in connection with any legal action against the
relevant party resulting from any willful misfeasance, bad
faith or gross negligence in the performance of obligations or
duties under that Governing Document.
Neither we nor any master servicer, special servicer or manager for the
related trust will be under any obligation to appear in, prosecute or defend any
legal action unless:
o the action is related to the respective responsibilities of
that party under the Governing Document for the affected
series of offered certificates; and
o either--
1. that party is specifically required to bear the
expense of the action, or
2. the action will not, in its opinion, involve that
party in any ultimate expense or liability for which
it would not be reimbursed under the Governing
Document for the affected series of offered
certificates.
However, we and each of those other parties may undertake any legal action that
may be necessary or desirable with respect to the enforcement or protection of
the rights and duties of the parties to the Governing Document for any series of
offered certificates and the interests of the certificateholders of that series
under that Government Document. In that event, the legal expenses and costs of
the action, and any liability resulting from the action, will be expenses, costs
and liabilities of the related trust and payable out of related trust assets.
With limited exception, any person or entity--
o into which we or any related master servicer, special servicer
or manager may be merged or consolidated, or
o resulting from any merger or consolidation to which we or any
related master servicer, special servicer or manager is a
party, or
o succeeding to our business or the business of any related
master servicer, special servicer or manager,
will be the successor of us or that master servicer, special servicer or
manager, as the case may be, under the Governing Document for a series of
offered certificates.
The compensation arrangements with respect to any master servicer,
special servicer or manager for any of our trusts will be set forth in the
related prospectus supplement. In general, that compensation will be payable out
of the related trust assets.
Events of Default
We will identify in related prospectus supplement the various events of
default under the Governing Document for each series of offered certificates for
which any related master servicer, special servicer or manager may be terminated
in that capacity.
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Amendment
The Governing Document for each series of offered certificates may be
amended by the parties thereto, without the consent of any of the holders of
those certificates, or of any non-offered certificates of the same series, for
the following reasons:
1. to cure any ambiguity;
2. to correct, modify or supplement any provision in the
Governing Document which may be inconsistent with any other
provision in that document or with the description of that
document set forth in the related prospectus supplement;
3. to add any other provisions with respect to matters or
questions arising under the Governing Document that are not
inconsistent with the existing provisions of that document;
4. to the extent applicable, to relax or eliminate any
requirement under the Governing Document imposed by the
provisions of the Internal Revenue Code of 1986 relating to
REMICs if the provisions of that Code are amended or clarified
so as to allow for the relaxation or elimination of that
requirement;
5. to relax or eliminate any requirement under the Governing
Document imposed by the Securities Act of 1933, as amended, or
the rules under that Act if that Act or those rules are
amended or clarified so as to allow for the relaxation or
elimination of that requirement;
6. to comply with any requirements imposed by the Internal
Revenue Code of 1986 or any final, temporary or, in some
cases, proposed regulation, revenue ruling, revenue procedure
or other written official announcement or interpretation
relating to federal income tax laws, or to avoid a prohibited
transaction or reduce the incidence of any tax that would
arise from any actions taken with respect to the operation of
any REMIC created under the Governing Document;
7. to the extent applicable, to modify, add to or eliminate the
transfer restrictions relating to the certificates which are
residual interests in a REMIC; or
8. to otherwise modify or delete existing provisions of the
Governing Document.
However, no amendment of the Governing Document for any series of
offered certificates, covered solely by clauses 3. or 8. above, may adversely
affect in any material respect the interests of any holders of offered or
non-offered certificates of that series.
In general, the Governing Document for a series of offered certificates
may also be amended by the parties to that document, with the consent of the
holders of offered and non-offered certificates representing, in total, not less
than 66-2/3%, or any other percentage specified in the related prospectus
supplement, of all the voting rights allocated to those classes of that series
that are affected by the amendment. However, the Governing Document for a series
of offered certificates may not be amended to--
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o reduce in any manner the amount of, or delay the timing of,
payments received on the related mortgage assets which are
required to be distributed on any offered or non-offered
certificate of that series without the consent of the holder
of that certificate; or
o adversely affect in any material respect the interests of the
holders of any class of offered or non-offered certificates of
that series in any other manner without the consent of the
holders of all certificates of that class; or
o modify the provisions of the Governing Document relating to
amendments of that document without the consent of the holders
of all offered and non-offered certificates of that series
then outstanding.
List of Certificateholders
Upon written request of three or more certificateholders of record of
any series made for purposes of communicating with other holders of certificates
of the same series with respect to their rights under the related Governing
Document, the related trustee or other certificate registrar of that series will
afford the requesting certificateholders access during normal business hours to
the most recent list of certificateholders of that series. However, the trustee
may first require a copy of the communication that the requesting
certificateholders proposed to send.
The Trustee
The trustee for each series of offered certificates will be named in
the related prospectus supplement. The commercial bank, national banking
association, banking corporation or trust company that serves as trustee for any
series of offered certificates may have typical banking relationships with the
us and our affiliates and with any of the other parties to the related Governing
Document and its affiliates.
Duties of the Trustee
The trustee for each series of offered certificates will not--
o make any representation as to the validity or sufficiency of
those certificates, the related Governing Document or any
underlying mortgage asset or related document, or
o be accountable for the use or application by or on behalf of
any other party to the related Governing Document of any funds
paid to that party with respect to those certificates or the
underlying mortgage assets.
If no event of default has occurred and is continuing under the related
Governing Document, the trustee for each series of offered certificates will be
required to perform only those duties specifically required under the related
Governing Document. However, upon receipt of any of the various certificates,
reports or other instruments required to be furnished to it under the related
Governing Document, the trustee must examine those documents and determine
whether they conform to the requirements of that Governing Document.
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Matters Regarding the Trustee
As and to the extent described in the related prospectus supplement,
the fees and normal disbursements of the trustee for any series of offered
certificates may be the expense of the related master servicer or other
specified person or may be required to be paid by the related trust assets.
The trustee for each series of offered certificates will be entitled to
indemnification, out of related trust assets, for any loss, liability or expense
incurred by that trustee in connection with its acceptance or administration of
its trusts under the related Governing Document. However, the indemnification of
a trustee will not extend to any loss, liability or expense incurred by reason
of willful misfeasance, bad faith or gross negligence on the part of the trustee
in the performance of its obligations and duties under the related Governing
Document.
No trustee for any series of offered certificates will be required to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties under the related Governing Document, or in the
exercise of any of its rights or powers, if it has reasonable grounds for
believing that repayment of those funds or adequate indemnity against that risk
or liability is not reasonably assured to it.
The trustee for each series of offered certificates will be entitled to
execute any of its trusts or powers and perform any of its duties under the
related Governing Document, either directly or by or through agents or
attorneys. The trustee will not be responsible for any willful misconduct or
gross negligence on the part of any agent or attorney appointed by it with due
care.
Resignation and Removal of the Trustee
The trustee for any series of offered certificates may resign at any
time. We will be obligated to appoint a successor to a resigning trustee. We may
also remove the trustee for any series of offered certificates if that trustee
ceases to be eligible to continue as such under the related Governing Document
or if that trustee becomes insolvent. Unless we indicate otherwise in the
related prospectus supplement, the trustee for any series of offered
certificates may also be removed at any time by the holders of the offered and
non-offered certificates of that series evidencing not less than 51%, or any
other percentage specified in the related prospectus supplement, of the voting
rights for that series. However, if the removal was without cause, the
certificateholders effecting the removal may be responsible for any costs and
expenses incurred by the terminated trustee in connection with its removal. Any
resignation or removal of a trustee and appointment of a successor trustee will
not become effective until acceptance of the appointment by the successor
trustee.
Description of Credit Support
General
Credit support may be provided with respect to one or more classes of
the offered certificates of any series or with respect to the related mortgage
assets. That credit support may be in the form of any of the following:
o the subordination of one or more other classes of certificates
of the same series;
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o the use of a letter of credit, a surety bond, an insurance
policy, a guarantee or a credit derivative;
o the establishment of one or more reserve funds; or
o any combination of the foregoing.
If and to the extent described in the related prospectus supplement,
any of the above forms of credit support may provide credit enhancement for
non-offered certificates, as well as offered certificates, or for more than one
series of certificates.
If you are the beneficiary of any particular form of credit support,
that credit support may not protect you against all risks of loss and will not
guarantee payment to you of all amounts to which you are entitled under your
offered certificates. If losses or shortfalls occur that exceed the amount
covered by that credit support or that are of a type not covered by that credit
support, you will bear your allocable share of deficiencies. Moreover, if that
credit support covers the offered certificates of more than one class or series
and total losses on the related mortgage assets exceed the amount of that credit
support, it is possible that the holders of offered certificates of other
classes and/or series will be disproportionately benefited by that credit
support to your detriment.
If you are the beneficiary of any particular form of credit support, we
will include in the related prospectus supplement a description of the
following:
o the nature and amount of coverage under that credit support;
o any conditions to payment not otherwise described in this
prospectus;
o any conditions under which the amount of coverage under that
credit support may be reduced and under which that credit
support may be terminated or replaced; and
o the material provisions relating to that credit support.
Additionally, we will set forth in the related prospectus supplement
information with respect to the obligor, if any, under any instrument of credit
support.
Subordinate Certificates
If and to the extent described in the related prospectus supplement,
one or more classes of certificates of any series may be subordinate to one or
more other classes of certificates of that series. If you purchase subordinate
certificates, your right to receive payments out of collections and advances on
the related trust assets on any payment date will be subordinated to the
corresponding rights of the holders of the more senior classes of certificates.
If and to the extent described in the related prospectus supplement, the
subordination of a class of certificates may not cover all types of losses or
shortfalls. In the related prospectus supplement, we will set forth information
concerning the method and amount of subordination provided by a class or classes
of subordinate certificates in a series and the circumstances under which that
subordination will be available.
If the mortgage assets in any trust established us are divided into
separate groups, each supporting a separate class or classes of certificates of
the related series, credit support may be provided by cross-support provisions
requiring that payments be made on senior certificates evidencing interests
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in one group of those mortgage assets prior to payments on subordinate
certificates evidencing interests in a different group of those mortgage assets.
We will describe in the related prospectus supplement the manner and conditions
for applying any cross-support provisions.
Insurance or Guarantees with Respect to Mortgage Loans
The mortgage loans included in any trust established by us may be
covered for some default risks by insurance policies or guarantees. If so, we
will describe in the related prospectus supplement the nature of those default
risks and the extent of that coverage.
Letter of Credit
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates or
select classes of those certificates will be covered by one or more letters of
credit, issued by a bank or other financial institution specified in the related
prospectus supplement. The issuer of a letter of credit will be obligated to
honor draws under that letter of credit in a total fixed dollar amount, net of
unreimbursed payments under the letter of credit, generally equal to a
percentage specified in the related prospectus supplement of the total principal
balance of some or all of the related mortgage assets as of the date the related
trust was formed or of the initial total principal balance of one or more
classes of certificates of the applicable series. The letter of credit may
permit draws only in the event of select types of losses and shortfalls. The
amount available under the letter of credit will, in all cases, be reduced to
the extent of the unreimbursed payments thereunder and may otherwise be reduced
as described in the related prospectus supplement. The obligations of the letter
of credit issuer under the letter of credit for any series of offered
certificates will expire at the earlier of the date specified in the related
prospectus supplement or the termination of the related trust.
Certificate Insurance and Surety Bonds
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates or
select classes of those certificates will be covered by insurance policies or
surety bonds provided by one or more insurance companies or sureties. Those
instruments may cover, with respect to one or more classes of the offered
certificates of the related series, timely payments of interest and principal or
timely payments of interest and payments of principal on the basis of a schedule
of principal payments set forth in or determined in the manner specified in the
related prospectus supplement. We will describe in the related prospectus
supplement any limitations on the draws that may be made under any of those
instruments.
Reserve Funds
If and to the extent described in the related prospectus supplement,
deficiencies in amounts otherwise payable on a series of offered certificates or
select classes of those certificates will be covered, to the extent of available
funds, by one or more reserve funds in which cash, a letter of credit, permitted
investments, a demand note or a combination of the foregoing, will be deposited,
in the amounts specified in the related prospectus supplement. If and to the
extent described in the related prospectus supplement, the reserve fund for the
related series of offered certificates may also be funded over time.
Amounts on deposit in any reserve fund for a series of offered
certificates will be applied for the purposes, in the manner, and to the extent
specified in the related prospectus supplement. If and to the extent described
in the related prospectus supplement, reserve funds may be established to
provide
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protection only against select types of losses and shortfalls. Following each
payment date for the related series of offered certificates, amounts in a
reserve fund in excess of any required balance may be released from the reserve
fund under the conditions and to the extent specified in the related prospectus
supplement.
Credit Support with Respect to MBS
If and to the extent described in the related prospectus supplement,
any mortgage-backed security included in one of our trusts and/or the mortgage
loans that back that security may be covered by one or more of the types of
credit support described in this prospectus. We will specify in the related
prospectus supplement, as to each of those forms of credit support, the
information indicated above with respect to that mortgage-backed security, to
the extent that the information is material and available.
Legal Aspects of Mortgage Loans
Most, if not all, of the mortgage loans underlying a series of offered
certificates will be secured by multifamily and commercial properties in the
United States, its territories and possessions. However, some of those mortgage
loans may be secured by multifamily and commercial properties outside the United
States, its territories and possessions.
The following discussion contains general summaries of select legal
aspects of mortgage loans secured by multifamily and commercial properties in
the United States. Because these legal aspects are governed by applicable state
law, which may differ substantially from state to state, the summaries do not
purport to be complete, to reflect the laws of any particular state, or to
encompass the laws of all jurisdictions in which the security for the mortgage
loans underlying the offered certificates is situated. Accordingly, you should
be aware that the summaries are qualified in their entirety by reference to the
applicable laws of those states. See "Description of the Trust Assets--Mortgage
Loans."
If a significant percentage of mortgage loans underlying a series of
offered certificates, are secured by properties in a particular state, we will
discuss the relevant state laws, to the extent they vary materially from this
discussion, in the related prospectus supplement.
General
Each mortgage loan underlying a series of offered certificates will be
evidenced by a note or bond and secured by an instrument granting a security
interest in real property. The instrument granting a security interest in real
property may be a mortgage, deed of trust or a deed to secure debt, depending
upon the prevailing practice and law in the state in which that real property is
located. Mortgages, deeds of trust and deeds to secure debt are often
collectively referred to in this prospectus as "mortgages." A mortgage creates a
lien upon, or grants a title interest in, the real property covered by the
mortgage, and represents the security for the repayment of the indebtedness
customarily evidenced by a promissory note. The priority of the lien created or
interest granted will depend on--
o the terms of the mortgage,
o the terms of separate subordination agreements or
intercreditor agreements with others that hold interests in
the real property,
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o the knowledge of the parties to the mortgage, and
o in general, the order of recordation of the mortgage in the
appropriate public recording office.
However, the lien of a recorded mortgage will generally be subordinate
to later-arising liens for real estate taxes and assessments and other charges
imposed under governmental police powers.
Types of Mortgage Instruments
There are two parties to a mortgage--
o a mortgagor, who is the owner of the encumbered interest in
the real property, and
o a mortgagee, who is the lender.
In general, the mortgagor is also the borrower.
In contrast, a deed of trust is a three-party instrument. The parties
to a deed of trust are--
o the trustor, who is the equivalent of a mortgagor,
o the trustee to whom the real property is conveyed, and
o the beneficiary for whose benefit the conveyance is made, who
is the lender.
Under a deed of trust, the trustor grants the property, irrevocably
until the debt is paid, in trust and generally with a power of sale, to the
trustee to secure repayment of the indebtedness evidenced by the related note.
A deed to secure debt typically has two parties. Under a deed to secure
debt, the grantor, who is the equivalent of a mortgagor, conveys title to the
real property to the grantee, who is the lender, generally with a power of sale,
until the debt is repaid.
Where the borrower is a land trust, there would be an additional party
because legal title to the property is held by a land trustee under a land trust
agreement for the benefit of the borrower. At origination of a mortgage loan
involving a land trust, the borrower may execute a separate undertaking to make
payments on the mortgage note. In no event is the land trustee personally liable
for the mortgage note obligation.
The mortgagee's authority under a mortgage, the trustee's authority
under a deed of trust and the grantee's authority under a deed to secure debt
are governed by:
o the express provisions of the related instrument,
o the law of the state in which the real property is located,
o various federal laws, and
o in some deed of trust transactions, the directions of the
beneficiary.
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Leases and Rents
A mortgage that encumbers an income-producing property often contains
an assignment of rents and leases and/or may be accompanied by a separate
assignment of rents and leases. Under an assignment of rents and leases, the
borrower assigns to the lender the borrower's right, title and interest as
landlord under each lease and the income derived from each lease. However, the
borrower retains a revocable license to collect the rents, provided there is no
default and the rents are not directly paid to the lender. If the borrower
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect the
rents.
In most states, hotel and motel room rates are considered accounts
receivable under the UCC. Room rates are generally pledged by the borrower as
additional security for the loan when a mortgage loan is secured by a hotel or
motel. In general, the lender must file financing statements in order to perfect
its security interest in the room rates and must file continuation statements,
generally every five years, to maintain that perfection. Mortgage loans secured
by hotels or motels may be included in one of our trusts even if the security
interest in the room rates was not perfected or the requisite UCC filings were
allowed to lapse. A lender will generally be required to commence a foreclosure
action or otherwise take possession of the property in order to enforce its
rights to collect the room rates following a default, even if the lender's
security interest in room rates is perfected under applicable nonbankruptcy law.
In the bankruptcy setting, the lender will be stayed from enforcing its
rights to collect hotel and motel room rates. However, the room rates will
constitute cash collateral and cannot be used by the bankrupt borrower--
o without a hearing or the lender's consent, or
o unless the lender's interest in the room rates is given
adequate protection.
For purposes of the foregoing, the adequate protection may include a cash
payment for otherwise encumbered funds or a replacement lien on unencumbered
property, in either case equal in value to the amount of room rates that the
bankrupt borrower proposes to use. See "--Bankruptcy Laws" below.
Personalty
Some types of income-producing real properties, such as hotels, motels
and nursing homes, may include personal property, which may, to the extent it is
owned by the borrower and not previously pledged, constitute a significant
portion of the property's value as security. The creation and enforcement of
liens on personal property are governed by the UCC. Accordingly, if a borrower
pledges personal property as security for a mortgage loan, the lender generally
must file UCC financing statements in order to perfect its security interest in
the personal property and must file continuation statements, generally every
five years, to maintain that perfection. Mortgage loans secured in part by
personal property may be included in one of our trusts even if the security
interest in the personal property was not perfected or the requisite UCC filings
were allowed to lapse.
Foreclosure
General. Foreclosure is a legal procedure that allows the lender to
recover its mortgage debt by enforcing its rights and available legal remedies
under the mortgage. If the borrower defaults in
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payment or performance of its obligations under the note or mortgage, the lender
has the right to institute foreclosure proceedings to sell the real property
security at public auction to satisfy the indebtedness.
Foreclosure Procedures Vary From State to State. The two primary
methods of foreclosing a mortgage are--
o judicial foreclosure, involving court proceedings, and
o nonjudicial foreclosure under a power of sale granted in the
mortgage instrument.
Other foreclosure procedures are available in some states, but they are
either infrequently used or available only in limited circumstances.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed. A
foreclosure action sometimes requires several years to complete.
Judicial Foreclosure. A judicial foreclosure proceeding is conducted in
a court having jurisdiction over the mortgaged property. Generally, a lender
initiates the action by the service of legal pleadings upon--
o all parties having a subordinate interest of record in the
real property, and
o all parties in possession of the property, under leases or
otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. The court generally
issues a judgment of foreclosure and appoints a referee or other officer to
conduct a public sale of the mortgaged property upon successful completion of a
judicial foreclosure proceeding. The proceeds of that public sale are used to
satisfy the judgment. The procedures that govern these public sales vary from
state to state.
Equitable and Other Limitations on Enforceability of Particular
Provisions. United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions.
These principles are generally designed to relieve borrowers from the effects of
mortgage defaults perceived as harsh or unfair. Relying on these principles, a
court may:
o alter the specific terms of a loan to the extent it considers
necessary to prevent or remedy an injustice, undue oppression
or overreaching;
o require the lender to undertake affirmative actions to
determine the cause of the borrower's default and the
likelihood that the borrower will be able to reinstate the
loan;
o require the lender to reinstate a loan or recast a payment
schedule in order to accommodate a borrower that is suffering
from a temporary financial disability; or
o limit the right of the lender to foreclose in the case of a
nonmonetary default, such as--
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1. a failure to adequately maintain the mortgaged
property, or
2. an impermissible further encumbrance of the mortgaged
property.
Some courts have addressed the issue of whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that a borrower receive notice in addition to statutorily-prescribed
minimum notice. For the most part, these cases have--
o upheld the reasonableness of the notice provisions, or
o found that a public sale under a mortgage providing for a
power of sale does not involve sufficient state action to
trigger constitutional protections.
In addition, some states may have statutory protection such as the
right of the borrower to reinstate its mortgage loan after commencement of
foreclosure proceedings but prior to a foreclosure sale.
Nonjudicial Foreclosure/Power of Sale. In states permitting nonjudicial
foreclosure proceedings, foreclosure of a deed of trust is generally
accomplished by a nonjudicial trustee's sale under a power of sale typically
granted in the deed of trust. A power of sale may also be contained in any other
type of mortgage instrument if applicable law so permits. A power of sale under
a deed of trust allows a nonjudicial public sale to be conducted generally
following--
o a request from the beneficiary/lender to the trustee to sell
the property upon default by the borrower, and
o notice of sale is given in accordance with the terms of the
deed of trust and applicable state law.
In some states, prior to a nonjudicial public sale, the trustee under
the deed of trust must--
o record a notice of default and notice of sale, and
o send a copy of those notices to the borrower and to any other
party who has recorded a request for a copy of them.
In addition, in some states, the trustee must provide notice to any other party
having an interest of record in the real property, including junior lienholders.
A notice of sale must be posted in a public place and, in most states, published
for a specified period of time in one or more newspapers. Some states require a
reinstatement period during which the borrower or junior lienholder may have the
right to cure the default by paying the entire actual amount in arrears, without
regard to the acceleration of the indebtedness, plus the lender's expenses
incurred in enforcing the obligation. In other states, the borrower or the
junior lienholder has only the right to pay off the entire debt to prevent the
foreclosure sale. Generally, state law governs the procedure for public sale,
the parties entitled to notice, the method of giving notice and the applicable
time periods.
Public Sale. A third party may be unwilling to purchase a mortgaged
property at a public sale because of--
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o the difficulty in determining the exact status of title to the
property due to, among other things, redemption rights
that may exist, and
o the possibility that physical deterioration of the property
may have occurred during the foreclosure proceedings.
As a result of the foregoing, it is common for the lender to purchase
the mortgaged property and become its owner, subject to the borrower's right in
some states to remain in possession during a redemption period. In that case,
the lender will have both the benefits and burdens of ownership, including the
obligation to pay debt service on any senior mortgages, to pay taxes, to obtain
casualty insurance and to make repairs necessary to render the property suitable
for sale. The costs of operating and maintaining a commercial or multifamily
residential property may be significant and may be greater than the income
derived from that property. The lender also will commonly obtain the services of
a real estate broker and pay the broker's commission in connection with the sale
or lease of the property. Whether, the ultimate proceeds of the sale of the
property equal the lender's investment in the property depends upon market
conditions. Moreover, because of the expenses associated with acquiring, owning
and selling a mortgaged property, a lender could realize an overall loss on the
related mortgage loan even if the mortgaged property is sold at foreclosure, or
resold after it is acquired through foreclosure, for an amount equal to the full
outstanding principal amount of the loan plus accrued interest.
The holder of a junior mortgage that forecloses on a mortgaged property
does so subject to senior mortgages and any other prior liens. In addition, it
may be obliged to keep senior mortgage loans current in order to avoid
foreclosure of its interest in the property. Furthermore, if the foreclosure of
a junior mortgage triggers the enforcement of a due-on-sale clause contained in
a senior mortgage, the junior mortgagee could be required to pay the full amount
of the senior mortgage indebtedness or face foreclosure.
Rights of Redemption. The purposes of a foreclosure action are--
o to enable the lender to realize upon its security, and
o to bar the borrower, and all persons who have interests in the
property that are subordinate to that of the foreclosing
lender, from exercising their equity of redemption.
The doctrine of equity of redemption provides that, until the property
encumbered by a mortgage has been sold in accordance with a properly conducted
foreclosure and foreclosure sale, those having interests that are subordinate to
that of the foreclosing lender have an equity of redemption and may redeem the
property by paying the entire debt with interest. Those having an equity of
redemption must generally be made parties to the foreclosure proceeding in order
for their equity of redemption to be terminated.
The equity of redemption is a common-law, nonstatutory right which
should be distinguished from post-sale statutory rights of redemption. In some
states, the borrower and foreclosed junior lienors are given a statutory period
in which to redeem the property after sale under a deed of trust or foreclosure
of a mortgage. In some states, statutory redemption may occur only upon payment
of the foreclosure sale price. In other states, redemption may be permitted if
the former borrower pays only a portion of the sums due. A statutory right of
redemption will diminish the ability of the lender to sell the foreclosed
property because the exercise of a right of redemption would defeat the title of
any purchaser through a foreclosure. Consequently, the practical effect of the
redemption right is to force the lender to
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maintain the property and pay the expenses of ownership until the redemption
period has expired. In some states, a post-sale statutory right of redemption
may exist following a judicial foreclosure, but not following a trustee's sale
under a deed of trust.
Anti-Deficiency Legislation. Some or all of the mortgage loans
underlying a series of offered certificates may be nonrecourse loans. Recourse
in the case of a default on a non-recourse mortgage loan will be limited to the
mortgaged property and any other assets that were pledged to secure the mortgage
loan. However, even if a mortgage loan by its terms provides for recourse to the
borrower's other assets, a lender's ability to realize upon those assets may be
limited by state law. For example, in some states, a lender cannot obtain a
deficiency judgment against the borrower following foreclosure or sale under a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal to the difference between the net amount realized upon the public
sale of the real property and the amount due to the lender. Other statutes may
require the lender to exhaust the security afforded under a mortgage before
bringing a personal action against the borrower. In other states, the lender has
the option of bringing a personal action against the borrower on the debt
without first exhausting the security, but in doing so, the lender may be deemed
to have elected a remedy and thus may be precluded from foreclosing upon the
security. Consequently, lenders will usually proceed first against the security
in states where an election of remedy provision exists. Finally, other statutory
provisions limit any deficiency judgment to the excess of the outstanding debt
over the fair market value of the property at the time of the sale. These other
statutory provisions are intended to protect borrowers from exposure to large
deficiency judgments that might result from bidding at below-market values at
the foreclosure sale.
Leasehold Considerations. Some or all of the mortgage loans underlying
a series of offered certificates may be secured by a mortgage on the borrower's
leasehold interest under a ground lease. Leasehold mortgage loans are subject to
some risks not associated with mortgage loans secured by a lien on the fee
estate of the borrower. The most significant of these risks is that if the
borrower's leasehold were to be terminated upon a lease default, the leasehold
mortgagee would lose its security. This risk may be lessened if the ground
lease:
o requires the lessor to give the leasehold mortgagee notices of
lessee defaults and an opportunity to cure them,
o permits the leasehold estate to be assigned to and by the
leasehold mortgagee or the purchaser at a foreclosure sale,
and
o contains other protective provisions typically required by
prudent lenders to be included in a ground lease.
Some mortgage loans underlying a series of offered certificates,
however, may be secured by ground leases which do not contain these provisions.
Cooperative Shares. Some or all of the mortgage loans underlying a
series of offered certificates may be secured by a security interest on the
borrower's ownership interest in shares, and the proprietary leases belonging to
those shares, allocable to cooperative dwelling units that may be vacant or
occupied by nonowner tenants. Loans secured in this manner are subject to some
risks not associated with mortgage loans secured by a lien on the fee estate of
a borrower in real property. Loans secured in this manner typically are
subordinate to the mortgage, if any, on the cooperative's building. That
mortgage, if foreclosed, could extinguish the equity in the building and the
proprietary leases of the dwelling units derived from ownership of the shares of
the cooperative. Further, transfer of shares in a cooperative is
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subject to various regulations as well as to restrictions under the governing
documents of the cooperative. The shares may be canceled in the event that
associated maintenance charges due under the related proprietary leases are not
paid. Typically, a recognition agreement between the lender and the cooperative
provides, among other things, that the lender may cure a default under a
proprietary lease.
Under the laws applicable in many states, "foreclosure" on cooperative
shares is accomplished by a sale in accordance with the provisions of Article 9
of the UCC and the security agreement relating to the shares. Article 9 of the
UCC requires that a sale be conducted in a commercially reasonable manner, which
may be dependent upon, among other things, the notice given the debtor and the
method, manner, time, place and terms of the sale. Article 9 of the UCC provides
that the proceeds of the sale will be applied first to pay the costs and
expenses of the sale and then to satisfy the indebtedness secured by the
lender's security interest. A recognition agreement, however, generally provides
that the lender's right to reimbursement is subject to the right of the
cooperative corporation to receive sums due under the proprietary leases.
Bankruptcy Laws
Operation of the U.S. Bankruptcy Code and related state laws may
interfere with or affect the ability of a lender to realize upon collateral or
to enforce a deficiency judgment. For example, under the U.S. Bankruptcy Code,
virtually all actions, including foreclosure actions and deficiency judgment
proceedings, to collect a debt are automatically stayed upon the filing of the
bankruptcy petition. Often, no interest or principal payments are made during
the course of the bankruptcy case. The delay caused by an automatic stay and its
consequences can be significant. Also, under the U.S. Bankruptcy Code, the
filing of a petition in bankruptcy by or on behalf of a junior lienor may stay
the senior lender from taking action to foreclose out the junior lien.
Under the U.S. Bankruptcy Code, the amount and terms of a mortgage loan
secured by a lien on property of the debtor may be modified provided that
substantive and procedural safeguards protective of the lender are met. A
bankruptcy court may, among other things--
o reduce the secured portion of the outstanding amount of the
loan to the then-current value of the property, thereby
leaving the lender a general unsecured creditor for the
difference between the then-current value of the property and
the outstanding balance of the loan;
o reduce the amount of each scheduled payment, by means of a
reduction in the rate of interest and/or an alteration of the
repayment schedule, with or without affecting the unpaid
principal balance of the loan;
o extend or shorten the term to maturity of the loan;
o permit the bankrupt borrower to cure of the subject loan
default by paying the arrearage over a number of years; or
o permit the bankrupt borrower, through its rehabilitative plan,
to reinstate the loan payment schedule even if the lender has
obtained a final judgment of foreclosure prior to the filing
of the debtor's petition.
Federal bankruptcy law may also interfere with or affect the ability of
a secured lender to enforce the borrower's assignment of rents and leases
related to the mortgaged property. A lender may be
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stayed from enforcing the assignment under the U.S. Bankruptcy Code. In
addition, the legal proceedings necessary to resolve the issue could be
time-consuming, and result in delays in the lender's receipt of the rents.
However, recent amendments to the U.S. Bankruptcy Code may minimize the
impairment of the lender's ability to enforce the borrower's assignment of rents
and leases. In addition to the inclusion of hotel revenues within the definition
of cash collateral as noted above, the amendments provide that a pre-petition
security interest in rents or hotel revenues is designed to overcome those cases
holding that a security interest in rents is unperfected under the laws of some
states until the lender has taken some further action, such as commencing
foreclosure or obtaining a receiver prior to activation of the assignment of
rents.
A borrower's ability to make payment on a mortgage loan may be impaired
by the commencement of a bankruptcy case relating to the tenant under a lease of
the related property. Under the U.S. Bankruptcy Code, the filing of a petition
in bankruptcy by or on behalf of a tenant results in a stay in bankruptcy
against the commencement or continuation of any state court proceeding for--
o past due rent,
o accelerated rent,
o damages, or
o a summary eviction order with respect to a default under the
lease that occurred prior to the filing of the tenant's
bankruptcy petition.
In addition, the U.S. Bankruptcy Code generally provides that a trustee
or debtor-in-possession may, subject to approval of the court:
o assume the lease and either retain it or assign it to a third
party, or
o reject the lease.
If the lease is assumed, the trustee, debtor-in-possession or assignee,
if applicable, must cure any defaults under the lease, compensate the lessor for
its losses and provide the lessor with adequate assurance of future performance.
These remedies may be insufficient, and any assurances provided to the lessor
may be inadequate. If the lease is rejected, the lessor will be treated, except
potentially to the extent of any security deposit, as an unsecured creditor with
respect to its claim for damages for termination of the lease. The U.S.
Bankruptcy Code also limits a lessor's damages for lease rejection to:
o the rent reserved by the lease without regard to acceleration
for the greater of one year, or 15%, not to exceed three
years, of the remaining term of the lease, plus
o unpaid rent to the earlier of the surrender of the property or
the lessee's bankruptcy filing.
Environmental Considerations
General. A lender may be subject to environmental risks when taking a
security interest in real property. Of particular concern may be properties that
are or have been used for industrial, manufacturing, military or disposal
activity. Those environmental risks include the possible diminution of the value
of a contaminated property or, as discussed below, potential liability for
clean-up costs or other remedial actions that could exceed the value of the
property or the amount of the lender's loan. In
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some circumstances, a lender may decide to abandon a contaminated real property
as collateral for its loan rather than foreclose and risk liability for clean-up
costs.
Superlien Laws. Under the laws of many states, contamination on a
property may give rise to a lien on the property for clean-up costs. In several
states, that lien has priority over all existing liens, including those of
existing mortgages. In these states, the lien of a mortgage may lose its
priority to that superlien.
CERCLA. The federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, imposes strict liability on present and
past "owners" and "operators" of contaminated real property for the costs of
clean-up. A secured lender may be liable as an "owner" or "operator" of a
contaminated mortgaged property if agents or employees of the lender have
participated in the management of the property or the operations of the
borrower. Liability may exist even if the lender did not cause or contribute to
the contamination and regardless of whether the lender has actually taken
possession of the contaminated mortgaged property through foreclosure, deed in
lieu of foreclosure or otherwise. Moreover, liability is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Excluded from CERCLA's definition of "owner" or
"operator," however, is a person who, without participating in the management of
the facility, holds indicia of ownership primarily to protect his security
interest. This is the so called "secured creditor exemption."
The Asset Conservation, Lender Liability and Deposit Insurance Act of
1996 amended, among other things, the provisions of CERCLA with respect to
lender liability and the secured creditor exemption. The Lender Liability Act
offers substantial protection to lenders by defining the activities in which a
lender can engage and still have the benefit of the secured creditor exemption.
In order for a lender to be deemed to have participated in the management of a
mortgaged property, the lender must actually participate in the operational
affairs of the property of the borrower. The Lender Liability Act provides that
"merely having the capacity to influence, or unexercised right to control"
operations does not constitute participation in management. A lender will lose
the protection of the secured creditor exemption only if--
o it exercises decision-making control over a borrower's
environmental compliance and hazardous substance handling and
disposal practices, or
o assumes day-to-day management of operational functions of a
mortgaged property.
The Lender Liability Act also provides that a lender will continue to
have the benefit of the secured creditor exemption even if it forecloses on a
mortgaged property, purchases it at a foreclosure sale or accepts a deed-in-lieu
of foreclosure, provided that the lender seeks to sell that property at the
earliest practicable commercially reasonable time on commercially reasonable
terms.
Other Federal and State Laws. Many states have statutes similar to
CERCLA, and not all those statutes provide for a secured creditor exemption. In
addition, under federal law, there is potential liability relating to hazardous
wastes and underground storage tanks under the federal Resource Conservation and
Recovery Act.
Some federal, state and local laws, regulations and ordinances govern
the management, removal, encapsulation or disturbance of asbestos-containing
materials. These laws, as well as common law standards, may--
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o impose liability for releases of or exposure to
asbestos-containing materials, and
o provide for third parties to seek recovery from owners or
operators of real properties for personal injuries associated
with those releases.
Recent federal legislation will require owners of residential housing
constructed prior to 1978 to disclose to potential residents or purchasers any
known lead-based paint hazards and will impose treble damages for any failure to
disclose. In addition, the ingestion of lead-based paint chips or dust particles
by children can result in lead poisoning. If lead-based paint hazards exist at a
property, then the owner of that property may be held liable for injuries and
for the costs of removal or encapsulation of the lead-based paint.
In a few states, transfers of some types of properties are conditioned
upon cleanup of contamination prior to transfer. In these cases, a lender that
becomes the owner of a property through foreclosure, deed in lieu of foreclosure
or otherwise, may be required to clean up the contamination before selling or
otherwise transferring the property.
Beyond statute-based environmental liability, there exist common law
causes of action related to hazardous environmental conditions on a property,
such as actions based on nuisance or on toxic tort resulting in death, personal
injury or damage to property. While it may be more difficult to hold a lender
liable under common law causes of action, unanticipated or uninsured liabilities
of the borrower may jeopardize the borrower's ability to meet its loan
obligations.
Federal, state and local environmental regulatory requirements change
often. It is possible that compliance with a new regulatory requirement could
impose significant compliance costs on a borrower. These costs may jeopardize
the borrower's ability to meet its loan obligations.
Additional Considerations. The cost of remediating hazardous substance
contamination at a property can be substantial. If a lender becomes liable, it
can bring an action for contribution against the owner or operator who created
the environmental hazard. However, that individual or entity may be without
substantial assets. Accordingly, it is possible that the costs could become a
liability of the related trust and occasion a loss to the related
certificateholders.
If the operations on a foreclosed property are subject to environmental
laws and regulations, the lender will be required to operate the property in
accordance with those laws and regulations. This compliance may entail
substantial expense, especially in the case of industrial or manufacturing
properties.
In addition, a lender may be obligated to disclose environmental
conditions on a property to government entities and/or to prospective buyers,
including prospective buyers at a foreclosure sale or following foreclosure.
This disclosure may decrease the amount that prospective buyers are willing to
pay for the affected property, sometimes substantially.
Due-on-Sale and Due-on-Encumbrance Provisions
Some or all of the mortgage loans underlying a series of offered
certificates may contain due-on-sale and due-on-encumbrance clauses that purport
to permit the lender to accelerate the maturity of the loan if the borrower
transfers or encumbers the a mortgaged property. In recent years, court
decisions and legislative actions placed substantial restrictions on the right
of lenders to enforce these clauses in many states. However, the Garn-St Germain
Depository Institutions Act of 1982 generally preempts
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state laws that prohibit the enforcement of due-on-sale clauses and permits
lenders to enforce these clauses in accordance with their terms, subject to the
limitations prescribed in that Act and the regulations promulgated thereunder.
Junior Liens; Rights of Holders of Senior Liens
Any of our trusts may include mortgage loans secured by junior liens,
while the loans secured by the related senior liens may not be included in that
trust. The primary risk to holders of mortgage loans secured by junior liens is
the possibility that adequate funds will not be received in connection with a
foreclosure of the related senior liens to satisfy fully both the senior loans
and the junior loan.
In the event that a holder of a senior lien forecloses on a mortgaged
property, the proceeds of the foreclosure or similar sale will be applied as
follows:
o first, to the payment of court costs and fees in connection
with the foreclosure;
o second, to real estate taxes;
o third, in satisfaction of all principal, interest, prepayment
or acceleration penalties, if any, and any other sums due
and owing to the holder of the senior liens; and
o last, in satisfaction of all principal, interest, prepayment
and acceleration penalties, if any, and any other sums due
and owing to the holder of the junior mortgage loan.
Subordinate Financing
Some mortgage loans underlying a series of offered certificates may not
restrict the ability of the borrower to use the mortgaged property as security
for one or more additional loans, or the restrictions may be unenforceable.
Where a borrower encumbers a mortgaged property with one or more junior liens,
the senior lender is subjected to the following additional risks:
o the borrower may have difficulty servicing and repaying
multiple loans;
o if the subordinate financing permits recourse to the borrower,
as is frequently the case, and the senior loan does not, a
borrower may have more incentive to repay sums due on the
subordinate loan;
o acts of the senior lender that prejudice the junior lender or
impair the junior lender's security, such as the senior
lender's agreeing to an increase in the principal amount of or
the interest rate payable on the senior loan, may create a
superior equity in favor of the junior lender;
o if the borrower defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions
taken by junior lenders can impair the security available to
the senior lender and can interfere with or delay the taking
of action by the senior lender; and
o the bankruptcy of a junior lender may operate to stay
foreclosure or similar proceedings by the senior lender.
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Default Interest and Limitations on Prepayments
Notes and mortgages may contain provisions that obligate the borrower
to pay a late charge or additional interest if payments are not timely made.
They may also contain provisions that prohibit prepayments for a specified
period and/or condition prepayments upon the borrower's payment of prepayment
premium, fee or charge. In some states, there are or may be specific limitations
upon the late charges that a lender may collect from a borrower for delinquent
payments. Some states also limit the amounts that a lender may collect from a
borrower as an additional charge if the loan is prepaid. In addition, the
enforceability of provisions that provide for prepayment premiums, fees and
charges upon an involuntary prepayment is unclear under the laws of many states.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 provides that state usury limitations shall not apply to
various types of residential, including multifamily, first mortgage loans
originated by particular lenders after March 31, 1980. Title V authorized any
state to reimpose interest rate limits by adopting, before April 1, 1983, a law
or constitutional provision that expressly rejects application of the federal
law. In addition, even where Title V is not rejected, any state is authorized by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Some states have taken action to reimpose
interest rate limits and/or to limit discount points or other charges.
Americans with Disabilities Act
Under Title III of the Americans with Disabilities Act of 1990 and
rules promulgated thereunder, in order to protect individuals with disabilities,
owners of public accommodations, such as hotels, restaurants, shopping centers,
hospitals, schools and social service center establishments, must remove
architectural and communication barriers which are structural in nature from
existing places of public accommodation to the extent "readily achievable." In
addition, under the ADA, alterations to a place of public accommodation or a
commercial facility are to be made so that, to the maximum extent feasible, the
altered portions are readily accessible to and usable by disabled individuals.
The "readily achievable" standard takes into account, among other factors, the
financial resources of the affected property owner, landlord or other applicable
person. In addition to imposing a possible financial burden on the borrower in
its capacity as owner or landlord, the ADA may also impose requirements on a
foreclosing lender who succeeds to the interest of the borrower as owner or
landlord. Furthermore, because the "readily achievable" standard may vary
depending on the financial condition of the owner or landlord, a foreclosing
lender that is financially more capable than the borrower of complying with the
requirements of the ADA may be subject to more stringent requirements than those
to which the borrower is subject.
Soldiers' and Sailors' Civil Relief Act of 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended, a borrower who enters military service after the origination of the
borrower's mortgage loan, including a borrower who was in reserve status and is
called to active duty after origination of the mortgage loan, may not be charged
interest, including fees and charges, above an annual rate of 6% during the
period of the borrower's active duty status, unless a court orders otherwise
upon application of the lender. The Relief Act applies to individuals who are
members of the Army, Navy, Air Force, Marines, National Guard, Reserves, Coast
Guard and officers of the U.S. Public Health Service assigned to duty with the
military.
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Because the Relief Act applies to individuals who enter military service,
including reservists who are called to active duty, after origination of the
related mortgage loan, no information can be provided as to the number of loans
with individuals as borrowers that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an
indeterminate period of time, the ability of a master servicer or special
servicer to collect full amounts of interest on an affected mortgage loan. Any
shortfalls in interest collections resulting from the application of the Relief
Act would result in a reduction of the amounts payable to the holders of
certificates of the related series, and would not be covered by advances or,
unless otherwise specified in the related prospectus supplement, any form of
credit support provided in connection with the certificates. In addition, the
Relief Act imposes limitations that would impair the ability of a master
servicer or special servicer to foreclose on an affected mortgage loan during
the borrower's period of active duty status and, under some circumstances,
during an additional three month period after the active duty status ceases.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of
drug-related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations statute can be seized by the government if the property
was used in, or purchased with the proceeds of, those crimes. Under procedures
contained in the comprehensive Crime Control Act of 1984, the government may
seize the property even before conviction. The government must publish notice of
the forfeiture proceeding and may give notice to all parties "known to have an
alleged interest in the property," including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that--
o its mortgage was executed and recorded before commission of
the crime upon which the forfeiture is based, or
o the lender was, at the time of execution of the mortgage,
"reasonably without cause to believe" that the property was
used in, or purchased with the proceeds of, illegal drug or
RICO activities.
Federal Income Tax Consequences
General
This is a general discussion of the material federal income tax
consequences of owning the offered certificates. This discussion is directed to
certificateholders that hold the offered certificates as capital assets within
the meaning of Section 1221 of the Internal Revenue Code of 1986. It does not
discuss all federal income tax consequences that may be relevant to owners of
offered certificates, particularly as to investors subject to special treatment
under the Internal Revenue Code, including:
o banks,
o insurance companies, and
o foreign investors.
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Further, this discussion and any legal opinions referred to in this
discussion are based on authorities that can change, or be differently
interpreted, with possible retroactive effect. No rulings have been or will be
sought from the IRS with respect to any of the federal income tax consequences
discussed below. Accordingly, the IRS may take contrary positions.
Investors and preparers of tax returns should be aware that under
applicable Treasury regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice is--
o given with respect to events that have occurred at the time
the advice is rendered, and
o is directly relevant to the determination of an entry on a tax
return.
Accordingly, even if this discussion addresses an issue regarding the
tax treatment of the owner of the offered certificates, investors should consult
their own tax advisors regarding that issue. Investors should do so not only as
to federal taxes, but also state and local taxes. See "State and Other Tax
Consequences."
The following discussion addresses securities of three general types:
o REMIC certificates, representing interests in a trust, or a
portion of the assets of that trust, as to which a specified
person or entity will make a real estate mortgage investment
conduit, or REMIC, election under Sections 860A through 860G
of the Internal Revenue Code;
o FASIT certificates, representing interests in a trust, or a
portion of the assets of that trust, as to which a specified
person or entity will make a financial asset securitization
investment trust, or FASIT, election within the meaning of
Section 860L(a) of the Internal Revenue Code; and
o grantor trust certificates, representing interests in a trust,
or a portion of the assets of that trust, as to which no
REMIC or FASIT election will be made.
We will indicate in the prospectus supplement for each series of
offered certificates whether the related trustee, another party to the related
Governing Document or an agent appointed by that trustee or other party will act
as tax administrator for the related trust. If the related tax administrator is
required to make a REMIC or FASIT election, we also will identify in the related
prospectus supplement all regular interests, residual interests and/or ownership
interests, as applicable, in the resulting REMIC or FASIT.
The following discussion is limited to certificates offered under this
prospectus. In addition, this discussion applies only to the extent that the
related trust holds only mortgage loans. If a trust holds assets other than
mortgage loans, such as mortgage-backed securities, we will disclose in the
related prospectus supplement the tax consequences associated with those other
assets being included. In addition, if agreements other than guaranteed
investment contracts are included in a trust to provide interest rate protection
for the related offered certificates, the anticipated material tax consequences
associated with those agreements also will be discussed in the related
prospectus supplement. See "Description of the Trust Assets--Arrangements
Providing Reinvestment, Interest Rate and Currency Related Protection."
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The following discussion is based in part on the rules governing
original issue discount in Sections 1271-1273 and 1275 of the Internal Revenue
Code and in the Treasury regulations issued under those sections. It is also
based in part on the rules governing REMICs in Sections 860A-860G of the
Internal Revenue Code and in the Treasury regulations issued under those
sections. The regulations relating to original issue discount do not adequately
address all issues relevant to, and in some instances provide that they are not
applicable to, securities such as the offered certificates.
REMICs
General. With respect to each series of offered certificates as to
which the related tax administrator will make a REMIC election, our counsel will
deliver its opinion generally to the effect that, assuming compliance with all
provisions of the related Governing Document, and subject to any other
assumptions set forth in the opinion:
o the related trust, or the relevant designated portion of the
trust, will qualify as a REMIC, and
o those offered certificates will represent--
1. regular interests in the REMIC, or
2. residual interests in the REMIC.
Any and all offered certificates representing interests in a REMIC will
be either--
o REMIC regular certificates, representing regular interests in
the REMIC, or
o REMIC residual certificates, representing residual interests
in the REMIC.
If an entity electing to be treated as a REMIC fails to comply with the
ongoing requirements of the Internal Revenue Code for REMIC status, it may lose
its REMIC status. If so, the entity may become taxable as a corporation.
Therefore, the related certificates may not be given the tax treatment
summarized below. Although the Internal Revenue Code authorizes the Treasury
Department to issue regulations providing relief in the event of an inadvertent
termination of REMIC status, the Treasury Department has not done so. Any relief
mentioned above, moreover, may be accompanied by sanctions. These sanctions
could include the imposition of a corporate tax on all or a portion of a trust's
income for the period in which the requirements for REMIC status are not
satisfied. The Governing Document with respect to each REMIC will include
provisions designed to maintain its status as a REMIC under the Internal Revenue
Code.
Characterization of Investments in REMIC Certificates. Unless we state
otherwise in the related prospectus supplement, the offered certificates that
are REMIC certificates will be treated as--
o "real estate assets" within the meaning of Section
856(c)(5)(B) of the Internal Revenue Code in the hands of a
real estate investment trust, and
o "loans secured by an interest in real property" or other
assets described in Section 7701(a)(19)(C) of the Internal
Revenue Code in the hands of a thrift institution,
in the same proportion that the assets of the related REMIC are so treated.
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However, to the extent that the REMIC assets constitute mortgage loans
on property not used for residential or other prescribed purposes, the related
offered certificates will not be treated as assets qualifying under Section
7701(a)(19)(C). If 95% or more of the assets of the REMIC qualify for any of the
foregoing characterizations at all times during a calendar year, the related
offered certificates will qualify for the corresponding status in their entirety
for that calendar year.
In addition, offered certificates that are REMIC regular certificates
will be:
o "qualified mortgages" within the meaning of Section 860G(a)(3)
of the Internal Revenue Code in the hands of another REMIC;
and
o "permitted assets" under Section 860L(c)(1)(G) for a FASIT.
Finally, interest, including original issue discount, on offered
certificates that are REMIC regular certificates, and income allocated to
offered certificates that are REMIC residual certificates, will be interest
described in Section 856(c)(3)(B) of the Internal Revenue Code if received by a
real estate investment trust, to the extent that these certificates are treated
as "real estate assets" within the meaning of Section 856(c)(5)(B) of the
Internal Revenue Code.
The related tax administrator will determine the percentage of the
REMIC's assets that constitute assets described in the above-referenced sections
of the Internal Revenue Code with respect to each calendar quarter based on the
average adjusted basis of each category of the assets held by the REMIC during
that calendar quarter. The related tax administrator will report those
determinations to certificateholders in the manner and at the times required by
applicable Treasury regulations.
The assets of the REMIC will include, in addition to mortgage loans--
o collections on mortgage loans held pending payment on the
related offered certificates, and
o any property acquired by foreclosure held pending sale, and
may include amounts in reserve accounts.
It is unclear whether property acquired by foreclosure held pending
sale, and amounts in reserve accounts, would be considered to be part of the
mortgage loans, or whether these assets otherwise would receive the same
treatment as the mortgage loans for purposes of the above-referenced sections of
the Internal Revenue Code. In addition, in some instances, the mortgage loans
may not be treated entirely as assets described in those sections of the
Internal Revenue Code. If so, we will describe in the related prospectus
supplement those mortgage loans that are characterized differently. The Treasury
regulations do provide, however, that cash received from collections on mortgage
loans held pending payment is considered part of the mortgage loans for purposes
of Section 856(c)(5)(B) of the Internal Revenue Code, relating to real estate
investment trusts.
To the extent a REMIC certificate represents ownership of an interest
in a mortgage loan that is secured in part by the related borrower's interest in
a bank account, that mortgage loan is not secured solely by real estate.
Accordingly:
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o a portion of that certificate may not represent ownership of
"loans secured by an interest in real property" or other
assets described in Section 7701(a)(19)(C) of the Internal
Revenue Code;
o a portion of that certificate may not represent ownership of
"real estate assets" under Section 856(c)(5)(B) of the
Internal Revenue Code; and
o the interest on that certificate may not constitute "interest
on obligations secured by mortgages on real property" within
the meaning of Section 856(c)(3)(B) of the Internal Revenue
Code.
Tiered REMIC Structures. For some series of REMIC certificates, the
related tax administrator may make two or more REMIC elections as to the related
trust for federal income tax purposes. As to each of these series of REMIC
certificates, our counsel will opine that each portion of the related trust as
to which a REMIC election is to be made will qualify as a REMIC. Each of these
series will be treated as one REMIC solely for purposes of determining:
o whether the related REMIC certificates will be "real estate
assets" within the meaning of Section 856(c)(5)(B) of the
Internal Revenue Code,
o whether the related REMIC certificates will be "loans secured
by an interest in real property" under Section 7701(a)(19)(C)
of the Internal Revenue Code, and
o whether the interest/income on the related REMIC certificates
is interest described in Section 856(c)(3)(B) of the Internal
Revenue Code.
Taxation of Owners of REMIC Regular Certificates.
General. Except as otherwise stated in this discussion, the Internal
Revenue Code treats REMIC regular certificates as debt instruments issued by the
REMIC and not as ownership interests in the REMIC or its assets. Holders of
REMIC regular certificates that otherwise report income under the cash method of
accounting must nevertheless report income with respect to REMIC regular
certificates under the accrual method.
Original Issue Discount. Some REMIC regular certificates may be issued
with original issue discount within the meaning of Section 1273(a) of the
Internal Revenue Code. Any holders of REMIC regular certificates issued with
original issue discount generally will have to include original issue discount
in income as it accrues, in accordance with a constant yield method, prior to
the receipt of the cash attributable to that income. The IRS has issued
regulations under Section 1271 to 1275 of the Internal Revenue Code generally
addressing the treatment of debt instruments issued with original issue
discount. Section 1272(a)(6) of the Internal Revenue Code provides special rules
applicable to the accrual of original issue discount on, among other things,
REMIC regular certificates. The Treasury Department has not issued regulations
under that section. You should be aware, however, that Section 1272(a)(6) and
the regulations under Sections 1271 to 1275 of the Internal Revenue Code do not
adequately address all issues relevant to, or are not applicable to, prepayable
securities such as the offered certificates. We recommend that you consult with
your own tax advisor concerning the tax treatment of your offered certificates.
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The Internal Revenue Code requires, in computing the accrual of
original issue discount on REMIC regular certificates, that a reasonable
assumption be used concerning the rate at which borrowers will prepay the
mortgage loans held by the related REMIC. Further, adjustments must be made in
the accrual of that original issue discount to reflect differences between the
prepayment rate actually experienced and the assumed prepayment rate. The
prepayment assumption is to be determined in a manner prescribed in Treasury
regulations that the Treasury Department has not yet issued. The Committee
Report indicates that the regulations should provide that the prepayment
assumption used with respect to a REMIC regular certificate is determined once,
at initial issuance, and must be the same as that used in pricing. The
prepayment assumption used in reporting original issue discount for each series
of REMIC regular certificates will be consistent with this standard and will be
disclosed in the related prospectus supplement. However, neither we nor any
other person will make any representation that the mortgage loans underlying any
series of REMIC regular certificates will in fact prepay at a rate conforming to
the prepayment assumption or at any other rate or that the IRS will not
challenge on audit the prepayment assumption used.
The original issue discount, if any, on a REMIC regular certificate
will be the excess of its stated redemption price at maturity over its issue
price.
The issue price of a particular class of REMIC regular certificates
will be the first cash price at which a substantial amount of those certificates
are sold, excluding sales to bond houses, brokers and underwriters. If less than
a substantial amount of a particular class of REMIC regular certificates is sold
for cash on or prior to the related date of initial issuance of those
certificates, the issue price for that class will be the fair market value of
that class on the date of initial issuance.
Under the Treasury regulations, the stated redemption price of a REMIC
regular certificate is equal to the total of all payments to be made on that
certificate other than qualified stated interest. Qualified stated interest is
interest that is unconditionally payable at least annually, during the entire
term of the instrument, at:
o a single fixed rate,
o a "qualified floating rate,"
o an "objective rate,"
o a combination of a single fixed rate and one or more
"qualified floating rates,"
o a combination of a single fixed rate and one "qualified
inverse floating rate," or
o a combination of "qualified floating rates" that does not
operate in a manner that accelerates or defers interest
payments on the REMIC regular certificate.
In the case of REMIC regular certificates bearing adjustable interest
rates, the determination of the total amount of original issue discount and the
timing of the inclusion of that discount will vary according to the
characteristics of those certificates. If the original issue discount rules
apply to those certificates, we will describe in the related prospectus
supplement the manner in which those rules will be applied with respect to those
certificates in preparing information returns to the certificateholders and the
IRS.
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Some classes of REMIC regular certificates may provide that the first
interest payment with respect to those certificates be made more than one month
after the date of initial issuance, a period that is longer than the subsequent
monthly intervals between interest payments. Assuming the accrual period for
original issue discount is the monthly period that ends on each payment date,
then, as a result of this long first accrual period, some or all interest
payments may be required to be included in the stated redemption price of the
REMIC regular certificate and accounted for as original issue discount. Because
interest on REMIC regular certificates must in any event be accounted for under
an accrual method, applying this analysis would result in only a slight
difference in the timing of the inclusion in income of the yield on the REMIC
regular certificates.
In addition, if the accrued interest to be paid on the first payment
date is computed with respect to a period that begins prior to the date of
initial issuance, a portion of the purchase price paid for a REMIC regular
certificate will reflect that accrued interest. In those cases, information
returns provided to the certificateholders and the IRS will be based on the
position that the portion of the purchase price paid for the interest accrued
prior to the date of initial issuance is treated as part of the overall cost of
the REMIC regular certificate. Therefore, the portion of the interest paid on
the first payment date in excess of interest accrued from the date of initial
issuance to the first payment date is included in the stated redemption price of
the REMIC regular certificate. However, the Treasury regulations state that all
or some portion of this accrued interest may be treated as a separate asset, the
cost of which is recovered entirely out of interest paid on the first payment
date. It is unclear how an election to do so would be made under these
regulations and whether this election could be made unilaterally by a
certificateholder.
Notwithstanding the general definition of original issue discount,
original issue discount on a REMIC regular certificate will be considered to be
de minimis if it is less than 0.25% of the stated redemption price of the
certificate multiplied by its weighted average maturity. For this purpose, the
weighted average maturity of a REMIC regular certificate is computed as the sum
of the amounts determined, as to each payment included in the stated redemption
price of the certificate, by multiplying:
o the number of complete years, rounding down for partial years,
from the date of initial issuance, until that payment is
expected to be made, presumably taking into account the
prepayment assumption, by
o a fraction--
1. the numerator of which is the amount of the payment,
and
2. the denominator of which is the stated redemption
price at maturity of the certificate.
Under the Treasury regulations, original issue discount of only a de
minimis amount, other than de minimis original issue discount attributable to a
so-called "teaser" interest rate or an initial interest holiday, will be
included in income as each payment of stated principal is made, based on the
product of:
o the total amount of the de minimis original issue discount,
and
o a fraction--
1. the numerator of which is the amount of the principal
payment, and
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2. the denominator of which is the outstanding stated
principal amount of the subject REMIC regular
certificate.
The Treasury regulations also would permit you to elect to accrue de
minimis original issue discount into income currently based on a constant yield
method. See "--REMICs--Taxation of Owners of REMIC Regular Certificates--Market
Discount" below for a description of that election under the applicable Treasury
regulations.
If original issue discount on a REMIC regular certificate is in excess
of a de minimis amount, the holder of the certificate must include in ordinary
gross income the sum of the daily portions of original issue discount for each
day during its taxable year on which it held the certificate, including the
purchase date but excluding the disposition date. In the case of an original
holder of a REMIC regular certificate, the daily portions of original issue
discount will be determined as described below in this "--Original Issue
Discount" subsection.
As to each accrual period, the related tax administrator will calculate
the original issue discount that accrued during that accrual period. For these
purposes, an accrual period is, unless we otherwise state in the related
prospectus supplement, the period that begins on a date that corresponds to a
payment date, or in the case of the first accrual period, begins on the date of
initial issuance, and ends on the day preceding the immediately following
payment date. The portion of original issue discount that accrues in any accrual
period will equal the excess, if any, of:
o the sum of:
1. the present value, as of the end of the accrual
period, of all of the payments remaining to be made
on the subject REMIC regular certificate, if any, in
future periods, presumably taking into account the
prepayment assumption, and
2. the payments made on that certificate during the
accrual period of amounts included in the stated
redemption price, over
o the adjusted issue price of the subject REMIC regular
certificate at the beginning of the accrual period.
The adjusted issue price of a REMIC regular certificate is:
o the issue price of the certificate, increased by
o the total amount of original issue discount previously accrued
on the certificate, reduced by
o the amount of all prior payments of amounts included in its
stated redemption price.
The present value of the remaining payments referred to in item 1. of the second
preceding sentence will be calculated:
o assuming that payments on the REMIC regular certificate will
be received in future periods based on the related mortgage
loans being prepaid at a rate equal to the prepayment
assumption;
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o using a discount rate equal to the original yield to maturity
of the certificate, based on its issue price and the
assumption that the related mortgage loans will be prepaid at
a rate equal to the prepayment assumption; and
o taking into account events, including actual prepayments, that
have occurred before the close of the accrual period.
The original issue discount accruing during any accrual period,
computed as described above, will be allocated ratably to each day during the
accrual period to determine the daily portion of original issue discount for
that day.
A subsequent purchaser of a REMIC regular certificate that purchases
the certificate at a cost, excluding any portion of that cost attributable to
accrued qualified stated interest, that is less than its remaining stated
redemption price, will also be required to include in gross income the daily
portions of any original issue discount with respect to the certificate.
However, the daily portion will be reduced, if the cost is in excess of its
adjusted issue price, in proportion to the ratio that the excess bears to the
total original issue discount remaining to be accrued on the certificate. The
adjusted issue price of a REMIC regular certificate, as of any date of
determination, equals the sum of:
o the adjusted issue price or, in the case of the first accrual
period, the issue price, of the certificate at the beginning
of the accrual period which includes that date of
determination, and
o the daily portions of original issue discount for all days
during that accrual period prior to that date of
determination.
If the foregoing method for computing original issue discount results
in a negative amount of original issue discount as to any accrual period with
respect to a REMIC regular certificate held by you, the amount of original issue
discount accrued for that accrual period will be zero. You may not deduct the
negative amount currently. Instead, you will only be permitted to offset it
against future positive original issue discount, if any, attributable to the
certificate. Although not free from doubt, it is possible that you may be
permitted to recognize a loss to the extent your basis in the certificate
exceeds the maximum amount of payments that you could ever receive with respect
to the certificate. However, the loss may be a capital loss, which is limited in
its deductibility. The foregoing considerations are particularly relevant to
certificates that have no, or a disproportionately small, amount of principal
because they can have negative yields if the mortgage loans held by the related
REMIC prepay more quickly than anticipated. See "Risk Factors--The Investment
Performance of Your Offered Certificate Will Depend Upon Payments, Defaults and
Losses on the Underlying Mortgage Loans."
The Treasury regulations in some circumstances permit the holder of a
debt instrument to recognize original issue discount under a method that differs
from that used by the issuer. Accordingly, it is possible that you may be able
to select a method for recognizing original issue discount that differs from
that used by the trust in preparing reports to you and the IRS. Prospective
purchasers of the REMIC regular certificates should consult their tax advisors
concerning the tax treatment of these certificates in this regard.
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Market Discount. You will be considered to have purchased a REMIC
regular certificate at a market discount if--
o in the case of a certificate issued without original issue
discount, you purchased the certificate at a price less than
its remaining stated principal amount, or
o in the case of a certificate issued with original issue
discount, you purchased the certificate at a price less than
its adjusted issue price.
If you purchase a REMIC regular certificate with more than a de minimis
amount of market discount, you will recognize gain upon receipt of each payment
representing stated redemption price. Under Section 1276 of the Internal Revenue
Code, you generally will be required to allocate the portion of each payment
representing some or all of the stated redemption price first to accrued market
discount not previously included in income. You must recognize ordinary income
to that extent. You may elect to include market discount in income currently as
it accrues rather than including it on a deferred basis in accordance with the
foregoing. If made, this election will apply to all market discount bonds
acquired by you on or after the first day of the first taxable year to which
this election applies.
The Treasury regulations also permit you to elect to accrue all
interest and discount, including de minimis market or original issue discount,
in income as interest, and to amortize premium, based on a constant yield
method. Your making this election with respect to a REMIC regular certificate
with market discount would be deemed to be an election to include currently
market discount in income with respect to all other debt instruments with market
discount that you acquire during the taxable year of the election or thereafter,
and possibly previously acquired instruments. Similarly, your making this
election as to a certificate acquired at a premium would be deemed to be an
election to amortize bond premium, with respect to all debt instruments having
amortizable bond premium that you own or acquire. See "--REMICs --Taxation of
Owners of REMIC Regular Certificates--Premium" below.
Each of the elections described above to accrue interest and discount,
and to amortize premium, with respect to a certificate on a constant yield
method or as interest would be irrevocable except with the approval of the IRS.
However, market discount with respect to a REMIC regular certificate
will be considered to be de minimis for purposes of Section 1276 of the Internal
Revenue Code if the market discount is less than 0.25% of the remaining stated
redemption price of the certificate multiplied by the number of complete years
to maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in
installments, the Treasury regulations refer to the weighted average maturity of
obligations. It is likely that the same rule will be applied with respect to
market discount, presumably taking into account the prepayment assumption. If
market discount is treated as de minimis under this rule, it appears that the
actual discount would be treated in a manner similar to original issue discount
of a de minimis amount. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above. This treatment would result in
discount being included in income at a slower rate than discount would be
required to be included in income using the method described above.
Section 1276(b)(3) of the Internal Revenue Code specifically authorizes
the Treasury Department to issue regulations providing for the method for
accruing market discount on debt instruments, the principal of which is payable
in more than one installment. Until regulations are issued by the Treasury
Department, the relevant rules described in the Committee Report apply. The
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Committee Report indicates that in each accrual period, you may accrue market
discount on a REMIC regular certificate held by you, at your option:
o on the basis of a constant yield method,
o in the case of a certificate issued without original issue
discount, in an amount that bears the same ratio to the total
remaining market discount as the stated interest paid in the
accrual period bears to the total amount of stated interest
remaining to be paid on the certificate as of the beginning of
the accrual period, or
o in the case of a certificate issued with original issue
discount, in an amount that bears the same ratio to the total
remaining market discount as the original issue discount
accrued in the accrual period bears to the total amount of
original issue discount remaining on the certificate at the
beginning of the accrual period.
The prepayment assumption used in calculating the accrual of original
issue discount is also used in calculating the accrual of market discount.
To the extent that REMIC regular certificates provide for monthly or
other periodic payments throughout their term, the effect of these rules may be
to require market discount to be includible in income at a rate that is not
significantly slower than the rate at which the discount would accrue if it were
original issue discount. Moreover, in any event a holder of a REMIC regular
certificate generally will be required to treat a portion of any gain on the
sale or exchange of the certificate as ordinary income to the extent of the
market discount accrued to the date of disposition under one of the foregoing
methods, less any accrued market discount previously reported as ordinary
income.
Further, Section 1277 of the Internal Revenue Code may require you to
defer a portion of your interest deductions for the taxable year attributable to
any indebtedness incurred or continued to purchase or carry a REMIC regular
certificate purchased with market discount. For these purposes, the de minimis
rule referred to above applies. Any deferred interest expense would not exceed
the market discount that accrues during the related taxable year and is, in
general, allowed as a deduction not later than the year in which the related
market discount is includible in income. If you have elected, however, to
include market discount in income currently as it accrues, the interest deferral
rule described above would not apply.
Premium. A REMIC regular certificate purchased at a cost, excluding any
portion of the cost attributable to accrued qualified stated interest, that is
greater than its remaining stated redemption price will be considered to be
purchased at a premium. You may elect under Section 171 of the Internal Revenue
Code to amortize the premium under the constant yield method over the life of
the certificate. If you elect to amortize bond premium, bond premium would be
amortized on a constant yield method and would be applied as an offset against
qualified stated interest. If made, this election will apply to all debt
instruments having amortizable bond premium that you own or subsequently
acquire. The IRS has issued regulations on the amortization of bond premium, but
they specifically do not apply to holders of REMIC regular certificates.
The Treasury regulations also permit you to elect to include all
interest, discount and premium in income based on a constant yield method,
further treating you as having made the election to amortize premium generally.
See "--Taxation of Owners of REMIC Regular Certificates--Market Discount" above.
The Committee Report states that the same rules that apply to accrual of market
discount and
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require the use of a prepayment assumption in accruing market discount with
respect to REMIC regular certificates without regard to whether those
certificates have original issue discount, will also apply in amortizing bond
premium under Section 171 of the Internal Revenue Code.
Whether you will be treated as holding a REMIC regular certificate with
amortizable bond premium will depend on--
o the purchase price paid for your offered certificate, and
o the payments remaining to be made on your offered certificate
at the time of its acquisition by you.
If you acquire an interest in any class of REMIC regular certificates
issued at a premium, you should consider consulting your own tax advisor
regarding the possibility of making an election to amortize the premium.
Realized Losses. Under Section 166 of the Internal Revenue Code, if you
are either a corporate holder of a REMIC regular certificate and or a
noncorporate holder of a REMIC regular certificate that acquires the certificate
in connection with a trade or business, you should be allowed to deduct, as
ordinary losses, any losses sustained during a taxable year in which your
offered certificate becomes wholly or partially worthless as the result of one
or more realized losses on the related mortgage loans. However, if you are a
noncorporate holder that does not acquire a REMIC regular certificate in
connection with a trade or business, it appears that--
o you will not be entitled to deduct a loss under Section 166 of
the Internal Revenue Code until your offered certificate
becomes wholly worthless, which is when its principal balance
has been reduced to zero, and
o the loss will be characterized as a short-term capital loss.
You will also have to accrue interest and original issue discount with
respect to your REMIC regular certificate, without giving effect to any
reductions in payments attributable to defaults or delinquencies on the related
mortgage loans, until it can be established that those payment reductions are
not recoverable. As a result, your taxable income in a period could exceed your
economic income in that period. If any of those amounts previously included in
taxable income are not ultimately received due to a loss on the related mortgage
loans, you should be able to recognize a loss or reduction in income. However,
the law is unclear with respect to the timing and character of this loss or
reduction in income.
Taxation of Owners of REMIC Residual Certificates.
General. Although a REMIC is a separate entity for federal income tax
purposes, the Internal Revenue Code does not subject a REMIC to entity-level
taxation, except with regard to prohibited transactions and the other
transactions described under "--REMICs--Prohibited Transactions Tax and Other
Taxes" below. Rather, a holder of REMIC residual certificates must generally
take in income the taxable income or net loss of the related REMIC. Accordingly,
the Internal Revenue Code treats the REMIC residual certificates much
differently than it would if they were direct ownership interests in the related
mortgage loans or as debt instruments issued by the related REMIC.
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Holders of REMIC residual certificates generally will be required to
report their daily portion of the taxable income or, subject to the limitations
noted in this discussion, the net loss of the related REMIC for each day during
a calendar quarter that they own those certificates. For this purpose, the
taxable income or net loss of the REMIC will be allocated to each day in the
calendar quarter ratably using a "30 days per month/90 days per quarter/360 days
per year" convention unless we otherwise disclose in the related prospectus
supplement. These daily amounts then will be allocated among the holders of the
REMIC residual certificates in proportion to their respective ownership
interests on that day. Any amount included in the certificateholders' gross
income or allowed as a loss to them by virtue of this paragraph will be treated
as ordinary income or loss. The taxable income of the REMIC will be determined
under the rules described below in "--REMICs--Taxation of Owners of REMIC
Residual Certificates--Taxable Income of the REMIC." Holders of REMIC residual
certificates must report the taxable income of the related REMIC without regard
to the timing or amount of cash payments by the REMIC until the REMIC's
termination. Income derived from the REMIC residual certificates will be
"portfolio income" for the purposes of the limitations under Section 469 of the
Internal Revenue Code on the deductibility of "passive losses."
A holder of a REMIC residual certificate that purchased the certificate
from a prior holder also will be required to report on its federal income tax
return amounts representing its daily share of the taxable income, or net loss,
of the related REMIC for each day that it holds the REMIC residual certificate.
These daily amounts generally will equal the amounts of taxable income or net
loss determined as described above. The Committee Report indicates that
modifications of the general rules may be made, by regulations, legislation or
otherwise to reduce, or increase, the income of a holder of a REMIC residual
certificate. These modifications would occur when a holder purchases the REMIC
residual certificate from a prior holder at a price other than the adjusted
basis that the REMIC residual certificate would have had in the hands of an
original holder of that certificate. The Treasury regulations, however, do not
provide for these modifications.
Any payments that you receive from the seller of a REMIC residual
certificate in connection with the acquisition of that certificate will be
income to you. Although it is possible that these payments would be includible
in income immediately upon receipt, the IRS might assert that you should include
these payments in income over time according to an amortization schedule or
according to some other method. Because of the uncertainty concerning the
treatment of these payments, we recommend that you consult your tax advisor
concerning the treatment of these payments for income tax purposes.
Tax liability with respect to the amount of income that holders of
REMIC residual certificates will be required to report, will often exceed the
amount of cash payments received from the related REMIC for the corresponding
period. Consequently, you should have--
o other sources of funds sufficient to pay any federal income
taxes due as a result of your ownership of REMIC residual
certificates, or
o unrelated deductions against which income may be offset.
See, however, the rules discussed below relating to:
o excess inclusions,
o residual interests without significant value, and
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o noneconomic residual interests.
The fact that the tax liability associated with this income allocated to you may
exceed the cash payments received by you for the corresponding period may
significantly and adversely affect their after-tax rate of return. This
disparity between income and payments may not be offset by corresponding losses
or reductions of income attributable to your REMIC residual certificates until
subsequent tax years. Even then, the extra income may not be completely offset
due to changes in the Internal Revenue Code, tax rates or character of the
income or loss. Therefore, REMIC residual certificates will ordinarily have a
negative value at the time of issuance. See "Risk Factors--`Residual Interests'
in a `Real Estate Mortgage Investment Conduit' Have Adverse Tax Consequences."
Taxable Income of the REMIC. The taxable income of a REMIC will equal:
o the income from the mortgage loans and other assets of the
REMIC; plus
o any cancellation of indebtedness income due to the allocation
of realized losses to those REMIC certificates constituting
regular interests in the REMIC; less the following items--
1. the deductions allowed to the REMIC for interest,
including original issue discount but reduced by any
premium on issuance, on any class of REMIC
certificates constituting regular interests in the
REMIC, whether offered or not,
2. amortization of any premium on the mortgage loans
held by the REMIC,
3. bad debt losses with respect to the mortgage loans
held by the REMIC, and
4. except as described below in this "--Taxable Income
of the REMIC" subsection, servicing, administrative
and other expenses.
For purposes of determining its taxable income, a REMIC will have an
initial aggregate basis in its assets equal to the sum of the issue prices of
all REMIC certificates, or in the case of REMIC certificates not sold initially,
their fair market values. The aggregate basis will be allocated among the
mortgage loans and the other assets of the REMIC in proportion to their
respective fair market values. The issue price of any REMIC certificates offered
hereby will be determined in the manner described above under
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount." The issue price of a REMIC certificate received in exchange for an
interest in mortgage loans or other property will equal the fair market value of
the interests in the mortgage loans or other property. Accordingly, if one or
more classes of REMIC certificates are retained initially rather than sold, the
related tax administrator may be required to estimate the fair market value of
these interests in order to determine the basis of the REMIC in the mortgage
loans and other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of
accrual by a REMIC of original issue discount income and market discount income
with respect to mortgage loans that it holds will be equivalent to the method
for accruing original issue discount income for holders of REMIC regular
certificates. That method is a constant yield method taking into account the
prepayment assumption. However, a REMIC that acquires loans at a market discount
must include that market discount in income currently, as it accrues, on a
constant yield basis. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates" above, which describes a method for accruing the discount
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income that is analogous to that required to be used by a REMIC as to mortgage
loans with market discount that it holds.
A REMIC will acquire a mortgage loan with discount, or premium, to the
extent that the REMIC's basis, determined as described in the preceding
paragraph, is different from its stated redemption price. Discount will be
includible in the income of the REMIC as it accrues, in advance of receipt of
the cash attributable to that income, under a method similar to the method
described above for accruing original issue discount on the REMIC regular
certificates. A REMIC probably will elect under Section 171 of the Internal
Revenue Code to amortize any premium on the mortgage loans that it holds.
Premium on any mortgage loan to which this election applies may be amortized
under a constant yield method, presumably taking into account the prepayment
assumption.
A REMIC will be allowed deductions for interest, including original
issue discount, on all of the certificates that constitute regular interests in
the REMIC, whether or not offered hereby, as if those certificates were
indebtedness of the REMIC. Original issue discount will be considered to accrue
for this purpose as described above under "--REMICs--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount." However, the de minimis rule
described in that section will not apply in determining deductions.
If a class of REMIC regular certificates is issued at a price in excess
of the stated redemption price of that class, the net amount of interest
deductions that are allowed to the REMIC in each taxable year with respect to
those certificates will be reduced by an amount equal to the portion of that
excess that is considered to be amortized in that year. It appears that this
excess should be amortized under a constant yield method in a manner analogous
to the method of accruing original issue discount described above under
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Original Issue
Discount."
As a general rule, the taxable income of a REMIC will be determined as
if the REMIC were an individual having the calendar year as its taxable year and
using the accrual method of accounting. However, no item of income, gain, loss
or deduction allocable to a prohibited transaction will be taken into account.
See "--REMICs--Prohibited Transactions Tax and Other Taxes" below. Further, the
limitation on miscellaneous itemized deductions imposed on individuals by
Section 67 of the Internal Revenue Code will not be applied at the REMIC level
so that the REMIC will be allowed full deductions for servicing, administrative
and other noninterest expenses in determining its taxable income. All those
expenses will be allocated as a separate item to the holders of the related
REMIC certificates, subject to the limitation of Section 67 of the Internal
Revenue Code. See "--REMICs--Taxation of Owners of REMIC Residual
Certificates--Possible Pass-Through of Miscellaneous Itemized Deductions" below.
If the deductions allowed to the REMIC exceed its gross income for a calendar
quarter, the excess will be the net loss for the REMIC for that calendar
quarter.
Basis Rules, Net Losses and Payments. The adjusted basis of a REMIC
residual certificate will be equal to:
o the amount paid for that REMIC residual certificate,
o increased by, amounts included in the income of the holder of
that REMIC residual certificate, and
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o decreased, but not below zero, by payments made, and by net
losses allocated, to the holder of that REMIC residual
certificate.
A holder of a REMIC residual certificate is not allowed to take into
account any net loss for any calendar quarter to the extent that the net loss
exceeds the adjusted basis to that holder as of the close of that calendar
quarter, determined without regard to that net loss. Any loss that is not
currently deductible by reason of this limitation may be carried forward
indefinitely to future calendar quarters and, subject to the same limitation,
may be used only to offset income from the REMIC residual certificate.
Any payment on a REMIC residual certificate will be treated as a
nontaxable return of capital to the extent it does not exceed the holder's
adjusted basis in the REMIC residual certificate. To the extent a payment on a
REMIC residual certificate exceeds the holder's adjusted basis, it will be
treated as gain from the sale of that REMIC residual certificate.
A holder's basis in a REMIC residual certificate will initially equal
the amount paid for the certificate and will be increased by that holder's
allocable share of taxable income of the related REMIC. However, these increases
in basis may not occur until the end of the calendar quarter, or perhaps the end
of the calendar year, with respect to which the related REMIC's taxable income
is allocated to that holder. To the extent the initial basis of the holder of a
REMIC residual certificate is less than the payments to that holder, and
increases in the initial basis either occur after these payments or, together
with the initial basis, are less than the amount of these payments, gain will be
recognized to that holder on these payments. This gain will be treated as gain
from the sale of its REMIC residual certificate.
The effect of these rules is that a holder of a REMIC residual
certificate may not amortize its basis in a REMIC residual certificate, but may
only recover its basis:
o through payments,
o through the deduction of any net losses of the REMIC, or
o upon the sale of its REMIC residual certificate. See
"--REMICs--Sales of REMIC Certificates" below.
For a discussion of possible modifications of these rules that may
require adjustments to income of a holder of a REMIC residual certificate other
than an original holder see "--REMICs--Taxation of Owners of REMIC Residual
Certificates--General" above. These adjustments could require a holder of a
REMIC residual certificate to account for any difference between the cost of the
certificate to the holder and the adjusted basis of the certificate would have
been in the hands of an original holder.
Excess Inclusions. Any excess inclusions with respect to a REMIC
residual certificate will be subject to federal income tax in all events. In
general, the excess inclusions with respect to a REMIC residual certificate for
any calendar quarter will be the excess, if any, of:
o the daily portions of REMIC taxable income allocable to that
certificate, over
o the sum of the daily accruals for each day during the quarter
that the certificate was held by that holder.
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The daily accruals of a holder of a REMIC residual certificate will be
determined by allocating to each day during a calendar quarter its ratable
portion of a numerical calculation. That calculation is the product of the
adjusted issue price of the REMIC residual certificate at the beginning of the
calendar quarter and 120% of the long-term Federal rate in effect on the date of
initial issuance. For this purpose, the adjusted issue price of a REMIC residual
certificate as of the beginning of any calendar quarter will be equal to:
o the issue price of the certificate, increased by
o the sum of the daily accruals for all prior quarters, and
decreased, but not below zero, by
o any payments made with respect to the certificate before the
beginning of that quarter.
The issue price of a REMIC residual certificate is the initial offering
price to the public at which a substantial amount of the REMIC residual
certificates were sold, but excluding sales to bond houses, brokers and
underwriters or, if no sales have been made, their initial value. The long-term
Federal rate is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
Although it has not done so, the Treasury Department has authority to
issue regulations that would treat the entire amount of income accruing on a
REMIC residual certificate as excess inclusions if the REMIC residual interest
evidenced by that certificate is considered not to have significant value.
For holders of REMIC residual certificates, excess inclusions:
o will not be permitted to be offset by deductions, losses or
loss carryovers from other activities,
o will be treated as unrelated business taxable income to an
otherwise tax-exempt organization, and
o will not be eligible for any rate reduction or exemption under
any applicable tax treaty with respect to the 30% United
States withholding tax imposed on payments to holders of REMIC
residual certificates that are foreign investors. See,
however, "--REMICs--Foreign Investors in REMIC Certificates"
below.
Furthermore, for purposes of the alternative minimum tax:
o excess inclusions will not be permitted to be offset by the
alternative tax net operating loss deduction, and
o alternative minimum taxable income may not be less than the
taxpayer's excess inclusions.
This last rule has the effect of preventing non-refundable tax credits
from reducing the taxpayer's income tax to an amount lower than the alternative
minimum tax on excess inclusions.
In the case of any REMIC residual certificates held by a real estate
investment trust, or REIT, the total excess inclusions with respect to these
REMIC residual certificates will be allocated among the shareholders of the REIT
in proportion to the dividends received by the shareholders from the REIT.
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Any amount so allocated will be treated as an excess inclusion with respect to a
REMIC residual certificate as if held directly by the shareholder. The total
excess inclusions referred to in the previous sentence will be reduced, but not
below zero, by any REIT taxable income, within the meaning of Section 857(b)(2)
of the Internal Revenue Code, other than any net capital gain. Treasury
regulations yet to be issued could apply a similar rule to:
o regulated investment companies,
o common trusts, and
o some cooperatives.
The Treasury regulations, however, currently do not address this
subject.
Noneconomic REMIC Residual Certificates. Under the Treasury
regulations, transfers of noneconomic REMIC residual certificates will be
disregarded for all federal income tax purposes if "a significant purpose of the
transfer was to enable the transferor to impede the assessment or collection of
tax." If a transfer is disregarded, the purported transferor will continue to
remain liable for any taxes due with respect to the income on the noneconomic
REMIC residual certificate. The Treasury regulations provide that a REMIC
residual certificate is noneconomic unless, based on the prepayment assumption
and on any required or permitted clean up calls, or required liquidation
provided for in the related Governing Document:
o the present value of the expected future payments on the REMIC
residual certificate equals at least the present value of
the expected tax on the anticipated excess inclusions, and
o the transferor reasonably expects that the transferee will
receive payments with respect to the REMIC residual
certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to
satisfy the accrued taxes.
The present value calculation referred to above is calculated using the
applicable Federal rate for obligations whose term ends on the close of the last
quarter in which excess inclusions are expected to accrue with respect to the
REMIC residual certificate. This rate is computed and published monthly by the
IRS.
Accordingly, all transfers of REMIC residual certificates that may
constitute noneconomic residual interests will be subject to restrictions under
the terms of the related Governing Document that are intended to reduce the
possibility of any transfer being disregarded. These restrictions will require
an affidavit:
o from each party to the transfer, stating that no purpose of
the transfer is to impede the assessment or collection of tax,
o from the prospective transferee, providing representations as
to its financial condition, and
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o from the prospective transferor, stating that it has made a
reasonable investigation to determine the transferee's
historic payment of its debts and ability to continue to pay
its debts as they come due in the future.
The Treasury recently issued proposed regulations that would revise
this safe harbor. The proposed regulations would make the safe harbor
unavailable unless the present value of the anticipated tax liabilities
associated with holding the residual interest did not exceed the sum of:
o the present value of any consideration given to the transferee
to acquire the interest,
o the present value of the expected future distributions on the
interest, and
o the present value of the anticipated tax savings associated
with the holding of the interest as the REMIC generates
losses.
Present values would be computed using a discount rate equal to an applicable
Federal rate, except that if a transferee could demonstrate that it borrowed
regularly in the course of its trade or business substantial funds at a lower
rate from unrelated third parties, that lower rate could be used as the discount
rate.
It is not clear when those regulations would be effective. Although the
text of the proposed regulations states that they would be effective on February
4, 2000, the preamble to the proposed regulations says that these regulations
will apply to transfers of REMIC residual interests made after the date the
final regulations are published in the Federal Register. The Treasury Department
is anticipated to issue clarification with regard to these conflicting
statements regarding the effective date of the proposed regulations shortly.
Prior to purchasing a REMIC residual certificate, prospective
purchasers should consider the possibility that a purported transfer of a REMIC
residual certificate to another party at some future date may be disregarded in
accordance with the above-described rules. This would result in the retention of
tax liability by the transferor with respect to that purported transfer.
We will disclose in the related prospectus supplement whether the
offered REMIC residual certificates may be considered noneconomic residual
interests under the Treasury regulations. However, we will base any disclosure
that a REMIC residual certificate will not be considered noneconomic upon
various assumptions. Further, we will make no representation that a REMIC
residual certificate will not be considered noneconomic for purposes of the
above-described rules.
See "--REMICs--Foreign Investors in REMIC Certificates" below for
additional restrictions applicable to transfers of REMIC residual certificates
to foreign persons.
Mark-to-Market Rules. Regulations under Section 475 of the Internal
Revenue Code require that a securities dealer mark to market securities held for
sale to customers. This mark-to-market requirement applies to all securities
owned by a dealer, except to the extent that the dealer has specifically
identified a security as held for investment. These regulations provide that for
purposes of this mark-to-market requirement, a REMIC residual certificate is not
treated as a security for purposes of Section 475 of the Internal Revenue Code.
Thus, a REMIC residual certificate is not subject to the mark-to-market rules.
We recommend that prospective purchasers of a REMIC residual certificate consult
their tax advisors regarding these regulations.
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Transfers of REMIC Residual Certificates to Investors That are Foreign
Persons. Unless we otherwise state in the related prospectus supplement,
transfers of REMIC residual certificates to investors that are foreign persons
under the Internal Revenue Code will be prohibited under the related Governing
Documents.
If transfers of REMIC residual certificates to investors that are
foreign persons are permitted under the related Governing Documents, and such a
transfer takes place, then it is possible that the transfer will be disregarded
for all federal tax purposes. The applicable Treasury regulations provide that a
transfer of a REMIC residual certificate that has "tax avoidance potential" to a
non-U.S. Person will be disregarded for all federal tax purposes, unless the
transferee's income is effectively connected with the conduct of a trade or
business within the United States. A REMIC residual certificate is deemed to
have tax avoidance potential unless, at the time of the transfer--
o the future value of expected distributions equals at least 30%
of the anticipated excess inclusions after the transfer, and
o the transferor reasonably expects that the transferee will
receive sufficient distributions from the REMIC at or after
the time at which the excess inclusions accrue and prior to
the end of the next succeeding taxable year for the
accumulated withholding tax liability to be paid.
If the non-U.S. Person transfers the REMIC residual certificate back
to a U.S. Person, the transfer will be disregarded and the foreign transferor
will continue to be treated as the owner unless arrangements are made so that
the transfer does not have the effect of allowing the transferor to avoid tax on
accrued excess inclusions.
Pass-Through of Miscellaneous Itemized Deductions. Fees and expenses of
a REMIC generally will be allocated to the holders of the related REMIC residual
certificates. The applicable Treasury regulations indicate, however, that in the
case of a REMIC that is similar to a single class grantor trust, all or a
portion of these fees and expenses should be allocated to the holders of the
related REMIC regular certificates. Unless we state otherwise in the related
prospectus supplement, however, these fees and expenses will be allocated to
holders of the related REMIC residual certificates in their entirety and not to
the holders of the related REMIC regular certificates.
If the holder of a REMIC certificate receives an allocation of fees and
expenses in accordance with the preceding discussion, and if that holder is:
o an individual,
o an estate or trust, or
o a Pass-Through Entity beneficially owned by one or more
individuals, estates or trusts,
then--
o an amount equal to this individual's, estate's or trust's
share of these fees and expenses will be added to the gross
income of this holder, and
o the individual's, estate's or trust's share of these fees and
expenses will be treated as a miscellaneous itemized deduction
allowable subject to the limitation of Section 67 of the
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Internal Revenue Code, which permits the deduction of these
fees and expenses only to the extent they exceed, in total, 2%
of a taxpayer's adjusted gross income.
In addition, Section 68 of the Internal Revenue Code provides that the
amount of itemized deductions otherwise allowable for an individual whose
adjusted gross income exceeds a specified amount will be reduced by the lesser
of:
o 3% of the excess of the individual's adjusted gross income
over the specified amount, or
o 80% of the amount of itemized deductions otherwise allowable
for the taxable year.
Furthermore, in determining the alternative minimum taxable income of a
holder of a REMIC certificate that is--
o an individual,
o an estate or trust, or
o a Pass-Through Entity beneficially owned by one or more
individuals, estates or trusts,
no deduction will be allowed for the holder's allocable portion of servicing
fees and other miscellaneous itemized deductions of the REMIC, even though an
amount equal to the amount of these fees and other deductions will be included
in the holder's gross income.
The amount of additional taxable income reportable by holders of REMIC
certificates that are subject to the limitations of either Section 67 or Section
68 of the Internal Revenue Code, or the complete disallowance of the related
expenses for alternative minimum tax purposes, may be substantial.
Accordingly, REMIC certificates to which these expenses are allocated
will generally not be appropriate investments for:
o an individual,
o an estate or trust, or
o a Pass-Through Entity beneficially owned by one or more
individuals, estates or trusts.
We recommend that those prospective investors consult with their tax
advisors prior to making an investment in a REMIC certificate to which these
expenses are allocated.
Sales of REMIC Certificates. If a REMIC certificate is sold, the
selling certificateholder will recognize gain or loss equal to the difference
between the amount realized on the sale and its adjusted basis in the REMIC
certificate. The adjusted basis of a REMIC regular certificate generally will
equal:
o the cost of the certificate to that certificateholder,
increased by
o income reported by that certificateholder with respect to the
certificate, including original issue discount and market
discount income, and reduced, but not below zero, by
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o payments on the certificate received by that certificateholder
and by that amortized premium.
The adjusted basis of a REMIC residual certificate will be determined
as described above under "--REMICs--Taxation of Owners of REMIC Residual
Certificates--Basis Rules, Net Losses and Distributions." Except as described
below in this "--Sales of REMIC Certificates" subsection, any gain or loss from
your sale of a REMIC certificate will be capital gain or loss, provided that you
hold the certificate as a capital asset within the meaning of Section 1221 of
the Internal Revenue Code, which is generally property held for investment.
In addition to the recognition of gain or loss on actual sales, the
Internal Revenue Code requires the recognition of gain, but not loss, upon the
constructive sale of an appreciated financial position. A constructive sale of
an appreciated financial position occurs if a taxpayer enters into a transaction
or series of transactions that have the effect of substantially eliminating the
taxpayer's risk of loss and opportunity for gain with respect to the financial
instrument. Debt instruments that--
o entitle the holder to a specified principal amount,
o pay interest at a fixed or variable rate, and
o are not convertible into the stock of the issuer or a related
party,
cannot be the subject of a constructive sale for this purpose. Because most
REMIC regular certificates meet this exception, Section 1259 will not apply to
most REMIC regular certificates. However, REMIC regular certificates that have
no, or a disproportionately small, amount of principal, can be the subject of a
constructive sale.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include the
net capital gain in total net investment income for the taxable year. A taxpayer
would do so because of the rule that limits the deduction of interest on
indebtedness incurred to purchase or carry property held for investment to a
taxpayer's net investment income.
As of the date of this prospectus, the Internal Revenue Code provides
for lower rates as to long-term capital gains than those applicable to the
short-term capital gains and ordinary income recognized or received by
individuals. No similar rate differential exists for corporations. In addition,
the distinction between a capital gain or loss and ordinary income or loss is
relevant for other purposes to both individuals and corporations.
Gain from the sale of a REMIC regular certificate that might otherwise
be a capital gain will be treated as ordinary income to the extent that the gain
does not exceed the excess, if any, of:
o the amount that would have been includible in the seller's
income with respect to that REMIC regular certificate assuming
that income had accrued on the certificate at a rate equal to
110% of the applicable Federal rate determined as of the date
of purchase of the certificate, which is a rate based on an
average of current yields on Treasury securities having a
maturity comparable to that of the certificate based on the
application of the prepayment assumption to the certificate,
over
o the amount of ordinary income actually includible in the
seller's income prior to that sale.
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In addition, gain recognized on the sale of a REMIC regular certificate
by a seller who purchased the certificate at a market discount will be taxable
as ordinary income in an amount not exceeding the portion of that discount that
accrued during the period the certificate was held by the seller, reduced by any
market discount included in income under the rules described above under
"--REMICs--Taxation of Owners of REMIC Regular Certificates--Market Discount"
and "--Premium."
REMIC certificates will be "evidences of indebtedness" within the
meaning of Section 582(c)(1) of the Internal Revenue Code, so that gain or loss
recognized from the sale of a REMIC certificate by a bank or thrift institution
to which that section of the Internal Revenue Code applies will be ordinary
income or loss.
A portion of any gain from the sale of a REMIC regular certificate that
might otherwise be capital gain may be treated as ordinary income to the extent
that a holder holds the certificate as part of a "conversion transaction" within
the meaning of Section 1258 of the Internal Revenue Code. A conversion
transaction generally is one in which the taxpayer has taken two or more
positions in the same or similar property that reduce or eliminate market risk,
if substantially all of the taxpayer's return is attributable to the time value
of the taxpayer's net investment in that transaction. The amount of gain so
realized in a conversion transaction that is recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment at 120% of the appropriate applicable Federal rate at
the time the taxpayer enters into the conversion transaction, subject to
appropriate reduction for prior inclusion of interest and other ordinary income
items from the transaction.
Except as may be provided in Treasury regulations yet to be issued, a
loss realized on the sale of a REMIC residual certificate will be subject to the
"wash sale" rules of Section 1091 of the Internal Revenue Code, if during the
period beginning six months before, and ending six months after, the date of
that sale the seller of that certificate:
o reacquires that same REMIC residual certificate,
o acquires any other residual interest in a REMIC, or
o acquires any similar interest in a taxable mortgage pool, as
defined in Section 7701(i) of the Internal Revenue Code.
In that event, any loss realized by the holder of a REMIC residual certificate
on the sale will not be recognized or deductible currently, but instead will be
added to that holder's adjusted basis in the newly-acquired asset.
Prohibited Transactions Tax and Other Taxes. The Internal Revenue Code
imposes a tax on REMICs equal to 100% of the net income derived from prohibited
transactions. In general, subject to specified exceptions, a prohibited
transaction includes:
o the disposition of a non-defaulted mortgage loan,
o the receipt of income from a source other than a mortgage loan
or other permitted investments,
o the receipt of compensation for services, or
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o the gain from the disposition of an asset purchased with
collections on the mortgage loans for temporary investment
pending payment on the REMIC certificates.
It is not anticipated that any REMIC will engage in any prohibited
transactions as to which it would be subject to this tax.
In addition, some contributions to a REMIC made after the day on which
the REMIC issues all of its interests could result in the imposition of a tax on
the REMIC equal to 100% of the value of the contributed property. The related
Governing Document will include provisions designed to prevent the acceptance of
any contributions that would be subject to this tax.
REMICs also are subject to federal income tax at the highest corporate
rate on Net Income From Foreclosure Property, determined by reference to the
rules applicable to REITs. The related Governing Documents may permit the
special servicer to conduct activities with respect to a mortgaged property
acquired by one of our trusts in a manner that causes the trust to incur this
tax, if doing so would, in the reasonable discretion of the special servicer,
maximize the net after-tax proceeds to certificateholders. However, under no
circumstance may the special servicer allow the acquired mortgaged property to
cease to be a "permitted investment" under Section 860G(a)(5) of the Internal
Revenue Code.
Unless we otherwise disclose in the related prospectus supplement, it
is not anticipated that any material state or local income or franchise tax will
be imposed on any REMIC.
Unless we state otherwise in the related prospectus supplement, and to
the extent permitted by then applicable laws, any tax on prohibited
transactions, particular contributions or Net Income From Foreclosure Property,
and any state or local income or franchise tax, that may be imposed on the REMIC
will be borne by the related trustee, tax administrator, master servicer,
special servicer or manager, in any case out of its own funds, provided that--
o the person has sufficient assets to do so, and
o the tax arises out of a breach of that person's obligations
under the related Governing Document.
Any tax not borne by one of these persons would be charged against the
related trust resulting in a reduction in amounts payable to holders of the
related REMIC certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to
Particular Organizations. If a REMIC residual certificate is transferred to a
Disqualified Organization, a tax will be imposed in an amount equal to the
product of:
o the present value of the total anticipated excess inclusions
with respect to the REMIC residual certificate for periods
after the transfer, and
o the highest marginal federal income tax rate applicable to
corporations.
The value of the anticipated excess inclusions is discounted using the
applicable Federal rate for obligations whose term ends on the close of the last
quarter in which excess inclusions are expected to accrue with respect to the
REMIC residual certificate.
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The anticipated excess inclusions must be determined as of the date
that the REMIC residual certificate is transferred and must be based on:
o events that have occurred up to the time of the transfer,
o the prepayment assumption, and
o any required or permitted clean up calls or required
liquidation provided for in the related Governing Document.
The tax on transfers to Disqualified Organizations generally would be
imposed on the transferor of the REMIC residual certificate, except when the
transfer is through an agent for a Disqualified Organization. In that case, the
tax would instead be imposed on the agent. However, a transferor of a REMIC
residual certificate would in no event be liable for the tax with respect to a
transfer if:
o the transferee furnishes to the transferor an affidavit that
the transferee is not a Disqualified Organization, and
o as of the time of the transfer, the transferor does not have
actual knowledge that the affidavit is false.
In addition, if a Pass-Through Entity includes in income excess
inclusions with respect to a REMIC residual certificate, and a Disqualified
Organization is the record holder of an interest in that entity, then a tax will
be imposed on that entity equal to the product of:
o the amount of excess inclusions on the certificate that are
allocable to the interest in the Pass-Through Entity held by
the Disqualified Organization, and
o the highest marginal federal income tax rate imposed on
corporations.
A Pass-Through Entity will not be subject to this tax for any period,
however, if each record holder of an interest in that Pass-Through Entity
furnishes to that Pass-Through Entity:
o the holder's social security number and a statement under
penalties of perjury that the social security number is that
of the record holder, or
o a statement under penalties of perjury that the record holder
is not a Disqualified Organization.
For taxable years beginning on or after January 1, 1998, if an Electing
Large Partnership holds a REMIC residual certificate, all interests in the
Electing Large Partnership are treated as held by Disqualified Organizations for
purposes of the tax imposed on pass-through entities described in the second
preceding paragraph. This tax on Electing Large Partnerships must be paid even
if each record holder of an interest in that partnership provides a statement
mentioned in the prior paragraph.
In addition, a person holding an interest in a Pass-Through Entity as a
nominee for another person will, with respect to that interest, be treated as a
Pass-Through Entity.
Moreover, an entity will not qualify as a REMIC unless there are
reasonable arrangements designed to ensure that:
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o the residual interests in the entity are not held by
Disqualified Organizations, and
o the information necessary for the application of the tax
described in this prospectus will be made available.
We will include in the related Governing Document restrictions on the
transfer of REMIC residual certificates and other provisions that are intended
to meet this requirement, and we will discuss those restrictions and provisions
in any prospectus supplement relating to the offering of any REMIC residual
certificate.
The Clinton Administration recently proposed in its budget amendments
to the REMIC provisions designed to ensure that income taxes imposed on the
holder of a REMIC residual interest are paid when due. Those provisions would
impose secondary liability on the REMIC itself for any tax required to be paid
with respect to the income allocated to a REMIC residual interest if the holder
does not pay its taxes on that income when they are due. If adopted, the
amendments would be effective for REMICs created after the date of enactment. It
is not possible to predict whether the legislation will be adopted or, if so, in
what form.
Termination. A REMIC will terminate immediately after the payment date
following receipt by the REMIC of the final payment with respect to the related
mortgage loans or upon a sale of the REMIC's assets following the adoption by
the REMIC of a plan of complete liquidation. The last payment on a REMIC regular
certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC residual certificate, if the last payment on that
certificate is less than the REMIC residual certificateholder's adjusted basis
in the certificate, that holder should, but may not, be treated as realizing a
capital loss equal to the amount of that difference.
Reporting and Other Administrative Matters. Solely for purposes of the
administrative provisions of the Internal Revenue Code, a REMIC will be treated
as a partnership and holders of the related REMIC residual certificates will be
treated as partners. Unless we otherwise state in the related prospectus
supplement, the related tax administrator will file REMIC federal income tax
returns on behalf of the REMIC, and will be designated as and will act as or on
behalf of the tax matters person with respect to the REMIC in all respects. The
related tax administrator may hold at least a nominal amount of REMIC residual
certificates.
As, or as agent for, the tax matters person, the related tax
administrator, subject to applicable notice requirements and various
restrictions and limitations, generally will have the authority to act on behalf
of the REMIC and the holders of the REMIC residual certificates in connection
with the administrative and judicial review of the REMIC's--
o income,
o deductions
o gains,
o losses, and
o classification as a REMIC.
Holders of REMIC residual certificates generally will be required to
report these REMIC items consistently with their treatment on the related
REMIC's tax return. In addition, these holders may in some circumstances be
bound by a settlement agreement between the related tax administrator, as, or as
agent for, the tax matters person, and the IRS concerning any REMIC item.
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Adjustments made to the REMIC's tax return may require these holders to make
corresponding adjustments on their returns. An audit of the REMIC's tax return,
or the adjustments resulting from that audit, could result in an audit of a
holder's return.
No REMIC will be registered as a tax shelter under Section 6111 of the
Internal Revenue Code. Any person that holds a REMIC residual certificate as a
nominee for another person may be required to furnish to the related REMIC, in a
manner to be provided in Treasury regulations, the name and address of that
other person, as well as other information.
Reporting of interest income, including any original issue discount,
with respect to REMIC regular certificates is required annually, and may be
required more frequently under Treasury regulations. These information reports
generally are required to be sent or made readily available through electronic
means to individual holders of REMIC regular certificates and the IRS. Holders
of REMIC regular certificates that are--
o corporations,
o trusts,
o securities dealers, and
o various other non-individuals,
will be provided interest and original issue discount income information and the
information set forth in the following paragraphs. This information will be
provided upon request in accordance with the requirements of the applicable
regulations. The information must be provided by the later of:
o 30 days after the end of the quarter for which the information
was requested, or
o two weeks after the receipt of the request.
The REMIC must also comply with rules requiring a REMIC regular
certificate issued with original issue discount to disclose on its face the
amount of original issue discount and the issue date, and requiring that
information to be reported to the IRS. Reporting with respect to REMIC residual
certificates, including--
o income,
o excess inclusions,
o investment expenses, and
o relevant information regarding qualification of the REMIC's
assets,
will be made as required under the Treasury regulations, generally on a
quarterly basis.
As applicable, the REMIC regular certificate information reports will
include a statement of the adjusted issue price of the REMIC regular certificate
at the beginning of each accrual period. In addition, the reports will include
information required by regulations with respect to computing the accrual of any
market discount. Because exact computation of the accrual of market discount on
a
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constant yield method would require information relating to the holder's
purchase price that the REMIC may not have, the regulations only require that
information pertaining to the appropriate proportionate method of accruing
market discount be provided. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Market Discount."
Unless we otherwise specify in the related prospectus supplement, the
responsibility for complying with the foregoing reporting rules will be borne by
the related tax administrator for the subject REMIC.
Backup Withholding with Respect to REMIC Certificates. Payments of
interest and principal, as well as payments of proceeds from the sale of REMIC
certificates, may be subject to the backup withholding tax under Section 3406 of
the Internal Revenue Code at a rate of 31% if recipients of these payments:
o fail to furnish to the payor information regarding, among
other things, their taxpayer identification numbers, or
o otherwise fail to establish an exemption from this tax.
Any amounts deducted and withheld from a payment to a recipient would
be allowed as a credit against the recipient's federal income tax. Furthermore,
penalties may be imposed by the IRS on a recipient of payments that is required
to supply information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates. Unless we otherwise disclose
in the related prospectus supplement, a holder of a REMIC regular certificate
that is--
o a foreign person, and
o not subject to federal income tax as a result of any direct or
indirect connection to the United States in addition to
its ownership of that certificate,
will normally not be subject to United States federal income or withholding tax
with respect to a payment on a REMIC regular certificate. To avoid withholding
or tax, that holder must comply with applicable identification requirements.
These requirements include delivery of a statement, signed by the
certificateholder under penalties of perjury, certifying that the
certificateholder is a foreign person and providing the name and address of the
certificateholder.
On October 6, 1997, the Treasury Department issued new regulations that
modify the withholding, backup withholding and information reporting rules
described above. These regulations, as modified by Treasury Decision 8856, will
generally be effective for investments made after December 31, 2000, subject to
applicable transition rules. Prospective investors are urged to consult their
own tax advisors regarding these regulations.
For these purposes, a foreign person is anyone other than a U.S.
Person.
It is possible that the IRS may assert that the foregoing tax exemption
should not apply with respect to a REMIC regular certificate held by a person or
entity that owns directly or indirectly a 10% or greater interest in the related
REMIC residual certificates. If the holder does not qualify for exemption,
payments of interest, including payments in respect of accrued original issue
discount, to that holder may be subject to a tax rate of 30%, subject to
reduction under any applicable tax treaty.
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It is possible, under regulations promulgated under Section 881 of the
Internal Revenue Code concerning conduit financing transactions, that the
exemption from withholding taxes described above may also not be available to a
holder who is a foreign person and either--
o owns 10% or more of one or more underlying mortgagors, or
o if the holder is a controlled foreign corporation, is related
to one or more mortgagors in the applicable trust.
Further, it appears that a REMIC regular certificate would not be
included in the estate of a nonresident alien individual and would not be
subject to United States estate taxes. However, it is recommended that
certificateholders who are nonresident alien individuals consult their tax
advisors concerning this question.
Unless we otherwise state in the related prospectus supplement, the
related Governing Document will prohibit transfers of REMIC residual
certificates to investors that are:
o foreign persons, or
o United States persons, if classified as a partnership under
the Internal Revenue Code, unless all of their beneficial
owners are United States persons.
FASITs
General. An election may be made to treat the trust for a series of
offered certificates or specified assets of that trust, as a financial asset
securitization investment trust, or FASIT, within the meaning of Section 860L(a)
of the Internal Revenue Code. The election would be noted in the applicable
prospectus supplement. If a FASIT election is made, the offered certificates
will be designated as classes of regular interests in that FASIT, and there will
be one class of ownership interest in the FASIT. With respect to each series of
offered certificates as to which the related tax administrator makes a FASIT
election, and assuming, among other things--
o the making of an appropriate election, and
o compliance with the related Governing Document,
our counsel will deliver its opinion generally to the effect that:
o the relevant assets will qualify as a FASIT,
o those offered certificates will be FASIT regular certificates,
representing FASIT regular interests in the FASIT, and
o one class of certificates of the same series will be the FASIT
ownership certificates, representing the sole class of
ownership interest in the FASIT.
Only FASIT regular certificates are offered by this prospectus. If so
specified in the applicable prospectus supplement, a portion of the trust for a
series of certificates as to no FASIT election is made may be treated as a
grantor trust for federal income tax purposes. See "--Grantor Trusts."
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On February 4, 2000, the Treasury Department issued proposed
regulations relating to FASITs. References to the "FASIT proposed regulations"
in this discussion refer to those proposed regulations. The proposed regulations
have not been adopted as final and, in general, are not proposed to be effective
as of the date of this prospectus. They nevertheless are indicative of the rules
the Treasury Department currently views as appropriate with regard to the FASIT
provisions.
Characterization of Investments in FASIT Regular Certificates. FASIT
regular certificates held by a real estate investment trust will constitute
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Internal
Revenue Code and interest on the FASIT regular certificates will be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Section 856(c)(3)(B) of the Internal
Revenue Code in the same proportion, for both purposes, that the assets and
income of the FASIT would be so treated. FASIT regular certificates held by a
domestic building and loan association will be treated as "regular interest[s]
in a FASIT" under Section 7701(a)(19)(C)(xi) of the Internal Revenue Code, but
only in the proportion that the FASIT holds "loans secured by an interest in
real property which is . . . residential real property" within the meaning of
Section 7701(a)(19)(C)(v) of the Internal Revenue Code. For this purpose,
mortgage loans secured by multifamily residential housing should qualify. It is
also likely that mortgage loans secured by health care related facilities would
qualify as "loans secured by an interest in . . . health institutions or
facilities, including structures designed or used primarily for residential
purposes for . . . persons under care" within the meaning of Section
7701(a)(19)(C)(vii) of the Internal Revenue Code. If at all times 95% or more of
the assets of the FASIT or the income on those assets qualify for the foregoing
treatments, the FASIT regular certificates will qualify for the corresponding
status in their entirety. Mortgage loans which have been defeased with Treasury
obligations and the income from those loans will not qualify for the foregoing
treatments. Accordingly, the FASIT regular certificates may not be a suitable
investment for you if you require a specific amount or percentage of assets or
income meeting the foregoing treatments. For purposes of Section 856(c)(4)(A) of
the Internal Revenue Code, payments of principal and interest on a mortgage loan
that are reinvested pending distribution to holders of FASIT regular
certificates should qualify for that treatment. FASIT regular certificates held
by a regulated investment company will not constitute "government securities"
within the meaning of Section 851(b)(4)(A)(i) of the Internal Revenue Code.
FASIT regular certificates held by various financial institutions will
constitute an "evidence of indebtedness" within the meaning of Section 582(c)(1)
of the Internal Revenue Code.
Qualification as a FASIT.
General. In order to qualify as a FASIT, the trust for a series of
offered certificates or specified assets of that trust must comply with the
requirements set forth in the Internal Revenue Code on an ongoing basis. The
FASIT must fulfill an asset test, which requires that substantially all of the
assets of the FASIT, as of, and at all times following, the close of the third
calendar month beginning after the FASIT's startup day, which for purposes of
this discussion is the date of the initial issuance of the FASIT regular
certificates, be permitted assets for a FASIT.
Permitted assets for a FASIT include--
o cash or cash equivalents,
o specified types of debt instruments, other than debt
instruments issued by the owner of the FASIT or a related
party, and contracts to acquire those debt instruments,
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o hedges and contracts to acquire hedges,
o foreclosure property, and
o regular interests in another FASIT or in a REMIC.
As discussed below in this "--Qualification as a FASIT" subsection, specified
restrictions apply to each type of permitted asset.
Under the FASIT proposed regulations, the "substantially all"
requirement would be met if at all times the aggregate adjusted basis of the
permitted assets is more than 99 percent of the aggregate adjusted basis of all
the assets held by the FASIT, including assets deemed to be held by the FASIT
under Section 860I(b)(2) of the Internal Revenue Code because they support a
regular interest in the FASIT.
The FASIT provisions also require the FASIT ownership interest to be
held only by some fully taxable domestic corporations and do not recognize
transfers of high-yield regular interests to taxpayers other than fully taxable
domestic corporations or other FASITs. The related Governing Document will
provide that no legal or beneficial interest in the ownership interest or in any
class or classes of certificates that we determine to be high-yield regular
interests may be transferred or registered unless all applicable conditions
designed to prevent violation of this requirement, are met.
Permitted Assets. The proposed regulations enumerate the types of debt
that qualify as permitted assets for a FASIT. The FASIT provisions provide that
permitted debt instruments must bear interest, if any, at a fixed or qualified
variable rate. Under the FASIT proposed regulations, the definition of debt
permitted to be held by a FASIT, would include--
o REMIC regular interests,
o regular interests of other FASITs,
o inflation indexed debt instruments,
o credit card receivables, and
o some stripped bonds and coupons.
However, under the FASIT proposed regulations, equity linked debt instruments
and defaulted debt instruments would not be permitted assets for a FASIT. In
addition, a FASIT may not hold--
o debt of the owner of the FASIT ownership interest,
o debt guaranteed by the owner of the FASIT ownership interest
in circumstances such that the owner is in substance the
primary obligor on the debt instrument, or
o debt issued by third parties that is linked to the performance
or payments of debt instruments issued by the owner or a
related person, are not permitted assets.
Finally, debt that is traded on an established securities market and subject to
a foreign withholding tax is not a permitted asset for a FASIT.
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Permitted hedges include interest rate or foreign currency notional
principal contracts, letters of credit, insurance, guarantees of payment default
and similar instruments. These hedges must be reasonably required to guarantee
or hedge against the FASIT's risks associated with being the obligor on
interests issued by the FASIT. The FASIT proposed regulations do not include a
list of specified permitted hedges or guarantees, but rather focus on the
intended function of a hedge and permit the contract to offset the following
risk factors:
o fluctuations in market interest rates;
o fluctuations in currency exchange rates;
o the credit quality of, or default on, the FASIT's assets or
debt instruments underlying the FASIT's assets; and
o the receipt of payments on the FASIT's assets earlier or later
than originally anticipated.
The FASIT proposed regulations prohibit a hedge or guarantee from
referencing assets other than permitted assets, indices, economic indicators or
financial averages that are not both widely disseminated and designed to
correlate closely with the changes in one or more of the risk factors described
above. However, under the FASIT proposed regulations, FASIT owners will be able
to hold hedges or guarantees inside a FASIT that do not relate to the already
issued regular interests, or to assets the FASIT already holds, if the FASIT
expects to issue regular interests, or expects to hold assets, that are related
to the hedge or guarantee in question. The proposed regulations also place
restrictions on hedges and guarantees entered into with the holder of the FASIT
ownership interest or a related party.
Property acquired in connection with the default or imminent default of
a debt instrument held by a FASIT may qualify both as foreclosure property and
as a type of permitted asset under the FASIT provisions. It will in general
continue to qualify as foreclosure property during a grace period that runs
until the end of the third taxable year beginning after the taxable year in
which the FASIT acquires the foreclosure property. Under the FASIT proposed
regulations, if the foreclosure property also would qualify as another type of
permitted asset, it may be held beyond the close of that grace period. However,
at the close of the grace period, gain, if any, on the property must be
recognized as if the property had been contributed by the owner of the FASIT on
that date. In addition, the FASIT proposed regulations provide that, after the
close of the grace period, disposition of the foreclosure property is
potentially subject to a 100% prohibited transactions tax, without the benefit
of an exception to this tax applicable to sales of foreclosure property.
Permitted Interests. In addition to the foregoing, interests in a FASIT
also must meet specified requirements. All of the interests in a FASIT must be
either of the following:
o a single class of ownership interest, or
o one or more classes of regular interests.
An ownership interest is an interest in a FASIT other than a regular
interest that is issued on the startup day, is designated an ownership interest
and is held by a single, fully-taxable, domestic corporation. A regular interest
is an interest in a FASIT that is issued on or after the startup day with fixed
terms, is designated as a regular interest, and--
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1. unconditionally entitles the holder to receive a specified
principal amount or other similar amount,
2. provides that interest payments or other similar amounts, if
any, at or before maturity either are payable based on a fixed
rate or a qualified variable rate,
3. has a stated maturity of not longer than 30 years,
4. has an issue price not greater than 125% of its stated
principal amount, and
5. has a yield to maturity not greater than 5 percentage points
higher than the applicable Federal rate, as defined in Section
1274(d) of the Internal Revenue Code, for Treasury obligations
of a similar maturity.
A regular interest that is described in the preceding sentence except
that it fails to meet one or more of requirements 1, 4 or 5, is a high-yield
regular interest. Further, to be a high-yield regular interest, an interest that
fails requirement 2 must consist of a specified portion of the interest payments
on the permitted assets, determined by reference to the rules related to
permitted rates for REMIC regular interests that have no, or a
disproportionately small, amount of principal. An interest in a FASIT may be
treated as a regular interest even if payments of principal with respect to that
interest are subordinated to payments on other regular interests or the
ownership interest in the FASIT, and are contingent on--
o the absence of defaults or delinquencies on permitted assets,
o lower than reasonably expected returns on permitted assets,
o unanticipated expenses incurred by the FASIT, or
o prepayment interest shortfalls.
Cessation of FASIT. If an entity fails to comply with one or more of
the ongoing requirements of the Internal Revenue Code for status as a FASIT
during any taxable year, the Internal Revenue Code provides that the entity or
applicable portion of that entity, will not be treated as a FASIT thereafter. In
this event, any entity that holds mortgage loans and is the obligor with respect
to debt obligations with two or more maturities will be classified, presumably,
as a taxable mortgage pool under general federal income tax principles, and the
FASIT regular certificates may be treated as equity interests in the entity.
Under the FASIT proposed regulations, the underlying arrangement generally
cannot reelect FASIT status and any election a FASIT owner made, other than the
FASIT election, and any method of accounting adopted with respect to the FASIT
assets, binds the underlying arrangement as if the underlying arrangement itself
had made those elections or adopted that method. In the case of an inadvertent
cessation of a FASIT, under the FASIT proposed regulations, the Commissioner of
the IRS may grant relief from the adverse consequences of that cessation,
subject to those adjustments as the Commissioner may require the FASIT and all
holders of interests in the FASIT to accept with respect to the period in which
the FASIT failed to qualify as such.
Under the proposed FASIT regulation, apart from failure to qualify as a
FASIT, a FASIT may not revoke its election or cease to be a FASIT without the
consent of the Commissioner of the IRS.
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Regular interest holders, in the case of cessation of a FASIT, are
treated as exchanging their FASIT regular interests for new interests in the
underlying arrangement. The FASIT proposed regulations would classify the new
interests under general principles of Federal income tax law, for example, as
interests in debt instruments, as interest in a partnership or interests in an
entity subject to corporate taxation, depending on what the classification of
those interests would have been in the absence of a FASIT election. On the
deemed receipt of that new interest, under the FASIT proposed regulations, you
would be required to mark the new interests to market and to recognize gain, but
would not be permitted to recognize loss, as though the old interest had been
sold for an amount equal to the fair market value of the new interest. Your
basis in the new interest deemed received in the underlying arrangement would
equal your basis in the FASIT regular interest exchanged for it, increased by
any gain you recognized on the deemed exchange.
Taxation of FASIT Regular Certificates. The FASIT regular certificates
generally will be treated for federal income tax purposes as newly-originated
debt instruments. In general, subject to the discussion below concerning
high-yield interests:
o interest, original issue discount and market discount on a
FASIT regular certificate will be treated as ordinary income
to the holder of that certificate, and
o principal payments, other than principal payments that do not
exceed accrued market discount, on a FASIT regular certificate
will be treated as a return of capital to the extent of the
holder's basis allocable thereto.
You must use the accrual method of accounting with respect to FASIT
regular certificate, regardless of the method of accounting you otherwise use.
Except as set forth in the applicable prospectus supplement and in the
immediately following discussion concerning high-yield interests, the
discussions above under the headings "--REMICs--Taxation of Owners of REMIC
Regular Certificates--Original Issue Discount," "--Market Discount,"
"--Premium," and "--Realized Losses" will apply to the FASIT regular
certificates. The discussion under the headings "--REMICs--Sale of REMIC regular
certificates" will also apply to the FASIT regular certificates, except that the
treatment of a portion of the gain on a REMIC regular interest as ordinary
income to the extent the yield on those certificates did not exceed 110% of the
applicable Federal rate will not apply.
High Yield Interests; Anti-Avoidance Excise Taxes on Tiered
Arrangements. The taxable income, and the alternative minimum taxable income, of
any holder of a high-yield interest may not be less than the taxable income from
all high-yield interests and FASIT ownership interests that it holds, together
with any excess inclusions with respect to REMIC residual interests that it
owns.
High yield interests may only be held by fully taxable, domestic C
corporations or another FASIT. Any attempted transfer of a high-yield interest
to any other type of taxpayer will be disregarded, and the transferor will be
required to include in its gross income the amount of income attributable to the
high-yield interest notwithstanding its attempted transfer. The related
Governing Document will contain provisions and procedures designed to assure
that, in general, only domestic C corporations or other FASITs may acquire
high-yield interests. There is an exception allowing non-corporate taxpayers
that hold high-yield interest exclusively for sale to customers in the ordinary
course of business to do so, subject to an excise tax imposed at the corporate
income tax rate if the holder ceases to be a dealer or begins to hold the
high-yield interest for investment. Unless otherwise specified
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in the prospectus supplement, the related Governing Document will also allow
those holders to hold high-yield interests.
To prevent the avoidance of these rules through tiered arrangements, an
excise tax is imposed on any Pass-Through Entity, which, under the FASIT
proposed regulations, includes a REMIC, that:
o holds any FASIT regular interest, whether or not that FASIT
regular interest is a high-yield interest; and
o issues a debt or equity interest that is--
1. supported by that FASIT regular interest, and
2. has a yield, higher than the yield on that FASIT
regular interest, that would cause that debt or
equity interest to be a high yield interest if it had
been issued by a FASIT.
Under the statute, the amount of that tax, which is imposed on the Pass-Through
Entity, is the highest corporate income tax rate applied to the income of the
holder of the debt or equity interest properly attributable to the FASIT regular
interest that supports it. The proposed FASIT regulations provide that the tax
is an excise tax that must be paid on or before the due date of the Pass-Through
Entity's tax return for the taxable year in which it issues that debt or equity
interest. This appears to contemplate a one-time payment on all future income
from the FASIT regular interest that is projected to be properly attributable to
the debt or equity interest it supports. It is not clear how this amount is to
be determined.
Prohibited Transactions and Other Taxes. Income or gain from prohibited
transactions by a FASIT are taxable to the holder of the ownership interest in
that FASIT at a 100% rate. Prohibited transactions generally include, under the
FASIT statutory provisions and proposed FASIT regulations:
o the receipt of income from other than permitted assets;
o the receipt of compensation for services;
o the receipt of any income derived from a loan originated by
the FASIT; or
o the disposition of a permitted asset, including disposition in
connection with a cessation of FASIT status, other than
for--
1. foreclosure, default, or imminent default of a
qualified mortgage,
2. bankruptcy or insolvency of the FASIT,
3. substitution for another permitted debt instrument or
distribution of the debt instrument to the holder of
the ownership interest to reduce
overcollateralization, but only if a principal
purpose of acquiring the debt instrument which is
disposed of was not the recognition of gain, or the
reduction of a loss, on the withdrawn asset as a
result of an increase in the market value of the
asset after its acquisition by the FASIT, or
4. the retirement of a class of FASIT regular interests.
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The proposed regulations presume that some transactions will be loan
originations, but also provide safe harbors for loans originated by the FASIT.
The proposed safe harbors apply in the following circumstances:
o if the FASIT acquires the loan from an established securities
market as described in Treasury regulation Sections
1.1273-2(f)(2) through (4),
o if the FASIT acquires the loan more than one year after the
loan was issued,
o if the FASIT acquires the loan from a person that regularly
originates similar loans in the ordinary course of business,
o if the FASIT receives any new loan from the same obligor in
exchange for the obligor's original loan in the context of a
work out, and
o when the FASIT makes a loan under a contract or agreement in
the nature of a line of credit the FASIT is permitted to
hold.
The FASIT provisions generally exclude from prohibited transactions the
substitution of a debt instruments for another debt instrument which is a
permitted asset and the distribution of a debt instrument contributed by the
holder of the ownership interest to that holder in order to reduce
over-collateralization of the FASIT. In addition, the FASIT proposed regulations
also exclude transactions involving the disposition of hedges from the category
of prohibited transactions. However, the proposed regulations deem a
distribution of debt to be carried out principally to recognize gain, and to be
a prohibited transaction, if the owner or related person sells the substituted
or distributed debt instrument at a gain within 180 days of the substitution or
distribution. It is unclear the extent to which tax on those transactions could
be collected from the FASIT directly under the applicable statutes rather than
from the holder of the ownership interest. However, under the related Governing
Document, any prohibited transactions tax that is not payable by a party thereto
as a result of its own actions will be paid by the FASIT. It is not anticipated
that the FASIT will engage in any prohibited transactions.
The Clinton Administration recently proposed in its budget amendments
to the FASIT provisions designed to ensure that income taxes imposed on the
holder of a FASIT ownership interest are paid when due. These provisions would
impose secondary liability on the FASIT itself for any tax required to be paid
with respect to the income allocated to the FASIT ownership interest if that
holder does not pay its taxes on that income when they are due. If adopted, the
amendments would be effective for FASITs created after the date of enactment. It
is not possible to predict whether the legislation will be adopted or, if so, in
what form.
Taxation of Foreign Investors. The federal income tax treatment of
non-U.S. Persons who own FASIT regular certificates that are not high-yield
interests is the same as that described above under "--REMICs--Foreign Investors
in REMIC Regular Certificates." However, if you are a non-U.S. Person and you
hold a regular interest, either directly or indirectly, in a FASIT, you should
note that under the FASIT proposed regulations, interest paid or accrued on a
debt instrument held by the FASIT is treated as being received by you directly
from a conduit debtor for purposes of Subtitle A of the Internal Revenue Code
and the regulations thereunder if:
o you are a 10% shareholder of an obligor on a debt instrument
held by the FASIT;
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o you are a controlled foreign corporation to which an obligor
on a debt instrument held by the FASIT is a related person; or
o you are related to such an obligor that is a corporation or
partnership, in general, having common ownership to a greater
than 50% extent.
If you believe you may be in one of these categories, you should
consult with your tax advisors, in particular concerning the possible imposition
of United States withholding taxes at a 30% rate on interest paid with respect
to a FASIT regular interest under these circumstances.
High-yield FASIT regular certificates may not be sold to or
beneficially owned by non-U.S. Persons. Any purported transfer to a non-U.S.
Person will be null and void and, upon the related trustee's discovery of any
purported transfer in violation of this requirement, the last preceding owner of
those FASIT regular certificates will be restored to ownership as completely as
possible. The last preceding owner will, in any event, be taxable on all income
with respect to those FASIT regular certificates for federal income tax
purposes. The related Governing Document will provide that, as a condition to
transfer of a high-yield FASIT regular certificate, the proposed transferee must
furnish an affidavit as to its status as a U.S. Person and otherwise as a
permitted transferee.
Backup Withholding. Payments made on the FASIT regular certificates,
and proceeds from the sale of the FASIT regular certificates to or through some
brokers, may be subject to a backup withholding tax under Section 3406 of the
Internal Revenue Code in the same manner as described under "--REMICs--Backup
Withholding with Respect to REMIC Certificates" above.
Reporting Requirements. Reports of accrued interest, OID, if any, and
information necessary to compute the accrual of any market discount on the FASIT
regular certificates will be made annually to the IRS and to investors in the
same manner as described above under "--REMICs--Reporting and Other
Administrative Matters" above.
Grantor Trusts
Classification of Grantor Trusts. With respect to each series of
grantor trust certificates, our counsel will deliver its opinion to the effect
that, assuming compliance with all provisions of the related Governing Document,
the related trust, or relevant portion of that trust, will be classified as a
grantor trust under subpart E, part I of subchapter J of the Internal Revenue
Code and not as a partnership or an association taxable as a corporation.
A grantor trust certificate may be classified as either of the
following types of certificate:
o a grantor trust fractional interest certificate representing
an undivided equitable ownership interest in the principal of
the mortgage loans constituting the related grantor trust,
together with interest on those loans at a pass-through rate;
or
o a grantor trust strip certificate representing ownership of
all or a portion of the difference between--
1. interest paid on the mortgage loans constituting the
related grantor trust, minus
2. the sum of:
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o normal administration fees, and
o interest paid to the holders of grantor trust fractional
interest certificates issued with respect to that grantor
trust
A grantor trust strip certificate may also evidence a nominal ownership
interest in the principal of the mortgage loans constituting the related grantor
trust.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. Unless we otherwise
disclose in the related prospectus supplement, any offered certificates that are
grantor trust fractional interest certificates will generally represent
interests in:
o "loans . . . secured by an interest in real property" within
the meaning of Section 7701(a)(19)(C)(v) of the Internal
Revenue Code, but only to the extent that the underlying
mortgage loans have been made with respect to property that is
used for residential or other prescribed purposes;
o "obligation[s] (including any participation or certificate of
beneficial ownership therein) which . . . [are] principally
secured by an interest in real property" within the meaning of
Section 860G(a)(3) of the Internal Revenue Code;
o "permitted assets" within the meaning of Section 860L(a)(1)(C)
of the Internal Revenue Code; and
o "real estate assets" within the meaning of Section
856(c)(5)(B) of the Internal Revenue Code.
In addition, interest on offered certificates that are grantor trust
fractional interest certificates will, to the same extent, be considered
"interest on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Section 856(c)(3)(B) of the Internal
Revenue Code.
Grantor Trust Strip Certificates. Even if grantor trust strip
certificates evidence an interest in a grantor trust--
o consisting of mortgage loans that are "loans . . . secured by
an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Internal Revenue Code,
o consisting of mortgage loans that are "real estate assets"
within the meaning of Section 856(c)(5)(B) of the Internal
Revenue Code, and
o the interest on which is "interest on obligations secured by
mortgages on real property" within the meaning of Section
856(c)(3)(A) of the Internal Revenue Code,
it is unclear whether the grantor trust strip certificates, and the income from
those certificates, will be so characterized. We recommend that prospective
purchasers to which the characterization of an investment in grantor trust strip
certificates is material consult their tax advisors regarding whether the
grantor trust strip certificates, and the income from those certificates, will
be so characterized.
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The grantor trust strip certificates will be:
o "obligation[s] (including any participation or certificate of
beneficial ownership therein) which . . . [are] principally
secured by an interest in real property" within the meaning of
Section 860G(a)(3)(A) of the Internal Revenue Code, and
o in general, "permitted assets" within the meaning of Section
860L(a)(1)(C) of the Internal Revenue Code.
Taxation of Owners of Grantor Trust Fractional Interest Certificates
General. Holders of a particular series of grantor trust fractional
interest certificates generally:
o will be required to report on their federal income tax returns
their shares of the entire income from the underlying mortgage
loans, including amounts used to pay reasonable servicing fees
and other expenses, and
o will be entitled to deduct their shares of any reasonable
servicing fees and other expenses.
Because of stripped interests, market or original issue discount, or
premium, the amount includible in income on account of a grantor trust
fractional interest certificate may differ significantly from interest paid or
accrued on the underlying mortgage loans.
Section 67 of the Internal Revenue Code allows an individual, estate or
trust holding a grantor trust fractional interest certificate directly or
through some types of pass-through entities a deduction for any reasonable
servicing fees and expenses only to the extent that the total of the holder's
miscellaneous itemized deductions exceeds two percent of the holder's adjusted
gross income.
Section 68 of the Internal Revenue Code reduces the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount by the lesser of:
o 3% of the excess of the individual's adjusted gross income
over that amount, and
o 80% of the amount of itemized deductions otherwise allowable
for the taxable year.
The amount of additional taxable income reportable by holders of
grantor trust fractional interest certificates who are subject to the
limitations of either Section 67 or Section 68 of the Internal Revenue Code may
be substantial. Further, certificateholders, other than corporations, subject to
the alternative minimum tax may not deduct miscellaneous itemized deductions in
determining their alternative minimum taxable income.
Although it is not entirely clear, it appears that in transactions in
which multiple classes of grantor trust certificates, including grantor trust
strip certificates, are issued, any fees and expenses should be allocated among
those classes of grantor trust certificates. The method of this allocation
should recognize that each class benefits from the related services. In the
absence of statutory or administrative clarification as to the method to be
used, we currently expect that information returns or reports to the IRS and
certificateholders will be based on a method that allocates these fees and
expenses among classes of grantor trust certificates with respect to each period
based on the payments made to each class during that period.
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The federal income tax treatment of grantor trust fractional interest
certificates of any series will depend on whether they are subject to the
stripped bond rules of Section 1286 of the Internal Revenue Code. Grantor trust
fractional interest certificates may be subject to those rules if:
o a class of grantor trust strip certificates is issued as part
of the same series, or
o we or any of our affiliates retain, for our or its own account
or for purposes of resale, a right to receive a specified
portion of the interest payable on an underlying mortgage
loan.
Further, the IRS has ruled that an unreasonably high servicing fee
retained by a seller or servicer will be treated as a retained ownership
interest in mortgage loans that constitutes a stripped coupon. We will include
in the related prospectus supplement information regarding servicing fees paid
out of the assets of the related trust to:
o a master servicer,
o a special servicer,
o any sub-servicer, or
o their respective affiliates.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each
grantor trust fractional interest certificate will be treated as having been
issued with original issue discount within the meaning of Section 1273(a) of the
Internal Revenue Code. This is subject, however, to the discussion below
regarding:
o the treatment of some stripped bonds as market discount bonds,
and
o de minimis market discount.
See "--Grantor Trust Funds--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--Market Discount" below.
Under the stripped bond rules, the holder of a grantor trust fractional
interest certificate, whether a cash or accrual method taxpayer, will be
required to report interest income from its grantor trust fractional interest
certificate for each month. The amount of reportable interest income must equal
the income that accrues on the certificate in that month calculated under a
constant yield method, in accordance with the rules of the Internal Revenue Code
relating to original issue discount.
The original issue discount on a grantor trust fractional interest
certificate will be the excess of the certificate's stated redemption price over
its issue price. The issue price of a grantor trust fractional interest
certificate as to any purchaser will be equal to the price paid by that
purchaser of the grantor trust fractional interest certificate. The stated
redemption price of a grantor trust fractional interest certificate will be the
sum of all payments to be made on that certificate, other than qualified stated
interest, if any, and the certificate's share of reasonable servicing fees and
other expenses.
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See "--Grantor Trust Funds--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--If Stripped Bond Rules Do Not Apply" for a
definition of "qualified stated interest." In general, the amount of that income
that accrues in any month would equal the product of:
o the holder's adjusted basis in the grantor trust fractional
interest certificate at the beginning of the related month, as
defined in "--Grantor Trust Funds--Sales of Grantor Trust
Certificates," and
o the yield of that grantor trust fractional interest
certificate to the holder.
The yield would be computed as the rate, that, if used to discount the
holder's share of future payments on the related mortgage loans, would cause the
present value of those future payments to equal the price at which the holder
purchased the certificate. This rate is compounded based on the regular interval
between payment dates. In computing yield under the stripped bond rules, a
certificateholder's share of future payments on the related mortgage loans will
not include any payments made with respect to any ownership interest in those
mortgage loans retained by us, a master servicer, a special servicer, a
sub-servicer or our or their respective affiliates, but will include the
certificateholder's share of any reasonable servicing fees and other expenses.
With respect to some categories of debt instruments, Section 1272(a)(6)
of the Internal Revenue Code requires the use of a reasonable prepayment
assumption in accruing original issue discount, and adjustments in the accrual
of original issue discount when prepayments do not conform to the prepayment
assumption.
Legislation enacted in 1997 extended the scope of that section to any
pool of debt instruments the yield on which may be affected by reason of
prepayments, effective for taxable years beginning after enactment. The precise
application of this legislation is unclear in some respects. For example, it is
uncertain whether a prepayment assumption will be applied collectively to all a
taxpayer's investments in pools of debt instruments, or on an
investment-by-investment basis. Similarly, it is not clear whether the assumed
prepayment rate as to investments in grantor trust fractional interest
certificates is to be determined based on conditions at the time of the first
sale of the certificate or, with respect to any holder, at the time of purchase
of the certificate by that holder.
We recommend that certificateholders consult their tax advisors
concerning reporting original issue discount with respect to grantor trust
fractional interest certificates.
In the case of a grantor trust fractional interest certificate acquired
at a price equal to the principal amount of the related mortgage loans allocable
to that certificate, the use of a prepayment assumption generally would not have
any significant effect on the yield used in calculating accruals of interest
income. In the case, however, of a grantor trust fractional interest certificate
acquired at a price less than or greater than the principal amount,
respectively, the use of a reasonable prepayment assumption would increase or
decrease the yield. Therefore, the use of this prepayment assumption would
accelerate or decelerate, respectively, the reporting of income.
In the absence of statutory or administrative clarification, we
currently expect that information reports or returns to the IRS and
certificateholders will be based on:
o a prepayment assumption determined when certificates are
offered and sold hereunder, which we will disclose in the
related prospectus supplement, and
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o a constant yield computed using a representative initial
offering price for each class of certificates.
However, neither we nor any other person will make any representation
that--
o the mortgage loans in any of our trusts will in fact prepay at
a rate conforming to the prepayment assumption used or any
other rate, or
o the prepayment assumption will not be challenged by the IRS on
audit.
Certificateholders also should bear in mind that the use of a
representative initial offering price will mean that the information returns or
reports that we send, even if otherwise accepted as accurate by the IRS, will in
any event be accurate only as to the initial certificateholders of each series
who bought at that price.
Under Treasury Regulation Section 1.1286-1, some stripped bonds are to
be treated as market discount bonds. Accordingly, any purchaser of that bond is
to account for any discount on the bond as market discount rather than original
issue discount. This treatment only applies, however, if immediately after the
most recent disposition of the bond by a person stripping one or more coupons
from the bond and disposing of the bond or coupon:
o there is no original issue discount or only a de minimis
amount of original issue discount, or
o the annual stated rate of interest payable on the original
bond is no more than one percentage point lower than the gross
interest rate payable on the related mortgage loans, before
subtracting any servicing fee or any stripped coupon.
If interest payable on a grantor trust fractional interest certificate
is more than one percentage point lower than the gross interest rate payable on
the related mortgage loans, we will disclose that fact in the related prospectus
supplement. If the original issue discount or market discount on a grantor trust
fractional interest certificate determined under the stripped bond rules is less
than the product of:
o 0.25% of the stated redemption price, and
o the weighted average maturity of the related mortgage loans,
then the original issue discount or market discount will be considered to be de
minimis. Original issue discount or market discount of only a de minimis amount
will be included in income in the same manner as de minimis original issue
discount and market discount described in "--Grantor Trust Funds--Taxation of
Owners of Grantor Trust Fractional Interest Certificates--If Stripped Bond Rules
Do Not Apply" and "--Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on
original issue discount, if the stripped bond rules do not apply to a grantor
trust fractional interest certificate, the certificateholder will be required to
report its share of the interest income on the related mortgage loans in
accordance with the certificateholder's normal method of accounting. In that
case, the original issue discount rules will apply, even if the stripped bond
rules do not apply, to a grantor trust fractional
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interest certificate to the extent it evidences an interest in mortgage loans
issued with original issue discount.
The original issue discount, if any, on mortgage loans will equal the
difference between:
o the stated redemption price of the mortgage loans, and
o their issue price.
For a definition of "stated redemption price," see "--REMICs--Taxation
of Owners of REMIC Regular Certificates--Original Issue Discount" above. In
general, the issue price of a mortgage loan will be the amount received by the
borrower from the lender under the terms of the mortgage loan. If the borrower
separately pays points to the lender that are not paid for services provided by
the lender, such as commitment fees or loan processing costs, the amount of
those points paid reduces the issue price.
The stated redemption price of a mortgage loan will generally equal its
principal amount. The determination as to whether original issue discount will
be considered to be de minimis will be calculated using the same test as in the
REMIC discussion. See "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest
rates, we will describe in the related prospectus supplement the manner in which
these rules will be applied with respect to the mortgage loans by the related
trustee or master servicer, as applicable, in preparing information returns to
certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all
original issue discount with respect to a mortgage loan will be required to be
accrued and reported in income each month, based on a constant yield. Under
legislation enacted in 1997, Section 1272(a)(6) of the Internal Revenue Code
requires that a prepayment assumption be used in computing yield with respect to
any pool of debt instruments, the yield on which may be affected by prepayments.
The precise application of this legislation is unclear in some respects. For
example, it is uncertain whether a prepayment assumption will be applied
collectively to all a taxpayer's investments in pools of debt instruments, or
will be applied on an investment-by-investment basis. Similarly, it is not clear
whether the assumed prepayment rate as to investments in grantor trust
fractional interest certificates is to be determined based on conditions at the
time of the first sale of the certificate or, with respect to any holder, at the
time of purchase of the certificate by that holder. We recommend that
certificateholders consult their own tax advisors concerning reporting original
issue discount with respect to grantor trust fractional interest certificates.
A purchaser of a grantor trust fractional interest certificate may
purchase the grantor trust fractional interest certificate at a cost less than
the certificate's allocable portion of the total remaining stated redemption
price of the underlying mortgage loans. In that case, the purchaser will also be
required to include in gross income the certificate's daily portions of any
original issue discount with respect to those mortgage loans. However, each
daily portion will be reduced, if the cost of the grantor trust fractional
interest certificate to the purchaser is in excess of the certificate's
allocable portion of the aggregate adjusted issue prices of the underlying
mortgage loans. The reduction will be approximately in proportion to the ratio
that the excess bears to the certificate's allocable portion of the total
original issue discount remaining to be accrued on those mortgage loans.
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The adjusted issue price of a mortgage loan on any given day equals the
sum of:
o the adjusted issue price or the issue price, in the case of
the first accrual period, of the mortgage loan at the
beginning of the accrual period that includes that day, and
o the daily portions of original issue discount for all days
during the accrual period prior to that day.
The adjusted issue price of a mortgage loan at the beginning of any
accrual period will equal:
o the issue price of the mortgage loan, increased by
o the total amount of original issue discount with respect to
the mortgage loan that accrued in prior accrual periods, and
reduced by
o the amount of any payments made on the mortgage loan in prior
accrual periods of amounts included in its stated
redemption price.
In the absence of statutory or administrative clarification, we
currently expect that information reports or returns to the IRS and
certificateholders will be based on:
o a prepayment assumption determined when the certificates are
offered and sold hereunder and disclosed in the related
prospectus supplement, and
o a constant yield computed using a representative initial
offering price for each class of certificates.
However, neither we nor any other person will make any representation
that--
o the mortgage loans will in fact prepay at a rate conforming to
the prepayment assumption or any other rate, or
o the prepayment assumption will not be challenged by the IRS on
audit.
Certificateholders also should bear in mind that the use of a
representative initial offering price will mean that the information returns or
reports, even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial certificateholders of each series who bought at
that price.
Market Discount. If the stripped bond rules do not apply to a grantor
trust fractional interest certificate, a certificateholder may be subject to the
market discount rules of Sections 1276 through 1278 of the Internal Revenue Code
to the extent an interest in a mortgage loan is considered to have been
purchased at a market discount. A mortgage loan is considered to have been
purchased at a market discount if--
o in the case of a mortgage loan issued without original issue
discount, it is purchased at a price less than its remaining
stated redemption price, or
o in the case of a mortgage loan issued with original issue
discount, it is purchased at a price less than its adjusted
issue price.
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If market discount is in excess of a de minimis amount, the holder
generally must include in income in each month the amount of the discount that
has accrued, under the rules described in the next paragraph, through that month
that has not previously been included in income. The inclusion will be limited,
in the case of the portion of the discount that is allocable to any mortgage
loan, to the payment of stated redemption price on the mortgage loan that is
received by or, for accrual method certificateholders, due to the trust in that
month. A certificateholder may elect to include market discount in income
currently as it accrues, under a constant yield method based on the yield of the
certificate to the holder, rather than including it on a deferred basis in
accordance with the foregoing under rules similar to those described in
"--REMICs--Taxation of Owners of REMIC Regular Interests--Market Discount"
above.
Section 1276(b)(3) of the Internal Revenue Code authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until the time that regulations are issued by the Treasury
Department, the relevant rules described in the Committee Report apply. Under
those rules, in each accrual period, you may accrue market discount on the
underlying mortgage loans, at your option:
o on the basis of a constant yield method,
o in the case of a mortgage loan issued without original issue
discount, in an amount that bears the same ratio to the
total remaining market discount as the stated interest paid in
the accrual period bears to the total stated interest
remaining to be paid on the mortgage loan as of the beginning
of the accrual period, or
o in the case of a mortgage loan issued with original issue
discount, in an amount that bears the same ratio to the total
remaining market discount as the original issue discount
accrued in the accrual period bears to the total original
issue discount remaining at the beginning of the accrual
period.
Under legislation enacted in 1997, Section 1272(a)(6) of the Internal
Revenue Code requires that a prepayment assumption be used in computing the
accrual of original issue discount with respect to any pool of debt instruments,
the yield on which may be affected by prepayments. Because the mortgage loans
will be a pool described in that section, it appears that the prepayment
assumption used, or that would be used, in calculating the accrual of original
issue discount, if any, is also to be used in calculating the accrual of market
discount. However, the precise application of the new legislation is unclear in
some respects. For example, it is uncertain whether a prepayment assumption will
be applied collectively to all of a taxpayer's investments in pools of debt
instruments, or on an investment-by-investment basis. Similarly, it is not clear
whether the assumed prepayment rate is to be determined at the time of the first
sale of the grantor trust fractional interest certificate, or with respect to
any holder, at the time of that holder's purchase of the grantor trust
fractional interest certificate.
We recommend that certificateholders consult their own tax advisors
concerning accrual of market discount with respect to grantor trust fractional
interest certificates. Certificateholders should also refer to the related
prospectus supplement to determine whether and in what manner the market
discount will apply to the underlying mortgage loans purchased at a market
discount.
To the extent that the underlying mortgage loans provide for periodic
payments of stated redemption price, you may be required to include market
discount in income at a rate that is not
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significantly slower than the rate at which that discount would be included in
income if it were original issue discount.
Market discount with respect to mortgage loans may be considered to be
de minimis and, if so, will be includible in income under de minimis rules
similar to those described under "--REMICs--Taxation of Owners of REMIC Regular
Certificates--Original Issue Discount" above.
Further, under the rules described under "--REMICs--Taxation of Owners
of REMIC Regular Certificates--Market Discount" above, any discount that is not
original issue discount and exceeds a de minimis amount may require the deferral
of interest expense deductions attributable to accrued market discount not yet
includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination
dates of the underlying mortgage loans.
Premium. If a certificateholder is treated as acquiring the underlying
mortgage loans at a premium, which is a price in excess of their remaining
stated redemption price, the certificateholder may elect under Section 171 of
the Internal Revenue Code to amortize the portion of that premium allocable to
mortgage loans originated after September 27, 1985 using a constant yield
method. Amortizable premium is treated as an offset to interest income on the
related debt instrument, rather than as a separate interest deduction. However,
premium allocable to mortgage loans originated before September 28, 1985 or to
mortgage loans for which an amortization election is not made, should:
o be allocated among the payments of stated redemption price on
the mortgage loan, and
o be allowed as a deduction as those payments are made or, for
an accrual method certificateholder, due.
It appears that a prepayment assumption should be used in computing
amortization of premium allowable under Section 171 of the Internal Revenue Code
similar to that described for calculating the accrual of market discount of
grantor trust fractional interest certificates. See "--Grantor Trust
Funds--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--Market Discount" above.
Taxation of Owners of Grantor Trust Strip Certificates. The stripped
coupon rules of Section 1286 of the Internal Revenue Code will apply to the
grantor trust strip certificates. Except as described above under "--Grantor
Trust Funds--Taxation of Owners of Grantor Trust Fractional Interest
Certificates--If Stripped Bond Rules Apply," no regulations or published rulings
under Section 1286 of the Internal Revenue Code have been issued and some
uncertainty exists as to how it will be applied to securities, such as the
grantor trust strip certificates. Accordingly, we recommend that you consult
your tax advisors concerning the method to be used in reporting income or loss
with respect to those certificates.
The Treasury regulations promulgated under the original discount rules
do not apply to stripped coupons, although they provide general guidance as to
how the original issue discount sections of the Internal Revenue Code will be
applied.
Under the stripped coupon rules, it appears that original issue
discount will be required to be accrued in each month on the grantor trust strip
certificates based on a constant yield method. In effect, you would include as
interest income in each month an amount equal to the product of your adjusted
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basis in the grantor trust strip certificate at the beginning of that month and
the yield of the grantor trust strip certificate to you. This yield would be
calculated based on:
o the price paid for that grantor trust strip certificate by
you, and
o the projected payments remaining to be made on that grantor
trust strip certificate at the time of the purchase, plus
o an allocable portion of the projected servicing fees and
expenses to be paid with respect to the underlying mortgage
loans.
See "--Grantor Trust Funds--Taxation of Owners of Grantor Trust
Fractional Interest Certificates--If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Internal Revenue Code
requires that a prepayment assumption be used in computing the accrual of
original issue discount with respect to some categories of debt instruments. The
Internal Revenue Code also requires adjustments be made in the amount and rate
of accrual of that discount when prepayments do not conform to the prepayment
assumption. It appears that those provisions would apply to grantor trust strip
certificates. It is uncertain whether the assumed prepayment rate would be
determined based on:
o conditions at the time of the first sale of the grantor trust
strip certificate or,
o with respect to any subsequent holder, at the time of purchase
of the grantor trust strip certificate by that holder.
If the method for computing original issue discount under Section
1272(a)(6) results in a negative amount of original issue discount as to any
accrual period with respect to a grantor trust strip certificate, the amount of
original issue discount allocable to that accrual period will be zero. That is,
no current deduction of the negative amount will be allowed to you. You will
instead only be permitted to offset that negative amount against future positive
original issue discount, if any, attributable to that certificate. Although not
free from doubt, it is possible that you may be permitted to deduct a loss to
the extent his or her basis in the certificate exceeds the maximum amount of
payments you could ever receive with respect to that certificate. However, the
loss may be a capital loss, which is limited in its deductibility. The foregoing
considerations are particularly relevant to grantor trust certificates with no,
or disproportionately small, amounts of principal, which can have negative
yields under circumstances that are not default related. See "Risk Factors--The
Investment Performance of Your Offered Certificates Depend Upon Payments,
Defaults and Losses on the Underlying Mortgage Loans".
The accrual of income on the grantor trust strip certificates will be
significantly slower using a prepayment assumption than if yield is computed
assuming no prepayments. In the absence of statutory or administrative
clarification, we currently expect that information returns or reports to the
IRS and certificateholders will be based on:
o the prepayment assumption we will disclose in the related
prospectus supplement, and
o a constant yield computed using a representative initial
offering price for each class of certificates.
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However, neither we nor any other person will make any representation
that--
o the mortgage loans in any of our trusts will in fact prepay at
a rate conforming to the prepayment assumption or at any other
rate or
o the prepayment assumption will not be challenged by the IRS on
audit.
We recommend that prospective purchasers of the grantor trust strip
certificates consult their tax advisors regarding the use of the prepayment
assumption.
Certificateholders also should bear in mind that the use of a
representative initial offering price will mean that the information returns or
reports, even if otherwise accepted as accurate by the IRS, will in any event be
accurate only as to the initial certificateholders of each series who bought at
that price.
Sales of Grantor Trust Certificates. Any gain or loss recognized on the
sale or exchange of a grantor trust certificate by an investor who holds that
certificate as a capital asset, will be capital gain or loss, except as
described below in this "--Sales of Grantor Trust Certificates" subsection. The
amount recognized equals the difference between:
o the amount realized on the sale or exchange of a grantor trust
certificate, and
o its adjusted basis.
The adjusted basis of a grantor trust certificate generally will equal:
o its cost, increased by
o any income reported by the seller, including original issue
discount and market discount income, and reduced, but not
below zero, by
o any and all previously reported losses, amortized premium, and
payments with respect to that grantor trust certificate.
As of the date of this prospectus, the Internal Revenue Code provides
for lower rates as to long-term capital gains, than those applicable to the
short-term capital gains and ordinary income realized or received by
individuals. No similar rate differential exists for corporations. In addition,
the distinction between a capital gain or loss and ordinary income or loss
remains relevant for other purposes.
Gain or loss from the sale of a grantor trust certificate may be
partially or wholly ordinary and not capital in some circumstances. Gain
attributable to accrued and unrecognized market discount will be treated as
ordinary income. Gain or loss recognized by banks and other financial
institutions subject to Section 582(c) of the Internal Revenue Code will be
treated as ordinary income.
Furthermore, a portion of any gain that might otherwise be capital gain
may be treated as ordinary income to the extent that the grantor trust
certificate is held as part of a "conversion transaction" within the meaning of
Section 1258 of the Internal Revenue Code. A conversion transaction generally is
one in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in the transaction. The amount of gain realized in a conversion
transaction that is recharacterized as ordinary income generally will not exceed
the amount
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of interest that would have accrued on the taxpayer's net investment at 120% of
the appropriate applicable Federal rate at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of
interest and other ordinary income items from the transaction.
The Internal Revenue Code requires the recognition of gain upon the
constructive sale of an appreciated financial position. A constructive sale of
an appreciated financial position occurs if a taxpayer enters into a transaction
or series of transactions that have the effect of substantially eliminating the
taxpayer's risk of loss and opportunity for gain with respect to the financial
instrument. Debt instruments that--
o entitle the holder to a specified principal amount,
o pay interest at a fixed or variable rate, and
o are not convertible into the stock of the issuer or a related
party,
cannot be the subject of a constructive sale for this purpose. Because most
grantor trust certificates meet this exception, this Section will not apply to
most grantor trust certificates. However, some grantor trust certificates have
no, or a disproportionately small amount of, principal and these certificates
can be the subject of a constructive sale.
Finally, a taxpayer may elect to have net capital gain taxed at
ordinary income rates rather than capital gains rates in order to include the
net capital gain in total net investment income for the relevant taxable year.
This election would be done for purposes of the rule that limits the deduction
of interest on indebtedness incurred to purchase or carry property held for
investment to a taxpayer's net investment income.
Grantor Trust Reporting. Unless otherwise provided in the related
prospectus supplement, the related tax administrator will furnish or make
readily available through electronic means to each holder of a grantor trust
certificate with each payment a statement setting forth the amount of the
payment allocable to principal on the underlying mortgage loans and to interest
on those loans at the related pass-through rate. In addition, the related tax
administrator will furnish, within a reasonable time after the end of each
calendar year, to each person or entity that was the holder of a grantor trust
certificate at any time during that year, information regarding:
o the amount of servicing compensation received by a master
servicer or special servicer, and
o all other customary factual information the reporting party
deems necessary or desirable to enable holders of the related
grantor trust certificates to prepare their tax returns.
The reporting party will furnish comparable information to the IRS as
and when required by law to do so.
Because the rules for accruing discount and amortizing premium with
respect to grantor trust certificates are uncertain in various respects, there
is no assurance the IRS will agree with the information reports of those items
of income and expense. Moreover, those information reports, even if otherwise
accepted as accurate by the IRS, will in any event be accurate only as to the
initial
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certificateholders that bought their certificates at the representative initial
offering price used in preparing the reports.
On August 13, 1998, the Service published proposed regulations, which
will, when effective, establish a reporting framework for interests in "widely
held fixed investment trusts" similar to that for regular interests in REMICs. A
widely-held fixed investment trust is defined as any entity classified as a
"trust" under Treasury Regulation Section 301.7701-4(c) in which any interest is
held by a middleman, which includes, but is not limited to:
o a custodian of a person's account,
o a nominee, and
o a broker holding an interest for a customer in street name.
These regulations are proposed to be effective for calendar years
beginning on or after the date that the final regulations are published in the
Federal Register.
Backup Withholding. In general, the rules described under
"--REMICs--Backup Withholding with Respect to REMIC Certificates" above will
also apply to grantor trust certificates.
Foreign Investors. In general, the discussion with respect to REMIC
regular certificates under "--REMICs--Foreign Investors in REMIC Certificates"
above applies to grantor trust certificates. However, unless we otherwise
specify in the related prospectus supplement, grantor trust certificates will be
eligible for exemption from U.S. withholding tax, subject to the conditions
described in the discussion above, only to the extent the related mortgage loans
were originated after July 18, 1984.
To the extent that interest on a grantor trust certificate would be
exempt under Sections 871(h)(1) and 881(c) of the Internal Revenue Code from
United States withholding tax, and the certificate is not held in connection
with a certificateholder's trade or business in the United States, the
certificate will not be subject to United States estate taxes in the estate of a
nonresident alien individual.
State and Other Tax Consequences
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences," potential investors should consider the state
and local tax consequences concerning the offered certificates. State tax law
may differ substantially from the corresponding federal law, and the discussion
above does not purport to describe any aspect of the tax laws of any state or
other jurisdiction. Therefore, we recommend that prospective investors consult
their tax advisors with respect to the various tax consequences of investments
in the offered certificates.
ERISA Considerations
General
The Employee Retirement Income Security Act of 1974, as amended, and
the Internal Revenue Code of 1986 impose various requirements on--
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o ERISA Plans, and
o persons that are fiduciaries with respect to ERISA Plans,
in connection with the investment of the assets of an ERISA Plan. For purposes
of this discussion, ERISA Plans may include individual retirement accounts and
annuities, Keogh plans and collective investment funds and separate accounts,
including as applicable, insurance company general accounts, in which other
ERISA Plans are invested.
Governmental plans and, if they have not made an election under Section
410(d) of the Internal Revenue Code of 1986, church plans are not subject to
ERISA requirements. Accordingly, assets of those plans may be invested in the
offered certificates without regard to the considerations described below in
this "ERISA Considerations" section, subject to the provisions of other
applicable federal and state law. Any of those plans which is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Internal Revenue
Code of 1986, however, is subject to the prohibited transaction rules in Section
503 of that Code.
ERISA imposes general fiduciary requirements on a fiduciary that is
investing the assets of an ERISA Plan, including--
o investment prudence and diversification, and
o compliance with the investing ERISA Plan's governing the
documents.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code of
1986 also prohibit a broad range of transactions involving the assets of an
ERISA Plan and a Party in Interest with respect to that ERISA Plan, unless a
statutory or administrative exemption exists.
The types of transactions between ERISA Plans and Parties in Interest
that are prohibited include:
o sales, exchanges or leases of property;
o loans or other extensions of credit; and
o the furnishing of goods and services.
Parties in Interest that participate in a prohibited transaction may be
subject to an excise tax imposed under Section 4975 of the Internal Revenue Code
of 1986 or a penalty imposed under Section 502(i) of ERISA, unless a statutory
or administrative exemption is available. In addition, the persons involved in
the prohibited transaction may have to cancel the transaction and pay an amount
to the affected ERISA Plan for any losses realized by that ERISA Plan or profits
realized by those persons. In addition, individual retirement accounts involved
in the prohibited transaction may be disqualified which would result in adverse
tax consequences to the owner of the account.
Plan Asset Regulations
An ERISA Plan's investment in offered certificates may cause the
underlying mortgage assets and other assets of the related trust to be deemed
assets of that ERISA Plan. Section 2510.3-101 of the Plan Asset Regulations
provides that when an ERISA Plan acquires an equity interest in an entity, the
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assets that ERISA Plan or arrangement include both that equity interest and an
undivided interest in each of the underlying assets of the entity, unless an
exception applies. One exemption is that the equity participation in the entity
by benefit plan investors, which include both ERISA Plans and some employee
benefit plans not subject to ERISA, is not significant. The equity participation
by benefit plan investors will be significant on any date if 25% or more of the
value of any class of equity interests in the entity is held by benefit plan
investors. The percentage owned by benefit plan investors is determined by
excluding the investments of the following persons:
1. those with discretionary authority or control over the assets
of the entity,
2. those who provide investment advice directly or indirectly for
a fee with respect to the assets of the entity, and
3. those who are affiliates of the persons described in the
preceding clauses 1. and 2.
In the case of one of our trusts, investments by us, by the related
trustee, the related master servicer, the related special servicer or any other
party with discretionary authority over the related trust assets, or by the
affiliates of these persons, will be excluded.
A fiduciary of an investing ERISA Plan is any person who--
o has discretionary authority or control over the management or
disposition of the assets of that ERISA Plan, or
o provides investment advice with respect to the assets of that
ERISA Plan for a fee.
If the mortgage and other assets included in one of our trusts are
ERISA Plan assets, then any party exercising management or discretionary control
regarding those assets, such as the related trustee, master servicer or special
servicer, or affiliates of any of these parties, may be--
o deemed to be a fiduciary with respect to the investing ERISA
Plan, and
o subject to the fiduciary responsibility provisions of ERISA.
In addition, if the mortgage and other assets included in one of our trusts are
ERISA Plan assets, then the operation of that trust may involve prohibited
transactions under ERISA or the Internal Revenue Code of 1986. For example, if a
borrower with respect to a mortgage loan in that trust is a Party in Interest to
an investing ERISA Plan, then the purchase by that ERISA Plan of offered
certificates evidencing interests in that trust, could be a prohibited loan
between that ERISA Plan and the Party in Interest.
The Plan Asset Regulations provide that where an ERISA Plan purchases a
"guaranteed governmental mortgage pool certificate," the assets of that ERISA
Plan include the certificate but do not include any of the mortgages underlying
the certificate. The Plan Asset Regulations include in the definition of a
"guaranteed governmental mortgage pool certificate" some certificates issued
and/or guaranteed by Freddie Mac, Ginnie Mae and Fannie Mae, but do not include
certificates issued or guaranteed by Farmer Mac. Accordingly, even if these
types of mortgaged-backed securities, other than the Farmer Mac certificates,
were deemed to be assets of an ERISA Plan, the underlying mortgages would not be
treated as assets of that ERISA Plan. Private label mortgage participations,
mortgage pass-through certificates, Farmer Mac certificates or other
mortgage-backed securities are not "guaranteed governmental mortgage pool
certificates" within the meaning of the Plan Asset Regulations.
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In addition, the acquisition or holding of offered certificates by or
on behalf of an ERISA Plan could give rise to a prohibited transaction if we or
the related trustee, master servicer or special servicer or any related
underwriter, sub-servicer, tax administrator, manager, borrower or obligor under
any credit enhancement mechanism, or one of their affiliates, is or becomes a
Party in Interest with respect to an investing ERISA Plan.
If you are the fiduciary of an ERISA Plan, you should consult your
counsel and review the ERISA discussion in the related prospectus supplement
before purchasing any offered certificates.
Prohibited Transaction Exemptions
If you are an ERISA Plan fiduciary, then, in connection with your
deciding whether to purchase any of the offered certificates on behalf of an
ERISA Plan, you should consider the availability of one of the following
prohibited transaction class exemptions issued by the U.S. Department of Labor:
o Prohibited Transaction Class Exemption 75-1, which exempts
particular transactions involving ERISA Plans and
broker-dealers, reporting dealers and banks;
o Prohibited Transaction Class Exemption 90-1, which exempts
particular transactions between insurance company separate
accounts and Parties in Interest;
o Prohibited Transaction Class Exemption 91-38, which exempts
particular transactions between bank collective investment
funds and Parties in Interest;
o Prohibited Transaction Class Exemption 84-14, which exempts
particular transactions effected on behalf of an ERISA Plan
by a "qualified professional asset manager;"
o Prohibited Transaction Class Exemption 95-60, which exempts
particular transactions between insurance company general
accounts and Parties in Interest; and
o Prohibited Transaction Class Exemption 96-23, which exempts
particular transactions effected on behalf of an ERISA Plan
by an "in-house asset manager."
We cannot provide any assurance that any of these class exemptions will
apply with respect to any particular investment by or on behalf of an ERISA Plan
in any class of offered certificates. Furthermore, even if any of them were
deemed to apply, that particular class exemption may not apply to all
transactions that could occur in connection with the investment. The prospectus
supplement with respect to the offered certificates of any series may contain
additional information regarding the availability of other exemptions, with
respect to those certificates.
Underwriter's Exemption
It is expected that ____________________________ will be the sole, lead
or co-lead underwriter in each underwritten offering of certificates made by
this prospectus. The U.S. Department of Labor issued ___________________________
to ___________________________________. Subject to the satisfaction of the
conditions specified in that exemption, ___________________, generally exempts
from the application of the prohibited transaction provisions of ERISA and the
Internal Revenue Code of 1986, various transactions relating to, among other
things--
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o the servicing and operation of some mortgage assets pools,
such as the types of mortgage asset pools that will be
included in our trusts, and
o the purchase, sale and holding of some certificates evidencing
interests in those pools that are underwritten by
_________________________ or any person affiliated with
___________________________, such as particular classes of the
offered certificates.
The related prospectus supplement will state whether __________ is or
may be available with respect to any offered certificates underwritten by
__________________.
Insurance Company General Accounts
The Small Business Job Protection Act of 1996 added a new Section
401(c) to ERISA, which provides relief from the fiduciary and prohibited
transaction provisions of ERISA and the Internal Revenue Code of 1986 for
transactions involving an insurance company general account. This exemption is
in addition to any exemption that may be available under prohibited transaction
class exemption 95-60 for the purchase and holding of offered certificates by an
insurance company general account.
Under Section 401(c) of ERISA, the U.S. Department of Labor issued a
final regulation on January 5, 2000, providing guidance for determining, in
cases where insurance policies supported by an insurer's general account are
issued to or for the benefit of an ERISA Plan on or before December 31, 1998,
which general account assets are ERISA Plan assets. That regulation generally
provides that, if the specified requirements are satisfied with respect to
insurance policies issued on or before December 31, 1998, the assets of an
insurance company general account will not be ERISA Plan assets.
Any assets of an insurance company general account which support
insurance policies issued to an ERISA Plan after December 31, 1998, or issued to
an ERISA Plan on or before December 31, 1998 for which the insurance company
does not comply with the requirements set forth in the final regulation under
Section 401(c) of ERISA, may be treated as ERISA Plan assets. In addition,
because Section 401(c) of ERISA and the regulation issued under Section 401(c)
of ERISA do not relate to insurance company separate accounts, separate account
assets are still treated as ERISA Plan assets, invested in the separate account.
If you are an insurance company are contemplating the investment of general
account assets in offered certificates, you should consult your legal counsel as
to the applicability of Section 401(c) of ERISA.
Consultation With Counsel
If you are a fiduciary for an ERISA Plan and you intend to
purchase offered certificates on behalf of or with assets of that ERISA Plan,
you should:
o consider your general fiduciary obligations under
ERISA, and
o consult with your legal counsel as to--
1. the potential applicability of ERISA and the
Internal Revenue Code of 1986 to that
investment, and
2. the availability of any prohibited
transaction exemption in connection with
that investment.
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Tax Exempt Investors
An ERISA Plan that is exempt from federal income taxation under Section
501 of the Internal Revenue Code of 1986 will be subject to federal income
taxation to the extent that its income is "unrelated business taxable income"
within the meaning of Section 512 of the Internal Revenue Code of 1986. All
excess inclusions of a REMIC allocated to a REMIC residual certificate held by a
tax-exempt ERISA Plan will be considered unrelated business taxable income and
will be subject to federal income tax.
See "Federal Income Tax Consequences--REMICs--Taxation of Owners of
REMIC Residual Certificates--Excess Inclusions" in this prospectus.
Legal Investment
If and to the extent specified in the related prospectus supplement,
the offered certificates of any series may constitute mortgage related
securities for purposes of the Secondary Mortgage Market Enhancement Act of
1984. Mortgage related securities are legal investments for entities--
o that are created or existing under the laws of the United
States or any state, including the District of Columbia and
Puerto Rico, and
o whose authorized investments are subject to state regulations,
to the same extent that, under applicable law, obligations issued by or
guaranteed as to principal and interest by the United States or any of its
agencies or instrumentalities are legal investments for those entities.
Prior to December 31, 1996, classes of offered certificates would be
mortgage related securities for purposes of SMMEA only if they:
o were rated in one of the two highest rating categories by at
least one nationally recognized statistical rating
organization; and
o evidenced interests in a trust consisting of loans directly
secured by a first lien on a single parcel of real estate
upon which is located a dwelling or mixed residential and
commercial structure, which loans had been originated by the
types of originators specified in SMMEA.
Further, under SMMEA as originally enacted, if a state enacted
legislation on or before October 3,1991 that specifically limited the legal
investment authority of any entities referred to in the preceding paragraph with
respect to mortgage related securities under that definition, offered
certificates would constitute legal investments for entities subject to the
legislation only to the extent provided in that legislation.
Effective December 31, 1996, the definition of "mortgage related
securities" was modified to include among the types of loans to which the
securities may relate, loans secured by "one or more parcels of real estate upon
which is located one or more commercial structures." In addition, the related
legislative history states that this expanded definition includes multifamily
loans secured by more than
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one parcel of real estate upon which is located more than one structure. Until
September 23, 2001, any state may enact legislation limiting the extent to which
mortgage related securities under this expanded definition would constitute
legal investments under that state's laws.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows:
o federal savings and loan associations and federal savings
banks may invest in, sell or otherwise deal with mortgage
related securities without limitation as to the percentage of
their assets represented by those securities; and
o federal credit unions may invest in mortgage related
securities and national banks may purchase mortgage related
securities for their own account without regard to the
limitations generally applicable to investment securities
prescribed in 12 U.S.C. 24 (Seventh),
subject in each case to the regulations that the applicable federal regulatory
authority may prescribe.
Effective December 31, 1996, the OCC amended 12 C.F.R. Part 1 to
authorize national banks to purchase and sell for their own account, without
limitation as to a percentage of the bank's capital and surplus, but subject to
compliance with general standards concerning "safety and soundness" and
retention of credit information in 12 C.F.R. ss. 1.5, some Type IV securities,
which are defined in 12 C.F.R. ss. 1.2(1) to include some commercial
mortgage-related securities and residential mortgage-related securities. As
defined, "commercial mortgage-related security" and "residential
mortgage-related security" mean, in relevant part, a mortgage related security
within the meaning of SMMEA, provided that, in the case of a commercial
mortgage-related security, it "represents ownership of a promissory note or
certificate of interest or participation that is directly secured by a first
lien on one or more parcels of real estate upon which one or more commercial
structures are located and that is fully secured by interests in a pool of loans
to numerous obligors." In the absence of any rule or administrative
interpretation by the OCC defining the term "numerous obligors," we make no
representation as to whether any class of offered certificates will qualify as
commercial mortgage-related securities, and thus as Type IV securities, for
investment by national banks.
The NCUA has adopted rules, codified at 12 C.F.R. Part 703, which
permit federal credit unions to invest in mortgage related securities under
limited circumstances, other than stripped mortgage related securities, residual
interests in mortgage related securities and commercial mortgage related
securities, unless the credit union has obtained written approval from the NCUA
to participate in the investment pilot program described in 12 C.F.R. ss.
703.140.
The OTS has issued Thrift Bulletin 13a (December 1, 1998), "Management
of Interest Rate Risk, Investment Securities, and Derivatives Activities," which
thrift institutions subject to the jurisdiction of the OTS should consider
before investing in any of the offered certificates.
All depository institutions considering an investment in the offered
certificates should review the "Supervisory Policy Statement on Investment
Securities and End-User Derivatives Activities" of the Federal Financial
Institutions Examination Council, which has been adopted by the Board of
Governors of the Federal Reserve System, the FDIC, the OCC and the OTS effective
May 26, 1998, and by the NCUA effective October 1, 1998. That statement sets
forth general guidelines which depository institutions must follow in managing
risks, including market, credit, liquidity, operational (transaction),
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and legal risks, applicable to all securities, including mortgage pass-through
securities and mortgage-derivative products used for investment purposes.
There may be other restrictions on your ability either to purchase one
or more classes of offered certificates of any series or to purchase offered
certificates representing more than a specified percentage of your assets. We
make no representations as to the proper characterization of any class of
offered certificates for legal investment or other purposes. Also, we make no
representations as to the ability of particular investors to purchase any class
of offered certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of offered
certificates. Accordingly, if your investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities, you should consult with your legal advisor in
determining whether and to what extent--
o the offered certificates of any class and series constitute
legal investments or are subject to investment, capital or
other restrictions; and
o if applicable, SMMEA has been overridden in your State.
Use of Proceeds
Unless otherwise specified in the related prospectus supplement, the
net proceeds to be received from the sale of the offered certificates of any
series will be applied by us to the purchase of assets for the related trust or
will be used by us to cover expenses related to that purchase and the issuance
of those certificates. We expect to sell the offered certificates from time to
time, but the timing and amount of offerings of those certificates will depend
on a number of factors, including the volume of mortgage assets acquired by us,
prevailing interest rates, availability of funds and general market conditions.
Method of Distribution
The certificates offered by this prospectus and the related prospectus
supplements will be offered in series through one or more of the methods
described in the next paragraph. The prospectus supplement prepared for the
offered certificates of each series will describe the method of offering being
utilized for those certificates and will state the net proceeds to us from the
sale of those certificates.
We intend that offered certificates will be offered through the
following methods from time to time. We further intend that offerings may be
made concurrently through more than one of these methods or that an offering of
the offered certificates of a particular series may be made through a
combination of two or more of these methods. The methods are as follows:
1. by negotiated firm commitment or best efforts underwriting and
public offering by one or more underwriters specified in the
related prospectus supplement;
2. by placements by us with institutional investors through
dealers; and
3. by direct placements by us with institutional investors.
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In addition, if specified in the related prospectus supplement, the
offered certificates of a series may be offered in whole or in part to the
seller of the mortgage assets that would back those certificates. Furthermore,
the related trust assets for any series of offered certificates may include
other securities, the offering of which was registered under the registration
statement of which this prospectus is a part.
If underwriters are used in a sale of any offered certificates, other
than in connection with an underwriting on a best efforts basis, the offered
certificates will be acquired by the underwriters for their own account. These
certificates may be resold from time to time in one or more transactions,
including negotiated transactions, at fixed public offering prices or at varying
prices to be determined at the time of sale or at the time of commitment
therefor. The managing underwriter or underwriters with respect to the offer and
sale of offered certificates of a particular series will be described on the
cover of the prospectus supplement relating to the series and the members of the
underwriting syndicate, if any, will be named in the relevant prospectus
supplement.
Underwriters may receive compensation from us or from purchasers of the
offered certificates in the form of discounts, concessions or commissions.
Underwriters and dealers participating in the payment of the offered
certificates may be deemed to be underwriters in connection with those
certificates. In addition, any discounts or commissions received by them from us
and any profit on the resale of those offered certificates by them may be deemed
to be underwriting discounts and commissions under the Securities Act of 1933,
as amended.
It is anticipated that the underwriting agreement pertaining to the
sale of the offered certificates of any series will provide that--
o the obligations of the underwriters will be subject to various
conditions precedent,
o the underwriters will be obligated to purchase all the
certificates if any are purchased, other than in connection
with an underwriting on a best efforts basis, and
o in limited circumstances, we will indemnify the several
underwriters and the underwriters will indemnify us against
civil liabilities relating to disclosure in our registration
statement, this prospectus or any of the related prospectus
supplements, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to
be made with respect to any liabilities.
The prospectus supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of the
offering and any agreements to be entered into between us and purchasers of
offered certificates of that series.
We anticipate that the offered certificates will be sold primarily to
institutional investors. Purchasers of offered certificates, including dealers,
may, depending on the facts and circumstances of the purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended, in
connection with reoffers and sales by them of offered certificates. Holders of
offered certificates should consult with their legal advisors in this regard
prior to any reoffer or sale.
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Legal Matters
Unless otherwise specified in the related prospectus supplement,
particular legal matters in connection with the certificates of each series,
including some federal income tax consequences, will be passed upon for us by
Sidley & Austin.
Financial Information
A new trust will be formed with respect to each series of offered
certificates. None of those trusts will engage in any business activities or
have any assets or obligations prior to the issuance of the related series of
offered certificates. Accordingly, no financial statements with respect to any
trust will be included in this prospectus or in the related prospectus
supplement. We have determined that our financial statements will not be
material to the offering of any offered certificates.
Rating
It is a condition to the issuance of any class of offered certificates
that, at the time of issuance, at least one nationally recognized statistical
rating organization has rated those certificates in one of its generic rating
categories which signifies investment grade. Typically, the four highest rating
categories, within which there may be sub-categories or gradations indicating
relative standing, signify investment grade.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by the holders of all payments of interest and/or principal to which
they are entitled. These ratings address the structural, legal and
issuer-related aspects associated with the certificates, the nature of the
underlying mortgage assets and the credit quality of any third-party credit
enhancer. The rating(s) on a class of offered certificates will not represent
any assessment of--
o whether the price paid for those certificates is fair;
o whether those certificates are a suitable investment for any
particular investor;
o the tax attributes of those certificates or of the related
trust;
o the yield to maturity or, if they have principal balances, the
average life of those certificates;
o the likelihood or frequency of prepayments of principal on the
underlying mortgage loans;
o the degree to which the amount or frequency of prepayments on
the underlying mortgage loans might differ from those
originally anticipated;
o whether or to what extent the interest payable on those
certificates may be reduced in connection with interest
shortfalls resulting from the timing of voluntary prepayments;
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o the likelihood that any amounts other than interest at the
related mortgage interest rates and principal will be received
with respect to the underlying mortgage loans; or
o if those certificates provide solely or primarily for payments
of interest, whether the holders, despite receiving all
payments of interest to which they are entitled, would
ultimately recover their initial investments in those
certificates.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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Glossary
The following capitalized terms will have the respective meanings
assigned to them in this "Glossary" section whenever they are used in this
prospectus.
"ADA" means the Americans with Disabilities Act of 1990, as amended.
"CERCLA" means the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Committee Report" means the Conference Committee Report accompanying
the Tax Reform Act of 1986.
"CPR" means an assumed constant rate of prepayment each month, which is
expressed on a per annum basis, relative to the then outstanding principal
balance of a pool of mortgage loans for the life of those loans.
"Disqualified Organization" means:
o the United States,
o any State or political subdivision of the United States,
o any foreign government,
o any international organization,
o any agency or instrumentality of the foregoing, except for
instrumentalities described in Section 168(h)(2)(D) of the
Internal Revenue Code or the Freddie Mac,
o any organization, other than a cooperative described in
Section 521 of the Internal Revenue Code, that is exempt from
federal income tax, except if it is subject to the tax imposed
by Section 511 of the Internal Revenue Code, or
o any organization described in Section 1381(a)(2)(C) of the
Internal Revenue Code.
"ECS" means Euroclear Clearance System, S.C., a Belgian cooperative
corporation.
"Electing Large Partnership" means any partnership having more than 100
members during the preceding tax year which elects to apply simplified reporting
provisions under the Internal Revenue Code of 1986, except for some service
partnerships and commodity pools.
"ERISA Plan" means any employee benefit plan, or other retirement plan,
arrangement or account, that is subject to the fiduciary responsibility
provisions of the Employee Retirement Income Security Act of 1974, as amended,
and Section 4975 of the Internal Revenue Code of 1986.
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"Euroclear Operator" means Morgan Guaranty Trust Company of New York,
Brussels, Belgium office, as operator of the Euroclear System.
"Euroclear Terms and Conditions" means the Terms and Conditions
Governing Use of Euroclear and the related Operating Procedures of the Euroclear
System and, to the extent that it applies to the operation of the Euroclear
System, Belgian law.
"Fannie Mae" means the Federal National Mortgage Association.
"Farmer Mac" means the Federal Agricultural Mortgage Corporation.
"FASIT" means a financial asset securitization trust, within the
meaning of, and formed in accordance with, the Small Business Job Protection Act
of 1996 and Sections 860I through 860L of the Internal Revenue Code of 1986.
"FDIC" means the Federal Deposit Insurance Corporation.
"Financial Intermediary" means a brokerage firm, bank, thrift
institution or other financial intermediary that maintains an account of a
beneficial owner of securities.
"Freddie Mac" means the Federal Home Loan Mortgage Association.
"Ginnie Mae" means the Government National Mortgage Association.
"Governing Document" means the pooling and servicing agreement or other
similar agreement or collection of agreements, which governs the issuance of a
series of offered certificates.
"IRS" means the Internal Revenue Service.
"Lender Liability Act" means the Asset Conservation Lender Liability
and Deposit Insurance Act of 1996, as amended.
"Net Income From Foreclosure Property" means income from foreclosure
property other than qualifying rents and other qualifying income for a REIT.
"NCUA" means the National Credit Union Administration.
"OCC" means the Office of the Comptroller of the Currency.
"OTS" means the Office of Thrift Supervision.
"Party in Interest" means any person that is a "party in interest"
within the meaning of ERISA or a "disqualified person" within the meaning of the
Internal Revenue Code of 1986.
"Pass-Through Entity" means any:
o regulated investment company,
o real estate investment trust,
o trust,
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o partnership, or
o other entities described in Section 860E(e)(6) of the Internal
Revenue Code.
"Plan Asset Regulations" means the regulations of the U.S. Department
of Labor promulgated under the Employee Retirement Income Security Act of 1974,
as amended.
"REIT" means a real estate investment trust within the meaning of
Section 856(a) of the Internal Revenue Code of 1986.
"Relief Act" means the Soldiers' and Sailors' Relief Act of 1940, as
amended.
"REMIC" means a real estate mortgage investment conduit, within the
meaning of, and formed in accordance with, the Tax Reform Act of 1986 and
Sections 860A through 860G of the Internal Revenue Code of 1986.
"SEC" means the Securities and Exchange Commission.
"SPA" means standard prepayment assumption.
"UCC" means, for any jurisdiction, the Uniform Commercial Code as in
effect in that jurisdiction.
"U.S. Person" means:
o a citizen or resident of the United States;
o a corporation, partnership or other entity created or
organized in, or under the laws of, the United States or any
political subdivision of the United States;
o an estate whose income from sources without the United States
is includible in gross income for United States federal income
tax purposes regardless of its connection with the conduct of
a trade or business within the United States; or
o a trust as to which--
1. a court in the United States is able to exercise
primary supervision over the administration of the
trust, and
2. one or more United States persons have the authority
to control all substantial decisions of the trust.
In addition, to the extent provided in the Treasury Regulations, a
trust will be a U.S. Person if it was in existence on August 20, 1996 and it
elected to be treated as a U.S. Person.
<PAGE>
The attached diskette contains one spreadsheet file that can be put on a
user-specified hard drive or network drive. This spreadsheet file is
"___________________". The spreadsheet file "__________________" is a Microsoft
Excel(1), Version 5.0 spreadsheet. The file provides, in electronic format, some
of the statistical information that appears under the caption "Description of
the Mortgage Pool" in, and on Annexes A-1 and A-2 to, this prospectus
supplement. Defined terms used, but not otherwise defined, in the spreadsheet
file will have the respective meanings assigned to them in this prospectus
supplement. All the information contained in the spreadsheet file is subject to
the same limitations and qualifications contained in this prospectus supplement.
Prospective investors are strongly urged to read this prospectus supplement and
accompanying prospectus in its entirety prior to accessing the spreadsheet file.
----------------
(1) Microsoft Excel is a registered trademark of Microsoft Corporation.
<PAGE>
===============================================================
Prospectus Supplement
Important Notice About the Information Contained in
this Prospectus Supplement, the Accompanying
Prospectus and the Related Registration
Statement............................................S-2
Summary of Prospectus Supplement..........................S-4
Risk Factors.............................................S-25
Capitalized Terms Used in this Prospectus Supplement.....S-35
Forward-Looking Statements...............................S-36
Description of the Mortgage Pool.........................S-36
Servicing of the Underlying Mortgage Loans...............S-57
Description of the Offered Certificates..................S-85
Yield and Maturity Considerations.......................S-106
Use of Proceeds.........................................S-113
Federal Income Tax Consequences.........................S-113
ERISA Considerations....................................S-117
Legal Investment........................................S-122
Method of Distribution..................................S-123
Legal Matters...........................................S-124
Ratings.................................................S-124
Glossary................................................S-127
ANNEX A-1--Certain Characteristics of the
Underlying Mortgage Loans............................A-1-1
ANNEX A-2--Mortgage Pool Information....................A-2-1
ANNEX B--Form of Trustee Report...........................B-1
ANNEX C--Decrement Tables.................................C-1
ANNEX D--Price/Yield Tables...............................D-1
ANNEX E--Summary Term Sheet...............................E-1
Prospectus
Important Notice About the Information Presented in
this Prospectus..........................................3
Available Information; Incorporation by Reference...........3
Summary of Prospectus.......................................4
Risk Factors...............................................13
Capitalized Terms Used in this Prospectus..................33
Description of the Trust Assets............................33
Yield and Maturity Considerations..........................57
Greenwich Capital Commercial Funding Corp..................63
Description of the Certificates............................64
Description of the Governing Documents.....................74
Description of Credit Support..............................84
Legal Aspects of Mortgage Loans............................87
Federal Income Tax Consequences...........................100
State and Other Tax Consequences..........................149
ERISA Considerations......................................149
Legal Investment..........................................154
Use of Proceeds...........................................156
Method of Distribution....................................156
Legal Matters.............................................158
Financial Information.....................................158
Rating....................................................158
Glossary..................................................160
Until _______________, all dealers that effect transactions
in the offered certificates, whether or not participating in
this offering, may be required to deliver this prospectus
supplement and the accompanying prospectus. This delivery
requirement is in addition to the obligation of dealers to
deliver this prospectus supplement and the accompanying
prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
============================================================
============================================================
$----------
(Approximate)
Greenwich Capital Commercial
Mortgage Trust ____
(Depositor)
Class A-1, Class A-2, Class A-3,
Class A-4, Class A-5,
Class B-1, Class B-2, and Class S
Series _____ Commercial Mortgage Pass-
Through Certificates
PROSPECTUS SUPPLEMENT
GREENWICH CAPITAL
============================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3)
The expenses expected to be incurred in connection with the
issuance and distribution of the securities being registered, other than
underwriting compensation, are as set forth below.
Filing Fee for Registration Statement $ 264,000.00
Legal Fees and Expenses 900,000.00*
Accounting Fees and Expenses 350,000.00*
Trustee's Fees and Expenses
(including counsel fees) 100,000.00*
Blue Sky Fees and Expenses 25,000.00*
Printing and Engraving Fees 350,000.00*
Rating Agency Fees 5,000,000.00*
Miscellaneous 350,000.00*
Total $7,339,000.00
-------------
* Based on four offerings.
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3)
The Pooling Agreements will provide that no director, officer,
employee or agent of the Registrant is liable to the Trust Fund or the
Certificateholders, except for such person's own willful misfeasance, bad faith
or gross negligence in the performance of duties or reckless disregard of
obligations and duties. The Pooling Agreements will further provide that, with
the exceptions stated above, a director, officer, employee or agent of the
Registrant is entitled to be indemnified against any loss, liability or expense
incurred in connection with legal actions relating to such Pooling Agreements
and related Certificates other than such expenses related to particular Mortgage
Assets.
Any purchase agreement pursuant to which the Registrant
acquires Mortgage Assets for inclusion in a Trust Fund may provide under certain
circumstances that each director of the Registrant, each officer of the
Registrant that signed this Registration Statement or any amendment hereof, and
certain controlling persons of the Registrant, are entitled to be indemnified by
the seller of such Mortgage Assets or an affiliate against certain liabilities,
including liabilities under the Securities Act of 1933, relating to such
Mortgage Assets.
3
<PAGE>
Any underwriters who execute an Underwriting Agreement in the
form filed as Exhibit 1.1 to this Registration Statement will agree to indemnify
the Registrant's directors and its officers who signed this Registration
Statement against certain liabilities which might arise under the Securities Act
of 1933 from certain information furnished to the Registrant by or on behalf of
such indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law
of Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification may be made
in respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 further provides that to the extent a director,
officer, employee or agent of a corporation has been successful in the defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification or advancement of expenses
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and empowers the corporation to
purchase and maintain insurance on behalf of a director, officer, employee or
agent of the corporation against any liability asserted against him or incurred
by him in any such capacity or arising out of his status as such whether or not
the corporation would have the power to indemnify him against such liabilities
under Section 145.
The By-Laws of the Registrant provide, in effect, that to the
extent and under the circumstances permitted by subsections (a) and (b) of
Section 145 of the General Corporation Law of the State of Delaware, the
Registrant (i) shall indemnify and hold harmless each person who was or is a
party or is threatened to be made a party to any action, suit or proceeding
described in subsections (a) and (b) by reason of the fact that he is or was a
director or officer, or his testator or intestate is or was a director or
officer of the Registrant, against expenses, judgments, fines and amounts paid
in settlement, and (ii) shall indemnify and hold harmless each person who was or
is a party or is threatened to be made a party to any such action, suit or
proceeding if such person is or was serving at the request of the
4
<PAGE>
Registrant as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
EXHIBITS (ITEM 16 OF FORM S-3)
Exhibits--
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement.*
5.1 -- Opinion of Sidley & Austin with respect to legality.*
8.1 -- Opinion of Sidley & Austin with respect to certain
tax matters.*
23.1 -- Consent of Sidley & Austin (included as part of
Exhibit 5.1 and Exhibit 8.1).*
24.1 -- Power of Attorney.*
-------------------------
* Previously filed in connection with the Registration Statement
on Form S-3 filed on May 11, 2000.
UNDERTAKINGS (ITEM 17 OF FORM S-3)
A. UNDERTAKINGS PURSUANT TO RULE 415
The undersigned Registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement (i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, (ii) to reflect in the prospectus any facts
or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement, and (iii) to
include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that
are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
5
<PAGE>
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(c) To provide to the underwriter at the closing specified in
the underwriting agreements certificates in such denominations and
registered in such names as required by the underwriter to permit
prompt delivery to each purchaser.
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3, reasonably believes that the
security rating requirement contained in Transaction Requirement B.5. of Form
S-3 will be met by the time of the sale of the securities registered hereunder
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Greenwich, State of
Connecticut on the 24 day of July 2000.
GREENWICH CAPITAL COMMERCIAL FUNIDNG CORP.
By: /s/ Mark Jarrell
-------------------------------------
Name: Mark Jarrell
Title: Senior Vice President
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Mark Jarrell, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents, and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE DATE TITLE
--------- ---- -----
<S> <C> <C>
* July , 2000 Co-President and Director
--------------------------------------------- ---------------
Gregory Jacobs (principal executive officer)
* July , 2000 Co-President and Director
--------------------------------------------- --------------
Paul Nidenberg (principal executive officer)
* July , 2000 Chief Financial Officer
--------------------------------------------- --------------
John Ryan (principal executive officer)
* July , 2000 Treasurer
--------------------------------------------- --------------
P. Michael Florio (principal accounting officer)
* July , 2000 Senior Vice President,
--------------------------------------------- --------------
Paul Stevelman Director and Secretary
/s/ Mark Jarrell July , 2000 Senior Vice President
--------------------------------------------- --------------
Mark Jarrell and Director
* July , 2000 Director
--------------------------------------------- --------------
Robert Grier
</TABLE>
7
<PAGE>
-------------------------
* Mark Jarrell, by signing his name hereto, does sign this document on
behalf of each of the persons identified above for whom he is
attorney-in-fact pursuant to a power of attorney duly executed by such
person and previously filed with the Securities and Exchange
Commission.
/s/ Mark Jarrell
-------------------------
Mark Jarrell
Attorney-in-Fact
8
<PAGE>
EXHIBIT INDEX
Page Number
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Pooling and Servicing Agreement.*
5.1 -- Opinion of Sidley & Austin with respect to legality.*
8.1 -- Opinion of Sidley & Austin with respect to certain tax
matters.*
23.1 -- Consent of Sidley & Austin (included as part of Exhibit 5.1
and Exhibit 8.2).*
24.1 -- Power of Attorney*
-------------------------
* Previously filed in connection with the Registration Statement on Form S-3
filed on May 11, 2000.
9
